10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-16817

FIVE STAR QUALITY CARE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Maryland (State of Incorporation)	04-3516029 (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts (Address of Principal Executive Offices)	02458 (Zip Code)

Registrant's Telephone Number, Including Area Code: 617-796-8387

Securities to be registered pursuant to Section 12(b) of the Act:

Title Of Each Class	Name Of Each Exchange On Which Registered
Common Stock	NYSE Alternext US LLC

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer ý Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the voting shares of the registrant held by non-affiliates was $147.0 million based on the $4.73 closing price per common share on the NYSE Alternext US LLC on June 30, 2008. For purposes of this calculation, an aggregate of 722,832.6 shares of common stock, including 35,000 shares of common stock held by Senior Housing Properties Trust, are held by the directors and officers of the registrant and have been included in the number of shares of common stock held by affiliates.

         Number of the registrant's shares of common stock outstanding as of February 27, 2009: 32,205,604.

        In this Annual Report on Form 10-K, the terms the "Company", "Five Star", "FVE", "we", "us" or "our", include Five Star Quality Care, Inc., and its consolidated subsidiaries, unless the context indicates otherwise.

DOCUMENTS INCORPORATED BY REFERENCE

        Certain information required in Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated by reference to our to be filed definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 14, 2009, or our definitive Proxy Statement.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

        THIS ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS AND IMPLICATIONS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND", "PLAN", "ESTIMATE" OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS REPORT AND INCLUDE BUT ARE NOT LIMITED TO STATEMENTS REGARDING OUR INTENT, BELIEF OR EXPECTATION, OR THE INTENT, BELIEF OR EXPECTATION OF OUR DIRECTORS AND OFFICERS, WITH RESPECT TO:

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OUR ABILITY TO OPERATE OUR SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS PROFITABLY;

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OUR ABILITY TO INTEGRATE NEW ACQUISITIONS AND LEASE OR PURCHASE ADDITIONAL SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS;

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OUR ABILITY TO MEET OUR DEBT OBLIGATIONS;

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OUR ABILITY TO COMPLY AND TO REMAIN IN COMPLIANCE WITH APPLICABLE MEDICARE, MEDICAID AND OTHER RATE SETTING AND REGULATORY REQUIREMENTS;

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THE FINANCIAL CAPACITY OF UBS AG, OR UBS, TO MEET ITS OBLIGATIONS TO US AND TO PURCHASE OUR AUCTION RATE SECURITIES, OR ARS;

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OUR POTENTIAL SALE OF PROPERTIES THAT ARE CLASSIFIED AS HELD FOR SALE ON OUR CONSOLIDATED BALANCE SHEET;

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OUR EXPECTATION THAT WE WILL BENEFIT FINANCIALLY BY PARTICIPATING IN THE INSURANCE COMPANY BEING FORMED AND LICENSED IN THE STATE OF INDIANA WITH REIT MANAGEMENT & RESEARCH LLC, OR RMR, AND COMPANIES TO WHICH RMR PROVIDES MANAGEMENT SERVICES; AND

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OTHER MATTERS.

THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

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THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR RESIDENTS AND OTHER CUSTOMERS;

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COMPETITION WITHIN THE SENIOR LIVING INDUSTRY AND OUR OTHER BUSINESSES;

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INCREASES IN INSURANCE AND TORT LIABILITY COSTS;

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CHANGES IN MEDICARE AND MEDICAID PAYMENTS WHICH COULD RESULT IN A REDUCTION OF RATES OR A FAILURE OF THESE RATES TO MATCH OUR COST INCREASES;

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POTENTIAL CONFLICTS OF INTEREST WITH OUR MANAGING DIRECTORS AND RMR AND ITS RELATED ENTITIES AND CLIENTS; AND

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CHANGES IN FEDERAL, STATE AND LOCAL REGULATIONS WHICH COULD AFFECT OUR SERVICES.

FOR EXAMPLE:

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IF THE AVAILABILITY OF DEBT CAPITAL REMAINS RESTRICTED OR BECOMES MORE RESTRICTED, WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE OR TO REFINANCE OR OBTAIN ADDITIONAL FINANCING ON TERMS WHICH ARE AS FAVORABLE AS WE NOW HAVE;

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UBS HAS RECENTLY REPORTED SIGNIFICANT LOSSES AND MAY BE UNABLE TO PURCHASE OUR ARS AS A RESULT OF ITS FINANCIAL CAPACITY AND OTHER CIRCUMSTANCES BEYOND OUR CONTROL;

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PARTICIPATION IN AN INSURANCE BUSINESS INVOLVES POTENTIAL FINANCIAL RISKS AND REWARDS TYPICAL OF ANY START UP BUSINESS VENTURE AS WELL AS OTHER FINANCIAL RISKS AND REWARDS SPECIFIC TO INSURANCE COMPANIES. AMONG THE RISKS THAT ARE SPECIFIC TO INSURANCE COMPANIES IS THE RISK THAT THE INSURANCE COMPANY MAY NOT BE ABLE TO ADEQUATELY FINANCE CLAIMS WHICH COULD LEAVE OUR COMPANY UNDERINSURED AND INCREASE ITS FUNDING EXPOSURE FOR CLAIMS THAT MIGHT OTHERWISE HAVE BEEN FUNDED IF INSURANCE WAS PROCURED WITH OTHER MORE ESTABLISHED INSURERS. ACCORDINGLY, OUR EXPECTED FINANCIAL BENEFITS FROM OUR INITIAL OR FUTURE INVESTMENTS IN AN INSURANCE COMPANY MAY BE DELAYED OR MAY NOT OCCUR AND THE INSURANCE COMPANY MAY REQUIRE MORE FUNDS THAN WE EXPECT;

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WE EXPECT TO OPERATE OUR REHABILITATION HOSPITALS AND PHARMACIES PROFITABLY. HOWEVER, WE HAVE HISTORICALLY EXPERIENCED LOSSES FROM THESE OPERATIONS AND WE MAY BE UNABLE TO OPERATE THESE BUSINESSES PROFITABLY; AND

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OUR RESIDENTS MAY BE UNABLE TO AFFORD OUR SERVICES WHICH COULD RESULT IN DECREASED OCCUPANCY AND REVENUES AT OUR SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS.

        OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARD LOOKING STATEMENTS ARE DESCRIBED MORE FULLY UNDER "ITEM 1A. RISK FACTORS."

        YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

        EXCEPT AS REQUIRED BY APPLICABLE LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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FIVE STAR QUALITY CARE, INC.

2008 ANNUAL REPORT ON FORM 10-K

Table of Contents

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
PART II
Item 5.	Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	32
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
Item 9B.	Other Information	57
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	60
Item 11.	Executive Compensation	60	*
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
Item 13.	Certain Relationships and Related Transactions, and Director Independence	60	*
Item 14.	Principal Accountant Fees and Services	61	*
PART IV
Item 15.	Exhibits and Financial Statement Schedules	61
	Signatures

*

Incorporated by reference to our to be filed Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 14, 2009, to be filed pursuant to Regulation 14A.

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PART I

Item 1.    Business

GENERAL

        We operate senior living communities, including independent living or congregate care communities, assisted living communities and skilled nursing facilities. As of December 31, 2008, we leased or owned and operated 210 senior living communities containing 22,264 living units, including 161 primarily independent and assisted living communities with 17,854 living units and 49 skilled nursing facilities with 4,410 units.

        Of our 161 primarily independent and assisted living communities, we:

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leased 134 communities containing 15,679 living units from Senior Housing Properties Trust, or Senior Housing, our former parent;

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leased four communities with 200 living units from Health Care Property Investors, or HCPI; and

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owned 23 communities with 1,975 living units.

        Of our 49 skilled nursing facilities, we:

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leased 47 facilities from Senior Housing with 4,139 units; and

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owned two facilities with 271 units.

        In the aggregate, our 210 senior living communities included 6,304 independent living apartments, 9,682 assisted living suites and 6,278 skilled nursing units. Included in the above counts are two assisted living communities containing 173 living units which have been reclassified to discontinued operations.

        We also own and operate institutional pharmacies and we operate two rehabilitation hospitals with 321 beds that we lease from Senior Housing. Our two rehabilitation hospitals provide inpatient services at the two hospitals and three satellite locations. In addition, we operate 15 outpatient clinics affiliated with these two hospitals.

        Our principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02458, and our telephone number is (617) 796-8387.

OUR HISTORY

Spin Off From Senior Housing

        We were created by Senior Housing in April 2000 to operate 54 skilled nursing facilities and two assisted living communities repossessed from former Senior Housing tenants. We were incorporated in Delaware in April 2000 and reincorporated in Maryland on September 17, 2001. On December 31, 2001, Senior Housing distributed substantially all of our outstanding shares to its shareholders and we became a separate, publicly owned company listed on the American Stock Exchange (now the NYSE Alternext US LLC).

Senior Living Acquisitions and Initiation of Long Term Leases

        We have grown our business through acquisitions, primarily through initiation of long term leases, of independent and assisted living communities where residents' private resources account for a large majority of revenues.

        In 2002, we commenced operations at 51 senior living communities, including 31 communities then operated by Marriott Senior Living Services, Inc. and subsequently operated by Sunrise Senior Living

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Services, Inc., or SLS, a wholly owned subsidiary of Sunrise Senior Living, Inc. We commenced operations at three senior living communities in 2003, 47 senior living communities in 2004, seven senior living communities in 2005, 11 senior living communities in 2006 and one senior living community in 2007.

        In 2008, we commenced operations at 47 senior living communities with a total of 4,179 living units. Thirty-six of these communities are assisted living communities (one of which offers some skilled nursing services and one of which offers some independent living services), nine are independent living communities and two are continuing care retirement communities which offer independent living, assisted living and skilled nursing services. Thirty-seven of these communities with a total of 3,273 living units are leased from Senior Housing. We acquired three assisted living communities from Senior Housing with 278 units located in Pennsylvania and New Jersey for a purchase price of $21.4 million. In addition, we purchased six assisted living communities and one independent living community from an unrelated party for $44.0 million. We also purchased land for future development adjacent to three of these communities for a total of $3.9 million.

Pharmacies

        Between 2003 and 2006, we acquired six institutional pharmacies and one mail order pharmacy located in Wisconsin, Nebraska, California, South Carolina and Virginia.

        In December 2007, we decided to sell or cease operating one institutional pharmacy located in California and our mail order pharmacy located in Nebraska. Accordingly, the operating results of these two businesses are now included in discontinued operations. We sold the institutional pharmacy located in California on January 15, 2009. We were unable to sell the mail order pharmacy on acceptable terms and we expect to discontinue all operations on or about March 31, 2009.

Rehabilitation Hospitals

        In October 2006, we began to operate two rehabilitation hospitals located in Braintree and Woburn, Massachusetts that provide extensive inpatient and outpatient health rehabilitation services. These hospitals are leased from Senior Housing through June 30, 2026.

Termination of SLS Management Agreements

        During 2005 and 2006, we terminated management agreements for all of the senior living communities that SLS managed for us and began to directly operate these communities for our own account. In connection with these terminations, we paid SLS termination fees totaling $216.1 million. We no longer pay any fees to SLS.

Discontinued Operations

        Between 2003 and 2006, we ceased operations at four skilled nursing facilities, which we previously leased from Senior Housing, and eight assisted living facilities, two of which we previously leased from Senior Housing. If and as these facilities were sold our rent payable to Senior Housing was reduced pursuant to formulas in our multi-facility leases with Senior Housing.

        During 2007, we agreed with Senior Housing that it should sell two assisted living communities in Pennsylvania, which we lease from Senior Housing. We and Senior Housing are in the process of selling these assisted living communities and, upon their sale, our annual rent payable to Senior Housing will decrease by approximately 9.5% of the net proceeds of the sale.

        As discussed above, in December 2007, we decided to sell one institutional pharmacy located in California and to close our mail order pharmacy located in Nebraska.

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Equity and Debt Financings

        In 2006, we issued 11,500,000 common shares in an underwritten public offering raising net proceeds of $114.1 million and we issued $126.5 million principal amount of Convertible Senior Notes due 2026, or the Notes. The Notes bear interest at 3.75% per annum, payable semi-annually, and will mature on October 15, 2026. We may prepay the Notes at anytime after October 20, 2011 and the Note holders may require that we purchase all or a portion of these Notes on each of October 15, 2013, 2016 and 2021. On January 20, 2009, we purchased and retired $46.5 million par value of our Notes for approximately $20.0 million plus accrued interest. We expect to report a $25.1 million gain on extinguishment of debt from this transaction in the first quarter of 2009.

OUR GROWTH STRATEGY

        We believe that the aging of the United States population will increase demand for independent living properties, assisted living communities, skilled nursing facilities, pharmacies and rehabilitation services. Our principal growth strategy is to profit from this increasing demand by operating properties that provide high quality services to seniors.

        We seek to improve the profitability of our existing operations by increasing revenues and improving margins. We attempt to increase revenues by increasing rates and utilization of our facilities and services. We attempt to improve margins by limiting increases in expenses and improving operating efficiencies.

        In addition to managing our existing operations, we intend to continue to grow our business through acquisitions, primarily through initiation of long term leases, of independent and assisted living communities where residents' private resources account for a large majority of revenues.

        Since we became a public company in late 2001, we have acquired, and continue to own or lease and operate, 158 primarily independent and assisted living communities that as of December 31, 2008 generated approximately 86.3% of their revenue from residents' private resources, rather than from Medicare or Medicaid. We prefer to acquire communities which have achieved or are close to achieving stabilized operations, although we occasionally purchase turn-around facilities where we believe we can make significant improvements in operations. We also seek to make acquisitions where we can realize cost efficiencies by adding communities to existing regional operations.

        In October 2006, we began to operate two rehabilitation hospitals located in Braintree and Woburn, Massachusetts. These hospitals offer extensive inpatient and outpatient services. We may seek to acquire additional rehabilitation hospitals or expand our rehabilitation business in our current markets.

        Although expansion of our free-standing skilled nursing facility business is not our primary growth strategy, we consider the inclusion of skilled nursing operations in continuing care retirement communities to be a worthwhile growth opportunity.

TYPES OF PROPERTIES

        Our present business plan contemplates the ownership, leasing and management of independent living apartments or congregate care communities, assisted living communities, skilled nursing facilities and rehabilitation hospitals. Some of our properties combine more than one type of service in a single building or campus. Our business plan also includes continued operations and growth of our pharmacy and outpatient clinic rehabilitation services businesses. We operate most of our pharmacies and several of our outpatient rehabilitation clinics from leased commercial spaces.

        Independent Living Apartments or Congregate Care Communities.    Independent living apartments or congregate care communities provide high levels of privacy to residents and require residents to be

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capable of relatively high degrees of independence. An independent living apartment usually bundles several services as part of a regular monthly charge. For example, the base charge may include one or two meals per day in a central dining room, weekly maid service or services of a social director. Additional services are generally available from staff employees on a fee for service basis. In some independent living communities, separate parts of the community are dedicated to assisted living or nursing services. As of December 31, 2008, our business included 6,304 independent living apartments in 51 communities.

        Assisted Living Communities.    Assisted living communities are typically comprised of one bedroom units which include private bathrooms and efficiency kitchens. Services bundled within one charge usually include three meals per day in a central dining room, daily housekeeping, laundry, medical reminders and 24 hour availability of assistance with the activities of daily living such as dressing and bathing. Professional nursing and healthcare services are usually available at the community as requested or at regularly scheduled times. As of December 31, 2008, our business included 9,682 assisted living suites in 144 communities.

        Skilled Nursing Facilities.    Skilled nursing facilities, or SNFs, generally provide extensive nursing and healthcare services similar to those available in hospitals, without the high costs associated with operating theaters, emergency rooms or intensive care units. A typical purpose built SNF generally includes one or two beds per room with a separate bathroom in each room and shared dining facilities. SNFs are staffed by licensed nursing professionals 24 hours per day. As of December 31, 2008, our business included 6,278 skilled nursing units in 78 communities.

        Rehabilitation Hospitals.    Rehabilitation hospitals, also known as inpatient rehabilitation facilities, or IRFs, provide intensive physical therapy, occupational therapy and speech language pathology services beyond the capabilities customarily available in SNFs. Patients in IRFs generally receive a minimum of three hours of rehabilitation services daily. IRFs also provide onsite pharmacy, radiology, laboratory, telemetry, hemodialysis and orthotics/prosthetics services. Outpatient satellite clinics are often included as part of the services offered by IRFs. As of December 31, 2008, our two rehabilitation hospitals had 321 beds available for inpatient services and provided services at three satellite locations. In addition, these two hospitals operate 15 affiliated outpatient clinics where patients discharged from hospitals can continue their therapy programs and receive amputee, brain injury, neurorehabilitation, cardio-pulmonary, orthopedic, spinal cord injury and stroke rehabilitation services.

        Pharmacies.    Institutional pharmacies provide large quantities of drugs at locations where patients with recurring pharmacy requirements are concentrated. Our institutional pharmacies included in continuing operations are located in six leased commercial spaces and one owned commercial space containing a total of approximately 90,709 square feet plus parking areas for our employees and delivery vehicles.

OPERATING STRUCTURE

        We have three divisional offices which are located throughout the country. Each divisional office is responsible for multiple regions and is headed by a divisional vice president with extensive experience in the senior living industry. We have several regional offices within each division. Each regional office is responsible for multiple communities and is headed by a regional director of operations with extensive experience in the senior living industry. Each regional office is typically supported by a clinical or wellness director, a rehabilitation services director, a regional accounts manager, a human resources specialist and a sales and marketing specialist. Regional staffs are responsible for all our senior living community operations within the region, including:

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resident services;

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Medicare and Medicaid billing;

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marketing and sales;

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hiring of community personnel;

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compliance with applicable legal and regulatory requirements; and

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supporting our development and acquisition plans within their region.

        In addition, a fourth divisional vice president with extensive experience in the pharmacy and rehabilitation industries oversees our pharmacies and IRF businesses from our corporate office.

        Our home office staff, located in Massachusetts, performs the following tasks:

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the establishment of company wide policies and procedures relating to resident care;

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human resources policies and procedures;

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information technology;

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private pay billing;

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licensing and certification maintenance;

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legal services;

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central purchasing;

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budgeting and supervision of maintenance and capital expenditures;

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implementation of our growth strategy; and

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accounting and finance functions, including operations, budgeting, certain accounts receivable and collections functions, accounts payable, payroll and financial reporting.

        As described in this Annual Report on Form 10-K, we have a shared services agreement with RMR pursuant to which RMR provides certain management and administrative services including internal audit, investor relations, tax and information technology services.

STAFFING

        Independent and Assisted Living Community Staffing.    Each of the independent and assisted living communities we operate has an executive director responsible for the day to day operations of the community, including quality of care, resident services, sales and marketing, financial performance and staff supervision. The executive director is supported by department heads, who oversee the care and service of the residents, a wellness director, who is responsible for coordinating the services necessary to meet the health care needs of our residents and a marketing director, who is responsible for selling our services. Other important staff includes the dining services coordinator, the activities coordinator and the property maintenance coordinator.

        Skilled Nursing Facility Staffing.    Each of our SNFs is managed by a state licensed administrator who is supported by other professional personnel, including a director of nursing, an activities director, a marketing director, a social services director, a business office manager, and physical, occupational and speech therapists. Our directors of nursing are state licensed nurses who supervise our registered nurses, licensed practical nurses and nursing assistants. Staff size and composition vary depending on the size and occupancy of each nursing home and on the type of care provided by the nursing home. Our SNFs also contract with physicians who provide certain medical services.

        Rehabilitation Hospital Staffing.    Each IRF is operated under the leadership of a hospital based chief executive officer with the support of senior staff, including a medical director, chief financial officer, director of patient care services, director of rehabilitation and director of case management.

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The hospitals are also staffed with board certified physicians who primarily specialize in internal medicine, neurology or physiatry, as well as other licensed professionals, including rehabilitation nurses, physical therapists, occupational therapists, speech and language pathologists, nutrition counselors, neuropsycologists and pharmacists. Each outpatient clinic associated with our IRFs is managed by an outpatient director who is a registered occupational or physical therapist.

        Pharmacy Operations and Staffing.    Our institutional pharmacies provide prescriptions, medical supplies, equipment and services only to operators and residents of senior living communities. Each of our pharmacies is managed by an executive director, who is responsible for the day to day operations of each pharmacy, including billings, sales and marketing, financial performance, compliance with regulatory codes regarding the dispensing of controlled substances and staff supervision. Other pharmacy personnel include licensed dispensing pharmacists, a director of pharmacy consultation, a medical records director, a nurse consultant, pharmacy technicians and billing personnel.

EMPLOYEES

        As of February 27, 2009, we had approximately 21,062 employees, including 13,939 full time equivalents. Approximately 94 employees, including approximately 79 full time equivalents, are represented under one collective bargaining agreement, which has a remaining term of approximately one year. We have no employment agreements with our employees except for four contracts entered into with former owner operators of certain pharmacies which we acquired. We believe our relations with our union and non-union employees are good.

GOVERNMENT REGULATION AND REIMBURSEMENT

        Our operations must comply with numerous federal, state and local statutes and regulations. Also, the healthcare industry depends significantly upon federal and state programs for revenues and, as a result, is vulnerable to the budgetary policies of both the federal and state governments.

        Independent Living Communities.    Government benefits generally are not available for services at independent living communities and the resident charges in these communities are paid from private resources. However, a number of Federal Supplemental Security Income program benefits pay housing costs for elderly or disabled residents to live in these types of residential communities. The Social Security Act requires states to certify that they will establish and enforce standards for any category of group living arrangement in which a significant number of Supplemental Security Income residents reside or are likely to reside. Categories of living arrangements which may be subject to these state standards include independent living communities and assisted living communities. Because independent living communities usually offer common dining facilities, in many locations they are required to obtain licenses applicable to food service establishments in addition to complying with land use and life safety requirements. In many states, independent living communities are licensed by state or county health departments, social service agencies or offices on aging with jurisdiction over group residential communities for seniors. To the extent that independent living communities include units in which assisted living or nursing services are provided, these units are subject to applicable state licensing regulations, and if the communities receive Medicaid or Medicare funds, to certification standards. In some states, insurance or consumer protection agencies regulate independent living communities in which residents pay entrance fees or prepay for services.

        Assisted Living Communities.    According to the National Center for Assisted Living and the National Academy for State Health Policy, or the National Academy, a majority of states provide or are approved to provide Medicaid payments for services to some residents in assisted living communities under waivers granted by the Federal Centers for Medicare and Medicaid Services, or CMS, or under Medicaid state plans. Most other states are planning some Medicaid funding by preparing state plan amendments or requesting waivers. State Medicaid programs control costs for

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assisted living and other home and community-based services by various means such as restrictive financial and functional eligibility standards, enrollment limits and waiting lists. Because rates paid to assisted living community operators are generally lower than rates paid to nursing home operators, some states use Medicaid funding of assisted living as a means of lowering the cost of services for residents who may not need the higher intensity of health related services provided in SNFs. States that administer Medicaid programs for services in assisted living communities are responsible for monitoring the services at, and physical conditions of, the participating communities. Different states apply different standards in these matters, but generally we believe these monitoring processes are similar to the concerned states' inspection processes for SNFs.

        As a result of the large number of states using Medicaid to purchase services at assisted living communities and the growth of assisted living in recent years, a majority of states have adopted licensing standards applicable to assisted living communities. A majority of states have licensing statutes or standards specifically using the term "assisted living" and have requirements for communities servicing people with Alzheimer's disease or dementia. The majority of states have revised their licensing regulations recently or are reviewing their policies or revising their regulations. State regulatory models vary; there is no national consensus on a definition of assisted living, and no uniform approach by the states to regulating assisted living communities. Most state licensing standards apply to assisted living communities whether or not they accept Medicaid funding. Also, according to the National Academy, a few states require certificates of need from state health planning authorities before new assisted living communities may be developed. Based on our analysis of current economic and regulatory trends, we believe that assisted living communities that become dependent upon Medicaid or other public payments for a majority of their revenues may decline in value because Medicaid rates may fail to keep up with increasing costs. We also believe that assisted living communities located in states that adopt certificate of need requirements or otherwise restrict the development of new assisted living communities may increase in value because these limitations upon development may help ensure higher occupancy and higher non-governmental rates.

        The United States Department of Health and Human Services, the Government Accountability Office, or GAO, and the Senate Special Committee on Aging have recently studied and reported on the development of assisted living and its role in the continuum of long term care and as an alternative to SNFs. In 2003, the GAO recommended that CMS strengthen its oversight of state quality assurance in Medicaid home and community-based services waiver programs. Since then, CMS has commenced a series of actions to increase its oversight of state quality assurance programs for assisted living facilities and has provided guidance and technical assistance to the states to improve their ability to monitor and improve the quality of services paid for through Medicaid waiver programs. Also in 2003, a working group of assisted living providers, consumers and regulatory organizations made recommendations to the Senate Special Committee on Aging on a range of subjects, including staffing, funding and regulation of assisted living. We cannot predict whether these activities and reports will result in governmental policy changes or new legislation, or what impact any changes may have. Based upon our analysis of current economic and regulatory trends, we do not believe that the federal government is likely to have a material impact upon the current regulatory environment in which the assisted living industry operates unless it also undertakes expanded funding obligations. Although CMS is implementing provisions of the Deficit Reduction Act of 2005, or the DRA, enacted in February 2006, that encourage state Medicaid programs to expand their use of home and community based services as alternatives to institutional services, we do not believe a materially increased financial commitment from the federal government to fund assisted living is presently likely. However, we do anticipate that assisted living communities will increasingly be licensed and regulated by the various states, and that, in the absence of federal standards, the states' policies will continue to vary widely.

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        Skilled Nursing Facilities—Reimbursement.    About 62% of all SNF revenues in the United States in 2007 (the most recent date for which information is publicly available) came from publicly funded programs, including about 42% from Medicaid programs and 18% from the Medicare program. SNFs are among the most highly regulated businesses in the country. The federal and state governments regularly monitor the quality of care provided at SNFs. State health departments conduct surveys of resident care and inspect the physical condition of nursing home properties. These periodic inspections and occasional changes in life safety and physical plant requirements sometimes require nursing home operators to make significant capital improvements. These mandated capital improvements have in the past usually resulted in Medicare and Medicaid rate adjustments, albeit on the basis of amortization of expenditures over expected useful lives of the improvements. Under the Medicare prospective payment system, or the PPS, capital costs are part of the prospective rate and are not community specific. The PPS and other recent legislative and regulatory actions with respect to state Medicaid rates are limiting the reimbursement levels for some nursing home services. At the same time, federal and state enforcement and oversight of SNFs have been increasing, making licensing and certification of these communities more rigorous.

        The PPS was intended to reduce the rate of growth in Medicare payments for SNFs. Under the current Medicare payment system, SNFs receive a fixed payment for each day of care provided to residents who are Medicare beneficiaries. Each resident is assigned to a care group depending on that resident's medical characteristics and service needs. These care groups are known as Resource Utilization Groups, or RUGs. Per diem payment rates are established for each of these care groups. Medicare payments cover substantially all services provided to Medicare residents in SNFs, including ancillary services such as rehabilitation therapies. The PPS is intended to provide incentives to providers to furnish only necessary services and to deliver those services efficiently. According to the GAO, between fiscal year 1998 and fiscal year 1999, the first full year of the changed Medicare payment system phase in, the average Medicare payment per day declined by about 9%.

        From November 1999 to January 2006, Congress and CMS provided some periodic relief from the effect of the PPS, through temporary increases in SNF payment rates and temporary moratoria on some therapy limitations for skilled nursing residents covered under Medicare Part B. Effective January 1, 2006, CMS implemented changes to the payment categories it uses to set daily payment rates for Medicare beneficiaries in SNFs. CMS introduced nine new payment categories for medically complex patients, increasing the number of categories from 44 to 53, and made revisions to its payment rates for current RUG. Also effective January 1, 2006, these RUG changes caused the elimination of certain temporary additional payments for certain skilled nursing care and rehabilitation groups. The financial impact of these changes to the Medicare rates on our operations was to effectively eliminate an October 2005 Medicare 3% rate increase; but then in October 2006 and again in October 2007 and October 2008, the Medicare rates were increased by approximately 3%, under a rule adding an annual update to account for inflation in the costs of goods and services included in a SNF stay. CMS had proposed a recalibration of the payment categories for SNFs, which would have resulted in a net reduction of rates by approximately 0.3% in federal fiscal year 2009, but delayed the recalibration in order to continue to evaluate the data.

        Under the DRA, the federal government is slowing the growth of Medicare and Medicaid payments for nursing home services by several methods. Medicare bad debt reimbursement has been reduced from 100% to 70% for uncollected cost sharing payments from Medicare beneficiaries who are not eligible for Medicaid. Limits on Medicare payments were also implemented for outpatient therapies in 2006, with an exception process, under which beneficiaries could request an exemption from the cap and be granted the amount of services deemed medically necessary by Medicare. The exemption process has been extended under subsequent laws, and on July 15, 2008, as part of the Medicare Improvements for Patients and Providers Act of 2008, Congress enacted an 18-month extension of the Medicare outpatient therapy exception process through the end of 2009 under which Medicare may approve payments for medically necessary outpatient therapies which exceed the Medicare payment

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caps. This law may forestall a reduction in certain therapy revenues we have historically realized. In addition, the DRA increased the "look-back" period for prohibited asset transfers that disqualify individuals from Medicaid nursing home benefits from three to five years. The period of Medicaid ineligibility begins on the date of the prohibited transfer or the date an individual has entered the nursing home and would otherwise be eligible for Medicaid coverage, whichever occurs later, rather than on the date of the prohibited transfer, effectively extending the Medicaid penalty period and placing added burdens on SNFs to collect charges directly from residents and their transferees. The DRA includes a demonstration project that in 2007 awarded competitive grants to a majority of states to provide home and community based long term care services to qualified individuals relocated from SNFs, providing an increased federal medical assistance percentage for 12 months for each qualifying beneficiary, during a grant period of at least two years. The DRA also includes a post acute payment reform demonstration program that will compare and assess costs and outcomes of services at different long term care sites over three years. Effective January 1, 2007, states may include home and community based services as optional services under their Medicaid state plans, rather than only pursuant to waivers or demonstration projects, and such states may cap enrollment, maintain waiting lists and offer the services in only some regions of a state, as they may with waivers. These initiatives will likely decrease the demand for nursing home services and nursing home occupancy levels, which declined slightly from 2000 through 2007, may continue to decline.

        Skilled Nursing Facilities—Survey and Enforcement.    Twenty years ago, Congress enacted major reforms to federal and state regulatory systems for SNFs that participate in the Medicare and Medicaid programs, under the Omnibus Reconciliation Act of 1987. Since then, the GAO reports that, while much progress has been made, substantial problems remain in the effectiveness of federal and state regulatory activities. In July 1998, the GAO issued a report which found inadequate care in a significant portion of California SNFs. Since 1999, the U.S. Department of Health and Human Services, Office of Inspector General has issued several reports concerning quality of care in SNFs and the GAO has issued several reports, most recently in 2008, recommending that CMS and the states strengthen their compliance and enforcement practices, including federal oversight of state actions, to better ensure that SNFs provide adequate care and states act more consistently. The Senate Special Committee on Aging and other congressional committees have also held hearings on these issues, most recently in 2008. As a result, CMS has undertaken an initiative to increase the effectiveness of Medicare and Medicaid nursing home survey and enforcement activities. CMS is taking steps to focus more survey and enforcement efforts on SNFs with findings of substandard care or repeat violations of Medicare and Medicaid standards and to identify chain operated communities with patterns of noncompliance. CMS is increasing its oversight of state survey agencies and requiring state agencies to use enforcement sanctions and remedies more promptly when substandard care or repeat violations are identified, to investigate complaints more promptly, and to survey communities more consistently. In addition, CMS adopted regulations expanding federal and state authority to impose civil monetary penalties in instances of noncompliance. A small number of SNFs with a history of serious quality problems, designated by CMS as "special focus facilities," or SFFs, are inspected more frequently and subject to more stringent enforcement actions. Homes in the SFF initiative for six months or longer are now listed on the Medicare website at www.medicare.gov. The GAO has recommended several steps to make enforcement by CMS and the states more timely and effective, especially for SFFs. Medicare survey results, including fire safety reports and average nursing and nursing assistant staff hours per resident for each nursing home are posted on the Medicare website at www.medicare.gov. CMS issued a rule in August 2008 that requires older SNFs to install sprinkler systems within five years, by August 13, 2013. SNFs that do not have sprinklers or hard-wired smoke detectors are required to install battery powered smoke detectors in the interim. Currently all of our SNFs except one have sprinklers and we believe the one nursing home without sprinklers is in compliance with the current requirements because it has a combination of hard wired and battery operated smoke detectors. When deficiencies under state licensing and Medicare and Medicaid standards are identified, sanctions and remedies such as denials of payment for new Medicare and Medicaid admissions, civil monetary penalties, state

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oversight and loss of Medicare and Medicaid participation or licensure may be imposed on nursing home operators. Our communities incur sanctions and penalties from time to time. If we are unable to cure deficiencies which have been identified or that are identified in the future, or if appeals of proposed sanctions or penalties are not successful, additional sanctions or penalties may be imposed, and if imposed, may adversely affect our ability to meet our financial obligations and negatively affect our financial condition and results of operations. CMS has recently added a five-star quality rating system to the information concerning SNFs that it provides to consumers on its website. Ratings are from one to five stars, based on three factors that are separately rated health inspections from the last three years, the average number of hours of daily care provided to each resident by nursing staff, including nursing assistants, and selected physical and clinical measures related to quality of care.

        In 2000 and 2002, the Department of Health and Human Services and CMS issued reports linking nursing staffing levels with quality of care. CMS has indicated that it does not intend to impose minimum staffing levels or to increase Medicare or Medicaid rates to cover the costs of increased staffing at this time; however, CMS publishes the nurse and nursing assistant staffing level at each nursing home on the internet at www.medicare.gov to create market pressure to improve nursing home operations.

        Rehabilitation Hospital Regulation and Rate Setting.    Our two IRFs are subject to federal, state and local regulation that affects their business activities and determines the rates they receive for services. These IRFs are subject to periodic inspection by governmental and non-governmental agencies to ensure continued compliance with various licensure and accreditation standards. In addition, these facilities are certified by CMS to participate in the Medicare program and receive a significant portion of their revenues from that program.

        On May 7, 2004, CMS issued a rule establishing revised Medicare standards that IRFs are required to meet in order to participate as IRFs in the Medicare program, known as the "75% Rule." An IRF that failed to meet the requirements of the 75% Rule would be subject to reclassification as a different type of healthcare provider and the effect of such reclassification would be to lower Medicare payment rates. Under the Medicare, Medicaid and SCHIP Extension Act of 2007, adopted in December 2007, for cost reporting periods starting on or after July 1, 2007, the 75% requirement for IRFs was permanently rolled back to 60%, and selected secondary medical conditions are included to qualify patients under the 60% requirement. The rule now generally provides that, to be considered an IRF and receive reimbursement for services under the IRF prospective payment system, at least 60% of a facility's total inpatient population must require intensive rehabilitation services associated with treatment of at least one of 13 designated medical conditions. Under the 75% Rule, to maintain their revenue levels many rehabilitation hospitals have needed to reduce the number of non-qualifying patients treated and replace them with qualifying patients, establish other sources of revenues or both. Before the 2007 amendment, the 75% Rule was being phased in over a four year period that began on July 1, 2004. For cost reporting periods starting on and after July 1, 2006, 60% of a facility's inpatient population must have required intensive rehabilitation services for one of CMS' designated medical conditions. For cost reporting periods starting on and after July 1, 2007, the requirement was 65%, and for cost reporting periods starting on and after July 1, 2008, the requirement was 75%. As a result of the rollback amendment, the requirement is now 60% for these and future cost reporting periods. Congress has directed the Secretary of Health and Human Services to report to it by June 2009 on Medicare beneficiaries' access to medically necessary rehabilitation services, the potential effect of the 75% Rule and alternatives or refinements, and any variation in patient outcomes and costs across settings of care. We believe our hospitals have been and are operating in compliance with this rule and we are taking actions to assure continued compliance; however, we can provide no assurance that we will be able to continue to comply with this rule, or that CMS will not make a determination that we were non-compliant in a prior year. Also pursuant to the Medicare, Medicaid and SCHIP Extension Act of 2007, the annual inflation increase factor for Medicare payment rates for IRFs is set at zero percent for each of federal fiscal years 2008 and 2009, except for payment units occurring before

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April 1, 2008. Our Medicare inflation increase factor for federal fiscal year 2008 was set at approximately 3.5% effective October 1, 2007, and our rates were reduced by 3.2% effective as of April 1, 2008. On July 1, 2008 CMS issued a rule updating the Medicare IRF prospective rate formulas for the federal fiscal year ending September 30, 2009. The rule recalculates the weights assigned to patient case-mix groups that are used to calculate rates under the IRF prospective payment system, and re-sets the outlier threshold to maintain estimated outlier payments at 3% of total estimated IRF payments for fiscal year 2009. CMS has estimated that the changes contained in the rule will result in a decrease of 0.7% to total Medicare payments to IRFs for federal fiscal year 2009. Although the effects of the rate freeze and the recalibration are counterbalanced by the reduction of the prior law's 65% and 75% minimum percentage requirements to 60% under current law, these changes are affecting the profitability of our rehabilitation operations.

        Certificates of Need.    Most states limit the number of SNFs and hospitals by requiring developers to obtain certificates of need before new communities may be built and a few states also limit the number of assisted living facilities by requiring certificates of need. Also, states such as California and Texas that have eliminated certificate of need laws often have retained other means of limiting new development, such as the use of moratoria, licensing laws or limitations upon participation in the state Medicaid program. We believe that these governmental limitations may make existing SNFs and hospitals more valuable by limiting competition.

        Other Matters.    Federal and state efforts to target false claims, fraud and abuse and violations of anti-kickback, physician referral and privacy laws by Medicare and Medicaid providers and providers under other public and private programs have also increased with civil monetary penalties, repayment requirements and criminal sanctions for noncompliance. In March 2000, the U.S. Department of Health and Human Services Office of Inspector General, or OIG, issued compliance guidelines for SNFs to assist them in developing voluntary compliance programs to prevent fraud and abuse. The OIG issued supplemental guidance on September 30, 2008. The OIG issued compliance program guidance for hospitals in 1998 and supplemental guidance in 2005. CMS contractors are expanding the retroactive audits of Medicare claims submitted by IRFs, SNFs and other providers, and recouping alleged overpayments for services determined by auditors not to have been medically necessary or not to meet Medicare coverage criteria as billed. State Medicaid programs and other third party payors are conducting similar medical necessity and compliance audits. Under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, rules governing the privacy, use and disclosure of individually identified health information took effect in 2003, and compliance with security rules for electronic personal health information was required by April 20, 2005 with civil monetary penalties and criminal sanctions for noncompliance. Compliance with expanded HIPPA privacy and security requirements recently enacted by Congress will be required in February 2010, and compliance with updated standards for electronic healthcare transactions and pharmacy transactions will be required on January 1, 2012. Any adverse determination concerning any of our licenses or eligibility for Medicare or Medicaid reimbursement or any substantial penalties, repayments or sanctions, and the increasing costs of required compliance with applicable federal and state laws, could adversely affect our ability to meet our financial obligations and negatively affect our financial condition and results of operations.

        Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, effective January 1, 2006, Medicare beneficiaries may receive prescription drug benefits by enrolling in private health plans or managed care organizations, or if they remain in traditional Medicare, by enrolling in stand alone prescription drug plans. As a result of the implementation of the Medicare Part D drug program in 2006, the government's share of prescription drug expenditures has risen substantially from 28% in 2005 to 36% in 2007 (the most recent date for which this information is publicly available). Of the government funds spent for prescription drugs, Medicare's share was 7% in 2005 and 58% in 2007, while Medicaid's share was 68% in 2005 and 23% in 2007. As of January 2008, approximately 90% of Medicare beneficiaries had Medicare Part D drug coverage, according to the US Department of Health and Human Services. Due to Medicare's growing share of total prescription drug expenditures and

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increasing budget pressures on state and federal governments, we believe that government actions to control drug costs are likely to increase, reducing the profitability of providing pharmacy products and services.

        A number of legislative proposals that would affect major reforms of the healthcare system have been introduced in Congress and are being considered by some state governments, such as programs for national health insurance, the option of block grants for states rather than federal matching money for certain state Medicaid services, additional policies encouraging state Medicaid programs to use home and community based long term care services rather than SNFs, laws authorizing or directing Medicare to negotiate rate reductions for prescription drugs, additional Medicare and Medicaid enforcement procedures and federal and state cost containment measures, such as freezing Medicare or Medicaid nursing home and rehabilitation hospital payment rates at their current levels and reducing or eliminating annual Medicare or Medicaid inflation allowances or gradually reducing rates for SNFs and rehabilitation hospitals. The current recession and worsening economic conditions are causing budget shortfalls in most states, increasing the likelihood of Medicaid rate reductions, freezes or increases that are insufficient to offset increasing operating costs. Pursuant to the American Recovery and Reinvestment Act of 2009, adopted February 17, 2009, federal payments to states for Medicaid programs will be temporarily increased retroactively from October 1, 2008 through December 31, 2010, with greater increases for states with more unemployment. Payments to states for Medicaid expenditures on hospitals, SNFs and other specified providers will be conditioned on states paying those providers within 90 days. However, most states project continuing fiscal deficits. The magnitude of the potential Medicare and Medicaid rate reductions and the impact of the failure of these programs to increase rates to match increasing expenses, as well as the impact on us of potential Medicare and Medicaid policy changes proposed by members of Congress, cannot currently be estimated, but they may be material to our operations and may affect our future results of operations.

INSURANCE

        Litigation against senior living and healthcare companies has increased during the past few years. As a result, liability insurance costs have risen. Also, our insurance costs for workers compensation and employee healthcare have increased. To partially offset these insurance cost increases, we have taken a number of actions including the following:

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we have become fully self insured for all health related claims of covered employees;

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we have increased the deductible or retention amounts for which we are liable under our liability insurance;

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we have established offshore captive insurance companies which participate in our liability and worker compensation insurance programs. These programs may allow us to reduce our net insurance costs by allowing us to retain the earnings on our reserves, provided that our claims experience is as projected by various statutory and actuarial formulas;

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we have increased the amounts which some of our employees are required to pay for health insurance coverage and as co-payments for health services and pharmaceutical prescriptions and decreased the amount of certain healthcare benefits. In October 2008, we added a high deductible health insurance plan as an option for our employees;

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we have hired professional advisors to help us establish programs to reduce our insured workers compensation and professional and general liabilities, including a program to monitor and proactively settle liability claims and to reduce workplace injuries; and

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we have hired insurance and other professionals to help us establish appropriate reserves for our retained liabilities and captive insurance programs.

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        We self insure up to certain limits for workers compensation and professional liability. Claims in excess of these limits are insured with third party insurance providers up to contractual limits, over which we are self insured. Our current insurance arrangements are generally renewable in June 2009. We do not know if our insurance charges and self insurance reserve requirements will increase, and we cannot now predict the amount of any such increase, or to what extent, if at all, we may be able to offset any increase through use of higher deductibles, retention amounts, self insurance or other means in the future. In order to obtain more control over our insurance costs, we and other companies to which RMR provides management services have recently organized a new insurance company which may begin to underwrite certain of our insurance requirements. For more information about this insurance initiative see Item 9B of this Annual Report on Form 10-K.

COMPETITION

        The senior living services, pharmacy and the rehabilitation hospital businesses are highly competitive. We compete with service providers offering alternate types of services, such as home healthcare services, as well as other companies providing facility based services and rehabilitation services. We may expand our business with Senior Housing and our relationships with Senior Housing and RMR may provide us with competitive advantages. However, Senior Housing is not obligated to provide us with opportunities to lease additional properties. We have large lease obligations and limited financeable assets. Many of our competitors have greater financial resources than we do. Some of our competitors are operated by not for profit entities which have endowment income and may not have the same financial pressures that we experience. For all of these reasons and others, we cannot provide any assurance that we will be able to compete successfully for business.

ENVIRONMENTAL MATTERS

        Under various federal, state and local laws, owners as well as tenants and operators of real estate may be required to investigate and clean up hazardous substances released or otherwise present at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean up costs incurred in connection with any such hazardous substances. Under our leases with Senior Housing, we have also agreed to indemnify Senior Housing for any such liabilities related to the properties we lease from Senior Housing. In addition, some environmental laws create a lien on a contaminated site in favor of the government for damages and costs it incurs in connection with the contamination, which lien may be senior in priority to our debt obligations or our leases. We have reviewed environmental surveys of all of our leased and owned communities. Based upon that review we do not believe that any of these properties are subject to any material environmental contamination. However, no assurances can be given that a prior owner, operator or occupant of our communities did not create a material environmental condition not known to us which might have been revealed by a more in depth study of the properties or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in the imposition of environmental liability upon us. The presence or discovery of any material environmental contaminants at our communities could have a material adverse impact on us.

INTERNET WEBSITES

        Our internet website address is www.fivestarqualitycare.com. Copies of our governance guidelines, code of business conduct and ethics and the charters of our audit, quality of care, compensation and nominating and governance committees are posted on our website and may be obtained free of charge by writing to our Secretary, Five Star Quality Care, Inc., 400 Centre Street, Newton, MA 02458 or at our website. We make available, free of charge, on our website, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or

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furnished to, the Securities and Exchange Commission. Any shareholder or other interested party who desires to communicate with our Independent Directors, individually or as a group, may do so by filling out a report on our website. Our board also provides a process for our security holders to send communications to the entire board. Information about the process for sending communications to our board can be found on our website. Our website address and website addresses of one or more unrelated third parties are included several times in this Annual Report on Form 10-K as textual references only and none of the information on any such websites is incorporated by reference into this Annual Report on Form 10-K.

Item 1A.    Risk Factors

        Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could suffer and the trading price of our debt or equity securities could decline. Investors and prospective investors should consider the following risks and the information contained under the heading "Warning Concerning Forward Looking Statements" before deciding whether to invest in our securities.

RISKS RELATED TO OUR BUSINESS

A small percentage decline in our revenues or increase in our expenses could have a material negative impact upon our operating results.

        For the year ended December 31, 2008, our revenues were $1.10 billion and our operating expenses were $1.09 billion. A small percentage decline in our revenues or increase in our expenses could have a material negative impact upon our operating results.

Our investments in securities have experienced significant losses and we may be unable to access the capital necessary to repay debts or to grow.

        We are currently funding our operations and growth strategy through a combination of cash generated from operations, cash on hand, expanded leases with Senior Housing and borrowings. Our business and growth strategies depend, in part, upon our ability to raise additional capital at reasonable cost to repay debts or fund new investments. This ability and cost, in turn, is subject to credit market volatility. We are currently experiencing a global liquidity crisis in the debt and equity capital markets which has had, and may continue to have, at least four consequences to us:

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First, a part of our cash balances has been historically invested in ARS. Historically we have had the option to liquidate these investments whenever the interest rate reset auctions close, usually every 35 days or less. Starting in February 2008, the market for our ARS failed and we have been unable to liquidate our holdings of approximately $74.8 million, par value, of our ARS investments. We have entered in a settlement agreement with UBS, an affiliate of the broker that sold us our ARS. Pursuant to this settlement agreement UBS is obligated to repurchase our ARS at 100% of par value upon our request between June 2010 and July 2012, however, we cannot guarantee that UBS will be able to meet its obligation. In connection with the settlement, UBS has provided us a non-recourse credit facility secured by our investment in these ARS. The principal amount available to us is up to 60% of the market value of the ARS from time to time. As of December 31, 2008 and February 27, 2009, we have $21.8 million and $37.6 million outstanding under this credit facility, respectively and $15.9 million and $2.1 million remained available to be drawn, respectively.

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Second, under applicable GAAP accounting rules we have been required to reduce the value of our ARS to their estimated market value. During 2008, we recorded mark to market losses on

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our ARS totaling approximately $12.0 million. Because of our settlement agreement with UBS, substantially all of these recorded losses were recaptured in the fourth quarter of 2008 through the value of our right to require UBS to repurchase our ARS beginning in 2010. However, if we determine that UBS may be unable to honor its obligations to repurchase our ARS, or if, in fact, UBS does not repurchase these ARS, we may record additional net losses to reflect the market value of our put right.

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Third, a significant amount of our insurance reserves have been historically invested in securities, including preferred securities of financial institutions. The market value of our securities investments has materially declined. During 2008, we recorded a loss of approximately $8.4 million to reflect the fact that we believe these market declines may be "other than temporary". If the capital markets continue to decline we may realize additional losses as a result of these investments.

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Fourth, our outstanding debt securities are not rated by any generally recognized rating agencies. If our debt obligations were rated, we do not believe they would achieve investment grade ratings. We believe that, during periods of tightened liquidity in debt capital markets, borrowings by unrated, or less than investment grade rated companies like us may be difficult to obtain and increasingly expensive. We do not expect the current market conditions to adversely affect our existing $40.0 million revolving credit facility which we renewed in December 2008. However, if the current market conditions persist, we believe we may experience difficulty in renewing this credit facility when it expires in May 2010 and that our costs of any such renewal may be higher than the costs we incurred to put the current facility in effect and to borrow under it. Also, so long as the current market conditions persist, we may be unable to increase our borrowings on terms which are similar to our historical terms or on any terms. As of December 31, 2008 and February 27, 2009, no amounts were outstanding with $40.0 million available under this credit facility.

Circumstances that adversely affect the ability of seniors, or their families, to pay for our services could have a material adverse effect on us.

        Our residents paid approximately 68% of our senior living revenues during the year ended December 31, 2008 from their private resources. We expect to continue to rely on the ability of our residents to pay for our services from their own financial resources. Inflation, a devalued stock market, rising unemployment, or other circumstances that adversely affect the ability of the elderly or their families to pay for our services could have a material adverse effect on our business, financial condition and results of operations.

Seniors' inability to sell real estate may delay their moving into senior living facilities.

        Recent and continuing housing price declines and reduced home mortgage availability have negatively affected the United States housing market. Many economists now predict a prolonged period with little or no improvement in housing markets. These current difficulties may have a negative effect on our revenues or lead to increased reliance on Medicare and Medicaid for our revenues. Specifically, if seniors have a difficult time selling their homes, fewer seniors may be able to relocate into our senior living communities or finance their stays at our facilities with private resources.

The failure of Medicare and Medicaid rates to match our costs will reduce our income.

        Some of our current operations, especially our SNFs, IRFs and pharmacy operations, receive significant revenues from the Medicare and Medicaid programs. During the year ended December 31, 2008, we received approximately 32% of our senior living revenues, 63% of our hospital revenues and 50% of our pharmacy revenues from these programs. CMS and some members of Congress have proposed Medicare and Medicaid policy changes and rate reductions to be phased in during the next

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several years. In addition, some of the states in which we operate either have not raised Medicaid rates by amounts sufficient to offset increasing costs or are expected to freeze or reduce Medicaid rates. The current recession and worsening economic conditions are causing budget shortfalls in most states, increasing the likelihood of Medicaid rate reductions, freezes or increases that are insufficient to offset increasing operating costs. The magnitude of the potential Medicare and Medicaid rate reductions, the impact of the failure of these programs to increase rates to match increasing expenses and the impact on us of potential Medicare and Medicaid policy changes proposed by members of Congress, cannot currently be estimated, but they may be material to our operations and may affect our future results of operations. Also, for discharges on and after April 1, 2008, Medicare increases to IRF rates for inflation are set at zero percent for federal fiscal years 2008 and 2009, and IRF prospective payment formulas have been recalibrated for fiscal year 2009, which could affect the profitability of our rehabilitation operations. We cannot now predict whether future Medicare and Medicaid rates will be sufficient to cover our future cost increases. Future Medicare and Medicaid rate declines or a failure of these rates to cover increasing costs could result in our experiencing lower earnings or losses.

Our rehabilitation hospitals may be subject to Medicare reclassifications resulting in lower Medicare rates, or to retroactive repayments.

        A significant amount of the revenues at our rehabilitation hospitals is paid by the Medicare program. For cost reporting periods starting on and after July 1, 2006, 60% of an IRF's total inpatient population must require intensive rehabilitation services associated with treatment of at least one of 13 designated medical conditions. While we believe we are in compliance with the 60% requirement, and we expect to remain in compliance with this rule, we may not be able to remain in compliance, or CMS could determine that we were non-compliant in a prior year. Such an event would result in these hospitals being subject to Medicare reclassification to a different type of provider and our receiving lower Medicare payment rates retroactively or prospectively. Reductions in our Medicare payments as a result of the reclassification of our rehabilitation hospitals would materially and adversely affect our financial conditions and results of operations. Also, retroactive audits of Medicare claims submitted by IRFs and other providers are expanding, and CMS is recouping amounts paid for services determined by auditors not to have been medically necessary or not to meet Medicare criteria for coverage as billed. If our hospitals or clinics were required to make substantial retroactive repayments to Medicare, our earnings may be adversely affected.

Private third party payors continue to try to reduce health care costs.

        Private third party payors are continuing their efforts to control health care costs through direct contracts with health care providers, increased utilization review and greater enrollment in managed care programs and preferred provider organizations. These third party payors increasingly are demanding discounted fee structures and the assumption by health care providers of all or a portion of the financial risk. We could be adversely affected by the continuing efforts of third party payors to limit the amount of reimbursement we receive for health care services. Reimbursement payments under third party payor programs may not remain at levels comparable to present levels or be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Future changes in the reimbursement rates or methods of third-party payors, including Medicare, Medicaid and other government programs, or the implementation of other measures to reduce reimbursement for our services could result in a substantial reduction in our net operating revenues. Finally, as a result of competitive pressures, our ability to maintain operating margins through price increases to private patients may be limited.

Increases in our labor costs may have a material adverse effect on us.

        Wages and employee benefits for the Company as a whole, represented approximately 53% of our 2008 total operating costs. We compete with other operators of senior living communities and

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rehabilitation hospitals with respect to attracting and retaining qualified personnel responsible for the day to day operations of each of our communities. The market for qualified nurses, therapists and other healthcare professionals is highly competitive. A shortage of nurses or other trained personnel may require us to increase the wages and benefits offered to our employees in order to attract and retain these personnel or to hire more expensive temporary personnel. Also, we may have to compete for lesser skilled workers with numerous other employers. Further, when we acquire new facilities, we may be required to pay increased compensation or offer other incentives to retain key personnel and other employees. Employee benefits costs, including employee health insurance and workers' compensation insurance costs, have materially increased in recent years. To help control these costs, we partially self insure our workers compensation insurance and fully self insure our employee health insurance. Although we have determined our self insurance reserves with guidance from third party professionals, our reserves may be inadequate. Increasing employee health and workers' compensation insurance costs and increasing self insurance reserves for labor related insurance may materially negatively affect our earnings. No assurance can be given that our labor costs will not increase or that any increase will be matched by corresponding increases in rates charged to residents. Any significant failure by us to control our labor costs or to pass on any increased labor costs to residents through rate increases could have a material adverse effect on our business, financial condition and results of operations.

Successful union organization could adversely affect our business performance and results of operations.

        From time to time labor unions attempt to organize our employees. Certain of our employees have already chosen union representation and are represented under one collective bargaining agreement, which has a remaining term of approximately one year. If federal legislation modifies the labor laws to make it much easier for employee groups to unionize, then additional groups of employees may seek union representation. If more of our employees unionize it could result in business interruptions, work stoppages, the degradation of service levels at our senior living communities and rehabilitation hospitals due to work rules, or increased operating expenses that may adversely affect our financial results of operations.

Our business is subject to extensive regulation which increases our costs and may result in losses.

        Licensing and Medicare and Medicaid laws require operators of senior living communities, rehabilitation hospitals, clinics, and pharmacies to comply with extensive standards governing operations. There are also various federal and state laws prohibiting fraud and abuse by senior living and rehabilitation hospital and clinic operators and pharmacy providers, including civil and criminal laws that prohibit false claims for Medicare and Medicaid coverage and that regulate patient referrals. In recent years, federal and state governments have devoted increased resources to monitor the quality of care at senior living communities and to anti-fraud investigations. CMS contractors are expanding the retroactive audits of Medicare claims submitted by IRFs, SNFs and other providers, and recouping alleged overpayments for services determined by auditors not to have been medically necessary or not to meet Medicare coverage criteria as billed. State Medicaid programs and other third party payors are conducting similar medical necessity and compliance audits. When quality of care deficiencies are identified or improper billing is uncovered, various remedies or sanctions may be imposed, including denial of new admissions, exclusion from Medicare or Medicaid program participation, monetary penalties, restitution of overpayments, governmental oversight, loss of licensure and criminal penalties. Our communities incur sanctions and penalties from time to time. As a result of this extensive regulatory system and increasing enforcement initiatives, we have experienced increased costs for monitoring quality of care compliance and billing procedures, and we expect these costs may continue to increase. Also, if we become subject to additional regulatory sanctions or repayment obligations at any of our existing facilities, or as a result of purchasing facilities with prior deficiencies which we are

17

unable to correct or resolve, our business may be adversely affected and we might experience financial losses.

The nature of our business exposes us to litigation risks.

        The nature of our business exposes us to litigation, and we are subject to lawsuits in the ordinary course of our business. In several well publicized instances, private litigation by residents of senior living communities for alleged abuses has resulted in large damage awards against other operating companies. Today, some lawyers and law firms specialize in bringing litigation against senior living companies. As a result of this litigation and potential litigation, our cost of liability insurance has increased during the past few years. Medical liability insurance reform has become a topic of political debate and some states have enacted legislation to limit future liability awards. However, if such reforms are not generally adopted, we expect our insurance costs may continue to increase. To reduce costs, we self insure a significant amount of our litigation liability risks. Although our reserves for liability self insurance have been determined with guidance from third party professionals, our reserves may prove inadequate. Increasing liability insurance costs and increasing self insurance reserves may materially negatively affect our results of operations or make those results less consistent.

Our growth strategy may not succeed.

        Since our spin off from Senior Housing on December 31, 2001, we have grown rapidly through acquisitions. Our business plan includes acquiring additional senior living communities and possibly additional pharmacies and rehabilitation hospitals. Our growth strategy involves risks, including the following:

•

we may be unable to locate senior living communities that receive a large percentage of their revenues from private resources;

•

we may be unable to locate senior living communities, pharmacies or rehabilitation hospitals available for purchase at acceptable prices;

•

we may be unable to access capital to make acquisitions or operate acquired businesses;

•

acquired operations may not perform in accord with our expectations;

•

we may be required to make significant capital expenditures to improve acquired facilities, including capital expenditures that may not have been anticipated by us at the time of the acquisition;

•

we may have difficulty retaining key employees and other personnel at acquired facilities;

•

acquired operations may subject us to unanticipated contingent liabilities or regulatory problems;

•

to the extent we incur acquisition debt or leases, our operating leverage may increase and, to the extent we issue additional equity to fund our acquisitions, our shareholders' percentage of ownership will be diluted; and

•

combining our present operations with newly acquired operations may disrupt operations or cost more than anticipated.

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For these reasons and others:

•

our business plan to grow may not succeed;

•

the benefits which we hope to achieve by growing may not be achieved;

•

we may suffer declines in profitability or suffer recurring losses; and

•

our existing operations may suffer from a lack of management attention or financial resources if such attention and resources are devoted to a failed growth strategy.

        When we acquire new communities, we sometimes see a decline in community occupancy and it may take a period of time for us to stabilize acquired community operations. Our efforts to restore occupancy or stabilize acquired communities' operations may not be successful. In addition, rehabilitation hospitals and pharmacies are businesses with which we have limited experience, and our initiatives in these areas may not be successful.

We continue to seek acquisitions and other strategic opportunities that may require a significant amount of management resources and costs.

        We continue to seek acquisitions and other strategic opportunities. Accordingly, we are often engaged in evaluating potential transactions and other strategic alternatives. In addition, from time to time, we engage in preliminary discussions that may result in one or more transactions. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, we may devote a significant amount of our management resources to such transactions, which could negatively impact our operations. In addition, we may incur significant costs in connection with seeking acquisitions regardless of whether the acquisition is completed.

Failure to comply with laws governing the privacy and security of personal health information could materially and adversely affect our financial condition and results of operations.

        We are required to comply with federal and state laws governing the privacy, security, use and disclosure of individually identifiable health information. Under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, we are required to comply with the HIPAA privacy rule, security standards, and standards for electronic health care transactions. State laws also govern the privacy of individual health information, and state privacy rights rules may be more stringent. If we fail to comply with applicable federal or state standards, we could be subject to civil sanctions and criminal penalties, which could materially and adversely affect our financial condition and results of operations.

Termination of assisted living resident agreements and resident attrition could adversely affect our revenues and earnings.

        State regulations governing assisted living facilities typically require a written resident agreement with each resident. Most of these regulations also require that each resident have the right to terminate our assisted living resident agreement for any reason on reasonable notice. Consistent with these regulations, most resident agreements allow residents to terminate their agreements on 30 days' notice. Thus, we cannot contract with assisted living residents to stay for longer periods of time, unlike typical apartment leasing arrangements that involve lease agreements with terms of up to a year or longer. If a large number of residents elected to terminate their resident agreements at or around the same time, our revenues and earnings could be materially and adversely affected. In addition, the advanced age of our average senior living resident means that the resident turnover rate in our senior living communities may be difficult to predict.

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Our business requires us to make significant capital expenditures to maintain and improve our facilities.

        Our communities sometimes require significant expenditures to address ongoing required maintenance and to make them attractive to residents. Physical characteristics of senior living communities and rehabilitation hospitals are mandated by various governmental authorities; changes in these regulations may require us to make significant expenditures. In addition, we often are required to make significant capital expenditures when we acquire new facilities. Our available financial resources may be insufficient to fund these expenditures. In addition to capital expenditures we are making at some of our senior living communities, we expect to make certain capital expenditures at the rehabilitation hospitals. Senior Housing has historically provided most of the capital we need to improve the properties we lease from them. However, whenever Senior Housing provides such capital, our rent increases and we may be unable to pay the increased rent without experiencing losses.

Our business is highly competitive and we may be unable to operate profitably.

        We compete with numerous other companies that provide senior living, rehabilitation hospital and pharmacy services, including home healthcare companies and other real estate based service providers. Although some states require certificates of need to develop new SNFs there are fewer barriers to competition for home healthcare or for independent and assisted living services. Many of our existing competitors are larger and have greater financial resources than us. Some of our competitors are not for profit entities which have endowment income and may not have the same financial pressures that we face. We cannot provide any assurances that we will be able to attract a sufficient number of residents to our communities or that we will be able to attract employees and keep wages and other employee benefits, insurance costs and other operating expenses at levels which will allow us to compete successfully or to operate profitably.

We are subject to possible conflicts of interest; we have engaged in, and expect to continue to engage in, transactions with parties who may be considered related parties.

        Our business is subject to possible conflicts of interest as follows:

•

as of December 31, 2008, we leased from Senior Housing 181 of our 210 senior living communities and our two rehabilitation hospitals for total annual rent of approximately $172.9 million;

•

we purchase various management services from RMR, the manager of Senior Housing, and we lease office space from an affiliate of RMR;

•

our Chief Executive Officer, Bruce J. Mackey Jr., and our Chief Financial Officer, Francis R. Murphy III, are also employees of RMR, our managing directors, Barry M. Portnoy and Gerard M. Martin, are directors of RMR, Mr. Portnoy is a managing trustee of Senior Housing and is also the majority beneficial owner and the chairman of RMR;

•

under our shared services agreement with RMR, in the event of a conflict between Senior Housing and us, RMR may act on behalf of Senior Housing rather than on our behalf; and

•

RMR's simultaneous contractual obligations to us and Senior Housing create actual and potential conflicts of interest, and these conflicts can be especially severe in periods of financial stress such as the present.

        On December 31, 2001, Senior Housing distributed substantially all of its ownership of our shares to its shareholders. Simultaneously with the spin off, we entered into agreements with Senior Housing and RMR which, among other things, limit ownership of more than 9.8% of our voting shares, restrict our ability to take any action that could jeopardize the tax status of Senior Housing as a real estate

20

investment trust and limit our ability to acquire real estate of types which are owned by Senior Housing or other businesses managed by RMR. As a result of these agreements, our leases with Senior Housing and our shared services agreement with RMR, Senior Housing, RMR and their respective affiliates have significant roles in our business and we do not anticipate any changes to those roles in the future.

        We believe our affiliations with Senior Housing and RMR have been and will be beneficial to us. Although we do not believe the potential conflicts have adversely affected, or will adversely affect, our business, not everyone may agree with our position. In the past, in particular following periods of volatility in the overall market and the market price of a company's securities, shareholder litigation, dissident director nominations and dissident proposals have often been instituted against companies alleging conflicts of interest in business dealings with directors, related persons and entities. Our relationships with Senior Housing, RMR, with Messrs. Portnoy and Martin and with RMR related persons may precipitate such activities. These activities, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.

Our leases of certain of our senior living communities are subordinated to mortgage debt of Senior Housing, and a default by Senior Housing could result in the termination of those leases.

        Our leases with Senior Housing for 28 of our senior living communities, which had 2008 revenues totaling $38.7 million, are subordinated to mortgage financing secured by such communities. As a result, in the event Senior Housing were to default on such mortgage financing, by reason of our default under our leases or for reasons unrelated to us or beyond our control, and its lender were to foreclose on such properties, our leases would terminate as a matter of law. While we may be able to enter into new leases with the lenders or the purchaser or purchasers of such properties, or they may elect to continue our occupancy under the terms of the lease as if there had been no foreclosure, such parties are not obligated to elect either option, and even if we are able to retain possession, the terms of our continued occupancy may not be as favorable to us as those contained in our leases with Senior Housing. If we do not enter into new leases of such communities following a foreclosure, we would lose the right to continue to operate these facilities and may incur material obligations to residents, employees and other parties as a result of such loss, each of which could have a material and adverse effect on our results of operations.

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

Ownership limitations and anti-takeover provisions in our governing documents, bylaws and in our material agreements, as well as certain provision of Maryland law, may prevent shareholders from implementing change of control or prevent our shareholders from receiving a takeover premium for their shares.

        Our charter places restrictions on the ability of any person or group to acquire beneficial ownership of more than 9.8% (in number of shares or value, whichever is more restrictive) of any class of our equity securities. The terms of our leases with Senior Housing and our shared services agreement with RMR provide that our rights under these agreements may be cancelled by Senior Housing and RMR, respectively, upon the acquisition by any person or group of more than 9.8% of our voting stock, and upon other change in control events, as defined in those documents including, in certain of the Senior Housing leases, the adoption of any proposal or the election to our board of directors of any individual if such proposal or individual was not approved, nominated or appointed, as the case may be, by vote of a majority of our directors in office immediately prior to the making of such proposal or the nomination or appointment of such individual. If the breach of these ownership limitations causes a lease default, shareholders causing the default may become liable to us or to other shareholders for damages. Additionally, on March 10, 2004, we entered into a rights agreement whereby in the event a person or group of persons acquires or attempts to acquire 10% or more of our outstanding common shares, our shareholders, other than such person or group, will be entitled to

21

purchase additional shares or other securities or property at a discount. In addition, a termination of our shared services agreement is a default under our credit facility unless approved by our lender. These agreements and other provisions in our charter and bylaws may increase the difficulty of acquiring control of us by means of a tender offer, open market purchases, a proxy fight or otherwise, if the acquisition is not approved by our board of directors. Other provisions in our governing documents which may deter takeover proposals include the following:

•

The division of our board of directors into three classes, with the term of one class expiring each year;

•

required qualifications for an individual to serve as a director and a requirement that certain of our directors be "Independent Directors" and other directors be "Managing Directors";

•

limitations on the ability of our shareholders to remove our directors;

•

limitations on the ability of shareholders to propose nominees for election as directors and propose other business before a meeting of shareholders;

•

the authority of our board of directors, and not our shareholders, to amend or repeal our bylaws; and

•

the authority of our board of directors to adopt certain amendments to our charter without shareholder approval to increase or decrease the number of shares of stock or the number of shares of any class or series that we have authority to issue.

        For all of these reasons, shareholders may be unable to cause a change of control of us or to realize a change of control premium for their securities.

Our rights and the rights of our shareholders to take action against our directors and officers are limited.

        Our charter limits the liability of our directors and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our directors and officers will not have any liability to us and our shareholders for money damages other than liability resulting from:

•

actual receipt of an improper benefit or profit in money, property or services; or

•

active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

        Our charter authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our charter requires us to indemnify each director or officer, to the maximum extent permitted by Maryland law, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as our director or officer. However, except with respect to proceedings to enforce rights to indemnification, we will indemnify any person referenced in the previous sentence in connection with a proceeding initiated by such person against our company only if such proceeding is authorized by our board of directors. In addition, we may be obligated to pay or reimburse the expenses incurred by our directors and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result, we and our shareholders may have more limited rights against our directors and officers than might otherwise exist absent the current provisions in our charter or that might exist with other companies, which could limit your recourse in the event of actions not in your best interest.

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RISKS RELATED TO OUR NOTES AND COMMON SHARES

The Notes we issued in October 2006 will be effectively subordinated to the debts of our subsidiaries and to our secured debt.

        The Notes we issued in October 2006 are issued by our parent company and guaranteed by certain of our subsidiaries. We are a holding company and conduct substantially all of our operations through subsidiaries. Consequently, our ability to pay debt service on the Notes will be dependent upon the cash flow of our subsidiaries and payments by those subsidiaries to us as dividends or otherwise. Our subsidiaries are separate legal entities and have their own liabilities. Certain of our subsidiaries guarantee our obligations under the Notes and those subsidiaries and additional subsidiaries guarantee our obligations under our revolving credit facility. In addition, as of December 31, 2008, our non-guarantor subsidiaries had approximately $12.6 million of secured indebtedness outstanding, and we may add additional secured indebtedness that would effectively rank senior to the outstanding Notes, and any new notes we may issue. The Notes are unsecured and, as such, effectively subordinated to our secured debt. In addition, non-guarantor subsidiaries have substantial additional obligations, including trade payables and lease obligations, to which the Notes are and will be effectively subordinated.

        Our right to receive assets of any of our subsidiaries upon its liquidation or reorganization will be structurally subordinated to the claims of our subsidiaries' creditors, except to the extent that we are recognized as a creditor of such subsidiary, in which case our claims would still be subordinated to any security interests in the assets of such subsidiaries and any indebtedness of our subsidiaries that is senior to that held by us. In the event of our insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up, we and the subsidiaries that guarantee our outstanding Notes, or any new notes we may issue, may not have sufficient assets to pay amounts due on any or all such notes.

We may be required to prepay our debts at the option of Note holders or upon a change of control.

        In certain change of control circumstances or if our common shares are no longer traded on a national securities exchange or on an established over the counter market in the United States, holders of our outstanding Notes may have the right to require us to purchase their Notes at their principal amount plus accrued interest. Holders of our Notes also have the right to require us to purchase for cash all or a portion of their Notes on each of October 15, 2013, October 15, 2016 and October 15, 2021; however, we may not have sufficient financial resources at those times to pay the repurchase price and our then existing indebtedness could restrict or prohibit the repurchase. Any notes we may issue in the future may have similar or even more onerous terms.

If we redeem the Notes before maturity, our Note holders may be unable to reinvest proceeds at the same or a higher rate.

        We may redeem all or a portion of our outstanding Notes at any time after October 20, 2011. Generally, the redemption price will equal the principal amount being redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. If a redemption occurs, holders of these Notes may be unable to reinvest the money they receive in the redemption at a rate that is equal to or higher than the rate of return on the redeemed Notes. Notes we may issue in the future may also permit redemption before maturity and create similar risks.

There may be no public market for our Notes.

        Although our outstanding Notes are traded in the Private Offerings, Resale and Trading through Automated Linkages Market of the Nasdaq, these Notes are not listed on any securities exchange. We can provide no assurance that an active trading market for these Notes will exist in the future. The limited liquidity of the trading market for our existing Notes, or any notes we may issue in the future,

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and the market price quoted for such notes may be adversely affected by changes in the overall market for fixed income securities, by changes in our financial performance or prospects, or by changes in the prospects for the senior living industry generally. Also, we recently purchased and retired $46.5 million face amount of our Notes. This purchase of our Notes by us reduced the number and amount of our Notes outstanding and may decrease the liquidity of our Notes.

Increased leverage may harm our financial condition and results of operations.

        Our total consolidated long term debt as of December 31, 2008 was approximately $160.8 million and represented approximately 65% of our total book capitalization as of that date. In addition to our indebtedness, we have substantial lease and other obligations. The indenture governing our outstanding Notes does not limit the amount of additional indebtedness, including senior or secured indebtedness, which we can create, incur, assume or guarantee, nor does the indenture limit the amount of indebtedness or other liabilities that our subsidiaries can create, incur, assume or guarantee.

        Our level of indebtedness could have important consequences to our investors, because:

•

it could affect our ability to satisfy our debt obligations;

•

the portion of our cash flows from operations required to make interest and principal payments will not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;

•

it may impair our ability to obtain additional financing in the future;

•

it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and

•

it may make us more vulnerable to downturns in our business, our industry or the economy in general than a company with less debt leverage.

Conversion rights of our outstanding Notes may be detrimental to holders of our common shares.

        Our outstanding Notes are convertible into our common shares in various circumstances. The initial conversion rate (equivalent to an initial conversion price of $13.00 per common share) is subject to adjustment upon the occurrence of various events, including if we make dividends or distributions on our common shares. If a holder elects to convert these Notes in connection with a "make whole fundamental change", as defined in the indenture governing these Notes, that occurs on or prior to October 20, 2011, the conversion rate may be increased by a premium based on the market price of our common shares at the time. Make whole fundamental changes include certain transactions constituting a change of control, our liquidation, dissolution or similar events.

        The conversion of some or all of our outstanding Notes will dilute the ownership interests of our shareholders. Any sales in the public market of the common shares issuable upon such conversion could adversely affect prevailing market prices of our common shares. In addition, the existence of the outstanding convertible Notes may encourage short selling by market participants because the conversion of these Notes could depress the price of our common shares. These conversion rights also may make more difficult or discourage a party from taking over our company and removing incumbent management and may discourage or impede transactions that might otherwise be in the interests of our common shareholders. Any future issuance of convertible securities by us may create similar risks.

Future issuances of common shares and hedging activities may depress the trading price of our common shares.

        We may issue equity securities in the future for a number of reasons, including to finance our operations and growth strategy, to adjust our ratio of debt to equity, to satisfy our obligations upon the

24

exercise of outstanding warrants or options or for other reasons. Any issuance of equity securities, including the issuance of shares upon conversion of our outstanding Notes as described above, could dilute the interests of our existing shareholders, and could substantially decrease the trading price of our common shares and of the Notes.

We do not intend to pay cash dividends on our common shares in the foreseeable future.

        We have never declared or paid any cash dividends on our common shares, and we currently do not anticipate paying any cash dividends in the foreseeable future. Because we do not anticipate paying cash dividends, holders who convert our outstanding Notes into our common shares will not realize a return on their investment unless the trading price of our common shares appreciates.

The price of our common shares has fluctuated, and a number of factors may cause our common share price to decline.

        The market price of our common shares has fluctuated and could fluctuate significantly in the future in response to various factors and events, including, but not limited to, the risks set out in this Annual Report on Form 10-K, as well as:

•

the liquidity of the market for our common shares;

•

changes in our operating results;

•

changes in analysts' expectations; and

•

general economic and industry trends and conditions.

        In addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated to the operating performance of particular companies. These market fluctuations may also cause the market price of our common shares to decline. Shareholders may be unable to resell our common shares at or above price at which they purchased our shares.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

OUR SENIOR LIVING COMMUNITIES

        As of December 31, 2008, we operated 210 senior living communities which we have categorized into two groups as follows:

				Type of units
												Average occupancy for the year ended Dec. 31, 2008					Percent of revenues from private resources
Type of community		No. of communities		Indep. living apts.		Assist. living suites		Skilled nursing units		Total living units					Revenues for the year ended Dec. 31, 2008
															(in thousands)
Independent and assisted living communities			161		6,238		9,682		1,934		17,854		88.6	%	$	663,744		86	%
Skilled nursing facilities			49		66		—		4,344		4,410		86.4	%		263,909		23	%
	Totals:		210		6,304		9,682		6,278		22,264		88.4	%	$	927,653		68	%

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Independent and Assisted Living Communities

        As of December 31, 2008, we operated 161 independent and assisted living communities. We lease 134 of these communities from Senior Housing and four of these communities from HCPI. We own the remaining 23 communities. These communities have 17,854 living units and are located in 26 states. The following table provides additional information about these communities and their operations as of December 31, 2008:

				Type of units
												Average occupancy for the year ended Dec. 31, 2008					Percent of revenues from private resources
Location		No. of communities		Indep. living apts.		Assist. living suites		Skilled nursing units		Total living units					Revenues for the year ended Dec. 31, 2008
															(in thousands)
1.  Alabama			8		—		367		—		367		92.9	%	$	10,182		100	%
2.  Arizona			4		471		263		196		930		83.5	%		36,097		84	%
3.  California			9		497		423		59		979		79.6	%		43,202		94	%
4.  Delaware			6		336		296		367		999		89.3	%		58,770		73	%
5.  Florida			8		1,192		581		155		1,928		87.7	%		67,872		80	%
6.  Georgia			10		111		474		40		625		93.1	%		22,911		95	%
7.  Illinois			1		111		—		—		111		97.1	%		2,240		100	%
8.  Indiana			10		755		30		140		925		92.7	%		20,747		77	%
9.  Kansas			2		249		30		60		339		95.3	%		14,651		80	%
10. Kentucky			9		492		281		183		956		94.6	%		41,691		84	%
11. Massachusetts			1		—		124		—		124		98.8	%		7,861		100	%
12. Maryland			10		270		640		—		910		92.6	%		38,726		100	%
13. Minnesota			1		—		228		—		228		84.1	%		10,819		97	%
14. Mississippi			2		—		116		—		116		74.7	%		3,177		100	%
15. Missouri			1		111		—		—		111		88.1	%		2,301		100.	%
16. Nebraska			2		31		108		68		207		92.1	%		7,819		61	%
17. North Carolina			9		—		876		—		876		90.8	%		20,595		99	%
18. New Jersey			5		211		556		60		827		76.5	%		21,969		81	%
19. New Mexico			1		114		35		60		209		93.4	%		12,566		80	%
20. Ohio			1		143		113		60		316		84.5	%		17,308		79	%
21. Pennsylvania			12		—		1,179		—		1,179		85.3	%		23,101		100	%
22. South Carolina			16		101		738		104		943		92.7	%		30,354		86	%
23. Tennessee			11		81		579		—		660		89.8	%		20,246		100	%
24. Texas			7		898		439		308		1,645		89.7	%		75,885		83	%
25. Virginia			10		—		777		—		777		86.6	%		30,556		100	%
26. Wisconsin			5		64		429		74		567		92.5	%		22,098		73	%
	Totals:		161		6,238		9,682		1,934		17,854		88.6	%	$	663,744		86	%

Skilled Nursing Facilities

        As of December 31, 2008, we operated 49 SNFs. We lease 47 of these facilities from Senior Housing and we own the other two communities. These facilities have 4,410 living units and are located

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in 11 states. The following table provides additional information about these facilities and their operations as of December 31, 2008:

				Type of units
												Average occupancy for the year ended Dec. 31, 2008					Percent of revenues from private resources
Location		No. of facilities		Indep. living apts.		Assist. living suites		Skilled nursing units		Total living units					Revenues for the year ended Dec. 31, 2008
															(in thousands)
1.  Arizona			1		—		—		120		120		91.6	%	$	7,442		19	%
2.  California			4		—		—		396		396		93.8	%		31,403		15	%
3.  Colorado			7		47		—		769		816		87.5	%		52,340		30	%
4.  Georgia			3		—		—		329		329		93.6	%		16,922		6	%
5.  Iowa			7		19		—		487		506		86.5	%		28,366		18	%
6.  Kansas			1		—		—		60		60		94.8	%		2,912		28	%
7.  Michigan			2		—		—		271		271		87.4	%		25,258		16	%
8.  Missouri			2		—		—		186		186		76.1	%		7,365		21	%
9.  Nebraska			14		—		—		814		814		82.9	%		38,414		30	%
10. Wisconsin			6		—		—		722		722		85.3	%		44,910		27	%
11. Wyoming			2		—		—		190		190		75.1	%		8,577		24	%
	Totals:		49		66		—		4,344		4,410		86.4	%	$	263,909		23	%

OUR INPATIENT REHABILITATION HOSPITALS

        As of December 31, 2008, we operated two inpatient rehabilitation hospitals that we lease from Senior Housing. These hospitals are located in Braintree and Woburn, Massachusetts and have 321 beds dedicated to inpatient services at the two hospital locations and at three satellite locations. In addition, we operate 15 outpatient clinics affiliated with these hospitals. The hospitals had combined revenues of $98.4 million in the year ended December 31, 2008 and average occupancy was 63%. During the year ended December 31, 2008 approximately 61% of the revenues at these hospitals came from the Medicare program, 2% came from the Medicaid program and the 37% balance came from health insurance companies or other sources.

OUR SENIOR HOUSING LEASES

        We have seven leases with Senior Housing. The following table provides a summary of the material terms of our leases. Because it is a summary, it does not contain all of the information that may be important to you. If you would like more information, you should read the leases which are among the exhibits listed in Item 15 of this Annual Report on Form 10-K and incorporated herein by reference.

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        The following table is a summary of our leases:

		Number of properties		Annual minimum rent as of December 31, 2008		Initial expiration date		Renewal terms
1.	Three leases for SNFs and independent and assisted living communities(1)		100	$	61.3 million		December 31, 2022	One 15-year renewal option.
2.	One lease for SNFs, independent and assisted living communities and rehabilitation hospitals.		32		80.9 million		June 30, 2026	Two consecutive 10 year renewal options.
3.	Two leases for SNFs and independent and assisted living communities.(2)		44		23.1 million		December 31, 2024	One 15-year renewal option.
4.	One lease for independent and assisted living communities		7		7.6 million		April 30, 2017	Two 15-year renewal options.
	Totals		183	$	172.9 million

(1)

Two of these three leases exist to accommodate mortgage financings in effect at the time Senior Housing acquired the properties; we have agreed to combine all three of these leases into one lease when these mortgages are paid.

(2)

One of these two leases exists to accommodate mortgage financings in effect at the time Senior Housing acquired the properties; we have agreed to combine both leases into one lease when these mortgages are paid.

        Percentage Rent.    Six of our seven senior living community leases with Senior Housing require us to pay additional rent equal to 4% of the amount by which adjusted revenues, as defined in our leases, of the communities we operate exceed adjusted revenues in a base year; our lease for seven independent and assisted living communities shown above does not require us to pay percentage rent. Different base years apply to those communities that do pay percentage rent, which is generally set at the first full calendar year after each community is leased. We do not pay percentage rent for our rehabilitation hospitals.

        Operating Costs.    Each lease is a so-called "triple-net" lease which requires us to pay all costs incurred in the operation of the properties, including the costs of maintenance, personnel, services to residents, insurance and real estate and personal property taxes.

        Rent During Renewal Term.    Rent during each renewal term is the same as the minimum rent and percentage rent payable during the initial term.

        Licenses.    Our leases require us to obtain, maintain and comply with all applicable permits and licenses necessary to operate the leased properties.

        Maintenance and Alterations.    We are required to operate continuously and maintain, at our expense, the leased properties in good order and repair, including structural and nonstructural components. We may request Senior Housing to fund amounts needed for repairs and renovations in return for rent adjustments to provide Senior Housing a return on its investment according to formulas. At the end of each lease term, we are required to surrender the leased properties in substantially the

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same condition as existed on the commencement date of the lease, subject to any permitted alterations and ordinary wear and tear.

        Assignment and Subletting.    Senior Housing's consent is generally required for any direct or indirect assignment or sublease of any of the properties. Also, in the event of any assignment or subletting, we remain liable under the applicable lease.

        Indemnification and Insurance.    With limited exceptions, we are required to indemnify Senior Housing from all liabilities which may arise from the ownership or operation of the leased properties. We generally are required to maintain commercially reasonable insurance, including captive self insurance, for:

•

"all-risk" property insurance, in an amount equal to 100% of the full replacement cost of the properties;

•

business interruption insurance;

•

comprehensive general liability insurance, including bodily injury and property damage, in amounts as are generally maintained by companies providing senior living services;

•

flood insurance, if any property is located in whole or in part in a flood plain;

•

workers compensation insurance, if required by law; and

•

such additional insurance as may be generally maintained by companies providing senior living services, including professional and general liability insurance.

Each lease requires that Senior Housing be named as an additional insured under these insurance policies.

        Damage, Destruction, Condemnation and Environmental Matters.    If any of the leased properties is damaged by fire or other casualty or taken for a public use, we are generally obligated to rebuild unless the community cannot be restored. If the property cannot be restored, Senior Housing will generally receive all insurance or taking proceeds and we are liable to Senior Housing for the amount of any deductible or deficiency between the replacement cost and the insurance proceeds, and our rent will be adjusted pro rata. We are also required to remove and dispose of any hazardous substance at the leased properties in compliance with all applicable environmental laws and regulations.

        Events of Default.    Events of default under each lease include the following:

•

our failure to pay rent or any money due under the lease when it is due;

•

our failure to maintain the insurance required under such lease;

•

any person or group acquiring ownership of 9.8% or more of our outstanding voting stock or any change in our control, as defined in certain leases, in the adoption of any proposal or the election to our board of directors of any individual if such proposal or individual was not approved, nominated or appointed, as the case may be, by vote of a majority of our directors in office immediately prior to the making of such proposal or the nomination or appointment of such individual;

•

the occurrence of certain events with respect to our insolvency or dissolution;

•

our default under indebtedness which gives the holder the right to accelerate;

•

our being declared ineligible to receive reimbursement under Medicare or Medicaid programs for any of the leased properties which participate in such programs or the revocation of any material license required for our operations; and

29

•

our failure to perform any terms, covenants or agreements of such lease and the continuance thereof for a specified period of time after written notice.

        Remedies.    Upon the occurrence of any event of default, each lease provides that, among other things, Senior Housing may, to the extent legally permitted:

•

accelerate the rents;

•

terminate the leases in whole or in part;

•

enter the property and take possession of any and all our personal property and retain or sell the same at a public or private sale;

•

make any payment or perform any act required to be performed by us under the leases; and

•

rent the property and recover from us the difference between the amount of rent which would have been due under the lease and the rent received from the re-letting.

We are obligated to reimburse Senior Housing for all costs and expenses incurred in connection with any exercise of the foregoing remedies.

        Management.    We may not enter into any new management agreement affecting any leased property without the prior written consent of Senior Housing.

        Lease Subordination.    Our leases may be subordinated to any mortgages on properties leased from Senior Housing. As of December 31, 2008, Senior Housing had mortgages on 28 of our communities to which our leases were subordinated. These 28 communities had 1,837 living units and 2008 revenues totaling $38.7 million. Senior Housing's outstanding borrowings secured by mortgages on these 28 communities totaled $95.3 million as of December 31, 2008.

        Financing Limitations; Security.    Without Senior Housing's consent we may not incur debt secured by our investments in our tenant subsidiaries. Further, our tenant subsidiaries are prohibited from incurring liabilities, other than operating liabilities incurred in the ordinary course of business, liabilities secured by our accounts receivable or purchase money debt. We have pledged 100% of the equity interests of certain of our tenant subsidiaries to Senior Housing and to certain of its lenders, and we may pledge interests in our leases only if the pledge is approved by Senior Housing.

        Non-Economic Circumstances.    If we determine that continued operations of one or more properties is not economical, we may negotiate with Senior Housing to close or sell that community, including Senior Housing's ownership in the property. In the event of such a sale, Senior Housing receives the net proceeds and our rent for the remaining properties in the affected lease is reduced according to formulas contained in the applicable lease.

Item 3.    Legal Proceedings

        In the ordinary course of business we are involved in litigation incidental to our business; however, we are not aware of any material pending legal proceeding affecting us for which we might become liable or the outcome of which we expect to have a material impact on us.

Item 4.    Submission of Matters to a Vote of Security Holders

        None.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common shares are traded on the NYSE Alternext US LLC (symbol: FVE). The following table sets forth for the periods indicated the high and low sale prices for our common shares as reported by the NYSE Alternext US LLC:

	High		Low
2007
First Quarter	$	12.46	$	9.60
Second Quarter		11.01		7.28
Third Quarter		8.60		6.07
Fourth Quarter		10.20		7.55
2008
First Quarter		8.40		5.71
Second Quarter		6.98		4.71
Third Quarter		4.74		3.17
Fourth Quarter		4.05		0.73

        The closing price of our common shares on the NYSE Alternext US LLC on February 27, 2009 was $1.53 per share.

        As of February 27, 2009, there were 2,900 shareholders of record, and we estimate that as of such date there were almost 31,800 beneficial owners of our common shares.

        We have not paid any dividends in the past and do not expect to pay dividends in the future.

        Pursuant to our stock option and stock incentive plan, we issued unregistered shares during the fourth quarter. On November 24, 2008, we issued 358,600 shares of common stock, par value $0.01 per share, valued at $1.10 per share (the closing price of our common shares on the NYSE Alternext US LLC on that day) to certain employees and others who provide services to us. We issued these grants pursuant to an exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

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Item 6.    Selected Financial Data

        The following table sets forth selected financial data for the periods and dates indicated. Our comparative results are impacted by community acquisitions and dispositions during the periods shown. This data should be read in conjunction with, and is qualified in its entirety by reference to, management's discussion and analysis of financial condition and results of operations and the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K.

		Year ended December 31,
		2008			2007			2006			2005			2004
		(in thousands, except per share data)
Operating data:
	Total revenues	$	1,104,200		$	972,924		$	815,586		$	727,659		$	597,824
	Net income (loss) from continuing operations		426			26,095			(109,587	)		(79,691	)		5,181
	Net loss from discontinued operations		(4,922	)		(2,769	)		(7,078	)		(4,468	)		(1,890	)
	Net income (loss)	$	(4,496	)	$	23,326		$	(116,665	)	$	(84,159	)	$	3,291
Basic net income (loss) per share:
	Income (loss) from continuing operations	$	0.01		$	0.82		$	(3.83	)	$	(5.35	)	$	0.59
	Loss from discontinued operations		(0.15	)		(0.08	)		(0.25	)		(0.30	)		(0.22	)
	Net income (loss)	$	(0.14	)	$	0.74		$	(4.08	)	$	(5.65	)	$	0.37
Diluted net income (loss) per share:
	Income (loss) from continuing operations	$	0.01		$	0.75		$	(3.83	)	$	(5.35	)	$	0.59
	Loss from discontinued operations		(0.15	)		(0.07	)		(0.25	)		(0.30	)		(0.22	)
	Net income (loss)	$	(0.14	)	$	0.68		$	(4.08	)	$	(5.65	)	$	0.37
Balance sheet data (as of December 31):
	Total assets	$	412,638		$	360,454		$	366,411		$	228,940		$	222,985
	Total indebtedness		160,816			142,510			171,271			45,329			42,581
	Other long term obligations		37,344			27,259			28,098			24,465			18,065
	Total shareholders' equity	$	85,339		$	86,822		$	67,430		$	68,804		$	95,904

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

GENERAL INDUSTRY TRENDS

        The senior living industry generally is experiencing growth as a result of demographic factors. According to census data, the population in the United States over age 75 is growing much faster than the general population. A large number of independent and assisted living communities were built in the 1990s. This development activity caused an excess supply of new, high priced communities. Longer than projected fill up periods resulted in low occupancy, price discounting and financial distress for many independent and assisted living operators. Development activity was significantly reduced in the early part of this decade. We believe that the nationwide supply and demand for these types of facilities is about balanced today. We believe that the aging of the United States population and the almost complete reliance of independent and assisted living services upon revenues from residents' private resources should mean that these types of facilities can be profitably operated.

        The increasing availability of assisted living facilities in the 1990s caused occupancy at many SNFs to decline. This fact, together with restrictions on development of new SNFs by most states, has generally caused nursing care to be delivered in older facilities. We believe that many SNFs currently in operation are becoming physically obsolete and that political pressures from an aging population will eventually cause governmental authorities to permit increased new construction.

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        Beginning in 2007, problems in certain domestic credit markets presaged a global credit crisis that has led to recession in the United States and abroad. The recession has resulted in aggressive government spending in the United States, significant corporate layoffs, reduced availability of credit on reasonable terms in most markets, and lower real estate prices. At this time, the depth and duration of this recession cannot be determined. This economic weakness has dampened demand for some types of senior living communities in certain markets and our occupancy rates have modestly declined. Also, we have seen some pricing pressures from competition. At the same time, we believe our business to be inherently healthy and that the anticipated decline in senior housing construction may have an offsetting effect to any decline in demand.

        Rehabilitation hospitals provide intensive medical services, including physical therapy, occupational therapy and speech language services beyond the capability customarily available in SNFs. We believe that if we are successful in our operation of our rehabilitation hospitals, our reputation in the rehabilitation business (including providing outpatient rehabilitation services) will be enhanced. A reputation for providing high quality rehabilitation services may help create opportunities to acquire additional IRFs or to provide increasing amounts of rehabilitation services at our senior living communities.

        Institutional pharmacies provide large quantities of drugs at locations where patients with recurring pharmacy requirements are concentrated. The business rationale for an institutional pharmacy is to deliver drugs and pharmacy services more efficiently and at lower costs than from expensive retail locations which cater to short term requirements. The aging of the population and recent pharmacological innovations have created rapidly growing demand for pharmacy drugs and services. The Medicare Part D prescription drug benefit was implemented in 2006 pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, and by December 2008, approximately 90% of Medicare beneficiaries had enrolled in Medicare Part D, according to the U.S. Department of Health and Human Services. In 2007, (the most recent date for which information is publicly available) the government share of all prescription drug expenditures in the United States rose to approximately 36%, including approximately 21% from the Medicare program and approximately 8% from Medicaid programs. Because the MMA has increased Medicare expenditures for prescription drugs, we anticipate that the federal government and Congress will seek to implement various cost control measures and as a result, the profitability of providing pharmacy goods and services may be reduced.

        We earn our senior living revenue primarily by providing housing and services to our senior living residents. During 2008, approximately 32% of our senior living revenues came from the Medicare and Medicaid programs and approximately 68% of our senior living revenues came from residents' private resources. We bill all private pay residents in advance for the housing and services to be provided in the following month.

        Our material expenses are:

•

Wages and benefits—includes wages for our employees working at our senior living communities and wage related expenses such as health insurance, workers compensation insurance and other benefits.

•

Other operating expenses—includes utilities, housekeeping, dietary, maintenance, marketing, insurance and community level administrative costs at our senior living communities.

•

Rent expense—we lease 181 of our 210 senior living communities and two rehabilitation hospitals from Senior Housing and four senior living communities from HCPI.

•

Hospital expenses—includes wages and benefits for our hospital based staff and other operating expenses related to our hospital business.

33

•

Pharmacy expenses—includes the cost of drugs dispensed to our patients as well as wages and benefits for our pharmacies staff and other operating expenses related to our pharmacy business.

•

General and administrative expenses—principally wage related costs for headquarters and regional staff supporting our communities, hospitals and pharmacies.

•

Depreciation and amortization expense—we incur depreciation expense on buildings and furniture and equipment that we own, and we incur amortization expense on certain identifiable intangible assets related to our pharmacy acquisitions.

•

Interest and other expenses—primarily includes interest on outstanding debt and amortization of deferred financing costs.

        Our reportable segments consist of our senior living community business and our rehabilitation hospital business. In the senior living community segment, we operate independent living or congregate care communities, assisted living communities and SNFs. Our rehabilitation hospital segment provides inpatient health rehabilitation services at two hospital locations and three satellite locations and outpatient rehabilitation services at 15 outpatient clinics. We do not consider our pharmacy operations to be a material, separately reportable segment of our business but we report our pharmacy revenues and expense as separate items within our corporate and other activities. All of our operations and assets are located in the United States, except with regard to our two captive insurance companies which participate in our workers compensation and liability insurance programs and are located in Bermuda and the Cayman Islands.

        We use segment operating profit as an important measure to evaluate our performance and for business decision making purposes. Segment operating profit excludes interest and other income, interest expense and certain corporate expenses.

Year ended December 31, 2008 versus year ended December 31, 2007

        The following tables present an overview comparison of our operations for the years ended December 31, 2008 and 2007:

Senior living communities:

	For the years ended December 31,
(dollars in thousands, except average daily rate)	2008			2007			$ Change			% Change
Senior living revenue	$	935,393		$	809,934		$	125,459			15.5	%
Senior living wages and benefits		(467,068	)		(410,447	)		(56,621	)		13.8	%
Other senior living operating expenses		(235,603	)		(202,194	)		(33,409	)		16.5	%
Rent expense		(148,959	)		(118,902	)		(30,057	)		25.3	%
Depreciation and amortization		(10,177	)		(9,386	)		(791	)		8.4	%
Interest and other expense		(1,077	)		(1,454	)		377			(25.9	)%
Interest and other income		898			206			692			335.9	%
Gain on extinguishment of debt		743			4,491			(3,748	)		(83.5	)%
Senior living income from continuing operations	$	74,150		$	72,248		$	1,902			2.6	%
No. of communities (end of period)		210			163			47			28.8	%
No. of living units (end of period)		22,264			18,079			4,185			23.1	%
Occupancy %		88.4	%		90.3	%		n/a			(1.9	)%
Average daily rate	$	143.08		$	137.23		$	5.85			4.3	%
Percent of senior living revenue from Medicare		14.8	%		15.5	%		n/a			(0.7	)%
Percent of senior living revenue from Medicaid		16.9	%		18.3	%		n/a			(1.4	)%
Percent of senior living revenue from private and other sources		68.3	%		66.2	%		n/a			2.1	%

34

Comparable Communities (communities that we operated continuously since January 1, 2007):

	For the years ended December 31,
(dollars in thousands, except per day amounts)	2008			2007			$ Change			% Change
Senior living revenue	$	836,690		$	808,880		$	27,810			3.4	%
Senior living community expenses	$	(633,224	)	$	(612,079	)	$	(21,145	)		3.5	%
No. of communities (end of period)		162			162			—			—
No. of living units (end of period)		18,029			18,023			6			—
Occupancy %		88.6	%		90.4	%		n/a			(1.8	)%
Average daily rate	$	144.45		$	137.34		$	7.11			5.2	%
Percent of senior living revenue from Medicare		16.1	%		15.5	%		n/a			0.6	%
Percent of senior living revenue from Medicaid		18.1	%		18.3	%		n/a			(0.2	)%
Percent of senior living revenue from private and other sources		65.8	%		66.2	%		n/a			(0.4	)%

Rehabilitation hospitals:

	For the years ended December 31,
(dollars in thousands)	2008			2007			$ Change			% Change
Hospital revenue	$	98,428		$	102,005		$	(3,577	)		(3.5	)%
Hospital expenses		(91,185	)		(92,449	)		1,264			(1.4	)%
Rent expense		(10,748	)		(10,288	)		(460	)		4.5	%
Impairment on long lived assets		(1,837	)		—			(1,837	)		—
Depreciation and amortization		(943	)		(1,085	)		142			(13.1	)%
Hospital loss from continuing operations	$	(6,285	)	$	(1,817	)	$	(4,468	)		245.9	%

Corporate and Other(1):

	For the years ended December 31,
(dollars in thousands)	2008			2007			$ Change			% Change
Pharmacy revenue	$	70,379		$	60,985		$	9,394			15.4	%
Pharmacy expenses		(69,535	)		(58,012	)		(11,523	)		19.9	%
Depreciation and amortization		(3,599	)		(3,124	)		(475	)		15.2	%
General and administrative(2)		(47,829	)		(43,373	)		(4,456	)		10.3	%
Unrealized loss on investments in trading securities		(11,967	)		—			(11,967	)		—
Unrealized gain on receipt of UBS put right		11,081			—			11,081			—
Impairment of goodwill		(5,930	)		—			(5,930	)		—
Impairment on investments in available for sale securities		(8,404	)		—			(8,404	)		—
Interest and other income		5,017			5,946			(929	)		(15.6	)%
Interest and other expense		(5,260	)		(5,348	)		88			(1.6	)%
Provision for income taxes		(1,392	)		(1,410	)		18			(1.3	)%
Corporate and Other loss from continuing operations	$	(67,439	)	$	(44,336	)	$	(23,103	)		52.1	%

(1)

Corporate and other includes operations that we do not consider a significant, separately reportable segment of our business and income and expenses that are not attributable to a specific segment.

(2)

General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and third party service expenses.

35

Consolidated:

		For the years ended December 31,
(dollars in thousands)		2008			2007			$ Change			% Change
Summary of revenue:
	Senior living revenue	$	935,393		$	809,934		$	125,459			15.5	%
	Hospital revenue		98,428			102,005			(3,577	)		(3.5	)%
	Corporate and Other		70,379			60,985			9,394			15.4	%
Total revenue		$	1,104,200		$	972,924		$	131,276			13.5	%
Summary of income (loss) from continuing operations:
	Senior living communities	$	74,150		$	72,248		$	1,902			2.6	%
	Rehabilitation hospitals		(6,285	)		(1,817	)		(4,468	)		245.9	%
	Corporate and Other		(67,439	)		(44,336	)		(23,103	)		52.1	%
Income from continuing operations		$	426		$	26,095		$	(25,669	)		(98.4	)%

Year ended December 31, 2008, Compared to year ended December 31, 2007

Senior living communities:

        The 15.5% increase in senior living revenues for the year ended December 31, 2008 was due primarily to revenues from the 47 communities we began to operate in 2008 and increased per diem charges, partially offset by a decrease in occupancy. The 3.4% increase in senior living revenue at the communities that we have operated continuously since January 1, 2007 was due primarily to increased per diem charges to residents, partially offset by a decrease in occupancy.

        Our 13.8% increase in senior living wages and benefits costs for the year ended December 31, 2008 was primarily due to wages and benefits at the 47 communities we began to operate in 2008 and wage increases. The 16.5% increase in other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, primarily results from the operating expenses at the 47 communities we began to operate in 2008 and increased charges from third parties. The senior living community expenses for the senior living communities that we have operated continuously since January 1, 2007 have increased by 3.5%, due primarily to increases in wages and benefits and utility expenses. The 25.3% rent expense increase was due to the 37 communities that we began to lease during 2008 and our payment of additional rent for senior living community capital improvements purchased by Senior Housing since January 1, 2007.

        The 8.4% increase in depreciation and amortization for the year ended December 31, 2008 was primarily attributable to our purchase of furniture and fixtures for our owned communities.

        Our interest and other income increased by $692,000, or 335.9%, for the year ended December 31, 2008, primarily as a result of recognition of an $840,000 gain related to the 2003 sale of a property that was previously deferred until the buyer paid in full our note receivable related to the sale during the first quarter of 2008.

        Our interest and other expense decreased by 25.9%, for the year ended December 31, 2008, primarily due to our September 2008 prepayment of two United States Department of Housing, or HUD, insured mortgages secured by one of our communities. We paid $2.4 million in principal and interest to retire these two mortgages. Because we had recorded these mortgages at a premium to their face value, we recognized a gain of $743,000 in connection with this early extinguishment of debt.

Rehabilitation hospitals:

        The 3.5% decrease in hospital revenues for the year ended December 31, 2008 was primarily due to lower Medicare reimbursement rates as well as the closing of several unprofitable outpatient clinics

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offset by a slight increase in occupancy. We are currently experiencing losses from our operation of our hospitals and we may be unable to operate these hospitals profitably. Sixty percent (60%) of the patients at our hospitals are required to meet certain Medicare criteria related to their need for inpatient rehabilitation services. We believe that we are in compliance with these current Medicare requirements. Effective for discharges after April 1, 2008, Medicare inflationary rate increases for IRFs have been set at zero percent for federal fiscal years 2008 and 2009. Our hospitals had received a Medicare rate increase of 3.5% effective October 1, 2007 but their rates were reduced by 3.2% effective for discharges after April 1, 2008. Also, on July 1, 2008, CMS issued a rule updating the Medicare IRF prospective rate formulas for federal fiscal year 2009, which CMS estimated would result in a decrease of 0.7% to total Medicare payments to IRFs for the year.

        The 1.4% decrease in hospital expenses for the year ended December 31, 2008 was primarily due to reductions in labor and benefit expenses and the closing of several unprofitable outpatient clinics.

        The 4.5% rent expense increase in the year ended December 31, 2008 was due to our payment of additional rent for hospital capital improvements purchased by Senior Housing since January 1, 2007.

        The 13.1% decrease in depreciation and amortization expense for the year ended December 31, 2008 was primarily attributable to our write off of long lived assets offset by our purchase of furniture and fixtures and information technology systems for our rehabilitation hospitals.

        During our annual review of long lived and other intangible assets, we identified and recorded an impairment of long lived assets related to our two rehabilitation hospitals of $1.8 million.

Corporate and other:

        The 15.4% increase in pharmacy revenues for the year ended December 31, 2008 was primarily the result of adding new customers from both our existing senior living and third party communities partially offset by the establishment of a contractual allowance reserve of $1.0 million. We recorded this allowance in order to fairly state the realizable value of our pharmacy receivables which are primarily billed under Medicare Part D.

        The 19.9% increase in pharmacy expenses for the year ended December 31, 2008 was primarily due to adding new customers.

        The 10.3% increase in general and administrative expenses for the year ended December 31, 2008 was primarily the result of the costs associated with the 47 communities we began to operate in 2008.

        The 15.2% increase in depreciation and amortization expense for the year ended December 31, 2008 was primarily attributable to our purchase of furniture and fixtures and information technology systems for our pharmacies and corporate and regional offices.

        During the year ended December 31, 2008, we recognized:

•

an unrealized loss of $12.0 million on investments in trading securities related to our holdings of ARS;

•

an unrealized gain of $11.0 million as a result of the agreement with UBS reached in the fourth quarter of 2008 to purchase our ARS at 100% par value upon our request between June 2010 and July 2012;

•

an impairment loss of $5.9 million of goodwill associated with our pharmacies; and

•

an "other than temporary" loss of $8.4 million on investments in available for sale securities held by our captive insurance companies.

        Our interest and other income decreased by $929,000, or 15.6%, for the year ended December 31, 2008, compared to the year ended December 31, 2007, primarily as a result of lower cash available for investment and lower interest rates earned on our cash investments.

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        For the year ended December 31, 2008, we recognized tax expenses of $1.4 million, which includes:

•

tax expense of $1.6 million for state taxes payable without regard to our tax loss carry forwards;

•

tax expense of $129,000 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes. Due to the impairment of certain of these related items of goodwill for book purposes, we recognized a portion of the deferred tax liability as a reduction in the income tax provision; and

•

partially offset by a tax benefit of $(352,000) related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes.

Discontinued operations:

        Loss from discontinued operations for the year ended December 31, 2008 increased $2.2 million to $4.9 million, compared to a loss of $2.8 million for the year ended December 31, 2007. The losses in both years are primarily due to operating expenses we incurred as a result of our shutting down operations at two communities in each of 2007 and 2006 and two pharmacies in 2007. The loss for the year ended December 31, 2008 also includes a $300,000 impairment loss of goodwill at our pharmacy located in California and the write down of fixed assets of $1.8 million at one of our assisted living communities.

Year ended December 31, 2007 versus year ended December 31, 2006

        The following tables present an overview comparison of our operations for the years ended December 31, 2007 and 2006:

Senior living communities:

	For the years ended December 31,
(dollars in thousands, except per day amounts)	2007			2006			$ Change			% Change
Senior living revenue	$	809,934		$	744,897		$	65,037			8.7	%
Senior living wages and benefits		(410,447	)		(382,093	)		(28,354	)		7.4	%
Other senior living operating expenses		(202,194	)		(186,396	)		(15,798	)		8.5	%
Management fees to SLS		—			(8,744	)		8,744			(100	)%
Termination expense for certain SLS management agreements		—			(129,913	)		129,913			(100	)%
Rent expense		(118,902	)		(106,781	)		(12,121	)		11.4	%
Depreciation and amortization		(9,386	)		(7,704	)		(1,682	)		21.8	%
Interest and other expense		(1,454	)		(2,768	)		1,314			(47.5	)%
Interest and other income		206			442			(236	)		(53.4	)%
Gain on extinguishment of debt		4,491			—			4,491			—
Senior living income from continuing operations	$	72,248		$	(79,060	)	$	151,308			(191.4	)%
No. of communities (end of period)		161			160			1			0.6	%
No. of living units (end of period)		17,906			17,935			(29	)		(0.2	)%
Occupancy		90.3	%		90.9	%		n/a			(0.6	)%
Average daily rate	$	137.24		$	125.18		$	12.06			9.6	%
Percent of senior living revenue from Medicare		15.3	%		14.1	%		n/a			1.2	%
Percent of senior living revenue from Medicaid		18.2	%		19.4	%		n/a			(1.2	)%
Percent of senior living revenue from private and other sources		66.5	%		66.5	%		n/a			—

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Comparable Communities (communities that we operated continuously since January 1, 2006):

	For the years ended December 31,
(dollars in thousands, except per day amounts)	2007			2006			$ Change			% Change
Senior living revenue	$	772,602		$	735,122		$	37,480			5.1	%
Senior living community expenses	$	(581,624	)	$	(561,000	)	$	(20,624	)		3.7	%
No. of communities (end of period)		149			149			—			—
No. of living units (end of period)		16,594			16,594			—			—
Occupancy		90.8	%		91.1	%		n/a			(0.3	)%
Average daily rate	$	140.48		$	133.23		$	7.25			5.4	%
Percent of senior living revenue from Medicare		15.8	%		14.1	%		n/a			1.7	%
Percent of senior living revenue from Medicaid		18.9	%		19.3	%		n/a			(0.4	)%
Percent of senior living revenue from private and other sources		65.3	%		66.6	%		n/a			(1.3	)%

Rehabilitation hospitals:

	For the years ended December 31,
(dollars in thousands)	2007			2006			$ Change			% Change
Hospital revenue	$	102,005		$	25,494		$	76,511			300.1	%
Hospital expenses		(92,449	)		(22,954	)		(69,495	)		302.8	%
Rent expense		(10,288	)		(2,475	)		(7,813	)		315.7	%
Depreciation and amortization		(1,085	)		(102	)		(983	)		963.7	%
Hospital loss from continuing operations	$	(1,817	)	$	(37	)	$	(1,780	)		4,810.8	%

Corporate and Other(1):

	For the years ended December 31,
(dollars in thousands)	2007			2006			$ Change			% Change
Pharmacy revenue	$	60,985		$	45,195		$	15,790			34.9	%
Pharmacy expenses		(58,012	)		(44,579	)		(13,433	)		30.1	%
Depreciation and amortization		(3,124	)		(2,045	)		(1,079	)		52.8	%
General and administrative(2)		(43,373	)		(33,829	)		(9,544	)		28.2	%
Interest and other income		5,946			6,364			(418	)		(6.6	)%
Interest and other expense		(5,348	)		(1,596	)		(3,752	)		235.1	%
Provision for income taxes		(1,410	)		—			(1,410	)		—
Corporate and Other loss from continuing operations	$	(44,336	)	$	(30,490	)	$	(13,846	)		45.4	%

(1)

Corporate and other includes operations that we do not consider a significant, separately reportable segment of our business and income and expenses that are not attributable to a specific segment.

(2)

General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and third party service expenses.

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Consolidated:

		For the years ended December 31,
(dollars in thousands)		2007			2006			$ Change			% Change
Summary of revenue:
	Senior living revenue	$	809,934		$	744,897		$	65,037			8.7	%
	Hospital revenue		102,005			25,494			76,511			300.1	%
	Corporate and Other		60,985			45,195			15,790			34.9	%
Total revenue		$	972,924		$	815,586		$	157,338			19.3	%
Summary of income (loss) from continuing operations:
	Senior living communities	$	72,248		$	(79,060	)	$	151,308			191.4	%
	Rehabilitation hospitals		(1,817	)		(37	)		(1,780	)		4,810.8	%
	Corporate and Other		(44,336	)		(30,490	)		(13,846	)		45.4	%
Income from continuing operations		$	26,095		$	(109,587	)	$	135,682			(123.8	)%

Year ended December 31, 2007, Compared to year ended December 31, 2006

Senior living communities:

        The 8.7% increase in senior living revenues for the year ended December 31, 2007 was due primarily to revenues from the 11 communities we acquired in the third and fourth quarters of 2006, the one community we acquired in April 2007 and higher per diem charges to residents, partially offset by a decrease in occupancy. The 5.1% increase in senior living revenue at the communities that we operated continuously from January 1, 2006 was due primarily to higher per diem charges to residents, partially offset by a decrease in occupancy.

        Our 7.4% increase in senior living wages and benefits costs for the year ended December 31, 2007 was primarily due to wages and benefits at the 11 communities we acquired in the third and fourth quarters of 2006, the one community we acquired in April 2007 and wage increases. The 8.5% increase in other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, primarily results from the operating expenses at the 11 communities we acquired in the third and fourth quarters of 2006, the one community we acquired in April 2007, and increased charges from third parties. The senior living community expenses for the senior living communities that we operated continuously from January 1, 2006 have increased by 3.7%, principally due to wage and benefit increases. Management fees to SLS were eliminated after our termination of the last of our management agreements with SLS in 2006. The 11.4% rent expense increase in 2007 over 2006 is due to the communities that we began to lease in 2006, percentage rent payment in 2007 and our payment of additional rent for senior living community capital improvements purchased by Senior Housing since January 1, 2006.

        The 21.8% increase in depreciation and amortization for the year ended December 31, 2007 was primarily attributable to our purchase of furniture and fixtures for our communities as well as the one community we acquired in April 2007.

        Our interest and other expense decreased by 47.5% for the year ended December 31, 2007 because in February 2007 we prepaid six HUD insured mortgages that were secured by five of our communities. We recognized a net gain of $3.6 million on extinguishments of these mortgages that consisted of the elimination of $4.3 million of debt premium offset by $725,000 in prepayment penalties. In April 2007, we prepaid an additional HUD insured mortgage that was secured by one of our communities. We recognized a net gain of $934,000 on extinguishment of this mortgage that consisted of the elimination of $1.0 million of debt premium offset by $116,000 in prepayment penalties. This decrease was partially offset by interest we incurred on a $4.6 million HUD insured mortgage that we assumed in connection with the community we acquired in April 2007.

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Rehabilitation hospitals:

        The increase in hospital revenues, hospital expenses, rent expense and depreciation and amortization expense from our hospitals in 2007 over 2006 was a result of our beginning operations at our hospitals in October 2006. We are currently experiencing losses from our operation of these rehabilitation hospitals and we may be unable to operate these hospitals profitably. The percentage of patients at one of our hospitals who are required to meet certain Medicare criteria increased to 65% on July 1, 2007 and this percentage requirement was scheduled to increase to 65% at the other hospital on January 1, 2008, and to 75% at both of our hospitals in the future. However, in December 2007 this Medicare requirement was retroactively rolled back to 60% for both hospitals for fiscal years starting on and after July 1, 2007. We believe that we are in compliance with these current Medicare requirements.

Corporate and other:

        The 34.9% increase in pharmacy revenues and 30.1% increase in pharmacy expenses for the year ended December 31, 2007 was primarily the result of our acquiring one pharmacy in each of May 2006 and November 2006.

        The 28.2% increase in general and administrative expenses for the year ended December 31, 2007 over the same period in 2006 primarily results from the administrative costs associated with the 11 communities we began to operate in 2006, from the communities we began to operate in 2006 that were previously managed for us by SLS and from the rehabilitation hospitals we began to operate in October 2006.

        The 52.8% increase in depreciation and amortization expense for the year ended December 30, 2007 over the same period in 2006 is primarily attributable to increases in assets associated with our pharmacy acquisitions.

        Our interest and other income decreased by $418,000, or 6.6%, for the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily as a result of a $2.4 million payment from HealthSouth Corporation in 2006 to settle numerous transition matters and claims related to our assumption of the operations of the two rehabilitation hospitals, offset by interest income on higher levels of investable cash in 2007 resulting from our Notes offering.

        Our interest and other expense increased by $3.8 million for the year ended December 31, 2007, due to the issuance of the Notes in October 2006.

        For the year ended December 31, 2007, we recognized taxes of $1.4 million, which includes $1.2 million of alternative minimum taxes and certain state taxes that are payable without regard to our tax loss carry forwards and $239,000 of a deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes.

Discontinued operations:

        Loss from discontinued operations for the year ended December 31, 2007 decreased $4.3 million to $2.8 million, compared to a loss of $7.1 million for the year ended December 31, 2006. The losses in both years are primarily due to operating expenses we incurred as a result of our shutting down operations at two communities in each of 2007 and 2006 and two pharmacies in 2007. These losses were lower in 2007 because we sold two of the communities which incurred losses in 2006, in 2006.

LIQUIDITY AND CAPITAL RESOURCES

        For the three months and year ended December 31, 2008, we recorded $1.8 million and $46.1 million, respectively, of cash from continuing operations. At year end we had unrestricted cash and cash equivalents of $16.1 million. We had no amounts outstanding on our $40.0 million revolving line of credit and $21.9 million outstanding on $38.0 million available under our line with UBS. We believe that our operations will continue to provide us with adequate cash flow to run our businesses

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and invest in and maintain our properties. If, however, our revenues continue to decline and we are unable to generate positive cash flow for some period of time, we intend to further reduce costs across the Company and to borrow funds from our outstanding lines of credit.

Recent Developments: Investments

        At December 31, 2008, we had $62.9 million invested in student loan ARS with a par value of $74.8 million which we classified as long term investments in trading securities. Starting in February 2008, auctions affecting our ARS failed to close on their settlement dates. On March 31, 2008, we reclassified our ARS from current assets to non-current assets due to our belief that the market for student loan collateralized instruments may take in excess of 12 months to recover.

        Our ARS consist primarily of bonds issued by various entities to fund student loans pursuant to the Federal Family Education Loan Program. The maturities of our ARS range from 2032 to 2047. All of our ARS were rated "AAA" by at least one nationally recognized debt rating agency when we made these investments, and, to our knowledge, none of these ratings have been reduced. Based upon our analysis of impairment factors through December 31, 2008, we have recognized an unrealized loss of $12.0 million on our investments in these securities.

        The funds which we invested in ARS were held to invest in potential acquisitions. Accordingly, these funds are not needed to fund our current operations and we do not expect the failure of auctions affecting our ARS holdings to have a material adverse impact upon our day to day operations.

        In November 2008, we entered into a settlement with UBS regarding our ARS made through UBS. The settlement offer was made in connection with UBS' settlement with the Securities and Exchange Commission, the New York Attorney General and other state agencies related to UBS' sale and marketing of ARS. Under the terms of the settlement, we obtained a put right pursuant to which UBS will repurchase our ARS at 100% of par value (including accrued and unpaid interest, if any) at our option during the period beginning June 2010 and ending July 2012. In certain circumstances, UBS has the right to purchase these securities earlier at par. As part of the settlement terms, we released UBS from all claims arising from its marketing of the ARS to us. In connection with the settlement, UBS provided us with a non-recourse credit facility secured by our investments in these ARS. The principal amount available to us under the credit facility is up to 60% of the market value of the ARS from time to time. As of December 31, 2008, the estimated fair value of our investment in ARS was $62.9 million and $21.9 million was outstanding under the credit facility. Our interest rate under the credit facility varies depending on the interest payable to us on the ARS, but will not exceed LIBOR plus 50 basis points.

        We expect to sell our ARS by exercising our put right with UBS. However, if we do not exercise our put right before July 2, 2012, it will expire and UBS will have no further right or obligation to buy our ARS. We recorded a gain of $11.0 million for the fair value of the put right we received. The value of the put right is the difference between our estimated value of UBS' repurchase obligation and our estimate of the fair value of the ARS. Accordingly, the value of the put right may increase or decrease in the future as our estimate of the value of UBS' repurchase obligation and our estimate of the fair value of the ARS changes. We will reassess the fair values in future reporting periods based on several factors, including auction and investment redemption experience, changes in credit ratings of UBS and our ARS investments, market risk and other factors. Based on our expected operating cash flows and other sources of cash, we do not believe that illiquidity of our ARS will have a material impact on our overall ability to meet our liquidity needs.

        In January 2009, we purchased and retired $46.5 million par value, or 36.8%, of our outstanding Notes for $20.0 million, plus accrued interest. We financed this purchase, principally by borrowings under our UBS credit facility. As a result of this transaction, we expect to record a gain of approximately $25.1 million net of related unamortized costs on early extinguishment of debt in the first quarter of 2009.

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Assets and Liabilities

        Our total current assets at December 31, 2008 were $114.3 million, compared to $186.0 million at December 31, 2007. At December 31, 2008, we had cash and cash equivalents of $16.1 million compared to $31.0 million at December 31, 2007. Our current liabilities were $129.1 million at December 31, 2008 compared to $104.1 million at December 31, 2007. The decrease in current assets was primarily the result of our reclassifying our investments in ARS from current to long term assets.

        Cash provided from continuing operations was $46.1 million at December 31, 2008 compared to $44.3 million at December 31, 2007. Excluding cash flows associated with our investment securities, cash provided from continuing operations was $58.9 million and $63.1 million for the years ended December 31, 2008 and 2007, respectively. Acquisitions of property plant and equipment, including the acquisition of senior living communities, on a net basis after considering the proceeds from sales of fixed assets to Senior Housing, were $73.1 million and $25.8 million for the years ended December 31, 2008 and 2007, respectively. During the years ended 2008 and 2007, as a result of an early repayment of debt, we repaid long term debt of $2.7 million and $28.8 million, respectively.

Acquisitions (including the initiation of long term leases) and Related Financings

        In 2006, we began to lease from Senior Housing 11 senior living communities with 1,284 units which Senior Housing acquired from third parties. Three of these communities are assisted living communities, three are assisted living communities which offer some skilled nursing services, three are only independent living communities and two are congregate care retirement communities which offer independent living, assisted living and skilled nursing services. Our initial rent payable to Senior Housing for these 11 communities is $9.0 million per year, plus future increases calculated as a percentage of the revenue increases at these communities after 2007.

        In April 2007, we acquired a 48 unit assisted living community located in Tennessee for $5.0 million. We financed the acquisition by assuming a $4.5 million non recourse HUD insured mortgage and paying the balance of the purchase price with cash on hand. The interest rate on the assumed HUD insured mortgage is 7.65%. Residents pay substantially all of our charges at this community from their private resources.

        In 2008, we leased from Senior Housing 37 senior living communities with a total of 3,273 living units. Twenty-seven of these communities are assisted living communities (one of which offers some skilled nursing services and one of which offers some independent living services), eight are independent living communities and two are continuing care retirement communities which offer independent living, assisted living and skilled nursing services. Our rent payable to Senior Housing for these 37 communities is $38.2 million per year, plus future increases calculated as a percentage of the revenue increases for 30 of these communities after 2010. We added 21 of these communities to our existing lease with Senior Housing which has a term ending in 2024, with a renewal option thereafter, and we added nine of these communities to our lease with Senior Housing which has a term ending in 2022, with a renewal option thereafter.

        In connection with one of the leases we initiated in 2008, we also acquired from the prior owner of the communities its ownership interest in certain operating companies, working capital, certain long term liabilities, and operating practices and processes, especially in the memory care area. We accounted for this transaction as a business combination in accordance with SFAS 141 and after allocating the purchase price to applicable assets and liabilities based on their fair value, recorded as goodwill the $1.0 million excess consideration over fair value of identifiable assets.

        Included in the 37 senior living communities described above are seven assisted living communities with 717 units located in Pennsylvania and New Jersey that were previously operated by NewSeasons Assisted Living Communities, Inc., or NewSeasons, under a lease from Senior Housing. We leased these communities in July 2008 for annual rent of approximately $7.6 million per year. In consideration of our lease assumption, NewSeasons paid us $10.0 million and transferred title to certain personal property located at the communities. We recorded the NewSeasons consideration as a deferred credit on our balance sheet, which we are amortizing as a reduction of rent expense over the remaining lease term.

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        Simultaneously with leasing these seven communities from Senior Housing, we purchased three additional NewSeasons communities from Senior Housing with 278 units located in Pennsylvania and New Jersey for $21.4 million. We allocated the purchase price of these communities to land, building and equipment. The purchase price of these properties equaled the seller's net book value and the fair market value of these properties based on appraisals by an independent appraiser. The ten NewSeasons communities complement our business strategy of focusing our operations in high quality senior living assets where residents pay for our services with private resources. The majority of the revenues from these communities come from residents' private resources.

        In December 2008, we acquired seven independent and assisted living communities, with a total of 628 living units, located in North Carolina and South Carolina for a purchase price of $44.0 million plus closing costs. We financed the acquisition with cash on hand and drawings under our recently established credit facility with UBS.

Our Leases with Senior Housing

        As of December 31, 2008, we leased 181 senior living communities and two rehabilitation hospitals from Senior Housing under seven leases (in four combinations). Our leases with Senior Housing require us to pay minimum rent of $172.9 million annually and percentage rent for most senior living communities but not for our rehabilitation hospitals. We paid approximately $3.3 million and $2.1 million in percentage rent to Senior Housing for the years ended December 31, 2008 and 2007, respectively.

        Upon our request, Senior Housing may purchase capital improvements made at the properties we lease from Senior Housing and increase our rent pursuant to contractual formulas. During the year ended December 31, 2008, Senior Housing reimbursed us $69.4 million for capital expenditures made at the properties leased from Senior Housing and these purchases resulted in our annual rent being increased by $5.8 million.

        On June 30, 2008, we and Senior Housing realigned our three principal combination leases. The aggregate rent payable by us to Senior Housing is unchanged as a result of this lease realignment and the rent on future sales of property to Senior Housing, if and as Senior Housing purchases improvements to the leased properties, will be set at the greater of 8.0% per annum or the 10 year Treasury rate plus 300 basis points.

Our Revenues

        Our revenues from services to residents at our senior living communities and patients of our rehabilitation hospitals and clinics are our primary source of cash to fund our operating expenses, including rent, principal and interest payments on our debt and our capital expenditures.

        During the past year, our occupancy has been negatively affected by worsening economic conditions in many of the markets that we serve. These conditions appear to be impacting many companies both within and outside of our industry and there can be no certainty as to when current economic conditions may improve.

        At some of our communities and at our rehabilitation hospitals and clinics, operating revenues for skilled nursing and rehabilitation services are received from the Medicare and Medicaid programs. Medicare and Medicaid revenues were earned primarily at our SNFs and our two rehabilitation hospitals. We derived 35% and 38% of our revenues from these programs for the years ended December 31, 2008 and 2007, respectively.

        Our net Medicare revenues from services to senior living community residents totaled $137.3 million and $124.5 million for the years ended December 31, 2008 and 2007, respectively. In October 2008 and 2007, our senior living community Medicare rates increased by approximately 3.5%

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and 3.6%, respectively, over the prior period. Our net Medicaid revenues from services to senior living community residents totaled $156.6 million and $147.1 million for the years ended December 31, 2008 and 2007, respectively. Federal agencies and some members of Congress have proposed Medicare and Medicaid policy changes and freezes on rate increases or rate reductions to be phased in during the next several years. In addition, some of the states in which we operate either have not raised Medicaid rates by amounts sufficient to offset increasing costs or are expected to freeze or reduce Medicaid rates. The current recession and worsening economic conditions are causing budget shortfalls in many states, increasing the likelihood of Medicaid rate reductions, freezes on rate increases, or increases that are insufficient to offset increasing operating costs. The magnitude of the potential Medicare and Medicaid rate reductions and the impact on us of the failure of these programs to increase rates to match increasing expenses, as well as the impact on us of the potential Medicare and Medicaid policy changes, cannot currently be estimated, but they may be material to our operations and may affect our future results of operations. Effective as of October 1, 2008, CMS increased Medicare rates for SNFs by approximately 3.5% for the federal fiscal year ending September 30, 2009, under a rule adding an annual update to account for inflation in the cost of goods and services included in a SNF stay. CMS had proposed a recalibration of the payment categories for SNFs, which would have resulted in a net reduction of rates by approximately 0.3% in federal fiscal year 2009, but delayed the recalibration in order to continue to evaluate the data. On July 15, 2008, as part of the Medicare Improvements for Patients and Providers Act of 2008, Congress enacted an 18-month extension of the Medicare outpatient therapy exception process through the end of 2009, under which Medicare may approve payments for medically necessary outpatient therapies which exceed the Medicare payment caps. This July 15, 2008 law forestalls a reduction in certain therapy revenues that we have historically realized.

        We began to operate two rehabilitation hospitals in October 2006. Approximately 63% and 69% of our revenues from these hospitals came from the Medicare and Medicaid programs for the years ended December 31, 2008 and 2007, respectively. In October 2007, the Medicare rates at our IRFs increased by approximately 3.2% over the prior period. However, this increase was later rescinded and, for payments on and after April 1, 2008, the Medicare rate increase was reset to zero per cent for federal fiscal years 2008 and 2009. Also, on July 1, 2008, CMS issued a rule updating the Medicare IRF prospective rate formulas for the federal fiscal year 2009. The rule revises the weights assigned to patient case-mix groups that are used to calculate rates under the IRF prospective payment system, and re-sets the outlier threshold to maintain estimated outlier payments at 3% of total estimated IRF payments for the year. CMS estimated that the rule would result in a decrease of 0.7% to total Medicare payments to IRFs for the year. In May 2004, CMS issued the "75% Rule" establishing revised Medicare criteria that rehabilitation hospitals are required to meet in order to participate as IRFs in the Medicare program. As recently amended, the rule requires that for cost reporting periods starting on and after July 1, 2006, 60% of a facility's inpatient population must require intensive rehabilitation services for one of the CMS's designated medical conditions. An IRF that fails to meet the requirements of this rule is subject to reclassification as a different type of healthcare provider; and the effect of such reclassification would be to lower Medicare payment rates. As of December 31, 2008 and February 27, 2009, we believe we are in compliance with the CMS requirements to remain an IRF. However, the actual percentage of patients at these hospitals who meet these Medicare requirements may not be or remain as high as we believe or anticipate or may decline. Our failure to remain in compliance, or a CMS finding of noncompliance, if it occurs, will result in our receiving lower Medicare rates than we currently receive at our hospitals.

Termination of SLS Management Agreements

        To better understand the results of our ongoing operating business for the year ended December 31, 2006 and to enable investors to more readily compare our operating results from 2006 to subsequent years, we believe it may be useful to consider what our results of operations would have been in 2006, excluding our termination payments to SLS. The information in the following chart should not be considered as an alternative to income (loss) from continuing operations or income (loss)

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from continuing operations per share or any other operating or performance measure established by accounting principles generally accepted in the United States.

	For the year ended December 31, 2006
Loss from continuing operations	$	(109,587	)
Exclude termination expense for certain Sunrise management agreements		129,913
Income from continuing operations excluding termination charges	$	20,326

Insurance

        Increases over time in the costs of insurance, especially tort liability insurance, workers' compensation and employee health insurance, have had an adverse impact upon our results of operations. Although we self insure a large portion of these costs, our costs have increased as a result of the higher costs that we incur to settle claims and to purchase re-insurance for claims in excess of the self insurance amounts. These increased costs may continue in the future. For more information about our existing insurance see Item 1 "Business—Insurance" of this Annual Report on Form 10-K. To obtain control over our insurance costs, we and other companies to which RMR provides management services have recently formed an insurance company which may begin to underwrite certain of our insurance requirements. For more information about this insurance initiative see Item 9B of this Annual Report on Form 10-K.

Pharmacies

        Between 2003 and 2006, we acquired six institutional pharmacies and one mail order pharmacy located in Wisconsin, Nebraska, California, South Carolina and Virginia. Our total purchase price for these pharmacies was $15.8 million, including $5.9 million in 2006. Certain of our pharmacy businesses have been discontinued, as described below.

Rehabilitation Hospitals

        We commenced operations at our two hospitals on October 1, 2006.

Discontinued Operations

        During 2007, we agreed with Senior Housing that it should sell two assisted living communities in Pennsylvania, which we currently lease. We and Senior Housing are in the process of selling these assisted living communities and, upon their sale, our annual rent payable to Senior Housing will decrease by an amount equal to 9.5% of the net proceeds of the sale to Senior Housing. As of December 31, 2007, we have disposed of substantially all of our assets and settled all liabilities related to their two senior living communities.

        In December 2007, we decided to sell our institutional pharmacy located in California and our mail order pharmacy located in Nebraska. The assets and liabilities related to these two pharmacies are presented separately in the consolidated balance sheet. We sold the institutional pharmacy located in California on January 15, 2009. We have been unable to sell the mail order pharmacy on acceptable terms and we expect to discontinue all its operations on or about March 31, 2009.

        We have reclassified the consolidated statement of operations for all periods presented to show the results of operations of the communities and pharmacies which have been sold or are expected to be

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sold as discontinued. A summary of the operating results of these discontinued operations included in the financial statements for the years ended December 31, 2008, 2007 and 2006 is:

	For the years ended December 31,
	2008			2007			2006
Revenues	$	11,902		$	12,910		$	30,829
Expenses		16,824			15,679			37,907
Net loss	$	(4,922	)	$	(2,769	)	$	(7,078	)

Contractual Obligations Table

        As of December 31, 2008, our contractual obligations were as follows (dollars in thousands):

	Payment due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Contractual Obligations
Debt Obligations(1)	$	160,965	$	149	$	324	$	364	$	160,128
Operating Lease Obligations(2)		2,712,936		174,057		348,114		348,114		1,842,651
Other Long Term Liabilities Reflected on our Balance Sheet(3)		27,961		—		17,061		6,905		3,995
Total	$	2,901,862	$	174,206	$	365,499	$	355,383	$	2,006,774

(1)

Debt Obligations consist of the amounts due under several HUD insured mortgages, our UBS credit facility as well as our outstanding Notes.

(2)

Operating Lease Obligations consist of the minimum lease payments to Senior Housing and HCPI through the lease terms ending between 2014 and 2026. These amounts do not include percentage rent that may become payable under these leases.

(3)

Other Long Term Liabilities Reflected on our balance sheet are primarily insurance reserves related to workers compensation and professional liability insurance.

Equity and Debt Financings and Covenants

        In April 2006, we issued 11,500,000 common shares in an underwritten public offering raising net proceeds of $114.0 million. We used a portion of the proceeds raised in this offering to pay $89.8 million in termination fees for 10 SLS management agreements we terminated in June 2006, and we added the remainder to our cash balances.

        In April 2007, we financed the acquisition of a 48 unit assisted living community located in Tennessee for $5.0 million by assuming a $4.5 million non recourse HUD insured mortgage and paying the balance of the purchase price with cash on hand. The coupon interest rate on the assumed HUD insured mortgage is 7.65% and its effective market rate is 5.75%.

        In October 2006, we issued $126.5 million principal amount of Notes. Our net proceeds from this issuance were approximately $122.6 million. We used the proceeds raised to pay $40.1 million in termination fees for the remaining 20 management agreements with SLS, and we added the remainder to our cash balances. These Notes are convertible into our common shares at any time. The initial conversion rate, which is subject to adjustment, is 76.9231 common shares per $1,000 principal amount of Notes, which represents an initial conversion price of $13.00 per share. The Notes are guaranteed by certain of our wholly owned subsidiaries. These Notes mature on October 15, 2026. We may prepay the Notes at any time after October 20, 2011 and the Note holders may require that we purchase all or a portion of these Notes on each of October 15 of 2013, 2016 and 2021. We issued these Notes pursuant

47

to an indenture which contains various customary covenants. As of December 31, 2008 and February 27, 2009, we believe we are in compliance with all applicable covenants of this indenture.

        In January 2009, we purchased and retired $46.5 million par value, or 36.8%, of our outstanding Notes for approximately $20.0 million plus accrued interest. We financed this purchase, principally by borrowings under our UBS credit facility. As a result of this transaction, we expect to record a gain of approximately $25.1 million net of related unamortized costs on early extinguishment of debt in the first quarter of 2009.

        We have a $40.0 million revolving secured credit facility with a financial institution available for general business purposes, including acquisitions and working capital, which is currently scheduled to expire in May 2010. The amount we are able to borrow at any time is subject to limitations based upon qualifying collateral. We are the borrower under this revolving credit facility and certain of our subsidiaries guarantee our obligations under the facility, which is secured by our and our guarantor subsidiaries' accounts receivable, deposit accounts and related assets. The facility contains covenants requiring us to maintain collateral, minimum net worth and certain other financial ratios; and this facility also places limits on our ability to incur or assume debt or create liens with respect to certain of our assets and has other customary provisions. In certain circumstances and subject to available collateral and lender approvals, the maximum amounts which we may borrow under this credit facility may be increased to $80.0 million. The termination date may be extended twice, in each case by twelve months upon our payment of extension fees and other conditions, including lender's approvals. As of December 31, 2008 and February 27, 2009, no amounts were outstanding with $40.0 million available under this credit facility. As of December 31, 2008 and February 27, 2009, we believe we are in compliance with all applicable covenants under this credit facility.

        We may borrow additional amounts under the facility before it expires in May 2010. If we have outstanding borrowings under the facility and are unable to extend it when it expires, we would need to explore alternatives for the repayment of amounts due. Such alternatives may include incurring additional debt and engaging in sale leaseback transactions relating to some or all of our owned communities. While we believe we will be able to extend this facility or raise funds to repay any outstanding borrowings, there can be no assurance that we will be able to do so or that our cost associated with any such transaction will be reasonable. If current capital market conditions continue or worsen, our lender under this facility may be unable or unwilling to fund advances which we request or we may not be able to access additional capital. Impacts such as these and general capital market conditions could impair our ability to make future acquisitions and make our current growth plans unachievable. Also, the current market conditions have led to materially increased credit spreads which, if they continue, may result in a material increase in the interest rate under this facility when it is renewed or extended.

        In November 2008, we entered into a non-recourse credit facility with UBS which is available for acquisitions, working capital and general business purposes. The amount we are able to borrow is 60% of the fair value of the ARS which are collateral for the loan and such amount may vary over time. Our interest rate under the credit facility will also vary depending on the interest payable to us on the ARS, but will not exceed LIBOR plus 50 basis points. As of December 31, 2008, the estimated fair value of our investment in ARS was $62.9 million. As of December 31, 2008 and February 27, 2009, we have $21.9 million and $37.7 million outstanding under this credit facility, respectively and $15.9 million and approximately $2.1 million remained available for drawing as of December 31, 2008 and February 27, 2009, respectively. As of December 31, 2008 and February 27, 2009 we believe we are in compliance with all applicable covenants under this credit facility.

        In 2007, we prepaid seven mortgages that were secured by six of our senior living communities. We paid $28.9 million to retire these seven mortgages, which consisted of approximately $28.0 million in principal and interest and $840,000 in prepayment penalties. Because we had carried these mortgages at a premium to their face value, we recognized a net gain of $4.5 million in connection with the early extinguishment of debt.

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        In September 2008, we prepaid two HUD insured mortgages that were secured by one of our senior living communities. We paid $2.4 million in principal and interest to retire these two mortgages, and no prepayment penalty was required. Because we had recorded these mortgages at a premium to their face value under applicable accounting rules, we recognized a net gain of $743,000 in connection with this early extinguishment of debt.

        At December 31, 2008, three of our communities remained encumbered by HUD insured mortgages totaling $12.6 million. The weighted average interest rate on these mortgages is 6.22%. Payments of principal and interest are due monthly until maturities at varying dates ranging from June 2035 to July 2043. These mortgages contain standard HUD mortgage covenants. As of December 31, 2008 and February 27, 2009, we believe we are in compliance with all covenants of these mortgages.

Off Balance Sheet Arrangements

        As of December 31, 2008, we had no off balance sheet arrangements, commercial paper, derivatives, swaps, hedges, third party guarantees, material joint ventures or partnerships.

Related Person Transactions

        We were a 100% owned subsidiary of Senior Housing before December 31, 2001. On December 31, 2001, Senior Housing distributed substantially all of our then outstanding shares to its shareholders. At the time of our spin off, all of the persons serving as our directors were trustees of Senior Housing. In order to effect this spin off and to govern relations after the spin off, we entered into agreements with Senior Housing and others. Since then we have entered into various leases and other agreements which confirm and modify these undertakings. Among other matters, these agreements provide that:

•

so long as Senior Housing remains a real estate investment trust, or a REIT, we may not waive the share ownership restrictions in our charter on the ability of any person or group to acquire more than 9.8% of any class of our equity shares without the consent of Senior Housing;

•

so long as we are a tenant of Senior Housing, we will not permit nor take any action that, in the reasonable judgment of Senior Housing, might jeopardize the tax status of Senior Housing as a REIT;

•

Senior Housing has the option, upon the acquisition by a person or group of more than 9.8% of our voting stock and upon other change in control events affecting us, as defined in those documents including, in certain of the Senior Housing leases, the adoption of any proposal or the election to our board of directors of any individual if such proposal or individual was not approved, nominated or appointed, as the case may be, by vote of a majority of our directors in office immediately prior to the making of such proposal or the nomination or appointment of such individual, to cancel all of our rights under the leases we have with Senior Housing; and

•

so long as we have a shared services agreement with RMR we will not acquire or finance any real estate without first giving Senior Housing or any other publicly owned REIT or other entity managed by RMR, the opportunity to acquire or finance real estate investments of the type in which Senior Housing or any other publicly owned REIT or other entity managed by RMR, respectively, invests.

        Senior Housing is our largest landlord. In addition to providing management services to us, RMR also manages Senior Housing. One of our directors, Mr. Barry Portnoy, is currently a managing trustee of Senior Housing. Because of these and other relationships we and Senior Housing may be considered related persons. Also, because of these relationships all of our transactions with Senior Housing are separately approved by our Independent Directors and Senior Housing's Independent Trustees.

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        Of the 210 senior living communities we operated on December 31, 2008, 181 are leased from Senior Housing for total annual rent of $161.7 million. In addition, we also lease our two rehabilitation hospitals from Senior Housing for a total minimum rent of $11.2 million.

        Since January 1, 2008, we have entered into several transactions with Senior Housing, including:

•

During the three months ended March 31, 2008, we leased 19 senior living properties with a total of 1,692 units from Senior Housing for initial rent of $21.8 million and added them to what we now refer to as Senior Housing lease no. 1 and lease no. 3, which have current terms expiring in 2022 and 2024, respectively. Percentage rent, based on increases in gross revenues at these properties, will commence in 2010.

•

On June 30, 2008, we realigned three of our leases with Senior Housing. Lease no. 1 now includes 100 properties, including nine properties which we first leased during the first quarter of 2008. This lease includes independent living communities, assisted living communities and SNFs, and expires in 2022. Lease no. 2 now includes 32 properties, including independent living communities, assisted living communities, SNFs and our two rehabilitation hospitals, and expires in 2026. Lease no. 3 now includes 44 properties, including 10 properties acquired during the first quarter of 2008, 10 properties acquired during the third quarter of 2008 and one property acquired on November 1, 2008 described below. This lease includes independent living communities, assisted living communities and SNFs and expires in 2024. The total rent payable by us to Senior Housing for these properties was unchanged as a result of this lease realignment. The increased rent payable for these three leases, if and as Senior Housing purchases improvements we make to the leased properties, will be the greater of 8.0% per annum or the 10 year Treasury rate plus 300 basis points, but not to exceed 11.5%.

•

On July 1, 2008, we acquired three assisted living properties with 259 living units that were formerly operated by NewSeasons from Senior Housing for $21.4 million and we assumed the NewSeasons lease obligations to Senior Housing for the remaining seven properties that NewSeasons formerly operated. The rent payable by us for these seven properties is approximately $7.6 million per annum under what we refer to as lease no. 4 between us and Senior Housing. In consideration of our lease assumption, NewSeasons paid us $10.0 million and transferred title to certain personal property located at the communities. We recorded the NewSeasons consideration as a deferred credit on our balance sheet, which we are amortizing as a reduction of rent expense over the remaining lease term.

•

On August 1, 2008, we leased two senior living communities from Senior Housing until 2024 under our Senior Housing lease no. 3 described above. As a result, our annual rent under that lease increased by $1.2 million. Percentage rent, based on increases in gross revenues at these properties, will commence in 2010.

•

On September 1, 2008, we leased eight senior living communities with a total of 451 units until 2024 under our Senior Housing lease no. 3 described above. As a result, our annual rent under this lease increased by $5.0 million. Percentage rent, based on increases in gross revenues at these properties, will commence in 2010.

•

On November 1, 2008, we leased one senior living community with a total of 252 units from Senior Housing under lease no. 3, which has a term expiring in 2024. As a result, our annual rent under this lease increased by $2.3 million. Percentage rent, based on increases in gross revenues at this property, will commence in 2010.

•

During 2008, pursuant to the terms of our leases with Senior Housing, Senior Housing purchased approximately $69.4 million of improvements made to our properties leased from Senior Housing, and, as a result, the annual rent payable to Senior Housing by us increased by approximately $5.8 million.

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        RMR provides certain management and administrative services to us under a shared services agreement which is subject to annual review and approval by our Independent Directors. RMR is compensated at an annual rate equal to 0.6% of our total revenues. In May 2008, the shared services agreement was amended to include compensation for personnel involved with management information systems, or MIS. RMR is compensated at a rate equal to 80% of the employment expenses of RMR's employees, other than its Chief Information Officer, actively engaged in servicing MIS. Aggregate fees paid by us to RMR for management, administrative and information system services during 2008, 2007 and 2006, were $8.3 million, $6.1 million and $4.9 million, respectively. In addition, RMR also provides the internal audit function for us and for other publicly owned companies to which it provides management services. Our audit committee appoints our director of internal audit and our compensation committee approves his salary. Our compensation committee also approves the allocated costs we pay with respect to our internal audit function. Our pro rata share of RMR's costs in providing that function for the years ended 2008, 2007 and 2006 was $223,000, $169,000 and $173,000, respectively. The fact that RMR has responsibilities to other entities, including our most significant landlord, Senior Housing, could create conflicts; and in the event of such conflicts between Senior Housing and us, our shared services agreement with RMR allows RMR to act on behalf of Senior Housing rather than on our behalf. A termination of our shared services agreement is an event of default under our revolving credit facility. RMR is beneficially owned by Messrs. Barry M. Portnoy, one of our managing directors, and his son, Adam D. Portnoy, who is President and Chief Executive Officer and a director of RMR and a managing trustee of Senior Housing. Messrs. Barry Portnoy and Gerard Martin, our managing directors, are directors of RMR.

        Our Chief Executive Officer and Chief Financial Officer are also officers and employees of RMR. These officers devote a substantial majority of their business time to our affairs and the remainder to RMR's business which is separate from our business. We believe the compensation we paid to these officers reasonably reflects their division of business time; however, periodically, these individuals may divide their business time differently than they do currently and their compensation from us may become disproportionate to this division.

        An affiliated entity of RMR is the owner of the buildings in which our corporate headquarters are located. These leases expire in 2011. We incurred rent, which includes our proportional share of utilities and real estate taxes, under this lease during 2008, 2007 and 2006 of $1.1 million, $1.3 million and $938,000, respectively. This lease has been amended at various times to take into account our needs for increasing space and all amendments to this lease have been approved by our Independent Directors.

        We, RMR and other companies to which RMR provides management services are in the process of forming and licensing an insurance company in the State of Indiana. All of our directors are currently serving on the board of directors of this insurance company. We expect that RMR, in addition to being a shareholder, will enter into a management agreement with this insurance company, pursuant to which RMR will provide the insurance company certain management and administrative services. In addition, it is expected that the insurance company and RMR Advisors, Inc., or Advisors and a company affiliated with RMR will enter an investment advisory agreement pursuant to which Advisors will act as the insurance company's investment advisor. Subsequent to year end, we have invested $25,000 to date in the insurance company and are committed to invest another $4,975,000, and we currently own and intend to own approximately 16.67% of this insurance company. We may invest additional amounts in the insurance company in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so. Over time we expect to transfer some or all of our insurance business to this company. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing insurance expenses and/or by having our pro-rata share of the profits realized by this insurance business. See Item 9B of this Annual Report on Form 10-K for additional information regarding this insurance initiative and our part in this insurance company.

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        One of our hospitals' outpatient clinics leases space from HRPT Properties Trust, or HRPT, a REIT managed by RMR. We incurred rent, which includes our proportional share of utilities and real estate taxes, under this lease during 2008 and 2007 of $57,700 and $52,500, respectively.

        In December 2006, we began leasing space for a regional office in Atlanta, Georgia from HRPT. Our lease for this space expires in 2011. We incurred rent, which includes our proportional share of utilities and real estate taxes, under this lease during 2008 and 2007 of $60,000 and $61,000, respectively.

        We believe that all transactions with all parties are on reasonable commercial terms. We also believe that our relationship with Senior Housing and RMR benefits us and, in fact, provide us competitive advantages in operating and growing our businesses.

Policies and Procedures Concerning Conflicts of Interest and Related Person Transactions

        Our code of business conduct and ethics, or Code of Conduct, and governance guidelines address review and approval of activities, interests or relationships that interfere with, or appear to interfere with, our interests. Persons subject to our Code of Conduct and governance guidelines are under a continuing obligation to disclose any such conflicts of interest and may pursue a transaction or relationship which involves such conflicts of interest only if the transaction or relationship has been approved as follows:

•

In the case of an executive officer or director, such person must seek approval from our disinterested directors for investments, related person transactions (involving a direct or indirect material interest) and other transactions or relationships which such person would like to pursue and which may otherwise constitute a conflict of interest or other action falling outside the scope of permissible activities under our Code of Conduct or governance guidelines. If there are no disinterested directors, the transaction shall be reviewed, authorized and approved or ratified by both the affirmative vote of our entire board of directors and the affirmative vote of a majority of our Independent Directors. Pursuant to our governance guidelines and Code of Conduct, in determining whether to approve or ratify a transaction, our board of directors, disinterested directors or Independent Directors, as the case may be, shall act in accordance with any applicable provisions of the our charter, and shall consider all of the relevant facts and circumstances, and shall approve only those transactions that are fair and reasonable to us.

•

In the case of other individuals subject to our Code of Conduct, the individual must seek approval from an executive officer who has no interest in the matter for which approval is being requested.

•

We are in the process of forming and licensing an insurance company for which all of our directors will serve as directors. Any material transaction between us and such insurance company shall be reviewed, authorized and approved or ratified by both the affirmative vote of a majority of our entire board of directors and the affirmative vote of a majority of our Independent Directors.

Critical Accounting Policies

        Our critical accounting policies concern revenue recognition, our assessment of the net realizable value of our accounts receivable, evaluation of goodwill and other intangibles, accounting for long term care contracts, our assessment of reserves related to our self insurance programs, our evaluation of impairment factors affecting our ARS and "other than temporary" impairment considerations on our available for sale securities.

        Our revenue recognition policies involve judgments about Medicare and Medicaid rate calculations. These judgments are based principally upon our experience with these programs and our

52

knowledge of current rules and regulations applicable to these programs. We recognize revenues when services are provided and these amounts are reported at their estimated net realizable amounts. Some Medicare and Medicaid revenues are subject to audit and retroactive adjustment, and sometimes retroactive legislative changes.

        Our policies for valuing accounts receivable involve significant judgments based upon our experience, including consideration of the age of the receivables, the terms of the agreements with our residents, their third party payors or other obligors, the residents or payors stated intent to pay, the residents or payors financial capacity and other factors which may include litigation or rate and payment appeal proceedings.

        We review the carrying value of long lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication that the carrying value of an asset is not recoverable, we determine the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value. We determine estimated fair value through an evaluation of recent financial performance, recent sales of similar assets, market conditions and projected undiscounted cash flows that our asset or asset groups are expected to generate. This process requires that estimates be made and errors in our judgments or estimates could have a material effect on our financial statements. As a result of this test we determined to reduce the value of our long lived assets reported on our balance sheet related to our rehabilitation hospitals as of December 31, 2008 by $1.8 million.

        We review goodwill annually during our fourth quarter, or more frequently if events or changes in circumstances exist, for impairment. Factors we consider important to trigger a review for impairment include the following:

•

significant underperformance relative to historical or projected operating results;

•

significant changes in the manner of our use of acquired assets or the strategy for our overall business;

•

significant negative industry or economic trends;

•

significant decline in our stock price for a sustained periods; or

•

our market capitalization relative to net book value.

        If our review indicates that the carrying amount of goodwill exceeds its fair value, we reduce the carrying amount to fair value.

        We evaluate goodwill for impairment at the reporting unit level, which we determined to be the three segments we operate. We evaluate goodwill for impairment by comparing the fair value of the reporting unit as determined by its discounted cash flows and market approaches, such as capitalization rates and earnings multiples, with its carrying value. The key assumptions used in the discounted cash flow include future revenue growth, gross margins and our weighted average cost of capital. We selected a growth rate based on our view of the growth prospect of each of our segments. If the carrying value of the reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit's goodwill with its carrying amount to measure the amount of impairment loss. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to our business model or changes in operating performance.

        Recently, our market capitalization has declined and was significantly below book value during the fourth quarter. As a result, we determined an interim impairment test was necessary and performed the interim test on all of our reporting units as of December 31, 2008. In our evaluation we weighed all known quantitative and qualitative factors in determining if an impairment occurred. As a result, we determined to reduce the value of goodwill reported on our balance sheet related to our pharmacies as of December 31, 2008 by $5.9 million.

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        We routinely evaluate our ARS to determine if they have been impaired and we expect to do so regularly until our ARS are sold to UBS or are otherwise no longer owned by us. If there is an indication that the carrying value of our ARS is less than their estimated fair value, we record a loss in our consolidated statement of operations. We determine the estimated fair value of our ARS by considering various factors including market prices, the ratings of the securities we hold and the credit characteristics of any guarantors of our ARS.

        We routinely evaluate our available for sale investments (currently, such investments are carried only at our captive insurance companies) to determine if they have been impaired and we expect to do so regularly. If the book or carrying value of an investment is less than its estimated fair value and that that situation is expected to continue for a more than temporary period, we record an "other than temporary" loss in our consolidated statement of operations. We determine the estimated fair value of our available for sale investments by reviewing the current market prices of the securities, the ratings of the securities, the financial condition, our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment and various other factors which we determine may be relevant to each security. In evaluating the factors described above for available for sale investments, we presume a decline in value to be "other than temporary" if the quoted market price of the security is below the investment's cost basis for an extended period. However, the presumption may be overcome if there is persuasive evidence indicating the decline is temporary in nature, such as if the operating performance is strong, dividends are still being paid, or the market price of the security is historically volatile. Additionally, there may be instances in which impairment losses are recognized even if the decline in value does not fall within the criteria described above such if there is a plan to sell the security in the near term and the fair value is below our cost basis.

        Beginning in the fourth quarter of 2008, we evaluate our put right enabling us to sell our ARS at par value to UBS between June 2010 and June 2012. If there is an indication that the carrying value of our put right is less than its estimated fair value, we would record a loss in our consolidated statement of operations. We determine the estimated fair value of our put right by reviewing the ratings of UBS financial obligations and various other indications of UBS' credit qualities. The put right is recorded at estimated fair value under the Financial Accounting Standards Board's, or FASB, No. 159, "The Fair Value Option of Financial Assets and Financial Liabilities", or SFAS 159. We calculated this value based on the difference between the fair value for the ARS and the par value of the ARS, which is the amount we expect to receive from UBS beginning June 2010. This value was adjusted for our estimate of a factor representing UBS' counter party risks based on comparable credit default swaps for UBS as of December 31, 2008.

        At one of our communities, we offer continuing care contracts under which residents may pay admission fees in exchange for reduced charges during their occupancy. These fees may be refundable or non-refundable, or partially refundable and partially non-refundable. We record these fees as obligations on our balance sheet and amortize the non-refundable amounts into revenue over the actuarially determined remaining lives of the individual residents which are the expected periods of occupancy. Actuarially determined remaining lives are estimates based upon general demographic samplings and averages. Our decision to amortize the non-refundable fees over actuarially determined lives is based upon our estimates that these residents will remain at our facilities for that period. The actual remaining lives and the actual period of occupancy of the individual residents who pay the non-refundable fees may differ materially from these estimates. In the future, if we find that such differences are material, we may change the actuarial tables which we use and we may change our estimates that these residents will remain at our facilities for these periods; these changes could have a material impact upon our financial statements.

        Determining reserves for the self insurance portions of our insurance programs involves significant judgments based upon our experience, including projected settlements for pending claims, known incidents which we expect may result in claims, estimates of incurred but not yet reported claims,

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claims experience, estimated litigation costs and other factors. We also periodically receive and rely upon recommendations from professional consultants in establishing these reserves; however, these reserves may prove to be materially inaccurate.

        Some of our judgments and estimates are based upon published industry statistics and in some cases third party professionals. Any errors in our estimates or judgments could have a material effect on our financial statements.

        In the future we may need to revise the judgments, estimates and assessments we use to formulate our critical accounting policies to incorporate information which is not now known. We cannot predict the effect changes to the premises underlying our critical accounting policies may have on our future results of operations, although such changes could be material and adverse.

Recently Announced Accounting Pronouncements

        In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), "Business Combinations", or SFAS 141(R), a replacement of FASB Statement No. 141," which changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the business being acquired. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also follow the provisions of SFAS No. 141(R). Early adoption of the provisions of SFAS No. 141(R) is not permitted. We evaluated the effect of the adoption of SFAS 141(R) and have concluded that the effect on our financial position and results of operations will be, at a minimum, that we are no longer able to capitalize transaction costs for acquisitions.

        In May 2008, the FASB issued FASB Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)", or FSP 14-1. FSP 14-1 requires an issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability and equity components of the instrument in a manner that is intended to reflect the issuer's nonconvertible debt borrowing rate. FSP 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and did not permit earlier application. We evaluated the effect of the adoption of FSP 14-1 and have concluded that it has no effect on our financial position or results of operation as our existing convertible instruments do not meet this criteria.

Inflation and Deflation

        Inflation in the past several years in the United States has been modest. Future inflation might have either positive or negative impacts on our business. Rising price levels may allow us to increase occupancy charges to residents, but may also cause our operating costs, including our percentage rent, to increase. Also, our ability to affect rate increases paid by the Medicare and Medicaid programs will be limited despite inflation.

        Deflation would likely have a negative impact upon us. A large component of our expenses consists of our fixed minimum rental obligations to Senior Housing and HCPI. Accordingly we believe that a general decline in price levels which could cause our charges to residents to decline would likely not be fully offset by a decline in our expenses.

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Seasonality

        Our senior living business is subject to modest effects of seasonality. During the calendar fourth quarter holiday periods, nursing home and assisted living residents are sometimes discharged to join family celebrations and relocations and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among nursing home and assisted living residents which can result in increased costs or discharges to hospitals. As a result of these factors, nursing home and assisted living operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the first and fourth quarters. We do not believe that this seasonality will cause fluctuations in our revenues or operating cash flow to such an extent that we will have difficulty paying our expenses, including rent, which do not fluctuate seasonally.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates is unchanged from December 31, 2007. Other than as described below, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

        Changes in market interest rates also affect the fair value of our fixed rate debt; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. For example: based upon discounted cash flow analysis, if prevailing interest rates were to increase by 10%, the market value of our $138.9 million fixed rate mortgage debt and Notes outstanding on December 31, 2008 would decline by about $4.9 million; and, similarly, if prevailing interest rates were to decline by 10% and other credit market considerations remained unchanged, the market value of our $138.9 million fixed rate mortgage debt and Notes outstanding on December 31, 2008, would increase by about $5.3 million

        Our revolving line of credit bears interest at floating rates and matures in May 2010. As of December 31, 2008 and February 27, 2009, no amounts were outstanding under this credit facility. We borrow in U.S. dollars and borrowings under our revolving credit facility require annual interest at LIBOR plus a spread. Accordingly, we are vulnerable to changes in U.S. dollar based short term, interest rates, specifically LIBOR. A change in interest rates would not affect the value of any outstanding floating rate debt but would affect our operating results. For example, if the maximum amount of $40.0 million were drawn under our credit facility and interest rates increased or decreased by 1% per annum, our interest expense would increase or decrease by $400,000 per year, or $0.01 per share, based on currently outstanding common shares. If interest rates were to change gradually over time, the impact would occur over time.

        In November 2008, we entered into a non-recourse credit facility with UBS secured by our investments in ARS. As of December 31, 2008 and February 27, 2009, $21.9 million and $37.7 million were outstanding under this credit facility. We borrow in U.S. dollars and interest payments under our non-recourse credit facility will vary depending on the interest payable on the ARS, but will not exceed LIBOR plus 50 basis points. A change in interest rates would not affect the value of any outstanding floating rate debt but would affect our operating results. If interest rates were to increase or decrease by 1% and the amount outstanding under this credit facility remained unchanged from the amount outstanding on December 31, 2008 our interest expense would increase or decrease by $219,000 or about $0.01 per share based upon our number of shares outstanding on December 31, 2008. The amount of money we may borrow under this UBS credit facility depends upon the market value of our ARS. Because our ARS are income securities, it is likely that the market value of our ARS will be affected by changes in interest rates; as interest rates increase the market value of our ARS might decline, and as interest rate decrease the market value on our ARS should increase. However, there are other factors which might impact the market value of our ARS, such as supply and demand and

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liquidity, such that we do not believe the impact of interest rate changes upon the value of our ARS and our borrowing capacity under the UBS credit facility can be precisely determined.

        Our exposure to fluctuations in interest rates may increase in the future if we incur additional debt to fund acquisitions or otherwise.

Item 8.    Financial Statements and Supplementary Data

        The information required by this Item is included in Item 15 of this Annual Report on Form 10-K.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Controls and Procedures

        As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Treasurer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, our President and Chief Executive Officer and our Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

        There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Assessment of Internal Control Over Financial Reporting

        We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

        Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework. Based on our assessment, we believe that, as of December 31, 2008, our internal control over financial reporting is effective.

        Ernst & Young LLP, the independent registered public accounting firm that audited our 2008 consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting. The report appears elsewhere herein.

Item 9B.    Other Information

Affiliates Insurance Company

        On February 27, 2009, we entered into a shareholders agreement, or the Shareholders Agreement, with Affiliates Insurance Company, a company being formed and licensed as an insurance company in the State of Indiana, or AIC, Senior Housing, TravelCenters of America, or TA, HRPT Properties Trust, or HRPT, Hospitality Properties Trust, or HPT, and RMR. With respect to AIC, we refer to ourselves, RMR, Senior Housing, TA, HRPT and HPT, collectively, as the Shareholders.

        Pursuant to the Shareholders Agreement, each of the Shareholders has purchased from AIC 100 shares of common stock, par value of $10.00 per share, of AIC, or the Shares, at a purchase price of $250.00 per Share and has committed to purchase from AIC an additional 19,900 Shares (such additional share purchase, we refer to as the "Second Subscription") within five business days of a

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request from AIC at the same purchase price per Share. The Shareholders comprise all the shareholders of AIC and each Shareholder currently owns approximately 16.67% of the outstanding Shares.

        AIC has been formed to provide insurance and risk management services to the Shareholders and their subsidiaries.

Board Representation

        The Shareholders Agreement provides that for so long as a Shareholder (other than RMR) owns not less than 10% of the issued and outstanding Shares, such Shareholder has the right to designate two directors for election to the board of directors of AIC and that so long as RMR owns not less than 10% of the issued and outstanding Shares, RMR has the right to designate three directors for election to the board of directors of AIC, including one director who is a resident of Indiana. The board of directors of AIC is currently composed of 13 directors.

Transfer Restrictions, Preemptive Rights and Call Options

        Subject to certain exceptions, the Shareholders Agreement prohibits the Shareholders from transferring Shares. Under the Shareholders Agreement, the Shareholders have rights to participate in future securities offerings by AIC in proportion to their Share ownership.

        In addition, under the Shareholders Agreement, if a Shareholder undergoes a change of control (as defined in the Shareholders Agreement), AIC will have, for a specified period of time, a right to repurchase the securities of AIC owned by that Shareholder. Any AIC securities not acquired by AIC may, for a specified period of time, be purchased by the Shareholders which did not undergo a change of control in proportion to their Share ownership.

Special Shareholder Approval Requirements

        The Shareholders Agreement prohibits AIC from taking certain actions unless Shareholders owning 75% of the Shares owned by all Shareholders approve of such action in advance. Those actions include:

        (a)   any amendment to the articles of incorporation or bylaws of AIC;

        (b)   any merger of AIC;

        (c)   the sale of all or substantially all of AIC's assets;

        (d)   any reorganization or recapitalization of AIC; or

        (e)   any liquidation or dissolution of AIC.

Regulatory Matters

        The Shareholders Agreement requires AIC to comply in all material respects with applicable laws governing its business and operations. In addition, if by virtue of a Shareholder's ownership interest in AIC or actions taken by a Shareholder affecting AIC, the Shareholder triggers the application of any requirement or regulation on AIC or any subsidiary of AIC or any of their respective businesses, assets or operations, then the Shareholders Agreement generally requires that Shareholder to promptly take all actions necessary and fully cooperate with AIC to ensure that such requirements and regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets, operations or prospects of AIC or any subsidiary of AIC. Also, the Shareholders Agreement requires each Shareholder to use best efforts to cause its shareholders, directors (or analogous position), nominees for director (or analogous position), officers, employees and agents to comply with any applicable laws impacting AIC or any of its subsidiaries or their respective businesses, assets or operations.

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Termination

        The Shareholders Agreement may be terminated at any time by Shareholders owning at least 75% of the issued and outstanding Shares owned by all Shareholders or upon the dissolution of AIC.

        The foregoing description of the Shareholders Agreement is not complete and is qualified in its entirety by reference to the full text of the Shareholders Agreement, a copy of which is attached as Exhibit 10.33 to this Annual Report on Form 10-K. The Shareholders Agreement is incorporated herein by reference in its entirety.

        In furtherance of AIC's business and operations, AIC also intends to enter a management and administrative services agreement with RMR pursuant to which RMR will provide AIC certain management and administrative services and, as soon as practicable following the receipt by AIC of the amounts for the Second Subscription from the Shareholders, an investment advisory agreement with RMR Advisors, Inc., or Advisors, who is affiliated with RMR, pursuant to which Advisors will act as AIC's investment adviser.

        We became a publicly owned company as a result of a spin off from Senior Housing on December 31, 2001, and we continue to have relationships with Senior Housing, including the lease arrangements with Senior Housing discussed elsewhere in this Annual Report on Form 10-K. Senior Housing is our largest landlord. RMR provides management services to us. Please see elsewhere in this Annual Report on Form 10-K for a further description of our relationships with Senior Housing and RMR and our definitive proxy statement for the 2008 annual meeting of shareholders, which will be filed with the SEC not later than 120 days after the end of our fiscal year. In addition, RMR also provides management services to Senior Housing, HPT, HRPT and TA and we understand that those entities also have certain relationships with each other, such as lease arrangements for properties. We understand that further information regarding those relationships is provided in the applicable Shareholders' periodic reports filed with the SEC.

Amendment to our Bylaws

        On February 27, 2009, our board of directors adopted an amendment to our bylaws, effective that same day. The amendment revised the advance notice procedures under our bylaws to require that a shareholder seeking to nominate any person for election as director or propose other business for consideration at an applicable meeting of our shareholders must have continuously held at least $2,000 in market value, or 1%, of our shares entitled to vote at the meeting on the election or the proposal of other business, as the case may be, for at least one year from the date the shareholder gives its advance notice and continuously hold those shares through and including the time of the meeting. The amendment provides that this requirement will not apply until April 1, 2010 with respect to a shareholder who continuously holds from and after April 1, 2009 shares entitled to vote at the meeting on such election or proposal of other business, as the case may be. For purposes of determining compliance with the $2,000 market value requirement, the amendment provides that the market value of our shares held by the applicable shareholder shall be determined by multiplying the number of shares such shareholder held continuously for that one year period by the highest selling price of our shares as reported on the principal national securities exchange on which our shares are listed for trading during the 60 calendar days before the date the shareholder's notice was submitted. The amendment also revised the advance notice procedures under our bylaws to require a shareholder seeking to nominate any person for election as director or propose other business for consideration at an applicable meeting of our shareholders to hold a certificate for all our shares owned by such shareholder during all times described with regard to a shareholder's qualifications for validly submitting a notice to nominate any person for election as director or propose other business for consideration at an applicable meeting of our shareholders, including the time periods referred to above. The amendment also applied the foregoing requirements to the process for shareholders seeking to have a special meeting of our shareholders called. The amendment also included certain other conforming changes.

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PART III

Item 10.    Directors and Executive Officers and Corporate Governance

        We have a code of business conduct and ethics that applies to all our representatives, including our officers and directors. Our code of business conduct and ethics is posted on our website, www.fivestarqualitycare.com. A printed copy of our code of business conduct and ethics is also available free of charge to any person who requests a copy by writing to our Secretary, Five Star Quality Care, Inc., 400 Centre Street, Newton, MA 02458. We intend to disclose any amendments to our code of business conduct and ethics or waivers applicable to our principal executive officer, principal financial officer, principal accounting officer or controller (or any person performing similar functions) on our website.

        The remainder of the information required by Item 10 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 11.    Executive Compensation

        The information required by Item 11 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

        We may grant options and common shares to our officers, directors, employees and other individuals who render services to us, subject to vesting requirements under our 2001 Stock Option and Stock Incentive Plan, as amended, or the Plan. In addition, each of our directors receives 5,250 shares per year as part of his or her annual compensation for serving as a director and such shares may be awarded under the Plan. The terms of grants made under the Plan are determined by our board of directors or a committee thereof at the time of the grant. The following table is as of December 31, 2008.

		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		None	None		2,122,030	(1)
Equity compensation plans not approved by security holders		None	None		None
	Total	None	None		2,122,030

(1)

Pursuant to the terms of the Plan, in no event shall the number of shares issued exceed 3,000,000.

        The remainder of the information required by Item 12 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 13.    Certain Relationships and Related Transactions and Director Independence

        The information required by Item 13 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

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Item 14.    Principal Accountant Fees and Schedules

        The information required by Item 14 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.

Item 15.    Exhibits and Financial Statement Schedules

Index to Financial Statements

Consolidated Financial Statements of Five Star Quality Care, Inc.	Page
Reports of Independent Registered Public Accounting Firm	F-1 / F-2
Consolidated Balance Sheets at December 31, 2008 and 2007	F-3
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006	F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2008, 2007 and 2006	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006	F-6
Notes to Consolidated Financial Statements	F-7

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, and therefore have been omitted.

Exhibits

Exhibit No.		Description
	3.1	Composite copy of Articles of Amendment and Restatement of the Company. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 31, 2006.)
	3.2	Amended and Restated Bylaws of the Company, as amended and restated February 27, 2009. (Filed herewith.)
	3.3	Amended and Restated Bylaws of the Company, as amended and restated February 27, 2009 (marked). (Filed herewith.)
	3.4	Articles Supplementary, as corrected by Certificate of Correction dated as of March 19, 2004. (Incorporated by reference to the Company's Form 8-A dated March 19, 2004 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, respectively.)
	4.1	Form of Common Share Certificate. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.)
	4.2	Rights Agreement, dated as of March 10, 2004, by and between the Company and Equiserve Trust Company, N.A. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 10, 2004.)
	4.3	Appointment of Successor Rights Agent, dated as of December 13, 2004, by and between the Company and Wells Fargo Bank, National Association, a national banking association. (Incorporated by reference to the Company's Current Report on Form 8-K dated December 13, 2004.)
	4.4	Indenture related to 3.75% Convertible Senior Notes due 2026, dated as of October 18, 2006, by and among the Company, each of the guarantors named therein and U.S. Bank National Association, as Trustee. (Incorporated by reference to the Company's Current Report on Form 8-K dated October 24, 2006.)

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Exhibit No.			Description
	10.1		Transaction Agreement, dated as of December 7, 2001, by and among Senior Housing Properties Trust, certain subsidiaries of Senior Housing Properties Trust party thereto, the Company, certain subsidiaries of the Company party thereto, FSQ, Inc., Hospitality Properties Trust, HRPT Properties Trust and Reit Management & Research LLC. (Incorporated by reference to Senior Housing Properties Trust's Current Report on Form 8-K dated December 13, 2001.)
	10.2	†	2001 Stock Option and Stock Incentive Plan of the Company, as amended. (Incorporated by reference to the Company's Current Report on Form 8-K dated May 25, 2006.)
	10.3	†	Form of Restricted Share Agreement. (Filed herewith.)
	10.4	†	Representative Indemnification Agreement. (Filed herewith.)
	10.5	†	Summary of Director Compensation. (Incorporated by reference to the Company's Current Report on Form 8-K dated June 20, 2008.)
	10.6		Shared Services Agreement, dated as of January 2, 2002, by and between the Company and Reit Management & Research LLC. (Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 333-83648, as amended on December 5, 2001.)
	10.7		Amendment No. 1 to Shared Services Agreement, dated as of January 14, 2002, by and between the Company and Reit Management & Research LLC. (Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 333-83648.)
	10.8		Amendment No. 2 to Shared Services Agreement, dated as of March 10, 2004, by and between the Company and Reit Management & Research LLC. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 10, 2004.)
	10.9		Amendment No. 3 to Shared Services Agreement, dated as of May 12, 2008, by and between the Company and Reit Management & Research LLC. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.)
	10.10		Mortgage, dated as of April 19, 2004, between Five Star Quality Care-Howell, LLC and Love Funding Corporation. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.)
	10.11		Lease Agreement, dated as of November 19, 2004, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company as Tenant (with respect to 16 properties). (Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 333-119955, as amended on November 29, 2004.)
	10.12		Guaranty Agreement, dated as of November 19, 2004, made by the Company in favor of the Beneficiaries named therein (with respect to 16 properties). (Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 333-119955, as amended on November 29, 2004.)
	10.13		Credit and Security Agreement, dated as of May 9, 2005, by and among the Company, each of the Guarantors party thereto and Wachovia Bank, National Association. (Incorporated by reference to the Company's Current Report on Form 8-K dated May 13, 2005.)
	10.14		First Amendment to Credit and Security Agreement, dated as of July 22, 2005, by and among the Company, each of the Guarantors party thereto and Wachovia Bank, National Association. (Incorporated by reference to the Company's Current Report on Form 8-K dated August 23, 2005.)
	10.15		Second Amendment to Credit and Security Agreement, dated as of August 15, 2005, by and among the Company, each of the Guarantors party thereto and Wachovia Bank, National Association. (Incorporated by reference to the Company's Current Report on Form 8-K dated August 23, 2005.)

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Exhibit No.			Description
	10.16		Third Amendment to Credit and Security Agreement, dated as of July 11, 2006, by and among the Company, each of the Guarantors party thereto and Wachovia Bank, National Association. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 17, 2006.)
	10.17		Fourth Amendment to Credit and Security Agreement, dated as of October 11, 2006, by and among the Company, each of the Guarantors party thereto and Wachovia Bank, National Association. (Incorporated by reference to the Company's Current Report on Form 8-K dated October 11, 2006.)
	10.18		Fifth Amendment to Credit and Security Agreement, dated as of June 18, 2007, by and among the Company, each of the Guarantors party thereto and Wachovia Bank, National Association. (Incorporated by reference to the Company's Current Report on Form 8-K dated June 20, 2007.)
	10.19	†	Consulting Agreement dated May 1, 2008 between the Company and Evrett W. Benton. (Incorporated by reference to the Company's Current Report on Form 8-K dated May 7, 2008.)
	10.20		Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	10.21		Amended and Restated Guaranty Agreement (Lease No. 1), dated as of June 30, 2008, made by the Company, as Guarantor, for the benefit of certain affiliates of Senior Housing Properties Trust under the Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	10.22		Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	10.23		Amended and Restated Guaranty Agreement (Lease No. 2), dated as of June 30, 2008, made by the Company, as Guarantor, for the benefit of certain affiliates of Senior Housing Properties Trust under the Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	10.24		Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	10.25		First Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of August 1, 2008, by and among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.)
	10.26		Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of September 1, 2008, by and among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)

63

Exhibit No.		Description
	10.27	Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of November 1, 2008, by and among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)
	10.28	Amended and Restated Guaranty Agreement (Lease No. 3), dated as of June 30, 2008, made by the Company, as Guarantor, for the benefit of certain affiliates of Senior Housing Properties Trust under the Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	10.29	Purchase and Sale Agreement, dated as of October 10, 2008, by and among the Company, Anderson Senior Living Property, LLC, Mt. Pleasant Oakdale I Property, LLC, Mt. Pleasant Oakdale II Property, LLC, Charlotte Oakdale Property, LLC, Greensboro Oakdale Property, LLC, Pinehurst Oakdale Property, LLC, and Winston-Salem Oakdale Property, LLC. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)
	10.30	Credit Line Account Application and Agreement for Organizations and Businesses between Five Star Quality Care, Inc. and UBS Credit Corp., dated as of November 14, 2008. (Incorporated by reference to the Company's Current Report on Form 8-K dated November 20, 2008.)
	10.31	Addendum to Credit Line Account Application and Agreement between UBS Credit Corp. and Five Star Quality Care, Inc., dated as of November 14, 2008. (Incorporated by reference to the Company's Current Report on Form 8-K dated November 20, 2008.)
	10.32	Addendum to Premier Credit Line Account Application and Agreement between UBS Credit Corp. and Five Star Quality Care, Inc., dated as of November 14, 2008. (Incorporated by reference to the Company's Current Report on Form 8-K dated November 20, 2008.)
	10.33	Shareholders Agreement, dated February 27, 2009, by and among Affiliates Insurance Company, Five Star Quality Care, Inc., Hospitality Properties Trust, HRPT Properties Trust, Senior Housing Properties Trust, TravelCenters of America LLC and Reit Management & Research LLC. (Filed herewith.)
	12.1	Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.)
	21.1	Subsidiaries of the Company. (Filed herewith.)
	23.1	Consent of Ernst & Young LLP. (Filed herewith.)
	31.1	Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith.)
	31.2	Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith.)
	32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. (Furnished herewith.)
	99.1	Reimbursement Agreement, dated as of October 17, 2008, by and among the Company, Reit Management & Research LLC and TravelCenters of America LLC. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)
	99.2	Lease Agreement, dated as of November 19, 2004, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant (with respect to 4 properties). (Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 333-119955, as amended on November 29, 2004.)

64

Exhibit No.		Description
	99.3	Guaranty Agreement, dated as of November 19, 2004, made by the Company in favor of the Beneficiaries named therein (with respect to 4 properties). (Incorporated by reference to the Company's Registration Statement on Form S-1, File No. 333-119955, as amended on November 29, 2004.)
	99.4	Amended and Restated Pledge of Shares of Beneficial Interest Agreement (Tenant Pledge—Lease No.1 and Lease No. 3), dated as of June 30, 2008, made by FSQ, Inc. for the benefit of the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant, and for the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.5	Amended and Restated Security Agreement (Lease No. 1), dated as of June 30, 2008, by and among Five Star Quality Care Trust, as Tenant, and the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 1), dated June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.6	Amended and Restated Subtenant Guaranty Agreement (Lease No. 1), dated as of June 30, 2008, made by certain affiliates of the Company, each a Subtenant Guarantor, for the benefit of certain affiliates of Senior Housing Properties Trust under the Amended and Restated Master Lease Agreement (Lease No. 1), dated June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.7	Amended and Restated Subtenant Security Agreement (Lease No. 1), dated as of June 30, 2008, made by certain affiliates of the Company, as Subtenants, and the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 1), dated June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.8	Amended and Restated Pledge of Stock and Membership Interests Agreement (Subtenant Pledge—Lease No. 1 and Lease No. 3), dated as of June 30, 2008, made by certain subsidiaries of the Company for the benefit of certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
	99.9	Amended and Restated Pledge of Stock and Membership Interests Agreement (Subtenant Pledge—Lease No. 1), dated as of June 30, 2008, made by certain subsidiaries of the Company for the benefit of certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
	99.10	Amended and Restated Pledge of Shares of Beneficial Interest Agreement (Lease No. 2), dated as of June 30, 2008, made by FSQ, Inc. and FS Tenant Holding Company Trust for the benefit of the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)

65

Exhibit No.		Description
	99.11	Amended and Restated Security Agreement (Lease No. 2), dated as of June 30, 2008, made by certain affiliates of the Company, as Tenant, and the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.12	Subtenant Guaranty Agreement (Lease No. 2), dated as of June 30, 2008, made by certain affiliates of the Company, each a Subtenant Guarantor, for the benefit of the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.13	Amended and Restated Subtenant Security Agreement (Lease No. 2), dated as of June 30, 2008, made by certain affiliates of the Company, as Subtenants, and the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of the Company, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.14	Amended and Restated Pledge of Shares of Beneficial Interests Agreement (Subtenant Pledge—Lease No. 2), dated as of June 30, 2008, made by FS Tenant Holding Company Trust for the benefit of certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
	99.15	Amended and Restated Security Agreement (Lease No. 3), dated as of June 30, 2008, by and between Five Star Quality Care Trust and the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.16	Amended and Restated Subtenant Guaranty Agreement (Lease No. 3), dated as of June 30, 2008, made by certain affiliates of the Company, each a Subtenant Guarantor, and the Landlord under the Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company's Current Report on Form 8-K dated July 7, 2008.)
	99.17	Amended and Restated Subtenant Security Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain subsidiaries of the Company and certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
	99.18	Amended and Restated Pledge of Stock and Membership Interests Agreement (Subtenant Pledge—Lease No. 3), dated as of June 30, 2008, made by certain subsidiaries of the Company for the benefit of certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
	99.19	Confirmation of and Joinder to Guarantees and Confirmation and Amendment of and Joinder to Other Incidental Documents, dated as of August 1, 2008, by and among the Company, certain affiliates of the Company, and certain affiliates of Senior Housing Properties Trust. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)

66

Exhibit No.		Description
	99.20	Confirmation of and Joinder to Guarantees and Confirmation and Amendment of and Joinder to Other Incidental Documents, dated as of November 1, 2008, by and among the Company, certain affiliates of the Company, and certain affiliates of Senior Housing Properties Trust. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)
	99.21	Amended and Restated Master Lease Agreement (Lease No. 4), dated as of July 1, 2008, by and between SNH NS Properties Trust, as Landlord, and Five Star Quality Care—NS Tenant, LLC, as Tenant. (Filed herewith.)
	99.22	Amended and Restated Guaranty Agreement, dated as of July 1, 2008, made by the Company for the benefit of SNH NS Properties Trust. (Filed herewith.)
	99.23	Pledge of Tenant's Company Interests Agreement, dated as of July 1, 2008, made by FSQ, Inc. for the benefit of SNH NS Properties Trust. (Filed herewith.)
	99.24	Tenant Security Agreement, dated as of July 1, 2008, by and between Five Star Quality Care—NS Tenant, LLC and SNH NS Properties Trust. (Filed herewith.)
	99.25	Subtenant Guaranty Agreement, dated as of July 1, 2008, from certain subsidiaries of the Company for the benefit of SNH NS Properties Trust. (Filed herewith.)
	99.26	Pledge of Subtenants' Company Interests Agreement, dated as of July 1, 2008, made by certain subsidiaries of the Company for the benefit of SNH NS Properties Trust. (Filed herewith.)
	99.27	Subtenant Security Agreement, dated as of July 1, 2008, by and between certain subsidiaries of the Company and SNH NS Properties Trust. (Filed herewith.)
	99.28	Master Lease Agreement, dated as of September 1, 2008, by and among certain subsidiaries of the Senior Housing Properties Trust, as Landlord, and Five Star Quality Care-RMI, LLC, as Tenant. (Filed herewith.)
	99.29	Guaranty Agreement, dated as of September 1, 2008, made by the Company for the benefit of certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)

†

Indicates a management contract or a compensatory plan, contract or arrangement.

67

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Five Star Quality Care, Inc.

        We have audited the accompanying consolidated balance sheet of Five Star Quality Care, Inc., as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Five Star Quality Care, Inc. at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Five Star Quality Care, Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2009 expressed an unqualified opinion thereon.

	/s/ Ernst & Young, LLP
Boston, Massachusetts February 24, 2009

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Five Star Quality Care, Inc.

        We have audited Five Star Quality Care, Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Five Star Quality Care, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Item 9A of Five Star Quality Care Inc.'s Annual Report on Form 10-K. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Five Star Quality Care, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Five Star Quality Care, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2008 of Five Star Quality Care, Inc. and our report dated February 24, 2009 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
Boston, Massachusetts February 24, 2009

F-2

FIVE STAR QUALITY CARE, INC.

CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

			December 31,
			2008			2007
ASSETS
Current assets:
	Cash and cash equivalents		$	16,138		$	30,999
	Accounts receivable, net of allowance of $6,292 and $4,836 at December 31, 2008 and 2007, respectively			66,023			58,803
	Prepaid expenses			8,058			9,041
	Investment securities:
		Investment in trading securities		—			61,800
		Investment in available for sale securities		7,232			7,455
	Restricted cash			4,943			3,655
	Restricted investments			2,575			3,946
	Other current assets			7,907			7,140
	Assets of discontinued operations			1,385			3,178
Total current assets				114,261			186,017
Property and equipment, net				190,627			131,705
Investment in trading securities				62,866			—
UBS put right				11,081			—
Restricted cash				6,279			2,568
Restricted investments				7,089			10,375
Goodwill and other intangible assets				15,752			21,877
Other long term assets				4,683			7,912
			$	412,638		$	360,454
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	28,443		$	19,135
	Accrued expenses			18,460			15,222
	Accrued compensation and benefits			36,560			30,103
	Due to Senior Housing Properties Trust			14,908			11,242
	Mortgage notes payable			149			200
	Accrued real estate taxes			9,304			7,352
	Security deposit liability			12,521			13,361
	Other current liabilities			8,531			7,229
	Liabilities of discontinued operations			263			219
Total current liabilities				129,139			104,063
Long term liabilities:
	Mortgage notes payable			12,441			15,810
	Secured revolving credit facility			21,875			—
	Convertible senior notes			126,500			126,500
	Continuing care contracts			3,183			3,159
	Other long term liabilities			34,161			24,100
Total long term liabilities				198,160			169,569
Commitments and contingencies				—			—
Shareholders' equity:
	Preferred stock, par value $0.01: 1,000,000 shares authorized, none issued			—			—
	Common stock, par value $0.01: 50,000,000 shares authorized, 32,205,604 and 31,818,144 shares issued and outstanding at December 31, 2008 and 2007, respectively			322			318
	Additional paid-in capital			287,204			286,734
	Accumulated deficit			(200,605	)		(196,109	)
	Unrealized loss on investments in available for sale securities			(1,582	)		(4,121	)
Total shareholders' equity				85,339			86,822
			$	412,638		$	360,454

See accompanying notes.

F-3

FIVE STAR QUALITY CARE, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

		For the year ended December 31,
		2008			2007			2006
Revenues:
	Senior living revenue	$	935,393		$	809,934		$	744,897
	Hospital revenue		98,428			102,005			25,494
	Pharmacy revenue		70,379			60,985			45,195
Total revenues			1,104,200			972,924			815,586
Operating expenses:
	Senior living wages and benefits		467,068			410,447			382,093
	Other senior living operating expenses		235,603			202,194			186,396
	Hospital expenses		91,185			92,449			22,954
	Pharmacy expenses		69,535			58,012			44,579
	Management fee to Sunrise Senior Living Services, Inc. ("SLS")		—			—			8,744
	Termination expense for SLS management agreements		—			—			129,913
	Rent expense		159,707			129,190			109,256
	General and administrative		47,829			43,373			33,829
	Depreciation and amortization		14,719			13,595			9,851
Total operating expenses			1,085,646			949,260			927,615
Operating income (loss)			18,554			23,664			(112,029	)
Interest and other income			5,915			6,152			6,806
Interest and other expense			(6,337	)		(6,802	)		(4,364	)
Unrealized loss on investments in trading securities			(11,967	)		—			—
Unrealized gain on receipt of UBS put right			11,081			—			—
Impairment of investments in available for sale securities			(8,404	)		—			—
Impairment of long lived assets			(1,837	)		—			—
Impairment of goodwill			(5,930	)		—			—
Gain on early extinguishment of debt			743			4,491			—
Income (loss) from continuing operations before income taxes			1,818			27,505			(109,587	)
Provision for income taxes			(1,392	)		(1,410	)		—
Income (loss) from continuing operations			426			26,095			(109,587	)
Loss from discontinued operations			(4,922	)		(2,769	)		(7,078	)
Net income (loss)		$	(4,496	)	$	23,326		$	(116,665	)
Weighted average shares outstanding—basic			31,872			31,710			28,605
Weighted average shares outstanding—diluted			31,872			41,441			28,605
Basic income (loss) per share from:
	Continuing operations	$	0.01		$	0.82		$	(3.83	)
	Discontinued operations		(0.15	)		(0.08	)		(0.25	)
Net income (loss) per share		$	(0.14	)	$	0.74		$	(4.08	)
Diluted income (loss) per share from:
	Continuing operations	$	0.01		$	0.75		$	(3.83	)
	Discontinued operations		(0.15	)		(0.07	)		(0.25	)
Net income (loss) per share		$	(0.14	)	$	0.68		$	(4.08	)

See accompanying notes.

F-4

FIVE STAR QUALITY CARE, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(in thousands, except share data)

		Number of Shares		Common Stock		Additional Paid-in Capital		Accumulated Deficit			Unrealized Gain (Loss) on Investments			Total
Balance at December 31, 2005			20,060,934		201		171,552		(102,770	)		(179	)		68,804
Comprehensive income:
	Net loss		—		—		—		(116,665	)		—			(116,665	)
	Unrealized gain on investments in available for sale securities		—		—		—		—			384			384
Total comprehensive income			—		—		—		(116,665	)		384			(116,281	)
Stock grants			121,200		1		1,276		—			—			1,277
Issuance of stock, pursuant to equity offering			11,500,000		114		113,516		—			—			113,630
Balance at December 31, 2006			31,682,134		316		286,344		(219,435	)		205			67,430
Comprehensive income:
	Net income		—		—		—		23,326			—			23,326
	Unrealized loss on investments in available for sale securities		—		—		—		—			(4,326	)		(4,326	)
Total comprehensive income			—		—		—		23,326			(4,326	)		19,000
Stock grants			136,010		2		390		—			—			392
Balance at December 31, 2007			31,818,144	$	318	$	286,734	$	(196,109	)	$	(4,121	)	$	86,822
Comprehensive income:
	Net loss		—		—		—		(4,496	)		—			(4,496	)
	Unrealized loss on investments in available for sale securities		—		—		—		—			(5,865	)		(5,865	)
	Other than temporary impairment on investments		—		—		—		—			8,404			8,404
Total comprehensive income			—		—		—		(4,496	)		2,539			(1,957	)
Stock grants			387,460		4		470		—			—			474
Balance at December 31, 2008			32,205,604	$	322	$	287,204	$	(200,605	)	$	(1,582	)	$	85,339

See accompanying notes.

F-5

FIVE STAR QUALITY CARE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

					For the year ended December 31,
					2008			2007			2006
Cash flows from operating activities:
	Net income (loss)				$	(4,496	)	$	23,326		$	(116,665	)
	Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
			Depreciation and amortization			14,719			13,595			9,851
			Gain on extinguishment of debt			(743	)		(4,491	)		—
			Unrealized loss on investments in trading securities			11,967			—			—
			Impairment of investments in available for sale securities			8,404			—			—
			Impairment of goodwill			5,930			—			—
			Impairment of long lived assets			1,837			—			—
			Unrealized gain on receipt of UBS put right			(11,081	)		—			—
			Loss from discontinued operations			4,922			2,769			7,078
			Provision for losses on receivables, net			1,456			(169	)		(1,119	)
			Changes in assets and liabilities:
				Accounts receivable		(8,385	)		9,157			(20,232	)
				Prepaid expenses and other assets		4,293			15,751			(16,334	)
				Investment securities		(12,810	)		(18,821	)		(49,802	)
				Accounts payable and accrued expenses		9,249			(1,988	)		11,142
				Accrued compensation and benefits		5,964			5,600			2,256
				Due to Senior Housing Properties Trust		3,666			1,254			1,329
				Due from SLS		—			—			(7,185	)
				Other current and long term liabilities		11,172			(1,673	)		5,159
			Cash provided by (used in) operating activities			46,064			44,310			(174,522	)
			Net cash used in discontinued operations			(1,273	)		(5,728	)		(7,078	)
Cash flows from investing activities:
	Payments (deposits) into restricted cash and investment accounts, net					(5,733	)		760			(926	)
	Acquisition of property and equipment					(80,822	)		(73,423	)		(51,134	)
	Acquisition of pharmacies, net of cash acquired					—			—			(5,968	)
	Acquisition of senior living communities					(61,715	)		—			—
	Proceeds from disposition of property and equipment held for sale					69,420			47,668			23,729
	Withdrawals from restricted cash for purchases of property and equipment					—			—			4,531
		Cash used in investing activities				(78,850	)		(24,995	)		(29,768	)
Cash flows from financing activities:
	Proceeds from issuance of common stock, net					—			—			115,291
	Proceeds from borrowings on credit facility					38,875			—			38,000
	Repayments of borrowings on revolving credit facility					(17,000	)		—			(38,000	)
	Proceeds from convertible senior notes payable					—			—			126,500
	Repayments of mortgage notes payable					(2,677	)		(28,829	)		(558	)
		Cash provided by (used in) financing activities				19,198			(28,829	)		241,233
Change in cash and cash equivalents						(14,861	)		(15,242	)		29,865
Cash and cash equivalents at beginning of year						30,999			46,241			16,376
Cash and cash equivalents at end of year					$	16,138		$	30,999		$	46,241
Supplemental cash flow information:
	Cash paid for interest				$	3,323		$	5,852		$	2,702
	Cash paid for income tax				$	2,337		$	1,039		$	502
Non-cash investing and financing activities:
	Issuance of common stock				$	474		$	392		$	1,277
	Real estate acquisition				$	—		$	5,025		$	—
	Assumption of mortgage note payable				$	—		$	4,559		$	—

See accompanying notes.

F-6

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

1. Organization and Business

        We were organized in 2000 as a wholly owned subsidiary of Senior Housing Properties Trust, or Senior Housing. On December 31, 2001, Senior Housing distributed substantially all of our common shares to its shareholders. Concurrent with our spin-off, we entered into agreements with Senior Housing and others to establish our initial capitalization and other matters.

        For the three months and year ended December 31, 2008, we recorded $1,798 and $46,064, respectively, of cash from continuing operations. At year end, we had unrestricted cash and cash equivalents of $16,138. We had no amounts outstanding on our $40,000 revolving line of credit and $21,875 outstanding on $38,000 available under our line with UBS AG, or UBS. We believe that our operations will continue to provide us with adequate cash flow to run our businesses and invest in and maintain our properties. If, however, our revenues continue to decline and we are unable to generate positive cash flow for some period of time, we intend to further reduce costs across the Company and to borrow funds from our outstanding lines of credit.

        We operate senior living communities, including independent living or congregate care communities, assisted living communities and skilled nursing facilities, or SNFs. As of December 31, 2008, we leased or owned and operated 210 senior living communities containing 22,264 living units, including 161 primarily independent and assisted living communities with 17,854 living units and 49 SNFs with 4,410 units.

        Of our 161 primarily independent and assisted living communities, we:

•

leased 134 communities containing 15,679 living units from Senior Housing, our former parent;

•

leased four communities with 200 living units from Health Care Property Investors, or HCPI; and

•

owned 23 communities with 1,975 living units.

        Of our 49 SNFs, we:

•

leased 47 facilities from Senior Housing with 4,139 units; and

•

owned two facilities with 271 units.

        In the aggregate, our 210 communities included 6,304 independent living apartments, 9,682 assisted living suites and 6,278 skilled nursing units. Included in the above counts are two assisted living communities containing 173 living units which have been reclassified to discontinued operations.

        We also own and operate institutional pharmacies and we operate two rehabilitation hospitals with 321 beds that we lease from Senior Housing. Our two rehabilitation hospitals provide inpatient services at the two hospitals and three satellite locations. In addition we operate 15 outpatient clinics affiliated with these two hospitals.

2. Summary of Significant Accounting Policies

        Basis of Presentation.    The accompanying consolidated financial statements include our accounts and those of all of our subsidiaries. All intercompany transactions have been eliminated.

F-7

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

2. Summary of Significant Accounting Policies (Continued)

        Use of Estimates.    Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that may affect the amounts reported in these financial statements and related notes. Some significant estimates include the fair value of our investments in securities that are not actively traded on a major exchange, the value of our put right, our self insurance reserves and the allowance for doubtful accounts and contractual allowances. The actual results could differ from our estimates. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the consolidated financial statements in the period that they are determined.

        Cash and Cash Equivalents.    Cash and cash equivalents, consisting of money market funds with original maturities of three months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market.

        Investment Securities and Restricted Investments.    Investments securities that are held principally for resale in the near term are classified as "trading" and are carried at fair value with changes in fair value recorded in earnings. Trading investments at December 31, 2008 and 2007 consisted entirely of auction rate securities, or ARS. Interest and dividends are included in interest and other income. In 2008 and 2007, our investments in trading securities generated interest income of $2,693 and $3,634, respectively.

        Securities not classified as "trading" are classified as "available for sale" and carried at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity and "other than temporary" losses recorded in our consolidated statement of operations. Available for sale investments at December 31, 2008 and 2007 consisted primarily of preferred securities. At December 31, 2008, these investments had a fair value of $7,232 and an unrealized holding loss of $492. At December 31, 2007, these investments had a fair value of $7,455, and an unrealized holding loss of $1,501.

        Our restricted investments consist of preferred securities and are classified as available for sale and carried at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity. The unrealized loss on investments shown on the consolidated balance sheet represents the difference between the market value of these investments calculated by using quoted market prices on the date they were acquired and on December 31, 2008. At December 31, 2008, these investments had a fair value of $9,664 and an unrealized loss of $1,090. At December 31, 2007, these investments had a fair value of $14,321, and an unrealized loss of $2,620.

        The following table summarizes the fair value and gross unrealized losses related to our "available for sale" securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for the years ending:

	December 31, 2008
	Less than 12 months				Greater than 12 months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Investments	$	1,593	$	207	$	6,749	$	1,375	$	8,342	$	1,582

F-8

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

2. Summary of Significant Accounting Policies (Continued)

	December 31, 2007
	Less than 12 months				Greater than 12 months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Investments	$	16,251	$	3,240	$	4,113	$	803	$	20,364	$	4,043

        We routinely evaluate our available for sale investments to determine if they have been impaired. If the book or carrying value of an investment is less than its estimated fair value and that situation is expected to continue for a more than a temporary period, we will remove the unrealized holding loss from equity and record an "other than temporary" loss in our consolidated statement of operations. We determine the estimated fair value of our available for sale investments by reviewing the current market price; the ratings of the security; the financial condition; and our intent and ability to retain the investment for a sufficient period to allow for recovery in the market value of the investment. In evaluating the factors described above for available for sale investments, we presume a decline in value to be "other than temporary" if the quoted market price of the security is below the investment's cost basis for an extended period. However, the presumption may be overcome if there is persuasive evidence indicating the decline is temporary in nature, such as if the operating performance is strong; dividends are still being paid; or the market price of the security is historically volatile. Additionally, there may be instances in which impairment losses are recognized even if the decline in value does not fall within the criteria described above, such if there is a plan to sell the security in the near term and the fair value is below our cost basis. We recorded a charge of $8,404 for an "other than temporary" impairment in the value of these securities for the year ended December 31, 2008.

        Restricted Cash.    Restricted cash as of December 31, 2008 and 2007 includes cash that we deposited as security for obligations arising from our self insurance programs and other amounts for which we are required to establish escrows, including: Florida regulatory requirements; real estate taxes and capital expenditures as required by our mortgages; resident security deposits; and other regulatory requirements.

	2008				2007
	Current		Long term		Current		Long term
Insurance reserves	$	2,093	$	5,761	$	780	$	2,050
Florida regulatory requirements		—		518		—		518
Real estate taxes and capital expenditures as required by our mortgages		1,251		—		1,375		—
Resident security deposits		1,599		—		1,500		—
Total	$	4,943	$	6,279	$	3,655	$	2,568

        Accounts Receivable and Allowance for Doubtful Accounts.    We record accounts receivable at their estimated net realizable value. We estimate allowances for uncollectible amounts and contractual allowances for our rehabilitation hospitals based upon factors which include, but are not limited to: the age of the receivable and the terms of the agreements; the residents', patients' or third party payors' stated intent to pay; their financial capacity to pay; and other factors which may include likelihood and

F-9

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

2. Summary of Significant Accounting Policies (Continued)

cost of litigation. Accounts receivable allowances are estimates. We periodically review and revise these estimates based on new information and these revisions may be material.

        During 2008, 2007 and 2006, we increased our allowance of, and charged to expense, doubtful accounts of $6,737, $4,865 and $4,165, respectively, and wrote off accounts receivable of $5,342, $4,994 and $5,284, respectively.

        Included in accounts receivable as of December 31, 2008 and 2007 are amounts due from the Medicare program of $25,433 and $18,910, respectively, and amounts due from various state Medicaid programs of $15,323 and $13,684, respectively.

        Deferred Finance Costs.    We capitalize issuance costs related to borrowings and amortize the deferred costs over the terms of the respective loans. Our unamortized balance of deferred finance costs was $4,404 and $4,685 at December 31, 2008 and 2007, respectively. Accumulated amortization related to deferred finance costs was $634 and $358 at December 31, 2008 and 2007, respectively. At December 31, 2008, the weighted average amortization period remaining is approximately 20 years. The amortization expenses to be incurred during the next five years as of December 31, 2008 are $234 in each of 2009, 2010, 2011, 2012 and 2013.

        Property and Equipment.    Property and equipment is stated at cost. We record depreciation on property and equipment on a straight line basis over estimated useful lives of up to 40 years for buildings, up to 15 years for building improvements and up to seven years for personal property. We regularly evaluate whether events or changes in circumstances have occurred that could indicate impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we determine the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value. We determine estimated fair value through an evaluation of recent financial performance, recent sales of similar assets, market conditions and projected discounted cash flows of properties using standard industry valuation techniques. As a result of this test we reduced the value of property and equipment by $1,837 reported on our balance sheet related to our rehabilitation hospitals as of December 31, 2008.

        Goodwill and Other Intangible Assets.    Goodwill represents the costs of business acquisitions in excess of the fair value of identifiable net assets acquired. We review goodwill annually, or more frequently if events or changes in circumstances exist, for impairment. If our review indicates that the carrying amount of goodwill exceeds its fair value, we reduce the carrying amount to fair value.

        We review goodwill annually during our fourth quarter, or more frequently, if events or changes in circumstances exist, for impairment. Factors we consider important to trigger a review for impairment include the following:

•

significant underperformance relative to historical or projected operating results;

•

significant changes in the manner of our use of acquired assets or the strategy for our overall business;

•

significant negative industry or economic trends;

•

significant decline in our stock price for a sustained periods; or

•

our market capitalization relative to net book value.

F-10

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

2. Summary of Significant Accounting Policies (Continued)

        If our review indicates that the carrying amount of goodwill is impaired, we reduce the carrying amount of goodwill to fair value (see Note 5).

        Self Insurance.    We self insure up to certain limits for workers compensation and professional liability claims. Claims in excess of these limits are insured by third party insurance providers up to contractual limits, over which we are self insured. We fully self insure all health related claims for our covered employees. We accrue the estimated cost of self insured amounts based on projected settlements for pending claims, known incidents which we expect may result in claims, estimates of incurred but not yet reported incidents and expected changes in premiums for insurance provided by third party insurers whose policies provide for retroactive adjustments. We periodically adjust these estimates based upon our claims experience, recommendations from our professional consultants, changes in market conditions and other factors; such adjustments may be material.

        Continuing Care Contracts.    Residents at one of our communities may enter into continuing care contracts. We offer two forms of continuing care contracts to new residents at this community. One form of contract provides that 10% of the resident admission fee becomes non-refundable upon occupancy, and the remaining 90% becomes non-refundable at the rate of 1.5% per month of the original amount over the subsequent 60 months. The second form of contract provides that 30% of the resident admission fee is non-refundable upon occupancy and 70% is refundable. Three other forms of continuing care contracts are in effect for existing residents but are not offered to new residents. One historical form of contract provides that the resident admission fee is 10% non-refundable upon occupancy and 90% refundable. A second historical form of contract provides that the resident admission fee is 100% refundable. A third historical form of contract provides that the resident admission fee is 1% refundable and 99% non-refundable upon admission. In each case, we amortize the non-refundable part of these fees into revenue over the actuarially determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay refunds of our admission fees when residents relocate from our communities. We report the refundable amount of these admission fees as current liabilities and the nonrefundable amount as deferred revenue, a portion of which is classified as a current liability. The balance of refundable admission fees as of December 31, 2008 and 2007 were $7,525 and $9,486, respectively.

        Convertible Senior Notes.    In October 2006, we issued $126,500 principal amount of Convertible Senior Notes due in 2026, or the Notes, (see Note 10). Holders of these Notes may convert their Notes into shares of our common stock subject to prior maturity, redemption or repurchase. On or after October 20, 2011, we have the option to redeem the Notes at a redemption price equal to 100% of the principal amount of the Notes, plus accrued but unpaid interest. On each of October 15, 2013, 2016 and 2021, Note holders may require that we purchase all or a portion of these Notes at a purchase price in cash equal to 100% of the principal amount of the Notes, plus accrued but unpaid interest. A holder that surrenders the Notes for conversion in connection with a make whole fundamental change that occurs before October 20, 2011 may in certain circumstances be entitled to an increased conversion rate.

        Leases.    On the inception date of a lease and upon any relevant amendments to such lease, we test the classification of such lease as either a capital lease or an operating lease. None of our leases have met any of the criteria to be classified as a capital lease under Statement of Financial Accounting

F-11

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

2. Summary of Significant Accounting Policies (Continued)

Standards, or SFAS, No. 13, "Accounting for Leases", and, therefore, we have accounted for all of our leases as operating leases.

        Taxes.    We account for income taxes under the provisions of Statement of Financial Accounting Standards, "Accounting for Income Taxes", or SFAS 109. Under SFAS 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are expected to be realized (see Note 6).

        We pay franchise taxes in certain states in which we have operations. We have included franchise taxes in general and administrative and other operating expenses in our consolidated statement of operations.

        Fair Value of Financial Instruments.    Concurrently with the adoption of SFAS 157, we adopted Statement of Financial Accounting Standards No. 159, Establishing the Fair Value Option for Financial Assets and Liabilities, or SFAS 159, which permits entities to elect, at specified election dates, to measure eligible financial instruments at fair value. During the fourth quarter of 2008, we elected the fair value option available under SFAS 159 solely for valuing the put right received from UBS related to our investments in ARS.

        Our financial instruments are limited to cash and cash equivalents, trading securities, securities held for sale, accounts receivable, accounts payable, the refundable portion of continuing care contracts, mortgage notes receivable and payable, our put right (See Note 8) and Notes. Except for our Notes, as of December 31, 2008, the fair value of these financial instruments was not materially different from their carrying values at December 31, 2008 and 2007. As of December 31, 2008 and 2007, our carrying value for the Notes is $126,500 and the fair value was $42,884 and $115,684, respectively. We estimate the fair values using market quotes when available, discounted cash flow analysis and current prevailing interest rates.

        Revenue Recognition.    We derive our revenues primarily from services to residents and patients at our senior living communities and hospitals and we record revenues when services are provided. We expect payment from governments or other third party payors for some of our services. We derived approximately 32%, 34% and 33% of our senior living revenues in 2008, 2007 and 2006, respectively, from payments under Medicare and Medicaid programs. For the year ended December 31, 2008 and 2007, we received approximately 63% and 69%, respectively, of our hospital revenues from these programs. Revenues under some of these programs are subject to audit and retroactive adjustment.

        Medicare revenues from SNF operations totaled $137,316, $124,528 and $103,735 during 2008, 2007 and 2006, respectively. Medicaid revenues from SNF and assisted living operations totaled $156,633, $147,104 and $141,661 during 2008, 2007 and 2006, respectively. Medicare and Medicaid revenues from our hospitals were $62,118 and $70,235 for the year ended December 31, 2008 and 2007, respectively. Both the federal government and some of the states in which we operate are considering plans to reduce Medicare and Medicaid funding, or to stop or reduce the projected increases in such funding. The current recession and worsening economic conditions are causing budget shortfalls in many states increasing the likelihood of Medicaid rate reductions, freezes or increases that are

F-12

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

2. Summary of Significant Accounting Policies (Continued)

insufficient to offset increasing operating costs. We cannot estimate the magnitude of potential Medicaid and Medicare rate reductions but it may be material. Medicaid and Medicare rates reductions or a failure of such programs to increase rates to match our increasing costs, if they occur, may have a negative impact on our revenues, may decrease our net income and may cause us to incur losses.

        Per Common Share Amounts.    We computed earnings (loss) per share, or EPS, for the years ended December 31, 2008, 2007 and 2006, using the weighted average number of shares outstanding during each year. Diluted EPS reflects the potential dilution that could occur if our Notes were converted into our common shares and where such conversion would result in a lower EPS amount.

        Reclassifications.    Reclassifications have been made to the prior years' financial statements to conform to the current year's presentation. Material changes are limited to reclassifying investments and related activity from our captive insurance company to our corporate and other segment. These reclassifications had no effect on net income (loss) or shareholders' equity.

        Recently Issued Accounting Pronouncements.    In December 2007, the Financial Accounting Standards Board, or the FASB, issued Statement of Financial Accounting Standards No. 141 (revised 2007), "Business Combinations", or SFAS 141(R), a replacement of FASB Statement No. 141, which changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the business being acquired. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also follow the provisions of SFAS No. 141(R). Early adoption of the provisions of SFAS No. 141(R) is not permitted. We evaluated the effect of the adoption of SFAS 141(R) and have concluded that the effect on our financial position and results of operations will be, at a minimum, to the extent that we are no longer able to capitalize transaction costs.

        In May 2008, the FASB issued FASB Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)", or FSP 14-1. FSP 14-1 requires an issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability and equity components of the instrument in a manner that is intended to reflect the issuer's nonconvertible debt borrowing rate. FSP 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and did not permit earlier application. We evaluated the effect of the adoption of FSP 14-1 and have concluded that it has no effect on our financial position or results of operations as our convertible instruments do not meet this criteria.

F-13

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

3. Property and Equipment

        Property and equipment, at cost, as of December 31, 2008 and 2007, consists of:

	2008			2007
Land	$	16,976		$	7,196
Buildings and improvements		147,205			99,945
Furniture, fixtures and equipment		63,770			55,660
		227,951			162,801
Accumulated depreciation		(37,324	)		(31,096	)
	$	190,627		$	131,705

        As of December 31, 2008 and 2007, we had assets classified as "held for sale" of $11,272 and $25,222, respectively, included in our property and equipment that we intend to sell to Senior Housing as permitted by our leases.

4. Financial Data by Segment

        Our reportable segments consist of our senior living community business and our rehabilitation hospital business. In the senior living community segment, we operate independent living and congregate care communities, assisted living communities and SNFs. Our rehabilitation hospital segment provides inpatient rehabilitation services at two hospital locations and three satellite locations and outpatient rehabilitation services at 15 outpatient clinics. We do not consider our pharmacy operations to be a material, separately reportable segment of our business but we report our pharmacy revenues and expense as separate items within our corporate and other activities. All of our operations and assets are located in the United States, except for our two captive insurance companies which participate in our liability and workers compensation insurance programs and are located in Bermuda and the Cayman Islands.

        We use segment operating profit as an important measure to evaluate our performance and for decision making purposes. Segment operating profit excludes interest and other income; interest and other expense; and certain corporate expenses.

F-14

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

4. Financial Data by Segment (Continued)

        Our revenues by segments and a reconciliation of segment operating profit (loss) to income (loss) from continuing operations before income taxes for the year ended December 31, 2008 and 2007 are as follows:

		Senior Living Communities			Rehabilitation Hospitals			Corporate and other(1)			Total
Year ended December 31, 2008
Revenues		$	935,393		$	98,428		$	70,379		$	1,104,200
Segment expenses:
	Operating expenses		702,671			91,185			69,535			863,391
	Rent expense		148,959			10,748			—			159,707
	Depreciation and amortization		10,177			943			3,599			14,719
Total segment expenses			861,807			102,876			73,134			1,037,817
Segment operating profit (loss)			73,586			(4,448	)		(2,755	)		66,383
General and administrative expenses(2)			—			—			(47,829	)		(47,829	)
Operating income (loss)			73,586			(4,448	)		(50,584	)		18,554
Interest and other income			898			—			5,017			5,915
Interest and other expense			(1,077	)		—			(5,260	)		(6,337	)
Unrealized loss on investments in trading securities			—			—			(11,967	)		(11,967	)
Unrealized gain on receipt of UBS put right			—			—			11,081			11,081
Impairment on investments in available for sale securities			—			—			(8,404	)		(8,404	)
Impairment on goodwill			—			—			(5,930	)		(5,930	)
Impairment on long lived assets			—			(1,837	)		—			(1,837	)
Gain on extinguishment of debt			743			—			—			743
Provision for income taxes			—			—			(1,392	)		(1,392	)
Income (loss) from continuing operations		$	74,150		$	(6,285	)	$	(67,439	)	$	426
Total Assets as of December 31, 2008		$	261,922		$	17,622		$	133,094		$	412,638
Long lived assets as of December 31, 2008		$	194,660		$	1,339		$	102,378		$	298,377
Year ended December 31, 2007
Revenues		$	809,934		$	102,005		$	60,985		$	972,924
Segment expenses:
	Operating expenses		612,641			92,449			58,012			763,102
	Rent expense		118,902			10,288			—			129,190
	Depreciation and amortization		9,386			1,085			3,124			13,595
Total segment expenses			740,929			103,822			61,136			905,887
Segment operating profit (loss)			69,005			(1,817	)		(151	)		67,037
General and administrative expenses(2)			—			—			(43,373	)		(43,373	)
Operating income (loss)			69,005			(1,817	)		(43,524	)		23,664
Interest and other income			206						5,946			6,152
Interest and other expense			(1,454	)		—			(5,348	)		(6,802	)
Gain on extinguishment of debt			4,491			—			—			4,491
Provision for income taxes			—			—			(1,410	)		(1,410	)
Income (loss) from continuing operations		$	72,248		$	(1,817	)	$	(44,336	)	$	26,095
Total Assets as of December 31, 2007		$	209,285		$	20,620		$	130,549		$	360,454
Long lived assets as of December 31, 2007		$	137,010		$	5,045		$	32,382		$	174,437

(1)

Corporate and Other includes operations that we do not consider significant, separately reportable segments of our business, as well as income and expenses that are not attributable to a specific segment.

(2)

General and administrative expenses are not attributable to a specific segment and include items such as corporate payroll and benefits and outside service expenses affecting home office activities.

F-15

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

5. Goodwill, Other Intangible and Long Lived Assets

        During 2008 and 2007, we recorded $1,039 and $233, respectively, of acquired goodwill related to our senior living community acquisitions (see Note 14) and we wrote off $785 related to the reduction of an unrecognized tax benefit (see Note 6) and $5,930 due to impairment of goodwill at our pharmacies as described below. As of December 31, 2008 and 2007, we had goodwill of $10,973 and $16,659, respectively. As of December 31, 2008 our goodwill related only to our senior living community segment. As of December 31, 2007 our goodwill related to our senior living community and pharmacy segments.

        We evaluate goodwill for impairment by comparing the fair value of the reporting unit as determined by its discounted cash flows and market approaches, such as capitalization rates and earnings multiples, with its carrying value. The key assumptions used in the discounted cash flow include future revenue growth, gross margins and our weighted average cost of capital. We selected a growth rate based on our view of the growth prospect of each of our segments. If the carrying value of the reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit's goodwill with its carrying amount to measure the amount of impairment loss. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to our business model or changes in operating performance.

        In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", or SFAS 142, we use a two step process to assess the carrying value of our goodwill for possible impairment at each of our reporting units which we determined to be the three segments we operate. The first step determines impairment. Goodwill is considered impaired if the carrying value of a reporting unit exceeds its estimated fair value. Upon an indication of impairment, a second step is performed to determine the amount of the impairment. To estimate the fair value of our reporting units we utilized a combination of income and market approaches. The income approach employed a discounted cash flow methodology using assumptions for forecasted cash flows and growth and discount rates. These assumptions take into account the current market environment and its impact on our business. We utilized a discount rate that we believe is appropriate to compensate for our market capitalization and inherent business risks. As a result, we concluded that goodwill recorded at our pharmacies was fully impaired and we recognized a non-cash impairment charge of $5,930 to eliminate all goodwill from our pharmacy business.

        Recently our market capitalization has declined and was significantly below book value during the fourth quarter. As a result, we determined an interim impairment test was necessary and performed the interim test on all of our reporting units as of December 31, 2008. In our evaluation we weighed all known quantitative and qualitative factors in determining if an impairment occurred and determined no additional impairment charge was warranted on our senior living community segment.

        Long lived assets and other intangible assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the non-discounted future cash flows of our asset groups are less than their carrying amount, their carrying amounts are reduced to the fair value and an impairment loss recognized. During our annual review, we recorded an impairment of $1,837 resulting from our two rehabilitation hospitals long lived assets that we did not sell to Senior Housing and that we amortize over a three to seven year life. The impairment charge relating to these long lived assets was measured based upon the difference between projected undiscounted future operating cash flows and carrying value.

F-16

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

5. Goodwill, Other Intangible and Long Lived Assets (Continued)

        During 2007, we recorded $812 of intangible assets that related to customer relationships we acquired in connection with our pharmacy acquisitions. These intangible assets are subject to amortization. As of December 31, 2008 and 2007, the unamortized balance of intangible assets was $4,769 and $5,218, respectively. At December 31, 2008, the weighted average amortization period remaining is approximately 15 years. We amortize intangible assets using the straight-line method over the useful lives of the assets commencing on the date of acquisition. Amortization expense associated with customer agreements totaled $449, $478 and $380 in 2008, 2007 and 2006, respectively. Accumulated amortization was $1,594 and $1,145 at December 31, 2008 and 2007, respectively. Amortization expense is estimated to be approximately $362 in each of 2009, 2010, 2011, 2012 and 2013.

6. Income Taxes

        In June 2006, the FASB issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes", or FIN 48. FIN 48 prescribes how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Pursuant to FIN 48, we can recognize a tax benefit only if it is "more likely than not" that a particular tax position will be sustained upon examination or audit. To the extent the "more likely than not" standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized upon settlement. We classify interest and penalties related to uncertain tax positions, if any, in our financial statements as a component of general and administrative expense.

        Because we have historically reported losses, we do not currently recognize the benefit of all of our deferred tax assets, including $165,361 of tax loss carry forwards that may be used to offset future taxable income. We will, however, continue to assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized. When we believe that we will more likely than not recover our deferred tax assets, we will record deferred tax assets as an income tax benefit in the consolidated statement of operations, which will affect our results of operations. Our net operating loss carry forwards, which begin to expire in 2023 if unused, are subject to audit and

F-17

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

6. Income Taxes (Continued)

adjustments by the Internal Revenue Service. Significant components of our deferred tax assets and liabilities as of December 31, 2008 and 2007 are as follows:

		2008			2007
Deferred tax assets:
	Continuing care contracts	$	2,240		$	2,146
	Allowance for doubtful accounts		2,505			1,959
	Deferred gains on sale lease-back transactions		2,346			2,695
	Insurance reserves		5,137			3,509
	Tax credits		2,328			2,444
	Tax loss carry forwards (including SLS termination expense)		66,671			73,681
	Impairment of Securities		3,734			—
	Other		2,020			1,072
Total deferred tax asset before valuation allowance			86,981			87,506
Valuation allowance:			(85,332	)		(84,804	)
Total deferred tax assets			1,649			2,702
Deferred tax liabilities:
	Depreciable assets		(876	)		(20	)
	Lease expense		(1,672	)		(1,971	)
	Goodwill		729			(710	)
	Other		(198	)		(240	)
Total deferred tax liabilities			(2,017	)		(2,941	)
Net deferred tax liability		$	(368	)	$	(239	)

        For the year ended December 31, 2008, we recognized tax expenses of $1,392, which includes:

•

tax expense of $1,615 for state taxes payable without regard to our tax loss carry forwards;

•

tax expense of $129 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes. Due to the impairment of certain of these related items of goodwill for book purposes, we recognized a portion of the deferred tax liability as a reduction in the income tax provision; and

•

partially offset by a tax benefit of $(352) related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes.

        This tax expense is solely associated with our income from continuing operations.

F-18

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

6. Income Taxes (Continued)

        The principal reasons for the difference between our effective tax (benefit) rate and the U.S. Federal statutory income tax (benefit) rate are as follows:

	For the years ended December 31,
	2008			2007			2006
Taxes at statutory U.S. federal income tax rate		(35.0	)%		35.0	%		(35.0	)%
State and local income taxes, net of federal tax benefit		24.4	%		7.7	%		(5.2	)%
Impairment Charge		26.3	%		0.0	%		0.0	%
Tax credits		(7.9	)%		(2.3	)%		(0.1	)%
Alternative Minimum Tax		0.0	%		1.5	%		0.0	%
Change in valuation allowance		30.3	%		(29.3	)%		40.4	%
Other differences, net		6.8	%		(6.6	)%		(0.1	)%
Effective tax rate		44.9	%		6.0	%		0.0	%

7. Earnings Per Share

        Basic EPS for the year ended December 31, 2008, 2007 and 2006 is computed using the weighted average number of shares outstanding during the periods. Diluted EPS for the period ended December 31, 2008 reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income applicable to common shareholders that would result from their assumed issuance. The effect the Notes have on income (loss) per share is anti-dilutive for the year ended December 31, 2008.

        The following table provides a reconciliation of net income (loss) and the number of common shares used in the computations of diluted EPS:

		Year ended December 31,
		2008								2007								2006
		Income (loss)			Shares		Per Share			Income (loss)			Shares		Per Share			Income (loss)			Shares		Per Share
Income (loss) from continuing operations		$	426			31,872	$	0.01		$	26,095			31,710	$	0.82		$	(109,587	)		28,605	$	(3.83	)
	Effect of the Notes		—			—					4,960			9,731					—			—
Diluted earnings (loss) from continuing operations		$	426			31,872	$	0.01		$	31,055			41,441	$	0.75		$	(109,587	)		28,605	$	(3.83	)
	Diluted loss from discontinued Operations	$	(4,922	)		31,872	$	(0.15	)	$	(2,769	)		41,441	$	(0.07	)	$	(7,078	)		28,605	$	(0.25	)

8. Fair Values of Assets and Liabilities

        On January 1, 2008 we adopted Statement of Financial Accounting Standards No. 157, "Fair Value Measurements", or SFAS 157, which defines fair value, establishes a framework for measuring fair value

F-19

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

8. Fair Values of Assets and Liabilities (Continued)

and expands disclosure about fair value measurements. Adoption of this statement did not materially impact our financial condition, results of operations or cash flows.

        SFAS 157 establishes a three-level hierarchy for fair value measurements. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement and the transparency of inputs to the valuation of an asset or liability as of the measurement date.

•

Level 1—Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.

•

Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.

•

Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurements.

        The table below presents the assets and liabilities measured at fair value at December 31, 2008 categorized by the level of inputs used in the valuation of each asset.

Description		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Long lived assets held for sale(1)		$	11,272	$	—	$	11,272	$	—
Investments in trading securities(2)			62,866		—		—		62,866
Investments in available for sale securities(3)			11,646		11,646		—		—
UBS put right(4)			11,081		—		—		11,081
	Total assets	$	96,865	$	11,646	$	11,272	$	73,947

(1)

Long lived assets held for sale consist of property and equipment we expect to sell to Senior Housing as permitted by our leases and are reported at fair value utilizing Level 2 inputs. We determined that these asset costs approximate fair value since we have either recently acquired the assets or the assets are part of ongoing construction projects and we expect to sell these assets to Senior Housing at their recorded value.

(2)

Our investments in trading securities consist of ARS, which are primarily bonds issued by various entities to fund student loans pursuant to the Federal Family Education Loan Program. Due to events in the credit markets, auctions for our ARS failed starting in the first quarter of 2008 and there is currently no market, or a very illiquid market, in which we might sell these securities. We therefore report our ARS at fair value utilizing Level 3 inputs. We measured the fair value of these securities by reference to a statement provided by UBS that was calculated with the assistance of a valuation model. This model considered, among other items, the collateral underlying the investments, the creditworthiness of the counterparty, the timing of expected future cash flows including possible refinancing of the securities and a determination of the appropriate

F-20

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

8. Fair Values of Assets and Liabilities (Continued)

discount rate. The analysis also included a comparison, when possible, to other observable market data with characteristics similar to our ARS. We reviewed the components of, and calculations made under, UBS' model. Due to the declines in fair value for our ARS for the year ended December 31, 2008, we have recorded an unrealized loss of $11,984.

On March 31, 2008, we reclassified our ARS from current to non-current investments due to our belief that the market for student loan collateralized instruments may take in excess of twelve months to recover.

(3)

Investments in available for sale securities consist primarily of preferred securities and are reported in our balance sheet as current investments in available for sale securities of $4,943, current restricted investments of $2,575 and long term restricted investments of $7,089. These securities are carried at fair value utilizing Level 1 inputs based on quoted market prices with changes in fair value recorded in other comprehensive income. When a change in fair value is deemed temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains or losses. If we determine that any future valuation adjustment was "other than temporary", we would record a charge to earnings. During the year ended December 31, 2008, we have recorded an "other than temporary" loss of $8,404, due to several notable bankruptcies and government actions involving the companies that issued the securities we hold.

(4)

We valued the put right in relationship to the fair value of our ARS and take into consideration both the amounts outstanding on our loan with UBS and a factor representing credit party risk with UBS. The largest risk associated with these rights is the continued financial solvency of UBS. The value of our put right will fluctuate inversely with the value of the ARS that we hold; we will closely track any change in the value of our ARS by an offsetting change in the value of our put right.

        Based on market conditions, our valuation methodology for investments in trading securities and investments in available for sale securities changed. Accordingly, these securities changed from Level 1 to Level 3 within SFAS 157's hierarchy. The table below presents the change in fair value measurements that used Level 3 inputs for the year ended December 31, 2008:

		Investments in trading securities			UBS Put right
Balance at January 1, 2008		$	—		$	—
	Transfers into Level 3		74,850			11,081
	Change in value recognized in earnings		(11,984	)		—
Balance at December 31, 2008		$	62,866		$	11,081

        Pursuant to a settlement agreement with UBS we received a put right which obligates UBS to repurchase our ARS at 100% of par value upon our request between June 2010 and July 2012. We expect to sell our ARS under the put right. However, if we do not exercise the put right before July 2012, it will expire and UBS will have no further rights or obligation to buy our ARS. UBS' obligations pursuant to the put right are unsecured. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the put right.

F-21

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

8. Fair Values of Assets and Liabilities (Continued)

        We have accounted for our put right as a freestanding financial instrument and elected to record it at its estimated fair market value under the fair value option of SFAS 159. As a result, we recorded an $11,081 gain related to receipt of this put right and recorded its value in other long term assets. We calculated this value based on the difference between the fair value for the ARS and the par value of the ARS (the total realizable amount of the put right) less borrowings under the UBS line, adjusted by a factor representing UBS' counter party risks based on credit default swaps for UBS as of December 31, 2008. Other than changes in UBS' credit default swap rate and our borrowings on the UBS line, we expect that the future changes in the fair value of the put right will be offset by the fair value change in the ARS. We will reassess the fair value in future reporting periods based on several factors, including auction and investment redemption experience, changes in credit ratings of UBS and our ARS investments, market risk and other factors. Based on our expected operating cash flows and other sources of cash, we do not believe that illiquidity of our ARS will have a material impact on our overall ability to meet our liquidity needs.

9. Lines of Credit

        In December 2008, we amended our $40,000 revolving line of credit. The amendment extended the termination date to May 8, 2010. Our revolving line of credit is available for acquisitions, working capital and general business purposes. The amount we are able to borrow at any time is subject to limitation based upon qualifying collateral. We are the borrower under this revolving credit facility and certain of our subsidiaries guarantee our obligations under the facility, which is secured by our and our guarantor subsidiaries' accounts receivable, deposit accounts and related assets. We borrow in U.S. dollars and borrowings under our revolving credit facility require annual interest at LIBOR plus 200 basis points. The facility contains covenants requiring us to maintain collateral, minimum net worth and certain other financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. In certain circumstances and subject to available collateral and lender approvals, the maximum amount which we may draw under this credit facility may be increased to $80,000. The termination date may be extended twice, in each case by twelve months, subject to lender approval, our payment of extension fees and other conditions. As of December 31, 2008 and February 27, 2009, no amounts were outstanding and $40,000 was available under this credit facility. As of December 31, 2008 and February 27, 2009 we believe we are in compliance with all applicable covenants under this revolving credit facility. Interest expense and other associated costs related to this facility and our prior revolving credit facility were $205, $388 and $205 for the years ended December 31, 2008, 2007 and 2006, respectively.

        In November 2008, we entered into a non-recourse credit facility with UBS which is available for acquisitions, working capital and general business purposes. The amount we are able to borrow at any time is 60% of the market value of the ARS which are collateral for the loan and such amount may vary over time. Our interest rate under the credit facility will also vary depending on the interest payable to us on the ARS, but will not exceed LIBOR plus 50 basis points. As of December 31, 2008 and February 27, 2009, we have $21,875 and $37,775 outstanding under this credit facility, respectively and $15,900 and $2,100 remained unused as of December 31, 2008 and February 27, 2009, respectively. As of December 31, 2008 and February 27, 2009 we believe we are in compliance with all applicable covenants under this revolving credit facility. Interest expense and other associated costs related to this facility were $75 for the year ended December 31, 2008.

F-22

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

10. Mortgages Payable

        At December 31, 2008, three of our communities were encumbered by United States Department of Housing, or HUD, insured mortgages totaling $12,589. These mortgages contain standard HUD mortgage covenants.

        In 2007, we prepaid seven mortgages that were secured by six of our senior living communities. We paid $28,867 to retire these seven mortgages, which consisted of approximately $28,027 in principal and interest and $840 in prepayment penalties. Because we had carried these mortgages at a premium to their face value, we recognized a net gain of $4,491 in connection with the early extinguishment of debt.

        As discussed in Note 14, in April 2007, we acquired a 48 unit assisted living community located in Tennessee for $5,025. We financed the acquisition by assuming a $4,559 non recourse HUD insured mortgage and paying the balance of the purchase price with cash on hand. The interest rate on this assumed HUD insured mortgage is 7.65%.

        Mortgage interest expense, net of premium amortization, was $1,077 and $1,204 for the years ended December 31, 2008 and 2007, respectively. Our mortgages require monthly payments into escrows for taxes, insurance and property replacement funds; withdrawals from these escrows require HUD approval.

        The following table is a summary of the mortgage notes payable as of December 31, 2008:

Maturity Date	Cash Interest Rate			Effective Interest Rate			Monthly Payment		Principal Balance as of December 31, 2008
May 2039		5.55	%		5.55	%	$	27	$	4,771
June 2035		5.25	%		5.25	%		19		3,301
July 2043		7.65	%		5.75	%		31		4,517
		6.22	%(1)		5.54	%(1)	$	77	$	12,589

(1)

Weighted average interest rate

        Principal payments due under the terms of these mortgages are as follows:

2009	$	149
2010		157
2011		167
2012		177
2013		187
Thereafter		11,752
	$	12,589

F-23

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

11. Convertible Senior Notes due 2026

        In October 2006, we issued $126,500 principal amount of our Notes pursuant to an indenture which contains customary covenants. Our net proceeds from this offering were approximately $122,600. The Notes are convertible into our common shares at any time. The initial conversion rate, which is subject to adjustment, is 76.9231 common shares per $1 principal amount of the Notes, which represents an initial conversion price of $13.00 per share. A holder that surrenders Notes for conversion in connection with a "make-whole fundamental change", as defined in the indenture governing the Notes that occurs before October 20, 2011 may in some circumstances be entitled to an increased conversion rate.

        These Notes bear interest at a rate of 3.75% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, starting on April 15, 2007. The Notes mature on October 15, 2026. On or after October 20, 2011, we may redeem the Notes, in whole or in part, at a redemption price in cash equal to 100% of the principal amount of the Notes we redeem, plus any accrued and unpaid interest. On each of October 15, 2013, October 15, 2016 and October 15, 2021, holders of these Notes may require us to purchase all or a portion of their Notes at a purchase price in cash equal to 100% of the principal amount of the Notes to be purchased, plus any accrued and unpaid interest. If a "fundamental change", as defined in the indenture governing the Notes, occurs, holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest and, in certain circumstances, plus a make whole premium as defined in the indenture governing the Notes. Interest expense and other associated costs related to the Notes was $4,980 and $4,960 for the years ended December 31, 2008 and 2007, respectively. The Notes are guaranteed by certain of our wholly owned subsidiaries (see Note 17). Our subsidiary guarantors may be released from their obligations under certain circumstances. As of December 31, 2008 and February 27, 2009, we believe we are in compliance with all applicable covenants of this indenture.

        In January 2009, we purchased and retired $46,500 par value, or 36.8%, of our outstanding Notes for $20,000, plus accrued interest. We financed this purchase, principally by borrowings under our UBS credit facility. As a result of this transaction, we expect to record a gain of approximately $25,100 net of related unamortized costs on early extinguishment of debt in the first quarter of 2009.

12. Leases

        As of December 31, 2008, we leased 181 communities and two hospitals under seven non-cancelable leases (in four combinations) with Senior Housing, and leased four communities under a lease with Healthcare Property Investors, Inc., or HCPI. These leases are "triple-net" leases which require that we pay for all costs incurred in the operation of the communities, including the cost of insurance and real estate taxes; maintaining the communities; and indemnifying the landlord for any liability which may arise from its ownership during the lease term.

        Six of our seven leases with Senior Housing for 174 senior living communities require us to pay additional rent equal to 4% of the amount by which adjusted revenues, as defined in the lease, of the communities we operate exceed gross revenues in a base year. We paid approximately $3,279 and $2,114 in percentage rent to Senior Housing for the years ended December 31, 2008 and 2007, respectively.

F-24

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

12. Leases (Continued)

        Senior Housing may fund amounts that we request for renovations and improvements to communities and hospitals we lease from them in return for rent increases according to formulas in the leases. In 2008 and 2007, Senior Housing funded $69,420 and $47,668, respectively, for renovations and improvements to some of our communities and hospitals. As a result and in accordance with our leases, our annual rent to Senior Housing as of December 31, 2008 and 2007 increased by $5,816 and $4,532, respectively.

        The following table is a summary of our leases:

		Number of properties		Annual minimum rent as of December 31, 2008		Initial expiration date	Renewal terms
1.	Three Senior Housing leases for SNFs and independent and assisted living communities.(1)		100	$	61,322	December 31, 2022	One 15-year renewal option.
2.	One Senior Housing lease for SNFs, independent and assisted living communities and two rehabilitation hospitals.		32		80,883	June 30, 2026	Two consecutive renewal options for 10 years.
3.	Two Senior Housing leases for SNFs and independent and assisted living communities.(2)		44		23,073	December 31, 2024	Two 15-year renewal options.
4.	One Senior Housing lease for New Season Properties.		7		7,596	April 30, 2017	Two 15 year renewal options.
5.	One HCPI lease.		4		1,183	June 30, 2014	Two 10-year renewal options.
Totals			187	$	174,057

(1)

Two of these three leases exist to accommodate mortgage financings in affect at the time Senior Housing acquired the leased properties; we have agreed to combine all three of these leases into one lease when these mortgages are paid.

(2)

One of these two leases exists to accommodate mortgage financings in effect at the time Senior Housing acquired 28 senior living communities, which had 2008 revenues totaling $38,662. We have agreed to combine both leases into one lease when these mortgages are paid.

F-25

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

12. Leases (Continued)

        The future minimum rents required by our leases as of December 31, 2008, are as follows:

2009	$	174,057
2010		174,057
2011		174,057
2012		174,057
2013		174,057
Thereafter		1,842,651
	$	2,712,936

13. Shareholders' Equity

        We issued 387,460 and 136,010 common shares in 2008 and 2007, respectively, to our directors, officers and others who provide services to us. We valued the shares at the average price of our common shares on the NYSE Alternext US LLC (previously the American Stock Exchange) on the dates of issue, or $596 in 2008, based on an $1.53 weighted average share price and $1,182 in 2007, based on an $8.78 weighted average share price, respectively. Shares issued to directors vest immediately; shares issued to our officers and others vest over five years and we recognize the cost ratably over the vesting period. As of December 31, 2008, 2,122,030 of our common shares remain available for issuance under our 2001 Stock Option and Stock Incentive Plan.

14. Acquisitions

        In April 2007, we acquired a 48 unit assisted living community located in Tennessee for $5,025. We financed the acquisition by assuming a $4,559 non recourse HUD insured mortgage and paying the balance of the purchase price with cash on hand. The interest rate on the assumed HUD insured mortgage is 7.65%. We allocated the purchase price of this community to land, building and equipment.

        In July 2008, we acquired three assisted living communities from Senior Housing with 278 units located in Pennsylvania and New Jersey for a purchase price of $21,350. We financed the acquisition with cash on hand. We allocated the purchase price of these communities to land, building and equipment.

        In December 2008, we acquired seven independent and assisted living communities, with a total of 628 living units, located in North Carolina (four communities) and South Carolina (three communities) for a purchase price of $44,000 plus closing costs. We financed the acquisition with cash on hand and drawings under our recently established UBS credit facility. We allocated the purchase price of these communities to land, building and equipment.

        In connection with one of the leases we initiated in 2008, we also acquired from the prior owner of the communities, its ownership interest in certain operating companies; working capital; certain long term liabilities; and operating practices and processes, especially in the memory care area. We accounted for this transaction as a business combination in accordance with SFAS 141 and, after allocating the purchase price to applicable assets and liabilities based on their fair value, recorded as goodwill the $995 excess consideration over fair value of identifiable assets.

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FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

15. Discontinued Operations

        During 2006, we ceased operations at two SNFs located in Connecticut that we leased from Senior Housing. Senior Housing sold these facilities in November 2006 for net proceeds of approximately $5,600, which caused a $559 reduction in the annual rent we pay to Senior Housing.

        In March 2007, we agreed with Senior Housing that it should sell two assisted living communities in Pennsylvania which we lease from Senior Housing. We and Senior Housing are in the process of selling these assisted living communities and, upon their sale, our annual rent payable to Senior Housing will decrease by 9.0% of the net proceeds of the sale to Senior Housing in accordance with the terms of the lease. In December 2007, we decided to sell one institutional pharmacy located in California and our mail order pharmacy located in Nebraska. The institutional pharmacy was sold on January 15, 2009. We were unable to sell the mail order pharmacy on acceptable terms and we expect to shut down operations at our mail order pharmacy on or about March 31, 2009.

        As of December 31, 2008, we have disposed of substantially all of our assets and liabilities related to the communities where we have ceased operations including a $300 impairment loss of goodwill at our pharmacy located in California. The assets and liabilities related to our two pharmacies that we expect to sell are presented separately in the consolidated balance sheet. We have reclassified the consolidated statement of operations for all periods presented to show the results of operations of the communities and pharmacies which have been sold or are expected to be sold as discontinued. Below is a summary of the operating results of these discontinued operations included in the financial statements for the years ended December 31, 2008, 2007 and 2006:

	2008			2007			2006
Revenues	$	11,902		$	12,910		$	30,829
Expenses		16,824			15,679			37,907
Net loss	$	(4,922	)	$	(2,769	)	$	(7,078	)

16. Related Person Transactions

        We were a 100% owned subsidiary of Senior Housing before December 31, 2001. On December 31, 2001, Senior Housing distributed substantially all of our then outstanding shares to its shareholders. At the time of our spin off, all of the persons serving as our directors were trustees of Senior Housing. In order to effect this spin off and to govern relations after the spin off, we entered into agreements with Senior Housing and others. Since then we have entered various lease and other agreements which confirm and modify these undertakings. Among other matters, these agreements provide that:

•

so long as Senior Housing remains a real estate investment trust, or a REIT, we may not waive the share ownership restrictions in our charter on the ability of any person or group to acquire more than 9.8% of any class of our equity shares without the consent of Senior Housing;

•

so long as we are a tenant of Senior Housing, we will not permit nor take any action that, in the reasonable judgment of Senior Housing, might jeopardize the tax status of Senior Housing as a REIT;

•

Senior Housing has the option, upon the acquisition by a person or group of more than 9.8% of our voting stock and upon other change in control events affecting us, as defined in those

F-27

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

16. Related Person Transactions (Continued)

documents including, in certain of the Senior Housing leases, the adoption of any proposal or the election to our board of directors of any individual if such proposal or individual was not approved, nominated or appointed, as the case may be, by vote of a majority of our directors in office immediately prior to the making of such proposal or the nomination or appointment of such individual, to cancel all of our rights under the leases we have with Senior Housing; and

•

so long as we have a shared services agreement with RMR we will not acquire or finance any real estate without first giving Senior Housing or any other publicly owned REIT or other entity managed by RMR, the opportunity to acquire or finance real estate investments of the type in which Senior Housing or any other publicly owned REIT or other entity managed by RMR, respectively, invests.

        Senior Housing is our largest landlord. In addition to providing management services to us, RMR also manages Senior Housing. One of our directors, Mr. Barry Portnoy, is currently a managing trustee of Senior Housing. Because of these and other relationships we and Senior Housing may be considered related persons. Also, because of these relationships all of our transactions with Senior Housing are separately approved by our Independent Directors and Senior Housing's Independent Trustees.

        Of the 210 senior living communities we operated on December 31, 2008, 181 are leased from Senior Housing for total annual rent of $161,731. In addition, we also lease our two rehabilitation hospitals from Senior Housing for a total minimum rent of $11,143.

        Since January 1, 2008, we have entered into several transactions with Senior Housing, including:

•

During the three months ended March 31, 2008, we leased 19 senior living properties with a total of 1,692 units from Senior Housing for initial rent of $21,790 and added them to what we now refer to as Senior Housing lease no. 1 and lease no. 3, which have current terms expiring in 2022 and 2024, respectively. Percentage rent, based on increases in gross revenues at these properties, will commence in 2010.

•

On June 30, 2008, we realigned three of our leases with Senior Housing. Lease no. 1 now includes 100 properties, including nine properties which we first leased during the first quarter of 2008. This lease includes independent living communities, assisted living communities and SNFs, and expires in 2022. Lease no. 2 now includes 32 properties, including independent living communities, assisted living communities, SNFs and our two rehabilitation hospitals, and expires in 2026. Lease no. 3 now includes 44 properties, including 10 properties acquired during the first quarter of 2008, 10 properties acquired during the third quarter of 2008 and one property acquired on November 1, 2008 described below. This lease includes independent living communities, assisted living communities and SNFs and expires in 2024. The total rent payable by us to Senior Housing for these properties was unchanged as a result of this lease realignment. The increased rent payable for these three leases, if and as Senior Housing purchases improvements we make to the leased properties, will be the greater of 8.0% per annum or the 10 year Treasury rate plus 300 basis points, but not to exceed 11.5%.

•

On July 1, 2008, we acquired three assisted living properties with 259 living units that were formerly operated by NewSeasons from Senior Housing for $21,350 and we assumed the NewSeasons lease obligations to Senior Housing for the remaining seven properties that NewSeasons formerly operated. The rent payable by us for these seven properties is

F-28

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

16. Related Person Transactions (Continued)

approximately $7,593 per annum under what we refer to as lease no. 4 between us and Senior Housing. In consideration of our lease assumption, NewSeasons paid us $10,000 and transferred title to certain personal property located at the communities. We recorded the NewSeasons consideration as a deferred credit on our balance sheet, which we are amortizing as a reduction of rent expense over the remaining lease term.

•

On August 1, 2008, we leased two senior living communities from Senior Housing until 2024 under our Senior Housing lease no. 3 described above. As a result, our annual rent under that lease increased by $1,179. Percentage rent, based on increases in gross revenues at these properties, will commence in 2010.

•

On September 1, 2008, we leased eight senior living communities with a total of 451 units until 2024 under our Senior Housing lease no. 3 described above. As a result, our annual rent under this lease increased by $4,981. Percentage rent, based on increases in gross revenues at these properties, will commence in 2010.

•

On November 1, 2008, we leased one senior living community with a total of 252 units from Senior Housing under lease no. 3, which has a term expiring in 2024. As a result, our annual rent under this lease increased by $2,300. Percentage rent, based on increases in gross revenues at this property, will commence in 2010.

•

During 2008, pursuant to the terms of our leases with Senior Housing, Senior Housing purchased approximately $69,420 of improvements made to our properties leased from Senior Housing, and, as a result, the annual rent payable to Senior Housing by us increased by approximately $5,800.

        RMR provides certain management and administrative services to us under a shared services agreement which is subject to annual review and approval by our Independent Directors. RMR is compensated at an annual rate equal to 0.6% of our total revenues. In May 2008 the shared services agreement was amended to include compensation for personnel involved with management information systems, or MIS. RMR is compensated at a rate equal to 80% of the employment expenses of RMR's employees, other than its Chief Information Officer, actively engaged in servicing MIS. Aggregate fees paid by us to RMR for management, administrative and information system services during 2008, 2007 and 2006, were $8,336, $6,052 and $4,857, respectively. In addition, RMR also provides the internal audit function for us and for other publicly owned companies to which it provides management services. Our audit committee appoints our director of internal audit, and our compensation committee approves his salary. Our compensation committee also approves the allocated costs we pay with respect to our internal audit function. Our pro rata share of RMR's costs in providing that function for the years ended 2008, 2007 and 2006 was $223, $169 and $173, respectively. The fact that RMR has responsibilities to other entities, including our most significant landlord, Senior Housing, could create conflicts; and in the event of such conflicts between Senior Housing and us, our shared services agreement with RMR allows RMR to act on behalf of Senior Housing rather than on our behalf. A termination of our shared services agreement is event of default under our revolving credit facility. RMR is beneficially owned by Messrs. Barry M. Portnoy, one of our managing directors, and his son, Adam D. Portnoy, who is President and Chief Executive Officer and a director of RMR and a managing trustee of Senior Housing. Messrs. Barry Portnoy and Gerard Martin, our managing directors, are directors of RMR.

F-29

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

16. Related Person Transactions (Continued)

        Our Chief Executive Officer and Chief Financial Officer are also officers and employees of RMR. These officers devote a substantial majority of their business time to our affairs and the remainder to RMR's business which is separate from our business. We believe the compensation we paid to these officers reasonably reflects their division of business time; however, periodically, these individuals may divide their business time differently than they do currently and their compensation from us may become disproportionate to this division.

        An affiliated entity of RMR is the owner of the buildings in which our corporate headquarters are located. These leases expire in 2011. We incurred rent, which includes our proportional share of utilities and real estate taxes, under this lease during 2008, 2007 and 2006 of $1,051, $1,332 and $938, respectively. This lease has been amended at various times to take into account our needs for increasing space and all amendments to this lease have been approved by our Independent Directors.

        We, RMR and other companies to which RMR provides management services are in the process of forming and licensing an insurance company in the State of Indiana. All of our directors are currently serving on the board of directors of this insurance company. We expect that RMR, in addition to being a shareholder, will enter into a management agreement with this insurance company, pursuant to which RMR will provide the insurance company certain management and administrative services. In addition, it is expected that the insurance company and RMR Advisors, Inc., or Advisors, a company affiliated with RMR, will enter an investment advisory agreement pursuant to which Advisors will act as the insurance company's investment advisor. Subsequent to year end, we have invested $25 to date in the insurance company and are committed to invest another $4,975, and we currently own and intend to own approximately 16.7% of this insurance company. We may invest additional amounts in the insurance company in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so. Over time we expect to transfer some or all of our insurance business to this company. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing insurance expenses and/or by having our pro-rata share of any profits realized by this insurance business.

        One of our hospitals' outpatient clinics leases space from HRPT Properties Trust, or HRPT, a REIT managed by RMR. We incurred rent, which includes our proportional share of utilities and real estate taxes, under this lease during 2008 and 2007 of $58 and $53, respectively.

        In December 2006, we began leasing space for a regional office in Atlanta, Georgia from HRPT. Our lease for this space expires in 2011. We incurred rent, which includes our proportional share of utilities and real estate taxes, under this lease during 2008 and 2007 of $60 and $61, respectively.

        We believe that all our transactions with all parties are on reasonable commercial terms. We also believe that our relationship with Senior Housing and RMR benefits us and, in fact, provide us competitive advantages in operating and growing our businesses.

17. Employee Benefit Plans

        We have several employee savings plans under the provisions of Section 401(k) of the Internal Revenue Code. All our employees are eligible to participate in at least one of our plans and are entitled upon termination or retirement to receive their vested portion of the plan assets. For some of our plans, we match a certain amount of employee contributions. We also pay certain expenses related to all of our plans. Expenses for all our plans, including our contributions, were $1,484, $1,321 and $193 for the years ended December 31, 2008, 2007 and 2006, respectively.

F-30

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information

        Our Notes are guaranteed by certain of our domestic wholly owned subsidiaries. Such guarantees are full, unconditional and joint and several. Condensed consolidating financial information related to us, our guarantor subsidiaries and our non-guarantor subsidiaries as of December 31, 2008, 2007 and 2006 are reflected below:

Condensed Consolidating Statement of Operations
For the year ended December 31, 2008

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Revenues:
	Senior living revenue	$	—		$	352,677		$	582,716		$	—	$	935,393
	Hospital revenue		—			—			98,428			—		98,428
	Pharmacy revenue		—			—			70,379			—		70,379
Total revenues			—			352,677			751,523			—		1,104,200
Operating expenses:
	Senior living wages and benefits		—			151,903			315,165			—		467,068
	Other senior living operating expenses		—			89,743			145,860			—		235,603
	Hospital expenses		—			—			91,185			—		91,185
	Pharmacy expenses		—			—			69,535			—		69,535
	Rent expense		—			69,583			90,124			—		159,707
	General and administrative		—			—			47,829			—		47,829
	Depreciation and amortization		—			4,672			10,047			—		14,719
Total operating expenses			—			315,901			769,745			—		1,085,646
Operating income (loss)			—			36,776			(18,222	)		—		18,554
	Interest and other income		—			11			5,904			—		5,915
	Unrealized gain on receipt of UBS put right		—			—			11,081					11,081
	Impairment on goodwill		—			—			(5,930	)		—		(5,930	)
	Impairment of long lived assets		—			—			(1,837	)		—		(1,837	)
	Interest expense		—			—			(6,337	)		—		(6,337	)
	Unrealized loss on investments		—			—			(11,967	)				(11,967	)
	Impairment on investments		—			—			(8,404	)				(8,404	)
	Gain on extinguishment of debt		—			—			743			—		743
	Equity in earnings of subsidiaries		(4,496	)		—			—			4,496		—
Income (loss) from continuing operations before income taxes			(4,496	)		36,787			(34,969	)		4,496		1,818
	Provision for income taxes		—			(16	)		(1,376	)		—		(1,392	)
Income (loss) from continuing operations			(4,496	)		36,771			(36,345	)		4,496		426
Loss from discontinued operations			—			—			(4,922	)		—		(4,922	)
Net income (loss)		$	(4,496	)	$	36,771		$	(41,267	)	$	4,496	$	(4,496	)

F-31

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Statement of Operations
For the year ended December 31, 2007

		Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
	Senior living revenue	$	—	$	342,608		$	467,326		$	—		$	809,934
	Hospital revenue		—		—			102,005			—			102,005
	Pharmacy revenue		—		—			60,985			—			60,985
Total revenues			—		342,608			630,316			—			972,924
Operating expenses:
	Senior living wages and benefits		—		150,667			259,780			—			410,447
	Other senior living operating expenses		—		101,930			100,264			—			202,194
	Hospital expenses		—		—			92,449			—			92,449
	Pharmacy expenses		—		—			58,012			—			58,012
	Rent expense		—		66,854			62,336			—			129,190
	General and administrative		—		—			43,373			—			43,373
	Depreciation and amortization		—		4,790			8,805			—			13,595
Total operating expenses			—		324,241			625,019			—			949,260
Operating income			—		18,367			5,297			—			23,664
	Interest and other income		—		—			6,152			—			6,152
	Interest expense		—		(250	)		(6,552	)		—			(6,802	)
	Gain on extinguishment of debt		—		—			4,491			—			4,491
	Equity in earnings of subsidiaries		23,326		—			—			(23,326	)		—
Income from continuing operations before income taxes			23,326		18,117			9,388			(23,326	)		27,505
	Provision for income taxes		—		107			1,303			—			1,410
Income from continuing operations			23,326		18,010			8,085			(23,326	)		26,095
Loss from discontinued operations			—		(14	)		(2,755	)		—			(2,769	)
Net income		$	23,326	$	17,996		$	5,330		$	(23,326	)	$	23,326

F-32

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Statement of Operations
For the year ended December 31, 2006

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Revenues:
	Senior living revenue	$	—		$	328,786		$	416,111		$	—	$	744,897
	Hospital revenue		—			—			25,494			—		25,494
	Pharmacy revenue		—			—			45,195			—		45,195
Total revenues			—			328,786			486,800			—		815,586
Operating expenses:
	Senior living wages and benefits		—			143,329			238,764			—		382,093
	Other senior living operating expenses		—			87,773			98,623			—		186,396
	Hospital expenses		—			—			22,954			—		22,954
	Pharmacy expenses		—			—			44,579			—		44,579
	Management fee to SLS		—			8,744			—			—		8,744
	Termination expense for SLS management agreements		—			129,913			—			—		129,913
	Rent expense		—			65,171			44,085			—		109,256
	General and administrative		—			—			33,829			—		33,829
	Depreciation and amortization		—			4,192			5,659			—		9,851
Total operating expenses			—			439,122			488,493			—		927,615
Operating loss			—			(110,336	)		(1,693	)		—		(112,029	)
	Interest and other income		—			313			6,493			—		6,806
	Interest expense		—			(24	)		(4,340	)		—		(4,364	)
	Equity in earnings of subsidiaries		(116,665	)		—			—			116,665		—
(Loss) income from continuing operations before income taxes			(116,665	)		(110,047	)		460			116,665		109,587
	Provision for income taxes		—			—			—			—		—
(Loss) income from continuing operations			(116,665	)		(110,047	)		460			116,665		(109,587	)
Loss from discontinued operations			—			(74	)		(7,004	)		—		(7,078	)
Net loss		$	(116,665	)	$	(110,121	)	$	(6,544	)	$	116,665	$	(116,665	)

F-33

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Balance Sheet
As of December 31, 2008

		Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
	Cash and cash equivalents	$	—	$	3,189	$	12,949	$	—		$	16,138
	Accounts receivable, net		—		11,614		54,409		—			66,023
	Restricted cash and investments		—		2,822		4,696		—			7,518
	Investment securities		—		—		7,232		—			7,232
	Prepaid expenses and other current assets		—		1,107		14,858		—			15,965
	Assets of discontinued operations		—		—		1,385		—			1,385
Total current assets			—		18,732		95,529		—			114,261
Property and equipment, net			—		15,786		174,841		—			190,627
Investment in subsidiary and long term receivable from (to) subsidiaries			200		—		200		(400	)		—
Restricted cash and investments			—		—		13,368		—			13,368
Investments in trading securities			—		—		62,866		—			62,866
Intercompany			229,522		—		—		(229,522			—
Goodwill and other intangible assets			—		—		15,752		—			15,752
Other long term assets			—		—		15,764		—			15,764
		$	229,722	$	34,518	$	378,320	$	(229,922	)	$	412,638
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable and other current liabilities	$	—	$	18,142	$	110,848	$	—		$	128,990
	Mortgage notes payable		—		—		149		—			149
Total current liabilities			—		18,142		110,997		—			129,139
Long term liabilities:
	Secured revolving credit facility		—		—		21,875		—			21,875
	Mortgage notes payable		—		—		12,441		—			12,441
	Convertible senior notes		—		—		126,500		—			126,500
	Notes payable to related parties		200		—		—		(200	)		—
	Other long term liabilities		—		10,977		26,367		—			37,344
Total long term liabilities			200		10,977		187,183		(200	)		198,160
Total shareholders' equity			229,522		5,399		80,140		(229,722	)		85,339
		$	229,722	$	34,518	$	378,320	$	(229,922	)	$	412,638

F-34

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Balance Sheet
As of December 31, 2007

		Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
	Cash and cash equivalents	$	—	$	5,422	$	25,577	$	—		$	30,999
	Accounts receivable, net		—		11,209		47,594		—			58,803
	Investment securities		—		—		69,255		—			69,255
	Prepaid expenses and other current assets		—		5,021		18,761		—			23,782
	Assets of discontinued operations		—		—		3,178		—			3,178
Total current assets			—		21,652		164,365		—			186,017
Property and equipment, net
Investment in subsidiary and long term receivable from (to) subsidiaries			—		28,874		102,831		—			131,705
Intercompany			200		—		200		(400	)		—
Goodwill and other intangible assets			229,048		—		—		(229,048	)		—
Other long term assets			—		—		42,732		—			42,732
		$	229,248	$	50,526	$	310,128	$	(229,448	)	$	360,454
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable and other current liabilities	$	—	$	27,823	$	75,821	$	—		$	103,644
	Mortgage notes payable		—		—		200		—			200
	Liabilities of discontinued operations		—		—		219		—			219
Total current liabilities			—		27,823		76,240		—			104,063
Long term liabilities:
	Mortgage notes payable		—		—		15,810		—			15,810
	Convertible senior notes		—		—		126,500		—			126,500
	Notes payable to related parties		200		—		—		(200	)		—
	Other long term liabilities		—		15,161		12,098		—			27,259
Total long term liabilities			200		15,161		154,408		(200	)		169,569
Total shareholders' equity			229,048		7,542		79,480		(229,248	)		86,822
		$	229,248	$	50,526	$	310,128	$	(229,448	)	$	360,454

F-35

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Cash Flow Statement
For the year ended December 31, 2008

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from operating activities:
Net income		$	(4,496	)	$	36,771		$	(41,267	)	$	4,496		$	(4,496	)
Undistributed equity in earnings of subsidiaries			4,496			—			—			(4,496	)		—
Adjustments to reconcile net income to cash provided by (used in) operating activities, net			—			(47,004	)		97,564			—			50,560
	Net cash provided by (used in) operating activities		—			(10,233	)		56,297			—			46,064
	Net cash used in by discontinued operations		—			—			(1,273	)		—			(1,273	)
Cash Flows from investing activities:
Capital expenditures			—			(29,027	)		(51,795	)		—			(80,822	)
Acquisition of senior living communities			—			—			61,715						61,715
Proceeds from the sale of property and equipment			—			37,443			31,977			—			69,420
Other, net			—			(416	)		(5,317	)		—			(5,733	)
	Net cash provided by (used in) investing activities		—			8,000			(86,850	)		—			(78,850	)
Cash Flows from financing activities:
Change in borrowings, net			—			—			19,198			—			19,198
	Net cash provided by financing activities		—			—			19,198			—			19,198
Change in cash and cash equivalents			—			(2,233	)		(12,628	)		—			(14,861	)
Cash and cash equivalents at beginning of period			—			5,422			25,577			—			30,999
Cash and cash equivalents at end of period		$	—		$	3,189		$	12,949		$	—		$	16,138

F-36

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Cash Flow Statement
For the year ended December 31, 2007

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from operating activities:
Net income		$	23,326		$	17,996		$	5,330		$	(23,326	)	$	23,326
Undistributed equity in earnings of subsidiaries			(23,326	)		—			—			23,326			—
Adjustments to reconcile net income to cash provided by (used in) operating activities, net			—			(13,635	)		34,619			—			20,984
	Net cash provided by operating activities		—			4,361			39,949			—			44,310
	Net cash used in discontinued operations		—			(14	)		(5,714	)		—			(5,728	)
Cash Flows from investing activities:
Capital expenditures			—			(25,978	)		(47,445	)		—			(73,423	)
Proceeds from the sale of property and equipment			—			15,391			32,277			—			47,668
Other, net			—			3,597			(2,837	)		—			760
	Net cash used in investing activities		—			(6,990	)		(18,005	)		—			(24,995	)
Cash Flows from financing activities:
Change in borrowings, net			—			—			(28,829	)		—			(28,829	)
	Net cash used in financing activities		—			—			(28,829	)		—			(28,829	)
Change in cash and cash equivalents			—			(2,643	)		(12,599	)		—			(15,242	)
Cash and cash equivalents at beginning of period			—			8,065			38,176			—			46,241
Cash and cash equivalents at end of period		$	—		$	5,422		$	25,577		$	—		$	30,999

F-37

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

18. Guarantor Financial Information (Continued)

Condensed Consolidating Cash Flow Statement
For the year ended December 31, 2006

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from operating activities:
Net loss		$	(116,665	)	$	(110,120	)	$	(6,545	)	$	116,665		$	(116,665	)
Undistributed equity in earnings of subsidiaries			116,665			—			—			(116,665	)		—
Adjustments to reconcile net income to cash (used in) provided by operating activities, net			—			118,212			(176,069	)		—			(57,857	)
	Net cash (used in) provided by operating activities		—			8,092			(182,614	)		—			(174,522	)
	Net cash used in discontinued operations		—			(74	)		(7,004	)		—			(7,078	)
Cash Flows from investing activities:
Capital expenditures			—			(17,481	)		(39,621	)		—			(57,102	)
Proceeds from the sale of property and equipment			—			9,425			14,304			—			23,729
Other, net			—			1,027			2,578			—			3,605
	Net cash used in investing activities		—			(7,029	)		(22,739	)		—			(29,768	)
Cash Flows from financing activities:
Proceeds from issuance of common shares, net			—			—			115,291			—			115,291
Change in borrowings, net			—			—			125,942			—			125,942
	Net cash provided by financing activities		—			—			241,233			—			241,233
Change in cash and cash equivalents			—			989			28,876			—			29,865
Cash and cash equivalents at beginning of period			—			7,076			9,300			—			16,376
Cash and cash equivalents at end of period		$	—		$	8,065		$	38,176		$	—		$	46,241

F-38

FIVE STAR QUALITY CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

19. Selected Quarterly Financial Data (Unaudited)

        The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2008 and 2007:

	2008
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Revenues	$	258,877	$	271,144	$	281,942		$	292,237
Net income (loss) from continuing operations		4,419		4,237		(1,618	)		(6,612	)
Net income (loss)		1,617		3,489		(2,250	)		(7,352	)
Net income (loss) per common share—Basic	$	0.05	$	0.11	$	(0.07	)	$	(0.23	)
Net income (loss) per common share—Diluted	$	0.07	$	0.11	$	(0.07	)	$	(0.23	)

	2007
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	237,028	$	240,138	$	244,598	$	251,160
Net income from continuing operations		5,480		5,146		8,592		6,879
Net income		4,764		4,080		7,761		6,722
Net income per common share—Basic	$	0.15	$	0.13	$	0.24	$	0.21
Net income per common share—Diluted	$	0.15	$	0.13	$	0.22	$	0.19

F-39

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIVE STAR QUALITY CARE, INC.
By:	/s/ BRUCE J. MACKEY JR. Bruce J. Mackey Jr. President and Chief Executive Officer

Dated: March 2, 2009

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ BRUCE J. MACKEY JR. Bruce J. Mackey Jr.	President and Chief Executive Officer	March 2, 2009
/s/ FRANCIS R. MURPHY III Francis R. Murphy III	Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)	March 2, 2009
/s/ BARRY M. PORTNOY Barry M. Portnoy	Managing Director	March 2, 2009
/s/ GERARD M. MARTIN Gerard M. Martin	Managing Director	March 2, 2009
/s/ BRUCE M. GANS Bruce M. Gans	Director	March 2, 2009
/s/ BARBARA D. GILMORE Barbara D. Gilmore	Director	March 2, 2009
/s/ ARTHUR G. KOUMANTZELIS Arthur G. Koumantzelis	Director	March 2, 2009

EX-3.2

Exhibit 3.2

FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

As Amended and Restated February 27, 2009

Table of Contents

ARTICLE I OFFICES		1
Section 1.1.	Principal Office	1
Section 1.2.	Additional Offices	1
ARTICLE II MEETINGS OF STOCKHOLDERS		1
Section 2.1.	Place	1
Section 2.2.	Annual Meeting	1
Section 2.3.	Special Meetings	1
Section 2.4.	Notice of Regular or Special Meetings	4
Section 2.5.	Notice of Adjourned Meetings	5
Section 2.6.	Scope of Meetings	5
Section 2.7.	Organization of Stockholder Meetings	5
Section 2.8.	Quorum	6
Section 2.9.	Voting	6
Section 2.10.	Proxies	6
Section 2.11.	Record Date	6
Section 2.12.	Voting of Stock by Certain Holders	7
Section 2.13.	Inspectors	7
Section 2.14.	Nominations and Other Proposals to be Considered at Meetings of Stockholders	7
Section 2.14.1	Annual Meetings of Stockholders	7
Section 2.14.2	Stockholder Nominations or Other Proposals Causing Covenant Breaches or Defaults	14
Section 2.14.3	Stockholder Nominations or Other Proposals Requiring Governmental Action	15
Section 2.14.4	Special Meetings of Stockholders	16
Section 2.14.5	General	16
Section 2.15.	Voting by Ballot	18
Section 2.16.	Proposals of Business Which Are Not Proper Matters For Action By Stockholders	18
ARTICLE III DIRECTORS		19
Section 3.1.	General Powers; Qualifications; Directors Holding Over	19
Section 3.2.	Independent Directors and Managing Directors	19
Section 3.3.	Number and Tenure	20
Section 3.4.	Annual and Regular Meetings	20
Section 3.5.	Special Meetings	20
Section 3.6.	Notice	20
Section 3.7.	Quorum	20
Section 3.8.	Voting	21
Section 3.9.	Telephone Meetings	21
Section 3.10.	Action by Written Consent of Board of Directors	21
Section 3.11.	Waiver of Notice	21
Section 3.12.	Vacancies	21
Section 3.13.	Compensation	21

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Section 3.14.	Surety Bonds	22
Section 3.15.	Reliance	22
Section 3.16.	Qualifying Shares of Stock Not Required	22
Section 3.17.	Certain Rights of Directors, Officers, Employees and Agents	22
Section 3.18.	Emergency Provisions	22
ARTICLE IV COMMITTEES		22
Section 4.1.	Number; Tenure and Qualifications	22
Section 4.2.	Powers	23
Section 4.3.	Meetings	23
Section 4.4.	Telephone Meetings	23
Section 4.5.	Action by Written Consent of Committees	23
Section 4.6.	Vacancies	23
ARTICLE V OFFICERS
Section 5.1.	General Provisions	24
Section 5.2.	Removal and Resignation	24
Section 5.3.	Vacancies	24
Section 5.4.	Chief Executive Officer	24
Section 5.5.	Chief Operating Officer	24
Section 5.6.	Chief Financial Officer	25
Section 5.7.	Chairman and Vice Chairman of the Board	25
Section 5.8.	President	25
Section 5.9.	Vice Presidents	25
Section 5.10.	Secretary	25
Section 5.11.	Treasurer	25
Section 5.12.	Assistant Secretaries and Assistant Treasurers	25
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1.	Contracts	26
Section 6.2.	Checks and Drafts	26
Section 6.3.	Deposits	26
ARTICLE VII STOCK
Section 7.1.	Certificates	26
Section 7.2.	Transfers	26
Section 7.3.	Lost Certificates	27
Section 7.4.	Closing of Transfer Books or Fixing of Record Date	27
Section 7.5.	Stock Ledger	28
Section 7.6.	Fractional Stock; Issuance of Units	28
ARTICLE VIII REGULATORY COMPLIANCE AND DISCLOSURE
Section 8.1.	Actions Requiring Regulatory Compliance Implicating the Corporation	28
Section 8.2.	Compliance With Law	29
Section 8.3.	Limitation on Voting Shares of Stock or Proxies	29
Section 8.4.	Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies	30
Section 8.5.	Board of Directors’ Determinations	30

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ARTICLE IX ACCOUNTING YEAR		30
Section 9.1.	Accounting Year	30
ARTICLE X DIVIDENDS AND OTHER DISTRIBUTIONS		30
Section 10.1.	Dividends and Other Distributions	30
ARTICLE XI SEAL		30
Section 11.1.	Seal	30
Section 11.2.	Affixing Seal	30
ARTICLE XII WAIVER OF NOTICE		31
Section 12.1.	Waiver of Notice	31
ARTICLE XIII AMENDMENT OF BYLAWS		31
Section 13.1.	Amendment of Bylaws	31
ARTICLE XIV MISCELLANEOUS		31
Section 14.1.	References to Charter of the Corporation	31
Section 14.2.	Costs and Expenses	31
Section 14.3.	Ratification	32
Section 14.4.	Ambiguity	32
Section 14.5.	Inspection of Bylaws	32
Section 14.6.	Special Voting Provisions relating to Control Shares	32

FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

Section 1.1.            Principal Office.  The principal office of the Corporation shall be located at such place or places as the Board of Directors may designate.

Section 1.2.            Additional Offices.  The Corporation may have additional offices at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 2.1.            Place.  All meetings of stockholders shall be held at the principal office of the Corporation or at such other place as is designated by the Board of Directors or the chairman of the board or president.

Section 2.2.            Annual Meeting.  An annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held at such times as the Board of Directors may designate.  Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid acts of the Corporation.

Section 2.3.            Special Meetings.

(a)           General.  The president of the Corporation or a majority of the entire Board of Directors may call a special meeting of the stockholders.  Subject to Section 2.3(b), if at the time stockholders are entitled by law to cause a special meeting of the stockholders to be called, a special meeting of stockholders shall also be called by the secretary of the Corporation upon the written request of stockholders entitled to cast not less than the Special Meeting Percentage of all the votes entitled to be cast at such meeting.  The “Special Meeting Percentage” shall be a majority or, if greater from time to time, the largest portion which the Corporation is legally permitted to specify with respect to stockholders entitled by law to cause a special meeting of the stockholders to be called.

(b)           Stockholder Requested Special Meetings.

(i)            Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary of the Corporation (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”).  No stockholder may make a Record Date Request Notice unless such stockholder (i) complies with the requirements set forth in Section 2.14.1(a)(ii)(A) and (ii) holds certificates for all shares of stock of the Corporation owned by such stockholder during all times described in Section 2.14.1(a), and a copy of each such certificate held by such stockholder at the time of giving such written request shall accompany such stockholder’s written request to the secretary in order for such request to be effective.  The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at the meeting, shall be signed by one or more stockholders of record as of the date of signature (or their duly authorized agents), shall bear the date of signature of each such stockholder (or its duly authorized agent) signing the Record Date Request Notice and shall set forth all information that each such stockholder would be required to disclose in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, as well as additional information required by Section 2.14.  Upon receiving the Record Date Request Notice, the Board of Directors may in its discretion fix a Request Record Date, which need not be the same date as that requested in the Record Date Request Notice.  The Request Record Date shall not precede, and shall not be more than 10 days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors.  If the Board of Directors, within 10 days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement (as defined in Section 2.14.5(c)) of such Request Record Date, the Request Record Date shall be the close of business on the 10th day after the date a valid Record Date Request Notice is received by the secretary.

(ii)           In order for any stockholder to request a special meeting, one or more written requests for a special meeting  signed by stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast not less than the Special Meeting Percentage (the “Special Meeting Request”) shall be delivered to the secretary.  No stockholder may make a Special Meeting Request unless such stockholder (i) complies with the requirements set forth in Section 2.14.1(a)(ii)(A) and (ii) holds certificates for all shares of stock of the Corporation owned by such stockholder during all times described in Section 2.14.1(a), and a copy of each such certificate held by such stockholder at the time of giving such written request shall accompany such stockholder’s written request to the secretary in order for such request to be effective.  In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters

2

proposed to be acted on at the meeting (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such stockholder (or its duly authorized agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of stock of the Corporation which are owned of record and beneficially by each such stockholder, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 10 days after the Request Record Date.  Any requesting stockholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.

(iii)          The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing, mailing and filing the notice of meeting (including the Corporation’s proxy materials).  The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents and information required by Section 2.3(b)(ii), the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting.

(iv)          Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the officer who called the meeting in accordance with Section 2.3(a), if any, and otherwise by the Board of Directors.  In the case of any special meeting called by the secretary upon the request of stockholders (a “Stockholder Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder Requested Meeting shall be not more than 90 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board of Directors fails to designate, within 10 days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for a Stockholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first Business Day preceding such 90th day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder Requested Meeting within 10 days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation.  In fixing a date for any special meeting, the president or Board of Directors may consider such factors as he, she or it deems relevant within the exercise of their business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Directors to call an annual meeting or a special meeting.  In the case of any Stockholder Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of

3

business on the 30th day after the Delivery Date shall be the Meeting Record Date.

(v)           If at any time as a result of written revocations of requests for the special meeting, stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time before 10 days before the meeting if the secretary has sent to all other requesting stockholders written notice of such revocation and of the intention to revoke the notice of the meeting and the Corporation may cancel and not hold such meeting.  Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.

(vi)          The Board of Directors shall determine the validity of any purported Record Date Request Notice or Special Meeting Request received by the secretary.  For the purpose of permitting the Board of Directors to perform such review, no such purported request shall be deemed to have been delivered to the secretary until the earlier of (A) five Business Days after receipt by the secretary of such purported request and (B) such date as the Board of Directors may certify whether valid requests received by the secretary represent at least a majority of the issued and outstanding shares of stock (or such larger portion which the Corporation is legally permitted to specify with respect to stockholders entitled by law to cause a special meeting of the stockholders to be called) that would be entitled to vote at such meeting.

(vii)         For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close.

Section 2.4.            Notice of Regular or Special Meetings.  In accordance with applicable law and the charter of the Corporation, the secretary shall give to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail, by presenting it to such stockholder personally, by leaving it at the stockholder’s residence or usual place of business, by electronic transmission or by any other means permitted by Maryland law.  If mailed, such notice shall be deemed to be given once deposited in the U.S. mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid.

4

Section 2.5.            Notice of Adjourned Meetings.  It shall not be necessary to give notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken.

Section 2.6.            Scope of Meetings.  Except as otherwise expressly set forth elsewhere in these Bylaws, no business shall be transacted at an annual or special meeting of stockholders except as specifically designated in the notice or otherwise properly brought before the stockholders by or at the direction of the Board of Directors.

Section 2.7.            Organization of Stockholder Meetings.  Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chairperson of the meeting or, in the absence of such appointment or the absence of the appointed individual, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there be one, the president, the vice presidents in their order of seniority, or, in the absence of such officers, a chairperson chosen by the stockholders by the vote of a majority of the votes cast on such appointment by stockholders present in person or represented by proxy.  The secretary, an assistant secretary or a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairperson of the meeting shall act as secretary of the meeting and record the minutes of the meeting.  If the secretary presides as chairperson at a meeting of the stockholders, then the secretary shall not also act as secretary of the meeting and record the minutes of the meeting.  The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairperson of the meeting.  The chairperson of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairperson, are appropriate for the proper conduct of the meeting, including, without limitation: (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any stockholder or other person who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairperson of the meeting; (g) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (h) complying with any state and local laws and regulations concerning safety and security.  Without limiting the generality of the powers of the chairperson of the meeting pursuant to the foregoing provisions, the chairperson may adjourn any meeting of stockholders for any reason deemed necessary by the chairperson, including, without limitation, if (i) no quorum is present for the transaction of the business, (ii) the Board of Directors or the chairperson of the meeting determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information that the Board of Directors or the chairperson of the meeting determines has not been made sufficiently or timely available to stockholders or (iii) the Board of Directors or the chairperson of the meeting determines that adjournment is otherwise in the best interests of the Corporation.  Unless otherwise determined by the chairperson of the meeting, meetings of stockholders shall not be required to be held in

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accordance with the general rules of parliamentary procedure or any otherwise established rules of order.

Section 2.8.            Quorum.  At any annual or special meeting of stockholders called by the Board of Directors or any authorized officer of the Corporation, the presence in person or by proxy of stockholders entitled to cast one-third of all the votes entitled to be cast at such meeting shall constitute a quorum.  Notwithstanding the immediately preceding sentence, at any special meeting of stockholders called upon the written request of stockholders pursuant to Section 2.3(b), the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum.  This section shall not affect any requirement under any statute or the charter of the Corporation for the vote necessary for the adoption of any measure.  If, however, a quorum shall not be present at any meeting of the stockholders, the chairperson of the meeting shall have the power to adjourn the meeting from time to time without the Corporation having to set a new record date or provide any additional notice of such meeting, subject to any obligation of the Corporation to give notice pursuant to Section 2.5.  At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.  The stockholders present, either in person or by proxy, at a meeting of stockholders which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of enough votes to leave less than a quorum then being present at the meeting.

Section 2.9.            Voting.  A majority of all the votes entitled to be cast for election of a director at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect such director.  For all matters to be voted upon by stockholders other than the election of directors, unless otherwise required by applicable law, by the listing requirements of the principal exchange on which shares of the Corporation’s common stock are listed or by a specific provision of the charter of the Corporation, the vote required for approval shall be the affirmative vote of 75% of the votes entitled to be cast for each such matter unless such matter has been  previously approved by the Board of Directors, in which case the vote required for approval shall be a majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present.

Section 2.10.          Proxies.  A stockholder may cast the votes entitled to be cast by him or her either in person or by proxy executed by the stockholder or by his or her duly authorized agent in any manner permitted by law.  Such proxy shall be filed with such officer of the Corporation or third party agent as the Board of Directors shall have designated for such purpose for verification at or prior to such meeting.  Any proxy relating to shares of stock of the Corporation shall be valid until the expiration date therein or, if no expiration is so indicated, for such period as is permitted pursuant to Maryland law.  At a meeting of stockholders, all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by or on behalf of the chairperson of the meeting, subject to Section 2.13.

Section 2.11.          Record Date.  The Board of Directors may fix the date for determination of stockholders entitled to notice of and to vote at a meeting of stockholders.  If no date is fixed for the determination of the stockholders entitled to vote at any meeting of stockholders, only persons in whose names shares of stock entitled to vote are recorded on the stock records of the

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Corporation at the opening of business on the day of any meeting of stockholders shall be entitled to vote at such meeting.

Section 2.12.          Voting of Stock by Certain Holders.  Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or pursuant to an agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock.  Any director or other fiduciary may vote stock registered in his or her name as such fiduciary, either in person or by proxy.

Section 2.13.          Inspectors.

(a)           Before or at any meeting of stockholders, the chairperson of the meeting may appoint one or more persons as inspectors for such meeting.  Such inspectors shall (i) ascertain and report the number of shares of stock represented at the meeting, in person or by proxy and the validity and effect of proxies, (ii) receive and tabulate all votes, ballots or consents, (iii) report such tabulation to the chairperson of the meeting and (iv) perform such other acts as are proper to conduct the election or voting at the meeting.

(b)           Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting.  If there is more than one inspector, the report of a majority shall be the report of the inspectors.  The report of the inspector or inspectors on the number of shares of stock represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 2.14.          Nominations and Other Proposals to be Considered at Meetings of Stockholders.  Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the stockholders at meetings of stockholders may be properly brought before the meeting only as set forth in this Section 2.14.  All judgments and determinations made by the Board of Directors or the chairperson of the meeting, as applicable, under this Section 2.14 (including, without limitation, judgments and determinations as to the propriety of a proposed nomination or a proposal of other business for consideration by stockholders) shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 2.14.1                        Annual Meetings of Stockholders.

(a)           Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the stockholders at an annual meeting of stockholders may be properly brought before the meeting (i) pursuant to the Corporation’s notice of meeting or otherwise properly brought before the meeting by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who (A) has continuously held at least $2,000 in market value, or 1%, of the Corporation’s

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shares of common stock entitled to vote at the meeting on such election or the proposal for other business, as the case may be, for at least one year from the date such stockholder gives the notice provided for in this Section 2.14.1 (or, if such notice is given prior to April 1, 2010, continuously held shares of the Corporation’s common stock since April 1, 2009 and without regard to the $2,000 market value, or 1%, requirement), and continuously holds such shares through and including the time of the annual meeting (including any adjournment or postponement thereof), (B) is a stockholder of record at the time of giving the notice provided for in this Section 2.14.1 through and including the time of the annual meeting (including any adjournment or postponement thereof), (C) is entitled to make nominations or propose other business and to vote at the meeting on such election, or the proposal for other business, as the case may be and (D) complies with the notice procedures set forth in this Section 2.14 as to such nomination or other business.  Section 2.14.1(a)(ii) shall be the exclusive means for a stockholder to make nominations or propose other business before an annual meeting of stockholders, except to the extent of matters which are required to be presented to stockholders by applicable law which have been properly presented in accordance with the requirements of such law.  For purposes of determining compliance with the requirement in subclause (A) of Section 2.14.1(a)(ii), the market value of the Corporation’s shares of common stock held by the applicable stockholder shall be determined by multiplying the number of shares such stockholder continuously held for that one-year period by the highest selling price of the Corporation’s shares of common stock as reported on the principal exchange on which shares of the Corporation’s common stock are listed during the 60 calendar days before the date such notice was submitted.

(b)           For nominations for election to the Board of Directors or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.14.1(a)(ii), the stockholder shall have given timely notice thereof in writing to the secretary of the Corporation in accordance with this Section 2.14 and such other business shall otherwise be a proper matter for action by stockholders.  To be timely, a stockholder’s notice shall set forth all information required under this Section 2.14 and shall be delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m. (Eastern Time) on the 120th day nor earlier than the 150th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the date of the proxy statement for the annual meeting is more than 30 days earlier than the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, notice by the stockholder to be timely shall be so delivered not later than 5:00 p.m. (Eastern Time) on the 10th day following the earlier of the day on which (i) notice of the annual meeting is mailed or otherwise made available or (ii) public announcement of the date of such meeting is first made by the Corporation.  Notwithstanding the foregoing sentence, with respect to the annual meeting to be held in calendar year 2009, to be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m. (Eastern Time) on December 31, 2008 nor earlier than December 1, 2008.  Neither the postponement or adjournment of an annual meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a stockholder’s notice as described above.  No stockholder may give a notice to the secretary described in this Section 2.14.1(b) unless such stockholder holds a

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certificate for all shares of stock of the Corporation owned by such stockholder during all times described in Section 2.14.1(a), and a copy of each such certificate held by such stockholder at the time of giving such notice shall accompany such stockholder’s notice to the secretary in order for such notice to be effective.

A stockholder’s notice shall set forth:

(A)as to each individual whom the stockholder proposes to nominate for election or reelection as a director (a “Proposed Nominee”) and any Proposed Nominee Associated Person (as defined in Section 2.14.1(d)), (1) the name, age, business address and residence address of such Proposed Nominee and the name and address of such Proposed Nominee Associated Person, (2) a statement of whether such Proposed Nominee is proposed for nomination as an Independent Director (as defined in Section 3.2) or a Managing Director (as defined in Section 3.2) and a description of such Proposed Nominee’s qualifications to be an Independent Director or Managing Director, as the case may be, and such Proposed Nominee’s qualifications to be a director pursuant to the criteria set forth in Section 3.1, (3) the class, series and number of any shares of stock of the Corporation that are, directly or indirectly, beneficially owned or owned of record by such Proposed Nominee or by such Proposed Nominee Associated Person, (4) the date such shares were acquired and the investment intent of such acquisition, (5) a description of all purchases and sales of securities of the Corporation by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (6) a description of all Derivative Transactions (as defined in Section 2.14.1(d)) by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 24 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such Proposed Nominee or Proposed Nominee Associated Person would be required to report on an Insider Report (as defined in Section 2.14.1(d)) if such Proposed Nominee or Proposed Nominee Associated Person were a director of the Corporation or the beneficial owner of more than 10% of the shares of stock of the Corporation at the time of the transactions, (7) any

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performance related fees (other than an asset based fee) that such Proposed Nominee or such Proposed Nominee Associated Person is entitled to based on any increase or decrease in the value of shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of such Proposed Nominee’s or such Proposed Nominee Associated Person’s immediate family sharing the same household with such Proposed Nominee or such Proposed Nominee Associated Person, (8) any proportionate interest in shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such Proposed Nominee or such Proposed Nominee Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (9) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder, Proposed Nominee Associated Person, or their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each Proposed Nominee, or his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (the “S.E.C.”) (and any successor regulation), if the stockholder making the nomination and any Proposed Nominee Associated Person on whose behalf the nomination is made, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Proposed Nominee were a director or executive officer of such registrant, (10) any rights to dividends on the shares of stock of the Corporation owned beneficially by such Proposed Nominee or such Proposed Nominee Associated Person that are separated or separable from the underlying shares of stock of the Corporation, (11) to the extent known by such Proposed Nominee or such Proposed Nominee Associated Person, the name and address of any other person who owns, of record or beneficially, any shares of stock of the Corporation and who supports the

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Proposed Nominee for election or reelection as a director, (12) all other information relating to such Proposed Nominee or such Proposed Nominee Associated Person that is required to be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder and (13) such Proposed Nominee’s notarized written consent to being named in the stockholder’s proxy statement as a nominee and to serving as a director if elected;

(B)as to any other business that the stockholder proposes to bring before the meeting, (1) a description of such business, (2) the reasons for proposing such business at the meeting and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined in Section 2.14.1(d)), including any anticipated benefit to such stockholder or any Stockholder Associated Person therefrom, (3) a description of all agreements, arrangements and understandings between such stockholder and Stockholder Associated Person amongst themselves or with any other person or persons (including their names) in connection with the proposal of such business by such stockholder and (4) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring the business before the meeting;

(C)as to the stockholder giving the notice and any Stockholder Associated Person, (1) the class, series and number of all shares of stock of the Corporation that are owned of record by such stockholder or by such Stockholder Associated Person, if any, (2) the class, series and number of, and the nominee holder for, any shares of stock of the Corporation that are owned, directly or indirectly, beneficially but not of record by such stockholder or by such Stockholder Associated Person, if any, (3) with respect to the foregoing clauses (1) and (2), the date such shares were acquired and the investment intent of such acquisition and (4) all information relating to such stockholder and Stockholder Associated Person that is required to be disclosed in connection with the solicitation of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case,

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pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder;

(D)as to the stockholder giving the notice and any Stockholder Associated Person, (1) the name and address of such stockholder, as they appear on the Corporation’s stock ledger and the current name and address, if different, of such stockholder and Stockholder Associated Person and (2) the investment strategy or objective, if any, of such stockholder or Stockholder Associated Person and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder or Stockholder Associated Person;

(E)as to the stockholder giving the notice and any Stockholder Associated Person, (1) a description of all purchases and sales of securities of the Corporation by such stockholder or Stockholder Associated Person during the previous 24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (2) a description of all Derivative Transactions by such stockholder or Stockholder Associated Person during the previous 24 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such stockholder or Stockholder Associated Person would be required to report on an Insider Report if such stockholder or Stockholder Associated Person were a director of the Corporation or the beneficial owner of more than 10% of the shares of stock of the Corporation at the time of the transactions, (3) any performance related fees (other than an asset based fee) that such stockholder or Stockholder Associated Person is entitled to based on any increase or decrease in the value of shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of such stockholder’s or Stockholder Associated Person’s immediate family sharing the same household with such stockholder or Stockholder Associated

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Person, (4) any proportionate interest in shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such stockholder or Stockholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (5) any rights to dividends on the shares of stock of the Corporation owned beneficially by such stockholder or Stockholder Associated Person that are separated or separable from the underlying shares of stock of the Corporation;

(F)to the extent known by the stockholder giving the notice, the name and address of any other person who owns, beneficially or of record, any shares of stock of the Corporation and who supports the nominee for election or reelection as a director or the proposal of other business; and

(G)if more than one class or series of shares of capital stock of the Corporation is outstanding, the class and series of shares of capital stock of the Corporation entitled to vote for such Proposed Nominee and/or stockholder’s proposal, as applicable.

(c)           Notwithstanding anything in the second sentence of Section 2.14.1(b) to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.14.1 also shall be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m. (Eastern Time) on the 10th day immediately following the day on which such public announcement is first made by the Corporation.

(d)           For purposes of this Section 2.14, (i) “Stockholder Associated Person” of any stockholder shall mean (A) any person acting in concert with, such stockholder, (B) any direct or indirect beneficial owner of shares of capital stock of the Corporation owned of record or beneficially by such stockholder and (C) any person controlling, controlled by or under common control with such stockholder or a Stockholder Associated Person; (ii) “Proposed Nominee Associated Person” of any Proposed Nominee shall mean (A) any person acting in concert with such Proposed Nominee, (B) any direct or indirect beneficial owner of shares of capital stock of the Corporation owned of record or beneficially by such Proposed Nominee and (C) any person

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controlling, controlled by or under common control with such Proposed Nominee or a Proposed Nominee Associated Person; (iii) “Derivative Transaction” by a person shall mean any (A) transaction in, or arrangement, agreement or understanding with respect to, any option, warrant, convertible security, stock appreciation right or similar right with an exercise, conversion or exchange privilege, or settlement payment or mechanism related to, any security of the Corporation, or similar instrument with a value derived in whole or in part from the value of a security of the Corporation, in any such case whether or not it is subject to settlement in a security of the Corporation or otherwise or (B) any transaction, arrangement, agreement or understanding which included or includes an opportunity for such person, directly or indirectly, to profit or share in any profit derived from any increase or decrease in the value of any security of the Corporation, to mitigate any loss or manage any risk associated with any increase or decrease in the value of any security of the Corporation or to increase or decrease the number of securities of the Corporation which such person was, is or will be entitled to vote, in any such case whether or not it is subject to settlement in a security of the Corporation or otherwise; and (iv) “Insider Report” shall mean a statement required to be filed pursuant to Section 16 of the Exchange Act (or any successor provisions) by a person who is a director of the Corporation or who is directly or indirectly the beneficial owner of more than 10% of the shares of stock of the Corporation.

Section 2.14.2                        Stockholder Nominations or Other Proposals Causing Covenant Breaches or Defaults.  At the same time as the submission of any stockholder nomination or proposal of other business to be considered at a stockholders meeting that, if approved and implemented by the Corporation, would cause the Corporation or any subsidiary (as defined in Section 2.14.5(c)) of the Corporation  to be in breach of any covenant of the Corporation or any subsidiary of the Corporation or otherwise cause a default (in any case, with or without notice or lapse of time) in any existing debt instrument or agreement of the Corporation or any subsidiary of the Corporation or other material contract or agreement of the Corporation or any subsidiary of the Corporation, the proponent stockholder or stockholders shall submit to the secretary at the principal executive offices of the Corporation (a) evidence satisfactory to the Board of Directors of the lender’s or contracting party’s willingness to waive the breach of covenant or default or (b) a detailed plan for repayment of the indebtedness to the lender or curing the contractual breach or default and satisfying any resulting damage claim, specifically identifying the actions to be taken or the source of funds, which plan must be satisfactory to the Board of Directors in its discretion, and evidence of the availability to the Corporation of substitute credit or contractual arrangements similar to the credit or contractual arrangements which are implicated by the stockholder nomination or other proposal that are at least as favorable to the Corporation, as determined by the Board of Directors in its discretion.  As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation is party to a bank credit facility that contains covenants which prohibit certain changes in the management and policies of the Corporation without the approval of the lenders; accordingly, a stockholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the banks or by evidence satisfactory to the Board of Directors of the availability of funding to the Corporation to repay outstanding indebtedness under this credit facility and of the availability of a new credit facility on terms as favorable to the Corporation as the existing credit facility.  As a further example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation is

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party to lease and related agreements with Senior Housing Properties Trust or its subsidiaries (“Senior Housing”).  Those agreements contain covenants which prohibit certain changes in the management and policies of the Corporation without the approval of Senior Housing.  Accordingly, a stockholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the applicable Senior Housing entity or by evidence satisfactory to the Board of Directors of the availability of alternative facilities for lease and operation by the Corporation on terms as favorable to the Corporation as the applicable arrangement and of funds for the payment by the Corporation of any amounts required under the applicable agreement or otherwise as a result of any breach or termination of the agreement with Senior Housing.

Section 2.14.3                        Stockholder Nominations or Other Proposals Requiring Governmental Action.  If (a) submission of any stockholder nomination or proposal of other business to be considered at a stockholders meeting that could not be considered or, if approved, implemented by the Corporation without the Corporation, any subsidiary of the Corporation, the proponent stockholder, any Proposed Nominee of such stockholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Stockholder Associated Person of such stockholder, the holder of proxies or their respective affiliates or associates filing with or otherwise notifying or obtaining the consent, approval or other action of any federal, state, municipal or other governmental or regulatory body (a “Governmental Action”) or (b) such stockholder’s ownership of shares of stock of the Corporation or any solicitation of proxies or votes or holding or exercising proxies by such stockholder, any Proposed Nominee of such stockholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Stockholder Associated Person of such stockholder, or their respective affiliates or associates would require Governmental Action, then, at the same time as the submission of any stockholder nomination or proposal of other business to be considered at a stockholders meeting, the proponent stockholder or stockholders shall submit to the secretary at the principal executive offices of the Corporation (x) evidence satisfactory to the Board of Directors that any and all Governmental Action has been given or obtained, including, without limitation, such evidence as the Board of Directors may require so that any nominee may be determined to satisfy any suitability or other requirements or (y) if such evidence was not obtainable from a governmental or regulatory body by such time despite the stockholder’s diligent and best efforts, a detailed plan for making or obtaining the Governmental Action prior to the election of any such Proposed Nominee or the implementation of such proposal, which plan must be satisfactory to the Board of Directors in its discretion.  As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation holds a controlling ownership position in a company being formed and licensed as an insurance company in the State of Indiana.  The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of its voting securities.  Accordingly, a stockholder who seeks to exercise proxies for a nomination or a proposal affecting the governance of the Corporation shall obtain any applicable approvals from the Indiana insurance regulatory authorities prior to exercising such proxies.  Similarly, as a further example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation operates healthcare facilities in various states; such facilities are governed by and subject to the regulatory and licensing requirements of the state in which such facility is

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located.  The licensing terms or regulatory regime of certain states with jurisdiction over the Corporation may require that certain consents or approvals be obtained prior to the Corporation considering or implementing certain actions, including potentially requiring that a Proposed Nominee obtain regulatory approval or consent prior to being nominated for or elected as a director.  Accordingly, a stockholder nomination or stockholder proposal that, if approved, would require the Corporation to obtain the consent or approval of a state authority due to the fact that the Corporation operates licensed healthcare facilities in such state, shall be accompanied by evidence that the stockholder or Proposed Nominee has either secured the required approvals or consents from all applicable state regulatory authorities or if such required approvals have not been obtained, then the stockholder nomination or other proposal shall be accompanied by a copy of any applications or forms required to be completed by the Proposed Nominee or stockholder as submitted or to be submitted to the applicable state authorities so that the Board of Directors may determine the likelihood that the stockholder or the Proposed Nominee, as applicable, will receive any such required approval.

Section 2.14.4                        Special Meetings of Stockholders.  As set forth in Section 2.6, only business brought before the meeting pursuant to the Corporation’s notice of meeting shall be conducted at a special meeting of stockholders.  Nominations of individuals for election to the Board of Directors only may be made at a special meeting of stockholders at which directors are to be elected: (a) pursuant to the Corporation’s notice of meeting; (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (c) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 2.14.4 through and including the time of the special meeting, who is entitled to vote at the meeting on such election and who has complied with the notice procedures and other requirements set forth in this Section 2.14.4.  In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation’s notice of meeting, if the stockholder satisfies the holding period and certificate requirements set forth in Section 2.14.1(a) and Section 2.14.1(b), the stockholder’s notice contains or is accompanied by the information and documents required by Section 2.14 and the stockholder has given timely notice thereof in writing to the secretary of the Corporation at the principal executive offices of the Corporation.  To be timely, a stockholder’s notice shall be delivered to the secretary of the Corporation at the principal executive offices of the Corporation not earlier than the 150th day prior to such special meeting and not later than 5:00 p.m. (Eastern Time) on the later of (i) the 120th day prior to such special meeting or (ii) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  Neither the postponement or adjournment of a special meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a stockholder’s notice as described above.

Section 2.14.5                        General.

(a)           If information submitted pursuant to this Section 2.14 by any stockholder proposing a nominee for election as a director or any proposal for other business at a

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meeting of stockholders shall be deemed by the Board of Directors incomplete or inaccurate, any authorized officer or the Board of Directors or any committee thereof may treat such information as not having been provided in accordance with this Section 2.14.  Any notice submitted by a stockholder pursuant to this Section 2.14 that is deemed by the Board of Directors inaccurate, incomplete or otherwise fails to satisfy completely any provision of this Section 2.14 shall be deemed defective and shall thereby render all proposals and nominations set forth in such notice defective.  Upon written request by the secretary of the Corporation or the Board of Directors or any committee thereof (which may be made from time to time), any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall provide, within three Business Days after such request (or such other period as may be specified in such request), (i) written verification, satisfactory to the secretary or any other authorized officer or the Board of Directors or any committee thereof, in his, her or its discretion, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 2.14, (ii) written responses to information reasonably requested by the secretary, the Board of Directors or any committee thereof and (iii) a written update, to a current date, of any information submitted by the stockholder pursuant to this Section 2.14 as of an earlier date.  If a stockholder fails to provide such written verification, information or update within such period, the secretary or any other authorized officer or the Board of Directors may treat the information which was previously provided and to which the verification, request or update relates as not having been provided in accordance with this Section 2.14; provided, however, that no such written verification, response or update shall cure any incompleteness, inaccuracy or failure in any notice provided by a stockholder pursuant to this Section 2.14.  It is the responsibility of a stockholder who wishes to make a nomination or other proposal to comply with the requirements of Section 2.14; nothing in this Section 2.14.5(a) or otherwise shall create any duty of the Corporation, the Board of Directors or any committee thereof nor any officer of the Corporation to inform a stockholder that the information submitted pursuant to this Section 2.14 by or on behalf of such stockholder is incomplete or inaccurate or not otherwise in accordance with this Section 2.14 nor require the Corporation, the Board of Directors, any committee of the Board of Directors or any officer of the Corporation to request clarification or updating of information provided by any stockholder, but the Board of Directors, a committee thereof or the secretary acting on behalf of the Board of Directors or a committee, may do so in its, his or her discretion.

(b)           Only such individuals who are nominated in accordance with this Section 2.14 shall be eligible for election by stockholders as directors and only such business shall be conducted at a meeting of stockholders as shall have been properly brought before the meeting in accordance with this Section 2.14.  The chairperson of the meeting and the Board of Directors shall each have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 2.14 and, if any proposed nomination or other business is determined not to be in compliance with this Section 2.14, to declare that such defective nomination or proposal be disregarded.

(c)           For purposes of this Section 2.14: (i) “public announcement” shall mean disclosure in (A) a press release reported by the Dow Jones News Service, Associated

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Press, Business Wire, PR Newswire or any other widely circulated news or wire service or (B) a document publicly filed by the Corporation with the S.E.C. pursuant to the Exchange Act; and (ii) “subsidiary” shall include, with respect to a person, any corporation, partnership, joint venture or other entity of which such person (A) owns, directly or indirectly, 10% or more of the outstanding voting securities or other interests or (B) has a person designated by such person serving on, or a right, contractual or otherwise, to designate a person, so to serve on, the board of directors (or analogous governing body).

(d)           Notwithstanding the foregoing provisions of this Section 2.14, a stockholder shall also comply with all applicable legal requirements, including, without limitation, applicable requirements of state law and the Exchange Act and the rules and regulations thereunder, with respect to the matters set forth in this Section 2.14.  Nothing in this Section 2.14 shall be deemed to require that a stockholder nomination of an individual for election to the Board of Directors or a stockholder proposal relating to other business be included in the Corporation’s proxy statement, except as may be required by law.

(e)           The Board of Directors may from time to time require any individual nominated to serve as a director to agree in writing with regard to matters of business ethics and confidentiality while such nominee serves as a director, such agreement to be on the terms and in a form (the “Agreement”) determined satisfactory by the Board of Directors, as amended and supplemented from time to time in the discretion of the Board of Directors.  The terms of the Agreement may be substantially similar to the Code of Business Conduct and Ethics of the Corporation or any similar code promulgated by the Corporation (the “Code of Business Conduct”) or may differ from or supplement the Code of Business Conduct.

(f)            Determinations required or permitted to be made under this Section 2.14 by the Board of Directors may be delegated by the Board of Directors to a committee of the Board of Directors, subject to applicable law.

Section 2.15.          Voting by Ballot.  Voting on any question or in any election may be voice vote unless the chairperson of the meeting or any stockholder shall demand that voting be by ballot.

Section 2.16.          Proposals of Business Which Are Not Proper Matters For Action By Stockholders.  Notwithstanding anything in these Bylaws to the contrary, subject to applicable law, any stockholder proposal for business the subject matter or effect of which would be within the exclusive purview of the Board of Directors, shall be deemed not to be a matter upon which the stockholders are entitled to vote.  The Board of Directors in its discretion shall be entitled to determine whether a stockholder proposal for business is not a matter upon which the stockholders are entitled to vote pursuant to this Section 2.16, and its decision shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

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ARTICLE III

DIRECTORS

Section 3.1.            General Powers; Qualifications; Directors Holding Over.  The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.  A director shall be an individual at least 21 years of age who is not under legal disability.  To qualify for nomination or election as a director, an individual, at the time of nomination and election, shall, without limitation, (a) have substantial expertise or experience relevant to the business of the Corporation and its subsidiaries, (b) not have been convicted of a felony and (c) meet the qualifications of an Independent Director or a Managing Director, each as defined in Section 3.2, as the case may be, depending upon the position for which such individual may be nominated and elected.  In case of failure to elect directors at an annual meeting of the stockholders, the incumbent directors shall hold over and continue to direct the management of the business and affairs of the Corporation until they may resign or until their successors are elected and qualify.

Section 3.2.            Independent Directors and Managing Directors.  A majority of the directors holding office shall at all times be Independent Directors; provided, however, that upon a failure to comply with this requirement as a result of the creation of a temporary vacancy which shall be filled by an Independent Director, whether as a result of enlargement of the Board of Directors or the resignation, removal or death of a director who is an Independent Director, such requirement shall not be applicable.  An “Independent Director” is one who is not an employee of the Corporation or Reit Management & Research LLC (or its permitted successors or assigns under the Shared Services Agreement between the Corporation and Reit Management & Research LLC), who is not involved in the Corporation’s day to day activities and who meets the qualifications of an independent director (not including the specific independence requirements applicable only to members of the Audit Committee of the Board of Directors) under the applicable rules of each stock exchange upon which shares of stock of the Corporation are listed for trading and the S.E.C., as those requirements may be amended from time to time.  If the number of directors, at any time, is set at less than five, at least one director shall be a Managing Director.  So long as the number of directors shall be five or greater, at least two directors shall be Managing Director.  “Managing Directors” shall mean directors who are not Independent Directors and who have been employees of the Corporation or Reit Management & Research LLC (or its permitted successors or assigns under the Shared Services Agreement between the Corporation and Reit Management & Research LLC) or involved in the day to day activities of the Corporation for at least one year prior to their election.  If at any time the Board of Directors shall not be comprised of a majority of Independent Directors, the Board of Directors shall take such actions as will cure such condition; provided that the fact that the Board of Directors does not have a majority of Independent Directors or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Directors.  If at any time the Board of Directors shall not be comprised of a number of Managing Directors as is required under this Section 3.2, the Board of Directors shall take such actions as will cure such condition; provided that the fact that the Board of Directors does not have the requisite number of Managing Directors or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Directors.

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Section 3.3.            Number and Tenure.  The Board of Directors may establish, increase or decrease the number of directors; provided, that the number thereof shall never be less than the minimum number required by the Maryland General Corporation Law, nor more than seven; and further, provided, that the tenure of office of a director shall not be affected by any decrease in the number of directors.  The number of directors shall be five until increased or decreased by the Board of Directors.

Section 3.4.            Annual and Regular Meetings.  An annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders, no notice other than this Bylaw being necessary.  The time and place of the annual meeting of the Board of Directors may be changed by the Board of Directors.  The Board of Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board of Directors without other notice than such resolution.  In the event any such regular meeting is not so provided for, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.

Section 3.5.            Special Meetings.  Special meetings of the Board of Directors may be called at any time by any Managing Director, the president or pursuant to the request of any two directors then in office.  The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board of Directors called by them.

Section 3.6.            Notice.  Notice of any special meeting shall be given by written notice delivered personally or by electronic mail, telephoned, facsimile transmitted, overnight couriered (with proof of delivery) or mailed to each director at his or her business or residence address.  Personally delivered, telephoned, facsimile transmitted or electronically mailed notices shall be given at least 24 hours prior to the meeting.  Notice by mail shall be deposited in the U.S. mail at least 72 hours prior to the meeting.  If mailed, such notice shall be deemed to be given when deposited in the U.S. mail properly addressed, with postage thereon prepaid.  Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director.  Telephone notice shall be deemed given when the director is personally given such notice in a telephone call to which he is a party.  Facsimile transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer back indicating receipt.  If sent by overnight courier, such notice shall be deemed given when delivered to the courier.  Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 3.7.            Quorum.  A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors are present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the charter of the Corporation or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum for that action shall also include a majority of such group.  The directors present at a meeting of the Board of Directors which has been duly

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called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of a number of directors resulting in less than a quorum then being present at the meeting.

Section 3.8.            Voting.  The action of the majority of the directors present at a meeting at which a quorum is or was present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by specific provision of an applicable statute, the charter of the Corporation or these Bylaws.  If enough directors have withdrawn from a meeting to leave fewer than are required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the charter of the Corporation or these Bylaws.

Section 3.9.            Telephone Meetings.  Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.  Participation in a meeting by these means shall constitute presence in person at the meeting.  Such meeting shall be deemed to have been held at a place designated by the directors at the meeting.

Section 3.10.          Action by Written Consent of Board of Directors.  Unless specifically otherwise provided in the charter of the Corporation, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each director and such written consent is filed with the minutes of proceedings of the Board of Directors.

Section 3.11.          Waiver of Notice.  The actions taken at any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present waives notice, consents to the holding of such meeting or approves the minutes thereof.

Section 3.12.          Vacancies.  If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder (even if fewer than three directors remain).  Except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any vacancy on the Board of Directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum.  Any director elected to fill a vacancy, whether occurring due to an increase in size of the Board of Directors or by the death, resignation or removal of any director, shall hold office for the remainder of the full term of the class in which the vacancy occurred or was created and until a successor is elected and qualifies.

Section 3.13.          Compensation.  Directors shall be entitled to receive such reasonable compensation for their services as directors as the Board of Directors may determine from time to time.  Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof; and for their expenses, if any, in connection with each property visit and any other service or activity performed or

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engaged in as director.  The directors shall be entitled to receive remuneration for services rendered to the Corporation in any other capacity, and such services may include, without limitation, services as an officer of the Corporation, legal, accounting or other professional services, or services as a broker, transfer agent or underwriter, whether performed by a director or any person affiliated with a director.

Section 3.14.          Surety Bonds.  Unless specifically required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.

Section 3.15.          Reliance.  Each director, officer, employee and agent of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Corporation or by the advisers, accountants, appraisers or other experts or consultants selected by the Board of Directors or officers of the Corporation, regardless of whether such counsel or expert may also be a director.

Section 3.16.          Qualifying Shares of Stock Not Required.  Directors need not be stockholders of the Corporation.

Section 3.17.          Certain Rights of Directors, Officers, Employees and Agents.  A director shall have no responsibility to devote his or her full time to the affairs of the Corporation.  Any director or officer, employee or agent of the Corporation, in his or her personal capacity or in a capacity as an affiliate, employee or agent of any other person, or otherwise, may have business interests and engage in business activities similar or in addition to those of or relating to the Corporation.

Section 3.18.          Emergency Provisions.  Notwithstanding any other provision in the charter of the Corporation or these Bylaws, this Section 3.18 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under ARTICLE III cannot readily be obtained (an “Emergency”).  During any Emergency, unless otherwise provided by the Board of Directors, (a) a meeting of the Board of Directors may be called by any Managing Director or officer of the Corporation by any means feasible under the circumstances and (b) notice of any meeting of the Board of Directors during such an Emergency may be given less than 24 hours prior to the meeting to as many directors and by such means as it may be feasible at the time, including publication, television or radio.

ARTICLE IV

COMMITTEES

Section 4.1.            Number; Tenure and Qualifications.  The Board of Directors shall appoint an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.  Each of these committees shall be composed of three or more directors, to serve at the pleasure of the Board of Directors.  The Board of Directors may also appoint other committees from time to time composed of one or more directors, to serve at the pleasure of the Board of Directors.

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The Board of Directors shall adopt a charter with respect to the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, which charter shall specify the purposes, the criteria for membership and the responsibility and duties and may specify other matters with respect to each committee.  The Board of Directors may also adopt a charter with respect to other committees.

Section 4.2.       Powers.  The Board of Directors may delegate any of the powers of the Board of Directors to committees appointed under Section 4.1, except as prohibited by law.  In the event that a charter has been adopted with respect to a committee, the charter shall constitute a delegation by the Board of Directors of the powers of the Board of Directors necessary to carry out the purposes, responsibilities and duties of a committee provided in the charter or reasonably related to those purposes, responsibilities and duties, to the extent permitted by law.

Section 4.3.       Meetings.  Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors.  A majority of the members of any committee shall be present in person at any meeting of a committee in order to constitute a quorum for the transaction of business at a meeting, and the act of a majority present at a meeting at the time of a vote if a quorum is then present shall be the act of a committee.  The Board of Directors or, if authorized by the Board in a committee charter or otherwise, the committee members may designate a chairman of any committee, and the chairman or, in the absence of a chairman, a majority of any committee may fix the time and place of its meetings unless the Board shall otherwise provide.  In the absence or disqualification of any member of any committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of absent or disqualified members.

Each committee shall keep minutes of its proceedings and shall periodically report its activities to the full Board of Directors and, except as otherwise provided by law or under the rules of the S.E.C. and applicable stock exchanges on which the Corporation’s shares of stock are listed, any action by any committee shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration.

Section 4.4.       Telephone Meetings.  Members of a committee may participate in a meeting by means of a conference telephone or similar communications equipment and participation in a meeting by these means shall constitute presence in person at the meeting.

Section 4.5.       Action by Written Consent of Committees.  Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.

Section 4.6.       Vacancies.  Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.

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ARTICLE V

OFFICERS

Section 5.1.       General Provisions.  The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of the board, a chief executive officer, a chief operating officer, a chief financial officer, one or more vice presidents, one or more assistant secretaries and one or more assistant treasurers.  In addition, the Board of Directors may from time to time elect such other officers with such powers and duties as they shall deem necessary or desirable.  The officers of the Corporation shall be elected annually by the Board of Directors, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers.  Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided.  Any two or more offices except president and vice president may be held by the same person.  In its discretion, the Board of Directors may leave unfilled any office except that of president, secretary and treasurer.  Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.

Section 5.2.       Removal and Resignation.  Any officer or agent of the Corporation may be removed by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but the removal shall be without prejudice to the contract rights, if any, of the person so removed.  Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board of Directors, the chairman of the board, the president or the secretary.  Any resignation shall take effect at any time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt.  The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.  A resignation shall be without prejudice to the contract rights, if any, of the Corporation.

Section 5.3.       Vacancies.  A vacancy in any office may be filled by the Board of Directors for the balance of the term.

Section 5.4.       Chief Executive Officer.  The Board of Directors may designate a chief executive officer from among the directors or elected officers.  The chief executive officer shall have responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the administration of the business affairs of the Corporation.  In the absence of both the chairman and vice chairman of the board, the chief executive officer shall preside over the meetings of the Board of Directors at which he shall be present.  In the absence of a different designation, the Managing Directors, or any of them, shall function as the chief executive officer of the Corporation.

Section 5.5.       Chief Operating Officer.  The Board of Directors may designate a chief operating officer from among the elected officers.  Said officer will have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

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Section 5.6.       Chief Financial Officer.  The Board of Directors may designate a chief financial officer from among the elected officers.  Said officer will have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

Section 5.7.       Chairman and Vice Chairman of the Board.  The chairman of the board, if any, and the vice chairman of the board, if any, shall perform such duties as may be assigned to him, her or them by the Board of Directors.  In the absence of a chairman and vice chairman of the board or if none are appointed, the Managing Directors, or any of them, shall preside at meetings of the Board of Directors.

Section 5.8.       President.  The president may execute any deed, mortgage, bond, lease, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the chief executive officer or the Board of Directors.

Section 5.9.       Vice Presidents.  In the absence or unavailability of the president, the vice president (or in the event there be more than one vice president, any vice president) shall perform the duties of the president and when so acting shall have all the powers of the president; and shall perform such other duties as from time to time may be assigned to him or her by the president, the chief executive officer or by the Board of Directors.  The Board of Directors may designate one or more vice presidents as executive vice presidents, senior vice presidents or as vice presidents for particular areas of responsibility.

Section 5.10.     Secretary.  The secretary (or his or her designee) shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation, if any; (d) maintain a share register, showing the ownership and transfers of ownership of all shares of stock of the Corporation, unless a transfer agent is employed to maintain and does maintain such a share register; and (e) in general perform such other duties as from time to time may be assigned to the secretary by the chief executive officer or the Board of Directors.

Section 5.11.     Treasurer.  The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be authorized by the Board of Directors.  The treasurer shall also have such other responsibilities as may be assigned to him or her by the chief executive officer or the Board of Directors.

Section 5.12.     Assistant Secretaries and Assistant Treasurers.  The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the chief executive officer or the Board of Directors.

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ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 6.1.       Contracts.  The Board of Directors may authorize any director, officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances.  Any agreement, deed, mortgage, lease or other document executed by an authorized director, officer or agent shall be valid and binding upon the Corporation when authorized or ratified by action of the Board of Directors.

Section 6.2.       Checks and Drafts.  All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the treasurer, the chief executive officer or the Board of Directors.

Section 6.3.       Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the treasurer, the chief executive officer or the Board of Directors may designate.

ARTICLE VII

STOCK

Section 7.1.       Certificates.  Except as otherwise provided in these Bylaws, this Section 7.1 shall not be interpreted to limit the authority of the Board of Directors to issue some or all of the shares of any or all of its classes or series without certificates.  Each certificate issued shall be signed by the chairman of the board, the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and may be sealed with the seal, if any, of the Corporation.  The signatures may be either manual or facsimile.  Certificates shall be consecutively numbered and if the Corporation shall from time to time issue several classes of stock, each class may have its own number series.  A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued.  At the election of the stockholder, a certificate may be in book entry form.

Section 7.2.       Transfers.

(a)        Shares of capital stock of the Corporation shall be transferable in the manner provided by applicable law, the charter of the Corporation and these Bylaws.  Upon surrender to the Corporation or the transfer agent of the Corporation of a stock certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

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(b)        The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.

Section 7.3.       Lost Certificates.  For shares of stock evidenced by certificates, any officer designated by the Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed.  When authorizing the issuance of a new certificate, an officer designated by the Board of Directors may, in such officer’s discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

Section 7.4.       Closing of Transfer Books or Fixing of Record Date.

(a)        The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose.

(b)        In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than 20 days.  If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least 10 days before the date of such meeting.

(c)        If no record date is fixed and the stock transfer books are not closed for the determination of stockholders, (i) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (ii) the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board of Directors, declaring the dividend or allotment of rights, is adopted.

(d)        When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the Board of Directors shall set a new record date with respect thereto.

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Section 7.5.       Stock Ledger.  The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent a stock ledger containing the name and address of each stockholder and the number of shares of each class of stock held by such stockholder.

Section 7.6.       Fractional Stock; Issuance of Units.  The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine.  Notwithstanding any other provision of the charter of the Corporation or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation.  Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.

ARTICLE VIII

REGULATORY COMPLIANCE AND DISCLOSURE

Section 8.1.          Actions Requiring Regulatory Compliance Implicating the Corporation.  If any stockholder (whether individually or constituting a group, as determined by the Board of Directors), by virtue of such stockholder’s ownership interest in the Corporation or actions taken by the stockholder affecting the Corporation, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on the Corporation or any subsidiary (for purposes of this ARTICLE VIII, as defined in Section 2.14.5(c)) of the Corporation or any of their respective businesses, assets or operations, including, without limitation, any obligations to make or obtain a Governmental Action (as defined in Section 2.14.3), such stockholder shall promptly take all actions necessary and fully cooperate with the Corporation to ensure that such requirements or regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets, operations or prospects of the Corporation or any subsidiary of the Corporation.  If the stockholder fails or is otherwise unable to promptly take such actions so to cause satisfaction of such requirements or regulations, the stockholder shall promptly divest a sufficient number of shares of stock of the Corporation necessary to cause the application of such requirement or regulation to not apply to the Corporation or any subsidiary of the Corporation.  If the stockholder fails to cause such satisfaction or divest itself of such sufficient number of shares of stock of the Corporation by not later than the 10th day after triggering such requirement or regulation referred to in this Section 8.1, the acquisition of any shares of stock of the Corporation beneficially owned by such stockholder at and in excess of the level triggering the application of such requirement or regulation shall, to the fullest extent permitted by law, be deemed to constitute shares held in violation of the ownership limitations set forth in Article VI of the charter of the Corporation and be subject to Article VI of the charter of the Corporation and any actions triggering the application of such a requirement or regulation may be deemed by the Corporation to be of no force or effect.  Moreover, if the stockholder who triggers the application of any regulation or requirement fails to satisfy the requirements or regulations or to take curative actions within such 10 day period, the Corporation may take all other actions which the Board of Directors deems appropriate to require compliance or to preserve the value of the

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Corporation’s assets; and the Corporation may charge the offending stockholder for the Corporation’s costs and expenses as well as any damages which may result to the Corporation.

As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation holds a controlling ownership position in a company being formed and licensed as an insurance company in the State of Indiana.  The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of the Corporation’s voting securities.  Accordingly, if a stockholder seeks to exercise proxies for a matter to be voted upon at a meeting of the Corporation’s stockholders without having obtained any applicable approvals from the Indiana insurance regulatory authorities, such proxies representing 10% or more of the Corporation’s voting securities will, subject to Section 8.3, be void and of no further force or effect.

As a further example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation operates healthcare facilities in various states which are subject to state regulatory and licensing requirements in each such state.  Under the licensing terms or regulatory regime of certain states with jurisdiction over the Corporation, a stockholder which acquires a controlling equity position in the Corporation may be required to obtain regulatory approval or consent prior to or as a result of obtaining such ownership.  Accordingly, if a stockholder which acquires a controlling equity position in the Corporation that would require the stockholder or the Corporation to obtain the consent or approval of a state authority due to the fact that the Corporation operates licensed healthcare facilities in such state, and the stockholder refuses to provide the Corporation with information required to be submitted to the applicable state authority or if the state authority declines to approve the stockholder’s ownership of the Corporation, then, in either event, shares of stock of the Corporation owned by the stockholder necessary to reduce its ownership to an amount so that the stockholder’s ownership of Corporation shares of stock would not require it to provide any such information to, or for consent to be obtained from, the state authority, may be deemed by the Board of Directors to be shares of stock held in violation of the ownership limitation in Article VI of the charter of the Corporation and shall be subject to the provisions of Article VI of the charter of the Corporation.

Section 8.2.       Compliance With Law.  Stockholders shall comply with all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, in connection with such stockholder’s ownership interest in the Corporation and all other laws which apply to the Corporation or any subsidiary of the Corporation or their respective businesses, assets or operations and which require action or inaction on the part of the stockholder.

Section 8.3.       Limitation on Voting Shares of Stock or Proxies.  Without limiting the provisions of Section 8.1, if a stockholder (whether individually or constituting a group, as determined by the Board of Directors), by virtue of such stockholder’s ownership interest in the Corporation or its receipt or exercise of proxies to vote shares of stock owned by other stockholders, would not be permitted to vote the stockholder’s shares of stock of the Corporation or proxies for shares of stock of the Corporation in excess of a certain amount pursuant to applicable law (including by way of example, applicable state insurance regulations) but the

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Board of Directors determines that the excess shares or shares represented by the excess proxies are necessary to obtain a quorum, then such stockholder shall not be entitled to vote any such excess shares or proxies, and instead such excess shares or proxies may, to the fullest extent permitted by law, be voted by the Board of Directors (or by another person designated by the Board of Directors) in proportion to the total shares otherwise voted on such matter.

Section 8.4.       Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies.  To the fullest extent permitted by law, any representation, warranty or covenant made by a stockholder with any governmental or regulatory body in connection with such stockholder’s interest in the Corporation or any subsidiary of the Corporation shall be deemed to be simultaneously made to, for the benefit of and enforceable by, the Corporation and any applicable subsidiary of the Corporation.

Section 8.5.       Board of Directors’ Determinations.  The Board of Directors shall be empowered to make all determinations regarding the interpretation, application, enforcement and compliance with any matters referred to or contemplated by this ARTICLE VIII.

ARTICLE IX

ACCOUNTING YEAR

Section 9.1.       Accounting Year.  The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE X

DIVIDENDS AND OTHER DISTRIBUTIONS

Section 10.1.     Dividends and Other Distributions.  Dividends and other distributions upon the stock of the Corporation may be authorized and declared by the Board of Directors.  Dividends and other distributions may be paid in cash, property or stock of the Corporation.

ARTICLE XI

SEAL

Section 11.1.     Seal.  The Board of Directors may authorize the adoption of a seal by the Corporation.  The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland.”  The Board of Directors may authorize one or more duplicate seals.

Section 11.2.     Affixing Seal.  Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or

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regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.

ARTICLE XII

WAIVER OF NOTICE

Section 12.1.     Waiver of Notice.  Whenever any notice is required to be given pursuant to the charter of the Corporation, these Bylaws or applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.  Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice or waiver by electronic transmission, unless specifically required by statute.  The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE XIII

AMENDMENT OF BYLAWS

Section 13.1.     Amendment of Bylaws.  The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.

ARTICLE XIV

MISCELLANEOUS

Section 14.1.     References to Charter of the Corporation.  All references to the charter of the Corporation shall include any amendments thereto.

Section 14.2.     Costs and Expenses.  To the fullest extent permitted by law, each stockholder will be liable to the Corporation for, and indemnify and hold harmless the Corporation (and any subsidiaries or affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts, including without limitation, reasonable attorneys’ and other professional fees, whether third party or internal, arising from such stockholder’s breach of any provision of these Bylaws or the charter of the Corporation or any action against the Corporation in which such stockholder is not the prevailing party, and shall pay such amounts on demand, together with interest on such amounts, which interest will accrue at the lesser of the Corporation’s highest marginal borrowing rate, per annum compounded, and the maximum amount permitted by law, from the date such costs or the like are incurred until the receipt of payment.

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Section 14.3.     Ratification.  The Board of Directors or the stockholders may ratify and make binding on the Corporation any action or inaction by the Corporation or its officers to the extent that the Board of Directors or the stockholders could have originally authorized the matter.  Moreover, any action or inaction questioned in any stockholder’s derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a director, officer or stockholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting, or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders and, if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.

Section 14.4.     Ambiguity.  In the case of an ambiguity in the application of any provision of these Bylaws or any definition contained in these Bylaws, the Board of Directors shall have the sole power to determine the application of such provisions with respect to any situation based on the facts known to it and such determination shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 14.5.     Inspection of Bylaws.  The Board of Directors shall keep at the principal office for the transaction of business of the Corporation the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the stockholders at all reasonable times during office hours.

Section 14.6.     Special Voting Provisions relating to Control Shares.  Notwithstanding any other provision contained herein or in the charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation.  This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

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EX-3.3

Exhibit 3.3

FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

As Amended and Restated November 7, 2008February 27, 2009

Table of Contents

ARTICLE I OFFICES			1
	Section 1.1.	Principal Office	1
	Section 1.2.	Additional Offices	1
ARTICLE II MEETINGS OF STOCKHOLDERS			1
	Section 2.1.	Place	1
	Section 2.2.	Annual Meeting	1
	Section 2.3.	Special Meetings	1
	Section 2.4.	Notice of Regular or Special Meetings	4
	Section 2.5.	Notice of Adjourned Meetings	5
	Section 2.6.	Scope of Meetings	5
	Section 2.7.	Organization of Stockholder Meetings	5
	Section 2.8.	Quorum	6
	Section 2.9.	Voting	6
	Section 2.10.	Proxies	6
	Section 2.11.	Record Date	6
	Section 2.12.	Voting of Stock by Certain Holders	7
	Section 2.13.	Inspectors	7
	Section 2.14.	Nominations and Other Proposals to be Considered at Meetings of Stockholders	7
	Section 2.14.1	Annual Meetings of Stockholders	7
	Section 2.14.2	Stockholder Nominations or Other Proposals Causing Covenant Breaches or Defaults	14
	Section 2.14.3	Stockholder Nominations or Other Proposals Requiring Governmental Action	1415
	Section 2.14.4	Special Meetings of Stockholders	16
	Section 2.14.5	General	16
	Section 2.15.	Voting by Ballot	18
	Section 2.16.	Proposals of Business Which Are Not Proper Matters For Action By Stockholders	18
ARTICLE III DIRECTORS			18
	Section 3.1.	General Powers; Qualifications; Directors Holding Over	18
	Section 3.2.	Independent Directors and Managing Directors	1819
	Section 3.3.	Number and Tenure	19
	Section 3.4.	Annual and Regular Meetings	1920
	Section 3.5.	Special Meetings	20
	Section 3.6.	Notice	20
	Section 3.7.	Quorum	20
	Section 3.8.	Voting	20
	Section 3.9.	Telephone Meetings	2021
	Section 3.10.	Action by Written Consent of Board of Directors	21
	Section 3.11.	Waiver of Notice	21
	Section 3.12.	Vacancies	21
	Section 3.13.	Compensation	21

	Section 3.14.	Surety Bonds	2122
	Section 3.15.	Reliance	2122
	Section 3.16.	Qualifying Shares of Stock Not Required	22
	Section 3.17.	Certain Rights of Directors, Officers, Employees and Agents	22
	Section 3.18.	Emergency Provisions	22
ARTICLE IV COMMITTEES			22
	Section 4.1.	Number; Tenure and Qualifications	22
	Section 4.2.	Powers	2223
	Section 4.3.	Meetings	2223
	Section 4.4.	Telephone Meetings	23
	Section 4.5.	Action by Written Consent of Committees	23
	Section 4.6.	Vacancies	23
ARTICLE V OFFICERS			2324
	Section 5.1.	General Provisions	2324
	Section 5.2.	Removal and Resignation	24
	Section 5.3.	Vacancies	24
	Section 5.4.	Chief Executive Officer	24
	Section 5.5.	Chief Operating Officer	24
	Section 5.6.	Chief Financial Officer	2425
	Section 5.7.	Chairman and Vice Chairman of the Board	2425
	Section 5.8.	President	2425
	Section 5.9.	Vice Presidents	25
	Section 5.10.	Secretary	25
	Section 5.11.	Treasurer	25
	Section 5.12.	Assistant Secretaries and Assistant Treasurers	25
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS			2526
	Section 6.1.	Contracts	2526
	Section 6.2.	Checks and Drafts	2526
	Section 6.3.	Deposits	2526
ARTICLE VII STOCK			26
	Section 7.1.	Certificates	26
	Section 7.2.	Transfers	26
	Section 7.3.	Lost Certificates	2627
	Section 7.4.	Closing of Transfer Books or Fixing of Record Date	2627
	Section 7.5.	Stock Ledger	2728
	Section 7.6.	Fractional Stock; Issuance of Units	2728
ARTICLE VIII REGULATORY COMPLIANCE AND DISCLOSURE			2728
	Section 8.1.	Actions Requiring Regulatory Compliance Implicating the Corporation	2728
	Section 8.2.	Compliance With Law	29
	Section 8.3.	Limitation on Voting Shares of Stock or Proxies	29
	Section 8.4.	Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies	2930
	Section 8.5.	Board of Directors’ Determinations	2930

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ARTICLE IX ACCOUNTING YEAR			30
	Section 9.1.	Accounting Year	30
ARTICLE X DIVIDENDS AND OTHER DISTRIBUTIONS			30
	Section 10.1.	Dividends and Other Distributions	30
ARTICLE XI SEAL			30
	Section 11.1.	Seal	30
	Section 11.2.	Affixing Seal	30
ARTICLE XII WAIVER OF NOTICE			3031
	Section 12.1.	Waiver of Notice	3031
ARTICLE XIII AMENDMENT OF BYLAWS			31
	Section 13.1.	Amendment of Bylaws	31
ARTICLE XIV MISCELLANEOUS			31
	Section 14.1.	References to Charter of the Corporation	31
	Section 14.2.	Costs and Expenses	31
	Section 14.3.	Ratification	3132
	Section 14.4.	Ambiguity	3132
	Section 14.5.	Inspection of Bylaws	3132
	Section 14.6.	Special Voting Provisions relating to Control Shares	32

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FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

Section 1.1.            Principal Office.  The principal office of the Corporation shall be located at such place or places as the Board of Directors may designate.

Section 1.2.            Additional Offices.  The Corporation may have additional offices at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 2.1.            Place.  All meetings of stockholders shall be held at the principal office of the Corporation or at such other place as is designated by the Board of Directors or the chairman of the board or president.

Section 2.2.            Annual Meeting.  An annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held at such times as the Board of Directors may designate.  Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid acts of the Corporation.

Section 2.3.            Special Meetings.

(a)           General.  The president of the Corporation or a majority of the entire Board of Directors may call a special meeting of the stockholders.  Subject to Section 2.3(b), if at the time stockholders are entitled by law to cause a special meeting of the stockholders to be called, a special meeting of stockholders shall also be called by the secretary of the Corporation upon the written request of stockholders entitled to cast not less than the Special Meeting Percentage of all the votes entitled to be cast at such meeting.  The “Special Meeting Percentage” shall be a majority or, if greater from time to time, the largest portion which the Corporation is legally permitted to specify with respect to stockholders entitled by law to cause a special meeting of the stockholders to be called.

(b)           Stockholder Requested Special Meetings.

(i)            Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary of the Corporation (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”).  No stockholder may make a Record Date Request Notice unless such stockholder (i) complies with the requirements set forth in Section 2.14.1(a)(ii)(A) and (ii) holds certificates for all shares of stock of the Corporation owned by such stockholder during all times described in Section 2.14.1(a), and a copy of each such certificate held by such stockholder at the time of giving such written request shall accompany such stockholder’’s written request to the secretary, as described in the preceding sentence, in order for such request to be effective.  The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at the meeting, shall be signed by one or more stockholders of record as of the date of signature (or their duly authorized agents), shall bear the date of signature of each such stockholder (or its duly authorized agent) signing the Record Date Request Notice and shall set forth all information that each such stockholder would be required to disclose in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, as well as additional information required by Section 2.14.  Upon receiving the Record Date Request Notice, the Board of Directors may in its discretion fix a Request Record Date, which need not be the same date as that requested in the Record Date Request Notice.  The Request Record Date shall not precede, and shall not be more than 10 days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors.  If the Board of Directors, within 10 days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement (as defined in Section 2.14.5(c)) of such Request Record Date, the Request Record Date shall be the close of business on the 10th day after the date a valid Record Date Request Notice is received by the secretary.

(ii)           In order for any stockholder to request a special meeting, one or more written requests for a special meeting  signed by stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast not less than the Special Meeting Percentage (the “Special Meeting Request”) shall be delivered to the secretary.  No stockholder may make a Special Meeting Request unless such stockholder (i) complies with the requirements set forth in Section 2.14.1(a)(ii)(A) and (ii) holds certificates for all shares of stock of the Corporation owned by such stockholder during all times described in Section 2.14.1(a), and a copy of each such certificate held by such stockholder at the time of giving such written request shall accompany such stockholder’’s written request to the secretary, as described in the preceding sentence, in order for such request to be effective.  In addition, the Special Meeting Request shall set forth the purpose of the meeting and

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the matters proposed to be acted on at the meeting (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such stockholder (or its duly authorized agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of stock of the Corporation which are owned of record and beneficially by each such stockholder, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 10 days after the Request Record Date.  Any requesting stockholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.

(iii)          The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing, mailing and filing the notice of meeting (including the Corporation’s proxy materials).  The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents and information required by Section 2.3(b)(ii), the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting.

(iv)          Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the officer who called the meeting in accordance with Section 2.3(a), if any, and otherwise by the Board of Directors.  In the case of any special meeting called by the secretary upon the request of stockholders (a “Stockholder Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder Requested Meeting shall be not more than 90 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board of Directors fails to designate, within 10 days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for a Stockholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first Business Day preceding such 90th day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder Requested Meeting within 10 days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation.  In fixing a date for any special meeting, the president or Board of Directors may consider such factors as he, she or it deems relevant within the exercise of their business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Directors to call an annual meeting or a special meeting.  In the case of any Stockholder Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then

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the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date.

(v)           If at any time as a result of written revocations of requests for the special meeting, stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time before 10 days before the meeting if the secretary has sent to all other requesting stockholders written notice of such revocation and of the intention to revoke the notice of the meeting and the Corporation may cancel and not hold such meeting.  Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.

(vi)          The Board of Directors shall determine the validity of any purported Record Date Request Notice or Special Meeting Request received by the secretary.  For the purpose of permitting the Board of Directors to perform such review, no such purported request shall be deemed to have been delivered to the secretary until the earlier of (A) five Business Days after receipt by the secretary of such purported request and (B) such date as the Board of Directors may certify whether valid requests received by the secretary represent at least a majority of the issued and outstanding shares of stock (or such larger portion which the Corporation is legally permitted to specify with respect to stockholders entitled by law to cause a special meeting of the stockholders to be called) that would be entitled to vote at such meeting.

(vii)         For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close.

Section 2.4.            Notice of Regular or Special Meetings.  In accordance with applicable law and the charter of the Corporation, the secretary shall give to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail, by presenting it to such stockholder personally, by leaving it at the stockholder’s residence or usual place of business, by electronic transmission or by any other means permitted by Maryland law.  If mailed, such notice shall be deemed to be given once deposited in the U.S. mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid.

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Section 2.5.            Notice of Adjourned Meetings.  It shall not be necessary to give notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken.

Section 2.6.            Scope of Meetings.  Except as otherwise expressly set forth elsewhere in these Bylaws, no business shall be transacted at an annual or special meeting of stockholders except as specifically designated in the notice or otherwise properly brought before the stockholders by or at the direction of the Board of Directors.

Section 2.7.            Organization of Stockholder Meetings.  Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chairperson of the meeting or, in the absence of such appointment or the absence of the appointed individual, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there be one, the president, the vice presidents in their order of seniority, or, in the absence of such officers, a chairperson chosen by the stockholders by the vote of a majority of the votes cast on such appointment by stockholders present in person or represented by proxy.  The secretary, an assistant secretary or a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairperson of the meeting shall act as secretary of the meeting and record the minutes of the meeting.  If the secretary presides as chairperson at a meeting of the stockholders, then the secretary shall not also act as secretary of the meeting and record the minutes of the meeting.  The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairperson of the meeting.  The chairperson of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairperson, are appropriate for the proper conduct of the meeting, including, without limitation: (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any stockholder or other person who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairperson of the meeting; (g) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (h) complying with any state and local laws and regulations concerning safety and security.  Without limiting the generality of the powers of the chairperson of the meeting pursuant to the foregoing provisions, the chairperson may adjourn any meeting of stockholders for any reason deemed necessary by the chairperson, including, without limitation, if (i) no quorum is present for the transaction of the business, (ii) the Board of Directors or the chairperson of the meeting determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information that the Board of Directors or the chairperson of the meeting determines has not been made sufficiently or timely available to stockholders or (iii) the Board of Directors or the chairperson of the meeting determines that adjournment is otherwise in the best interests of the Corporation.  Unless otherwise determined by the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the general rules of parliamentary procedure or any otherwise established rules of order.

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Section 2.8.            Quorum.  At any annual or special meeting of stockholders called by the Board of Directors or any authorized officer of the Corporation, the presence in person or by proxy of stockholders entitled to cast one-third of all the votes entitled to be cast at such meeting shall constitute a quorum.  Notwithstanding the immediately preceding sentence, at any special meeting of stockholders called upon the written request of stockholders pursuant to Section 2.3(b), the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum.  This section shall not affect any requirement under any statute or the charter of the Corporation for the vote necessary for the adoption of any measure.  If, however, a quorum shall not be present at any meeting of the stockholders, the chairperson of the meeting shall have the power to adjourn the meeting from time to time without the Corporation having to set a new record date or provide any additional notice of such meeting, subject to any obligation of the Corporation to give notice pursuant to Section 2.5.  At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.  The stockholders present, either in person or by proxy, at a meeting of stockholders which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of enough votes to leave less than a quorum then being present at the meeting.

Section 2.9.            Voting.  A majority of all the votes entitled to be cast for election of a director at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect such director.  For all matters to be voted upon by stockholders other than the election of directors, unless otherwise required by applicable law, by the listing requirements of the principal exchange on which shares of the Corporation’s common stock are listed or by a specific provision of the charter of the Corporation, the vote required for approval shall be the affirmative vote of 75% of the votes entitled to be cast for each such matter unless such matter has been  previously approved by the Board of Directors, in which case the vote required for approval shall be a majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present.

Section 2.10.          Proxies.  A stockholder may cast the votes entitled to be cast by him or her either in person or by proxy executed by the stockholder or by his or her duly authorized agent in any manner permitted by law.  Such proxy shall be filed with such officer of the Corporation or third party agent as the Board of Directors shall have designated for such purpose for verification at or prior to such meeting.  Any proxy relating to shares of stock of the Corporation shall be valid until the expiration date therein or, if no expiration is so indicated, for such period as is permitted pursuant to Maryland law.  At a meeting of stockholders, all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by or on behalf of the chairperson of the meeting, subject to Section 2.13.

Section 2.11.          Record Date.  The Board of Directors may fix the date for determination of stockholders entitled to notice of and to vote at a meeting of stockholders.  If no date is fixed for the determination of the stockholders entitled to vote at any meeting of stockholders, only persons in whose names shares of stock entitled to vote are recorded on the stock records of the Corporation at the opening of business on the day of any meeting of stockholders shall be entitled to vote at such meeting.

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Section 2.12.          Voting of Stock by Certain Holders.  Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or pursuant to an agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock.  Any director or other fiduciary may vote stock registered in his or her name as such fiduciary, either in person or by proxy.

Section 2.13.          Inspectors.

(a)           Before or at any meeting of stockholders, the chairperson of the meeting may appoint one or more persons as inspectors for such meeting.  Such inspectors shall (i) ascertain and report the number of shares of stock represented at the meeting, in person or by proxy and the validity and effect of proxies, (ii) receive and tabulate all votes, ballots or consents, (iii) report such tabulation to the chairperson of the meeting and (iv) perform such other acts as are proper to conduct the election or voting at the meeting.

(b)           Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting.  If there is more than one inspector, the report of a majority shall be the report of the inspectors.  The report of the inspector or inspectors on the number of shares of stock represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 2.14.          Nominations and Other Proposals to be Considered at Meetings of Stockholders.  Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the stockholders at meetings of stockholders may be properly brought before the meeting only as set forth in this Section 2.14.  All judgments and determinations made by the Board of Directors or the chairperson of the meeting, as applicable, under this Section 2.14 (including, without limitation, judgments and determinations as to the propriety of a proposed nomination or a proposal of other business for consideration by stockholders) shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 2.14.1                       Annual Meetings of Stockholders.

(a)           Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the stockholders at an annual meeting of stockholders may be properly brought before the meeting (i) pursuant to the Corporation’s notice of meeting or otherwise properly brought before the meeting by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who (A) has continuously held at least $2,000 in market value, or 1%, of the Corporation’s shares of common stock entitled to vote at the meeting on such election or the proposal for other business, as the case may be, for at least one year from the date such stockholder gives the notice provided for in this Section 2.14.1 (or, if such notice is given prior to April 1, 2010,

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continuously held shares of the Corporation’s common stock since April 1, 2009 and without regard to the $2,000 market value, or 1%, requirement), and continuously holds such shares through and including the time of the annual meeting (including any adjournment or postponement thereof), (B) is a stockholder of record at the time of giving the notice provided for in this Section 2.14.1 through and including the time of the annual meeting (including any adjournment or postponement thereof), (BC) is entitled to make nominations or propose other business and to vote at the meeting on such election, or the proposal for other business, as the case may be and (CD) complies with the notice procedures set forth in this Section 2.14 as to such nomination or other business.  Section 2.14.1(a)(ii) shall be the exclusive means for a stockholder to make nominations or propose other business before an annual meeting of stockholders, except to the extent of matters which are required to be presented to stockholders by applicable law which have been properly presented in accordance with the requirements of such law.  For purposes of determining compliance with the requirement in subclause (A) of Section 2.14.1(a)(ii), the market value of the Corporation’s shares of common stock held by the applicable stockholder shall be determined by multiplying the number of shares such stockholder continuously held for that one-year period by the highest selling price of the Corporation’s shares of common stock as reported on the principal exchange on which shares of the Corporation’s common stock are listed during the 60 calendar days before the date such notice was submitted.

(b)           For nominations for election to the Board of Directors or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.14.1(a)(ii), the stockholder shall have given timely notice thereof in writing to the secretary of the Corporation in accordance with this Section 2.14 and such other business shall otherwise be a proper matter for action by stockholders.  To be timely, a stockholder’s notice shall set forth all information required under this Section 2.14 and shall be delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m. (Eastern Time) on the 120th day nor earlier than the 150th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the date of the proxy statement for the annual meeting is more than 30 days earlier than the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, notice by the stockholder to be timely shall be so delivered not later than 5:00 p.m. (Eastern Time) on the 10th day following the earlier of the day on which (i) notice of the annual meeting is mailed or otherwise made available or (ii) public announcement of the date of such meeting is first made by the Corporation.  Notwithstanding the foregoing sentence, with respect to the annual meeting to be held in calendar year 2009, to be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m. (Eastern Time) on December 31, 2008 nor earlier than December 1, 2008.  Neither the postponement or adjournment of an annual meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a stockholder’s notice as described above.  No stockholder may give a notice to the secretary described in this Section 2.14.1(b) unless such stockholder holds a certificate for all shares of stock of the Corporation owned by such stockholder during all times described in Section 2.14.1(a), and a copy of each such certificate held by such stockholder at the time of giving such

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notice shall accompany such stockholder’’s notice to the secretary in order for such notice to be effective.

                A stockholder’s notice shall set forth:

(A)as to each individual whom the stockholder proposes to nominate for election or reelection as a director (a “Proposed Nominee”) and any Proposed Nominee Associated Person (as defined in Section 2.14.1(d)), (1) the name, age, business address and residence address of such Proposed Nominee and the name and address of such Proposed Nominee Associated Person, (2) a statement of whether such Proposed Nominee is proposed for nomination as an Independent Director (as defined in Section 3.2) or a Managing Director (as defined in Section 3.2) and a description of such Proposed Nominee’s qualifications to be an Independent Director or Managing Director, as the case may be, and such Proposed Nominee’s qualifications to be a director pursuant to the criteria set forth in Section 3.1, (3) the class, series and number of any shares of stock of the Corporation that are, directly or indirectly, beneficially owned or owned of record by such Proposed Nominee or by such Proposed Nominee Associated Person, (4) the date such shares were acquired and the investment intent of such acquisition, (5) a description of all purchases and sales of securities of the Corporation by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (6) a description of all Derivative Transactions (as defined in Section 2.14.1(d)) by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 24 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such Proposed Nominee or Proposed Nominee Associated Person would be required to report on an Insider Report (as defined in Section 2.14.1(d)) if such Proposed Nominee or Proposed Nominee Associated Person were a director of the Corporation or the beneficial owner of more than 10% of the shares of stock of the Corporation at the time of the transactions, (7) any performance related fees (other than an asset based fee) that such Proposed Nominee or such Proposed Nominee Associated Person is entitled to based on any increase or decrease in the value of shares of

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stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of such Proposed Nominee’s or such Proposed Nominee Associated Person’s immediate family sharing the same household with such Proposed Nominee or such Proposed Nominee Associated Person, (8) any proportionate interest in shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such Proposed Nominee or such Proposed Nominee Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (9) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder, Proposed Nominee Associated Person, or their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each Proposed Nominee, or his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (the “S.E.C.”) (and any successor regulation), if the stockholder making the nomination and any Proposed Nominee Associated Person on whose behalf the nomination is made, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Proposed Nominee were a director or executive officer of such registrant, (10) any rights to dividends on the shares of stock of the Corporation owned beneficially by such Proposed Nominee or such Proposed Nominee Associated Person that are separated or separable from the underlying shares of stock of the Corporation, (11) to the extent known by such Proposed Nominee or such Proposed Nominee Associated Person, the name and address of any other person who owns, of record or beneficially, any shares of stock of the Corporation and who supports the Proposed Nominee for election or reelection as a director, (12) all other information relating to such Proposed Nominee or such Proposed Nominee Associated Person that is required to be disclosed in solicitations of proxies for election of directors in an

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election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder and (13) such Proposed Nominee’s notarized written consent to being named in the stockholder’s proxy statement as a nominee and to serving as a director if elected;

(B)as to any other business that the stockholder proposes to bring before the meeting, (1) a description of such business, (2) the reasons for proposing such business at the meeting and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined in Section 2.14.1(d)), including any anticipated benefit to such stockholder or any Stockholder Associated Person therefrom, (3) a description of all agreements, arrangements and understandings between such stockholder and Stockholder Associated Person amongst themselves or with any other person or persons (including their names) in connection with the proposal of such business by such stockholder and (4) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring the business before the meeting;

(C)as to the stockholder giving the notice and any Stockholder Associated Person, (1) the class, series and number of all shares of stock of the Corporation that are owned of record by such stockholder or by such Stockholder Associated Person, if any, (2) the class, series and number of, and the nominee holder for, any shares of stock of the Corporation that are owned, directly or indirectly, beneficially but not of record by such stockholder or by such Stockholder Associated Person, if any, (3) with respect to the foregoing clauses (1) and (2), the date such shares were acquired and the investment intent of such acquisition and (4) all information relating to such stockholder and Stockholder Associated Person that is required to be disclosed in connection with the solicitation of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder;

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(D)as to the stockholder giving the notice and any Stockholder Associated Person, (1) the name and address of such stockholder, as they appear on the Corporation’s stock ledger and the current name and address, if different, of such stockholder and Stockholder Associated Person and (2) the investment strategy or objective, if any, of such stockholder or Stockholder Associated Person and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder or Stockholder Associated Person;

(E)as to the stockholder giving the notice and any Stockholder Associated Person, (1) a description of all purchases and sales of securities of the Corporation by such stockholder or Stockholder Associated Person during the previous 24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (2) a description of all Derivative Transactions by such stockholder or Stockholder Associated Person during the previous 24 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such stockholder or Stockholder Associated Person would be required to report on an Insider Report if such stockholder or Stockholder Associated Person were a director of the Corporation or the beneficial owner of more than 10% of the shares of stock of the Corporation at the time of the transactions, (3) any performance related fees (other than an asset based fee) that such stockholder or Stockholder Associated Person is entitled to based on any increase or decrease in the value of shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of such stockholder’s or Stockholder Associated Person’s immediate family sharing the same household with such stockholder or Stockholder Associated Person, (4) any proportionate interest in shares of stock of the Corporation or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such stockholder or Stockholder Associated Person is a general partner or,

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directly or indirectly, beneficially owns an interest in a general partner and (5) any rights to dividends on the shares of stock of the Corporation owned beneficially by such stockholder or Stockholder Associated Person that are separated or separable from the underlying shares of stock of the Corporation;

(F)to the extent known by the stockholder giving the notice, the name and address of any other person who owns, beneficially or of record, any shares of stock of the Corporation and who supports the nominee for election or reelection as a director or the proposal of other business; and

(G)if more than one class or series of shares of capital stock of the Corporation is outstanding, the class and series of shares of capital stock of the Corporation entitled to vote for such Proposed Nominee and/or stockholder’s proposal, as applicable.

(c)           Notwithstanding anything in the second sentence of Section 2.14.1(b) to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.14.1 also shall be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m. (Eastern Time) on the 10th day immediately following the day on which such public announcement is first made by the Corporation.

(d)           For purposes of this Section 2.14, (i) “Stockholder Associated Person” of any stockholder shall mean (A) any person acting in concert with, such stockholder, (B) any direct or indirect beneficial owner of shares of capital stock of the Corporation owned of record or beneficially by such stockholder and (C) any person controlling, controlled by or under common control with such stockholder or a Stockholder Associated Person; (ii) “Proposed Nominee Associated Person” of any Proposed Nominee shall mean (A) any person acting in concert with such Proposed Nominee, (B) any direct or indirect beneficial owner of shares of capital stock of the Corporation owned of record or beneficially by such Proposed Nominee and (C) any person controlling, controlled by or under common control with such Proposed Nominee or a Proposed Nominee Associated Person; (iii) “Derivative Transaction” by a person shall mean any (A) transaction in, or arrangement, agreement or understanding with respect to, any option, warrant, convertible security, stock appreciation right or similar right with an exercise, conversion or exchange privilege, or settlement payment or mechanism related to, any security of the Corporation, or similar instrument with a value derived in whole or in part from the value of a security of the Corporation, in any such case whether or not it is subject to settlement in a security of the Corporation or

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otherwise or (B) any transaction, arrangement, agreement or understanding which included or includes an opportunity for such person, directly or indirectly, to profit or share in any profit derived from any increase or decrease in the value of any security of the Corporation, to mitigate any loss or manage any risk associated with any increase or decrease in the value of any security of the Corporation or to increase or decrease the number of securities of the Corporation which such person was, is or will be entitled to vote, in any such case whether or not it is subject to settlement in a security of the Corporation or otherwise; and (iv) “Insider Report” shall mean a statement required to be filed pursuant to Section 16 of the Exchange Act (or any successor provisions) by a person who is a director of the Corporation or who is directly or indirectly the beneficial owner of more than 10% of the shares of stock of the Corporation.

Section 2.14.2                       Stockholder Nominations or Other Proposals Causing Covenant Breaches or Defaults.  At the same time as the submission of any stockholder nomination or proposal of other business to be considered at a stockholders meeting that, if approved and implemented by the Corporation, would cause the Corporation or any subsidiary (as defined in Section 2.14.5(c)) of the Corporation  to be in breach of any covenant of the Corporation or any subsidiary of the Corporation or otherwise cause a default (in any case, with or without notice or lapse of time) in any existing debt instrument or agreement of the Corporation or any subsidiary of the Corporation or other material contract or agreement of the Corporation or any subsidiary of the Corporation, the proponent stockholder or stockholders shall submit to the secretary at the principal executive offices of the Corporation (a) evidence satisfactory to the Board of Directors of the lender’s or contracting party’s willingness to waive the breach of covenant or default or (b) a detailed plan for repayment of the indebtedness to the lender or curing the contractual breach or default and satisfying any resulting damage claim, specifically identifying the actions to be taken or the source of funds, which plan must be satisfactory to the Board of Directors in its discretion, and evidence of the availability to the Corporation of substitute credit or contractual arrangements similar to the credit or contractual arrangements which are implicated by the stockholder nomination or other proposal that are at least as favorable to the Corporation, as determined by the Board of Directors in its discretion.  As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation is party to a bank credit facility that contains covenants which prohibit certain changes in the management and policies of the Corporation without the approval of the lenders; accordingly, a stockholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the banks or by evidence satisfactory to the Board of Directors of the availability of funding to the Corporation to repay outstanding indebtedness under this credit facility and of the availability of a new credit facility on terms as favorable to the Corporation as the existing credit facility.  As a further example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation is party to lease and related agreements with Senior Housing Properties Trust or its subsidiaries (“Senior Housing”).  Those agreements contain covenants which prohibit certain changes in the management and policies of the Corporation without the approval of Senior Housing.  Accordingly, a stockholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the applicable Senior Housing entity or by evidence satisfactory to the Board of Directors of the availability of alternative facilities for lease and operation by the Corporation on terms as favorable to the Corporation as the applicable arrangement and of funds for the payment

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by the Corporation of any amounts required under the applicable agreement or otherwise as a result of any breach or termination of the agreement with Senior Housing.

Section 2.14.3                       Stockholder Nominations or Other Proposals Requiring Governmental Action.  If (a) submission of any stockholder nomination or proposal of other business to be considered at a stockholders meeting that could not be considered or, if approved, implemented by the Corporation without the Corporation, any subsidiary of the Corporation, the proponent stockholder, any Proposed Nominee of such stockholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Stockholder Associated Person of such stockholder, the holder of proxies or their respective affiliates or associates filing with or otherwise notifying or obtaining the consent, approval or other action of any federal, state, municipal or other governmental or regulatory body (a “Governmental Action”) or (b) such stockholder’s ownership of shares of stock of the Corporation or any solicitation of proxies or votes or holding or exercising proxies by such stockholder, any Proposed Nominee of such stockholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Stockholder Associated Person of such stockholder, or their respective affiliates or associates would require Governmental Action, then, at the same time as the submission of any stockholder nomination or proposal of other business to be considered at a stockholders meeting, the proponent stockholder or stockholders shall submit to the secretary at the principal executive offices of the Corporation (x) evidence satisfactory to the Board of Directors that any and all Governmental Action has been given or obtained, including, without limitation, such evidence as the Board of Directors may require so that any nominee may be determined to satisfy any suitability or other requirements or (y) if such evidence was not obtainable from a governmental or regulatory body by such time despite the stockholder’s diligent and best efforts, a detailed plan for making or obtaining the Governmental Action prior to the election of any such Proposed Nominee or the implementation of such proposal, which plan must be satisfactory to the Board of Directors in its discretion.  As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation holds a controlling ownership position in a company being formed and licensed as an insurance company in the State of Indiana.  The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of its voting securities.  Accordingly, a stockholder who seeks to exercise proxies for a nomination or a proposal affecting the governance of the Corporation shall obtain any applicable approvals from the Indiana insurance regulatory authorities prior to exercising such proxies.  Similarly, as a further example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation operates healthcare facilities in various states; such facilities are governed by and subject to the regulatory and licensing requirements of the state in which such facility is located.  The licensing terms or regulatory regime of certain states with jurisdiction over the Corporation may require that certain consents or approvals be obtained prior to the Corporation considering or implementing certain actions, including potentially requiring that a Proposed Nominee obtain regulatory approval or consent prior to being nominated for or elected as a director.  Accordingly, a stockholder nomination or stockholder proposal that, if approved, would require the Corporation to obtain the consent or approval of a state authority due to the fact that the Corporation operates licensed healthcare facilities in such state, shall be accompanied by evidence that the stockholder or Proposed Nominee has either secured the required approvals or consents from all applicable state regulatory authorities or if such required approvals have not been

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obtained, then the stockholder nomination or other proposal shall be accompanied by a copy of any applications or forms required to be completed by the Proposed Nominee or stockholder as submitted or to be submitted to the applicable state authorities so that the Board of Directors may determine the likelihood that the stockholder or the Proposed Nominee, as applicable, will receive any such required approval.

Section 2.14.4                       Special Meetings of Stockholders.  As set forth in Section 2.6, only business brought before the meeting pursuant to the Corporation’s notice of meeting shall be conducted at a special meeting of stockholders.  Nominations of individuals for election to the Board of Directors only may be made at a special meeting of stockholders at which directors are to be elected: (a) pursuant to the Corporation’s notice of meeting; (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (c) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 2.14.4 through and including the time of the special meeting, who is entitled to vote at the meeting on such election and who has complied with the notice procedures and other requirements set forth in this Section 2.14.4.  In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation’s notice of meeting, if the stockholder satisfies the holding period and certificate requirements set forth in Section 2.14.1(a) and Section 2.14.1(b), the stockholder’s notice contains or is accompanied by the information and documents required by Section 2.14 and the stockholder has given timely notice thereof in writing to the secretary of the Corporation at the principal executive offices of the Corporation.  To be timely, a stockholder’s notice shall be delivered to the secretary of the Corporation at the principal executive offices of the Corporation not earlier than the 150th day prior to such special meeting and not later than 5:00 p.m. (Eastern Time) on the later of (i) the 120th day prior to such special meeting or (ii) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  Neither the postponement or adjournment of a special meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a stockholder’s notice as described above.

Section 2.14.5                       General.

(a)           If information submitted pursuant to this Section 2.14 by any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall be deemed by the Board of Directors incomplete or inaccurate, any authorized officer or the Board of Directors or any committee thereof may treat such information as not having been provided in accordance with this Section 2.14.  Any notice submitted by a stockholder pursuant to this Section 2.14 that is deemed by the Board of Directors inaccurate, incomplete or otherwise fails to satisfy completely any provision of this Section 2.14 shall be deemed defective and shall thereby render all proposals and nominations set forth in such notice defective.  Upon written request by the secretary of the Corporation or the Board of Directors or any committee thereof (which may be made from time to time), any stockholder proposing a nominee for election as a

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director or any proposal for other business at a meeting of stockholders shall provide, within three Business Days after such request (or such other period as may be specified in such request), (i) written verification, satisfactory to the secretary or any other authorized officer or the Board of Directors or any committee thereof, in his, her or its discretion, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 2.14, (ii) written responses to information reasonably requested by the secretary, the Board of Directors or any committee thereof and (iii) a written update, to a current date, of any information submitted by the stockholder pursuant to this Section 2.14 as of an earlier date.  If a stockholder fails to provide such written verification, information or update within such period, the secretary or any other authorized officer or the Board of Directors may treat the information which was previously provided and to which the verification, request or update relates as not having been provided in accordance with this Section 2.14; provided, however, that no such written verification, response or update shall cure any incompleteness, inaccuracy or failure in any notice provided by a stockholder pursuant to this Section 2.14.  It is the responsibility of a stockholder who wishes to make a nomination or other proposal to comply with the requirements of Section 2.14; nothing in this Section 2.14.5(a) or otherwise shall create any duty of the Corporation, the Board of Directors or any committee thereof nor any officer of the Corporation to inform a stockholder that the information submitted pursuant to this Section 2.14 by or on behalf of such stockholder is incomplete or inaccurate or not otherwise in accordance with this Section 2.14 nor require the Corporation, the Board of Directors, any committee of the Board of Directors or any officer of the Corporation to request clarification or updating of information provided by any stockholder, but the Board of Directors, a committee thereof or the secretary acting on behalf of the Board of Directors or a committee, may do so in its, his or her discretion.

(b)           Only such individuals who are nominated in accordance with this Section 2.14 shall be eligible for election by stockholders as directors and only such business shall be conducted at a meeting of stockholders as shall have been properly brought before the meeting in accordance with this Section 2.14.  The chairperson of the meeting and the Board of Directors shall each have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 2.14 and, if any proposed nomination or other business is determined not to be in compliance with this Section 2.14, to declare that such defective nomination or proposal be disregarded.

(c)           For purposes of this Section 2.14: (i) “public announcement” shall mean disclosure in (A) a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or any other widely circulated news or wire service or (B) a document publicly filed by the Corporation with the United States Securities and Exchange CommissionS.E.C. pursuant to the Exchange Act; and (ii) “subsidiary” shall include, with respect to a person, any corporation, partnership, joint venture or other entity of which such person (A) owns, directly or indirectly, 10% or more of the outstanding voting securities or other interests or (B) has a person designated by such person serving on, or a right, contractual or otherwise, to designate a person, so to serve on, the board of directors (or analogous governing body).

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(d)           Notwithstanding the foregoing provisions of this Section 2.14, a stockholder shall also comply with all applicable legal requirements, including, without limitation, applicable requirements of state law and the Exchange Act and the rules and regulations thereunder, with respect to the matters set forth in this Section 2.14.  Nothing in this Section 2.14 shall be deemed to require that a stockholder nomination of an individual for election to the Board of Directors or a stockholder proposal relating to other business be included in the Corporation’s proxy statement, except as may be required by law.

(e)           The Board of Directors may from time to time require any individual nominated to serve as a director to agree in writing with regard to matters of business ethics and confidentiality while such nominee serves as a director, such agreement to be on the terms and in a form (the “Agreement”) determined satisfactory by the Board of Directors, as amended and supplemented from time to time in the discretion of the Board of Directors.  The terms of the Agreement may be substantially similar to the Code of Business Conduct and Ethics of the Corporation or any similar code promulgated by the Corporation (the “Code of Business Conduct”) or may differ from or supplement the Code of Business Conduct.

(f)            Determinations required or permitted to be made under this Section 2.14 by the Board of Directors may be delegated by the Board of Directors to a committee of the Board of Directors, subject to applicable law.

Section 2.15.          Voting by Ballot.  Voting on any question or in any election may be voice vote unless the chairperson of the meeting or any stockholder shall demand that voting be by ballot.

Section 2.16.          Proposals of Business Which Are Not Proper Matters For Action By Stockholders.  Notwithstanding anything in these Bylaws to the contrary, subject to applicable law, any stockholder proposal for business the subject matter or effect of which would be within the exclusive purview of the Board of Directors, shall be deemed not to be a matter upon which the stockholders are entitled to vote.  The Board of Directors in its discretion shall be entitled to determine whether a stockholder proposal for business is not a matter upon which the stockholders are entitled to vote pursuant to this Section 2.16, and its decision shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

ARTICLE III

DIRECTORS

Section 3.1.            General Powers; Qualifications; Directors Holding Over.  The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.  A director shall be an individual at least 21 years of age who is not under legal disability.  To qualify for nomination or election as a director, an individual, at the time of nomination and election, shall, without limitation, (a) have substantial expertise or experience relevant to the business of the Corporation and its subsidiaries, (b) not have been convicted of a felony and (c) meet the qualifications of an Independent Director or a Managing Director, each as defined in Section 3.2,

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as the case may be, depending upon the position for which such individual may be nominated and elected.  In case of failure to elect directors at an annual meeting of the stockholders, the incumbent directors shall hold over and continue to direct the management of the business and affairs of the Corporation until they may resign or until their successors are elected and qualify.

Section 3.2.            Independent Directors and Managing Directors.  A majority of the directors holding office shall at all times be Independent Directors; provided, however, that upon a failure to comply with this requirement as a result of the creation of a temporary vacancy which shall be filled by an Independent Director, whether as a result of enlargement of the Board of Directors or the resignation, removal or death of a director who is an Independent Director, such requirement shall not be applicable.  An “Independent Director” is one who is not an employee of the Corporation or Reit Management & Research LLC (or its permitted successors or assigns under the Shared Services Agreement between the Corporation and Reit Management & Research LLC), who is not involved in the Corporation’s day to day activities and who meets the qualifications of an independent director (not including the specific independence requirements applicable only to members of the Audit Committee of the Board of Directors) under the applicable rules of each stock exchange upon which shares of stock of the Corporation are listed for trading and the Securities and Exchange CommissionS.E.C., as those requirements may be amended from time to time.  If the number of directors, at any time, is set at less than five, at least one director shall be a Managing Director.  So long as the number of directors shall be five or greater, at least two directors shall be Managing Director.  “Managing Directors” shall mean directors who are not Independent Directors and who have been employees of the Corporation or Reit Management & Research LLC (or its permitted successors or assigns under the Shared Services Agreement between the Corporation and Reit Management & Research LLC) or involved in the day to day activities of the Corporation for at least one year prior to their election.  If at any time the Board of Directors shall not be comprised of a majority of Independent Directors, the Board of Directors shall take such actions as will cure such condition; provided that the fact that the Board of Directors does not have a majority of Independent Directors or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Directors.  If at any time the Board of Directors shall not be comprised of a number of Managing Directors as is required under this Section 3.2, the Board of Directors shall take such actions as will cure such condition; provided that the fact that the Board of Directors does not have the requisite number of Managing Directors or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Directors.

Section 3.3.            Number and Tenure.  The Board of Directors may establish, increase or decrease the number of directors; provided, that the number thereof shall never be less than the minimum number required by the Maryland General Corporation Law, nor more than seven; and further, provided, that the tenure of office of a director shall not be affected by any decrease in the number of directors.  The number of directors shall be five until increased or decreased by the Board of Directors.

Section 3.4.            Annual and Regular Meetings.  An annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders, no notice other than this Bylaw being necessary.  The time and place of the annual meeting of the Board of Directors may be changed by the Board of Directors.  The Board of Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings

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of the Board of Directors without other notice than such resolution.  In the event any such regular meeting is not so provided for, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.

Section 3.5.            Special Meetings.  Special meetings of the Board of Directors may be called at any time by any Managing Director, the president or pursuant to the request of any two directors then in office.  The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board of Directors called by them.

Section 3.6.            Notice.  Notice of any special meeting shall be given by written notice delivered personally or by electronic mail, telephoned, facsimile transmitted, overnight couriered (with proof of delivery) or mailed to each director at his or her business or residence address.  Personally delivered, telephoned, facsimile transmitted or electronically mailed notices shall be given at least 24 hours prior to the meeting.  Notice by mail shall be deposited in the U.S. mail at least 72 hours prior to the meeting.  If mailed, such notice shall be deemed to be given when deposited in the U.S. mail properly addressed, with postage thereon prepaid.  Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director.  Telephone notice shall be deemed given when the director is personally given such notice in a telephone call to which he is a party.  Facsimile transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer back indicating receipt.  If sent by overnight courier, such notice shall be deemed given when delivered to the courier.  Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 3.7.            Quorum.  A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors are present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the charter of the Corporation or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum for that action shall also include a majority of such group.  The directors present at a meeting of the Board of Directors which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of a number of directors resulting in less than a quorum then being present at the meeting.

Section 3.8.            Voting.  The action of the majority of the directors present at a meeting at which a quorum is or was present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by specific provision of an applicable statute, the charter of the Corporation or these Bylaws.  If enough directors have withdrawn from a meeting to leave fewer than are required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the charter of the Corporation or these Bylaws.

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Section 3.9.            Telephone Meetings.  Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.  Participation in a meeting by these means shall constitute presence in person at the meeting.  Such meeting shall be deemed to have been held at a place designated by the directors at the meeting.

Section 3.10.          Action by Written Consent of Board of Directors.  Unless specifically otherwise provided in the charter of the Corporation, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each director and such written consent is filed with the minutes of proceedings of the Board of Directors.

Section 3.11.          Waiver of Notice.  The actions taken at any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present waives notice, consents to the holding of such meeting or approves the minutes thereof.

Section 3.12.          Vacancies.  If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder (even if fewer than three directors remain).  Except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any vacancy on the Board of Directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum.  Any director elected to fill a vacancy, whether occurring due to an increase in size of the Board of Directors or by the death, resignation or removal of any director, shall hold office for the remainder of the full term of the class in which the vacancy occurred or was created and until a successor is elected and qualifies.

Section 3.13.          Compensation.  Directors shall be entitled to receive such reasonable compensation for their services as directors as the Board of Directors may determine from time to time.  Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof; and for their expenses, if any, in connection with each property visit and any other service or activity performed or engaged in as director.  The directors shall be entitled to receive remuneration for services rendered to the Corporation in any other capacity, and such services may include, without limitation, services as an officer of the Corporation, legal, accounting or other professional services, or services as a broker, transfer agent or underwriter, whether performed by a director or any person affiliated with a director.

Section 3.14.          Surety Bonds.  Unless specifically required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.

Section 3.15.          Reliance.  Each director, officer, employee and agent of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Corporation or by the advisers,

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accountants, appraisers or other experts or consultants selected by the Board of Directors or officers of the Corporation, regardless of whether such counsel or expert may also be a director.

Section 3.16.          Qualifying Shares of Stock Not Required.  Directors need not be stockholders of the Corporation.

Section 3.17.          Certain Rights of Directors, Officers, Employees and Agents.  A director shall have no responsibility to devote his or her full time to the affairs of the Corporation.  Any director or officer, employee or agent of the Corporation, in his or her personal capacity or in a capacity as an affiliate, employee or agent of any other person, or otherwise, may have business interests and engage in business activities similar or in addition to those of or relating to the Corporation.

Section 3.18.          Emergency Provisions.  Notwithstanding any other provision in the charter of the Corporation or these Bylaws, this Section 3.18 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under ARTICLE III cannot readily be obtained (an “Emergency”).  During any Emergency, unless otherwise provided by the Board of Directors, (a) a meeting of the Board of Directors may be called by any Managing Director or officer of the Corporation by any means feasible under the circumstances and (b) notice of any meeting of the Board of Directors during such an Emergency may be given less than 24 hours prior to the meeting to as many directors and by such means as it may be feasible at the time, including publication, television or radio.

ARTICLE IV

COMMITTEES

Section 4.1.            Number; Tenure and Qualifications.  The Board of Directors shall appoint an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.  Each of these committees shall be composed of three or more directors, to serve at the pleasure of the Board of Directors.  The Board of Directors may also appoint other committees from time to time composed of one or more directors, to serve at the pleasure of the Board of Directors.  The Board of Directors shall adopt a charter with respect to the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, which charter shall specify the purposes, the criteria for membership and the responsibility and duties and may specify other matters with respect to each committee.  The Board of Directors may also adopt a charter with respect to other committees.

Section 4.2.            Powers.  The Board of Directors may delegate any of the powers of the Board of Directors to committees appointed under Section 4.1, except as prohibited by law.  In the event that a charter has been adopted with respect to a committee, the charter shall constitute a delegation by the Board of Directors of the powers of the Board of Directors necessary to carry out the purposes, responsibilities and duties of a committee provided in the charter or reasonably related to those purposes, responsibilities and duties, to the extent permitted by law.

Section 4.3.            Meetings.  Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors.  A majority of the members of any

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committee shall be present in person at any meeting of a committee in order to constitute a quorum for the transaction of business at a meeting, and the act of a majority present at a meeting at the time of a vote if a quorum is then present shall be the act of a committee.  The Board of Directors or, if authorized by the Board in a committee charter or otherwise, the committee members may designate a chairman of any committee, and the chairman or, in the absence of a chairman, a majority of any committee may fix the time and place of its meetings unless the Board shall otherwise provide.  In the absence or disqualification of any member of any committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of absent or disqualified members.

Each committee shall keep minutes of its proceedings and shall periodically report its activities to the full Board of Directors and, except as otherwise provided by law or under the rules of the Securities and Exchange CommissionS.E.C. and applicable stock exchanges on which the Corporation’s shares of stock are listed, any action by any committee shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration.

Section 4.4.            Telephone Meetings.  Members of a committee may participate in a meeting by means of a conference telephone or similar communications equipment and participation in a meeting by these means shall constitute presence in person at the meeting.

Section 4.5.            Action by Written Consent of Committees.  Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.

Section 4.6.            Vacancies.  Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 5.1.            General Provisions.  The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of the board, a chief executive officer, a chief operating officer, a chief financial officer, one or more vice presidents, one or more assistant secretaries and one or more assistant treasurers.  In addition, the Board of Directors may from time to time elect such other officers with such powers and duties as they shall deem necessary or desirable.  The officers of the Corporation shall be elected annually by the Board of Directors, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers.  Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided.  Any two or

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more offices except president and vice president may be held by the same person.  In its discretion, the Board of Directors may leave unfilled any office except that of president, secretary and treasurer.  Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.

Section 5.2.            Removal and Resignation.  Any officer or agent of the Corporation may be removed by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but the removal shall be without prejudice to the contract rights, if any, of the person so removed.  Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board of Directors, the chairman of the board, the president or the secretary.  Any resignation shall take effect at any time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt.  The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.  A resignation shall be without prejudice to the contract rights, if any, of the Corporation.

Section 5.3.            Vacancies.  A vacancy in any office may be filled by the Board of Directors for the balance of the term.

Section 5.4.            Chief Executive Officer.  The Board of Directors may designate a chief executive officer from among the directors or elected officers.  The chief executive officer shall have responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the administration of the business affairs of the Corporation.  In the absence of both the chairman and vice chairman of the board, the chief executive officer shall preside over the meetings of the Board of Directors at which he shall be present.  In the absence of a different designation, the Managing Directors, or any of them, shall function as the chief executive officer of the Corporation.

Section 5.5.            Chief Operating Officer.  The Board of Directors may designate a chief operating officer from among the elected officers.  Said officer will have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

Section 5.6.           Chief Financial Officer.  The Board of Directors may designate a chief financial officer from among the elected officers.  Said officer will have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

Section 5.7.            Chairman and Vice Chairman of the Board.  The chairman of the board, if any, and the vice chairman of the board, if any, shall perform such duties as may be assigned to him, her or them by the Board of Directors.  In the absence of a chairman and vice chairman of the board or if none are appointed, the Managing Directors, or any of them, shall preside at meetings of the Board of Directors.

Section 5.8.            President.  The president may execute any deed, mortgage, bond, lease, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the chief executive officer or the Board of Directors.

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Section 5.9.            Vice Presidents.  In the absence or unavailability of the president, the vice president (or in the event there be more than one vice president, any vice president) shall perform the duties of the president and when so acting shall have all the powers of the president; and shall perform such other duties as from time to time may be assigned to him or her by the president, the chief executive officer or by the Board of Directors.  The Board of Directors may designate one or more vice presidents as executive vice presidents, senior vice presidents or as vice presidents for particular areas of responsibility.

Section 5.10.          Secretary.  The secretary (or his or her designee) shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation, if any; (d) maintain a share register, showing the ownership and transfers of ownership of all shares of stock of the Corporation, unless a transfer agent is employed to maintain and does maintain such a share register; and (e) in general perform such other duties as from time to time may be assigned to the secretary by the chief executive officer or the Board of Directors.

Section 5.11.          Treasurer.  The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be authorized by the Board of Directors.  The treasurer shall also have such other responsibilities as may be assigned to him or her by the chief executive officer or the Board of Directors.

Section 5.12.          Assistant Secretaries and Assistant Treasurers.  The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the chief executive officer or the Board of Directors.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 6.1.            Contracts.  The Board of Directors may authorize any director, officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances.  Any agreement, deed, mortgage, lease or other document executed by an authorized director, officer or agent shall be valid and binding upon the Corporation when authorized or ratified by action of the Board of Directors.

Section 6.2.            Checks and Drafts.  All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the treasurer, the chief executive officer or the Board of Directors.

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Section 6.3.            Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the treasurer, the chief executive officer or the Board of Directors may designate.

ARTICLE VII

STOCK

Section 7.1.            Certificates.  Except as otherwise provided in these Bylaws, this Section 7.1 shall not be interpreted to limit the authority of the Board of Directors to issue some or all of the shares of any or all of its classes or series without certificates.  Each certificate issued shall be signed by the chairman of the board, the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and may be sealed with the seal, if any, of the Corporation.  The signatures may be either manual or facsimile.  Certificates shall be consecutively numbered and if the Corporation shall from time to time issue several classes of stock, each class may have its own number series.  A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued.  At the election of the stockholder, a certificate may be in book entry form.

Section 7.2.            Transfers.

(a)           Shares of capital stock of the Corporation shall be transferable in the manner provided by applicable law, the charter of the Corporation and these Bylaws.  Upon surrender to the Corporation or the transfer agent of the Corporation of a stock certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

(b)           The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.

Section 7.3.            Lost Certificates.  For shares of stock evidenced by certificates, any officer designated by the Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed.  When authorizing the issuance of a new certificate, an officer designated by the Board of Directors may, in such officer’s discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

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Section 7.4.            Closing of Transfer Books or Fixing of Record Date.

(a)           The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose.

(b)           In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than 20 days.  If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least 10 days before the date of such meeting.

(c)           If no record date is fixed and the stock transfer books are not closed for the determination of stockholders, (i) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (ii) the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board of Directors, declaring the dividend or allotment of rights, is adopted.

(d)           When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the Board of Directors shall set a new record date with respect thereto.

Section 7.5.            Stock Ledger.  The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent a stock ledger containing the name and address of each stockholder and the number of shares of each class of stock held by such stockholder.

Section 7.6.            Fractional Stock; Issuance of Units.  The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine.  Notwithstanding any other provision of the charter of the Corporation or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation.  Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.

ARTICLE VIII

REGULATORY COMPLIANCE AND DISCLOSURE

Section 8.1.  Actions Requiring Regulatory Compliance Implicating the Corporation.  If any stockholder (whether individually or constituting a group, as determined by the Board of Directors), by virtue of such stockholder’s ownership interest in the Corporation or

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actions taken by the stockholder affecting the Corporation, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on the Corporation or any subsidiary (for purposes of this ARTICLE VIII, as defined in Section 2.14.5(c)) of the Corporation or any of their respective businesses, assets or operations, including, without limitation, any obligations to make or obtain a Governmental Action (as defined in Section 2.14.3), such stockholder shall promptly take all actions necessary and fully cooperate with the Corporation to ensure that such requirements or regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets, operations or prospects of the Corporation or any subsidiary of the Corporation.  If the stockholder fails or is otherwise unable to promptly take such actions so to cause satisfaction of such requirements or regulations, the stockholder shall promptly divest a sufficient number of shares of stock of the Corporation necessary to cause the application of such requirement or regulation to not apply to the Corporation or any subsidiary of the Corporation.  If the stockholder fails to cause such satisfaction or divest itself of such sufficient number of shares of stock of the Corporation by not later than the 10th day after triggering such requirement or regulation referred to in this Section 8.1, the acquisition of any shares of stock of the Corporation beneficially owned by such stockholder at and in excess of the level triggering the application of such requirement or regulation shall, to the fullest extent permitted by law, be deemed to constitute shares held in violation of the ownership limitations set forth in Article VI of the charter of the Corporation and be subject to Article VI of the charter of the Corporation and any actions triggering the application of such a requirement or regulation may be deemed by the Corporation to be of no force or effect.  Moreover, if the stockholder who triggers the application of any regulation or requirement fails to satisfy the requirements or regulations or to take curative actions within such 10 day period, the Corporation may take all other actions which the Board of Directors deems appropriate to require compliance or to preserve the value of the Corporation’s assets; and the Corporation may charge the offending stockholder for the Corporation’s costs and expenses as well as any damages which may result to the Corporation.

As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation holds a controlling ownership position in a company being formed and licensed as an insurance company in the State of Indiana.  The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of the Corporation’s voting securities.  Accordingly, if a stockholder seeks to exercise proxies for a matter to be voted upon at a meeting of the Corporation’s stockholders without having obtained any applicable approvals from the Indiana insurance regulatory authorities, such proxies representing 10% or more of the Corporation’s voting securities will, subject to Section 8.3, be void and of no further force or effect.

As a further example and not as a limitation, at the time these Bylaws are being amended and restated, the Corporation operates healthcare facilities in various states which are subject to state regulatory and licensing requirements in each such state.  Under the licensing terms or regulatory regime of certain states with jurisdiction over the Corporation, a stockholder which acquires a controlling equity position in the Corporation may be required to obtain regulatory approval or consent prior to or as a result of obtaining such ownership.  Accordingly, if a stockholder which acquires a controlling equity position in the Corporation that would require the stockholder or the Corporation to obtain the consent or approval of a state authority due to the fact

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that the Corporation operates licensed healthcare facilities in such state, and the stockholder refuses to provide the Corporation with information required to be submitted to the applicable state authority or if the state authority declines to approve the stockholder’s ownership of the Corporation, then, in either event, shares of stock of the Corporation owned by the stockholder necessary to reduce its ownership to an amount so that the stockholder’s ownership of Corporation shares of stock would not require it to provide any such information to, or for consent to be obtained from, the state authority, may be deemed by the Board of Directors to be shares of stock held in violation of the ownership limitation in Article VI of the charter of the Corporation and shall be subject to the provisions of Article VI of the charter of the Corporation.

Section 8.2.            Compliance With Law.  Stockholders shall comply with all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, in connection with such stockholder’s ownership interest in the Corporation and all other laws which apply to the Corporation or any subsidiary of the Corporation or their respective businesses, assets or operations and which require action or inaction on the part of the stockholder.

Section 8.3.            Limitation on Voting Shares of Stock or Proxies.  Without limiting the provisions of Section 8.1, if a stockholder (whether individually or constituting a group, as determined by the Board of Directors), by virtue of such stockholder’s ownership interest in the Corporation or its receipt or exercise of proxies to vote shares of stock owned by other stockholders, would not be permitted to vote the stockholder’s shares of stock of the Corporation or proxies for shares of stock of the Corporation in excess of a certain amount pursuant to applicable law (including by way of example, applicable state insurance regulations) but the Board of Directors determines that the excess shares or shares represented by the excess proxies are necessary to obtain a quorum, then such stockholder shall not be entitled to vote any such excess shares or proxies, and instead such excess shares or proxies may, to the fullest extent permitted by law, be voted by the Board of Directors (or by another person designated by the Board of Directors) in proportion to the total shares otherwise voted on such matter.

Section 8.4.            Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies.  To the fullest extent permitted by law, any representation, warranty or covenant made by a stockholder with any governmental or regulatory body in connection with such stockholder’s interest in the Corporation or any subsidiary of the Corporation shall be deemed to be simultaneously made to, for the benefit of and enforceable by, the Corporation and any applicable subsidiary of the Corporation.

Section 8.5.            Board of Directors’ Determinations.  The Board of Directors shall be empowered to make all determinations regarding the interpretation, application, enforcement and compliance with any matters referred to or contemplated by this ARTICLE VIII.

ARTICLE IX

ACCOUNTING YEAR

Section 9.1.            Accounting Year.  The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.

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ARTICLE X

DIVIDENDS AND OTHER DISTRIBUTIONS

Section 10.1.          Dividends and Other Distributions.  Dividends and other distributions upon the stock of the Corporation may be authorized and declared by the Board of Directors.  Dividends and other distributions may be paid in cash, property or stock of the Corporation.

ARTICLE XI

SEAL

Section 11.1.          Seal.  The Board of Directors may authorize the adoption of a seal by the Corporation.  The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland.”  The Board of Directors may authorize one or more duplicate seals.

Section 11.2.          Affixing Seal.  Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.

ARTICLE XII

WAIVER OF NOTICE

Section 12.1.          Waiver of Notice.  Whenever any notice is required to be given pursuant to the charter of the Corporation, these Bylaws or applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.  Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice or waiver by electronic transmission, unless specifically required by statute.  The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE XIII

AMENDMENT OF BYLAWS

Section 13.1.          Amendment of Bylaws.  The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.

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ARTICLE XIV

MISCELLANEOUS

Section 14.1.          References to Charter of the Corporation.  All references to the charter of the Corporation shall include any amendments thereto.

Section 14.2.          Costs and Expenses.  To the fullest extent permitted by law, each stockholder will be liable to the Corporation for, and indemnify and hold harmless the Corporation (and any subsidiaries or affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts, including without limitation, reasonable attorneys’ and other professional fees, whether third party or internal, arising from such stockholder’s breach of any provision of these Bylaws or the charter of the Corporation or any action against the Corporation in which such stockholder is not the prevailing party, and shall pay such amounts on demand, together with interest on such amounts, which interest will accrue at the lesser of the Corporation’s highest marginal borrowing rate, per annum compounded, and the maximum amount permitted by law, from the date such costs or the like are incurred until the receipt of payment.

Section 14.3.          Ratification.  The Board of Directors or the stockholders may ratify and make binding on the Corporation any action or inaction by the Corporation or its officers to the extent that the Board of Directors or the stockholders could have originally authorized the matter.  Moreover, any action or inaction questioned in any stockholder’s derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a director, officer or stockholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting, or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders and, if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.

Section 14.4.          Ambiguity.  In the case of an ambiguity in the application of any provision of these Bylaws or any definition contained in these Bylaws, the Board of Directors shall have the sole power to determine the application of such provisions with respect to any situation based on the facts known to it and such determination shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 14.5.          Inspection of Bylaws.  The Board of Directors shall keep at the principal office for the transaction of business of the Corporation the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the stockholders at all reasonable times during office hours.

Section 14.6.          Special Voting Provisions relating to Control Shares.  Notwithstanding any other provision contained herein or in the charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation.  This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon

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such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

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EX-10.3

EXHIBIT 10.3

FIVE STAR QUALITY CARE, INC.

RESTRICTED SHARE AGREEMENT

This Restricted Share Agreement (this “Agreement”) is made as of ________________, between __________ (the “Employee”) and Five Star Quality Care, Inc.  (the “Company”).

In consideration of the mutual promises and covenants contained in this Agreement, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             Grant of Shares.  The Company hereby grants to the Employee, effective as of the date of this Agreement, ________ shares of its common shares.  The shares so granted are hereinafter referred to as the “Shares,” which term shall also include any shares of the Company issued to the Employee by virtue of his or her ownership of the Shares, by share dividend, share split, recapitalization or otherwise.

2.             Vesting; Repurchase of Shares.

(a)           The Shares shall vest one-fifth as of the date hereof, a further one-fifth on the _____________ of the year first following the date of this Agreement, a further one-fifth on the November 24 of the second year following the date of this Agreement, a further one-fifth on the _____________ of the third year following the date of this Agreement and the final one-fifth on the _____________ of the fourth year following the date of this Agreement.  Any Shares not vested as of any date are herein referred to as “Unvested Shares.”

(b)           In the event the Employee ceases to render significant services, whether as an employee or otherwise, to (i) the Company, (ii) the entity which is the manager or shared services provider to the Company or an entity controlled by, under common control with or controlling such entity (collectively, the “Manager”), or (iii) an affiliate of the Company (which shall be deemed for such purpose to include any other entity to which the Manager is the manager or shared services provider), the Company shall have the right and option to purchase from the Employee, for an amount equal to $.01 per share (as adjusted for any share split or combination, share dividend, recapitalization or similar event) all or any portion of the Unvested Shares as of the date the Employee ceases to render such services.  The Company may exercise such purchase option by delivering or mailing to the Employee (or his estate), at any time after the Employee has ceased to render such services, a written notice of exercise of such option.  Such notice shall specify the number of Unvested Shares to be purchased.  The price to be paid for the Unvested Shares to be repurchased may be payable, at the option of the Company, by wire transfer of immediately available funds or in cash (by check) or any other reasonable method.

3.             Legends.  Each certificate shall prominently bear a legend in substantially the following terms:

“PURSUANT AND SUBJECT TO THE TERMS OF THE CHARTER OF THE CORPORATION (TOGETHER WITH ALL AMENDMENTS THERETO, THE “CHARTER”), THE CORPORATION HAS THE AUTHORITY TO CREATE ONE OR MORE ADDITIONAL CLASSES OR SERIES OF SHARES AND ISSUE ADDITIONAL SHARES OF ANY EXISTING CLASS OR SERIES OF SHARES.  THE CORPORATION WILL FURNISH A FULL STATEMENT OF (i) THE AUTHORITY OF THE CORPORATION TO CREATE ADDITIONAL CLASSES OR SERIES OF SHARES AND ISSUE ADDITIONAL SHARES OF ANY EXISTING CLASS OR SERIES OF SHARES, (ii) THE TERMS OF ANY EXISTING CLASS OR SERIES OF SHARES, AND (iii) SUCH OTHER INFORMATION AS IS REQUIRED BY SECTION 2-211(b) OF THE MARYLAND GENERAL CORPORATION LAW, WITHOUT CHARGE TO ANY SHAREHOLDER UPON REQUEST TO THE SECRETARY OF THE CORPORATION.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON OWNERSHIP AND TRANSFER WHICH ARE OR MAY HEREAFTER BE CONTAINED IN THE CHARTER OR IN THE BYLAWS OF THE CORPORATION, AS AMENDED FROM TIME TO TIME (THE “BYLAWS”), INCLUDING PROVISIONS OF THE CHARTER WHICH PROHIBIT THE OWNERSHIP OF MORE THAN 9.8% OF ANY CLASS OR SERIES OF THE CORPORATION’S SECURITIES BY ANY PERSON OR GROUP.  THIS DESCRIPTION OF THE RESTRICTIONS UPON OWNERSHIP OR TRANSFER OF THE CORPORATION’S SECURITIES IS NOT COMPLETE.  A MORE COMPLETE DESCRIPTION OF THESE RESTRICTIONS APPEARS IN THE CORPORATION’S CHARTER OR BYLAWS, AS APPLICABLE, COPIES OF WHICH WILL BE SENT WITHOUT CHARGE TO ANY SHAREHOLDER UPON REQUEST TO THE SECRETARY OF THE CORPORATION.

THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT DATED AS OF MARCH 10, 2004 BETWEEN THE CORPORATION AND WELLS FARGO BANK, NATIONAL ASSOCIATION, AS SUCCESSOR RIGHTS AGENT, AND ANY AMENDMENTS OR RENEWALS THEREOF (THE “RIGHTS AGREEMENT”), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE CORPORATION.  UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) BY ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON, OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER MAY BECOME NULL AND VOID.  THE RIGHTS SHALL NOT BE EXERCISABLE AND SHALL BE VOID SO LONG AS HELD, BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION TO THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE OBTAINABLE.

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  SUCH SHARES

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MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR AN OPINION OF THE CORPORATION’S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.

THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO AN INCENTIVE PLAN MAINTAINED BY THE CORPORATION.  THESE SHARES MAY BE SUBJECT TO TRANSFER AND/OR VESTING RESTRICTIONS, AND UNVESTED SHARES ARE SUBJECT TO REPURCHASE RIGHTS CONTAINED IN THE PLAN, THE RELATED GRANT OF SHARES OR AN AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THESE SHARES.  A COPY OF APPLICABLE RESTRICTIONS AND REPURCHASE RIGHTS WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE CORPORATION.”

4.             Tax Withholding  To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes incurred by the Employee by reason of a grant of Shares, and the Employee agrees that he or she shall upon request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations from time to time (including as Shares become vested) as the Company may request.

5.             Termination.  This Agreement shall continue in full force and effect until the earliest to occur of the following, at which time except as otherwise specified below this Agreement shall terminate:  (a) the date on which all repurchase rights referred to in Section 2 hereof have terminated; or (b) except to the extent specified in such notice, upon notice of termination by the Company to the Employee pursuant to action taken by the Company’s Board of Trustees.

6.             Miscellaneous.

(a)           Amendments.  Neither this Agreement nor any provision hereof may be changed or modified except by an agreement in writing executed by the Employee and the Company.

(b)           Binding Effect of the Agreement.  This Agreement shall inure to the benefit of, and be binding upon , the Company, the Employee and their respective estates, heirs, executors, transferees, successors, assigns and legal representatives.

(c)           Provisions Separable.  In the event that any of the terms of this Agreement shall be or become or is declared to be illegal or unenforceable by any court or other authority of competent jurisdiction, such terms shall be null and void and shall be deemed deleted from this Agreement, and all the remaining terms of this Agreement shall remain in full force and effect.

(d)           Notices.  Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered by hand or by facsimile or sent by registered certified mail, postage prepaid, to the party addressed as follows, unless another address has been substituted by notice so given:

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To the Employee:	To his address as set forth on the signature page hereof.
To the Company:	Five Star Quality Care, Inc.
	400 Centre Street
	Newton, MA 02458
	Attn: Secretary

(e)           Construction.  The headings and subheadings of this Agreement have been inserted for convenience only, and shall not affect the construction of the provisions hereof.  All references to sections of this Agreement shall be deemed to refer as well to all subsections which form a part of such section.

(f)            Employment Agreement.  This Agreement shall not be construed as an agreement by the Company, any affiliate or advisor of the Company to employ the Employee, nor is the Company, any affiliate or advisor of the Company obligated to continue employing the Employee by reason of this Agreement or the grant of shares to the Employee hereunder.

(g)           Applicable Law.  This Agreement shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be executed under seal, as of the date first above written.

FIVE STAR QUALITY CARE, INC.

By:

Title:

EMPLOYEE:

Name

Address

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EX-10.4

Exhibit 10.4

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered March 10, 2004 (the “Effective Date”), by and between Five Star Quality Care, Inc., a Maryland Corporation (the “Company”), and Rosemary Esposito, R.N. (“Indemnitee”).

WHEREAS Indemnitee currently serves as an officer of the Company and may, in connection therewith, be subjected to claims, suits or proceedings arising from such service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the fullest extent permitted by law as hereinafter provided; and

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1.Definitions.  For purposes of this Agreement:

(a)“Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 10% or more of the combined voting power in the election of directors of the Company’s then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b)“Corporate Status” means the status of a person who is or was a director, trustee, officer or agent of the Company.

(c)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)“Expenses” means all expenses, including, but not limited to, all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(e)“Independent Counsel” means a law firm, or a member of a law firm, that is retained by Indemnitee and is not serving as counsel to the Company.

(f)“Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one initiated by an Indemnitee pursuant to Section 9.

Section 2.Indemnification - - General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the fullest extent permitted by Maryland law in effect on the date hereof and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the date hereof.  The rights of Indemnitee provided in this Section 2 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law (“MGCL”).

Section 3.Proceedings Other Than Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company.  Pursuant to this Section 3, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses incurred by him or on his behalf in connection with a Proceeding by reason of Indemnitee’s Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, property or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 4.Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and

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deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 5.Indemnification for Expenses of a Party Who is Partly Successful.  Without limitation on Section 3 and Section 4, if Indemnitee is not wholly successful in any Proceeding covered by this Agreement, but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 5 for all Expenses incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6.Advance of Expenses.  The Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 5.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 6 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 7.Procedure for Determination of Entitlement to Indemnification.

(a)To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 7(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board of

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Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred or if after a Change of Control Indemnitee shall so request, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

Section 8.Presumptions and Effect of Certain Proceedings.

(a)In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 7(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 9.Remedies of Indemnitee.

(a)If (i) a determination is made pursuant to Section 7 that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 6, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 7(b) within 30 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Maryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses.  Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial

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Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 9(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5.

(b)In any judicial proceeding or arbitration commenced pursuant to this Section 9, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)If a determination shall have been made pursuant to Section 7(b) that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 9, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification.

(d)In the event that Indemnitee, pursuant to this Section 9, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses incurred by him in such judicial adjudication or arbitration.  If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

Section 10.Defense of the Underlying Proceeding.

(a)Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)Subject to the provisions of the last sentence of this Section 10(b) and of Section 10(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 10(a) above.  The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which

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release shall be in form and substance reasonably satisfactory to Indemnitee.  This Section 10(b) shall not apply to a Proceeding brought by Indemnitee under Section 9 above or Section 14.

(c)Notwithstanding the provisions of Section 10(b), if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 9(d)), to represent Indemnitee in connection with any such matter.

Section 11.Non-Exclusivity; Survival of Rights.

(a)The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Articles of Incorporation or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 12.Duration of Agreement; Binding Effect.

(a)This Agreement shall continue until and terminate ten years after the date that Indemnitee shall have ceased to serve as a director, trustee, officer, employee, or agent of the

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Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; provided, however, that the rights of Indemnitee hereunder shall continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 9 relating thereto.

(b)The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 13.Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 14.Limitation and Exception to Right of Indemnification or Advance of Expenses.  Notwithstanding any other provision of this Agreement, (a) any indemnification or advance of Expenses to which Indemnitee is otherwise entitled under the terms of this Agreement shall be made only to the extent such indemnification or advance of Expenses does not conflict with applicable Maryland law and (b) Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (i) the Proceeding is brought to enforce indemnification under this Agreement or otherwise or (ii) the Company’s Bylaws, as amended, the Articles of Incorporation, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

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Section 15.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 16.Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 17.Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 18.Notices.  Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered at the following addresses to the parties hereto:

(a)If to Indemnitee, to:  The address set forth on the signature page hereto.

(b)If to the Company to:

Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Secretary

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 19.Governing Law.  The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

ATTEST:	FIVE STAR QUALITY CARE, INC.
/s/ Jennifer B. Clark	By:	/s/ Bruce J. Mackey Jr.	(SEAL)
	Name:	Bruce J. Mackey Jr.
	Title:	Treasurer, Chief Financial Officer and Assistant Secretary
WITNESS:	INDEMNITEE
/s/ Judith A. Stapleton	/s/ Rosemary Esposito, R.N.
	Name:  Rosemary Esposito, R.N.
	Address: [address omitted]

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EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED

The Board of Directors of Five Star Quality Care, Inc.

Re:  Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated                           , 2004, by and between Five Star Quality Care, Inc. (the “Company”) and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the “Proceeding”).

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity.  I hereby affirm that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of expenses by the Company for reasonable attorney’s fees and related expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 5 of the Indemnification Agreement.  To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this         day of                                         , 200    .

WITNESS:

(SEAL)

Schedule to Exhibit 10.4

The following individuals are parties to Indemnification Agreements with the Company which are substantially identical in all material respects to the representative Indemnification Agreement filed herewith and are dated as of the respective dates listed below.  The other Indemnification Agreements are omitted pursuant to Instruction 2 to Item 601 of Regulation S-K.

Name of Signatory	Date
Evrett W. Benton	March 10, 2004
Rosemary Esposito, R.N.	March 10, 2004
Bruce M. Gans, M.D.	March 10, 2004
Barbara D. Gilmore	March 10, 2004
Maryann Hughes	March 10, 2004
Arthur G. Koumantzelis	March 10, 2004
Bruce J. Mackey Jr.	March 10, 2004
Gerard M. Martin	March 10, 2004
Barry M. Portnoy	March 10, 2004
William J. Sheehan	May 7, 2004
Travis K. Smith	February 27, 2008
Francis R. Murphy	May 1, 2008

EX-10.33

Exhibit 10.33

SHAREHOLDERS AGREEMENT


by and among


AFFILIATES INSURANCE COMPANY,


FIVE STAR QUALITY CARE, INC.,


HOSPITALITY PROPERTIES TRUST,


HRPT PROPERTIES TRUST,


SENIOR HOUSING PROPERTIES TRUST,


TRAVELCENTERS OF AMERICA LLC


and


REIT MANAGEMENT & RESEARCH LLC





February 27, 2009

TABLE OF CONTENTS

		Page
ARTICLE I
INVESTMENT IN THE COMPANY; FORMATION AND LICENSING EXPENSES
1.1	Purchase and Sale of Shares	2
1.2	Future Share Issuances	2
1.3	Formation and Licensing Expenses	2
ARTICLE II
BOARD COMPOSITION
2.1	Board Composition	2
ARTICLE III
TRANSFER OF SHARES;
PREEMPTIVE RIGHTS; CALL RIGHTS
3.1	Transfer of Shares; No Pledging of Shares	3
3.2	Preemptive Rights	4
3.3	Change of Control Call Option	6
3.4	Permitted New Issuance of Shares	9
ARTICLE IV
SPECIAL SHAREHOLDER APPROVAL REQUIREMENTS.
4.1	Special Shareholder Approval Requirements	9
ARTICLE V
OTHER COVENANTS AND AGREEMENTS
5.1	Organizational Documents	10
5.2	Reports and Information Access	10
5.3	Compliance with Laws	10
5.4	Cooperation; Further Assurances	11
5.5	Confidentiality	11
5.6	Required Regulatory Approvals	11
5.7	REIT Matters	12

ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1	The Company	12
6.2	The Shareholders	14
ARTICLE VII
TERMINATION
7.1	Termination	15
ARTICLE VIII
MISCELLANEOUS
8.1	Notices	16
8.2	Successors and Assigns; Third Party Beneficiaries	17
8.3	Amendment and Waiver	17
8.4	Counterparts	18
8.5	Headings	18
8.6	Governing Law	18
8.7	Dispute Resolution	18
8.8	Interpretation and Construction	19
8.9	Severability	20
8.10	Entire Agreement	20
8.11	Non-liability of Trustees and Directors	20

SHAREHOLDERS AGREEMENT

AFFILIATES INSURANCE COMPANY

This Shareholders Agreement (this “Agreement”), dated February 27, 2009, by and among Affiliates Insurance Company, a company being formed and licensed as an insurance company in the State of Indiana (the “Company”), Five Star Quality Care, Inc., a Maryland corporation (“FVE”), Hospitality Properties Trust, a Maryland real estate investment trust (“HPT”), HRPT Properties Trust, a Maryland real estate investment trust (“HRP”), Senior Housing Properties Trust, a Maryland real estate investment trust (“SNH”), TravelCenters of America LLC, a Delaware limited liability company (“TA”), and Reit Management & Research LLC, a Delaware limited liability company (“RMR”, and together with FVE, HPT, HRP, SNH and TA, the “Shareholders”).

RECITALS

WHEREAS, the Company has been formed as an insurance company domiciled in the State of Indiana; and

WHEREAS, the Shareholders have agreed to make capital contributions to the Company as further detailed in this Agreement and that as of the funding of those capital contributions as provided in this Agreement the Shareholders will be the sole shareholders of the Company; and

WHEREAS, the Shareholders and the Company desire to enter into this Agreement in order to set forth certain agreements and understandings relating to the business and governance of the Company, the Shares (as defined herein) held by the Shareholders and certain other matters;

NOW, THEREFORE, in consideration of the premises, representations, warranties, covenants and agreements contained in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

INVESTMENT IN THE COMPANY; FORMATION AND LICENSING EXPENSES

1.1           Purchase and Sale of Shares.

(a)      Concurrently with the execution and delivery of this Agreement by the Company and the Shareholders, the Company shall issue and sell to each Shareholder, and each Shareholder shall purchase from the Company, 100 shares of common stock, par value of $10.00 per share, of the Company (the “Shares”) at a purchase price of $250.00 per Share.

(b)      Within five business days after the Company notifies the Shareholders that the Department of Insurance of the State of Indiana has notified the Company that it intends to commence its financial review of the Company, the Company shall issue and sell to each Shareholder, and each Shareholder shall purchase from the Company, an additional 19,900 Shares at a purchase price of $250.00 per Share.

1.2           Future Share Issuances.  No Shareholder shall be obligated to purchase additional Shares or any other securities of the Company and any future proposed issuance and sale of Shares or any other securities of the Company shall be subject to Section 3.2; provided, however, that the parties hereto acknowledge that the Company may need to seek additional capital in the future and that it is the intention of the Shareholders that they each may, but shall not be obligated to, contribute to the Company up to an additional $5 million of capital during the period between the second and fifth anniversaries of the date of this Agreement.

1.3           Formation and Licensing Expenses.  The Company shall pay for all costs, fees and expenses in connection with the formation and licensing of the Company as an Indiana insurance company.  The Shareholders shall reimburse the Company for such amounts paid by the Company in equal proportion.

ARTICLE II

BOARD COMPOSITION

2.1           Board Composition.

(a)      For as long as the Shareholders collectively own a majority of the issued and outstanding Shares, the board of directors of the Company (the “Board”) shall consist of not less than five nor more than fifteen members, with the actual number determined in accordance with the Bylaws of the Company, as in effect from time to time, and subject in all instances to this Section 2.1.  As of the date of this Agreement, the Board shall initially consist of thirteen members.  For so long as required by applicable Indiana law, at least one member of the Board shall be an Indiana resident.  Except as otherwise provided in Section 2.1(c), no Shareholder having a right to designate any director pursuant to this Article II shall be required to designate an Indiana resident as a director pursuant to such right; provided, however, that this sentence shall in no way limit the application of the immediately preceding sentence.

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(b)      For so long as a Shareholder (other than RMR) owns not less than 10% of the issued and outstanding Shares, such Shareholder shall have the right to designate two directors for election to the Board.

(c)      For so long as RMR owns not less than 10% of the issued and outstanding Shares, RMR shall have the right to designate three directors for election to the Board.  For so long as RMR has the right to designate directors pursuant to the immediately preceding sentence, Indiana law requires the Board to include an Indiana resident as a director of the Company and no other Shareholder designates an Indiana resident as a director of the Company, RMR shall designate at least one Indiana resident to be a director.

(d)      Each Shareholder will vote, execute and deliver written consents and take all other necessary action (including, if necessary, causing the Company to call a special meeting of shareholders of the Company) in favor of the election of each director designated by a Shareholder in accordance with this Article II and otherwise to ensure that the composition of the Board is at all times as set forth in this Article II.  Each Shareholder agrees that it will not vote any of its Shares in favor of removal of any director designated by another Shareholder unless such other Shareholder shall have consented to such removal in writing.  Each Shareholder agrees to cause to be called, if necessary, a special meeting of shareholders of the Company and to vote all the Shares owned by such Shareholder for, or to take all actions in lieu of any such meeting necessary to cause, the removal of any director designated by such Shareholder if the Shareholder entitled to designate such director requests in writing, signed by such Shareholder, such director’s removal for any reason or no reason.

(e)      If, as a result of death, disability, retirement, resignation, removal or otherwise, there shall exist or occur any vacancy with respect to any director previously designated by a Shareholder in accordance with such Shareholder’s right under this Article II to so designate such director, such Shareholder shall have the right to designate a replacement director.  Upon such designation, the Shareholders shall promptly take all action necessary to ensure the election of such replacement director to fill the unexpired term of the director whom such new director is replacing, including, if necessary, calling a special meeting of shareholders of the Company and voting their Shares, or executing any written consent in lieu thereof, in favor of the election of such director.

ARTICLE III

TRANSFER OF SHARES;
PREEMPTIVE RIGHTS; CALL RIGHTS

3.1           Transfer of Shares; No Pledging of Shares.

(a)      The Shareholders may not, directly or indirectly, transfer any Shares, except that a Shareholder may transfer Shares owned by it to a wholly owned subsidiary of such Shareholder, to another Shareholder or to a wholly owned subsidiary of another Shareholder.  Any purported transfer of Shares in contravention of this Section 3.1 shall be null and void and of no force or effect.

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(b)      The Shareholders may not pledge their Shares (other than pledges arising from the operation of law and not as a result of the Shareholder’s express granting of a pledge); provided, however, that any pledge or other lien, charge or encumbrance which may arise by application of the terms of any agreement, contract, license, permit or instrument existing on the date hereof (an “Existing Pledge”) on a Shareholder’s Shares shall not be a violation of this Section 3.1(b); and provided further, however, any transfer which results from exercise of rights under a permitted lien, charge or encumbrance shall be subject to the call rights of the Company and the other Shareholders set forth in Section 3.3 to the fullest extent permitted by applicable law and existing contracts as if such a transfer constitutes a “Change of Control”.  Any Shareholder whose Shares would be subject to an Existing Pledge shall use best efforts to cause the pledgee under an Existing Pledge, prior to any exercise by the pledgee of its rights on the Shareholder’s Shares, to take all actions under applicable law which are required to be taken prior to any such exercise, including obtaining any necessary approvals from the Indiana Department of Insurance and Indiana Insurance Commissioner.

3.2           Preemptive Rights.

(a)      If, at any time after the date hereof, the Company wishes to issue any capital stock of the Company or any other securities convertible into or exchangeable or exercisable for capital stock of the Company (collectively, “New Securities”) to any person or entity (the “Subject Purchaser”), then the Company shall first offer the Appropriate Percentage (as defined herein) of the New Securities (the “Allocated Shares”) to each Shareholder (each, a “Preemptive Rightholder” and collectively, the “Preemptive Rightholders”) by sending written notice (the “New Issuance Notice”) to each of the Preemptive Rightholders, which New Issuance Notice shall state the terms of such proposed issuance, including the number of New Securities proposed to be issued and the proposed purchase price per security of the New Securities (the “Proposed Price”).  Upon delivery of the New Issuance Notice, such offer shall be irrevocable unless and until the Company shall have terminated the contemplated issuance of New Securities in its entirety at which time the rights set forth herein shall be applicable to any proposed issuance subsequent to any such termination.  For purposes of this Section 3.2, “Appropriate Percentage” shall mean that percentage of the New Securities determined by dividing (i) the total number of Shares then owned by a Preemptive Rightholder by (ii) the total number of Shares owned by all the Preemptive Rightholders.

(b)      For a period of 20 days after the giving of the New Issuance Notice pursuant to Section 3.2(a) (the “Initial Preemptive Subscription Period”), each of the Preemptive Rightholders shall have the right to purchase, in whole or in part, the Allocated Shares offered to such Preemptive Rightholder as determined pursuant to Section 3.2(a) at a purchase price equal to the Proposed Price and upon the terms and conditions set forth in the New Issuance Notice.

(c)      The right of each Preemptive Rightholder to purchase the New Securities so offered under Section 3.2(b) shall be exercisable by delivering written notice of the exercise thereof, prior to the expiration of the Initial Preemptive Subscription Period, to the Company, which notice shall state the amount of New Securities that such Preemptive Rightholder elects to purchase pursuant to Section 3.2(a).  The failure of a Preemptive Rightholder to respond prior to the expiration of the Initial Preemptive Subscription Period shall be deemed to be a waiver of such Preemptive Rightholder’s rights under this Agreement solely

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with respect to its right to purchase the New Securities referenced in the New Issuance Notice; provided that each Preemptive Rightholder may waive its rights under Section 3.2(b) prior to the expiration of Initial Preemptive Subscription Period by giving written notice of such waiver to the Company.

(d)      If as of the expiration of the Initial Preemptive Subscription Period, some but not all of the Preemptive Rightholders have exercised their right to purchase the full amount of New Securities to which they are entitled to purchase pursuant to Sections 3.2(b) and (c) (any such Preemptive Rightholder which has exercised in full its rights to purchase such New Securities, a “Fully Exercising Preemptive Rightholder”), the Fully Exercising Preemptive Rightholders shall have the right to purchase, in whole or in part, their Oversubscription Appropriate Percentage (as defined herein) of the New Securities which the Preemptive Rightholders did not exercise their right to purchase pursuant to Sections 3.2(b) and (c) (the “Undersubscribed Shares”) at a purchase price equal to the Proposed Price and upon the terms and conditions set forth in the New Issuance Notice.  The right of the Fully Exercising Preemptive Rightholders to purchase the Undersubscribed Shares may be exercised for a period of ten days following the earlier of the expiration of the Initial Preemptive Subscription Period or the date on which notice is given by the Company to such Fully Exercising Preemptive Rightholders that all the Preemptive Rightholders have either exercised their right to purchase the New Securities pursuant to Sections 3.2(b) and (c) or waived their rights to purchase any of such New Securities pursuant to Section 3.2(c) (the “Oversubscription Period”).  For purposes of this Section 3.2, “Oversubscription Appropriate Percentage” shall mean that percentage of the Undersubscribed Shares determined by dividing (i) the total number of Shares then owned by a Fully Exercising Preemptive Rightholder by (ii) the total number of Shares owned by all the Fully Exercising Preemptive Rightholders.

(e)      The right of each Fully Exercising Preemptive Rightholder to purchase Undersubscribed Shares pursuant to Section 3.2(d) shall be exercisable by delivering written notice of the exercise thereof, prior to the expiration of the Oversubscription Period, to the Company, which notice shall state the amount of Undersubscribed Shares that such Fully Exercising Preemptive Rightholder elects to purchase pursuant to Section 3.2(d).  The failure of a Fully Exercising Preemptive Rightholder to respond prior to the expiration of the Oversubscription Period shall be deemed to be a waiver of such Fully Exercising Preemptive Rightholder’s rights under this Agreement solely with respect to its right to purchase the Undersubscribed Shares included in the New Securities referenced in the New Issuance Notice; provided that each Fully Exercising Preemptive Rightholder may waive its rights under Section 3.2(d) prior to the expiration of Oversubscription Period by giving written notice of such waiver to the Company.

(f)       The closing of the purchase of New Securities subscribed for by the Preemptive Rightholders, including the Fully Exercising Preemptive Rightholders, pursuant to this Section 3.2 shall be held at such time and place as the parties to the transaction may reasonably agree.  At such closing, the New Securities subscribed for shall be issued by the Company free and clear of all liens, charges or encumbrances (other than those arising hereunder and those attributable to actions by the purchasers thereof).  Each Preemptive Rightholder, including each Fully Exercising Preemptive Rightholder, purchasing the New Securities shall deliver at the closing payment in full in immediately available funds for the New Securities

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purchased by it.  At such closing, all of the parties to the transaction shall execute such additional documents as are otherwise necessary, appropriate or customary for similar financing transactions.  If any Preemptive Rightholder, including any Fully Exercising Preemptive Rightholder, fails to purchase any New Securities for which it exercised its right to purchase pursuant to Sections 3.2(b) and (c) or 3.2(d) and (e), such New Securities may be purchased by the Fully Exercising Preemptive Rightholders which did purchase all the New Securities for which they exercised their rights to purchase pursuant to Sections 3.2(b), (c), (d) and (e) in the same manner provided in this Section 3.2 with respect to Undersubscribed Shares and the resulting Oversubscription Period with respect to such right to purchase shall be an “Oversubscription Period” for all instances such term is used in this Section 3.2.  Notwithstanding the preceding sentence, the obligations and liability of any Preemptive Rightholder, including any Fully Exercising Preemptive Rightholder, which fails to purchase any New Securities for which it exercised its right to purchase pursuant to Sections 3.2(b) and (c) or 3.2(d) and (e) shall not be relieved as a result of any Fully Exercising Preemptive Rightholder’s right to purchase, or any actual purchase by any Fully Exercising Preemptive Rightholder of, any such New Securities.

(g)      Following the expiration of the later of the Initial Preemptive Subscription Period and, if applicable, the Oversubscription Period, if the Preemptive Rightholders, including any Fully Exercising Preemptive Rightholders, did not exercise their right to purchase any of the New Securities, including the Undersubscribed Shares, which were originally the subject of the New Issuance Notice, then the Company may sell the remaining New Securities to the Subject Purchaser on terms and conditions that are no more favorable to the Subject Purchaser than those set forth in the New Issuance Notice; provided, however, that such sale is bona fide and made pursuant to a contract entered into between the Company and the Subject Purchaser and that such sale is consummated by not later than 90 days following the earlier to occur of (i) receipt by the Company of written waivers pursuant to Section 3.2(c) from all the Preemptive Rightholders of their rights to purchase the Appropriate Percentage of New Securities and, if applicable, written waivers pursuant to Section 3.2(e) from all the Fully Exercising Preemptive Rightholders of their rights to purchase the Oversubscription Appropriate Percentage of New Securities, and (ii) the expiration of the Oversubscription Period, if applicable, and if not applicable, the expiration of the Initial Preemptive Subscription Period.  If the sale of any of the New Securities is not consummated by the expiration of such 90 day period, then the preemptive rights afforded to the Shareholders under this Section 3.2 shall again become effective, and no issuance and sale of New Securities may be made thereafter by the Company without again offering the same in accordance with this Section 3.2.

3.3           Change of Control Call Option.

(a)      By not later than five days following a Change of Control (as defined herein or in Section 3.1(b)) of any Shareholder, such Shareholder shall give the Company and each other Shareholder notice of such Change of Control and shall disclose the number of Shares and any other securities of the Company which were owned by the Shareholder as of immediately prior to such Change of Control of such Shareholder (the “Change of Control Securities”).  If the Shareholder fails to give the notice required by the preceding sentence by the time required thereby, and another Shareholder or the Company is or becomes aware that such Shareholder underwent a Change of Control, then (i) if it is a

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Shareholder that is or becomes aware of such Change of Control, that Shareholder shall reasonably promptly inform the Company of such Change of Control and upon the Company being of the reasonable belief that such a Change of Control has occurred, the Company shall reasonably promptly provide the notice to the Shareholders that such Shareholder which underwent the Change of Control failed to provide, or (ii) if it is the Company that is or becomes aware of such Change of Control, the Company shall reasonably promptly provide the notice that such Shareholder which underwent the Change of Control failed to provide.  Any liability of a Shareholder which undergoes a Change of Control for failure to give the notice required by the first sentence of this Section 3.3(a) shall not be relieved as a result of the Company or any other Shareholder being obligated to give, or giving, the notice required by the second sentence of this Section 3.3(a).

(b)      For a period of 20 days following the receipt of a notice given pursuant to Section 3.3(a), the Company shall have the right to purchase from such Shareholder (or its successor, as applicable), in whole or in part, the Change of Control Securities.  The purchase price for the Change of Control Securities shall be the book value, as determined in accordance with the statutory accounting principles applicable to the Company, of the Change of Control Securities as of the time such Shareholder underwent the Change of Control (the “Call Option Purchase Price”).  To exercise its right to purchase the Change of Control Securities, the Company shall deliver written notice of such exercise to the Shareholder which underwent the Change of Control and the other Shareholders prior to the expiration of such 20 day call exercise period.  The closing for any such exercised call option shall occur on the fifth business day (or such longer period as may be required by applicable law or in order to obtain applicable regulatory approval) following receipt of the Company’s notice of exercise of its call option by the Shareholder which underwent the Change of Control, or on such other date as may be agreed by the Company and such Shareholder.  At its option, the Company may pay in cash the entire amount of the Call Option Purchase Price at such closing or it may elect to defer any amount of the Call Option Purchase Price.  Any amounts so deferred shall bear interest at the Deferred Interest Rate (as defined herein).  The Company may pay any such deferred amounts and accrued interest thereon at any time and from time to time; provided, however, that all such deferred amounts and accrued but unpaid interest, shall be due and payable on the fifth anniversary of the closing of the applicable call option exercise.

(c)      Shareholders other than the Shareholder which underwent the Change of Control shall have the right to purchase, in whole or in part, any Change of Control Securities not elected to be purchased by the Company pursuant to Section 3.3(b) at a price equal to the Call Option Purchase Price.  To exercise its right to purchase the Change of Control Securities, the applicable Shareholder shall deliver written notice of such exercise to the Shareholder which underwent the Change of Control, the Company and the other Shareholders by not later than the 20 days following the earlier of (i) the expiration of the 20 day period during which the Company has the right to exercise its call option for the Change of Control Securities pursuant to Section 3.3(b) and (ii) the date the Company waives its right to purchase such Change of Control Securities and has given notice of the same to all the Shareholders (such deadline for exercising a right to purchase Change of Control Securities referred to as the “Call Option Exercise Deadline”).  The notice of exercise shall indicate the number of Change of Control Securities that the Shareholder seeks to purchase.  If the aggregate number of Change of Control Securities sought to be purchased by the exercising Shareholders (determined by adding

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all the eligible securities each Shareholder states it seeks to purchase in its notice of exercise) exceeds the actual number of Change of Control Securities eligible for purchase, the number of Change of Control Securities which may be purchased by a particular applicable Shareholder shall be reduced by an amount equal to the product of the aggregate number of such excess Change of Control Securities sought to be purchased by all the exercising Shareholders multiplied by the quotient of (x) the number of Shares owned by all eligible Shareholders which are exercising their call option rights minus the number of Shares owned by the particular applicable exercising Shareholder divided by (y) the number of Shares owned by all eligible Shareholders which are exercising their call option rights, with any such result rounded up or down to the nearest whole share as reasonably determined by the Company.  The closing of any such exercised call option shall occur on the fifth business day (or such longer period as may be required by applicable law or in order to obtain applicable regulatory approval) following the Call Option Exercise Deadline, or on such other date as may be agreed by the exercising Shareholder, the Company and the Shareholder which underwent the Change of Control.  At its option, the exercising Shareholder may pay in cash the entire amount of the Call Option Purchase Price at such closing or it may elect to defer any amount of the Call Option Purchase Price.  Any amounts so deferred shall bear interest at the Deferred Interest Rate.  The exercising Shareholder may pay any such deferred amounts and accrued interest thereon at any time and from time to time; provided, however, that all such deferred amounts and accrued but unpaid interest, shall be due and payable on the fifth anniversary of the closing of the applicable call option exercise.

(d)      Definitions.  For purposes of this Section 3.3, the following terms have the meanings set forth below:

(i)    “Change of Control” means (A) the acquisition by any person or entity, or two or more persons or entities acting in concert, of beneficial ownership (such term, for purposes of this Section 3.3(d)(i), having the meaning provided such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of 9.8% or more, or rights, options or warrants to acquire 9.8% or more, or any combination thereof, of the outstanding shares of voting stock or other voting interests of the Shareholder, including voting proxies for such shares, or the power to direct the management and policies of the Shareholder, directly or indirectly, excluding with respect to RMR, any person or entity, or two or more persons or entities acting in concert, beneficially owning 9.8% or more of RMR’s outstanding voting interests as of the date of this Agreement, (B) the merger or consolidation of the Shareholder with or into any other person or entity (other than the merger or consolidation of any person or entity into the Shareholder that does not result in a Change in Control of the Shareholder under clauses (A), (C), (D) or (E) of this definition), (C) any one or more sales or conveyances to any person or entity of all or any material portion of the assets (including capital stock or other equity interests) or business of the Shareholder, (D) the cessation, for any reason, of the individuals who at the beginning of any 38 consecutive month period constituted the board of directors (or analogous governing body) of the Shareholder (together with any new directors (or analogous position) whose election by such board or whose nomination for election by the shareholders of the Shareholder was approved by a vote of a majority of the directors (or analogous position) then still in office who were either directors (or analogous position) at the beginning of any such period or whose election or nomination

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for election was previously so approved) to constitute a majority of the board of directors (or analogous governing body) of the Shareholder then in office or (E) in respect of a Shareholder other than RMR, the termination (including by means of nonrenewal) of the Shareholder’s management agreement with RMR by such Shareholder or, in response to a breach of such agreement by such Shareholder, by RMR; provided, however, a Change of Control shall not include:  (1) the acquisition by any person or entity, or two or more persons or entities acting in concert, of beneficial ownership of 9.8% or more of the outstanding shares of voting stock or other voting interests of a Shareholder if such acquisition is approved by the governing board of such Shareholder in accordance with the organizational documents of such Shareholder and if such acquisition is otherwise in compliance with applicable law; (2) the merger or consolidation of a Shareholder with one or more other Shareholders or wholly owned subsidiaries of any such Shareholders; or (3) a Change of Control which is approved by Shareholders owning 75% of the Shares owned by all Shareholders.

(ii)   “Deferred Interest Rate” means the London Interbank Offered Rate (rounded upward, if necessary, to the nearest 1/100th of 1%) appearing on Reuters Screen LIBO Page (or any successor page) as the London interbank offered rate for three month deposits in U.S. dollars at approximately 11:00 a.m. (London time) two days prior to applicable closing date (provided that if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates), plus 100 basis points, and this rate shall be adjusted in three month intervals thereafter, in accordance with the foregoing, with such adjustment date being treated as an “applicable closing date” for purposes of determining the adjusted rate in accordance with the foregoing, for so long as any deferred amount pursuant to Sections 3.2(b) or 3.2(c) may be unpaid.

3.4           Permitted New Issuance of Shares.  The prohibition on transfer of Shares, the preemptive rights and the change of control call options created by Sections 3.1, 3.2 and 3.3 of this Article III shall not apply to any sale of Shares by the Company, or by any Shareholder or Shareholders, if the Shares are sold to an entity which is managed by RMR that purchases insurance from the Company, provided that any such sale does not reduce the ownership of any Shareholder to less than ten percent (10%) of the Company’s outstanding voting Shares.

ARTICLE IV

SPECIAL SHAREHOLDER APPROVAL REQUIREMENTS.

4.1           Special Shareholder Approval Requirements.  For so long as the Shareholders beneficially own a majority of the Company’s issued and outstanding Shares, no action by the Company shall be taken with respect to any of the following matters without the prior affirmative approval of Shareholders owning 75% of the Shares owned by all the Shareholders:

(a)      any amendment to the articles of incorporation or bylaws of the Company;

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(b)        any merger of the Company;

(c)        the sale of all or substantially all of the Company’s assets;

(d)        any reorganization or recapitalization of the Company; or

(e)        any liquidation or dissolution of the Company.

If applicable law permits any of the foregoing actions to be taken by the Company without a shareholders vote, the vote of all directors of the Company designated by a Shareholder shall be considered the vote of the Shareholder for purposes of any such action.

ARTICLE V

OTHER COVENANTS AND AGREEMENTS

5.1           Organizational Documents.  Subject to applicable law, each Shareholder shall vote its Shares or execute any consents necessary, and shall take all other actions necessary, to ensure that the Company’s organizational documents facilitate, and do not at any time conflict with any provision of, this Agreement or any applicable law, and to ensure that the provisions hereof are implemented notwithstanding any inconsistent provision in the Company’s organizational documents.  The parties hereto agree to amend, if necessary, the Company’s organizational documents to conform to the provisions set forth in this Agreement, to the extent permitted by applicable law.  In the event of any actual or apparent inconsistency between this Agreement and the organizational documents, then, as among the Shareholders, to the extent permitted by applicable law, this Agreement shall control.

5.2           Reports and Information Access.  For so long as a Shareholder owns not less than 10% of all the issued and outstanding Shares, the Company shall provide periodically, through the director(s) designated by such Shareholder under Section 2.1, to the Shareholder financial information regarding the Company and its operations and the Company shall permit the Shareholder and its representatives reasonable access to the financial reports and records of the Company so that the Shareholder may comply with its financial reporting and tax reporting obligations and procedures, and disclosure obligations under the federal securities laws and other applicable laws.

5.3           Compliance with Laws.  The Company shall comply in all material respects with all applicable laws governing its business and operations.  Except as provided in Section 5.7, if a Shareholder, by virtue of such Shareholder’s ownership interest in the Company or actions taken by the Shareholder affecting the Company, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on the Company or any subsidiary of the Company or any of their respective businesses, assets or operations, including any obligations to make any filing with or otherwise notifying or obtaining the consent, approval or other action of any federal, state, municipal or other governmental or regulatory body, such Shareholder shall promptly take all actions necessary and fully cooperate with the Company to ensure that such requirements or regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets,

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operations or prospects of the Company or any subsidiary of the Company.  Each Shareholder shall use best efforts to cause its shareholders, directors (or analogous position), nominees for director (or analogous position), officers, employees and agents to comply with any applicable laws impacting the Company or any of its subsidiaries or their respective businesses, assets or operations.

5.4           Cooperation; Further Assurances.

(a)        The Shareholders shall cooperate with each other and the Company in furtherance of the Company’s underwriting of insurance policies and coverage with respect to the Shareholders and their respective businesses, assets and properties as well as in furtherance of the development and execution of the Company’s business as an insurer.  The Shareholders intend to transition (but shall not be obligated to do so) their applicable insurance policies and coverage to the Company so that the Company or its third party agents or contracting parties shall become the underwriters of such current and future policies and coverage.

(b)        Each of the parties shall execute such documents and perform such further acts (including obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement or the transactions contemplated hereby, including in connection with any subsequent exercise by a party of a right afforded hereunder to such party.

5.5           Confidentiality.  Except as may be required by applicable law or the rules of any national securities exchange upon which a party’s shares are listed for trading, none of the parties hereto shall make any disclosure concerning this Agreement, the transactions contemplated hereby or the business, operations and financial affairs of the Company without prior approval by the other parties hereto; provided, however, that nothing in this Agreement shall restrict any of the parties from disclosing information (a) that is already publicly available, (b) that was known to such party on a non-confidential basis prior to any relevant disclosure, (c) that may be required or appropriate in response to any summons or subpoena or in connection with any litigation, provided that such party will use reasonable efforts to notify the other party in advance of such disclosure so as to permit the other party to seek a protective order or otherwise contest such disclosure, and such party will use reasonable efforts to cooperate, at the expense of the other party, with the other party in pursuing any such protective order, (d) to the extent that such party reasonably believes it appropriate in order to protect its investment in its Shares in order to comply with any applicable law, (e) to such party’s officers, directors, trustees, advisors, employees, auditors or counsel or (f) as warranted pursuant to the parties’ disclosure obligations under federal securities laws.

5.6           Required Regulatory Approvals.  Certain transactions required, permitted or otherwise contemplated by this Agreement may under certain circumstances require prior filings with and approvals, or non-disapprovals, from the Indiana Department of Insurance or the Indiana Insurance Commissioner.  Such transactions include: (a) issuance or purchase of any additional capital stock of the Company or other securities convertible into or exchangeable or exercisable for capital stock of the Company pursuant to Sections 1.2 or 3.4; (b) transfer of Shares to a wholly owned subsidiary of a Shareholder, to another Shareholder or to a wholly

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owned subsidiary of another Shareholder pursuant to Sections 3.1(a) or 3.4; (c) exercise of preemptive rights by a Shareholder pursuant to Section 3.2; and (d) exercise of call rights by the Company or a Shareholder pursuant to Section 3.3 (including pursuant to the two provisos in Section 3.1(b)).  Notwithstanding anything to the contrary contained in this Agreement, any such transactions requiring filings with and approvals, or non-disapprovals, from the Indiana Department of Insurance or the Indiana Insurance Commissioner shall not, to the extent within the control of a party hereto, be entered into or consummated unless and until the required filings have been made and the required approvals (or non-disapprovals) have been obtained, and to the extent not within the control of an applicable party hereto, such party shall use best efforts to cause such transactions not to be entered into or consummated unless and until the required filings have been made and the required approvals (or non-disapprovals) have been obtained.

5.7           REIT Matters.  At the request of any Shareholder that intends (for itself or for any of its affiliates) to qualify and be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”), the Company shall (a) join with such Shareholder (or, as applicable, such Shareholder’s affiliate) in making a “taxable REIT subsidiary” election under Section 856(l) of the Code and (b) otherwise reasonably cooperate with any request of such Shareholder (or its affiliate) pertaining to such real estate investment trust status or taxation under the Code.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

6.1           The Company.  The Company represents and warrants to each Shareholder, as of the date of this Agreement and as of the date of the closing of the issuance, sale and purchase of Shares (unless any such representation or warranty speaks as of another date, in which case, as of such date) pursuant to Section 1.1(b), as follows:

(a)         Organization, Existence, Good Standing and Power.  The Company is an Indiana insurance company duly organized, validly existing and in good standing under the laws of the State of Indiana and has the power and authority to execute, deliver and perform its obligations under this Agreement.

(b)        Capitalization; Subsidiaries.

(i)    As of immediately prior to the execution and delivery of this Agreement, there are no securities of the Company issued and outstanding.  Except as provided and contemplated by this Agreement, as of the date of this Agreement, the Company has no commitment or arrangement to issue securities of the Company to any person or entity.

(ii)   As of the date of this Agreement, the Company has no subsidiaries.

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(c)        Valid Issuance of Shares.  The Shares being purchased by the Shareholders hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable law.

(d)        Binding Effect.  This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

(e)        No Contravention.  The execution and delivery of this Agreement by the Company and the performance of its obligations hereunder and the consummation by the Company of the transactions contemplated by this Agreement and compliance by the Company with the provisions of this Agreement (i) have been duly authorized by all necessary company action, (ii) do not contravene the terms of the Company’s organizational documents, (iii) do not materially violate, conflict with or result in any breach or contravention of, or the creation of any material lien, charge or encumbrance under, any material agreement, contract, license, permit or instrument to which the Company is a party or by which the Company or any of its assets or properties are bound and (iv) do not materially violate any law, statute, regulation, order or decree applicable to, or binding upon, the Company or any of its assets or properties.

(f)         Consents.  No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any local, state or federal governmental authority or any other person or entity (individually and collectively, a “Consent”), not already obtained or made, and no lapse of a waiting period under any applicable law, statute, regulation, order or decree, is necessary or required in connection with the execution, delivery or performance by the Company of this Agreement or the transactions contemplated hereby; provided, however, that the foregoing representation and warranty shall not apply to any Consent which may be required in the future as a result of the application of the rights and obligations provided for hereunder or the conducting of the Company’s business.

(g)        Compliance with Laws.  The Company is in compliance in all material respects with all applicable laws, statutes, regulations, orders or decrees applicable to, or binding upon, the Company or any of its assets or properties.

(h)        Offering.  Subject to the accuracy of the Shareholder’s representations and warranties set forth in Sections 6.2(f) through 6.2(i), the offer, sale and issuance of the Shares to be issued in conformity with the terms of this Agreement constitute transactions which are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and from all applicable state registration or qualification requirements.  Neither the Company nor any person or entity acting on its behalf will take any action that would cause the loss of such exemption.

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(i)         No Integration.  The Company has not, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the Shares sold pursuant to this Agreement in a manner that would require the registration of the Shares under the Securities Act.

6.2           The Shareholders.  Each Shareholder represents and warrants to the Company and the other Shareholders, as of the date of this Agreement and as of the date of the closing of the issuance, sale and purchase of Shares pursuant to Section 1.1(b), as follows:

(a)        Organization, Existence, Good Standing and Power.  The Shareholder (i) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation; (ii) has all requisite power and authority to conduct the business in which it is currently engaged; and (iii) has the power and authority to execute, deliver and perform its obligations under this Agreement.

(b)        Binding Effect.  This Agreement has been duly executed and delivered by the Shareholder and constitutes the legal, valid and binding obligations of the Shareholder, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

(c)        No Contravention.  The execution and delivery of this Agreement by the Shareholder and the performance of its obligations hereunder and the consummation by the Shareholder of the transactions contemplated by this Agreement and compliance by the Shareholder with the provisions of this Agreement (i) have been duly authorized by all necessary company action, (ii) do not contravene the terms of the Shareholder’s organizational documents, (iii) do not materially violate, conflict with or result in any breach or contravention of, or, except with respect to any Existing Pledge which the Shareholder or any of its assets or properties may be subject, the creation of any material lien, charge or encumbrance under, any material agreement, contract, license, permit or instrument to which the Shareholder is a party or by which the Shareholder or any of its assets or properties are bound and (iv) do not materially violate any law, statute, regulation, order or decree applicable to, or binding upon, the Shareholder or any of its assets or properties.

(d)        Consents.  No Consent, not already obtained or made, and no lapse of a waiting period under any applicable law, statute, regulation, order or decree, is necessary or required in connection with the execution, delivery or performance by the Shareholder of this Agreement or the transactions contemplated hereby; provided, however, that the foregoing representation and warranty shall not apply to any Consent which may be required in the future as a result of the application of the rights and obligations provided for hereunder or the conducting of the Company’s business.

14

(e)        Compliance with Laws.  The Shareholder is in compliance in all material respects with all applicable laws, statutes, regulations, orders or decrees applicable to, or binding upon, the Shareholder or any of its assets or properties.

(f)         Purchase Entirely for Own Account.  The Shares are being acquired for investment for the Shareholder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Shareholder has no present intention of selling, granting any participation with respect to or otherwise distributing the Shares.  The Shareholder does not have any contract, undertaking, agreement or arrangement with any person or entity to sell or transfer to any person or entity, or grant participation rights to any person or entity with respect to, any of the Shares.

(g)        Disclosure of Information.  The Shareholder has received all the information from the Company and its management that the Shareholder considers necessary or appropriate for deciding whether to purchase the Shares hereunder.  The Shareholder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the Company, its financial condition, results of operations and prospects and the terms and conditions of the offering of the Shares sufficient to enable it to evaluate its investment.

(h)        Investment Experience and Accredited Investor Status.  The Shareholder is an “accredited investor” (as defined in Regulation D under the Securities Act).  The Shareholder has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares to be purchased hereunder.

(i)         Restricted Securities.    The Shareholder understands that the Shares, when issued, shall be “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws the Shares may be resold without registration under the Securities Act only in certain limited circumstances.

ARTICLE VII

TERMINATION

7.1           Termination.  This Agreement shall remain in full force and effect until the sooner of:  (a) its termination pursuant to the next succeeding sentence of this Section 7.1 or (b) the dissolution of the Company; provided, however, that the dissolution of the Company, the merger of the Company with, or the transfer of all or substantially all the assets of the Company to, another entity which continues substantially all of the Company’s business shall not of itself terminate this Agreement.  This Agreement may be terminated at any time by the Shareholders owning at least 75% of the issued and outstanding Shares owned by all Shareholders.  Section 5.5 and Article VIII shall survive any termination or expiration of this Agreement.

15

ARTICLE VIII

MISCELLANEOUS

8.1           Notices.  Any notices or other communications required or permitted under, or otherwise in connection with, this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, on the next business day if transmitted by a nationally recognized overnight courier or on the third business day following mailing by first class mail, postage prepaid, in each case as follows (or at such other United States address or facsimile number for a party as shall be specified by like notice):

Notices to the Company:

Affiliates Insurance Company
101 West Washington Street, Suite 1100
Indianapolis, Indiana 46204
Attention:  President/Vice President
Facsimile No.:   (317) 632-2883

with a copy to:

Affiliates Insurance Company
400 Centre Street
Newton, Massachusetts 02458
Attention:  President/Vice President
Facsimile No.:  (617) 928-1305

Notices to FVE:

Five Star Quality Care, Inc.
400 Centre Street
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 796-8385

Notices to HPT:

Hospitality Properties Trust

400 Centre Street
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 969-5730

16

Notices to HRP:

HRPT Properties Trust

400 Centre Street
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 332-2261

Notices to SNH:

Senior Housing Properties Trust

400 Centre Street
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 796-8349

Notices to TA:

TravelCenters of America LLC

24601 Center Ridge Road, Suite 200
Westlake, Ohio 44145
Attention:  President
Facsimile No.:  (440) 808-3301

and

Notices to RMR:

Reit Management & Research LLC

400 Centre Street
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 928-1305

8.2           Successors and Assigns; Third Party Beneficiaries.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto.  Except as permitted by Section 3.1, no party may assign this Agreement or its rights hereunder or delegate its duties hereunder without the written consent of the other parties.  No person or entity other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

8.3Amendment and Waiver.

(a)       No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to each party at law, in equity or otherwise.  Any party hereto may waive in whole or in part any right afforded to such party hereunder.

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(b)        Any amendment, supplement or modification of or to any provision of this Agreement, shall be effective upon the written agreement of the Company and the Shareholders owning not less than 75% of all Shares owned by the Shareholders; provided, however, that any amendment, supplement or modification of Article I or Article II shall require the approval of any Shareholder which may be adversely affected by any such amendment, supplement or modification.

8.4           Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

8.5           Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

8.6           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana without regard to the conflicts of laws rules thereof, which would require the application of the laws of another jurisdiction.

8.7           Dispute Resolution

(a)           Any disputes, claims or controversies among any of the parties hereto arising out of or relating to this Agreement, the Company, its business, assets or operations or any insurance policies or coverage underwritten by the Company or any of its third party agents in furtherance of the Company’s insurance business, including any claims or disputes, whether in contract, tort, equity or otherwise and whether relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement (all of which are referred to as “Disputes”) shall be resolved through binding and final arbitration in accordance with the Expedited Procedures of the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as modified herein.

(b)          There shall be three arbitrators.  If there are only two parties to the Dispute, each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  The two party-nominated arbitrators shall jointly nominate the third and presiding arbitrator within 15 days of the nomination of the second arbitrator. If any arbitrator has not been nominated within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.  If there are more than two parties to the Dispute, all claimants on the one hand and all respondents, on the other hand, shall each select one arbitrator and the two party-nominated arbitrators shall jointly nominate the third and presiding arbitrator within 15 days of the nomination of the second arbitrator.  If  all claimants and all respondents are unable to agree on party appointed arbitrators, within 15 days of receipt by respondent(s) of the demand for arbitration, the AAA shall provide a list of proposed arbitrators in accordance with the Rules and all three arbitrators (or a single arbitrator if the parties so agree) shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party to the Dispute having a limited number of strikes, excluding

18

strikes for cause.  Notwithstanding any provision in the Expedited Procedures to the contrary, the arbitrator shall be selected from the AAA’s large, complex case panel and the AAA’s regional office shall have no input into the compensation of any of the arbitrators.

(c)           The place of arbitration shall be Indianapolis, Indiana unless otherwise agreed by the parties to the Dispute.

(d)           Consistent with the expedited nature of the arbitration, there shall be only limited documentary discovery of documents directly related to the issues in dispute.

(e)           In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the State of Indiana.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and shall briefly state the findings of fact and conclusions of law on which it is based.

(f)            Each party shall bear its own costs in the arbitration, and the arbitrators shall not render an award that would include shifting of such costs.

(g)           The Award shall be final and binding upon the parties to the Dispute and shall be the sole and exclusive remedy between the parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  The parties hereby waive any rights of application or appeal to any court of competent jurisdiction to the fullest extent permitted by law in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)           Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

8.8           Interpretation and Construction.

(a)        The words “hereof”, “herein”, “hereby” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b)        Unless the context otherwise requires, references to sections, subsections or Articles refer to sections, subsections or Articles of this Agreement.

(c)        Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.

(d)        The words “include” and “including” and words of similar import shall be deemed to be followed by the words “without limitation”.

19

(e)        Words importing gender include both genders.

(f)         Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein.  In addition, references to any statute are to that statute and to the rules and regulations promulgated thereunder.

(g)        The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

8.9          Severability.  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

8.10         Entire Agreement.  This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement.

8.11         Non-liability of Trustees and Directors.

(a)        COPIES OF THE DECLARATIONS OF TRUST, AS IN EFFECT ON THE DATE HEREOF, OF HPT, HRP AND SNH, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, ARE DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND.  THE DECLARATIONS OF TRUST, AS AMENDED AND SUPPLEMENTED, OF HPT, HRP AND SNH, PROVIDE THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HPT, HRP OR SNH, AS APPLICABLE, SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, HPT, HRP OR SNH.  ALL PERSONS DEALING WITH HPT, HRP OR SNH IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF HPT, HRP OR SNH, AS APPLICABLE, FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

(b)        A COPY OF THE ARTICLES OF INCORPORATION, AS IN EFFECT ON THE DATE HEREOF, OF FVE, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND.  NO DIRECTOR, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF FVE SHALL BE HELD TO ANY

20

PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, FVE.  ALL PERSONS DEALING WITH FVE, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF FVE FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

(c)        A COPY OF THE LIMITED LIABILITY COMPANY AGREEMENT, AS IN EFFECT ON THE DATE HEREOF, OF TA, TOGETHER WITH ALL AMENDMENTS THERETO, IS AVAILABLE TO A SHAREHOLDER PARTY HERETO UPON WRITTEN REQUEST MADE TO TA.  NO DIRECTOR, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF TA SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, TA.  ALL PERSONS DEALING WITH TA, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF TA FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

[The Remainder of This Page Intentionally Left Blank]

21

IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Shareholders Agreement on the date first written above.

AFFILIATES INSURANCE COMPANY
By:	/s/ Jennifer B. Clark
Name:  Jennifer B. Clark
Title:    President
FIVE STAR QUALITY CARE, INC.
By:	/s/ Bruce J. Mackey, Jr.
Name:  Bruce J. Mackey, Jr.
Title:    President and Chief Executive Officer
HOSPITALITY PROPERTIES TRUST
By:	/s/ John G. Murray
Name:  John G. Murray
Title:    President
HRPT PROPERTIES TRUST
By:	/s/ John A. Mannix
Name:  John A. Mannix
Title:    President
SENIOR HOUSING PROPERTIES TRUST
By:	/s/ David J. Hegarty
Name:  David J. Hegarty
Title:    President
TRAVELCENTERS OF AMERICA LLC
By:	/s/ Mark R. Young
Name:  Mark R. Young
Title:    Executive Vice President and General Counsel
REIT MANAGEMENT & RESEARCH LLC
By:	/s/ Mark L. Kleifges
Name:  Mark L. Kleifges
Title:    Executive Vice President

EX-12.1

Exhibit 12.1

FIVE STAR QUALITY CARE, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(in thousands except ratios)

	Year ended December 31,
	2008		2007		2006			2005			2004
Consolidated earnings (loss)	$	129,532	$	135,075	$	(18,851	)	$	(5,192	)	$	68,612
Consolidated fixed charges	127,714		107,570		90,736			74,499			63,431
Ratio of consolidated earnings to fixed charges	1.0x		1.3x		N/M			N/M			1.1x
Deficiency	—		—		109,587			79,691			—
Calculation of consolidated earnings (loss):
Consolidated income (loss) from continuing operations before income tax	$	1,818	$	27,505	$	(109,587	)	$	(79,691	)	$	5,181
Consolidated fixed charges	127,714		107,570		90,736			74,499			63,431
Consolidated earnings (loss)	$	129,532	$	135,075	$	(18,851	)	$	(5,192	)	$	68,612
Calculation of fixed charges:
Interest expense	$	6,070	$	6,335	$	3,791		$	3,045		$	882
Estimated interest component of rent expense	121,377		100,768		86,372			70,867			62,260
Amortization of debt discounts / premium	34		49		191			193			—
Amortization of capitalized deferred finance costs	233		418		382			394			289
Fixed charges	$	127,714	$	107,570	$	90,736		$	74,499		$	63,431

EX-21.1

Exhibit 21.1

Five Star Quality Care, Inc.

Subsidiaries of the Company

Affiliates Insurers Limited (Bermuda)

Alliance Pharmacy Services, LLC (Delaware)

Annapolis Heritage Partners, LLC (Delaware)

CCC Boynton Beach, Inc. (Delaware)

Columbia Heritage Partners, LLC (Delaware)

Emerson Management Holdings, LLC (Delaware)

Encinitas Heritage Partners, LLC (Delaware)

Five Star Advertising, Inc. (Delaware)

Five Star Insurance, Inc. (Maryland)

Five Star MD Homes LLC (Delaware)

Five Star Procurement Group Trust (Maryland)

Five Star Quality Care - IN, LLC (Maryland)

Five Star Quality Care – NS Operator, LLC (Maryland)

Five Star Quality Care – NS Owner, LLC (Maryland)

Five Star Quality Care - NS Tenant, LLC (Maryland)

Five Star Quality Care - OBX Operator, LLC (Maryland)

Five Star Quality Care - OBX Owner, LLC (Maryland)

Five Star Quality Care - Somerford, LLC (Maryland)

Five Star Quality Care - RMI, LLC (Maryland)

Five Star Quality Care Trust (Maryland)

Five Star Quality Care-Ainsworth, LLC (Delaware)

Five Star Quality Care-Ashland, LLC (Delaware)

Five Star Quality Care-AZ, LLC (Delaware)

Five Star Quality Care-Blue Hill, LLC (Delaware)

Five Star Quality Care-CA II, INC. (Maryland)

Five Star Quality Care-CA II, LLC (Delaware)

Five Star Quality Care-CA, Inc. (Delaware)

Five Star Quality Care-CA, LLC (Delaware)

Five Star Quality Care-Central City, LLC (Delaware)

Five Star Quality Care-CO, Inc. (Maryland)

Five Star Quality Care-Colorado, LLC (Delaware)

Five Star Quality Care-Columbus, LLC (Delaware)

Five Star Quality Care-CT, LLC (Delaware)

Five Star Quality Care-Edgar, LLC (Delaware)

Five Star Quality Care-Exeter, LLC (Delaware)

Five Star Quality Care-Farmington, LLC (Delaware)

Five Star Quality Care-FL, LLC (Delaware)

Five Star Quality Care-GA, Inc. (Delaware)

Five Star Quality Care-GA, LLC (Delaware)

Five Star Quality Care-GHV, LLC (Maryland)

Five Star Quality Care-Grand Island, LLC (Delaware)

Five Star Quality Care-Gretna, LLC (Delaware)

Five Star Quality Care-Howell, LLC (Delaware)

Five Star Quality Care-IA, Inc. (Delaware)

Five Star Quality Care-IA, LLC (Delaware)

Five Star Quality Care-IL, LLC (Maryland)

Five Star Quality Care-KS, LLC (Delaware)

Five Star Quality Care-Lyons, LLC (Delaware)

Five Star Quality Care-MD, LLC (Delaware)

Five Star Quality Care-MI, Inc. (Delaware)

Five Star Quality Care-MI, LLC (Delaware)

Five Star Quality Care-Milford, LLC (Delaware)

Five Star Quality Care-MN, LLC (Maryland)

Five Star Quality Care-MO, LLC (Delaware)

Five Star Quality Care-MS, LLC (Maryland)

Five Star Quality Care-MVSP, LLC (Maryland)

Five Star Quality Care-NC, LLC (Delaware)

Five Star Quality Care-NE, Inc. (Delaware)

Five Star Quality Care-NE, LLC (Delaware)

Five Star Quality Care-NJ, LLC (Maryland)

Five Star Quality Care-Richmond, LLC (Maryland)

Five Star Quality Care-Savannah, LLC (Delaware)

Five Star Quality Care-Sutherland, LLC (Delaware)

Five Star Quality Care-TX, LLC (Maryland)

Five Star Quality Care-Utica, LLC (Delaware)

Five Star Quality Care-VA, LLC (Delaware)

Five Star Quality Care-Waverly, LLC (Delaware)

Five Star Quality Care-WI, Inc. (Delaware)

Five Star Quality Care-WI, LLC (Delaware)

Five Star Quality Care-WY, LLC (Delaware)

Five Star Rehabilitation and Wellness Services, LLC (Maryland)

Five Star Seabury LLC (Delaware)

Frederick Heritage Partners, LLC (Delaware)

Fresno Heritage Partners, a California Limited Partnership (California)

FS Commonwealth LLC (Maryland)

FS Lafayette Tenant Trust (Maryland)

FS Leisure Park Tenant Trust (Maryland)

FS Lexington Tenant Trust (Maryland)

FS Patriot LLC (Maryland)

FS Tenant Holding Company Trust (Maryland)

FS Tenant Pool I Trust (Maryland)

FS Tenant Pool II Trust (Maryland)

FS Tenant Pool III Trust (Maryland)

FS Tenant Pool IV Trust (Maryland)

FSQ Crown Villa Business Trust (Maryland)

FSQ Overland Park Place Business Trust (Maryland)

FSQ Pharmacy Holdings, LLC (Delaware)

FSQ Rio Las Palmas Business Trust (Maryland)

FSQ The Palms at Fort Myers Business Trust (Maryland)

FSQ Villa at Riverwood Business Trust (Maryland)

FSQ, Inc. (Delaware)

FSQ/LTA Holdings Inc. (Delaware)

FSQC Tellico Village LLC (Maryland)

FSQC-AL, LLC (Maryland)

FVEST.JOE, Inc. (Delaware)

Hagerstown Heritage Partners, LLC (Delaware)

Hamilton Place, LLC (Delaware)

Heartland Pharmacy Care, Inc. (Nebraska)

Heartland Promotions, Inc. (Nebraska)

LifeTrust America, Inc. (Tennessee)

LifeTrust Properties, LLC (Delaware)

LTA Management Services of Florida, LLC (Delaware)

LTA Management Services, LLC (Delaware)

Morningside Holdings of Concord, LLC (Delaware)

Morningside Holdings of Gastonia, LLC (Delaware)

Morningside Holdings of Greensboro, LLC (Delaware)

Morningside Holdings of Raleigh, LLC (Delaware)

Morningside Holdings of Williamsburg, LLC (Delaware)

Morningside of Alabama, L.P. (Delaware)

Morningside of Anderson, L.P. (Delaware)

Morningside of Athens, Limited Partnership (Delaware)

Morningside of Beaufort, LLC (Delaware)

Morningside of Bellgrade, Richmond, LLC (Delaware)

Morningside of Belmont, LLC (Delaware)

Morningside of Bowling Green, LLC (Delaware)

Morningside of Camden, LLC (Delaware)

Morningside of Charlottesville, LLC  (Delaware)

Morningside of Cleveland, LLC (Delaware)

Morningside of Columbus, L.P. (Delaware)

Morningside of Concord, LLC (Delaware)

Morningside of Conyers, LLC (Delaware)

Morningside of Cookeville, LLC (Delaware)

Morningside of Cullman, LLC (Delaware)

Morningside of Dalton, Limited Partnership (Delaware)

Morningside of Decatur, L.P. (Delaware)

Morningside of Evans, Limited Partnership (Delaware)

Morningside of Fayette, L.P. (Delaware)

Morningside of Franklin, LLC (Delaware)

Morningside of Gainesville, LLC (Delaware)

Morningside of Gallatin, LLC (Delaware)

Morningside of Gastonia, LLC (Delaware)

Morningside of Georgia, L.P. (Delaware)

Morningside of Greensboro, LLC (Delaware)

Morningside of Greenwood, L.P. (Delaware)

Morningside of Hartsville, LLC (Delaware)

Morningside of Hopkinsville, Limited Partnership (Delaware)

Morningside of Jackson, LLC  (Delaware)

Morningside of Kentucky, Limited Partnership  (Delaware)

Morningside of Knoxville, LLC  (Delaware)

Morningside of Lexington, LLC  (Delaware)

Morningside of Macon, LLC  (Delaware)

Morningside of Madison, LLC  (Delaware)

Morningside of Montgomery, Limited Partnership (Delaware)

Morningside of Newport News, LLC  (Delaware)

Morningside of Orangeburg, LLC  (Delaware)

Morningside of Paducah, LLC  (Delaware)

Morningside of Paris, L.P.  (Delaware)

Morningside of Raleigh, LLC  (Delaware)

Morningside of Seneca, L.P.  (Delaware)

Morningside of Sheffield, LLC  (Delaware)

Morningside of Skipwith-Richmond, LLC  (Delaware)

Morningside of South Carolina, L.P.  (Delaware)

Morningside of Springfield, LLC  (Delaware)

Morningside of Tennessee, LLC  (Delaware)

Morningside of Williamsburg, LLC  (Delaware)

National LTC Pharmacy Services LLC (Delaware)

Newark Heritage Partners I, LLC (Delaware)

Newark Heritage Partners II, LLC (Delaware)

O.F.C. Properties, LLC (Indiana)

Orthopedic Rehabilitation Systems LLC (Maryland)

Parkville Heritage Partners, LLC (Delaware)

Progress Pharmacy LTD (Delaware)

Redlands Heritage Partners, LLC (Delaware)

Rockville Heritage Partners, LLC (Delaware)

Roseville Heritage Partners, a California Limited Partnership (California)

Senior Living Insurance Co., Ltd (Cayman Islands)

Senior Living of Boynton Beach Limited Partnership (Delaware)

Somerford Emerson Management, LLC (Delaware)

Somerford of Williamsville LLC (Delaware)

Somerford Place LLC (Delaware)

Somerford Wayne Management, LLC (Delaware)

Somerford West Orange Management, LLC (Delaware)

Stockton Heritage Partners, LLC (Delaware)

The Heartlands Retirement Community – Ellicott City I, Inc. (Maryland)

The Heartlands Retirement Community – Ellicott City II, Inc. (Maryland)

Toms River Heritage Partners, LLC (Delaware)

Wayne Management Holdings, LLC (Delaware)

West Orange Management Holdings, LLC (Delaware)

EX-23.1

Exhibit 23.1

Consent Of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Forms S-3 No. 333-121910 and No. 333-138926) of Five Star Quality Care, Inc., and in the related prospectuses of our reports dated February 24, 2009, with respect to the consolidated financial statements of Five Star Quality Care, Inc. and the effectiveness of internal control over financial reporting of Five Star Quality Care, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2008.

/s/ Ernst & Young LLP

Boston, Massachusetts

February 24, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15(d)-14(a)

I, Bruce J. Mackey Jr., certify that:

1.	I have reviewed this Annual Report on Form 10-K of Five Star Quality Care, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	All significant deficiencies and material weaknesses in the design or operation of internal   control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	March 2, 2009	/s/ Bruce J. Mackey Jr.
		Bruce J. Mackey Jr.
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15(d)-14(a)

I, Francis R. Murphy III, certify that:

I have reviewed this Annual Report on Form 10-K of Five Star Quality Care, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internalcontrol over financial reporting which are reasonably likely to adversely affect the registrant’s          ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	March 2, 2009	/s/ Francis R. Murphy III
		Francis R. Murphy III
		Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Sec. 1350

(Section 906 of the Sarbanes — Oxley Act of 2002)

In connection with the filing by Five Star Quality Care, Inc. (the “Company”) of the Annual Report on Form 10-K for the year ended December 31, 2008 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Bruce J. Mackey Jr.

Bruce J. Mackey Jr.

President and Chief Executive Officer

/s/ Francis R. Murphy III

Francis R. Murphy III

Treasurer and Chief Financial Officer

Date:   March 2, 2009

EX-99.8

Exhibit 99.8

AMENDED AND RESTATED PLEDGE OF STOCK AND MEMBERSHIP INTERESTS AGREEMENT

(SUBTENANT PLEDGE — LEASE NO. 1 AND LEASE NO. 3)

THIS AMENDED AND RESTATED PLEDGE OF STOCK AND MEMBERSHIP INTERESTS AGREEMENT (this “Agreement”) is made and given as of June 30, 2008 by all of the entities identified as Pledgors on the signature page of this Agreement (collectively, the “Pledgors”) for the benefit of the parties identified as the Secured Parties on the signature page hereof (together with their respective successors and assigns, collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, certain of the Secured Parties and Five Star Quality Care Trust, a Maryland business trust (the “Tenant”), entered into that certain Second Amended and Restated Lease, dated as of November 19, 2004, as amended from time to time (as so amended, the “Original Lease”), pursuant to which the Secured Parties leased to the Tenant and the Tenant leased from the Secured Parties certain properties as more particularly described in the Original Lease; and

WHEREAS, pursuant to various Sublease Agreements as further described on Exhibit A attached hereto (collectively, the “Subleases”), the Tenant has subleased certain portions of the premises demised under the Original Lease to the subtenants identified on said Exhibit A (collectively, the “Subtenants”), subject to and upon the terms and conditions set forth in the Subleases; and

WHEREAS, pursuant to the Original Lease, the Pledgors and certain of the Secured Parties are parties to that certain Second Amended and Restated Pledge of Stock and Membership Interests Agreement dated as of May 6, 2005, as the same has been confirmed from time to time (as so confirmed, the “Original Pledge Agreement”), pursuant to which the Pledgors pledged to certain of the Secured Parties all of the stock, partnership, membership or other ownership interests in the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to certain of the Secured Parties with respect to the Original Lease and other related documents; and

WHEREAS, as of the date hereof, the Secured Parties and Tenant are amending, restating and bifurcating the Original Lease into two separate leases, the first of which shall be named the Amended and Restated Master Lease Agreement (Lease No. 1) (“Amended Lease No.1”), and the second of which shall be named the Amended and Restated Master Lease Agreement (Lease No. 3), (“Amended Lease No. 3”, and together with Amended Lease No. 1, collectively, the “Amended Leases”);

WHEREAS, the Pledgors currently own all of the ownership interests in the Subtenants and the Pledgors and the Tenant are direct or indirect wholly-owned subsidiaries of Five Star Quality Care, Inc., a Maryland corporation (“Guarantor”); and

WHEREAS, the Pledgors and the Secured Parties wish to amend, restate and trifurcate the Original Pledge Agreement into three separate pledge agreements, one of which shall pledge the interests of the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to the Secured Parties with respect to the Amended Leases and other related documents;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Pledgors and the Secured Parties agree that the Original Pledge Agreement is hereby amended and restated, effective as of the date hereof, to read as follows:

Section 1.  Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Amended Leases.  The Amended Leases, the Incidental Documents under Amended Lease No. 1 and the Incidental Documents under Amended Lease No. 3 are herein collectively referred to as the “Transaction Documents.”

Section 2.  Pledge.  The Pledgors hereby pledge to the Secured Parties all of the shares of stock, membership interests or other ownership interests in the Subtenants (the “Pledged Interests”) listed in Exhibit B attached hereto and all other shares of stock, membership interests or other ownership interests in the Subtenants in which the Pledgors may have rights from time to time and any other securities or other investment property and other collateral of the Pledgors now owned or hereafter acquired which under this Agreement are required to be pledged to the Secured Parties, and in each case, all certificates representing such Pledged Interests or other investment property or collateral, and all rights, options,

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warrants, stock or other securities or other property which may hereafter be received, receivable or distributed in respect of the Pledged Interests, together with all proceeds of the foregoing, including, without limitation, all dividends, cash, notes, securities or other property from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, the foregoing, (the Pledged Interests and any additional securities or collateral pledged hereunder, collectively, the “Pledged Collateral”), and the Pledgors hereby grant to the Secured Parties a security interest in all of the Pledged Collateral and the proceeds thereof as security for the due and punctual payment and performance of the Secured Obligations (as hereinafter defined).

The Pledgors have delivered to and deposited with the Secured Parties any and all certificates or other instruments representing the Pledged Collateral and undated stock powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.  If in the future any Pledgor possesses or controls any other certificates or other instruments representing the Pledged Collateral, such Pledgor shall immediately and without notice deliver the same to the Secured Parties together with undated stock powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.

Section 3.  Secured Obligations.  For purposes of this Agreement, the term “Secured Obligations” shall mean the payment and performance of each and every obligation of the Tenant, the Guarantor and the Subtenants under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Amended Leases.

Section 4.  Representations of the Pledgor.  Each Pledgor covenants that the Pledged Interests are duly and validly pledged to the Secured Parties in accordance with law and such Pledgor shall warrant and defend the Secured Parties’ right, title and security interest in and to the Pledged Interests against the claims and demands of all persons whomsoever.  Each Pledgor represents and warrants to the Secured Parties that such Pledgor has good and marketable title to all the Pledged Interests pledged by it hereunder, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever; that the Pledged Interests are not subject to any restriction on transfer contained in the Articles of Incorporation, By-Laws, Declarations of Trust or any other charter documents of the

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Subtenants or in any agreement or instrument to which the Subtenants or such Pledgor is a party or by which the Subtenants or such Pledgor is bound which would prohibit or restrict the pledge of the Pledged Interests hereunder or the disposition thereof upon default hereunder; that all of the Pledged Interests have been duly and validly issued and are fully paid for and nonassessable; and that the Pledged Interests constitute all of the presently issued and outstanding shares of the beneficial interests of the Subtenants.

Section 5.  Covenants of the Pledgors.  Each Pledgor hereby covenants and agrees that it shall not sell, convey or otherwise dispose of any of the Pledged Collateral nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interests in the Pledged Collateral created hereby.  Each Pledgor further covenants and agrees that it shall not consent to or approve the issuance of any additional shares of beneficial interest in the Subtenants.  Each Pledgor further covenants and agrees that, until the Secured Obligations are paid in full, such Pledgor shall not change the state of its incorporation or its corporate name without providing the Secured Parties with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Parties determine are necessary or appropriate to continue or perfect the security interest granted hereunder.

Section 6.  Filing of Financing Statements, etc.  Each Pledgor authorizes the Secured Parties to file from time to time one or more financing statements describing the Pledged Collateral.  Each Pledgor will cooperate with the Secured Parties at their request from time to time in obtaining control agreements in form and substance reasonably satisfactory to the Secured Parties with respect to any collateral investment property, deposit accounts, or other Pledged Collateral as to which the Secured Parties determine such agreements are necessary or appropriate to perfect the security interest granted hereunder.

Section 7.  Distributions, Etc.  Upon the dissolution, winding up, liquidation or reorganization of any Subtenant, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of any Subtenant, if any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall be paid over to the Secured Parties, to be held as collateral

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security for the Secured Obligations.  If any dividend shall be declared on any of the Pledged Collateral (excluding cash dividends), or any share of beneficial interest or fraction thereof shall be issued pursuant to any split of beneficial interests involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of any Subtenant, the shares or other property so distributed shall be delivered to the Secured Parties to be held as collateral security for the Secured Obligations.

Section 8.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Transaction Documents; (b) the failure of the Guarantor to comply with any of its covenants or obligations under any Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (c) the failure of certain of the Subtenants to comply with any of their covenants or obligations under the Transaction Documents and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (d) the failure of any Pledgor to comply with any of its covenants or obligations under this Agreement and the continuation thereof for a period of ten (10) Business Days after written notice thereof; or (e) any representation or warranty contained herein or made by any Pledgor in connection herewith shall prove to have been false or misleading in any material respect when made.

Section 9.  Remedies.  (a) Upon the occurrence and during the continuance of an Event of Default, the Secured Parties may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees, subject to the provisions of the Uniform Commercial Code or other applicable law.

(b)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all such rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof,

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including, without limitation, all such rights under the Articles of Incorporation, By-Laws, Declaration of Trust or any other charter document of any Subtenant, and further including, without limitation, the right to exchange, at its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of such Subtenant, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Parties may determine.

(c)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law and shall have the right to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale.  The Secured Parties shall give any Pledgor at least ten (10) days’ prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition.  Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgor to the extent permitted by applicable law.  All such sales shall be at such commercially reasonable price or prices as the Secured Parties shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk).  At any such sale or sales, the Secured Parties may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Parties may deem best.  Upon any such sale or sales, the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of any kind or nature of the Pledgor, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgor to the extent permitted by applicable law.  In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgor shall execute, and hereby agrees to cause the applicable Subtenant to execute, all such applications or other instruments as may be required.  The proceeds of any such sale or sales,

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together with any other additional collateral security at the time received and held hereunder, shall be received and applied:  first, to the payment of all costs and expenses of such sale, including attorneys’ fees; and second, to the payment of the Secured Obligations in such order of priority as the Secured Parties shall determine; and any surplus thereafter remaining shall be paid to the Pledgors or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of any Pledgor).

Each Pledgor recognizes that the Secured Parties may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Collateral for their own accounts, for investment and not with a view to the distribution or resale thereof.  Each Pledgor agrees that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Parties shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933.  Each Pledgor agrees that private sales made under the foregoing circumstances may be deemed to have been made in a commercially reasonable manner.  Nothing herein shall be deemed to require the Pledgor to effect a registration of the Pledged Collateral under the Securities Act of 1933.

(d)Upon the occurrence and during the continuance of any Event of Default, the Secured Parties, in their discretion, may demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral.  Upon the occurrence and during the continuance of any Event of Default, the Secured Parties shall further have the right, for and in the name, place and stead of any Pledgor, to execute endorsements, assignments, or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

(e)The Secured Parties shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Parties elect to do any such act, the Secured Parties shall not be responsible to any Pledgor, other than for gross negligence or willful misconduct.

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(f)The Secured Parties shall have no obligation to marshal any assets in favor of any Pledgor, or against or in payment of the Secured Obligations or any other obligation owed to the Secured Parties by any Pledgor or any other person.

Section 10.  Rights of Secured Parties.  No course of dealing between any Pledgor and the Secured Parties nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided and provided under any of the Secured Obligations are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code.

Section 11.  Assignment, Etc.  No waiver by the Secured Parties or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion.  In the event of a sale or assignment by any of the Secured Parties of its interest under the Transaction Documents, such Secured Party may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or assignee of such interest, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility thereafter arising hereunder with respect to the rights and interests so assigned.

Section 12.  Duty of Secured Parties.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Parties shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the applicable Pledgor.

Section 13.  Waivers, Etc.  To the extent permitted by applicable law, each Pledgor, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, payment, notice of dishonor, protest and, except as otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the

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Secured Parties hereunder or in connection with any Secured Obligations.  The Secured Parties may release, supersede, exchange or modify any collateral security it may from time to time hold and release, surrender or modify the liability of any third party without giving notice hereunder to any Pledgor.  The Secured Parties shall be under no duty to exhaust its rights against any such collateral security or any such third party before realizing on the Pledged Collateral.  Such modifications, changes, renewals, releases or other actions shall in no way affect any Pledgor’s obligations hereunder.

Each Pledgor further waives any right it may have under the Constitution of the Commonwealth of Massachusetts (or under the constitution of any other state in which the any of the Pledged Collateral may be located), or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Parties, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  EACH PLEDGOR’S WAIVERS UNDER THIS SECTION 13 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

Section 14.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, all Pledgors shall execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, collateral assignments and other security documents), and shall take all such actions, as the Secured Parties may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Parties’ rights with respect to the Pledged Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by any Pledgor which may be deemed to be a part of the Pledged Collateral) pursuant hereto and thereto.  The Secured Parties are hereby appointed the attorney-in-fact, with full power of substitution, of all Pledgors for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any

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instruments, including without limitation, assignments, conveyances and transfers which are required to be taken or executed by all Pledgors under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of any Pledgor.

Section 15.  Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)All such notices shall be addressed,

if to the Secured Parties to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to any Pledgor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

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(d)By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

Section 16.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the term “Secured Parties” shall be deemed to include any other holder or holders of any of the Secured Obligations.  Where the context so permits or requires, terms defined herein in the singular number shall include the plural, and in the plural number, the singular.  This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, each of which, when so executed and delivered, shall be an original and all of which shall together constitute one and the same agreement.

Section 17.  Appointment of Agent for Secured Parties.  Each of the Secured Parties hereby appoints SPTMNR Properties Trust as its agent for the following purposes under this Agreement (including, without limitation, the full power and authority to act of the Secured Parties’ behalf for such purposes): (i) to give or receive notices, demands, claims and other communications on behalf of the Secured Parties under this Agreement and (ii) to receive and hold any and all certificates or other instruments representing the Pledged Collateral which are to be delivered from time to time by the Pledgor to the Secured Parties in accordance with the terms and conditions of this Agreement.

Section 18.  Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Secured Parties in respect of the Pledged Collateral is rescinded or must otherwise be restored or returned by the Secured Parties upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Pledgor or upon the appointment of any intervenor or conservator of, or trustee or similar official for a Pledgor or any substantial part of its or property, or otherwise, all as though such payments had not been made.

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Section 19.  Restrictions on Transfer.  To the extent that any restrictions imposed by the Articles of Incorporation, By-Laws, Declaration of Trust or any other charter documents of any Subtenant or any other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured Parties of any right granted hereunder including, without limitation, the right of the Secured Parties to dispose of the Pledged Collateral upon the occurrence of any Event of Default, each Pledgor hereby waives such restrictions, and the Pledgor hereby agrees that it will take any action which the Secured Parties may reasonably request in order that the Secured Parties may obtain and enjoy the full rights and benefits granted to the Secured Parties by this Agreement free of any such restrictions.

Section 20.  Applicable Law.  This Agreement and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts regardless of (i) where any such instrument is executed or delivered; or (ii) where any payment or other performance required by any such instrument is made or required to be made; or (iii) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.

Section 21.  Arbitration. TheSecured Parties or any Pledgor may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Parties or any Pledgor shall elect to submit any such dispute to arbitration hereunder, the Secured Parties and such Pledgor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject

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matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Parties or the Pledgor shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Parties and the Pledgor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Parties and one to the applicable Pledgor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Secured Parties and each Pledgor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Secured Parties and such Pledgor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

Section 22.  Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this

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Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

Section 23.  Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

Section 24.  Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

Section 25.  Nonliability of Trustees.  THE DECLARATIONS OF TRUST ESTABLISHING CERTAIN OF THE SECURED PARTIES, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE “DECLARATIONS”), ARE DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDE THAT THE NAMES “SPTIHS PROPERTIES TRUST,” “SPTMNR PROPERTIES TRUST,” “SNH CHS PROPERTIES TRUST”, “SNH/LTA PROPERTIES TRUST” and “SNH SOMERFORD PROPERTIES TRUST” REFER TO THE TRUSTEES UNDER EACH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SUCH SECURED PARTIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF OR CLAIM AGAINST, SUCH SECURED PARTIES.  ALL PERSONS DEALING WITH THE SECURED PARTIES, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTIES FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

Section 26.  Original Pledge Agreement.  The Pledgors and the Secured Parties acknowledge and agree that this Agreement amends and restates the Original Pledge Agreement in its entirety with respect to the Pledged Collateral and that this Agreement shall govern the rights and obligations of the Pledgors and the Secured Parties with respect to the Pledged Collateral from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Pledge Agreement shall continue to govern the rights and obligations of the Pledgors and the Secured Parties with respect to the Pledged Collateral prior to the date of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

PLEDGORS:
FSQ, INC., FVEST. JOE, INC., FIVE STAR QUALITY CARE-CO, INC., FIVE STAR QUALITY CARE-GA, INC., FIVE STAR QUALITY CARE-IA, INC., FIVESTAR QUALITY CARE-NE, INC., andFIVE STAR QUALITY CARE-WI, INC.
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President of each of the foregoing entities
SECURED PARTIES:
SPTIHS PROPERTIES TRUST, SPTMNR PROPERTIES TRUST, SNH CHS PROPERTIES TRUST, ELLICOTT CITY LAND I, LLC, ELLICOTT CITY LAND II, LLC, SNH/LTA PROPERTIES TRUST, SNH/LTA PROPERTIES GA LLC, SAVANNAH SQUARE, INC., and SNH SOMERFORD PROPERTIES TRUST
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer of each of the foregoing entities

Exhibit A (Subleases) has been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request.

EX-99.9

Exhibit 99.9

AMENDED AND RESTATED PLEDGE OF STOCK AND MEMBERSHIP INTERESTS AGREEMENT

(SUBTENANT PLEDGE — LEASE NO. 1)

THIS AMENDED AND RESTATED PLEDGE OF STOCK AND MEMBERSHIP INTERESTS AGREEMENT (this “Agreement”) is made and given as of June 30, 2008 by all of the entities identified as Pledgors on the signature page of this Agreement (collectively, the “Pledgors”) for the benefit of the parties identified as the Secured Parties on the signature page hereof (together with their respective successors and assigns, collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, certain of the Secured Parties and Five Star Quality Care Trust, a Maryland business trust (the “Tenant”), entered into that certain Second Amended and Restated Lease, dated as of November 19, 2004, as amended from time to time (as so amended, the “Original Lease”), pursuant to which the Secured Parties leased to the Tenant and the Tenant leased from the Secured Parties certain properties as more particularly described in the Original Lease; and

WHEREAS, pursuant to various Sublease Agreements as further described on Exhibit A attached hereto (collectively, the “Subleases”), the Tenant has subleased certain portions of the premises demised under the Original Lease to the subtenants identified on said Exhibit A (collectively, the “Subtenants”), subject to and upon the terms and conditions set forth in the Subleases; and

WHEREAS, pursuant to the Original Lease, the Pledgors and certain of the Secured Parties are parties to that certain Second Amended and Restated Pledge of Stock and Membership Interests Agreement dated as of May 6, 2005, as the same has been confirmed from time to time (as so confirmed, the “Original Pledge Agreement”), pursuant to which the Pledgors pledged to certain of the Secured Parties all of the stock, partnership, membership or other ownership interests in the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to certain of the Secured Parties with respect to the Original Lease and other related documents; and

WHEREAS as of the date hereof, the Secured Parties and Tenant are amending, restating and bifurcating the Original Lease into two separate leases, one of which shall be named the Amended and Restated Master Lease Agreement (Lease No. 1) (the “Amended Lease No. 1”);

WHEREAS, the Pledgors currently own all of the ownership interests in the Subtenants and the Pledgors and the Tenant are direct or indirect wholly-owned subsidiaries of Five Star Quality Care, Inc., a Maryland corporation (“Guarantor”); and

WHEREAS, the Pledgors and the Secured Parties wish to amend, restate and trifurcate the Original Pledge Agreement into three separate pledge agreements, one of which shall pledge the interests of the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to the Secured Parties with respect to the Amended Lease No. 1 and other related documents;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Pledgors and the Secured Parties agree that the Original Pledge Agreement is hereby amended and restated, effective as of the date hereof, to read as follows:

Section 1.  Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Amended Lease No. 1.  The Amended Lease No. 1 and the Incidental Documents are herein collectively referred to as the “Transaction Documents”.

Section 2.  Pledge.  The Pledgors hereby pledge to the Secured Parties all of the shares of stock, membership interests or other ownership interests in the Subtenants (the “Pledged Interests”) listed in Exhibit B attached hereto and all other shares of stock, membership interests or other ownership interests in the Subtenants in which the Pledgors may have rights from time to time and any other securities or other investment property and other collateral of the Pledgors now owned or hereafter acquired which under this Agreement are required to be pledged to the Secured Parties, and in each case, all certificates representing such Pledged Interests or other investment property or collateral, and all rights, options, warrants, stock or other securities or other property which may hereafter be received, receivable or distributed in respect of the Pledged Interests, together with all proceeds of the foregoing, including, without limitation, all dividends, cash,

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notes, securities or other property from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, the foregoing, (the Pledged Interests and any additional securities or collateral pledged hereunder, collectively, the “Pledged Collateral”), and the Pledgors hereby grant to the Secured Parties a security interest in all of the Pledged Collateral and the proceeds thereof as security for the due and punctual payment and performance of the Secured Obligations (as hereinafter defined).

The Pledgors have delivered to and deposited with the Secured Parties any and all certificates or other instruments representing the Pledged Collateral and undated stock powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.  If in the future any Pledgor possesses or controls any other certificates or other instruments representing the Pledged Collateral, such Pledgor shall immediately and without notice deliver the same to the Secured Parties together with undated stock powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.

Section 3.  Secured Obligations.  For purposes of this Agreement, the term “Secured Obligations” shall mean the payment and performance of each and every obligation of the Tenant, the Guarantor and the Subtenants under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Amended Lease No. 1.

Section 4.  Representations of the Pledgor.  Each Pledgor covenants that the Pledged Interests are duly and validly pledged to the Secured Parties in accordance with law and such Pledgor shall warrant and defend the Secured Parties’ right, title and security interest in and to the Pledged Interests against the claims and demands of all persons whomsoever.  Each Pledgor represents and warrants to the Secured Parties that such Pledgor has good and marketable title to all the Pledged Interests pledged by it hereunder, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever; that the Pledged Interests are not subject to any restriction on transfer contained in the Articles of Incorporation, By-Laws, Declarations of Trust or any other charter documents of the Subtenants or in any agreement or instrument to which the Subtenants or such Pledgor is a party or by which the Subtenants or such Pledgor is bound which would prohibit or restrict the pledge of the Pledged Interests hereunder or the disposition

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thereof upon default hereunder; that all of the Pledged Interests have been duly and validly issued and are fully paid for and nonassessable; and that the Pledged Interests constitute all of the presently issued and outstanding shares of the beneficial interests of the Subtenants.

Section 5.  Covenants of the Pledgors.  Each Pledgor hereby covenants and agrees that it shall not sell, convey or otherwise dispose of any of the Pledged Collateral nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interests in the Pledged Collateral created hereby.  Each Pledgor further covenants and agrees that it shall not consent to or approve the issuance of any additional shares of beneficial interest in the Subtenants.  Each Pledgor further covenants and agrees that, until the Secured Obligations are paid in full, such Pledgor shall not change the state of its incorporation or its corporate name without providing the Secured Parties with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Parties determine are necessary or appropriate to continue or perfect the security interest granted hereunder.

Section 6.  Filing of Financing Statements, etc.  Each Pledgor authorizes the Secured Parties to file from time to time one or more financing statements describing the Pledged Collateral.  Each Pledgor will cooperate with the Secured Parties at their request from time to time in obtaining control agreements in form and substance reasonably satisfactory to the Secured Parties with respect to any collateral investment property, deposit accounts, or other Pledged Collateral as to which the Secured Parties determine such agreements are necessary or appropriate to perfect the security interest granted hereunder.

Section 7.  Distributions, Etc.  Upon the dissolution, winding up, liquidation or reorganization of any Subtenant, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of any Subtenant, if any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall be paid over to the Secured Parties, to be held as collateral security for the Secured Obligations.  If any dividend shall be declared on any of the Pledged Collateral (excluding cash dividends), or any share of beneficial interest or fraction thereof shall be issued pursuant to any split of beneficial

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interests involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of any Subtenant, the shares or other property so distributed shall be delivered to the Secured Parties to be held as collateral security for the Secured Obligations.

Section 8.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Transaction Documents; (b) the failure of the Guarantor to comply with any of its covenants or obligations under any Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (c) the failure of certain of the Subtenants to comply with any of their covenants or obligations under the Transaction Documents and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (d) the failure of any Pledgor to comply with any of its covenants or obligations under this Agreement and the continuation thereof for a period of ten (10) Business Days after written notice thereof; or (e) any representation or warranty contained herein or made by any Pledgor in connection herewith shall prove to have been false or misleading in any material respect when made.

Section 9.  Remedies.  (a) Upon the occurrence and during the continuance of an Event of Default, the Secured Parties may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees, subject to the provisions of the Uniform Commercial Code or other applicable law.

(b)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all such rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, all such rights under the Articles of Incorporation, By-Laws, Declaration of Trust or any other charter document of any Subtenant, and further including, without limitation, the right to exchange, at its discretion,

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any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of such Subtenant, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Parties may determine.

(c)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law and shall have the right to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale.  The Secured Parties shall give any Pledgor at least ten (10) days’ prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition.  Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgor to the extent permitted by applicable law.  All such sales shall be at such commercially reasonable price or prices as the Secured Parties shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk).  At any such sale or sales, the Secured Parties may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Parties may deem best.  Upon any such sale or sales, the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of any kind or nature of the Pledgor, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgor to the extent permitted by applicable law.  In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgor shall execute, and hereby agrees to cause the applicable Subtenant to execute, all such applications or other instruments as may be required.  The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied:  first, to the payment of all costs and expenses of such sale, including attorneys’ fees; and second, to the payment of the

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Secured Obligations in such order of priority as the Secured Parties shall determine; and any surplus thereafter remaining shall be paid to the Pledgors or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of any Pledgor).

Each Pledgor recognizes that the Secured Parties may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Collateral for their own accounts, for investment and not with a view to the distribution or resale thereof.  Each Pledgor agrees that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Parties shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933.  Each Pledgor agrees that private sales made under the foregoing circumstances may be deemed to have been made in a commercially reasonable manner.  Nothing herein shall be deemed to require the Pledgor to effect a registration of the Pledged Collateral under the Securities Act of 1933.

(d)Upon the occurrence and during the continuance of any Event of Default, the Secured Parties, in their discretion, may demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral.  Upon the occurrence and during the continuance of any Event of Default, the Secured Parties shall further have the right, for and in the name, place and stead of any Pledgor, to execute endorsements, assignments, or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

(e)The Secured Parties shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Parties elect to do any such act, the Secured Parties shall not be responsible to any Pledgor, other than for gross negligence or willful misconduct.

(f)The Secured Parties shall have no obligation to marshal any assets in favor of any Pledgor, or against or in payment of the Secured Obligations or any other obligation owed to the Secured Parties by any Pledgor or any other person.

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Section 10.  Rights of Secured Parties.  No course of dealing between any Pledgor and the Secured Parties nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided and provided under any of the Secured Obligations are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code.

Section 11.  Assignment, Etc.  No waiver by the Secured Parties or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion.  In the event of a sale or assignment by any of the Secured Parties of its interest under the Transaction Documents, such Secured Party may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or assignee of such interest, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility thereafter arising hereunder with respect to the rights and interests so assigned.

Section 12.  Duty of Secured Parties.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Parties shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the applicable Pledgor.

Section 13.  Waivers, Etc.  To the extent permitted by applicable law, each Pledgor, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, payment, notice of dishonor, protest and, except as otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Parties hereunder or in connection with any Secured Obligations.  The Secured Parties may release, supersede, exchange or modify any collateral security it may from time to time hold and release, surrender or modify the liability of any third party without giving notice hereunder to any Pledgor.  The

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Secured Parties shall be under no duty to exhaust its rights against any such collateral security or any such third party before realizing on the Pledged Collateral.  Such modifications, changes, renewals, releases or other actions shall in no way affect any Pledgor’s obligations hereunder.

Each Pledgor further waives any right it may have under the Constitution of the Commonwealth of Massachusetts (or under the constitution of any other state in which the any of the Pledged Collateral may be located), or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Parties, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  EACH PLEDGOR’S WAIVERS UNDER THIS SECTION 13 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

Section 14.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, all Pledgors shall execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, collateral assignments and other security documents), and shall take all such actions, as the Secured Parties may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Parties’ rights with respect to the Pledged Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by any Pledgor which may be deemed to be a part of the Pledged Collateral) pursuant hereto and thereto.  The Secured Parties are hereby appointed the attorney-in-fact, with full power of substitution, of all Pledgors for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation, assignments, conveyances and transfers which are required to be taken or executed by all Pledgors under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is

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irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of any Pledgor.

Section 15.  Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)All such notices shall be addressed,

if to the Secured Parties to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to any Pledgor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

(d)By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have

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the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

Section 16.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the term “Secured Parties” shall be deemed to include any other holder or holders of any of the Secured Obligations.  Where the context so permits or requires, terms defined herein in the singular number shall include the plural, and in the plural number, the singular.  This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, each of which, when so executed and delivered, shall be an original and all of which shall together constitute one and the same agreement.

Section 17.  Appointment of Agent for Secured Parties.  Each of the Secured Parties hereby appoints SPTMNR Properties Trust as its agent for the following purposes under this Agreement (including, without limitation, the full power and authority to act of the Secured Parties’ behalf for such purposes): (i) to give or receive notices, demands, claims and other communications on behalf of the Secured Parties under this Agreement and (ii) to receive and hold any and all certificates or other instruments representing the Pledged Collateral which are to be delivered from time to time by the Pledgor to the Secured Parties in accordance with the terms and conditions of this Agreement.

Section 18.  Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Secured Parties in respect of the Pledged Collateral is rescinded or must otherwise be restored or returned by the Secured Parties upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Pledgor or upon the appointment of any intervenor or conservator of, or trustee or similar official for a Pledgor or any substantial part of its or property, or otherwise, all as though such payments had not been made.

Section 19.  Restrictions on Transfer.  To the extent that any restrictions imposed by the Articles of Incorporation, By-Laws, Declaration of Trust or any other charter documents of any Subtenant or any other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured Parties of any right granted

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hereunder including, without limitation, the right of the Secured Parties to dispose of the Pledged Collateral upon the occurrence of any Event of Default, each Pledgor hereby waives such restrictions, and the Pledgor hereby agrees that it will take any action which the Secured Parties may reasonably request in order that the Secured Parties may obtain and enjoy the full rights and benefits granted to the Secured Parties by this Agreement free of any such restrictions.

Section 20.  Applicable Law.  This Agreement and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts regardless of (i) where any such instrument is executed or delivered; or (ii) where any payment or other performance required by any such instrument is made or required to be made; or (iii) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.

Section 21.  Arbitration. The Secured Parties or any Pledgor may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Parties or any Pledgor shall elect to submit any such dispute to arbitration hereunder, the Secured Parties and such Pledgor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Parties or the Pledgor shall fail to appoint

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an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Parties and the Pledgor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Parties and one to the applicable Pledgor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Secured Parties and each Pledgor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Secured Parties and such Pledgor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

Section 22.  Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

Section 23.  Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place

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of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

Section 24.  Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

Section 25.  NONLIABILITY OF TRUSTEES.  THE DECLARATIONS OF TRUST ESTABLISHING CERTAIN OF THE SECURED PARTIES, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE “DECLARATIONS”), ARE DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDE THAT THE NAMES “SPTIHS PROPERTIES TRUST,” “SPTMNR PROPERTIES TRUST,” “SNH CHS PROPERTIES TRUST” AND “SNH/LTA PROPERTIES TRUST” REFER TO THE TRUSTEES UNDER EACH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SUCH SECURED PARTIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF OR CLAIM AGAINST, SUCH SECURED PARTIES.  ALL PERSONS DEALING WITH THE SECURED PARTIES, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTIES FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

Section 26.  Original Pledge Agreement.  The Pledgors and the Secured Parties acknowledge and agree that this Agreement amends and restates the Original Pledge Agreement in its entirety with respect to the Pledged Collateral and that this Agreement shall govern the rights and obligations of the Pledgors and the Secured Parties with respect to the Pledged Collateral from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Pledge Agreement shall continue to govern the rights and obligations of the Pledgors and the Secured Parties with respect to the Pledged Collateral prior to the date of this Agreement.

[Remainder of page intentionally blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

PLEDGORS:
FSQ, INC., FVEST. JOE, INC., FIVE STAR QUALITY CARE-CA, INC., THE HEARTLANDS RETIREMENT COMMUNITY- ELLICOTT CITY I, INC., HEARTLANDS RETIREMENT COMMUNITY-ELLICOTT CITY II, INC., FIVE STAR QUALITY CARE- GA, LLC, and LIFETRUST AMERICA, INC.
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President of each of the foregoing entities
LIFETRUST PROPERTIES, L.L.C.
By:	LifeTrust America Inc.,
	Its Sole Member
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
SECURED PARTIES:
SPTIHS PROPERTIES TRUST, SPTMNR PROPERTIES TRUST, SNH CHS PROPERTIES TRUST, ELLICOTT CITY LAND I, LLC, ELLICOTT CITY LAND II, LLC, SNH/LTA PROPERTIES TRUST, SNH/LTA PROPERTIES GA LLC, and SAVANNAH SQUARE, INC.
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer of each of the foregoing entities

The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Exhibit A (Subleases) and Exhibit B (Pledged Interests)

EX-99.14

Exhibit 99.14

AMENDED AND RESTATED PLEDGE OF SHARES OF

BENEFICIAL INTERESTS AGREEMENT

(SUBTENANT PLEDGE —LEASE NO. 2)

THIS AMENDED AND RESTATED PLEDGE OF SHARES OF BENEFICIAL INTERESTS AGREEMENT (this “Agreement”) is made and given as of June 30, 2008 by FS TENANT HOLDING COMPANY TRUST, a Maryland business trust (the “Pledgor”), for the benefit of the parties identified as the Secured Parties on the signature page hereof (together with their respective successors and assigns, collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, certain of the Secured Parties, as landlord and FS Commonwealth LLC, a Maryland limited liability company, and FS Patriot LLC, a Maryland limited liability company, as tenant (collectively “Rehab Tenant”), are parties to that certain Amended and Restated Master Lease Agreement, dated as of October 1, 2006, as the same has been amended to date (as so amended, the “Original Rehabilitation Hospital Lease”); and

WHEREAS, certain other entities comprising the Secured Parties, as landlord and the Pledgor and FS Tenant Pool III Trust, a Maryland business trust, as tenant (collectively, “Sunrise Tenant”, and together with Rehab Tenant, collectively “Tenant”), are parties to that certain Amended Master Lease Agreement, dated as of January 11, 2002, as the same has been amended to date (as so amended, the “Original Sunrise Lease”, and together with the Original Rehabilitation Hospital Lease, collectively, the “Original Leases”); and

WHEREAS, pursuant to various Sublease Agreements as further described on Exhibit A attached hereto (collectively, the “Subleases”), the Pledgor has subleased certain portions of the premises demised under the Original Sunrise Lease to the subtenants identified on said Exhibit A (collectively, the “Subtenants”), subject to and upon the terms and conditions set forth in the Subleases; and

WHEREAS, pursuant to the Original Sunrise Lease, the Pledgor and certain of the Secured Parties are parties to that certain Pledge of Shares of Beneficial Interest Agreement dated as of January 11, 2002 (the “Original Pledge Agreement”), pursuant to which the Pledgor pledged to certain of the Secured

Parties all of the shares of beneficial interest in the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Sunrise Tenant to certain of the Secured Parties with respect to the Original Sunrise Lease and other related documents; and

WHEREAS, Secured Parties and Tenant are amending, restating and consolidating the Original Leases into a single lease which shall be named the Amended and Restated Master Lease Agreement (Lease No. 2) (the “Amended Lease No. 2”);

WHEREAS, the Pledgor currently owns all of the shares of beneficial interest in the Subtenants and the Pledgor and the Tenant are direct or indirect wholly-owned subsidiaries of Five Star Quality Care, Inc., a Maryland corporation (“Guarantor”); and

WHEREAS, the Pledgor and the Secured Parties wish to amend and restate the Original Pledge Agreement to pledge the interests of the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to the Secured Parties with respect to the Amended Lease No. 2 and other related documents, subject to and upon the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Pledgor and the Secured Parties agree that the Original Pledge Agreement is hereby amended and restated, effective as of the date hereof, to read as follows:

Section 1.  Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Amended Lease No. 2.  The Amended Lease No. 2 and the Incidental Documents are herein collectively referred to as the “Transaction Documents”.

Section 2.  Pledge.  The Pledgor hereby pledges to the Secured Parties all of the shares of beneficial interest or other ownership interests in the Subtenants (the “Pledged Interests”) listed in Exhibit B attached hereto and all other shares of shares of beneficial interest or other ownership interests in the Subtenants in which the Pledgor may have rights from time to time and any other securities or other investment property and other collateral of the Pledgor now owned or hereafter acquired which under this Agreement are required to be pledged to the Secured Parties, and in each case, all

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certificates representing such Pledged Interests or other investment property or collateral, and all rights, options, warrants, stock or other securities or other property which may hereafter be received, receivable or distributed in respect of the Pledged Interests, together with all proceeds of the foregoing, including, without limitation, all dividends, cash, notes, securities or other property from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, the foregoing, (the Pledged Interests and any additional securities or collateral pledged hereunder, collectively, the “Pledged Collateral”), and the Pledgor hereby grants to the Secured Parties a security interest in all of the Pledged Collateral and the proceeds thereof as security for the due and punctual payment and performance of the Secured Obligations (as hereinafter defined).

The Pledgor has delivered to and deposited with the Secured Parties any and all certificates or other instruments representing the Pledged Collateral and undated trust share powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.  If in the future the Pledgor possesses or controls any other certificates or other instruments representing the Pledged Collateral, the Pledgor shall immediately and without notice deliver the same to the Secured Parties together with undated trust share powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.

Section 3.  Secured Obligations.  For purposes of this Agreement, the term “Secured Obligations” shall mean the payment and performance of each and every obligation of the Tenant, the Guarantor and the Subtenants under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Amended Lease No. 2.

Section 4.  Representations of the Pledgor.  The Pledgor covenants that the Pledged Interests are duly and validly pledged to the Secured Parties in accordance with law and the Pledgor shall warrant and defend the Secured Parties’ right, title and security interest in and to the Pledged Interests against the claims and demands of all persons whomsoever.  The Pledgor represents and warrants to the Secured Parties that the Pledgor has good and marketable title to all the Pledged Interests pledged by it hereunder, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever; that the Pledged Interests are not subject to any restriction on transfer

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contained in the Declarations of Trust or any other charter documents of the Subtenants or in any agreement or instrument to which the Subtenants or such Pledgor is a party or by which the Subtenants or the Pledgor is bound which would prohibit or restrict the pledge of the Pledged Interests hereunder or the disposition thereof upon default hereunder; that all of the Pledged Interests have been duly and validly issued and are fully paid for and nonassessable; and that the Pledged Interests constitute all of the presently issued and outstanding shares of the beneficial interests of the Subtenants.

Section 5.  Covenants of the Pledgor.  The Pledgor hereby covenants and agrees that it shall not sell, convey or otherwise dispose of any of the Pledged Collateral nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interests in the Pledged Collateral created hereby.  The Pledgor further covenants and agrees that it shall not consent to or approve the issuance of any additional shares of beneficial interest in the Subtenants.  The Pledgor further covenants and agrees that, until the Secured Obligations are paid in full, such Pledgor shall not change the state of its incorporation or its corporate name without providing the Secured Parties with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Party determines are necessary or appropriate to continue or perfect the security interest granted hereunder.

Section 6.  Filing of Financing Statements, etc.  The Pledgor authorizes the Secured Parties to file from time to time one or more financing statements describing the Pledged Collateral.  The Pledgor will cooperate with the Secured Parties at their request from time to time in obtaining control agreements in form and substance reasonably satisfactory to the Secured Parties with respect to any collateral investment property, deposit accounts, or other Pledged Collateral as to which the Secured Parties determine such agreements are necessary or appropriate to perfect the security interest granted hereunder.

Section 7.  Distributions, Etc.  Upon the dissolution, winding up, liquidation or reorganization of any Subtenant, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of any Subtenant, if any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall

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be paid over to the Secured Parties, to be held as collateral security for the Secured Obligations.  If any dividend shall be declared on any of the Pledged Collateral (excluding cash dividends), or any share of beneficial interest or fraction thereof shall be issued pursuant to any split of beneficial interests involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of any Subtenant, the shares or other property so distributed shall be delivered to the Secured Parties to be held as collateral security for the Secured Obligations.

Section 8.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Transaction Documents; (b) the failure of the Guarantor to comply with any of its covenants or obligations under any Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (c) the failure of the Subtenants to comply with any of their covenants or obligations under the Transaction Documents and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (d) the failure of the Pledgor to comply with any of its covenants or obligations under this Agreement and the continuation thereof for a period of ten (10) Business Days after written notice thereof; or (e) any representation or warranty contained herein or made by the Pledgor in connection herewith shall prove to have been false or misleading in any material respect when made.

Section 9.  Remedies.  (a) Upon the occurrence and during the continuance of an Event of Default, the Secured Parties may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees, subject to the provisions of the Uniform Commercial Code or other applicable law.

(b)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all such rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof,

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including, without limitation, all such rights under the Declaration of Trust or any other charter document of any Subtenant, and further including, without limitation, the right to exchange, at its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of such Subtenant, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Parties may determine.

(c)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law and shall have the right to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale.  The Secured Parties shall give the Pledgor at least ten (10) days’ prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition.  Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgor to the extent permitted by applicable law.  All such sales shall be at such commercially reasonable price or prices as the Secured Parties shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk).  At any such sale or sales, the Secured Parties may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Parties may deem best.  Upon any such sale or sales, the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of any kind or nature of the Pledgor, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgor to the extent permitted by applicable law.  In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgor shall execute, and hereby agrees to cause the applicable Subtenant to execute, all such applications or other instruments as may be required.  The proceeds of any such sale or sales,

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together with any other additional collateral security at the time received and held hereunder, shall be received and applied:  first, to the payment of all costs and expenses of such sale, including attorneys’ fees; and second, to the payment of the Secured Obligations in such order of priority as the Secured Parties shall determine; and any surplus thereafter remaining shall be paid to the Pledgor or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of the Pledgor).

The Pledgor recognizes that the Secured Parties may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Collateral for their own accounts, for investment and not with a view to the distribution or resale thereof.  The Pledgor agrees that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Parties shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933.  The Pledgor agrees that private sales made under the foregoing circumstances may be deemed to have been made in a commercially reasonable manner.  Nothing herein shall be deemed to require the Pledgor to effect a registration of the Pledged Collateral under the Securities Act of 1933.

(d)Upon the occurrence and during the continuance of any Event of Default, the Secured Parties, in their discretion, may demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral.  Upon the occurrence and during the continuance of any Event of Default, the Secured Parties shall further have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

(e)The Secured Parties shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Parties elect to do any such act, the Secured Parties shall not be responsible to the Pledgor, other than for gross negligence or willful misconduct.

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(f)The Secured Parties shall have no obligation to marshal any assets in favor of the Pledgor, or against or in payment of the Secured Obligations or any other obligation owed to the Secured Parties by the Pledgor or any other person.

Section 10.  Rights of Secured Parties.  No course of dealing between the Pledgor and the Secured Parties nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided and provided under any of the Secured Obligations are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of a Secured Parties under the Uniform Commercial Code.

Section 11.  Assignment, Etc.  No waiver by the Secured Parties or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion.  In the event of a sale or assignment by any of the Secured Parties of its interest under the Transaction Documents, such Secured Party may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or assignee of such interest, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility thereafter arising hereunder with respect to the rights and interests so assigned.

Section 12.  Duty of Secured Parties.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Parties shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the Pledgor.

Section 13.  Waivers, Etc.  To the extent permitted by applicable law, the Pledgor, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, payment, notice of dishonor, protest and, except as otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the

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Secured Parties hereunder or in connection with any Secured Obligations.  The Secured Parties may release, supersede, exchange or modify any collateral security it may from time to time hold and release, surrender or modify the liability of any third party without giving notice hereunder to the Pledgor.  The Secured Parties shall be under no duty to exhaust its rights against any such collateral security or any such third party before realizing on the Pledged Collateral.  Such modifications, changes, renewals, releases or other actions shall in no way affect the Pledgor’s obligations hereunder.

The Pledgor further waives any right it may have under the Constitution of the Commonwealth of Massachusetts (or under the constitution of any other state in which the any of the Pledged Collateral may be located), or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Parties, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  THE PLEDGOR’S WAIVERS UNDER THIS SECTION 13 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

Section 14.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, the Pledgor shall execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, collateral assignments and other security documents), and shall take all such actions, as the Secured Parties may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Parties’ rights with respect to the Pledged Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Pledgor which may be deemed to be a part of the Pledged Collateral) pursuant hereto and thereto.  The Secured Parties are hereby appointed the attorney-in-fact, with full power of substitution, of  the Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without

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limitation, assignments, conveyances and transfers which are required to be taken or executed by the Pledgor under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of the Pledgor.

Section 15.  Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)All such notices shall be addressed,

if to the Secured Parties to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to the Pledgor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

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(d)By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

Section 16.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the term “Secured Parties” shall be deemed to include any other holder or holders of any of the Secured Obligations.  Where the context so permits or requires, terms defined herein in the singular number shall include the plural, and in the plural number, the singular.  This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, each of which, when so executed and delivered, shall be an original and all of which shall together constitute one and the same agreement.

Section 17.  Appointment of Agent for Secured Parties.  Each of the Secured Parties hereby appoints CCC Financing I Trust as its agent for the following purposes under this Agreement (including, without limitation, the full power and authority to act of the Secured Parties’ behalf for such purposes): (i) to give or receive notices, demands, claims and other communications on behalf of the Secured Parties under this Agreement and (ii) to receive and hold any and all certificates or other instruments representing the Pledged Collateral which are to be delivered from time to time by the Pledgor to the Secured Parties in accordance with the terms and conditions of this Agreement.

Section 18.  Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Secured Parties in respect of the Pledged Collateral is rescinded or must otherwise be restored or returned by the Secured Parties upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Pledgor or upon the appointment of any intervenor or conservator of, or trustee or similar official for the Pledgor or any substantial part of its or property, or otherwise, all as though such payments had not been made.

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Section 19.  Restrictions on Transfer.  To the extent that any restrictions imposed by the Declaration of Trust or any other charter documents of any Subtenant or any other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured Parties of any right granted hereunder including, without limitation, the right of the Secured Parties to dispose of the Pledged Collateral upon the occurrence of any Event of Default, the Pledgor hereby waives such restrictions, and the Pledgor hereby agrees that it will take any action which the Secured Parties may reasonably request in order that the Secured Parties may obtain and enjoy the full rights and benefits granted to the Secured Parties by this Agreement free of any such restrictions.

Section 20.  Applicable Law.  This Agreement and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts regardless of (i) where any such instrument is executed or delivered; or (ii) where any payment or other performance required by any such instrument is made or required to be made; or (iii) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.

Section 21.  Arbitration. The Secured Parties or the Pledgor may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Parties or the Pledgor shall elect to submit any such dispute to arbitration hereunder, the Secured Parties and the Pledgor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent

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in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Parties or the Pledgor shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Parties and the Pledgor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Parties and one to the Pledgor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Secured Parties and the Pledgor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Secured Parties and the Pledgor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

Section 22.  Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this

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Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

Section 23.  Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

Section 24.  Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

Section 25.  NONLIABILITY OF TRUSTEES.  THE DECLARATIONS OF TRUST ESTABLISHING CERTAIN ENTITIES COMPRISING THE SECURED PARTIES, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATIONS”), ARE DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDE THAT THE NAMES “CCC FINANCING I TRUST,” “CCC OF KENTUCKY TRUST,” “CCC OHIO HEALTHCARE TRUST,” “CCC PEUBLO NORTE TRUST,” AND “HRES1 PROPERTIES TRUST” REFER TO THE TRUSTEES UNDER SUCH DECLARATIONS COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SUCH ENTITIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SUCH ENTITIES.  ALL PERSONS DEALING WITH SUCH ENTITIES, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF SUCH ENTITIES FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

Section 26.  Original Pledge Agreement.  The Pledgor and the Secured Parties acknowledge and agree that this Agreement amends and restates the Original Pledge Agreement in its entirety with respect to the Pledged Collateral and that this Agreement shall govern the rights and obligations of the Pledgor and the Secured Parties with respect to the Pledged Collateral from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Pledge Agreement shall continue to govern the rights and obligations of the Pledgor and the Secured Parties with respect to the Pledged Collateral prior to the date of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

PLEDGOR:
FS TENANT HOLDING COMPANY TRUST
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
SECURED PARTIES:
CCC FINANCING I TRUST,
CCC OF KENTUCKY TRUST,
CCC OHIO HEALTHCARE TRUST,
CCC PUEBLO NORTE TRUST
CCC INVESTMENTS I, L.L.C.,
CCCP SENIOR LIVING LLC,
CCDE SENIOR LIVING LLC,
CCFL SENIOR LIVING LLC,
CCOP SENIOR LIVING LLC,
CCSL SENIOR LIVING LLC,
LTJ SENIOR COMMUNITIES LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer of each of the foregoing entities
CCC FINANCING LIMITED, L.P.
By:	CCC RETIREMENT TRUST,
	its General Partner
	By:	/s/ Richard A. Doyle
		Richard A. Doyle
		Treasurer and Chief Financial Officer

CCC RETIREMENT COMMUNITIES II, L.P.
By:	CRESTLINE VENTURES LLC,
	its General Partner
	By:			/s/ Richard A. Doyle
				Richard A. Doyle
				Treasurer and Chief Financial Officer
HRES1 PROPERTIES TRUST
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer
LEISURE PARK VENTURE LIMITED PARTNERSHIP
By:	CCC LEISURE PARK CORPORATION,
	its General Partner
	By:		/s/ Richard A. Doyle
		Richard A. Doyle
		Treasurer and Chief Financial Officer
PANTHER HOLDINGS LEVEL I, L.P.
By:	PANTHER GENPAR TRUST,
	its General Partner
	By:		/s/ Richard A. Doyle
			Richard A. Doyle
			Treasurer and Chief Financial Officer

The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Exhibit A (Subleases) and Exhibit B (Pledged Interests)

EX-99.17

Exhibit 99.17

AMENDED AND RESTATED SUBTENANT SECURITY AGREEMENT

(LEASE NO. 3)

THIS AMENDED AND RESTATED SUBTENANT SECURITY AGREEMENT (this “Agreement”) is entered into as of this 30th day of June, 2008 by and among (i) each of the parties identified on the signature page hereof as the Subtenants (each a “Subtenant” and collectively, the “Subtenants”), and (ii) each of the parties identified on the signature page hereof as the Secured Parties (collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, the Secured Parties and Five Star Quality Care Trust (“Tenant”) are parties to that certain Second Amended and Restated Lease Agreement, dated as of November 19, 2004, as the same has been amended to date (as so amended, the “Original Lease”); and

WHEREAS, pursuant to various Sublease Agreements as further described on Exhibit A attached hereto as the Subleases (collectively, the “Subleases”), Tenant subleases certain of the premises demised under the Original Lease to the Subtenants, subject to and upon the terms and conditions set forth in the Subleases; and

WHEREAS, pursuant to the Original Lease, certain of the Secured Parties and certain of the Subtenants are parties to that certain Security Agreement dated as of December 31, 2001 and/or that certain Security Agreement dated as of October 25, 2002, as confirmed from time to time (as so confirmed, collectively, the “Original Subtenant Security Agreements”), , pursuant to which the Subtenants granted to such Secured Parties a first and perfected lien and security interest in certain collateral related to the properties demised under the Original Lease which they sublease pursuant to the Subleases; and

WHEREAS, as of the date hereof, the Secured Parties and Tenant are amending, restating and bifurcating the Original Lease into two separate leases, one of which shall be named the Amended and Restated Master Lease Agreement(Lease No. 3), (the “Amended Lease No. 3”); and

WHEREAS, pursuant to the Amended Lease No. 3, the Subtenants are required to grant to the Secured Parties a first

and perfected lien and security interest in certain collateral related to the properties demised under the Amended Lease No. 3 which they sublease pursuant to the Subleases (collectively, the “Subleased Properties”); and

WHEREAS, in connection with the foregoing the Subtenants and the Secured Parties wish to amend and restate the Original Subtenant Security Agreements into two separate security agreements, one of which shall act as security for the payment and performance of the Obligations (as hereinafter defined), all subject to and upon the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Subtenants and the Secured Parties hereby agree that the Original Subtenant Security Agreements are hereby amended and restated, effective as of the date hereof, to read as follows:

Section 1.  Definitions.  As used in this Agreement, the following terms shall have the meanings specified below.  Except as otherwise defined, terms defined in the Uniform Commercial Code and used herein without definition shall have the meanings given such terms in the Uniform Commercial Code.

“Affiliated Person” shall have the meaning given such term in the Amended Lease No. 3.

“Amended Lease No. 3” shall have the meaning given such term in the recitals to this Agreement.

“Business Day” shall have the meaning given such term in the Amended Lease No. 3.

“Collateral” shall mean all of each Subtenant’s right, title and interest in and under or arising out of all and any personal property, intangibles and fixtures of any type or description (other than Excluded Collateral), wherever located and now existing or hereafter arising, or which constitute or arise from the operation, maintenance or repair of its Subleased Properties or any portion thereof, together with any and all additions and accessions thereto and replacements, products, proceeds (including, without limitation, proceeds of insurance) and supporting obligations thereof, including, but not limited to, the following:

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(a)all goods, including, without limitation, all Equipment; and

(b)all General Intangibles; and

(c)all other personal property or fixtures of any nature whatsoever which relate to the operation, maintenance or repair of each Subleased Property, or any portion thereof, and all property from time to time described in any financing statement signed by such Subtenant naming the Secured Parties as secured parties; and

(d)all claims, rights, powers or privileges and remedies relating to the foregoing or arising in connection therewith, including, without limitation, all Licenses and Permits which such Subtenant legally may grant a security interest in, rights to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, waiver or approval; all liens, security, guaranties, endorsements, warranties and indemnities and all insurance, eminent domain and condemnation awards and claims therefor relating thereto or arising in connection therewith; all rights to property forming the subject matter of any of the foregoing, including, without limitation, rights to stoppage in transit and rights to returned or repossessed property; all writings relating to the foregoing or arising in connection therewith; and

(e)all contract rights, general intangibles and other property rights of any nature whatsoever arising out of or in connection with any of the foregoing (other than Excluded Collateral), including, without limitation, payments due or to become due, whether as repayments, reimbursements, contractual obligations, indemnities, damages or otherwise.

“Equipment” shall mean all buildings, structures, improvements, fixtures and items of machinery, equipment and other tangible personal property which constitute, arise from or relate to the operation, maintenance or repair of each Subtenant’s Subleased Properties or any portion thereof, together with all repairs, replacements, improvements, substitutions, extensions or renewals thereof or additions thereto, all parts, additions and accessories incorporated therein or affixed thereto, and all “equipment” as such term is

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defined in the Uniform Commercial Code, and all cash and non-cash proceeds therefrom.

“Event of Default” shall have the meaning given such term in Section 6.

“Excluded Collateral” shall mean (a) all Accounts of each Subtenant, (b) all Deposit Accounts and Securities Accounts of each Subtenant, (c) all Chattel Paper of each Subtenant, (d) all General Intangibles relating to such Accounts or Chattel Paper, (e) all Support Obligations relating to any of the foregoing, (f) all Instruments or Investment Property evidencing or arising from any Accounts or Chattel Paper, (g) all documents, books, records or other information pertaining to any of the foregoing (including, without limitation, customer lists, credit files, computer programs, printouts, tapes, discs, punch cards, data processing software and other computer materials and records and related property and rights), (h) all accessions to, substitutions for, and all replacements, products and proceeds of the foregoing (including without limitation, proceeds of insurance policies insuring any of the foregoing) and (i) any of the Subleases under which any Subtenant is a party.

 “Facilities” shall have the meaning given such term in the Amended Lease No. 3.

“General Intangibles” shall mean all present and future general intangibles and contract rights (other than Excluded Collateral) which constitute, arise from or relate to the operation, maintenance or repair of each Subtenant’s Subleased Properties, or any portion thereof, including, but not limited to, all causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, franchises, customer lists, computer programs, claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases, claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature which constitutes, arises from or relates to the operation, maintenance or repair of such Subleased Properties, or any portion thereof.

“Instrument” shall have the meaning given such term in Article 9 of the Uniform Commercial Code.

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“Leased Property” shall have the meaning given such term in the Amended Lease No. 3.

“Licenses” shall mean all certificates of need (if any), licenses, permits, rights of use, covenants or rights otherwise benefiting or permitting the use and operation of each Subtenant’s Subleased Properties or any part thereof pertaining to the operation, maintenance or repair of such Subleased Properties or any portion thereof.

“Obligations”  shall mean each and every obligation and liability of Tenant to the Secured Parties under the Original Lease and Amended Lease No. 3 or any other document or agreement executed and delivered pursuant thereto, including, without limitation, the payment of the rent and the payment and performance of each and every other obligation of Tenant to the Secured Parties, whether direct or indirect, absolute or contingent, due or to become due.

“Original Lease” shall have the meaning given such term in the recitals to this Agreement.

“Original Subtenant Security Agreements” shall have the meaning given such term in the recitals to this Agreement.

“Overdue Rate” shall have the meaning given such term in the Amended Lease No. 3.

“Permits” shall mean all permits, approvals, consents, waivers, exemptions, variances, franchises, orders, authorizations, rights and licenses obtained or hereafter obtained from any federal, state or other governmental authority or agency relating to the operation, maintenance or repair of each Subtenant’s Subleased Properties, or any portion thereof.

“Person” shall have the meaning given such term in the Amended Lease No. 3.

“Property” shall have the meaning given such term in the Amended Lease No. 3.

“Rent” shall have the meaning given such term in the Amended Lease No. 3.

“Secured Parties” shall have the meaning given such term in the preamble to this Agreement.

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“Subleased Properties” shall have the meaning given such term in the recitals.

“Subleases” shall have the meaning given such term in the recitals to this Agreement.

“Subtenants” shall have the meaning given such term in the preamble to this Agreement.

“Tenant” shall have the meaning given such term in the recitals to this Agreement.

“Uniform Commercial Code” means Article 9 of the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts from time to time.

Section 2.  Security Interest.  As security for the prompt payment and performance of all the Obligations, each Subtenant hereby grants, pledges, transfers and assigns to the Secured Parties, their successors and assigns and all other holders from time to time of the Obligations, a continuing security interest under the Uniform Commercial Code from time to time in effect in the jurisdiction in which any of the Collateral is located in and a continuing lien upon all of such Subtenant’s right, title and interest in the Collateral, together with any and all additions thereto and replacements, products and proceeds thereof, whether now existing or hereafter arising or acquired and wherever located.

Section 3.  General Representations, Warranties and Covenants.  Each Subtenant represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows:

(a)Each of the warranties and representations of such Subtenant contained herein or in any other document executed by such Subtenant in connection herewith are true and correct on the date hereof.

(b)Except for the lien granted to the Secured Parties pursuant to this Agreement and any liens permitted under the Amended Lease No. 3, each Subtenant is, and as to the Collateral acquired from time to time after the date hereof such Subtenant will be, the owner of all the Collateral free from any lien, security interest, encumbrance or other right, title or interest of any Person, except for the security interest of the Secured Parties therein, and such Subtenant shall defend the Collateral against all claims and demands of all Persons at any

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time claiming the same or any interest therein adverse to the Secured Parties.  The lien granted in this Agreement by such Subtenant to the Secured Parties in the Collateral is not prohibited by and does not constitute a default under any agreements or other instruments constituting a part of the Collateral, and no consent is required of any Person to effect such lien which has not been obtained.

(c)Except as permitted under the Amended Lease No. 3, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) now on file or registered in any public office covering any interest of any kind in the Collateral, or intended so to be, which has not been terminated, and so long as this Agreement remains in effect or any of the Obligations or any obligations of any Affiliated Person of such Subtenant to the Secured Parties remain unpaid, such Subtenant will not execute and there will not be on file in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interest of the Secured Parties.

(d)The chief executive office and the principal place of business of each Subtenant are as set forth in Schedule 1 and such Subtenant will not move its chief executive office or establish any other principal place of business except to such new location as such Subtenant may establish in accordance with this Section 3(d).  The location of each Facility comprising a portion of such Subtenant’s Subleased Properties is as set forth in Schedule 2.  The originals of all documents evidencing Collateral and the only original books of account and records of each Subtenant relating thereto are, and will continue to be, kept at such chief executive office or the applicable Facility, as the case may be, or at such new location as such Subtenant may establish in accordance with this Section 3(d).  No Subtenant shall move its chief executive office or establish any other principal place of business until (i) such Subtenant shall have given to the Secured Parties not less than ten (10) days’ prior written notice of its intention to do so, which notice shall clearly describe such new location and provide such other information in connection therewith as the Secured Parties may reasonably request, and (ii) with respect to such new location, such Subtenant shall have taken such action, satisfactory to the Secured Parties (including, without limitation, all action

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required by Section 5), to maintain the security interest of the Secured Parties in the Collateral.

(e)All tangible personal property owned on the date hereof by such Subtenant to be used in connection with the operation or maintenance of each Subleased Property of such Subtenant, or any portion thereof, is located at each applicable Subleased Property or is in transit to such Subleased Property from the vendor thereof.  Each Subtenant agrees that (i) all such property held by such Subtenant on the date hereof, once at each applicable Subleased Property, shall remain at such Subleased Property and (ii) all such property subsequently acquired by such Subtenant shall immediately upon acquisition be transferred to and remain at the applicable Subleased Property.

(f)Such Subtenant’s corporate name and organizational identification number are as set forth on Schedule 1 attached hereto.  The name under which each of the Facilities is operated is set forth on Schedule 2.  Each Subtenant agrees that it shall not (i) change such names without providing the Secured Parties with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Parties determine are necessary or appropriate to continue or perfect the security interest granted hereunder, (ii) change its corporate organizational number, nor (iii) conduct its business in any other name or take title to any Collateral in any other name while this Agreement remains in effect.  Except as otherwise set forth on Schedule 1, no Subtenant has ever had any other name or conducted business in any other name in any jurisdiction.  Each Subtenant’s organizational structure is as set forth on Schedule 1 attached hereto.  Subject to the terms and conditions of the Amended Lease No. 3 and the Subleases, no Subtenant shall change its organizational structure or jurisdiction of organization without giving at least thirty (30) days’ prior written notice thereof to the Secured Parties.

(g)The Secured Parties are authorized (but are under no obligation) to make, upon ten (10) Business Days’ notice to the applicable Subtenant (except in the case of exigent circumstances, in which circumstances upon such notice, if any, as may then be reasonably practical), any payments which in the Secured Parties’ opinion are necessary to:

(i)discharge any liens which have or may take priority over the lien hereof; and

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(ii)pay all premiums payable on the insurance policies referred to in the Amended Lease No. 3 or any other document or agreement executed in connection therewith or herewith, upon the failure of Tenant to make such payments within the time permitted therein.

No Subtenant shall have any claim against the Secured Parties by reason of its decision not to make any payments or perform such obligations permitted under this Section 3(g).  Each Subtenant shall repay to the Secured Parties any sums paid by the Secured Parties upon demand.  Any sums paid and expenses incurred by the Secured Parties pursuant to this paragraph shall bear interest at the Overdue Rate.

(h)If any of the Collateral at any time becomes evidenced by an Instrument, the Subtenant which owns such Collateral shall promptly deliver such Instrument to the Secured Parties, appropriately endorsed to the order of the Secured Parties, to be held pursuant to this Agreement.

(i)No Subtenant shall sell, transfer, change the registration, if any, of, dispose of, attempt to dispose of, or substantially modify or abandon the Collateral or any material part thereof, other than as permitted under the Amended Lease No. 3, without the prior written consent of the Secured Parties.  Except as permitted under the Amended Lease No. 3, no Subtenant shall create, incur, assume or suffer to exist any lien upon any of the Collateral without the prior written consent of the Secured Parties.

(j)No Subtenant shall assert against the Secured Parties any claim or defense which such Subtenant may have against any seller of the Collateral or any part thereof or against any Person with respect to the Collateral or any part thereof.

(k)Each Subtenant shall, upon demand, pay to the Secured Parties the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Parties may incur in connection with (i) the administration of this Agreement, (ii) the custody or  preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Parties hereunder and under such other agreements or (iv) the failure by such Subtenant to perform or observe any of the provisions hereof.

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(l)Each Subtenant shall indemnify and hold harmless the Secured Parties from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Secured Parties in any way relating to or arising out of this Agreement or arising out of such Subtenant’s obligations under any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or of any such other documents.

Section 4.  Special Provisions Concerning Equipment.  No Subtenant shall impair the rights of the Secured Parties in the Equipment.  Regardless of the manner of the affixation of any Equipment to real property, the Equipment so attached shall at all times constitute and remain personal property.  Each Subtenant retains all liability and responsibility in connection with its Equipment and the liability of such Subtenant to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Equipment may be lost, destroyed, stolen or damaged or for any reason whatsoever have become unavailable to such Subtenant.  Upon the request of the Secured Parties, any Subtenant shall provide to the Secured Parties a current list of its Equipment.

Section 5.  Financing Statements; Documentary Stamp Taxes.

(a)Each Subtenant shall, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Secured Parties from time to time such lists, descriptions and designations of inventory, warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Secured Parties reasonably deem appropriate or advisable to perfect, preserve or protect their security interest in the Collateral.  Each Subtenant authorizes the Secured Parties to file any such financing statements without the signature of such Subtenant and such Subtenant will pay all applicable filing fees and related expenses.  To the extent permitted by law, a carbon, photographic or other reproduction of this Agreement or a financing statement shall be sufficient as a financing statement.

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(b)Each Subtenant shall procure, pay for, affix to any and all documents and cancel any documentary tax stamps required by and in accordance with, applicable law with respect to its Collateral, and the Subtenants shall indemnify and hold harmless the Secured Parties from and against any liability  (including interest and penalties) in respect of such documentary stamp taxes.

Section 6.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Amended Lease No. 3 or any document or agreement executed in connection therewith; (b) the failure of any Subtenant to comply with any of its covenants or obligations under this Agreement and the continuance thereof for a period of ten (10) Business Days after written notice thereof; (c) any representation or warranty contained herein or made by any Subtenant in connection herewith shall prove to have been false or misleading in any material respect when made; or (d) the occurrence of any default or event of default under any document, instrument or agreement evidencing the Obligations.

Section 7.  Remedies.

(a)Upon the occurrence and during the continuance of an Event of Default, in addition to any rights and remedies now or hereafter granted under applicable law, under the Amended Lease No. 3 or under any other documents or agreements entered into in connection herewith or therewith, and not by way of limitation of any such rights and remedies, the Secured Parties shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any applicable jurisdiction, and the right, without notice to, or assent by, any Subtenant, in the name of such Subtenant or in the name of the Secured Parties or otherwise:

(i)with respect to the General Intangibles to ask for, demand, collect, receive, compound and give acquittance therefor or any part thereof, to extend the time of payment of, compromise or settle for cash, credit or otherwise, and upon any terms and conditions, any thereof, to exercise and enforce any rights and remedies in respect thereof, and to file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by the Secured Parties necessary or advisable for the purpose

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of collecting or enforcing payment and performance thereof;

(ii)to take possession of any or all of the Collateral and to use, hold, store, operate, merge and/or control the same and to exclude such Subtenant and all Persons claiming under it wholly or partly therefrom, and, for that purpose, to enter, with the aid and assistance of any Person or Persons and with or without legal process, any premises where the Collateral, or any part thereof, are, or may be, placed or assembled, and to remove any such Collateral;

(iii)from time to time, at the expense of such Subtenant, to make all such repairs, replacements, alterations, additions and improvements to and of the Collateral as the Secured Parties may reasonably deem proper; to carry on the business and to exercise all rights and powers of such Subtenant in respect to the Collateral, as the Secured Parties shall deem best, including the right to enter into any and all such agreements with respect to the leasing, management and/or operation of the Collateral or any part thereof as the Secured Parties may see fit; to collect and receive all rents, issues, profits, fees, revenues and other income of the same and every part thereof which rents, issues, profits, fees, revenues and other income may be applied to pay the expenses of holding and operating the Collateral and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which the Secured Parties may be required or may elect to make, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments which the Secured Parties may be required or authorized to make under any provision of this Agreement (including, without limitation, reasonable legal costs and attorneys’ fees);

(iv)to execute any instrument and do all other things necessary and proper to protect and

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preserve and realize upon the Collateral and the other rights contemplated hereby;

(v)upon notice to such effect, to require any Subtenant to deliver, at such Subtenant’s expense, any or all Collateral which is reasonably movable to the Secured Parties at a place designated by the Secured Parties, and after delivery thereof such Subtenant shall have no further claim to or interest in the Collateral; and

(vi)without obligation to resort to other security, at any time and from time to time, to sell, re-sell, assign and deliver all or any of the Collateral, in one or more parcels at the same or different times, and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and at such price or prices and on such terms as the Secured Parties may determine, with the amounts realized from any such sale to be applied to the Obligations in the manner determined by the Secured Parties.

Each Subtenant hereby agrees that all of the foregoing may be effected without demand, advertisement or notice (except as hereinafter provided or as may be required by law), all of which (except as hereinafter provided) are hereby expressly waived, to the maximum extent permitted by law.  The Secured Parties shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Parties elect to do any such act, the Secured Parties shall not be responsible to any Subtenant.

(b)Upon the occurrence and during the continuance of an Event of Default, the Secured Parties may take legal proceedings for the appointment of a receiver or receivers (to which the Secured Parties shall be entitled as a matter of right) to take possession of the Collateral pending the sale thereof pursuant either to the powers of sale granted by this Agreement or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement.  If, after the exercise of any or all of such rights and remedies, any of the Obligations shall remain unpaid or unsatisfied, such Subtenant shall remain liable for any deficiency or performance thereof, as applicable.

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(c)           Upon any sale of any of the Collateral, whether made under the power of sale hereby given or under judgment, order or decree in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement:

(i)the Secured Parties may bid for and purchase the property being sold and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability, and may, in paying the purchase money therefor, deliver any instruments evidencing the Obligations or agree to the satisfaction of all or a portion of the Obligations in lieu of cash in payment of the amount which shall be payable thereon, and such instruments, in case the amounts so payable thereon shall be less than the amount due thereon, shall be returned to the Secured Parties after being appropriately stamped to show partial payment;

(ii)the Secured Parties may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold;

(iii)all right, title, interest, claim and demand whatsoever, either at law or in equity or  otherwise, of any Subtenant of, in and to the property so sold shall be divested; such sale shall be a perpetual bar both at law and in equity against such Subtenant, its successors and assigns, and against any and all Persons claiming or who may claim the property sold or any part thereof from, through or under such Subtenant, its successors or assigns;

(iv)the receipt of the Secured Parties or of the officers thereof making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchase money, and such purchaser or purchasers, and his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Secured Parties or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for

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any loss, misapplication or nonapplication thereof; and

(v)to the extent that it may lawfully do so, each Subtenant agrees that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take advantage of, any appraisement, valuation, stay, extension or redemption laws, or any law permitting it to direct the order in which the Collateral or any part thereof shall be sold, now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance or enforcement of this Agreement or any other document, the Amended Lease No. 3 or any other document or agreement entered into in connection herewith or therewith, and each Subtenant hereby expressly waives all benefit or advantage of any such laws and covenants that it will not hinder, delay or impede the execution of any power granted or delegated to the Secured Parties in this Agreement, but will suffer and permit the execution of every such power as though no such laws were in force.

In the event of any sale of Collateral pursuant to this Section 7, the Secured Parties shall, at least ten (10) days before such sale, give the applicable Subtenant written notice of its intention to sell, except that, if the Secured Parties shall determine in its reasonable discretion that any of such Collateral threatens to decline in value, any such sale may be made upon three (3) days’ written notice to the applicable Subtenant, which time periods each Subtenant hereby agrees are reasonable.

(d)  The Secured Parties are hereby irrevocably appointed the true and lawful attorney-in-fact of each Subtenant in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property sold pursuant to this Section 7 and for such other purposes as are necessary or desirable to effectuate the provisions of this Agreement, and for that purpose it may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, each Subtenant hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof.  If so requested by the Secured

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Parties or by any purchaser, each Subtenant shall ratify and confirm any such sale or transfer by executing and delivering to the Secured Parties or to such purchaser all property, deeds, bills of sale, instruments or assignment and transfer and releases as may be designated in any such request.

Section 8.  Application of Moneys.  All moneys which the Secured Parties shall receive pursuant hereto shall first be applied (to the extent thereof) to the payment of all reasonable costs and expenses incurred in connection with the administration and enforcement of, or the preservation of any rights under, this Agreement or the Amended Lease No. 3 (including, without limitation, the reasonable fees and disbursements of its counsel and agents) and the balance, if any, shall be applied first to accrued and unpaid interest, charges and fees on, and then to outstanding principal of, any Obligations or any other obligations of Tenant or the Subtenants (or their affiliates) to the Secured Parties, and then to any other amounts outstanding on any such Obligations and then as required by law to any other parties having an interest therein.

Section 9.  Waivers, Etc.  Each Subtenant, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, notice, protest and, except as is otherwise specifically provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Parties hereunder or in connection with any Obligations or any Collateral; waives all rights to require a marshaling of assets by the Secured Parties; consents to and waives notice of (i) the substitution, release or surrender of any Collateral, (ii) the addition or release of Persons primarily or secondarily liable on any Obligation or on any Collateral, (iii) the acceptance of partial payments on any Collateral and/or the settlement or compromise thereof, (iv) any requirement of diligence or promptness on the part of the Secured Parties in the enforcement of any rights in respect of any Collateral or any other agreement or instrument directly or indirectly relating thereto, and (v) any enforcement of any present or future agreement or instrument relating directly or indirectly to the Collateral.  No delay or omission on the part of the Secured Parties or any holder of Obligations in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder.  No waiver of any such right on any one occasion shall be construed as a bar to or waiver of any such right on any future occasion.  No course of dealing between any Subtenant and the Secured Parties or any holder of Obligations, nor any failure to exercise, nor any

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delay in exercising, on the part of the Secured Parties or any holder of Obligations, any right, power or privilege hereunder or under any of the Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege.

Each Subtenant further waives any right it may have under the constitution of any state or commonwealth in which any of the Collateral may be located, or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Parties, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing  provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  EACH SUBTENANT’S WAIVERS UNDER THIS SECTION 9 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER SUCH SUBTENANT HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

The Secured Parties shall not be required to marshal any present or future security for (including without limitation this Agreement and the Collateral pledged hereunder), or guaranties of, the Obligations or any of them, or to resort to such security or guaranties in any particular order; and all of the rights hereunder and in respect of such securities and guaranties shall be cumulative and in addition to all other rights, however existing or arising.  To the maximum extent permitted by applicable law, each Subtenant hereby agrees that it will not invoke any law relating to the marshalling of collateral, which might cause delay in or impede the enforcement of the Secured Parties’ rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or guaranteed, and, to the maximum extent permitted by applicable law, each Subtenant hereby irrevocably waives the benefits of all such laws.

Section 10.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, each Subtenant will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, mortgages, collateral assignments and other security

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documents), and will take all such actions as the Secured Parties may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Parties’ rights with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by such Subtenant which may be deemed to be a part of the Collateral) pursuant hereto and thereto.  The Secured Parties are hereby appointed the attorney-in-fact, with full power of substitution, of the Subtenants for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation financing or continuation statements, deeds to secure debt, mortgages, assignments, conveyances, assignments and transfers which are required to be taken or executed by any Subtenant under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of such Subtenant.

Section 11.  Arbitration.  The Secured Parties or any Subtenant may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Parties or any Subtenant shall elect to submit any such dispute to arbitration hereunder, the Secured Parties and such Subtenant shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Parties or such Subtenant shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by

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the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Parties and such Subtenant, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Parties and one to the Subtenants.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

Section 12.  Appointment of Agent for Secured Parties.  Each of the Secured Parties hereby appoints SPTMNR Properties Trust as its agent for the following purposes under this Agreement (including, without limitation, the full power and authority to act on the Secured Parties’ behalf for such purposes): (i) to give or receive notices, demands, claims and other communications on behalf of the Secured Parties under this Agreement, and (ii) to receive and hold any and all Collateral which is to be delivered from time to time by the Subtenants to the Secured Parties in accordance with the terms and conditions of this Agreement.

Section 13.  Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt

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requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)     All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)     All such notices shall be addressed,

if to the Secured Parties to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to any Subtenant to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

 (d)    By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective notice addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

Section 14.  Miscellaneous.

(a)       Each Subtenant agrees that its obligations and the rights of the Secured Parties hereunder and in respect of the Obligations may be enforced by specific performance hereof and thereof and by temporary, preliminary and/or final

20

injunctive relief relating hereto and thereto, without necessity for proof by the Secured Parties or any holder of the Obligations that it would otherwise suffer irreparable harm, and each Subtenant hereby consents to the issuance of such specific and injunctive relief.

(b)      None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Subtenants and the Secured Parties.  No notice to or demand on any Subtenant in any case shall entitle any Subtenant to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Secured Parties to any other or further action in any circumstances without notice or demand.

(c)       The obligations of each Subtenant hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of Tenant; (ii) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, the Amended Lease No. 3 or any document or agreement executed in connection herewith or therewith, the Obligations or any security for any of the Obligations; or (iii) any amendment to or modification of any of the Amended Lease No. 3 or any document or agreement executed in connection herewith or therewith, the Obligations or any security for any of the Obligations; whether or not such Subtenant shall have notice or knowledge of any of the foregoing.  The rights and remedies of the Secured Parties herein provided for are cumulative and not exclusive of any rights or remedies which the Secured Parties would otherwise have, including, without limitation, under the Amended Lease No. 3 or any document or agreement executed in connection herewith or therewith.  This Agreement is intended as a supplement for and is not intended to supersede in any respect the Amended Lease No. 3 or any document or agreement executed in connection herewith or therewith.

(d)      This Agreement shall be binding upon each Subtenant and its successors and assigns and shall inure to the benefit of the Secured Parties, and its respective successors and assigns.  All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement.

(e)       The descriptive headings of the several sections of this Agreement are inserted for convenience only and shall

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not in any way affect the meaning or construction of any provision of this Agreement.

(f)       Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibitions or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(g)      This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.  Notwithstanding the foregoing, to the extent that matters of title, or creation, perfection and priority of the security interests created hereby, or procedural issues of foreclosures are required to be governed by the laws of the state in which the Collateral, or relevant part thereof, is located, the laws of such State shall apply.

Section 15.  NONLIABILITY OF TRUSTEES.  THE DECLARATIONS OF TRUST ESTABLISHING CERTAIN ENTITIES COMPRISING THE SECURED PARTIES, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATIONS”), ARE DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDE THAT THE NAMES OF SUCH ENTITIES REFER TO THE TRUSTEES UNDER SUCH DECLARATIONS COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SUCH ENTITIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SUCH ENTITIES.  ALL PERSONS DEALING WITH SUCH ENTITIES, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF SUCH

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ENTITIES FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

Section 16.  Original Security Agreements.  The Secured Parties and Subtenants acknowledge and agree that this Agreement amends and restates the Original Subtenant Security Agreements in their entirety with respect to the Collateral and that this Agreement shall govern the rights and obligations of the Secured Parties and Subtenants with respect to the Collateral from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Subtenant Security Agreements shall continue to govern the rights and obligations of the Secured Parties and Subtenants with respect to the Collateral prior to the date of this Agreement.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

SUBTENANT:
FIVE STAR QUALITY CARE-CA II, LLC,
FIVE STAR QUALITY CARE-COLORADO, LLC,
FIVE STAR QUALITY CARE-GA, LLC,
FIVE STAR QUALITY CARE-IA, LLC,
FIVE STAR QUALITY CARE-KS, LLC,
FIVE STAR QUALITY CARE-MO, LLC,
FIVE STAR QUALITY CARE-NE, LLC,
FIVE STAR QUALITY CARE-WI, LLC,
FIVE STAR QUALITY CARE-WY, LLC,
FIVE STAR QUALITY CARE-NE, INC.,
ANNAPOLIS HERITAGE PARTNERS, LLC,
COLUMBIA HERITAGE PARTNERS, LLC
ENCINITAS HERITAGE PARTNERS, LLC
FREDERICK HERITAGE PARTNERS, LLC
HAGERSTOWN HERITAGE PARTNERS, LLC
NEWARK HERITAGE PARTNERS I, LLC
NEWARK HERITAGE PARTNERS II, LLC
REDLANDS HERITAGE PARTNERS, LLC and
STOCKTON HERITAGE PARTNERS, LLC
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President of each of the foregoing entities
FRESNO HERITAGE PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP and ROSEVILLE HERITAGE PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By:		Somerford Place LLC,
		General Partner of each of the foregoing entities
	By:		/s/ Travis K. Smith
			Travis K. Smith
			Vice President

SECURED PARTIES:
SPTIHS PROPERTIES TRUST, SPTMNR PROPERTIES TRUST, and SNH SOMERFORD PROPERTIES TRUST
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer of each of the foregoing entities

The following Exhibit and Schedules have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Exhibit A (Subleases) and Schedule 1 (50 Tenant Addresses) and Schedule 2 (Facilities)

EX-99.18

Exhibit 99.18

AMENDED AND RESTATED PLEDGE OF STOCK AND MEMBERSHIP INTERESTS AGREEMENT

(SUBTENANT PLEDGE — LEASE NO. 3)

THIS AMENDED AND RESTATED PLEDGE OF STOCK AND MEMBERSHIP INTERESTS AGREEMENT (this “Agreement”) is made and given as of June 30, 2008 by all of the entities identified as Pledgors on the signature page of this Agreement (collectively, the “Pledgors”) for the benefit of the parties identified as the Secured Parties on the signature page hereof (together with their respective successors and assigns, collectively, the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, certain of the Secured Parties and Five Star Quality Care Trust, a Maryland business trust (the “Tenant”), entered into that certain Second Amended and Restated Lease, dated as of November 19, 2004, as amended from time to time (as so amended, the “Original Lease”), pursuant to which the Secured Parties leased to the Tenant and the Tenant leased from the Secured Parties certain properties as more particularly described in the Original Lease; and

WHEREAS, pursuant to various Sublease Agreements as further described on Exhibit A attached hereto (collectively, the “Subleases”), the Tenant has subleased certain portions of the premises demised under the Original Lease to the subtenants identified on said Exhibit A (collectively, the “Subtenants”), subject to and upon the terms and conditions set forth in the Subleases; and

WHEREAS, pursuant to the Original Lease, the Pledgors and certain of the Secured Parties are parties to that certain Second Amended and Restated Pledge of Stock and Membership Interests Agreement dated as of May 6, 2005, as the same has been confirmed from time to time (as so confirmed, the “Original Pledge Agreement”), pursuant to which the Pledgors pledged to certain of the Secured Parties all of the stock, partnership, membership or other ownership interests in the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to certain of the Secured Parties with respect to the Original Lease and other related documents; and

WHEREAS as of the date hereof, the Secured Parties and Tenant are amending, restating and bifurcating the Original Lease into two separate leases, one of which shall be named the Amended and Restated Master Lease Agreement (Lease No. 3) (the “Amended Lease No. 3”);

WHEREAS, the Pledgors currently own all of the ownership interests in the Subtenants and the Pledgors and the Tenant are direct or indirect wholly-owned subsidiaries of Five Star Quality Care, Inc., a Maryland corporation (“Guarantor”); and

WHEREAS, the Pledgors and the Secured Parties wish to amend, restate and trifurcate the Original Pledge Agreement into three separate pledge agreements, one of which shall pledge the interests of the Subtenants as security for (among other things) the payment and performance of all of the obligations of the Tenant to the Secured Parties with respect to the Amended Lease No. 3 and other related documents;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Pledgors and the Secured Parties agree that the Original Pledge Agreement is hereby amended and restated, effective as of the date hereof, to read as follows:

Section 1.  Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Amended Lease No. 3.  The Amended Lease No. 3 and the Incidental Documents are herein collectively referred to as the “Transaction Documents”.

Section 2.  Pledge.  The Pledgors hereby pledge to the Secured Parties all of the shares of stock, membership interests or other ownership interests in the Subtenants (the “Pledged Interests”) listed in Exhibit B attached hereto and all other shares of stock, membership interests or other ownership interests in the Subtenants in which the Pledgors may have rights from time to time and any other securities or other investment property and other collateral of the Pledgors now owned or hereafter acquired which under this Agreement are required to be pledged to the Secured Parties, and in each case, all certificates representing such Pledged Interests or other investment property or collateral, and all rights, options, warrants, stock or other securities or other property which may hereafter be received, receivable or distributed in respect of the Pledged Interests, together with all proceeds of the foregoing, including, without limitation, all dividends, cash,

2

notes, securities or other property from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, the foregoing, (the Pledged Interests and any additional securities or collateral pledged hereunder, collectively, the “Pledged Collateral”), and the Pledgors hereby grant to the Secured Parties a security interest in all of the Pledged Collateral and the proceeds thereof as security for the due and punctual payment and performance of the Secured Obligations (as hereinafter defined).

The Pledgors have delivered to and deposited with the Secured Parties any and all certificates or other instruments representing the Pledged Collateral and undated stock powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.  If in the future any Pledgor possesses or controls any other certificates or other instruments representing the Pledged Collateral, such Pledgor shall immediately and without notice deliver the same to the Secured Parties together with undated stock powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.

Section 3.  Secured Obligations.  For purposes of this Agreement, the term “Secured Obligations” shall mean the payment and performance of each and every obligation of the Tenant, the Guarantor and the Subtenants under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Amended Lease No. 3.

Section 4.  Representations of the Pledgor.  Each Pledgor covenants that the Pledged Interests are duly and validly pledged to the Secured Parties in accordance with law and such Pledgor shall warrant and defend the Secured Parties’ right, title and security interest in and to the Pledged Interests against the claims and demands of all persons whomsoever.  Each Pledgor represents and warrants to the Secured Parties that such Pledgor has good and marketable title to all the Pledged Interests pledged by it hereunder, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever; that the Pledged Interests are not subject to any restriction on transfer contained in the Articles of Incorporation, By-Laws, Declarations of Trust or any other charter documents of the Subtenants or in any agreement or instrument to which the Subtenants or such Pledgor is a party or by which the Subtenants or such Pledgor is bound which would prohibit or restrict the pledge of the Pledged Interests hereunder or the disposition

3

thereof upon default hereunder; that all of the Pledged Interests have been duly and validly issued and are fully paid for and nonassessable; and that the Pledged Interests constitute all of the presently issued and outstanding shares of the beneficial interests of the Subtenants.

Section 5.  Covenants of the Pledgors.  Each Pledgor hereby covenants and agrees that it shall not sell, convey or otherwise dispose of any of the Pledged Collateral nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interests in the Pledged Collateral created hereby.  Each Pledgor further covenants and agrees that it shall not consent to or approve the issuance of any additional shares of beneficial interest in the Subtenants.  Each Pledgor further covenants and agrees that, until the Secured Obligations are paid in full, such Pledgor shall not change the state of its incorporation or its corporate name without providing the Secured Parties with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Parties determine are necessary or appropriate to continue or perfect the security interest granted hereunder.

Section 6.  Filing of Financing Statements, etc.  Each Pledgor authorizes the Secured Parties to file from time to time one or more financing statements describing the Pledged Collateral.  Each Pledgor will cooperate with the Secured Parties at their request from time to time in obtaining control agreements in form and substance reasonably satisfactory to the Secured Parties with respect to any collateral investment property, deposit accounts, or other Pledged Collateral as to which the Secured Parties determine such agreements are necessary or appropriate to perfect the security interest granted hereunder.

Section 7.  Distributions, Etc.  Upon the dissolution, winding up, liquidation or reorganization of any Subtenant, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of any Subtenant, if any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall be paid over to the Secured Parties, to be held as collateral security for the Secured Obligations.  If any dividend shall be declared on any of the Pledged Collateral (excluding cash dividends), or any share of beneficial interest or fraction thereof shall be issued pursuant to any split of beneficial

4

interests involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of any Subtenant, the shares or other property so distributed shall be delivered to the Secured Parties to be held as collateral security for the Secured Obligations.

Section 8.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Transaction Documents; (b) the failure of the Guarantor to comply with any of its covenants or obligations under any Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (c) the failure of certain of the Subtenants to comply with any of their covenants or obligations under the Transaction Documents and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (d) the failure of any Pledgor to comply with any of its covenants or obligations under this Agreement and the continuation thereof for a period of ten (10) Business Days after written notice thereof; or (e) any representation or warranty contained herein or made by any Pledgor in connection herewith shall prove to have been false or misleading in any material respect when made.

Section 9.  Remedies.  (a) Upon the occurrence and during the continuance of an Event of Default, the Secured Parties may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees, subject to the provisions of the Uniform Commercial Code or other applicable law.

(b)  Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all such rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, all such rights under the Articles of Incorporation, By-Laws, Declaration of Trust or any other charter document of any Subtenant, and further including, without limitation, the right to exchange, at its discretion,

5

any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of such Subtenant, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Parties may determine.

(c)  Upon the occurrence and during the continuance of an Event of Default, the Secured Parties shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law and shall have the right to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale.  The Secured Parties shall give any Pledgor at least ten (10) days’ prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition.  Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgor to the extent permitted by applicable law.  All such sales shall be at such commercially reasonable price or prices as the Secured Parties shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk).  At any such sale or sales, the Secured Parties may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Parties may deem best.  Upon any such sale or sales, the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of any kind or nature of the Pledgor, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgor to the extent permitted by applicable law.  In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgor shall execute, and hereby agrees to cause the applicable Subtenant to execute, all such applications or other instruments as may be required.  The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied:  first, to the payment of all costs and expenses of such sale, including attorneys’ fees; and second, to the payment of the

6

Secured Obligations in such order of priority as the Secured Parties shall determine; and any surplus thereafter remaining shall be paid to the Pledgors or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of any Pledgor).

Each Pledgor recognizes that the Secured Parties may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Collateral for their own accounts, for investment and not with a view to the distribution or resale thereof.  Each Pledgor agrees that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Parties shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933.  Each Pledgor agrees that private sales made under the foregoing circumstances may be deemed to have been made in a commercially reasonable manner.  Nothing herein shall be deemed to require the Pledgor to effect a registration of the Pledged Collateral under the Securities Act of 1933.

(d)  Upon the occurrence and during the continuance of any Event of Default, the Secured Parties, in their discretion, may demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral.  Upon the occurrence and during the continuance of any Event of Default, the Secured Parties shall further have the right, for and in the name, place and stead of any Pledgor, to execute endorsements, assignments, or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

(e)  The Secured Parties shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Parties elect to do any such act, the Secured Parties shall not be responsible to any Pledgor, other than for gross negligence or willful misconduct.

(f)  The Secured Parties shall have no obligation to marshal any assets in favor of any Pledgor, or against or in payment of the Secured Obligations or any other obligation owed to the Secured Parties by any Pledgor or any other person.

7

Section 10.  Rights of Secured Parties.  No course of dealing between any Pledgor and the Secured Parties nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided and provided under any of the Secured Obligations are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code.

Section 11.  Assignment, Etc.  No waiver by the Secured Parties or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion.  In the event of a sale or assignment by any of the Secured Parties of its interest under the Transaction Documents, such Secured Party may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or assignee of such interest, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility thereafter arising hereunder with respect to the rights and interests so assigned.

Section 12.  Duty of Secured Parties.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Parties shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the applicable Pledgor.

Section 13.  Waivers, Etc.  To the extent permitted by applicable law, each Pledgor, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, payment, notice of dishonor, protest and, except as otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Parties hereunder or in connection with any Secured Obligations.  The Secured Parties may release, supersede, exchange or modify any collateral security it may from time to time hold and release, surrender or modify the liability of any third party without giving notice hereunder to any Pledgor.  The

8

Secured Parties shall be under no duty to exhaust its rights against any such collateral security or any such third party before realizing on the Pledged Collateral.  Such modifications, changes, renewals, releases or other actions shall in no way affect any Pledgor’s obligations hereunder.

Each Pledgor further waives any right it may have under the Constitution of the Commonwealth of Massachusetts (or under the constitution of any other state in which the any of the Pledged Collateral may be located), or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Parties, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  EACH PLEDGOR’S WAIVERS UNDER THIS SECTION 13 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

Section 14.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, all Pledgors shall execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, collateral assignments and other security documents), and shall take all such actions, as the Secured Parties may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Parties’ rights with respect to the Pledged Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by any Pledgor which may be deemed to be a part of the Pledged Collateral) pursuant hereto and thereto.  The Secured Parties are hereby appointed the attorney-in-fact, with full power of substitution, of all Pledgors for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation, assignments, conveyances and transfers which are required to be taken or executed by all Pledgors under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is

9

irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of any Pledgor.

Section 15.  Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)  All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)  All such notices shall be addressed,

if to the Secured Parties to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to any Pledgor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

(d)  By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have

10

the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

Section 16.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the term “Secured Parties” shall be deemed to include any other holder or holders of any of the Secured Obligations.  Where the context so permits or requires, terms defined herein in the singular number shall include the plural, and in the plural number, the singular.  This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, each of which, when so executed and delivered, shall be an original and all of which shall together constitute one and the same agreement.

Section 17.  Appointment of Agent for Secured Parties.  Each of the Secured Parties hereby appoints SPTMNR Properties Trust as its agent for the following purposes under this Agreement (including, without limitation, the full power and authority to act of the Secured Parties’ behalf for such purposes): (i) to give or receive notices, demands, claims and other communications on behalf of the Secured Parties under this Agreement and (ii) to receive and hold any and all certificates or other instruments representing the Pledged Collateral which are to be delivered from time to time by the Pledgor to the Secured Parties in accordance with the terms and conditions of this Agreement.

Section 18.  Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Secured Parties in respect of the Pledged Collateral is rescinded or must otherwise be restored or returned by the Secured Parties upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Pledgor or upon the appointment of any intervenor or conservator of, or trustee or similar official for a Pledgor or any substantial part of its or property, or otherwise, all as though such payments had not been made.

Section 19.  Restrictions on Transfer.  To the extent that any restrictions imposed by the Articles of Incorporation, By-Laws, Declaration of Trust or any other charter documents of any Subtenant or any other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured Parties of any right granted

11

hereunder including, without limitation, the right of the Secured Parties to dispose of the Pledged Collateral upon the occurrence of any Event of Default, each Pledgor hereby waives such restrictions, and the Pledgor hereby agrees that it will take any action which the Secured Parties may reasonably request in order that the Secured Parties may obtain and enjoy the full rights and benefits granted to the Secured Parties by this Agreement free of any such restrictions.

Section 20.  Applicable Law.  This Agreement and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts regardless of (i) where any such instrument is executed or delivered; or (ii) where any payment or other performance required by any such instrument is made or required to be made; or (iii) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.

Section 21.  Arbitration. The Secured Parties or any Pledgor may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Parties or any Pledgor shall elect to submit any such dispute to arbitration hereunder, the Secured Parties and such Pledgor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Parties or the Pledgor shall fail to appoint

12

an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Parties and the Pledgor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Parties and one to the applicable Pledgor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Secured Parties and each Pledgor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Secured Parties and such Pledgor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

Section 22.  Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

Section 23.  Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place

13

of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

Section 24.  Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

Section 25.  Nonliability of Trustees.  THE DECLARATIONS OF TRUST ESTABLISHING CERTAIN OF THE SECURED PARTIES, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE “DECLARATIONS”), ARE DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDE THAT THE NAMES “SPTIHS PROPERTIES TRUST,” “SPTMNR PROPERTIES TRUST,” AND “SNH SOMERFORD PROPERTIES TRUST” REFER TO THE TRUSTEES UNDER EACH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SUCH SECURED PARTIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF OR CLAIM AGAINST, SUCH SECURED PARTIES.  ALL PERSONS DEALING WITH THE SECURED PARTIES, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTIES FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

Section 26.  Original Pledge Agreement.  The Pledgors and the Secured Parties acknowledge and agree that this Agreement amends and restates the Original Pledge Agreement in its entirety with respect to the Pledged Collateral and that this Agreement shall govern the rights and obligations of the Pledgors and the Secured Parties with respect to the Pledged Collateral from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Pledge Agreement shall continue to govern the rights and obligations of the Pledgors and the Secured Parties with respect to the Pledged Collateral prior to the date of this Agreement.

[Remainder of page intentionally blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

PLEDGORS:
FIVE STAR QUALITY CARE-CA II, INC., FIVE STAR QUALITY CARE-SOMERFORD, LLC, SOMERFORD PLACE LLC and HAMILTON PLACE, LLC
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President of each of the foregoing entities
SECURED PARTIES:
SPTIHS PROPERTIES TRUST,SPTMNR PROPERTIES TRUST, and SNH SOMERFORD PROPERTIES TRUST
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer of each of the foregoing entities

The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Exhibit A (Subleases) and Exhibit B (Pledged Interests)

EX-99.21

Exhibit 99.21

AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 4),

dated as of July 1, 2008,

by and between

SNH NS PROPERTIES TRUST,

AS LANDLORD,

AND

FIVE STAR QUALITY CARE - NS TENANT, LLC,

AS TENANT

ARTICLE 1	DEFINITIONS	1
1.1	“Additional Charges”	2
1.2	“Affiliated Person”	2
1.3	“Agreement”	2
1.4	“Applicable Laws”	2
1.5	“Award”	3
1.6	“Business Day”	3
1.7	“Capital Addition”	3
1.8	“Capital Expenditure”	3
1.9	“Change in Control”	3
1.10	“Claim”	4
1.11	“Code”	4
1.12	“Commencement Date”	4
1.13	“Condemnation”	4
1.14	“Condemnor”	4
1.15	“Consolidated Financials”	4
1.16	“Date of Taking”	4
1.17	“Default”	5
1.18	“Disbursement Rate”	5
1.19	“Distribution”	5
1.20	“Easement Agreement”	5
1.21	“Encumbrance”	5
1.22	“Entity”	5
1.23	“Environment”	5
1.24	“Environmental Obligation”	5
1.25	“Environmental Notice”	5
1.26	“Event of Default”	6
1.27	“Extended Terms”	6
1.28	“Facility”	6
1.29	“Facility Mortgage”	6
1.30	“Facility Mortgagee”	6
1.31	“Fair Market Rental”	6
1.32	“Financial Officer’s Certificate”	6
1.33	“Fiscal Year”	7
1.34	“Five Star”	7
1.35	“Fixed Term”	7
1.36	“Fixtures”	7
1.37	“GAAP”	7
1.38	“Government Agencies”	7
1.39	“Guarantor”	7
1.40	“Guaranty”	7
1.41	“Hazardous Substances”	7
1.42	“Immediate Family”	8
1.43	“Impositions”	8
1.44	“Incidental Documents”	9
1.45	“Indebtedness”	10
1.46	“Insurance Requirements”	10
1.47	“Interest Rate”	10
1.48	“Land”	10
1.49	“Landlord”	10
1.50	“Landlord Default”	10
1.51	“Landlord Liens”	10
1.52	“Lease Year”	10

1.53	“Leased Improvements”	10
1.54	“Leased Intangible Property”	11
1.55	“Leased Property”	11
1.56	“Legal Requirements”	11
1.57	“Lien”	11
1.58	“Manager”	11
1.59	“Management Agreement”	12
1.60	“Minimum Rent”	12
1.61	“Notice”	12
1.62	“Officer’s Certificate”	12
1.63	“Original Lease”	12
1.64	“Overdue Rate”	12
1.65	“Parent”	12
1.66	“Permitted Encumbrances”	12
1.67	“Permitted Liens”	12
1.68	“Permitted Use”	13
1.69	“Person”	13
1.70	“Prime Rate”	13
1.71	“Pledge Agreement”	13
1.72	“Property”	13
1.73	“Provider Agreements”	13
1.74	“Records”	13
1.75	“Regulated Medical Wastes”	13
1.76	“Rent”	13
1.77	“SEC”	13
1.78	“Sale Properties”	13
1.79	“Security Agreement”	14
1.80	“State”	14
1.81	“Subordinated Creditor”	14
1.82	“Subordination Agreement”	14
1.83	“Subsidiary”	14
1.84	“Successor Landlord”	14
1.85	“Tax Regulatory Agreement”	14
1.86	“Tenant”	14
1.87	“Tenant’s Personal Property”	14
1.88	“Term”	15
1.89	“Third Party Payor Programs”	15
1.90	“Third Party Payors”	15
1.91	“Unsuitable for Its Permitted Use”	15
1.92	“Work”	15
ARTICLE 2	LEASED PROPERTY AND TERM	16
2.1	Leased Property	16
2.2	Condition of Leased Property	17
2.3	Fixed Term	17
2.4	Extended Terms	18
ARTICLE 3	RENT	18
3.1	Rent	18
3.2	Late Payment of Rent, Etc.	22
3.3	Net Lease	22
3.4	No Termination, Abatement, Etc.	22
ARTICLE 4	USE OF THE LEASED PROPERTY	23
4.1	Permitted Use	23

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4.2	Compliance with Legal/Insurance Requirements, Etc.	25
4.3	Compliance with Medicaid and Medicare Requirements	26
4.4	Environmental Matters	26
ARTICLE 5	MAINTENANCE AND REPAIRS	28
5.1	Maintenance and Repair	28
5.2	Tenant’s Personal Property	30
5.3	Yield Up	30
5.4	Management Agreement	31
ARTICLE 6	IMPROVEMENTS, ETC.	31
6.1	Improvements to the Leased Property	31
6.2	Salvage	32
ARTICLE 7	LIENS	32
7.1	Liens	32
7.2	Landlord’s Lien	33
ARTICLE 8	PERMITTED CONTESTS	34
ARTICLE 9	INSURANCE AND INDEMNIFICATION	35
9.1	General Insurance Requirements	35
9.2	Waiver of Subrogation	35
9.3	Form Satisfactory, Etc.	35
9.4	No Separate Insurance; Self-Insurance	36
9.5	Indemnification of Landlord	36
ARTICLE 10	CASUALTY	37
10.1	Insurance Proceeds	37
10.2	Damage or Destruction	38
10.3	Damage Near End of Term	40
10.4	Tenant’s Property	40
10.5	Restoration of Tenant’s Property	40
10.6	No Abatement of Rent	40
10.7	Waiver	41
ARTICLE 11	CONDEMNATION	41
11.1	Total Condemnation, Etc.	41
11.2	Partial Condemnation	41
11.3	Abatement of Rent	42
11.4	Temporary Condemnation	43
11.5	Allocation of Award	43
ARTICLE 12	DEFAULTS AND REMEDIES	43
12.1	Events of Default	43
12.2	Remedies	47
12.3	Tenant’s Waiver	48
12.4	Application of Funds	49
12.5	Landlord’s Right to Cure Tenant’s Default	49
ARTICLE 13	HOLDING OVER	49
ARTICLE 14	LANDLORD DEFAULT	50
ARTICLE 15	PURCHASE RIGHTS	50
ARTICLE 16	SUBLETTING AND ASSIGNMENT	51
16.1	Subletting and Assignment	51
16.2	Required Sublease Provisions	52
16.3	Permitted Sublease	54
16.4	Sublease Limitation	54

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ARTICLE 17	ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS	55
17.1	Estoppel Certificates	55
17.2	Financial Statements	55
17.3	General Operations	56
ARTICLE 18	LANDLORD’S RIGHT TO INSPECT	57
ARTICLE 19	EASEMENTS	57
19.1	Grant of Easements	57
19.2	Exercise of Rights by Tenant	58
19.3	Permitted Encumbrances	58
ARTICLE 20	FACILITY MORTGAGES	58
20.1	Landlord May Grant Liens	58
20.2	Subordination of Lease	58
20.3	Notice to Mortgagee and Superior Landlord	60
ARTICLE 21	ADDITIONAL COVENANTS OF TENANT	61
21.1	Prompt Payment of Indebtedness	61
21.2	Conduct of Business	61
21.3	Maintenance of Accounts and Records	61
21.4	Notice of Litigation, Etc.	62
21.5	Indebtedness of Tenant	62
21.6	Distributions, Payments to Affiliated Persons, Etc.	63
21.7	Prohibited Transactions	63
21.8	Liens and Encumbrances	63
21.9	Merger; Sale of Assets; Etc.	64
21.10	Tax Regulatory Agreement	64
ARTICLE 22	ARBITRATION	65
ARTICLE 23	MISCELLANEOUS	66
23.1	Limitation on Payment of Rent	66
23.2	No Waiver	67
23.3	Remedies Cumulative	67
23.4	Severability	67
23.5	Acceptance of Surrender	67
23.6	No Merger of Title	67
23.7	Conveyance by Landlord	68
23.8	Quiet Enjoyment	68
23.9	No Recordation	68
23.10	Notices	68
23.11	Construction	69
23.12	Counterparts; Headings	70
23.13	Applicable Law, Etc.	70
23.14	Right to Make Agreement	70
23.15	Attorneys’ Fees	71
23.16	Nonliability of Trustees	71
23.17	STATE-SPECIFIC WAIVERS	71
23.18	Original Lease	72

iv

AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 4)

THIS AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 4) is entered into as of July 1, 2008 by and between SNH NS PROPERTIES TRUST, a Maryland real estate investment trust, as landlord (“Landlord”), and FIVE STAR QUALITY CARE — NS TENANT, LLC, a Maryland limited liability company, as tenant (“Tenant”).

W I T N E S S E T H :

WHEREAS, Landlord and Tenant (as successor by assignment from NewSeasons Leasing, L.L.C.) are parties to that certain Lease Agreement, dated as of December 29, 2003 (the “Original Lease”), pursuant to which Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (as defined in the Original Lease), all as more particularly described in the Original Lease; and

WHEREAS, simultaneously herewith, Landlord has agreed to sell certain properties under the Original Lease to an affiliate of Tenant and Tenant has agreed to transfer to Landlord various furniture, fixtures and equipment relating to the remaining Leased Property and make certain payments to Landlord; and

WHEREAS, in connection with the foregoing, Landlord and Tenant have agreed to amend and restate the Original Lease in its entirety as hereinafter provided;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that, effective as of the date hereof, the Original Lease is hereby amended and restated as follows:

ARTICLE 1

DEFINITIONS

For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article shall have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP, (c) all references in this Agreement to designated “Articles”, “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this

Agreement, and (d) the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision.

1.1“Additional Charges”  shall have the meaning given such term in Section 3.1.3.

1.2“Affiliated Person”  shall mean, with respect to any Person, (a)  in the case of any such Person which is a partnership, any partner in such partnership, (b) in the case of any such Person which is a limited liability company, any member of such company, (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (a) and (b), (d) any other Person who is an officer, director, trustee or employee of, or partner in or member of, such Person or any Person referred to in the preceding clauses (a), (b) and (c), and (e) any other Person who is a member of the Immediate Family of such Person or of any Person referred to in the preceding clauses (a) through (d).

1.3“Agreement”  shall mean this Amended and Restated Master Lease Agreement (Lease No. 4), including all schedules and exhibits attached hereto, as it and they may be amended from time to time as herein provided.

1.4“Applicable Laws”  shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to injury to, or the protection of, real or personal property or human health or the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances or Regulated Medical Wastes, underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic

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substances, materials or wastes, whether solid, liquid or gaseous in nature.

1.5“Award”  shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of any Property (after deduction of all reasonable legal fees and other reasonable costs and expenses, including, without limitation, expert witness fees, incurred by Landlord, in connection with obtaining any such award).

1.6“Business Day”  shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts are authorized by law or executive action to close.

1.7“Capital Addition”  shall mean, with respect to any Property, any renovation, repair or improvement to such Property, the cost of which constitutes a Capital Expenditure.

1.8“Capital Expenditure”  shall mean any expenditure treated as capital in nature in accordance with GAAP.

1.9“Change in Control”  shall mean (a) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the SEC) of 9.8% or more, or rights, options or warrants to acquire 9.8% or more, of the outstanding shares of voting stock or other voting interests of Tenant or any Guarantor, as the case may be, or the power to direct the management and policies of Tenant or any Guarantor, directly or indirectly, (b) the merger or consolidation of Tenant or any Guarantor with or into any Person or the merger or consolidation of any Person into Tenant or any Guarantor (other than the merger or consolidation of any Person into Tenant or any Guarantor that does not result in a Change in Control of Tenant or such Guarantor under clauses (a), (c), (d) or (e) of this definition), (c) any one or more sales, conveyances, dividends or distributions to any Person of all or any material portion of the assets (including capital stock or other equity interests) or business of Tenant or any Guarantor, whether or not otherwise a Change in Control, (d) the cessation, for any reason, of the individuals who at the beginning of any twenty-four (24) consecutive month period (commencing on the date hereof) constituted the board of directors of Tenant or any Guarantor (together with any new directors whose election by such board or whose nomination for election by the shareholders of Tenant or such Guarantor was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of any such period or whose election or nomination for election was previously so approved) to

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constitute a majority of the board of directors of Tenant or such Guarantor then in office, or (e) the election to the board of directors of Tenant or any Guarantor of any individual not nominated or appointed by vote of a majority of the directors of Tenant or such Guarantor in office immediately prior to the nomination or appointment of such individual.

1.10“Claim”  shall have the meaning given such term in Article 8.

1.11“Code”  shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended.

1.12“Commencement Date”  shall mean December 29, 2003.

1.13“Condemnation”  shall mean, with respect to any Property, or any portion thereof, (a) the exercise of any governmental power with respect to such Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of such Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, or (c) a taking or voluntary conveyance of such Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any condemnation or other eminent domain proceeding affecting such Property, whether or not the same shall have actually been commenced.

1.14“Condemnor”  shall mean any public or quasi-public Person, having the power of Condemnation.

1.15“Consolidated Financials”  shall mean, for any Fiscal Year or other accounting period of Five Star, annual audited and quarterly unaudited financial statements of Five Star prepared on a consolidated basis, including Five Star’s consolidated balance sheet and the related statements of income and cash flows, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with GAAP throughout the periods reflected.

1.16“Date of Taking”  shall mean, with respect to any Property, the date the Condemnor has the right to possession of such Property, or any portion thereof, in connection with a Condemnation.

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1.17“Default”  shall mean any event or condition which with the giving of notice and/or lapse of time would ripen into an Event of Default.

1.18“Disbursement Rate”  shall mean an annual rate of interest, as of the date of determination, equal to the greater of (a) eight percent (8%) and (b) the per annum rate for ten (10) year U.S. Treasury Obligations as published in The Wall Street Journal plus three hundred (300) basis points; provided, however, that in no event shall the Disbursement Rate exceed eleven and one-half percent (11.5%).

1.19“Distribution”  shall mean (a) any declaration or payment of any dividend (except ordinary cash dividends payable in common stock or other equity interests of Tenant) on or in respect of any shares of any class of capital stock or other equity interests of Tenant, (b) any purchase, redemption, retirement or other acquisition of any shares of any class of capital stock of a corporation, (c) any other distribution on or in respect of any shares of any class of capital stock of a corporation or (d) any return of capital to shareholders.

1.20“Easement Agreement”  shall mean any conditions, covenants and restrictions, easements, declarations, licenses and other agreements which are Permitted Encumbrances and such other agreements as may be granted in accordance with Section 19.1.

1.21“Encumbrance”  shall have the meaning given such term in Section 20.1.

1.22“Entity”  shall mean any corporation, general or limited partnership, limited liability company or partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency, authority or political subdivision thereof or any other entity.

1.23“Environment”  shall mean soil, surface waters, ground waters, land, stream, sediments, surface or subsurface strata and ambient air.

1.24“Environmental Obligation”  shall have the meaning given such term in Section 4.4.1.

1.25“Environmental Notice”  shall have the meaning given such term in Section 4.4.1.

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1.26“Event of Default”  shall have the meaning given such term in Section 12.1.

1.27“Extended Terms”  shall have the meaning given such term in Section 2.4.

1.28“Facility”  shall mean, with respect to any Property, the assisted living facility being operated on such Property.

1.29“Facility Mortgage”  shall mean any Encumbrance placed upon the Leased Property, or any portion thereof, in accordance with Article 20.

1.30“Facility Mortgagee”  shall mean the holder of any Facility Mortgage.

1.31“Fair Market Rental”  shall mean the rate of Minimum Rent that will be payable for the Leased Property (including all Capital Additions funded by Landlord) on the terms of this Agreement during the applicable period, in the then current market, assuming a willing tenant not compelled to lease and a willing landlord not compelled to rent, taking into account the Permitted Use, the rate of minimum or base rent then being charged for comparable lease terms for comparable properties (in terms of both size and location) in the vicinity of each of the Properties, and otherwise taking into account all relevant factors, and assuming that no Event of Default exists.  Fair Market Rental shall be determined in accordance with the arbitration procedures set forth in Article 22 hereof if not agreed upon in writing by Landlord and Tenant.

1.32“Financial Officer’s Certificate”  shall mean, as to any Person, a certificate of the chief executive officer, chief financial officer or chief accounting officer (or such officers’ authorized designee) of such Person, duly authorized, accompanying the financial statements required to be delivered by such Person pursuant to Section 17.2, in which such officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the consolidated financial condition of such Person at and as of the dates thereof and the results of its and their operations for the periods covered thereby, and (b) in the event that the certifying party is an officer of Tenant and the certificate is being given in such capacity, that no Event of Default has occurred and is continuing hereunder.

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1.33“Fiscal Year”  shall mean the calendar year or such other annual period designated by Tenant and approved by Landlord.

1.34“Five Star”  shall mean Five Star Quality Care, Inc., a Maryland corporation, and its permitted successors and assigns.

1.35“Fixed Term”  shall have the meaning given such term in Section 2.3.

1.36“Fixtures”  shall have the meaning given such term in Section 2.1(d).

1.37“GAAP”  shall mean generally accepted accounting principles consistently applied.

1.38“Government Agencies”  shall mean any court, agency, authority, board (including, without limitation, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or any State or any county or any political subdivision of any of the foregoing, whether now or hereafter in existence, having jurisdiction over Tenant or any Property, or any portion thereof, or any Facility operated thereon.

1.39“Guarantor”  shall mean Five Star and each and every other guarantor of Tenant’s obligations under this Agreement, and each such guarantor’s successors and assigns.

1.40“Guaranty”  shall mean any guaranty agreement executed by a Guarantor in favor of Landlord pursuant to which the payment or performance of Tenant’s obligations under this Agreement are guaranteed, together with all modifications, amendments and supplements thereto.

1.41“Hazardous Substances”  shall mean any substance:

(a)the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statute, regulation, rule, ordinance, order, action or policy; or

(b)which is or becomes defined as a “hazardous waste”, “hazardous material” or “hazardous substance” or “pollutant” or “contaminant” under any present or future federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without

7

limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the regulations promulgated thereunder; or

(c)which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or

(d)the presence of which on any Property, or any portion thereof, causes or materially threatens to cause an unlawful nuisance upon such Property, or any portion thereof, or to adjacent properties or poses or materially threatens to pose a hazard to such Property, or any portion thereof, or to the health or safety of persons on or about such Property, or any portion thereof; or

(e)without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or

(f)without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or

(g)without limitation, which contains or emits radioactive particles, waves or material; or

(h)without limitation, constitutes Regulated Medical Wastes.

1.42“Immediate Family”  shall mean, with respect to any individual, such individual’s spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces.

1.43“Impositions”  shall mean, collectively, all taxes (including, without limitation, all taxes imposed under the laws of any State, as such laws may be amended from time to time, and all ad valorem, sales and use, or similar taxes as the same relate to or are imposed upon Landlord, Tenant or the business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or

8

benefit, whether or not commenced or completed prior to the date hereof), ground rents (including any minimum rent under any ground lease, and any additional rent or charges thereunder), water, sewer or other rents and charges, excises, tax levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Tenant (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Landlord’s interest in the Leased Property, (b) the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Leased Property or the leasing or use of the Leased Property or any part thereof by Tenant; provided, however, that nothing contained herein shall be construed to require Tenant to pay and the term “Impositions” shall not include (i) any tax based on net income imposed on Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee (but excluding any mortgage or similar tax payable in connection with a Facility Mortgage) or other tax imposed with respect to the sale, exchange or other disposition by Landlord of the Leased Property or the proceeds thereof, (iv) any single business, gross receipts tax, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Landlord, (v) any interest or penalties imposed on Landlord as a result of the failure of Landlord to file any return or report timely and in the form prescribed by law or to pay any tax or imposition, except to the extent such failure is a result of a breach by Tenant of its obligations pursuant to Section 3.1.3, (vi) any impositions imposed on Landlord that are a result of Landlord not being considered a “United States person” as defined in Section 7701(a)(30) of the Code, (vii) any impositions that are enacted or adopted by their express terms as a substitute for any tax that would not have been payable by Tenant pursuant to the terms of this Agreement or (viii) any impositions imposed as a result of a breach of covenant or representation by Landlord in any agreement governing Landlord’s conduct or operation or as a result of the negligence or willful misconduct of Landlord.

1.44“Incidental Documents”  shall mean, collectively, any Guaranty, any Security Agreement and any Pledge Agreement.

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1.45“Indebtedness”  shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor’s balance sheet as liabilities.

1.46“Insurance Requirements”  shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy and all orders, rules and regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon Landlord, Tenant, any Manager or the Leased Property.

1.47“Interest Rate”  shall mean a per annum interest rate equal to ten percent (10%).

1.48“Land”  shall have the meaning given such term in Section 2.1(a).

1.49“Landlord”  shall have the meaning given such term in the preambles to this Agreement and shall also include their respective permitted successors and assigns.

1.50“Landlord Default”  shall have the meaning given such term in Article 14.

1.51“Landlord Liens”  shall mean liens on or against the Leased Property or any payment of Rent (a) which result from any act of, or any claim against, Landlord or any owner of a direct or indirect interest in the Leased Property (other than the lessor under any ground lease affecting any portion of the Leased Property), or which result from any violation by Landlord of any terms of this Agreement, or (b) which result from liens in favor of any taxing authority by reason of any tax owed by Landlord or any fee owner of a direct or indirect interest in the Leased Property (other than the lessor under any ground lease affecting any portion of the Leased Property); provided, however, that “Landlord Lien” shall not include any lien resulting from any tax for which Tenant is obligated to pay or indemnify Landlord against until such time as Tenant shall have already paid to or on behalf of Landlord the tax or the required indemnity with respect to the same.

1.52“Lease Year”  shall mean any Fiscal Year or portion thereof during the Term.

1.53“Leased Improvements”  shall have the meaning given such term in Section 2.1(b).

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1.54“Leased Intangible Property”  shall mean all agreements, service contracts, equipment leases, booking agreements and other arrangements or agreements affecting the ownership, repair, maintenance, management, leasing or operation of the Leased Property, or any portion thereof, to which Landlord is a party; all books, records and files relating to the leasing, maintenance, management or operation of the Leased Property, or any portion thereof, belonging to Landlord; all transferable or assignable permits, certificates of occupancy, operating permits, sign permits, development rights and approvals, certificates, licenses, warranties and guarantees, rights to deposits, trade names, service marks, telephone exchange numbers identified with the Leased Property, and all other transferable intangible property, miscellaneous rights, benefits and privileges of any kind or character belonging to Landlord with respect to the Leased Property.

1.55“Leased Property”  shall have the meaning given such term in Section 2.1.

1.56“Legal Requirements”  shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Leased Property or the maintenance, construction, alteration or operation thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, authorizations, certificates of need, authorizations and regulations necessary to operate any Property for its Permitted Use, and (b) all covenants, agreements, restrictions and encumbrances contained in any instruments at any time in force affecting any Property, including those which may (i) require material repairs, modifications or alterations in or to any Property or (ii) in any way materially and adversely affect the use and enjoyment thereof, but excluding any requirements arising as a result of Landlord’s status as a real estate investment trust.

1.57“Lien”  shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer of property or assets for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of general creditors.

1.58“Manager”  shall mean, with respect to any Property, the operator or manager under any Management Agreement from time to time in effect with respect to such Property, and its permitted successors and assigns.

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1.59“Management Agreement”  shall mean, with respect to any Property, any operating or management agreement from time to time entered into by Tenant with respect to such Property in accordance with the applicable provisions of this Agreement, together with all amendments, modifications and supplements thereto.

1.60“Minimum Rent”  shall mean the sum of Seven Million Five Hundred Ninety Thousand Three Hundred Twenty-Nine and 00/100s Dollars ($7,590,329.00) per annum, subject to adjustment as provided in Section 3.1.1.

1.61“Notice”  shall mean a notice given in accordance with Section 23.10.

1.62“Officer’s Certificate”  shall mean a certificate signed by an officer or other duly authorized individual of the certifying Entity duly authorized by the board of directors or other governing body of the certifying Entity.

1.63“Original Lease”  shall have the meaning given such term in the recitals to this Agreement.

1.64“Overdue Rate”  shall mean, on any date, a per annum rate of interest equal to the lesser of (a) the greater of (i) fifteen percent (15%) and (ii) the Prime Rate plus three hundred (300) basis points, and (b) the maximum rate then permitted under applicable law.

1.65“Parent”  shall mean, with respect to any Person, any Person which owns directly, or indirectly through one or more Subsidiaries or Affiliated Persons, twenty percent (20%) or more of the voting or beneficial interest in, or otherwise has the right or power (whether by contract, through ownership of securities or otherwise) to control, such Person.

1.66“Permitted Encumbrances”  shall mean, with respect to any Property, all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner’s or leasehold title insurance policy issued to Landlord with respect to such Property, plus any other encumbrances as may have been granted or caused by Landlord or otherwise consented to in writing by Landlord from time to time.

1.67“Permitted Liens”  shall mean any Liens granted in accordance with Section 21.8(a).

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1.68“Permitted Use”  shall mean, with respect to any Property, any use of such Property permitted pursuant to Section 4.1.1.

1.69“Person”  shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits.

1.70“Prime Rate”  shall mean the annual floating rate of interest, determined daily and expressed as a percentage from time to time announced by the Wall Street Journal as the “Prime Rate”.

1.71“Pledge Agreement”  shall mean any pledge agreement made in favor of Landlord with respect to the stock or other equity interests of Tenant or any assignee, subtenant or other transferee, as it or they may be amended, restated, supplemented or otherwise modified from time to time.

1.72“Property”  shall have the meaning given such term in Section 2.1.

1.73“Provider Agreements”  shall mean all participation, provider and reimbursement agreements or arrangements now or hereafter in effect for the benefit of Tenant or any Manager in connection with the operation of any Facility relating to any right of payment or other claim arising out of or in connection with Tenant’s participation in any Third Party Payor Program.

1.74“Records”  shall have the meaning given such term in Section 7.2.

1.75“Regulated Medical Wastes”  shall mean all materials generated by Tenant, subtenants, patients, occupants or the operators of the Leased Properties which are now or may hereafter be subject to regulation pursuant to the Material Waste Tracking Act of 1988, or any Applicable Laws promulgated by any Government Agencies.

1.76“Rent”  shall mean, collectively, the Minimum Rent and Additional Charges.

1.77“SEC”  shall mean the Securities and Exchange Commission.

1.78“Sale Properties”  shall have the meaning given such term in the recitals to this Agreement.

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1.79“Security Agreement”  shall mean any security agreement made by Tenant or any assignee, subtenant or other transferee for the benefit of Landlord, as it or they may be amended, restated, supplemented or otherwise modified from time to time.

1.80“State”  shall mean, with respect to any Property, the state, commonwealth or district in which the such Property is located.

1.81“Subordinated Creditor”  shall mean any creditor of Tenant which is a party to a Subordination Agreement in favor of Landlord.

1.82“Subordination Agreement”  shall mean any agreement (and any amendments thereto) executed by a Subordinated Creditor pursuant to which the payment and performance of Tenant’s obligations to such Subordinated Creditor are subordinated to the payment and performance of Tenant’s obligations to Landlord under this Agreement.

1.83“Subsidiary”  shall mean, with respect to any Person, any Entity (a) in which such Person owns directly, or indirectly through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise).

1.84“Successor Landlord”  shall have the meaning given such term in Section 20.2.

1.85“Tax Regulatory Agreement”  shall mean that certain Tax Regulatory Agreement from NewSeasons of Mt. Arlington, L.P. to New Jersey Health Care Facilities Financing Authority entered into on October 4, 2000 pursuant to the Authority’s issuance of Revenue Bonds (NewSeasons of Mt. Arlington Assisted Living Project) Series 2000A.

1.86“Tenant”  shall have the meaning given such term in the preambles to this Agreement and shall also include its permitted successors and assigns.

1.87“Tenant’s Personal Property”  shall mean all motor vehicles and consumable inventory and supplies, furniture, furnishings, equipment, movable walls and partitions, equipment and machinery and all other tangible personal property of Tenant and Tenant’s receivables, if any, acquired by Tenant on and after the applicable Commencement Date for any Property and located at such Property or used in Tenant’s business at the

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Leased Property and all modifications, replacements, alterations and additions to such personal property installed at the expense of Tenant, other than any items included within the definition of Fixtures.

1.88“Term”  shall mean, collectively, the Fixed Term and the Extended Term, to the extent properly exercised pursuant to the provisions of Section 2.4, unless sooner terminated pursuant to the provisions of this Agreement.

1.89“Third Party Payor Programs”  shall mean all third party payor programs in which Tenant presently or in the future may participate, including, without limitation, Medicare, Medicaid, CHAMPUS, Blue Cross and/or Blue Shield, Managed Care Plans, other private insurance programs and employee assistance programs.

1.90“Third Party Payors”  shall mean Medicare, Medicaid, CHAMPUS, Blue Cross and/or Blue Shield, private insurers and any other Person which presently or in the future maintains Third Party Payor Programs.

1.91“Unsuitable for Its Permitted Use”  shall mean, with respect to any Facility, a state or condition of such Facility such that (a) following any damage or destruction involving a Facility, (i) such Facility cannot be operated on a commercially practicable basis for its Permitted Use and it cannot reasonably be expected to be restored to substantially the same condition as existed immediately before such damage or destruction, and as otherwise required by Section 10.2.4, within twelve (12) months following such damage or destruction or such longer period of time as to which business interruption insurance is available to cover Rent and other costs related to the applicable Property following such damage or destruction, (ii) the damage or destruction, if uninsured, exceeds $1,000,000 or (iii) the cost of such restoration exceeds ten percent (10%) of the fair market value of such Property immediately prior to such damage or destruction, or (b) as the result of a partial taking by Condemnation, such Facility cannot be operated, in the good faith judgment of Tenant, on a commercially practicable basis for its Permitted Use.

1.92“Work”  shall have the meaning given such term in Section 10.2.4.

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ARTICLE 2

LEASED PROPERTY AND TERM

2.1Leased Property.  Upon and subject to the terms and conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord all of Landlord’s right, title and interest in and to all of the following (each of items (a) through (g) below which relates to any single Facility, a “Property” and, collectively, the “Leased Property”):

(a)those certain tracts, pieces and parcels of land, as more particularly described in Exhibits A-1 through A-7 attached hereto and made a part hereof (the “Land”);

(b)all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the “Leased Improvements”);

(c)all easements, rights and appurtenances relating to the Land and the Leased Improvements;

(d)all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant’s Personal Property (collectively, the “Fixtures”);

(e)all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant’s business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property, except items, if any,

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included within the category of Fixtures, but specifically excluding all items included within the category of Tenant’s Personal Property;

(f)all of the Leased Intangible Property; and

(g)any and all leases of space in the Leased Improvements.

2.2Condition of Leased Property.  Tenant acknowledges receipt and delivery of possession of the Leased Property and Tenant accepts the Leased Property in its “as is” condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, reservations, mineral leases, easements and other matters of record or that are visible or apparent on the Leased  Property, all applicable Legal Requirements, the lien of any financing instruments, mortgages and deeds of trust existing prior to the applicable Commencement Date for any Property or permitted by the terms of this Agreement, and such other matters which would be disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof.  TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD’S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY.  LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.  To the maximum extent permitted by law, however, Landlord hereby assigns to Tenant all of Landlord’s rights to proceed against any predecessor in interest or insurer for breaches of warranties or representations or for latent defects in the Leased Property.  Landlord shall fully cooperate with Tenant in the prosecution of any such claims, in Landlord’s or Tenant’s name, all at Tenant’s sole cost and expense.  Tenant shall indemnify, defend, and hold harmless Landlord from and against any loss, cost, damage or liability (including reasonable attorneys’ fees) incurred by Landlord in connection with such cooperation.

2.3Fixed Term.  The initial term of this Agreement (the “Fixed Term”) with respect to each Property commenced on the

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Commencement Date with respect to such Property and shall expire on April 30, 2017.

2.4Extended Terms.  Provided that no Event of Default shall have occurred and be continuing, Tenant shall have the right to extend the Term for two (2) consecutive fifteen (15) year renewal terms (the “Extended Terms”, the first of which is herein referred to as the “First Extended Term”, the second of which is herein referred to as the “Second Extended Term”).  All of the terms, covenants and provisions of this Agreement shall apply to the Extended Terms, except that (a) Tenant shall have no right to extend the Term beyond the expiration of the Second Extended Term, and (b) during the Second Extended Term, the rate of Minimum Rent shall be the Fair Market Rental.  If Tenant shall elect to exercise the aforesaid options, it shall do so by giving Landlord Notice thereof, not less than one (1) year prior to the scheduled expiration of the Term, it being understood and agreed that time is of the essence with respect to the giving of such Notice.  If Tenant shall fail to give such Notice, this Agreement shall automatically terminate at the end of the then current Term of this Agreement and, upon such termination, Tenant shall have no further option to extend the Term of this Agreement.  If Tenant shall give such Notice, the extension of this Agreement shall be automatically effected without the execution of any additional documents; it being understood and agreed, however, that Tenant and Landlord shall execute such documents and agreements as either party shall reasonably require to evidence the same.  Notwithstanding the provisions of the foregoing sentence, if, subsequent to the giving of such Notice, an Event of Default shall occur, at Landlord’s option, the extension of this Agreement shall cease to take effect and this Agreement shall automatically terminate at the end of the Fixed Term, and Tenant shall have no further option to extend the Term of this Agreement.

ARTICLE 3

RENT

3.1Rent.  Tenant shall pay, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction (unless otherwise expressly provided in this Agreement), Minimum Rent to Landlord and Additional Charges to the party to whom such Additional Charges are payable, during the Term.  All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion.  Rent for

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any partial calendar month shall be prorated on a per diem basis.

3.1.1Minimum Rent.

(a)Payments.  Minimum Rent shall be paid in equal monthly installments in arrears on the first Business Day of each calendar month during the Term.

(b)Allocation of Minimum Rent.  Minimum Rent may be allocated and reallocated among the Properties comprising the Leased Property by agreement among Landlord and Tenant; provided, however that in no event shall the Minimum Rent allocated to any Property be less than the monthly amount payable by Landlord on account of any Facility Mortgage and/or ground or master lease with respect to such Property nor shall the aggregate amount of Minimum Rent allocated among the Properties exceed the total amount payable for the Leased Property.

(c)Adjustments of Minimum Rent Following Disbursements Under Sections 5.1.2(b), 10.2.3 and 11.2.  Effective on the date of each disbursement to pay for the cost of any repairs, maintenance, renovations or replacements pursuant to Sections 5.1.2(b), 10.2.3 or 11.2, the annual Minimum Rent shall be increased by a per annum amount equal to the Disbursement Rate times the amount so disbursed.  If any such disbursement is made during any calendar month on a day other than the first Business Day of such calendar month, Tenant shall pay to Landlord on the first Business Day of the immediately following calendar month (in addition to the amount of Minimum Rent payable with respect to such calendar month, as adjusted pursuant to this paragraph (c)) the amount by which Minimum Rent for the preceding calendar month, as adjusted for such disbursement on a per diem basis, exceeded the amount of Minimum Rent paid by Tenant for such preceding calendar month.

(d)Adjustments of Minimum Rent Following Partial Lease Termination.  Subject to Section 4.1.1(b), if this Agreement shall terminate with respect to any Property but less than all of the Leased Property, Minimum Rent shall be reduced by the affected Property’s allocable share of Minimum Rent determined in accordance with the applicable provisions of this Agreement.

(e)Periodic Adjustments of Minimum Rent.  Effective as of January 1, 2018 and each January 1 thereafter

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throughout the First Extended Term (each, an “Effective Date”), Minimum Rent shall automatically be adjusted to equal the product derived by multiplying the annual rate of Minimum Rent payable under this Agreement immediately prior to the respective Effective Date by 1.03.

3.1.2[Intentionally omitted.]

3.1.3Additional Charges.  In addition to the Minimum Rent payable hereunder, Tenant shall pay (or cause to be paid) to the appropriate parties and discharge (or cause to be discharged) as and when due and payable the following (collectively, “Additional Charges”):

(a)Impositions.  Subject to Article 8 relating to permitted contests, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost (other than any opportunity cost as a result of a failure to take advantage of any discount for early payment) may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other reasonably satisfactory proof evidencing such payments.  If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay, or cause to pay, such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto.  Landlord, at its expense, shall, to the extent required or permitted by Applicable Law, prepare and file, or cause to be prepared and filed, all tax returns and pay all taxes due in respect of Landlord’s net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock or other equity interests, and Tenant, at its expense, shall, to the extent required or permitted by Applicable Laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by Government Agencies.  Provided no Event of Default shall have occurred and be continuing, if any refund shall be due from any taxing authority in respect of any Imposition paid by or on behalf of Tenant, the same shall be paid over to or retained by Tenant.  Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the

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Leased Property as may be necessary to prepare any required returns and reports.  In the event Government Agencies classify any property covered by this Agreement as personal property, Tenant shall file, or cause to be filed, all personal property tax returns in such jurisdictions where it may legally so file.  Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property.  Where Landlord is legally required to file personal property tax returns for property covered by this Agreement, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest.  All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than the last date on which the same may be made without interest or penalty, subject to the provisions of Article 8.

Landlord shall give prompt Notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, that Landlord’s failure to give any such notice shall in no way diminish Tenant’s obligation hereunder to pay such Impositions.

(b)           Utility Charges.  Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used in connection with the Leased Property.

(c)           Insurance Premiums.  Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9.

(d)           Other Charges.  Tenant shall pay or cause to be paid all other amounts, liabilities and obligations, including, without limitation, ground rents, if any, and all amounts payable under any equipment leases and all agreements to indemnify Landlord under Sections 4.4.2 and 9.5.

(e)           Reimbursement for Additional Charges.  If Tenant pays or causes to be paid property taxes or similar or other Additional Charges attributable to periods after the end of the Term, whether upon expiration or sooner termination of this Agreement (other than termination by reason of an Event of Default), Tenant may, within a reasonable time after the end of the Term, provide Notice

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to Landlord of its estimate of such amounts.  Landlord shall promptly reimburse Tenant for all payments of such taxes and other similar Additional Charges that are attributable to any period after the Term of this Agreement.

3.2          Late Payment of Rent, Etc.  If any installment of Minimum Rent or Additional Charges (but only as to those Additional Charges which are payable directly to Landlord) shall not be paid within ten (10) days after its due date, Tenant shall pay Landlord, on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Tenant pays any Additional Charges directly to Landlord or any Facility Mortgagee pursuant to any requirement of this Agreement, Tenant shall be relieved of its obligation to pay such Additional Charges to the Entity to which they would otherwise be due.  If any payments due from Landlord to Tenant shall not be paid within ten (10) days after its due date, Landlord shall pay to Tenant, on demand, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment from the due date of such installment to the date of payment thereof.

In the event of any failure by Tenant to pay any Additional Charges when due, Tenant shall promptly pay and discharge, as Additional Charges, every fine, penalty, interest and cost which is added for non-payment or late payment of such items.  Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Agreement or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Minimum Rent.

3.3          Net Lease.  The Rent shall be absolutely net to Landlord so that this Agreement shall yield to Landlord the full amount of the installments or amounts of the Rent throughout the Term, subject to any other provisions of this Agreement which expressly provide otherwise, including those provisions for adjustment or abatement of such Rent.

3.4          No Termination, Abatement, Etc.   Except as otherwise specifically provided in this Agreement, each of Landlord and Tenant, to the maximum extent permitted by law, shall remain bound by this Agreement in accordance with its terms and shall not take any action without the consent of the other to modify, surrender or terminate this Agreement.  In addition, except as otherwise expressly provided in this Agreement, Tenant shall not

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seek, or be entitled to, any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to or destruction of the Leased Property, or any portion thereof, from whatever cause or any Condemnation, (b) the lawful or unlawful prohibition of, or restriction upon, Tenant’s use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any default (other than a monetary default) or breach of any warranty by Landlord under this Agreement or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing (other than a monetary default by Landlord).  Except as otherwise specifically provided in this Agreement, Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law (a) to modify, surrender or terminate this Agreement or quit or surrender the Leased Property, or any portion thereof, or (b) which would entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder.  The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Agreement.

ARTICLE 4

USE OF THE LEASED PROPERTY

4.1          Permitted Use.

4.1.1           Permitted Use.

(a)           Tenant shall, at all times during the Term, and at any other time that Tenant shall be in possession of any Property, continuously use and operate, or cause to be used and operated, such Property as a skilled nursing/ intermediate care/independent living/assisted living/ special care/group home facility as currently operated, and any uses incidental thereto.  Tenant shall not use (and shall not permit any Person to use) any Property, or any

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portion thereof, for any other use without the prior written consent of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned.  No use shall be made or permitted to be made of any Property and no acts shall be done thereon which will cause the cancellation of any insurance policy covering such Property or any part thereof (unless another adequate policy is available) or which would constitute a default under any ground lease affecting such Property, nor shall Tenant sell or otherwise provide to residents or patients therein, or permit to be kept, used or sold in or about any Property any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter’s regulations.  Tenant shall, at its sole cost (except as expressly provided in Section 5.1.2(b)), comply or cause to be complied with all Insurance Requirements.  Tenant shall not take or omit to take, or permit to be taken or omitted to be taken, any action, the taking or omission of which materially impairs the value or the usefulness of any Property or any part thereof for its Permitted Use.

(b)           In the event that, in the reasonable determination of Tenant, it shall no longer be economically practical to operate any Property as currently operated, Tenant shall give Landlord Notice thereof, which Notice shall set forth in reasonable detail the reasons therefor.  Thereafter, Landlord and Tenant shall negotiate in good faith to agree on an alternative use for such Property and other related matters; provided, however, in no event shall the Minimum Rent be reduced or abated as a result thereof.  If Landlord and Tenant fail to agree on an alternative use for such Property within sixty (60) days after commencing negotiations as aforesaid, Tenant may market such Property for sale to a third party.  If Tenant receives a bona fide offer (an “Offer”) to purchase such Property from a Person having the financial capacity to implement the terms of such Offer, Tenant shall give Landlord Notice thereof, which Notice shall include a copy of the Offer executed by such third party.  In the event that Landlord shall fail to accept or reject such Offer within thirty (30) days after receipt of such Notice, such Offer shall be deemed to be rejected by Landlord.  If Landlord shall sell the Property pursuant to such Offer, then, effective as of the date of such sale, this Agreement shall terminate with respect to such Property, and the Minimum Rent shall be reduced by an amount equal to the product of the net proceeds of sale

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received by Landlord multiplied by the Interest Rate.  If Landlord shall reject (or be deemed to have rejected) such Offer, then, effective as of the proposed date of such sale, this Agreement shall terminate with respect to such Property, and the Minimum Rent shall be reduced by an amount equal to the product of the projected net proceeds determined by reference to such Offer multiplied by the Interest Rate.

4.1.2           Necessary Approvals.  Tenant shall proceed with all due diligence and exercise reasonable efforts to obtain and maintain, or cause to be obtained and maintained, all approvals necessary to use and operate, for its Permitted Use, each Property and the Facility located thereon under applicable law and, without limiting the foregoing, shall exercise reasonable efforts to maintain (or cause to be maintained) appropriate certifications for reimbursement and licensure.

4.1.3           Lawful Use, Etc.  Tenant shall not, and shall not permit any Person to use or suffer or permit the use of any Property or Tenant’s Personal Property, if any, for any unlawful purpose.  Tenant shall not, and shall not permit any Person to, commit or suffer to be committed any waste on any Property, or in any Facility, nor shall Tenant cause or permit any unlawful nuisance thereon or therein.  Tenant shall not, and shall not permit any Person to, suffer nor permit any Property, or any portion thereof, to be used in such a manner as (a) may materially and adversely impair Landlord’s title thereto or to any portion thereof, or (b) may reasonably allow a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of such Property, or any portion thereof.

4.2          Compliance with Legal/Insurance Requirements, Etc.  Subject to the provisions of Section 5.1.2(b) and Article 8, Tenant, at its sole expense, shall (a) comply with (or cause to be complied with) all material Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of any Property and with the terms and conditions of any ground lease affecting any Property, (b) perform (or cause to be performed) in a timely fashion all of Landlord’s obligations under any ground lease affecting any Property and (c) procure, maintain and comply with (or cause to be procured, maintained and complied with) all material licenses, certificates of need, permits, provider agreements and other authorizations and agreements required for any use of any Property and Tenant’s Personal Property, if any, then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof.

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4.3          Compliance with Medicaid and Medicare Requirements.  Tenant, at its sole cost and expense, shall make (or shall cause to be made), whatever improvements (capital or ordinary) as are required to conform each Property to such standards as may, from time to time, be required by Federal Medicare (Title 18) or Medicaid (Title 19) for skilled and/or intermediate care nursing programs, to the extent Tenant is a participant in such programs with respect to such Property, or any other applicable programs or legislation, or capital improvements required by any other governmental agency having jurisdiction over any Property as a condition of the continued operation of such Property for its Permitted Use.

4.4          Environmental Matters.

4.4.1           Restriction on Use, Etc.  During the Term and any other time that Tenant shall be in possession of any Property, Tenant shall not, and shall not permit any Person to, store, spill upon, dispose of or transfer to or from such Property any Hazardous Substance, except in compliance with all Applicable Laws.  During the Term and any other time that Tenant shall be in possession of any Property, Tenant shall maintain (or shall cause to be maintained) such Property at all times free of any Hazardous Substance (except in compliance with all Applicable Laws).  Tenant shall promptly:  (a) upon receipt of notice or knowledge, notify Landlord in writing of any material change in the nature or extent of Hazardous Substances at any Property, (b) transmit to Landlord a copy of any report which is required to be filed by Tenant or any Manager with respect to any Property pursuant to SARA Title III or any other Applicable Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or any Manager or their respective agents or representatives with respect thereto (collectively, “Environmental Notice”), which Environmental Notice requires a written response or any action to be taken and/or if such Environmental Notice gives notice of and/or presents a material risk of any material violation of any Applicable Law and/or presents a material risk of any material cost, expense, loss or damage (an “Environmental Obligation”), (d) observe and comply with (or cause to be observed and complied with) all Applicable Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) pay or otherwise dispose (or cause to be paid or otherwise disposed) of any fine, charge or Imposition related thereto, unless Tenant or any Manager shall

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contest the same in good faith and by appropriate proceedings and the right to use and the value of any of the Leased Property is not materially and adversely affected thereby.

If, at any time prior to the termination of this Agreement, Hazardous Substances (other than those maintained in accordance with Applicable Laws) are discovered on any Property, subject to Tenant’s right to contest the same in accordance with Article 8, Tenant shall take (and shall cause to be taken) all actions and incur any and all expenses, as are required by any Government Agency and by Applicable Law, (x) to clean up and remove from and about such Property all Hazardous Substances thereon, (y) to contain and prevent any further release or threat of release of Hazardous Substances on or about such Property and (z) to use good faith efforts to eliminate any further release or threat of release of Hazardous Substances on or about such Property.

4.4.2           Indemnification of Landlord.  Tenant shall protect, indemnify and hold harmless Landlord and each Facility Mortgagee, their trustees, officers, agents, employees and beneficiaries, and any of their respective successors or assigns with respect to this Agreement (collectively, the “Indemnitees” and, individually, an “Indemnitee”) for, from and against any and all debts, liens, claims, causes of action, administrative orders or notices, costs, fines, penalties or expenses (including, without limitation, reasonable attorney’s fees and expenses) imposed upon, incurred by or asserted against any Indemnitee resulting from, either directly or indirectly, the presence in, upon or under the soil or ground water of any Property or any properties surrounding such Property of any Hazardous Substances in violation of any Applicable Law, except to the extent the same arise from the acts or omissions of Landlord or any other Indemnitee or during any period that Landlord or a Person designated by Landlord (other than Tenant) is in possession of such Property from and after the Commencement Date for such Property.  Tenant’s duty herein includes, but is not limited to, costs associated with personal injury or property damage claims as a result of the presence prior to the expiration or sooner termination of the Term and the surrender of such Property to Landlord in accordance with the terms of this Agreement of Hazardous Substances in, upon or under the soil or ground water of such Property in violation of any Applicable Law.  Upon Notice from Landlord and any other of the Indemnitees, Tenant shall undertake the defense, at Tenant’s sole cost and expense, of any indemnification duties set forth herein, in which event, Tenant shall not be liable for payment of any duplicative attorneys’ fees incurred by any Indemnitee.

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Tenant shall, upon demand, pay (or cause to be paid) to Landlord, as an Additional Charge, any cost, expense, loss or damage (including, without limitation, reasonable attorneys’ fees) reasonably incurred by Landlord and arising from a failure of Tenant to observe and perform  (or to cause to be observed and performed) the requirements of this Section 4.4, which amounts shall bear interest from the date ten (10) Business Days after written demand therefor is given to Tenant until paid by Tenant to Landlord at the Overdue Rate.

4.4.3           Survival.  The provisions of this Section 4.4 shall survive the expiration or sooner termination of this Agreement.

ARTICLE 5

MAINTENANCE AND REPAIRS

5.1          Maintenance and Repair.

5.1.1           Tenant’s General Obligations.  Tenant shall keep (or cause to be kept), at Tenant’s sole cost and expense, the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant’s Personal Property) in good order and repair, reasonable wear and tear excepted (whether or not the need for such repairs occurs as a result of Tenant’s or any Manager’s use, any prior use, the elements or the age of the Leased Property or Tenant’s Personal Property or any portion thereof), and shall promptly make or cause to be made all necessary and appropriate repairs and replacements to each Property of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the Commencement Date for such Property (concealed or otherwise).  All repairs shall be made in a good, workmanlike manner, consistent with industry standards for comparable Facilities in like locales, in accordance with all applicable federal, state and local statutes, ordinances, codes, rules and regulations relating to any such work.  Tenant shall not take or omit to take (or permit any Person to take or omit to take) any action, the taking or omission of which would materially and adversely impair the value or the usefulness of the Leased Property or any material part thereof for its Permitted Use.  Tenant’s obligations under this Section 5.1.1 shall be limited in the event of any casualty or Condemnation as set forth in Article 10 and Article 11 and Tenant’s obligations with respect to Hazardous Substances are as set forth in Section 4.4.

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5.1.2           Landlord’s Obligations.

(a)           Except as otherwise expressly provided in this Agreement, Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, or to maintain the Leased Property in any way.  Except as otherwise expressly provided in this Agreement, Tenant hereby waives, to the maximum extent permitted by law, the right to make repairs at any Property at the expense of Landlord pursuant to any law in effect on the Commencement Date for such Property or thereafter enacted.  Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic’s lien laws now or hereafter existing.

(b)           If, pursuant to the terms of this Agreement, Tenant is required to make any expenditures in connection with any repair, maintenance or renovation with respect to any Property, Tenant may, at its election, advance such funds or give Landlord Notice thereof, which Notice shall set forth, in reasonable detail, the nature of the required repair, renovation or replacement, the estimated cost thereof and such other information with respect thereto as Landlord may reasonably require.  Provided that no Event of Default shall have occurred and be continuing and Tenant shall otherwise comply with the applicable provisions of Article 6, Landlord shall, within ten (10) Business Days after such Notice, subject to and in accordance with the applicable provisions of Article 6, disburse such required funds to Tenant (or, if Tenant shall so elect, directly to the Manager or any other Person performing the required work) and, upon such disbursement, the Minimum Rent shall be adjusted as provided in Section 3.1.1(c).  Notwithstanding the foregoing, Landlord may elect not to disburse such required funds to Tenant; provided, however, that if Landlord shall elect not to disburse such required funds as aforesaid, Tenant’s obligation to make such required repair, renovation or replacement shall be deemed waived by Landlord, and, notwithstanding anything contained in this Agreement to the contrary, Tenant shall have no obligation to make such required repair, renovation or replacement.

5.1.3           Nonresponsibility of Landlord, Etc.  All materialmen, contractors, artisans, mechanics and laborers and

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other persons contracting with Tenant with respect to the Leased Property, or any part thereof, are hereby charged with notice that liens on the Leased Property or on Landlord’s interest therein are expressly prohibited and that they must look solely to Tenant to secure payment for any work done or material furnished to Tenant or any Manager or for any other purpose during the term of this Agreement.

Nothing contained in this Agreement shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen for the performance of any labor or the furnishing of any materials for any alteration, addition, improvement or repair to the Leased Property or any part thereof or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Leased Property or any part thereof nor to subject Landlord’s estate in the Leased Property or any part thereof to liability under any mechanic’s lien law of any State in any way, it being expressly understood Landlord’s estate shall not be subject to any such liability.

5.2          Tenant’s Personal Property.  Tenant shall provide and maintain (or cause to be provided and maintained) throughout the Term all such Tenant’s Personal Property as shall be necessary in order to operate in compliance with applicable material Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Permitted Use.  If, from and after the Commencement Date with respect to any Property, Tenant acquires an interest in any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property, or any portion thereof, which belongs to anyone other than Tenant, Tenant shall require the agreements permitting such use to provide that Landlord or its designee may assume Tenant’s rights and obligations under such agreement upon Landlord’s purchase of the same in accordance with the provisions of Article 15 and the assumption of management or operation of the Facility by Landlord or its designee.

5.3          Yield Up.  Upon the expiration or sooner termination of this Agreement (or the termination of this Agreement with respect to any Property), Tenant shall vacate and surrender the Leased Property or such Property (as applicable) to Landlord in substantially the same condition in which such Property was in on its Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Agreement, reasonable wear and tear excepted (and

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casualty damage and Condemnation, in the event that this Agreement is terminated following a casualty or Condemnation in accordance with Article 10 or Article 11 excepted).

In addition, upon the expiration or earlier termination of this Agreement, Tenant shall, at Landlord’s sole cost and expense, use its good faith efforts to transfer (or cause to be transferred) to and cooperate with Landlord or Landlord’s nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental Entities which may be necessary for the use and operation of the Facility as then operated.  If requested by Landlord, Tenant shall continue to manage one or more of the Facilities after the expiration of the Term for up to one hundred eighty (180) days, on such reasonable terms (which shall include an agreement to reimburse Tenant for its reasonable out-of-pocket costs and expenses, and reasonable administrative costs), as Landlord shall reasonably request.

5.4          Management Agreement.  Tenant shall not, without Landlord’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned), enter into, amend or modify the provisions of any Management Agreement with respect to any Property.  Any Management Agreement entered into pursuant to the provisions of this Section 5.4 shall be subordinate to this Agreement and shall provide, inter alia, that all amounts due from Tenant to Manager thereunder shall be subordinate to all amounts due from Tenant to Landlord (provided that, as long as no Event of Default has occurred and is continuing, Tenant may pay all amounts due to Manager thereunder pursuant to such Management Agreement) and for termination thereof, at Landlord’s option, upon the termination of this Agreement.  Tenant shall not take any action, grant any consent or permit any action under any such Management Agreement which might have a material adverse effect on Landlord, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned.

ARTICLE 6

IMPROVEMENTS, ETC.

6.1          Improvements to the Leased Property.  Tenant shall not make, construct or install (or permit to be made, constructed or installed) any Capital Additions without, in each instance, obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned provided that (a) construction or installation of the same would not

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adversely affect or violate any material Legal Requirement or Insurance Requirement applicable to any Property and (b) Landlord shall have received an Officer’s Certificate certifying as to the satisfaction of the conditions set out in clause (a) above; provided, however, that no such consent shall be required in the event immediate action is required to prevent imminent harm to person or property.  Prior to commencing construction of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any such proposed improvement and shall provide to Landlord such plans and specifications, and such permits, licenses, contracts and such other information concerning the same as Landlord may reasonably request.  Landlord shall have thirty (30) days to review all materials submitted to Landlord in connection with any such proposal.  Failure of Landlord to respond to Tenant’s proposal within thirty (30) days after receipt of all information and materials requested by Landlord in connection with the proposed improvement shall be deemed to constitute approval of the same.  Without limiting the generality of the foregoing, such proposal shall indicate the approximate projected cost of constructing such proposed improvement and the use or uses to which it will be put.  No Capital Addition shall be made which would tie in or connect any Leased Improvements with any other improvements on property adjacent to any Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities.  Except as permitted herein, Tenant shall not finance the cost of any construction of such improvement by the granting of a lien on or security interest in the Leased Property or such improvement, or Tenant’s interest therein, without the prior written consent of Landlord, which consent may be withheld by Landlord in Landlord’s sole discretion.  Any such improvements shall, upon the expiration or sooner termination of this Agreement, remain or pass to and become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances.

6.2          Salvage.  All materials which are scrapped or removed in connection with the making of either Capital Additions or non-Capital Additions or repairs required by Article 5 shall be or become the property of the party that paid for such work.

ARTICLE 7

LIENS

7.1          Liens.  Subject to Article 8, Tenant shall use its best efforts not, directly or indirectly, to create or allow to remain and shall promptly discharge (or cause to be discharged), at its expense, any lien, encumbrance, attachment, title

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retention agreement or claim upon the Leased Property, or any portion thereof, or Tenant’s leasehold interest therein or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (c) liens for those taxes of Landlord which Tenant is not required to pay hereunder, (d) subleases permitted by Article 16, (e) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet due and payable, or (ii) are being contested in accordance with Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or vendors incurred in the ordinary course of business that are not yet due and payable or are for sums that are being contested in accordance with Article 8, (g) any Facility Mortgages or other liens which are the responsibility of Landlord pursuant to the provisions of Article 20 and (h) Landlord Liens and any other voluntary liens created by Landlord.

7.2          Landlord’s Lien.  In addition to any statutory landlord’s lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant’s breach of this Agreement, Tenant hereby grants unto Landlord, to the maximum extent permitted by Applicable Law, a security interest in and an express contractual lien upon Tenant’s Personal Property (except motor vehicles), and Tenant’s interest in all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Facilities (the “Records”) and all proceeds therefrom, subject to any Permitted Encumbrances; and such Tenant’s Personal Property shall not be removed from the Leased Property at any time when an Event of Default has occurred and is continuing.

Upon Landlord’s request, Tenant shall execute and deliver to Landlord financing statements in form sufficient to perfect the security interest of Landlord in Tenant’s Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State.  During the continuance of an Event of Default, Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant’s name, place and stead.  The security interest herein granted is in addition to any statutory lien for the Rent.

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ARTICLE 8

PERMITTED CONTESTS

Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim (collectively, “Claims”) as to the Leased Property, by appropriate legal proceedings, conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant’s obligation to pay (or cause to be paid) any Claims as finally determined, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property, or any portion thereof (Landlord agreeing that any such mortgage or deed of trust shall permit Tenant to exercise the rights granted pursuant to this Article 8) or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property, or any portion thereof, (c) no part of the Leased Property nor any Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or reasonable expense, including reasonable attorneys’ fees, incurred by Landlord in connection therewith or as a result thereof.  Landlord agrees to join in any such proceedings if required legally to prosecute such contest, provided that Landlord shall not thereby be subjected to any liability therefor (including, without limitation, for the payment of any costs or expenses in connection therewith) unless Tenant agrees by agreement in form and substance reasonably satisfactory to Landlord, to assume and indemnify Landlord with respect to the same.  Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord to the extent that Landlord has been fully reimbursed by Tenant.  If Tenant shall fail (x) to pay or cause to be paid any Claims when finally determined, (y) to provide reasonable security therefor or (z) to prosecute or cause to be prosecuted any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice shall not be required if Landlord shall reasonably determine that the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Charges.

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ARTICLE 9

INSURANCE AND INDEMNIFICATION

9.1          General Insurance Requirements.  Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of any Property, or any portion thereof, keep (or cause to be kept) such Property and all property located therein or thereon, insured against the risks and in such amounts as is against such risks and in such amounts as Landlord shall reasonably require and may be commercially reasonable.  Tenant shall prepare a proposal setting forth the insurance Tenant proposes to be maintained with respect to each Property during the ensuing Fiscal Year and shall submit such proposal to Landlord on or before December 1 of the preceding Lease Year for Landlord’s review and approval, which approval shall not be unreasonably withheld, delayed or conditioned.  In the event that Landlord shall fail to respond within thirty (30) days after receipt of such proposal, such proposal shall be deemed approved.

9.2          Waiver of Subrogation.  Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in any State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, the party carrying such insurance and suffering said loss releases the others of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies (and, if Landlord or Tenant shall self insure in accordance with the terms hereof, Landlord or Tenant, as the case may be) shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom.  In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium.

9.3          Form Satisfactory, Etc.  All insurance policies and endorsements required pursuant to this Article 9 shall be fully paid for, nonassessable, and issued by reputable insurance companies authorized to do business in the State and having a general policy holder’s rating of no less than A in Best’s latest rating guide.  All property, business interruption, liability and flood insurance policies with respect to each Property shall include no deductible in excess of Two Hundred Fifty Thousand Dollars ($250,000).  At all times, all property, business interruption, liability and flood insurance policies,

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with the exception of worker’s compensation insurance coverage, shall name Landlord and any Facility Mortgagee as additional insureds, as their interests may appear.  All loss adjustments shall be payable as provided in Article 10, except that losses under liability and worker’s compensation insurance policies shall be payable directly to the party entitled thereto.  Tenant shall cause all insurance premiums to be paid and shall deliver (or cause to be delivered) policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, prior to the expiration of the existing policy).  All such policies shall provide Landlord (and any Facility Mortgagee if required by the same) thirty (30) days prior written notice of any material change or cancellation of such policy.  In the event Tenant shall fail to effect (or cause to be effected) such insurance as herein required, to pay (or cause to be paid) the premiums therefor or to deliver (or cause to be delivered) such policies or certificates to Landlord or any Facility Mortgagee at the times required, Landlord shall have the right, but not the obligation, upon Notice to Tenant, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Charges, together with interest accrued thereon at the Overdue Rate from the date such payment is made until (but excluding) the date repaid.

9.4          No Separate Insurance; Self-Insurance.  Tenant shall not take (or permit any Person to take) out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9, or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including Landlord and all Facility Mortgagees, are included therein as additional insureds and the loss is payable under such insurance in the same manner as losses are payable under this Agreement.  In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt Notice thereof.  Tenant shall not self-insure (or permit any Person to self-insure).

9.5          Indemnification of Landlord.  Notwithstanding the existence of any insurance provided for herein and without regard to the policy limits of any such insurance, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys’ fees), to the maximum extent permitted by law, imposed upon or incurred by

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or asserted against Landlord by reason of the following, except to the extent caused by Landlord’s gross negligence or willful misconduct:  (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about any Property or portion thereof or adjoining sidewalks or rights of way, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant, any Manager or anyone claiming under any of them or Tenant’s Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant relating to any Property or portion thereof or Tenant’s Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions that are the obligations of Tenant to pay pursuant to the applicable provisions of this Agreement, and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Agreement.  Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord (and shall not be responsible for any duplicative attorneys’ fees incurred by Landlord) or may compromise or otherwise dispose of the same, with Landlord’s prior written consent (which consent may not be unreasonably withheld, delayed or conditioned).  The obligations of Tenant under this Section 9.5 are in addition to the obligations set forth in Section 4.4 and shall survive the termination of this Agreement.

ARTICLE 10

CASUALTY

10.1        Insurance Proceeds.  Except as provided in the last clause of this sentence, all proceeds payable by reason of any loss or damage to any Property, or any portion thereof, and insured under any policy of insurance required by Article 9 (other than the proceeds of any business interruption insurance) shall be paid directly to Landlord (subject to the provisions of Section 10.2) and all loss adjustments with respect to losses payable to Landlord shall require the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that, so long as no Event of Default shall have occurred and be continuing, all such proceeds less than or equal to Two Hundred Fifty Thousand Dollars ($250,000) shall be paid directly to Tenant and such losses may be adjusted without Landlord’s consent.  If Tenant is required to reconstruct or repair any Property as provided

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herein, such proceeds shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of such Property necessitated by such damage or destruction, subject to and in accordance with the provisions of Section 10.2.4.  Provided no Default or Event of Default has occurred and is continuing, any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant.  In the event that the provisions of Section 10.2.1 are applicable, the insurance proceeds shall be retained by the party entitled thereto pursuant to Section 10.2.1.

10.2        Damage or Destruction.

10.2.1         Damage or Destruction of Leased Property.  If, during the Term, any Property shall be totally or partially destroyed and the Facility located thereon is thereby rendered Unsuitable for Its Permitted Use, either Landlord or Tenant may, by the giving of Notice thereof to the other, terminate this Agreement with respect to such affected Property, whereupon, this Agreement shall terminate with respect to such affected Property and Landlord shall be entitled to retain the insurance proceeds payable on account of such damage.  In such event, Tenant shall pay to Landlord the amount of any deductible under the insurance policies covering such Facility, the amount of any uninsured loss and any difference between the replacement cost of the affected Property and the casualty insurance proceeds therefor.

10.2.2         Partial Damage or Destruction.  If, during the Term, any Property shall be totally or partially destroyed but the Facility is not rendered Unsuitable for Its Permitted Use, Tenant shall, subject to Section 10.2.3, promptly restore such Facility as provided in Section 10.2.4.

10.2.3         Insufficient Insurance Proceeds.  If the cost of the repair or restoration of the applicable Facility exceeds the amount of insurance proceeds received by Landlord and Tenant pursuant to Section 9.1, Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that, if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement).  In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord’s sole election by Notice to Tenant, given within sixty (60) days after Tenant’s notice of the deficiency, to elect to make available for application to

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the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(c).  In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property by Notice to the other, whereupon, this Agreement shall so terminate and insurance proceeds shall be distributed as provided in Section 10.2.1.  It is expressly understood and agreed, however, that, notwithstanding anything in this Agreement to the contrary, Tenant shall be strictly liable and solely responsible for the amount of any deductible and shall, upon any insurable loss, pay over the amount of such deductible to Landlord at the time and in the manner herein provided for payment of the applicable proceeds to Landlord.

10.2.4Disbursement of Proceeds.  In the event Tenant is required to restore any Property pursuant to Section 10.2 and this Agreement is not terminated as to such Property pursuant to this Article 10, Tenant shall commence (or cause to be commenced) promptly and continue diligently to perform (or cause to be performed) the repair and restoration of such Property (hereinafter called the “Work”), so as to restore (or cause to be restored) the applicable Property in material compliance with all Legal Requirements and so that such Property shall be, to the extent practicable, substantially equivalent in value and general utility to its general utility and value immediately prior to such damage or destruction.  Subject to the terms hereof, Landlord shall advance the insurance proceeds and any additional amounts payable by Landlord pursuant to Section 10.2.3 or otherwise deposited with Landlord to Tenant regularly during the repair and restoration period so as to permit payment for the cost of any such restoration and repair.  Any such advances shall be made not more than monthly within ten (10) Business Days after Tenant submits to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be reasonably acceptable to Landlord).  Landlord may, at its option, condition advancement of such insurance proceeds and other amounts on (a) the absence of any Event of Default, (b) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (c) general contractors’ estimates, (d) architect’s certificates, (e) conditional lien waivers of general contractors, if available, (f) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required, (g), if Tenant has elected to advance

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deficiency funds pursuant to Section 10.2.3, Tenant depositing the amount thereof with Landlord and (h) such other certificates as Landlord may, from time to time, reasonably require.

Landlord’s obligation to disburse insurance proceeds under this Article 10 shall be subject to the release of such proceeds by any Facility Mortgagee to Landlord.

Tenant’s obligation to restore the applicable Property pursuant to this Article 10 shall be subject to the release of available insurance proceeds by the applicable Facility Mortgagee to Landlord or directly to Tenant and, in the event such proceeds are insufficient, Landlord electing to make such deficiency available therefor (and disbursement of such deficiency).

10.3Damage Near End of Term.  Notwithstanding any provisions of Section 10.1 or 10.2 to the contrary, if damage to or destruction of any Property occurs during the last twelve (12) months of the Term and if such damage or destruction cannot reasonably be expected to be fully repaired and restored prior to the date that is six (6) months prior to the end of the Term, the provisions of Section 10.2.1 shall apply as if such Property had been totally or partially destroyed and the Facility thereon rendered Unsuitable for its Permitted Use.

10.4Tenant’s Property.  All insurance proceeds payable by reason of any loss of or damage to any of Tenant’s Personal Property shall be paid to Tenant and, to the extent necessary to repair or replace Tenant’s Personal Property in accordance with Section 10.5, Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant’s Personal Property.

10.5Restoration of Tenant’s Property.  If Tenant is required to restore any Property as hereinabove provided, Tenant shall either (a) restore all alterations and improvements made by Tenant and Tenant’s Personal Property, or (b) replace such alterations and improvements and Tenant’s Personal Property with improvements or items of the same or better quality and utility in the operation of such Property.

10.6No Abatement of Rent.  This Agreement shall remain in full force and effect and Tenant’s obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any damage involving the Leased Property, or any portion thereof (provided that Landlord shall credit against such payments any amounts paid to Landlord as a

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consequence of such damage under any business interruption insurance obtained by Tenant hereunder).  The provisions of this Article 10 shall be considered an express agreement governing any cause of damage or destruction to the Leased Property, or any portion thereof, and, to the maximum extent permitted by law, no local or State statute, laws, rules, regulation or ordinance in effect during the Term which provide for such a contingency shall have any application in such case.

10.7Waiver.  Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of the Leased Property, or any portion thereof.

ARTICLE 11

CONDEMNATION

11.1Total Condemnation, Etc.  If either (a) the whole of any Property shall be taken by Condemnation or (b) a Condemnation of less than the whole of any Property renders any Property Unsuitable for Its Permitted Use, this Agreement shall terminate with respect to such Property, Tenant and Landlord shall seek the Award for their interests in the applicable Property as provided in Section 11.5.

11.2Partial Condemnation.  In the event of a Condemnation of less than the whole of any Property such that such Property is still suitable for its Permitted Use, Tenant shall, to the extent of the Award and any additional amounts disbursed by Landlord as hereinafter provided, commence (or cause to be commenced) promptly and continue diligently to restore (or cause to be restored) the untaken portion of the applicable Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as such Leased Improvements existing immediately prior to such Condemnation, in material compliance with all Legal Requirements, subject to the provisions of this Section 11.2.  If the cost of the repair or restoration of the affected Property exceeds the amount of the Award, Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement).  In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord’s sole election by Notice

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to Tenant given within sixty (60) days after Tenant’s Notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(c).  In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property and the entire Award shall be allocated as set forth in Section 11.5.

Subject to the terms hereof, Landlord shall contribute to the cost of restoration that part of the Award necessary to complete such repair or restoration, together with severance and other damages awarded for the taken Leased Improvements and any deficiency Landlord has agreed to disburse, to Tenant regularly during the restoration period so as to permit payment for the cost of such repair or restoration.  Landlord may, at its option, condition advancement of such Award and other amounts on (a) the absence of any Event of Default, (b) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (c) general contractors’ estimates, (iv) architect’s certificates, (d) conditional lien waivers of general contractors, if available, (e) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required, (f), if Tenant has elected to advance deficiency funds pursuant to the preceding paragraph, Tenant depositing the amount thereof with Landlord and (g) such other certificates as Landlord may, from time to time, reasonably require.  Landlord’s obligation under this Section 11.2 to disburse the Award and such other amounts shall be subject to (x) the collection thereof by Landlord and (y) the satisfaction of any applicable requirements of any Facility Mortgage, and the release of such Award by the applicable Facility Mortgagee.  Tenant’s obligation to restore the Leased Property shall be subject to the release of the Award by the applicable Facility Mortgagee to Landlord.

11.3Abatement of Rent.  Other than as specifically provided in this Agreement, this Agreement shall remain in full force and effect and Tenant’s obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving the Leased Property, or any portion thereof.  The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving the Leased Property and, to the maximum extent

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permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such a contingency shall have any application in such case.

11.4Temporary Condemnation.  In the event of any temporary Condemnation of any Property or Tenant’s interest therein, this Agreement shall continue in full force and effect and Tenant shall continue to pay (or cause to be paid), in the manner and on the terms herein specified, the full amount of the Rent.  Tenant shall continue to perform and observe (or cause to be performed and observed) all of the other terms and conditions of this Agreement on the part of the Tenant to be performed and observed.  Provided no Event of Default has occurred and is continuing, the entire amount of any Award made for such temporary Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant.  Tenant shall, promptly upon the termination of any such period of temporary Condemnation, at its sole cost and expense, restore the affected Property to the condition that existed immediately prior to such Condemnation, in material compliance with all applicable Legal Requirements, unless such period of temporary Condemnation shall extend beyond the expiration of the Term, in which event Tenant shall not be required to make such restoration.

11.5Allocation of Award.  Except as provided in Section 11.4 and the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord.  Any portion of the Award made for the taking of Tenant’s leasehold interest in the Leased Property, loss of business during the remainder of the Term, the taking of Tenant’s Personal Property, the taking of Capital Additions paid for by Tenant and Tenant’s removal and relocation expenses shall be the sole property of and payable to Tenant (subject to the provisions of Section 11.2).  In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense.

ARTICLE 12

DEFAULTS AND REMEDIES

12.1Events of Default.  The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:

(a)should Tenant fail to make any payment of the Rent or any other sum payable hereunder when due; or

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(b)should Tenant fail to maintain the insurance coverages required under Article 9; or

(c)should Tenant default in the due observance or performance of any of the terms, covenants or agreements contained herein to be performed or observed by it (other than as specified in clauses (a) and (b) above) and should such default continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant; provided, however, that if such default is susceptible of cure but such cure cannot be accomplished with due diligence within such period of time and if, in addition, Tenant commences to cure or cause to be cured such default within thirty (30) days after Notice thereof from Landlord and thereafter prosecutes the curing of such default with all due diligence, such period of time shall be extended to such period of time (not to exceed an additional ninety (90) days in the aggregate) as may be necessary to cure such default with all due diligence; or

(d)should any obligation of Tenant in respect of any Indebtedness for money borrowed or for any material property or services, or any guaranty relating thereto, be declared to be or become due and payable prior to the stated maturity thereof, or should there occur and be continuing with respect to any such Indebtedness any event of default under any instrument or agreement evidencing or securing the same, the effect of which is to permit the holder or holders of such instrument or agreement or a trustee, agent or other representative on behalf of such holder or holders, to cause any such obligations to become due prior to its stated maturity; or

(e)should an event of default by Tenant, any Guarantor or any Affiliated Person as to Tenant or any Guarantor occur and be continuing beyond the expiration of any applicable cure period under any of the Incidental Documents; or

(f)should Tenant or any Guarantor generally not be paying its debts as they become due or should Tenant or any Guarantor make a general assignment for the benefit of creditors; or

(g)should any petition be filed by or against Tenant or any Guarantor under the Federal bankruptcy laws, or should any other proceeding be instituted by or against Tenant or any Guarantor seeking to adjudicate Tenant or any Guarantor a bankrupt or insolvent, or seeking liquidation,

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reorganization, arrangement, adjustment or composition of Tenant’s debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Tenant or any Guarantor or for any substantial part of the property of Tenant or any Guarantor and such proceeding is not dismissed within one hundred eighty (180) days after institution thereof; or

(h)should Tenant or any Guarantor cause or institute any proceeding for its dissolution or termination; or

(i)should the estate or interest of Tenant in the Leased Property or any part thereof be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of (x) ninety (90) days after commencement thereof, unless the amount in dispute is less than $250,000, in which case Tenant shall give notice to Landlord of the dispute but Tenant may defend in any suitable way, and (y) two hundred seventy (270) days after receipt by Tenant of Notice thereof from Landlord (unless Tenant shall be contesting such lien or attachment in good faith in accordance with Article 8); or

(j)should there occur any direct or indirect Change in Control of Tenant or any Guarantor; or

(k)should a final unappealable determination be made by the applicable Government Agency that Tenant shall have failed to comply with applicable Medicare and/or Medicaid regulations in the operation of any Facility, as a result of which failure Tenant is declared ineligible to receive reimbursements under the Medicare and/or Medicaid programs for such Facility;

then, and in any such event, Landlord, in addition to all other remedies available to it, may terminate this Agreement with respect to any or all of the Leased Property by giving Notice thereof to Tenant and upon the expiration of the time, if any, fixed in such Notice, this Agreement shall terminate with respect to all or the designated portion of the Leased Property and all rights of Tenant under this Agreement with respect thereto shall cease.  Landlord shall have and may exercise all rights and remedies available at law and in equity to Landlord as a result of Tenant’s breach of this Agreement.

Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon

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the Leased Property, or any portion thereof, and take possession of any and all of Tenant’s Personal Property, if any, and the Records, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable Notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of Tenant’s Personal Property, if any, unless otherwise prohibited by law.  Unless otherwise provided by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable Notice shall be met if such Notice is given at least ten (10) days before the date of sale.  The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys’ fees) shall be applied as a credit against the indebtedness which is secured by the security interest granted in Section 7.2.  Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Charges, upon demand.

Upon the occurrence of an Event of Default, and also when the Term shall have expired, in addition to any other remedies provided to Landlord herein, Tenant hereby authorizes and empowers any prothonotary or any attorney of any court of record to appear for Tenant, without incurring liability to Tenant for so doing, in any action to confess judgment in ejectment in any competent court against Tenant and against all persons claiming by, through or under Tenant, for the recovery by Landlord of possession of any portion of the Leased Property that is located within the Commonwealth of Pennsylvania, for which this Agreement shall be sufficient warrant; whereupon, if Landlord so desires, a writ of possession with clauses for costs may issue forthwith with or without any prior proceeding whatsoever.  Such authority shall not be exhausted by any one or more exercises thereof, but judgment may be conferred from time to time as often as any Event of Default shall have occurred and be continuing, or when the Term shall have expired.  In any confession of judgment against Tenant hereunder, Landlord shall cause to be filed in such action an affidavit setting forth the facts necessary to authorize the entry of judgment and if a true copy of this Agreement (and of the truth of the copy, such affidavit shall be sufficient proof) be filed in such action, it shall not be necessary to file the original as a warrant of attorney, notwithstanding any law, rule of court, custom or practice to the contrary.  Tenant releases to Landlord, and to any and all attorneys who may appear for Tenant, all procedural

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errors in any proceedings taken by Landlord, whether by virtue of the powers of attorney contained in this Agreement or not, and all liability therefor.  Tenant expressly waives the benefits of all laws, now or hereafter in force, exempting any property within the Leased Property or elsewhere from distraint, levy or sale.  Tenant further waives the right to any notice to remove as may be specified in the Pennsylvania Landlord and Tenant Act of April 6, 1951, as amended, or any similar or successor provision of Pennsylvania or New Jersey law, and agrees that five (5) days notice shall be sufficient in any case where a longer period may be statutorily specified.

12.2Remedies.  None of (a) the termination of this Agreement pursuant to Section 12.1, (b) the repossession of the Leased Property, or any portion thereof, (c) the failure of Landlord to relet the Leased Property, or any portion thereof, nor (d) the reletting of all or any of portion of the Leased Property, shall relieve Tenant of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting.  In the event of any such termination, Tenant shall forthwith pay to Landlord all Rent due and payable with respect to the Leased Property, or terminated portion thereof, through and including the date of such termination.  Thereafter, Tenant, until the end of what would have been the Term of this Agreement in the absence of such termination, and whether or not the Leased Property, or any portion thereof, shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any reletting of the Leased Property, or any portion thereof, after deducting all reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys’ fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting.  Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Agreement had not been so terminated with respect to such of the Leased Property.

At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages beyond the date of such termination, at Landlord’s election, Tenant shall pay to Landlord an amount equal to the present value (as reasonably determined by Landlord) of the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such termination (assuming

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that, for the purposes of this paragraph, annual payments by Tenant on account of Impositions would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the applicable Commencement Date for any Property, the payments required for such lesser period projected to an annual amount) for what would be the then unexpired term of this Agreement if the same remained in effect, over the fair market rental for the same period.  Nothing contained in this Agreement shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above.

In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord’s option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) make such reasonable alterations, repairs and decorations in the Leased Property, or any portion thereof, as Landlord, in its sole and absolute discretion, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid.  Landlord shall in no event be liable in any way whatsoever for any failure to relet all or any portion of the Leased Property, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting.  To the maximum extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the occurrence and continuation of an Event of Default hereunder.

12.3Tenant’s Waiver.  IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.

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12.4Application of Funds.  Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Event of Default) shall be applied to Tenant’s current and past due obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the State.  Any balance shall be paid to Tenant.

12.5Landlord’s Right to Cure Tenant’s Default.  If an Event of Default shall have occurred and be continuing, Landlord, after Notice to Tenant (which Notice shall not be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the maximum extent permitted by law, enter upon the Leased Property, or any portion thereof, for such purpose and take all such action thereon as, in Landlord’s sole and absolute discretion, may be necessary or appropriate therefor.  No such entry shall be deemed an eviction of Tenant.  All reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.

ARTICLE 13

HOLDING OVER

Any holding over by Tenant after the expiration or sooner termination of this Agreement shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and other charges herein provided (prorated on a daily basis).  Tenant shall also pay to Landlord all damages (direct or indirect) sustained by reason of any such holding over.  Otherwise, such holding over shall be on the terms and conditions set forth in this Agreement, to the extent applicable.  Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the expiration or earlier termination of this Agreement.

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ARTICLE 14

LANDLORD DEFAULT

If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Agreement or any obligation of Landlord, if any, under any agreement affecting the Leased Property, the performance of which is not Tenant’s obligation pursuant to this Agreement, and any such default shall continue for a period of thirty (30) days after Notice thereof from Tenant to Landlord and any applicable Facility Mortgagee, or such additional period as may be reasonably required to correct the same, Tenant may declare the occurrence of a “Landlord Default” by a second Notice to Landlord and to such Facility Mortgagee.  Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys’ fees and court costs) incurred by Tenant in curing the same, together with interest thereon (to the extent permitted by law) from the date Landlord receives Tenant’s invoice until paid, at the Overdue Rate.  Tenant shall have no right to terminate this Agreement for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any Rent or other charges due hereunder.

If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give Notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof.  If Tenant and Landlord shall fail, in good faith, to resolve any such dispute within ten (10) days after Landlord’s Notice of dispute, either may submit the matter for resolution in accordance with Article 22.

ARTICLE 15

PURCHASE RIGHTS

Landlord shall have the option to purchase Tenant’s Personal Property, at the expiration or sooner termination of this Agreement, for an amount equal to the then fair market value thereof (current replacement cost as determined by agreement of the parties or, in the absence of such agreement, appraisal), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject.  Upon the expiration or sooner

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termination of this Agreement, Tenant shall use its reasonable efforts to transfer and assign, or cause to be transferred and assigned, to Landlord or its designee, or assist Landlord or its designee in obtaining, any contracts, licenses, and certificates required for the then operation of the Leased Property.  Notwithstanding the foregoing, Tenant expressly acknowledges and agrees that nothing contained in this Article 15 shall diminish, impair or otherwise modify Landlord’s rights under the Security Agreement and that any amounts paid by Landlord in order to purchase Tenant’s Personal Property in accordance with this Article 15 shall be applied first to Tenant’s current and past due obligations under this Agreement in such order as Landlord may reasonably determine or as may be prescribed by the laws of the State and any balance shall be paid to Tenant.

ARTICLE 16

SUBLETTING AND ASSIGNMENT

16.1Subletting and Assignment.  Except as provided in Section 16.3, Tenant shall not, without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole and absolute discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Agreement or sublease or permit the sublease (which term shall be deemed to include the granting of concessions, licenses and the like), of the Leased Property, or any portion thereof, or suffer or permit this Agreement or the leasehold estate created hereby or any other rights arising under this Agreement to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or operation of the Leased Property, or any portion thereof, by anyone other than Tenant, any Manager approved by Landlord pursuant to the applicable provisions of this Agreement or residents and patients of Tenant, or the Leased Property, or any portion thereof, to be offered or advertised for assignment or subletting.

For purposes of this Section 16.1, an assignment of this Agreement shall be deemed to include, without limitation, any direct or indirect Change in Control of Tenant.

If this Agreement is assigned or if the Leased Property, or any portion thereof, is sublet (or occupied by anybody other than Tenant or any Manager, their respective employees or residents or patients of Tenant), Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the

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provisions set forth in the first paragraph of this Section 16.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Agreement.

Any assignment or transfer of Tenant’s interest under this Agreement shall be subject to such assignee’s or transferee’s delivery to Landlord of (i) a Guaranty, which Guaranty shall be in form and substance satisfactory to Landlord in its sole discretion and which Guaranty shall constitute an Incidental Document hereunder; (ii) a pledge of the stock, partnership, membership or other ownership interests of such assignee or other transferee to secure Tenant’s obligations under this Agreement and the Incidental Documents, which pledge shall be in form and substance satisfactory to Landlord in its sole discretion and which pledge shall constitute an Incidental Document hereunder; (iii) a security agreement granting Landlord a security interest in all of such assignee’s or transferee’s right, title and interest in and to any personal property, intangibles and fixtures (other than accounts receivable) with respect to any Property which is subject to any such assignment or transfer to secure Tenant’s obligations under this Agreement and the Incidental Documents, which security agreement shall be in form and substance satisfactory to Landlord in its sole discretion and which security agreement shall constitute an Incidental Document hereunder; and (iv) in the case of a sublease, an assignment which assigns all of such subtenant’s right, title and interest in such sublease to Landlord to secure Tenant’s obligations under this Agreement and the Incidental Documents, which assignment shall be in form and substance satisfactory to Landlord in its sole discretion and which assignment shall constitute an Incidental Document hereunder.

No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder (unless Landlord and Tenant expressly otherwise agree that Tenant shall be released from all obligations hereunder), and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the prohibition set forth in this Section 16.1.  No assignment, subletting or occupancy shall affect any Permitted Use.  Any subletting, assignment or other transfer of Tenant’s interest under this Agreement in contravention of this Section 16.1 shall be voidable at Landlord’s option.

16.2Required Sublease Provisions.  Any sublease of all or any portion of the Leased Property shall provide (a) that it is subject and subordinate to this Agreement and to the matters to

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which this Agreement is or shall be subject or subordinate; (b) that in the event of termination of this Agreement or reentry or dispossession of Tenant by Landlord under this Agreement, Landlord may, at its option, terminate such sublease or take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord’s option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such mortgagee succeeds to that position, shall (i) be liable for any act or omission of Tenant under such sublease, (ii) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (iii) be bound by any previous modification of such sublease not consented to in writing by Landlord or by any previous prepayment of more than one (1) month’s rent, (iv) be bound by any covenant of Tenant to undertake or complete any construction of the applicable Property, or any portion thereof, (v) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (vi) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease that are performed after the date of such attornment, (vii) be responsible for any monies owing by Tenant to the credit of such subtenant unless actually delivered to Landlord by Tenant, or (viii) be required to remove any Person occupying any portion of the Leased Property; and (c) in the event that such subtenant receives a written Notice from Landlord or any Facility Mortgagee stating that an Event of Default has occurred and is continuing, such subtenant shall thereafter be obligated to pay all rentals accruing under such sublease directly to the party giving such Notice or as such party may direct.  All rentals received from such subtenant by Landlord or the Facility Mortgagee, as the case may be, shall be credited against the amounts owing by Tenant under this Agreement and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn.  An original counterpart of each such sublease and assignment and assumption, duly executed by Tenant and such subtenant or assignee, as the case may be, in form and substance reasonably satisfactory to Landlord, shall be delivered promptly to Landlord and (x) in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Agreement on the part of Tenant to be kept and performed and shall be, and become, jointly and severally liable with Tenant for the performance thereof and (y) in the case of

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either an assignment or subletting, Tenant shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Tenant hereunder.

The provisions of this Section 16.2 shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 16.1.

16.3Permitted Sublease.  Notwithstanding the foregoing, including, without limitation, Section 16.2, but subject to the provisions of Section 16.4 and any other express conditions or limitations set forth herein, Tenant may, in each instance after Notice to Landlord, (a) enter into third party residency agreements with respect to the units located at the Facilities, (b) sublease space at any Property for laundry, commissary or child care purposes or other concessions in furtherance of the Permitted Use, so long as such subleases will not reduce the number of units at any Facility, will not violate or affect any Legal Requirement or Insurance Requirement, and Tenant shall provide such additional insurance coverage applicable to the activities to be conducted in such subleased space as Landlord and any Facility Mortgagee may reasonably require, and (c) enter into one or more subleases with Affiliated Persons of Tenant with respect to the Leased Property, or any portion thereof, provided Tenant gives Landlord Notice of the material terms and conditions thereof.  Landlord and Tenant acknowledge and agree that if Tenant enters into one (1) or more subleases with Affiliated Persons of Tenant with respect to any Property, or any portion thereof, in accordance with the preceding clause (c), Tenant may allocate the rent and other charges with respect to the affected Property in any reasonable manner; provided, however, that such allocation shall not affect Tenant’s (nor any Guarantor’s) liability for the Rent and other obligations of Tenant under this Agreement; and, provided, further, that Tenant shall give Landlord prompt written notice of any allocation or reallocation of the rent and other charges with respect to the affected Property and, in any event, Tenant shall give Landlord written notice of the amount of such allocations at least ten (10) Business Days prior to the date that Landlord or Senior Housing Properties Trust is required to file any tax returns in any State where such affected Property is located.

16.4Sublease Limitation.  Anything contained in this Agreement to the contrary notwithstanding, Tenant shall not sublet the Leased Property, or any portion thereof, on any basis such that the rental to be paid by any sublessee thereunder would be based, in whole or in part, on the net income or

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profits derived by the business activities of such sublessee, any other formula such that any portion of such sublease rental would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto or would otherwise disqualify Landlord for treatment as a real estate investment trust.

ARTICLE 17

ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

17.1Estoppel Certificates.  At any time and from time to time, but not more than a reasonable number of times per year, upon not less than ten (10) Business Days prior Notice by either party, the party receiving such Notice shall furnish to the other an Officer’s Certificate certifying that this Agreement is unmodified and in full force and effect (or that this Agreement is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that no Default or an Event of Default has occurred and is continuing or, if a Default or an Event of Default shall exist, specifying in reasonable detail the nature thereof, and the steps being taken to remedy the same, and such additional information as the requesting party may reasonably request.  Any such certificate furnished pursuant to this Section 17.1 may be relied upon by the requesting party, its lenders and any prospective purchaser or mortgagee of the Leased Property, or any portion thereof, or the leasehold estate created hereby.

17.2Financial Statements.  Tenant shall furnish or cause Five Star to furnish, as applicable, the following statements to Landlord:

(a)within forty-five (45) days after each of the first three fiscal quarters of any Fiscal Year, the most recent Consolidated Financials, accompanied by a Financial Officer’s Certificate;

(b)within ninety (90) days after the end of each Fiscal Year, the most recent Consolidated Financials and financials of Tenant for such year, certified by an independent certified public accountant reasonably satisfactory to Landlord and accompanied by a Financial Officer’s Certificate;

(c)within forty-five (45) days after the end of each month, an unaudited operating statement and statement of capital expenditures prepared on a Facility by Facility basis and a combined basis, including occupancy percentages

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and average rate, accompanied by a Financial Officer’s Certificate;

(d)at any time and from time to time upon not less than twenty (20) days Notice from Landlord or such additional period as may be reasonable under the circumstances, any Consolidated Financials, Tenant financials or any other audited or unaudited financial reporting information required to be filed by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court, governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; provided, however, that, except as to calculations pertaining to Gross Revenues, Tenant shall not be required to provide audited financials with respect to any individual Facility unless Landlord shall agree to pay for the cost thereof;

(e)promptly, after receipt or sending thereof, copies of all notices given or received by Tenant under any Management Agreement; and

(f)promptly, upon Notice from Landlord, such other information concerning the business, financial condition and affairs of Tenant and/or any Guarantor as Landlord reasonably may request from time to time.

Landlord may at any time, and from time to time, provide any Facility Mortgagee with copies of any of the foregoing statements, subject to Landlord obtaining the agreement of such Facility Mortgagee to maintain such statements and the information therein as confidential.

17.3General Operations.  Tenant covenants and agrees to furnish to Landlord, within thirty (30) days after receipt or modification thereof, copies of:

(a)all licenses authorizing Tenant or any Manager to operate any Facility for its Permitted Use;

(b)all Medicare and Medicaid certifications, together with provider agreements and all material correspondence relating thereto with respect to any Facility (excluding, however, correspondence which may be subject to any attorney client privilege);

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(c)           if required under Applicable Law with respect to any Facility, a license for each individual employed as administrator with respect to such Facility;

(d)           all reports of surveys, statements of deficiencies, plans of correction, and all material correspondence relating thereto, including, without limitation, all reports and material correspondence concerning compliance with or enforcement of licensure, Medicare/Medicaid, and accreditation requirements, including physical environment and Life Safety Code survey reports (excluding, however, correspondence which may be subject to any attorney client privilege); and

(e)           with reasonable promptness, such other confirmation as to the licensure and Medicare and Medicaid participation of Tenant as Landlord may reasonably request from time to time.

ARTICLE 18

LANDLORD’S RIGHT TO INSPECT

Tenant shall permit Landlord and its authorized representatives to inspect the Leased Property, or any portion thereof, during usual business hours upon not less than forty-eight (48) hours’ notice and to make such repairs as Landlord is permitted or required to make pursuant to the terms of this Agreement, provided that any inspection or repair by Landlord or its representatives will not unreasonably interfere with Tenant’s use and operation of the Leased Property and further provided that in the event of an emergency, as determined by Landlord in its reasonable discretion, prior Notice shall not be necessary.

ARTICLE 19

EASEMENTS

19.1        Grant of Easements.  Provided no Event of Default has occurred and is continuing, Landlord will join in granting and, if necessary, modifying or abandoning such rights-of-way, easements and other interests as may be reasonably requested by Tenant for ingress and egress, and electric, telephone, gas, water, sewer and other utilities so long as:

(a)           the instrument creating, modifying or abandoning any such easement, right-of-way or other interest is satisfactory to and approved by Landlord (which approval

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shall not be unreasonably withheld, delayed or conditioned);

(b)           Landlord receives an Officer’s Certificate from Tenant stating (i) that such grant, modification or abandonment is not detrimental to the proper conduct of business on such Property, (ii) the consideration, if any, being paid for such grant, modification or abandonment (which consideration shall be paid by Tenant), (iii) that such grant, modification or abandonment does not impair the use or value of such Property for the Permitted Use, and (iv) that, for as long as this Agreement shall be in effect, Tenant will perform all obligations, if any, of Landlord under any such instrument; and

(c)           Landlord receives evidence satisfactory to Landlord that the Manager has granted its consent to such grant, modification or abandonment in accordance with the requirements of such Manager’s Management Agreement or that such consent is not required.

19.2        Exercise of Rights by Tenant.  So long as no Event of Default has occurred and is continuing, Tenant shall have the right to exercise all rights of Landlord under the Easement Agreements and, in connection therewith, Landlord shall execute and promptly return to Tenant such documents as Tenant shall reasonably request.  Tenant shall perform all obligations of Landlord under the Easement Agreements.

19.3        Permitted Encumbrances.  Any agreements entered into in accordance with this Article 19 shall be deemed a Permitted Encumbrance.

ARTICLE 20

FACILITY MORTGAGES

20.1        Landlord May Grant Liens.  Without the consent of Tenant, Landlord may, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement (“Encumbrance”) upon the Leased Property, or any portion thereof, or interest therein, whether to secure any borrowing or other means of financing or refinancing.

20.2        Subordination of Lease.  This Agreement and any and all rights of Tenant hereunder are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all

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mortgages and deeds of trust, which may now or hereafter affect the Leased Property, or any portion thereof, or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust.  This section shall be self-operative and no further instrument of subordination shall be required.  In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination.  Any lease to which this Agreement is, at the time referred to, subject and subordinate is herein called “Superior Lease” and the lessor of a Superior Lease or its successor in interest at the time referred to is herein called “Superior Landlord” and any mortgage or deed of trust to which this Agreement is, at the time referred to, subject and subordinate is herein called “Superior Mortgage” and the holder, trustee or beneficiary of a Superior Mortgage is herein called “Superior Mortgagee”.  Tenant shall have no obligations under any Superior Lease or Superior Mortgage other than those expressly set forth in this Section 20.2.

If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Agreement (any such person, “Successor Landlord”), whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, at such Successor Landlord’s request, Tenant shall attorn to and recognize the Successor Landlord as Tenant’s landlord under this Agreement and Tenant shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment (provided that such instrument does not alter the terms of this Agreement), whereupon, this Agreement shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Agreement, except that the Successor Landlord (unless formerly the landlord under this Agreement or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of any prior Landlord under this Agreement, (b) responsible for any monies owing by or on deposit with any prior

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Landlord to the credit of Tenant (except to the extent actually paid or delivered to the Successor Landlord), (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against any prior Landlord, (d) bound by any modification of this Agreement subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Rent for more than one (1) month in advance of the date due hereunder, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor Landlord’s interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Agreement to render the Leased Property ready for occupancy by Tenant (subject to Landlord’s obligations under Section 5.1.2(b) or with respect to any insurance or Condemnation proceeds), or (g) required to remove any Person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord.  Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant’s agreement to attorn, as aforesaid and Landlord agrees to provide Tenant with an instrument of nondisturbance and attornment from each such Superior Mortgagee and Superior Landlord (other than the lessors under any ground leases with respect to the Leased Property, or any portion thereof) in form and substance reasonably satisfactory to Tenant.  Notwithstanding the foregoing, any Successor Landlord shall be liable (a) to pay to Tenant any amounts owed under Section 5.1.2(b), and (b) to pay to Tenant any portions of insurance proceeds or Awards received by Landlord or the Successor Landlord required to be paid to Tenant pursuant to the terms of this Agreement, and, as a condition to any mortgage, lien or lease in respect of the Leased Property, or any portion thereof, and the subordination of this Agreement thereto, the mortgagee, lienholder or lessor, as applicable, shall expressly agree, for the benefit of Tenant, to make such payments, which agreement shall be embodied in an instrument in form reasonably satisfactory to Tenant.

20.3        Notice to Mortgagee and Superior Landlord.  Subsequent to the receipt by Tenant of Notice from Landlord as to the identity of any Facility Mortgagee or Superior Landlord under a lease with Landlord, as ground lessee, which includes the Leased Property, or any portion thereof, as part of the demised premises and which complies with Section 20.1 (which Notice shall be accompanied by a copy of the applicable mortgage or lease), no Notice from Tenant to Landlord as to a default by Landlord under this Agreement shall be effective with respect to a Facility Mortgagee or Superior Landlord unless and until a

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copy of the same is given to such Facility Mortgagee or Superior Landlord at the address set forth in the above described Notice, and the curing of any of Landlord’s defaults within the applicable notice and cure periods set forth in Article 14 by such Facility Mortgagee or Superior Landlord shall be treated as performance by Landlord.

ARTICLE 21

ADDITIONAL COVENANTS OF TENANT

21.1        Prompt Payment of Indebtedness.  Tenant shall (a) pay or cause to be paid when due all payments of principal of and premium and interest on Tenant’s Indebtedness for money borrowed and shall not permit or suffer any such Indebtedness to become or remain in default beyond any applicable grace or cure period, (b) pay or cause to be paid when due all lawful claims for labor and rents with respect to the Leased Property, (c) pay or cause to be paid when due all trade payables and (d) pay or cause to be paid when due all other of Tenant’s Indebtedness upon which it is or becomes obligated, except, in each case, other than that referred to in clause (a), to the extent payment is being contested in good faith by appropriate proceedings in accordance with Article 8 and if Tenant shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP, if appropriate, or unless and until foreclosure, distraint sale or other similar proceedings shall have been commenced.

21.2        Conduct of Business.  Tenant shall not engage in any business other than the leasing and operation of the Leased Property (including any incidental or ancillary business relating thereto).  Tenant shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate existence and its rights and licenses necessary to conduct such business.

21.3        Maintenance of Accounts and Records.  Tenant shall keep true records and books of account of Tenant in which full, true and correct entries will be made of dealings and transactions in relation to the business and affairs of Tenant in accordance with GAAP.  Tenant shall apply accounting principles in the preparation of the financial statements of Tenant which, in the judgment of and the opinion of its independent public accountants, are in accordance with GAAP, where applicable, except for changes approved by such independent public accountants.  Tenant shall provide to Landlord either in a footnote to the financial statements delivered under Section 17.2 which relate to the period in which such change occurs, or in separate schedules to such financial

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statements, information sufficient to show the effect of any such changes on such financial statements.

21.4        Notice of Litigation, Etc.  Tenant shall give prompt Notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party of which Tenant has notice or actual knowledge which involves a potential liability equal to or greater than Two Hundred Fifty Thousand Dollars ($250,000) or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant.  Forthwith upon Tenant obtaining knowledge of any Default, Event of Default or any default or event of default under any agreement relating to Indebtedness for money borrowed in an aggregate amount exceeding, at any one time, Two Hundred Fifty Thousand Dollars ($250,000), or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall furnish Notice thereof to Landlord specifying the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto.

21.5        Indebtedness of Tenant.  Tenant shall not create, incur, assume or guarantee, or permit to exist, or become or remain liable directly or indirectly upon, any Indebtedness except the following:

(a)           Indebtedness of Tenant to Landlord;

(b)           Indebtedness of Tenant for Impositions, to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Article 8;

(c)           Indebtedness of Tenant in respect of judgments or awards (i) which have been in force for less than the applicable appeal period and in respect of which execution thereof shall have been stayed pending such appeal or review, or (ii) which are fully covered by insurance payable to Tenant, or (iii) which are for an amount not in excess of $250,000 in the aggregate at any one time outstanding and (x) which have been in force for not longer than the applicable appeal period, so long as execution is not levied thereunder or (y) in respect of which an appeal or proceedings for review shall at the time be prosecuted in good faith in accordance with the provisions of Article 8,

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and in respect of which execution thereof shall have been stayed pending such appeal or review;

(d)           Unsecured borrowings of Tenant from its Affiliated Persons which are by their terms expressly subordinate pursuant to a Subordination Agreement to the payment and performance of Tenant’s obligations under this Agreement;

(e)           Indebtedness for purchase money financing in accordance with Section 21.8(a) and other operating liabilities incurred in the ordinary course of Tenant’s business;

(f)            Indebtedness of Tenant as guarantor or borrower secured by Liens permitted under Section 21.8(c);

(g)           A guaranty of Five Star’s obligations under its revolving line of credit.

21.6        Distributions, Payments to Affiliated Persons, Etc.  Tenant shall not declare, order, pay or make, directly or indirectly, any Distributions or any payment to any Affiliated Person of Tenant (including payments in the ordinary course of business) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any Event of Default shall have occurred and be continuing.  Otherwise, as long as no Event of Default shall have occurred and be continuing, Tenant may make Distributions and payments to Affiliated Persons; provided, however, that any such payments shall at all times be subordinate to Tenant’s obligations under this Agreement.

21.7        Prohibited Transactions.  Tenant shall not permit to exist or enter into any agreement or arrangement whereby it engages in a transaction of any kind with any Affiliated Person as to Tenant or any Guarantor, except on terms and conditions which are commercially reasonable.

21.8        Liens and Encumbrances.  Except as permitted by Section 7.1, Section 21.5, Tenant shall not create or incur or suffer to be created or incurred or to exist any Lien on this Agreement or any of Tenant’s assets, properties, rights or income, or any of its interest therein, now or at any time hereafter owned, other than:

(a)           Security interests securing the purchase price of equipment or personal property whether acquired before or after the applicable Commencement Date for any Property;

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provided, however, that (i) such Lien shall at all times be confined solely to the asset in question and (ii) the aggregate principal amount of Indebtedness secured by any such Lien shall not exceed the cost of acquisition or construction of the property subject thereto;

(b)           Permitted Encumbrances;

(c)           Security interests in Accounts or Chattel Paper, in Support Obligations, General Intangibles or Deposit Accounts relating to such Accounts or Chattel Paper, in any Instruments or Investment Property evidencing or arising from such Accounts or Chattel Paper, in any documents, books, records or other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to any property described in this Section 21.8(c) or in any Proceeds of any of the foregoing (capitalized terms used in this Section 21.8(c) without definition being used as defined in or for purposes of Article 9 of the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts); and

(d)           As permitted pursuant to Section 21.5.

21.9        Merger; Sale of Assets; Etc.  Without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole discretion), Tenant shall not (i) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, all or any material portion of its assets (including capital stock or other equity interests) or business to any Person, (ii) merge into or with or consolidate with any other Entity, or (iii) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, any personal property or fixtures or any real property; provided, however, that, notwithstanding the provisions of clause (iii) preceding, Tenant may dispose of equipment or fixtures which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility (but not necessarily having the same function) have been provided.

21.10      Tax Regulatory Agreement.  During the Term, Tenant shall (a) comply with all Facility Restrictions, Rental Restrictions, Low and Moderate Income Occupancy Requirements, Low and Moderate Income Units Requirements and Residency Agreement Provisions for Low and Moderate Income Units (as the foregoing terms are defined in the Tax Regulatory Agreements) contained in the Tax Regulatory Agreement (collectively, the

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“Requirements”) and (b) shall prepare, maintain on file for inspection by Landlord, and submit any and all reports, certifications, statements and information (the “Reports”) as are required under the Tax Regulatory Agreement.  The Reports shall include, but are not limited to, the detailing of facts as the Authority (as defined in the Tax Regulatory Agreement) reasonably determines are sufficient to establish compliance with the restrictions contained in the Tax Regulatory Agreement, such as copies of completed Form 8703, Tenant Income Certifications, and certifications as to compliance with the terms of the Tax Regulatory Agreement, and shall include, but shall not be limited to, all certifications and reports of compliance with the Requirements required by the Authority.  Tenant shall submit the Reports at least five (5) days prior to the required submission date, and Tenant shall simultaneously provide Landlord with a copy of the Reports.

ARTICLE 22

ARBITRATION

Landlord or Tenant may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such arbitration shall be conducted in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event Landlord or Tenant shall elect to submit any such dispute to arbitration hereunder, Landlord and Tenant shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either Landlord or Tenant shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such

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third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between Landlord and Tenant, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to Landlord and one to Tenant.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

Landlord and Tenant acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, Landlord and Tenant shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

ARTICLE 23

MISCELLANEOUS

23.1        Limitation on Payment of Rent.  All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this Agreement exceed the maximum permissible under applicable law, the benefit of which may be asserted by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount.  This provision shall control every other provision of

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this Agreement and any other agreements between Landlord and Tenant.

23.2        No Waiver.  No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term.  To the maximum extent permitted by law, no waiver of any breach shall affect or alter this Agreement, which shall continue in full force and effect with respect to any other then existing or subsequent breach.

23.3        Remedies Cumulative.  To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord or Tenant, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant (as applicable) of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies.

23.4        Severability.  Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein.

23.5        Acceptance of Surrender.  No surrender to Landlord of this Agreement or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender.

23.6        No Merger of Title.  It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly this Agreement or the leasehold estate created hereby and the fee estate or ground landlord’s interest in the Leased Property.

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23.7Conveyance by Landlord.  If Landlord or any successor owner of all or any portion of the Leased Property shall convey all or any portion of the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of such of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Agreement with respect to such of the Leased Property arising or accruing from and after the date of such conveyance or other transfer and all such future liabilities and obligations shall thereupon be binding upon the new owner.

23.8Quiet Enjoyment.  Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term, free of hindrance or molestation by Landlord or anyone claiming by, through or under Landlord, but subject to (a) any Encumbrance permitted under Article 20 or otherwise permitted to be created by Landlord hereunder, (b) all Permitted Encumbrances, (c) liens as to obligations of Landlord that are either not yet due or which are being contested in good faith and by proper proceedings, provided the same do not materially interfere with Tenant’s ability to operate any Facility and (d) liens that have been consented to in writing by Tenant.  Except as otherwise provided in this Agreement, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Agreement or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Agreement, or to fail to perform any other obligation of Tenant hereunder.

23.9No Recordation.  Neither Landlord nor Tenant shall record this Agreement.

23.10Notices.

(a)Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

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(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)All such notices shall be addressed,

if to Landlord:

c/o Senior Housing Properties Trust
400 Centre Street
Newton, Massachusetts  02458
Attn:  Mr. David J. Hegarty
Telecopier No. (617) 796-8349

if to Tenant to:

c/o Five Star Quality Care, Inc.
400 Centre Street
Newton, Massachusetts  02458
Attn:  Mr. Bruce J. Mackey Jr.
Telecopier No. (617) 796-8385

(d)By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

23.11Construction.  Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to the Leased Property shall survive such termination or expiration.  In no event shall Landlord be liable for any consequential damages suffered by Tenant as the result of a breach of this Agreement by Landlord.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged.  All the terms and provisions of this Agreement shall be binding

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upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition.  Time is of the essence with respect to the provisions of this Agreement.  Except as otherwise set forth in this Agreement, any obligations of Tenant (including without limitation, any monetary, repair and indemnification obligations) and Landlord shall survive the expiration or sooner termination of this Agreement.

23.12Counterparts; Headings.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed.  Headings in this Agreement are for purposes of reference only and shall not limit or affect the meaning of the provisions hereof.

23.13Applicable Law, Etc.  This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (a) where this Agreement is executed or delivered; or (b) where any payment or other performance required by this Agreement is made or required to be made; or (c) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than Massachusetts; or (g) any combination of the foregoing.  Notwithstanding the foregoing, the laws of the State shall apply to the perfection and priority of liens upon and the disposition of any Property.

23.14Right to Make Agreement.  Each party warrants, with respect to itself, that neither the execution of this Agreement, nor the consummation of any transaction contemplated hereby, shall violate any provision of any law, or any judgment, writ, injunction, order or decree of any court or governmental authority having jurisdiction over it; nor result in or constitute a breach or default under any indenture, contract, other commitment or restriction to which it is a party or by which it is bound; nor require any consent, vote or approval which has not been given or taken, or at the time of the

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transaction involved shall not have been given or taken.  Each party covenants that it has and will continue to have throughout the term of this Agreement and any extensions thereof, the full right to enter into this Agreement and perform its obligations hereunder.

23.15Attorneys’ Fees.  If any lawsuit or arbitration or other legal proceeding arises in connection with the interpretation or enforcement of this Agreement, the prevailing party therein shall be entitled to receive from the other party the prevailing party’s costs and expenses, including reasonable attorneys’ fees incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts shall be included in any judgment therein.

23.16Nonliability of Trustees.  THE DECLARATION OF TRUST ESTABLISHING LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER SUCH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD.  ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

23.17STATE-SPECIFIC WAIVERS.

(a)SECTION 12.1 OF THIS AGREEMENT PROVIDES A CONFESSION OF JUDGMENT AGAINST TENANT IN EJECTMENT.  IN CONNECTION THEREWITH, TENANT KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND, UPON ADVICE OF SEPARATE COUNSEL, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO PRIOR NOTICE AND AN OPPORTUUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA.  WITHOUT LIMITATION OF THE FOREGOING, TENANT HEREBY SPECIFICALLY WAIVES, TO THE FULLEXT EXTENT LEGALLY WAIVABLE, ALL RIGHTS TENANT HAS OR MAY HAVE TO NOTICE AND ANY OPPORTUNITY FOR A HEARING PRIOR TO EXECUTION UPON ANY JUDGMENT CONFESSED AGAINST TENANT BY LANDLORD HEREUNDER.

(b)TENANT (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF LANDLORD HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LANDLORD WILL NOT SEEK TO EXERCISE OR ENFORCE ITS RIGHTS TO CONFESS JUDGMENT HEREUNDER, AND (II)

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ACKNOWLEDGES THAT THE EXECUTION OF THIS AGREEMENT BY LANDLORD HAS BEEN MATERIALLY INDUCED BY, AMONG OTHER THINGS, THE INCLUSION IN THIS AGREEMENT OF SAID RIGHTS TO CONFESS JUDGMENT AGAINST TENANT.  TENANT FURTHER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS SAID PROVISIONS WITH TENANT’S INDEPENDENT LEGAL COUNSEL AND THAT THE MEANING AND EFFECT OF SUCH PROVISIONS HAS BBEEN FULLY EXPLAINED TO TENANT BY SUCH COUNSEL, AND AS EVIDENCE OF SUCH FACT AN AUTHORITZED OFFICER OF TENANT SIGNS HIS OR HER INITIALS IN THE SPACE PROVIDED BELOW.

/s/ BM

TENANT’S INITALS

23.18Original Lease.  Landlord and Tenant acknowledge and agree that this Agreement amends and restates the Original Lease in its entirety as of the date of this Agreement and that this Agreement shall govern the rights and obligations of the parties with respect to the Leased Property from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Lease shall continue to govern the rights and obligations of the parties with respect to the Leased Property prior to the date of this Agreement.  Landlord and Tenant further acknowledge that the Term of the Original Lease terminated with respect to the Sale Properties as of the date hereof.

[Remainder of page intentionally left blank.]

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

LANDLORD:
SNH NS PROPERTIES TRUST, a
Maryland real estate investment trust
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer
TENANT:
FIVE STAR QUALITY CARE — NS
TENANT, LLC, a Maryland limited liability company
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President

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EXHIBITS A-1 THROUGH A-7

LAND

Certain Exhibits to this agreement have been omitted.  The Company agrees to furnish supplementally copies of any of the omitted Exhibits to the Securities and Exchange Commission upon request.

EX-99.22

Exhibit 99.22

AMENDED AND RESTATED GUARANTY AGREEMENT
(AMENDED LEASE NO. 4)

THIS AMENDED AND RESTATED GUARANTY AGREEMENT (this “Agreement”) is made and given as of July 1, 2008 by FIVE STAR QUALITY CARE, INC., a Maryland corporation (the “Guarantor”), for the benefit of SNH NS PROPERTIES TRUST, a Maryland real estate investment trust (together with its successors and assigns, collectively, the “Landlord”).

W I T N E S S E T H :

WHEREAS, the Landlord and NewSeasons Leasing, L.L.C. (the “Original Tenant”) were parties to that certain Lease Agreement, dated as of December 29, 2003 (the “Original Lease”); and

WHEREAS, in connection with the Original Lease, Independence Blue Cross and NewSeasons Assisted Living Communities, Inc. (jointly and severally, the “Original Guarantor”) executed that certain Guaranty, dated as of December 29, 2003 (the “Original Guaranty”), for the benefit of the Landlord, pursuant to which the Original Guarantor guaranteed to the Landlord all of the payment and performance obligations of the Original Tenant under the Original Lease; and

WHEREAS, simultaneously herewith, the Original Tenant has assigned the Original Lease to Five Star Quality Care – NS Tenant, LLC (the “Tenant”) and the Landlord and the Tenant have entered into that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (as the same may be amended or otherwise modified from time to time, “Amended Lease No. 4”); and

WHEREAS, it is a condition precedent to the Landlord’s consenting to the assignment and assumption of the Original Lease and the Original Guaranty and to the Landlord’s entering into Amended Lease No. 4 that the Guarantor amend and restate the Original Guaranty to guarantee all of the payment and performance obligations of Tenant under Amended Lease No. 4; and

WHEREAS, in connection with the foregoing, the Landlord and the Guarantor wish to amend and restate the Original Guaranty in its entirety as hereinafter provided; and

WHEREAS, the assignment and assumption of the Original Lease and the Original Guaranty and the transactions contemplated by Amended Lease No. 4 are of direct material benefit to the Guarantor;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Guarantor hereby agrees that the Original Guaranty is hereby amended and restated, effective as of the date hereof, as follows:

1.Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in Amended Lease No. 4.  Amended Lease No. 4 and the Incidental Documents are herein collectively referred to as the “Transaction Documents.”

2.Guaranteed Obligations.  For purposes of this Agreement the term “Guaranteed Obligations” shall mean the payment and performance of each and every obligation of the Tenant to the Landlord under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under Amended Lease No. 4.

3.Representations and Covenants.  The Guarantor represents, warrants, covenants, and agrees that:

3.1  Incorporation of Representations and Warranties.  The representations and warranties of the Tenant and its Affiliated Persons set forth in the Transaction Documents are true and correct on and as of the date hereof in all material respects.

3.2  Performance of Covenants and Agreements.  The Guarantor hereby agrees to take all lawful action in its power to cause the Tenant duly and punctually to perform all of the covenants and agreements set forth in the Transaction Documents.

3.3  Validity of Agreement.  The Guarantor has duly and validly executed and delivered this Agreement; this Agreement constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as the enforceability thereof may be subject to bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and subject to general equitable principles, regardless of whether enforceability is considered in a proceeding at law or in equity; and the execution, delivery and performance of this Agreement have been duly authorized by all requisite action of the Guarantor and such execution, delivery and performance by the Guarantor will

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not result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of the Guarantor pursuant to the terms of, any indenture, mortgage, deed of trust, note, other evidence of indebtedness, agreement or other instrument to which it may be a party or by which it or any of its property or assets may be bound, or violate any provision of law, or any applicable order, writ, injunction, judgment or decree of any court or any order or other public regulation of any governmental commission, bureau or administrative agency.

3.4  Payment of Expenses.  The Guarantor agrees, as principal obligor and not as guarantor only, to pay to the Landlord forthwith, upon demand, in immediately available federal funds, all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred or expended by the Landlord in connection with the enforcement of this Agreement, together with interest on amounts recoverable under this Agreement from the time such amounts become due until payment at the Overdue Rate.  The Guarantor’s covenants and agreements set forth in this Section 3.4 shall survive the termination of this Agreement.

3.5  Notices.  The Guarantor shall promptly give notice to the Landlord of any event known to it which might reasonably result in a material adverse change in its financial condition.

3.6  Reports.  The Guarantor shall promptly provide to the Landlord each of the financial reports, certificates and other documents required of it under the Transaction Documents.

3.7  Books and Records.  The Guarantor shall at all times keep proper books of record and account in which full, true and correct entries shall be made of its transactions in accordance with generally accepted accounting principles and shall set aside on its books from its earnings for each fiscal year all such proper reserves, including reserves for depreciation, depletion, obsolescence and amortization of its properties during such fiscal year, as shall be required in accordance with generally accepted accounting principles, consistently applied, in connection with its business.  The Guarantor shall permit access by the Landlord and its agents to the books and records maintained by the Guarantor during normal business hours and upon reasonable notice.  Any proprietary information obtained by the Landlord with respect to the Guarantor pursuant to the provisions of this Agreement shall be treated as confidential, except that such information may be

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disclosed or used, subject to appropriate confidentiality safeguards, pursuant to any court order or in any litigation between the parties and except further that the Landlord may disclose such information to its prospective lenders, provided that the Landlord shall direct such lenders to maintain such information as confidential.

3.8  Taxes, Etc.  The Guarantor shall pay and discharge promptly as they become due and payable all taxes, assessments and other governmental charges or levies imposed upon the Guarantor or the income of the Guarantor or upon any of the property, real, personal or mixed, of the Guarantor, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a lien or charge upon any property and result in a material adverse change in the financial condition of the Guarantor; provided, however, that the Guarantor shall not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings or other appropriate actions promptly initiated and diligently conducted and if the Guarantor shall have set aside on its books such reserves of the Guarantor, if any, with respect thereto as are required by generally accepted accounting principles.

3.9  Legal Existence of Guarantor. The Guarantor shall do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.

3.10  Compliance.  The Guarantor shall use reasonable business efforts to comply in all material respects with all applicable statutes, rules, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities in respect of the conduct of its business and the ownership of its property (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to environmental, safety and other similar standards or controls).

3.11  Insurance.  The Guarantor shall maintain, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by owners of established reputation engaged in the same or similar businesses and similarly situated, in such amounts and by such methods as shall be customary for such owners and deemed adequate by the Guarantor.

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3.12  No Change in Control.  The Guarantor shall not permit the occurrence of any direct or indirect Change in Control of the Tenant or the Guarantor.

4.Guarantee.  The Guarantor hereby unconditionally guarantees that the Guaranteed Obligations which are monetary obligations shall be paid in full when due and payable, whether upon demand, at the stated or accelerated maturity thereof pursuant to any Transaction Document, or otherwise, and that the Guaranteed Obligations which are performance obligations shall be fully performed at the times and in the manner such performance is required by the Transaction Documents.  With respect to the Guaranteed Obligations which are monetary obligations, this guarantee is a guarantee of payment and not of collectibility and is absolute and in no way conditional or contingent.  In case any part of the Guaranteed Obligations shall not have been paid when due and payable or performed at the time performance is required, the Guarantor shall, in the case of monetary obligations, within five (5) Business Days after receipt of notice from the Landlord, pay or cause to be paid to the Landlord the amount thereof as is then due and payable and unpaid (including interest and other charges, if any, due thereon through the date of payment in accordance with the applicable provisions of the Transaction Documents) or, in the case of non-monetary obligations, perform or cause to be performed such obligations in accordance with the Transaction Documents.

5.Set-Off.  The Guarantor hereby authorizes the Landlord, at any time and without notice to set off the whole or any portion or portions of any or all sums credited by or due from the Landlord to it against amounts payable under this Agreement.  The Landlord shall promptly notify the Guarantor of any such set-off made by the Landlord and the application made by the Landlord of the proceeds thereof.

6.Unenforceability of Guaranteed Obligations, Etc.  If the Tenant is for any reason under no legal obligation to discharge any of the Guaranteed Obligations (other than because the same have been previously discharged in accordance with the terms of the Transaction Documents), or if any other moneys included in the Guaranteed Obligations have become unrecoverable from the Tenant by operation of law or for any other reason, including, without limitation, the invalidity or irregularity in whole or in part of any Guaranteed Obligation or of any Transaction Document or any limitation on the liability of the Tenant thereunder not contemplated by the Transaction Documents or any limitation on the method or terms of payment thereunder which may now or hereafter be caused or imposed in any manner

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whatsoever, the guarantees contained in this Agreement shall nevertheless remain in full force and effect and shall be binding upon the Guarantor to the same extent as if the Guarantor at all times had been the principal debtor on all such Guaranteed Obligations.

7.Additional Guarantees.  This Agreement shall be in addition to any other guarantee or other security for the Guaranteed Obligations and it shall not be prejudiced or rendered unenforceable by the invalidity of any such other guarantee or security or by any waiver, amendment, release or modification thereof.

8.Consents and Waivers, Etc.  The Guarantor hereby acknowledges receipt of correct and complete copies of each of the Transaction Documents, and consents to all of the terms and provisions thereof, as the same may be from time to time hereafter amended or changed in accordance with the terms and conditions thereof, and, except as otherwise provided herein, to the maximum extent permitted by applicable law, waives (a) presentment, demand for payment, and protest of nonpayment, of any principal of or interest on any of the Guaranteed Obligations, (b) notice of acceptance of this Agreement and of diligence, presentment, demand and protest, (c) notice of any default hereunder and any default, breach or nonperformance or Event of Default under any of the Guaranteed Obligations or the Transaction Documents, (d) notice of the terms, time and place of any private or public sale of any collateral held as security for the Guaranteed Obligations, (e) demand for performance or observance of, and any enforcement of any provision of, or any pursuit or exhaustion of rights or remedies against the Tenant or any other guarantor of the Guaranteed Obligations, under or pursuant to the Transaction Documents, or any agreement directly or indirectly relating thereto and any requirements of diligence or promptness on the part of the holders of the Guaranteed Obligations in connection therewith, and (f) to the extent the Guarantor lawfully may do so, any and all demands and notices of every kind and description with respect to the foregoing or which may be required to be given by any statute or rule of law and any defense of any kind which it may now or hereafter have with respect to this Agreement, or any of the Transaction Documents or the Guaranteed Obligations (other than that the same have been discharged in accordance with the Transaction Documents).

9.No Impairment, Etc.  The obligations, covenants, agreements and duties of the Guarantor under this Agreement shall not be affected or impaired by any assignment or transfer in whole or in part of any of the Guaranteed Obligations without

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notice to the Guarantor, or any waiver by the Landlord or any holder of any of the Guaranteed Obligations or by the holders of all of the Guaranteed Obligations of the performance or observance by the Tenant or any other guarantor of any of the agreements, covenants, terms or conditions contained in the Guaranteed Obligations or the Transaction Documents or any indulgence in or the extension of the time for payment by the Tenant or any other guarantor of any amounts payable under or in connection with the Guaranteed Obligations or the Transaction Documents or any other instrument or agreement relating to the Guaranteed Obligations or of the time for performance by the Tenant or any other guarantor of any other obligations under or arising out of any of the foregoing or the extension or renewal thereof (except that with respect to any extension of time for payment or performance of any of the Guaranteed Obligations granted by the Landlord or any other holder of such Guaranteed Obligations to the Tenant, the Guarantor’s obligations to pay or perform such Guaranteed Obligation shall be subject to the same extension of time for performance), or the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Tenant or any other guarantor set forth in any of the foregoing, or the voluntary or involuntary sale or other disposition of all or substantially all the assets of the Tenant or any other guarantor or insolvency, bankruptcy, or other similar proceedings affecting the Tenant or any other guarantor or any assets of the Tenant or any such other guarantor, or the release or discharge of the Tenant or any such other guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of the foregoing without the consent of the holders of the Guaranteed Obligations by operation of law, or any other cause, whether similar or dissimilar to the foregoing.

10.Reimbursement, Subrogation, Etc.  The Guarantor hereby covenants and agrees that it will not enforce or otherwise exercise any rights of reimbursement, subrogation, contribution or other similar rights against the Tenant (or any other person against whom the Landlord may proceed) with respect to the Guaranteed Obligations prior to the payment in full of all amounts owing with respect to Amended Lease No. 4, and until all indebtedness of the Tenant to the Landlord shall have been paid in full, the Guarantor shall not have any right of subrogation, and the Guarantor waives any defense it may have based upon any election of remedies by the Landlord which destroys its subrogation rights or its rights to proceed against the Tenant for reimbursement, including, without limitation, any loss of rights the Guarantor may suffer by reason of any rights, powers or remedies of the Tenant in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging the

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indebtedness to the Landlord.  Until all obligations of the Tenant pursuant to the Transaction Documents shall have been paid and satisfied in full, the Guarantor further waives any right to enforce any remedy which the Landlord now has or may in the future have against the Tenant, any other guarantor or any other person and any benefit of, or any right to participate in, any security whatsoever now or in the future held by the Landlord.

11.Defeasance.  This Agreement shall terminate at such time as the Guaranteed Obligations have been paid and performed in full and all other obligations of the Guarantor to the Landlord under this Agreement have been satisfied in full; provided, however, if at any time, all or any part of any payment applied on account of the Guaranteed Obligations is or must be rescinded or returned for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Tenant), this Agreement, to the extent such payment is or must be rescinded or returned, shall be deemed to have continued in existence notwithstanding any such termination.

12.Notices.  (a)  Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)  All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

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(c)  All such notices shall be addressed,

if to the Landlord to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

Telecopier No. (617) 796-8349

if to the Guarantor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

Telecopier No. (617) 796-8385

(d)  By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

13.Successors and Assigns.  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, including without limitation the holders, from time to time, of the Guaranteed Obligations; and all representations, warranties, covenants and agreements by or on behalf of the Guarantor which are contained in this Agreement shall inure to the benefit of the Landlord’s successors and assigns, including without limitation said holders, whether so expressed or not.

14.Applicable Law.  Except as to matters regarding the internal affairs of the Landlord and issues of or limitations on any personal liability of the shareholders and trustees of the Landlord for obligations of the Landlord, as to which the laws of the State of Maryland shall govern, this Agreement, the Transaction Documents and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (a) where any such instrument is executed or delivered; or (b) where any payment or other performance required by any such instrument is made or

9

required to be made; or (c) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (g) any combination of the foregoing.

15.Arbitration.  The Landlord or the Guarantor may elect to submit to arbitration any dispute hereunder that has an amount in controversy in excess of $250,000.  Any such arbitration shall be conducted in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event that any such dispute is submitted to arbitration hereunder, the Landlord and the Guarantor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Landlord or the Guarantor shall fail to appoint an arbitrator as aforesaid for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Landlord and the Guarantor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

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The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the applicable Landlord and one to the Guarantor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Landlord and the Guarantor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Landlord and the Guarantor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

16.Modification of Agreement.  No modification or waiver of any provision of this Agreement, nor any consent to any departure by the Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Landlord, and such modification, waiver or consent shall be effective only in the specific instances and for the purpose for which given.  No notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstances.  This Agreement may not be amended except by an instrument in writing executed by or on behalf of the party against whom enforcement of such amendment is sought.

17.Waiver of Rights by the Landlord.  Neither any failure nor any delay on the Landlord’s part in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege.

18.Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

19.Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

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20.Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

21.Remedies Cumulative.  No remedy herein conferred upon the Landlord is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

22.NON-LIABILITY OF TRUSTEES. THE DECLARATION OF TRUST ESTABLISHING THE LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF OR CLAIM AGAINST, THE LANDLORD.  ALL PERSONS DEALING WITH THE LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

23.Original Guaranty.  The Guarantor and the Landlord acknowledge and agree that this Agreement amends and restates the Original Guaranty in its entirety with respect to the Guaranteed Obligations and that this Agreement shall govern the rights and obligations of the Guarantor with respect to the Guaranteed Obligations from and after the date of this Agreement.  Notwithstanding the foregoing, the Original Guaranty shall continue to govern the rights and obligations of the Guarantor with respect to the Guaranteed Obligations (as defined in the Original Guaranty) prior to the date of this Agreement and nothing contained in this Agreement shall operate to release the Guarantor from any such rights or obligations.

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WITNESS the execution hereof under seal as of the date above first written.

FIVE STAR QUALITY CARE, INC.,

a Maryland corporation

/s/ Bruce J. Mackey Jr.

Bruce J. Mackey Jr.

President

THE LANDLORD HEREBY CONSENTS TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE GUARANTOR AND FURTHER ACKNOWLEDGES AND AGREES TO THE PROVISIONS OF SECTION 23 OF THIS AGREEMENT.

SNH NS PROPERTIES TRUST,

a Maryland real estate
investment trust

/s/ Richard A. Doyle

Richard A. Doyle

Treasurer and Chief Financial Officer

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EX-99.23

Exhibit 99.23

PLEDGE OF TENANT’S COMPANY INTERESTS AGREEMENT
(AMENDED LEASE NO. 4)

THIS PLEDGE OF TENANT’S COMPANY INTERESTS AGREEMENT (this “Agreement”) is made and given as of July 1, 2008 by FSQ, INC., a Maryland corporation (the “Pledgor”), for the benefit of SNH NS PROPERTIES TRUST, a Maryland real estate investment trust (together with its successors and assigns, collectively, the “Secured Party”).

W I T N E S S E T H:

WHEREAS, the Secured Party and Five Star Quality Care NS -Tenant, LLC, a Maryland limited liability company (the “Tenant”), entered into that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (as the same may be amended or otherwise modified from time to time, “Amended Lease No. 4 “), pursuant to which the Secured Party leases to the Tenant and the Tenant leases from the Secured Party certain properties as more particularly described in Amended Lease No. 4; and

WHEREAS, pursuant to Amended Lease No. 4, Five Star Quality Care, Inc., a Maryland corporation which is the parent of the Tenant’s parent (the “Guarantor”), executed that certain Amended and Restated Guaranty Agreement, dated as of the  date hereof (as the same may be amended or otherwise modified from time to time, the “Restated Guaranty”) for the benefit of the Secured Party, pursuant to which the Guarantor guarantees all of the payment and performance obligations of the Tenant with respect to Amended Lease No. 4; and

WHEREAS, pursuant to Amended Lease No. 4, the Tenant is required to deliver a  pledge of all of the interests in the Tenant to the Secured Party as security for the payment and performance of (a) all of the obligations of the Tenant to the Secured Party with respect to Amended Lease No. 4 and the other documents related thereto and (b) all of the obligations of the Guarantor to the Secured Party with respect to the Restated Guaranty and other documents related thereto; and

WHEREAS, the Pledgor currently owns all of the outstanding shares of company interest in the Tenant; and

WHEREAS, the Pledgor is a wholly-owned subsidiary of the Guarantor and the Pledgor expects to receive a substantial

material benefit from the execution and delivery of Amended Lease No. 4; and

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Pledgor and the Secured Party hereby agree as follows:

1.  Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in Amended Lease No. 4.  Amended Lease No. 4 and the Incidental Documents (including, without limitation, the Restated Guaranty) are herein collectively referred to as the “Transaction Documents.”

2.  Pledge.  The Pledgor hereby pledges to the Secured Party all of the shares of company interest in the Tenant (the “Pledged Shares”) and all other shares of company interest in the Tenant in which the Pledgor may have rights from time to time and any other securities or other investment property and other collateral of the Pledgor now owned or hereafter acquired which under this Agreement are required to be pledged to the Secured Party, and in each case, all certificates representing such Pledged Shares or other investment property or collateral, and all rights, options, warrants, stock or other securities or other property which may hereafter be received, receivable or distributed in respect of the Pledged Shares, together with all proceeds of the foregoing, including, without limitation, all dividends, cash, notes, securities or other property from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, the foregoing, (the Pledged Shares and any additional securities or collateral pledged hereunder, collectively, the “Pledged Collateral”), and the Pledgor hereby grants to the Secured Party a security interest in all of the Pledged Collateral and the proceeds thereof as security for the due and punctual payment and performance of the Secured Obligations (as hereinafter defined).

The Pledgor has delivered to and deposited with the Secured Party any and all certificates or other instruments representing the Pledged Collateral (if any) and undated company interest share powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.  If in the future the Pledgor possesses or controls any other certificates or other instruments representing the Pledged Collateral, the Pledgor shall immediately and without notice deliver the same to the Secured Party together with undated company interest share

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powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.

3.  Secured Obligations.  For purposes of this Agreement, the term “Secured Obligations” shall mean the payment and performance of each and every obligation of the Tenant and the Guarantor under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under Amended Lease No. 4.

4.  Representations of the Pledgor.  The Pledgor covenants that the Pledged Shares are duly and validly pledged to the Secured Party in accordance with law and the Pledgor shall warrant and defend the Secured Party’ right, title and security interest in and to the Pledged Shares against the claims and demands of all persons whomsoever.  The Pledgor represents and warrants to the Secured Party that the Pledgor has good and marketable title to all the Pledged Shares, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever; that the Pledged Shares are not subject to any restriction on transfer contained in the Limited Liability Company Operating Agreement or any other charter documents of the Tenant or in any agreement or instrument to which the Tenant or the Pledgor is a party or by which the Tenant or the Pledgor is bound which would prohibit or restrict the pledge of the Pledged Shares hereunder or the disposition thereof upon default hereunder; that all of the Pledged Shares have been duly and validly issued and are fully paid for and nonassessable; and that the Pledged Shares constitute all of the presently issued and outstanding shares of the company interests of the Tenant.

5.  Covenants of the Pledgor.  The Pledgor hereby covenants and agrees that it shall not sell, convey or otherwise dispose of any of the Pledged Collateral nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interests in the Pledged Collateral created hereby.  The Pledgor further covenants and agrees that it shall not consent to or approve the issuance of any additional shares of company interests in the Tenant.  The Pledgor further covenants and agrees that, until the Secured Obligations are paid in full, the Pledgor shall not change the state of its incorporation or its corporate name without providing the Secured Party with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Party

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determines are necessary or appropriate to continue or perfect the security interest granted hereunder.

6.  Filing of Financing Statements, etc.  The Pledgor authorizes the Secured Party to file from time to time one or more financing statements describing the Pledged Collateral.  The Pledgor will cooperate with the Secured Party at their request from time to time in obtaining control agreements in form and substance reasonably satisfactory to the Secured Party with respect to any collateral investment property, deposit accounts, or other Pledged Collateral as to which the Secured Party determine such agreements are necessary or appropriate to perfect the security interest granted hereunder.

7.  Distributions, Etc.  Upon the dissolution, winding up, liquidation or reorganization of the Tenant, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Tenant, if any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall be paid over to the Secured Party, to be held as collateral security for the Secured Obligations.  If any dividend shall be declared on any of the Pledged Collateral (excluding cash dividends), or any share of beneficial interest or fraction thereof shall be issued pursuant to any split of beneficial interests involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of the Tenant, the shares or other property so distributed shall be delivered to the Secured Party to be held as collateral security for the Secured Obligations.

8.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Transaction Documents; (b) the failure of the Guarantor to comply with any of its covenants or obligations under the Restated Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (c) the failure of the Pledgor to comply with any of its covenants or obligations under this Agreement and the continuation thereof for a period of ten (10) Business Days after written notice thereof; or (d) any representation or warranty contained herein or made by the Pledgor in connection herewith shall prove to have been false or misleading in any material respect when made.

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9.  Remedies.  (a) Upon the occurrence and during the continuance of an Event of Default, the Secured Party may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees, subject to the provisions of the Uniform Commercial Code or other applicable law.

(b)  Upon the occurrence and during the continuance of an Event of Default, the Secured Party shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all such rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, all such rights under the Limited Liability Company Operating Agreement or any other charter document of the Tenant, and further including, without limitation, the right to exchange, at its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of the Tenant, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Party may determine.

(c)  Upon the occurrence and during the continuance of an Event of Default, the Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law and shall have the right to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale.  The Secured Party shall give the Pledgor at least ten (10) days’ prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition.  Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgor to the extent permitted by applicable law.  All such sales shall be at such commercially reasonable price or prices

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as the Secured Party shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk).  At any such sale or sales, the Secured Party may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Party may deem best.  Upon any such sale or sales, the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of any kind or nature of the Pledgor, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgor to the extent permitted by applicable law.  In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgor shall execute, and hereby agrees to cause the Tenant to execute, all such applications or other instruments as may be required.  The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied:  first, to the payment of all costs and expenses of such sale, including attorneys’ fees; and second, to the payment of the Secured Obligations in such order of priority as the Secured Party shall determine; and any surplus thereafter remaining shall be paid to the Pledgor or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of the Pledgor).

The Pledgor recognizes that the Secured Party may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Collateral for their own accounts, for investment and not with a view to the distribution or resale thereof.  The Pledgor agrees that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Party shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933.  The Pledgor agrees that private sales made under the foregoing circumstances may be deemed to have been made in a commercially reasonable manner.  Nothing herein shall be deemed to require the Pledgor to effect a registration of the Pledged Collateral under the Securities Act of 1933.

(d)  Upon the occurrence and during the continuance of any Event of Default, the Secured Party, in its discretion, may

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demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral.  Upon the occurrence and during the continuance of any Event of Default, the Secured Party shall further have the right, for and in the name, place and stead of the Pledgor, to execute endorsements, assignments, or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

(e)  The Secured Party shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Party elect to do any such act, the Secured Party shall not be responsible to the Pledgor, other than for gross negligence or willful misconduct.

(f)  The Secured Party shall have no obligation to marshal any assets in favor of the Pledgor, or against or in payment of the Secured Obligations or any other obligation owed to the Secured Party by the Pledgor or any other person.

10.  Rights of Secured Party.  No course of dealing between the Pledgor and the Secured Party nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder or under any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided and provided under any of the Secured Obligations are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of the Secured Party under the Uniform Commercial Code.

11.  Assignment, Etc.  No waiver by the Secured Party or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion.  In the event of a sale or assignment by any Secured Party of its interest under the Transaction Documents, such Secured Party may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or assignee of such interest, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or

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responsibility thereafter arising hereunder with respect to the rights and interests so assigned.

12.  Duty of Secured Party.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Party shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the Pledgor.

13.  Waivers, Etc.  To the extent permitted by applicable law, the Pledgor, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, payment, notice of dishonor, protest and, except as otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Party hereunder or in connection with any Secured Obligations.  The Secured Party may release, supersede, exchange or modify any collateral security it may from time to time hold and release, surrender or modify the liability of any third party without giving notice hereunder to the Pledgor.  The Secured Party shall be under no duty to exhaust its rights against any such collateral security or any such third party before realizing on the Pledged Collateral.  Such modifications, changes, renewals, releases or other actions shall in no way affect the Pledgor’s obligations hereunder.

The Pledgor further waives any right it may have under the Constitution of the Commonwealth of Massachusetts (or under the constitution of any other state in which any of the Pledged Collateral may be located), or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Party, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  THE PLEDGOR’S WAIVERS UNDER THIS SECTION 13 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

14.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, the Pledgor shall execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including,

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without limitation, financing statements, renewal statements, collateral assignments and other security documents), and shall take all such actions, as the Secured Party may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Party’s rights with respect to the Pledged Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Pledgor which may be deemed to be a part of the Pledged Collateral) pursuant hereto and thereto.  The Secured Party is hereby appointed the attorney-in-fact, with full power of substitution, of the Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation, assignments, conveyances and transfers which are required to be taken or executed by the Pledgor under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of the Pledgor.

15.  Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)  All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

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(c)  All such notices shall be addressed,

if to the Secured Party to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to the Pledgor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

(d)  By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

16.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the term “Secured Party” shall be deemed to include any other holder or holders of any of the Secured Obligations.  Where the context so permits or requires, terms defined herein in the singular number shall include the plural, and in the plural number, the singular.  This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, each of which, when so executed and delivered, shall be an original and all of which shall together constitute one and the same agreement.

17.  Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Secured Party in respect of the Pledged Collateral is rescinded or must otherwise be restored or returned by the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Pledgor or upon the appointment of any intervenor or conservator of, or

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trustee or similar official for the Pledgor or any substantial part of its assets or property, or otherwise, all as though such payments had not been made.

18.  Restrictions on Transfer.  To the extent that any restrictions imposed by the Limited Liability Company Operating Agreement or any other charter documents of the Tenant or any other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured Party of any right granted hereunder including, without limitation, the right of the Secured Party to dispose of the Pledged Collateral upon the occurrence of any Event of Default, the Pledgor hereby waives such restrictions, and the Pledgor hereby agrees that it will take any action which the Secured Party may reasonably request in order that the Secured Party may obtain and enjoy the full rights and benefits granted to the Secured Party by this Agreement free of any such restrictions.

19.  Applicable Law.  This Agreement and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts regardless of (a) where any such instrument is executed or delivered; or (b) where any payment or other performance required by any such instrument is made or required to be made; or (c) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (g) any combination of the foregoing.

20.  Arbitration. The Secured Party or the Pledgor may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Party or the Pledgor shall elect to submit any such dispute to arbitration hereunder, the Secured

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Party and the Pledgor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Party or the Pledgor shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Party and the Pledgor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Party and one to the Pledgor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Secured Party and the Pledgor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Secured Party and the Pledgor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

21.  Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality

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and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

22.  Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

23.  Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

24.  NONLIABILITY OF TRUSTEES.  THE DECLARATION OF TRUST ESTABLISHING THE SECURED PARTY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST”) REFERS TO THE TRUSTEES UNDER SUCH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF  THE SECURED PARTY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE SECURED PARTY.  ALL PERSONS DEALING WITH THE SECURED PARTY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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WITNESS the execution hereof under seal as of the date above first written.

PLEDGOR:
FSQ, INC.,
a Maryland corporation
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
SECURED PARTY:
SNH NS PROPERTIES TRUST, a Maryland real estate investment trust
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer

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EX-99.24

Exhibit 99.24

TENANT SECURITY AGREEMENT

(AMENDED LEASE NO. 4)

THIS TENANT SECURITY AGREEMENT (this “Agreement”) is entered into as of July 1, 2008 by and between FIVE STAR QUALITY CARE — NS TENANT, LLC, a Maryland limited liability company (the “Tenant”), and SNH NS PROPERTIES TRUST, a Maryland real estate investment trust (together with its successors and assigns, collectively, the “Secured Party”).

W I T N E S S E T H:

WHEREAS, the Secured Party and the Tenant are parties to that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (as the same may be amended or otherwise modified from time to time, “Amended Lease No. 4”), pursuant to which the Secured Party leases to the Tenant and the Tenant leases from the Secured Party certain properties as more particularly described in Amended Lease No. 4; and

WHEREAS, pursuant to Amended Lease No. 4, the Tenant is required to grant to the Secured Party a first and perfected lien and security interest in certain collateral as security for the payment and performance of each and every obligation and liability of the Tenant to the Secured Party under Amended Lease No. 4 or any other document or agreement executed and delivered pursuant thereto, whether existing as of the date of Amended Lease No. 4 or thereafter arising, whether direct or indirect, absolute or contingent, due or to become due, including, without limitation, the payment of all rent and other charges due under Amended Lease No. 4 (collectively, the “Obligations”); and

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby as follows:

1.  Definitions.  As used in this Agreement, the following terms shall have the meanings specified below.  Except as otherwise defined, terms defined in the Uniform Commercial Code and used herein without definition shall have the meanings given such terms in the Uniform Commercial Code.

“Affiliated Person” shall have the meaning given such term in Amended Lease No. 4.

“Business Day” shall have the meaning given such term in Amended Lease No. 4.

“Collateral” shall mean all of the Tenant’s right, title and interest in and under or arising out of all and any personal property, intangibles and fixtures of any type or description (other than Excluded Collateral), wherever located and now existing or hereafter arising, or which constitute or arise from the operation, maintenance or repair of the Leased Property or any portion thereof, together with any and all additions and accessions thereto and replacements, products, proceeds (including, without limitation, proceeds of insurance) and supporting obligations thereof, including, but not limited to, the following:

(a)all goods, including, without limitation, all Equipment; and

(b)all General Intangibles; and

(c)all other personal property or fixtures of any nature whatsoever which relate to the operation, maintenance or repair of the Leased Property, or any portion thereof, and all property from time to time described in any financing statement signed by the Tenant naming the Secured Party as Secured Party; and

(d)all claims, rights, powers or privileges and remedies relating to the foregoing or arising in connection therewith, including, without limitation, all Licenses and Permits which the Tenant legally may grant a security interest in, rights to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, waiver or approval; all liens, security, guaranties, endorsements, warranties and indemnities and all insurance, eminent domain and condemnation awards and claims therefor relating thereto or arising in connection therewith; all rights to property forming the subject matter of any of the foregoing, including, without limitation, rights to stoppage in transit and rights to returned or repossessed property; all writings relating to the foregoing or arising in connection therewith; and

(e)all contract rights, general intangibles and other property rights of any nature whatsoever arising out of or in connection with any of the foregoing (other than Excluded Collateral), including, without limitation, payments due or to become due, whether as

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repayments, reimbursements, contractual obligations, indemnities, damages or otherwise.

“Equipment” shall mean all buildings, structures, improvements, fixtures and items of machinery, equipment and other tangible personal property which constitute, arise from or relate to the operation, maintenance or repair of the Leased Property or any portion thereof, together with all repairs, replacements, improvements, substitutions, extensions or renewals thereof or additions thereto, all parts, additions and accessories incorporated therein or affixed thereto, and all “equipment” as such term is defined in the Uniform Commercial Code, and all cash and non-cash proceeds therefrom.

“Event of Default” shall have the meaning given such term in Section 6.

“Excluded Collateral” shall mean (a) all Accounts of the Tenant, (b) all Deposit Accounts and Securities Accounts of the Tenant, (c) all Chattel Paper of the Tenant, (d) all General Intangibles relating to such Accounts or Chattel Paper, (e) all Support Obligations relating to any of the foregoing, (f) all Instruments or Investment Property evidencing or arising from any Accounts or Chattel Paper, (g) all documents, books, records or other information pertaining to any of the foregoing (including, without limitation, customer lists, credit files, computer programs, printouts, tapes, discs, punch cards, data processing software and other computer materials and records and related property and rights), (h) all accessions to, substitutions for, and all replacements, products and proceeds of the foregoing (including without limitation, proceeds of insurance policies insuring any of the foregoing) and (i) any of the Sublease Agreements relating to the Leased Property to which the Tenant is a party.

“Facilities” shall have the meaning given such term in Amended Lease No. 4.

“General Intangibles” shall mean all present and future general intangibles and contract rights (other than Excluded Collateral) which constitute, arise from or relate to the operation, maintenance or repair of the Leased Property, or any portion thereof, including, but not limited to, all causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, franchises, customer

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lists, computer programs, claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases, claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature which constitutes, arises from or relates to the operation, maintenance or repair of the Leased Property, or any portion thereof.

“Instrument” shall have the meaning give such term in Article 9 of the Uniform Commercial Code.

“Leased Property” shall have the meaning given such term in Amended Lease No. 4.

“Licenses” shall mean all certificates of need (if any), licenses, permits, rights of use, covenants or rights otherwise benefiting or permitting the use and operation of each applicable Property or any part thereof pertaining to the operation, maintenance or repair of such Property or any portion thereof.

“Obligations” shall have the meaning given such term in the preamble to this Agreement.

“Overdue Rate” shall have the meaning given to such term in Amended Lease No. 4.

“Permits” shall mean all permits, approvals, consents, waivers, exemptions, variances, franchises, orders, authorizations, rights and licenses obtained or hereafter obtained from any federal, state or other governmental authority or agency relating to the operation, maintenance or repair, of each applicable Property, or any portion thereof.

“Person” shall have the meaning given such term in Amended Lease No. 4.

“Property” shall have the meaning given such term in Amended Lease No. 4.

“Rent” shall have the meaning given such term in Amended Lease No. 4.

“Restated Lease” shall have the meaning given such term in the recitals to this Agreement.

“Secured Party” shall have the meaning given such term in the preamble to this Agreement.

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“Tenant” shall have the meaning given such term in the preamble to this Agreement.

“Uniform Commercial Code” means Article 9 of the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts from time to time.

2.  Security Interest.  As security for the prompt payment and performance of all the Obligations, the Tenant hereby grants, pledges, transfers and assigns to the Secured Party, its successors and assigns and all other holders from time to time of the Obligations, a continuing security interest under the Uniform Commercial Code from time to time in effect in the jurisdiction in which any of the Collateral is located in and a continuing lien upon all of the Tenant’s right, title and interest in the Collateral, together with any and all additions thereto and replacements, products and proceeds thereof, whether now existing or hereafter arising or acquired and wherever located.

3.  General Representations, Warranties and Covenants.  The Tenant represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows:

(a)           Each of the warranties and representations of the Tenant contained herein, in Amended Lease No. 4 or in any other document executed in connection herewith or therewith are true and correct on the date hereof.

(b)           Except for the lien granted to the Secured Party pursuant to this Agreement and any liens permitted under Amended Lease No. 4, the Tenant is, and as to the Collateral acquired from time to time after the date hereof the Tenant will be, the owner of all the Collateral free from any lien, security interest, encumbrance or other right, title or interest of any Person, except for the security interest of the Secured Party therein, and the Tenant shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party.  The lien granted in this Agreement by the Tenant to the Secured Party in the Collateral is not prohibited by and does not constitute a default under any agreements or other instruments constituting a part of the Collateral, and no consent is required of any Person to effect such lien which has not been obtained.

(c)           Except as permitted under Amended Lease No. 4, there is no financing statement (or similar statement or

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instrument of registration under the law of any jurisdiction) now on file or registered in any public office covering any interest of any kind in the Collateral, or intended so to be, which has not been terminated, and so long as this Agreement remains in effect or any of the Obligations or any obligations of any Affiliated Person of the Tenant to the Secured Party remain unpaid, the Tenant will not execute and there will not be on file in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or  statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interest of the Secured Party.

(d)           The chief executive office and the principal place of business of the Tenant are as set forth in Schedule 1 and the Tenant will not move its chief executive office or establish any other principal place of business except to such new location as the Tenant may establish in accordance with this Section 3(d). The location of each Facility comprising a portion of the Leased Property is as set forth in Schedule 2.  The originals of all documents evidencing Collateral and the only original books of account and records of the Tenant relating thereto are, and will continue to be, kept at such chief executive office or the applicable Facility, as the case may be, or at such new location as the Tenant may establish in accordance with this Section 3(d).  The Tenant shall not move its chief executive office or establish any other principal place of business until (i) the Tenant shall have given to the Secured Party not less than ten (10) days’ prior written notice of its intention to do so, which notice shall clearly describe such new location and provide such other information in connection therewith as the Secured Party may reasonably request, and (ii) with respect to such new location, the Tenant shall have taken such action, satisfactory to the Secured Party (including, without limitation, all action required by Section 5), to maintain the security interest of the Secured Party in the Collateral.

(e)           All tangible personal property owned on the date hereof by the Tenant to be used in connection with the operation or maintenance of the Leased Property, or any portion thereof, is located at each applicable Property or is in transit to such Property from the vendor thereof.  The Tenant agrees that (i) all such property held by the Tenant on the date hereof, once at each applicable Property, shall remain at such Property and (ii) all such property subsequently acquired by the Tenant shall immediately upon acquisition be transferred to and remain at the applicable Property.

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(f)            The Tenant’s corporate name and organizational identification number are as set forth on the signature page hereto.  The name under which each of the Facilities is operated is set forth on Schedule 2.  The Tenant shall not (i) change such name without providing the Secured Party with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Party determines are necessary or appropriate to continue or perfect the security interest granted hereunder, (ii) change its corporate organizational number, nor (iii) conduct its business in any other name or take title to any Collateral in any other name while this Agreement remains in effect.  Except as otherwise set forth on Schedule 1, the Tenant has not ever had any other name nor conducted business in any other name in any jurisdiction.  The Tenant is organized as a Maryland limited liability company.  Subject to the terms and conditions of Amended Lease No. 4, the Tenant shall not change its organizational structure or jurisdiction of organization without giving at least thirty (30) days’ prior written notice thereof to the Secured Party.

(g)           The Secured Party is authorized (but is under no obligation) to make, upon ten (10) Business Days’ notice to the Tenant (except in the case of exigent circumstances, in which circumstances upon such notice, if any, as may then be reasonably practical), any payments which in the Secured Party’s opinion are necessary to:

(i)discharge any liens which have or may take priority over the lien hereof; and

(ii)pay all premiums payable on the insurance policies referred to in Amended Lease No. 4 or any other document or agreement executed in connection therewith or herewith, upon the failure of the Tenant to make such payments within the time permitted therein.

The Tenant shall have no claim against the Secured Party by reason of its decision not to make any payments or perform such obligations permitted under this Section 3(g).  The Tenant shall repay to the Secured Party any sums paid by the Secured Party upon demand.  Any sums paid and expenses incurred by the Secured Party pursuant to this paragraph shall bear interest at the Overdue Rate.

(h)           If any of the Collateral at any time becomes evidenced by an Instrument, the Tenant shall promptly deliver such Instrument to the Secured Party, appropriately endorsed to

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the order of the Secured Party, to be held pursuant to this Agreement.

(i)            The Tenant shall not sell, transfer, change the registration, if any, of, dispose of, attempt to dispose of, or substantially modify or abandon the Collateral or any material part thereof, other than as permitted under Amended Lease No. 4, without the prior written consent of the Secured Party.  Except as permitted under Amended Lease No. 4, the Tenant shall not create, incur, assume or suffer to exist any lien upon any of the Collateral without the prior written consent of the Secured Party.

(j)            The Tenant shall not assert against the Secured Party any claim or defense which the Tenant may have against any seller of the Collateral or any part thereof or against any Person with respect to the Collateral or any part thereof.

(k)           The Tenant shall, upon demand, pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody or  preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder and under such other agreements or (iv) the failure by the Tenant to perform or observe any of the provisions hereof.

(l)            The Tenant shall indemnify and hold harmless the Secured Party from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Secured Party in any way relating to or arising out of this Agreement or arising out of the Tenant’s obligations under any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or of any such other documents.

4.  Special Provisions Concerning Equipment.  The Tenant shall not impair the rights of the Secured Party in the Equipment.  Regardless of the manner of the affixation of any Equipment to real property, the Equipment so attached shall at all times constitute and remain personal property.  The Tenant retains all liability and responsibility in connection with the

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Equipment and the liability of the Tenant to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Equipment may be lost, destroyed, stolen or damaged or for any reason whatsoever have become unavailable to the Tenant.  Upon the request of the Secured Party, the Tenant shall provide to the Secured Party a current list of Equipment.

5.  Financing Statements; Documentary Stamp Taxes.

(a)           The Tenant shall, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Secured Party from time to time such lists, descriptions and designations of inventory, warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Secured Party reasonably deem appropriate or advisable to perfect, preserve or protect their security interest in the Collateral.  The Tenant authorizes the Secured Party to file any such financing statements without the signature of the Tenant and the Tenant will pay all applicable filing fees and related expenses.  To the extent permitted by law, a carbon, photographic or other reproduction of this Agreement or a financing statement shall be sufficient as a financing statement.

(b)           The Tenant shall procure, pay for, affix to any and all documents and cancel any documentary tax stamps required by and in accordance with, applicable law, and the Tenant shall indemnify and hold harmless the Secured Party from and against any liability  (including interest and penalties) in respect of such documentary stamp taxes.

6.  Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under Amended Lease No. 4 or any document or agreement executed in connection therewith; (b) the failure of the Tenant to comply with any of its covenants or obligations under this Agreement and the continuance thereof for a period of ten (10) Business Days after written notice thereof; (c) any representation or warranty contained herein or made by the Tenant in connection herewith shall prove to have been false or misleading in any material respect when made; or (d) the occurrence of any default or event of default under any document, instrument or agreement evidencing the Obligations.

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7.  Remedies.

(a)           Upon the occurrence and during the continuance of an Event of Default, in addition to any rights and remedies now or hereafter granted under applicable law, under Amended Lease No. 4 or under any other documents or agreements entered into in connection herewith or therewith, and not by way of limitation of any such rights and remedies, the Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any applicable jurisdiction, and the right, without notice to, or assent by, the Tenant, in the name of the Tenant or in the name of the Secured Party or otherwise:

(i)with respect to the General Intangibles to ask for, demand, collect, receive, compound and give acquittance therefor or any part thereof, to extend the time of payment of, compromise or settle for cash, credit or otherwise, and upon any terms and conditions, any thereof, to exercise and enforce any rights and remedies in respect thereof, and to file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by the Secured Party necessary or advisable for the purpose of collecting or enforcing payment and performance thereof;

(ii)to take possession of any or all of the Collateral and to use, hold, store, operate, merge and/or control the same and to exclude the Tenant and all Persons claiming under it wholly or partly therefrom, and, for that purpose, to enter, with the aid and assistance of any Person or Persons and with or without legal process, any premises where the Collateral, or any part thereof, are, or may be, placed or assembled, and to remove any such Collateral;

(iii)from time to time, at the expense of the Tenant, to make all such repairs, replacements, alterations, additions and improvements to and of the Collateral as the Secured Party may reasonably deem proper; to carry on the business and to exercise all rights and powers of the Tenant in respect to the Collateral, as the Secured Party shall deem best, including the right to enter into any and all such agreements

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with respect to the leasing, management and/or operation of the Collateral or any part thereof as the Secured Party may see fit; to collect and receive all rents, issues, profits, fees, revenues and other income of the same and every part thereof which rents, issues, profits, fees, revenues and other income may be applied to pay the expenses of holding and operating the Collateral and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which the Secured Party may be required or may elect to make, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments which the Secured Party may be required or authorized to make under any provision of this Agreement (including, without limitation, reasonable legal costs and attorneys’ fees);

(iv)to execute any instrument and do all other things necessary and proper to protect and preserve and realize upon the Collateral and the other rights contemplated hereby;

(v)upon notice to such effect, to require the Tenant to deliver, at the Tenant’s expense, any or all Collateral which is reasonably movable to the Secured Party at a place designated by the Secured Party, and after delivery thereof the Tenant shall have no further claim to or interest in the Collateral; and

(vi)without obligation to resort to other security, at any time and from time to time, to sell, re-sell, assign and deliver all or any of the Collateral, in one or more parcels at the same or different times, and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and at such price or prices and on such terms as the Secured Party may determine, with the amounts realized from any such sale to be applied to the Secured Obligations in the manner determined by the Secured Party.

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The Tenant hereby agrees that all of the foregoing may be effected without demand, advertisement or notice (except as hereinafter provided or as may be required by law), all of which (except as hereinafter provided) are hereby expressly waived, to the maximum extent permitted by law.  The Secured Party shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Party elect to do any such act, the Secured Party shall not be responsible to the Tenant.

(b)           Upon the occurrence and during the continuance of an Event of Default, the Secured Party may take legal proceedings for the appointment of a receiver or receivers (to which the Secured Party shall be entitled as a matter of right) to take possession of the Collateral pending the sale thereof pursuant either to the powers of sale granted by this Agreement or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement.  If, after the exercise of any or all of such rights and remedies, any of the Obligations shall remain unpaid or unsatisfied, the Tenant shall remain liable for any deficiency or performance thereof, as applicable.

(c)           Upon any sale of any of the Collateral, whether made under the power of sale hereby given or under judgment, order or decree in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement:

(i)the Secured Party may bid for and purchase the property being sold and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability, and may, in paying the purchase money therefor, deliver any instruments evidencing the Obligations or agree to the satisfaction of all or a portion of the Obligations in lieu of cash in payment of the amount which shall be payable thereon, and such instruments, in case the amounts so payable thereon shall be less than the amount due thereon, shall be returned to the Secured Party after being appropriately stamped to show partial payment;

(ii)the Secured Party may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold;

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(iii)all right, title, interest, claim and demand whatsoever, either at law or in equity or  otherwise, of the Tenant of, in and to the property so sold shall be divested; such sale shall be a perpetual bar both at law and in equity against the Tenant, its successors and assigns, and against any and all Persons claiming or who may claim the property sold or any part thereof from, through or under the Tenant, its successors or assigns;

(iv)the receipt of the Secured Party or of the officers thereof making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchase money, and such purchaser or purchasers, and his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Secured Party or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof; and

(v)to the extent that it may lawfully do so, the Tenant agrees that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take advantage of, any appraisement, valuation, stay, extension or redemption laws, or any law permitting it to direct the order in which the Collateral or any part thereof shall be sold, now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance or enforcement of this Agreement or any other document, Amended Lease No. 4 or any other document or agreement entered into in connection herewith or therewith, and the Tenant hereby expressly waives all benefit or advantage of any such laws and covenants that it will not hinder, delay or impede the execution of any power granted or delegated to the Secured Party in this Agreement, but will suffer and permit the execution of every such power as though no such laws were in force.

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In the event of any sale of Collateral pursuant to this Section 7, the Secured Party shall, at least ten (10) days before such sale, give the Tenant written notice of its intention to sell, except that, if the Secured Party shall determine in its reasonable discretion that any of the Collateral threatens to decline in value, any such sale may be made upon three (3) days’ written notice to the Tenant, which time periods the Tenant hereby agrees are reasonable.

(d)  The Secured Party is hereby irrevocably appointed the true and lawful attorney-in-fact of the Tenant in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property sold pursuant to this Section 7 and for such other purposes as are necessary or desirable to effectuate the provisions of this Agreement, and for that purpose it may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, the Tenant hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof.  If so requested by the Secured Party or by any purchaser, the Tenant shall ratify and confirm any such sale or transfer by executing and delivering to the Secured Party or to such purchaser all property, deeds, bills of sale, instruments or assignment and transfer and releases as may be designated in any such request.

8.  Application of Moneys.  All moneys which the Secured Party shall receive pursuant hereto shall first be applied (to the extent thereof) to the payment of all reasonable costs and expenses incurred in connection with the administration and enforcement of, or the preservation of any rights under, this Agreement or Amended Lease No. 4 (including, without limitation, the reasonable fees and disbursements of its counsel and agents) and the balance, if any, shall be applied first to accrued and unpaid interest, charges and fees on, and then to outstanding principal of, any Obligations of the Tenant (or its affiliates) to the Secured Party, and then to any other amounts outstanding on any such Obligations and then as required by law to any other parties having an interest therein.

9.  Waivers, Etc.  The Tenant, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, notice, protest and, except as is otherwise specifically provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Party hereunder or in connection with any Obligations or any Collateral; waives all rights to require a marshaling of

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assets by the Secured Party; consents to and waives notice of (i) the substitution, release or surrender of any Collateral, (ii) the addition or release of Persons primarily or secondarily liable on any Obligation or on any Collateral, (iii) the acceptance of partial payments on any Collateral and/or the settlement or compromise thereof, (iv) any requirement of diligence or promptness on the part of the Secured Party in the enforcement of any rights in respect of any Collateral or any other agreement or instrument directly or indirectly relating thereto, and (v) any enforcement of any present or future agreement or instrument relating directly or indirectly to the Collateral.  No delay or omission on the part of the Secured Party or any holder of Obligations in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder.  No waiver of any such right on any one occasion shall be construed as a bar to or waiver of any such right on any future occasion.  No course of dealing between the Tenant and the Secured Party or any holder of Obligations, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party or any holder of Obligations, any right, power or privilege hereunder or under any of the Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege.

The Tenant further waives any right it may have under the constitution of any state or commonwealth in which any of the Collateral may be located, or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Party, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing  provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  THE TENANT’S WAIVERS UNDER THIS SECTION 9 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE TENANT HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

The Secured Party shall not be required to marshal any present or future security for (including without limitation this Agreement and the Collateral pledged hereunder), or guaranties of, the Obligations or any of them, or to resort to such security or guaranties in any particular order; and all of the rights hereunder and in respect of such securities and guaranties shall be cumulative and in addition to all other

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rights, however existing or arising.  To the maximum extent permitted by applicable law, the Tenant hereby agrees that it will not invoke any law relating to the marshalling of collateral, which might cause delay in or impede the enforcement of the Secured Party’ rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or guaranteed, and, to the maximum extent permitted by applicable law, the Tenant hereby irrevocably waives the benefits of all such laws.

10.  Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, the Tenant will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, mortgages, collateral assignments and other security documents), and will take all such actions as the Secured Party may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Party’s rights with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Tenant which may be deemed to be a part of the Collateral) pursuant hereto and thereto.  The Secured Party is hereby appointed the attorney-in-fact, with full power of substitution, of the Tenant for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation financing or continuation statements, deeds to secure debt, mortgages, assignments, conveyances, assignments and transfers which are required to be taken or executed by the Tenant under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of the Tenant.

11.  Arbitration.  The Secured Party or the the Tenant may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

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In the event the Secured Party or the Tenant shall elect to submit any such dispute to arbitration hereunder, the Secured Party and the Tenant shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Party or the Tenant shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Party and the Tenant, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Party and one to the Tenant.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

12.  Miscellaneous.

(a)           The Tenant agrees that its obligations and the rights of the Secured Party hereunder and in respect of the Obligations may be enforced by specific performance hereof and thereof and by temporary, preliminary and/or final injunctive relief relating hereto and thereto, without necessity for proof by the Secured Party or any holder of the Obligations that it

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would otherwise suffer irreparable harm, and the Tenant hereby consents to the issuance of such specific and injunctive relief.

(b)           Any notice or demand upon the Tenant or the Secured Party shall be deemed to have been sufficiently given when given in accordance with the provisions of Amended Lease No. 4.

(c)           None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Tenant and the Secured  Parties.  No notice to or demand on the Tenant in any case shall entitle the Tenant to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Secured Party to any other or further action in any circumstances without notice or demand.

(d)           The obligations of the Tenant hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Tenant; (ii) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith, the Obligations or any security for any of the Obligations; or (iii) any amendment to or modification of any of Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith, the Obligations or any security for any of the Obligations; whether or not the Tenant shall have notice or knowledge of any of the foregoing.  The rights and remedies of the Secured Party herein provided for are cumulative and not exclusive of any rights or remedies which the Secured Party would otherwise have, including, without limitation, under Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith.  This Agreement is intended as a supplement for and is not intended to supersede in any respect Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith.

(e)           This Agreement shall be binding upon the Tenant and its successors and assigns and shall inure to the benefit of the Secured Party, and its respective successors and assigns.  All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement.

(f)            The descriptive headings of the several sections of this Agreement are inserted for convenience only and shall

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not in any way affect the meaning or construction of any provision of this Agreement.

(g)           Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibitions or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(h)           This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.  Notwithstanding the foregoing, to the extent that matters of title, or creation, perfection and priority of the security interests created hereby, or procedural issues of foreclosures are required to be governed by the laws of the state in which the Collateral, or relevant part thereof, is located, the laws of such State shall apply.

Section 14.  NONLIABILITY OF TRUSTEES.  THE DECLARATION OF TRUST ESTABLISHING THE SECURED PARTY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST”) REFERS TO THE TRUSTEES UNDER SUCH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF  THE SECURED PARTY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE SECURED PARTY.  ALL PERSONS DEALING WITH THE SECURED PARTY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

TENANT:
FIVE STAR QUALITY CARE — NS TENANT, LLC, a Maryland limited liability company
By:	/s/ Bruce J. Mackey, Jr.
	Bruce J. Mackey, Jr.
	President
Corporate Organizational Number:
SECURED PARTY:
SNH NS PROPERTIES TRUST, a Maryland real estate investment trust
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer

The following Schedules have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Schedule 1 (Tenant Addresses) and Schedule 2 (Facilities)

EX-99.25

Exhibit 99.25

SUBTENANT GUARANTY AGREEMENT
(AMENDED LEASE NO. 4)

THIS SUBTENANT GUARANTY AGREEMENT (this “Agreement”) is made and given as of July 1, 2008 by FIVE STAR QUALITY CARE-GHV, LLC, a Maryland limited liability company, and FIVE STAR QUALITY CARE-NJ, LLC, a Maryland limited liability company (each a “Subtenant Guarantor” and, jointly and severally, the “Subtenant Guarantors”), for the benefit of SNH NS PROPERTIES TRUST, a Maryland real estate investment trust (together with its successors and assigns, “Landlord”).

W I T N E S S E T H :

WHEREAS, the Secured Party and Five Star Quality Care — NS Tenant, LLC (the “Tenant”) are parties to that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (as the same may be amended or otherwise modified from time to time, “Amended Lease No. 4”), pursuant to which the Secured Party leases to the Tenant, and the Tenant leases from the Secured Party, certain properties as more particularly described in Amended Lease No. 4, subject to any upon the terms and conditions in Amended Lease No. 4; and

WHERAS, pursuant to various Sublease Agreements, dated as of the date hereof, the Tenant has subleased the properties leased by it under Amended Lease No. 4 to the Subtenant Guarantors; and

WHEREAS, pursuant to Amended Lease No. 4, the Subtenant Guarantors are required to guarantee all of the payment and performance obligations of the Tenant with respect to Amended Lease No. 4; and

WHEREAS, the transactions contemplated by Amended Lease No. 4 are of direct material benefit to the Subtenant Guarantors;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Subtenant Guarantors hereby agree as follows:

1.             Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in Amended Lease No. 4.  Amended Lease

No. 4 and the Incidental Documents are herein collectively referred to as the “Transaction Documents.”

2.             Guaranteed Obligations.  For purposes of this Agreement, the term “Guaranteed Obligations” shall mean the payment and performance of each and every obligation of the Tenant to the Landlord under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under Amended Lease No. 4.

3.             Representations and Covenants.  Each Subtenant Guarantor jointly and severally represents, warrants, covenants, and agrees that:

3.1  Incorporation of Representations and Warranties.  The representations and warranties of the Tenant and its Affiliated Persons set forth in the Transaction Documents are true and correct on and as of the date hereof in all material respects.

3.2  Performance of Covenants and Agreements.  Each Subtenant Guarantor hereby agrees to take all lawful action in its power to cause the Tenant duly and punctually to perform all of the covenants and agreements set forth in the Transaction Documents.

3.3  Validity of Agreement.  Each Subtenant Guarantor has duly and validly executed and delivered this Agreement; this Agreement constitutes the legal, valid and binding obligation of such Subtenant Guarantor, enforceable against such Subtenant Guarantor in accordance with its terms, except as the enforceability thereof may be subject to bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and subject to general equitable principles, regardless of whether enforceability is considered in a proceeding at law or in equity; and the execution, delivery and performance of this Agreement have been duly authorized by all requisite action of such Subtenant Guarantor and such execution, delivery and performance by such Subtenant Guarantor will not result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of such Subtenant Guarantor pursuant to the terms of, any indenture, mortgage, deed of trust, note, other evidence of indebtedness, agreement or other instrument to which it may be a party or by which it or any of its property or assets may be

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bound, or violate any provision of law, or any applicable order, writ, injunction, judgment or decree of any court or any order or other public regulation of any governmental commission, bureau or administrative agency.

3.4  Payment of Expenses.  Each Subtenant Guarantor agrees, as principal obligor and not as guarantor only, to pay to the Landlord forthwith, upon demand, in immediately available federal funds, all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred or expended by the Landlord in connection with the enforcement of this Agreement, together with interest on amounts recoverable under this Agreement from the time such amounts become due until payment at the Overdue Rate.  The Subtenant Guarantors’ covenants and agreements set forth in this Section 3.4 shall survive the termination of this Agreement.

3.5  Notices.  Each Subtenant Guarantor shall promptly give notice to the Landlord of any event known to it which might reasonably result in a material adverse change in its financial condition.

3.6  Reports.  Each Subtenant Guarantor shall promptly provide to the Landlord each of the financial reports, certificates and other documents required of it under the Transaction Documents.

3.7  Books and Records.  Each Subtenant Guarantor shall at all times keep proper books of record and account in which full, true and correct entries shall be made of its transactions in accordance with generally accepted accounting principles and shall set aside on its books from its earnings for each fiscal year all such proper reserves, including reserves for depreciation, depletion, obsolescence and amortization of its properties during such fiscal year, as shall be required in accordance with generally accepted accounting principles, consistently applied, in connection with its business.  Each Subtenant Guarantor shall permit access by the Landlord and its agents to the books and records maintained by such Subtenant Guarantor during normal business hours and upon reasonable notice.  Any proprietary information obtained by the Landlord with respect to the Guarantor pursuant to the provisions of this Agreement shall be treated as confidential, except that such information may be disclosed or used, subject to appropriate confidentiality safeguards, pursuant to any court order or in any litigation between the parties and except further that the Landlord may disclose such information to its

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prospective lenders, provided that the Landlord shall direct such lenders to maintain such information as confidential.

3.8  Taxes, Etc.  Each Subtenant Guarantor shall pay and discharge promptly as they become due and payable all taxes, assessments and other governmental charges or levies imposed upon such Subtenant Guarantor or the income of such Subtenant Guarantor or upon any of the property, real, personal or mixed, of such Subtenant Guarantor, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a lien or charge upon any property and result in a material adverse change in the financial condition of such Subtenant Guarantor; provided, however, that such Subtenant Guarantor shall not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings or other appropriate actions promptly initiated and diligently conducted and if such Subtenant Guarantor shall have set aside on its books such reserves of such Subtenant Guarantor, if any, with respect thereto as are required by generally accepted accounting principles.

3.9  Legal Existence of Subtenant Guarantors. Each Subtenant Guarantor shall do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.

3.10  Compliance.  Each Subtenant Guarantor shall use reasonable business efforts to comply in all material respects with all applicable statutes, rules, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities in respect of the conduct of its business and the ownership of its property (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to environmental, safety and other similar standards or controls).

3.11  Insurance.  Each Subtenant Guarantor shall maintain, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by owners of established reputation engaged in the same or similar businesses and similarly situated, in such amounts and by such methods as shall be customary for such owners and deemed adequate by such Subtenant Guarantor.

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3.12  No Change in Control.  No Subtenant Guarantor shall permit the occurrence of any direct or indirect Change in Control of the Tenant or of such Subtenant Guarantor.

4.             Guarantee.  Each Subtenant Guarantor hereby unconditionally guarantees that the Guaranteed Obligations which are monetary obligations shall be paid in full when due and payable, whether upon demand, at the stated or accelerated maturity thereof pursuant to any Transaction Document, or otherwise, and that the Guaranteed Obligations which are performance obligations shall be fully performed at the times and in the manner such performance is required by the Transaction Documents.  With respect to the Guaranteed Obligations which are monetary obligations, this guarantee is a guarantee of payment and not of collectibility and is absolute and in no way conditional or contingent.  In case any part of the Guaranteed Obligations shall not have been paid when due and payable or performed at the time performance is required, the Subtenant Guarantors shall, in the case of monetary obligations, within five (5) Business Days after receipt of notice from the Landlord, pay or cause to be paid to the Landlord the amount thereof as is then due and payable and unpaid (including interest and other charges, if any, due thereon through the date of payment in accordance with the applicable provisions of the Transaction Documents) or, in the case of non-monetary obligations, perform or cause to be performed such obligations in accordance with the Transaction Documents.

5.             Set-Off.  Each Subtenant Guarantor hereby authorizes the Landlord, at any time and without notice to set off the whole or any portion or portions of any or all sums credited by or due from the Landlord to it against amounts payable under this Agreement.  The Landlord shall promptly notify such Subtenant Guarantor of any such set-off made by the Landlord and the application made by the Landlord of the proceeds thereof.

6.             Unenforceability of Guaranteed Obligations, Etc.  If the Tenant is for any reason under no legal obligation to discharge any of the Guaranteed Obligations (other than because the same have been previously discharged in accordance with the terms of the Transaction Documents), or if any other moneys included in the Guaranteed Obligations have become unrecoverable from the Tenant by operation of law or for any other reason, including, without limitation, the invalidity or irregularity in whole or in part of any Guaranteed Obligation or of any Transaction Document or any limitation on the liability of the Tenant thereunder not contemplated by the Transaction Documents or any limitation on the method or terms of payment thereunder

5

which may now or hereafter be caused or imposed in any manner whatsoever, the guarantees contained in this Agreement shall nevertheless remain in full force and effect and shall be binding upon each Subtenant Guarantor to the same extent as if such Subtenant Guarantor at all times had been the principal debtor on all such Guaranteed Obligations.

7.             Additional Guarantees.  This Agreement shall be in addition to any other guarantee or other security for the Guaranteed Obligations and it shall not be prejudiced or rendered unenforceable by the invalidity of any such other guarantee or security or by any waiver, amendment, release or modification thereof.

8.             Consents and Waivers, Etc.  Each Subtenant Guarantor hereby acknowledges receipt of correct and complete copies of each of the Transaction Documents, and consents to all of the terms and provisions thereof, as the same may be from time to time hereafter amended or changed in accordance with the terms and conditions thereof, and, except as otherwise provided herein, to the maximum extent permitted by applicable law, waives (a) presentment, demand for payment, and protest of nonpayment, of any principal of or interest on any of the Guaranteed Obligations, (b) notice of acceptance of this Agreement and of diligence, presentment, demand and protest, (c) notice of any default hereunder and any default, breach or nonperformance or Event of Default under any of the Guaranteed Obligations or the Transaction Documents, (d) notice of the terms, time and place of any private or public sale of any collateral held as security for the Guaranteed Obligations, (e) demand for performance or observance of, and any enforcement of any provision of, or any pursuit or exhaustion of rights or remedies against the Tenant or any other guarantor of the Guaranteed Obligations, under or pursuant to the Transaction Documents, or any agreement directly or indirectly relating thereto and any requirements of diligence or promptness on the part of the holders of the Guaranteed Obligations in connection therewith, and (f) to the extent such Subtenant Guarantor lawfully may do so, any and all demands and notices of every kind and description with respect to the foregoing or which may be required to be given by any statute or rule of law and any defense of any kind which it may now or hereafter have with respect to this Agreement, or any of the Transaction Documents or the Guaranteed Obligations (other than that the same have been discharged in accordance with the Transaction Documents).

9.             No Impairment, Etc.  The obligations, covenants, agreements and duties of each of the Subtenant Guarantors under

6

this Agreement shall not be affected or impaired by any assignment or transfer in whole or in part of any of the Guaranteed Obligations without notice to each such Subtenant Guarantor, or any waiver by the Landlord or any holder of any of the Guaranteed Obligations or by the holders of all of the Guaranteed Obligations of the performance or observance by the Tenant or any other guarantor of any of the agreements, covenants, terms or conditions contained in the Guaranteed Obligations or the Transaction Documents or any indulgence in or the extension of the time for payment by the Tenant or any other guarantor of any amounts payable under or in connection with the Guaranteed Obligations or the Transaction Documents or any other instrument or agreement relating to the Guaranteed Obligations or of the time for performance by the Tenant or any other guarantor of any other obligations under or arising out of any of the foregoing or the extension or renewal thereof (except that with respect to any extension of time for payment or performance of any of the Guaranteed Obligations granted by the Landlord or any other holder of such Guaranteed Obligations to the Tenant, such Subtenant Guarantor’s obligations to pay or perform such Guaranteed Obligation shall be subject to the same extension of time for performance), or the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Tenant or any other guarantor set forth in any of the foregoing, or the voluntary or involuntary sale or other disposition of all or substantially all the assets of the Tenant or any other guarantor or insolvency, bankruptcy, or other similar proceedings affecting the Tenant or any other guarantor or any assets of the Tenant or any such other guarantor, or the release or discharge of the Tenant or any such other guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of the foregoing without the consent of the holders of the Guaranteed Obligations by operation of law, or any other cause, whether similar or dissimilar to the foregoing.

10.           Reimbursement, Subrogation, Etc.  Each Subtenant Guarantor hereby covenants and agrees that it will not enforce or otherwise exercise any rights of reimbursement, subrogation, contribution or other similar rights against the Tenant (or any other person against whom the Landlord may proceed) with respect to the Guaranteed Obligations prior to the payment in full of all amounts owing with respect to Amended Lease No. 4, and until all indebtedness of the Tenant to the Landlord shall have been paid in full, no Subtenant Guarantor shall have any right of subrogation, and each Subtenant Guarantor waives any defense it may have based upon any election of remedies by the Landlord which destroys its subrogation rights or its rights to proceed

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against the Tenant for reimbursement, including, without limitation, any loss of rights such Subtenant Guarantor may suffer by reason of any rights, powers or remedies of the Tenant in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging the indebtedness to the Landlord.  Until all obligations of the Tenant pursuant to the Transaction Documents shall have been paid and satisfied in full, each Subtenant Guarantor further waives any right to enforce any remedy which the Landlord now has or may in the future have against the Tenant, any other guarantor or any other person and any benefit of, or any right to participate in, any security whatsoever now or in the future held by the Landlord.

11.           Defeasance.  This Agreement shall terminate at such time as the Guaranteed Obligations have been paid and performed in full and all other obligations of the Subtenant Guarantors to the Landlord under this Agreement have been satisfied in full; provided, however, if at any time, all or any part of any payment applied on account of the Guaranteed Obligations is or must be rescinded or returned for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Tenant), this Agreement, to the extent such payment is or must be rescinded or returned, shall be deemed to have continued in existence notwithstanding any such termination.

12.           Notices.  (a)  Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)  All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

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(c)  All such notices shall be addressed,

if to the Landlord to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to any Subtenant Guarantor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

(d)  By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

13.           Successors and Assigns.  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, including without limitation the holders, from time to time, of the Guaranteed Obligations; and all representations, warranties, covenants and agreements by or on behalf of the Subtenant Guarantors which are contained in this Agreement shall inure to the benefit of the Landlord’s successors and assigns, including without limitation said holders, whether so expressed or not.

14.           Applicable Law.  Except as to matters regarding the internal affairs of the Landlord and issues of or limitations on any personal liability of the shareholders and trustees of the Landlord for obligations of the Landlord, as to which the laws of the State of Maryland shall govern, this Agreement, the Transaction Documents and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (a) where any such instrument is executed or delivered; or (b) where any payment or

9

other performance required by any such instrument is made or required to be made; or (c) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (g) any combination of the foregoing.

15.           Arbitration.  The Landlord or the Subtenant Guarantors may elect to submit to arbitration any dispute hereunder that has an amount in controversy in excess of $250,000.  Any such arbitration shall be conducted in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event that any such dispute is submitted to arbitration hereunder, the Landlord and the Subtenant Guarantors shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Landlord or the Subtenant Guarantors shall fail to appoint an arbitrator as aforesaid for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Landlord and the Subtenant Guarantors, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses

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and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Landlord and one to the Subtenant Guarantors.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Landlord and the Guarantor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Landlord and the Guarantor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

16.           Modification of Agreement.  No modification or waiver of any provision of this Agreement, nor any consent to any departure by any of the Subtenant Guarantors therefrom, shall in any event be effective unless the same shall be in writing and signed by the Landlord, and such modification, waiver or consent shall be effective only in the specific instances and for the purpose for which given.  No notice to or demand on any Subtenant Guarantor in any case shall entitle such Subtenant Guarantor to any other or further notice or demand in the same, similar or other circumstances.  This Agreement may not be amended except by an instrument in writing executed by or on behalf of the party against whom enforcement of such amendment is sought.

17.           Waiver of Rights by the Landlord.  Neither any failure nor any delay on the Landlord’s part in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege.

18.           Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

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19.           Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

20.           Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

21.           Remedies Cumulative.  No remedy herein conferred upon the Landlord is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

22.           Joint and Several Liability.  Each Subtenant Guarantor shall be jointly and severally liable with each other Subtenant Guarantor for the payment and performance of all of the obligations and liabilities of every Subtenant Guarantor under this Agreement.

23.           NONLIABILITY OF TRUSTEES.  THE DECLARATION OF TRUST ESTABLISHING THE LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST”) REFERS TO THE TRUSTEES UNDER SUCH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF  THE LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE LANDLORD.  ALL PERSONS DEALING WITH THE LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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WITNESS the execution hereof under seal as of the date above first written.

SUBTENANT GUARANTORS:
FIVE STAR QUALITY CARE-GHV, LLC and FIVE STAR QUALITY CARE-NJ, LLC, each a Maryland limited liability company
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President of each of the foregoing entities

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EX-99.26

Exhibit 99.26

PLEDGE OF SUBTENANTS’ COMPANY INTERESTS AGREEMENT
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 4)

THIS PLEDGE OF SUBTENANT COMPANY INTERESTS AGREEMENT (this “Agreement”) is made and given as of July 1, 2008 by FSQ, INC., a Maryland corporation, and THE HEARTLANDS RETIREMENT COMMUNITY - ELLICOTT CITY II, INC., a Maryland corporation (each individually a “Pledgor” and, collectively, the “Pledgors”), for the benefit of SNH NS PROPERTIES TRUST, a Maryland real estate investment trust (together with its successors and assigns, collectively, the “Secured Party”).

W I T N E S S E T H:

WHEREAS, the Secured Party and Five Star Quality Care NS -Tenant, LLC, a Maryland limited liability company (the “Tenant”), entered into that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (as the same may be amended or otherwise modified from time to time, the “Restated Lease”), pursuant to which the Secured Party leases to the Tenant and the Tenant leases from the Secured Party certain properties as more particularly described in the Restated Lease; and

WHEREAS, pursuant to the Restated Lease, Five Star Quality Care, Inc., a Maryland corporation which is the parent of the Tenant’s parent (the “Guarantor”), executed that certain Amended and Restated Guaranty Agreement, dated as of the  date hereof (as the same may be amended or otherwise modified from time to time, the “Restated Guaranty”) for the benefit of the Secured Party, pursuant to which the Guarantor guarantees all of the payment and performance obligations of the Tenant with respect to the Restated Lease; and

WHEREAS, pursuant to various Sublease Agreements as further described on Exhibit A attached hereto (as the same may be amended or otherwise modified from time to time, collectively, the “Subleases”), the Tenant subleases certain portions of the premises demised under the Restated Lease to the subtenants identified on said Exhibit A (collectively, the “Subtenants”), subject to and upon the terms and conditions set forth in the Subleases; and

WHEREAS, pursuant to the Restated Lease and the Subleases, the Subtenants executed that certain Guaranty Agreement, dated as of the date hereof (as the same may be amended or otherwise

modified from time to time, collectively, the “Subtenant Guaranty”), for the benefit of the Secured Party pursuant to which the Subtenants guarantee all of the payment and performance obligations of the Tenant with respect to the Restated Lease; and

WHEREAS, pursuant to the Restated Lease and the Subleases, the Tenant and the Subtenants are required to deliver a pledge of all of the interests in the Subtenants to the Secured Party as security for the payment and performance of (a) all of the obligations of the Tenant to the Secured Party with respect to the Restated Lease and other documents related thereto, (b) all of the obligations of the Guarantor to the Secured Party with respect to the Restated Guaranty and other documents related thereto and (c) all of the obligations of the Subtenants to the Secured Party with respect to the Subtenant Guaranty and other documents related thereto; and

WHEREAS, the Pledgors, the Tenant and the Subtenants are all wholly-owned subsidiaries of Five Star Quality Care, Inc.; and

WHEREAS, the Pledgors currently own all of the outstanding shares of company interest in the Subtenants and each Pledgor expects to receive a substantial material benefit from the execution and delivery of the Restated Lease and the Subleases;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, each Pledgor and the Secured Party hereby agree as follows:

1.Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Restated Lease.  The Restated Lease, the Subleases and the Incidental Documents are herein collectively referred to as the “Transaction Documents.”

2.Pledge.  Each Pledgor hereby pledges to the Secured Party all of the shares of company interest in the Subtenants (the “Pledged Shares”) and all other shares of company interest in the Subtenants in which such Pledgor may have rights from time to time and any other securities or other investment property and other collateral of such Pledgor now owned or hereafter acquired which under this Agreement are required to be pledged to the Secured Party, and in each case, all certificates representing such Pledged Shares or other investment property or collateral, and all rights, options, warrants, stock or other

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securities or other property which may hereafter be received, receivable or distributed in respect of the Pledged Shares, together with all proceeds of the foregoing, including, without limitation, all dividends, cash, notes, securities or other property from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, the foregoing, (the Pledged Shares and any additional securities or collateral pledged hereunder, collectively, the “Pledged Collateral”), and such Pledgor hereby grants to the Secured Party a security interest in all of the Pledged Collateral and the proceeds thereof as security for the due and punctual payment and performance of the Secured Obligations (as hereinafter defined).

Each Pledgor has delivered to and deposited with the Secured Party any and all certificates or other instruments representing the Pledged Collateral (if any) and undated company interest share powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.  If in the future any Pledgor possesses or controls any other certificates or other instruments representing the Pledged Collateral, such Pledgor shall immediately and without notice deliver the same to the Secured Party together with undated company interest share powers endorsed in blank, as security for the payment and performance of all of the Secured Obligations.

3.Secured Obligations.  For purposes of this Agreement, the term “Secured Obligations” shall mean the payment and performance of each and every obligation of the Tenant and the Subtenants under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Restated Lease.

4.Representations of the Pledgor.  Except as otherwise set forth in Section 25 below, each Pledgor covenants that the Pledged Shares are duly and validly pledged to the Secured Party in accordance with law and each Pledgor shall warrant and defend the Secured Party’s right, title and security interest in and to the Pledged Shares against the claims and demands of all persons whomsoever.  Except as set forth in Section 25 below, each Pledgor represents and warrants to the Secured Party that such Pledgor has good and marketable title to all the Pledged Shares, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever; that the Pledged Shares are not subject to any restriction on transfer contained in the Limited Liability Company Operating Agreement or any other charter documents of either Subtenant or in any agreement or instrument to which

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either Subtenant or such Pledgor is a party or by which either Subtenant or such Pledgor is bound which would prohibit or restrict the pledge of the Pledged Shares hereunder or the disposition thereof upon default hereunder; that all of the Pledged Shares have been duly and validly issued and are fully paid for and nonassessable; and that the Pledged Shares constitute all of the presently issued and outstanding shares of the company interests of the Subtenants.

5.Covenants of the Pledgor.  Each Pledgor hereby covenants and agrees that, except as set forth in Section 25 below, it shall not sell, convey or otherwise dispose of any of the Pledged Collateral nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interests in the Pledged Collateral created hereby.  Each Pledgor further covenants and agrees that it shall not consent to or approve the issuance of any additional shares of company interest in either Subtenant.  Each Pledgor further covenants and agrees that, until the Secured Obligations are paid in full, such Pledgor shall not change the state of its incorporation or its corporate name without providing the Secured Party with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Party determines are necessary or appropriate to continue or perfect the security interest granted hereunder.

6.Filing of Financing Statements, etc.  Each Pledgor authorizes the Secured Party to file from time to time one or more financing statements describing the Pledged Collateral.  Each Pledgor will cooperate with the Secured Party at their request from time to time in obtaining control agreements in form and substance reasonably satisfactory to the Secured Party with respect to any collateral investment property, deposit accounts, or other Pledged Collateral as to which the Secured Party determine such agreements are necessary or appropriate to perfect the security interest granted hereunder.

7.Distributions, Etc.  Upon the dissolution, winding up, liquidation or reorganization of either Subtenant, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of such Subtenant, if any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall be paid over to the Secured Party, to be held as collateral security for the Secured Obligations.  If any dividend shall be declared on

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any of the Pledged Collateral (excluding cash dividends), or any share of beneficial interest or fraction thereof shall be issued pursuant to any split of beneficial interests involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of the Tenant, the shares or other property so distributed shall be delivered to the Secured Party to be held as collateral security for the Secured Obligations.

8.Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under the Transaction Documents; (b) the failure of the Guarantor to comply with any of its covenants or obligations under the Restated Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (c) the failure of either Subtenant to comply with any of its covenants or obligations under the Subtenant Guaranty and the continuation thereof for a period of ten (10) Business Days after written notice thereof; (d) the failure of any Pledgor to comply with any of its covenants or obligations under this Agreement and the continuation thereof for a period of ten (10) Business Days after written notice thereof; or (e) any representation or warranty contained herein or made by any Pledgor in connection herewith shall prove to have been false or misleading in any material respect when made.

9.Remedies.  (a) Upon the occurrence and during the continuance of an Event of Default, the Secured Party may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees, subject to the provisions of the Uniform Commercial Code or other applicable law.

(b)Upon the occurrence and during the continuance of an Event of Default, the Secured Party shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all such rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, all such rights under the Limited Liability Company Operating Agreements or any other charter document of either Subtenant, and further including, without

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limitation, the right to exchange, at its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of either Subtenant, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Party may determine.

(c)Upon the occurrence and during the continuance of an Event of Default, the Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law and shall have the right to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale.  The Secured Party shall give the Pledgor at least ten (10) days’ prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition.  Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgor to the extent permitted by applicable law.  All such sales shall be at such commercially reasonable price or prices as the Secured Party shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk).  At any such sale or sales, the Secured Party may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Party may deem best.  Upon any such sale or sales, the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of any kind or nature of any Pledgor, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgor to the extent permitted by applicable law.  In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, each Pledgor shall execute, and hereby agrees to cause each Subtenant to execute, all such applications or other instruments as may be required.  The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied:  first, to the payment of all costs and expenses of such sale, including attorneys’

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fees; and second, to the payment of the Secured Obligations in such order of priority as the Secured Party shall determine; and any surplus thereafter remaining shall be paid to the applicable Pledgor or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of such Pledgor).

Each Pledgor recognizes that the Secured Party may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Collateral for their own accounts, for investment and not with a view to the distribution or resale thereof.  Each Pledgor agrees that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Party shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933.  Each Pledgor agrees that private sales made under the foregoing circumstances may be deemed to have been made in a commercially reasonable manner.  Nothing herein shall be deemed to require any Pledgor to effect a registration of the Pledged Collateral under the Securities Act of 1933.

(d)Upon the occurrence and during the continuance of any Event of Default, the Secured Party, in its discretion, may demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral.  Upon the occurrence and during the continuance of any Event of Default, the Secured Party shall further have the right, for and in the name, place and stead of any Pledgor, to execute endorsements, assignments, or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

(e)The Secured Party shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Party elect to do any such act, the Secured Party shall not be responsible to any Pledgor, other than for gross negligence or willful misconduct.

(f)The Secured Party shall have no obligation to marshal any assets in favor of any Pledgor, or against or in payment of

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the Secured Obligations or any other obligation owed to the Secured Party by any Pledgor or any other person.

10.Rights of Secured Party.  No course of dealing between any Pledgor and the Secured Party nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder or under any of the Secured Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided and provided under any of the Secured Obligations are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of the Secured Party under the Uniform Commercial Code.

11.Assignment, Etc.  No waiver by the Secured Party or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion.  In the event of a sale or assignment by any Secured Party of its interest under the Transaction Documents, such Secured Party may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or assignee of such interest, whereupon such purchaser or purchasers shall become vested with all of the powers and rights given to such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility thereafter arising hereunder with respect to the rights and interests so assigned.

12.Duty of Secured Party.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Party shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the applicable Pledgor.

13.Waivers, Etc.  To the extent permitted by applicable law, each Pledgor, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, payment, notice of dishonor, protest and, except as otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Party hereunder or in connection with any Secured Obligations.  The Secured Party may release, supersede, exchange

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or modify any collateral security it may from time to time hold and release, surrender or modify the liability of any third party without giving notice hereunder to any Pledgor.  The Secured Party shall be under no duty to exhaust its rights against any such collateral security or any such third party before realizing on the Pledged Collateral.  Such modifications, changes, renewals, releases or other actions shall in no way affect any Pledgor’s obligations hereunder.

Each Pledgor further waives any right it may have under the Constitution of the Commonwealth of Massachusetts (or under the constitution of any other state in which any of the Pledged Collateral may be located), or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Party, and waives its rights, if any, to set aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  EACH PLEDGOR’S WAIVERS UNDER THIS SECTION 13 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER THE PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

14.Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, each Pledgor shall execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, collateral assignments and other security documents), and shall take all such actions, as the Secured Party may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Party’s rights with respect to the Pledged Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by any Pledgor which may be deemed to be a part of the Pledged Collateral) pursuant hereto and thereto.  The Secured Party is hereby appointed the attorney-in-fact, with full power of substitution, of the Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation, assignments, conveyances and transfers which are required to be taken or executed by any Pledgor under this

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Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of the Pledgor.

15.Notices.  (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with electronic confirmation of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of electronic confirmation of receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)All such notices shall be addressed,

if to the Secured Party to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

[Telecopier No. (617) 796-8349]

if to any Pledgor to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

[Telecopier No. (617) 796-8385]

(d)By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this

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Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto.

16.Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the term “Secured Party” shall be deemed to include any other holder or holders of any of the Secured Obligations.  Where the context so permits or requires, terms defined herein in the singular number shall include the plural, and in the plural number, the singular.  This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, each of which, when so executed and delivered, shall be an original and all of which shall together constitute one and the same agreement.

17.Reinstatement.  This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Secured Party in respect of the Pledged Collateral is rescinded or must otherwise be restored or returned by the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Pledgor or upon the appointment of any intervenor or conservator of, or trustee or similar official for any Pledgor or any substantial part of its assets or property, or otherwise, all as though such payments had not been made.

18.Restrictions on Transfer.  To the extent that any restrictions imposed by the Limited Liability Company Operating Agreement or any other charter documents of either Subtenant or any other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured Party of any right granted hereunder including, without limitation, the right of the Secured Party to dispose of the Pledged Collateral upon the occurrence of any Event of Default, each Pledgor hereby waives such restrictions, and each Pledgor hereby agrees that it will take any action which the Secured Party may reasonably request in order that the Secured Party may obtain and enjoy the full rights and benefits granted to the Secured Party by this Agreement free of any such restrictions.

19.Applicable Law.  This Agreement and any other instruments executed and delivered to evidence, complete or

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perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts regardless of (a) where any such instrument is executed or delivered; or (b) where any payment or other performance required by any such instrument is made or required to be made; or (c) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (g) any combination of the foregoing.

20.Arbitration. The Secured Party or any Pledgor may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Party or any Pledgor shall elect to submit any such dispute to arbitration hereunder, the Secured Party and such Pledgor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Party or the applicable Pledgor shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to

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the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Party and the applicable Pledgor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Party and one to the Pledgor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Secured Party and each Pledgor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Secured Party and each Pledgor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

21.Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

22.Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

23.Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

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24.NONLIABILITY OF TRUSTEES.  THE DECLARATION OF TRUST ESTABLISHING THE SECURED PARTY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST”) REFERS TO THE TRUSTEES UNDER SUCH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF  THE SECURED PARTY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE SECURED PARTY.  ALL PERSONS DEALING WITH THE SECURED PARTY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

25.Prior Pledge.  Notwithstanding anything contained in this Agreement to the contrary, the Secured Party acknowledges and consents to the FSQ Inc.’s prior pledge of the company interests in Five Star Quality Care—GHV, LLC to an affiliate of the Secured Party pursuant to that certain Amended and Restated Pledge of Stock and Membership Interest Agreement (Subtenant Pledge — Amended Lease No. 1), dated as of June 30, 2008, made by FSQ, Inc. and certain Affiliated Persons as to FSQ, Inc. to certain Affiliated Persons as to Secured Party. 

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WITNESS the execution hereof under seal as of the date above first written.

PLEDGOR:
FSQ, INC.,
a Maryland corporation
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
THE HEARTLANDS RETIREMENT COMMUNITY - ELLICOTT CITY II, INC., a Maryland corporation
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
SECURED PARTY:
SNH NS PROPERTIES TRUST, a Maryland real estate investment trust
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer

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Exhibit A (Subleases) has been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request.

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EX-99.27

Exhibit 99.27

SUBTENANT SECURITY AGREEMENT

(AMENDED LEASE NO. 4)

THIS SUBTENANT SECURITY AGREEMENT (this “Agreement”) is entered into as of July 1, 2008 by and between FIVE STAR QUALITY CARE — GHV, LLC, a Maryland limited liability company, and FIVE STAR QUALITY CARE-NJ, LLC, a Maryland limited liability company (collectively, the “Subtenants”), and SNH NS PROPERTIES TRUST, a Maryland real estate investment trust (together with its successors and assigns, collectively, the “Secured Party”).

W I T N E S S E T H:

WHEREAS, the Secured Party and Five Star Quality Care — NS Tenant, LLC (the “Tenant”) are parties to that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (as the same may be amended or otherwise modified from time to time, the “Amended Lease No. 4”), pursuant to which the Secured Party leases to the Tenant, and the Tenant leases from the Secured Party, certain properties as more particularly described in Amended Lease No. 4, subject to any upon the terms and conditions in Amended Lease No. 4; and

WHERAS, pursuant to various Sublease Agreements, dated as of the date hereof, the Tenant has subleased the properties leased by it under Amended Lease No. 4 to the Subtenant Guarantors; and

WHEREAS, pursuant to Amended Lease No. 4, the Subtenants are required to grant to the Secured Party a first and perfected lien and security interest in certain collateral as security for the payment and performance of each and every obligation and liability of the Tenant to the Secured Party under Amended Lease No. 4 or any other document or agreement executed and delivered pursuant thereto, whether existing as of the date of Amended Lease No. 4 or thereafter arising, whether direct or indirect, absolute or contingent, due or to become due, including, without limitation, the payment of all rent and other charges due under Amended Lease No. 4 (collectively, the “Obligations”); and

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Subtenants and the Secured Party hereby agree as follows:

1.      Definitions.  As used in this Agreement, the following terms shall have the meanings specified below.  Except as otherwise defined, terms defined in the Uniform Commercial Code and used herein without definition shall have the meanings given such terms in the Uniform Commercial Code.

“Affiliated Person” shall have the meaning given such term in Amended Lease No. 4.

“Business Day” shall have the meaning given such term in Amended Lease No. 4.

“Collateral” shall mean all of each Subtenant’s right, title and interest in and under or arising out of all and any personal property, intangibles and fixtures of any type or description (other than Excluded Collateral), wherever located and now existing or hereafter arising, or which constitute or arise from the operation, maintenance or repair of the Leased Property or any portion thereof, together with any and all additions and accessions thereto and replacements, products, proceeds (including, without limitation, proceeds of insurance) and supporting obligations thereof, including, but not limited to, the following:

(a)all goods, including, without limitation, all Equipment; and

(b)all General Intangibles; and

(c)all other personal property or fixtures of any nature whatsoever which relate to the operation, maintenance or repair of the Leased Property, or any portion thereof, and all property from time to time described in any financing statement signed by such Subtenant naming the Secured Party as Secured Party; and

(d)all claims, rights, powers or privileges and remedies relating to the foregoing or arising in connection therewith, including, without limitation, all Licenses and Permits which such Subtenant legally may grant a security interest in, rights to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, waiver or approval; all liens, security, guaranties, endorsements, warranties and indemnities and all insurance, eminent domain and condemnation awards and claims therefor relating thereto or arising in connection therewith; all rights to property forming the subject matter of any of the

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foregoing, including, without limitation, rights to stoppage in transit and rights to returned or repossessed property; all writings relating to the foregoing or arising in connection therewith; and

(e)all contract rights, general intangibles and other property rights of any nature whatsoever arising out of or in connection with any of the foregoing (other than Excluded Collateral), including, without limitation, payments due or to become due, whether as repayments, reimbursements, contractual obligations, indemnities, damages or otherwise.

“Equipment” shall mean all buildings, structures, improvements, fixtures and items of machinery, equipment and other tangible personal property which constitute, arise from or relate to the operation, maintenance or repair of the Leased Property or any portion thereof, together with all repairs, replacements, improvements, substitutions, extensions or renewals thereof or additions thereto, all parts, additions and accessories incorporated therein or affixed thereto, and all “equipment” as such term is defined in the Uniform Commercial Code, and all cash and non-cash proceeds therefrom.

“Event of Default” shall have the meaning given such term in Section 6.

“Excluded Collateral” shall mean (a) all Accounts of each Subtenant, (b) all Deposit Accounts and Securities Accounts of each Subtenant, (c) all Chattel Paper of each Subtenant, (d) all General Intangibles relating to such Accounts or Chattel Paper, (e) all Support Obligations relating to any of the foregoing, (f) all Instruments or Investment Property evidencing or arising from any Accounts or Chattel Paper, (g) all documents, books, records or other information pertaining to any of the foregoing (including, without limitation, customer lists, credit files, computer programs, printouts, tapes, discs, punch cards, data processing software and other computer materials and records and related property and rights), (h) all accessions to, substitutions for, and all replacements, products and proceeds of the foregoing (including without limitation, proceeds of insurance policies insuring any of the foregoing) and (i) any of the Sublease Agreements relating to the Leased Property to which each Subtenant is a party.

“Facilities” shall have the meaning given such term in Amended Lease No. 4.

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“General Intangibles” shall mean all present and future general intangibles and contract rights (other than Excluded Collateral) which constitute, arise from or relate to the operation, maintenance or repair of the Leased Property, or any portion thereof, including, but not limited to, all causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, franchises, customer lists, computer programs, claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases, claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature which constitutes, arises from or relates to the operation, maintenance or repair of the Leased Property, or any portion thereof.

“Instrument” shall have the meaning give such term in Article 9 of the Uniform Commercial Code.

“Leased Property” shall have the meaning given such term in Amended Lease No. 4.

“Licenses” shall mean all certificates of need (if any), licenses, permits, rights of use, covenants or rights otherwise benefiting or permitting the use and operation of each applicable Property or any part thereof pertaining to the operation, maintenance or repair of such Property or any portion thereof.

“Obligations” shall have the meaning given such term in the preamble to this Agreement.

“Overdue Rate” shall have the meaning given to such term in Amended Lease No. 4.

“Permits” shall mean all permits, approvals, consents, waivers, exemptions, variances, franchises, orders, authorizations, rights and licenses obtained or hereafter obtained from any federal, state or other governmental authority or agency relating to the operation, maintenance or repair, of each applicable Property, or any portion thereof.

“Person” shall have the meaning given such term in Amended Lease No. 4.

“Property” shall have the meaning given such term in Amended Lease No. 4.

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“Rent” shall have the meaning given such term in Amended Lease No. 4.

“Restated Lease” shall have the meaning given such term in the recitals to this Agreement.

“Secured Party” shall have the meaning given such term in the preamble to this Agreement.

“Tenant” shall have the meaning given such term in the preamble to this Agreement.

“Uniform Commercial Code” means Article 9 of the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts from time to time.

2.      Security Interest.  As security for the prompt payment and performance of all the Obligations, each Subtenant hereby grants, pledges, transfers and assigns to the Secured Party, their successors and assigns and all other holders from time to time of the Obligations, a continuing security interest under the Uniform Commercial Code from time to time in effect in the jurisdiction in which any of the Collateral is located in and a continuing lien upon all of each Subtenant’s right, title and interest in the Collateral, together with any and all additions thereto and replacements, products and proceeds thereof, whether now existing or hereafter arising or acquired and wherever located.

Section 3.        General Representations, Warranties and Covenants.  Each Subtenant represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows:

(a)Each of the warranties and representations of such Subtenant contained herein, in Amended Lease No. 4 or in any other document executed in connection herewith or therewith are true and correct on the date hereof.

(b)Except for the lien granted to the Secured Party pursuant to this Agreement and any liens permitted under Amended Lease No. 4, such Subtenant is, and as to the Collateral acquired from time to time after the date hereof such Subtenant will be, the owner of all the Collateral free from any lien, security interest, encumbrance or other right, title or interest of any Person, except for the security interest of the Secured Party therein, and such Subtenant shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured

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Party.  The lien granted in this Agreement by such Subtenant to the Secured Party in the Collateral is not prohibited by and does not constitute a default under any agreements or other instruments constituting a part of the Collateral, and no consent is required of any Person to effect such lien which has not been obtained.

(c)Except as permitted under Amended Lease No. 4, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) now on file or registered in any public office covering any interest of any kind in the Collateral, or intended so to be, which has not been terminated, and so long as this Agreement remains in effect or any of the Obligations or any obligations of any Affiliated Person of such Subtenant to the Secured Party remain unpaid, such Subtenant will not execute and there will not be on file in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or  statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interest of the Secured Party.

(d)The chief executive office and the principal place of business of such Subtenant are as set forth in Schedule 1 and such Subtenant will not move its chief executive office or establish any other principal place of business except to such new location as such Subtenant may establish in accordance with this Section 3(d). The location of each Facility comprising a portion of the Leased Property is as set forth in Schedule 2.  The originals of all documents evidencing Collateral and the only original books of account and records of such Subtenant relating thereto are, and will continue to be, kept at such chief executive office or the applicable Facility, as the case may be, or at such new location as such Subtenant may establish in accordance with this Section 3(d).  Such Subtenant shall not move its chief executive office or establish any other principal place of business until (i) such Subtenant shall have given to the Secured Party not less than ten (10) days’ prior written notice of its intention to do so, which notice shall clearly describe such new location and provide such other information in connection therewith as the Secured Party may reasonably request, and (ii) with respect to such new location, such Subtenant shall have taken such action, satisfactory to the Secured Party (including, without limitation, all action required by Section 5), to maintain the security interest of the Secured Party in the Collateral.

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(e)All tangible personal property owned on the date hereof by such Subtenant to be used in connection with the operation or maintenance of the Leased Property, or any portion thereof, is located at each applicable Property or is in transit to such Property from the vendor thereof.  Such Subtenant agrees that (i) all such property held by such Subtenant on the date hereof, once at each applicable Property, shall remain at such Property and (ii) all such property subsequently acquired by such Subtenant shall immediately upon acquisition be transferred to and remain at the applicable Property.

(f)Such Subtenant’s corporate name and organizational identification number are as set forth on the signature page hereto.  The name under which each of the Facilities is operated is set forth on Schedule 2.  Such Subtenant shall not (i) change such name without providing the Secured Party with thirty (30) days’ prior written notice and making all filings and taking all such other actions as the Secured Party determines are necessary or appropriate to continue or perfect the security interest granted hereunder, (ii) change its corporate organizational number, nor (iii) conduct its business in any other name or take title to any Collateral in any other name while this Agreement remains in effect.  Except as otherwise set forth on Schedule 1, such Subtenant has not ever had any other name nor conducted business in any other name in any jurisdiction.  Such Subtenant is organized as a Maryland limited liability company.  Subject to the terms and conditions of Amended Lease No. 4, such Subtenant shall not change its organizational structure or jurisdiction of organization without giving at least thirty (30) days’ prior written notice thereof to the Secured Party.

(g)The Secured Party is authorized (but is under no obligation) to make, upon ten (10) Business Days’ notice to such Subtenant (except in the case of exigent circumstances, in which circumstances upon such notice, if any, as may then be reasonably practical), any payments which in the Secured Party’s opinion are necessary to:

(i)discharge any liens which have or may take priority over the lien hereof; and

(ii)pay all premiums payable on the insurance policies referred to in Amended Lease No. 4 or any other document or agreement executed in connection therewith or herewith, upon the failure of such Subtenant to make such payments within the time permitted therein.

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Such Subtenant shall have no claim against the Secured Party by reason of its decision not to make any payments or perform such obligations permitted under this Section 3(g).  Such Subtenant shall repay to the Secured Party any sums paid by the Secured Party upon demand.  Any sums paid and expenses incurred by the Secured Party pursuant to this paragraph shall bear interest at the Overdue Rate.

(h)If any of the Collateral at any time becomes evidenced by an Instrument, such Subtenant shall promptly deliver such Instrument to the Secured Party, appropriately endorsed to the order of the Secured Party, to be held pursuant to this Agreement.

(i)Such Subtenant shall not sell, transfer, change the registration, if any, of, dispose of, attempt to dispose of, or substantially modify or abandon the Collateral or any material part thereof, other than as permitted under Amended Lease No. 4, without the prior written consent of the Secured Party.  Except as permitted under Amended Lease No. 4, such Subtenant shall not create, incur, assume or suffer to exist any lien upon any of the Collateral without the prior written consent of the Secured Party.

(j)Such Subtenant shall not assert against the Secured Party any claim or defense which such Subtenant may have against any seller of the Collateral or any part thereof or against any Person with respect to the Collateral or any part thereof.

(k)Such Subtenant shall, upon demand, pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody or  preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder and under such other agreements or (iv) the failure by such Subtenant to perform or observe any of the provisions hereof.

(l)Such Subtenant shall indemnify and hold harmless the Secured Party from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Secured Party in any way relating to or arising out

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of this Agreement or arising out of such Subtenant’s obligations under any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or of any such other documents.

4.Special Provisions Concerning Equipment.  No Subtenant shall impair the rights of the Secured Party in the Equipment.  Regardless of the manner of the affixation of any Equipment to real property, the Equipment so attached shall at all times constitute and remain personal property.  Each Subtenant retains all liability and responsibility in connection with the Equipment and the liability of each Subtenant to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Equipment may be lost, destroyed, stolen or damaged or for any reason whatsoever have become unavailable to each Subtenant.  Upon the request of the Secured Party, each Subtenant shall provide to the Secured Party a current list of Equipment.

5.Financing Statements; Documentary Stamp Taxes.

(a)Each Subtenant shall, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Secured Party from time to time such lists, descriptions and designations of inventory, warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Secured Party reasonably deem appropriate or advisable to perfect, preserve or protect their security interest in the Collateral.  Each Subtenant authorizes the Secured Party to file any such financing statements without the signature of such Subtenant and each Subtenant will pay all applicable filing fees and related expenses.  To the extent permitted by law, a carbon, photographic or other reproduction of this Agreement or a financing statement shall be sufficient as a financing statement.

(b)Each Subtenant shall procure, pay for, affix to any and all documents and cancel any documentary tax stamps required by and in accordance with, applicable law, and each Subtenant shall indemnify and hold harmless the Secured Party from and against any liability  (including interest and penalties) in respect of such documentary stamp taxes.

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6.Event of Default.  For purposes of this Agreement, the term “Event of Default” shall mean (a) the occurrence of an Event of Default under Amended Lease No. 4 or any document or agreement executed in connection therewith; (b) the failure of either Subtenant to comply with any of its covenants or obligations under this Agreement and the continuance thereof for a period of ten (10) Business Days after written notice thereof; (c) any representation or warranty contained herein or made by either Subtenant in connection herewith shall prove to have been false or misleading in any material respect when made; or (d) the occurrence of any default or event of default under any document, instrument or agreement evidencing the Obligations.

7.Remedies.

(a)Upon the occurrence and during the continuance of an Event of Default, in addition to any rights and remedies now or hereafter granted under applicable law, under Amended Lease No. 4 or under any other documents or agreements entered into in connection herewith or therewith, and not by way of limitation of any such rights and remedies, the Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any applicable jurisdiction, and the right, without notice to, or assent by, each Subtenant, in the name of either Subtenant or in the name of the Secured Party or otherwise:

(i)with respect to the General Intangibles to ask for, demand, collect, receive, compound and give acquittance therefor or any part thereof, to extend the time of payment of, compromise or settle for cash, credit or otherwise, and upon any terms and conditions, any thereof, to exercise and enforce any rights and remedies in respect thereof, and to file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by the Secured Party necessary or advisable for the purpose of collecting or enforcing payment and performance thereof;

(ii)to take possession of any or all of the Collateral and to use, hold, store, operate, merge and/or control the same and to exclude each Subtenant and all Persons claiming under it wholly or partly therefrom, and, for that purpose, to enter, with the aid and assistance of any Person or Persons and with or without

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legal process, any premises where the Collateral, or any part thereof, are, or may be, placed or assembled, and to remove any such Collateral;

(iii)from time to time, at the expense of each Subtenant, to make all such repairs, replacements, alterations, additions and improvements to and of the Collateral as the Secured Party may reasonably deem proper; to carry on the business and to exercise all rights and powers of each Subtenant in respect to the Collateral, as the Secured Party shall deem best, including the right to enter into any and all such agreements with respect to the leasing, management and/or operation of the Collateral or any part thereof as the Secured Party may see fit; to collect and receive all rents, issues, profits, fees, revenues and other income of the same and every part thereof which rents, issues, profits, fees, revenues and other income may be applied to pay the expenses of holding and operating the Collateral and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which the Secured Party may be required or may elect to make, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments which the Secured Party may be required or authorized to make under any provision of this Agreement (including, without limitation, reasonable legal costs and attorneys’ fees);

(iv)to execute any instrument and do all other things necessary and proper to protect and preserve and realize upon the Collateral and the other rights contemplated hereby;

(v)upon notice to such effect, to require each Subtenant to deliver, at such Subtenant’s expense, any or all Collateral which is reasonably movable to the Secured Party at a place designated by the Secured Party, and after delivery thereof each Subtenant shall have no further claim to or interest in the Collateral; and

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(vi)without obligation to resort to other security, at any time and from time to time, to sell, re-sell, assign and deliver all or any of the Collateral, in one or more parcels at the same or different times, and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and at such price or prices and on such terms as the Secured Party may determine, with the amounts realized from any such sale to be applied to the Secured Obligations in the manner determined by the Secured Party.

Each Subtenant hereby agrees that all of the foregoing may be effected without demand, advertisement or notice (except as hereinafter provided or as may be required by law), all of which (except as hereinafter provided) are hereby expressly waived, to the maximum extent permitted by law.  The Secured Party shall not be obligated to do any of the acts hereinabove authorized and in the event that the Secured Party elect to do any such act, the Secured Party shall not be responsible to each Subtenant.

(b)Upon the occurrence and during the continuance of an Event of Default, the Secured Party may take legal proceedings for the appointment of a receiver or receivers (to which the Secured Party shall be entitled as a matter of right) to take possession of the Collateral pending the sale thereof pursuant either to the powers of sale granted by this Agreement or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement.  If, after the exercise of any or all of such rights and remedies, any of the Obligations shall remain unpaid or unsatisfied, each Subtenant shall remain liable for any deficiency or performance thereof, as applicable.

(c)Upon any sale of any of the Collateral, whether made under the power of sale hereby given or under judgment, order or decree in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement:

(i)the Secured Party may bid for and purchase the property being sold and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability, and may, in paying the purchase money therefor, deliver

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any instruments evidencing the Obligations or agree to the satisfaction of all or a portion of the Obligations in lieu of cash in payment of the amount which shall be payable thereon, and such instruments, in case the amounts so payable thereon shall be less than the amount due thereon, shall be returned to the Secured Party after being appropriately stamped to show partial payment;

(ii)the Secured Party may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold;

(iii)all right, title, interest, claim and demand whatsoever, either at law or in equity or  otherwise, of each Subtenant of, in and to the property so sold shall be divested; such sale shall be a perpetual bar both at law and in equity against each Subtenant, its successors and assigns, and against any and all Persons claiming or who may claim the property sold or any part thereof from, through or under each Subtenant, its successors or assigns;

(iv)the receipt of the Secured Party or of the officers thereof making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchase money, and such purchaser or purchasers, and his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Secured Party or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof; and

(v)to the extent that it may lawfully do so, each Subtenant agrees that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take advantage of, any appraisement, valuation, stay, extension or redemption laws, or any law permitting it to direct the order in which the Collateral or any part thereof shall be sold, now or at any time

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hereafter in force, which may delay, prevent or otherwise affect the performance or enforcement of this Agreement or any other document, Amended Lease No. 4 or any other document or agreement entered into in connection herewith or therewith, and each Subtenant hereby expressly waives all benefit or advantage of any such laws and covenants that it will not hinder, delay or impede the execution of any power granted or delegated to the Secured Party in this Agreement, but will suffer and permit the execution of every such power as though no such laws were in force.

In the event of any sale of Collateral pursuant to this Section 7, the Secured Party shall, at least ten (10) days before such sale, give the applicable Subtenant written notice of its intention to sell, except that, if the Secured Party shall determine in its reasonable discretion that any of the Collateral threatens to decline in value, any such sale may be made upon three (3) days’ written notice to such Subtenant, which time periods each Subtenant hereby agrees are reasonable.

(d)The Secured Party is hereby irrevocably appointed the true and lawful attorney-in-fact of each Subtenant in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property sold pursuant to this Section 7 and for such other purposes as are necessary or desirable to effectuate the provisions of this Agreement, and for that purpose it may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, each Subtenant hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof.  If so requested by the Secured Party or by any purchaser, each Subtenant shall ratify and confirm any such sale or transfer by executing and delivering to the Secured Party or to such purchaser all property, deeds, bills of sale, instruments or assignment and transfer and releases as may be designated in any such request.

8.Application of Moneys.  All moneys which the Secured Party shall receive pursuant hereto shall first be applied (to the extent thereof) to the payment of all reasonable costs and expenses incurred in connection with the administration and enforcement of, or the preservation of any rights under, this Agreement or Amended Lease No. 4 (including, without limitation, the reasonable fees and disbursements of its counsel and agents)

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and the balance, if any, shall be applied first to accrued and unpaid interest, charges and fees on, and then to outstanding principal of, any Obligations of each Subtenant (or its affiliates) to the Secured Party, and then to any other amounts outstanding on any such Obligations and then as required by law to any other parties having an interest therein.

9.Waivers, Etc.  Each Subtenant, on its own behalf and on behalf of its successors and assigns, hereby waives presentment, demand, notice, protest and, except as is otherwise specifically provided herein, all other demands and notices in connection with this Agreement or the enforcement of the rights of the Secured Party hereunder or in connection with any Obligations or any Collateral; waives all rights to require a marshaling of assets by the Secured Party; consents to and waives notice of (i) the substitution, release or surrender of any Collateral, (ii) the addition or release of Persons primarily or secondarily liable on any Obligation or on any Collateral, (iii) the acceptance of partial payments on any Collateral and/or the settlement or compromise thereof, (iv) any requirement of diligence or promptness on the part of the Secured Party in the enforcement of any rights in respect of any Collateral or any other agreement or instrument directly or indirectly relating thereto, and (v) any enforcement of any present or future agreement or instrument relating directly or indirectly to the Collateral.  No delay or omission on the part of the Secured Party or any holder of Obligations in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder.  No waiver of any such right on any one occasion shall be construed as a bar to or waiver of any such right on any future occasion.  No course of dealing between either Subtenant and the Secured Party or any holder of Obligations, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party or any holder of Obligations, any right, power or privilege hereunder or under any of the Obligations, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege.

Each Subtenant further waives any right it may have under the constitution of any state or commonwealth in which any of the Collateral may be located, or under the Constitution of the United States of America, to notice (except for notice specifically required hereby) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Party, and waives its rights, if any, to set

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aside or invalidate any sale duly consummated in accordance with the foregoing  provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing.  EACH SUBTENANT’S WAIVERS UNDER THIS SECTION 9 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER EACH SUBTENANT HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

The Secured Party shall not be required to marshal any present or future security for (including without limitation this Agreement and the Collateral pledged hereunder), or guaranties of, the Obligations or any of them, or to resort to such security or guaranties in any particular order; and all of the rights hereunder and in respect of such securities and guaranties shall be cumulative and in addition to all other rights, however existing or arising.  To the maximum extent permitted by applicable law, each Subtenant hereby agrees that it will not invoke any law relating to the marshalling of collateral, which might cause delay in or impede the enforcement of the Secured Party’ rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or guaranteed, and, to the maximum extent permitted by applicable law, each Subtenant hereby irrevocably waives the benefits of all such laws.

10.Further Assurances as to Collateral; Attorney-in-Fact.  From time to time hereafter, each Subtenant will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents (including, without limitation, financing statements, renewal statements, mortgages, collateral assignments and other security documents), and will take all such actions as the Secured Party may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement or of more fully perfecting or renewing the Secured Party’s rights with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by either Subtenant which may be deemed to be a part of the Collateral) pursuant hereto and thereto.  The Secured Party is hereby appointed the attorney-in-fact, with full power of substitution, of each Subtenant for the purpose of carrying out the provisions of this Agreement and taking any action, including, without limitation, executing, delivering and filing applications, certificates, instruments and other documents and papers with governmental authorities, and executing any instruments, including without limitation financing or continuation statements, deeds to secure

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debt, mortgages, assignments, conveyances, assignments and transfers which are required to be taken or executed by each Subtenant under this Agreement, on its behalf and in its name which appointment is coupled with an interest, is irrevocable and durable and shall survive the subsequent dissolution, disability or incapacity of each Subtenant.

11.Arbitration.  The Secured Party or either Subtenant may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such dispute shall be resolved in accordance with the Commercial Arbitration Rules of the American Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event the Secured Party or either Subtenant shall elect to submit any such dispute to arbitration hereunder, the Secured Party and such Subtenant shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either the Secured Party or the applicable Subtenant shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Secured Party and the applicable Subtenant, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

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The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the Secured Party and one to each Subtenant.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

12.Miscellaneous.

(a)Each Subtenant agrees that its obligations and the rights of the Secured Party hereunder and in respect of the Obligations may be enforced by specific performance hereof and thereof and by temporary, preliminary and/or final injunctive relief relating hereto and thereto, without necessity for proof by the Secured Party or any holder of the Obligations that it would otherwise suffer irreparable harm, and each Subtenant hereby consents to the issuance of such specific and injunctive relief.

(b)Any notice or demand upon each Subtenant or the Secured Party shall be deemed to have been sufficiently given when given in accordance with the provisions of Amended Lease No. 4.

(c)None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Subtenant and the Secured  Parties.  No notice to or demand on each Subtenant in any case shall entitle each Subtenant to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Secured Party to any other or further action in any circumstances without notice or demand.

(d)The obligations of each Subtenant hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of each Subtenant; (ii) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith, the Obligations or any security for any of the Obligations; or (iii) any amendment to or modification of any of Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith, the Obligations or any security for any of the

18

Obligations; whether or not such Subtenant shall have notice or knowledge of any of the foregoing.  The rights and remedies of the Secured Party herein provided for are cumulative and not exclusive of any rights or remedies which the Secured Party would otherwise have, including, without limitation, under Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith.  This Agreement is intended as a supplement for and is not intended to supersede in any respect Amended Lease No. 4 or any document or agreement executed in connection herewith or therewith.

(e)This Agreement shall be binding upon each Subtenant and its successors and assigns and shall inure to the benefit of the Secured Party, and its respective successors and assigns.  All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement.

(f)The descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

(g)Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibitions or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(h)This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.  Notwithstanding the foregoing, to the extent that matters of title, or creation,

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perfection and priority of the security interests created hereby, or procedural issues of foreclosures are required to be governed by the laws of the state in which the Collateral, or relevant part thereof, is located, the laws of such State shall apply.

Section 14.     NONLIABILITY OF TRUSTEES.  THE DECLARATION OF TRUST ESTABLISHING THE SECURED PARTY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATION”), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “SNH NS PROPERTIES TRUST”) REFERS TO THE TRUSTEES UNDER SUCH DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE SECURED PARTY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE SECURED PARTY.  ALL PERSONS DEALING WITH THE SECURED PARTY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SECURED PARTY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written.

SUBTENANTS:
FIVE STAR QUALITY CARE-GHV, LLC,
a Maryland limited liability company
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
Corporate Organizational Number:
FIVE STAR QUALITY CARE-NJ, LLC, a Maryland limited liability company
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
Corporate Organizational Number:
SECURED PARTY:
SNH NS PROPERTIES TRUST, a Maryland real estate investment trust
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial Officer

The following Schedules have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Schedule 1 (Tenant Addresses) and Schedule 2 (Facilities)

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EX-99.28

Exhibit 99.28

MASTER LEASE AGREEMENT

dated as of September 1, 2008,

by and among

CERTAIN AFFILIATES OF SENIOR HOUSING PROPERTIES TRUST,

AS LANDLORD,

AND

FIVE STAR QUALITY CARE-RMI, LLC,

AS TENANT

ARTICLE 1	DEFINITIONS	1
1.1	“Additional Charges”	1
1.2	“Additional Rent”	2
1.3	“Affiliated Person”	2
1.4	“Agreement”	2
1.5	“Applicable Laws”	2
1.6	“Award”	2
1.7	“Base Gross Revenues”	3
1.8	“Base Year”	3
1.9	“Business Day”	3
1.10	“Capital Addition”	3
1.11	“Capital Expenditure”	3
1.12	“Change in Control”	3
1.13	“Claim”	4
1.14	“Code”	4
1.15	“Commencement Date”	4
1.16	“Condemnation”	4
1.17	“Condemnor”	5
1.18	“Consolidated Financials”	5
1.19	“Date of Taking”	5
1.20	“Default”	5
1.21	“Disbursement Rate”	5
1.22	“Distribution”	5
1.23	“Easement Agreement”	5
1.24	“Encumbrance”	6
1.25	“Entity”	6
1.26	“Environment”	6
1.27	“Environmental Obligation”	6
1.28	“Environmental Notice”	6
1.29	“Event of Default”	6
1.30	“Excess Gross Revenues”	6
1.31	“Extended Term”	6
1.32	“Facility”	6
1.33	“Facility Mortgage”	6
1.34	“Facility Mortgagee”	6
1.35	“Financial Officer’s Certificate”	6
1.36	“Fiscal Year”	7
1.37	“Five Star”	7
1.38	“Fixed Term”	7
1.39	“Fixtures”	7
1.40	“FNM Financing”	7
1.41	“FNM Financing Documents”	7
1.42	“GAAP”	7
1.43	“Government Agencies”	7
1.44	“Gross Revenues”	8
1.45	“Guarantor”	9
1.46	“Guaranty”	9
1.47	“Hazardous Substances”	9
1.48	“Immediate Family”	10
1.49	“Impositions”	10
1.50	“Incidental Documents”	11
1.51	“Indebtedness”	11
1.52	“Insurance Requirements”	11

1.53	“Interest Rate”	11
1.54	“Land”	11
1.55	“Landlord”	11
1.56	“Landlord Default”	12
1.57	“Landlord Liens”	12
1.58	“Lease Year”	12
1.59	“Leased Improvements”	12
1.60	“Leased Intangible Property”	12
1.61	“Leased Property”	12
1.62	“Legal Requirements”	12
1.63	“Lien”	13
1.64	“Manager”	13
1.65	“Management Agreement”	13
1.66	“Master Lease Agreement No. 3”	13
1.67	“Minimum Rent”	13
1.68	“Notice”	13
1.69	“Officer’s Certificate”	13
1.70	“Overdue Rate”	14
1.71	“Parent”	14
1.72	“Permitted Encumbrances”	14
1.73	“Permitted Liens”	14
1.74	“Permitted Use”	14
1.75	“Person”	14
1.76	“Pledge Agreement”	14
1.77	“Property”	14
1.78	“Provider Agreements”	14
1.79	“Records”	15
1.80	“Regulated Medical Wastes”	15
1.81	“Rent”	15
1.82	“SEC”	15
1.83	“Security Agreement”	15
1.84	“State”	15
1.85	“Subordinated Creditor”	15
1.86	“Subordination Agreement”	15
1.87	“Subsidiary”	15
1.88	“Successor Landlord”	15
1.89	“Tenant”	16
1.90	“Tenant’s Personal Property”	16
1.91	“Term”	16
1.92	“Third Party Payor Programs”	16
1.93	“Third Party Payors”	16
1.94	“Unsuitable for Its Permitted Use”	16
1.95	“Work”	17
ARTICLE 2	LEASED PROPERTY AND TERM	17
2.1	Leased Property	17
2.2	Condition of Leased Property	18
2.3	Fixed Term	19
2.4	Extended Terms	19
ARTICLE 3	RENT	19
3.1	Rent	19
3.2	Late Payment of Rent, Etc.	25
3.3	Net Lease	26

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3.4	No Termination, Abatement, Etc.	26
ARTICLE 4	USE OF THE LEASED PROPERTY	27
4.1	Permitted Use	27
4.2	Compliance with Legal/Insurance Requirements, Etc.	29
4.3	Compliance with Medicaid and Medicare Requirements	29
4.4	Environmental Matters	30
ARTICLE 5	MAINTENANCE AND REPAIRS	32
5.1	Maintenance and Repair	32
5.2	Tenant’s Personal Property	34
5.3	Yield Up	34
5.4	Management Agreement	35
ARTICLE 6	IMPROVEMENTS, ETC.	35
6.1	Improvements to the Leased Property	35
6.2	Salvage	36
ARTICLE 7	LIENS	36
7.1	Liens	36
7.2	Landlord’s Lien	37
ARTICLE 8	PERMITTED CONTESTS	37
ARTICLE 9	INSURANCE AND INDEMNIFICATION	38
9.1	General Insurance Requirements	38
9.2	Waiver of Subrogation	39
9.3	Form Satisfactory, Etc.	39
9.4	No Separate Insurance; Self-Insurance	40
9.5	Indemnification of Landlord	40
ARTICLE 10	CASUALTY	41
10.1	Insurance Proceeds	41
10.2	Damage or Destruction	41
10.3	Damage Near End of Term	43
10.4	Tenant’s Property	44
10.5	Restoration of Tenant’s Property	44
10.6	No Abatement of Rent	44
10.7	Waiver	44
ARTICLE 11	CONDEMNATION	45
11.1	Total Condemnation, Etc.	45
11.2	Partial Condemnation	45
11.3	Abatement of Rent	46
11.4	Temporary Condemnation	46
11.5	Allocation of Award	47
ARTICLE 12	DEFAULTS AND REMEDIES	47
12.1	Events of Default	47
12.2	Remedies	50
12.3	Tenant’s Waiver	51
12.4	Application of Funds	52
12.5	Landlord’s Right to Cure Tenant’s Default	52
ARTICLE 13	HOLDING OVER	52
ARTICLE 14	LANDLORD DEFAULT	53
ARTICLE 15	PURCHASE RIGHTS	53
ARTICLE 16	SUBLETTING AND ASSIGNMENT	54
16.1	Subletting and Assignment	54

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16.2	Required Sublease Provisions	55
16.3	Permitted Sublease	57
16.4	Sublease Limitation	57
ARTICLE 17	ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS	58
17.1	Estoppel Certificates	58
17.2	Financial Statements	58
17.3	General Operations	59
ARTICLE 18	LANDLORD’S RIGHT TO INSPECT	60
ARTICLE 19	EASEMENTS	60
19.1	Grant of Easements	60
19.2	Exercise of Rights by Tenant	61
19.3	Permitted Encumbrances	61
ARTICLE 20	FACILITY MORTGAGES	61
20.1	Landlord May Grant Liens	61
20.2	Subordination of Lease	61
20.3	Notice to Mortgagee and Superior Landlord	63
ARTICLE 21	ADDITIONAL COVENANTS OF TENANT	64
21.1	Prompt Payment of Indebtedness	64
21.2	Conduct of Business	64
21.3	Maintenance of Accounts and Records	64
21.4	Notice of Litigation, Etc.	65
21.5	Indebtedness of Tenant	65
21.6	Distributions, Payments to Affiliated Persons, Etc.	66
21.7	Prohibited Transactions	66
21.8	Liens and Encumbrances	66
21.9	Merger; Sale of Assets; Etc.	67
21.10	Pledge Agreement	68
21.11	FNM Financing	68
ARTICLE 22	ARBITRATION	68
ARTICLE 23	MISCELLANEOUS	70
23.1	Limitation on Payment of Rent	70
23.2	No Waiver	70
23.3	Remedies Cumulative	70
23.4	Severability	70
23.5	Acceptance of Surrender	71
23.6	No Merger of Title	71
23.7	Conveyance by Landlord	71
23.8	Quiet Enjoyment	71
23.9	No Recordation	72
23.10	Notices	72
23.11	Construction	73
23.12	Counterparts; Headings	73
23.13	Applicable Law, Etc.	73
23.14	Right to Make Agreement	74
23.15	Attorneys’ Fees	74
23.16	Nonliability of Trustees	74

4

LEASE AGREEMENT

THIS LEASE AGREEMENT is entered into as of September 1, 2008 by and among SNH RMI FOX RIDGE MANOR PROPERTIES LLC, SNH RMI JEFFERSON MANOR PROPERTIES LLC, SNH RMI MCKAY MANOR PROPERTIES LLC, SNH RMI NORTHWOOD MANOR PROPERTIES LLC, SNH RMI OAK WOODS MANOR PROPERTIES LLC, SNH RMI PARK SQUARE MANOR PROPERTIES LLC, SNH RMI SMITH FARMS MANOR PROPERTIES LLC, and SNH RMI SYCAMORE MANOR PROPERTIES LLC, each a Maryland limited liability company (collectively, “Landlord”), and FIVE STAR QUALITY CARE–RMI, LLC, a Maryland limited liability company, as tenant (“Tenant”).

W I T N E S S E T H :

WHEREAS, Landlord collectively owns the eight (8) Properties (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1) described on Exhibits A-1 through A-8 attached hereto and made a part hereof; and

WHEREAS, Landlord wishes to lease the Properties to Tenant and Tenant wishes to lease the Properties from Landlord, all subject to and upon the terms and conditions herein set forth;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

ARTICLE 1

DEFINITIONS

For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article shall have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP, (c) all references in this Agreement to designated “Articles”, “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement, and (d) the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision.

1.1“Additional Charges”  shall have the meaning given such term in Section 3.1.3.

1.2“Additional Rent”  shall have the meaning given such term in Section 3.1.2(a).

1.3“Affiliated Person”  shall mean, with respect to any Person, (a)  in the case of any such Person which is a partnership, any partner in such partnership, (b) in the case of any such Person which is a limited liability company, any member of such company, (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (a) and (b), (d) any other Person who is an officer, director, trustee or employee of, or partner in or member of, such Person or any Person referred to in the preceding clauses (a), (b) and (c), and (e) any other Person who is a member of the Immediate Family of such Person or of any Person referred to in the preceding clauses (a) through (d).

1.4“Agreement”  shall mean this Master Lease Agreement, including all schedules and exhibits attached hereto, as it and they may be amended from time to time as herein provided.

1.5“Applicable Laws”  shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to injury to, or the protection of, real or personal property or human health or the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances or Regulated Medical Wastes, underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature.

1.6“Award”  shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial

2

Condemnation of any Property (after deduction of all reasonable legal fees and other reasonable costs and expenses, including, without limitation, expert witness fees, incurred by Landlord, in connection with obtaining any such award).

1.7“Base Gross Revenues”  shall mean the amount of Gross Revenues for the Leased Property for the Base Year, provided, however, that in the event that, with respect to any Lease Year, or portion thereof, for any reason (including, without limitation, a casualty or Condemnation) there shall be a reduction in the number of units available at any Facility located at the Leased Property or in the services provided at such Facility from the number of such units or the services provided during the Base Year, in determining Additional Rent payable for such Lease Year, Base Gross Revenues shall be reduced as follows:  (a) in the event of the termination of this Agreement with respect to any Property pursuant to Article 10, 11 or 12, all Gross Revenues for such Property for the period during the Base Year equivalent to the period after the termination of this Agreement with respect to such Property shall be subtracted from Base Gross Revenues; (b) in the event of a partial closing of any Facility affecting the number of units, or the services provided, at such Facility, Gross Revenues attributable to units or services at such Facility shall be ratably allocated among all units in service at such Facility during the Base Year and all such Gross Revenues attributable to units no longer in service shall be subtracted from Base Gross Revenues throughout the period of such closing; and (c) in the event of any other change in circumstances affecting any Facility, Base Gross Revenues shall be equitably adjusted in such manner as Landlord and Tenant shall reasonably agree.

1.8“Base Year”  shall mean the 2009 calendar year.

1.9“Business Day”  shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts are authorized by law or executive action to close.

1.10“Capital Addition”  shall mean, with respect to any Property, any renovation, repair or improvement to such Property, the cost of which constitutes a Capital Expenditure.

1.11“Capital Expenditure”  shall mean any expenditure treated as capital in nature in accordance with GAAP.

1.12“Change in Control”  shall mean (a) the acquisition by any Person, or two or more Persons acting in concert, of

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beneficial ownership (within the meaning of Rule 13d-3 of the SEC) of 9.8% or more, or rights, options or warrants to acquire 9.8% or more, of the outstanding shares of voting stock or other voting interests of Tenant or any Guarantor, as the case may be, or the power to direct the management and policies of Tenant or any Guarantor, directly or indirectly, (b) the merger or consolidation of Tenant or any Guarantor with or into any Person or the merger or consolidation of any Person into Tenant or any Guarantor (other than the merger or consolidation of any Person into Tenant or any Guarantor that does not result in a Change in Control of Tenant or such Guarantor under clauses (a), (c), (d) or (e) of this definition), (c) any one or more sales, conveyances, dividends or distributions to any Person of all or any material portion of the assets (including capital stock or other equity interests) or business of Tenant or any Guarantor, whether or not otherwise a Change in Control, (d) the cessation, for any reason, of the individuals who at the beginning of any twenty-four (24) consecutive month period (commencing on the date hereof) constituted the board of directors of Tenant or any Guarantor (together with any new directors whose election by such board or whose nomination for election by the shareholders of Tenant or such Guarantor was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of any such period or whose election or nomination for election was previously so approved) to constitute a majority of the board of directors of Tenant or such Guarantor then in office, or (e) the election to the board of directors of Tenant or any Guarantor of any individual not nominated or appointed by vote of a majority of the directors of Tenant or such Guarantor in office immediately prior to the nomination or appointment of such individual.

1.13“Claim”  shall have the meaning given such term in Article 8.

1.14“Code”  shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended.

1.15“Commencement Date”  shall mean the date hereof.

1.16“Condemnation”  shall mean, with respect to any Property, or any portion thereof, (a) the exercise of any governmental power with respect to such Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of such Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, or (c) a taking or voluntary conveyance of such

4

Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any condemnation or other eminent domain proceeding affecting such Property, whether or not the same shall have actually been commenced.

1.17“Condemnor”  shall mean any public or quasi-public Person, having the power of Condemnation.

1.18“Consolidated Financials”  shall mean, for any Fiscal Year or other accounting period of Five Star, annual audited and quarterly unaudited financial statements of Five Star prepared on a consolidated basis, including Five Star’s consolidated balance sheet and the related statements of income and cash flows, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with GAAP throughout the periods reflected.

1.19“Date of Taking”  shall mean, with respect to any Property, the date the Condemnor has the right to possession of such Property, or any portion thereof, in connection with a Condemnation.

1.20“Default”  shall mean any event or condition which with the giving of notice and/or lapse of time would ripen into an Event of Default.

1.21“Disbursement Rate”  shall mean an annual rate of interest, as of the date of determination, equal to the greater of (a) eight percent (8%) and (b) the per annum rate for ten (10) year U.S. Treasury Obligations as published in The Wall Street Journal plus three hundred (300) basis points; provided, however, that in no event shall the Disbursement Rate exceed eleven and one-half percent (11.5%).

1.22“Distribution”  shall mean (a) any declaration or payment of any dividend (except ordinary cash dividends payable in common stock or other equity interests of Tenant) on or in respect of any shares of any class of capital stock or other equity interests of Tenant, (b) any purchase, redemption, retirement or other acquisition of any shares of any class of capital stock of a corporation, (c) any other distribution on or in respect of any shares of any class of capital stock of a corporation or (d) any return of capital to shareholders.

1.23“Easement Agreement”  shall mean any conditions, covenants and restrictions, easements, declarations, licenses and other agreements which are Permitted Encumbrances and such

5

other agreements as may be granted in accordance with Section 19.1.

1.24“Encumbrance”  shall have the meaning given such term in Section 20.1.

1.25“Entity”  shall mean any corporation, general or limited partnership, limited liability company or partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency, authority or political subdivision thereof or any other entity.

1.26“Environment”  shall mean soil, surface waters, ground waters, land, stream, sediments, surface or subsurface strata and ambient air.

1.27“Environmental Obligation”  shall have the meaning given such term in Section 4.4.1.

1.28“Environmental Notice”  shall have the meaning given such term in Section 4.4.1.

1.29“Event of Default”  shall have the meaning given such term in Section 12.1.

1.30“Excess Gross Revenues”  shall mean the amount of Gross Revenues for any Lease Year, or portion thereof, in excess of Base Gross Revenues for the equivalent period during the Base Year.

1.31“Extended Term”  shall have the meaning given such term in Section 2.4.

1.32“Facility”  shall mean, with respect to any Property, the independent living or assisted facility being operated or proposed to be operated on such Property.

1.33“Facility Mortgage”  shall mean any Encumbrance placed upon the Leased Property, or any portion thereof, in accordance with Article 20.

1.34“Facility Mortgagee”  shall mean the holder of any Facility Mortgage.

1.35“Financial Officer’s Certificate”  shall mean, as to any Person, a certificate of the chief executive officer, chief financial officer or chief accounting officer (or such officers’ authorized designee) of such Person, duly authorized, accompanying the financial statements required to be delivered

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by such Person pursuant to Section 17.2, in which such officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the consolidated financial condition of such Person at and as of the dates thereof and the results of its and their operations for the periods covered thereby, and (b) in the event that the certifying party is an officer of Tenant and the certificate is being given in such capacity, that no Event of Default has occurred and is continuing hereunder.

1.36“Fiscal Year”  shall mean the calendar year or such other annual period designated by Tenant and approved by Landlord.

1.37“Five Star”  shall mean Five Star Quality Care, Inc., a Maryland corporation, and its permitted successors and assigns.

1.38“Fixed Term”  shall have the meaning given such term in Section 2.3.

1.39“Fixtures”  shall have the meaning given such term in Section 2.1(d).

1.40“FNM Financing”  shall mean the financing provided by Fannie Mae, a federally chartered corporation (as successor by assignment from Red Mortgage Capital, Inc.) to Landlord (as successor by assignment from the original borrowers thereunder), in the aggregate original principal amount of Fifty Million Five Hundred Thousand and 00/100s Dollars ($50,500,000.00), and secured by one or more liens on the Leased Property.

1.41“FNM Financing Documents”  shall mean, collectively, each and every promissory note, mortgage, assignments of leases and rents or other document or instrument entered into with respect to, or otherwise evidencing, the FNM Financing.

1.42“GAAP”  shall mean generally accepted accounting principles consistently applied.

1.43“Government Agencies”  shall mean any court, agency, authority, board (including, without limitation, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or any State or any county or any political subdivision of any of the foregoing, whether now or hereafter in existence, having jurisdiction over Tenant or any Property, or any portion thereof, or any Facility operated thereon.

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1.44“Gross Revenues”  shall mean, for each Fiscal Year during the Term, in the aggregate, all revenues and receipts (determined on an accrual basis and in all material respects in accordance with GAAP) of every kind derived from renting, using and/or operating the Leased Property and parts thereof, including, but not limited to:  all rents and revenues received or receivable for the use of or otherwise by reason of all units, beds and other facilities provided, meals served, services performed, space or facilities subleased or goods sold on the Leased Property, or any portion thereof, including, without limitation, any other arrangements with third parties relating to the possession or use of any portion of the Leased Property; and proceeds, if any, from business interruption or other loss of income insurance; provided, however, that Gross Revenues shall not include the following:  revenue from professional fees or charges by physicians and unaffiliated providers of services, when and to the extent such charges are paid over to such physicians and unaffiliated providers of services, or are separately billed and not included in comprehensive fees; contractual allowances (relating to any period during the Term) for billings not paid by or received from the appropriate governmental agencies or third party providers; allowances according to GAAP for uncollectible accounts, including credit card accounts and charity care or other administrative discounts; all proper patient billing credits and adjustments according to GAAP relating to health care accounting; provider discounts for hospital or other medical facility utilization contracts and credit card discounts; any amounts actually paid by Tenant for the cost of any federal, state or local governmental programs imposed specially to provide or finance indigent patient care; federal, state or municipal excise, sales, use, occupancy or similar taxes collected directly from patients, clients or residents or included as part of the sales price of any goods or services; insurance proceeds (other than proceeds from business interruption or other loss of income insurance); Award proceeds (other than for a temporary Condemnation); revenues attributable to services actually provided off-site or otherwise away from the Leased Property, such as home health care, to persons that are not patients, clients or residents at the Leased Property; revenues attributable to child care services provided primarily to employees of the Leased Property; any proceeds from any sale of the Leased Property or from the refinancing of any debt encumbering the Leased Property; proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of the Facility located thereon; any security deposits and other advance deposits, until and unless the same are forfeited to Tenant or applied for the purpose for which

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they were collected; and interest income from any bank account or investment of Tenant.

1.45“Guarantor”  shall mean Five Star and each and every other guarantor of Tenant’s obligations under this Agreement, and each such guarantor’s successors and assigns.

1.46“Guaranty”  shall mean any guaranty agreement executed by a Guarantor in favor of Landlord pursuant to which the payment or performance of Tenant’s obligations under this Agreement are guaranteed, together with all modifications, amendments and supplements thereto.

1.47“Hazardous Substances”  shall mean any substance:

(a)the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statute, regulation, rule, ordinance, order, action or policy; or

(b)which is or becomes defined as a “hazardous waste”, “hazardous material” or “hazardous substance” or “pollutant” or “contaminant” under any present or future federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the regulations promulgated thereunder; or

(c)which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or

(d)the presence of which on any Property, or any portion thereof, causes or materially threatens to cause an unlawful nuisance upon such Property, or any portion thereof, or to adjacent properties or poses or materially threatens to pose a hazard to such Property, or any portion thereof, or to the health or safety of persons on or about such Property, or any portion thereof; or

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(e)without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or

(f)without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or

(g)without limitation, which contains or emits radioactive particles, waves or material; or

(h)without limitation, constitutes Regulated Medical Wastes.

1.48“Immediate Family”  shall mean, with respect to any individual, such individual’s spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces.

1.49“Impositions”  shall mean, collectively, all taxes (including, without limitation, all taxes imposed under the laws of any State, as such laws may be amended from time to time, and all ad valorem, sales and use, or similar taxes as the same relate to or are imposed upon Landlord, Tenant or the business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof), ground rents (including any minimum rent under any ground lease, and any additional rent or charges thereunder), water, sewer or other rents and charges, excises, tax levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Tenant (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Landlord’s interest in the Leased Property, (b) the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Leased Property or the leasing or use of the Leased Property or any part thereof by Tenant; provided, however, that nothing contained herein shall be construed to require Tenant to pay and the term “Impositions” shall not include (i) any tax based on net income

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imposed on Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee (but excluding any mortgage or similar tax payable in connection with a Facility Mortgage) or other tax imposed with respect to the sale, exchange or other disposition by Landlord of the Leased Property or the proceeds thereof, (iv) any single business, gross receipts tax, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Landlord, (v) any interest or penalties imposed on Landlord as a result of the failure of Landlord to file any return or report timely and in the form prescribed by law or to pay any tax or imposition, except to the extent such failure is a result of a breach by Tenant of its obligations pursuant to Section 3.1.3, (vi) any impositions imposed on Landlord that are a result of Landlord not being considered a “United States person” as defined in Section 7701(a)(30) of the Code, (vii) any impositions that are enacted or adopted by their express terms as a substitute for any tax that would not have been payable by Tenant pursuant to the terms of this Agreement or (viii) any impositions imposed as a result of a breach of covenant or representation by Landlord in any agreement governing Landlord’s conduct or operation or as a result of the negligence or willful misconduct of Landlord.

1.50“Incidental Documents”  shall mean, collectively, any Guaranty, any Security Agreement and any Pledge Agreement.

1.51“Indebtedness”  shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor’s balance sheet as liabilities.

1.52“Insurance Requirements”  shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy and all orders, rules and regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon Landlord, Tenant, any Manager or the Leased Property.

1.53“Interest Rate”  shall mean a per annum interest rate equal to eight percent (8%).

1.54“Land”  shall have the meaning given such term in Section 2.1(a).

1.55“Landlord”  shall have the meaning given such term in the preambles to this Agreement and shall also include their respective permitted successors and assigns.

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1.56“Landlord Default”  shall have the meaning given such term in Article 14.

1.57“Landlord Liens”  shall mean liens on or against the Leased Property or any payment of Rent (a) which result from any act of, or any claim against, Landlord or any owner of a direct or indirect interest in the Leased Property (other than the lessor under any ground lease affecting any portion of the Leased Property), or which result from any violation by Landlord of any terms of this Agreement, or (b) which result from liens in favor of any taxing authority by reason of any tax owed by Landlord or any fee owner of a direct or indirect interest in the Leased Property (other than the lessor under any ground lease affecting any portion of the Leased Property); provided, however, that “Landlord Lien” shall not include any lien resulting from any tax for which Tenant is obligated to pay or indemnify Landlord against until such time as Tenant shall have already paid to or on behalf of Landlord the tax or the required indemnity with respect to the same.

1.58“Lease Year”  shall mean any Fiscal Year or portion thereof during the Term.

1.59“Leased Improvements”  shall have the meaning given such term in Section 2.1(b).

1.60“Leased Intangible Property”  shall mean all agreements, service contracts, equipment leases, booking agreements and other arrangements or agreements affecting the ownership, repair, maintenance, management, leasing or operation of the Leased Property, or any portion thereof, to which Landlord is a party; all books, records and files relating to the leasing, maintenance, management or operation of the Leased Property, or any portion thereof, belonging to Landlord; all transferable or assignable permits, certificates of occupancy, operating permits, sign permits, development rights and approvals, certificates, licenses, warranties and guarantees, rights to deposits, trade names, service marks, telephone exchange numbers identified with the Leased Property, and all other transferable intangible property, miscellaneous rights, benefits and privileges of any kind or character belonging to Landlord with respect to the Leased Property.

1.61“Leased Property”  shall have the meaning given such term in Section 2.1.

1.62“Legal Requirements”  shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and

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injunctions affecting the Leased Property or the maintenance, construction, alteration or operation thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, authorizations, certificates of need, authorizations and regulations necessary to operate any Property for its Permitted Use, and (b) all covenants, agreements, restrictions and encumbrances contained in any instruments at any time in force affecting any Property, including those which may (i) require material repairs, modifications or alterations in or to any Property or (ii) in any way materially and adversely affect the use and enjoyment thereof, but excluding any requirements arising as a result of Landlord’s status as a real estate investment trust.

1.63“Lien”  shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer of property or assets for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of general creditors.

1.64“Manager”  shall mean, with respect to any Property, the operator or manager under any Management Agreement from time to time in effect with respect to such Property, and its permitted successors and assigns.

1.65“Management Agreement”  shall mean, with respect to any Property, any operating or management agreement from time to time entered into by Tenant with respect to such Property in accordance with the applicable provisions of this Agreement, together with all amendments, modifications and supplements thereto.

1.66“Master Lease Agreement No. 3”  shall mean that certain Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, among certain entities comprising Landlord, certain other affiliates of Landlord and Tenant, as it may be amended, restated, supplemented or otherwise modified from time to time.

1.67“Minimum Rent”  shall mean the sum of Four Million Nine Hundred Eighty-One Thousand Four Hundred Twenty-Nine and 00/100s Dollars ($4,981,429.00) per annum.

1.68“Notice”  shall mean a notice given in accordance with Section 23.10.

1.69“Officer’s Certificate”  shall mean a certificate signed by an officer or other duly authorized individual of the

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certifying Entity duly authorized by the board of directors or other governing body of the certifying Entity.

1.70“Overdue Rate”  shall mean, on any date, a per annum rate of interest equal to the lesser of fifteen percent (15%) and the maximum rate then permitted under applicable law.

1.71“Parent”  shall mean, with respect to any Person, any Person which owns directly, or indirectly through one or more Subsidiaries or Affiliated Persons, twenty percent (20%) or more of the voting or beneficial interest in, or otherwise has the right or power (whether by contract, through ownership of securities or otherwise) to control, such Person.

1.72“Permitted Encumbrances”  shall mean, with respect to any Property, all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner’s or leasehold title insurance policy issued to Landlord with respect to such Property, plus any other encumbrances as may have been granted or caused by Landlord or otherwise consented to in writing by Landlord from time to time.

1.73“Permitted Liens”  shall mean any Liens granted in accordance with Section 21.8(a).

1.74“Permitted Use”  shall mean, with respect to any Property, any use of such Property permitted pursuant to Section 4.1.1.

1.75“Person”  shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits.

1.76“Pledge Agreement”  shall mean any pledge agreement made in favor of Landlord with respect to the stock or other equity interests of Tenant or any assignee, subtenant or other transferee, as it or they may be amended, restated, supplemented or otherwise modified from time to time.

1.77“Property”  shall have the meaning given such term in Section 2.1.

1.78“Provider Agreements”  shall mean all participation, provider and reimbursement agreements or arrangements now or hereafter in effect for the benefit of Tenant or any Manager in connection with the operation of any Facility relating to any right of payment or other claim arising out of or in connection with Tenant’s participation in any Third Party Payor Program.

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1.79“Records”  shall have the meaning given such term in Section 7.2.

1.80“Regulated Medical Wastes”  shall mean all materials generated by Tenant, subtenants, patients, occupants or the operators of the Leased Properties which are now or may hereafter be subject to regulation pursuant to the Material Waste Tracking Act of 1988, or any Applicable Laws promulgated by any Government Agencies.

1.81“Rent”  shall mean, collectively, the Minimum Rent, Additional Rent and Additional Charges.

1.82“SEC”  shall mean the Securities and Exchange Commission.

1.83“Security Agreement”  shall mean any security agreement made by Tenant or any assignee, subtenant or other transferee for the benefit of Landlord, as it or they may be amended, restated, supplemented or otherwise modified from time to time.

1.84“State”  shall mean, with respect to any Property, the state, commonwealth or district in which the such Property is located.

1.85“Subordinated Creditor”  shall mean any creditor of Tenant which is a party to a Subordination Agreement in favor of Landlord.

1.86“Subordination Agreement”  shall mean any agreement (and any amendments thereto) executed by a Subordinated Creditor pursuant to which the payment and performance of Tenant’s obligations to such Subordinated Creditor are subordinated to the payment and performance of Tenant’s obligations to Landlord under this Agreement.

1.87“Subsidiary”  shall mean, with respect to any Person, any Entity (a) in which such Person owns directly, or indirectly through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise).

1.88“Successor Landlord”  shall have the meaning given such term in Section 20.2.

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1.89“Tenant”  shall have the meaning given such term in the preambles to this Agreement and shall also include its permitted successors and assigns.

1.90“Tenant’s Personal Property”  shall mean all motor vehicles and consumable inventory and supplies, furniture, furnishings, equipment, movable walls and partitions, equipment and machinery and all other tangible personal property of Tenant and Tenant’s receivables, if any, acquired by Tenant on and after the applicable Commencement Date for any Property and located at such Property or used in Tenant’s business at the Leased Property and all modifications, replacements, alterations and additions to such personal property installed at the expense of Tenant, other than any items included within the definition of Fixtures.

1.91“Term”  shall mean, collectively, the Fixed Term and the Extended Term, to the extent properly exercised pursuant to the provisions of Section 2.4, unless sooner terminated pursuant to the provisions of this Agreement.

1.92“Third Party Payor Programs”  shall mean all third party payor programs in which Tenant presently or in the future may participate, including, without limitation, Medicare, Medicaid, CHAMPUS, Blue Cross and/or Blue Shield, Managed Care Plans, other private insurance programs and employee assistance programs.

1.93“Third Party Payors”  shall mean Medicare, Medicaid, CHAMPUS, Blue Cross and/or Blue Shield, private insurers and any other Person which presently or in the future maintains Third Party Payor Programs.

1.94“Unsuitable for Its Permitted Use”  shall mean, with respect to any Facility, a state or condition of such Facility such that (a) following any damage or destruction involving a Facility, (i) such Facility cannot be operated on a commercially practicable basis for its Permitted Use and it cannot reasonably be expected to be restored to substantially the same condition as existed immediately before such damage or destruction, and as otherwise required by Section 10.2.4, within twelve (12) months following such damage or destruction or such longer period of time as to which business interruption insurance is available to cover Rent and other costs related to the applicable Property following such damage or destruction, (ii) the damage or destruction, if uninsured, exceeds $1,000,000 or (iii) the cost of such restoration exceeds ten percent (10%) of the fair market value of such Property immediately prior to such damage or destruction, or (b) as the result of a partial taking by

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Condemnation, such Facility cannot be operated, in the good faith judgment of Tenant, on a commercially practicable basis for its Permitted Use.

1.95“Work”  shall have the meaning given such term in Section 10.2.4.

ARTICLE 2

LEASED PROPERTY AND TERM

2.1Leased Property.  Upon and subject to the terms and conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord all of Landlord’s right, title and interest in and to all of the following (each of items (a) through (g) below which relates to any single Facility, a “Property” and, collectively, the “Leased Property”):

(a)those certain tracts, pieces and parcels of land, as more particularly described in Exhibits A-1 through A-8 attached hereto and made a part hereof (the “Land”);

(b)all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the “Leased Improvements”);

(c)all easements, rights and appurtenances relating to the Land and the Leased Improvements;

(d)all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included

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within the category of Tenant’s Personal Property (collectively, the “Fixtures”);

(e)all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant’s business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant’s Personal Property;

(f)all of the Leased Intangible Property; and

(g)any and all leases of space in the Leased Improvements.

2.2Condition of Leased Property.  Tenant acknowledges receipt and delivery of possession of the Leased Property and Tenant accepts the Leased Property in its “as is” condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, reservations, mineral leases, easements and other matters of record or that are visible or apparent on the Leased  Property, all applicable Legal Requirements, the lien of any financing instruments, mortgages and deeds of trust existing prior to the applicable Commencement Date for any Property or permitted by the terms of this Agreement, and such other matters which would be disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof.  TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD’S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY.  LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.  To the maximum extent permitted by law, however, Landlord hereby assigns to Tenant all of Landlord’s rights to proceed against any predecessor in interest or insurer for breaches of warranties or representations or for latent defects in the Leased Property.  Landlord shall fully cooperate with Tenant in

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the prosecution of any such claims, in Landlord’s or Tenant’s name, all at Tenant’s sole cost and expense.  Tenant shall indemnify, defend, and hold harmless Landlord from and against any loss, cost, damage or liability (including reasonable attorneys’ fees) incurred by Landlord in connection with such cooperation.

2.3Fixed Term.  The initial term of this Agreement (the “Fixed Term”) shall commence on the Commencement Date and shall expire on December 31, 2024.

2.4Extended Terms.  Provided that no Event of Default shall have occurred and be continuing, Tenant shall have the right to extend the Term for one renewal term of fifteen (15) years (the “Extended Term”).

The Extended Term shall commence on the day succeeding the expiration of the Fixed Term.  All of the terms, covenants and provisions of this Agreement shall apply to the Extended Term, except that Tenant shall have no right to extend the Term beyond the expiration of the Extended Term.  If Tenant shall elect to exercise the aforesaid option, it shall do so by giving Landlord Notice thereof not later than December 31, 2020, it being understood and agreed that time shall be of the essence with respect to the giving of such Notice.  If Tenant shall fail to give such Notice, this Agreement shall automatically terminate at the end of the Fixed Term and Tenant shall have no further option to extend the Term of this Agreement.  If Tenant shall give such Notice, the extension of this Agreement shall be automatically effected without the execution of any additional documents; it being understood and agreed, however, that Tenant and Landlord shall execute such documents and agreements as either party shall reasonably require to evidence the same.  Notwithstanding the provisions of the foregoing sentence, if, subsequent to the giving of such Notice, an Event of Default shall occur, at Landlord’s option, the extension of this Agreement shall cease to take effect and this Agreement shall automatically terminate at the end of the Fixed Term, and Tenant shall have no further option to extend the Term of this Agreement.

ARTICLE 3

RENT

3.1Rent.  Tenant shall pay, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction (unless otherwise expressly provided in this

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Agreement), Minimum Rent and Additional Rent to Landlord and Additional Charges to the party to whom such Additional Charges are payable, during the Term.  All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion.  Rent for any partial calendar month shall be prorated on a per diem basis.

3.1.1Minimum Rent.

(a)Payments.  Minimum Rent shall be paid in equal monthly installments in arrears on the first Business Day of each calendar month during the Term.

(b)Allocation of Minimum Rent.  Minimum Rent may be allocated and reallocated among the Properties comprising the Leased Property by agreement among Landlord and Tenant; provided, however that in no event shall the Minimum Rent allocated to any Property be less than the monthly amount payable by Landlord on account of any Facility Mortgage and/or ground or master lease with respect to such Property nor shall the aggregate amount of Minimum Rent allocated among the Properties exceed the total amount payable for the Leased Property.

(c)Adjustments of Minimum Rent Following Disbursements Under Sections 5.1.2(b), 10.2.3 and 11.2.  Effective on the date of each disbursement to pay for the cost of any repairs, maintenance, renovations or replacements pursuant to Sections 5.1.2(b), 10.2.3 or 11.2, the annual Minimum Rent shall be increased by a per annum amount equal to the Disbursement Rate times the amount so disbursed.  If any such disbursement is made during any calendar month on a day other than the first Business Day of such calendar month, Tenant shall pay to Landlord on the first Business Day of the immediately following calendar month (in addition to the amount of Minimum Rent payable with respect to such calendar month, as adjusted pursuant to this paragraph (c)) the amount by which Minimum Rent for the preceding calendar month, as adjusted for such disbursement on a per diem basis, exceeded the amount of Minimum Rent paid by Tenant for such preceding calendar month.

(d)Adjustments of Minimum Rent Following Partial Lease Termination.  Subject to Section 4.1.1(b), if this Agreement shall terminate with respect to any Property but less than all of the Leased Property, Minimum Rent shall be reduced by the affected Property’s allocable share of

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Minimum Rent determined in accordance with the applicable provisions of this Agreement.

3.1.2Additional Rent.

(a)Amount.  Tenant shall pay additional rent (“Additional Rent”) with respect to each Lease Year during the Term subsequent to the Base Year in an amount, not less than zero, equal to four percent (4%) of Excess Gross Revenues at the Leased Property.

(b)Quarterly Installments.  Installments of Additional Rent for each Lease Year during the Term, or portion thereof, shall be calculated and paid quarterly in arrears.  Quarterly payments of Additional Rent for the Leased Property shall be calculated based on Gross Revenues for such quarter during the preceding year and shall be due and payable and delivered to Landlord on the first Business Day of each calendar quarter, or portion thereof, thereafter occurring during the Term, together with an Officer’s Certificate setting forth the calculation of Additional Rent due and payable for such quarter.

(c)Reconciliation of Additional Rent.  In addition, within seventy-five (75) days after the end of the Base Year and each Lease Year thereafter (or any portion thereof occurring during the Term), Tenant shall deliver, or cause to be delivered, to Landlord (i) a financial report setting forth the Gross Revenues for each Property for such preceding Lease Year, or portion thereof, together with an Officer’s Certificate from Tenant’s chief financial or accounting officer certifying that such report is true and correct and (ii) a statement showing Tenant’s calculation of Additional Rent due for such preceding Lease Year based on the Gross Revenues set forth in such financial report, together with an Officer’s Certificate from Tenant’s chief financial or accounting officer certifying that such statement is true and correct.

If the annual Additional Rent for such preceding Lease Year as set forth in Tenant’s statement thereof exceeds the amount previously paid with respect thereto by Tenant, Tenant shall pay such excess to Landlord at such time as the statement is delivered, together with interest at the Interest Rate, which interest shall accrue from the close of such preceding Lease Year until the date that such statement is required to be delivered and, thereafter, such interest shall accrue at the Overdue Rate, until the amount of such difference shall be paid or otherwise discharged.

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If the annual Additional Rent for such preceding Lease Year as shown in such statement is less than the amount previously paid with respect thereto by Tenant, provided that no Event of Default shall have occurred and be continuing, Landlord shall grant Tenant a credit against the Additional Rent next coming due in the amount of such difference, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date such credit is applied or paid, as the case may be.  If such credit cannot be made because the Term has expired prior to application in full thereof, provided no Event of Default has occurred and is continuing, Landlord shall pay the unapplied balance of such credit to Tenant, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date of payment by Landlord.

(d)Confirmation of Additional Rent.  Tenant shall utilize, or cause to be utilized, an accounting system for the Leased Property in accordance with its usual and customary practices and in all material respects in accordance with GAAP, which will accurately record all Gross Revenues and Tenant shall retain, for at least three (3) years after the expiration of each Lease Year, reasonably adequate records conforming to such accounting system showing all Gross Revenues for such Lease Year.  Landlord, at its own expense, except as provided herein below, shall have the right, exercisable by Notice to Tenant, by its accountants or representatives, to audit the information set forth in the Officer’s Certificate referred to in subparagraph (c) above and, in connection with such audits, to examine Tenant’s books and records with respect thereto (including supporting data and sales and excise tax returns).  Landlord shall begin such audit as soon as reasonably possible following its receipt of the applicable Officer’s Certificate and shall complete such audit as soon as reasonably possible thereafter.  All such audits shall be performed at the location where such books and records are customarily kept and in such a manner so as to minimize any interference with Tenant’s business operations.  If any such audit discloses a deficiency in the payment of Additional Rent and either Tenant agrees with the result of such audit or the matter is otherwise determined, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest at the Interest Rate, from the date such payment should have been made to the date of payment thereof, and if the amount of such deficiency exceeds five percent (5%)

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of the Additional Rent that should have been paid for any Lease Year, Tenant shall forthwith pay to Landlord the aggregate amount of all costs and expenses incurred by Landlord in connection with any such audit.  If any such audit discloses that Tenant paid more Additional Rent for any Lease Year than was due hereunder, and either Landlord agrees with the result of such audit or the matter is otherwise determined, provided no Event of Default has occurred and is continuing, Landlord shall, at Landlord’s option, either grant Tenant a credit or pay to Tenant an amount equal to the amount of such overpayment against Additional Rent next coming due in the amount of such difference, as finally agreed or determined, together with interest at the Interest Rate, which interest shall accrue from the time of payment by Tenant until the date such credit is applied or paid, as the case may be; provided, however, that, upon the expiration or sooner termination of the Term, provided no Event of Default has occurred and is continuing, Landlord shall pay the unapplied balance of such credit to Tenant, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date of payment from Landlord.  Any dispute concerning the correctness of an audit shall be settled by arbitration pursuant to the provisions of Article 22.

Any proprietary information obtained by Landlord with respect to Tenant pursuant to the provisions of this Agreement shall be treated as confidential, except that such information may be disclosed or used, subject to appropriate confidentiality safeguards, pursuant to court order or in any litigation between the parties and except further that Landlord may disclose such information to its prospective lenders, provided that Landlord shall direct such lenders to maintain such information as confidential.  The obligations of Tenant and Landlord contained in this Section 3.1.2 shall survive the expiration or earlier termination of this Agreement.

3.1.3Additional Charges.  In addition to the Minimum Rent and Additional Rent payable hereunder, Tenant shall pay (or cause to be paid) to the appropriate parties and discharge (or cause to be discharged) as and when due and payable the following (collectively, “Additional Charges”):

(a)Impositions.  Subject to Article 8 relating to permitted contests, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost (other than any opportunity cost as a result of a failure

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to take advantage of any discount for early payment) may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other reasonably satisfactory proof evidencing such payments.  If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay, or cause to pay, such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto.  Landlord, at its expense, shall, to the extent required or permitted by Applicable Law, prepare and file, or cause to be prepared and filed, all tax returns and pay all taxes due in respect of Landlord’s net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock or other equity interests, and Tenant, at its expense, shall, to the extent required or permitted by Applicable Laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by Government Agencies.  Provided no Event of Default shall have occurred and be continuing, if any refund shall be due from any taxing authority in respect of any Imposition paid by or on behalf of Tenant, the same shall be paid over to or retained by Tenant.  Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports.  In the event Government Agencies classify any property covered by this Agreement as personal property, Tenant shall file, or cause to be filed, all personal property tax returns in such jurisdictions where it may legally so file.  Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property.  Where Landlord is legally required to file personal property tax returns for property covered by this Agreement, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest.  All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than the last

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date on which the same may be made without interest or penalty, subject to the provisions of Article 8.

Landlord shall give prompt Notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, that Landlord’s failure to give any such notice shall in no way diminish Tenant’s obligation hereunder to pay such Impositions.

(b)Utility Charges.  Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used in connection with the Leased Property.

(c)Insurance Premiums.  Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9.

(d)Other Charges.  Tenant shall pay or cause to be paid all other amounts, liabilities and obligations, including, without limitation, ground rents, if any, and all amounts payable under any equipment leases and all agreements to indemnify Landlord under Sections 4.4.2 and 9.5.

(e)Reimbursement for Additional Charges.  If Tenant pays or causes to be paid property taxes or similar or other Additional Charges attributable to periods after the end of the Term, whether upon expiration or sooner termination of this Agreement (other than termination by reason of an Event of Default), Tenant may, within a reasonable time after the end of the Term, provide Notice to Landlord of its estimate of such amounts.  Landlord shall promptly reimburse Tenant for all payments of such taxes and other similar Additional Charges that are attributable to any period after the Term of this Agreement.

3.2Late Payment of Rent, Etc.  If any installment of Minimum Rent, Additional Rent or Additional Charges (but only as to those Additional Charges which are payable directly to Landlord) shall not be paid within ten (10) days after its due date, Tenant shall pay Landlord, on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Tenant pays any Additional Charges directly to Landlord or any Facility Mortgagee pursuant to any requirement

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of this Agreement, Tenant shall be relieved of its obligation to pay such Additional Charges to the Entity to which they would otherwise be due.  If any payments due from Landlord to Tenant shall not be paid within ten (10) days after its due date, Landlord shall pay to Tenant, on demand, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment from the due date of such installment to the date of payment thereof.

In the event of any failure by Tenant to pay any Additional Charges when due, Tenant shall promptly pay and discharge, as Additional Charges, every fine, penalty, interest and cost which is added for non-payment or late payment of such items.  Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Agreement or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Minimum Rent and Additional Rent.

3.3Net Lease.  The Rent shall be absolutely net to Landlord so that this Agreement shall yield to Landlord the full amount of the installments or amounts of the Rent throughout the Term, subject to any other provisions of this Agreement which expressly provide otherwise, including those provisions for adjustment or abatement of such Rent.

3.4No Termination, Abatement, Etc.   Except as otherwise specifically provided in this Agreement, each of Landlord and Tenant, to the maximum extent permitted by law, shall remain bound by this Agreement in accordance with its terms and shall not take any action without the consent of the other to modify, surrender or terminate this Agreement.  In addition, except as otherwise expressly provided in this Agreement, Tenant shall not seek, or be entitled to, any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to or destruction of the Leased Property, or any portion thereof, from whatever cause or any Condemnation, (b) the lawful or unlawful prohibition of, or restriction upon, Tenant’s use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any default (other than a monetary default) or breach of any warranty by Landlord under this Agreement or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of

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Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing (other than a monetary default by Landlord).  Except as otherwise specifically provided in this Agreement, Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law (a) to modify, surrender or terminate this Agreement or quit or surrender the Leased Property, or any portion thereof, or (b) which would entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder.  The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Agreement.

ARTICLE 4

USE OF THE LEASED PROPERTY

4.1Permitted Use.

4.1.1Permitted Use.

(a)Tenant shall, at all times during the Term, and at any other time that Tenant shall be in possession of any Property, continuously use and operate, or cause to be used and operated, such Property as a skilled nursing/ intermediate care/independent living/assisted living/special care/group home facility as currently operated, and any uses incidental thereto.  Tenant shall not use (and shall not permit any Person to use) any Property, or any portion thereof, for any other use without the prior written consent of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned.  No use shall be made or permitted to be made of any Property and no acts shall be done thereon which will cause the cancellation of any insurance policy covering such Property or any part thereof (unless another adequate policy is available) or which would constitute a default under any ground lease affecting such Property, nor shall Tenant sell or otherwise provide to residents or patients therein, or permit to be kept, used or sold in or about any Property any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter’s regulations.  Tenant shall, at its sole cost (except as expressly provided in Section 5.1.2(b)),

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comply or cause to be complied with all Insurance Requirements.  Tenant shall not take or omit to take, or permit to be taken or omitted to be taken, any action, the taking or omission of which materially impairs the value or the usefulness of any Property or any part thereof for its Permitted Use.

(b)In the event that, in the reasonable determination of Tenant, it shall no longer be economically practical to operate any Property as currently operated, Tenant shall give Landlord Notice thereof, which Notice shall set forth in reasonable detail the reasons therefor.  Thereafter, Landlord and Tenant shall negotiate in good faith to agree on an alternative use for such Property, appropriate adjustments to the Additional Rent and other related matters; provided, however, in no event shall the Minimum Rent be reduced or abated as a result thereof.  If Landlord and Tenant fail to agree on an alternative use for such Property within sixty (60) days after commencing negotiations as aforesaid, Tenant may market such Property for sale to a third party.  If Tenant receives a bona fide offer (an “Offer”) to purchase such Property from a Person having the financial capacity to implement the terms of such Offer, Tenant shall give Landlord Notice thereof, which Notice shall include a copy of the Offer executed by such third party.  In the event that Landlord shall fail to accept or reject such Offer within thirty (30) days after receipt of such Notice, such Offer shall be deemed to be rejected by Landlord.  If Landlord shall sell the Property pursuant to such Offer, then, effective as of the date of such sale, this Agreement shall terminate with respect to such Property, and the Minimum Rent shall be reduced by an amount equal to the product of the net proceeds of sale received by Landlord multiplied by the Interest Rate.  If Landlord shall reject (or be deemed to have rejected) such Offer, then, effective as of the proposed date of such sale, this Agreement shall terminate with respect to such Property, and the Minimum Rent shall be reduced by an amount equal to the product of the projected net proceeds determined by reference to such Offer multiplied by the Interest Rate.

4.1.2Necessary Approvals.  Tenant shall proceed with all due diligence and exercise reasonable efforts to obtain and maintain, or cause to be obtained and maintained, all approvals necessary to use and operate, for its Permitted Use, each Property and the Facility located thereon under applicable law and, without limiting the foregoing, shall exercise reasonable

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efforts to maintain (or cause to be maintained) appropriate certifications for reimbursement and licensure.

4.1.3Lawful Use, Etc.  Tenant shall not, and shall not permit any Person to use or suffer or permit the use of any Property or Tenant’s Personal Property, if any, for any unlawful purpose.  Tenant shall not, and shall not permit any Person to, commit or suffer to be committed any waste on any Property, or in any Facility, nor shall Tenant cause or permit any unlawful nuisance thereon or therein.  Tenant shall not, and shall not permit any Person to, suffer nor permit any Property, or any portion thereof, to be used in such a manner as (a) may materially and adversely impair Landlord’s title thereto or to any portion thereof, or (b) may reasonably allow a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of such Property, or any portion thereof.

4.2Compliance with Legal/Insurance Requirements, Etc.  Subject to the provisions of Section 5.1.2(b) and Article 8, Tenant, at its sole expense, shall (a) comply with (or cause to be complied with) all material Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of any Property and with the terms and conditions of any ground lease affecting any Property, (b) perform (or cause to be performed) in a timely fashion all of Landlord’s obligations under any ground lease affecting any Property and (c) procure, maintain and comply with (or cause to be procured, maintained and complied with) all material licenses, certificates of need, permits, provider agreements and other authorizations and agreements required for any use of any Property and Tenant’s Personal Property, if any, then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof.

4.3Compliance with Medicaid and Medicare Requirements.  Tenant, at its sole cost and expense, shall make (or shall cause to be made), whatever improvements (capital or ordinary) as are required to conform each Property to such standards as may, from time to time, be required by Federal Medicare (Title 18) or Medicaid (Title 19) for skilled and/or intermediate care nursing programs, to the extent Tenant is a participant in such programs with respect to such Property, or any other applicable programs or legislation, or capital improvements required by any other governmental agency having jurisdiction over any Property as a condition of the continued operation of such Property for its Permitted Use.

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4.4Environmental Matters.

4.4.1Restriction on Use, Etc.  During the Term and any other time that Tenant shall be in possession of any Property, Tenant shall not, and shall not permit any Person to, store, spill upon, dispose of or transfer to or from such Property any Hazardous Substance, except in compliance with all Applicable Laws.  During the Term and any other time that Tenant shall be in possession of any Property, Tenant shall maintain (or shall cause to be maintained) such Property at all times free of any Hazardous Substance (except in compliance with all Applicable Laws).  Tenant shall promptly:  (a) upon receipt of notice or knowledge, notify Landlord in writing of any material change in the nature or extent of Hazardous Substances at any Property, (b) transmit to Landlord a copy of any report which is required to be filed by Tenant or any Manager with respect to any Property pursuant to SARA Title III or any other Applicable Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or any Manager or their respective agents or representatives with respect thereto (collectively, “Environmental Notice”), which Environmental Notice requires a written response or any action to be taken and/or if such Environmental Notice gives notice of and/or presents a material risk of any material violation of any Applicable Law and/or presents a material risk of any material cost, expense, loss or damage (an “Environmental Obligation”), (d) observe and comply with (or cause to be observed and complied with) all Applicable Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) pay or otherwise dispose (or cause to be paid or otherwise disposed) of any fine, charge or Imposition related thereto, unless Tenant or any Manager shall contest the same in good faith and by appropriate proceedings and the right to use and the value of any of the Leased Property is not materially and adversely affected thereby.

If, at any time prior to the termination of this Agreement, Hazardous Substances (other than those maintained in accordance with Applicable Laws) are discovered on any Property, subject to Tenant’s right to contest the same in accordance with Article 8, Tenant shall take (and shall cause to be taken) all actions and incur any and all expenses, as are required by any Government Agency and by Applicable Law, (x) to clean up and remove from and about such Property all Hazardous Substances thereon, (y) to contain and prevent any further release or threat of release of

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Hazardous Substances on or about such Property and (z) to use good faith efforts to eliminate any further release or threat of release of Hazardous Substances on or about such Property.

4.4.2Indemnification of Landlord.  Tenant shall protect, indemnify and hold harmless Landlord and each Facility Mortgagee, their trustees, officers, agents, employees and beneficiaries, and any of their respective successors or assigns with respect to this Agreement (collectively, the “Indemnitees” and, individually, an “Indemnitee”) for, from and against any and all debts, liens, claims, causes of action, administrative orders or notices, costs, fines, penalties or expenses (including, without limitation, reasonable attorney’s fees and expenses) imposed upon, incurred by or asserted against any Indemnitee resulting from, either directly or indirectly, the presence in, upon or under the soil or ground water of any Property or any properties surrounding such Property of any Hazardous Substances in violation of any Applicable Law, except to the extent the same arise from the acts or omissions of Landlord or any other Indemnitee or during any period that Landlord or a Person designated by Landlord (other than Tenant) is in possession of such Property from and after the Commencement Date.  Tenant’s duty herein includes, but is not limited to, costs associated with personal injury or property damage claims as a result of the presence prior to the expiration or sooner termination of the Term and the surrender of such Property to Landlord in accordance with the terms of this Agreement of Hazardous Substances in, upon or under the soil or ground water of such Property in violation of any Applicable Law.  Upon Notice from Landlord and any other of the Indemnitees, Tenant shall undertake the defense, at Tenant’s sole cost and expense, of any indemnification duties set forth herein, in which event, Tenant shall not be liable for payment of any duplicative attorneys’ fees incurred by any Indemnitee.

Tenant shall, upon demand, pay (or cause to be paid) to Landlord, as an Additional Charge, any cost, expense, loss or damage (including, without limitation, reasonable attorneys’ fees) reasonably incurred by Landlord and arising from a failure of Tenant to observe and perform  (or to cause to be observed and performed) the requirements of this Section 4.4, which amounts shall bear interest from the date ten (10) Business Days after written demand therefor is given to Tenant until paid by Tenant to Landlord at the Overdue Rate.

4.4.3Survival.  The provisions of this Section 4.4 shall survive the expiration or sooner termination of this Agreement.

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ARTICLE 5

MAINTENANCE AND REPAIRS

5.1          Maintenance and Repair.

5.1.1Tenant’s General Obligations.  Tenant shall keep (or cause to be kept), at Tenant’s sole cost and expense, the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant’s Personal Property) in good order and repair, reasonable wear and tear excepted (whether or not the need for such repairs occurs as a result of Tenant’s or any Manager’s use, any prior use, the elements or the age of the Leased Property or Tenant’s Personal Property or any portion thereof), and shall promptly make or cause to be made all necessary and appropriate repairs and replacements to each Property of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the Commencement Date (concealed or otherwise).  All repairs shall be made in a good, workmanlike manner, consistent with industry standards for comparable Facilities in like locales, in accordance with all applicable federal, state and local statutes, ordinances, codes, rules and regulations relating to any such work.  Tenant shall not take or omit to take (or permit any Person to take or omit to take) any action, the taking or omission of which would materially and adversely impair the value or the usefulness of the Leased Property or any material part thereof for its Permitted Use.  Tenant’s obligations under this Section 5.1.1 shall be limited in the event of any casualty or Condemnation as set forth in Article 10 and Article 11 and Tenant’s obligations with respect to Hazardous Substances are as set forth in Section 4.4.

5.1.2Landlord’s Obligations.

(a)Except as otherwise expressly provided in this Agreement, Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, or to maintain the Leased Property in any way.  Except as otherwise expressly provided in this Agreement, Tenant hereby waives, to the maximum extent permitted by law, the right to make repairs at any Property at the expense of Landlord pursuant to any law in effect on

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the Commencement Date or thereafter enacted.  Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic’s lien laws now or hereafter existing.

(b)If, pursuant to the terms of this Agreement, Tenant is required to make any expenditures in connection with any repair, maintenance or renovation with respect to any Property, Tenant may, at its election, advance such funds or give Landlord Notice thereof, which Notice shall set forth, in reasonable detail, the nature of the required repair, renovation or replacement, the estimated cost thereof and such other information with respect thereto as Landlord may reasonably require.  Provided that no Event of Default shall have occurred and be continuing and Tenant shall otherwise comply with the applicable provisions of Article 6, Landlord shall, within ten (10) Business Days after such Notice, subject to and in accordance with the applicable provisions of Article 6, disburse such required funds to Tenant (or, if Tenant shall so elect, directly to the Manager or any other Person performing the required work) and, upon such disbursement, the Minimum Rent shall be adjusted as provided in Section 3.1.1(c).  Notwithstanding the foregoing, Landlord may elect not to disburse such required funds to Tenant; provided, however, that if Landlord shall elect not to disburse such required funds as aforesaid, Tenant’s obligation to make such required repair, renovation or replacement shall be deemed waived by Landlord, and, notwithstanding anything contained in this Agreement to the contrary, Tenant shall have no obligation to make such required repair, renovation or replacement.

5.1.3Nonresponsibility of Landlord, Etc.  All materialmen, contractors, artisans, mechanics and laborers and other persons contracting with Tenant with respect to the Leased Property, or any part thereof, are hereby charged with notice that liens on the Leased Property or on Landlord’s interest therein are expressly prohibited and that they must look solely to Tenant to secure payment for any work done or material furnished to Tenant or any Manager or for any other purpose during the term of this Agreement.

Nothing contained in this Agreement shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen for the performance of any labor or the furnishing of any materials for any alteration, addition, improvement or repair to the Leased

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Property or any part thereof or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Leased Property or any part thereof nor to subject Landlord’s estate in the Leased Property or any part thereof to liability under any mechanic’s lien law of any State in any way, it being expressly understood Landlord’s estate shall not be subject to any such liability.

5.2Tenant’s Personal Property.  Tenant shall provide and maintain (or cause to be provided and maintained) throughout the Term all such Tenant’s Personal Property as shall be necessary in order to operate in compliance with applicable material Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Permitted Use.  If, from and after the Commencement Date, Tenant acquires an interest in any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property, or any portion thereof, which belongs to anyone other than Tenant, Tenant shall require the agreements permitting such use to provide that Landlord or its designee may assume Tenant’s rights and obligations under such agreement upon Landlord’s purchase of the same in accordance with the provisions of Article 15 and the assumption of management or operation of the Facility by Landlord or its designee.

5.3Yield Up.  Upon the expiration or sooner termination of this Agreement (or the termination of this Agreement with respect to any Property), Tenant shall vacate and surrender the Leased Property or such Property (as applicable) to Landlord in substantially the same condition in which such Property was in on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Agreement, reasonable wear and tear excepted (and casualty damage and Condemnation, in the event that this Agreement is terminated following a casualty or Condemnation in accordance with Article 10 or Article 11 excepted).

In addition, upon the expiration or earlier termination of this Agreement, Tenant shall, at Landlord’s sole cost and expense, use its good faith efforts to transfer (or cause to be transferred) to and cooperate with Landlord or Landlord’s nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental Entities which may be necessary for the use and operation of the Facility as then operated.  If requested by Landlord, Tenant shall continue to manage one or more of the Facilities after the expiration of the

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Term for up to one hundred eighty (180) days, on such reasonable terms (which shall include an agreement to reimburse Tenant for its reasonable out-of-pocket costs and expenses, and reasonable administrative costs), as Landlord shall reasonably request.

5.4Management Agreement.  Tenant shall not, without Landlord’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned), enter into, amend or modify the provisions of any Management Agreement with respect to any Property.  Any Management Agreement entered into pursuant to the provisions of this Section 5.4 shall be subordinate to this Agreement and shall provide, inter alia, that all amounts due from Tenant to Manager thereunder shall be subordinate to all amounts due from Tenant to Landlord (provided that, as long as no Event of Default has occurred and is continuing, Tenant may pay all amounts due to Manager thereunder pursuant to such Management Agreement) and for termination thereof, at Landlord’s option, upon the termination of this Agreement.  Tenant shall not take any action, grant any consent or permit any action under any such Management Agreement which might have a material adverse effect on Landlord, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned.

ARTICLE 6

IMPROVEMENTS, ETC.

6.1Improvements to the Leased Property.  Tenant shall not make, construct or install (or permit to be made, constructed or installed) any Capital Additions without, in each instance, obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned provided that (a) construction or installation of the same would not adversely affect or violate any material Legal Requirement or Insurance Requirement applicable to any Property and (b) Landlord shall have received an Officer’s Certificate certifying as to the satisfaction of the conditions set out in clause (a) above; provided, however, that no such consent shall be required in the event immediate action is required to prevent imminent harm to person or property.  Prior to commencing construction of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any such proposed improvement and shall provide to Landlord such plans and specifications, and such permits, licenses, contracts and such other information concerning the same as Landlord may reasonably request.  Landlord shall have thirty (30) days to review all materials submitted to Landlord in connection with any such proposal.  Failure of Landlord to respond to Tenant’s

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proposal within thirty (30) days after receipt of all information and materials requested by Landlord in connection with the proposed improvement shall be deemed to constitute approval of the same.  Without limiting the generality of the foregoing, such proposal shall indicate the approximate projected cost of constructing such proposed improvement and the use or uses to which it will be put.  No Capital Addition shall be made which would tie in or connect any Leased Improvements with any other improvements on property adjacent to any Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities.  Except as permitted herein, Tenant shall not finance the cost of any construction of such improvement by the granting of a lien on or security interest in the Leased Property or such improvement, or Tenant’s interest therein, without the prior written consent of Landlord, which consent may be withheld by Landlord in Landlord’s sole discretion.  Any such improvements shall, upon the expiration or sooner termination of this Agreement, remain or pass to and become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances.

6.2Salvage.  All materials which are scrapped or removed in connection with the making of either Capital Additions or non-Capital Additions or repairs required by Article 5 shall be or become the property of the party that paid for such work.

ARTICLE 7

LIENS

7.1Liens.  Subject to Article 8, Tenant shall use its best efforts not, directly or indirectly, to create or allow to remain and shall promptly discharge (or cause to be discharged), at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property, or any portion thereof, or Tenant’s leasehold interest therein or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (c) liens for those taxes of Landlord which Tenant is not required to pay hereunder, (d) subleases permitted by Article 16, (e) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet due and payable, or (ii) are being contested in accordance with Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or vendors incurred in the ordinary course of business that are not yet due and payable or are for sums that are being contested in accordance with Article 8, (g) any Facility Mortgages or other liens which are the

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responsibility of Landlord pursuant to the provisions of Article 20 and (h) Landlord Liens and any other voluntary liens created by Landlord.

7.2Landlord’s Lien.  In addition to any statutory landlord’s lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant’s breach of this Agreement, Tenant hereby grants unto Landlord, to the maximum extent permitted by Applicable Law, a security interest in and an express contractual lien upon Tenant’s Personal Property (except motor vehicles), and Tenant’s interest in all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Facilities (the “Records”) and all proceeds therefrom, subject to any Permitted Encumbrances; and such Tenant’s Personal Property shall not be removed from the Leased Property at any time when an Event of Default has occurred and is continuing.

Upon Landlord’s request, Tenant shall execute and deliver to Landlord financing statements in form sufficient to perfect the security interest of Landlord in Tenant’s Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State.  During the continuance of an Event of Default, Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant’s name, place and stead.  The security interest herein granted is in addition to any statutory lien for the Rent and shall be subordinate to any lien imposed by the FNM Financing Documents.

ARTICLE 8

PERMITTED CONTESTS

Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim (collectively, “Claims”) as to the Leased Property, by appropriate legal proceedings, conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant’s obligation to pay (or cause to be paid) any Claims as finally determined, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property, or any portion thereof (Landlord agreeing that any such mortgage or deed of

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trust shall permit Tenant to exercise the rights granted pursuant to this Article 8) or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property, or any portion thereof, (c) no part of the Leased Property nor any Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or reasonable expense, including reasonable attorneys’ fees, incurred by Landlord in connection therewith or as a result thereof.  Landlord agrees to join in any such proceedings if required legally to prosecute such contest, provided that Landlord shall not thereby be subjected to any liability therefor (including, without limitation, for the payment of any costs or expenses in connection therewith) unless Tenant agrees by agreement in form and substance reasonably satisfactory to Landlord, to assume and indemnify Landlord with respect to the same.  Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord to the extent that Landlord has been fully reimbursed by Tenant.  If Tenant shall fail (x) to pay or cause to be paid any Claims when finally determined, (y) to provide reasonable security therefor or (z) to prosecute or cause to be prosecuted any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice shall not be required if Landlord shall reasonably determine that the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Charges.

ARTICLE 9

INSURANCE AND INDEMNIFICATION

9.1General Insurance Requirements.  Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of any Property, or any portion thereof, keep (or cause to be kept) such Property and all property located therein or thereon, insured against the risks and in such amounts as is against such risks and in such amounts as Landlord shall reasonably require and may be commercially reasonable.  Tenant shall prepare a proposal setting forth the insurance Tenant proposes to be maintained with respect to each Property during the ensuing Fiscal Year and shall submit such proposal to Landlord on or before December 1 of the preceding Lease Year for Landlord’s review and approval, which approval shall not be unreasonably withheld, delayed or conditioned.  In the event that Landlord shall fail to respond within thirty (30) days

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after receipt of such proposal, such proposal shall be deemed approved.

9.2Waiver of Subrogation.  Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in any State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, the party carrying such insurance and suffering said loss releases the others of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies (and, if Landlord or Tenant shall self insure in accordance with the terms hereof, Landlord or Tenant, as the case may be) shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom.  In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium.

9.3Form Satisfactory, Etc.  All insurance policies and endorsements required pursuant to this Article 9 shall be fully paid for, nonassessable, and issued by reputable insurance companies authorized to do business in the State and having a general policy holder’s rating of no less than A in Best’s latest rating guide.  All property, business interruption, liability and flood insurance policies with respect to each Property shall include no deductible in excess of Two Hundred Fifty Thousand Dollars ($250,000).  At all times, all property, business interruption, liability and flood insurance policies, with the exception of worker’s compensation insurance coverage, shall name Landlord and any Facility Mortgagee as additional insureds, as their interests may appear.  All loss adjustments shall be payable as provided in Article 10, except that losses under liability and worker’s compensation insurance policies shall be payable directly to the party entitled thereto.  Tenant shall cause all insurance premiums to be paid and shall deliver (or cause to be delivered) policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, prior to the expiration of the existing policy).  All such policies shall provide Landlord (and any Facility Mortgagee if required by the same) thirty (30) days prior written notice of any material change or cancellation of such policy.  In the event Tenant shall fail to effect (or cause to be effected) such insurance as herein required, to pay (or cause to be paid) the premiums therefor or to deliver (or cause to be delivered) such policies or certificates to Landlord or any

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Facility Mortgagee at the times required, Landlord shall have the right, but not the obligation, upon Notice to Tenant, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Charges, together with interest accrued thereon at the Overdue Rate from the date such payment is made until (but excluding) the date repaid.

9.4No Separate Insurance; Self-Insurance.  Tenant shall not take (or permit any Person to take) out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9, or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including Landlord and all Facility Mortgagees, are included therein as additional insureds and the loss is payable under such insurance in the same manner as losses are payable under this Agreement.  In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt Notice thereof.  Tenant shall not self-insure (or permit any Person to self-insure).

9.5Indemnification of Landlord.  Notwithstanding the existence of any insurance provided for herein and without regard to the policy limits of any such insurance, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys’ fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of the following, except to the extent caused by Landlord’s gross negligence or willful misconduct:  (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about any Property or portion thereof or adjoining sidewalks or rights of way, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant, any Manager or anyone claiming under any of them or Tenant’s Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant relating to any Property or portion thereof or Tenant’s Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions that are the obligations of Tenant to pay pursuant to the applicable provisions of this Agreement, and (d) any

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failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Agreement.  Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord (and shall not be responsible for any duplicative attorneys’ fees incurred by Landlord) or may compromise or otherwise dispose of the same, with Landlord’s prior written consent (which consent may not be unreasonably withheld, delayed or conditioned).  The obligations of Tenant under this Section 9.5 are in addition to the obligations set forth in Section 4.4 and shall survive the termination of this Agreement.

ARTICLE 10

CASUALTY

10.1Insurance Proceeds.  Except as provided in the last clause of this sentence, all proceeds payable by reason of any loss or damage to any Property, or any portion thereof, and insured under any policy of insurance required by Article 9 (other than the proceeds of any business interruption insurance) shall be paid directly to Landlord (subject to the provisions of Section 10.2) and all loss adjustments with respect to losses payable to Landlord shall require the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that, so long as no Event of Default shall have occurred and be continuing, all such proceeds less than or equal to Two Hundred Fifty Thousand Dollars ($250,000) shall be paid directly to Tenant and such losses may be adjusted without Landlord’s consent.  If Tenant is required to reconstruct or repair any Property as provided herein, such proceeds shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of such Property necessitated by such damage or destruction, subject to and in accordance with the provisions of Section 10.2.4.  Provided no Default or Event of Default has occurred and is continuing, any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant.  In the event that the provisions of Section 10.2.1 are applicable, the insurance proceeds shall be retained by the party entitled thereto pursuant to Section 10.2.1.

10.2Damage or Destruction.

10.2.1Damage or Destruction of Leased Property.  If, during the Term, any Property shall be totally or partially destroyed and the Facility located thereon is thereby rendered Unsuitable for Its Permitted Use, either Landlord or Tenant may, by the giving of Notice thereof to the other, terminate this

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Agreement with respect to such affected Property, whereupon, this Agreement shall terminate with respect to such affected Property and Landlord shall be entitled to retain the insurance proceeds payable on account of such damage.  In such event, Tenant shall pay to Landlord the amount of any deductible under the insurance policies covering such Facility, the amount of any uninsured loss and any difference between the replacement cost of the affected Property and the casualty insurance proceeds therefor.

10.2.2Partial Damage or Destruction.  If, during the Term, any Property shall be totally or partially destroyed but the Facility is not rendered Unsuitable for Its Permitted Use, Tenant shall, subject to Section 10.2.3, promptly restore such Facility as provided in Section 10.2.4.

10.2.3Insufficient Insurance Proceeds.  If the cost of the repair or restoration of the applicable Facility exceeds the amount of insurance proceeds received by Landlord and Tenant pursuant to Section 9.1, Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that, if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement).  In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord’s sole election by Notice to Tenant, given within sixty (60) days after Tenant’s notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(c).  In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property by Notice to the other, whereupon, this Agreement shall so terminate and insurance proceeds shall be distributed as provided in Section 10.2.1.  It is expressly understood and agreed, however, that, notwithstanding anything in this Agreement to the contrary, Tenant shall be strictly liable and solely responsible for the amount of any deductible and shall, upon any insurable loss, pay over the amount of such deductible to Landlord at the time and in the manner herein provided for payment of the applicable proceeds to Landlord.

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10.2.4         Disbursement of Proceeds.  In the event Tenant is required to restore any Property pursuant to Section 10.2 and this Agreement is not terminated as to such Property pursuant to this Article 10, Tenant shall commence (or cause to be commenced) promptly and continue diligently to perform (or cause to be performed) the repair and restoration of such Property (hereinafter called the “Work”), so as to restore (or cause to be restored) the applicable Property in material compliance with all Legal Requirements and so that such Property shall be, to the extent practicable, substantially equivalent in value and general utility to its general utility and value immediately prior to such damage or destruction.  Subject to the terms hereof, Landlord shall advance the insurance proceeds and any additional amounts payable by Landlord pursuant to Section 10.2.3 or otherwise deposited with Landlord to Tenant regularly during the repair and restoration period so as to permit payment for the cost of any such restoration and repair.  Any such advances shall be made not more than monthly within ten (10) Business Days after Tenant submits to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be reasonably acceptable to Landlord).  Landlord may, at its option, condition advancement of such insurance proceeds and other amounts on (a) the absence of any Event of Default, (b) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (c) general contractors’ estimates, (d) architect’s certificates, (e) conditional lien waivers of general contractors, if available, (f) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required, (g), if Tenant has elected to advance deficiency funds pursuant to Section 10.2.3, Tenant depositing the amount thereof with Landlord and (h) such other certificates as Landlord may, from time to time, reasonably require.

Landlord’s obligation to disburse insurance proceeds under this Article 10 shall be subject to the release of such proceeds by any Facility Mortgagee to Landlord.

Tenant’s obligation to restore the applicable Property pursuant to this Article 10 shall be subject to the release of available insurance proceeds by the applicable Facility Mortgagee to Landlord or directly to Tenant and, in the event such proceeds are insufficient, Landlord electing to make such deficiency available therefor (and disbursement of such deficiency).

10.3        Damage Near End of Term.  Notwithstanding any provisions of Section 10.1 or 10.2 to the contrary, if damage to

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or destruction of any Property occurs during the last twelve (12) months of the Term and if such damage or destruction cannot reasonably be expected to be fully repaired and restored prior to the date that is six (6) months prior to the end of the Term, the provisions of Section 10.2.1 shall apply as if such Property had been totally or partially destroyed and the Facility thereon rendered Unsuitable for its Permitted Use.

10.4        Tenant’s Property.  All insurance proceeds payable by reason of any loss of or damage to any of Tenant’s Personal Property shall be paid to Tenant and, to the extent necessary to repair or replace Tenant’s Personal Property in accordance with Section 10.5, Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant’s Personal Property.

10.5        Restoration of Tenant’s Property.  If Tenant is required to restore any Property as hereinabove provided, Tenant shall either (a) restore all alterations and improvements made by Tenant and Tenant’s Personal Property, or (b) replace such alterations and improvements and Tenant’s Personal Property with improvements or items of the same or better quality and utility in the operation of such Property.

10.6        No Abatement of Rent.  This Agreement shall remain in full force and effect and Tenant’s obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any damage involving the Leased Property, or any portion thereof (provided that Landlord shall credit against such payments any amounts paid to Landlord as a consequence of such damage under any business interruption insurance obtained by Tenant hereunder).  The provisions of this Article 10 shall be considered an express agreement governing any cause of damage or destruction to the Leased Property, or any portion thereof, and, to the maximum extent permitted by law, no local or State statute, laws, rules, regulation or ordinance in effect during the Term which provide for such a contingency shall have any application in such case.

10.7        Waiver.  Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of the Leased Property, or any portion thereof.

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ARTICLE 11

CONDEMNATION

11.1        Total Condemnation, Etc.  If either (a) the whole of any Property shall be taken by Condemnation or (b) a Condemnation of less than the whole of any Property renders any Property Unsuitable for Its Permitted Use, this Agreement shall terminate with respect to such Property, Tenant and Landlord shall seek the Award for their interests in the applicable Property as provided in Section 11.5.

11.2        Partial Condemnation.  In the event of a Condemnation of less than the whole of any Property such that such Property is still suitable for its Permitted Use, Tenant shall, to the extent of the Award and any additional amounts disbursed by Landlord as hereinafter provided, commence (or cause to be commenced) promptly and continue diligently to restore (or cause to be restored) the untaken portion of the applicable Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as such Leased Improvements existing immediately prior to such Condemnation, in material compliance with all Legal Requirements, subject to the provisions of this Section 11.2.  If the cost of the repair or restoration of the affected Property exceeds the amount of the Award, Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement).  In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord’s sole election by Notice to Tenant given within sixty (60) days after Tenant’s Notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(c).  In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property and the entire Award shall be allocated as set forth in Section 11.5.

Subject to the terms hereof, Landlord shall contribute to the cost of restoration that part of the Award necessary to

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complete such repair or restoration, together with severance and other damages awarded for the taken Leased Improvements and any deficiency Landlord has agreed to disburse, to Tenant regularly during the restoration period so as to permit payment for the cost of such repair or restoration.  Landlord may, at its option, condition advancement of such Award and other amounts on (a) the absence of any Event of Default, (b) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (c) general contractors’ estimates, (iv) architect’s certificates, (d) conditional lien waivers of general contractors, if available, (e) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required, (f), if Tenant has elected to advance deficiency funds pursuant to the preceding paragraph, Tenant depositing the amount thereof with Landlord and (g) such other certificates as Landlord may, from time to time, reasonably require.  Landlord’s obligation under this Section 11.2 to disburse the Award and such other amounts shall be subject to (x) the collection thereof by Landlord and (y) the satisfaction of any applicable requirements of any Facility Mortgage, and the release of such Award by the applicable Facility Mortgagee.  Tenant’s obligation to restore the Leased Property shall be subject to the release of the Award by the applicable Facility Mortgagee to Landlord.

11.3        Abatement of Rent.  Other than as specifically provided in this Agreement, this Agreement shall remain in full force and effect and Tenant’s obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving the Leased Property, or any portion thereof.  The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving the Leased Property and, to the maximum extent permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such a contingency shall have any application in such case.

11.4        Temporary Condemnation.  In the event of any temporary Condemnation of any Property or Tenant’s interest therein, this Agreement shall continue in full force and effect and Tenant shall continue to pay (or cause to be paid), in the manner and on the terms herein specified, the full amount of the Rent.  Tenant shall continue to perform and observe (or cause to be performed and observed) all of the other terms and conditions of this Agreement on the part of the Tenant to be performed and observed.  Provided no Event of Default has occurred and is

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continuing, the entire amount of any Award made for such temporary Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant.  Tenant shall, promptly upon the termination of any such period of temporary Condemnation, at its sole cost and expense, restore the affected Property to the condition that existed immediately prior to such Condemnation, in material compliance with all applicable Legal Requirements, unless such period of temporary Condemnation shall extend beyond the expiration of the Term, in which event Tenant shall not be required to make such restoration.

11.5        Allocation of Award.  Except as provided in Section 11.4 and the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord.  Any portion of the Award made for the taking of Tenant’s leasehold interest in the Leased Property, loss of business during the remainder of the Term, the taking of Tenant’s Personal Property, the taking of Capital Additions paid for by Tenant and Tenant’s removal and relocation expenses shall be the sole property of and payable to Tenant (subject to the provisions of Section 11.2).  In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense.

ARTICLE 12

DEFAULTS AND REMEDIES

12.1        Events of Default.  The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:

(a)           should Tenant fail to make any payment of the Rent or any other sum payable hereunder when due; or

(b)           should Tenant fail to maintain the insurance coverages required under Article 9; or

(c)           should Tenant default in the due observance or performance of any of the terms, covenants or agreements contained herein to be performed or observed by it (other than as specified in clauses (a) and (b) above) and should such default continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant; provided, however, that if such default is susceptible of cure but such cure cannot be accomplished with due diligence within such period of time and if, in addition, Tenant commences to cure or cause to be cured such default within thirty

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(30) days after Notice thereof from Landlord and thereafter prosecutes the curing of such default with all due diligence, such period of time shall be extended to such period of time (not to exceed an additional ninety (90) days in the aggregate) as may be necessary to cure such default with all due diligence; or

(d)           should any obligation of Tenant in respect of any Indebtedness for money borrowed or for any material property or services, or any guaranty relating thereto, be declared to be or become due and payable prior to the stated maturity thereof, or should there occur and be continuing with respect to any such Indebtedness any event of default under any instrument or agreement evidencing or securing the same, the effect of which is to permit the holder or holders of such instrument or agreement or a trustee, agent or other representative on behalf of such holder or holders, to cause any such obligations to become due prior to its stated maturity; or

(e)           should an event of default by Tenant, any Guarantor or any Affiliated Person as to Tenant or any Guarantor occur and be continuing beyond the expiration of any applicable cure period under any of the Incidental Documents; or

(f)            should Tenant or any Guarantor generally not be paying its debts as they become due or should Tenant or any Guarantor make a general assignment for the benefit of creditors; or

(g)           should any petition be filed by or against Tenant or any Guarantor under the Federal bankruptcy laws, or should any other proceeding be instituted by or against Tenant or any Guarantor seeking to adjudicate Tenant or any Guarantor a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of Tenant’s debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Tenant or any Guarantor or for any substantial part of the property of Tenant or any Guarantor and such proceeding is not dismissed within one hundred eighty (180) days after institution thereof; or

(h)           should Tenant or any Guarantor cause or institute any proceeding for its dissolution or termination; or

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(i)            should the estate or interest of Tenant in the Leased Property or any part thereof be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of (x) ninety (90) days after commencement thereof, unless the amount in dispute is less than $250,000, in which case Tenant shall give notice to Landlord of the dispute but Tenant may defend in any suitable way, and (y) two hundred seventy (270) days after receipt by Tenant of Notice thereof from Landlord (unless Tenant shall be contesting such lien or attachment in good faith in accordance with Article 8); or

(j)            should there occur any direct or indirect Change in Control of Tenant or any Guarantor; or

(k)           should a final unappealable determination be made by the applicable Government Agency that Tenant shall have failed to comply with applicable Medicare and/or Medicaid regulations in the operation of any Facility, as a result of which failure Tenant is declared ineligible to receive reimbursements under the Medicare and/or Medicaid programs for such Facility;

then, and in any such event, Landlord, in addition to all other remedies available to it, may terminate this Agreement with respect to any or all of the Leased Property by giving Notice thereof to Tenant and upon the expiration of the time, if any, fixed in such Notice, this Agreement shall terminate with respect to all or the designated portion of the Leased Property and all rights of Tenant under this Agreement with respect thereto shall cease.  Landlord shall have and may exercise all rights and remedies available at law and in equity to Landlord as a result of Tenant’s breach of this Agreement.

Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property, or any portion thereof, and take possession of any and all of Tenant’s Personal Property, if any, and the Records, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable Notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of Tenant’s Personal Property, if any, unless otherwise prohibited by law.  Unless otherwise provided by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable Notice shall be met if such Notice is given at least ten (10) days before the date of sale.  The

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proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys’ fees) shall be applied as a credit against the indebtedness which is secured by the security interest granted in Section 7.2.  Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Charges, upon demand.

12.2        Remedies.  None of (a) the termination of this Agreement pursuant to Section 12.1, (b) the repossession of the Leased Property, or any portion thereof, (c) the failure of Landlord to relet the Leased Property, or any portion thereof, nor (d) the reletting of all or any of portion of the Leased Property, shall relieve Tenant of its liability and obligations hereunder, all of which shall survive any such termination, repossession or reletting.  In the event of any such termination, Tenant shall forthwith pay to Landlord all Rent due and payable with respect to the Leased Property, or terminated portion thereof, through and including the date of such termination.  Thereafter, Tenant, until the end of what would have been the Term of this Agreement in the absence of such termination, and whether or not the Leased Property, or any portion thereof, shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent (Additional Rent to be reasonably calculated by Landlord based on historical Gross Revenues) and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any reletting of the Leased Property, or any portion thereof, after deducting all reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys’ fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting.  Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Agreement had not been so terminated with respect to such of the Leased Property.

At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages beyond the date of such termination, at Landlord’s election, Tenant shall pay to Landlord an amount equal to the present value (as reasonably determined by Landlord) of the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such termination (assuming that, for the purposes of this paragraph, annual payments by

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Tenant on account of Impositions and Additional Rent would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the Commencement Date, the payments required for such lesser period projected to an annual amount) for what would be the then unexpired term of this Agreement if the same remained in effect, over the fair market rental for the same period.  Nothing contained in this Agreement shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above.

In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord’s option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) make such reasonable alterations, repairs and decorations in the Leased Property, or any portion thereof, as Landlord, in its sole and absolute discretion, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid.  Landlord shall in no event be liable in any way whatsoever for any failure to relet all or any portion of the Leased Property, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting.  To the maximum extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the occurrence and continuation of an Event of Default hereunder.

12.3        Tenant’s Waiver.  IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.

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12.4        Application of Funds.  Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Event of Default) shall be applied to Tenant’s current and past due obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the State.  Any balance shall be paid to Tenant.

12.5        Landlord’s Right to Cure Tenant’s Default.  If an Event of Default shall have occurred and be continuing, Landlord, after Notice to Tenant (which Notice shall not be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the maximum extent permitted by law, enter upon the Leased Property, or any portion thereof, for such purpose and take all such action thereon as, in Landlord’s sole and absolute discretion, may be necessary or appropriate therefor.  No such entry shall be deemed an eviction of Tenant.  All reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.

ARTICLE 13

HOLDING OVER

Any holding over by Tenant after the expiration or sooner termination of this Agreement shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and other charges herein provided (prorated on a daily basis).  Tenant shall also pay to Landlord all damages (direct or indirect) sustained by reason of any such holding over.  Otherwise, such holding over shall be on the terms and conditions set forth in this Agreement, to the extent applicable.  Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the expiration or earlier termination of this Agreement.

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ARTICLE 14

LANDLORD DEFAULT

If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Agreement or any obligation of Landlord, if any, under any agreement affecting the Leased Property, the performance of which is not Tenant’s obligation pursuant to this Agreement, and any such default shall continue for a period of thirty (30) days after Notice thereof from Tenant to Landlord and any applicable Facility Mortgagee, or such additional period as may be reasonably required to correct the same, Tenant may declare the occurrence of a “Landlord Default” by a second Notice to Landlord and to such Facility Mortgagee.  Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys’ fees and court costs) incurred by Tenant in curing the same, together with interest thereon (to the extent permitted by law) from the date Landlord receives Tenant’s invoice until paid, at the Overdue Rate.  Tenant shall have no right to terminate this Agreement for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any Rent or other charges due hereunder.

If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give Notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof.  If Tenant and Landlord shall fail, in good faith, to resolve any such dispute within ten (10) days after Landlord’s Notice of dispute, either may submit the matter for resolution in accordance with Article 22.

ARTICLE 15

PURCHASE RIGHTS

Landlord shall have the option to purchase Tenant’s Personal Property, at the expiration or sooner termination of this Agreement, for an amount equal to the then fair market value thereof (current replacement cost as determined by agreement of the parties or, in the absence of such agreement, appraisal), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject.  Upon the expiration or sooner

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termination of this Agreement, Tenant shall use its reasonable efforts to transfer and assign, or cause to be transferred and assigned, to Landlord or its designee, or assist Landlord or its designee in obtaining, any contracts, licenses, and certificates required for the then operation of the Leased Property.  Notwithstanding the foregoing, Tenant expressly acknowledges and agrees that nothing contained in this Article 15 shall diminish, impair or otherwise modify Landlord’s rights under the Security Agreement and that any amounts paid by Landlord in order to purchase Tenant’s Personal Property in accordance with this Article 15 shall be applied first to Tenant’s current and past due obligations under this Agreement in such order as Landlord may reasonably determine or as may be prescribed by the laws of the State and any balance shall be paid to Tenant.

ARTICLE 16

SUBLETTING AND ASSIGNMENT

16.1Subletting and Assignment.  Except as provided in Section 16.3, Tenant shall not, without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole and absolute discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Agreement or sublease or permit the sublease (which term shall be deemed to include the granting of concessions, licenses and the like), of the Leased Property, or any portion thereof, or suffer or permit this Agreement or the leasehold estate created hereby or any other rights arising under this Agreement to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or operation of the Leased Property, or any portion thereof, by anyone other than Tenant, any Manager approved by Landlord pursuant to the applicable provisions of this Agreement or residents and patients of Tenant, or the Leased Property, or any portion thereof, to be offered or advertised for assignment or subletting.

For purposes of this Section 16.1, an assignment of this Agreement shall be deemed to include, without limitation, any direct or indirect Change in Control of Tenant.

If this Agreement is assigned or if the Leased Property, or any portion thereof, is sublet (or occupied by anybody other than Tenant or any Manager, their respective employees or residents or patients of Tenant), Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the

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provisions set forth in the first paragraph of this Section 16.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Agreement.

Any assignment or transfer of Tenant’s interest under this Agreement shall be subject to such assignee’s or transferee’s delivery to Landlord of (i) a Guaranty, which Guaranty shall be in form and substance satisfactory to Landlord in its sole discretion and which Guaranty shall constitute an Incidental Document hereunder; (ii) a pledge of the stock, partnership, membership or other ownership interests of such assignee or other transferee to secure Tenant’s obligations under this Agreement and the Incidental Documents, which pledge shall be in form and substance satisfactory to Landlord in its sole discretion and which pledge shall constitute an Incidental Document hereunder; (iii) a security agreement granting Landlord a security interest in all of such assignee’s or transferee’s right, title and interest in and to any personal property, intangibles and fixtures (other than accounts receivable) with respect to any Property which is subject to any such assignment or transfer to secure Tenant’s obligations under this Agreement and the Incidental Documents, which security agreement shall be in form and substance satisfactory to Landlord in its sole discretion and which security agreement shall constitute an Incidental Document hereunder; and (iv) in the case of a sublease, an assignment which assigns all of such subtenant’s right, title and interest in such sublease to Landlord to secure Tenant’s obligations under this Agreement and the Incidental Documents, which assignment shall be in form and substance satisfactory to Landlord in its sole discretion and which assignment shall constitute an Incidental Document hereunder.

No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder (unless Landlord and Tenant expressly otherwise agree that Tenant shall be released from all obligations hereunder), and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the prohibition set forth in this Section 16.1.  No assignment, subletting or occupancy shall affect any Permitted Use.  Any subletting, assignment or other transfer of Tenant’s interest under this Agreement in contravention of this Section 16.1 shall be voidable at Landlord’s option.

16.2Required Sublease Provisions.  Any sublease of all or any portion of the Leased Property shall provide (a) that it is subject and subordinate to this Agreement and to the matters to

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which this Agreement is or shall be subject or subordinate; (b) that in the event of termination of this Agreement or reentry or dispossession of Tenant by Landlord under this Agreement, Landlord may, at its option, terminate such sublease or take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord’s option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such mortgagee succeeds to that position, shall (i) be liable for any act or omission of Tenant under such sublease, (ii) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (iii) be bound by any previous modification of such sublease not consented to in writing by Landlord or by any previous prepayment of more than one (1) month’s rent, (iv) be bound by any covenant of Tenant to undertake or complete any construction of the applicable Property, or any portion thereof, (v) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (vi) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease that are performed after the date of such attornment, (vii) be responsible for any monies owing by Tenant to the credit of such subtenant unless actually delivered to Landlord by Tenant, or (viii) be required to remove any Person occupying any portion of the Leased Property; and (c) in the event that such subtenant receives a written Notice from Landlord or any Facility Mortgagee stating that an Event of Default has occurred and is continuing, such subtenant shall thereafter be obligated to pay all rentals accruing under such sublease directly to the party giving such Notice or as such party may direct.  All rentals received from such subtenant by Landlord or the Facility Mortgagee, as the case may be, shall be credited against the amounts owing by Tenant under this Agreement and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn.  An original counterpart of each such sublease and assignment and assumption, duly executed by Tenant and such subtenant or assignee, as the case may be, in form and substance reasonably satisfactory to Landlord, shall be delivered promptly to Landlord and (x) in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Agreement on the part of Tenant to be kept and performed and shall be, and become, jointly and severally liable with Tenant for the performance thereof and (y) in the case of

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either an assignment or subletting, Tenant shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Tenant hereunder.

The provisions of this Section 16.2 shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 16.1.

16.3Permitted Sublease.  Notwithstanding the foregoing, including, without limitation, Section 16.2, but subject to the provisions of Section 16.4 and any other express conditions or limitations set forth herein, Tenant may, in each instance after Notice to Landlord, (a) enter into third party residency agreements with respect to the units located at the Facilities, (b) sublease space at any Property for laundry, commissary or child care purposes or other concessions in furtherance of the Permitted Use, so long as such subleases will not reduce the number of units at any Facility, will not violate or affect any Legal Requirement or Insurance Requirement, and Tenant shall provide such additional insurance coverage applicable to the activities to be conducted in such subleased space as Landlord and any Facility Mortgagee may reasonably require, and (c) enter into one or more subleases with Affiliated Persons of Tenant with respect to the Leased Property, or any portion thereof, provided Tenant gives Landlord Notice of the material terms and conditions thereof.  Landlord and Tenant acknowledge and agree that if Tenant enters into one (1) or more subleases with Affiliated Persons of Tenant with respect to any Property, or any portion thereof, in accordance with the preceding clause (c), Tenant may allocate the rent and other charges with respect to the affected Property in any reasonable manner; provided, however, that such allocation shall not affect Tenant’s (nor any Guarantor’s) liability for the Rent and other obligations of Tenant under this Agreement; and, provided, further, that Tenant shall give Landlord prompt written notice of any allocation or reallocation of the rent and other charges with respect to the affected Property and, in any event, Tenant shall give Landlord written notice of the amount of such allocations at least ten (10) Business Days prior to the date that Landlord or Senior Housing Properties Trust is required to file any tax returns in any State where such affected Property is located.

16.4Sublease Limitation.  Anything contained in this Agreement to the contrary notwithstanding, Tenant shall not sublet the Leased Property, or any portion thereof, on any basis such that the rental to be paid by any sublessee thereunder would be based, in whole or in part, on the net income or

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profits derived by the business activities of such sublessee, any other formula such that any portion of such sublease rental would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto or would otherwise disqualify Landlord for treatment as a real estate investment trust.

ARTICLE 17

ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

17.1Estoppel Certificates.  At any time and from time to time, but not more than a reasonable number of times per year, upon not less than ten (10) Business Days prior Notice by either party, the party receiving such Notice shall furnish to the other an Officer’s Certificate certifying that this Agreement is unmodified and in full force and effect (or that this Agreement is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that no Default or an Event of Default has occurred and is continuing or, if a Default or an Event of Default shall exist, specifying in reasonable detail the nature thereof, and the steps being taken to remedy the same, and such additional information as the requesting party may reasonably request.  Any such certificate furnished pursuant to this Section 17.1 may be relied upon by the requesting party, its lenders and any prospective purchaser or mortgagee of the Leased Property, or any portion thereof, or the leasehold estate created hereby.

17.2Financial Statements.  Tenant shall furnish or cause Five Star to furnish, as applicable, the following statements to Landlord:

(a)within forty-five (45) days after each of the first three fiscal quarters of any Fiscal Year, the most recent Consolidated Financials, accompanied by a Financial Officer’s Certificate;

(b)within ninety (90) days after the end of each Fiscal Year, the most recent Consolidated Financials and financials of Tenant for such year, certified by an independent certified public accountant reasonably satisfactory to Landlord and accompanied by a Financial Officer’s Certificate;

(c)within forty-five (45) days after the end of each month, an unaudited operating statement and statement of capital expenditures prepared on a Facility by Facility basis and a combined basis, including occupancy percentages

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and average rate, accompanied by a Financial Officer’s Certificate;

(d)at any time and from time to time upon not less than twenty (20) days Notice from Landlord or such additional period as may be reasonable under the circumstances, any Consolidated Financials, Tenant financials or any other audited or unaudited financial reporting information required to be filed by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court, governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; provided, however, that, except as to calculations pertaining to Gross Revenues, Tenant shall not be required to provide audited financials with respect to any individual Facility unless Landlord shall agree to pay for the cost thereof;

(e)promptly, after receipt or sending thereof, copies of all notices given or received by Tenant under any Management Agreement; and

(f)promptly, upon Notice from Landlord, such other information concerning the business, financial condition and affairs of Tenant and/or any Guarantor as Landlord reasonably may request from time to time.

Landlord may at any time, and from time to time, provide any Facility Mortgagee with copies of any of the foregoing statements, subject to Landlord obtaining the agreement of such Facility Mortgagee to maintain such statements and the information therein as confidential.

17.3General Operations.  Tenant covenants and agrees to furnish to Landlord, within thirty (30) days after receipt or modification thereof, copies of:

(a)all licenses authorizing Tenant or any Manager to operate any Facility for its Permitted Use;

(b)all Medicare and Medicaid certifications, together with provider agreements and all material correspondence relating thereto with respect to any Facility (excluding, however, correspondence which may be subject to any attorney client privilege);

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(c)           if required under Applicable Law with respect to any Facility, a license for each individual employed as administrator with respect to such Facility;

(d)           all reports of surveys, statements of deficiencies, plans of correction, and all material correspondence relating thereto, including, without limitation, all reports and material correspondence concerning compliance with or enforcement of licensure, Medicare/Medicaid, and accreditation requirements, including physical environment and Life Safety Code survey reports (excluding, however, correspondence which may be subject to any attorney client privilege); and

(e)           with reasonable promptness, such other confirmation as to the licensure and Medicare and Medicaid participation of Tenant as Landlord may reasonably request from time to time.

ARTICLE 18

LANDLORD’S RIGHT TO INSPECT

Tenant shall permit Landlord and its authorized representatives to inspect the Leased Property, or any portion thereof, during usual business hours upon not less than forty-eight (48) hours’ notice and to make such repairs as Landlord is permitted or required to make pursuant to the terms of this Agreement, provided that any inspection or repair by Landlord or its representatives will not unreasonably interfere with Tenant’s use and operation of the Leased Property and further provided that in the event of an emergency, as determined by Landlord in its reasonable discretion, prior Notice shall not be necessary.

ARTICLE 19

EASEMENTS

19.1        Grant of Easements.  Provided no Event of Default has occurred and is continuing, Landlord will join in granting and, if necessary, modifying or abandoning such rights-of-way, easements and other interests as may be reasonably requested by Tenant for ingress and egress, and electric, telephone, gas, water, sewer and other utilities so long as:

(a)           the instrument creating, modifying or abandoning any such easement, right-of-way or other interest is satisfactory to and approved by Landlord (which approval

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shall not be unreasonably withheld, delayed or conditioned);

(b)           Landlord receives an Officer’s Certificate from Tenant stating (i) that such grant, modification or abandonment is not detrimental to the proper conduct of business on such Property, (ii) the consideration, if any, being paid for such grant, modification or abandonment (which consideration shall be paid by Tenant), (iii) that such grant, modification or abandonment does not impair the use or value of such Property for the Permitted Use, and (iv) that, for as long as this Agreement shall be in effect, Tenant will perform all obligations, if any, of Landlord under any such instrument; and

(c)           Landlord receives evidence satisfactory to Landlord that the Manager has granted its consent to such grant, modification or abandonment in accordance with the requirements of such Manager’s Management Agreement or that such consent is not required.

19.2        Exercise of Rights by Tenant.  So long as no Event of Default has occurred and is continuing, Tenant shall have the right to exercise all rights of Landlord under the Easement Agreements and, in connection therewith, Landlord shall execute and promptly return to Tenant such documents as Tenant shall reasonably request.  Tenant shall perform all obligations of Landlord under the Easement Agreements.

19.3        Permitted Encumbrances.  Any agreements entered into in accordance with this Article 19 shall be deemed a Permitted Encumbrance.

ARTICLE 20

FACILITY MORTGAGES

20.1        Landlord May Grant Liens.  Without the consent of Tenant, Landlord may, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement (“Encumbrance”) upon the Leased Property, or any portion thereof, or interest therein, whether to secure any borrowing or other means of financing or refinancing.

20.2        Subordination of Lease.  This Agreement and any and all rights of Tenant hereunder are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all

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mortgages and deeds of trust, which may now or hereafter affect the Leased Property, or any portion thereof, or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust.  This section shall be self-operative and no further instrument of subordination shall be required.  In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination.  Any lease to which this Agreement is, at the time referred to, subject and subordinate is herein called “Superior Lease” and the lessor of a Superior Lease or its successor in interest at the time referred to is herein called “Superior Landlord” and any mortgage or deed of trust to which this Agreement is, at the time referred to, subject and subordinate is herein called “Superior Mortgage” and the holder, trustee or beneficiary of a Superior Mortgage is herein called “Superior Mortgagee”.  Tenant shall have no obligations under any Superior Lease or Superior Mortgage other than those expressly set forth in this Section 20.2.

If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Agreement (any such person, “Successor Landlord”), whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, at such Successor Landlord’s request, Tenant shall attorn to and recognize the Successor Landlord as Tenant’s landlord under this Agreement and Tenant shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment (provided that such instrument does not alter the terms of this Agreement), whereupon, this Agreement shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Agreement, except that the Successor Landlord (unless formerly the landlord under this Agreement or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of any prior Landlord under this Agreement, (b) responsible for any monies owing by or on deposit with any prior

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Landlord to the credit of Tenant (except to the extent actually paid or delivered to the Successor Landlord), (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against any prior Landlord, (d) bound by any modification of this Agreement subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Rent for more than one (1) month in advance of the date due hereunder, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor Landlord’s interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Agreement to render the Leased Property ready for occupancy by Tenant (subject to Landlord’s obligations under Section 5.1.2(b) or with respect to any insurance or Condemnation proceeds), or (g) required to remove any Person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord.  Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant’s agreement to attorn, as aforesaid and Landlord agrees to provide Tenant with an instrument of nondisturbance and attornment from each such Superior Mortgagee and Superior Landlord (other than the lessors under any ground leases with respect to the Leased Property, or any portion thereof) in form and substance reasonably satisfactory to Tenant.  Notwithstanding the foregoing, any Successor Landlord shall be liable (a) to pay to Tenant any amounts owed under Section 5.1.2(b), and (b) to pay to Tenant any portions of insurance proceeds or Awards received by Landlord or the Successor Landlord required to be paid to Tenant pursuant to the terms of this Agreement, and, as a condition to any mortgage, lien or lease in respect of the Leased Property, or any portion thereof, and the subordination of this Agreement thereto, the mortgagee, lienholder or lessor, as applicable, shall expressly agree, for the benefit of Tenant, to make such payments, which agreement shall be embodied in an instrument in form reasonably satisfactory to Tenant.

20.3        Notice to Mortgagee and Superior Landlord.  Subsequent to the receipt by Tenant of Notice from Landlord as to the identity of any Facility Mortgagee or Superior Landlord under a lease with Landlord, as ground lessee, which includes the Leased Property, or any portion thereof, as part of the demised premises and which complies with Section 20.1 (which Notice shall be accompanied by a copy of the applicable mortgage or lease), no Notice from Tenant to Landlord as to a default by Landlord under this Agreement shall be effective with respect to a Facility Mortgagee or Superior Landlord unless and until a

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copy of the same is given to such Facility Mortgagee or Superior Landlord at the address set forth in the above described Notice, and the curing of any of Landlord’s defaults within the applicable notice and cure periods set forth in Article 14 by such Facility Mortgagee or Superior Landlord shall be treated as performance by Landlord.  Tenant acknowledges the existence of the FNM Financing and agrees to provide notice of any default by Landlord to Fannie Mae at the following address:

c/o Red Mortgage Capital, Inc.

Two Miranova Place, 12th Floor

Columbus, Ohio 43215

ARTICLE 21

ADDITIONAL COVENANTS OF TENANT

21.1        Prompt Payment of Indebtedness.  Tenant shall (a) pay or cause to be paid when due all payments of principal of and premium and interest on Tenant’s Indebtedness for money borrowed and shall not permit or suffer any such Indebtedness to become or remain in default beyond any applicable grace or cure period, (b) pay or cause to be paid when due all lawful claims for labor and rents with respect to the Leased Property, (c) pay or cause to be paid when due all trade payables and (d) pay or cause to be paid when due all other of Tenant’s Indebtedness upon which it is or becomes obligated, except, in each case, other than that referred to in clause (a), to the extent payment is being contested in good faith by appropriate proceedings in accordance with Article 8 and if Tenant shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP, if appropriate, or unless and until foreclosure, distraint sale or other similar proceedings shall have been commenced.

21.2        Conduct of Business.  Tenant shall not engage in any business other than the leasing and operation of the Leased Property (including any incidental or ancillary business relating thereto).  Tenant shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate existence and its rights and licenses necessary to conduct such business.

21.3        Maintenance of Accounts and Records.  Tenant shall keep true records and books of account of Tenant in which full, true and correct entries will be made of dealings and transactions in relation to the business and affairs of Tenant in accordance with GAAP.  Tenant shall apply accounting principles in the preparation of the financial statements of Tenant which, in the judgment of and the opinion of its

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independent public accountants, are in accordance with GAAP, where applicable, except for changes approved by such independent public accountants.  Tenant shall provide to Landlord either in a footnote to the financial statements delivered under Section 17.2 which relate to the period in which such change occurs, or in separate schedules to such financial statements, information sufficient to show the effect of any such changes on such financial statements.

21.4        Notice of Litigation, Etc.  Tenant shall give prompt Notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party of which Tenant has notice or actual knowledge which involves a potential liability equal to or greater than Two Hundred Fifty Thousand Dollars ($250,000) or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant.  Forthwith upon Tenant obtaining knowledge of any Default, Event of Default or any default or event of default under any agreement relating to Indebtedness for money borrowed in an aggregate amount exceeding, at any one time, Two Hundred Fifty Thousand Dollars ($250,000), or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall furnish Notice thereof to Landlord specifying the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto.

21.5        Indebtedness of Tenant.  Tenant shall not create, incur, assume or guarantee, or permit to exist, or become or remain liable directly or indirectly upon, any Indebtedness except the following:

(a)           Indebtedness of Tenant to Landlord;

(b)           Indebtedness of Tenant for Impositions, to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Article 8;

(c)           Indebtedness of Tenant in respect of judgments or awards (i) which have been in force for less than the applicable appeal period and in respect of which execution thereof shall have been stayed pending such appeal or review, or (ii) which are fully covered by insurance payable to Tenant, or (iii) which are for an amount not in excess of $250,000 in the aggregate at any one time

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outstanding and (x) which have been in force for not longer than the applicable appeal period, so long as execution is not levied thereunder or (y) in respect of which an appeal or proceedings for review shall at the time be prosecuted in good faith in accordance with the provisions of Article 8, and in respect of which execution thereof shall have been stayed pending such appeal or review;

(d)           Unsecured borrowings of Tenant from its Affiliated Persons which are by their terms expressly subordinate pursuant to a Subordination Agreement to the payment and performance of Tenant’s obligations under this Agreement;

(e)           Indebtedness for purchase money financing in accordance with Section 21.8(a) and other operating liabilities incurred in the ordinary course of Tenant’s business;

(f)            Indebtedness of Tenant as guarantor or borrower secured by Liens permitted under Section 21.8(c);

(g)           A guaranty of Five Star’s obligations under its revolving line of credit.

21.6        Distributions, Payments to Affiliated Persons, Etc.  Tenant shall not declare, order, pay or make, directly or indirectly, any Distributions or any payment to any Affiliated Person of Tenant (including payments in the ordinary course of business) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any Event of Default shall have occurred and be continuing.  Otherwise, as long as no Event of Default shall have occurred and be continuing, Tenant may make Distributions and payments to Affiliated Persons; provided, however, that any such payments shall at all times be subordinate to Tenant’s obligations under this Agreement.

21.7        Prohibited Transactions.  Tenant shall not permit to exist or enter into any agreement or arrangement whereby it engages in a transaction of any kind with any Affiliated Person as to Tenant or any Guarantor, except on terms and conditions which are commercially reasonable.

21.8        Liens and Encumbrances.  Except as permitted by Section 7.1 and Section 21.5, Tenant shall not create or incur or suffer to be created or incurred or to exist any Lien on this Agreement or any of Tenant’s assets, properties, rights or

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income, or any of its interest therein, now or at any time hereafter owned, other than:

(a)           Security interests securing the purchase price of equipment or personal property whether acquired before or after the Commencement Date; provided, however, that (i) such Lien shall at all times be confined solely to the asset in question and (ii) the aggregate principal amount of Indebtedness secured by any such Lien shall not exceed the cost of acquisition or construction of the property subject thereto;

(b)           Permitted Encumbrances;

(c)           Security interests in Accounts or Chattel Paper, in Support Obligations, General Intangibles or Deposit Accounts relating to such Accounts or Chattel Paper, in any Instruments or Investment Property evidencing or arising from such Accounts or Chattel Paper, in any documents, books, records or other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to any property described in this Section 21.8(c) or in any Proceeds of any of the foregoing (capitalized terms used in this Section 21.8(c) without definition being used as defined in or for purposes of Article 9 of the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts); and

(d)           As permitted pursuant to Section 21.5.

21.9        Merger; Sale of Assets; Etc.  Without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole discretion), Tenant shall not (i) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, all or any material portion of its assets (including capital stock or other equity interests) or business to any Person, (ii) merge into or with or consolidate with any other Entity, or (iii) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, any personal property or fixtures or any real property; provided, however, that, notwithstanding the provisions of clause (iii) preceding, Tenant may dispose of equipment or fixtures which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility (but not necessarily having the same function) have been provided.

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21.10      Pledge Agreement.  At any time following the repayment in full of the FNM Financing, at Landlord’s request, Tenant shall execute and deliver, or cause to be executed and delivered, as the case may be, to Landlord, (i) a pledge of stock, partnership, membership or other ownership interest in Tenant to secure Tenant’s obligations under this Agreement and the Incidental Documents, which pledge shall be in form and substance satisfactory to Landlord in its sole discretion, and (ii) a security agreement granting Landlord a security interest in all of Tenant’s right, title and interest in and to any personal property, intangibles and fixtures with respect any of the Properties to secure Tenant’s obligations under this Agreement and the Incidental Documents, which security agreement shall be in form and substance satisfactory to Landlord in its sole discretion.

21.11      FNM Financing.

(a)           Tenant shall comply with the terms, covenants and conditions contained in the FNM Financing Documents, and shall not take any action that would cause a default thereunder.

(b)           It is expressly understood and agreed that in the event of any inconsistency between the terms, covenants and conditions hereof and those provided in the FNM Financing Documents, the FNM Financing Documents shall control.

(c)           Landlord and Tenant expressly acknowledge and agree that, effective automatically upon the repayment in full of the FNM Financing, in whole or in part with respect to any Property, this Lease shall terminate with respect to the Leased Property or the affected Property and the Leased Property or the affected Property shall be deemed to be added to and demised under the Master Lease Agreement No. 3 for the Rent set forth herein and otherwise on the terms and conditions of the Master Lease Agreement No. 3.  Such termination and addition shall occur automatically without the need to execute any additional documentation, but Landlord and Tenant shall execute any documentation reasonably requested by the other to evidence such termination and addition.

ARTICLE 22

ARBITRATION

Landlord or Tenant may elect to submit any dispute hereunder that has an amount in controversy in excess of $250,000 to arbitration hereunder.  Any such arbitration shall be conducted in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Association then

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pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event Landlord or Tenant shall elect to submit any such dispute to arbitration hereunder, Landlord and Tenant shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so submitted, shall appoint a third arbitrator.  If either Landlord or Tenant shall fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between Landlord and Tenant, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to Landlord and one to Tenant.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

Landlord and Tenant acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, Landlord and Tenant shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

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ARTICLE 23

MISCELLANEOUS

23.1Limitation on Payment of Rent.  All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this Agreement exceed the maximum permissible under applicable law, the benefit of which may be asserted by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount.  This provision shall control every other provision of this Agreement and any other agreements between Landlord and Tenant.

23.2No Waiver.  No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term.  To the maximum extent permitted by law, no waiver of any breach shall affect or alter this Agreement, which shall continue in full force and effect with respect to any other then existing or subsequent breach.

23.3Remedies Cumulative.  To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord or Tenant, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant (as applicable) of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies.

23.4Severability.  Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to

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the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein.

23.5Acceptance of Surrender.  No surrender to Landlord of this Agreement or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender.

23.6No Merger of Title.  It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly this Agreement or the leasehold estate created hereby and the fee estate or ground landlord’s interest in the Leased Property.

23.7Conveyance by Landlord.  If Landlord or any successor owner of all or any portion of the Leased Property shall convey all or any portion of the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of such of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Agreement with respect to such of the Leased Property arising or accruing from and after the date of such conveyance or other transfer and all such future liabilities and obligations shall thereupon be binding upon the new owner.

23.8Quiet Enjoyment.  Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term, free of hindrance or molestation by Landlord or anyone claiming by, through or under Landlord, but subject to (a) any Encumbrance permitted under Article 20 or otherwise permitted to be created by Landlord hereunder, (b) all Permitted Encumbrances, (c) liens as to obligations of Landlord that are either not yet due or which are being contested in good faith and by proper proceedings, provided the same do not materially interfere with Tenant’s ability to operate any Facility and (d) liens that have been consented to in writing by Tenant.  Except as otherwise provided in this Agreement, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Agreement or abate, reduce or make a

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deduction from or offset against the Rent or any other sum payable under this Agreement, or to fail to perform any other obligation of Tenant hereunder.

23.9No Recordation.  Neither Landlord nor Tenant shall record this Agreement.

23.10Notices.

(a)Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

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(c)All such notices shall be addressed,

if to Landlord:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

Telecopier No. (617) 796-8439

if to Tenant to:

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

Telecopier No. (617) 796-8243

(d)By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

23.11Construction.  Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to the Leased Property shall survive such termination or expiration.  In no event shall Landlord be liable for any consequential damages suffered by Tenant as the result of a breach of this Agreement by Landlord.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged.  All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition.  Time is of the essence with respect to the provisions of this Agreement.  Except as otherwise set forth in this Agreement, any obligations of Tenant (including without limitation, any monetary, repair and indemnification obligations) and Landlord shall survive the expiration or sooner termination of this Agreement.

23.12Counterparts; Headings.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed.  Headings in this Agreement are for purposes of reference only and shall not limit or affect the meaning of the provisions hereof.

23.13Applicable Law, Etc.  This Agreement shall be interpreted, construed, applied and enforced in accordance with

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the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (a) where this Agreement is executed or delivered; or (b) where any payment or other performance required by this Agreement is made or required to be made; or (c) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than Massachusetts; or (g) any combination of the foregoing.  Notwithstanding the foregoing, the laws of the State shall apply to the perfection and priority of liens upon and the disposition of any Property.

23.14Right to Make Agreement.  Each party warrants, with respect to itself, that neither the execution of this Agreement, nor the consummation of any transaction contemplated hereby, shall violate any provision of any law, or any judgment, writ, injunction, order or decree of any court or governmental authority having jurisdiction over it; nor result in or constitute a breach or default under any indenture, contract, other commitment or restriction to which it is a party or by which it is bound; nor require any consent, vote or approval which has not been given or taken, or at the time of the transaction involved shall not have been given or taken.  Each party covenants that it has and will continue to have throughout the term of this Agreement and any extensions thereof, the full right to enter into this Agreement and perform its obligations hereunder.

23.15Attorneys’ Fees.  If any lawsuit or arbitration or other legal proceeding arises in connection with the interpretation or enforcement of this Agreement, the prevailing party therein shall be entitled to receive from the other party the prevailing party’s costs and expenses, including reasonable attorneys’ fees incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts shall be included in any judgment therein.

23.16Nonliability of Trustees.  THE DECLARATIONS OF TRUST ESTABLISHING CERTAIN ENTITIES COMPRISING LANDLORD, COPIES OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (COLLECTIVELY, THE “DECLARATIONS”), ARE DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDE THAT THE NAMES OF SUCH ENTITIES REFER TO THE TRUSTEES UNDER SUCH DECLARATIONS COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR

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PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SUCH ENTITIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SUCH ENTITIES.  ALL PERSONS DEALING WITH SUCH ENTITIES, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF SUCH ENTITIES FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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

LANDLORD: SNH RMI FOX RIDGE MANOR PROPERTIES LLC, SNH RMI JEFFERSON MANOR PROPERTIES LLC, SNH RMI MCKAY MANOR PROPERTIES LLC, SNH RMI NORTHWOOD MANOR PROPERTIES LLC, SNH RMI OAK WOODS MANOR PROPERTIES LLC, SNH RMI PARK SQUARE MANOR PROPERTIES LLC, SNH RMI SMITH FARMS MANOR PROPERTIES LLC, and SNH RMI SYCAMORE MANOR PROPERTIES LLC, each a Maryland limited liability company
By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the foregoing entities

TENANT:
FIVE STAR QUALITY CARE–RMI, LLC, a Maryland limited liability company
By:	/s/ Francis R. Murphy III
	Francis R. Murphy III
	Treasurer and Chief Financial Officer

EXHIBITS A-1 THROUGH A-8

LAND

Certain Exhibits to this agreement have been omitted.  The Company agrees to furnish supplementally copies of any of the omitted Exhibits to the Securities and Exchange Commission upon request.

EX-99.29

Exhibit 99.29

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (this “Agreement”) is made and given as of September 1, 2008 by FIVE STAR QUALITY CARE, INC., a Maryland corporation (the “Guarantor”), for the benefit of SNH RMI FOX RIDGE MANOR PROPERTIES LLC, SNH RMI JEFFERSON MANOR PROPERTIES LLC, SNH RMI MCKAY MANOR PROPERTIES LLC, SNH RMI NORTHWOOD MANOR PROPERTIES LLC, SNH RMI OAK WOODS MANOR PROPERTIES LLC, SNH RMI PARK SQUARE MANOR PROPERTIES LLC, SNH RMI SMITH FARMS MANOR PROPERTIES LLC, and SNH RMI SYCAMORE MANOR PROPERTIES LLC, each a Maryland limited liability company (together with their respective successors and assigns, collectively, the “Landlord”).

W I T N E S S E T H :

WHEREAS, the Landlord and Five Star Quality Care-RMI, LLC (the “Tenant”) are parties to that certain Master Lease Agreement, dated as of the date hereof (as the same may be amended, modified or otherwise supplemented from time to time, the “Lease”); and

WHEREAS, it is a condition precedent to the Landlord’s entering into the Lease that the Guarantor guarantee all of the payment and performance obligations of the Tenant under the Lease; and

WHEREAS, the Tenant is a wholly-owned subsidiary of the Guarantor and the transactions contemplated by the Lease are of direct material benefit to the Guarantor;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows:

1.Certain Terms.  Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Lease.  The Lease and the Incidental Documents are herein collectively referred to as the “Transaction Documents.”

2.Guaranteed Obligations.  For purposes of this Agreement the term “Guaranteed Obligations” shall mean the payment and performance of each and every obligation of the Tenant to the Landlord under the Transaction Documents or relating thereto, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Lease.

3.Representations and Covenants.  The Guarantor represents, warrants, covenants, and agrees that:

3.1  Incorporation of Representations and Warranties.  The representations and warranties of the Tenant and its Affiliated Persons set forth in the Transaction Documents are true and correct on and as of the date hereof in all material respects.

3.2  Performance of Covenants and Agreements.  The Guarantor hereby agrees to take all lawful action in its power to cause the Tenant duly and punctually to perform all of the covenants and agreements set forth in the Transaction Documents.

3.3  Validity of Agreement.  The Guarantor has duly and validly executed and delivered this Agreement; this Agreement constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as the enforceability thereof may be subject to bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and subject to general equitable principles, regardless of whether enforceability is considered in a proceeding at law or in equity; and the execution, delivery and performance of this Agreement have been duly authorized by all requisite action of the Guarantor and such execution, delivery and performance by the Guarantor will not result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of the Guarantor pursuant to the terms of, any indenture, mortgage, deed of trust, note, other evidence of indebtedness, agreement or other instrument to which it may be a party or by which it or any of its property or assets may be bound, or violate any provision of law, or any applicable order, writ, injunction, judgment or decree of any court or any order or other public regulation of any governmental commission, bureau or administrative agency.

3.4  Payment of Expenses.  The Guarantor agrees, as principal obligor and not as guarantor only, to pay to the Landlord forthwith, upon demand, in immediately available federal funds, all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred or expended by the Landlord in connection with the enforcement of this Agreement, together with interest on amounts recoverable under this Agreement from the time such amounts become due until payment at the Overdue Rate.  The Guarantor’s covenants and agreements set

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forth in this Section 3.4 shall survive the termination of this Agreement.

3.5  Notices.  The Guarantor shall promptly give notice to the Landlord of any event known to it which might reasonably result in a material adverse change in its financial condition.

3.6  Reports.  The Guarantor shall promptly provide to the Landlord each of the financial reports, certificates and other documents required of it under the Transaction Documents.

3.7  Books and Records.  The Guarantor shall at all times keep proper books of record and account in which full, true and correct entries shall be made of its transactions in accordance with generally accepted accounting principles and shall set aside on its books from its earnings for each fiscal year all such proper reserves, including reserves for depreciation, depletion, obsolescence and amortization of its properties during such fiscal year, as shall be required in accordance with generally accepted accounting principles, consistently applied, in connection with its business.  The Guarantor shall permit access by the Landlord and its agents to the books and records maintained by the Guarantor during normal business hours and upon reasonable notice.  Any proprietary information obtained by the Landlord with respect to the Guarantor pursuant to the provisions of this Agreement shall be treated as confidential, except that such information may be disclosed or used, subject to appropriate confidentiality safeguards, pursuant to any court order or in any litigation between the parties and except further that the Landlord may disclose such information to its prospective lenders, provided that the Landlord shall direct such lenders to maintain such information as confidential.

3.8  Taxes, Etc.  The Guarantor shall pay and discharge promptly as they become due and payable all taxes, assessments and other governmental charges or levies imposed upon the Guarantor or the income of the Guarantor or upon any of the property, real, personal or mixed, of the Guarantor, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a lien or charge upon any property and result in a material adverse change in the financial condition of the Guarantor; provided, however, that the Guarantor shall not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings or other appropriate actions promptly initiated and diligently

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conducted and if the Guarantor shall have set aside on its books such reserves of the Guarantor, if any, with respect thereto as are required by generally accepted accounting principles.

3.9    Legal Existence of Guarantor. The Guarantor shall do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.

3.10  Compliance.  The Guarantor shall use reasonable business efforts to comply in all material respects with all applicable statutes, rules, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities in respect of the conduct of its business and the ownership of its property (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to environmental, safety and other similar standards or controls).

3.11  Insurance.  The Guarantor shall maintain, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by owners of established reputation engaged in the same or similar businesses and similarly situated, in such amounts and by such methods as shall be customary for such owners and deemed adequate by the Guarantor.

3.12  No Change in Control.  The Guarantor shall not permit the occurrence of any direct or indirect Change in Control of the Tenant or the Guarantor.

4.Guarantee.  The Guarantor hereby unconditionally guarantees that the Guaranteed Obligations which are monetary obligations shall be paid in full when due and payable, whether upon demand, at the stated or accelerated maturity thereof pursuant to any Transaction Document, or otherwise, and that the Guaranteed Obligations which are performance obligations shall be fully performed at the times and in the manner such performance is required by the Transaction Documents.  With respect to the Guaranteed Obligations which are monetary obligations, this guarantee is a guarantee of payment and not of collectibility and is absolute and in no way conditional or contingent.  In case any part of the Guaranteed Obligations shall not have been paid when due and payable or performed at the time performance is required, the Guarantor shall, in the case of monetary obligations, within five (5) Business Days after receipt of notice from the Landlord, pay or cause to be paid to the Landlord the amount thereof as is then due and payable and unpaid (including interest and other charges, if

4

any, due thereon through the date of payment in accordance with the applicable provisions of the Transaction Documents) or, in the case of non-monetary obligations, perform or cause to be performed such obligations in accordance with the Transaction Documents.

5.Set-Off.  The Guarantor hereby authorizes the Landlord, at any time and without notice to set off the whole or any portion or portions of any or all sums credited by or due from the Landlord to it against amounts payable under this Agreement.  The Landlord shall promptly notify the Guarantor of any such set-off made by the Landlord and the application made by the Landlord of the proceeds thereof.

6.Unenforceability of Guaranteed Obligations, Etc.  If the Tenant is for any reason under no legal obligation to discharge any of the Guaranteed Obligations (other than because the same have been previously discharged in accordance with the terms of the Transaction Documents), or if any other moneys included in the Guaranteed Obligations have become unrecoverable from the Tenant by operation of law or for any other reason, including, without limitation, the invalidity or irregularity in whole or in part of any Guaranteed Obligation or of any Transaction Document or any limitation on the liability of the Tenant thereunder not contemplated by the Transaction Documents or any limitation on the method or terms of payment thereunder which may now or hereafter be caused or imposed in any manner whatsoever, the guarantees contained in this Agreement shall nevertheless remain in full force and effect and shall be binding upon the Guarantor to the same extent as if the Guarantor at all times had been the principal debtor on all such Guaranteed Obligations.

7.Additional Guarantees.  This Agreement shall be in addition to any other guarantee or other security for the Guaranteed Obligations and it shall not be prejudiced or rendered unenforceable by the invalidity of any such other guarantee or security or by any waiver, amendment, release or modification thereof.

8.Consents and Waivers, Etc.  The Guarantor hereby acknowledges receipt of correct and complete copies of each of the Transaction Documents, and consents to all of the terms and provisions thereof, as the same may be from time to time hereafter amended or changed in accordance with the terms and conditions thereof, and, except as otherwise provided herein, to the maximum extent permitted by applicable law, waives (a) presentment, demand for payment, and protest of nonpayment, of any principal of or interest on any of the Guaranteed

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Obligations, (b) notice of acceptance of this Agreement and of diligence, presentment, demand and protest, (c) notice of any default hereunder and any default, breach or nonperformance or Event of Default under any of the Guaranteed Obligations or the Transaction Documents, (d) notice of the terms, time and place of any private or public sale of any collateral held as security for the Guaranteed Obligations, (e) demand for performance or observance of, and any enforcement of any provision of, or any pursuit or exhaustion of rights or remedies against the Tenant or any other guarantor of the Guaranteed Obligations, under or pursuant to the Transaction Documents, or any agreement directly or indirectly relating thereto and any requirements of diligence or promptness on the part of the holders of the Guaranteed Obligations in connection therewith, and (f) to the extent the Guarantor lawfully may do so, any and all demands and notices of every kind and description with respect to the foregoing or which may be required to be given by any statute or rule of law and any defense of any kind which it may now or hereafter have with respect to this Agreement, or any of the Transaction Documents or the Guaranteed Obligations (other than that the same have been discharged in accordance with the Transaction Documents).

9.No Impairment, Etc.  The obligations, covenants, agreements and duties of the Guarantor under this Agreement shall not be affected or impaired by any assignment or transfer in whole or in part of any of the Guaranteed Obligations without notice to the Guarantor, or any waiver by the Landlord or any holder of any of the Guaranteed Obligations or by the holders of all of the Guaranteed Obligations of the performance or observance by the Tenant or any other guarantor of any of the agreements, covenants, terms or conditions contained in the Guaranteed Obligations or the Transaction Documents or any indulgence in or the extension of the time for payment by the Tenant or any other guarantor of any amounts payable under or in connection with the Guaranteed Obligations or the Transaction Documents or any other instrument or agreement relating to the Guaranteed Obligations or of the time for performance by the Tenant or any other guarantor of any other obligations under or arising out of any of the foregoing or the extension or renewal thereof (except that with respect to any extension of time for payment or performance of any of the Guaranteed Obligations granted by the Landlord or any other holder of such Guaranteed Obligations to the Tenant, the Guarantor’s obligations to pay or perform such Guaranteed Obligation shall be subject to the same extension of time for performance), or the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Tenant or any other guarantor set forth in any of the foregoing, or the voluntary or involuntary sale or

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other disposition of all or substantially all the assets of the Tenant or any other guarantor or insolvency, bankruptcy, or other similar proceedings affecting the Tenant or any other guarantor or any assets of the Tenant or any such other guarantor, or the release or discharge of the Tenant or any such other guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of the foregoing without the consent of the holders of the Guaranteed Obligations by operation of law, or any other cause, whether similar or dissimilar to the foregoing.

10.Reimbursement, Subrogation, Etc.  The Guarantor hereby covenants and agrees that it will not enforce or otherwise exercise any rights of reimbursement, subrogation, contribution or other similar rights against the Tenant (or any other person against whom the Landlord may proceed) with respect to the Guaranteed Obligations prior to the payment in full of all amounts owing with respect to the Lease, and until all indebtedness of the Tenant to the Landlord shall have been paid in full, the Guarantor shall not have any right of subrogation, and the Guarantor waives any defense it may have based upon any election of remedies by the Landlord which destroys its subrogation rights or its rights to proceed against the Tenant for reimbursement, including, without limitation, any loss of rights the Guarantor may suffer by reason of any rights, powers or remedies of the Tenant in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging the indebtedness to the Landlord.  Until all obligations of the Tenant pursuant to the Transaction Documents shall have been paid and satisfied in full, the Guarantor further waives any right to enforce any remedy which the Landlord now has or may in the future have against the Tenant, any other guarantor or any other person and any benefit of, or any right to participate in, any security whatsoever now or in the future held by the Landlord.

11.Defeasance.  This Agreement shall terminate at such time as the Guaranteed Obligations have been paid and performed in full and all other obligations of the Guarantor to the Landlord under this Agreement have been satisfied in full; provided, however, if at any time, all or any part of any payment applied on account of the Guaranteed Obligations is or must be rescinded or returned for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Tenant), this Agreement, to the extent such payment is or must be rescinded or returned, shall be deemed to have continued in existence notwithstanding any such termination.

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12.Notices.  (a)  Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b)All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

(c)All such notices shall be addressed,

if to the Landlord to:

c/o Senior Housing Properties Trust

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. David J. Hegarty

Telecopier No. (617) 796-8439

if to the Guarantor to:

Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts  02458

Attn:  Mr. Bruce J. Mackey Jr.

Telecopier No. (617) 796-8243

(d)By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

13.Successors and Assigns.  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party,

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including without limitation the holders, from time to time, of the Guaranteed Obligations; and all representations, warranties, covenants and agreements by or on behalf of the Guarantor which are contained in this Agreement shall inure to the benefit of the Landlord’s successors and assigns, including without limitation said holders, whether so expressed or not.

14.Applicable Law.  Except as to matters regarding the internal affairs of the Landlord and issues of or limitations on any personal liability of the shareholders and trustees of the Landlord for obligations of the Landlord, as to which the laws of the State of Maryland shall govern, this Agreement, the Transaction Documents and any other instruments executed and delivered to evidence, complete or perfect the transactions contemplated hereby and thereby shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (a) where any such instrument is executed or delivered; or (b) where any payment or other performance required by any such instrument is made or required to be made; or (c) where any breach of any provision of any such instrument occurs, or any cause of action otherwise accrues; or (d) where any action or other proceeding is instituted or pending; or (e) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (f) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (g) any combination of the foregoing.

15.Arbitration.  The Landlord or the Guarantor may elect to submit to arbitration any dispute hereunder that has an amount in controversy in excess of $250,000.  Any such arbitration shall be conducted in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association then pertaining and the decision of the arbitrators with respect to such dispute shall be binding, final and conclusive on the parties.

In the event that any such dispute is submitted to arbitration hereunder, the Landlord and the Guarantor shall each appoint and pay all fees of a fit and impartial person as arbitrator with at least ten (10) years’ recent professional experience in the general subject matter of the dispute.  Notice of such appointment shall be sent in writing by each party to the other, and the arbitrators so appointed, in the event of their failure to agree within thirty (30) days after the appointment of the second arbitrator upon the matter so

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submitted, shall appoint a third arbitrator.  If either the Landlord or the Guarantor shall fail to appoint an arbitrator as aforesaid for a period of twenty (20) days after written notice from the other party to make such appointment, then the arbitrator appointed by the party having made such appointment shall appoint a second arbitrator and the two (2) so appointed shall, in the event of their failure to agree upon any decision within thirty (30) days thereafter, appoint a third arbitrator.  If such arbitrators fail to agree upon a third arbitrator within forty five (45) days after the appointment of the second arbitrator, then such third arbitrator shall be appointed by the American Arbitration Association from its qualified panel of arbitrators, and shall be a person having at least ten (10) years’ recent professional experience as to the subject matter in question.  The fees of the third arbitrator and the expenses incident to the proceedings shall be borne equally between the Landlord and the Guarantor, unless the arbitrators decide otherwise.  The fees of respective counsel engaged by the parties, and the fees of expert witnesses and other witnesses called for the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses.

The decision of the arbitrators shall be rendered within thirty (30) days after appointment of the third arbitrator.  Such decision shall be in writing and in duplicate, one counterpart thereof to be delivered to the applicable Landlord and one to the Guarantor.  A judgment of a court of competent jurisdiction may be entered upon the award of the arbitrators in accordance with the rules and statutes applicable thereto then obtaining.

The Landlord and the Guarantor acknowledge and agree that, to the extent any such dispute shall involve any Manager and be subject to arbitration pursuant to such Manager’s Management Agreement, the Landlord and the Guarantor shall cooperate to consolidate any such arbitration hereunder and under such Management Agreement into a single proceeding.

16.Modification of Agreement.  No modification or waiver of any provision of this Agreement, nor any consent to any departure by the Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Landlord, and such modification, waiver or consent shall be effective only in the specific instances and for the purpose for which given.  No notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstances.  This Agreement may not be amended except by an instrument in writing

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executed by or on behalf of the party against whom enforcement of such amendment is sought.

17.Waiver of Rights by the Landlord.  Neither any failure nor any delay on the Landlord’s part in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege.

18.Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, but this Agreement shall be reformed and construed and enforced to the maximum extent permitted by applicable law.

19.Entire Contract.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

20.Headings; Counterparts.  Headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts.

21.Remedies Cumulative.  No remedy herein conferred upon the Landlord is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

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WITNESS the execution hereof under seal as of the date above first written.

FIVE STAR QUALITY CARE, INC.,

a Maryland corporation

/s/ Bruce J. Mackey Jr.

Bruce J. Mackey Jr.

President