10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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	04-3516029
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices) (Zip Code)

617-796-8387

(Registrant’s Telephone Number, Including Area Code)

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 x  No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

Number of registrants’ shares of common stock, $0.01 par value outstanding as of November 6, 2008: 31,847,004.

FIVE STAR QUALITY CARE, INC.

FORM 10-Q

SEPTEMBER 30, 2008

INDEX

		Page
PART I	Financial Information
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheet – September 30, 2008 and December 31, 2007	1
	Condensed Consolidated Statement of Operations – Three and Nine Months Ended September 30, 2008 and 2007	2
	Condensed Consolidated Statement of Cash Flows – Nine Months Ended September 30, 2008 and 2007	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	Warning Concerning Forward Looking Statements	30
PART II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 5.	Other Information	31
Item 6.	Exhibits	40
	Signatures	41

As used herein the terms “we”, “us”, “our” and “Five Star” include Five Star Quality Care, Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

Part I.    Financial Information

Item 1.  Condensed Consolidated Financial Statements

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

(unaudited)

	September 30, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	39,972		$	30,999
Accounts receivable, net of allowance of $5,998 and $4,836 at September 30, 2008 and December 31, 2007, respectively	58,035			58,803
Prepaid expenses	6,644			9,041
Investment securities:
Investments in trading securities	—			61,800
Investments in available for sale securities	7,141			7,455
Restricted cash	4,104			3,655
Restricted investments	2,472			3,946
Other current assets	11,036			7,140
Assets of discontinued operations	2,020			3,178
Total current assets	131,424			186,017
Property and equipment, net	152,047			131,705
Investments in trading securities	68,751			—
Restricted cash	3,184			2,568
Restricted investments	6,869			10,375
Goodwill and other intangible assets	22,505			21,877
Other long term assets	4,740			7,912
	$	389,520		$	360,454
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,285		$	19,135
Accrued expenses	18,135			15,222
Accrued compensation and benefits	42,587			30,103
Due to Senior Housing Properties Trust	14,690			11,242
Mortgage notes payable	146			200
Accrued real estate taxes	11,225			7,352
Security deposit liability	12,695			13,361
Other current liabilities	8,314			7,229
Liabilities of discontinued operations	415			219
Total current liabilities	127,492			104,063
Long term liabilities:
Mortgage notes payable	12,479			15,810
Convertible senior notes	126,500			126,500
Continuing care contracts	2,816			3,159
Other long term liabilities	34,029			24,100
Total long term liabilities	175,824			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, 31,847,004 and 31,818,144 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively	318			318
Additional paid-in capital	287,071			286,734
Accumulated deficit	(193,253		)	(196,109		)
Unrealized loss on investments	(7,932		)	(4,121		)
Total shareholders’ equity	86,204			86,822
	$	389,520		$	360,454

See accompanying notes.

1

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
Revenues:
Senior living revenue	$	241,190		$	203,656		$	686,559		$	601,319
Hospital revenue	23,938			25,361			73,103			76,711
Pharmacy revenue	16,814			15,581			52,301			43,734
Total revenues	281,942			244,598			811,963			721,764
Operating expenses:
Senior living wages and benefits	120,704			100,659			341,593			306,497
Other senior living operating expenses	61,228			50,988			173,317			149,399
Hospital expenses	22,332			22,588			67,539			69,585
Pharmacy expenses	17,368			14,722			50,918			41,835
Rent expense	41,745			32,507			116,464			96,737
General and administrative	11,948			10,757			34,803			31,703
Depreciation and amortization	3,691			3,551			10,973			9,940
Total operating expenses	279,016			235,772			795,607			705,696
Operating income	2,926			8,826			16,356			16,068
Interest and other income	1,071			1,511			4,867			4,343
Interest expense	(1,696		)	(1,464		)	(4,890		)	(4,919		)
Unrealized loss on investments in trading securities	(1,733		)	—			(6,099		)	—
Impairment on investments in available for sale securities	(3,019		)	—			(3,019		)	—
Gain on extinguishment of debt	743			—			743			4,491
Income (loss) from continuing operations before income taxes	(1,708		)	8,873			7,958			19,983
(Provision) benefit for income taxes	90			(277		)	(920		)	(760		)
Income (loss) from continuing operations	(1,618		)	8,596			7,038			19,223
Loss from discontinued operations	(632		)	(835		)	(4,182		)	(2,619		)
Net income (loss)	$	(2,250	)	$	7,761		$	2,856		$	16,604
Weighted average shares outstanding - basic	31,845			31,705			31,832			31,694
Weighted average shares outstanding - diluted	31,845			41,436			31,832			41,425
Basic (loss) income per share from:
Continuing operations	$	(0.05	)	$	0.27		$	0.22		$	0.61
Discontinued operations	(0.02		)	(0.03		)	(0.13		)	(0.09		)
Net (loss) income per share	$	(0.07	)	$	0.24		$	0.09		$	0.52
Diluted (loss) income per share from:
Continuing operations	$	(0.05	)	$	0.24		$	0.22		$	0.55
Discontinued operations	(0.02		)	(0.02		)	(0.13		)	(0.06		)
Net (loss) income per share	$	(0.07	)	$	0.22		$	0.09		$	0.49

See accompanying notes.

2

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

	Nine months ended September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	2,856		$	16,604
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	10,973			9,940
Gain on extinguishment of debt	(743		)	(4,491		)
Loss from discontinued operations	4,182			2,619
Unrealized loss on investments in trading securities	6,099			—
Impairment on investments in available for sale securities	3,019			—
Provision for losses on receivables, net	1,162			1,158
Changes in assets and liabilities:
Accounts receivable	(103		)	8,001
Prepaid expenses and other assets	1,802			9,942
Investment securities	(12,736		)	(27,038		)
Accounts payable and accrued expenses	(234		)	(4,893		)
Accrued compensation and benefits	12,484			10,477
Due to Senior Housing Properties Trust	3,448			985
Other current and long term liabilities	12,578			2,931
Cash provided by operating activities	44,787			26,235
Net cash used in discontinued operations	(1,016		)	(2,535		)
Cash flows from investing activities:
Payments (deposits) into restricted cash and investment accounts, net	(2,578		)	1,757
Acquisition of property and equipment	(53,493		)	(56,128		)
Acquisition of senior living communities	(21,350		)	—
Assumption of net working capital deficit (exclusive of cash) of acquired senior living communities	3,204			—
Proceeds from disposition of property and equipment held for sale	42,061			33,077
Cash used in investing activities	(32,156		)	(21,294		)
Cash flows from financing activities:
Repayments of mortgage notes payable	(2,642		)	(28,772		)
Cash used in financing activities	(2,642		)	(28,772		)
Change in cash and cash equivalents	8,973			(26,366		)
Cash and cash equivalents at beginning of period	30,999			46,241
Cash and cash equivalents at end of period	$	39,972		$	19,875
Supplemental cash flow information:
Cash paid for interest	$	2,879		$	4,491
Cash paid for income taxes	$	2,117		$	516
Non-cash investing and financing activities:
Issuance of common stock	$	337		$	187
Real estate acquisition	$	—		$	5,025
Assumption of mortgage note payable	$	—		$	4,559

See accompanying notes.

3

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 1.  Basis of Presentation and Organization

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and its subsidiaries have been prepared without audit.  Certain information and disclosures required by generally accepted accounting principles for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2007.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  All material intercompany transactions and balances have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

As of September 30, 2008, we leased, owned or operated 202 senior living communities containing 21,340 living units, including 153 primarily independent and assisted living communities with 16,930 living units and 49 skilled nursing facilities with 4,410 beds.  Of our 153 primarily independent and assisted living communities, we leased 133 communities containing 15,427 living units from Senior Housing Properties Trust, or Senior Housing, our former parent, and we owned or leased from parties other than Senior Housing 20 communities with 1,503 living units.  We leased 47 of our 49 skilled nursing facilities from Senior Housing.  Our 202 communities include 6,017 independent living apartments, 9,112 assisted living suites and 6,211 skilled nursing beds.  We also operated six institutional pharmacies, one of which provides mail order pharmaceuticals to the general public, and two rehabilitation hospitals that we leased from Senior Housing.  Our two rehabilitation hospitals had 321 beds available for inpatient services, three satellite locations and 18 affiliated outpatient clinics.  Included in the above counts are two assisted living communities containing 173 living units and two pharmacies which have previously been reclassified to discontinued operations.

Note 2. New 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 No. 141(R).  SFAS No. 141(R) establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination.  SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008.

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 the 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 does not permit earlier application.  We are currently evaluating the effect that the adoption of FSP 14-1 will have on our consolidated financial statements.

Note 3. Property and Equipment

Property and equipment, at cost, consists of the following at:

	September 30, 2008			December 31, 2007
Land	$	9,500		$	7,196
Buildings and improvements	121,267			99,945
Furniture, fixtures and equipment	60,233			55,660
	191,000			162,801
Accumulated depreciation	(38,953		)	(31,096		)
	$	152,047		$	131,705

4

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

As of September 30, 2008 and December 31, 2007, we had assets classified as “held for sale” of $26,798 and $25,222, respectively, included in our property and equipment that we intend to sell to Senior Housing as permitted by our leases.

Note 4. Comprehensive Income (Loss)

Comprehensive income (loss) for the three and nine months ended September 30, 2008 and 2007 is summarized below:

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
Net income (loss)	$	(2,250	)	$	7,761		$	2,856		$	16,604
Unrealized loss on investments	(3,188		)	(1,011		)	(3,811		)	(1,904		)
Comprehensive (loss) income	$	(5,438	)	$	6,750		$	(955	)	$	14,700

Note 5.  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 skilled nursing facilities.  Our rehabilitation hospital segment provides inpatient medical rehabilitation services at two hospital locations and three satellite locations and outpatient medical rehabilitation services at 18 affiliated 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 liability insurance programs and are located outside the United States in Bermuda and the Cayman Islands.

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

Our revenues by segment, and a reconciliation of segment operating profit to income (loss) from continuing operations before income taxes for the three and nine months ended September 30, 2008 and 2007 are as follows:

	Senior Living Communities			Rehabilitation Hospitals			Corporate and Other (1)			Total
Three months ended September 30, 2008
Revenues	$	241,190		$	23,938		$	16,814		$	281,942
Segment expenses:
Operating expenses	181,932			22,332			17,368			221,632
Rent expense	39,055			2,690			—			41,745
Depreciation and amortization	2,483			314			894			3,691
Total segment expenses	223,470			25,336			18,262			267,068
Segment operating profit (loss)	17,720			(1,398		)	(1,448		)	14,874
General and administrative expenses (2)	—			—			(11,948		)	(11,948		)
Operating income (loss)	17,720			(1,398		)	(13,396		)	2,926
Interest and other income	417			—			654			1,071
Interest expense	(359		)	—			(1,337		)	(1,696		)
Unrealized loss on investments in trading securities	—			—			(1,733		)	(1,733		)
Impairment on investments in available for sale securities	(3,019		)	—			—			(3,019		)
Gain on extinguishment of debt	743			—			—			743
Provision for income taxes	—			—			90			90
Income (loss) from continuing operations	$	15,502		$	(1,398	)	$	(15,722	)	$	(1,618	)
Total Assets as of September 30, 2008	$	262,762		$	19,574		$	107,184		$	389,520

5

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

	Senior Living Communities			Rehabilitation Hospitals			Corporate and Other (1)			Total
Three months ended September 30, 2007
Revenues	$	203,656		$	25,361		$	15,581		$	244,598
Segment expenses:
Operating expenses	151,647			22,588			14,722			188,957
Rent expense	29,943			2,564			—			32,507
Depreciation and amortization	2,405			294			852			3,551
Total segment expenses	183,995			25,446			15,574			225,015
Segment operating profit (loss)	19,661			(85		)	7			19,583
General and administrative expenses (2)	—			—			(10,757		)	(10,757		)
Operating profit (loss)	19,661			(85		)	(10,750		)	8,826
Interest and other income	463			—			1,048			1,511
Interest expense	(279		)	—			(1,185		)	(1,464		)
Provision for income taxes	—			—			(277		)	(277		)
Income (loss) from continuing operations	$	19,845		$	(85	)	$	(11,164	)	$	8,596
Total Assets as of September 30, 2007	$	231,384		$	21,845		$	108,866		$	362,095

Nine months ended September 30, 2008
Revenues	$	686,559		$	73,103		$	52,301		$	811,963
Segment expenses:
Operating expenses	514,910			67,539			50,918			633,367
Rent expense	108,443			8,021			—			116,464
Depreciation and amortization	7,370			931			2,672			10,973
Total segment expenses	630,723			76,491			53,590			760,804
Segment operating profit (loss)	55,836			(3,388		)	(1,289		)	51,159
General and administrative expenses (2)	—			—			(34,803		)	(34,803		)
Operating income (loss)	55,836			(3,388		)	(36,092		)	16,356
Interest and other income	2,194			—			2,673			4,867
Interest expense	(992		)	—			(3,898		)	(4,890		)
Unrealized loss on investments in trading securities	—			—			(6,099		)	(6,099		)
Impairment on investments in available for sale securities	(3,019		)	—			—			(3,019		)
Gain on extinguishment of debt	743			—			—			743
Provision for income taxes	—			—			(920		)	(920		)
Income (loss) from continuing operations	$	54,762		$	(3,388	)	$	(44,336	)	$	7,038

6

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Nine months ended September 30, 2007
Revenues	$	601,319		$	76,711		$	43,734		$	721,764
Segment expenses:
Operating expenses	455,896			69,585			41,835			567,316
Rent expense	89,042			7,695			—			96,737
Depreciation and amortization	6,926			787			2,227			9,940
Total segment expenses	551,864			78,067			44,062			673,993
Segment operating profit (loss)	49,455			(1,356		)	(328		)	47,771
General and administrative expenses (2)	—			—			(31,703		)	(31,703		)
Operating income (loss)	49,455			(1,356		)	(32,031		)	16,068
Interest and other income	1,244			—			3,099			4,343
Interest expense	(935		)	—			(3,984		)	(4,919		)
Gain on extinguishment of debt	4,491			—			—			4,491
Provision for income taxes	—			—			(760		)	(760		)
Income (loss) from continuing operations	$	54,255		$	(1,356	)	$	(33,676	)	$	19,223

(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 supporting home office activities.

Note 6.  Income Taxes

Because we have previously reported losses, we do not currently recognize the benefit of all of our deferred tax assets, including 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 adjustments by the Internal Revenue Service.

For the nine months ended September 30, 2008, we recognized tax expenses of $920, which include (i) a tax benefit of $351 related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes, (ii) $1,088 of state taxes that are payable without regard to our tax loss carry forwards, and (iii) $183 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes.  We may recognize this deferred tax liability as a reduction in the income tax provision if, in some future period, we expense the related items of goodwill for book purposes as the result of its sale, other disposition or impairment.

Note 7.  Income (Loss) Per Share

Basic income (loss) per share for the periods ended September 30, 2008 and 2007 are computed using the weighted average number of shares outstanding during those periods.  Diluted income per share for the nine months ended September 30, 2008 reflect 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 the assumed issuance upon conversion of our 3.75% convertible senior notes, or the Notes (See Note 11).  The following table provides a reconciliation of both income (loss) and the number of common shares, in thousands, used in the computations of diluted income (loss) per share.  The effect of conversion of our Notes on income (loss) from continuing and discontinued operations per share is anti-dilutive for the three and nine months ended September 30, 2008.  The effect of conversion of our Notes on income (loss) from continuing operations per share also is anti-dilutive for the three and nine months ended September 30, 2007.

7

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,
	2008							2007
	Income (loss)			Shares (in 000’s)	Per Share			Income (loss)			Shares (in 000’s)	Per Share
Income (loss) from continuing operations	$	(1,618	)	31,845	$	(0.05	)	$	8,596		31,705	$	0.27
Conversion of the Notes	—			—				1,238			9,731
Diluted income (loss) from continuing operations	$	(1,618	)	31,845	$	(0.05	)	$	9,834		41,436	$	0.24
Diluted loss from discontinued operations	$	(632	)	31,845	$	(0.02	)	$	(835	)	41,436	$	(0.02	)

	Nine months Ended September 30,
	2008							2007
	Income (loss)			Shares (in 000’s)	Per Share			Income (loss)			Shares (in 000’s)	Per Share
Income from continuing operations	$	7,038		31,832	$	0.22		$	19,223		31,694	$	0.61
Conversion of the Notes								3,719			9,731
Diluted income from continuing operations	$	7,038		31,832	$	0.22		$	22,942		41,425	$	0.55
Diluted loss from discontinued operations	$	(4,182	)	31,832	$	(0.13	)	$	(2,619	)	41,425	$	(0.06	)

Note 8.  Fair Values of Assets and Liabilities

As required, we adopted SFAS 157 effective January 1, 2008 for assets and liabilities we measure on a recurring basis.  Although the adoption of SFAS 157 did not materially impact our financial condition, results of operations, or cash flow, we are now required to provide additional disclosures as part of our financial statements.  We measure fair value at the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS 157 prioritizes the assumptions that market participants would use in pricing the asset or liability, or the inputs, into three broad levels.  This fair value hierarchy gives the highest priority, or Level 1, to quoted prices in active markets for identical assets or liabilities and the lowest priority, or Level 3, to assumptions that are unobservable.  Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2.  Level 3 inputs are those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, based on what we believe is the best information available in the circumstances.  Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.  These unobservable inputs are only utilized to the extent that observable inputs are not available, or which we believe are not available without expenditures that we have determined not to incur.

The table below presents the assets and liabilities measured at fair value on a recurring basis at September 30, 2008 categorized by the level of inputs used in the valuation of each asset.

8

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

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)	$	26,798	$	26,798	$	—	$	—
Investments in trading securities (2)	68,751		—		—		68,751
Investments in available for sale securities (3)	16,482		16,482		—		—
Total assets	$	112,031	$	43,280	$	—	$	68,751

(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 1 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 auction rate securities, 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 auction rate securities failed during 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 auction rate securities at fair value utilizing Level 3 inputs.  We measured the fair value of these securities by reference to a statement provided by our broker 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 discount rate.  The analysis also included a comparison, when possible, to other observable market data with characteristics similar to our auction rate securities.  We reviewed the components of, and calculations made under, our broker’s model.  Due to the declines in fair value for our auction rate securities during the nine months ended September 30, 2008, we have recorded an unrealized loss of $6,099.

On March 31, 2008, we reclassified our auction rate securities 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 of preferred securities and variable rate demand obligations and are reported in our balance sheet as current investments in available for sale securities of $7,141, current restricted investments of $2,472 and long term restricted investments of $6,869.  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 three months ended September 30, 2008, we have recorded an other than temporary loss of $3,019, due to several notable bankruptcies and government actions involving the companies that issued the securities we hold.

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 during the three and nine months ended September 30, 2008:

	Investments in trading securities
Balance at January 1, 2008	$	—
Transfers into Level 3	74,850
Change in value recognized in earnings	(3,270		)
Balance at March 31, 2008	71,580
Change in value recognized in earnings	(1,096		)
Balance at June 30, 2008	70,484
Transfers into Level 3	—
Change in value recognized in earnings	(1,733		)
Balance at September 30, 2008	$	68,751

9

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 9.  Line of Credit

We have a $40,000 revolving bank credit facility for general business purposes, including acquisitions and working capital, which is currently scheduled to expire in May 2009. 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.  The facility contains covenants requiring us to maintain collateral, minimum net worth and certain other financial ratios; 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 amount which we may borrow under this credit facility may be increased to $80,000.  The termination date of this facility 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 September 30, 2008 and November 6, 2008, no amounts were outstanding under this credit facility. As of September 30, 2008 and November 6, 2008, we believe we were and are in compliance with all applicable covenants under this credit facility.  Interest expense and other associated costs related to this facility were $85 and $0 for the three months ended September 30, 2008 and 2007, respectively, and $168 and $318 for the nine months ended September 30, 2008 and 2007, respectively.

Note 10.  Mortgages Payable

At September 30, 2008, three of our communities were encumbered by United States Department of Housing and Urban Development, or HUD, insured mortgages totaling $12,625.  The weighted average interest rate on these loans was 6.2%.  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.

In September 2008, we prepaid two HUD mortgages that were secured by one of our senior living communities.  We paid $2,393 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 in connection with this early extinguishment of debt.  Mortgage interest expense, including premium amortization, was $245 and $226 for the three months ended September 30, 2008 and 2007, respectively, and $724 and $882 for the nine months ended September 30, 2008 and 2007, respectively.

Note 11. Convertible Senior Notes due 2026

In October 2006, we issued $126,500 principal amount of Convertible Senior Notes due in 2026.  Our net proceeds from this offering were approximately $122,600.  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 principal amount of notes, which represents an initial conversion price of $13.00 per share.  Interest expense and other associated costs on the notes were $1,252 and $1,238 for the three months ended September 30, 2008 and 2007, respectively, and $3,730 and $3,719 for the nine months ended September 30, 2008 and 2007, respectively.  The Notes are guaranteed by certain of our domestic wholly owned subsidiaries (see Note 14).  These Notes 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, October 15, 2016 and October 15, 2021.  We issued these Notes pursuant to an indenture which contains various customary covenants.  As of September 30, 2008 and November 6, 2008, we believe we are in compliance with all applicable covenants of this indenture.

Note 12. Related Person Transactions

We lease 180 of our 202 senior living communities and the two rehabilitation hospitals that we operated on September 30, 2008 from Senior Housing for total annual minimum rent of $168,188.  In addition to the minimum rent, we paid $794 and $877 in percentage rent to Senior Housing for the three months ended September 30, 2008 and 2007, respectively, and $2,691 and $1,896 for the nine months ended September 30, 2008 and 2007, respectively.

Included in the 180 communities we lease from Senior Housing are 19 senior living communities with 1,743 units which Senior Housing acquired and we began to operate during the first quarter of 2008.  Twenty-one of these communities are assisted living communities (one of which offers some skilled nursing services and one of which

10

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

offers some independent living services) and one is a continuing care retirement community which offers independent living, assisted living and skilled nursing services.  Our rent payable to Senior Housing for these 19 communities is $21,790 per year, plus future increases calculated as a percentage of the revenue increases for all of these communities after 2009.  We added nine of these communities to one of our existing leases with Senior Housing which has a term ending in 2022, with renewal options thereafter.  We added the remaining 10 of these communities to another existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.

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.  Rent expense for future sales of property improvements 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.

Included in the 180 senior living communities we lease from Senior Housing are seven assisted living communities located in Pennsylvania and New Jersey that were previously operated by NewSeasons Assisted Living Communities, Inc., or “NewSeasons”, under leases from Senior Housing.  We began to lease these communities in July, 2008.  In consideration of our lease assumption, NewSeasons paid us $10,000 and transferred title to certain personal property located at the communities.  We have recorded this lease concession as a deferred credit on our balance sheet, which will be amortized as a reduction or rent expense over the remaining lease term.  Simultaneously with our leasing these seven communities from Senior Housing, we purchased three other NewSeasons communities from Senior Housing with 278 units located in Pennsylvania and New Jersey for $21,350.  We allocated the purchase price of these communities to land, building and equipment.  The purchase price of these properties was equal to the seller’s net book value which reflected the fair market value of these properties, based on appraisals by an independent appraiser.  The remaining seven communities with 716 units are leased from Senior Housing for annual rent of approximately $7,600 per year.  These ten communities complement our business strategy of focusing our operations in high quality senior living assets where residents pay for our services with private resources.  All of the revenues of these communities come from residents’ private resources.

On August 1, 2008, we leased from Senior Housing two assisted living communities with a total of 112 living units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for these two communities is $1,200 per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added these communities to our existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.  In addition, we purchased land adjacent to one of these communities for $890 for future development.

On September 1, 2008, we leased from Senior Housing eight independent living communities with a total of 451 living units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for these eight communities is $4,981 per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added these communities to our existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.

During the nine months ended September 30, 2008, as permitted by our leases with Senior Housing, we sold to Senior Housing, at cost, $42,061 of improvements made to properties leased from Senior Housing, and our annual rent payable to Senior Housing increased by $3,620.

Note 13.  Discontinued Operations

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 minimum rent payable to Senior Housing will decrease by 9.5% of the net proceeds of the sale to Senior Housing, in accordance with the terms of our lease with Senior Housing.  In December 2007, we decided to sell one institutional pharmacy located in California and our mail order pharmacy located in Nebraska.  As of September 30, 2008, we have disposed of substantially all of our assets and liabilities related to the assisted living communities which we expect to sell.  The assets and liabilities related to the two pharmacies that we expect to sell are presented separately in the consolidated balance sheet.  We have reclassified

11

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

the consolidated statement of income 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 three and nine months ended September 30, 2008 and 2007:

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
Revenues	$	2,866		$	3,276		$	8,860		$	9,815
Expenses	(3,498		)	(4,111		)	(13,042		)	(12,434		)
Net loss	$	(632	)	$	(835	)	$	(4,182	)	$	(2,619	)

Note 14.   Guarantor Financial Information

Our Notes are guaranteed by certain of our domestic wholly owned subsidiaries.  These guarantees are full, unconditional and joint and several.  Condensed consolidating financial information related to us, our guarantor subsidiaries and our non-guarantor subsidiaries for all periods presented are stated below:

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2008

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Revenues:
Senior living revenue	$	—		$	88,374		$	152,816		$	—	$	241,190
Hospital revenue	—			—			23,938			—		23,938
Pharmacy revenue	—			—			16,814			—		16,814
Total revenues	—			88,374			193,568			—		281,942
Operating expenses:
Senior living wages and benefits	—			38,383			82,321			—		120,704
Other senior living operating expenses	—			22,991			38,237			—		61,228
Hospital expenses	—			—			22,332			—		22,332
Pharmacy expenses	—			—			17,368			—		17,368
Rent expense	—			17,457			24,288			—		41,745
General and administrative expenses	—			—			11,948			—		11,948
Depreciation and amortization	—			1,135			2,556			—		3,691
Total operating expenses	—			79,966			199,050			—		279,016
Operating income	—			8,408			(5,482		)	—		2,926
Interest and other income	—			—			1,071			—		1,071
Interest expense	—			—			(1,696		)	—		(1,696		)
Unrealized loss on investments in trading securities	—			—			(1,733		)	—		(1,733		)
Impairment on investments in available for sale securities	—			—			(3,019		)	—		(3,019		)
Gain on extinguishment of debt	—			—			743			—		743
Equity in earnings of subsidiaries	(2,250		)	—			—			2,250		—
Income (loss) from continuing operations before income taxes	(2,250		)	8,408			(10,116		)	2,250		(1,708		)
Provision for income taxes	—			(10		)	100			—		90
Income (loss) from continuing operations	(2,250		)	8,398			(10,016		)	2,250		(1,618		)
Loss from discontinued operations	—			—			(632		)	—		(632		)
Net income (loss)	$	(2,250	)	$	8,398		$	(10,648	)	$	2,250	$	(2,250	)

12

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2007

	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Senior living revenue	$	—	$	85,678	$	117,978		$	—		$	203,656
Hospital revenue	—		—		25,361			—			25,361
Pharmacy revenue	—		—		15,581			—			15,581
Total revenues	—		85,678		158,920			—			244,598
Operating expenses:
Senior living wages and benefits	—		36,402		64,257			—			100,659
Other senior living operating expenses	—		25,119		25,869			—			50,988
Hospital expenses	—		—		22,588			—			22,588
Pharmacy expenses	—		—		14,722			—			14,722
Rent expense	—		16,802		15,705			—			32,507
General and administrative expenses	—		—		10,757			—			10,757
Depreciation and amortization	—		1,200		2,351			—			3,551
Total operating expenses	—		79,523		156,249			—			235,772
Operating income	—		6,155		2,671			—			8,826
Interest and other income	—		3		1,508			—			1,511
Interest expense	—		—		(1,464		)	—			(1,464		)
Equity in earnings of subsidiaries	7,761		—		—			(7,761		)	—
Income from continuing operations before income taxes	7,761		6,158		2,715			(7,761		)	8,873
Provision for income taxes	—		—		(277		)	—			(277		)
Income from continuing operations	7,761		6,158		2,438			(7,761		)	8,596
Loss from discontinued operations	—		—		(835		)	—			(835		)
Net income	$	7,761	$	6,158	$	1,603		$	(7,761	)	$	7,761

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2008

	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Senior living revenue	$	—	$	264,363		$	422,196		$	—		$	686,559
Hospital revenue	—		—			73,103			—			73,103
Pharmacy revenue	—		—			52,301			—			52,301
Total revenues	—		264,363			547,600			—			811,963
Operating expenses:
Senior living wages and benefits	—		113,729			227,864			—			341,593
Other senior living operating expenses	—		66,682			106,635			—			173,317
Hospital expenses	—		—			67,539			—			67,539
Pharmacy expenses	—		—			50,918			—			50,918
Rent expense	—		52,035			64,429			—			116,464
General and administrative expenses	—		—			34,803			—			34,803
Depreciation and amortization	—		3,556			7,417			—			10,973
Total operating expenses	—		236,002			559,605			—			795,607
Operating income (loss)	—		28,361			(12,005		)	—			16,356
Interest and other income	—		7			4,860			—			4,867
Interest expense	—		—			(4,890		)	—			(4,890		)
Unrealized loss on investments in trading securities	—		—			(6,099		)	—			(6,099		)
Impairment on investments in available for sale securities	—		—			(3,019		)	—			(3,019		)
Gain on extinguishment of debt	—		—			743			—			743
Equity in earnings of subsidiaries	2,856		—			—			(2,856		)	—
Income (loss) from continuing operations before income taxes	2,856		28,368			(20,410		)	(2,856		)	7,958
Provision for income taxes	—		(16		)	(904		)	—			(920		)
Income (loss) from continuing operations	2,856		28,352			(21,314		)	(2,856		)	7,038
Loss from discontinued operations	—		—			(4,182		)	—			(4,182		)
Net income (loss)	$	2,856	$	28,352		$	(25,496	)	$	(2,856	)	$	2,856

13

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2007

	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Senior living revenue	$	—	$	254,704		$	346,615		$	—		$	601,319
Hospital revenue	—		—			76,711			—			76,711
Pharmacy revenue	—		—			43,734			—			43,734
Total revenues	—		254,704			467,060			—			721,764
Operating expenses:
Senior living wages and benefits	—		113,373			193,124			—			306,497
Other senior living operating expenses	—		75,605			73,794			—			149,399
Hospital expenses	—		—			69,585			—			69,585
Pharmacy expenses	—		—			41,835			—			41,835
Rent expense	—		50,039			46,698			—			96,737
General and administrative expenses	—		—			31,703			—			31,703
Depreciation and amortization	—		3,572			6,368			—			9,940
Total operating expenses	—		242,589			463,107			—			705,696
Operating income	—		12,115			3,953			—			16,068
Interest and other income	—		(5		)	4,348			—			4,343
Interest expense	—		—			(4,919		)	—			(4,919		)
Gain on extinguishment of debt	—		—			4,491			—			4,491
Equity in earnings of subsidiaries	16,604		—			—			(16,604		)	—
Income from continuing operations before income taxes	16,604		12,110			7,873			(16,604		)	19,983
Provision for income taxes	—		—			(760		)	—			(760		)
Income from continuing operations	16,604		12,110			7,113			(16,604		)	19,223
Loss from discontinued operations	—		—			(2,619		)	—			(2,619		)
Net income	$	16,604	$	12,110		$	4,494		$	(16,604	)	$	16,604

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2008

	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	7,613	$	32,359	$	—		$	39,972
Accounts receivable, net	—		424		57,611		—			58,035
Restricted cash and investments	—		2,844		3,732		—			6,576
Investment securities	—		—		7,141		—			7,141
Prepaid expenses and other current assets	—		2,339		15,341		—			17,680
Assets of discontinued operations	—		—		2,020		—			2,020
Total current assets	—		13,220		118,204		—			131,424
Property and equipment, net	—		26,345		125,702		—			152,047
Investment in subsidiary and long term receivable from (to) subsidiaries	200		—		200		(400		)	—
Restricted cash and investments	—		—		10,053		—			10,053
Investments in trading securities	—		—		68,751		—			68,751
Intercompany	229,385		—		—		(229,385		)	—
Goodwill and other intangible assets	—		—		22,505		—			22,505
Other long term assets	—		—		4,740		—			4,740
	$	229,585	$	39,565	$	350,155	$	(229,785	)	$	389,520
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other current liabilities	$	—	$	22,134	$	105,212	$	—		$	127,346
Mortgage notes payable	—		—		146		—			146
Total current liabilities	—		22,134		105,358		—			127,492
Long term liabilities:
Mortgage notes payable	—		—		12,479		—			12,479
Convertible senior notes	—		—		126,500		—			126,500
Notes payable to related parties	200		—		—		(200		)	—
Other long term liabilities	—		11,306		25,539		—			36,845
Total long term liabilities	200		11,306		164,518		(200		)	175,824
Total shareholders’ equity	229,385		6,125		80,279		(229,585		)	86,204
	$	229,585	$	39,565	$	350,155	$	(229,785	)	$	389,520

14

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

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
Investments	—		—		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	—		28,874		102,831		—			131,705
Investment in subsidiary and long term receivable from (to) subsidiaries	200		—		200		(400		)	—
Intercompany	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

15

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2008

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	2,856		$	28,352		$	(25,496	)	$	(2,856	)	$	2,856
Undistributed equity in earnings of subsidiaries	(2,856		)	—			—			2,856			—
Adjustments to reconcile net income to cash provided by (used in) operating activities, net	—			(24,711		)	66,642			—			41,931
Net cash provided by (used in) operating activities	—			3,641			41,146			—			44,787
Net cash used in discontinued operations	—			—			(1,016		)	—			(1,016		)
Cash flows from investing activities:
Acquisition of property and equipment	—			(21,433		)	(50,206		)	—			(71,639		)
Proceeds from disposition of property and equipment	—			20,421			21,640			—			42,061
Other, net	—			(438		)	(2,140		)	—			(2,578		)
Net cash used in investing activities	—			(1,450		)	(30,706		)	—			(32,156		)
Cash flows from financing activities:
Change in borrowings, net	—			—			(2,642		)	—			(2,642		)
Net cash used in financing activities	—			—			(2,642		)	—			(2,642		)
Change in cash and cash equivalents	—			2,191			6,782			—			8,973
Cash and cash equivalents at beginning of period	—			5,422			25,577			—			30,999
Cash and cash equivalents at end of period	$	—		$	7,613		$	32,359		$	—		$	39,972

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2007

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities
Net income	$	16,604		$	12,110		$	4,494		$	(16,604	)	$	16,604
Undistributed equity in earnings of subsidiaries	(16,604		)	—			—			16,604			—
Adjustments to reconcile net income to cash provided by (used in) operating activities, net	—			(9,994		)	19,625			—			9,631
Net cash provided by (used in) operating activities	—			2,116			24,119			—			26,235
Net cash used in discontinued operations	—			—			(2,535		)	—			(2,535		)
Cash flows from investing activities:
Acquisition of property and equipment	—			(20,365		)	(35,763		)	—			(56,128		)
Proceeds from disposition of property and equipment	—			10,354			22,723			—			33,077
Other, net	—			3,497			(1,740		)	—			1,757
Net cash used in investing activities	—			(6,514		)	(14,780		)	—			(21,294		)
Cash flows from financing activities:
Change in borrowings, net	—			—			(28,772		)	—			(28,772		)
Net cash used in financing activities	—			—			(28,772		)	—			(28,772		)
Change in cash and cash equivalents	—			(4,398		)	(21,968		)	—			(26,366		)
Cash and cash equivalents at beginning of period	—			8,065			38,176			—			46,241
Cash and cash equivalents at end of period	$	—		$	3,667		$	16,208		$	—		$	19,875

16

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 15.   Subsequent Events

On October 7, 2008, UBS provided us with a prospectus and offer pursuant to a settlement it had entered into with various Federal and state governmental entities requiring that it offer to repurchase the auction rate securities which it had previously marketed to us.  Under the terms of this settlement offer, UBS will repurchase, at par, our investments in auction rate securities at our request, between the periods of June 30, 2010 and July 2, 2012, or upon their call. UBS has also agreed to provide us with liquidity under a “no net cost” loan program which provides for, among other things, borrowing up to 75% of the market value of our auction rate securities.  Acceptance of this offer also requires us to release all claims we may have against UBS arising from their marketing the auction rate securities to us.  We are currently evaluating this offer and discussing with UBS alternative arrangements affecting our auction rate securities.  The UBS offer expires on November 14, 2008.

On October 10, 2008, we executed an agreement with certain affiliates of Sunwest Management, Inc. to acquire seven independent living, assisted living and Alzheimer’s care communities with a total of 624 living units for a purchase price of approximately $44,000.  These communities are located in North and South Carolina.  The sellers are in bankruptcy and our agreement is subject to an auction process and bankruptcy court approval.  If the properties are sold to another bidder, we are entitled to a breakup fee in the amount of $500.  If we are successful at this auction and our purchase is approved by the bankruptcy court, we expect to close this acquisition in the fourth quarter of the 2008. This closing is subject to various closing conditions (including licensing approvals) and there can be no assurances that we will close this acquisition.  We intend to fund this purchase with cash on hand and drawings on our existing bank credit facility or the UBS credit facility which may be available to us in connection with our investments in auction rate securities.

On November 1, 2008, we leased from Senior Housing a continuing care retirement community with a total of 249 independent living and skilled nursing units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for this community is $2,400 per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added this community to our existing lease with Senior Housing which has a term ending 2024, with renewal options thereafter.  In addition, we purchased land adjacent to this community for $3,000 for future development.

17

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

RESULTS OF OPERATIONS

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, congregate care and assisted living communities and skilled nursing facilities.  Our rehabilitation hospital segment provides inpatient medical rehabilitation services at our two hospital locations and three satellite locations and outpatient medical rehabilitation services at 18 affiliated outpatient clinics.  We do not consider our pharmacy operations to be a significant, 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 liability insurance programs and are located outside the United States in Bermuda and the Cayman Islands.

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

Key Statistical Data (for the three months ended September 30, 2008 and 2007):

The following tables present a summary of our operations for the three months ended September 30, 2008 and 2007:

Senior living communities:

	Three months ended September 30,
(in thousands, except average daily rate)	2008			2007			$ Change			% Change
Senior living revenue	$	241,190		$	203,656		$	37,534		18.4	%
Senior living wages and benefits	(120,704		)	(100,659		)	(20,045		)	19.9	%
Other senior living operating expenses	(61,228		)	(50,988		)	(10,240		)	20.1	%
Rent expense	(39,055		)	(29,943		)	(9,112		)	30.4	%
Depreciation and amortization	(2,483		)	(2,405		)	(78		)	3.2	%
Interest expense	(359		)	(279		)	(80		)	28.7	%
Interest and other income	417			463			(46		)	(9.9	)%
Gain on extinguishment of debt	743			—			743			n/a
Impairment on investments in available for sale securities	(3,019		)	—			(3,019		)	n/a
Senior living income from continuing operations	15,502			19,845			(4,343		)	(21.9	)%
No. of communities (end of period)	202			163			39			23.9	%
No. of living units (end of period)	21,340			18,084			3,256			18.0	%
Occupancy %	88.2		%	90.4		%	n/a			(2.2	)%
Average daily rate	$	142.77		$	136.75		$	6.02		4.4	%
Percent of senior living revenue from Medicare	13.8		%	15.0		%	n/a			(1.2	)%
Percent of senior living revenue from Medicaid	16.7		%	18.5		%	n/a			(1.8	)%
Percent of senior living revenue from private and other sources	69.5		%	66.5		%	n/a			3.0	%

Comparable communities (senior living communities that we have operated continuously since July 1, 2007):

	Three months ended September 30,
(in thousands, except average daily rates)	2008			2007			$ Change			% Change
Senior living revenue	$	209,464		$	203,656		$	5,808		2.9	%
Senior living community expenses	(160,052		)	(151,647		)	(8,405		)	5.5	%
No. of communities (end of period)	163			163			—			—
No. of living units (end of period)	18,041			18,041			—			—
Occupancy %	88.5		%	90.4		%	—			(1.9	)%
Average daily rate	$	144.03		$	136.75		$	7.28		5.3	%
Percent of senior living revenue from Medicare	15.5		%	15.0		%	n/a			0.5	%
Percent of senior living revenue from Medicaid	18.3		%	18.5		%	n/a			(0.2	)%
Percent of senior living revenue from private and other sources	66.2		%	66.5		%	n/a			(0.3	)%

18

Rehabilitation hospitals:

	Three months ended September 30,
(in thousands)	2008			2007			$ Change			% Change
Hospital revenues	$	23,938		$	25,361		$	(1,423	)	(5.6	)%
Hospital expenses	(22,332		)	(22,588		)	256			(1.1	)%
Rent expense	(2,690		)	(2,564		)	(126		)	4.9	%
Depreciation and amortization	(314		)	(294		)	(20		)	6.8	%
Hospital loss from continuing operations	(1,398		)	(85		)	(1,313		)	1,544.7	%

Corporate and Other (1):

	Three months ended September 30,
(in thousands)	2008			2007			$ Change			% Change
Pharmacy revenue	$	16,814		$	15,581		$	1,233		7.9	%
Pharmacy expenses	(17,368		)	(14,722		)	(2,646		)	18.0	%
Depreciation and amortization	(894		)	(852		)	(42		)	4.9	%
General and administrative (2)	(11,948		)	(10,757		)	(1,191		)	11.1	%
Unrealized loss on investments in trading securities	(1,733		)	—			(1,733		)	n/a
Interest and other income	654			1,048			(394		)	(37.6	)%
Interest expense	(1,337		)	(1,185		)	(152		)	12.8	%
Provision for income taxes	90			(277		)	367			(132.5	)%
Corporate and Other loss from continuing operations	(15,722		)	(11,164		)	(4,558		)	40.8	%

(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 supporting home office activities.

Consolidated:

	Three months ended September 30,
(in thousands)	2008			2007			$ Change			% Change
Summary of revenue:
Senior living revenue	$	241,190		$	203,656		$	37,534		18.4	%
Hospital revenue	23,938			25,361			(1,423		)	(5.6	)%
Corporate and Other	16,814			15,581			1,223			7.9	%
Total revenue	281,942			244,598			37,344			15.3	%
Summary of income from continuing operations:
Senior living communities	15,502			19,845			(4,343		)	(21.9	)%
Rehabilitation hospitals	(1,398		)	(85		)	(1,313		)	1,544.7	%
Corporate and Other	(15,722		)	(11,164		)	(4,558		)	40.8	%
Income (loss) from continuing operations	(1,618		)	8,596			(10,214		)	(118.8	)%

Three Months Ended September 30, 2008, Compared To Three Months Ended September 30, 2007

Senior living communities:

The 18.4% increase in senior living revenue for the three months ended September 30, 2008 was due primarily to revenues from the 39 communities we began to operate in the first nine months of 2008 and increased per diem charges, partially offset by a decrease in occupancy.  The 2.9% increase in senior living revenue at the communities

19

that we have operated continuously since July 1, 2007 was due primarily to increased per diem charges, partially offset by a decrease in occupancy.

The 19.9% increase in senior living wages and benefits costs for the three months ended September 30, 2008 was primarily due to wages and benefits from the 39 communities we began to operate in the first nine months of 2008 and wage increases.  The 20.1% increase in other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, primarily resulted from the other operating expenses at the 39 communities we began to operate in the first nine months of 2008.  The senior living community expenses for the senior living communities that we have operated continuously since July 1, 2007 have increased by 5.5%, principally due to increases in workers compensation, therapy services and utility expenses.  The 30.4% rent expense increase was due to the 36 leased communities that we began to operate in the first nine months of 2008 and our payment of additional rent for senior living community capital improvements purchased by Senior Housing since July 1, 2007.

The 3.2% increase in depreciation and amortization expense for the three months ended September 30, 2008 was primarily attributable to our purchase of furniture and fixtures for our communities.

During the three months ended September 30, 2008, we recognized an other than temporary loss of $3.0 million on investments in available for sale securities held by our captive insurance companies.

Rehabilitation hospitals:

The 5.6% decrease in hospital revenues for the three months ended September 30, 2008 was primarily due to Medicare reimbursement rates as well as the closing of several unprofitable outpatient clinics offset by an increase in census.  The 1.1% decrease in hospital expenses for the three months ended September 30, 2008 was primarily due to reductions in labor and benefit expenses and the closing of several unprofitable outpatient clinics.

The 4.9% rent expense increase for the three months ended September 30, 2008 was due to our payment of additional rent for hospital capital improvements purchased by Senior Housing since July 1, 2007.

The 6.8% increase in depreciation and amortization expense for the three months ended September 30, 2008 was primarily attributable to our purchase of information technology systems for our rehabilitation hospitals.

Corporate and other:

The 7.9% increase in pharmacy revenues and the 18.0% increase in pharmacy expenses for the three months ended September 30, 2008, was primarily the result of adding new customers from both our existing senior living and third party operated communities. The increase in pharmacy revenues was partially offset by the establishment of a contractual allowance reserve of $993,000.  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 11.1% increase in general and administrative expenses for the three months ended September 30, 2008 over the same period in 2007 arose primarily from the 39 communities we began to operate in 2008.

The 4.9% increase in depreciation and amortization expense for the three months ended September 30, 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 three months ended September 30, 2008, we recognized an unrealized loss of $1.8 million on investments in trading securities related to our holdings of auction rate securities.

Our interest and other income decreased by $394,000, or 37.6%, for the three months ended September 30, 2008, compared to the three months ended September 30, 2007, primarily as a result of lower interest rates earned on our investments.

For the three months ended September 30, 2008, we recognized a tax benefit of $90,000, which includes a tax benefit of $601,000 to account for the application of tax credits that offset alternative minimum taxes, and $451,000 of certain state taxes that are payable without regard to our tax loss carry forwards.  The tax benefit also includes

20

$60,000 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes.

Key Statistical Data (for the nine months ended September 30, 2008 and 2007):

The following tables present a summary of our operations for the nine months ended September 30, 2008 and 2007:

Senior living communities:

	Nine months ended September 30,
(in thousands, except average daily rates)	2008			2007			$ Change			% Change
Senior living revenue	$	686,559		$	601,319		$	85,240		14.2	%
Senior living wages and benefits	(341,593		)	(306,497		)	(35,096		)	11.5	%
Other senior living operating expenses	(173,317		)	(149,399		)	(23,918		)	16.0	%
Rent expense	(108,443		)	(89,042		)	(19,401		)	21.8	%
Depreciation and amortization	(7,370		)	(6,926		)	(444		)	6.4	%
Interest expense	(992		)	(935		)	(57		)	6.1	%
Interest and other income	2,194			1,244			950			76.4	%
Impairment on investments in available for sale securities	(3,019		)	—			(3,019		)	n/a
Gain on extinguishment of debt	743			4,491			(3,748		)	(83.5	)%
Senior living income from continuing operations	54,762			54,255			507			0.9	%
No. of communities (end of period)	202			163			39			23.9	%
No. of living units (end of period)	21,340			18,084			3,256			18.0	%
Occupancy %	88.9		%	90.4		%	n/a			(1.5	)%
Average daily rate	$	143.07		$	136.25		$	6.82		5.0	%
Percent of net revenues from residents from Medicare	15.0		%	15.3		%	n/a			(0.3	)%
Percent of net revenues from residents from Medicaid	17.1		%	18.2		%	n/a			(1.1	)%
Percent of net revenues from residents from private and other sources	67.9		%	66.5		%	n/a			(1.4	)%

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

	Nine months ended September 30,
(in thousands, except average daily rates)	2008			2007			$ Change			% Change
Net revenues from residents	$	625,725		$	600,675		$	25,050		4.2	%
Community expenses	(471,879		)	(455,334		)	(16,545		)	3.6	%
No. of communities (end of period)	162			162			—			—
No. of living units (end of period)	17,985			17,985			—			—
Occupancy %	89.1		%	90.4		%	n/a			(1.3	)%
Average daily rate	$	143.95		$	136.25		$	7.70		5.7	%
Percent of net revenues from residents from Medicare	16.1		%	15.3		%	n/a			0.8	%
Percent of net revenues from residents from Medicaid	18.0		%	18.2		%	n/a			(0.2	)%
Percent of net revenues from residents from private and other sources	65.9		%	66.5		%	n/a			(0.6	)%

Rehabilitation hospitals:

	Nine months ended September 30,
(in thousands)	2008			2007			$ Change			% Change
Hospital revenues	$	73,103		$	76,711		$	(3,608	)	(4.7	)%
Hospital expenses	(67,539		)	(69,585		)	2,046			(2.9	)%
Rent expense	(8,021		)	(7,695		)	(326		)	4.2	%
Depreciation and amortization	(931		)	(787		)	(144		)	18.3	%
Hospital loss from continuing operations	(3,388		)	(1,356		)	(2,032		)	149.9	%

21

Corporate and Other (1):

	Nine months ended September 30,
(in thousands)	2008			2007			$ Change			% Change
Pharmacy revenue	$	52,301		$	43,734		$	8,567		19.6	%
Pharmacy expenses	(50,918		)	(41,835		)	(9,083		)	21.7	%
Depreciation and amortization	(2,672		)	(2,227		)	(445		)	20.0	%
General and administrative (2)	(34,803		)	(31,703		)	(3,100		)	9.8	%
Unrealized loss on investments in trading securities	(6,099		)	—			(6,099		)	n/a
Interest and other income	2,673			3,099			(426		)	(13.7	)%
Interest expense	(3,898		)	(3,984		)	86			(2.2	)%
Provision for income taxes	(920		)	(760		)	(160		)	21.1	%
Corporate and Other loss from continuing operations	(44,336		)	(33,676		)	(10,660		)	31.7	%

(1) Corporate and Other includes operations that we do not consider a 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 supporting home office activities.

Consolidated:

	Nine months ended September 30,
(in thousands)	2008			2007			$ Change			% Change
Summary of revenue:
Senior living revenue	$	686,559		$	601,319		$	85,240		14.2	%
Hospital revenue	73,103			76,711			(3,608		)	(4.7	)%
Corporate and Other	52,301			43,734			8,567			19.6	%
Total revenue	811,963			721,764			90,199			12.5	%
Summary of income from continuing operations:
Senior living communities	54,762			54,255			507			0.9	%
Rehabilitation hospitals	(3,388		)	(1,356		)	(2,032		)	149.9	%
Corporate and Other	(44,336		)	(33,676		)	(10,660		)	31.7	%
Income (loss) from continuing operations	7,038			19,223			(12,185		)	(63.4	)%

Nine Months Ended September 30, 2008, Compared To Nine Months Ended September 30, 2007

Senior living communities:

The 14.2% increase in senior living revenue for the nine months ended September 30, 2008 was due primarily to revenues from the 39 communities we began to operate in the first nine months of 2008 and increased per diem charges, partially offset by a decrease in occupancy.  The 4.2% 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, partially offset by a decrease in occupancy.

Our 11.5% increase in senior living wages and benefits costs for the nine months ended September 30, 2008 was primarily due to wages and benefits at the 39 communities we began to operate in the first nine months of 2008 and wage increases.  The 16.0% increase in other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, primarily results from the other operating expenses at the 39 communities we began to operate in the first nine months of 2008 and increased charges from various service providers.  The senior living community expenses for the senior living communities that we have operated continuously since January 1, 2007 have increased by 3.6%, due primarily to increases in therapy services and utility expenses.  The 21.8% rent expense increase was due to the addition of 36 leased communities that we began to operate in the first nine months of 2008, our payment of percentage rent and our payment of additional rent for senior living community capital improvements purchased by Senior Housing since January 1, 2007.

22

The 6.4% increase in depreciation and amortization expense for the nine months ended September 30, 2008 was primarily attributable to our purchase of furniture and fixtures for our communities as well as the one community we acquired in April 2007 and three communities we acquired in July 2008.

Our interest and other income increased by $950,000, or 76.4%, for the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, primarily as a result of recognizing an $840,000 gain related to a 2003 sale of a property that was previously deferred until the buyer paid in full our note receivable during the first quarter of 2008.

During the nine months ended September 30, 2008, we recognized an other than temporary loss of $3.0 million on investments in available for sale securities held by our captive insurance companies.

Rehabilitation hospitals:

The 4.7% decrease in hospital revenues for the nine months ended September 30, 2008 was primarily due to lower Medicare reimbursement rates as well as the closing of several unprofitable outpatient clinics offset by an increase in census.  The 2.9% decrease in hospital expenses was primarily due to reductions in labor and benefit expenses and the closing of several unprofitable outpatient clinics.

The 4.2% rent expense increase in the nine months ended September 30, 2008 was due to our payment of additional rent for hospital capital improvements purchased by Senior Housing since January 1, 2007.

The 18.3% increase in depreciation and amortization expense for the nine months ended September 30, 2008 was primarily attributable to our purchase of furniture and fixtures and information technology systems for our rehabilitation hospitals.

Corporate and other:

The 19.6% and 21.7% increase in 2008 revenues and expenses, respectively, from our pharmacies for the nine months ended September 20, 2008 was primarily the result of adding new customers from both our existing senior living and third party communities.  The increase in pharmacy revenues was partially offset by the establishment of a contractual allowance reserve of $993,000.  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 9.8% increase in general and administrative expenses for the nine months ended September 30, 2008 over the same period in 2007 primarily results from the administrative costs associated with the 39 communities we began to operate in the first nine months of 2008.

The 20.0% increase in depreciation and amortization expense for the nine months ended September 30, 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 nine months ended September 30, 2008, we recognized an unrealized loss of $6.2 million on investments in trading securities related to our holdings of auction rate securities.

Our interest and other income decreased by $426,000 or, 13.7%, for the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, primarily as a result of lower cash available for investment and lower interest rates earned on our cash investments.

For the nine months ended September 30, 2008, we incurred tax expense of $920,000, which include (i) a tax benefit of $351,000 related to prior year refunds resulting from the application of tax credits that offset federal alternative minimum taxes, (ii) $1,088,000 of state taxes that are payable without regard to our tax loss carry forwards, and (iii) $183,000 related to a non-cash deferred tax liability arising from the amortization of goodwill for tax purposes but not for book purposes.

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LIQUIDITY AND CAPITAL RESOURCES

Investments

At September 30, 2008, we had $68.8 million (par value of $74.8 million) invested in auction rate securities which we classified as long term investments in trading securities.  Starting in February 2008, auctions affecting our student loan auction rate securities failed to close on their settlement dates.  We do not know if future auctions for our auction rate securities will successfully close on future auction settlement dates.   On March 31, 2008, we moved our auction rate securities from current assets to non-current assets due to our belief that the market for student loan collateralized instruments may take in excess of twelve months to recover.

Our auction rate securities consist primarily of bonds issued by various entities to fund student loans pursuant to the Federal Family Education Loan Program.  The maturities of our auction rate securities range from 2032 to 2047.  However, historically we have had the option to liquidate our investments in our auction rate securities whenever the interest rates are reset at auctions, usually every 35 days.  All of our auction rate securities 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.  We and the broker dealer, who marketed the auction rate securities which we own, are presently monitoring developments in the auction rate securities markets.  Based upon our analysis of impairment factors through September 30, 2008, we have recognized an unrealized loss of $6.1  million on our investments in these securities.

The funds which we invested in auction rate securities were funds we were holding to invest in potential acquisitions or to satisfy longer term self insurance obligations.  Accordingly, these funds are not needed to fund our current operations and we do not expect the failure of auctions affecting our auction rate securities holdings to have a material adverse impact upon our day to day operations.  Nonetheless, the current illiquidity of these investments may mean we are unable to take advantage of acquisitions or other investment opportunities.

On October 7, 2008, UBS provided us with a prospectus and offer pursuant to a settlement it had entered into with various Federal and state governmental entities requiring that it offer to repurchase the auction rate securities which it had previously marketed to us.  Under the terms of this settlement offer, UBS will repurchase, at par, our investments in auction rate securities at our request, between the periods of June 30, 2010 and July 2, 2012, or upon their call. UBS has also agreed to provide us with liquidity under a “no net cost” loan program which provides for, among other things, borrowing up to 75% of the market value of our auction rate securities.  Acceptance of this offer also requires us to release all claims we may have against UBS arising from their marketing the auction rate securities to us.  We are currently evaluating this offer and discussing with UBS alternative arrangements affecting our auction rate securities.  The UBS offer expires on November 14, 2008.

Assets and Liabilities

Our total current assets at September 30, 2008 were $131.4 million, compared to $186.0 million at December 31, 2007.  At September 30, 2008, we had cash and cash equivalents of $40.0 million compared to $31.0 at December 31, 2007.  Our current liabilities were $127.5 million at September 30, 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 auction rate securities from current to long term assets.

Cash provided from continuing operations was $44.8 million for the first nine months of 2008 as compared with $26.2 million for the same period of 2007.  Excluding cash flows associated with our investments in trading securities, cash provided from continuing operations was $56.6 million and $50.7 million for the nine months ended September 30, 2008 and 2007, respectively. Acquisitions of property plant and equipment, on a net basis after considering the proceeds from sales of fixed assets to Senior Housing, were $11.4 million and $23.1 million for the nine month periods ended September 30, 2008 and 2007, respectively.  During the first nine months of 2008 and 2007, as a result of an early repayment of debt, we repaid long term debt of $2.6 million and $28.8 million, respectively.

Potential Acquisition

On October 10, 2008, we executed an agreement with certain affiliates of Sunwest Management, Inc. to acquire seven independent living, assisted living and Alzheimer’s care communities with a total of 624 living units for a purchase price of approximately $44.0 million.  These communities are located in North and South Carolina.  The sellers are in bankruptcy and our agreement is subject to an auction process and bankruptcy court approval.  If the

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properties are sold to another bidder, we are entitled to a breakup fee in the amount of $500,000.  If we are successful at this auction and our purchase is approved by the bankruptcy court, we expect to close this acquisition in the fourth quarter of the 2008. This closing is subject to various closing conditions (including licensing approvals) and there can be no assurances that we will close this acquisition.  We intend to fund this purchase with cash on hand and drawings on our existing bank credit facility or the UBS credit facility which may be available to us in connection with our investments in auction rate securities.

Our Leases with Senior Housing

As of September 30, 2008, we leased 180 senior living communities and two rehabilitation hospitals from Senior Housing under four leases.  Our leases with Senior Housing require us to pay minimum rent of $168.2 million annually and percentage rent for most senior living communities but not for our rehabilitation hospitals.  We paid approximately $794,000 and $877,000 in percentage rent to Senior Housing for the three months ended September 30, 2008 and 2007, respectively, and $2.7 million and $1.9 million for the nine months ended September 30, 2008 and 2007, respectively.

Upon our request, Senior Housing may purchase our capital improvements and other investments made at the properties we lease from Senior Housing and increase our rent pursuant to contractual formulas.  During the nine months ended September 30, 2008, Senior Housing reimbursed us $42.1 million for capital expenditures made at the properties leased from Senior Housing and these purchases resulted in our annual rent being increased by $3.6 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.

Included in the 180 senior living communities we lease from Senior Housing are seven assisted living communities located in Pennsylvania and New Jersey that were previously operated by NewSeasons Assisted Living Communities, Inc., or “NewSeasons”, under leases from Senior Housing.  We began to lease these communities in July, 2008.  In consideration of our lease assumption, NewSeasons paid us $10.0 million and transferred title to certain personal property located at the communities.  We have recorded this lease concession as a deferred credit on our balance sheet, which will be amortized as a reduction or rent expense over the remaining lease term.  Simultaneously with our leasing these seven communities from Senior Housing, we purchased three other 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 was equal to the seller’s net book value which reflected the fair market value of these properties, based on appraisals by an independent appraiser.  The remaining seven communities with 716 units are leased from Senior Housing for annual rent of approximately $7.6 million per year.  These ten communities complement our business strategy of focusing our operations in high quality senior living assets where residents pay for our services with private resources.  All of the revenues of these communities come from residents’ private resources.

On August 1, 2008, we leased from Senior Housing two assisted living communities with a total of 112 living units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for these two communities is $1.2 million per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added these communities to our existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.  In addition, we purchased land adjacent to one of these communities for $890,000 for future development.

On September 1, 2008, we leased from Senior Housing eight independent living communities with a total of 451 living units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for these eight communities is $5.0 million per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added these communities to our existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.

On November 1, 2008, we leased from Senior Housing a continuing care retirement community with a total of 249 independent living and skilled nursing units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for this community is $2.4 million per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added this community to our existing lease

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with Senior Housing which has a term ending 2024, with renewal options thereafter.  In addition, we purchased land adjacent to this community for $3.0 million for future development.

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 several months, our census 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 conditions may improve.

At some of our senior living communities, we receive operating revenues for skilled nursing services from the Medicare and Medicaid programs.  Medicare and Medicaid revenues from senior living communities were earned primarily at our 49 skilled nursing facilities.  We derived 30% and 34% of our senior living revenue from these programs during the three months ended September 30, 2008 and 2007, respectively, and 32% and 34% during the nine months ended September 30, 2008 and 2007, respectively.

Our net Medicare revenues from services to senior living community residents totaled $102.0 million and $91.8 million for the nine months ended September 30, 2008 and 2007, respectively.  In October 2007, our senior living community Medicare rates increased by approximately 3.5% over the prior period.  Our net Medicaid revenues from services to senior living community residents totaled $116.3 million and $108.5 million for the nine months ended September 30, 2008 and 2007, respectively.  The Bush administration and certain members of the Senate and the House of Representatives have proposed Medicare and Medicaid policy changes and 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 reduce Medicaid rates.  Worsening economic conditions in many states are causing budget shortfalls, 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 and the impact 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, the Federal Centers for Medicare and Medicaid Services, or CMS, increased Medicare rates for skilled nursing facilities by approximately 3.4% 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 skilled nursing facility stay.  CMS had proposed a recalibration of the payment categories for skilled nursing facilities, 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 may forestall a reduction in certain therapy revenues we have historically realized.

We began operating our two rehabilitation hospitals in October 2006.  Approximately 63% and 68% of our revenues from these hospitals came from the Medicare and Medicaid programs for the nine months ended September 30, 2008 and 2007, respectively.  In October 2007, our rehabilitation hospital Medicare rates increased by approximately 3.5% over the prior period.  However, for payments on and after April 1, 2008 as required by the Medicare, Medicaid and SCHIP Extension Act of 2007, Medicare inflation rate increases for these hospitals are set at zero per cent for the Federal fiscal years ending September 30, 2008 and 2009, eliminating substantially all of the October 2007 rate increase.  On July 31, 2008, CMS issued a rule updating the Medicare rates for inpatient rehabilitation facilities, or IRFs, 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 Medicare rates for IRFs under the prospective payment system.  The rule also re-sets the outlier threshold to maintain estimated outlier payments at 3% of total estimated IRF payments for fiscal year 2009.  CMS estimates 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.  In May 2004, CMS issued a rule establishing revised Medicare criteria that rehabilitation hospitals are required to meet in order to participate as an IRF 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

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a different type of healthcare provider; and the effect of such reclassification would be to lower Medicare payment rates. As of September 30, 2008 and November 6, 2008, 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 remain as high as we anticipate, or may decline.  A CMS finding of non-compliance, if it occurs, would result in our receiving lower Medicare rates than we currently receive at our hospitals.

Debt Instruments and Covenants

We have a $40.0 million revolving bank line of credit facility available for general business purposes, including acquisitions and working capital, which is currently scheduled to expire in May 2009.  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 lenders’ approvals.  As of September 30, 2008 and November 6, 2008, no amounts were outstanding under this credit facility.  As of September 30, 2008 and November 6, 2008 we believe we are in compliance with all applicable covenants under this credit facility.

While we currently have no outstanding borrowings on our bank facility, we may borrow amounts under the facility before it expires in May 2009, including to purchase the seven communities for approximately $44 million from affiliates of Sunwest Management, Inc.  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 the bank 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 market conditions continue or worsen, our lender under our bank 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 markets 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 material increase in indexes, such as LIBOR, which determine the interest rate under our bank facility.  If we borrow money under the facility, these interest cost increases could have material and adverse impact on our results of operations and financial condition.

At September 30, 2008, three of our senior living communities were encumbered by HUD insured mortgages totaling $12.6 million.  The weighted average interest rate on these loans was 6.2%.  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.

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.

In October 2006, we issued $126.5 million principal amount of Convertible Senior Notes due in 2026, or the Notes.  Our net proceeds from this issuance were approximately $122.6 million.  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 to an indenture which contains various customary covenants. As of September 30, 2008 and November 6, 2008, we believe we are in compliance with all applicable covenants of this indenture.

Seasonality

Our business is subject to modest effects of seasonality. During the fourth calendar quarter holiday periods, nursing home and assisted living residents are sometimes discharged to join family celebrations 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 that 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.

Related Person Transactions

Senior Housing is our former parent company and we have various continuing relationships with Senior Housing.  We lease 180 of the 202 senior living communities and the two rehabilitation hospitals that we operated on September 30, 2008 from Senior Housing for total annual minimum rent of $168.2 million.  In addition to the minimum rent, we paid $794,000 and $877,000 in percentage rent to Senior Housing for the three months ended September 30, 2008 and

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2007, respectively, and $2.7 million and $1.9 million for the nine months ended September 30, 2008 and 2007, respectively.

Upon our request, Senior Housing may purchase our capital improvements and other investments made at the properties we lease from Senior Housing and increase our rent pursuant to contractual formulas.  During the nine months ended September 30, 2008, Senior Housing reimbursed us $42.1 million for capital expenditures made at the properties leased from Senior Housing and these purchases resulted in our annual rent being increased by $3.6 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.

Included in the 180 senior living communities we lease from Senior Housing are seven assisted living communities located in Pennsylvania and New Jersey that were previously operated by NewSeasons Assisted Living Communities, Inc., or “NewSeasons”, under leases from Senior Housing.  We began to lease these communities in July, 2008.  In consideration of our lease assumption, NewSeasons paid us $10.0 million and transferred title to certain personal property located at the communities.  We have recorded this lease concession as a deferred credit on our balance sheet, which will be amortized as a reduction or rent expense over the remaining lease term.  Simultaneously with our leasing these seven communities from Senior Housing, we purchased three other 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 was equal to the seller’s net book value which reflected the fair market value of these properties, based on appraisals by an independent appraiser.  The remaining seven communities with 716 units are leased from Senior Housing for annual rent of approximately $7.6 million per year.  These ten communities complement our business strategy of focusing our operations in high quality senior living assets where residents pay for our services with private resources.  All of the revenues of these communities come from residents’ private resources.

On August 1, 2008, we leased from Senior Housing two assisted living communities with a total of 112 living units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for these two communities is $1.2 million per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added these communities to our existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.  In addition, we purchased land adjacent to one of these communities for $890,000 for future development.

On September 1, 2008, we leased from Senior Housing eight independent living communities with a total of 451 living units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for these eight communities is $5.0 million per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added these communities to our existing lease with Senior Housing which has a term ending in 2024, with renewal options thereafter.

On November 1, 2008, we leased from Senior Housing a continuing care retirement community with a total of 249 independent living and skilled nursing units which Senior Housing purchased from an unrelated party.  Our rent payable to Senior Housing for this community is $2.4 million per year, plus future increases calculated as a percentage of the revenue increase at these communities after 2010.  We added this community to our existing lease with Senior Housing which has a term ending 2024, with renewal options thereafter.  In addition, we purchased land adjacent to this community for $3.0 million for future development.

Other historical and continuing related party transactions are described in our Annual Report on Form 10-K for the year ended December 31, 2007 and in our definitive Proxy Statement relating to the annual meeting of shareholders held on May 15, 2008, as filed with the U.S. Securities and Exchange Commission, or S.E.C, on April 2, 2008 and available at the S.E.C website www.sec.gov.

Item 3.  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 remains unchanged since December 31, 2007.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

At September 30, 2008, we owned certain auction rate securities.  As a result of the current conditions in the capital markets, our auction rate securities have experienced multiple failed auctions and, as a result, there is currently no market for our sale of these securities which we believe reflects their value. While we continue to earn and receive interest on these investments at the contractual rates, we believe that the fair values of these auction rate securities no longer approximate par value.  Due to the declines in fair value for our auction rate securities through the nine months ended September 30, 2008, we have recorded an unrealized loss of $6.1 million.  We determined this unrealized loss by reference to a statement provided by our securities broker which statement 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 discount rate.  This third party analysis also included a comparison, when possible, to other observable market data with characteristics similar to our auction rate securities.  We reviewed the components of, and the calculations made under, our broker’s model.  The valuation of our auction rate securities is subject to uncertainties that are difficult to predict. Factors that may impact our valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates and the ongoing strength and quality of credit market conditions and liquidity. We do not anticipate having to sell these auction rate securities in order to operate our business. We believe that, based on our current unrestricted cash and cash equivalents balances of approximately $40 million at September 30, 2008, the current lack of liquidity in the credit and capital markets will not have a material impact on our liquidity, our cash flow, or our ability to fund our day to day operations.  See Item 2 above, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Liquidity and Capital Resources – Recent Developments: Investments”.

Item 4.  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 Rules 13a-15(e) and 15d-15(e).  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 September 30, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS.  THESE FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.  OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS SOME OF WHICH ARE BEYOND OUR CONTROL.  FOR EXAMPLE:

·WE EXPECT TO OPERATE OUR REHABILITATION HOSPITALS PROFITABLY.  HOWEVER, WE ARE CURRENTLY EXPERIENCING LOSSES FROM THESE OPERATIONS AND WE MAY BE UNABLE TO OPERATE THESE HOSPITALS PROFITABLY.  IN ADDITION, THESE HOSPITALS MAY BE SUBJECT TO RETROACTIVE RATE ADJUSTMENTS.  SIXTY PERCENT OF PATIENTS AT OUR HOSPITALS ARE REQUIRED TO MEET CERTAIN MEDICARE REQUIREMENTS.  WHILE WE BELIEVE THAT WE ARE IN COMPLIANCE WITH THESE MEDICARE REQUIREMENTS, AND ALTHOUGH WE EXPECT TO CONTINUE TO BE IN COMPLIANCE WITH THESE REQUIREMENTS, THE PERCENTAGE OF PATIENTS AT THESE HOSPITALS WHO MEET THESE MEDICARE REQUIREMENTS MAY NOT BE OR MAY NOT REMAIN AS HIGH AS WE CURRENTLY BELIEVE OR ANTICIPATE.  FAILURE TO COMPLY AND TO REMAIN IN COMPLIANCE WITH APPLICABLE MEDICARE REQUIREMENTS WOULD RESULT IN THE RECLASSIFICATION OF OUR HOSPITALS BY MEDICARE AUTHORITIES AND OUR RECEIVING LOWER MEDICARE PAYMENTS THAN WE CURRENTLY RECEIVE AT THESE HOSPITALS.  THESE EVENTS WOULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

·ON OCTOBER 7, 2008, UBS BANK ISSUED A PROSPECTUS AND OFFER TO PROVIDE LOAN LIQUIDITY TO US REGARDING THE AUCTION RATE SECURITIES WHICH UBS MARKETED TO US AND TO PURCHASE THESE SECURITIES FROM US AT PAR AFTER JUNE 10, 2010.  WE HAVE PREVIOUSLY RECORDED UNREALIZED LOSSES ON OUR INVESTMENTS IN THESE SECURITIES.  WE ARE CURRENTLY NEGOTIATING WITH UBS THE TERMS ON WHICH WE MAY ACCEPT THE UBS OFFER.  ALSO, WE MAY BE UNABLE TO REACH FINAL AGREEMENT WITH UBS ON TERMS OF ITS OFFER, UBS’S OFFER MAY CHANGE OR UBS MAY BE UNABLE TO SATISFY ITS OBLIGATIONS AFTER THE OFFER OR A MODIFICATION OF THE OFFER IS ACCEPTED BY US.  ACCORDINGLY, WE MAY BE UNABLE TO SELL OUR AUCTION RATE SECURITIES TO UBS, THE LOSSES WE HAVE RECORDED ON THESE SECURITIES MAY NOT BE REVERSED AND WE MAY INCUR ADDITIONAL LOSSES FROM CHANGES IN THE VALUE OF THESE SECURITIES OR WHEN THEY ARE SOLD.

·WE HAVE AGREED WITH CERTAIN AFFILIATES OF SUNWEST MANAGEMENT, INC. TO ACQUIRE COMMUNITIES LOCATED IN NORTH AND SOUTH CAROLINA.  THE SELLERS ARE IN BANKRUPTCY AND OUR AGREEMENT IS SUBJECT TO AN AUCTION PROCESS AND BANKRUPTCY COURT APPROVAL.  IF WE ARE SUCCESSFUL AT AUCTION AND ARE APPROVED BY THE BANKRUPTCY COURT, WE WOULD EXPECT TO CLOSE THIS ACQUISITION IN THE FOURTH QUARTER OF 2008; HOWEVER THERE CAN BE NO ASSURANCES THAT WE WILL CLOSE THIS ACQUISITION.

·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.

·OTHER RISKS THAT MAY ADVERSELY IMPACT OUR FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE DESCRIBED MORE FULLY UNDER “ITEM 1A. RISK FACTORS” IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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Part II.  Other Information

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On September 19, 2008, we granted 5,250 shares of common stock, par value $0.01 per share, valued at $4.40 per share, the closing price of our common shares on the American Stock Exchange on that day, to our Director of Internal Audit.  We made this grant pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

Item 5.  Other Information

Bylaws Changes

On November 7, 2008, our Board of Directors approved Amended and Restated Bylaws for us, which reflect various revisions to our previous bylaws.  The Amended and Restated Bylaws are effective as of November 7, 2008.

The changes reflected in the Amended and Restated Bylaws from our previous bylaws include, among other things:

·A number of revisions to the provisions regarding meetings of our stockholders contained in Article II, including among other things:

·Requiring any stockholder of record seeking to have stockholders request a special meeting of stockholders to provide us with additional information required by Section 2.14 of the Amended and Restated Bylaws, which includes the information required to be provided to us by stockholders seeking to nominate directors or propose other business at an annual meeting of stockholders, and that the information required to be provided by stockholders requesting a special meeting be received by our secretary within 10 days after the date set by the Board of Directors as the record date for determining stockholders entitled to request a special meeting of stockholders;

·Expressly providing that notice of stockholders meetings may be made by electronic transmission;

·Amending the bylaw provision governing when in advance of a meeting of stockholders the notice of meeting must be given to the stockholders, which provision had required the notice be given between 10 and 90 days prior to the meeting, to now provide that the notice shall be given in accordance with applicable law and our charter (our charter currently requires notice be given between 10 and 90 days prior to a meeting);

·Expressly providing that we are not required to give notice of, or set a new record date for, an adjourned meeting of stockholders;

·Expressly authorizing the chairperson of a stockholders meeting to adjourn the meeting for any reason deemed necessary by the chairperson, including 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 our

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best interests;

·Enumerating additional specific actions the chairperson of a stockholders meeting is entitled to take at the meeting for the proper conduct of the meeting, including concluding the meeting and complying with any state and local laws concerning safety and security;

·Consistent with our charter, providing that: at any annual or special meeting of stockholders called by the Board of Directors or any of our authorized officers, 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; and notwithstanding the foregoing, at any special meeting of stockholders called upon the written request of stockholders pursuant to Section 2.3(b) of the Amended and Restated Bylaws, 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;

·Amending the voting standard for approval of matters to be voted upon by stockholders, other than for the election of directors or other matters for which our charter, applicable law or the listing requirements of the principal exchange on which our shares of common stock are listed require otherwise, to require the affirmative vote of 75% of the votes entitled to be cast for each such matter unless the Board of Directors has previously approved a matter, in which case, the vote required for approval shall be a majority of votes cast at a meeting of stockholders duly called and at which a quorum is present;

·Providing that any proxy relating to the shares of our stock 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;

·Removing the bylaw expressly providing that the Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to us that any shares registered in the name of the stockholder are held for the account of a specified person other than the stockholder, resulting in the person specified in the certification being regarded as, for the purposes set forth in the certification, the shareholder of record of the specified shares;

·Expressly stating that 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 the authority of inspectors, if any, pursuant to Section 2.13 of the Amended and Restated Bylaws;

·Expressly providing that the Board of Directors may fix the date for determination of stockholders entitled to notice of and to vote at a meeting of stockholders and that if no date is fixed for such determination, only persons in whose names

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shares of stock entitled to vote are recorded on our stock records at the opening of business on the day of any meeting of stockholders shall be entitled to vote at such meeting;

·Revising the procedures for submission of nominations for directors elections and other proposals by stockholders for consideration at an annual meeting of stockholders, including, among other things:

·Requiring a stockholder wishing to make a nomination or proposal of other business to be a stockholder of record at the time of submitting its notice of a nomination or other proposal through and including the time of the meeting;

·Providing that the advance notice provisions in Section 2.14.1(a)(ii) are the exclusive means for a stockholder to submit such business for consideration at 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;

·Revising the deadline for submitting a notice of a nomination or proposal of other business for consideration at an annual meeting of our stockholders to 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 our preceding year’s proxy statement; and if 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, the notice shall be delivered by 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 (as defined in the Amended and Restated Bylaws) of the date of such meeting is first made by us; and corresponding changes were made to the deadline for nominations for director elections where we increase the number of directors to be elected at the meeting but only with respect to nominees for any new positions created by such increase and for special meetings of stockholders if the Board of Directors has determined that directors shall be elected at that special meeting;

·For purposes of our 2009 annual meeting of stockholders, the amendments provide that, to be timely, a notice shall be delivered to our secretary at our principal executive offices not later than 5:00 p.m. (Eastern Time) on December 31, 2008 nor earlier than December 1, 2008;

·Expanding the information required to be provided regarding any proposed nominee or certain associates of the proposed nominee by the

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proposing stockholder, including, among other things:

·Requiring information as to the proposed nominee’s qualifications to be a director pursuant to the criteria set forth in Section 3.1 of the Amended and Restated Bylaws;

·Expanding to 24 months the period of time prior to the submission of the notice by the stockholder for which disclosure regarding transactions relating to our securities by the proposed nominee or certain associates of the proposed nominee need be provided by the proposing stockholder;

·Requiring disclosure of certain performance related fees that the proposed nominee or certain of the proposed nominee’s associates are entitled to based on any increase or decrease in the value of shares of our stock or instrument or arrangement of the type contemplated within the definition of a Derivative Transaction (as defined in the Amended and Restated Bylaws), if any, as of the date of such notice;

·Requiring disclosure of any proportionate interest in shares of our stock or instrument or arrangement of the type contemplated within the definition of a Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such proposed nominee or certain associates of the proposed nominee is a general partner or, directly or indirectly, beneficially owns an interest in a general partner;

·Requiring disclosure 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 the proposing stockholder, certain associates of the proposed nominee, or their respective affiliates and associates, or others acting in concert therewith, on the one hand, and the 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, if the stockholder making the nomination and certain associates of the proposed nominee 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; and

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·Requiring disclosure of any rights to dividends on the shares of our stock owned beneficially by the proposed nominee or certain associates of the proposed nominee that are separated or separable from the underlying shares of our stock;

·Expanding the information required to be provided by the stockholder regarding itself and certain of its associates to include, among other things:

·A description of all agreements, arrangements and understandings between the stockholder and certain associates of the stockholder amongst themselves or with any other person or persons (including their names) in connection with the proposal of such business by the stockholder;

·Additional information regarding transactions by the proposed stockholder and certain associates of the stockholder involving our securities, including extending to 24 months the period of time prior to the submission of the notice by the stockholder for which such information must be provided;

·Disclosure of the stockholder’s investment intent with respect to the stockholder’s acquisition of our securities;

·All information relating to the stockholder and certain associates of the stockholder 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 Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;

·Disclosure of certain performance related fees that the stockholder or certain associates of the stockholder is entitled to based on any increase or decrease in the value of shares of our stock or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice;

·Disclosure of any proportionate interest in shares of our stock 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 the stockholder or certain associates of the stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; and

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·Disclosure of any rights to dividends on the shares of our stock owned beneficially by the proposed nominee or certain associates of the proposed nominee that are separated or separable from the underlying shares of our stock; and

·Requiring the stockholder to indicate the class and series of our capital stock entitled to vote for the proposed nominee and/or other proposal of business, as applicable, if more than one class or series of our capital stock is outstanding;

·Clarifying and revising the notice obligations for a stockholder nomination or other proposal that, if approved and implemented by us, would cause us to be in breach of any covenant of us in any existing debt instrument or agreement to extend the provision to cover other material agreements and to apply generally to our subsidiaries (as defined in the Amended and Restated Bylaws) as well as us and to require the proposing stockholder to provide at the same time as the submission of its nomination or other proposal evidence of the availability to us 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 us, as determined by the Board of Directors in its discretion, unless the proposing stockholder instead submits at such time evidence satisfactory to the Board of Directors of the lender’s or contracting party’s willingness to waive the breach of covenant or default;

·Clarifying and expanding the notice requirements regarding stockholder nominations or other proposals requiring regulatory notice, consent or approval to require that the stockholder provide at the same time as the submission of the nomination or proposal of other business evidence satisfactory to the Board of Directors that the applicable governmental or regulatory actions have been made or obtained or if that evidence was not obtainable by the time of such submission despite the stockholder’s diligent and best efforts, a detailed plan for making or obtaining the applicable filings, consents or approvals prior to the election of any stockholder nominee or the implementation of the stockholder’s proposal, which plan must be satisfactory to the Board of Directors in its discretion;

·Clarifying the procedures for the verification of information provided by the stockholder making the nomination or other proposal of business and expressly providing that the proposing stockholder is responsible for ensuring compliance with the advance notice provisions, that any responses of the stockholder to any request for information will not cure any defect in the stockholder’s notice and that neither we, the Board of Directors or any committee of the Board of Directors nor any of our officers has any duty to request clarification or updating information or inform the proposing stockholder of any defect in the stockholder’s notice; and

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·Providing that, 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;

·A number of revisions to the provisions regarding qualifications of directors and meetings and processes of the Board of Directors contained in Article III, including among other things:

·Expressly providing for nonexclusive qualifications that a director must possess to qualify for nomination or election as a director, including that the individual (i) is at least 21 years of age and is not under legal disability, (ii) has substantial expertise or experience relevant to our business or our subsidiaries’ business, (iii) has not been convicted of a felony and (iv) meets the qualifications of an Independent Director or a Managing Director (each as defined in the Amended and Restated Bylaws), as appropriate;

·Expressly providing that, in the 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 our business and affairs until they may resign or until their successors are elected and qualify;

·Amending the definition of an Independent Director to be one who is not an employee of ours or Reit Management & Research LLC (or its permitted successors or assigns under the Shared Services Agreement entered into between us and Reit Management & Research LLC), who is not involved in our 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 our stock are listed for trading and the Securities and Exchange Commission, as those requirements may be amended from time to time; and amending the definition of a Managing Director to be one who is not an Independent Director and who has been an employee of ours or Reit Management & Research LLC (or its permitted successors or assigns under the Shared Services Agreement entered into between us and Reit Management & Research LLC) or involved in our day to day activities for at least one year prior to his or her election;

·Providing that the time and place of the annual meeting of the Board of Directors may be changed by the Board of Directors and that 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;

·Removing the bylaws provision relating to who is to act as chairman and secretary at any meeting of the Board of Directors;

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·Expressly providing that 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;

·Expressly providing that any directors 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 of directors in which the vacancy occurred or was created and until a successor is elected and qualifies;

·Removing the provision that provided that no director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association or other institution with whom moneys or share have been deposited; and

·Expressly providing that a director need not be a stockholder of ours;

·Including emergency provisions in order to provide for procedural flexibility in the event of an emergency;

·Revisions were made to Articles IV and V to update the roles and processes of the committees of the Board of Directors and our officers, including expressly requiring that the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be composed of three or more directors and that  each committee of the Board of Directors keep minutes of its proceedings and periodically report its activities to the full Board of Directors;

·Revisions were made to Article VII to provide for certain clarifications and administrative changes, including expressly providing that stockholders may request that their shares of our stock be in book entry form and eliminating any bylaw provisions detailing the requirements of any legends to be placed on any certificate;

·A new Article VIII was adopted which provides for various regulatory and disclosure requirements effecting us or any subsidiary of ours that our stockholders shall comply with, including, among other things:

·Requiring that stockholders whose ownership interest in us or actions affecting us, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on us or any subsidiary of ours or any of their respective businesses, assets or operations, promptly take all actions necessary and fully cooperate with us 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 us or any

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subsidiary of ours;

·Requiring that, if the stockholder fails or is otherwise unable to promptly take such actions so as to satisfy such requirements or regulations, then the stockholder shall promptly divest a sufficient number of shares of our stock necessary to cause the application of such requirement or regulation to not apply to us or any subsidiary of ours; and, if the stockholder fails to cause such satisfaction or divest itself of such sufficient number of shares of our stock by not later than the 10th day after triggering such requirement or regulation, then any shares of our stock  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 our charter and be subject to the provisions of Article VI of our charter and any actions triggering the application of such requirements or regulations may be deemed by us to be of no force or effect;

·Requiring that if the stockholder fails to satisfy the requirements or regulations or to take curative actions within such 10 day period, we may take all other actions which the Board of Directors deems appropriate to require compliance or to preserve the value of our assets; and we may charge the offending stockholder for our costs and expenses as well as any damages which may result to us;

·Requiring that stockholders 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 us and all other laws which apply to us or any subsidiary of ours or their respective businesses, assets or operations and which require action or inaction on the part of the stockholder;

·Providing that, if a stockholder, by virtue of the stockholder’s ownership interest in us 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 us or proxies for shares of our stock in excess of a certain amount pursuant to applicable law but the Board of Directors determines that the excess shares or shares represented by the excess proxies are necessary to obtain a quorum, then the 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 of stock otherwise voted on such matter; and

·Providing that, 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 us or any subsidiary of ours shall be deemed to be simultaneously made to, for the benefit of and enforceable by, us and any applicable subsidiary of ours;

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·Former Article IX of our bylaws (now Article X of the Amended and Restated Bylaws) was amended by removing the provision expressly authorizing the Board of Directors, before payment of any dividends or other distributions, to set aside out of any funds of ours available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies or for any other purpose as the Board of Directors shall determine to be in our best interest;

·As the Board of Directors has the express ability to adopt, amend, revise or terminate any policy or policies with respect to investments by us, former Article X of our bylaws was removed;

·As we are party to indemnification agreements with our directors and officers, what was formerly Article XII of our bylaws (indemnification and advance of expenses) was removed;

·A new Article XIV of the Amended and Restated Bylaws provides additional provisions, including, among other things:

·Providing that, to the fullest extent permitted by law, each stockholder will be liable to us for, and indemnify and hold us harmless (and any subsidiaries or affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts arising from such stockholder’s breach of any provision of the Amended and Restated Bylaws or our charter or any action against us in which such stockholder is not the prevailing party;

·Providing procedures for ratification of past action or inaction on the part of us or our officers; and

·Empowering the Board of Directors to make determinations regarding ambiguities in the application of the Amended and Restated Bylaws; and

·Various other amendments and modifications to address various administrative matters, clarify certain provisions, eliminate certain matters already addressed in our charter and update some outdated provisions.

To the extent that the amendments to our bylaws, as well as the preexisting provisions of our bylaws, contain provisions which limit the ability of a stockholder to remove management or directors or restrict the ability to own or transfer shares of our stock, those provisions may have anti-takeover effects.

The foregoing summary of the amendments to the existing bylaws is qualified in its entirety by reference to the text of the amendments and the Amended and Restated Bylaws.  The Amended and Restated Bylaws, and a copy marked to show changes from the prior bylaws, are attached hereto as Exhibits 3.1 and 3.2, respectively, and are incorporated by reference herein.

Acquisition Agreement

On October 10, 2008, we executed an agreement with certain affiliates of Sunwest Management, Inc. to acquire seven independent living, assisted living and Alzheimer's care communities with a total of 624 living units for a purchase price of approximately $44,000.  These communities are located in North and South Carolina.  The sellers are in bankruptcy and our agreement is subject to an auction process and bankruptcy court approval.  If the properties are sold to another bidder, we are entitled to a breakup fee in the amount of $500.  If we are successful at this auction and our purchase is approved by the bankruptcy court, we expect to close this acquisition in the fourth quarter of the 2008. This closing is subject to various closing conditions (including licensing approvals) and there can be no assurances that we will close this acquisition.  We intend to fund this purchase with cash on hand and drawings on our existing bank credit facility or the UBS credit facility which may be available to us in connection with our investments in auction rate securities.

Item 6.    Exhibits

3.1	Amended and Restated Bylaws of the Company, as amended and restated November 7, 2008. (Filed herewith.)
3.2	Amended and Restated Bylaws of the Company, as amended and restated November 7, 2008 (marked). (Filed herewith.)
10.1	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.  (Filed herewith.)
10.2	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. (Filed herewith.)
10.3	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. (Filed herewith.)
10.4	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.  (Filed herewith.)
10.5	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. (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. (Filed herewith.)

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SIGNATURES

Pursuant to the requirements 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.

/s/ Bruce J. Mackey Jr.

Bruce J. Mackey Jr.

President and Chief Executive Officer

Dated: November 7, 2008

/s/ Francis R. Murphy III

Francis R. Murphy III

Treasurer and Chief Financial Officer

(Principal Financial Officer)

Dated: November 7, 2008

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EX-3.1

EXHIBIT 3.1

FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

As Amended and Restated November 7, 2008

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	4
Section 2.6.	Scope of Meetings	5
Section 2.7.	Organization of Stockholder Meetings	5
Section 2.8.	Quorum	5
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	6
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	14
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	18
Section 3.3.	Number and Tenure	19
Section 3.4.	Annual and Regular Meetings	19
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	20
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	21
Section 3.15.	Reliance	21
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	22
Section 4.3.	Meetings	22
Section 4.4.	Telephone Meetings	23
Section 4.5.	Action by Written Consent of Committees	23
Section 4.6.	Vacancies	23
ARTICLE V OFFICERS		23
Section 5.1.	General Provisions	23
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	24
Section 5.7.	Chairman and Vice Chairman of the Board	24
Section 5.8.	President	24
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		25
Section 6.1.	Contracts	25
Section 6.2.	Checks and Drafts	25
Section 6.3.	Deposits	25
ARTICLE VII STOCK		26
Section 7.1.	Certificates	26
Section 7.2.	Transfers	26
Section 7.3.	Lost Certificates	26
Section 7.4.	Closing of Transfer Books or Fixing of Record Date	27
Section 7.5.	Stock Ledger	27
Section 7.6.	Fractional Stock; Issuance of Units	27
ARTICLE VIII REGULATORY COMPLIANCE AND DISCLOSURE		27
Section 8.1.	Actions Requiring Regulatory Compliance Implicating the Corporation	27
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	29
Section 8.5.	Board of Directors’ Determinations	29

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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		30
Section 12.1.	Waiver of Notice	30
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	31
Section 14.4.	Ambiguity	31
Section 14.5.	Inspection of Bylaws	31
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 holds certificates for all shares of stock of the Corporation owned by such stockholder, and a copy of each such certificate 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 holds certificates for all shares of stock of the Corporation owned by such stockholder, and a copy of each such certificate 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 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

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

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(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.

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.

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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.

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

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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.

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

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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 2.14.1Annual 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) 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), (B) 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 (C) complies with the notice procedures set forth in this Section 2.14 as to

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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.

(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, and a copy of each such certificate 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

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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 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

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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 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

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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;

(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;

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(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, 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

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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 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

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Corporation or who is directly or indirectly the beneficial owner of more than 10% of the shares of stock of the Corporation.

Section 2.14.2Stockholder 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 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 2.14.3Stockholder 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

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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 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.

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Section 2.14.4Special 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 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’s notice contains the information 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 2.14.5General.

(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 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 

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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 Commission 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.

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(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, 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

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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 Commission, 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 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.

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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.

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

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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, 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.

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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 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

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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 Commission 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 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

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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.

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

25

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

27

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 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

28

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 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.

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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 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.

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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.

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

31

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-3.2

EXHIBIT 3.2

FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

As Amended and Restated March 19, 2003,

and as Further Amended on January 21, 2004, March 10, 2004 and March 24,November 7, 2008

Table of Contents

ARTICLE I OFFICES		1
Section.1.1.1.	PRINCIPAL OFFICE Principal Office	1
Section.2.1.2.	ADDITIONAL OFFICES Additional Offices	1
ARTICLE II MEETINGS OF STOCKHOLDERS		1
Section.1.2.1.	PLACE Place	1
Section.2.2.2.	ANNUAL MEETING  Annual Meeting	11
Section.3.	SPECIAL MEETINGS	1
Section.4.	NOTICE	4
Section.5.	ORGANIZATION AND CONDUCT	4
Section.6.	QUORUM	5
Section.7.	VOTING	5
Section.8.	PROXIES	5
Section.9.	VOTING OF STOCK BY CERTAIN HOLDERS	5
Section.10.	INSPECTORS	6
Section.11.	ADVANCE NOTICE OF NOMINEES FOR DIRECTOR AND OTHER PROPOSALS	7
Section.12.	VOTING BY BALLOT	13
Section.13.	CONTROL SHARE ACQUISITION ACT	13
Section 2.3.	Special Meetings	1
Section 2.4.	Notice of Regular or Special Meetings	4
Section 2.5.	Notice of Adjourned Meetings	4
Section 2.6.	Scope of Meetings	5
Section 2.7.	Organization of Stockholder Meetings	5
Section 2.8.	Quorum	5
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	6
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	14
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		1318
Section.1.	GENERAL POWERS	13

Section.2.	TYPE, NUMBER, TENURE AND QUALIFICATIONS	13
Section.3.	ANNUAL AND REGULAR MEETINGS	14
Section.4.	SPECIAL MEETINGS	14
Section.5.	NOTICE	14
Section.6.	QUORUM	15
Section.7.	VOTING	15
Section.8.	ORGANIZATION	15
Section.9.	TELEPHONE MEETINGS	15
Section.10.	WRITTEN CONSENT BY DIRECTORS	15
Section.11.	VACANCIES	15
Section.12.	COMPENSATION	16
Section.13.	LOSS OF DEPOSITS	16
Section.14.	SURETY BONDS	16
Section.15.	RELIANCE	16
Section.16.	CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS	16
Section 3.1.	General Powers; Qualifications; Directors Holding Over	18
Section 3.2.	Independent Directors and Managing Directors	18
Section 3.3.	Number and Tenure	19
Section 3.4.	Annual and Regular Meetings	19
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	20
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	21
Section 3.15.	Reliance	21
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		1622
Section.1.4.1.	NUMBER, TENURE AND QUALIFICATIONS Number; Tenure and Qualifications	1622
Section.2.4.2.	POWERS Powers	1722
Section.3.	MEETINGS	17
Section.4.	TELEPHONE MEETINGS	17
Section.5.	WRITTEN CONSENT BY COMMITTEES	17
Section.6.	VACANCIES	17
Section 4.3.	Meetings	22
Section 4.4.	Telephone Meetings	23
Section 4.5.	Action by Written Consent of Committees	23
Section 4.6.	Vacancies	23

ii

ARTICLE V OFFICERS		1723
Section.1.5.1.	GENERAL PROVISIONS General Provisions	1723
Section.2.5.2.	REMOVAL AND RESIGNATION Removal and Resignation	1824
Section.3.	VACANCIES	18
Section.4.	CHIEF EXECUTIVE OFFICER	18
Section.5.	CHIEF OPERATING OFFICER	18
Section.6.	CHIEF FINANCIAL OFFICER	18
Section.7.	CHAIRMAN OF THE BOARD	18
Section.8.	PRESIDENT	19
Section.9.	VICE PRESIDENTS	19
Section.10.	SECRETARY	19
Section.11.	TREASURER	19
Section.12.	ASSISTANT SECRETARIES AND ASSISTANT TREASURERS	20
Section.13.	SALARIES	20
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	24
Section 5.7.	Chairman and Vice Chairman of the Board	24
Section 5.8.	President	24
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		2025
Section.1.6.1.	CONTRACTS Contracts	2025
Section.2.6.2.	CHECKS AND DRAFTS Checks and Drafts	20 25
Section.3.6.3.	DEPOSITSDeposits	20 25
ARTICLE VII STOCK		2026
Section.1. 7.1.	CERTIFICATES Certificates	2026
Section.2. 7.2.	TRANSFERS21 Transfers	26
Section.3. 7.3.	REPLACEMENT CERTIFICATE Lost Certificates	2126
Section.4.7.4.	CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE Closing of Transfer Books or Fixing of Record Date	2126
Section.5.7.5.	STOCK LEDGER Stock Ledger	2227
Section.6.7.6.	FRACTIONAL STOCK; ISSUANCE OF UNITS Fractional Stock; Issuance of Units	2227
ARTICLE VIII REGULATORY COMPLIANCE AND DISCLOSURE		27
Section 8.1.	Actions Requiring Regulatory Compliance Implicating the Corporation	27
Section 8.2.	Compliance With Law	29

iii

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	29
Section 8.5.	Board of Directors’ Determinations	29
ARTICLE IX ACCOUNTING YEAR		2330
Section 9.1.	Accounting Year	30
ARTICLE IXX DIVIDENDS AND OTHER DISTRIBUTIONS		2330
Section.1.10.1.	AUTHORIZATION Dividends and Other Distributions	2330
Section.2.	CONTINGENCIES	23
ARTICLE X INVESTMENT POLICY		23
ARTICLE XI SEAL		2330
Section.1.11.1	SEAL .Seal	2330
Section.2.11.2.	AFFIXING SEAL Affixing Seal	2330
ARTICLE XII INDEMNIFICATION AND ADVANCE OF EXPENSES		24
ARTICLE XIII WAIVER OF NOTICE		2430
Section 12.1.	Waiver of Notice	30
ARTICLE XIVII AMENDMENT OF BYLAWS		2531
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	31
Section 14.4.	Ambiguity	31
Section 14.5.	Inspection of Bylaws	31
Section 14.6.	Special Voting Provisions relating to Control Shares	32

iv

FIVE STAR QUALITY CARE, INC.

AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

SECTION.1.         PRINCIPAL OFFICE

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

Section.2.               ADDITIONAL OFFICES

Section 1.2.            Additional Offices.  The Corporation may have additional offices, including a principal executive office, 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.1.         PLACE

Section 2.1.            Place.  All meetings of stockholders shall be held at the principal executive office of the Corporation or at such other place as shall be setis designated by the Board of Directors and stated inor the noticechairman of the meetingboard or president.

Section.2.               ANNUAL MEETING

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 within six months after the end of each fiscal year.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.3.               SPECIAL MEETINGS

Section 2.3.            Special Meetings.

(a)           General.  The chairman of the board, if any, 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 32.3(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)            (1) 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 holds certificates for all shares of stock of the Corporation owned by such stockholder, and a copy of each such certificate 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 itthe meeting, shall be signed by one (1) 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 otherits duly authorized agent) signing the Record Date Request Notice and shall set forth all information relating tothat each such stockholder that must be disclosedwould 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 RegulationSection 14A (or any successor provision) underof the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-11 thereunder. “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 ten (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 ten (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 first date on which thea valid Record Date Request Notice is received by the secretary.

(ii)           (2) In order for any stockholder to request a special meeting, one (1) or more written requests for a special meeting (the “Special Meeting Request”) signed by stockholders of record (or their duly authorized agents) as of

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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 Record DateSpecial Meeting Request Notice unless such stockholder holds certificates for all shares of stock of the Corporation owned by such stockholder, and a copy of each such certificate 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 the matters proposed to be acted on at itthe 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 otherits 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 sixty (60)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)          (3) The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and, 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 paragraph (2) of this Section 32.3(b)(ii), the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting.

(iv)          (4) 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 32.3(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 ninety (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 ten (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 preceding 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

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Requested Meeting within ten (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, chairman of the board, 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 thirty (30) days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date.

(v)           (5) 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 ten (10) days before the meeting if the secretary has first 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)          (6) 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 (iA) five (5) Business Days after receipt by the secretary of such purported request and (iiB) 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. The Board of Directors’ determination regarding the validity of a Special Meeting Request shall be final and binding unless it is determined by a court of competent jurisdiction to have been made in bad faith.  Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that any stockholder shall not be entitled to contest whether the Board of Directors’ actions determining the validity of a Special Meeting Request has been made in bad faith, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation), provided such action is commenced within five (5) Business Days after notice of the Board of Directors

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determination regarding the invalidity of a Special Meeting Request is delivered to the requesting stockholders.  In the event of such a challenge, a purported Special Meeting Request shall be deemed not to have been delivered to the Corporation until a final determination that the Board of Directors acted in bad faith has been made by a court of competent jurisdiction and all times for applicable appeals of such determination have expired.

(vii)         (7) 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.4.               NOTICE

Section 2.4.            Notice of Regular or Special Meetings.  Not less than ten nor more than 90 days before each meeting of stockholdersIn 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 whenonce deposited in the United StatesU.S. mail addressed to the stockholder at the stockholder’’s address as it appears on the records of the Corporation, with postage thereon prepaid.

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 MeetingsAny.  Except as otherwise expressly set forth elsewhere in these Bylaws, no business of the Corporation mayshall be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice.  No business shall be transacted at aor 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.5.               ORGANIZATION AND CONDUCT

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 chairmaperson 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 rank and seniority, or, in the absence of such officers, a chairmaperson chosen by the stockholders by the vote of a majority of the votes cast on such appointment by stockholders present in person or

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represented by proxy.  The secretary, or, in the secretary’s absence, an assistant secretary, or in the absence of both the secretary and assistant secretaries, or a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairmaperson of the meeting shall act as secretary.  In the event that of the meeting and record the minutes of the meeting.  If the secretary presides as chairperson at a meeting of the stockholders, an assistantthen 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 chairmaperson of the meeting.  The chairmaperson of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairmaperson, 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 chairmaperson 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 chairmaperson 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 chairmaperson of the meeting; and (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 chairmaperson 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.

Section.6.               QUORUM

Section 2.8.            Quorum.  At any meeting of stockholdersannual 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; but this.  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, sucha quorum shall not be present at any meeting of the stockholders, the chairmaperson of the meeting or the stockholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice

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other than announcement at the meeting.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.

The stockholders present either in person or by proxy, at a meeting which has been duly called and convened, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

Section.7.               VOTING

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.  Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted.  AFor 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 shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the charter of the Corporation.  Unless otherwise provided in the charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders..

Section.8.               PROXIES

Section 2.10.          Proxies.  A stockholder may cast the votes entitled to be cast by the shares of stock owned of record by the stockholderhim or her either in person or by proxy executed by the stockholder or by the stockholder’shis or her duly authorized agent in any manner permitted by law.  Such proxy or evidence of authorization of such proxy shall be filed with the secretarysuch officer of the Corporation before or at the meeting.  Noor 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 more than eleven months after its date unless otherwise provided in the proxy.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.

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Section.9.               VOTING OF STOCK BY CERTAIN HOLDERS

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.

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 athe 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.

Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder.  The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable.  On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification.

Section.10.             INSPECTORS

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.

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(b)           .  The Board of Directors, in advance of any meeting, may, but need not, appoint one or more individual inspectors or one or more entities that designate individuals as inspectors to act at the meeting or any adjournment thereof.  If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors.  In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the chairman of the meeting.  The inspectors, if any, shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders.  Each such reportEach 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.11.             ADVANCE NOTICE OF NOMINEES FOR DIRECTOR AND OTHER PROPOSALS.

Section 2.14.          (a) 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 an annual or special meetingmeetings of stockholders may be properly brought before the meeting only as set forth in this Section 11. 2.14.  All judgments and determinations made by the Board of Directors or the chairmaperson of the meeting, as applicable, under this Section 112.14 (including, without limitation, judgments as to whether any matter or thing is satisfactory to the Board of Directors 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                        (b) Annual Meetings of Stockholders.

(a)           (1) 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 directorsBoard of Directors or (ii) by any stockholder of the Corporation who (A) is a stockholder of record both at the time of giving ofthe notice by the stockholder provided for in this Section 11(b)2.14.1 through and atincluding the time of the annual meeting, who (including any adjournment or postponement thereof), (B) 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 who complies with this Section 11.(C) complies with the notice procedures set forth in this Section 2.14 as to such nomination or other

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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.

(b)           (2) 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 clause (ii) of Section 11(b2.14.1(a)(1ii), the stockholder mustshall have given timely notice thereof in writing to the secretary of the Corporation in accordance with this Section 2.14 and such other business mustshall 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 112.14 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 90120th day nor earlier than the 120150th 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 advanced or delayed by more than 30 days fromearlier 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 mustshall be so delivered not earlier than the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting and not later than 5:00 p.m. (Eastern Time) on the later of: (i) the 90th day prior to the date of such annual meeting or (ii) 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 112.14.1(b)(2) unless such stockholder holds a certificate for all shares of stock of the Corporation owned by such stockholder, and a copy of each such certificate 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 belowin 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 or a managing directorIndependent Director (as defined in Section 3.2) or a

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Managing Director (as defined in Section 3.2) and a description of such Proposed Nominee’’s qualifications to be an iIndependent dDirector or mManaging dDirector, 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 capital 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 twelve (12)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 twelve (12)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 ten percent (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 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

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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 capital stock of the Corporation and who supports the Proposed Nominee for election or reelection as a director, (812) 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 RegulationSection 14A (or any successor provision) underof the Exchange Act and (9the 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

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and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined belowin Section 2.14.1(d)), including any anticipated benefit to such stockholder or any Stockholder Associated Person therefrom and (3, (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 whichthat are owned of record by such stockholder or by such Stockholder Associated Person, if any, and (2) the class, series and number of, and the nominee holder for, allany shares of stock of the Corporation that are owned, directly or indirectly, beneficially but not of record by such stockholder or by any 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;

(D)as to the stockholder giving the notice and any Stockholder Associated Person covered by clause (B) or (C) above in this Section 11(b)(2), (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;

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(E)as to the stockholder giving the notice and any Stockholder Associated Person covered by clause (B) or (C) above in this Section 11(b)(2), (1) a description of all purchases and sales of securities of the Corporation by such stockholder or Stockholder Associated Person during the previous twelve (12)24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved and, (2) a description of all Derivative Transactions by such stockholder or Stockholder Associated Person during the previous twelve (12)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 ten percent (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, 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; and

(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 capital stock of the

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Corporation and who supports the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.; 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)(3) Notwithstanding anything in the second sentence of Section 112.14.1(b)(2) 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 100130 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 11(b)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)(4) For purposes of this Section 11,2.14, (i) ““Stockholder Associated Person”” of any stockholder shall mean (A) any person controlling, directly or indirectly, or 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 otherwise andor (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

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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 ten percent (10%) of the shares of stock of the Corporation.

Section 2.14.2(c) Stockholder Nominations or Other Proposals Causing Covenant Breaches or Defaults.  At the same time as or prior to the submission of any stockholder nomination or proposal of other business to be considered at an annual or speciala 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 or proposed 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 mustshall submit to the secretary of the Corporation at the principal executive offices of the Corporation (ia) evidence satisfactory to the Board of Directors of the lender’’s or contracting party’’s willingness to waive the breach of covenant or (iidefault or (b) a detailed plan for repayment of the indebtedness to the lender or courrecting the contractual breach or default and satisfying any resulting damage claim, specifically identifying the actions to be taken or the source of funds to be used in the repayment, 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 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(d) Stockholder Nominations or Other Proposals Requiring Regulatory Notice, Consent or Approval. At the same time or prior to theGovernmental Action.  If (a) submission of any stockholder nominations or proposal of other business to be considered at an annual or speciala stockholders meeting that, if approved, could not be considered or, if approved,

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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 or, approval or other action of any federal, state, municipal or other regulatory bodygovernmental 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 mustshall submit to the secretary of the Corporation at the principal executive offices of the Corporation (ix) evidence satisfactory to the Board of Directors that any and all required notices, consents or approvals haveGovernmental 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 (ii) a plan,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 the requisite notices or obtaining the requisite consents or approvals, as applicable, prior toGovernmental Action prior to the election of any such Proposed Nominee or the implementation of thesuch proposal or election, 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 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

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determine the likelihood that the stockholder or the Proposed Nominee, as applicable, will receive any such required approval.

Section 2.14.4(e) Special Meetings of Stockholders.  As set forth in Section 4 of this Article II,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: (ia) 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 (iic) 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 11(e)2.14.4 through and atincluding 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 set forth in this Section 11(e).2.14.4.  In the event the Corporation calls a special meeting of stockholders for the purpose of electing one (1) 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’’s notice contains the information required by Section 11(b)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 120150th day prior to such special meeting and not later than 5:00 p.m. (Eastern Time) on the later of (i) the 90120th 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 directorsBoard 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(f) General.

(1) (a)If information submitted pursuant to this Section 112.14 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 11.2.14.  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 of delivery ofBusiness Days after such request (or such other period as may be specified in such request), (i) written verification, satisfactory to anythe secretary or any other authorized officer or the Board of Directors or any committee

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thereof, in his, her or its sole discretion, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 11 and (ii2.14, (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 112.14 as of an earlier date.  If a stockholder fails to provide such written verification or such written, information or update within such period, anythe secretary or any other authorized officer or the Board of Directors or any committee thereof may treat the information as to which writtenwhich was previously provided and to which the verification or written, request or update was requestedrelates as not having been provided in accordance with this Section 11.  Nothing in this Section 11(f) shall require2.14; 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)(2) Only such individuals who are nominated in accordance with this Section 112.14 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 11. 2.14.  The chairmaperson 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 112.14 and, if any proposed nomination or other business is determined not to be in compliance with this Section 11,2.14, to declare that such defective nomination or proposal be disregarded.

(c)(3) For purposes of this Section 11, “2.14: (i) “public announcement”” shall mean disclosure in (iA) 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 (iiB) a document publicly filed by the Corporation with the United States Securities and Exchange Commission 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)(4) Notwithstanding the foregoing provisions of this Section 11,2.14, a stockholder shall also comply with all applicable legal requirements, including, without

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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 11. 2.14.  Nothing in this Section 112.14 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)(5) The Board of Directors may from time to time require any individual nominated to serve as a Ddirector to agree in writing with regard to matters of business ethics and confidentiality while such nominee serves as a Ddirector, 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.

Section 12.             VOTING BY BALLOT

(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 vivavoice vocte unless the presiding officer shall orderchairperson of the meeting or any stockholder shall demand that voting be by ballot.

Section.13.             CONTROL SHARE ACQUISITION ACT.  Notwithstanding any other provision of 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.

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 II

DIRECTORS

SECTION.1.         GENERAL POWERS

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.2.               TYPE, NUMBER, TENURE AND QUALIFICATIONS

Section 3.2.            Independent Directors and Managing Directors.  A majority of the directors holding office shall at all times be Independent Directors (as defined below); provided, however, that upon a failure to comply with this requirement as a result of the creation of a temporary vacancy which mustshall 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“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 National Securities Exchangestock exchange upon which shares of stock of the Corporation are listed for trading and the Securities and Exchange Commission, as those requirements may be amended from time to time.  If the number of directors, at any time, is set at less than five (5), at least one (1) director shall be a Managing Director.  So long as the number of Ddirectors shall be five (5) or greater, at least two (2) Directorsdirectors shall be Managing Directors.  ““Managing Directors”” shall mean directors who are not Independent Directors and who have been involved in the day-to-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 (1) 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.  At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Directors may establish, increase or decrease the number of

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directors, provided that the number thereof shall never be less than the minimum number required by the Maryland General Corporation Law, nor more than 7, 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 (5) until increased or decreased 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.               ANNUAL AND REGULAR MEETINGS

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 and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held 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.4.               SPECIAL MEETINGS

Section 3.5.            Special Meetings.  Special meetings of the Board of Directors may be called by or at the request of the chairman of the board, if any, orat any time by any Managing Director, the president or by 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.  The Board of Directors may provide, by resolution, the time and place for the holding of special meetings of the Board of Directors without other notice than such resolution.

Section.5.               NOTICE

Section 3.6.            Notice.  Notice of any special meeting of the Board of Directors shall be given by written notice delivered personally or by telephone, electronic mail, facsimile transmission, United States mail or couriertelephoned, facsimile transmitted, overnight couriered (with proof of delivery) or mailed to each director at his or her business or residence address.  Notice by personal delivery, telephone, electronic mail or facsimile transmissionPersonally

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delivered, telephoned, facsimile transmitted or electronically mailed notices shall be given at least 24 hours prior to the meeting.  Notice by United States mail shall be givenmail shall be deposited in the U.S. mail at least three days72 hours prior to the meeting.  Notice by courier shall be given at least two days prior to the meeting.  TelephoneIf mailed, such notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which the director or his or her agent is a partydeposited 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 to be 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.  Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid.  Notice by courier shall be deemed to be given when deposited with orIf sent by overnight courier, such notice shall be deemed given when delivered to athe courier properly addressed.  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.6.               QUORUM

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 saida 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 mustfor 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.

The directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.

Section.7.               VOTING

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 or, the charter of the Corporation or these Bylaws.  If enough directors have withdrawn from a meeting to leave lessfewer than are required to establish a quorum, but the meeting is not adjourned, the action of the majority of thethat number of directors still presentnecessary 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 statute or the charter.law, the charter of the Corporation or these Bylaws.

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Section.8.               ORGANIZATION.  At each meeting of the Board of Directors, the chairman of the board, if any, or, in the absence of the chairman, the vice chairman of the board, if any, shall act as chairman.  In the absence of both the chairman and vice chairman of the board, the president, if he or she is a director, or in the absence of the president, a director chosen by a majority of the directors present, shall act as chairman.  The secretary or, in his or her absence, an assistant secretary of the Corporation, or in the absence of the secretary and all assistant secretaries, a person appointed by the chairman, shall act as secretary of the meeting.

Section.9.               TELEPHONE MEETINGS

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.10.             WRITTEN CONSENT BY DIRECTORS

Section 3.10.Action by Written Consent of Board of Directors.  AnyUnless 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.11.             VACANCIES

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 shall serve, 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.12.             COMPENSATION

Section 3.13.Compensation.  Directors shall notbe entitled to receive any stated salarysuch reasonable compensation for their services as directors but, by resolution of the Board of Directors, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Corporation and for any service or activity they

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performed or engaged in as directorsas 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 they performed or engaged in as directors; but nothing herein contained shall be construed to preclude any directors from servingdirector.  The directors shall be entitled to receive remuneration for services rendered to the Corporation in any other capacity and receiving compensation therefor., 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.13.             LOSS OF DEPOSITS.  No director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or stock have been deposited.

Section.14.             SURETY BONDS

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.15.             RELIANCE

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 fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Corporation, upon an opinion of counsel or upon reports made to the Corporation by any of its officers or employees or by the adviserentitled 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.16.             CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS

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.  TheA directors shall have no responsibility to devote theirhis 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 to or in addition to or in competition with 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

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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 III

COMMITTEES

SECTION.1.         NUMBER, TENURE AND QUALIFICATIONS

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 and may from time to time appoint other.  Each of these committees.  Each committee 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 such committee.  The Board of Directors may also adopt a charter with respect to other committees of the Board of Directors.

Section.2.               POWERS

Section 4.2.Powers.  The Board of Directors may delegate to committees appointed under Section 1 of this Article 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, suchthe 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 sucha committee provided in suchthe Ccharter or reasonably related to those purposes, responsibilities and duties, to the extent permitted by law.

Section.3.               MEETINGS

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 theany committee shall be present in person at any meeting of a committee in order to constitute a quorum for the transaction of business at anya meeting of, and the committee.  The act of a majority of the committee members present at a meeting at the time of a vote if a quorum is then present shall be the act of sucha 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 suchthe chairman or, in the absence of a chairman, any two membersa majority of any committee (if there are at least two members of the Committee) may fix the time and place of its meetings

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unless the Board shall otherwise provide.  In the absence or disqualification of any member of any such 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 such absent member.  Each committee shall keep minutes of its proceedings.  absent or disqualified members.

Section.4.               TELEPHONE MEETINGS

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 Commission 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 of the Board of 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.  Participationand participation in a meeting by these means shall constitute presence in person at the meeting.

Section.5.               WRITTEN CONSENT BY COMMITTEES

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.6.               VACANCIES

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 IV

OFFICERS

SECTION.1.         GENERAL PROVISIONS

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, one or more vice presidents, 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

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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.2.               REMOVAL AND RESIGNATION

Section 5.2.Removal and Resignation.  Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but suchthe 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, if any, 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 or at such later time specified in the notice of resignation.  The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.  SuchA resignation shall be without prejudice to the contract rights, if any, of the Corporation.

Section.3.               VACANCIES

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

Section.4.               CHIEF EXECUTIVE OFFICER

Section 5.4.Chief Executive Officer.  The Board of Directors may designate a chief executive officer.  In the absence of such designation, the president or, if determined by the Board of Directors, the chairman of the board shall be the chief executive officer of the Corporation from among the directors or elected officers.  The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the managementadministration of the business and 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.               CHIEF OPERATING OFFICER

Section 5.5.Chief Operating Officer.  The Board of Directors may designate a chief operating officer.  The chief operating officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

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Section.6.               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 5.6.Chief Financial Officer.  The Board of Directors may designate a chief financial officer.  The chief financial officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

Section.7.               CHAIRMAN OF THE BOARD.  The Board of Directors may designate a chairman of the board.  The chairman of the board shall preside over the meetings of the Board of Directors and of the stockholders at which he or she shall be present.  The chairman of the board shall perform such other duties as may be assigned to him or her by the Board of Directors.

Section.8.               PRESIDENT 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.  In the absence of a chief executive officer, the president shall in general supervise and control all of the business and affairs of the Corporation.  In the absence of a designation of a chief operating officer by the Board of Directors, the president shall be the chief operating officer.  He or sheThe 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 from time to time.

Section.9.               VICE PRESIDENTS

Section 5.9.Vice Presidents.  In the absence or unavailability of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their electionany vice president) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to such vice presidenthim 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 president or as vice presidentpresidents, senior vice presidents or as vice presidents for particular areas of responsibility.

Section.10.             SECRETARY

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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) keepmaintain a share register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the stock transfer books of the Corporation; and (f, 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 him or herthe secretary by the chief executive officer, the president or by or the Board of Directors.

Section.11.             TREASURER

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 designatedauthorized by the Board of Directors.  In the absence of a designation of a chief financial officer byThe 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, the treasurer shall be the chief financial officer of the Corporation.

The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and Board of Directors, at the regular meetings of the Board of Directors or whenever it may so require, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.

If required by the Board of Directors, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

Section.12.             ASSISTANT SECRETARIES AND ASSISTANT TREASURERS

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 presidentchief executive officer or the Board of Directors.  The assistant treasurers shall, if required by the Board of Directors, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Board of Directors.

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Section.13.             SALARIES.  The salaries and other compensation of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he or she is also a director.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION.1.         CONTRACTS

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 and executed by an authorized person.

Section.2.               CHECKS AND DRAFTS

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 thetreasurer, the chief executive officer or the Board of Directors.

Section.3.               DEPOSITS

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.1.         CERTIFICATES

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, if any, shall be signed by the chairman of the board, if any, 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.  Each certificate representing shares which are restricted as to their transferability or voting powers,

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which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Corporation, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate.  If the Corporation has authority to issue stock of more than one class, any certificate issued shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of stock and, if the Corporation is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the shares of each series to the extent they have been set and the authority of the Board of Directors to set the relative rights and preferences of subsequent series.  In lieu of such statement or summary, the certificate may state that the Corporation will furnish a full statement of such information to any stockholder upon request and without charge.  If any class of stock is restricted by the Corporation as to transferability, the certificate shall contain a full statement of the restriction or state that the Corporation will furnish information about the restrictions to the stockholder on request and without charge.At the election of the stockholder, a certificate may be in book entry form.

Section.2.               TRANSFERS

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.

Notwithstanding the foregoing, transfers of shares of any class of stock will be subject in all respects to the charter of the Corporation and all of the terms and conditions contained therein.

Section.3.               REPLACEMENT CERTIFICATE

Section 7.3.            Lost Certificates.  AnyFor 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 his or hersuch 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

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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.4.               CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE

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.  Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.

(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 ten10 days before the date of such meeting. However, so long as shares of capital stock of the Corporation are listed on the American Stock Exchange, the Board of Directors shall not close the transfer books of the Corporation.

(c)           If no record date is fixed and the stock transfer books are not closed for the determination of stockholders, (ai) 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 (bii) 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 directorsBoard 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, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein unless the Board of Directors shall set a new record date with respect thereto.

Section.5.               STOCK LEDGER

Section 7.5.            Stock Ledger.  The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share a stock ledger

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containing the name and address of each stockholder and the number of shares of each class of stock held by such stockholder.

Section.6.               FRACTIONAL STOCK; ISSUANCE OF UNITS

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 Corporation’s assets; and the Corporation may charge

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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 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

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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 IXARTICLE VIII 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 XARTICLE IX DIVIDENDS AND OTHER DISTRIBUTIONS

SECTION.1.         AUTHORIZATION

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, subject to the provisions of law and the charter of the Corporation.  Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the charter.

Section.2.               CONTINGENCIES.  Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine to be in the best interest of the Corporation, and the Board of Directors may modify or abolish any such reserve.

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ARTICLE X          INVESTMENT POLICYSubject to the provisions of the charter of the Corporation, the Board of Directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.

ARTICLE XISEAL

SECTION.1.         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 and provide for the custody thereof.

Section.2.               AFFIXING SEAL

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 XIIINDEMNIFICATION AND ADVANCE OF EXPENSES

To the maximum extent permitted by Maryland law in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of such corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his or her service in that capacity.  The Corporation may, with the approval of its Board of Directors, provide such indemnification and advance for expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.  As a condition to advancing expenses to a director or officer, the individual seeking such advance shall deliver to the Corporation (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the Corporation under applicable law and (b) a written undertaking by or on behalf of the director or officer to repay the amount advanced by the

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Corporation if it shall ultimately be determined that the standard of conduct necessary for indemnification by the Corporation under applicable law has not been met.

Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Bylaws or charter of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE XIII      WAIVER OF NOTICE

Section 12.1.          Waiver of Notice.  Whenever any notice is required to be given pursuant to the charter of the Corporation or, these Bylaws or pursuant to 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 XIIIARTICLE XIV 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

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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 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-10.1

EXHIBIT 10.1

CONFIRMATION OF AND JOINDER TO GUARANTEES AND
CONFIRMATION AND AMENDMENT OF AND JOINDER TO
OTHER INCIDENTAL DOCUMENTS

THIS CONFIRMATION OF AND JOINDER TO GUARANTEES AND CONFIRMATION AND AMENDMENT OF AND JOINDER TO OTHER INCIDENTAL DOCUMENTS (this “Confirmation”) is made as of August 1, 2008 by FIVE STAR QUALITY CARE, INC., a Maryland corporation (the “Guarantor”), FIVE STAR QUALITY CARE TRUST, a Maryland business trust (the “Tenant”), FSQ, INC., a Delaware corporation (the “Tenant Pledgor”), each of the parties identified on the signature page hereof as a subtenant pledgor (collectively, the “Subtenant Pledgors”), and each of the parties identified on the signature page hereof as a subtenant (collectively, the “Subtenants”) for the benefit of each of the parties identified on the signature page hereof as a landlord (collectively, the “Landlord”).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008 (as the same may be amended, restated or otherwise modified from time to time, “Amended Lease No. 3”), the Landlord leases to the Tenant, and the Tenant leases from the Landlord, certain property, all as more particularly described in Amended Lease No. 3; and

WHEREAS, the payment and performance of all of the obligations of the Tenant with respect to Amended Lease No. 3 are guaranteed by that certain Amended and Restated Guaranty Agreement (Lease No. 3), dated as of June 30, 2008, made by the Guarantor for the benefit of the Landlord (as the same may be amended, restated or otherwise modified from time to time, the “Tenant Guarantee”) and that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 3), dated as of June 30, 2008, made by certain of the Subtenants for the benefit of the Landlord (as the same my be amended, restated or otherwise modified from time to time, the “Subtenant Guarantee”; and, together with the Tenant Guarantee, collectively, the “Guarantees”); and

WHEREAS, the payment and performance of all of the obligations of the Tenant with respect to Amended Lease No. 3 are further secured by the other Incidental Documents (this and other capitalized terms used but not otherwise defined herein

shall have the meanings ascribed to them in Amended Lease No. 3); and

WHEREAS, pursuant to a First Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of the date hereof (the “First Amendment”), Amended Lease No. 3 is being amended to add certain properties thereto, all as more particularly described in the First Amendment; and

WHEREAS, the Tenant intends to enter into a sublease agreement (as the same may be amended, restated or otherwise modified from time to time, the “AL Sublease”) with FSQC-AL, LLC, a Maryland limited liability company and an affiliate of Tenant (the “AL Subtenant”), to sublease the properties being added to Amended Lease No. 3 pursuant to the First Amendment; and

WHEREAS, in connection with, and as a condition precedent to, the execution of the First Amendment by the Landlord, the Landlord has required that the parties hereto confirm that the Guarantees and the other Incidental Documents remain in full force and effect and apply to Amended Lease No. 3 as amended by the First Amendment, that the company interests in the AL Subtenant be pledged to the Landlord as additional security for the payment and perform of the obligations of Tenant under Amended Lease No. 3 and that the AL Subtenant join into those Incidental Documents as may be applicable to it; and

WHEREAS, in connection with the execution of the First Amendment and the AL Sublease, and in order to accomplish the foregoing, the parties hereto wish to amend certain of the Incidental Documents, including (i) the Amended and Restated Subtenant Security Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain of affiliates of the Subtenants and the Landlords (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Security Agreement”); (ii) the Amended and Restated Security Agreement (Lease No. 3), dated as of June 30, 2008, by and among the Tenant and the Landlords (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Tenant Security Agreement”); and (iii) the Amended and Restated Pledge of Stock and Membership Interests Agreement, dated as of June 30, 2008, made by the Subtenant Pledgors for the benefit of the Landlords (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Pledge Agreement”), all subject to and upon the terms and conditions herein set forth;

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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 parties hereto hereby agree, effective as of the date hereof, as follows:

1.             Joinder by AL Subtenant.  The AL Subtenant hereby joins in the Subtenant Guaranty and the Subtenant Security Agreement as if it had originally executed and delivered the Subtenant Guaranty and the Subtenant Security Agreement as a “Subtenant” thereunder.

2.             Amendment of Subtenant Security Agreement.  The Subtenant Security Agreement is hereby amended by (i) replacing Exhibit A attached thereto with Exhibit A attached hereto; (ii) replacing Schedule 1 attached thereto with Schedule 1 attached hereto; and (iii) replacing Schedule 2 attached thereto with Schedule 2 attached hereto.

3.             Amendment of Tenant Security Agreement.  The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

4.             Amendment of Subtenant Pledge Agreement.  The Subtenant Pledge Agreement is hereby amended by (i) replacing Exhibit A attached thereto with Exhibit A attached hereto; and (ii) replacing Exhibit B attached thereto with Exhibit B attached hereto.

5.             Confirmation of Guarantees and Other Incidental Documents.  Each of the parties to the Guarantees and the other Incidental Documents hereby confirms that all references in the Guarantees and the other Incidental Documents to the “Amended Lease No. 3” shall refer to Amended Lease No. 3 as amended by the First Amendment, and the Guarantees and the other Incidental Documents, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

6.             No Impairment, Etc.  The obligations, covenants, agreements and duties of the guarantors under the Guarantees shall not be impaired in any manner by the execution and delivery of the First Amendment, and in no event shall any ratification or confirmation of such Guarantees or such other Incidental Documents, or the obligations, covenants, agreements and the duties of the guarantors thereunder or of the parties under the other Incidental Documents, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

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[Signatures on following pages.]

4

IN WITNESS WHEREOF, the parties hereto have caused this Confirmation to be duly executed, as a sealed instrument, as of the date first set forth above.

GUARANTOR:
FIVE STAR QUALITY CARE, INC.,
a Maryland corporation
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
TENANT:
FIVE STAR QUALITY CARE TRUST,
a Maryland business trust
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
TENANT PLEDGOR:
FSQ, INC.,
a Delaware corporation
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
SUBTENANT 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

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SUBTENANTS:
FSQC-AL, LLC,
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 of each of
			the foregoing entities

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LANDLORD:
SPTIHS PROPERTIES TRUST,
SPTMNR PROPERTIES TRUST, and
SNH SOMERFORD PROPERTIES TRUST
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	Treasurer and Chief Financial
	Officer and Secretary of each
	Of the foregoing entities

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The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Exhibit A (Subleases), Exhibit B (Pledged Interests) and Schedule 1 (Facilities), Schedule 2 (Facilities) and Schedule 3 (Facilities)

EX-10.2

EXHIBIT 10.2

SECOND AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 3)

THIS SECOND AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 3) (this “Amendment”) is made and entered into as of September 1, 2008 by and among each of the parties identified on the signature page hereof as a landlord, as landlord (collectively, “Landlord”), and FIVE STAR QUALITY CARE TRUST, a Maryland business trust, as tenant (“Tenant”).

W I T N E S S E T H:

WHEREAS, Landlord and Tenant are parties to that certain Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, as amended by that certain First Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of August 1, 2008 (as so amended, “Lease No. 3”); and

WHEREAS, on or about the date hereof, various affiliates of Landlord (collectively, the “RMI Landlords”) have acquired eight senior living facilities located in State of Indiana (collectively, the “RMI Facilities”); and

WHEREAS, Landlord and Tenant would prefer to add the RMI Properties to Lease No. 3 on the date hereof but it is not feasible to do so because of certain financing restrictions which currently encumber the RMI Facilities; and

WHEREAS, instead of adding the RMI Properties to Lease No. 3 as of the date hereof, the RMI Landlords are leasing the RMI Facilities to Five Star Quality Care-RMI, LLC (the “RMI Tenant”) pursuant to a separate Master Lease Agreement, dated as of the date hereof, among the RMI Landlords and the RMI Tenant; and

WHEREAS, Landlord and Tenant have agreed to amend Lease No. 3 in certain respects in order to cause the RMI Facilities to be added to Lease No. 3 as soon as the applicable financing restrictions are released; and

WHEREAS, the RMI Landlords and the RMI Tenant have agreed to join in this Amendment for the limited purposes of evidencing their consent to this Amendment and their agreement to add the RMI Facilities to Lease No. 3 as soon as the applicable financing restrictions are released;

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, Lease No. 3 is hereby amended as follows:

1.Definition of RMI Lease.  The following new definition for the term “RMI Lease” is hereby added to Lease No. 3 as a new Section 1.95 immediately following Section 1.94 thereof:

“RMI Lease”  shall mean that certain Master Lease Agreement, dated 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, SNH RMI Sycamore Manor Properties LLC, and Five Star Quality Care-RMI, LLC.

2.Definition of RMI Property.  The following new definition for the term “RMI Property” is hereby added to Lease No. 3 immediately following new Section 1.95 thereof:

“RMI Property”  shall mean a “Property,” as defined therein, under the RMI Lease.

3.Default under RMI Lease.  The following new Section 12.1(l) is hereby added to Lease No. 3 immediately following Section 12.1(k) thereof:

should there occur an “Event of Default,” as defined therein, under the RMI Lease.

4.Addition of RMI Properties.  The following new Section 23.18 is hereby added to Lease No. 3 immediately following Section 23.17 thereof:

RMI Properties.  Landlord and Tenant expressly acknowledge and agree that, effective automatically upon the release of any RMI Property from the financing which is secured by such RMI Property, such RMI Property shall be added to and demised under this Agreement in accordance with the terms and conditions hereof, the Minimum Rent payable hereunder shall be increased by an amount equal to the Minimum Rent payable under the RMI Lease with respect to such RMI

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Property (as reasonably determined by Landlord and Tenant), and the Additional Rent payable hereunder shall be increased by the Additional Rent payable under the RMI Lease with respect to such RMI Property.  The addition of such RMI Property in accordance with the terms hereof shall be automatic without any requirement that Landlord or Tenant take any action or execute any document, instrument, amendment or confirmation with respect thereto.  Notwithstanding the foregoing, Landlord and Tenant shall execute and deliver such documents, instruments, agreements and confirmations as the other party shall reasonably request with respect to the foregoing.

6.Ratification.  As amended hereby, Lease No. 3 is hereby ratified and confirmed.

[Signature Page Follows.]

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IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:
SNH SOMERFORD PROPERTIES TRUST, SPTIHS PROPERTIES TRUST, and SPTMNR PROPERTIES TRUST, each a Maryland real estate investment trust
By:	/s/ David J. Hegarty
	David J. Hegarty
	President and Chief Operating Officer of each of the foregoing entities
TENANT:
FIVE STAR QUALITY CARE TRUST, a Maryland business trust
By:	/s/ Francis R. Murphy III
	Francis R. Murphy III
	Treasurer and Chief Financial Officer

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THE RMI LANDLORDS AND THE RMI TENANT HEREBY JOIN IN THE EXECUTION OF THIS AMENDMENT FOR THE LIMITED PURPOSES OF CONSENTING TO THE TERMS AND CONDITIONS HEREOF ONCE THE APPLICABLE FINANCING RESTRICTIONS ARE RELEASED WITH RESPECT TO EACH RMI PROPERTY.

RMI OWNERS:

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 and Chief Operating Officer
	of each of the foregoing entities

RMI OPERATOR:

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

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EX-10.3

EXHIBIT 10.3

THIRD AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 3)

THIS THIRD AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 3) (this “Amendment”) is made and entered into as of November 1, 2008 by and among each of the parties identified on the signature page hereof as a landlord, as landlord (collectively, “Landlord”), and FIVE STAR QUALITY CARE TRUST, a Maryland business trust, as tenant (“Tenant”).

W I T N E S S E T H:

WHEREAS, certain entities comprising Landlord and Tenant are parties to that certain Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, as amended by that certain First Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of August 1, 2008, and that certain Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of September 1, 2008 (as so amended, “Lease No. 3”); and

WHEREAS, on the date hereof, Senior Housing Properties Trust, a Maryland real estate investment trust and the ultimate parent of each entity comprising Landlord, has purchased all of the shares of common stock of O.F.C. Corporation, an Indiana corporation (the “Company”), which purchase includes the interest of the Company in a senior living facility commonly known as “Meadowood Retirement Community” and located in Bloomington, Indiana, as more particularly described on Exhibit A-37 attached hereto (the “Meadowood Property”); and

WHEREAS, the Company, the other entities comprising Landlord and Tenant wish to amend Lease No. 3 to add the Meadowood Property thereto;

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, Lease No. 3 is hereby amended as follows:

1.             Joinder by O.F.C. Corporation.  The Company hereby joins in Lease No. 3 as if it had originally executed and delivered Lease No. 3 as a “Landlord” thereunder.

2.             Definition of Minimum Rent.  Section 1.65 of Lease No. 3 is hereby deleted in its entirety and replaced with the following:

“Minimum Rent”  shall mean the sum of Seventeen Million Eight Hundred Fifty-Eight Thousand One Hundred Two and 00/100s Dollars ($17,858,102.00) per annum.

2.             Leased Property.  Section 2.1 of Lease No. 3 is hereby amended by deleting subsection (a) in its entirety and replacing it with the following:

(a) those certain tracts, pieces and parcels of land as more particularly described on Exhibits A-1 through A-37 attached hereto and made a part hereof (the “Land”).

3.             Schedule 1.  Schedule 1 to Lease No. 3 is hereby deleted in its entirety and replaced with Schedule 1 attached hereto.

4.             Exhibit A.  Exhibit A to Lease No. 3 is hereby amended by adding Exhibit A-37 attached hereto following Exhibit A-36 to Lease No. 3.

5.             Ratification.  As amended hereby, Lease No. 3 is hereby ratified and confirmed.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:
SNH SOMERFORD PROPERTIES TRUST, a Maryland real estate investment trust, SPTIHS PROPERTIES TRUST, a Maryland real estate investment trust, SPTMNR PROPERTIES TRUST, a Maryland real estate investment trust, and O.F.C. CORPORATION, an Indiana corporation
By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the
	foregoing entities
TENANT:
FIVE STAR QUALITY CARE TRUST, a
Maryland business trust
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President

The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Schedule 1 (Property Specific Information) and Exhibit A-37 (Land)

EX-10.4

EXHIBIT 10.4

CONFIRMATION OF AND JOINDER TO GUARANTEES AND
CONFIRMATION AND AMENDMENT OF AND JOINDER TO
OTHER INCIDENTAL DOCUMENTS

THIS CONFIRMATION OF AND JOINDER TO GUARANTEES AND CONFIRMATION AND AMENDMENT OF AND JOINDER TO OTHER INCIDENTAL DOCUMENTS (this “Confirmation”) is made as of November 1, 2008 by FIVE STAR QUALITY CARE, INC., a Maryland corporation (the “Guarantor”), FIVE STAR QUALITY CARE TRUST, a Maryland business trust (the “Tenant”), FSQ, INC., a Delaware corporation (the “Tenant Pledgor”), each of the parties identified on the signature page hereof as a subtenant pledgor (collectively, the “Subtenant Pledgors”), and each of the parties identified on the signature page hereof as a subtenant (collectively, the “Subtenants”) for the benefit of each of the parties identified on the signature page hereof as a landlord (collectively, the “Landlord”).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 3), dated as of June 30, 2008, as amended by that certain First Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of August 1, 2008, and that certain Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of September 1, 2008 (as so amended, “Amended Lease No. 3”), certain entities comprising the Landlord lease to the Tenant, and the Tenant leases from certain entities comprising the Landlord, certain property, all as more particularly described in Amended Lease No. 3; and

WHEREAS, the payment and performance of all of the obligations of the Tenant with respect to Amended Lease No. 3 are guaranteed by that certain Amended and Restated Guaranty Agreement (Lease No. 3), dated as of June 30, 2008, made by the Guarantor for the benefit of the Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Tenant Guarantee”) and that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 3), dated as of June 30, 2008, made by certain of the Subtenants for the benefit of the Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Guarantee”; and, together with the Tenant Guarantee, collectively, the “Guarantees”); and

WHEREAS, the payment and performance of all of the obligations of the Tenant with respect to Amended Lease No. 3

are further secured by the other Incidental Documents (this and other capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in Amended Lease No. 3); and

WHEREAS, pursuant to a Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 3), dated as of the date hereof (the “Third Amendment”), Amended Lease No. 3 is being amended to add a certain property thereto, as more particularly described in the Third Amendment; and

WHEREAS, the Tenant intends to enter into a sublease agreement (as the same may be amended, restated or otherwise modified from time to time, the “IN Sublease”) with Five Star Quality Care-IN, LLC, a Maryland limited liability company and an affiliate of Tenant (the “IN Subtenant”), to sublease the property being added to Amended Lease No. 3 pursuant to the Third Amendment; and

WHEREAS, in connection with, and as a condition precedent to, the execution of the Third Amendment by the Landlord, the Landlord has required that the parties hereto confirm that the Guarantees and the other Incidental Documents remain in full force and effect and apply to Amended Lease No. 3 as amended by the Third Amendment, and that the Incidental Documents be amended, subject to the terms and conditions of this Confirmation; and

WHEREAS, in connection with the execution of the Third Amendment and the IN Sublease, and in order to accomplish the foregoing, the parties hereto wish to amend certain of the Incidental Documents, including (i) the Amended and Restated Subtenant Security Agreement (Lease No. 3), dated as of June 30, 2008, by and among certain of the Subtenants and certain entities comprising the Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Security Agreement”); (ii) the Amended and Restated Security Agreement (Lease No. 3), dated as of June 30, 2008, by and among the Tenant and certain entities comprising the Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Tenant Security Agreement”); and (iii) the Amended and Restated Pledge of Stock and Membership Interests Agreement, dated as of June 30, 2008, made by certain of the Subtenant Pledgors for the benefit of certain entities comprising the Landlord (as the same may be amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Pledge Agreement”), all subject to and upon the terms and conditions herein set forth;

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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 parties hereto hereby agree, effective as of the date hereof, as follows:

1.             Joinder by IN Subtenant.  The IN Subtenant hereby joins in the Subtenant Guarantee and the Subtenant Security Agreement as if it had originally executed and delivered the Subtenant Guarantee and the Subtenant Security Agreement as a “Subtenant” thereunder.

2.             Joinder by New Subtenant Pledgors.  The Heartlands Retirement Community - Ellicott City I, Inc. and The Heartlands Retirement Community - Ellicott City II, Inc., each a Maryland corporation, as the sole members of FSQC-AL, LLC and IN Subtenant respectively, hereby join in the Subtenant Pledge Agreement as if they had originally executed and delivered the Subtenant Pledge Agreement as “Pledgors” thereunder.

3.             Acknowledgement of O.F.C. Corporation.  Each of Tenant, Guarantor, Subtenants, Tenant Pledgor and Subtenant Pledgors hereby recognizes O.F.C. Corporation as a beneficiary under each of the Incidental Documents as if O.F.C. Corporation were originally named as a “Landlord” or “Secured Party”, as applicable, under such Incidental Document where the context so applies.

4.             Amendment of Subtenant Security Agreement.  The Subtenant Security Agreement is hereby amended by (i) replacing Exhibit A attached thereto with Exhibit A attached hereto; (ii) replacing Schedule 1 attached thereto with Schedule 1 attached hereto; and (iii) replacing Schedule 2 attached thereto with Schedule 2 attached hereto.

5.             Amendment of Tenant Security Agreement.  The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

6.             Amendment of Subtenant Pledge Agreement.  The Subtenant Pledge Agreement is hereby amended by (i) replacing Exhibit A attached thereto with Exhibit B attached hereto; and (ii) replacing Exhibit B attached thereto with Exhibit C attached hereto.

7.             Confirmation of Guarantees and Other Incidental Documents.  Each of the parties to the Guarantees and the other Incidental Documents hereby confirms that all references in the Guarantees and the other Incidental Documents to the “Amended

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Lease No. 3” shall refer to Amended Lease No. 3 as amended by the Third Amendment, and the Guarantees and the other Incidental Documents, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

8.             No Impairment, Etc.  The obligations, covenants, agreements and duties of the guarantors under the Guarantees shall not be impaired in any manner by the execution and delivery of the Third Amendment, and in no event shall any ratification or confirmation of such Guarantees or such other Incidental Documents, or the obligations, covenants, agreements and the duties of the guarantors thereunder or of the parties under the other Incidental Documents, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

[Signatures on the following pages.]

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IN WITNESS WHEREOF, the parties hereto have caused this Confirmation to be duly executed, as a sealed instrument, as of the date first set forth above.

GUARANTOR:
FIVE STAR QUALITY CARE, INC.
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
TENANT:
FIVE STAR QUALITY CARE TRUST
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President
TENANT PLEDGOR:
FSQ, INC.
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President

SUBTENANT PLEDGORS:
FIVE STAR QUALITY CARE–CA II, INC., FIVE STAR QUALITY CARE–SOMERFORD, LLC,
SOMERFORD PLACE, LLC,
HAMILTON PLACE, LLC,
THE HEARTLANDS RETIREMENT COMMUNITY– ELLICOTT CITY I, INC., and
THE HEARTLANDS RETIREMENT COMMUNITY– ELLICOTT CITY II, INC.
By:	/s/ Travis K. Smith
	Travis K. Smith
	Vice President of each of the
	foregoing entities

SUBTENANTS:
FIVE STAR QUALITY CARE-IN, LLC,
FSQC-AL, LLC,
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

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LANDLORD:
SPTIHS PROPERTIES TRUST,
SPTMNR PROPERTIES TRUST,
SNH SOMERFORD PROPERTIES TRUST,
and O.F.C. CORPORATION
By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the
	foregoing entities

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The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Exhibit A (Subleases), Exhibit B (Subleases) and Exhibit C (Pledged Interests) and Schedule 1 (Subtenants), Schedule 2 (Facilities), and Schedule 3 (Facilities)

EX-10.5

EXHIBIT 10.5

PURCHASE AND SALE AGREEMENT

                THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) shall be effective as of October 10, 2008 (the “Effective Date”), by and between ANDERSON SENIOR LIVING PROPERTY, LLC, an Oregon limited liability company, MT. PLEASANT OAKDALE I PROPERTY, LLC, an Oregon limited liability company, MT. PLEASANT OAKDALE II PROPERTY, LLC, an Oregon limited liability company, CHARLOTTE OAKDALE PROPERTY, LLC, an Oregon limited liability company, GREENSBORO OAKDALE PROPERTY, LLC, an Oregon limited liability company, PINEHURST OAKDALE PROPERTY, LLC, an Oregon limited liability company, and WINSTON-SALEM OAKDALE PROPERTY, LLC, an Oregon limited liability company, each a Debtor and Debtor in Possession (collectively, the “Seller”) under Case No. 08-07254 (jointly administered) (the “Case”) in the United States Bankruptcy Court for the Middle District of Tennessee (the “Bankruptcy Court”), and FIVE STAR QUALITY CARE, INC., a Maryland corporation (“Purchaser”).  (Seller and Purchaser are hereinafter referred to collectively as “Parties” and individually as a “Party.”)

RECITALS

A.            Seller, together with the certain other entities (the “TICs”), (i) is the owner of certain real property more particularly described on Exhibit 1 attached hereto and incorporated by reference (collectively, the “Land”) and (ii) is the owner of buildings, improvements and other

assets located on the Land, including assisted living and retirement living facilities identified on Exhibit 1 attached hereto (collectively, the “Facilities” and each individually, a “Facility”).  Certain other persons (the “Master Tenants”) lease the Facilities under ground leases entered into with Seller and the TICs (the “Master Leases”).  Seller, the TICs, and the Master Tenants are sometimes hereafter referred to collectively as the “Seller Parties.”

C.            Seller wishes to sell to Purchaser (as to Seller’s interests), and to cause to be sold to Purchaser (as to the interests of the TICs), pursuant to Section 363 of Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) (i) the Land (including the interests of Seller and of the TICs); (ii) the Facilities and related improvements (including the interests of Seller and of the TICs); and (iii) the personal property owned by Seller and the TICs related to the Facilities; and to cause the sale of the Master Tenants’ personal property and the assignment of the Master Tenants’ Contracts (as said term is defined below) to Purchaser, all at the price and on the other terms and conditions specified below, and Purchaser wishes to so purchase and acquire such assets.

AGREEMENT

The Recitals set forth above are hereby incorporated herein by this reference.  Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, Seller and Purchaser agree as follows:

1.             Purchase.  Subject to the Bankruptcy Court’s entry of the orders referred to in this Agreement, Seller agrees to sell to Purchaser, or cause to be sold to Purchaser, on the Closing Date (as defined below), and Purchaser agrees to purchase on the Closing Date, in accordance with the terms of this Agreement:

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(a)           the Land and all easements, beneficial interests, rights and privileges appurtenant to the Land;

(b)           the existing buildings, fixtures, structures and other improvements located upon or affixed to the Land (including, without limitation, the Facilities), together with, except to the extent owned by residents and not constituting Personal Property (as hereinafter defined), all apparatus, equipment and appliances incorporated therein and used in connection with the ownership, operation or occupancy thereof (the “Improvements”);

(c)           all of the Seller Parties’ right, title and interest in and to all tangible personal property located within and/or used in connection with the ownership, operation or occupancy of the Improvements including all moveable trade fixtures, furniture, motor vehicles, personal computers, medical equipment, books and records (including, without limitation, sales, marketing and advertising materials, lists of present suppliers and personnel, employment records, and all records relating to the personal, medical, social, and financial status of each resident, including but not limited to, admission applications, Multiple Data Set (MDS) evaluations, care plans, medical records, and other resident specific data required to be kept by licensing and certification authorities), and other inventories, stocks and supplies used in connection with the ownership, operation or occupancy of the Facilities to the extent of the Seller Parties’ interests therein (the “Personal Property”);

(d)           all of the Seller Parties’ right, title and interest in and to the resident agreements for the Facilities in effect on the Closing Date, including any refundable deposits under the resident agreements (the “Resident Agreements”); and

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(e)           all of the Seller Parties’ right, title and interest, if any, in and to (i) the trade names listed on Schedule 3 attached hereto (the “Trade Names”), and (ii) the Assumed Contracts (as hereinafter defined), and all warranties, guarantees, licenses, permits, building plans and drawings, surveys, and resident lists and correspondence, records, telephone exchanges and numbers, claims (including tax appeals and condemnation claims), goodwill, accounts receivable which have been outstanding for more than thirty (30) days as of the Closing Date, and any other intangible property of any kind or nature to the extent transferable (collectively, the “Rights”).

The Land and the Improvements are collectively referred to herein as the “Real Property”.  The Real Property, Personal Property, Resident Agreements and Rights are referred to herein collectively as the “Property.”  Notwithstanding any other provision of this Agreement, the Property will not include the Excluded Assets (as defined below).

2.             Excluded Assets.  Notwithstanding anything to the contrary set forth in this Agreement, Seller is not transferring to Purchaser any of, and Purchaser shall acquire no right, title or interest in or to the following assets of the Seller Parties (the “Excluded Assets”):

(a)           all cash, cash equivalents, securities and investments, and accounts receivable, notes receivable, premiums receivable, and other rights to receive payments from customers or residents of the Facility or from others, including all trade accounts receivable representing amounts payable to any Seller Party for services rendered to such customers or residents prior to the Closing Date except as otherwise provided herein (provided, however, in no event shall any refundable deposits under the Resident Agreements or any unpaid accounts

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receivable which have been outstanding for more than thirty (30) days as of the Closing Date be considered a part of the Excluded Assets);

(b)           all proprietary books, records, files, and papers (whether in hard copy or computer format) that are not used in, and that do not relate to or affect, the Property;

(c)           any governmental authorization that relates to or affects any Facility but which is not assignable or transferable and does not run with the land;

(d)           all personnel and employment records that relate to former or current Facility Employees (as defined below) except those hired by Purchaser or Purchaser’s designee as provided herein or otherwise to the extent that legal requirements require such records, or copies of such records, to remain at the Facilities;

(e)           all insurance policies to which any Seller Party or any affiliate of a Seller Party is a party (but without derogation of Purchaser’s right to proceeds thereof in accordance with the terms of this Agreement);

(f)            all refundable utility or other vendor deposits, except as provided herein;

(g)           any other property of a Seller Party that is expressly described on Schedule 1 attached hereto; and

(h)           All preference or avoidance claims of and actions of Seller, including any such claims and actions arising under Sections 544, 547, 548, 549 and 550 of the Bankruptcy Code.

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3.             Opening of Escrow; Deposits.

(a)           Upon full execution, this Agreement shall constitute a binding agreement between the Parties; provided, however, that Seller’s authority to enter into the transactions contemplated in this Agreement is subject to Bankruptcy Court approval.  This Agreement shall also constitute escrow instructions to Escrow Agent (as defined below).  If Escrow Agent requires separate escrow instructions, the Parties shall execute such escrow instructions in a form and substance reasonably satisfactory to the Parties upon Escrow Agent’s request; provided, however, as between the Parties, in the event of any conflict between this Agreement and such escrow instructions, this Agreement shall control.  Promptly upon full execution of this Agreement by Purchaser, Seller and Lawyers Title Insurance Corporation, 140 East 45^th Street, New York, New York 10017 (“Escrow Agent”), an escrow (the “Escrow”) shall be deemed open with Escrow Agent, which Escrow shall be governed by the terms of this Agreement.  When this Agreement has been fully executed by Purchaser and Seller and delivered to Escrow Agent, Escrow Agent shall notify Purchaser and Seller in writing.  The date on which Purchaser receives such notice from Escrow Agent shall be the opening of the Escrow.

(b)           As security for Purchaser’s obligations under this Agreement, within one (1) business day after the Effective Date, Purchaser shall deposit into Escrow two million two hundred and fifty thousand dollars ($2,250,000.00) by wire transfer of immediately available funds as an initial earnest money deposit (the “Deposit”).  Escrow Agent shall deposit the Deposit into an interest-bearing money market account with a bank or financial institution reasonably acceptable to the Parties.  Any interest earned on the Deposit shall be considered a part of the Deposit and the Deposit shall be applied towards the Purchase Price (as defined below) at the Closing.  The Deposit will be non-refundable to Purchaser except as specifically

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provided in this Agreement.  If Purchaser fails to deposit the Deposit on or before the date for performance as provided in this paragraph, this Agreement may be terminated at Seller’s option by written notice to Purchaser, whereby this Agreement shall be of no further force and effect, except for the provisions herein which by their terms expressly survive the termination of this Agreement.

4.             Purchase Price.  At the Closing, Purchaser shall deposit into Escrow, for the benefit of Seller, an aggregate purchase price of forty four million dollars ($44,000,000.00) for the Property (the “Purchase Price”), as adjusted pursuant to the terms of this Agreement, and inclusive of the Deposit.  The Purchase Price shall be payable by wire transfer of immediately available funds, inclusive of the Deposit, at Closing.

5.             Access to Property.  From the Effective Date to the earlier of the Closing or the termination of this Agreement, Seller shall and shall cause each Seller Party to, upon reasonable notice, (a) afford to the officers, employees, accountants, counsel and other representatives of Purchaser (each a “Purchaser Representative”), reasonable access, during normal business hours, to the Property and all books and records relating thereto (including any documents governing each Plan (hereinafter defined), including descriptions of each Plan that are provided to the Facility Employees); provided that nothing herein shall require the provision of such access to the extent it would unreasonably interfere with the normal business operations of any Seller Party or interfere unreasonably or otherwise disturb the residents of the Property; (b) furnish to Purchaser and the Purchaser Representatives such additional financial and operating data and other information regarding the Property as Purchaser or the Purchaser Representatives may from time to time reasonably request in connection with the transactions

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contemplated by this Agreement, (c) permit the Purchaser Representatives to perform, during normal business hours, investigations with respect to title, survey, structural and environmental matters affecting the Property at such reasonable times as the Purchaser Representatives may reasonably request, provided, however, that any invasive environmental sampling, testing or analysis proposed by a Purchaser Representative shall be subject to Seller’s prior written consent, which shall not be unreasonably withheld, and (d) permit the Purchaser Representatives to meet with and interview the Facility Employees (as hereinafter defined) and residents.  Purchaser shall be liable for any damage or injury caused by Purchaser or any Purchaser Representative during any entry onto the Property while exercising such rights.

6.             Deed, Bill of Sale and Assignments.  Title to the Real Property will be conveyed by a special warranty deed substantially in the form attached hereto as Exhibit 2A and 2B (the “Deed”).  Title to the Personal Property will be conveyed by Bill of Sale substantially in the form attached hereto as Exhibit 3 (the “Bill of Sale”); to the Resident Agreements, by an Assignment and Assumption of Resident Agreements substantially in form attached hereto as Exhibit 4 (the “Assignment and Assumption of Resident Agreements”); and to the Rights, if any, by an Assignment of Rights substantially in the form attached hereto as Exhibit 5 (the “Assignment of Rights”).  As used herein the Deed, the Bill of Sale, the Assignment of Resident Agreements and the Assignment of Rights are referred to collectively as the “Conveyance Documents”.  All such Conveyance Documents will be dated as of the Closing Date and will be executed by the applicable Seller Parties.

7.             Contracts.  Effective as of the Closing Date, Purchaser shall assume, perform and discharge those certain debts, obligations, duties, or liabilities of every type and trade, known or unknown, liquidated or unliquidated, matured or unmatured, assertable or unassertable, fixed,

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contingent, absolute or otherwise which shall first arise or accrue under the Assumed Contracts (as defined below) on or after the Closing Date (the “Liabilities”).  All service, maintenance, supply and management contracts to which the Seller Parties are a party and which are related to the Property or the operation of the Facility are listed on Schedule 2 attached hereto (the “Contracts”).  Within fifteen (15) days after the Effective Date, subject to extension day-for-day for each day after the Effective Date by which Purchaser shall not have received true and complete copies of the Contracts, Purchaser will give notice to Seller advising which Contracts it will assume and which it will require the Seller Parties to terminate or cause to be terminated (at no cost or expense to Purchaser) as of the Closing Date.  The contracts and all other agreements that Purchaser elects to assume are referred to herein as the “Assumed Contracts.”  Purchaser shall have no liability or obligation with respect to any Contracts or any other contracts or agreements relating to the Facilities or the Land except for the Assumed Contracts, and shall have no liability or obligation which shall have accrued or arisen prior to Closing with respect to any Assumed Contracts.

8.             Seller’s Representations and Warranties. Seller, to the best of its actual knowledge, makes the following representations and warranties to Purchaser, which representations and warranties shall be true and correct in all material respects on and as of the Closing, and which representations and warranties shall survive the Closing for a period of one (1) year:

(a)           Organization, Standing and Power.  Seller is duly organized and validly existing under the laws of its state of formation or organization and is fully authorized to transact business and to own and convey property in the state in which its Property is located and has full power and right, subject to the approval of the Bankruptcy Court, to enter into and perform this

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Agreement, and the execution and delivery of this Agreement, and the consummation of the transactions contemplated herein by Seller, have been duly authorized.

(b)           Authorization of Seller.  This Agreement is, and all documents which are to be executed by Seller and delivered to Purchaser on the Closing Date are, and on the Closing Date will be, duly authorized, executed and delivered by Seller, and are, and on the Closing Date will be, legal, valid and binding obligations of Seller.  Subject to the Seller’s obtaining the Approval Order (as defined below), the execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and the performance of, fulfillment of and compliance with the terms and conditions hereof by Seller do not and will not:  (i) conflict with or result in a breach of the certificates of formation, operating agreements or similar corporate documents of the Seller; (ii) violate any statute, law, rule or regulation, or any judgment, order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default under any agreement, instrument or writing of any nature to which Seller is a party or by which Seller or its assets or properties may be bound.

(c)           Permitted Encumbrances.  The Property is not subject to any liens, claims or encumbrances which will be binding on the Property following the Closing and which could reasonably be expected to unreasonably interfere with or impair the current or future use, marketability or value of any Property.  No Property or Facility is in material violation of any easements, covenants or other encumbrances that will be binding on the Property or such Facility following the Closing.

(d)           Resident Agreements.  Except for the Master Leases, as of October 10, 2008, there is no tenancy or other occupancy in the Property or any part thereof, except for the

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Resident Agreements set forth on the rent roll attached hereto as Schedule 5.  Schedule 5 is, in all material respects, a true, correct and complete copy of all the rent rolls for the Facilities and sets forth, for each of the Resident Agreements, (i) the name of the occupant or resident thereunder and the applicable unit number, (ii) the current monthly rental amount (including base and care income), under such Resident Agreement and any free rent or other rent concessions, (iii) the move-in date and the expiration date of the current term of such Resident Agreement, (iv) the amount of any community fees, up-front payment (whether refundable or not), security deposit, advance rent or other deposits paid under such Resident Agreement, and (v) a schedule of all of the documents comprising the Resident Agreement and any guaranties thereof.  Except as set forth on said Schedule 5, (A) no party to any of the Resident Agreements is in material default thereunder; (B) no resident has prepaid any rents, fees or other charges under any of the Resident Agreements; and (C) no resident is entitled to any guaranteed rates or other incentives or inducements that would preclude Purchaser from charging market rates to any resident under any Resident Agreement.  A true, correct and complete copy of the standard form of Resident Agreement for the Facilities is being provided contemporaneously with the execution of this Agreement.

(e)           Contracts.  The copies of the Contracts heretofore delivered by Seller to Purchaser are true, correct and complete copies thereof; the Contracts have not been amended except as evidenced by amendments similarly delivered and constitute the entire agreement between the parties thereto.  Each Contract is in full force and effect on the terms set forth therein, and there are no defaults or circumstances which, with the giving of notice, the passage of time or both, would constitute a default by any party under such Contract.

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(f)            No Condemnations.  Neither Seller nor Master Tenant has received written notice of any pending or threatened condemnation of all or any part of the Property and no such condemnation is pending or threatened.

(g)           No Pending Assessments.  Neither Seller nor Master Tenant has received written notice of any pending assessment for municipal improvements applicable to the Property and no such assessments are pending.

(h)           No Violations of Law.  Neither Seller nor Master Tenant has received written notice from any governmental or public authority (i) that the Property or any part thereof is or may be in violation of any applicable fire, health, building, use, occupancy, zoning or other laws where such violation remains outstanding or (ii) that any work is or may be required to be done upon or in connection with the Property or any part thereof, where such work remains outstanding.  None of the Facilities nor the use, occupancy or condition thereof violates, in any material way, any applicable fire, health, building, use, occupancy, zoning or other laws, rules and regulations of any federal, state, city or county government or any agency, body, or subdivision thereof having any jurisdiction over such Facility or any easements, covenants, restrictions or other matters of record with respect to the Land on which such Facility is located.

(i)            Healthcare Licensing.  The Seller Parties currently maintain all applicable licenses and approvals (collectively, the “Healthcare Licenses”) which are necessary to permit each Facility to be operated as it is currently operated and to permit the Seller Parties to provide the services which they currently provides to the residents of such Facilities.  Seller has provided Purchaser with true, correct and complete copies of the last two (2) annual compliance surveys related to such Healthcare Licenses.  Each of the Healthcare Licenses is in full force and effect

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and no Seller Party has received any written notice regarding, nor does Seller have any knowledge of, any circumstance at any Facility which would need to be rectified in connection with such Healthcare Licenses.

(j)            Environmental Matters.  Neither Seller nor Master Tenant has received written notice from any federal, state or local governmental authority or agency that remains outstanding and unresolved or uncured claiming that (i) any Facility or any use thereof violates any law, rule or regulation relating to the prevention of pollution or protection of the environment or human health and safety (collectively “Environmental Laws”), or (ii) any Seller Party or any tenant or other occupant of the Property has violated or has liability under any Environmental Laws with respect to the Property, or (iii) any investigation, cleanup or other work is required at the Property pursuant to any Environmental Law.  Neither the Property nor any Facility nor the use, occupancy or condition thereof violates, in any material way, any applicable Environmental Law.  No hazardous or toxic substances, materials, waste or chemicals (including without limitation oil, gasoline and diesel fuel) (“Hazardous Materials”) are located at or have been used on the Property except in compliance with Environmental Law.  No material quantity of Hazardous Material has been discharged, dispersed, released, disposed of or allowed to escape on, under or at the Property.  No underground storage tanks, friable asbestos or polychlorinated biphenyls are located at the Property, and the Property does not contain mold in amount or condition that would reasonably be expected to result in material cost or expense for removal or remediation or otherwise result in material liability.  Seller has provided Purchaser with true, correct and complete copies of all environmental reports and assessments in its possession or control relating to the Property.

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(k)           Medicare and Medicaid.  No governmental authority has imposed or threatened any sanction, including but not limited to, loss of or limitation on license, termination from the Medicare or Medicaid programs, denial of payment for new admissions, directed plans of correction, or civil money penalties that apply to or may affect the operation of any Facility.  No Seller Party has received any notice of deficiency from any governmental authority with respect to any Facility.  All cost reports which have been prepared and filed by or on behalf of any Seller Party with respect to any Facility were prepared and filed in accordance with applicable Medicare and Medicaid cost reporting requirements.

(l)            Employees.  The schedule of Facility Employees to be delivered pursuant to Section 12 below is and will be true, accurate and complete in all material respects.  All of the Facility Employees are employees of the Seller.  No Facility Employees are represented by any labor organization, and no labor organization or group of Facility Employees has made a pending demand for recognition or has filed a petition seeking a representation proceeding with the National Labor Relations Board within the last two (2) years.

(m)          No Litigation.  Except for the Seller’s Chapter 11 case, no Seller Party has received written notice of, and Seller has no knowledge of, any legal actions, suits, or other legal or administrative proceedings, pending or threatened against any Seller Party or any Facility which will materially adversely affect the ability of any such party to perform its obligations under this Agreement or any other agreement with Purchaser to acquire portions of or interests in the Property or the current operations at any Facility.

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(n)           Not a Foreign Person.  Seller is not, and to Seller’s knowledge, no other Seller Party is, a “foreign person” as such term is defined under Section 1445(1)(3) of the Internal Revenue Code.

(o)           Tax Matters.  No claim has ever been received by any Seller from a taxing authority in a jurisdiction where such Seller does not file tax returns that it is or may be subject to taxation by that jurisdiction or that it must file tax returns in such jurisdiction.

(p)           Compliance with ERISA.  Seller has provided Purchaser, contemporaneously with the execution of this Agreement, a brochure which sets forth a list of each employee benefit plan (including without limitation each “employee benefit plan,” within the meaning of Section 3 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) and every other employee benefit plan or arrangement operated and administered by any Seller Party (each a “Plan”).  Each Plan has been operated and administered in material compliance with all applicable laws, rules and regulations of any federal, state, city or county government or any agency, body, or subdivision thereof having jurisdiction.  No Seller Party has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Internal Revenue Code of 1986, as amended to date (the “Revenue Code”), relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by any Seller Party or any ERISA Affiliate of any Seller Party, or in the imposition of any lien on any of the rights, properties or assets of any Seller Party, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Revenue Code or Section 4068 of ERISA, other than such liabilities or liens as would not be individually or in the aggregate material.  For purposes of this Section, an

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“ERISA Affiliate”  shall mean any natural person or entity of any kind (each, a “Person”) and/or such Person’s subsidiaries or any trade or business (whether or not incorporated) which is under common control with such Person or such Person’s subsidiaries or which is treated as a single employer with such Person or such Person’s subsidiaries under Section 414(b), (c), (m) or (o) of the Revenue Code or Section 4001(b)(1) of ERISA.

(q)           Operating Statements.  Seller has provided Purchaser with complete and accurate copies of the monthly operating statements for the Property for the 2008 calendar year through August 31, 2008 (collectively, the “Operating Statements”).  The Operating Statements are the operating statements used by the Seller Parties in the ownership and operation of the Property, and, except as otherwise noted therein, are complete and accurate, do not contain any untrue statement of a material fact or omit to state a material fact required by GAAP to be stated therein or necessary in order to make the statements contained therein not misleading, and fairly present the results of operations of the Seller Parties on the bases therein stated, as of the respective dates thereof, and for the respective periods covered thereby.

9.             Purchaser’s Representations and Warranties.  Purchaser makes the following representations and warranties to Seller, which representations and warranties shall be true and correct in all material respects on and as of the Closing, and which representations and warranties shall survive the Closing for a period of one (1) year:

(a)           Organization, Standing and Power.  Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland.  Purchaser has all requisite entity power and authority to own, lease and operate its properties, to

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carry on its business as now being conducted and to execute, deliver and perform this Agreement and all writings relating hereto.

(b)           Authorization of Purchaser.  The execution, delivery and performance of this Agreement by Purchaser have been duly and validly authorized.  The execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and the performance of, fulfillment of and compliance with the terms and conditions hereof by Purchaser do not and will not:  (i) conflict with or result in a breach of the articles of incorporation or by-laws of Purchaser; (ii) violate any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default under any agreement, instrument or writing of any nature to which Purchaser is a party or by which Purchaser or its assets or properties may be bound.

(c)           Funds.  Purchaser has sufficient capacity and relationships with third parties, lenders and/or equity investors to enable it to purchase or finance the purchase of the Property and apply for all necessary licenses related thereto.  Purchaser is a sophisticated real estate investor and has the experience, knowledge and ability to evaluate the purchase of the Property and the operations of the Facilities.  In no event shall the receipt or availability of any funds or financing by Purchaser or any of its affiliates or any other financing or other similar transactions be a condition to any of Purchaser’s obligations hereunder.

10.          Bankruptcy Court Approvals.

(a)           Promptly following the Effective Date (and in no event later than five (5) business days thereafter), Seller will make a motion in the form of Exhibit 7 hereto (the “Sale Motion”) seeking entry of an order from the Bankruptcy Court in the form of Exhibit 8 hereto

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(the “Procedures Order”) and a subsequent order approving sale of the Property in the form of Exhibit 9 hereto (the “Sale Order”).  Following the filing of the Sale Motion, Seller shall use reasonable commercial efforts to promptly obtain the Procedures Order and the Sale Order.  Both Purchaser’s and Seller’s obligations to consummate the transactions contemplated in this Agreement which the Purchaser and Seller may hereafter enter into shall be conditioned upon the Bankruptcy Court’s entry of the Procedures Order and the Sale Order substantially in the forms attached hereto; provided that the addition of provisions to the Procedures Order or the Sale Order that are not adverse to Purchaser in any material manner shall not relieve Purchaser of its obligation to proceed hereunder.  If, for any reason whatsoever, the Bankruptcy Court does not issue the Procedures Order, then either party may terminate this Agreement upon written notice to the other party, whereupon this Agreement shall immediately terminate, Escrow Agent shall return the Deposit to Purchaser and Seller and Purchaser shall be relieved of any further liability or obligation hereunder, except as expressly otherwise hereinafter provided.  Notwithstanding the foregoing, in the event that the Bankruptcy Court enters an order approving a third party (an “Upset Purchaser”) as the purchaser of the Property pursuant to an agreement between Upset Purchaser and Seller (the “Upset Agreement”) at the hearing on the sale, this Agreement shall not be terminated, but rather this Agreement shall become a “back-up bid” (with the Deposit being returned to the Purchaser upon Bankruptcy Court approval of an Upset Agreement) which shall remain open for acceptance by Seller for a period of sixty (60) days following such order, but subject and subordinate in all respects to the rights of the Upset Purchaser under the Upset Agreement.  Purchaser may terminate this Agreement upon written notice to Seller if the Procedures Order and the Sale Order are for any reason whatsoever not entered by the Bankruptcy Court on or before November 14, 2008, whereupon this Agreement shall

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immediately terminate, Escrow Agent shall return the Deposit to Purchaser and Seller and Purchaser shall be relieved of any further liability or obligation hereunder, except as expressly otherwise hereinafter provided.  Purchaser shall be entitled to a break-up fee in the amount of $500,000.00 (the “Break-Up Fee”) if the Property is sold to an Upset Purchaser.  The obligations to pay the Break-Up Fee survive termination of this Agreement.

(b)           On or about September 8, 2008, Seller filed an adversary proceeding with the Bankruptcy Court requesting issuance of an order (the “Section 363(h) Order”) pursuant to Section 363(h) of the Bankruptcy Code (the “Section 363(h) Action”) authorizing Seller to sell the interests of the TICs.  The Parties agree that the intermediate deadlines for various actions set forth in this Agreement will not be subject to, or otherwise affected by, the timing of the Bankruptcy Court’s ruling on the 363(h) Action as long as Seller has received such authority by the Closing Date.  If the Section 363(h) Order has not been entered on or before December 29, 2008, Purchaser shall have the unilateral right to terminate this Agreement, which right is exercisable in Purchaser’s sole discretion by written notice delivered to Seller, whereupon this Agreement shall immediately terminate, the Escrow Agent shall return the Deposit to Purchaser and the Parties shall be relieved of any further liability or obligation hereunder, except as expressly otherwise herein provided.  If Purchaser does not elect to terminate the Agreement as aforesaid, then the Agreement shall continue in effect until January 31, 2009.  If the Agreement is so extended but the Section 363(h) Order has not been entered on or before January 29, 2009, either Seller or Purchaser shall have the right to terminate this Agreement, which right is exercisable in Seller’s or Purchaser’s sole discretion by written notice delivered to the other, whereupon this Agreement shall immediately terminate, the Escrow Agent shall return the Deposit to Purchaser and the Parties shall be relieved of any further liability or obligation

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hereunder, except as expressly otherwise herein provided.  In addition, Purchaser shall have the unilateral right to terminate this Agreement, which right shall be exercisable in Purchaser’s sole discretion by written notice delivered to Seller at or prior to Closing, in the event that Seller does not cause any Master Tenant to perform in accordance with this Agreement, in which event the Escrow Agent shall return the Deposit to Purchaser and the Parties shall be relieved of any further liability or obligation hereunder, except as expressly otherwise herein provided.

(c)           Seller shall promptly provide Purchaser with drafts of all documents, motions, orders, filings or pleadings that Seller proposes to file with the Bankruptcy Court that relate to the consummation or approval of this Agreement or the transactions contemplated herein, and will provide Purchaser with reasonable opportunity to review and approve such filings, including without limitation any order relating to the assignment of the Assumed Contracts.

11.          Licensing Requirements.  Purchaser agrees that promptly following the Bankruptcy Court’s approval of Purchaser as the purchaser of the Property (irrespective of  whether the Bankruptcy Court has entered an order approving Seller’s 363(h) Action by such date), but in no event later than the second business day following issuance of such approval, Purchaser shall submit an application completed with Purchaser’s information and with all schedules and required background information in Purchaser’s control to the regulatory authorities in the states of North Carolina and South Carolina to obtain licensing approval required for Purchaser (or its designee) to operate the Facility (“Licensing Approvals”); provided, however, nothing contained herein shall operate to prohibit Purchaser from, and Seller hereby consents to Purchaser, contacting the appropriate licensing authorities and commencing

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the licensing process prior to obtaining the Bankruptcy Court’s approval of Purchaser as purchaser of the Property as contemplated hereby. Following submission of the completed application and documentation, Purchaser shall diligently pursue the Licensing Approvals, including by fully completing all information in Purchaser’s control in a timely manner, by attaching all required information and exhibits in Purchaser’s control to the Licensing Approvals and by promptly responding to requests made in connection with the Licensing Approvals, with the purpose of obtaining such approvals no later than the earlier of (i) forty five (45) days after entry of the Sale Order or (ii) December 31, 2008 (the “Licensing Period”).  If Purchaser does not obtain all Licensing Approvals on or before the expiration of the Licensing Period, then either Purchaser or Seller shall have the right to terminate this Agreement upon written notice to the other Party and Escrow Agent, and, upon such termination of the Agreement, provided Purchaser shall have used commercially reasonable efforts to obtain the Licensing Approvals, Purchaser shall be entitled to a return of the Deposit.   Purchaser shall be responsible for any and all of Purchaser’s costs associated with the Licensing Approvals and the assignment of existing provider agreements.  However, Seller shall cooperate with and assist Purchaser with respect the Licensing Approvals and the assignment of any existing provider agreements, and shall cause the Seller Parties so to cooperate as well, including providing all information in such party’s control necessary for the application and executing the application if required.  Except as otherwise set forth in this Agreement (and without derogation of Seller’s representations and warranties), Purchaser shall be solely responsible for any and all costs associated with the change of ownership process, including any physical plant or other changes required to bring the Facility into compliance with the currently effective licensing and certification and other legal

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requirements if and to the extent it is not currently in such compliance and such compliance is required as a matter of state or federal law.

12.          Employee Matters.

(a)           Within ten (10) days of the Effective Date, Seller shall deliver to Purchaser a schedule setting forth: (i) the name of each of the current employees at the Facilities (the “Facility Employees”), (ii) each Facility Employee’s position, job description, and rate of pay, (iii) a reasonable estimate of all benefits that each Facility Employee is entitled as a legal matter to receive under currently applicable legal requirements or management policies as of the then scheduled Closing Date, and (iv) the then current employer’s liability for the Facility Employee’s vacation, sick, personal time-off, and any other accrued rights or benefits as of the then scheduled Closing Date.  Not less than two (2) business days prior to the Closing Date, Seller shall deliver an updated schedule with updated information that shall be accurate as of the Closing Date.

(b)           Until such time as Purchaser or Purchaser’s designee has decided whether or not to hire such Facility Employees, all personnel and employment records relating to former or current Facility Employees shall be made available to Purchaser.

(c)           Within twenty (20) days of Seller’s delivery of initial schedule and related information relating to the Facility Employees as described in paragraph 12(a) above, Purchaser shall provide Seller with its (or its designee’s) hiring criteria (the “Hiring Criteria”) with respect to Facility Employees.  Purchaser shall have the right, but shall not be obligated, to offer employment to and hire any or all of the Facility Employees as of the Closing Date upon such terms and conditions of employment as may be determined by Purchaser or its designee.  It is

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expressly agreed that the Facility Employees are not third party beneficiaries of this Agreement.  Notwithstanding the foregoing, Purchaser shall offer employment to at least ninety five percent (95%) of the Facility Employees meeting Purchaser’s Hiring Criteria upon such terms and conditions so as the termination by Seller of the Facility Employees not offered employment by Purchaser shall not constitute a mass layoff or plant closing under the WARN Act; provided, however, in no event shall Purchaser be obligated or required to hire any employees who are not employed on-site at a Facility (such as regional employees in a central office).  For a period of twelve (12) months following the Effective Date, Seller shall not permit any Seller Party to solicit any of the Facility Employees hired by Purchaser or its designee.  The foregoing restriction shall not apply to any Facility Employees terminated by Purchaser.

(d)           On the Closing Date, Seller shall cause the termination of the employment of each of the Facility Employees.  Seller shall be solely responsible for severance pay and all wages and benefits accrued on or before the Closing due to each of the Facility Employees.  Seller shall be solely responsible for all employment obligations of the Facility Employees arising or accruing on or before the Closing (including any salaries, vacation accruals, sick pay, bonuses, commissions, fringe benefits, employee claims, COBRA claims, withholding or employment taxes, or any other amounts due any Facility Employees that are due and payable or that have accrued for services provided prior to and including the Closing, workers’ compensation claims, claims related to employment or termination of employment, and claims relating to Seller’s employee benefit plans).  Notwithstanding the foregoing, if Purchaser so elects (and to the extent permitted under applicable employment agreements and applicable law), Seller shall not pay employees who were rehired by Purchaser accrued vacation pay, but rather Purchaser shall or shall cause its manager to assume the obligations for such accrued vacation

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time and Purchaser shall receive a credit at Closing in the amount of such accrual.  Seller shall indemnify, defend and hold harmless Purchaser and it affiliates, members, managers, officers, directors, employees, agents, representatives, successors and assigns from any liability relating from and against any loss, claim or damage (including, without limitation, reasonable attorney’s fees) incurred by Purchaser in connection with any failure by Seller to comply with its obligations under this paragraph 12(d).  Seller’s obligations under this paragraph 12(d) shall survive the closing under this Agreement.

(e)           Except as may be required by applicable law, the levels of compensation and employee benefits offered to any Facility Employees that may be hired by Purchaser shall be determined by Purchaser in its sole discretion.

(f)            The Parties do not believe the provisions of the Workers Adjustment and Retraining Notification Act (the “WARN Act”) apply to the transactions as they are structured under this Agreement and do not expect to incur any such liability as a result of actions taken or not taken prior to the Closing.

13.          Closing.

(a)           Date of Closing.  The closing of the transactions contemplated by this agreement (the “Closing”) will occur in the offices of Escrow Agent either in person or via delivery of original documents on or before the day that is the later of (i) three (3) business days after issuance of the Licensing Approvals and (ii) three (3) business days after entry of the 363(h) Order (the “Closing Date”); provided, however, if the Closing has not occurred on or before December 31, 2008, then, subject to the terms of Paragraph 10(b) of this Agreement, either Purchaser or Seller shall have the right to terminate this Agreement upon written notice to

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the other Party and Escrow Agent, and upon such termination, the Escrow Agent shall return the Deposit to Purchaser and the Parties shall be relieved of any further liability or obligation hereunder, except as expressly otherwise herein provided.

(b)           Closing Deliveries.  At the Closing, Seller will deposit with Escrow Agent the following documents executed and acknowledged, as applicable, by the appropriate Seller Parties: the Deed; the Bill of Sale; the Assignment and Assumption of Resident Agreements; the Assignment of Rights; a non-foreign affidavit substantially in the form attached hereto as Exhibit 6, from (or in the case of a entity disregarded as separate from its owner for federal income tax purposes, with respect to) each Seller; a settlement statement; a proration worksheet (which shall have been provided to Purchaser in draft form not later than five (5) business days prior to Closing); terminations of the Master Leases, in a form and substance reasonably satisfactory to Purchaser; terminations of all existing management agreements with SunWest Management, Inc. or its affiliates relating to the Property; organizational documents and authorizing resolutions for the Seller; documentation acceptable to Purchaser that no amounts are due as the result of any applicable bulk sales or non-resident withholding laws; and such other items as Purchaser or its title company may reasonably require (including an owner’s affidavit in such from as will permit Purchaser’s title company to delete exceptions for mechanics liens and parties in possession — other than residents under Resident Agreements — and a gap indemnity in such form as will permit the title company to release the Purchase Price to Seller prior to recording the applicable Conveyance Documents).  At the Closing, Purchaser shall deposit with Escrow Agent an amount equal to the adjusted Purchase Price (less the Deposit and other credits specifically set forth in the paragraph); executed counterparts of the Assignment of Resident Agreements and the Assignment of Rights; all escrow fees, real estate transfer taxes as required

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by statute or local ordinance relating to the transfer of the Property from the Seller Parties to Purchaser, charges allocable to Purchaser’s financing for this transaction, the recording fee on the Deed, and its share of prorated items; and such other items as may be reasonably requested in order for Purchaser to comply with the terms of this Agreement.  Purchaser shall also be responsible for any premiums, costs or charges for title insurance, extended title coverage, endorsements, lender’s coverage, obtained by Purchaser or at Purchaser’s request and all other similar amounts.  Seller shall pay its share of prorated items.  All refundable deposits under the Resident Agreements, if any, shall be transferred to Purchaser at the Closing, or shall be credited to Purchaser against the amount payable by Purchaser at Closing, at Seller’s option.  Each Party shall pay its own attorneys’ fees.  To the extent that transfer tax, documentary stamps, recordation tax or charges or title premiums are customarily paid by the Seller in the jurisdiction where a property is located, such cost shall be paid by Purchaser as aforesaid, but Purchaser shall receive a credit against the Purchase Price in an amount equal to such cost.  Purchaser will be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any Person such amounts as required under the Revenue Code or any other provision of tax law.  To the extent that amounts are so withheld, such withheld amounts will be treated for all purposes hereof as having been paid to such Person in respect of which such deduction and withholding was made.

(c)           Resident Agreements, Assumed Contracts and Records.  Seller shall deliver to Purchaser outside of escrow at Closing originals of all (i) the Resident Agreements, (ii) Assumed Contracts, (iii) personnel and employment records that relate to former or current Facility Employees, (iv) records relating to the personal, medical, social, and financial status of each resident, including but not limited to, admission applications, Multiple Data Set (MDS)

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evaluations, care plans, medical records, and other resident specific data required to be kept by licensing and certification authorities, and (v) any other records pertaining to any Facility.  Subject to the terms of this Agreement and applicable law, Purchaser will make such documentation available to Seller at the Property, upon request, if a Seller Party needs such in connection with claims or litigation related to periods prior to the Closing.  Notwithstanding the foregoing, no Seller Party shall be required to provide documents that constitute Excluded Assets.

(d)           Title Policy.   Purchaser’s obligation to proceed to Closing shall be conditioned upon receipt of a national title insurance company’s irrevocable commitment to issue one or more ALTA owner’s title insurance policies to Purchaser, insuring title to the Real Property is vested in Purchaser, subject only to the Permitted Exceptions, with such endorsements as shall be reasonably required by the Purchaser, and without standard exceptions for mechanics’ liens or parties in possession (other than residents under Resident Agreement).  For purposes of the preceding sentence, “Permitted Exceptions”  shall mean, collectively, (i) liens for real estate taxes or assessments not yet due and payable or due and payable but not yet delinquent and (ii) such other non monetary encumbrances with respect to the Property as would not reasonably be expected to unreasonably interfere with or impair the current or future use, marketability or value of any Facility.  If the condition to Closing set forth in this paragraph 13(d) is not satisfied on or before the Closing Date, then Purchaser may elect to terminate this Agreement by giving Seller and Escrow Agent written notice thereof on or before the Closing Date whereupon this Agreement will be terminated, the Escrow Agent shall return the Deposit to Purchaser and the Parties shall be relieved of any further liability or obligation hereunder, except as expressly otherwise herein provided.

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(e)           Possession.  At Closing, Seller shall deliver possession of the Property to Purchaser free and clear of all rights, liens and claims (including, without limitation, the Master Leases and any monetary encumbrances) other than the rights of residents under the Resident Agreements.

(f)            Non-Foreign Affidavit of TICs.  Seller shall use reasonable efforts to deliver to Purchaser at or prior to Closing a non-foreign affidavit substantially in the form attached hereto as Exhibit 6, from (or in the case of a entity disregarded as separate from its owner for federal income tax purposes, with respect to) each TIC.

14.          Proration of Facility Expenses and Revenues.

(a)           Expenses.  Expenses pertaining to the billing period in which the Closing Date occurs, real and personal property taxes, prepaid or unpaid expenses, utility charges, amounts due under Assumed Contracts, and other related items of expense attributable to the Facilities shall be prorated between Seller (on behalf of the applicable Seller Party) and Purchaser as of the Closing Date based on a 366 day year.  Seller is responsible for expenses incurred in the operation of the Facilities prior to the Closing Date.  In general, such prorations shall be made so as to allocate to Seller expenses which have accrued during or otherwise relate to time periods prior to the Closing Date and to allocate to Purchaser expenses which accrue during or otherwise relate to time periods commencing from and after the Closing Date.  To the extent such charges are not able to be allocated, determined or credited through Escrow, the intent of this provision shall be implemented by Purchaser remitting to Seller any unpaid invoices which reflect expenses which accrue during or otherwise relate to time periods prior to the Closing Date and by Purchaser assuming responsibility for the payment of any invoices

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which reflect expenses which accrue during or otherwise relate to time periods commencing from and after the Closing Date, with any overage or shortage in payments by either Party to be adjusted and paid as provided in subparagraphs (b) and (c) below.  Seller shall be entitled to a refund of all deposits held by utility companies, if applicable, and, where necessary, Purchaser shall arrange to make its own deposits with the utility companies on or prior to the Closing.

(b)           Basis for Prorations.  All such prorations shall be made on the basis of actual days elapsed in the relevant accounting, billing or revenue period and shall be based on the most recent information available.  Utility charges which are not metered and read on the Closing Date shall be estimated based on prior charges, and shall be re-prorated outside of Escrow upon receipt of statements therefor as of the Closing Date.

(c)           Settlement of Prorations.  All amounts owing from or to Seller or Purchaser that require adjustment after the Closing Date shall be settled within sixty (60) calendar days after the Closing Date or, in the event the information necessary for such adjustment is not available within said sixty (60) day period, then as soon thereafter as practicable.  Each Party shall make such records reasonably available for inspection by the other Parties as are reasonable to demonstrate the accuracy of any adjustments.

(d)           Petty Cash.  On the Closing Date, Seller shall retain all petty cash maintained by any Seller Party at any Facility.

(e)           Amounts under Resident Agreements.  Seller shall assign to Purchaser at Closing all accounts related to the Resident Agreements including, but not limited to, all security deposit accounts, if any, or if applicable shall give Purchaser a credit for any such security deposits at Closing.  Purchaser shall receive a credit for any rent and other income (i.e., including

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any other revenues, receipts and royalties) collected by Seller before Closing that applies to any period on or after the Closing Date.  Purchaser shall also receive a credit for the amount of any unexpired free rent or other landlord concessions under Resident Agreements.  Uncollected rent and other uncollected income shall not be prorated at Closing.  Seller shall pay all leasing commissions and tenant improvements with respect to any and all Resident Agreements and other agreements for the rental of space entered into prior to the Effective Date or without Purchaser’s consent.  Seller and Purchaser shall allocate the payment of leasing commissions and tenant improvements between the parties (but only to the extent such leasing commissions or tenant improvements have been approved in writing by Purchaser) with respect to leasing commissions and tenant improvements which are agreed to pursuant to agreements entered into by Seller after the Effective Date but before the Closing Date and with Purchaser’s written consent.

(f)            Survival.  The Parties’ obligations under this Section 14 shall survive the Closing for a period of one (1) year (or such shorter period as may be specified herein).

15.          Seller Covenants. Seller covenants and agrees that commencing on the Effective Date and through Closing and as a condition thereof (the “Contract Period”):

(a)           Operation of Property.  Seller will and will cause the applicable Seller Parties to operate and maintain the Facilities in a first class and professional manner.  Without limiting the foregoing, Seller will and will cause the Seller Parties to (i) timely pay and perform their obligations in all material respects under the Resident Agreements and Assumed Contracts, (ii) pay all post-petition taxes as they come due and payable, (iii) maintain insurance on the

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Property (in amounts and types consistent with past practice), and (iv) use its best efforts to preserve its relationships with residents, suppliers and others having business dealings with it.

(b)           New Agreements.  Seller will or will cause the applicable Seller Parties to provide Purchaser with prompt notice and copies of all new Resident Agreements, Resident Agreement amendments and Resident Agreement extensions (“New Resident Agreements”) and Resident Agreement terminations occurring during the Contract Period.  Seller will not and will not permit any applicable Seller Party to enter into any New Resident Agreements for less than market rent.  Any New Resident Agreements shall be on the standard form Resident Agreement and shall not contain free rent or other concessions except as otherwise approved by Purchaser in writing in its sole discretion.  Seller will not and will not permit any Seller Party to terminate any Resident Agreement, except in the ordinary course of business consistent with such Seller Party’s past practices.  Seller will not permit any Seller Party to relocate any resident from any Facility or solicit any resident individually or generally to relocate from the Facilities, in either case without the prior written consent of Purchaser which may be withheld in Purchaser’s sole discretion.  From and after the date hereof, Seller will not and will not permit any applicable Seller Party to enter into any contract (other than New Resident Agreements, Resident Agreement amendments and Resident Agreement terminations as provided above) that will be an obligation affecting the Property subsequent to the Closing Date except for contracts entered into in the ordinary course of business that are terminable without cause and without payment of a penalty on not more than 30-days’ notice.

(c)           Personal Property.  Seller will not and will not permit any Seller Party to remove any Personal Property from the Real Property except as may be required for necessary

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repair or replacement, and in the event of such replacement, the replacement shall be of equal or better quality and quantity as existed as of the time of its removal.

(d)           Cooperation.  Seller shall not take, and shall ensure that none of Seller’s affiliates (as such term is used in the Bankruptcy Code) take, any action or fail to take any action, which action or failure to act would reasonably be expected to (i) prevent or impede the consummation of the transactions contemplated by this Agreement in accordance with the terms of this Agreement, or (ii) result in (A) the reversal, avoidance, revocation, vacating or modification (in any manner that would reasonably be expected to materially and adversely affect Purchaser’s rights hereunder) or (B) the entry of a stay pending appeal with respect to the Procedures Order or the Sale Order.  Seller will and will cause the applicable Seller Parties to reasonably cooperate with Purchaser in order to effect a smooth transition of the operations at the Facilities to Purchaser.

(e)           Seller shall promptly notify Purchaser of any material change in any condition with respect to the Property or any Facility or of any event or circumstance which makes any representation or warranty of Seller under this Agreement untrue or misleading.

16.          Post Closing Obligations.  All of the following obligations, duties, provisions and agreements shall survive Closing.

(a)           Records.

(i)            After the Closing, to the extent required by law, Purchaser shall keep and preserve all medical records and other records that it obtained from a Seller Party for

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persons who were residents of the Facility for such period of time as may be required by any applicable legal requirement.

(ii)           In order to and for the limited purpose of facilitating Seller’s efforts to administer and close the Case (including the preparation of filings in the Case and state, local and federal tax returns and other filings, reconciliation of claims filed in the Case, removal of corporate and other records and information relating or belonging to entities other than Seller), but subject in all events to the requirements of any applicable laws, for a period of one (1) year following the Closing:

(A)          Purchaser shall permit Seller’s counsel and other professionals and counsel for any successor to Seller and their respective professionals (collectively, “Permitted Access Parties”) reasonable access to the financial and other books and records relating to the Property or the operation of the Facility that are non-proprietary in nature (including all records pertaining to the Facility Employees, to the extent permitted by applicable law) and the systems containing such information, books and records, which access shall include (xx) the right of such Permitted Access Parties to copy, at such Permitted Access Parties’ expense, such documents and records as they may request in furtherance of the limited purposes described above, and (yy) Purchaser’s copying and delivering to the relevant Permitted Access Parties such documents or records as they may request, but only to the extent such Permitted Access Parties furnish Purchaser with reasonably detailed written descriptions of the materials to be so copied and the applicable Permitted Access Party reimburses Purchaser for the reasonable costs and expenses thereof, and

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(B)          Following prior written request from Seller, Purchaser shall provide the Permitted Access Parties (at no cost to the Permitted Access Parties) with reasonable access to any manager at a Facility during regular business hours to assist Seller and the other Permitted Access Parties for the limited purposes described above, provided that such access does not unreasonably interfere with such manager’s normal job activities.

(iii)          Seller agrees to maintain any information obtained by it pursuant to the provisions of this Paragraph 16(a) in strict confidence and Seller shall not disclose or permit the disclosure of any such information to any third party (other than the Permitted Access Parties) without the Purchaser’s prior written consent, which shall not be unreasonably withheld with respect to any such disclosure that is required in connection with the Case.

(iv)          Purchaser acknowledges and agrees that the books, records and other materials described in this paragraph are unique and the event of a breach by Purchaser of its obligations under this paragraph Seller would suffer injury for which it would not be fully compensated with monetary damages and accordingly, in the event of a breach by Purchaser of its obligations under this paragraph, Seller shall be entitled to seek to enjoin a breach by Purchaser of its obligations under this paragraph and/or to specifically enforce the obligations of Purchaser hereunder.

(b)           Accounts Receivable.

(i)            Each Seller Party shall retain its right, title and interest in and to all unpaid accounts receivable with respect to the Facility, including all rents and other charges pertaining to residents of the Facility (“Rents”), which have been outstanding for thirty (30) days or fewer as of the Closing Date; and, in no event shall any Seller Parties retain any right, title or

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interest in or to any Rents which have been outstanding for more than thirty (30) days as of the Closing Date, such Rents outstanding for more than thirty (30) days as of the Closing Date to be assigned to Purchaser at Closing as part of the Rights covered hereunder.  For a period of three (3) months after Closing, Purchaser shall use reasonable efforts to account for and transmit to Seller any collections of receivables, including Rents, received by Purchaser which relate to the period prior to the Closing Date and which have been retained by any Seller Party hereunder; provided, however, in no event shall Purchaser be obligated to initiate any lawsuit or other action against any residents in connection with such efforts.  Rents received after Closing shall be applied to the most recent Rent payments due in reverse chronological order, such that Rents that have been outstanding for the shortest period of time shall be paid first and Rents that have been outstanding for the longest period of time shall be paid last.

(ii)           Third Party Payments.  In furtherance and not in limitation of the requirements set forth in paragraph 16(b)(i), payments received by Purchaser after the Closing Date from third party payors, including Medicare, Medicaid, managed care organizations, the VA or any other federal or state agency for or on account of Rents which any Seller Party is entitled to retain hereunder shall be handled as follows:

(A)          If such payments either specifically indicate on the accompanying remittance advice, or if the Parties agree, that they relate to the period prior to the Closing Date, they shall be forwarded to Seller, within ten (10) business days after receipt thereof together with copies of applicable remittance advices; and

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(B)          If such payments are silent as to the period to which they relate, or indicate on the accompanying remittance advice, or if the Parties agree, that they relate to the period on or after the Closing Date, they shall be retained by Purchaser; and

(C)          If such payments indicate on the accompanying remittance advice, or the Parties agree, that they relate to periods both prior to and after the Closing Date, the portion thereof which relates to the period on and after the Closing Date shall be retained by Purchaser and the balance shall be forwarded to Seller, within ten (10) business days after receipt thereof together with copies of applicable remittance advices; provided, however, unless otherwise specified in the remittance or otherwise agreed to by the Parties, such payments shall be applied first to the periods from and after the Closing Date with the balance being applied to periods prior to the Closing Date.

(iii)          Payments Received by Seller.  Any payments received by a Seller Party after the Closing Date which represent payments for services rendered or goods sold by Purchaser from and after the Closing Date or which such Seller Party is not otherwise entitled to retain hereunder shall be forwarded to Purchaser by Seller, within ten (10) business days after receipt thereof together with copies of applicable remittance advices.

(iv)          Private Payments Received by Purchaser.  Any private payments received by Purchaser which relate to any residents discharged from the Facility prior to the Closing Date (the “Discharged Residents”) for or on account of Rents which have been retained by a Seller Party hereunder shall be forwarded to Seller within ten (10) business days of receipt thereof together with copies of applicable remittance advices or other information received.  Purchaser shall request that such Discharged Residents remit such payments directly to Seller at

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a location other than the Facility.  Any private payments received after Closing from or on behalf of any residents other than Discharged Residents shall be applied to the most recent balance due and then to aged balances due in reverse chronological order.

(v)           Recovery of Accounts Receivable.  No Seller Party shall have any right to recover payment from any current resident of a Facility or to dispossess any resident from a Facility.

(vi)          Misapplied Payments.  In the event the Parties mutually determine that any payment hereunder was misapplied by the Parties, the Party which erroneously received said payment shall remit the same to the other within ten (10) business days after said determination is made.

(vii)         Reports.  For the six (6) month period following the Closing Date or until the Seller Parties receive payment of all accounts receivable attributable to the operation of the Facility prior to the Closing Date, whichever is sooner, Purchaser shall provide Seller with: (a) an accounting by the 20^th day of each month setting forth all accounts received by Purchaser during the preceding month with respect to the Seller Parties’ accounts receivable; and (b) copies of all remittance advice relating to such amounts received and any other reasonable supporting documentation as may be required for Seller to determine the Seller Parties’ accounts receivable that have been paid.  Purchaser shall deliver such accounting to Seller at the address set forth for notices to Seller herein.

(viii)        Survival. The obligations of the Parties to forward the accounts receivable payments pursuant to this paragraph are absolute and unconditional and irrespective of any circumstances whatsoever that might constitute a legal or equitable discharge,

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recoupment, offset, counterclaim or defense of the Parties, the right to assert any of which with respect to proceeds of any accounts receivable is hereby waived.  All representations, warranties, covenants and obligations of the Parties under this paragraph shall survive the Closing for six (6) months.

(c)           Patient Trust Funds Accounting.

(i)            Patient Trust Funds.            Within ten (10) days after the Effective Date and on the Closing Date (or such earlier date as may be required by applicable legal requirements), Seller shall cause the Master Tenant to furnish to Purchaser a list of all residents of the Facility and an accounting of all personal funds, if any, of residents of the Facility that a Seller Party holds in a custodial capacity (“Patient Trust Funds”).  Such accounting shall set forth the name of each resident for whom such funds are held and the amount held by a Seller Party on behalf of such resident.  Contemporaneously with the Closing, Seller shall cause all such funds to be transferred to Purchaser, and Purchaser and the applicable Seller Party shall execute and deliver a receipt and assumption agreement in compliance with applicable law acknowledging receipt and assumption by Purchaser of such funds.  At the Closing, Seller shall deliver to Purchaser a list specifying all tenants that owe Rents, which list shall set forth in reasonable detail the amount of such Rents, the period(s) to which each such amount owing relates and the nature of each such amount.

(ii)           Indemnification.  Following the transfer of Patient Trust Funds to Purchaser, Seller shall have no further liability for any of the transferred Patient Trust Funds, and Purchaser shall indemnify, defend and hold harmless the Seller Parties and their affiliates, members, managers, officers, directors, employees, agents, representatives, successors and

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assigns from any liability relating thereto.  Except for the transferred Patient Trust Funds, Purchaser shall have no liability for claims for Patient Trust Funds, and the Seller shall indemnify, defend and hold harmless Purchaser and their affiliates, members, managers, officers, directors, employees, agents, representatives, successors and assigns from any liability relating thereto.

(d)           Applicability of Regulatory and Licensing Authorities.  Notwithstanding any other provision of this Agreement to the contrary, all actions to be taken by a Party under this Agreement must be in compliance with all applicable licensure laws and regulations (“Licensure Laws”).  In the event a provision of this Agreement is not consistent with the requirements of the Licensure Laws (such as a prohibition on transfer of resident contracts or other operational assets prior to Licensing Approval being obtained), then the Licensure Laws shall prevail over such inconsistent provisions and the Parties agree to work together in good faith to achieve the intent of this Agreement through other reasonable approaches.

17.          “AS-IS” SALE; LIMITATION; DISCLAIMER NOTICE.  PURCHASER ACKNOWLEDGES THAT NOTWITHSTANDING ANY PRIOR OR CONTEMPORANEOUS ORAL OR WRITTEN REPRESENTATIONS, STATEMENTS, DOCUMENTS OR UNDERSTANDINGS, AND EXCEPT FOR THE BANKRUPTCY PROCEEDINGS REFERRED TO HEREIN, THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY SUCH PRIOR OR CONTEMPORANEOUS ORAL OR WRITTEN REPRESENTATIONS, STATEMENTS, DOCUMENTS OR UNDERSTANDINGS.  PURCHASER FURTHER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT OR IN ANY OTHER DOCUMENT TO BE

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EXECUTED AND DELIVERED BY ANY SELLER PARTY IN CONNECTION WITH THE CLOSING, (I) NEITHER SELLER, NOR ANY PRINCIPAL, AGENT, ATTORNEY, EMPLOYEE, BROKER OR OTHER REPRESENTATIVE OF SELLER HAS MADE ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED, REGARDING THE PROPERTY (INCLUDING INCOME TO BE DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE PROPERTY, THE PHYSICAL CONDITION OF ANY PERSONAL PROPERTY COMPRISING A PART OF THE PROPERTY OR WHICH IS THE SUBJECT OF ANY LEASE OR CONTRACT TO BE ASSUMED BY PURCHASER AT THE CLOSING, THE ENVIRONMENTAL CONDITION OR OTHER MATTER RELATING TO THE PHYSICAL CONDITION OF ANY REAL PROPERTY OR IMPROVEMENTS COMPRISING A PART OF THE PROPERTY, THE ZONING OF ANY SUCH REAL PROPERTY OR IMPROVEMENTS, THE VALUE OF THE PROPERTY (OR ANY PORTION THEREOF), THE TRANSFERABILITY OF THE PROPERTY, THE TERMS, AMOUNT, VALIDITY, COLLECTIBILITY OR ENFORCEABILITY OF ANY ASSUMED LIABILITIES OR ASSUMED CONTRACT, THE TITLE OF THE PROPERTY (OR ANY PORTION THEREOF), OR ANY OTHER MATTER OR THING RELATING TO THE PROPERTY OR ANY PORTION THEREOF), AND (II) THAT PURCHASER IS NOT RELYING ON ANY WARRANTY, REPRESENTATION OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY AND AGREES THAT PURCHASER IS ACQUIRING THE PROPERTY IN WHOLLY AN “AS-IS,” “WHERE-IS” CONDITION WITH ALL FAULTS AND WAIVES ALL CONTRARY RIGHTS AND REMEDIES AVAILABLE TO IT UNDER STATE AND FEDERAL LAW.  EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT OR IN ANY OTHER DOCUMENT TO

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BE EXECUTED AND DELIVERED BY ANY SELLER PARTY IN CONNECTION WITH THE CLOSING, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE USE AND CONDITION OF THE PROPERTY, INCLUDING THE CONDITION OF THE SOILS OR GROUNDWATERS OF THE PROPERTY AND THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS ON OR UNDER THE PROPERTY OR ITS COMPLIANCE WITH APPLICABLE STATUTES, LAWS, CODES, ORDINANCES, REGULATIONS OR REQUIREMENTS RELATING TO LEASING, ZONING, SUBDIVISION, PLANNING, BUILDING, FIRE, SAFETY, HEALTH OR ENVIRONMENTAL MATTERS OR ITS COMPLIANCE WITH COVENANTS, CONDITIONS AND RESTRICTIONS (WHETHER OR NOT OF RECORD) OR OTHER LOCAL, MUNICIPAL, REGIONAL, STATE OR FEDERAL REQUIREMENTS, OR OTHER STATUTES, LAWS, CODES, ORDINANCES, REGULATIONS OR REQUIREMENTS.  WITHOUT IN ANY WAY LIMITING THE FOREGOING, SELLER HEREBY DISCLAIMS ANY WARRANTY (EXPRESS OR IMPLIED) OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AS TO ANY PORTION OF THE PROPERTY.  EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT OR IN ANY OTHER DOCUMENT TO BE EXECUTED AND DELIVERED BY ANY SELLER PARTY IN CONNECTION WITH THE CLOSING, PURCHASER FURTHER ACKNOWLEDGES THAT PURCHASER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF ALL PORTIONS OF THE PROPERTY AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE PROPERTY AS PURCHASER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS

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ACQUISITION OF THE PROPERTY, PURCHASER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS.

18.          Remedies.

(a)           If any warranty or representation of Purchaser made herein shall prove untrue in any material respect when made or as of the Closing Date (as if such warranty or representation was first made on the Closing Date, notwithstanding any reference therein to the Effective Date) or if Purchaser defaults and, as a result of such default, Purchaser fails to complete the purchase of the Property on or prior to the Closing Date, then Seller may give Purchaser two (2) business days notice thereof and opportunity to cure and if Purchaser does not cure within said period then Seller’s sole and exclusive remedy, at law or in equity, shall be to elect to terminate this Agreement by giving notice of such termination to Purchaser and Escrow Agent, whereupon this Agreement will be terminated, Escrow Agent shall pay the Deposit, to Seller, and neither Party shall have any further rights or obligations under this Agreement except as expressly provided herein.  Purchaser and Seller agree that it would be impractical and extremely difficult to estimate the damages that Seller may suffer in the event that Purchaser defaults and fails to complete the purchase of the Property.  Therefore, Purchaser and Seller agree that a reasonable estimate of the total net detriment that Seller would suffer in the event that Purchaser defaults and fails to complete the purchase of the Property is, and Seller’s sole and exclusive remedy (whether at law or in equity) shall be, an amount equal to the Deposit.  This amount will be the full, agreed and liquidated damages for any breach of this Agreement by Purchaser.  The payment of this amount as liquidated damages is not intended as a forfeiture or penalty, but is intended to constitute liquidated damages to Seller.

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(b)           If any warranty or representation of Seller made herein shall prove untrue in any material respect when made or as of the Closing Date (as if such representation was first being made as of the Closing Date, notwithstanding any reference therein to the Effective Date) or if any Seller shall fail to perform any of its obligations under this Agreement on or prior to the Closing Date, then Purchaser may give such Seller two (2) business days notice thereof and opportunity to cure and if Seller does not cure within said period then Purchaser’s sole and exclusive remedy under this Agreement shall be to elect to terminate this Agreement by giving Seller and Escrow Agent written notice thereof whereupon this Agreement will be terminated, the Escrow Agent shall deliver to Purchaser the Deposit, and neither Party shall have any further rights or obligations under this Agreement, except as otherwise provided herein.  Notwithstanding the foregoing, if any warranty or representation of Seller made herein shall prove untrue in any material respect when made or as of the Closing Date and the breach of such representation or warranty is not discovered until after the Closing but within the applicable survival period provided herein, or if, from and after the Closing, any Seller shall fail to perform any of its obligations under this Agreement on or prior to the date for performance provided herein, then Purchaser may give such Seller five (5) business days notice thereof and opportunity to cure and if Seller does not cure within said period, then Purchaser shall have all remedies available to it at law or in equity, including, without limitation, all rights under Sections 503(b)(1) and 507(a)(2) of the Bankruptcy Code.

(c)           The Parties agree that if any dispute arises out of or in connection with this Agreement or any of the documents executed hereunder or in connection herewith, the Bankruptcy Court (and any court having appellate jurisdiction as to such dispute) shall have exclusive personal and subject matter jurisdiction and shall be the exclusive venue to resolve any

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and all disputes relating to the transaction contemplated by this Agreement.  The Bankruptcy Court shall have sole jurisdiction over such matters and the parties affected thereby and Purchaser and Seller each hereby consent and submit to such jurisdiction, provided, however, if such Court determines that subject-matter jurisdiction is not available in the Bankruptcy Court, Purchaser and Seller hereby agree to submit any and all disputes arising out of this Agreement to the jurisdiction and venue of the United States District Court for the Middle District of Tennessee, or if such court will not have jurisdiction, then to the federal or state court sitting in a state in which the Property is located.  If any such dispute arises in connection with this Agreement, including an action to rescind this Agreement, the substantially prevailing party therein will be entitled to recover from the losing party the substantially prevailing party’s costs and expenses, including reasonable attorneys fees, incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts will be included in any judgment entered therein.

(d)           The Parties’ obligations under paragraph 18 of this Agreement shall survive Closing.

19.          Casualty; Condemnation.  If (i) there is any loss, damage or destruction to the Property by fire or other casualty (except eminent domain) (a “Casualty Event”) which would enable more than ten percent (10%) of the residents at any Facility to terminate their Resident Agreements, or (ii) there is a Casualty Event and the damage is in excess of three million dollars ($3,000,000.00), or (iii) there is a condemnation proceeding in which any material portion of the Real Property relating to any Facility (including, without limitation, any access or parking) shall be taken or in which the Property taken has a fair market value in excess of three million dollars

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($3,000,000.00) (any of the foregoing shall be referred to herein as the “Floor”), then Purchaser will have the right to terminate this Agreement and receive a return of the Deposit, if it so notifies Seller in writing not later than the first to occur of (a) ten (10) days after it is advised of such Casualty Event or condemnation proceeding or (b) the Closing Date.  Seller shall promptly notify Purchaser in writing of a Casualty Event or condemnation affecting the Property, and if the Casualty or condemnation is less than or equal to the Floor, will assign (or cause to be assigned) to Purchaser at Closing each Seller Party’s rights with respect to all insurance or condemnation proceeds related thereto less any sums expended by such Seller Party with Purchaser’s consent to restore such casualty, and Purchaser will receive a credit equal to the deductible plus any uninsured amounts.  If the Casualty Event or condemnation is in excess of the Floor and Purchaser elects not to terminate this Agreement, then Seller will assign (or will cause to be assigned) to Purchaser at Closing each Seller Party’s rights with respect to all insurance or condemnation proceeds related thereto less any sums reasonably expended by such Seller Party with Purchaser’s consent to restore such casualty, and Purchaser will receive a credit equal to the deductible plus any uninsured amounts.

20.          Notices.  All notices provided for herein may be telecopied (with machine verification of receipt), sent by Federal Express or other overnight courier service or delivered or mailed registered or certified mail, return receipt requested.  If a notice is mailed, it will be considered delivered upon receipt or refusal thereof.  If a notice is sent via telecopy on a business day it will be deemed received upon receipt of verification of transmission generated by the sender’s machine.  If a notice sent via overnight courier, it will be deemed received upon the next business day, provided it is then delivered.  Attorneys for each party may give notices on behalf of the Party whom they represent.  The addresses to be used in connection with such

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correspondence and notices are the following, or such other address as a Party will from time to time direct:

Seller:	Sunwest Management, Inc.
	Attn.: J. Wallace Gutzler
	3723 Fairview Industrial Dr, SE
	Suite 270, PO Box 3006
	Salem, OR 97302-0006
	Facsimile No.: (503) 485-1192
	E-mail: wally.gutzler@sunwestmanagement.com
with copy to:	Steptoe & Johnson LLP
	Attn.: Greg R. Yates
	750 Seventh Avenue
	New York, New York 10019
	Facsimile No.: (212) 506-3960
	E-mail: gyates@steptoe.com
Purchaser:	Five Star Quality Care, Inc.
	Attn: Bruce J. Mackey, Jr.
	400 Centre Street
	Newton, Massachusetts 02458
	Facsimile No.: (617) 796-8385
	E-mail: bmackey@5sqc.com
with copy to:	Sullivan & Worcester LLP
	Attn: John M. Steiner
	One Post Office Square
	Boston, Massachusetts 02109
	Facsimile No.: (617) 338-2880
	E-mail: jsteiner@sandw.com

Any single notice delivered to Seller as provided herein shall be effective as against all Sellers without the need to deliver multiple copies thereof.

21.          Hart-Scott-Rodino.  Seller and Purchaser have each independently determined that the execution of this Agreement and the consummation of the transactions contemplated hereby are exempt from the filing and waiting period requirements of Section 7A of the Clayton Act, as added by Section 201 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15

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U.S.C. Section 18a, and the rules and regulations promulgated thereunder (“HSR Act”).  In making such determination, Seller and Purchaser each did not and shall not rely upon any written or oral statement, representation or warranty made by or on behalf of another Party, whether or not contained in this Agreement, as to the applicability of the HSR Act to the transactions contemplated hereby.

22.          Assignment.  This Agreement will inure to the benefit of and be binding upon the Parties hereto and their heirs, successors and permitted assigns.  Neither Party may assign this Agreement without the prior written consent of the other Party, which consent will not be unreasonably withheld, conditioned or delayed, except that Purchaser may assign this Agreement or its rights hereunder, in whole or in part, to an affiliate of Purchaser or an affiliate of Senior Housing Properties Trust.

23.          Confidentiality.  Purchaser and Seller on behalf of Seller and each of the Seller Parties each covenants that it will maintain the confidentiality of all confidential information which it receives from the other or its agents and all reports, studies and other documentation which it develops based thereon until Closing, except as otherwise required in order to perform its inspections under this Agreement, or by applicable law or court rule or order if this transaction closes, and further covenants that, if this transaction does not close, it will destroy all such documents.  Notwithstanding the foregoing, once the Bankruptcy Court has entered the Sale Order, Purchaser may begin marketing the Facilities in their corresponding communities in accordance with Purchaser’s customary practices.  Purchaser’s provision of such information to investors, attorneys, lenders, employees and consultants during the term of this Agreement will not be deemed to violate the foregoing covenant so long as the recipients agree to honor the confidentiality requirement.

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24.          Applicable Law.  This Agreement will be governed by and construed in accordance with the laws of the State of New York (without regard to principles of conflict of laws).

25.          Commissions.  Each Party shall be responsible for all commissions and/or finders fees that it has incurred with regard to this transaction, if any, and shall indemnify and hold the other Party to this Agreement and their affiliates, members, managers, officers, directors, employees, agents, representatives, successors and assigns harmless therefrom. Purchaser has not been represented by a broker under a written agreement between Purchaser and a broker in connection with the sale contemplated by this Agreement. Seller has been represented by CB Richard Ellis, a broker (“Seller’s Broker”), in connection with the sale contemplated by this Agreement. Seller shall pay the brokerage commission to Seller’s Broker pursuant to the written agreement between Seller and such Seller’s Broker and shall indemnify Purchaser and its affiliates, members, managers, officers, directors, employees, agents, representatives, successors and assigns against any claim against Purchaser or the Property by Seller’s Broker arising therefrom.

26.          Costs and Expenses.  Except as otherwise provided herein, each Party hereto will bear its own costs and expenses in connection with the negotiation, preparation and execution of this Agreement and other documentation related hereto and in the performance of its duties under this Agreement.

27.          Miscellaneous.

(a)           Headings.  The headings in this Agreement are for convenience only and do not in any way limit or affect the terms and provisions of this Agreement.  All references to

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“paragraphs” shall be to the numbered paragraphs of this Agreement unless specifically stated otherwise.

(b)           Calculation of Time Periods.  Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday, in which event it shall end on the next business day.  The final day of any such period will be deemed to end at 5:00 p.m. Eastern Time.

(c)           Time of Essence.  Purchaser and Seller expressly and specifically agree time is of the essence of this Agreement and all provisions, obligations and conditions thereof.  All time periods set forth herein in terms of “days” refer to calendar days.  Whenever notice must be given, documents delivered or an act done under this Agreement on a day that is not a business day, the notice may be given, document delivered or act done on the next following day that is a business day.  As used in this Agreement, “business day” shall mean a day other than a Saturday, Sunday or a day observed as a legal holiday.

(d)           Gender.  Wherever appropriate in this Agreement, the singular will be deemed to refer to the plural and the plural to the singular, and pronouns of certain genders will be deemed to include either or both of the other genders.

(e)           Counterparts.  This Agreement may be executed in counterparts, each of which will be deemed an original, but which when taken together will constitute one and same instrument.

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(f)            Exhibits.  The exhibits and schedules referred to herein and attached to this Agreement are incorporated herein as if set forth in full.

(g)           Construction.  This Agreement is the result of negotiations between the Parties, neither of whom has acted under any duress or compulsion, whether legal, economic or otherwise.  Accordingly, the terms and provisions hereof shall be construed in accordance with their usual and customary meanings.  Seller and Purchaser hereby waive the application of any rule of law which otherwise might be applicable to the construction of this Agreement that ambiguous or conflicting terms or provisions should be construed against the Party who (or whose attorney) prepared the executed Agreement or any earlier draft of the same.  As used in this Agreement, “sole discretion” shall mean sole, absolute, unfettered and unreviewable judgment and discretion without regard to whether such judgment or discretion is exercised reasonably or unreasonably.  As used in this Agreement, the term “including” shall mean “including, but not limited to.”

(h)           Interpretation. If there is any specific and direct conflict between, or any ambiguity resulting from, the terms and provisions of this Agreement and the terms and provisions of any document, instrument or other agreement executed in connection herewith or in furtherance hereof, including any exhibits hereto, the same shall be consistently interpreted in such manner as to give effect to the general purposes and intention as expressed in this Agreement, which shall be deemed to prevail and control.

(i)            Severability.  If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, but such term or provision shall be

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reduced or otherwise modified by such court or authority only to the minimum extent necessary to make it valid and enforceable, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.  If any term or provision cannot be reduced or modified to make it reasonable and permit its enforcement, it shall be severed from this Agreement and the remaining terms shall be interpreted in such a way as to give maximum validity and enforceability to this Agreement.  It is the intention of the Parties hereto that if any provision of this Agreement is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid.

28.          Unenforceability.  If any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect the remainder of such provision or any other provisions of this Agreement.

29.          Amendment, Modifications.  This Agreement may not be altered, amended, changed, waived, terminated or modified in any respect or particular unless the same is in writing and signed by or on behalf of the Party to be charged therewith.

30.          Waiver.  A Party may, at any time or times, at its election, waive any of the conditions to its obligations under this Agreement, but any such waiver will be effective only if contained in a writing signed by such Party.  No waiver will reduce the rights and remedies of such Party by reason of any breach of the other Party.  No waiver by any Party of any breach under this Agreement will be deemed a waiver of any other or subsequent breach.

31.          Facsimile or Electronic Scanned Signatures.  Each Party (i) has agreed to permit the use, from time to time and where appropriate, of telecopied or electronically scanned and

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transmitted signatures in order to expedite the transaction contemplated by this Agreement, (ii) intends to be bound by its respective telecopied or scanned and transmitted signature, (iii) is aware that the other will rely on the telecopied or scanned signature, and (iv) acknowledges such reliance and waives any defenses to the enforcement of the documents effecting the transaction contemplated by this Agreement based on the fact that a signature was sent by telecopy or electronic mail.

32.          Delivery of Possession.  Possession of the Property shall be delivered to Purchaser on the Closing Date “as is,” “where is,” and “with all faults” (including being subject to then existing tenancies under the Resident Agreements), except as otherwise provided in this Agreement or in any document to be executed and delivered by any Seller Party in connection with the Closing.

33.          Deposit of Agreement into Escrow.  Notwithstanding anything to the contrary, this Agreement shall not constitute a binding contract between Seller and Purchaser until executed by both of them and among Seller, Purchaser, and Escrow Agent, until executed by all three of them.

34.          Information Provided by Seller.  Notwithstanding any other provision of this Agreement, but subject to the express representations of Seller hereunder, Seller makes no warranty as to the accuracy or completeness of any information provided by Seller to Purchaser pursuant to this Agreement.

35.          WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF

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THE DOCUMENTS RELATED HERETO, ANY DEALINGS BETWEEN OR AMONGST THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN AND AMONGST THE PARTIES HEREUNDER.

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                IN WITNESS WHEREOF, the undersigned Seller and Purchaser have executed this Agreement as of the date first set forth above, intending to be fully bound by its terms and conditions.

SELLER
ANDERSON SENIOR LIVING PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager
CHARLOTTE OAKDALE PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager
GREENSBORO OAKDALE PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager

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MT. PLEASANT OAKDALE I PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager
MT. PLEASANT OAKDALE II PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager
PINEHURST OAKDALE PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager

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WINSTON-SALEM OAKDALE PROPERTY, LLC, an Oregon limited liability company
By:	Senior Living Properties II, LLC, an Oregon limited liability company, its sole member
	By:	/s/ Jon M. Harder
		Name: Jon M. Harder
		Title: Manager

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PURCHASER
FIVE STAR QUALITY CARE, INC., a Maryland corporation
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr. President

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ACCEPTANCE BY ESCROW AGENT

The undersigned Escrow Agent: (a) accepts the Escrow created by the foregoing Agreement; (b) agrees to act in accordance with the terms thereof; and (c) agrees to be the person responsible for closing the transaction within the meaning of Section 6045(e)(2)(A) of the Internal Revenue Code of 1986 (the “Code”), and to file all necessary information reports, returns, and statement (collectively, “Reports”) regarding the transaction required by the Code, and promptly, upon the filing thereof, transmit copies thereof to Purchaser and Seller.

By:
	Name:
	Its:
Escrow No.:

The following exhibits have been omitted and will be supplementally furnished to the Securities and Exchange Commission upon request:

Schedule 1 (Excluded Assets), Schedule 2 (Contracts), Schedule 3 (Trade Names), and Schedule 5 (Resident Agreements).  Exhibit 1 (Legal Description of the Land), Exhibit 2A (North Carolina Limited Warranty Deed), Exhibit 2B, (South Carolina Limited Warranty Deed), Exhibit (Bill of Sale), Exhibit 4 (Assignment and Assumption of Resident Agreements), Exhibit 5 (Assignment of Rights), Exhibit 6 (Non-Foreign Affidavits), Exhibit 7 (Sale Motion), Exhibit 8 (Approval Order), and Exhibit 9 (Sale Order)

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Bruce J. Mackey, Jr., certify that:

1.I have reviewed this Quarterly Report on Form 10-Q 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):

a.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

b.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:    November 7, 2008	/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 15d-14(a)

I, Francis R. Murphy III, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q 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):

a.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

b.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:    November 7, 2008	/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 Quarterly Report on Form 10-Q for the quarter ended September 30, 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:November 7, 2008

EX-99.1

EXHIBIT 99.1

REIMBURSEMENT AGREEMENT

REIMBURSEMENT AGREEMENT (this “Agreement”), dated October 17, 2008, among Reit Management & Research LLC (“RMR”), TravelCenters of America LLC (“TA”) and Five Star Quality Care, Inc. (“FVE”)

RECITAL

RMR provides management and administrative services to TA pursuant to a Management and Shared Services Agreement dated January 31, 2007, and to FVE pursuant to a Shared Services Agreement dated January 2, 2002, as amended, including, with respect to telecommunications services, the negotiation of contracts with third party vendors and suppliers.

RMR and AT&T Corp. (“AT&T”) are parties to a Master Agreement No.: 0789 dated December 16, 2003 and the schedules, exhibits, addenda and service order attachments related thereto, in each case as amended (collectively, the “AT&T Agreement”), attached as Schedule 1.  Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the AT&T Agreement.

Under the AT&T Agreement, RMR has secured more favorable pricing for services than is generally available from AT&T, but is responsible for meeting minimum revenue commitments.  The pricing secured by RMR is more favorable than that which FVE or TA has been able to secure.  AT&T has agreed to make this pricing available to TA and FVE, as affiliates of RMR, provided RMR increases its minimum revenue commitments to AT&T.  RMR is willing to increase its minimum revenue commitments to AT&T provided TA and FVE agree to be responsible for portions of any unsatisfied minimums related to the provision of services to them under the AT&T Agreement.

The parties are entering into this Agreement to set forth their understanding and agreement as to the obligations of each with respect to the increased minimum revenue commitments (“MARC/MRC”) resulting from the provision of services to TA and FVE under the AT&T Agreement and upon any termination of the AT&T Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual undertakings in this Agreement, the parties hereto agree:

1.Usage and Payment.  Under the AT&T Agreement, RMR will be responsible for a MARC/MRC during the Attachment Term in the amounts set forth on Schedule 2.  The parties agree that for the period beginning on the date of this Agreement and ending October 31, 2009, each of TA, FVE and RMR will be responsible for satisfaction of the applicable MARC/MRC based upon their historical usage of telecommunications services and in the percentages set forth in Schedule 2 (in each case, the “Pro-Rata Percentage”).  Thereafter, the Pro-Rata Percentages will be readjusted, as of the date of determination during the Attachment Term, based on charges for actual usage of telecommunications services for the preceding twelve months ended immediately prior thereto, with each party being responsible for the Pro-Rata Percentage obtained by multiplying 100 by the decimal resulting from dividing the aggregate charges for

actual usage of telecommunications services of TA, FVE or RMR, as the case may be, by the aggregate charges for actual usage of telecommunications services of all the parties for the relevant twelve months ended.  It is expected that each of RMR, TA and FVE will be separately invoiced by AT&T for its actual usage of telecommunications services and each agrees to be responsible for timely payment.  If for any reason either TA or FVE does not timely pay AT&T or is not separately invoiced, TA and/or FVE, as the case may be, will promptly reimburse RMR for any payment to AT&T made on their behalf, promptly on demand.  If there is a material reduction in a party’s Pro-Rata Percentage as a result of its purchasing telecommunications services from a carrier other than AT&T, the party whose Pro-Rata Percentage is reduced will cooperate with the other parties in making an equitable adjustment.

2.Reimbursement.  If the MARC/MRC for any year of the Attachment Term (or any shorter period) is not satisfied, RMR will be billed a Shortfall Charge by AT&T equal to the difference between the applicable MARC/MRC and the total of the actual MARC/MRC-Eligible Charges for such year or period.  If the MARC/MRC-Eligible Charges of either of TA or FVE fall below their respective Pro-Rata Percentage (as adjusted) at any time, TA or FVE, as the case may be, will be solely responsible for the Shortfall Charge attributable thereto and will reimburse RMR an amount equal to Shortfall Charge attributable thereto, promptly on demand.

3.Termination for Convenience by RMR.  If the AT&T Agreement is terminated by RMR for its convenience, which will only be done with the agreement of TA and FVE, each of TA and FVE will reimburse RMR an amount equal to the percentage of the Termination Charge and any other amounts due AT&T under the AT&T Agreement represented by their then Pro-Rata Percentage, promptly on demand.

4.Severability. Any provision of this Agreement which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

5.Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the Commonwealth of Massachusetts (without giving effect to any conflicts or choice of laws provisions that would cause the application of the domestic substantive laws of any other jurisdiction).

6.Arbitration. Any and all disputes and disagreements arising out of or relating to this Agreement, other than actions or claims for injunctive relief or claims raised in actions or proceedings brought by third parties, shall be resolved through negotiations or, if the dispute is not so resolved, through binding arbitration conducted in Boston, Massachusetts under the JAMS Comprehensive Arbitration Rules and Procedures (as revised February 19, 2005), with the following amendments to those rules.  First, in no event shall the arbitration from commencement to issuance of an award take longer than 180 days.  Second, the arbitration tribunal shall consist of three arbitrators and the optional appeal procedure provided for in Rule 34 shall not be utilized.  Third, in lieu of the one deposition permitted in Rule 17(c) as of right and the optional further depositions that may be allowed, the only deposition per side shall be a single individual or entity deposition to last no longer than one seven-hour day that each party may take of the opposing party or an individual under the control of the opposing party.

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7.Assignability; Successors and Assigns. No party hereto may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the express prior written consent of the other parties.

8.Complete Agreement. The parties acknowledge that this Agreement constitutes the complete agreement among the parties with respect to the subject matter hereof, and supersedes any previous agreements between them with respect thereto.

9.Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by either party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the party against whom such waiver, amendment, supplement or modification it is sought to be enforced.

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

Reit Management & Research LLC
By:	/s/ John C. Popeo
Name: John C. Popeo
Title: Executive Vice President, Treasurer and Chief Financial Officer
TravelCenters of America LLC
By:	/s/ Thomas M. O’Brien
Name: Thomas M. O’Brien
Title: President and Chief Executive Officer
Five Star Quality Care, Inc.
By:	/s/ Bruce J. Mackey, Jr.
Name: Bruce J. Mackey, Jr.
Title: President and Chief Executive Officer

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