Exhibit 10.1

 

AMENDED AND RESTATED BUSINESS MANAGEMENT

AND SHARED SERVICES AGREEMENT

 

THIS AMENDED AND RESTATED BUSINESS MANAGEMENT AND SHARED SERVICES AGREEMENT
(this “Agreement”) is made and entered into as of January 4, 2010, by and
between Five Star Quality Care, Inc., a Maryland corporation (the “Company”),
and Reit Management & Research LLC, a Delaware limited liability company
(“RMR”).

 

WHEREAS, the Company and RMR are parties to a Shared Services Agreement dated as
of January 2, 2002, as amended (the “Original Agreement”); and

 

WHEREAS, the Company and RMR wish to amend and restate the Original Agreement as
hereinafter provided;

 

NOW, THEREFORE, in consideration of the mutual agreements set forth herein, the
parties hereto agree as follows:

 

Section 1.           ENGAGEMENT.  Subject to the terms and conditions
hereinafter set forth, the Company hereby continues to engage RMR to provide the
business management and shared services contemplated by this Agreement with
respect to the Company’s business and operations, and RMR hereby accepts such
continued engagement.

 

Section 2.           SERVICES.

 

2.1           SERVICES TO BE RENDERED.  RMR shall provide the Company with the
services described below (each, a “Service”, and collectively, the “Services”),
in each case to the extent requested by the Company:

 

(a)        ACCOUNTING SUPPORT.  Advice and assistance with accounting, audit and
financial reporting of the Company, including, without limitation, advice and
assistance in:  (i) setting up and maintaining systems for financial record
keeping; (ii) conducting the administration of the day-to-day bookkeeping and
accounting functions as are required for the proper management of the assets of
the Company; and (iii) contracting for and supervising the process for audits of
the Company’s annual financial statements by the Company’s independent
registered public accountants.

 

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(b)        FINANCING, LEASING AND STRATEGIC ADVICE AND ASSISTANCE.

 

(i)    EQUITY CAPITAL MARKETS.  Advice and services relating to equity capital
raising transactions, but not including solicitation of investors as a broker,
dealer or underwriter in any capital raising transactions.

 

(ii)   DEBT FINANCING.  Advice and services relating to revolving lines of
credit and other issuances of indebtedness.

 

(iii)  STRATEGIC.  Advice and services relating to possible business and
strategic opportunities as may come to the attention of the Company or RMR,
including, without limitation, acquisitions, joint ventures, dispositions and
other strategic transactions.

 

(iv)  INVESTIGATION.  Investigation and evaluation of financing, refinancing,
leasing and other business opportunities, and making recommendations concerning
these opportunities.

 

(c)        CASH MANAGEMENT.  Advice and assistance in:  (i) operating and
managing the Company’s collection systems, cash concentration systems and
electronic disbursements; (ii) maintaining bank accounts, including opening and
closing of operating, security deposits, local depository and petty cash
accounts; (iii) bank administration; and (iv) maintaining bank relationships.

 

(d)        HUMAN RESOURCES.  Advice and assistance in management of the
Company’s 401(k) plan and other employee benefit plans, Company employee and
management recruitment, performance evaluation and establishment of salary,
bonus and other compensation scales and executive and staff employee structure.

 

(e)        INSURANCE ADMINISTRATION.  Assistance in:  (i) securing all forms of
insurance, including property, casualty and workers’ compensation; (ii) managing
insurance policies; (iii) negotiation of premiums and arranging payment terms;
(iv) managing claims; and (v) preparation of loss analysis.  The amount and
levels of insurance shall be determined in the sole and absolute discretion of
the Company.

 

(f)         INVESTOR RELATIONS.  Assistance in the preparation and coordination
of:  (i) annual and other reports to shareholders; (ii) presentations to the
public; (iii) public relations; (iv) marketing materials; (v) internet website;
and (vi) investor relations services.

 

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(g)        REGULATORY COMPLIANCE.  Advice and assistance with compliance with
applicable legal and regulatory requirements, including, without limitation,
advice and assistance in preparation of financial reports as may be required by
any governmental authority in connection with the ordinary conduct of the
Company’s business, including periodic reports, returns or statements required
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or
the rules and regulations promulgated thereunder, and tax reporting matters as
further provided in subparagraph 2.1(p); provided, however, that the foregoing
Services shall not include advice and assistance with any requirements of
Medicare, Medicaid or other rate setting, safety, health agency or quality of
care authority.

 

(h)        CONTRACTS.  Assistance in review and negotiation of and advice
concerning Company contracts and agreements, including, without limitation,
contracts in connection with the services described in subparagraph 2.1(b), in
each case, on behalf of the Company and in the furtherance of the Company’s
objectives.

 

(i)         LEGAL MATTERS.  Assistance with the retention, coordination and
supervision of all third party legal services and oversight of processing of
claims by or against the Company.

 

(j)         MANAGEMENT INFORMATION SYSTEMS.

 

(i)    APPLICATIONS DEVELOPMENT.  Supervision and assistance related to
development and maintenance of Company information technology system
applications, including, without limitation, intranet, financial, accounting and
clerical systems.

 

(ii)   TELECOMMUNICATIONS.  Supervision and assistance related to design,
operation and maintenance of network infrastructure, including telephone and
data transmission lines, voice mail, facsimile machines, cellular phones, pager,
etc.; negotiation of contracts with third party vendors and suppliers; and
provide local area network and wide area network communications support.

 

(iii)  OPERATIONS/TECHNICAL SUPPORT AND USER SUPPORT.  Supervision and
assistance related to design, maintenance and operation of the computing
environment, including business specific applications, network wide
applications, electronic mail and other systems; managing the purchase and
maintenance of equipment, including hardware and software; configuration,
installation and support of computer equipment; and education and training of
the user community.

 

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(iv)  MANAGEMENT INFORMATION SYSTEMS SERVICES.  In addition to supervision and
assistance, the provision of such personnel reasonably required and qualified to
supplement the Company’s personnel in order to perform the underlying work
described in subsections (i) through (iii) of this subparagraph 2.1(j) (the “MIS
Services”).

 

(k)        PROPERTY MAINTENANCE AND REPAIRS.  Assist in obtaining, when
appropriate, the services of property managers or management firms to perform
customary property management services with regard to the facilities operated by
or the real estate properties owned or leased by or otherwise in the possession
of the Company; perform such supervisory, evaluation or monitoring services on
behalf of the Company with respect to the activities of those property managers
or management firms as would be performed by a prudent owner or lessee engaged
in business substantially similar to that engaged in by the Company with respect
to its owned or leased properties used in such business, including, but not
limited to, supervising the activities of property managers or management firms,
reviewing the maintenance and renovation needs for governmental or regulatory
compliance (other than Medicare and Medicaid compliance) at the Company’s
properties, assessing capital and engineering projects, property inspections,
and participating in property management budgeting, but excluding the actual
on-site property management functions performed by Company personnel, property
managers or management firms.

 

(l)         RESEARCH.  Provision of periodic market research reports and perform
special research assignments.

 

(m)       SECURITIES FILINGS.  Advice and assistance in the preparation and
filing of periodic and other reports required to be filed by Sections 13 and 15
of the Exchange Act and the rules and regulations thereunder; advice and
assistance in the preparation, filing, distribution and posting of proxy and
consent materials pursuant to the Exchange Act and the rules and regulations
thereunder; and advice and assistance in the preparation and filing of all
offering documents (public and private), and all registration statements,
prospectuses or other documents filed with the Securities and Exchange
Commission (the “SEC”) or any state; it being understood that the Company shall
be responsible for the content of any and all of its offering documents and SEC
filings, and RMR shall not be held liable for any costs or liabilities arising
out of any misstatements or omissions in the Company’s offering documents or SEC
filings, whether or not material, and the Company shall promptly indemnify RMR
from any such costs or liabilities incurred by it.

 

(n)        SPECIAL PROJECTS.  Provide direction and support of all special
projects and such other services within the scope contemplated by this Agreement
although not expressly covered in the subparagraphs of subparagraph 2.1.

 

(o)        SUPERVISION OF THIRD PARTY MANAGER ARRANGEMENTS.  Provision of
strategic advice and oversight concerning the Company’s

 

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relationship with any and all, current or future, third party managers of its
current or future facilities or properties.

 

(p)        TAX ADMINISTRATION.  Supervision, direction and assistance in the
preparation, review and filing of all federal, state and other required tax
returns; supervision and direction of ad hoc requests for assistance on tax
related matters; and coordination of all activities with the Company’s outside
tax preparer.  All tax matters shall be determined by the Company in its
absolute and sole discretion.

 

(q)        INTERNAL AUDIT FUNCTION.  Provision of an internal audit function
meeting applicable requirements, if any, of the NYSE Amex LLC and the SEC and
otherwise in scope approved by the Audit Committee of the Board of Directors of
the Company.

 

(r)         RISK MANAGEMENT.  Advise and assist with the Company’s risk
management and oversight function.

 

(s)        THIRD PARTY ADVISORS.  In addition to subparagraph 2.1(i), advise,
assist and oversee the retention of counsel, consultants and other third party
professionals on behalf of the Company.

 

Notwithstanding anything herein, it is understood and agreed that the duties of,
and services to be provided by, RMR pursuant to this Agreement shall not include
any investment management or related services with respect to any assets of the
Company as the Company may wish to allocate from time to time to investments in
“securities” (as defined in the Investment Advisers Act of 1940, as amended).

 

2.2           PERFORMANCE OF SERVICES.  RMR will perform or cause to be
performed the Services in a timely, efficient and workmanlike manner.  With the
Company’s approval, RMR may retain third parties or its affiliates to provide
certain of the Services hereunder.  In such cases, and notwithstanding anything
herein to the contrary, the Company shall pay the fees and costs of such third
parties and reimburse RMR in accordance with subparagraph 2.4 for RMR’s actual
out-of-pocket costs and expenses for arranging for such Services (including,
without limitation, the fees and costs of such third parties paid by RMR) to the
extent the Company is not billed or does not pay directly.  RMR shall be
responsible for paying such affiliates for their fees and costs in providing
such Services unless otherwise approved by a majority vote of the Independent
Directors (as defined in the Company’s Bylaws, as in effect from time to time)
of the Company.  All services shall be performed as requested and/or authorized
by the Company from time to time.

 

In performing its services hereunder with respect to the Company, RMR shall
adhere to, and shall require its officers and employees in the course of
providing such services to

 

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the Company to adhere to, the Company’s Code of Business Conduct and Ethics, as
in effect from time to time.  In addition, RMR shall make available to its
officers and employees providing such services to the Company the procedures for
the receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters relating to the Company and for
the confidential, anonymous submission by such officers and employees of
concerns regarding questionable accounting or auditing matters relating to the
Company, as set forth in the Company’s Procedures for Handling Concerns or
Complaints about Accounting, Internal Accounting Controls or Auditing Matters,
as in effect from time to time.

 

2.3           COMPENSATION.

 

(a)        PAYMENT FOR SERVICES.  RMR shall be paid a fee for the Services
provided to the Company under this Agreement (the “Fee”) equal to 0.6% of total
revenues (“Revenues”) of the Company from all sources reportable under generally
accepted accounting principles in the United States.  The Fee shall be estimated
and paid monthly by the Company in advance based upon the prior calendar month’s
Revenues, and such payment shall be paid within 15 calendar days of the end of
the applicable prior calendar month unless otherwise agreed.  The calculation of
the fee for any month shall be based upon the Company’s monthly financial
statements and shall be in reasonable detail.  A copy of the computations shall
promptly be delivered to RMR accompanied by payment of the Fee thereon to be due
and payable.  The Fee shall be pro-rated for any partial month this Agreement
shall be in effect.

 

The aggregate annual Fee paid in any fiscal year shall be subject to adjustment
as of the end of that fiscal year.  On or before the 30th day after public
availability of the Company’s annual audited financial statements for each
fiscal year, the Company shall deliver to RMR a notice setting forth (i) the
Company’s Revenues for such year, (ii) the Company’s computation of the Fee
payable for such year and (iii) the amount of the Fee theretofore paid to RMR in
respect of such year.  If the annual Fee payable for said fiscal year exceeds
the aggregate amounts previously paid with respect thereto by the Company, the
Company shall pay such deficit amount to RMR at the time of delivery of such
notice.  If the annual Fee payable for said fiscal year as shown in such notice
is less than the aggregate amounts previously paid with respect thereto by the
Company, the Company shall specify in such notice whether RMR should (i) refund
to the Company payment in an amount equal to such difference or (ii) grant the
Company a credit against the Fee next coming due in the amount of such
difference until such amount has been fully paid or otherwise discharged.

 

(b)        PAYMENT SUBORDINATION.  No Fee payments shall be paid by the Company
to RMR if any of the contractual rent obligations of the Company or any of its
subsidiaries to Senior Housing Properties Trust or any of its subsidiaries
(collectively “Senior Housing”) pursuant to any lease agreement are in arrears
or if such Fee payment would leave the Company with insufficient cash, credit
facilities or current accounts receivable to make its next scheduled rent
payment to Senior Housing pursuant to any lease agreement.  Any Fee payment
unpaid as a result of the preceding sentence shall accrue interest until paid at
the Prime Rate (as defined below), and shall be automatically due and payable: 
(i) as and to the extent cash, credit

 

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facilities or current accounts receivable are available after payment of, or
provision for, rent or (ii) upon any termination of the Agreement.  This
subparagraph 2.3(b) is only intended to define the relative rights of RMR and
Senior Housing.  Without intending to limit the generality of the foregoing,
nothing in this subparagraph 2.3(b) shall:  (i) impair, as between the Company
and RMR, the obligation of the Company to pay any amounts owing hereunder in
accordance with the terms hereof; or (ii) affect the relative rights of RMR and
creditors of the Company other than Senior Housing.  For purposes of this
Agreement, “Prime Rate” shall mean the Prime Rate or base rate on corporate
loans at large U.S. money center commercial banks as published in The Wall
Street Journal or, if publication of such rate shall be suspended or terminated,
Prime Rate shall mean the annual rate of interest, determined daily and
expressed as a percentage, from time to time announced by one of the three
largest national or New York State chartered banking institutions having their
principal office in New York, New York and selected by RMR at the time such
publication is suspended or terminated.  All interest hereunder shall be
calculated on the basis of actual days elapsed and a 360-day year.

 

2.4           REIMBURSEMENT.  Unless otherwise agreed, the Company shall
reimburse RMR for reasonable out-of-pocket expenses and costs of RMR employees
incurred in their performance of the Services (the “Expenses”) and for
reasonable third party expenses and costs RMR incurs (including expenses and
costs of RMR’s affiliates pursuant to subparagraph 2.2) on behalf of the Company
that are not billed directly to or paid by the Company, in each case within 30
days of receipt of the invoice therefor, but only to the extent, as to such
third party expenses and costs (including expenses and costs of RMR’s affiliates
pursuant to subparagraph 2.2), the Company shall have approved such expenses and
costs.  RMR shall submit to the Company such reports detailing said expenses and
costs and supporting receipts and bills, or other suitable evidence, as may be
reasonably requested by the Company.

 

2.5           COMPENSATION FOR INTERNAL AUDIT FUNCTION.  In addition to the Fee
and Expenses, as compensation payable to RMR for the provision of an internal
audit function to the Company pursuant to subparagraph 2.1(q), the Company
agrees to reimburse RMR, within 30 days of the receipt of the invoice therefor,
for a pro rata share of the following costs of RMR:

 

(a)        employment expenses of RMR’s internal audit manager and other
employees of RMR actively engaged in providing internal audit services,
including, but not limited to, salary, wages, payroll taxes and the cost of
employee benefit plans; and

 

(b)        the reasonable travel and other out-of-pocket expenses of RMR
relating to the activities of RMR’s internal audit manager and other of RMR’s
employees actively engaged in providing internal audit services and the
reasonable third party expenses which RMR incurs in connection with its
provision of internal audit services.

 

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2.6           COMPENSATION FOR MANAGEMENT INFORMATION SYSTEMS IMPLEMENTATION.

 

In addition to the Fee, Expenses and the compensation for internal audit
functions pursuant to subparagraph 2.5, the Company agrees to reimburse RMR,
within 30 days of the receipt of invoices therefor, for eighty percent (80%) of
the employment expenses of RMR’s employees, other than its Chief Information
Officer, actively engaged in providing the MIS Services, including, but not
limited to, salary, wages, payroll taxes and the cost of employee benefit plan. 
The share of such expenses may be adjusted annually not later than December of
each year for the following 12 calendar months beginning the following
January by agreement of RMR and the Company.

 

Section 3.           LIMITATIONS; THIRD PARTY COSTS; NO FIDELITY BOND.

 

3.1           NON-COVERED SERVICES.  For the avoidance of doubt, services
outside the scope of this Agreement include, without limitation, and the
Company, and not RMR, shall be responsible for:  (a) any and all clinical
services to residents or patients at all facilities leased by the Company,
whether or not managed or operated by the Company, and (b) any and all
reimbursement or rate setting policies and reports to Medicare, Medicaid, any
rate setting authority, safety, health agency or quality of care authority or
any other third parties.

 

3.2           LIMITS OF RMR RESPONSIBILITY.  RMR assumes no responsibility other
than to render the services described herein in subparagraphs 2.1 and 5.2 in
good faith and shall not be responsible for any action of the Company in
following or declining to follow any advice or recommendation of RMR.

 

3.3           THIRD PARTY COSTS.  Except to the extent expressly provided herein
to the contrary, all third party costs incurred in connection with actions to be
taken by the Company shall solely be the responsibility of the Company,
including, but not limited to, all legal, auditing, accounting, underwriting,
brokerage, investor communications, and listing, reporting and registration fees
or other costs of the SEC, any state or local governments, any national
securities exchange and the Financial Industry Regulatory Authority, Inc.

 

3.4           FIDELITY BOND.  RMR shall not be required to obtain or maintain a
fidelity bond in connection with the performance of its services hereunder.

 

Section 4.           TERM; TERMINATION.

 

4.1           TERM.  This Agreement shall continue in force and effect until
December 31, 2010, and shall be automatically renewed for successive one year
terms annually thereafter unless notice of non-renewal is given by the Company
or RMR before the end of the term.  It is

 

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expected that the terms and conditions may be reviewed by the Independent
Directors of the Compensation Committee of the Board of Directors of the Company
at least annually.

 

4.2           TERMINATION.  Notwithstanding any other provision of this
Agreement to the contrary, this Agreement, or any extension thereof, may be
terminated:  (a) by either party thereto upon sixty (60) days’ written notice to
the other party; and (b) by RMR upon five (5) business days’ written notice to
the Company if there is a Change of Control (as defined below) of the Company. 
Any termination of this Agreement by the Company pursuant to clause (a) of this
subparagraph 4.2 must be approved by a majority vote of the Independent
Directors of the Compensation Committee of the Board of Directors of the
Company.  Any termination of this Agreement by RMR pursuant to clause (a) or
(b) of this subparagraph 4.2 must be approved by a majority vote of the
directors of RMR.

 

4.3           CHANGE OF CONTROL.  For purposes of this Agreement, a “Change of
Control” shall mean:  (a) the acquisition by any person or entity, or two or
more persons or entities acting in concert, of beneficial ownership (such term,
for purposes of this subparagraph 4.3, having the meaning provided such term in
Rule 13d-3 under the Exchange Act) of 9.8% or more, or rights, options or
warrants to acquire 9.8% or more, or any combination thereof, of the outstanding
shares of common stock of the Company or other voting interests of the Company,
including voting proxies for such shares, or the power to direct the management
and policies of the Company, directly or indirectly (excluding RMR and its
affiliates and persons or entities that beneficially own 9.8% or more of the
Company’s outstanding shares of common stock as of immediately prior to the
execution and delivery of this Agreement by the parties hereto and excluding
persons or entities that have rights to acquire 9.8% or more of the Company’s
shares of common stock by virtue of their holding convertible notes of the
Company outstanding as of the date of this Agreement); (b) the merger or
consolidation of the Company with or into any other entity (other than the
merger or consolidation of any entity into the Company that does not result in a
Change in Control of the Company under clauses (a), (c), or (d) of this
definition); (c) any one or more sales or conveyances to any person or entity of
all or any material portion of the assets (including capital stock or other
equity interests) or business of the Company and its subsidiaries taken as a
whole; or (d) the cessation, for any reason, of the individuals who at the
beginning of any 36 consecutive month period constituted the Board of Directors
of the Company (together with any new director whose election by the Board of
Directors of the Company or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of any such period or whose
election or nomination for election was previously so approved) to constitute a
majority of the Board of Directors of the Company then in office; provided,
however, a Change of Control shall not include the acquisition by any person or
entity, or two or more persons or entities acting in concert, of beneficial
ownership of 9.8% or more, or rights, options or warrants to acquire 9.8% or
more, or any combination thereof, of the outstanding shares of common stock of
the Company or other voting interests of the Company if such acquisition is
approved by the Board of Directors of the Company in accordance with the
Company’s organizational documents and if such acquisition is otherwise in
compliance with applicable law.

 

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4.4                                 ACTION UPON TERMINATION.  Except as provided
in subparagraph 9.4, from and after the effective date of any termination of
this Agreement pursuant to subparagraphs 4.1 or 4.2, RMR shall be entitled to no
compensation for services rendered hereunder for the pro rata remainder of the
then current term of this Agreement but shall be paid all compensation due for
services performed prior to the effective date of such termination, including,
without limitation, the then current year’s Fee through the date of termination,
and the costs and expenses, including, without limitation, the Expenses,
incurred on or prior to such effective date.  Upon the expiration or sooner
termination of this Agreement, RMR shall, as promptly as practicable, deliver to
the Company all property and documents of the Company then in its custody or
possession.  This subparagraph 4.4 shall govern the rights, liabilities and
obligations of the parties upon termination of this Agreement; and, except as
provided in Section 9, a termination shall be without further liability of
either party to the other for breach or violation of this Agreement prior to
termination.

 

Section 5.                                ADDITIONAL SERVICES; SENIOR
EXECUTIVES.

 

5.1                                 COMMON MANAGEMENT.  The parties acknowledge
and agree that certain senior executives of the Company may be employees,
officers or directors of both the Company and RMR.  Each party shall be solely
responsible for payment of compensation to such senior executives for services
rendered to or on behalf of such party and the payment by the Company for
services by senior executives who are also senior executives of RMR shall be
approved by majority vote of the Independent Directors of the Compensation
Committee of the Board of Directors of the Company.

 

5.2                                 ADDITIONAL SERVICES.

 

(a)             To the extent requested by the Company, RMR shall make its
executive officers and directors who are not also senior executives of the
Company reasonably available to the Company for the provision of additional
services, including day-to-day activities enumerated in subparagraph 2.1. The
parties acknowledge and agree that no additional compensation shall be due and
payable for any additional services requested by the Company and provided by
executive officers and directors of RMR pursuant to this subparagraph 5.2(a).

 

(b)            If, and to the extent that, the Company shall request RMR to
render services on behalf of the Company other than those to be rendered by RMR
in accordance with Section 2 and subparagraph 5.2(a) of this Agreement, such
additional services shall be compensated separately on terms to be agreed upon
between RMR and the Company from time to time.

 

Section 6.                                PREVENTION OF PERFORMANCE.  RMR shall
not be determined to be in violation of this Agreement if it is prevented from
performing any Services hereunder for any reason beyond its reasonable control,
including, without limitation, acts of God, nature, or of

 

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public enemy, strikes, or limitations of law, regulations or rules of the
federal or of any state or local government or of any agency thereof.

 

Section 7.                                COMPANY RESTRICTIONS.

 

7.1                                 OWNERSHIP AND FINANCING LIMITATIONS.  At no
time during the term of this Agreement, may the Company or any of its
subsidiaries, directly or indirectly, make any investment in or finance
(including sale and leaseback transactions), or participate in the investment
and or financing of, any real estate property (collectively, the “Properties”)
of a type then owned or financed by HRPT Properties Trust, Hospitality
Properties Trust, TravelCenters of America LLC, Government Properties Income
Trust or their respective subsidiaries, Senior Housing, or any other publicly
owned real estate investment trust, corporation or other entity that is managed
by RMR (a “Benefited Party”) unless in accordance with this subparagraph 7.1. 
If the Company or any of its subsidiaries proposes to enter into any transaction
involving the investment in or financing of a Property otherwise prohibited by
this subparagraph 7.1 (“Proposed Transaction”), it shall provide notice of the
Proposed Transaction to the relevant Benefited Party describing the Proposed
Transaction in sufficient detail and offer the relevant Benefited Party the
right to invest in or finance the acquisition of the Property and negotiate in
good faith with the relevant Benefited Party.  If, after ten (10) business days,
the Company and the relevant Benefited Party have not reached agreement on the
terms of the investment or financing, the Company (or any subsidiary of the
Company) shall be free to invest in or finance such Property itself or with
others, free of the restrictions provided in the first sentence of this
subparagraph 7.1.

 

The Company agrees that irreparable damage would occur if any of the provisions
of this subparagraph 7.1 were not performed in accordance with their terms and
that RMR’s and the Benefited Parties’ remedy at law for the Company or its
subsidiaries’ breach of its obligations under this subparagraph 7.1 would be
inadequate.  Upon any such breach, RMR or the relevant Benefited Party shall be
entitled (in addition to any other rights or remedies it or they may have at
law) to seek an injunction enjoining and restraining the Company or such
subsidiaries from continuing such breach.  The Company agrees that the period of
restriction and the geographical area of restriction imposed upon the Company
are fair and reasonable.  If the provisions of this subparagraph 7.1 relating to
the period or the area of restriction are determined to exceed the maximum
period or areas which a court having jurisdiction over the matter would deem
enforceable, such period or area shall, for purposes of this Agreement, be
deemed to be the maximum period or area which such court determines valid and
enforceable.

 

7.2                                 ADDITIONAL COVENANTS.  In the event RMR
shall enter into a management arrangement or agreement with any other publicly
owned entity, other than the Benefited Parties, RMR shall provide the Company
with notice thereof.  The notice shall specify in reasonable detail the identity
of the entity, the types of properties owned or financed by such additional
entity, and such entity shall then be deemed and become a “Benefited Party” for
all purposes of this Agreement.

 

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Section 8.                                RMR RESTRICTIONS.  Other than
activities or arrangements existing as of the date hereof or those consented to
by the Company, RMR shall not directly or indirectly provide any advice or
assistance to any business or enterprise that is competitive with the Company’s
business, including, but not limited to, any business or enterprise that manages
or operates senior apartments, congregate communities, assisted living
properties, nursing homes, rehabilitation hospitals or other healthcare
properties.  Subject to the immediately preceding sentence, nothing herein shall
prevent or restrict RMR from engaging in any other activities or businesses or
from providing management services to any other person or entity.  In addition,
nothing herein shall prevent any shareholder or affiliate of RMR from engaging
in any other business or from rendering services of any kind to any other person
or entity (including competitive business activities).  For avoidance of doubt,
nothing herein is intended or shall be construed to prevent RMR from providing
management services to Senior Housing, including services to Senior Housing
related to properties owned or to be owned by Senior Housing which may be
leased, operated or managed by the Company or which may be leased, operated or
managed by competitors of the Company.

 

Section 9.                                INDEMNIFICATION; REMEDIES.

 

9.1                                 BY THE COMPANY.  The Company shall
indemnify, defend and hold RMR, and its members, directors, officers, employees
and agents harmless from and against any and all damages, claims, losses,
expenses, costs, obligations and liabilities, including, without limiting the
generality of the foregoing, liabilities for all reasonable attorneys’,
accountants’ and experts’ fees and expenses incurred (collectively, “Losses and
Expenses”) or suffered by them by reason of or arising out of the course of
performing the Services and any duties on behalf of the Company and its
subsidiaries as prescribed hereby, except for matters covered by subparagraph
9.2 hereof.

 

9.2                                 BY RMR.  RMR shall indemnify, defend and
hold the Company and its subsidiaries and their respective directors, trustees,
officers, employees and agents harmless from and against Losses and Expenses
suffered by them by reason of or arising out of any willful bad faith or gross
negligence in the performance of any obligation or agreement of RMR herein.  Any
dispute, claim or controversy between the Company and RMR as to whether RMR
acted with willful bad faith or gross negligence in the performance of any
obligation or agreement of RMR herein shall be arbitrated in accordance with
Section 14, except that, notwithstanding anything to the contrary in Section 14,
the costs and expenses of the prevailing party to such arbitration shall be paid
by the non-prevailing party to such arbitration.

 

9.3                                 COMPANY REMEDIES.  Except as otherwise
provided in subparagraph 9.2 hereof, RMR does not assume any responsibility
under this Agreement other than to render the Services called for under this
Agreement in good faith.  Except as otherwise provided in subparagraph 9.2
hereof, the Company’s remedy on account of the failure of RMR to render the
Services as and when required hereunder shall be to terminate this Agreement;
provided however, that if RMR acts with willful bad faith or gross negligence,
the Company’s remedy shall be to procure services elsewhere and to charge RMR
the difference between the reasonable increased

 

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cost, if any, to procure new services, and the Fee, pro-rated, that would have
been payable to RMR had RMR performed such Services under this Agreement.

 

9.4                                 RMR REMEDIES.  Except as otherwise provided
in subparagraph 9.1, the Company does not assume any responsibility under this
Agreement other than to pay the Fee, Expenses and other fees and compensation
payable by the Company to RMR, including, without limitation, pursuant to
subparagraphs 2.5 and 2.6, and satisfy the other obligations imposed upon it
hereunder, in each case, in accordance with the terms of this Agreement.  Except
as otherwise provided in subparagraph 9.1, RMR’s sole remedy on account of the
failure of the Company to satisfy its obligations in accordance with the terms
of this Agreement shall be to terminate this Agreement and receive the Fee
payable for the then remaining term of this Agreement and any other amounts then
owing to RMR by the Company.

 

Section 10.                          SELF-DEALING.  Neither RMR nor any
affiliate of RMR shall, directly or indirectly, sell any property or assets to
the Company or purchase any property or assets from the Company, lease any
property from the Company or borrow any money from the Company, except as
approved by a majority of the Independent Directors of the Company.  In
addition, except as otherwise provided in Section 2 hereof or except as approved
by a majority of the Independent Directors of the Company, neither RMR nor any
affiliate of RMR shall receive any commission or other remuneration, directly or
indirectly, in connection with the activities of the Company or any joint
venture or partnership in which the Company is a party.  The foregoing
prohibitions shall not apply to:  (a) the lease of facilities or office space by
the Company from RMR or its affiliates; or (b) RMR’s or its affiliates’
provision of services to Affiliates Insurance Company (“AIC”) or RMR’s
participation in AIC, including, without limitation, as a shareholder of AIC or
as a policy holder of insurance policies issued by AIC or its third party agents
in furtherance of AIC’s business.  Except for compensation received by RMR
pursuant to Section 2 hereof, all commissions or other remuneration proposed to
be received by RMR or an affiliate of RMR and not approved by a majority of the
Independent Directors of the Company shall be promptly reported to the Company
for its consideration.

 

Section 11.                          RELATIONSHIP OF THE PARTIES.

 

11.1                           NO PARTNERSHIP OR JOINT VENTURE.  The parties are
not partners or joint venturers with each other and neither the terms of this
Agreement nor the fact that the Company and RMR and their respective affiliates
have joint interests in any one or more investments, ownership or other
interests in any one or more entities, have common directors, officers or
employees or have tenancy relationships shall be construed so as to make them
partners or joint venturers or impose any liability as such on either of them.

 

11.2                           CONFLICTS OF INTEREST.  The Company acknowledges
and agrees that RMR has certain interests that may be divergent from those of
the Company, including, without limitation, as of the date hereof, (a) the
Company is a tenant of an affiliate of RMR pursuant to a lease agreement
relating to office space, (b) the Company and its subsidiaries lease

 

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all or substantially all of their real estate from Senior Housing and may enter
into additional leases or other transactions with Senior Housing, (c) RMR
provides management services to Senior Housing pursuant to management
agreements, (d) the Company leases office and certain clinical space from HRPT
Properties Trust, and (e) RMR provides certain services to AIC.  The parties
agree that these relationships shall not affect either party’s rights and
obligations under this Agreement; provided, however, the Company acknowledges
and agrees that whenever any conflicts of interest arise resulting from the
relationships described in this subparagraph 11.2 or any such relationship as
may arise or be present in the future by and between the Company and any of RMR,
affiliates of RMR or any publicly owned entity with whom RMR has a relationship
or contract:  (i) RMR will act on its own behalf and on behalf of Senior Housing
or such entity and not on the Company’s behalf; and (ii) the Company shall make
its own decisions and require and obtain the advice and assistance of
independent third parties at its own cost, as it may deem necessary.

 

Section 12.                          RECORDS.  RMR shall maintain appropriate
books and records relating to Services performed pursuant to this Agreement,
which books and records shall be available for inspection by representatives of
the Company upon reasonable notice during ordinary business hours.

 

Section 13.                          ASSIGNMENT.  Neither party may assign this
Agreement or its rights hereunder or delegate its duties hereunder without the
written consent of the other party, except in the case of an assignment or
delegation by RMR to a corporation, partnership, limited liability company,
association, trust, or other successor entity which may take over the property
and carry on the affairs of RMR and which remains under the control of one or
more persons who controlled the operations of RMR immediately prior to such
assignment or delegation.

 

Section 14.                          ARBITRATION.

 

14.1                           PROCEDURES FOR ARBITRATION OF DISPUTES.  Any
disputes, claims or controversies between the parties (a) arising out of or
relating to this Agreement or the provision of services by RMR pursuant to this
Agreement, or (b) brought by or on behalf of any shareholder of the Company
(which, for purposes of this Section 14, shall mean any shareholder of record or
any beneficial owner of shares of the Company, or any former shareholder of
record or beneficial owner of shares of the Company), either on his, her or its
own behalf, on behalf of the Company or on behalf of any series or class of
shares of the Company or shareholders of the Company against the Company or any
director, officer, manager (including RMR or its successor), agent or employee
of the Company, including disputes, claims or controversies relating to the
meaning, interpretation, effect, validity, performance or enforcement of this
Agreement or the charter or Bylaws of the Company (all of which are referred to
as “Disputes”), or relating in any way to such a Dispute or Disputes shall, on
the demand of any party to such Dispute be resolved through binding and final
arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of
the American Arbitration Association (“AAA”) then in effect, except as those
Rules may be modified in this Section 14.  For the avoidance of doubt, and not
as a limitation, Disputes are intended to include derivative actions against
directors, officers or

 

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managers of the Company and class actions by a shareholder against those
individuals or entities and the Company.  For the avoidance of doubt, a Dispute
shall include a Dispute made derivatively on behalf of one party against another
party.

 

14.2                           ARBITRATORS.  There shall be three arbitrators. 
If there are only two parties to the Dispute, each party shall select one
arbitrator within 15 days after receipt by respondent of a copy of the demand
for arbitration.  Such arbitrators may be affiliated or interested persons of
such parties.  If either party fails to timely select an arbitrator, the other
party to the Dispute shall select the second arbitrator who shall be neutral and
impartial and shall not be affiliated with or an interested person of either
party.  If there are more than two parties to the Dispute, all claimants, on the
one hand, and all respondents, on the other hand, shall each select, by the vote
of a majority of the claimants or the respondents, as the case may be, one
arbitrator.  Such arbitrators may be affiliated or interested persons of the
claimants or the respondents, as the case may be.  If either all claimants or
all respondents fail to timely select an arbitrator then such arbitrator (who
shall be neutral, impartial and unaffiliated with any party) shall be appointed
by the AAA.  The two arbitrators so appointed shall jointly appoint the third
and presiding arbitrator (who shall be neutral, impartial and unaffiliated with
any party) within 15 days of the appointment of the second arbitrator.  If the
third arbitrator has not been appointed within the time limit specified herein,
then the AAA shall provide a list of proposed arbitrators in accordance with the
Rules, and the arbitrator shall be appointed by the AAA in accordance with a
listing, striking and ranking procedure, with each party having a limited number
of strikes, excluding strikes for cause.

 

14.3                           PLACE OF ARBITRATION.  The place of arbitration
shall be Boston, Massachusetts unless otherwise agreed by the parties.

 

14.4                           DISCOVERY.  There shall be only limited
documentary discovery of documents directly related to the issues in dispute, as
may be ordered by the arbitrators.

 

14.5                           AWARDS.  In rendering an award or decision (the
“Award”), the arbitrators shall be required to follow the laws of The
Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered
hereunder and the validity, effect and interpretation of this arbitration
agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. 
The Award shall be in writing and may, but shall not be required to, briefly
state the findings of fact and conclusions of law on which it is based.

 

14.6                           COSTS AND EXPENSES.  Except as provided in
subparagraph 9.2 and to the extent otherwise agreed by the parties, each party
involved in a Dispute shall bear its own costs and expenses (including
attorneys’ fees), and the arbitrators shall not render an award that would
include shifting of any such costs or expenses (including attorneys’ fees) or,
in a derivative case or class action, award any portion of the Company’s award
to the claimant or the claimant’s attorneys.  Except as provided in subparagraph
9.2 and to the extent otherwise agreed by the parties, each party (or, if there
are more than two parties to the Dispute, all claimants, on

 

15

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the one hand, and all respondents, on the other hand, respectively) shall bear
the costs and expenses of its (or their) selected arbitrator and the parties
(or, if there are more than two parties to the Dispute, all claimants, on the
one hand, and all respondents, on the other hand) shall equally bear the costs
and expenses of the third appointed arbitrator.

 

14.7                           FINAL AND BINDING.  An Award shall be final and
binding upon the parties thereto and shall be the sole and exclusive remedy
between such parties relating to the Dispute, including any claims,
counterclaims, issues or accounting presented to the arbitrators.  Judgment upon
the Award may be entered in any court having jurisdiction.  To the fullest
extent permitted by law, no application or appeal to any court of competent
jurisdiction may be made in connection with any question of law arising in the
course of arbitration or with respect to any award made except for actions
relating to enforcement of this agreement to arbitrate or any arbitral award
issued hereunder and except for actions seeking interim or other provisional
relief in aid of arbitration proceedings in any court of competent jurisdiction.

 

14.8                           PAYMENT OF AWARDS.  Any monetary award shall be
made and payable in U.S. dollars free of any tax, deduction or offset.  Each
party against which the Award assesses a monetary obligation shall pay that
obligation on or before the 30th day following the date of the Award or such
other date as the Award may provide.

 

14.9                           BENEFICIARY.  This Section 14 is intended to
benefit and be enforceable by the shareholders, directors, officers, managers
(including RMR or its successor), agents or employees of the Company and the
Company and shall be binding on the shareholders of the Company and the Company,
as applicable, and shall be in addition to, and not in substitution for, any
other rights to indemnification or contribution that such individuals or
entities may have by contract or otherwise.

 

Section 15.                                      CONSENT TO JURISDICTION AND
FORUM.  This Section 15 is subject to, and shall not in any way limit the
application of, Section 14 or the mandatory arbitration requirements of
subparagraph 9.2; in case of any conflict between this Section 15 and Section 14
or subparagraph 9.2, Section 14 or subparagraph 9.2, as applicable, shall
govern.  The exclusive jurisdiction and venue in any action brought by any party
hereto pursuant to this Agreement shall lie in any federal or state court
located in Boston, Massachusetts.  By execution and delivery of this Agreement,
each party hereto irrevocably submits to the jurisdiction of such courts for
itself and in respect of its property with respect to such action.  The parties
irrevocably agree that venue would be proper in such court, and hereby waive any
objection that such court is an improper or inconvenient forum for the
resolution of such action.  The parties further agree and consent to the service
of any process required by any such court by delivery of a copy thereof in
accordance with Section 16 and that any such delivery shall constitute valid and
lawful service of process against it, without necessity for service by any other
means provided by statute or rule of court.

 

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Section 16.                          NOTICES.  Any notice, report or other
communication required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given:   when delivered in person; upon
confirmation of receipt when transmitted by facsimile transmission; on the next
business day if transmitted by a nationally recognized overnight courier; or on
the third business day following mailing by first class mail, postage prepaid;
in each case as follows (or at such other United States address or facsimile
number for a party as shall be specified by like notice):

 

If to the Company, to:

 

Five Star Quality Care, Inc.
400 Centre Street
Newton, Massachusetts 02458
Attn:  President
Facsimile No.:  (617) 796-8385

 

If to RMR, to:

 

Reit Management & Research LLC
400 Centre Street
Newton, Massachusetts 02458
Attn:  President
Facsimile No.:  (617) 928-1305

 

Section 17.                          ENTIRE AGREEMENT; WAIVER.  This Agreement
constitutes and sets forth the entire agreement and understanding of the parties
pertaining to the subject matter hereof, and no prior or contemporaneous written
or oral agreements, understandings, undertakings, negotiations, promises,
discussions, warranties or covenants not specifically referred to or contained
herein or attached hereto shall be valid and enforceable.  No waiver of this
Agreement or any provision of this Agreement shall be binding unless executed in
writing by the party to be bound thereby.  No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision hereof (whether or not similar), nor shall any such waiver constitute
a continuing waiver unless otherwise expressly provided.

 

Section 18.                          BINDING EFFECT.  This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors and permitted assigns.

 

Section 19.                          SEVERABILITY.  If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.

 

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Section 20.                          COUNTERPARTS.  This Agreement may be
executed in separate counterparts, each of which shall be deemed an original,
but both of which taken together shall be considered one and the same
instrument.

 

Section 21.                          AMENDMENTS.  The Agreement shall not be
amended, changed, modified, terminated, or discharged in whole or in part except
by an instrument in writing signed by each of the parties hereto, or by their
respective successors or assigns, or otherwise as provided herein.

 

Section 22.                          THIRD PARTY BENEFICIARIES.  Except as
otherwise provided in subparagraph 14.9, no person or entity other than the
parties hereto and their successors and permitted assigns is intended to be a
beneficiary of this Agreement.

 

Section 23.                          GOVERNING LAW.  This Agreement shall be
interpreted, construed, applied and enforced in accordance with the laws of The
Commonwealth of Massachusetts applicable to contracts between residents of
Massachusetts which are to be performed entirely within Massachusetts.

 

Section 24.                          INTERPRETATION.  The Company and RMR agree
and covenant to construe the provisions of and give effect to this Agreement in
such a manner to enable Senior Housing to continue to comply with its real
estate investment trust qualification requirements under applicable tax laws.

 

Section 25.                          CAPTIONS.  The headings and titles of the
various sections and paragraphs of this Agreement are inserted merely for the
purpose of convenience, and do not expressly or by implication limit, define,
extend or affect the meaning or interpretation of this Agreement or the specific
terms or text of the section or paragraph so designated.

 

Section 26.                          SURVIVAL.  The provisions of subparagraph
2.1(m) (relating to the Company’s obligation to indemnify RMR for costs and
liabilities incurred by RMR arising out of any misstatements or omissions in the
Company’s offering documents or SEC filings and the Company’s absence of
liability for any such costs or liabilities), 3.2, 3.3 and 4.4 and Sections 9,
14, 15, 16, 22, 23 and 24 of this Agreement and this Section 26 shall survive
the termination hereof.

 

[Signature page to follow.]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated
Business Management and Shared Services Agreement under seal as of the date
first above written.

 

 

 

FIVE STAR QUALITY CARE, INC.

 

 

 

 

 

By:

/s/ Bruce J. Mackey

 

 

Name:

Bruce J. Mackey

 

 

Title:

President

 

 

 

 

 

REIT MANAGEMENT & RESEARCH LLC

 

 

 

 

 

By:

/s/ Adam D. Portnoy

 

 

Name:

Adam D. Portnoy

 

 

Title:

President

 

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