Exhibit 10.1

 

Execution Version

 

TRANSACTION AGREEMENT

 

by and between

 

FIVE STAR SENIOR LIVING INC.

 

and

 

SENIOR HOUSING PROPERTIES TRUST

 

April 1, 2019

 

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TABLE OF CONTENTS

 

 

Page

 

 

 

 

SECTION 1    DEFINITIONS

1

1.1  Definitions

1

 

 

SECTION 2    TRANSACTIONS

6

2.1  Preliminary Matters

6

2.2  Restructuring Transactions

8

 

 

SECTION 3    CONDITIONS TO RESTRUCTURING TRANSACTIONS

8

3.1  Conditions to Obligations of SNH

8

3.2  Conditions to Obligations of FVE

10

3.3  Required Approvals; Extension

10

 

 

SECTION 4    REPRESENTATIONS AND WARRANTIES

11

4.1  FVE Representations and Warranties

11

4.2  SNH Representations and Warranties

13

 

 

SECTION 5    ADDITIONAL AGREEMENTS

14

5.1  Conduct of Business by FVE

14

5.2  Notices

14

5.3  Registration Rights Agreement

14

5.4  Additional Issuances

14

5.5  Prorations

15

5.6  Preparation of Form S-1 and Proxy Statement; Required Stockholder Approval

15

5.7  Board Recommendation

16

5.8  Exchange Listing

16

5.9  Omnibus Agreement

16

5.10  Cooperation

16

5.11  Share Consideration

16

 

 

SECTION 6    MISCELLANEOUS

17

6.1  Disputes

17

6.2  Confidentiality

19

6.3  Publicity

19

6.4  Notices

19

6.5  Waivers, Etc.

20

6.6  Assignment, Successors and Assigns; Third Party Beneficiaries

21

6.7  Severability

21

6.8  Counterparts, Etc.

21

6.9  Governing Law

21

6.10  Expenses

21

6.11  Section and Other Headings; Interpretation

21

6.12  SNH NON-LIABILITY OF TRUSTEES

21

6.13  Entire Agreement

22

6.14  Survival

22

6.15  Further Assurances

22

 

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Exhibits

 

Exhibit A               —            Form of New FVE Guaranty
Exhibit B               —            Form of New Management Agreement
Exhibit C               —            Form of Omnibus Agreement

 

Schedule

 

Schedule 1 —       Monthly Rent Adjustment Schedule

 

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TRANSACTION AGREEMENT

 

THIS TRANSACTION AGREEMENT is made as of April 1, 2019, by and between Five Star
Senior Living Inc., a Maryland corporation (“FVE”), on behalf of itself and the
other FVE Parties, and Senior Housing Properties Trust, a Maryland real estate
investment trust (“SNH”), on behalf of itself and the other SNH Parties.

 

PRELIMINARY STATEMENTS

 

FVE, through certain subsidiaries, currently leases and manages certain real
properties and improvements owned by SNH, through certain subsidiaries, which
are currently operated as senior living communities.

 

SNH and FVE wish to restructure their existing relationship as contemplated by
this Agreement and enter into certain other agreements and transactions as
contemplated by this Agreement subject to the terms and conditions set forth
herein.

 

NOW, THEREFORE, it is agreed:

 

SECTION 1
DEFINITIONS

 

1.1          Definitions.  Capitalized terms used in this Agreement shall have
the meanings set forth below:

 

(1)           “AAA”: the meaning given in Section 6.1(1).

 

(2)           “ABP Voting Agreement”: the meaning given in Section 2.1(5).

 

(3)           “Additional Charges”: the meaning given in the Existing Master
Leases.

 

(4)           “Additional Consideration”: the meaning given in Section 2.2(3).

 

(5)           “Additional Rent”: the meaning given in the Existing Master
Leases.

 

(6)           “Adjusted Base Number”: the meaning given in Section 5.11.

 

(7)           “Agreement”: this Transaction Agreement, together with the
Schedule and Exhibits hereto, as it or they may be amended in accordance with
the terms hereof.

 

(8)           “Applicable Working Capital Liabilities”: working capital
liabilities of FVE and its subsidiaries not associated with FVE-owned assets,
assets leased from HCP, Inc. or its subsidiaries or any ancillary businesses of
FVE (such as Ageility Physical Therapy Solutions and rehabilitation and home
health services).

 

(9)           “Arbitration Award”: the meaning given in Section 6.1(5).

 

(10)         “Base Number”: the meaning given in Section 5.11.

 

(11)         “Business Day”: any day other than Saturday, Sunday, or any other
day on which banking institutions in The Commonwealth of Massachusetts are
authorized by Law or executive action to close.

 

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(12)         “Code”: the U.S. Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.

 

(13)         “Conversion Time”: the meaning given in Section 2.2(1).

 

(14)         “Disputes”: the meaning given in Section 6.1(1).

 

(15)         “Entity”: any corporation, general or limited partnership, limited
liability company or partnership, stock company or association, joint venture,
association, company, trust, bank, trust company, land trust, business trust,
real estate investment trust, cooperative, any government or agency, authority
or political subdivision thereof or any other entity.

 

(16)         “Excess Shares”: the FVE Common Shares to be issued to the holders
of common shares of beneficial interest of SNH pursuant to the Share Issuances.

 

(17)         “Exchange Act”: The Securities Exchange Act of 1934 as amended from
time to time, and the regulations promulgated and rulings issued thereunder.

 

(18)         “Existing Facility”: the Amended and Restated Credit Agreement
dated as of February 24, 2017 by and among FVE and the subsidiaries of FVE
identified therein as guarantors, Citibank, N.A., in its capacity as
administrative agent and collateral agent, the financial institutions identified
therein as lender parties and RBC Capital Markets, as syndication agent, with
Citigroup Global Markets Inc. and RBC Capital Markets as joint lead arrangers
and joint book running managers.

 

(19)         “Existing Guaranties”: the guaranty agreements executed by FVE or
any of its subsidiaries guarantying the payment and / or performance of each
tenant’s obligations under an Existing Master Lease.

 

(20)         “Existing Leased Properties”: the real properties and improvements
owned by SNH, through its subsidiaries, which are leased to FVE or one of its
subsidiaries under an Existing Master Lease.

 

(21)         “Existing Managed Properties”: the real properties and improvements
owned by SNH, through its subsidiaries, which are managed by FVE Managers or FVE
IL Managers, as applicable, pursuant to an Existing Management Agreement.

 

(22)         “Existing Management Agreements”: the Management Agreements between
FVE Managers or FVE IL Managers, as applicable, and a subsidiary of SNH and any
other Management Agreement entered into by and between FVE Managers or FVE IL
Managers, as applicable, and a subsidiary of SNH prior to the Conversion Time.

 

(23)         “Existing Master Leases”: the Master Lease Agreements between FVE
and certain of its subsidiaries, as tenant, and SNH and certain of its
subsidiaries, as landlord.

 

(24)         “Existing Pooling Agreements”: the Pooling Agreements between FVE
Managers or FVE IL Managers, as applicable, and certain subsidiaries of SNH.

 

(25)         “Form S-1” means a registration statement on Form S-1, together
with any amendments or supplements thereto, to be filed by FVE with the SEC
relating to the Share Issuances.

 

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(26)         “FVE”: the meaning given in the Preamble.

 

(27)         “FVE Articles of Amendment”: the meaning given in Section 3.1(7).

 

(28)         “FVE Board Recommendation”: the meaning given in Section 5.7.

 

(29)         “FVE Common Shares”: the meaning given in Section 2.1(5).

 

(30)         “FVE IL Managers”: FVE IL Managers, Inc., a Maryland corporation.

 

(31)         “FVE Managers”: FVE Managers, Inc., a Maryland corporation.

 

(32)         “FVE Parties”: FVE, FVE IL Managers, FVE Managers, and any other
subsidiary of FVE that is a party to a Transaction Document.

 

(33)         “FVE Plan”: the meaning given in Section 4.1(2)(a).

 

(34)         “FVE Required Approvals”: the meaning given in Section 3.2(1).

 

(35)         “FVE Stockholder Meeting”: the 2019 Annual Meeting of Stockholders
of FVE, including for the purpose of seeking the Required Stockholder Approval,
including any postponement or adjournment thereof, or such separate meeting of
the Stockholders of FVE as may be required after such 2019 Annual Meeting of
Stockholders for the purpose of seeking the Required Stockholder Approval.

 

(36)         “GAAP”: generally accepted accounting principles in the United
States applied on a consistent basis.

 

(37)         “Governmental Authority”: any court, agency, authority, board
(including environmental protection, planning and zoning), bureau, commission,
department, office or instrumentality of any nature whatsoever of any
governmental or quasi-governmental unit of the United States or any state or any
county or any political subdivision of any of the foregoing, whether now or
hereafter in existence, having jurisdiction over any SNH Party or FVE Party or
any Property, or any portion thereof or the business conducted thereon.

 

(38)         “Laws”: all laws, ordinances, statutes, codes, rules, regulations,
agreements, judgments, orders and decrees now or hereafter enacted, promulgated,
or amended, of any Governmental Authority.

 

(39)         “Material Contract”: any contract, agreement, document or other
obligation that is required to be filed by FVE pursuant to Regulation S-K under
the Exchange Act as an exhibit to any filing with the SEC (or, if FVE at any
time is no longer required to make filings with the SEC, then such as would have
been required if FVE had continued to be subject to such filing obligations).

 

(40)         “Minimum Rent”: the meaning given in the Existing Master Leases.

 

(41)         “Monthly Rent Adjustment Amount”: with respect to an Existing
Leased Property, the amount specified for such Existing Leased Property on
Schedule 1.

 

(42)         “Nasdaq”: The Nasdaq Stock Market LLC (or any other nationally
recognized securities exchange).

 

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(43)         “New FVE Guaranty”: the Guaranty in the form attached as Exhibit A.

 

(44)         “New Management Agreement”: a Management Agreement in the form
attached as Exhibit B.

 

(45)         “Omnibus Agreement”: the Omnibus Agreement in the form attached as
Exhibit C.

 

(46)         “Person”: any individual or Entity.

 

(47)         “Properties”: the Existing Leased Properties and the Existing
Managed Properties.

 

(48)         “Proxy Statement”: a proxy statement in preliminary and definitive
form relating to the FVE Stockholder Meeting, together with any amendments or
supplements thereto.

 

(49)         “Qualifying PP&E”: plant, property and equipment located at a
Property, specifically excluding motor vehicles and consumable inventory and
supplies.

 

(50)         “Record Date”: the date designated by SNH as the record date for
the determination of the shareholders of SNH entitled to receive the right to
the Excess Shares.

 

(51)         “Registration Rights Agreement”: the Registration Rights Agreement,
dated as of August 4, 2009, between SNH and FVE, as amended pursuant to this
Agreement.

 

(52)         “Required Approvals”: the meaning given in Section 3.2(1).

 

(53)         “Required Licenses”: all material licenses, permits, consents,
authorizations, approvals, registrations and certificates (including
certificates of need) required to be issued by or from all applicable
Governmental Authorities to continue to operate or manage the Properties as
currently operated after giving effect to the Restructuring Transactions
(including as an assisted living facility, skilled nursing facility, personal
care home or other senior living facility).

 

(54)         “Required Stockholder Approval”: the approval of  the Share
Issuances by the affirmative vote of at least a majority of all the votes cast
by the holders of outstanding FVE Common Shares entitled to vote at the FVE
Stockholder Meeting.

 

(55)         “Restricted Payment” means the declaration or payment of any
dividend or other distribution of assets, properties, cash, rights, obligations
or securities to any person on account of the capital stock of FVE or the
purchase, redemption or other acquisition for value of any shares of capital
stock of FVE, whether now or hereafter outstanding.

 

(56)         “Restructuring Transactions”: the meaning given in Section 2.2.

 

(57)         “Rules”: the meaning given in Section 6.1(1).

 

(58)         “SEC”: the United States Securities and Exchange Commission
(including the staff thereof).

 

(59)         “Securities Act”: the Securities Act of 1933, as amended from time
to time and the regulations promulgated and rulings issued thereunder.

 

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(60)         “Share Consideration”:  262,450,513 FVE Common Shares (subject to
adjustment for any stock split, reverse stock split, stock dividend, combination
or other recapitalization or reclassification of the FVE Common Shares effected
after the date hereof and subject to adjustment pursuant to Section 5.11).

 

(61)         “Share Issuances”: the issuances of FVE Common Shares as
contemplated by Section 2.2(2).

 

(62)         “SNF Property”: a Property which is currently being operated
exclusively as a standalone skilled nursing facility.

 

(63)         “SNH”: the meaning given in the preamble to this Agreement.

 

(64)         “SNH Credit Agreement”: the Credit Agreement dated as of the date
hereof by and among FVE, the subsidiaries of FVE party thereto and SNH.

 

(65)         “SNH Loan Documents”: the “Loan Documents” as defined in the SNH
Credit Agreement.

 

(66)         “SNH Parties”: SNH and any other subsidiaries of SNH that are a
party to a Transaction Document.

 

(67)         “SNH Required Approvals”: the meaning given in Section 3.1(1).

 

(68)         “Solvent”: as to a particular Person and date, on such date (a) the
fair value of the property of such Person, on a going-concern basis, is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person, on a going concern basis, is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person has not incurred and does not
intend to, and does not believe that it will, incur debts or liabilities beyond
such Person’s ability to pay such debts and liabilities as they mature and
(d) such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person’s property would
constitute an unreasonably small capital.  The amount of contingent liabilities
of a Person shall be computed as the amount that, in the light of all the facts
and circumstances existing at such time (including, without limitation, after
taking into account appropriate discount factors for the present value of future
contingent liabilities), represents the amount that can reasonably be expected
to become an actual or matured liability.

 

(69)         “Transaction Documents”: this Agreement, any New Management
Agreement, the SNH Credit Agreement, the New FVE Guaranty, the Omnibus Agreement
and all other documents executed in connection therewith or the transactions
contemplated hereunder or thereby.

 

(70)         “Transition Period”: the period of time beginning February 1, 2019
and ending at the Conversion Time.

 

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SECTION 2
TRANSACTIONS

 

2.1          Preliminary Matters.

 

(1)           Existing Master Lease Rent.

 

(a)           Notwithstanding anything in the Existing Master Leases to the
contrary, (i) commencing February 1, 2019, the aggregate amount of monthly
Minimum Rent payable under the Existing Master Leases will be $11,000,000 per
month, subject to adjustment as set forth below, with such amount being
otherwise due and payable in accordance with the terms of the Existing Master
Leases, and (ii) during the Transition Period, no Additional Rent will be due
and payable.  All Additional Charges or other amounts due and payable by FVE
under the Existing Master Leases will continue to be due and payable and all
other terms and conditions of the Existing Master Leases will continue to be in
full force and effect in accordance with the applicable Existing Master Lease.

 

(b)           If an Existing Master Lease terminates with respect to any
Existing Leased Property (due to a sale or otherwise), then the monthly Minimum
Rent will be reduced by an amount equal to the Monthly Rent Adjustment Amount
for the Existing Leased Property as to which such Existing Master Lease
terminated (provided, if termination occurs on a day other than on the last day
of a month, the Monthly Rent Adjustment Amount for the month in which such
termination occurred will be adjusted to reflect the portion of the month prior
to such termination).

 

(c)           Notwithstanding the foregoing, if the Required Stockholder
Approval has not been obtained by December 31, 2019, then the provisions of
Section 2.1(1)(a) and Section 2.1(1)(b) will cease to be in effect, Minimum Rent
will be required to be paid in accordance with the Existing Master Leases for
all periods after December 31, 2019 and the Existing Master Leases will
otherwise continue in full force and effect in accordance their terms.

 

(2)           SNH Credit Agreement.  Contemporaneously with the execution of
this Agreement, SNH and FVE are entering into the SNH Credit Agreement, which is
secured by certain real properties owned by subsidiaries of FVE and pursuant to
which SNH has agreed to make available a line of credit to FVE on the terms and
conditions set forth therein of up to $25,000,000.

 

(3)           Existing Facility.  FVE shall use its diligent, best efforts to
amend, refinance, extend or replace its Existing Facility with a new credit
facility on commercially reasonable terms (including with respect to security,
committed amount and term) as soon as practicable, but in any event not later
than the current scheduled maturity date of the Existing Facility.

 

(4)           PP&E Sale.

 

(a)           On the date of this Agreement, subject to Section 2.1(4)(b), SNH,
directly or through one or more of its subsidiaries, will purchase from FVE and
its subsidiaries all unencumbered Qualifying PP&E related to the Existing Leased
Properties owned by FVE and its subsidiaries as of such date for a purchase
price equal to the projected depreciated value of such Qualifying PP&E as of
March 31, 2019 (determined in accordance with GAAP) and otherwise on terms that
are mutually satisfactory to SNH and FVE.

 

(b)           SNH will pay FVE $50,000,000 in respect of the Qualifying PP&E
being purchased by it pursuant to Section 2.1(4)(a) upon the execution of this
Agreement by

 

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FVE and SNH.  Promptly following the closing of FVE’s accounting records for
March 2019, the actual amount of such Qualifying PP&E as of March 31, 2019 and
the depreciated value thereof will be determined based on such accounting
records.  If it is determined that (i) SNH paid more than the depreciated value
of such Qualifying PP&E as of March 31, 2019, FVE shall promptly refund SNH (or
its designees) an amount equal to such overpayment, or (ii) SNH paid less than
the depreciated value of such Qualifying PP&E  as of March 31, 2019, SNH (or its
designees) shall promptly pay FVE an amount equal to such underpayment. 
Notwithstanding the foregoing, in no event will SNH be required to pay more than
$60,000,000 for such Qualifying PP&E, and if the depreciated value of such
Qualifying PP&E as of March 31, 2019 is greater than $60,000,000, and SNH does
not elect to pay such depreciated value, SNH and FVE will work in good faith to
adjust the amount of the Qualifying PP&E purchased by SNH pursuant to
Section 2.1(4)(a) to an amount that has a depreciated value of not more than
$60,000,000 as of March 31, 2019.

 

(c)           At the Conversion Time, or promptly thereafter, subject to
Section 2.1(4)(d), SNH, directly or through one or more of its subsidiaries,
will purchase from FVE and its subsidiaries all unencumbered Qualifying PP&E
related to the Existing Leased Properties acquired by FVE and its subsidiaries
after the date of this Agreement with the approval of SNH, and may elect to
purchase any other Qualifying PP&E or other motor vehicles related to the
Existing Leased Properties owned by FVE or its subsidiaries as of the Conversion
Time, for a purchase price equal to the depreciated value of such Qualifying
PP&E or motor vehicles as of the Conversion Time (determined in accordance with
GAAP) and otherwise on terms that are mutually satisfactory to SNH and FVE.

 

(d)           SNH will purchase the Qualifying PP&E and / or motor vehicles
pursuant to Section 2.1(4)(c) promptly following the closing of FVE’s accounting
records for the month in which the Conversion Time occurs for a purchase price
equal to the depreciated value of such Qualifying PP&E and / or motor vehicles
as determined based on such accounting records.

 

(e)           The purchase price paid by SNH for the Qualifying PP&E purchased
by it pursuant to this Section 2.1(4) may be used by FVE for working capital and
general corporate purposes; provided in no event will FVE (directly or
indirectly) use such amounts to fund any Restricted Payment.

 

(5)           Stockholder Approval.  SNH hereby irrevocably agrees that at any
meeting of the stockholders of FVE called for such purpose, and at any
adjournment thereof, held on or before the Conversion Time, it will vote all
shares of common stock of FVE (“FVE Common Shares”) which SNH is entitled to
vote in favor of the Share Issuances.   The parties acknowledge that ABP Trust,
a Maryland statutory trust, contemporaneously with the execution of this
Agreement, has entered into a voting agreement with FVE (the “ABP Voting
Agreement”) pursuant to which it has also irrevocably agreed to vote all FVE
Common Shares which it is entitled to vote in favor of the Share Issuances at
any meeting of stockholders of FVE called for such purpose and any adjournment
thereof, held on or before the Conversion Time.  FVE agrees that it will not
terminate, amend or waive any provision of the ABP Voting Agreement without the
prior written consent of SNH.

 

(6)           Termination Rights.  Notwithstanding anything in an Existing
Master Lease, Existing Pooling Agreement or Existing Management Agreement to the
contrary, and in addition

 

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to any termination rights set forth therein, during the Transition Period SNH,
directly or through one or more of its subsidiaries, shall have the right at any
time, without the consent of FVE or the payment of any termination or other
incremental fees to FVE (but with the monthly Minimum Rent reduced in accordance
with Section 2.1(1)(b) if applicable), to terminate any Existing Management
Agreement for, or terminate any Existing Master Lease with respect to (a) any
SNF Property, and (b) any other Property (which Properties shall be selected by
SNH in its sole discretion) in connection with the sale of such Property,
provided the aggregate gross sale proceeds for Properties removed pursuant to
this clause (b) shall not exceed $775,000,000.

 

2.2          Restructuring Transactions.  If the conditions set forth in
Section 3 are satisfied as of the Conversion Time, the following transactions
(the “Restructuring Transactions”) shall occur:

 

(1)           Termination of Agreements.  At 12:00:01 a.m. (Boston local time)
on January 1, 2020 (as such time may be extended pursuant to Section 3.3, the
“Conversion Time”) all Existing Management Agreements, all Existing Master
Leases, all Existing Pooling Agreements and the Existing Guaranties will
terminate, except as set forth in Section 5.7 and for such indemnification
obligations under such agreements which by their terms survive termination, and
the Omnibus Agreement, each New Management Agreement and the New FVE Guaranty
shall be released from escrow and be in force and effect as of the Conversion
Time.

 

(2)           Share Issuances.  Effective as of the Conversion Time, and as
promptly as practicable thereafter, FVE shall (a) issue to SNH such number of
FVE Common Shares as is necessary to cause SNH, together with its then owned FVE
Common Shares, to own 34% of the outstanding FVE Common Shares determined
without taking into account any unvested FVE Common Shares or options for or
other securities convertible into FVE Common Shares held by Persons other than
SNH  and (b) issue to the existing holders of common shares of beneficial
interest of SNH as of the Record Date, on a pro rata basis based on the number
of common shares of beneficial interest of SNH held by each such holder, such
number of FVE Common Shares as equals the Share Consideration less the FVE
Common Shares issued to SNH pursuant to Section 2.2(2)(a).

 

(3)           Additional Consideration.  In consideration of the Share
Issuances, SNH will provide FVE with $75,000,000 of additional consideration
(the “Additional Consideration”) in the following order until the full amount of
the Additional Consideration has been provided: (a) first, to the reduction on a
dollar for dollar basis of the then outstanding amount due SNH under the SNH
Credit Agreement, if any; (b) next, to the payment or by the assumption by SNH
of Applicable Working Capital Liabilities; and (c) then, cash to FVE; provided
in no event will FVE (directly or indirectly) use any Additional Consideration
to fund any Restricted Payment.

 

SECTION 3
CONDITIONS TO RESTRUCTURING TRANSACTIONS

 

3.1          Conditions to Obligations of SNH.  The obligation of SNH to
consummate the Restructuring Transactions is subject to the satisfaction of the
following conditions as of the Conversion Time:

 

(1)           Required Approvals.  Subject to Section 3.3, the Required
Stockholder Approval, the Required Licenses (or such assurances as may be
satisfactory to each of FVE and SNH that the Required Licenses will be issued by
the applicable Governmental Authority on, or retroactively to, the Conversion
Time), and any other consent or approval of any other third party required for
the consummation of the Restructuring Transactions (collectively, the “SNH

 

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Required Approvals”), shall have been obtained on terms and conditions
satisfactory to SNH in its reasonable discretion.

 

(2)           Form S-1.  The Form S-1 shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness of
the Form S-1 shall have been issued by the SEC and no proceedings for that
purpose shall have been initiated by the SEC that have not been withdrawn.

 

(3)           Nasdaq.  The FVE Common Shares to be issued pursuant to the Share
Issuances shall have been approved for listing on Nasdaq, subject to official
notice of issuance.

 

(4)           Documents to be Delivered:

 

(a)           FVE or its respective subsidiaries shall have executed and
delivered to SNH in escrow the Omnibus Agreement and a New Management Agreement
with respect to each Property, each with an effective time of the Conversion
Time;

 

(b)           FVE shall have executed and delivered to SNH in escrow the New FVE
Guaranty with an effective time of the Conversion Time; and

 

(c)           FVE or its respective subsidiaries shall have executed and
delivered to SNH in escrow such other agreements and documents reasonably
necessary to terminate the Existing Master Leases, Existing Management
Agreements and Existing Guaranties or otherwise reasonably requested by SNH.

 

(5)           FVE Representations and Covenants.  The representations and
warranties of the FVE Parties in this Agreement and in each other Transaction
Document shall be true, correct and complete in all material respects (or in all
respects to the extent qualified by materiality) on and as of the Conversion
Time as if made as of the Conversion Time (unless such representation and
warranty is made as to a specific date in which case it shall be true, correct
and complete in all material respects as of such date) and the FVE Parties shall
have performed in all material respects all covenants and obligations required
to be performed by them under this Agreement and such Transaction Documents on
or before the Conversion Time.

 

(6)           Solvency.  SNH shall have received the written representation of
FVE that FVE and its subsidiaries, on a consolidated basis, are Solvent as of
the Conversion Time on a pro forma basis after giving effect to the
Restructuring Transactions accompanied by a pro forma balance sheet and a pro
forma liquidity forecast in reasonable detail supporting such representation and
certified by FVE’s chief financial officer as having been prepared in good faith
based on assumptions which such chief financial officer believes to be
reasonable as of the Conversion Time.

 

(7)           FVE Articles of Amendment.  Prior to the Conversion Time, FVE’s
charter shall be amended to increase the number of authorized FVE Common Shares
such that the number of authorized and unissued FVE Common Shares not otherwise
reserved for issuance is at least equal to the Share Consideration (the “FVE
Articles of Amendment”).

 

(8)           No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other law
preventing or making illegal the consummation of any of the Restructuring
Transactions or any of the other transactions contemplated by this Agreement
shall be in effect.

 

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3.2                               Conditions to Obligations of FVE.  The
obligation of FVE to consummate the Restructuring Transactions is subject to the
satisfaction of the following conditions as of the Conversion Time:

 

(1)                                 Required Approvals. Subject to Section 3.3,
the Required Licenses (or such assurances as may be satisfactory to each of FVE
and SNH that the Required Licenses will be issued by the applicable Governmental
Authority on, or retroactively to, the Conversion Time) and any other consent or
approval of any other third party required for the consummation of the
Restructuring Transactions (collectively, the “FVE Required Approvals”, and
together with the SNH Required Approvals, the “Required Approvals”) shall have
been obtained on terms and conditions satisfactory to FVE in its reasonable
discretion.

 

(2)                                 Documents to be Delivered:

 

(a)                                 SNH or its respective subsidiaries shall
have executed and delivered to FVE in escrow the Omnibus Agreement and a New
Management Agreement with respect to each Property, each with an effective time
of the Conversion Time; and

 

(b)                                 SNH or its respective subsidiaries shall
have executed and delivered to FVE in escrow such agreements and documents
reasonably necessary to terminate the Existing Master Leases, Existing
Management Agreements and Existing Guaranties or otherwise reasonably requested
by FVE.

 

(3)                                 SNH Representations and Covenants.  The
representations and warranties of the SNH Parties in this Agreement and in each
other Transaction Document shall be true, correct and complete in all material
respects (or in all respects to the extent qualified by materiality) on and as
of the Conversion Time as if made as of the Conversion Time (unless such
representation and warranty is made as to a specific date in which case it shall
be true, correct and complete in all material respects as of such date) and the
SNH Parties shall have performed in all material respects all covenants and
obligations required to be performed by them under this Agreement and such
Transaction Documents on or before the Conversion Time.

 

(4)                                 No Injunctions or Restraints; Illegality. No
order, injunction or decree issued by any court or agency of competent
jurisdiction or other law preventing or making illegal the consummation of any
of the Restructuring Transactions or any of the other transactions contemplated
by this Agreement shall be in effect.

 

3.3                               Required Approvals; Extension.  If any
Required Approval (other than the Required Stockholder Approval) has not been
obtained by December 31, 2019, and the failure to obtain such Required Approval
has not been mutually waived by each of FVE and SNH and is not the result of a
breach or default by any FVE Party under this Agreement, then FVE and SNH shall
work in good faith to determine whether an alternative exists that is
satisfactory to SNH and FVE which would permit the Restructuring Transactions,
or a portion of them, to proceed as of 12:00:01 a.m. on January 1, 2020 without
such Required Approval and without material adverse impact to either FVE or SNH;
provided in no event will SNH be required to agree to an alternative that SNH in
good faith believes will result in its recognition of more than a de minimis
amount of income to SNH that does not qualify as “rents from real property”
under Section 856(d) of the Code or that otherwise adversely affects SNH’s
qualification for taxation as a “real estate investment trust” under the Code. 
If FVE and SNH are unable to agree to an alternative that would permit the
Restructuring Transactions, or a portion of them, to proceed as of 12:00:01
a.m. on January 1, 2020 without such Required Approvals, and the failure to have
such Required Approvals is the only condition set forth in Section 3 that has
not been met as of 12:00:01 a.m.

 

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on January 1, 2020, then the Conversion Time shall be automatically extended to
12:00:01 a.m. on January 1, 2021.

 

SECTION 4

REPRESENTATIONS AND WARRANTIES

 

4.1                               FVE Representations and Warranties.  FVE
represents and warrants to SNH that:

 

(1)                                 Organization.  Each FVE Party is duly
organized, validly existing and in good standing under the Laws of the state of
its jurisdiction of organization or formation and has the requisite power and
authority under the Laws of such state and its organizational or governing
documents to conduct its business as it is now being conducted and to own and
operate its properties and assets, to execute and deliver the Transaction
Documents to which it is a party, to perform its obligations thereunder and to
consummate the transactions contemplated by the Transaction Documents to which
it is a party.

 

(2)                                 Capitalization.

 

(a)                                 As of the date of this Agreement, (i) there
are 75,000,000 authorized FVE Common Shares, and (ii) (A) 50,839,512 FVE Common
Shares are issued and outstanding, and (B) 2,528,500 FVE Common Shares are
reserved for future issuance pursuant to the Five Star Senior Living Inc. (f/k/a
Five Star Quality Care, Inc.) 2014 Equity Compensation Plan (the “FVE Plan”).

 

(b)                                 (i) All of the issued and outstanding FVE
Common Shares are duly authorized, validly issued, fully paid and non-assessable
and no class or series of shares of stock of FVE is entitled to preemptive
rights; (ii) the FVE Common Shares to be issued pursuant to the Share Issuances
shall be, when issued in accordance with the terms and conditions of this
Agreement, duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights; (iii) all FVE Common Shares reserved for future
issuance as noted in Section 4.1(2)(a)(ii)(B) above, shall be, when issued in
accordance with the terms and conditions of the Five Star Senior Living Inc.
2014 Equity Compensation Plan and instruments, if any, pursuant to which they
are issuable, duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights; and (iv) there are no outstanding bonds, debentures,
notes or other debts of FVE having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matter on which
holders of FVE Common Shares may vote.

 

(c)                                  There are no outstanding subscriptions,
securities, options, restricted stock units, dividend equivalent rights,
warrants, calls, rights, profits interests, stock appreciation rights, phantom
shares, convertible securities, rights of first refusal, preemptive rights or
other similar rights, agreements, arrangements, undertakings or commitments of
any kind to which FVE is a party or by which any of them is bound obligating FVE
to (i) issue, deliver, transfer, sell or create, or cause to be issued,
delivered, transferred, sold or created, additional shares of capital stock or
other equity interests, or phantom shares or other contractual rights, the value
of which is determined in whole or in part by the value of any equity security
of FVE, or securities convertible into or exchangeable for such shares of
capital stock or other equity interests, (ii) issue, grant, extend or enter into
any such subscriptions, securities, options, restricted stock units, dividend
equivalent rights, warrants, calls, rights, profits interests, stock

 

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appreciation rights, phantom shares, convertible securities, rights of first
refusal, preemptive rights or other similar rights, agreements, arrangements,
undertakings or commitments, or (iii) redeem, repurchase or otherwise acquire
any such shares of capital stock or other equity interests of FVE.

 

(d)                                 Except as set forth in the Registration
Agreement or as disclosed or filed by FVE with the SEC, FVE is not under any
obligation, contingent or otherwise, by reason of any contract to register the
offer and sale or resale of any of its securities under the Securities Act.

 

(3)                                 Authorization.  The execution and delivery
by the FVE Parties of the Transaction Documents and the consummation of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary trust, corporate or limited liability company, as applicable,
action on the part of the FVE Parties.  Each of the Transaction Documents, upon
execution and delivery by a FVE Party, will be duly and validly executed by such
FVE Party and will constitute its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as such enforcement
may be subject to (a) bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar Laws relating to creditors’ rights
generally, (b) general principles of equity (whether applied in a proceeding at
Law or in equity) and (c) any implied covenant of good faith and fair dealing.

 

(4)                                 No Violation.  The execution and delivery of
the Transaction Documents by the FVE Parties does not, and the consummation of
the transactions contemplated by the Transaction Documents will not,
(a) conflict with, or result in any violation of or default under, any provision
of any FVE Party’s organizational documents, (b) conflict with, or result in any
violation of or default under, any Law or judgment applicable to any FVE Party
or to which any of their properties or assets are subject, or (c) conflict with,
or, with or without notice or the lapse of time, result in a breach, termination
(or right of termination) or violation of or default under the terms of any
agreement, contract, indenture or other instrument to which any FVE Party is a
party or subject or to which any of their properties or assets are subject,
except, with respect to the foregoing clauses (b) and (c), where such conflict,
violation, termination or default would not have a material adverse effect on
any FVE Party or any Property or impair or delay the consummation of any of the
transactions contemplated by the Transaction Documents.

 

(5)                                 Approvals.  The execution and delivery by
the FVE Parties of the Transaction Documents and the consummation of the
transactions contemplated by the Transaction Documents do not (a) require the
consent, approval, order or authorization of any Person under any agreement,
contract, indenture or other instrument or applicable Laws to which any FVE
Party is a party or to which any FVE Party or any of their properties or assets
are subject or (b) require any declaration, filing or registration with any
Governmental Authority, except (i) the Required Approvals, (ii) the filing of
the FVE Articles of Amendment with, and the acceptance for record of the FVE
Articles of Amendment by, the Maryland Department of Assessment and Taxation,
(iii) the filing with the SEC of the Proxy Statement and the Form S-1, and the
declaration of effectiveness of the Form S-1, and any other filings required
under securities Laws or the rules and regulations of Nasdaq, and (iv) those the
failure of which to receive would not have a material adverse effect on any FVE
Party or any Property or impair or delay the consummation of any of the
transactions contemplated by the Transaction Documents.

 

(6)                                 Litigation.  No investigation, action or
proceeding is pending and, to FVE’s knowledge, no action or proceeding is
threatened and no investigation looking toward such an action or proceeding has
begun, in respect of FVE or any of its subsidiaries which (a) questions

 

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the validity of any of the Transaction Documents or any action taken or to be
taken pursuant thereto, (b) will result in any material adverse change in the
business, operation, affairs or condition of any FVE Party, (c) will result in
or subject any FVE Party or any SNH Party to a material liability; except, with
respect to the foregoing clause (a), as would not have a material adverse effect
on any FVE Party, any SNH Party or any Property or impair or delay the
consummation of any of the transactions contemplated by the Transaction
Documents.

 

(7)                                 No Default.  Neither FVE nor any FVE
subsidiary is in default with respect to any of its indebtedness or under any
Material Contract.

 

(8)                                 Approval Required.  With respect to FVE, the
Required Stockholder Approval is the only vote of the holders of any class or
series of shares of capital stock of FVE necessary to approve the Share
Issuances.

 

4.2                               SNH Representations and Warranties.  SNH
represents and warrants to FVE that:

 

(1)                                 Organization.  Each SNH Party is duly
organized, validly existing and in good standing under the Laws of the state of
its jurisdiction of organization or formation and has the requisite power and
authority under the Laws of such state and its organizational or governing
documents to conduct its business as it is now being conducted and to own, lease
and, to the extent applicable, operate its properties and assets and to execute
and deliver the Transaction Documents to which it is a party and to perform its
obligations thereunder and consummate the transactions contemplated by the
Transaction Documents.

 

(2)                                 Authorization.  The execution and delivery
by the SNH Parties of the Transaction Documents and the consummation of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary trust, corporate or limited liability company, as applicable,
action on the part of the SNH parties.  Each of the Transaction Documents, upon
execution and delivery by an SNH Party, will be duly and validly executed by
such SNH Party and will constitute its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as such enforcement
may be subject to (a) bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar Laws relating to creditors’ rights
generally, (b) general principles of equity (whether applied in a proceeding at
Law or in equity) and (c) any implied covenant of good faith and fair dealing.

 

(3)                                 No Violation.  The execution and delivery of
the Transaction Documents by the SNH Parties does not, and the consummation of
the transactions contemplated by the Transaction Documents will not,
(a) conflict with, or result in any violation of or default under, any provision
of any SNH Party’s organizational documents, (b) conflict with, or result in any
violation of or default under, any Law or judgment applicable to any SNH Party
or to which any of their properties or assets are subject, or (c) conflict with,
or, with or without notice or the lapse of time, result in a breach, termination
(or right of termination) or violation of or default under the terms of any
agreement, contract, indenture or other instrument to which any SNH Party is a
party or subject or to which any of their properties or assets are subject,
except, with respect to the foregoing clauses (b) and (c), where such conflict,
violation, termination or default would not have a material adverse effect on
any SNH Party or any Property or impair or delay the consummation of any of the
transactions contemplated by the Transaction Documents.

 

(4)                                 Approvals.  The execution and delivery by
the SNH Parties of the Transaction Documents and the consummation of the
transactions contemplated by the Transaction Documents do not (a) require the
consent, approval, order or authorization of any Person under

 

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any agreement, contract, indenture or other instrument or applicable Laws to
which any SNH Party is a party or to which any SNH Party or any of their
properties or assets are subject or (b) require any declaration, filing or
registration with any Governmental Authority except (i) the Required Approvals,
(ii) the filing of the FVE Articles of Amendment with, and the acceptance for
record of the FVE Articles of Amendment by, the Maryland Department of
Assessment and Taxation, (iii) the filing with the SEC of the Proxy Statement
and the Form S-1, and the declaration of effectiveness of the Form S-1, and any
other filings required under securities Laws or the rules and regulations of
Nasdaq, and (iv) those the failure of which to receive would not have a material
adverse effect on any FVE Party or any Property or impair or delay the
consummation of any of the transactions contemplated by the Transaction
Documents.

 

(5)                                 Litigation.  No investigation, action or
proceeding is pending and, to SNH’s knowledge, no action or proceeding is
threatened and no investigation looking toward such an action or proceeding has
begun, in respect of SNH or any of its subsidiaries which questions the validity
of any of the Transaction Documents or any action taken or to be taken pursuant
thereto that would have a material adverse effect on any SNH Party or impair or
delay the consummation of any of the transactions contemplated by the
Transaction Documents.

 

SECTION 5

ADDITIONAL AGREEMENTS

 

5.1                               Conduct of Business by FVE.  FVE agrees that,
from the date of this Agreement until the Conversion Time, it shall, and shall
cause each of its subsidiaries to, conduct its business in all material respects
in the ordinary course of business consistent with past practice and will comply
in all material respects with each of its covenants as set forth in the SNH Loan
Documents except, in each case, as may be consented to in writing by SNH (which
consent shall not be unreasonably withheld, delayed or conditioned).

 

5.2                               Notices.  FVE will promptly notify SNH of any
event or circumstance of which it has actual knowledge which could reasonably be
expected to make any representation or warranty of any FVE Party under this
Agreement untrue or misleading in any material respect or the satisfaction of
any of the conditions set forth in Section 3 unlikely to occur.  SNH will
promptly notify FVE of any event or circumstance of which it has actual
knowledge which could reasonably be expected to make any representation or
warranty of any SNH Party under this Agreement untrue or misleading in any
material respect or the satisfaction of any of the conditions set forth in
Section 3 unlikely to occur.

 

5.3                               Registration Rights Agreement.  SNH and FVE
each acknowledge and agree that the FVE Common Shares being issued to SNH
pursuant to the Share Issuances will constitute “Shares” and “Restricted Shares”
under and as defined in the Registration Rights Agreement upon issuance.  SNH
and FVE each also agree that from and after the date of this Agreement (a) the
phrases “the Shares issued to the Shareholder pursuant to the Realignment
Agreement” and “the Shares issued to the Shareholder under the Realignment
Agreement” in Sections 3 and 6, respectively, of the Registration Rights
Agreement is amended to read “the number of Shares issued to the Shareholder
pursuant to the Realignment Agreement” and (b) Sections 6.4 (Notices) and 6.1
(Disputes) of this Agreement supersede Sections 6.2 (Notices) and 6.10
(Arbitration), respectively, of the Registration Rights Agreement.

 

5.4                               Additional Issuances.  Except for issuances of
FVE Common Shares in the ordinary course consistent with past practice pursuant
to the FVE Plan, FVE will not issue any additional FVE Common Shares, or any
options for or other securities convertible into or rights to acquire any
additional FVE Common Shares, during the Transition Period without the prior
written consent of SNH.

 

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5.5                               Prorations.  If the Existing Master Leases and
Existing Management Agreements are terminated at the Conversion Time, then at
the Conversion Time or as promptly thereafter as practicable, SNH and FVE shall
make such prorations and adjustments between themselves to reflect the
termination of the Existing Master Leases as shall be necessary or appropriate
to reflect that the Existing Leased  Properties were being operated by a
subsidiary of FVE for its own account prior to the Conversion Time and such
Properties will be operated for the account of SNH (or a subsidiary of SNH) from
and after the Conversion Time (it being understood that the parties may use
12:00:01 am local time for purposes of simplifying any such prorations).

 

5.6                               Preparation of Form S-1 and Proxy Statement;
Required Stockholder Approval.

 

(1)                                 As promptly as reasonably practicable
following the date of this Agreement, (i) FVE shall prepare and cause to be
filed with the SEC the Proxy Statement in preliminary form relating to the FVE
Stockholder Meeting, and the Form S-1, for the registration under the Securities
Act of the FVE Common Shares to be issued pursuant to the Share Issuances.  FVE
shall use its reasonable best efforts to (A) have the Form S-1 declared
effective under the Securities Act as promptly as practicable after such filing,
(B) ensure that the Proxy Statement and the Form S-1 comply in all material
respects with the applicable provisions of the Exchange Act and the Securities
Act and (C) keep the Form S-1 effective for so long as necessary to complete the
issuance of the FVE Common Shares pursuant to the Share Issuances.  FVE shall
use its reasonable best efforts to respond as promptly as practicable to any
comments from the SEC with respect to the Proxy Statement and the Form S-1.  FVE
shall advise SNH, promptly after it receives notice thereof, of the time of
effectiveness of the Form S-1 or the issuance of any stop order relating thereto
or the suspension of the registration or qualification of the FVE Common Shares
issuable pursuant to the Share Issuances for offering or sale in any
jurisdiction, and FVE shall use its reasonable best efforts to have any such
stop order or suspension lifted, reversed or otherwise terminated.  FVE shall
also take any other action reasonably required to be taken under the Securities
Act, the Exchange Act, any applicable foreign or state securities or “blue sky”
Laws and the rules and regulations thereunder in connection with the issuance of
the FVE Common Shares pursuant to the Share Issuances.  The SNH Parties shall
reasonably cooperate with FVE with respect to the preparation of the Proxy
Statement and Form S-1 and shall promptly provide any information reasonably
requested by FVE for purposes of such preparation.

 

(2)                                 If, at any time prior to the receipt of the
Required Stockholder Approval, any information relating to FVE or any of its
affiliates should be discovered by FVE which, in the reasonable judgment of FVE,
should be set forth in an amendment of, or a supplement to, the Form S-1 or the
Proxy Statement, so that any of such document would not include any misstatement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading (in the case of the Proxy Statement, in light
of the circumstances under which they were made), FVE shall promptly file with
the SEC any necessary amendment of, or supplement to, the Form S-1 or the Proxy
Statement and, to the extent required by Law, disseminate the information
contained in such amendment or supplement to holders of the FVE Common Shares. 
Nothing in this Section 5.6(2) shall limit the obligations of FVE under
Section 5.6(1).

 

(3)                                 In accordance with applicable Law and FVE’s
governing documents, FVE shall, as promptly as reasonably practicable following
the date of this Agreement, establish a record date for, and duly call, give
notice of, convene and hold the FVE Stockholder Meeting.  FVE shall use its
reasonable best efforts to cause the Proxy Statement to be mailed or made
available to the holders of the FVE Common Shares entitled to vote at the FVE
Stockholder Meeting and to

 

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hold the FVE Stockholder Meeting as soon as reasonably practicable.  FVE shall
include the FVE Board Recommendation in the Proxy Statement and shall use its
reasonable best efforts to obtain the Required Stockholder Approval. 
Notwithstanding the foregoing provisions of this Section 5.6(3), if, on a date
for which the FVE Stockholder Meeting is scheduled, FVE has not received proxies
representing a sufficient number of FVE Common Shares to obtain the Required
Stockholder Approval, whether or not a quorum is present, FVE shall have the
right to make one or more successive postponements or adjournments of the FVE
Stockholder Meeting.

 

5.7                               Board Recommendation.  The board of directors
of FVE (or an authorized committee thereof) shall recommend that the holders of
FVE Common Shares vote in favor of the Share Issuances (the “FVE Board
Recommendation”).

 

5.8                               Exchange Listing.  FVE shall (i) take any
action reasonably necessary to cause the FVE Common Shares to be issued pursuant
to the Share Issuances to be listed for trading on Nasdaq upon issuance, and
(ii) use its reasonable best efforts to cause the FVE Common Shares to at all
times remain listed for trading on Nasdaq, including, but not limited to, by
effecting a reverse stock split with respect to the FVE Common Shares.

 

5.9                               Omnibus Agreement.  If requested by SNH on or
before the Conversion Time, the form of Omnibus Agreement shall be amended to
the extent necessary to eliminate the separate calculation of a “Portfolio IL
Incentive Fee” (as such term is defined in the Omnibus Agreement) and to include
the “IL Communities”  (as such term is defined in the Omnibus Agreement) in the
calculation of the “Portfolio Incentive Fee” (as such term is defined in the
Omnibus Agreement).

 

5.10                        Cooperation.  The FVE Parties and SNH Parties shall
reasonably cooperate with each other to consummate the transactions contemplated
by this Agreement, including (a) obtaining any necessary Required Approvals,
(b) SNH taking all such action as is necessary to declare a distribution of the
right to receive the Excess Shares to the holders of common shares of beneficial
interest of SNH subject to the satisfaction of all conditions set forth in
Section 3 to the issuance of the Excess Shares, and (c) FVE granting such
limited exemptions and increased limits from the ownership limitations set forth
in FVE’s organizational documents necessary to permit the FVE Common Shares
issued pursuant to the Share Issuances to be held by any applicable Persons.

 

5.11                        Share Consideration.  The Share Consideration was
set at the number of FVE Common Shares as would result in the Share
Consideration, together with the FVE Common Shares currently owned by SNH,
representing 85% of the issued and outstanding FVE Common Shares on a fully
diluted basis at the Conversion Time after giving effect to the Share Issuances
assuming that the number (the “Base Number”) of issued and outstanding FVE
Common Shares on a fully diluted basis at the Conversion Time prior to the Share
Issuances was 51,297,112 FVE Common Shares.  If at the Conversion Time the
number of issued and outstanding FVE Common Shares on a fully diluted basis
prior to the Share Issuances is less than 51,297,112 FVE Common Shares, the
number of FVE Common Shares comprising the Share Consideration will be reduced
using as the Base Number the greater of (a) the actual number of issued and
outstanding FVE Common Shares on a fully diluted basis at the Conversion Time
prior to the Share Issuances and (b) the Adjusted Base Number.   The “Adjusted
Base Number” is 51,297,112 FVE Common Shares minus the amount by which the
number of FVE Common Shares issued under the FVE Plan after the date hereof as
of the Conversion Time was less than 457,600 FVE Common Shares minus such number
of FVE Common Shares issued under the FVE Plan that were outstanding as of the
date hereof and that were forfeited or surrendered to FVE for no consideration
after the date hereof as of the Conversion Time; provided all share amounts will
be appropriately adjusted to take into account any stock split, reverse stock
split, stock dividend, combination or other recapitalization or reclassification
of the FVE Common Shares effected after the date hereof.

 

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SECTION 6

MISCELLANEOUS

 

6.1                               Disputes.

 

(1)                                 Disputes.  Any disputes, claims or
controversies between the parties (a) arising out of or relating to the
Transaction Documents or the transactions contemplated thereby, or (b) brought
by or on behalf of any shareholder of any party or a direct or indirect parent
of a party (which, for purposes of this Section 6.1, shall mean any shareholder
of record or any beneficial owner of shares of any party, or any former
shareholder of record or beneficial owner of shares of any party), either on
his, her or its own behalf, on behalf of any party or on behalf of any series or
class of shares of any party or shareholders of any party against any party or
any member, trustee, director, officer, manager (including The RMR Group LLC or
its successor), agent or employee of any party, including disputes, claims or
controversies relating to the meaning, interpretation, effect, validity,
performance or enforcement of the Transaction Documents, including this
arbitration provision, or the declarations of trust, limited liability company
agreements, charters, bylaws or other governing documents of any party hereto
(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 6.1.  For
the avoidance of doubt, and not as a limitation, Disputes are intended to
include derivative actions against trustees, directors, officers or managers of
any party and class actions by a shareholder against those individuals or
entities and any party.  For the avoidance of doubt, a Dispute shall include a
Dispute made derivatively on behalf of one party against another party.  For
purposes of this Section 6.1, the term “party” shall include any direct or
indirect parent of a party.

 

(2)                                 Selection of Arbitrators.  There shall be
three (3) arbitrators.  If there are only two (2) parties to the Dispute, each
party shall select one arbitrator within fifteen (15) days after receipt of a
demand for arbitration.  Such arbitrators may be affiliated or interested
persons of such parties.  If there are more than two (2) 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 within fifteen (15) days after receipt of a
demand for arbitration.  Such arbitrators may be affiliated or interested
persons of the claimants or the respondents, as the case may be.  If either a
claimant (or all claimants) or a respondent (or all respondents) fail to timely
select an arbitrator then the party (or parties) who has selected an arbitrator
may request the AAA to provide a list of three (3) proposed arbitrators in
accordance with the Rules (each of whom shall be neutral, impartial and
unaffiliated with any party) and the party (or parties) that failed to timely
appoint an arbitrator shall have ten (10) days from the date the AAA provides
such list to select one of the three (3) arbitrators proposed by AAA.  If such
party (or parties) fail to select such arbitrator by such time, the party (or
parties) who have appointed the first arbitrator shall then have ten (10) days
to select one of the three (3) arbitrators proposed by AAA to be the second
arbitrator; and, if he/they should fail to select such arbitrator by such time,
the AAA shall select, within fifteen (15) days thereafter, one of the three
(3) arbitrators it had proposed as the second arbitrator.  The two
(2) arbitrators so appointed shall jointly appoint the third and presiding
arbitrator (who shall be neutral, impartial and unaffiliated with any party)
within fifteen (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

 

17

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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.

 

(3)                                 Location of Arbitration.  The place of
arbitration shall be Boston, Massachusetts unless otherwise agreed by the
parties.

 

(4)                                 Scope of Discovery.  There shall be only
limited documentary discovery of documents directly related to the issues in
dispute, as may be ordered by the arbitrators.  For the avoidance of doubt, it
is intended that there shall be no depositions and no other discovery other than
limited documentary discovery as described in the preceding sentence.

 

(5)                                 Arbitration Award.  In rendering an award or
decision (the “Arbitration Award”), the arbitrators shall be required to follow
the Laws of the State of Maryland.  Any arbitration proceedings or Arbitration
Award rendered hereunder and the validity, effect and interpretation of this
arbitration provision shall be governed by the Federal Arbitration Act, 9 U.S.C.
§1 et seq.  The Arbitration 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.  Any monetary Arbitration Award shall be made and payable in U.S.
dollars free of any tax, deduction or offset.  Subject to Section 6.1(7), each
party against which an Arbitration Award assesses a monetary obligation shall
pay that obligation on or before the thirtieth (30th) day following the date of
such Arbitration Award or such other date as such Arbitration Award may provide.

 

(6)                                 Costs.  Except to the extent expressly
provided by this Agreement or as otherwise agreed by the parties, to the maximum
extent permitted by Maryland law, each party involved in a Dispute shall bear
its own costs and expenses (including attorneys’ fees), and the arbitrators
shall not render an Arbitration 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 a party’s Arbitration Award to the claimant or the
claimant’s attorneys.  Each party (or, if there are more than two (2) parties to
the Dispute, all claimants, on 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 (2) 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 (3rd) appointed
arbitrator.

 

(7)                                 Appeals.  Notwithstanding any language to
the contrary in this Agreement, any Arbitration Award, including but not limited
to any interim Arbitration Award, may be appealed pursuant to the AAA’s Optional
Appellate Arbitration Rules (“Appellate Rules”).  An Arbitration Award shall not
be considered final until after the time for filing the notice of appeal
pursuant to the Appellate Rules has expired.  Appeals must be initiated within
thirty (30) days of receipt of an Arbitration Award by filing a notice of appeal
with any AAA office.  Following the appeal process, the decision rendered by the
appeal tribunal may be entered in any court having jurisdiction thereof.  For
the avoidance of doubt, and despite any contrary provision of the Appellate
Rules, the above paragraph relating to costs and expenses shall apply to any
appeal pursuant to this Section 6.1 and the appeal tribunal shall not render an
Arbitration Award that would include shifting of any costs or expenses
(including attorneys’ fees) of any party.

 

(8)                                 Final Judgment.  Following the expiration of
the time for filing the notice of appeal, or the conclusion of the appeal
process set forth in Section 6.1(7), an Arbitration Award shall be final and
binding upon the parties thereto and shall be the sole and exclusive remedy
between those parties relating to the Dispute, including any claims,
counterclaims, issues or accounting presented to the arbitrators.  Judgment upon
an Arbitration Award may be entered in

 

18

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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 Arbitration Award made, except for actions relating to
enforcement of this Section 6.1 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.

 

(9)                                 Intended Beneficiaries.  This Section 6.1 is
intended to benefit and be enforceable by the parties and their respective
shareholders, members, direct and indirect parents, trustees, directors,
officers, managers (including The RMR Group Inc. and The RMR Group LLC), agents
or employees of any party and their respective successors and assigns and shall
be binding on the shareholders of any party and the parties, 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.

 

6.2                               Confidentiality.  Each party shall use
commercially reasonable efforts to maintain the confidentiality of any
information concerning the parties or any subsidiary of another party provided
to or discovered by it or its representatives as a result of the transactions
contemplated by the Transaction Documents and which is not otherwise available
on a nonconfidential basis to such party and shall not (except as may otherwise
be appropriate or required under applicable Law or the rules and regulations of
the SEC, Nasdaq or the Financial Industry Regulatory Authority) disclose such
information, subject to the provisions of this Section 6.2, to anyone other
those Persons who have a need to know such information in connection with the
conduct of such party’s business, including its attorneys, accountants and other
representatives and agents or during the course of or in connection with any
litigation or other action, arbitration, investigation or other proceeding based
upon or in connection with the subject matter of this Agreement or the
transactions contemplated hereby.

 

6.3                               Publicity.  The parties agree that, except as
may be appropriate or required under applicable Law (including, without
limitation, the rules and regulations of the SEC, Nasdaq or the Financial
Industry Regulatory Authority), no party shall, with respect to this Agreement
and the transactions contemplated hereby, contact or conduct negotiations with
public officials, make any public pronouncements, issue press releases or
otherwise furnish information regarding this Agreement or the transactions
contemplated hereby to any third party without the consent of the other party,
which consent shall not be unreasonably withheld or delayed.  No FVE Party shall
trade in the securities of any SNH Party or any of their affiliates, and no SNH
Party shall trade in the securities of any FVE Party or any of their affiliates,
until a public announcement of the transactions contemplated by this Agreement
has been made.

 

6.4                               Notices.

 

(1)                                 All notices required or permitted to be sent
hereunder shall be deemed to have been given for all purposes of this Agreement
upon the date of electronic confirmation of delivery sent by the sender’s
computer, in the case of a notice by electronic mail, and, in all other cases,
upon the date of receipt or refusal, except that whenever under this Agreement a
notice is either received on a day which is not a Business Day or is required to
be delivered on or before a specific day which is not a Business Day, the day of
receipt or required delivery shall automatically be extended to the next
Business Day.

 

19

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(2)                                 All such notices shall be addressed,

 

if to any FVE Party, to:

 

Five Star Senior Living Inc.
400 Centre Street
Newton, Massachusetts 02458
Attn:  Katherine E. Potter, President
E-Mail:  kpotter@5ssl.com

 

with a copy to:

 

Ropes & Gray LLP
1211 Avenue of the Americas

New York, New York 10036-8704

Attn:  Stephen Moeller-Sally
E-Mail:  SSally@ropesgray.com

 

If to any SNH Party, to:

 

Senior Housing Properties Trust
Two Newton Place, Suite 300
255 Washington Street
Newton, Massachusetts 02458
Attn:  Jennifer F. Francis, President
E-Mail:  JFrancis@rmrgroup.com

 

with a copy to:

 

Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts  02109
Attn:  Nicole Rives
E-Mail:  nrives@sandw.com

 

(3)                                 By notice given as herein provided, the
parties and their respective successors and assigns shall have the right from
time to time and at any time during the term of this Agreement to change their
respective addresses effective upon receipt by the other Parties of such notice.

 

6.5                               Waivers, Etc.  No provision of this Agreement
may be waived except by a written instrument signed by the party waiving
compliance.  No waiver by any party hereto of any of the requirements hereof or
of any of such party’s rights hereunder shall release the other parties from
full performance of their remaining obligations stated herein.  No failure to
exercise or delay in exercising on the part of any party hereto any right, power
or privilege of such party shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege by such party.  Except as otherwise provided herein, this Agreement
may not be amended, nor shall any waiver, change, modification, consent or
discharge be effected, except by an instrument in writing executed by or on
behalf of the party against whom enforcement of any amendment, waiver, change,
modification, consent or discharge is sought.

 

20

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6.6                               Assignment, Successors and Assigns; Third
Party Beneficiaries.  This Agreement and all rights and obligations hereunder
shall not be assignable by any party without the written consent of the other
parties, except to a successor to such party by merger or consolidation or an
assignee of substantially all of the assets of such party.  This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.  Except as specified in Section 6,
this Agreement is not intended and shall not be construed to create any rights
in or to be enforceable in any part by any other Person.  For the avoidance of
doubt, this Agreement does not vest in SNH, and SNH disclaims, any right, title
or interest in any of the Excess Shares.  SNH and FVE each acknowledge and agree
that the Excess Shares to be issued pursuant to this Agreement shall be issued
solely for the benefit of the holders of common shares of beneficial interest of
SNH entitled thereto pursuant to Section 2.2(2)(b); provided, however, this
Agreement does not create any entitlement to the Excess Shares in any person
unless and until all conditions precedent to the issuance of the Excess Shares
as set forth in this Agreement have been satisfied.

 

6.7                               Severability.  If any provision of this
Agreement shall be held or deemed to be, or shall in fact be, invalid,
inoperative or unenforceable as applied to any particular case in any
jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because
of the conflict of any provision with any constitution or statute or rule of
public policy or for any other reason, such circumstance shall not have the
effect of rendering the provision or provisions in question invalid, inoperative
or unenforceable in any other jurisdiction or in any other case or circumstance
or of rendering any other provision or provisions herein contained invalid,
inoperative or unenforceable to the extent that such other provisions are not
themselves actually in conflict with such constitution, statute or rule of
public policy, but this Agreement shall be reformed and construed in any such
jurisdiction or case as if such invalid, inoperative or unenforceable provision
had never been contained herein and such provision reformed so that it would be
valid, operative and enforceable to the maximum extent permitted in such
jurisdiction or in such case.

 

6.8                               Counterparts, Etc.  This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.

 

6.9                               Governing Law.  This Agreement shall be
interpreted, construed, applied and enforced in accordance with the Laws of
State of Maryland applicable to contracts between residents of Maryland which
are to be performed entirely within Maryland subject to the provisions of
Section 6.1.

 

6.10                        Expenses.  The SNH Parties and the FVE Parties shall
each be responsible for their own out of pocket costs, expenses and attorneys’
fees incurred in connection with the consummation of the transactions
contemplated by this Agreement, and, in the case of attorneys’ fees, as incurred
by any of them in connection with the negotiation, execution and delivery of
Transaction Documents.  The SNH Parties and the FVE Parties shall equally share
all licensing costs and expenses.

 

6.11                        Section and Other Headings; Interpretation.  The
headings contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or interpretation of this Agreement.  The
words “hereof”, “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and Section, subsection, Schedule and
Exhibit references are to this Agreement, unless otherwise specified.  The
singular and plural use of a defined term shall have the correlative meaning. 
The words “including” and “include” shall be deemed to be followed by the words
“without limitation.”

 

6.12                        SNH NON-LIABILITY OF TRUSTEES.  THE AMENDED AND
RESTATED DECLARATION OF TRUST ESTABLISHING SNH, DATED SEPTEMBER 20, 1999, AS
AMENDED AND SUPPLEMENTED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND
TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER,

 

21

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EMPLOYEE OR AGENT OF SNH SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SNH.  ALL PERSONS DEALING
WITH SNH IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF SNH FOR THE PAYMENT OF ANY
SUM OR THE PERFORMANCE OF ANY OBLIGATION.

 

6.13                        Entire Agreement.  This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersedes all previous contracts and understandings between the
parties with respect to the subject matter hereof and thereof.

 

6.14                        Survival.  The representations of FVE in Sections
4.1(1) and 4.1(3) and of SNH in Section 4.2(1) and 4.2(2) shall survive
indefinitely and all other representations and warranties of the parties set
forth in a Transaction Document shall survive one (1) year following the
Conversion Time unless a longer period for survival is otherwise specified in
the applicable Transaction Document.  All covenants and other agreements of the
parties in this Agreement shall survive until fully performed or terminated in
accordance with their terms.

 

6.15                        Further Assurances.  The parties shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, to do
or cause to be done all things necessary, proper or advisable, and to execute
and deliver such documents and other papers, to consummate the transactions
contemplated by this Agreement and to otherwise ensure each of the parties
hereto receives the intended benefits of this Agreement, whether before or after
the Conversion Time and, in any event, in such manner as SNH may reasonably deem
necessary or desirable to effect such transactions consistent with the
requirements for SNH to maintain its qualification for taxation as a “real
estate investment trust” under the Code.

 

22

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as a
sealed instrument as of the date first above written.

 

 

SENIOR HOUSING PROPERTIES TRUST, on behalf of itself and the other SNH Parties

 

 

 

By:

/s/ Jennifer F. Francis

 

 

Jennifer F. Francis

 

 

President

 

[Signature Page to Transaction Agreement]

 

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FIVE STAR SENIOR LIVING INC., on behalf of itself and the other FVE Parties

 

 

 

By:

/s/ Katherine E. Potter

 

 

Katherine E. Potter

 

 

President

 

[Signature Page to Transaction Agreement]

 

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EXHIBIT A

 

FORM OF NEW FVE GUARANTY

 

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GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT (this “Guaranty”) is entered into as of January 1,
[2020]1, by FIVE STAR SENIOR LIVING INC., a Maryland corporation (“Guarantor”),
for the benefit of the parties identified as the SNH Parties on Schedule 1
attached hereto and made a part hereof (each an “SNH Party”).

 

W I T N E S S E T H :

 

WHEREAS, Guarantor and Senior Housing Properties Trust (“SNH”), the ultimate
corporate parent of each SNH Party, have entered into that certain Transaction
Agreement, dated as of April 1, 2019 (as amended from time to time, the
“Transaction Agreement”); and

 

WHEREAS, pursuant to the Transaction Agreement, FVE Managers, Inc. or FVE
Managers IL, Inc. (each a “Manager”), each a wholly owned subsidiary of
Guarantor, and each SNH Party have entered into one or more Management
Agreements as further identified on Schedule 2 attached hereto and made a part
hereof (together with any additional management agreements contemplated by
Section 22 and as amended from time to time, each a “Management Agreement” and,
collectively, the “Management Agreements”); and

 

WHEREAS, the transactions contemplated by the Transaction Agreement and the
Management Agreements are of direct material benefit to the Guarantor; and

 

WHEREAS, pursuant to the Transaction Agreement, Guarantor has agreed to
guarantee the payment and performance of each Manager’s obligations to each SNH
Party under the applicable Management Agreements, subject to the terms and
provisions of this Guaranty;

 

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, Guarantor hereby agrees as follows:

 

1.                                      Certain Terms.  Capitalized terms used
and not otherwise defined in this Guaranty shall have the meanings ascribed to
such terms in the Management Agreements.

 

2.                                      Guaranteed Obligations.  For purposes of
this Guaranty the term “Guaranteed Obligations” shall mean the payment and
performance of each and every obligation of each Manager to each SNH Party under
each Management Agreement or relating thereto, whether now existing or hereafter
arising.

 

3.                                      Representations and Covenants. 
Guarantor represents, warrants, covenants, and agrees that:

 

(a)                                 Performance of Covenants and Agreements. 
Guarantor shall take all lawful action in its power to cause each Manager duly
and punctually to perform all of its covenants and agreements set forth in the
Management Agreements.

 

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1  To be changed to 2021 if the Conversion Time is extended under the
Transaction Agreement.

 

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(b)                                 Validity of Agreement.  Guarantor has duly
and validly executed and delivered this Guaranty; this Guaranty constitutes the
legal, valid and binding obligation of Guarantor, enforceable against Guarantor
in accordance with its terms, except as the enforceability thereof may be
subject to bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors’ rights generally
and subject to general equitable principles, regardless of whether
enforceability is considered in a proceeding at law or in equity; and the
execution, delivery and performance of this Guaranty have been duly authorized
by all requisite action of Guarantor and such execution, delivery and
performance by Guarantor will not result in any breach of the terms, conditions
or provisions of, or conflict with or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon any of the property or
assets of Guarantor pursuant to the terms of, any indenture, mortgage, deed of
trust, note, other evidence of indebtedness, agreement or other instrument to
which it may be a party or by which it or any of its property or assets may be
bound, or violate any provision of law, or any applicable order, writ,
injunction, judgment or decree of any court or any order or other public
regulation of any governmental commission, bureau or administrative agency.

 

(c)                                  Payment of Expenses.  Guarantor agrees, as
principal obligor and not as guarantor only, to pay to each SNH Party forthwith,
upon demand, in immediately available federal funds, all costs and expenses
(including reasonable attorneys’ fees and disbursements) incurred or expended by
such SNH Party in connection with the enforcement of this Guaranty, together
with interest on amounts recoverable under this Guaranty from the time such
amounts become due until payment at the Interest Rate.  Guarantor’s covenants
and agreements set forth in this Section 3(c) shall survive the termination of
this Guaranty.

 

(d)                                 Notices.  Guarantor shall promptly give
notice to each SNH Party of any event known to it which might reasonably result
in a material adverse change in its financial condition.

 

(e)                                  Books and Records.  Guarantor shall at all
times keep proper books of record and account in which full, true and correct
entries shall be made of its transactions in accordance with GAAP and shall set
aside on its books from its earnings for each fiscal year all such proper
reserves, including reserves for depreciation, depletion, obsolescence and
amortization of its properties during such fiscal year, as shall be required in
accordance with generally accepted accounting principles, consistently applied,
in connection with its business.  Guarantor shall permit access by each SNH
Party and its agents to the books and records maintained by Guarantor during
normal business hours and upon reasonable notice.  Any proprietary information
obtained by any SNH Party with respect to Guarantor pursuant to the provisions
of this Guaranty shall be treated as confidential, except that such information
may be disclosed or used, subject to appropriate confidentiality safeguards,
pursuant to any court order or in any litigation between the parties and except
further that each SNH Party may disclose such information to its prospective
lenders, provided that such SNH Party shall direct such lenders to maintain such
information as confidential.

 

(f)                                   Taxes, Etc.  Guarantor shall pay and
discharge promptly as they become due and payable all taxes, assessments and
other governmental charges or levies imposed upon Guarantor or the income of
Guarantor or upon any of the property, real, personal or mixed, of

 

2

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Guarantor, or upon any part thereof, as well as all claims of any kind
(including claims for labor, materials and supplies) which, if unpaid, might by
law become a lien or charge upon any property and result in a material adverse
change in the financial condition of Guarantor; provided, however, that
Guarantor shall not be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings or other appropriate actions
promptly initiated and diligently conducted and if Guarantor shall have set
aside on its books such reserves of Guarantor, if any, with respect thereto as
are required by generally accepted accounting principles.

 

(g)                                  Legal Existence of Guarantor.  Guarantor
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its legal existence.

 

(h)                                 Compliance.  Guarantor shall use reasonable
business efforts to comply in all material respects with all applicable
statutes, rules, regulations and orders of, and all applicable restrictions
imposed by, all governmental authorities in respect of the conduct of its
business and the ownership of its property (including, without limitation,
applicable statutes, rules, regulations, orders and restrictions relating to
environmental, safety and other similar standards or controls).

 

(i)                                     Insurance.  Guarantor shall maintain,
with financially sound and reputable insurers, insurance with respect to its
properties and business against loss or damage of the kinds customarily insured
against by owners of established reputation engaged in the same or similar
businesses and similarly situated, in such amounts and by such methods as shall
be customary for such owners and deemed adequate by Guarantor.

 

(j)                                    No Change in Control.  Guarantor shall
not permit the occurrence of any direct or indirect Change in Control of either
Manager or Guarantor without the consent of SNH, which consent shall be deemed
granted if SNH votes any of its shares in Guarantor in favor of any action or
transaction that would constitute a Change in Control.

 

4.                                      Guarantee.  Guarantor hereby
unconditionally guarantees that the Guaranteed Obligations which are monetary
obligations shall be paid in full when due and payable, whether upon demand, at
the stated or accelerated maturity thereof pursuant to any Management Agreement,
or otherwise, and that the Guaranteed Obligations which are performance
obligations shall be fully performed at the times and in the manner such
performance is required by the Management Agreements.  With respect to the
Guaranteed Obligations which are monetary obligations, this guarantee is a
guarantee of payment and not of collectability and is absolute and in no way
conditional or contingent.  In case any part of the Guaranteed Obligations shall
not have been paid when due and payable or performed at the time performance is
required, Guarantor shall, in the case of monetary obligations, within five
(5) Business Days after receipt of notice from any SNH Party, pay or cause to be
paid to such SNH Party the amount thereof as is then due and payable and unpaid
(including interest and other charges, if any, due thereon through the date of
payment in accordance with the applicable provisions of the Management
Agreements) or, in the case of non-monetary obligations, perform or cause to be
performed such obligations in accordance with the Management Agreements.

 

3

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5.                                      Set-Off.  Guarantor hereby authorizes
SNH and each SNH Party, at any time and without notice, to set off the whole or
any portion or portions of any or all sums credited by or due from SNH or such
SNH Party to it against amounts payable under this Guaranty.  SNH and each SNH
Party shall promptly notify Guarantor of any such set-off made by SNH or such
SNH Party and the application made by SNH or such SNH Party of the proceeds
thereof.

 

6.                                      Unenforceability of Guaranteed
Obligations, Etc.  If either Manager is for any reason under no legal obligation
to discharge any of the Guaranteed Obligations (other than because the same have
been previously discharged in accordance with the terms of the applicable
Management Agreements), or if any other moneys included in the Guaranteed
Obligations have become unrecoverable from either Manager by operation of law or
for any other reason, including, without limitation, the invalidity or
irregularity in whole or in part of any Guaranteed Obligation or any limitation
on the liability of such Manager thereunder not contemplated by the Management
Agreements or any limitation on the method or terms of payment thereunder which
may now or hereafter be caused or imposed in any manner whatsoever, the
guarantees contained in this Guaranty shall nevertheless remain in full force
and effect and shall be binding upon Guarantor to the same extent as if
Guarantor at all times had been the principal debtor on all such Guaranteed
Obligations.

 

7.                                      Additional Guarantees.  This Guaranty
shall be in addition to any other guarantee or other security for the Guaranteed
Obligations and it shall not be prejudiced or rendered unenforceable by the
invalidity of any such other guarantee or security or by any waiver, amendment,
release or modification thereof.

 

8.                                      Consents and Waivers, Etc.  Guarantor
hereby acknowledges receipt of correct and complete copies of each Management
Agreement set forth on Schedule 2, and consents to all of the terms and
provisions thereof, as the same may be from time to time hereafter amended or
changed in accordance with the terms and conditions thereof, and, except as
otherwise provided herein, to the maximum extent permitted by applicable law,
waives (a) presentment, demand for payment, and protest of nonpayment, of any
principal of or interest on any of the Guaranteed Obligations, (b) notice of
acceptance of this Guaranty and of diligence, presentment, demand and protest,
(c) notice of any default hereunder and any default, breach or nonperformance or
Event of Default under any of the Guaranteed Obligations or the Management
Agreements, (d) notice of the terms, time and place of any private or public
sale of any collateral held as security for the Guaranteed Obligations,
(e) demand for performance or observance of, and any enforcement of any
provision of, or any pursuit or exhaustion of rights or remedies against either
Manager or any other guarantor of the Guaranteed Obligations, under or pursuant
to any Management Agreement, or any agreement directly or indirectly relating
thereto and any requirements of diligence or promptness on the part of the
holders of the Guaranteed Obligations in connection therewith, and (f) to the
extent Guarantor lawfully may do so, any and all demands and notices of every
kind and description with respect to the foregoing or which may be required to
be given by any statute or rule of law and any defense of any kind which it may
now or hereafter have with respect to this Guaranty, or any Management Agreement
or the Guaranteed Obligations (other than that the same have been discharged in
accordance with the Management Agreements).

 

9.                                      No Impairment, Etc.  The obligations,
covenants, agreements and duties of Guarantor under this Guaranty shall not be
affected or impaired by any assignment or transfer in

 

4

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whole or in part of any of the Guaranteed Obligations without notice to
Guarantor, or any waiver by any SNH Party or any holder of any of the Guaranteed
Obligations or by the holders of all of the Guaranteed Obligations of the
performance or observance by either Manager or any other guarantor of any of the
agreements, covenants, terms or conditions contained in the Guaranteed
Obligations or the Management Agreements or any indulgence in or the extension
of the time for payment by either Manager or any other guarantor of any amounts
payable under or in connection with the Guaranteed Obligations or the Management
Agreements or any other instrument or agreement relating to the Guaranteed
Obligations or of the time for performance by either Manager or any other
guarantor of any other obligations under or arising out of any of the foregoing
or the extension or renewal thereof (except that with respect to any extension
of time for payment or performance of any of the Guaranteed Obligations granted
by any SNH Party or any other holder of such Guaranteed Obligations to either
Manager, Guarantor’s obligations to pay or perform such Guaranteed Obligation
shall be subject to the same extension of time for performance), or the
modification or amendment (whether material or otherwise) of any duty, agreement
or obligation of such Manager or any other guarantor set forth in any of the
foregoing, or the voluntary or involuntary sale or other disposition of all or
substantially all of the assets of either Manager or any other guarantor or
insolvency, bankruptcy, or other similar proceedings affecting either Manager or
any other guarantor or any assets of either Manager or any such other guarantor,
or the release or discharge of either Manager or any such other guarantor from
the performance or observance of any agreement, covenant, term or condition
contained in any of the foregoing without the consent of the holders of the
Guaranteed Obligations by operation of law, or any other cause, whether similar
or dissimilar to the foregoing.

 

10.                               Reimbursement, Subrogation, Etc.  Guarantor
hereby covenants and agrees that it will not enforce or otherwise exercise any
rights of reimbursement, subrogation, contribution or other similar rights
against either Manager (or any other person against whom any SNH Party may
proceed) with respect to the Guaranteed Obligations prior to the payment in full
of all amounts owing with respect to the Management Agreements, and until all
indebtedness of each Manager to each SNH Party shall have been paid in full,
Guarantor shall not have any right of subrogation, and Guarantor waives any
defense it may have based upon any election of remedies by any SNH Party which
destroys its subrogation rights or its rights to proceed against either Manager
for reimbursement, including, without limitation, any loss of rights Guarantor
may suffer by reason of any rights, powers or remedies of either Manager in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging the indebtedness to any SNH Party.  Until all obligations of each
Manager pursuant to the Management Agreements shall have been paid and satisfied
in full, Guarantor further waives any right to enforce any remedy which any SNH
Party now has or may in the future have against either Manager, any other
guarantor or any other person and any benefit of, or any right to participate
in, any security whatsoever now or in the future held by any SNH Party.

 

11.                               Defeasance.  This Guaranty shall terminate at
such time as the Guaranteed Obligations have been paid and performed in full and
all other obligations of Guarantor to each SNH Party under this Guaranty have
been satisfied in full; provided, however, if at any time, all or any part of
any payment applied on account of the Guaranteed Obligations is or must be
rescinded or returned for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of either Manager), this Guaranty,
to the extent such payment is or

 

5

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must be rescinded or returned, shall be deemed to have continued in existence
notwithstanding any such termination.

 

12.                               Notices.

 

(a)                                 Methods of Delivery.  Any and all notices,
demands, consents, approvals, offers, elections and other communications
required or permitted under this Guaranty shall be deemed adequately given if in
writing and the same shall be delivered either in hand, by e-mail with written
acknowledgment of receipt, or by mail or Federal Express or similar expedited
commercial carrier, addressed to the recipient of the notice, postpaid and
registered or certified with return receipt requested (if by mail), or with all
freight charges prepaid (if by Federal Express or similar carrier).  Any notice
sent by or delivered to any SNH Party shall automatically be deemed to have been
simultaneously sent by or delivered to each SNH Party.

 

(b)                                 Timing of Delivery.  All notices required or
permitted to be sent hereunder shall be deemed to have been given for all
purposes of this Guaranty upon the date of acknowledged receipt, in the case of
a notice by e-mail, and, in all other cases, upon the date of receipt or
refusal, except that whenever under this Guaranty a notice is either received on
a day which is not a Business Day or is required to be delivered on or before a
specific day which is not a Business Day, the day of receipt or required
delivery shall automatically be extended to the next Business Day.

 

(c)                                  Addresses.  All such notices shall be
addressed,

 

if to any SNH Party to:

 

c/o Senior Housing Properties Trust

Two Newton Place

255 Washington Street, Suite 300

Newton, Massachusetts 02458

Attn: Ms. Jennifer F. Francis

e-mail: jfrancis@rmrgroup.com

 

 if to Guarantor to:

 

Five Star Senior Living Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn: Ms. Katherine E. Potter

e-mail: kpotter@5ssl.com

 

(d)                              Change of Addresses.  By notice given as herein
provided, the parties hereto and their respective successors and assigns shall
have the right from time to time and at any time during the term of this
Guaranty to change their respective addresses effective upon receipt by the
other parties of such notice and each shall have the right to specify as its
address any other address within the United States of America.

 

6

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13.                               Successors and Assigns.  Whenever in this
Guaranty any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, including without
limitation the holders, from time to time, of the Guaranteed Obligations; and
all representations, warranties, covenants and agreements by or on behalf of
Guarantor which are contained in this Guaranty shall inure to the benefit of
each SNH Party’s successors and assigns, including without limitation said
holders, whether so expressed or not.

 

14.                               Applicable Law.  Except as to matters
regarding the internal affairs of any SNH Party and issues of or limitations on
any personal liability of the shareholders of any SNH Party for obligations of
such SNH Party, as to which the laws of the state of such SNH Party’s
organization shall govern, this Guaranty shall be interpreted, construed,
applied and enforced in accordance with the laws of the State of Maryland
applicable to contracts between residents of Maryland which are to be performed
entirely within Maryland, regardless of (a) where any such instrument is
executed or delivered; or (b) where any payment or other performance required by
any such instrument is made or required to be made; or (c) where any breach of
any provision of any such instrument occurs, or any cause of action otherwise
accrues; or (d) where any action or other proceeding is instituted or pending;
or (e) the nationality, citizenship, domicile, principal place of business, or
jurisdiction of organization or domestication of any party; or (f) whether the
laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction
other than the State of Maryland; or (g) any combination of the foregoing.

 

15.                               Disputes.

 

(a)                                 Disputes.  Any disputes, claims or
controversies between the parties (i) arising out of or relating to this
Guaranty, or (ii) brought by or on behalf of any shareholder of any party or a
direct or indirect parent of a party (which, for purposes of this Section 15,
shall mean any shareholder of record or any beneficial owner of shares of any
party, or any former shareholder of record or beneficial owner of shares of any
party), either on his, her or its own behalf, on behalf of any party or on
behalf of any series or class of shares of any party or shareholders of any
party against any party or any member, trustee, director, officer, manager
(including The RMR Group LLC or its successor), agent or employee of any party,
including disputes, claims or controversies relating to the meaning,
interpretation, effect, validity, performance or enforcement of this Guaranty,
including this arbitration provision, or the declarations of trust, limited
liability company agreements, charters, bylaws or other governing documents of
any party hereto (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 15.  For the avoidance of doubt, and not as a limitation, Disputes
are intended to include derivative actions against trustees, directors, officers
or managers of any party and class actions by a shareholder against those
individuals or entities and any party.  For the avoidance of doubt, a Dispute
shall include a Dispute made derivatively on behalf of one party against another
party.  For purposes of this Section 15, the term “party” shall include any
direct or indirect parent of a party.

 

(b)                                 Selection of Arbitrators.  There shall be
three (3) arbitrators.  If there are only two (2) parties to the Dispute, each
party shall select one arbitrator within fifteen (15) days

 

7

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after receipt of a demand for arbitration.  Such arbitrators may be affiliated
or interested persons of such parties.  If there are more than two (2) 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 within fifteen (15) days after
receipt of a demand for arbitration.  Such arbitrators may be affiliated or
interested persons of the claimants or the respondents, as the case may be.  If
either a claimant (or all claimants) or a respondent (or all respondents) fail
to timely select an arbitrator, then the party (or parties) who has selected an
arbitrator may request the AAA to provide a list of three (3) proposed
arbitrators in accordance with the Rules (each of whom shall be neutral,
impartial and unaffiliated with any party) and the party (or parties) that
failed to timely appoint an arbitrator shall have ten (10) days from the date
the AAA provides such list to select one of the three (3) arbitrators proposed
by AAA.  If such party (or parties) fail to select such arbitrator by such time,
the party (or parties) who have appointed the first arbitrator shall then have
ten (10) days to select one of the three (3) arbitrators proposed by AAA to be
the second arbitrator; and, if he/they should fail to select such arbitrator by
such time, the AAA shall select, within fifteen (15) days thereafter, one of the
three (3) arbitrators it had proposed as the second arbitrator.  The two
(2) arbitrators so appointed shall jointly appoint the third and presiding
arbitrator (who shall be neutral, impartial and unaffiliated with any party)
within fifteen (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.

 

(c)                                  Location of Arbitration.  The place of
arbitration shall be Boston, Massachusetts unless otherwise agreed by the
parties.

 

(d)                                 Scope of Discovery.  There shall be only
limited documentary discovery of documents directly related to the issues in
dispute, as may be ordered by the arbitrators.  For the avoidance of doubt, it
is intended that there shall be no depositions and no other discovery other than
limited documentary discovery as described in the preceding sentence.

 

(e)                                  Arbitration Award.  In rendering an award
or decision (the “Arbitration Award”), the arbitrators shall be required to
follow the laws of the State of Maryland.  Any arbitration proceedings or
Arbitration Award rendered hereunder and the validity, effect and interpretation
of this arbitration provision shall be governed by the Federal Arbitration Act,
9 U.S.C. §1 et seq.  The Arbitration 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.  Any monetary Arbitration Award shall be made and
payable in U.S. dollars free of any tax, deduction or offset.  Subject to
Section 15(h), each party against which an Arbitration Award assesses a monetary
obligation shall pay that obligation on or before the thirtieth (30th) day
following the date of such Arbitration Award or such other date as such
Arbitration Award may provide.

 

(f)                                   Costs.  Except to the extent expressly
provided by this Guaranty or as otherwise agreed by the parties, to the maximum
extent permitted by Maryland law, each party involved in a Dispute shall bear
its own costs and expenses (including attorneys’ fees), and the arbitrators
shall not render an Arbitration 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

 

8

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a party’s Arbitration Award to the claimant or the claimant’s attorneys.  Each
party (or, if there are more than two (2) parties to the Dispute, all claimants,
on 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 (2) 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 (3rd) appointed arbitrator.

 

(g)                                  Appeals.  Notwithstanding any language to
the contrary in this Agreement, any Arbitration Award, including but not limited
to any interim Arbitration Award, may be appealed pursuant to the AAA’s Optional
Appellate Arbitration Rules (“Appellate Rules”).  An Arbitration Award shall not
be considered final until after the time for filing the notice of appeal
pursuant to the Appellate Rules has expired.  Appeals must be initiated within
thirty (30) days of receipt of an Arbitration Award by filing a notice of appeal
with any AAA office.  Following the appeal process, the decision rendered by the
appeal tribunal may be entered in any court having jurisdiction thereof.  For
the avoidance of doubt, and despite any contrary provision of the Appellate
Rules, the above paragraph relating to costs and expenses shall apply to any
appeal pursuant to this Section 15(g) and the appeal tribunal shall not render
an Arbitration Award that would include shifting of any costs or expenses
(including attorneys’ fees) of any party.

 

(h)                                 Final Judgment.  Following the expiration of
the time for filing the notice of appeal, or the conclusion of the appeal
process set forth in Section 15(g), an Arbitration Award shall be final and
binding upon the parties thereto and shall be the sole and exclusive remedy
between those parties relating to the Dispute, including any claims,
counterclaims, issues or accounting presented to the arbitrators.  Judgment upon
an Arbitration 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 Arbitration Award
made, except for actions relating to enforcement of this Section 15 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.

 

(i)                                     Intended Beneficiaries.  This Section 15
is intended to benefit and be enforceable by the parties and their respective
shareholders, members, direct and indirect parents, trustees, directors,
officers, managers (including The RMR Group Inc. and The RMR Group LLC), agents
or employees of any party and their respective successors and assigns and shall
be binding on the shareholders of any party and the parties, 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.

 

16.                               Modification of Agreement.  No modification or
waiver of any provision of this Guaranty, nor any consent to any departure by
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by any SNH Party against whom enforcement of such
modification, waiver or consent is sought, and such modification, waiver or
consent shall be effective only in the specific instances and for the purpose
for which given.  No notice to or demand on Guarantor in any case shall entitle
Guarantor to any other or further notice or demand in the same, similar or other
circumstances.  This Guaranty may not be

 

9

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amended except by an instrument in writing executed by or on behalf of the party
against whom enforcement of such amendment is sought.

 

17.                               Waiver of Rights by SNH Parties.  Neither any
failure nor any delay on any SNH Party’s part in exercising any right, power or
privilege under this Guaranty shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise or the
exercise of any other right, power or privilege.

 

18.                               Severability.  In case any one or more of the
provisions contained in this Guaranty should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby, but this Guaranty shall be reformed and construed and enforced
to the maximum extent permitted by applicable law.

 

19.                               Entire Contract.  This Guaranty constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and shall supersede and take the place of any other instruments
purporting to be an agreement of the parties hereto relating to the subject
matter hereof.

 

20.                               Headings; Counterparts.  Headings in this
Guaranty are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof.  This Guaranty may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument, and in pleading or proving any provision of
this Guaranty, it shall not be necessary to produce more than one of such
counterparts.

 

21.                               Remedies Cumulative.  No remedy herein
conferred upon any SNH Party is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.

 

22.                               Additional Management Agreements.  Except as
otherwise expressly agreed by the parties hereto, if either Manager (or any
other Affiliate of Guarantor) and any SNH Party (or any other Affiliate of SNH)
shall enter into a new management agreement with respect to any senior living
facility after the date of this Guaranty, then (a) such management agreement
shall automatically be deemed to be a Management Agreement under this Guaranty,
(b) the manager under such management agreement shall automatically be deemed a
Manager under this Guaranty (if it is not already a Manager), (c) the SNH Party
or other Affiliate of SNH  shall automatically be deemed an SNH Party under this
Agreement (if it is not already an SNH Party) and (d) the Guaranteed Obligations
shall include all obligations of such Manager to such SNH Party under such
Management Agreement.  Furthermore, upon the request of any SNH Party, Guarantor
shall execute an amended and restated Schedule 1 or Schedule 2 to this Guaranty
to reflect such additional parties and/or Management Agreements, but Guarantor’s
failure to execute any such amended and restated Schedules shall not diminish or
impair the automatic application of this Section 22.

 

[Remainder of page intentionally left blank.]

 

10

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WITNESS the execution hereof under seal as of the date above first written.

 

 

GUARANTOR:

 

 

 

FIVE STAR SENIOR LIVING INC.,

 

a Maryland corporation

 

 

 

By:

 

 

 

Katherine E. Potter

 

 

President

 

[SIGNATURE PAGE TO GUARANTY AGREEMENT]

 

--------------------------------------------------------------------------------

 

SCHEDULE 1

 

SNH PARTIES

 

--------------------------------------------------------------------------------

 

SCHEDULE 2

 

MANAGEMENT AGREEMENTS

 

--------------------------------------------------------------------------------

 

EXHIBIT B

 

FORM OF NEW MANAGEMENT AGREEMENT

 

--------------------------------------------------------------------------------

 

MANAGEMENT AGREEMENT

 

FOR

 

[INSERT NAME AND ADDRESS OF COMMUNITY]1

 

JANUARY 1, [2020]2

 

--------------------------------------------------------------------------------

1  This form of Management Agreement will be used for the Independent Living
communities (i.e., Five Star Premier Residences of Dallas and College View Manor
Retirement Residence), but with necessary changes, if any, to reflect the IL
nature of such communities (e.g., no TRS structure and no regulatory matters).

 

2  To be changed to 2021 if the Conversion Time is extended pursuant to the
Transaction Agreement.

 

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TABLE OF CONTENTS

 

 

Page

ARTICLE I

DEFINITIONS

1

 

 

 

Section 1.01.

“AAA”

1

Section 1.02.

“Accountants”

1

Section 1.03.

“Adverse Regulatory Event”

1

Section 1.04.

“Affiliate”

1

Section 1.05.

“Agreement”

1

Section 1.06.

“Annual Operating Budget”

1

Section 1.07.

“Appellate Rules”

1

Section 1.08.

“Approved Budget”

2

Section 1.09.

“Award”

2

Section 1.10.

“Bankruptcy”

2

Section 1.11.

“Base Invested Capital”

2

Section 1.12.

“Base Fee”

2

Section 1.13.

“Base Target EBITDA”

2

Section 1.14.

“Business Day”

2

Section 1.15.

“Capital Replacements”

2

Section 1.16.

“Change in Control”

2

Section 1.17.

“Code”

3

Section 1.18.

“Community”

3

Section 1.19.

“Community Expenses”

3

Section 1.20.

“Company”

4

Section 1.21.

“Condemnation”

4

Section 1.22.

“Consumer Price Index”

4

Section 1.23.

“Construction Supervision Fee”

5

Section 1.24.

“Discount Rate”

5

Section 1.25.

“Disputes”

5

Section 1.26.

“EBITDA”

5

Section 1.27.

“Event of Default”

5

Section 1.28.

“Excess Invested Capital”

5

Section 1.29.

“FF&E”

5

Section 1.30.

“GAAP”

5

Section 1.31.

“Governmental Authority”

6

Section 1.32.

“Gross Revenues”

6

Section 1.33.

“Guarantor”

6

Section 1.34.

“Guaranty”

6

Section 1.35.

“Home Office Personnel”

6

Section 1.36.

“Household Replacements”

6

Section 1.37.

“Impositions”

6

Section 1.38.

“Intellectual Property”

7

Section 1.39.

“Interest Rate”

7

Section 1.40.

“Invested Capital”

7

Section 1.41.

“Lease”

7

Section 1.42.

“Legal Requirements”

7

 

i

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Section 1.43.

“Manager”

7

Section 1.44.

“Mortgage”

7

Section 1.45.

“Multiplier”

7

Section 1.46.

“Non-Performing Asset”

7

Section 1.47.

“Owner”

7

Section 1.48.

“Person”

8

Section 1.49.

“Personnel Costs”

8

Section 1.50.

“Proprietary Marks”

8

Section 1.51.

“Residents”

8

Section 1.52.

“Rules”

8

Section 1.53.

“SNH”

8

Section 1.54.

“State”

8

Section 1.55.

“Target EBITDA”

8

Section 1.56.

“Target Invested Capital”

8

Section 1.57.

“Term”

8

Section 1.58.

“Termination Fee”

8

Section 1.59.

“Unsuitable for Use”

9

Section 1.60.

“Working Capital”

9

 

 

 

ARTICLE II

APPOINTMENT OF MANAGER

9

 

 

 

Section 2.01.

Appointment of Manager

9

 

 

 

ARTICLE III

PAYMENTS TO MANAGER; WORKING CAPITAL; CAPITAL REPLACEMENTS; INSUFFICIENT FUNDS

10

 

 

 

Section 3.01.

Management Fees

10

 

 

 

ARTICLE IV

MANAGEMENT SERVICES

10

 

 

 

Section 4.01.

Authority of Manager and Management Services

10

Section 4.02.

Hiring and Training of Staff

11

Section 4.03.

Manager’s Home Office Personnel

11

Section 4.04.

Resident Agreements

11

Section 4.05.

Contracts with Affiliates

12

Section 4.06.

Legal Requirements

12

 

 

 

ARTICLE V

COLLECTIONS AND PAYMENTS

12

 

 

 

Section 5.01.

Collection and Priorities for Distribution of Gross Revenues

12

Section 5.02.

Timing of Payments

13

Section 5.03.

Credits and Collections

13

Section 5.04.

Depositories for Funds

13

Section 5.05.

Impositions

13

 

 

 

ARTICLE VI

ACCOUNTING; FINANCIAL STATEMENTS; AUDIT

14

 

 

 

Section 6.01.

Accounting

14

Section 6.02.

Financial Statements and Reports

14

Section 6.03.

Audit Rights

14

 

 

 

ARTICLE VII

ANNUAL OPERATING BUDGET

15

 

 

 

Section 7.01.

Annual Operating Budget

15

Section 7.02.

Working Capital; Insufficient Funds

15

 

ii

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ARTICLE VIII

TAX MATTERS; REIT QUALIFICATION

16

 

 

 

Section 8.01.

Tax Matters

16

Section 8.02.

REIT Qualification

16

Section 8.03.

Further Compliance with Section 856(d) of the Code

16

Section 8.04.

Adverse Regulatory Event

18

 

 

 

ARTICLE IX

FINANCING; INSPECTION

18

 

 

 

Section 9.01.

Financing of the Community

18

Section 9.02.

Company’s Right To Inspect

18

 

 

 

ARTICLE X

REPAIRS AND MAINTENANCE

18

 

 

 

Section 10.01.

Repairs, Maintenance and Capital Replacements

18

Section 10.02.

Emergency Repairs

19

Section 10.03.

Liens

19

Section 10.04.

Ownership

19

Section 10.05.

Casualty or Condemnation

19

 

 

 

ARTICLE XI

INSURANCE

20

 

 

 

Section 11.01.

General Insurance Requirements

20

Section 11.02.

Waiver of Subrogation

20

Section 11.03.

Risk Management

20

 

 

 

ARTICLE XII

TERM AND TERMINATION

20

 

 

 

Section 12.01.

Term

20

Section 12.02.

Early Termination

21

 

 

 

ARTICLE XIII

TRANSITION ON TERMINATION

21

 

 

 

Section 13.01.

Termination

21

 

 

 

ARTICLE XIV

DEFAULTS

21

 

 

 

Section 14.01.

Default by Manager

21

Section 14.02.

Default by Company

22

Section 14.03.

Remedies of Company

23

Section 14.04.

Remedies of Manager

23

Section 14.05.

No Waiver of Default

23

 

 

 

ARTICLE XV

GOVERNING LAW, ARBITRATION, LIABILITY OF MANAGER AND INDEMNITY

23

 

 

 

Section 15.01.

Governing Law, Etc.

23

Section 15.02.

Arbitration

23

Section 15.03.

Consent to Jurisdiction and Forum

26

Section 15.04.

Standard of Care

26

Section 15.05.

Indemnity

26

Section 15.06.

Limitation of Liability

27

 

 

 

ARTICLE XVI

PROPRIETARY MARKS; INTELLECTUAL PROPERTY

27

 

 

 

Section 16.01.

Proprietary Marks

27

Section 16.02.

Ownership of Proprietary Marks

27

Section 16.03.

Intellectual Property

27

 

 

 

ARTICLE XVII

MISCELLANEOUS PROVISIONS

27

 

 

 

Section 17.01.

Notices

27

 

iii

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Section 17.02.

Severability

28

Section 17.03.

Gender and Number

28

Section 17.04.

Headings and Interpretation

28

Section 17.05.

Estoppel Certificates

28

Section 17.06.

Confidentiality of Business Information

29

Section 17.07.

Confidentiality of Patient Information

29

Section 17.08.

Assignment

29

Section 17.09.

Amendment

29

Section 17.10.

Third Party Beneficiaries

29

Section 17.11.

Survival

30

Section 17.12.

Relationship Between the Parties

30

 

iv

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MANAGEMENT AGREEMENT

 

THIS MANAGEMENT AGREEMENT is entered into as of January 1, [2020], by and
between FVE Managers, Inc., a Maryland corporation (“Manager”), and [·], a [·]
(“Company”).

 

RECITALS:

 

WHEREAS, [·] (“Owner”) owns certain real property and improvements thereon
described in Exhibit A attached hereto (collectively, the “Community”), which
Owner leases to Company and which is operated as an [independent living/assisted
living/memory care/skilled nursing] community; and

 

WHEREAS, Company wishes to appoint Manager as manager of the Community and
Manager desires to accept such appointment and manage the Community, all on the
terms and conditions herein provided;

 

NOW, THEREFORE, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

The following terms shall have the following meanings when used in this
Agreement:

 

Section 1.01.                          “AAA”  is defined in Section 15.02(a).

 

Section 1.02.                          “Accountants”  means RSM US LLP or such
other firm of independent certified public accountants as may be approved by
Company and Manager.

 

Section 1.03.                          “Adverse Regulatory Event”  is defined in
Section 8.04(b).

 

Section 1.04.                          “Affiliate”  means with respect to any
Person, (a) any Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with a
Person or (b) any Person of which a Person is the beneficial owner of a
twenty-five percent (25%) or greater interest or (c) any Person who acquires all
or substantially all of the assets of a Person.  A Person shall be deemed to
control another Person if such Person, directly or indirectly, has the power to
direct the management, operations or business of such Person.  The term
“beneficial owner” for this and other definitions, having the meaning given such
term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended. 
Notwithstanding the foregoing, in no event shall Manager or Guarantor be
considered an Affiliate of Company, Owner or SNH, and in no event shall Company,
Owner or SNH be considered an Affiliate of Manager or Guarantor, for purposes of
this Agreement.

 

Section 1.05.                          “Agreement”  means this Management
Agreement as amended from time to time.

 

Section 1.06.                          “Annual Operating Budget”  is defined in
Section 7.01.

 

Section 1.07.                          “Appellate Rules”  is defined in
Section 15.02(g).

 

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Section 1.08.                          “Approved Budget”  is defined in
Section 7.01.

 

Section 1.09.                          “Award”  is defined in Section 15.02(e).

 

Section 1.10.                          “Bankruptcy”  means, with reference to
either party:

 

(a)                                 the filing by a party of a voluntary
petition in bankruptcy or insolvency or a petition for reorganization under any
bankruptcy law, or the admission by a party that it is unable to pay its debts
as they become due, or the institution of any proceeding by a party for its
dissolution;

 

(b)                                 the consent by a party to an involuntary
petition in bankruptcy or the party’s failure to vacate, within ninety (90) days
from the date of entry thereof, any order approving an involuntary petition with
respect to such party; or

 

(c)                                  the entering of an order, judgment or
decree by any court of competent jurisdiction, on the application of a creditor,
adjudicating a party as bankrupt or insolvent or approving a petition seeking
reorganization or appointing a receiver, trustee, or liquidator of all or a
substantial part of a party’s assets, and such order, judgment or decree’s
continuing unstayed and in effect for an aggregate of sixty (60) days (whether
or not consecutive) in any twelve (12) month period.

 

Section 1.11.                          “Base Invested Capital”  means $[·]
[INSERT THE PRODUCT OF $1,500 MULTIPLIED BY THE NUMBER OF UNITS AT THE
COMMUNITY].

 

Section 1.12.                          “Base Fee”  is defined in
Section 3.01(a).

 

Section 1.13.                          “Base Target EBITDA”  means the EBITDA
budgeted for calendar year 2021 as identified in the Approved Budget for
calendar year 2021.

 

Section 1.14.                          “Business Day”  means any day other than
a Saturday, Sunday or other day on which commercial banks in the Commonwealth of
Massachusetts are authorized to close.

 

Section 1.15.                          “Capital Replacements”  means
replacements and renewals of FF&E at the Community and such repairs,
maintenance, alterations, improvements, renewals and replacements to the
Community building and its mechanical systems which are classified as capital
expenditures under GAAP.

 

Section 1.16.                          “Change in Control”  means (a) the
acquisition by any Person, or two or more Persons acting in concert, of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission) of 9.8% or more, or rights, options or warrants to acquire
9.8% or more, of the outstanding shares of voting stock or other voting
interests of another Person (a “Relevant Person”) or of any direct or indirect
parent of a Relevant Person (“Parent”), or the power to direct the management
and policies of a Relevant Person or Parent, directly or indirectly, (b) the
merger or consolidation of a Relevant Person or Parent with and into any Person
or the merger or consolidation of any Person with and into a Relevant Person or
any Parent (other than the merger or consolidation of any Person into a Relevant
Person or Parent that does not result in a Change in Control of a Relevant
Person or Parent under clauses (a), (c),

 

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(d), (e) or (f) of this definition), (c) any one or more sales, conveyances,
dividends or distributions to any Person of all or any material portion of the
assets (including capital stock or other equity interests) or business of a
Relevant Person or Parent, whether or not otherwise a Change in Control, (d) the
cessation, for any reason, of the individuals who at the beginning of any
twenty-four (24) consecutive month period (commencing on the date hereof)
constituted the board of directors of a Relevant Person or any Parent (together
with any new directors whose election by such board or whose nomination for
election by the shareholders of a Relevant Person or any Parent 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, but excluding any individual whose
initial nomination for, or assumption of, office as a member of such board of
directors occurs as a result of an actual or threatened solicitation of proxies
or consents for the election or removal of one or more directors by any Person
other than a solicitation for the election of one or more directors by or on
behalf of the board of directors) to constitute a majority of the board of
directors of a Relevant Person or any Parent then in office, or (e) the adoption
of any proposal (other than a precatory proposal) by a Relevant Person or any
Parent not approved by vote of a majority of the directors of such Relevant
Person or Parent, as the case may be, in office immediately prior to the making
of such proposal, or (f) the election to the board of directors of a Relevant
Person or any Parent of any individual not nominated or appointed by vote of a
majority of the directors of such Relevant Person or Parent in office
immediately prior to the nomination or appointment of such individual.

 

Section 1.17.                          “Code”  means the U.S. Internal Revenue
Code of 1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.

 

Section 1.18.                          “Community”  is defined in the recitals
to this Agreement.

 

Section 1.19.                          “Community Expenses”  means all costs and
expenses related to the maintenance, operation, repair, renovation, replacement
and staffing of the Community that are normally charged as operating expense
under GAAP, including: (a) costs of inventory and supplies (including Household
Replacements) used in the operation of the Community; (b) amounts payable to
third parties or expenses otherwise incurred with respect to the marketing,
advertising, leasing, use, repair or maintenance of the Community and any
expense incurred in order to obtain or maintain any operating permits, licenses,
approvals or certifications, including any licensing or registration fees and
expenses associated therewith; (c) amounts payable to third parties for billing
and collections of amounts due for goods and services provided to Residents,
including for the collection of delinquent rentals and other costs required in
connection with the enforcement of any lease or resident agreement; (d) amounts
payable to third parties under service contracts; (e) amounts payable to third
parties for auditing (including any audits that may be required pursuant to
Section 6.03), tax preparation, accounting and risk management services and
legal fees; (f) all Personnel Costs incurred by Manager for all personnel
employed, and independent contractors who provide services, at the Community or
whose services are entirely allocable to the Community (or a pro rata share of
such Personnel Costs in the case of services provided by a regional business
manager or a Shared Employee (defined below)); (g) costs of all utilities
serving the Community; (h) costs of insurance premiums for insurance at the
Community; (i) the Base Fee payable to Manager; (j) costs incurred by Manager
for electronic data processing equipment, systems, software or services

 

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used at the Community; (k) all Impositions and all related costs (subject to the
requirements of Section 5.05); (l) all expenses, including settlement payments,
penalties, fines, repayments, consultant or legal fees and any other costs
incurred, related to audits, investigations, inquiries or reviews of the
Community or Company or Owner by a Governmental Authority, accreditation body or
a contractor of a Governmental Authority; (m) any other recoupments, repayments,
adjustments, reconciliations or other payments made or returned to Residents or
third party payors of the Community and any related consultant and legal fees;
(n) costs payable to prevent, cure or correct any violation of Legal
Requirements with respect to the Community or Company or Owner; and (o) costs
incurred to litigate, negotiate and/or settle any civil claim, action or
litigation, including any amounts payable pursuant to a settlement, judgment or
damages award and related legal fees.

 

If any Community Expenses (e.g., advertising, information technology, reporting
and other systems for the operation of the Community and personnel training),
but not including Personnel Costs, are shared with other senior housing
communities managed or operated by Manager or its Affiliates (the “Shared
Expenses”), whether owned by Company or its Affiliates or other parties, Manager
shall identify such Shared Expenses in the Annual Operating Budget and the basis
for allocation.  In addition, Manager may allocate as a Community Expense a pro
rata share of the Personnel Costs Manager incurs with respect to any employee or
independent contractor, including for Home Office Personnel to the extent
allowed by Section 4.03, who provides services at the Community and at other
senior housing communities managed or operated by Manager (a “Shared Employee”)
in accordance with an allocation formula approved by Company, which approval
shall not be unreasonably withheld, conditioned or delayed.

 

Community Expenses shall not include, unless otherwise approved by Company:
costs for Home Office Personnel (except as allowed by Section 4.03), costs for
Manager’s in-house accounting and reporting systems, software or services to the
extent used exclusively at Manager’s home office, other home office and
corporate level expenses and travel expenses of personnel assigned to work
exclusively at the Community, except for such Community related travel expenses
as are generally reimbursed or paid pursuant to the Community’s policies and
procedures.

 

Section 1.20.                          “Company”  is defined in the initial
paragraph to this Agreement.

 

Section 1.21.                          “Condemnation”  means a taking by
Governmental Authority in an eminent domain, condemnation, compulsory
acquisition or similar proceeding for any public or quasi-public use or purpose.

 

Section 1.22.                          “Consumer Price Index”  means the
Consumer Price Index for Urban Wage Earners and Clerical Workers,
1982-1984=100.  The Consumer Price Index is presently published by the Bureau of
Labor Statistics of the United States Department of Labor.  In the event
publication of the Consumer Price Index ceases, the computations under this
Agreement with respect to which the Consumer Price Index is to be applied shall
be computed upon the basis of whatever index published by the United States
Department of Labor at that time is most nearly comparable as a measure of
general changes in price levels.  In the event that the Consumer Price Index
ceases to use 1982-84=100 as the basis of calculation, then the Consumer

 

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Price Index shall be converted to the amount(s) that would have resulted had the
manner of calculating the Consumer Price Index in effect at the date of this
Agreement not been altered.

 

Section 1.23.                          “Construction Supervision Fee”  means an
amount equal to three percent (3%) of amounts funded for Capital Replacements
less the amount of any construction supervision (or similar) fees paid to any
third party.

 

Section 1.24.                          “Discount Rate”  means the yield reported
as of 10:00 A.M. on the Business Day prior to the date of termination of this
Agreement on the display designated as “Page PX1” (or such other display as may
replace Page PX1 on Bloomberg Financial Markets (“Bloomberg”) or, if Page PX1
(or its successor screen on Bloomberg) is unavailable, the Telerate Access
Service screen which corresponds most closely to Page PX1) for the most recently
issued actively traded U.S. Treasury securities having a maturity equal to the
number of years between the date of termination and the scheduled expiration
date of the Term (including any extension of the Term, but not in excess of
twenty (20) years in any event), plus 300 basis points, or if such yields shall
not be reported as of such time or the yields reported as of such time shall not
be ascertainable (including by way of interpolation), the Treasury Constant
Maturity Series Yields reported for the latest day for which such yields shall
have been so reported as of the Business Day prior to the date of termination of
this Agreement in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury securities
having the same maturity, plus 300 basis points.  If necessary, U.S. Treasury
bill quotations shall be converted to bond equivalent yields in accordance with
accepted financial practice and interpolating linearly between reported yields.

 

Section 1.25.                          “Disputes”  is defined in
Section 15.02(a).

 

Section 1.26.                          “EBITDA”  means for any period, the net
income of the Community before interest, income taxes, depreciation and
amortization allocated to such Community, determined in accordance with GAAP
applied on a consistent basis.  To the extent the Term commences or ends on a
day other than the first day of the calendar year or the last day of the
calendar year, as applicable, for the purposes of the calculations required
under this Agreement, EBITDA will be adjusted on a pro rata basis for such
partial calendar year.

 

Section 1.27.                          “Event of Default”  is defined in
Section 14.01, as to Manager, and in Section 14.02, as to Company.

 

Section 1.28.                          “Excess Invested Capital”  means, with
respect to any calendar year, the amount by which Invested Capital paid in such
calendar year exceeds Target Invested Capital for such calendar year.

 

Section 1.29.                          “FF&E”  means furniture, fixtures,
furnishings, soft goods, case goods, vehicles, systems and equipment.

 

Section 1.30.                          “GAAP”  means generally accepted
accounting principles in the United States applied on a consistent basis.

 

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Section 1.31.                          “Governmental Authority”  means any
United States federal, state or local government or political subdivision
thereof, or any court, administrative agency or commission or other
quasi-governmental authority or instrumentality or any subdivision thereof.

 

Section 1.32.                          “Gross Revenues”  means all revenues
derived from operating the Community, determined in accordance with GAAP,
including: income (from both cash and credit transactions, net of any fee
therefor and net of any contractual allowances granted to third party payors)
from community fees, monthly occupancy fees, health care fees, third party
reimbursement or payments and any and all other fees and payments received from
or on behalf of Residents; income from food and beverage and catering sales;
income from vending machines, and proceeds, if any, from business interruption
insurance and all other revenues from the operation of the Community; provided
that, Gross Revenues shall not include: (a) gratuities to employees at the
Community, (b) federal, state or municipal excise, sales or use taxes or similar
taxes imposed at the point of sale and collected directly from Residents or
guests of the Community or included as part of the sales price of any goods or
services, (c) proceeds from the sale of FF&E and any other capital asset,
(d) interest received or accrued with respect to the monies in any accounts
referred to in Section 5.04, (e) proceeds of any financing or refinancing of the
Community, (f) proceeds of any insurance policy (except business interruption
insurance) or condemnation or other taking, (g) any cash refunds, rebates or
discounts to Residents of the Community, cash discounts and credits of a similar
nature, given, paid or returned in the course of obtaining Gross Revenues or
components thereof to the extent not reflected in contractual allowances,
(h) proceeds from any sale of the Community or any other capital transaction,
(i) Resident funds on deposit or security deposits until such time and to the
extent as the same are applied to current fees due for services rendered,
(j) awards of damages, settlement proceeds and other payments received by
Company in respect of any litigation other than litigation to collect fees due
for services rendered at the Community and (k) payments under any policy of
title insurance.  Any community fees or deposits that are refunded to a Resident
shall be deducted from Gross Revenues during the month in which such refunds are
made, if previously included in Gross Revenues.

 

Section 1.33.                          “Guarantor”  means Five Star Senior
Living Inc., a Maryland corporation.

 

Section 1.34.                          “Guaranty”  means that certain Guaranty
Agreement, dated as of the date hereof, made by Guarantor in favor of Company
and certain of its Affiliates, pursuant to which Guarantor guarantees, among
other things, the obligations of Manager to Company under this Agreement, and
any amendments thereto.

 

Section 1.35.                          “Home Office Personnel”  is defined in
Section 4.03.

 

Section 1.36.                          “Household Replacements”  means supply
items including linen, china, glassware, silver, uniforms, and similar items.

 

Section 1.37.                          “Impositions”  means all levies,
assessments and similar charges, including: all water, sewer or similar fees,
rents, rates, charges, excises or levies, vault license fees or rentals; license
and regulatory approval fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever (and all interest
and penalties thereon), which at any time during or in respect of the Term may
be assessed, levied, confirmed

 

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or imposed on the Community, Company or Manager with respect to the Community or
the operation thereof, or otherwise in respect of or be a lien upon the
Community (including, on any of the inventories or Household Replacements now or
hereafter located therein).  Impositions shall not include (a) any income or
franchise taxes payable by Company or Manager or (b) any franchise, corporate,
capital levy or transfer tax imposed on Company or Manager.

 

Section 1.38.                          “Intellectual Property”  means (a) all
software developed and owned by Manager or an Affiliate of Manager; and (b) all
written manuals, instructions, policies, procedures and directives issued by
Manager to its employees at the Community regarding the procedures and
techniques to be used in operation of the Community.

 

Section 1.39.                          “Interest Rate”  means an annual rate of
8%, but not higher than the highest rate permitted by law.

 

Section 1.40.                          “Invested Capital”  means any amounts
paid by Company, or Owner, for Capital Replacements (and excluding amounts
funded by Company for Working Capital) as reflected on the books and records of
Owner and Company, less any amounts representing proceeds from the sale of
Capital Replacements or any other capital asset, and in all events, subject to
adjustment based on any audit conducted pursuant to Section 6.03(b).

 

Section 1.41.                          “Lease”  is defined in Section 8.02(a).

 

Section 1.42.                          “Legal Requirements”  means any permit,
license, certificate, law, code, rule, ordinance, regulation or order of any
Governmental Authority, Board of Fire Underwriters or any body similar to any of
the foregoing having jurisdiction over the business or operation of the
Community or the matters which are the subject of this Agreement, including any
Resident care or health care, building, zoning or use laws, ordinances,
regulations or orders, environmental protection laws and fire department rules.

 

Section 1.43.                          “Manager”  is defined in the initial
paragraph of this Agreement.

 

Section 1.44.                          “Mortgage”  means any mortgage or deed of
trust recorded against the Community.

 

Section 1.45.                          “Multiplier”  means the greater of
(a) two percent (2%), or (b) a fraction, the numerator of which shall be the
difference between the Consumer Price Index for the immediately preceding
December and the Consumer Price Index for the December that is twelve (12)
months prior thereto, and the denominator of which shall be the Consumer Price
Index for such prior December.

 

Section 1.46.                          “Non-Performing Asset”  means the
Community if, commencing with the 2021 calendar year, in any two (2) consecutive
calendar years, or in any two (2) calendar years out of any three
(3) consecutive calendar years during the Term, the EBITDA for such calendar
year does not equal at least ninety percent (90%) of the Target EBITDA for such
calendar year; provided, however, for purposes of this calculation, in no event
shall Target EBITDA be less than $0.

 

Section 1.47.                          “Owner”  is defined in the Recitals to
this Agreement.

 

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Section 1.48.                          “Person”  means any natural person,
corporation, limited liability company, trust, joint venture, partnership,
Governmental Authority or other entity.

 

Section 1.49.                          “Personnel Costs”  means total cash
compensation, costs of training programs, hiring expenses, severance payments,
payroll taxes, workers’ compensation, travel expenses, incentive programs (e.g.,
workers’ compensation and risk management related incentive programs) and
employee fringe benefits payable to such personnel.

 

Section 1.50.                          “Proprietary Marks”  means all
trademarks, trade names, symbols, logos, slogans, designs, insignia, emblems,
devices and service marks which are used by Manager to identify the Community,
whether they are now or hereafter owned by Manager or any of its Affiliates, and
whether or not they are registered under the laws of the United States.

 

Section 1.51.                          “Residents”  means the individuals
residing at the Community.

 

Section 1.52.                          “Rules”  is defined in Section 15.02(a).

 

Section 1.53.                          “SNH”  means Senior Housing Properties
Trust, a Maryland real estate investment trust.

 

Section 1.54.                          “State”  means the state in which the
Community is located and any regulatory agencies within the State with overview
authority or other authority over the Community, and any other state that
asserts regulatory authority over the Community or with respect to its
Residents, to the extent thereof.

 

Section 1.55.                          “Target EBITDA”  means (a) with respect
to calendar year 2021, the Base Target EBITDA, and (b) with respect to each
subsequent calendar year, the sum of (i) the amount of the prior calendar year’s
Target EBITDA increased by the absolute value of the product of (A) the prior
calendar year’s Target EBITDA, multiplied by (B) the Multiplier, plus (ii) six
percent (6%) of any Excess Invested Capital made in the prior calendar year.  To
the extent the Term commences or ends on a day other than the first day of the
calendar year or the last day of the calendar year, as applicable, Target EBITDA
will be adjusted on a pro rata basis for such partial year.

 

Section 1.56.                          “Target Invested Capital”  means (a) with
respect to calendar year 2021, the Base Invested Capital increased by the
product of (i) the Base Invested Capital, multiplied by (ii) the Multiplier, and
(b) with respect to each subsequent calendar year, the amount of the prior
calendar year’s Target Invested Capital increased by the product of (i) the
prior calendar year’s Target Invested Capital, multiplied by (ii) the
Multiplier; provided, however, the Target Invested Capital for any calendar year
shall increase or decrease on a per unit pro rata basis to the extent the number
of units at the Community in such calendar year increases or decreases from the
number of units at the Community in the prior calendar year, in each case as
identified in the Approved Budget for such applicable calendar year.

 

Section 1.57.                          “Term”  is defined in Section 12.01.

 

Section 1.58.                          “Termination Fee”  means an amount equal
to the present value of the payments that would have been made to Manager
between the date of termination and the

 

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scheduled expiration date of the initial Term (not including any extension of
the Term, but not for a period in excess of ten (10) years in any event) as Base
Fees if this Agreement had not been terminated, calculated based upon the
average of the Base Fees earned in each of the three (3) calendar years ended
prior to the Termination Date, discounted at an annual rate equal to the
Discount Rate.

 

Section 1.59.                          “Unsuitable for Use”  means, as a result
of damage, destruction or partial Condemnation, the Community cannot be
reasonably expected to be restored to its prior condition within nine (9) months
and/or, in the good faith judgment of Company, after restoration or partial
Condemnation the Community cannot be operated on a commercially practicable
basis.

 

Section 1.60.                          “Working Capital”  means funds used in
the day-to-day operation of the Community.

 

ARTICLE II
APPOINTMENT OF MANAGER

 

Section 2.01.                          Appointment of Manager.  Company hereby
appoints Manager as the sole and exclusive Manager for the daily operation and
management of the Community.  Manager accepts such appointment and further
agrees to:

 

(a)                                 perform the duties of Manager under this
Agreement in compliance with this Agreement, including Section 4.06;

 

(b)                                 (i) supervise and direct the management and
operation of the Community in a financially sound, cost-effective and efficient
manner; and (ii) establish and maintain programs to promote the most effective
utilization of the Community’s services and maximize occupancy and Gross
Revenues;

 

(c)                                  provide quality services to Residents in a
manner complying with all Legal Requirements and the form of resident agreement
in use at the Community;

 

(d)                                 establish appropriate marketing programs;

 

(e)                                  maintain well trained, quality staff, in
sufficient number, at the Community;

 

(f)                                   institute (i) a sound financial accounting
system for the Community, (ii) adequate internal fiscal controls through proper
budgeting, accountant procedures and timely financial performance and
(iii) sound billing and collection procedures and methods; and

 

(g)                                  diligently monitor and assure physical
plant maintenance and housekeeping consistent with the Approved Budget.

 

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ARTICLE III
PAYMENTS TO MANAGER; WORKING CAPITAL; CAPITAL REPLACEMENTS; INSUFFICIENT FUNDS

 

Section 3.01.                          Management Fees.

 

(a)                                 As compensation for the services to be
rendered by Manager under this Agreement, Manager shall receive a management fee
(“Base Fee”) during the Term equal to five percent (5%) of the Gross Revenues of
the Community.

 

(b)                                 In consideration of Manager’s management of
Capital Replacements, Company shall pay Manager a Construction Supervision Fee
for any Capital Replacements made in accordance with the Approved Budget.  Such
Construction Supervision Fee will be paid monthly in arrears based on Capital
Replacements made in such month.

 

(c)                                  No amount paid hereunder is intended to be,
nor shall it be construed to be, an inducement or payment for referral of
Residents by either party or any of its Affiliates to the other party or any of
its Affiliates.

 

ARTICLE IV
MANAGEMENT SERVICES

 

Section 4.01.                          Authority of Manager and Management
Services.  Subject to the terms of this Agreement and the Company’s
responsibilities as licensee, Manager shall have discretion and control in all
matters relating to the day-to-day management and operation of the Community
consistent with the Approved Budget.  Such discretion and control shall include
the authority to negotiate and execute contracts in its own name, in the name of
and on behalf of Company and/or the Community, in each case, subject to the
terms of this Agreement.  Manager shall implement all aspects of the operation
of the Community in accordance with the terms of this Agreement, and shall have
responsibility and commensurate authority for all such activities.  Without
limiting the generality of the foregoing, in addition to any other services set
forth in this Agreement, Manager shall, consistent with the Approved Budget:

 

(a)                                 enter into all contracts, leases and
agreements required in the ordinary course of business for the supply,
operation, maintenance of and provision of services to the Community (including
food procurement, building services (including cleaning, trash removal, snow
plowing, landscaping, carpet cleaning and pest control), utilities and licenses
and concessions for commercial space in the Community); provided that, unless
specifically set forth in the Approved Budget, Manager shall obtain the written
consent of Company before entering into any contract, lease or agreement not
terminable on ninety (90) days notice without payment of premium or penalty;

 

(b)                                 purchase such inventories, provisions, food,
supplies, Household Replacements and other expendable items as are necessary to
operate and maintain the Community in the manner required pursuant to this
Agreement;

 

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(c)                                  provide care to Residents in compliance
with Legal Requirements and the resident agreements in use at the Community and
set all Resident fees and charges including those for accommodation, food
services and care services;

 

(d)                                 in its own name and on behalf of and, with
the consent of Company, in the name of Company, to institute and/or defend, as
the case may be, any and all legal actions or proceedings relating to the
management and operation of the Community;

 

(e)                                  prepare a marketing plan and direct all the
marketing efforts; and

 

(f)                                   oversee, manage and direct all day-to-day
operations.

 

Section 4.02.                          Hiring and Training of Staff.  Manager
shall have in its employ or under contract at all times a sufficient number of
capable employees or independent contractors meeting all Legal Requirements, to
enable it to properly, adequately, safely and economically manage, operate,
maintain and account for the Community.  All matters pertaining to the
retention, employment, supervision, compensation, training, promotion and
discharge of such employees or independent contractors are the responsibility of
Manager.  All such individuals shall be employees or independent contractors of
Manager.  Manager shall comply with all applicable Legal Requirements having to
do with employers including, worker’s compensation, unemployment insurance,
hours of labor, wages, working conditions and withholding of taxes from employee
wages.  Manager shall have the power to hire, dismiss or transfer the executive
director at the Community, provided Manager shall keep Company informed with
respect to Manager’s intentions to transfer or terminate the executive director
and shall consult with Company with respect to the hiring of a replacement, it
being understood that any final decision shall be made by Manager.  If Company
becomes dissatisfied with the performance of any executive director, Company
shall have the right to confer with representatives of Manager to discuss the
replacement of the executive director or other action, which shall be within the
discretion of Manager.

 

Section 4.03.                          Manager’s Home Office Personnel.  Manager
may, in its discretion, provide its services under this Agreement through its
Home Office Personnel, provided that the Personnel Costs for such Home Office
Personnel shall not be a Community Expense unless agreed to in advance by
Company.  Manager shall further make its Home Office Personnel available for
consultation and advice related to the Community without charge other than its
Base Fee.  If Company requests a type, form or level of service from Manager’s
Home Office Personnel of a nature that would otherwise be a Community Expense,
Manager shall provide such services by Home Office Personnel for an additional
cost to be agreed to in advance by Manager and Company, which shall be a
Community Expense.  The term “Home Office Personnel” shall include Manager’s
home office staff with experience in areas such as accounting, budgeting,
finance, legal, human resources, construction, development, marketing, food
service and purchasing, among other areas.

 

Section 4.04.                          Resident Agreements.  Manager shall give
Company notice of any material changes to any forms of resident agreements or
other occupancy agreements used in conjunction with the Community for Company’s
approval before they are used.  Manager shall act as an authorized
representative of Company in executing resident agreements and occupancy

 

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agreements, but Manager shall not enter into such agreements for a duration of
more than one year without the prior consent of Company.

 

Section 4.05.                          Contracts with Affiliates.  Manager shall
not engage or pay any compensation to any Affiliate of Manager for the provision
of services in connection with this Agreement unless (a) such party is fully
qualified and experienced to provide the required services, (b) both the scope
of services and the compensation payable to such Affiliate for the services are
consistent with then current market standards or comparable arm’s-length
transactions, and (c) Manager discloses such engagement to Company as a
transaction with an Affiliate of Manager.

 

Section 4.06.                          Legal Requirements.

 

(a)                                 Subject to Company’s discharge of its
obligations under Section 4.06(b), Manager shall obtain and maintain on behalf
of and in the name of the Community and/or Company (as applicable) all permits,
licenses and certificates required by any Governmental Authority for the use,
operation or management of the Community as currently licensed or as may be
required from time to time.

 

(b)                                 Company agrees:  (i) to sign promptly all
applications for permits, licenses, and certificates necessary for the use,
operation and management of the Community required by any Governmental Authority
and all cost reports and other submissions for reimbursement or other payments
related to the goods and services furnished to Residents at the Community and
(ii) to provide promptly such information and perform such acts as are required
in order for Manager to complete any such application and/or obtain and/or
maintain any such permits, licenses, or certificates and/or prepare, complete
and/or file any such cost reports or other submissions for payments related to
the goods and services furnished to Residents at the Community.

 

(c)                                  Manager shall cause all things to be done
in and about the Community as may be reasonably necessary to comply with all
applicable Legal Requirements respecting the use, operation and management of
the Community.  Manager shall keep its corporate organization in good standing
in the State and shall maintain all corporate permits and licenses required by
the State.

 

(d)                                 If either party receives any written notice,
report or other correspondence from a Governmental Authority which asserts a
deficiency relating to the operation of the Community or otherwise relates to
the actual or threatened suspension, revocation, or any other action adverse to
any permit, license or certificate required or necessary to use, operate or
maintain the Community, such party shall give the other party prompt notice
thereof.

 

ARTICLE V
COLLECTIONS AND PAYMENTS

 

Section 5.01.                          Collection and Priorities for
Distribution of Gross Revenues.  Manager shall collect all Gross Revenues and
shall apply the Gross Revenues in the following order of priority:

 

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(a)                                 First, to pay all Community Expenses
(excluding the Base Fee),

 

(b)                                 Second, to Manager, to pay the Base Fee and
any interest that may have accrued pursuant to Section 5.02,

 

(c)                                  Third, to Company, the balance.

 

Section 5.02.                          Timing of Payments.  Payment of the
Community Expenses, excluding the Base Fee, shall be made in the ordinary course
of business to the extent of available Gross Revenues and Working Capital.  The
Base Fee and accrued interest, if any, shall be paid on the first Business Day
of each calendar month, in advance, based upon Manager’s then estimate of the
prior month’s Gross Revenues.  The Base Fee shall be subject to adjustment by
increasing or decreasing the payment due in the following month based upon the
Gross Revenues reflected in the monthly financial statements.  If the Base Fee
is not paid in full for any calendar year, the unpaid amount shall bear interest
at the Interest Rate and such unpaid amount and accrued interest shall continue
to be payable pursuant to clause (b) of Section 5.01 in subsequent years until
paid in full.  Amounts payable pursuant to clause (c) of Section 5.01 shall be
paid monthly in arrears within ten (10) Business Days after the end of each
calendar month, and shall be based upon the monthly financial statements for
such calendar month prepared and delivered in accordance with Section 6.02. 
Additional adjustments to all payments will be made on an annual basis based
upon any audits conducted pursuant to Section 6.03.

 

Section 5.03.                          Credits and Collections.  Manager shall
adopt credit and collection policies and procedures.  Manager shall institute
monthly billing by the Community and take all steps necessary to collect
accounts and monies owed to the Community, which may include the institution of
legal proceedings.

 

Section 5.04.                          Depositories for Funds.  Manager shall
maintain one or more accounts in the name of Company in one or more banks
selected by Manager and approved by Company and shall deposit therein all Gross
Revenues and other funds collected or received by Manager and due to Company as
owner of the Community.  Manager shall be authorized to access the accounts
without the approval of Company, subject to any limitation on the maximum amount
of any check, if any, established between Manager and Company as part of the
Annual Operating Budget.  Company shall be a signatory on all accounts
maintained with respect to the Community, and Company shall have the right to
require that Company’s signature be required on all checks/withdrawals after the
occurrence of an Event of Default by Manager under this Agreement.  Company
shall provide such instructions to the applicable bank(s) as are necessary to
permit Manager to implement Manager’s rights and obligations under this
Agreement, provided the failure of Company to provide such instructions shall
relieve Manager of its obligations hereunder until such time as such failure is
cured.

 

Section 5.05.                          Impositions.  All Impositions which
accrue during the Term (or are properly allocable to such Term under GAAP) shall
be paid by Manager before any fine, penalty or interest is added thereto or lien
placed upon the Community or this Agreement, unless payment thereof is stayed. 
Company shall promptly furnish to Manager any invoice, bill, assessment, notice
or other correspondence relating to any Imposition.  Either Company or Manager
may initiate proceedings to contest any Imposition (in which case each party
agrees to

 

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sign the required applications and otherwise cooperate with the other party in
expediting the matter).  Unless part of the Approved Budget, incurrence of all
costs by Manager of any negotiations or proceedings with respect to any such
contest shall be subject to Company’s prior consent.  Nothing in this Agreement
is intended to modify the respective responsibility that the parties would
otherwise have to pay such Impositions as may be due and payable.

 

ARTICLE VI
ACCOUNTING; FINANCIAL STATEMENTS; AUDIT

 

Section 6.01.                          Accounting.  Manager shall establish and
administer accounting procedures and controls and systems for the development,
preparation and safekeeping of records and books of accounting relating to the
business and financial affairs of the Community, including payroll, accounts
receivable and accounts payable.

 

Section 6.02.                          Financial Statements and Reports.  Not
later than ten (10) Business Days after the end of each calendar month, Manager
shall prepare and deliver to Company a balance sheet and related statement of
income and expense for such calendar month and for the then current calendar
year to date, certified by Manager’s Controller on a monthly basis and by
Manager’s Chief Financial Officer on a quarterly basis as being true and correct
to the best of his/her knowledge, with a comparison to the Approved Budget. 
Promptly thereafter, Manager shall provide Company with an explanation of any
variances to the Approved Budget.

 

The monthly financial statements shall be in such format as Company may
reasonably require.  Manager shall provide such other financial statements as
Company may from time to time reasonably request.  In addition, at the request
of Company, any or all of the financial statements shall be audited by the
Accountants as soon as practicable after such request.

 

Upon request, Manager shall also provide Company with information relating to
the Community, Manager and its Affiliates that (a) may be required in order for
Company or its Affiliates to prepare financial statements and to comply with any
applicable tax and securities laws and regulations, (b) may be required in order
for Company or any of its Affiliates to prepare federal, state, provincial or
local tax returns or (c) is of the type that Manager customarily prepares for
other owners of communities it manages, and such other or special reports as
Manager may from time to time determine are necessary or as Company may
reasonably request.

 

Section 6.03.                          Audit Rights.

 

(a)                                 Company and its representatives shall have
the right at all reasonable times during usual business hours to audit, examine,
and make copies of books of account (including copying any records contained in
electronic media) maintained by Manager with respect to the Community, which
audit or examination may cover any time period during the Term at Company’s
discretion.  Such right may be exercised through any agent or employee
designated by Company or by an independent public accountant designated by
Company.

 

(b)                                 Manager and its representatives shall have
the right at all reasonable times during usual business hours to audit, examine,
and make copies of books of account (including copying any records contained in
electronic media) maintained by Company with respect to the Invested Capital and
Capital Replacements, which audit or examination may cover any time

 

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period during the Term at Manager’s discretion.  Such right may be exercised
through any agent or employee designated by Manager or by an independent public
accountant designated by Manager.

 

ARTICLE VII
ANNUAL OPERATING BUDGET

 

Section 7.01.                          Annual Operating Budget.  Manager shall,
on or before November 20 in each calendar year during the Term, deliver to
Company for Company’s approval, an annual operating budget for the Community for
the next calendar year (the “Annual Operating Budget”) which shall include
separate line items for Capital Replacements and set forth an estimate, on a
monthly basis, of Gross Revenues and Community Expenses, as well as an estimate
of EBITDA for such calendar year, together with an explanation of anticipated
changes to Resident charges, payroll rates and positions, non-wage cost
increases, the proposed methodology and formula employed by Manager in
allocating shared Community Expenses, and all other factors differing from the
then current calendar year.  The Annual Operating Budget shall be accompanied by
a narrative description of operating objectives and assumptions.  If Company
does not approve an Annual Operating Budget or any portion thereof, it shall do
so, to the extent practicable, on a line item basis.  Manager and Company shall
cooperate to resolve disputed items, provided if the Annual Operating Budget is
not approved by Company, Manager shall operate under the expired Annual
Operating Budget until a new Annual Operating Budget is approved, provided that
line items for Impositions, insurance premiums and utilities shall be the
amounts actually incurred for such items.  If agreement on the Annual Operating
Budget cannot be reached within forty-five (45) days of Company’s receipt (which
time may be extended upon mutual agreement of the parties), the matter shall be
resolved by arbitration.  The Annual Operating Budget as approved by Company, or
as resolved by arbitration, will be the “Approved Budget” for the applicable
calendar year.  Except for expenditures incurred to remedy any emergency
threatening the safety of the Community or its Residents, invitees or employees
or imminent material physical damage to the Community (for which Manager shall
provide Company an accounting promptly after remedying such emergency), Manager
will obtain Company’s prior approval for any expenditure which will, or is
reasonably expected to, result in a variance equal to or greater than five
percent (5%) of the Approved Budget.

 

Section 7.02.                          Working Capital; Insufficient Funds. 
Manager may, from time to time, request Company to fund additional amounts as
Working Capital to pay Community Expenses identified in the Approved Budget and
if the parties do not agree on such additional amounts, the matter shall be
referred to arbitration.  If at any time available Working Capital is
insufficient to pay Community Expenses identified in the Approved Budget and
Company has not timely funded additional amounts for such purpose or Company has
not timely funded Capital Replacements, Manager shall have no obligation to
advance its own funds therefor.  If Manager does advance its own funds, at such
time as Company advances funds to reimburse Manager, whether by agreement or
pursuant to an Award, Company shall pay Manager interest on such amounts at the
Interest Rate from the date of Manager’s advance of funds to the date of
reimbursement.  If the Award includes interest, Company shall be entitled to
offset such interest against its obligation under this Section 7.02.

 

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ARTICLE VIII
TAX MATTERS; REIT QUALIFICATION

 

Section 8.01.                          Tax Matters.  Manager shall use
commercially reasonable efforts to operate the Community in a manner to best
assure that Company and the Community receive all benefits of applicable tax
exemptions and/or credits available thereto from any Governmental Authority. 
Manager will prepare or cause to be prepared all tax returns required in the
operation of the Community, which include payroll, sales and use tax returns,
personal property tax returns and business, professional and occupational
license tax returns.  Manager shall timely file or cause to be filed such
returns as required by the State; provided that, Company shall promptly provide
all relevant information to Manager upon request, and any late fees or penalties
resulting from delays caused by Company shall be borne by Company.  Manager
shall not be responsible for the preparation of Company’s federal or state
income tax returns, provided Manager shall cooperate fully with Company as may
be necessary to enable Company to file such federal or state income tax returns,
including by preparing data reasonably requested by Company and submitting it to
Company as soon as reasonably practicable following such request.

 

Section 8.02.                          REIT Qualification.

 

(a)                                 Manager shall take all commercially
reasonable actions reasonably requested by Company or Owner for the purpose of
qualifying Owner’s rental income from Company under the lease between Owner and
Company for the Community (“Lease”) as “rents from real property” pursuant to
Sections 856(d)(1), 856(d)(2), 856(d)(8)(B) and 856(d)(9) of the Code.  Manager
shall not be liable if such reasonably requested actions, once implemented, fail
to have the desired result of qualifying Owner’s rental income from Company
under the Lease as “rents from real property” pursuant to Sections 856(d)(1),
856(d)(2), 856(d)(8)(B) and 856(d)(9) of the Code.  This Section 8.02 shall not
apply in situations where an Adverse Regulatory Event has occurred; instead,
Section 8.04 shall apply.

 

(b)                                 If Company or Owner wish to invoke the terms
of Section 8.02(a), Company or Owner (as appropriate) shall contact Manager and
the parties shall meet with each other to discuss the relevant issues and to
develop a mutually-agreed upon plan for implementing such reasonably requested
actions.

 

(c)                                  Any additional out-of-pocket costs or
expenses incurred by Manager in complying with such a request shall be borne by
Company (and shall not be a Community Expense).  Company shall reimburse Manager
for such expense or cost promptly, but not later than five (5) Business Days
after such expense or cost is incurred.

 

Section 8.03.                          Further Compliance with Section 856(d) of
the Code.  Commencing with the date of this Agreement and continuing throughout
the Term, Manager intends to qualify as an “eligible independent contractor” as
defined in Section 856(d)(9)(A) of the Code, and:

 

(a)                                 Manager shall use commercially reasonable
efforts not to cause the Community to fail to qualify as “qualified health care
property” as defined in Section 856(e)(6)(D)(i) for purposes of
Section 856(d)(8)(B) and Section 856(d)(9) of the Code;

 

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(b)                                 Manager shall not own, directly or
indirectly or constructively (within the meaning of Section 856(d)(5) of the
Code), more than thirty-five percent (35%) of the shares of SNH, whether by
vote, value or number of shares, and Manager shall otherwise comply with any
regulations or other administrative or judicial guidance existing under said
Section 856(d)(5) of the Code with respect to such ownership limits; Manager
shall cause its ultimate Parent to enforce the restrictions in its charter
documents regarding five percent (5%) or greater owners;

 

(c)                                  Manager shall be actively engaged (or
shall, within the meaning of Section 856(d)(9)(F) of the Code, be related to a
person that is so actively engaged) in the trade or business of operating
“qualified health care property” (defined below) for a person who is not a
“related person” within the meaning of Section 856(d)(9)(F) of the Code with
respect to Owner or Company.  For these purposes, the parties agree that the
activities, as of the date of this Agreement, of Manager’s affiliate, FSQ, Inc.,
a Delaware corporation and a related person as to Manager within the meaning of
Section 856(d)(9)(F) of the Code, including in particular the management
contracts pursuant to which FSQ, Inc. has been and is formally engaged as
manager by other affiliates (but not subsidiaries) of Manager, render Manager in
compliance with the previous sentence.  Manager, without the prior consent of
Company, shall not permit or suffer FSQ, Inc.’s level of management activity in
respect of “qualified health care properties” to be materially less than its
level of such activity on the date of this Agreement;

 

(d)                                 A “qualified health care property” is
defined by reference to Section 856(e)(6)(D)(i) of the Code and means any real
property, and any personal property incident to such real property, which is a
“health care facility” described in Section 856(e)(6)(D)(ii) of the Code or is
necessary or incidental to the use of a health care facility.  A “health care
facility” means: a hospital; a nursing facility; an assisted living facility; a
congregate care facility; a qualified continuing care facility; or another
licensed facility which extends medical or nursing or ancillary services to
patients and which is operated by a provider of such services eligible for
participation in the Medicare program under title XVIII of the Social Security
Act with respect to such facility; and

 

(e)                                  Manager, without the prior consent of
Company, which consent shall not be unreasonably withheld, conditioned or
delayed, shall not permit or suffer:

 

(i)                                     Manager to fail to continue as a
corporation under state law and taxable under the Code as an association;

 

(ii)                                  Manager’s affiliate, FSQ, Inc., a Delaware
corporation, to fail to be a corporation under state law and taxable under the
Code as an association; or

 

(iii)                               for so long as Owner or Company or any
Affiliate of Owner or Company shall seek to qualify as a “real estate investment
trust” under the Code, Manager to be reorganized, restructured, combined, merged
or amalgamated with any Affiliate (as to Manager) in such manner that any such
Affiliate would, or could, be expected to adversely affect (including, e.g., by
application of any Person’s actual “disregarded entity” status under the Code)
the status that Manager has as a Code Section 856(d)(9)(A) “eligible independent
contractor” at a “qualified health care property” owned or leased by Owner or
Company.

 

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Section 8.04.                          Adverse Regulatory Event.

 

(a)                                 In the event of an Adverse Regulatory Event
arising from or in connection with this Agreement, Company and Manager shall
work together in good faith to amend this Agreement to eliminate the impact of
such Adverse Regulatory Event; provided, however, Manager shall have no
obligation to materially reduce its rights or materially increase its
obligations under this Agreement, all taken as a whole, or to bear any
out-of-pocket costs or expenses under this Section 8.04.  Manager shall not be
liable if any such amendment, once operative, fails to have the desired result
of eliminating the impact of an Adverse Regulatory Event.

 

(b)                                 For purposes of this Agreement, the term
“Adverse Regulatory Event” means any time that a new law, statute, ordinance,
code, rule, regulation or an administrative or judicial ruling imposes, or could
impose in Owner’s or Company’s reasonable opinion, any material threat to SNH’s
qualification for taxation as a “real estate investment trust” under the Code or
to the treatment of amounts paid to Owner under the Lease as “rents from real
property” under Section 856(d) of the Code.

 

(c)                                  Company shall promptly inform Manager of
any Adverse Regulatory Event of which it is aware and which it believes likely
to impair compliance with respect to Section 856(d) of the Code.

 

ARTICLE IX
FINANCING; INSPECTION

 

Section 9.01.                          Financing of the Community.  Manager
shall cooperate with Owner and Company in connection with any financing by Owner
of the Community.

 

Section 9.02.                          Company’s Right To Inspect.  Company or
its employees, representatives, lenders or agents shall have access to the
Community and the files, books, accounts, and records of Manager related to the
Community at any and all reasonable times during usual business hours for the
purpose of inspection or showing the Community to prospective purchasers,
investors, Residents or mortgagees.

 

ARTICLE X
REPAIRS AND MAINTENANCE

 

Section 10.01.                   Repairs, Maintenance and Capital Replacements. 
Manager shall maintain the Community in good, orderly, clean and safe repair and
condition consistent with a first class [independent living/assisted
living/memory care/skilled nursing] community (or such other type of senior
living community as the Community may then be operated as), and in conformity
with Legal Requirements.  Manager shall make such routine and preventive
maintenance, repairs and minor alterations, the cost of which can be expensed
under GAAP, as it, from time to time, deems necessary for such purposes,
consistent with the Approved Budget.  The cost of such maintenance, repairs and
alterations shall be paid from Gross Revenues.  Manager shall make such Capital
Replacements as are contemplated by the Approved Budget and funded by Company.

 

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Section 10.02.                   Emergency Repairs.  If either party has actual
knowledge of, or receives a written order or notice from a Governmental
Authority, pertaining to a violation or potential violation of any Legal
Requirement relating to the physical condition of the Community or the continued
safe operation of the Community, such party shall give the other party prompt
notice thereof.  Manager shall recommend appropriate remedial action to Company
and subject to Company’s consent (which shall not be unreasonably withheld,
conditioned or delayed), take such remedial action, provided Manager shall be
authorized to take appropriate remedial action consisting of repairs or
maintenance to the Community without receiving Company’s prior consent: (a) in
an emergency threatening the safety of such Community or its Residents, invitees
or employees or imminent material physical damage to the Community, or (b) if
the continuation of the given condition will subject Manager and/or Company to
regulatory, civil, or criminal liability or result in the suspension or
revocation of a material permit, license or certificate.  Any disagreement
regarding the necessity of taking such remedial action and/or the funding of the
cost thereof that is not resolved by the parties within ten (10) Business Days
shall be resolved by arbitration.

 

Section 10.03.                   Liens.  Manager shall use commercially
reasonable efforts to prevent any liens from being filed against the Community
which arise from any maintenance, repairs, alterations, improvements, renewals
or replacements in or to the Community.  Manager shall not file any lien against
the Community.

 

Section 10.04.                   Ownership.  All repairs, replacements,
alterations and additions shall be the property of Owner or Company, as may be
provided in the Lease.

 

Section 10.05.                   Casualty or Condemnation.  If, during the Term,
the Community is (a) totally destroyed by fire or other casualty or there is a
Condemnation or (b) partially destroyed by fire or other casualty or there is a
partial Condemnation and as a result the Community is Unsuitable for Use, either
Manager or Company may terminate this Agreement by sixty (60) days’ notice to
the other and Company and/or Owner shall be entitled to retain the insurance
proceeds or Condemnation award, as the case may be.

 

If, as a result of partial destruction or partial Condemnation, the Community is
not rendered Unsuitable for Use, Company shall (or shall cause the Owner to)
make the insurance proceeds or award received by Company and/or Owner available
to Manager as necessary to repair or restore the destroyed or untaken portion of
the Community to the same condition as existed previously, provided Manager
shall have the right to discontinue operating all or a portion of the Community
pending completion of the repairs or restoration as necessary to comply with
Legal Requirements or for the safe and orderly operation of the Community.

 

If the cost of repair or restoration is less than the insurance proceeds or
award received by Company and/or Owner, Company shall (or shall cause the Owner
to) make available the funds necessary to permit the Community or the untaken
portion to be repaired and restored.  If the cost of the repair or restoration
exceeds the amount of insurance proceeds or award, Manager shall give notice to
Company and Owner setting forth in reasonable detail the nature of such
deficiency, and Company and Owner shall promptly advise Manager whether Company
and/or Owner will fund the deficiency.  If neither Company nor Owner elect to
fund the deficiency, Manager may terminate this Agreement by notice to Company.

 

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Any obligation of Company and/or Owner to make funds available to Manager to
repair or restore the Community is subject to the requirements of any Mortgage.

 

Notwithstanding any provisions of this Section 10.05 to the contrary, if partial
destruction or a partial Condemnation occurs during the last twelve (12) months
of the Term (including any renewal) and if full repair and restoration would not
reasonably be expected to be completed prior to the date that is nine (9) months
prior to the end of the Term (including any renewal), the provisions of this
Section 10.05 shall apply as if the Community had been rendered Unsuitable for
Use.

 

ARTICLE XI
INSURANCE

 

Section 11.01.                   General Insurance Requirements.  Manager shall,
at all times during the Term, keep (or cause to be kept) the Community and all
property located therein or thereon, insured against the risks and in such
amounts as is against such risks and in such amounts as Company shall reasonably
require and as may be commercially reasonable.  Any disputes regarding such
matters not resolved by the parties within ten (10) Business Days (which period
may be extended upon mutual agreement of the parties) shall be resolved by
arbitration.

 

Section 11.02.                   Waiver of Subrogation.  Company and Manager
agree that (insofar as and to the extent that such agreement may be effective
without invalidating or making it impossible to secure insurance coverage from
responsible insurance companies doing business in the State) with respect to any
property loss which is covered by insurance then being carried by Company or
Manager, the party carrying such insurance and suffering said loss releases the
others of and from any and all claims with respect to such loss; and they
further agree that their respective insurance companies (and, if Company or
Manager shall self insure in accordance with the terms hereof, Company or
Manager, as the case may be) shall have no right of subrogation against the
other on account thereof, even though extra premium may result therefrom.  If
any extra premium is payable by Manager as a result of this provision, Company
shall not be liable for reimbursement to Manager for such extra premium.

 

Section 11.03.                   Risk Management.  Manager shall be responsible
for the provision of risk management oversight at the Community.

 

ARTICLE XII
TERM AND TERMINATION

 

Section 12.01.      Term. The Term of this Agreement shall begin on the date
hereof and end December 31, [2034](3) (“Term”).  Unless sooner terminated as
provided in this Agreement, Manager shall have the right to extend the Term for
up to two (2) consecutive periods of five (5) years each by providing notice of
such renewal to Company at least twenty-four (24), but not more than thirty
(30), months prior to the end of the then current Term.

 

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(3)  To be changed to 2035 if the Conversion Time is extended pursuant to the
Transaction Agreement.

 

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Section 12.02.                   Early Termination.  At any time during the Term
and without limitation of any of the other terms and conditions of this
Agreement, Company shall have the right to terminate this Agreement if the
Community becomes a Non-Performing Asset by providing notice to Manager of such
termination within six (6) months after the end of any calendar year in which
the Community qualifies as a Non-Performing Asset, which termination shall be
effective as of the date set forth in Company’s notice but not earlier than
ninety (90) days after delivery of such notice to Manager.

 

ARTICLE XIII
TRANSITION ON TERMINATION

 

Section 13.01.                   Termination.  Upon any termination of this
Agreement, except as otherwise provided in Section 14.04, Manager shall be
compensated for its services only through the date of termination and all
amounts remaining in any accounts maintained by Manager pursuant to
Section 5.04, after payment of such amounts as may be due to Manager hereunder,
shall be distributed to Company.  In the event of any termination, both parties
shall fully cooperate with one another to ensure a smooth transition of
management.  Upon termination, Manager will deliver to Company the following:

 

(a)                                 a final accounting, reflecting the balance
of income and expenses of the Community as of the date of termination, to be
delivered as soon as reasonably possible but not later than sixty (60) days
after such termination,

 

(b)                                 after payment of any amounts as may be due
to Manager hereunder, any balance of monies of Company or Resident deposits, or
both, held by Manager with respect to the Community, to be delivered as soon as
reasonably possible, but not later than sixty (60) days after such termination,

 

(c)                                  all records, contracts, leases, resident
agreements, tenant correspondence, files, receipts for deposits, unpaid bills
and other papers, documents, software, data or information which pertain in any
way to the Community to be delivered as soon as reasonably possible, but not
later than sixty (60) days after such termination, and

 

(d)                                 Manager shall cooperate reasonably in all
respects to achieve a transfer of any license and/or certificate (or to obtain a
new license and/or certificate, if necessary) required in connection with the
operation of the Community, but shall not be required to incur any monetary
expenditures in connection therewith (unless Company agrees to reimburse Manager
therefor).

 

ARTICLE XIV
DEFAULTS

 

Section 14.01.                   Default by Manager.  An Event of Default with
respect to Manager shall occur in the event of any of the following:

 

(a)                                 the Bankruptcy of Manager,

 

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(b)                                 the gross negligence or willful misconduct
of Manager with respect to its duties and obligations under this Agreement,

 

(c)                                  Manager’s failure to keep, observe or
perform any material covenant, agreement, term or provision of this Agreement to
be kept, observed or performed by Manager, which failure shall continue (i) for
a period of five (5) Business Days after Manager receives notice from Company in
case of monetary defaults or (ii) for a period of twenty (20) Business Days
after Manager receives notice from Company in the case of non-monetary defaults,
in each case, specifying the default; provided, however, that if such
non-monetary default cannot be cured within such twenty (20) Business Day
period, then Manager shall be entitled to such additional time as shall be
reasonable, provided the default is curable and Manager has promptly proceeded
to commence cure of such default within said period, and thereafter diligently
prosecutes the cure to completion; provided, however, that in no event shall
such additional time exceed ninety (90) days,

 

(d)                                 a Change in Control of Manager or Guarantor
to which Company or SNH does not consent, provided that, to the extent SNH votes
in its capacity as a shareholder of Guarantor in favor of a Change in Control of
Manager or Guarantor, such vote shall constitute consent to such Change in
Control, or

 

(e)                                  a default by Manager, Guarantor or any
Affiliate of Manager or Guarantor under the Guaranty or any other agreement
between Manager, Guarantor or an Affiliate of Manager or Guarantor and Company
or an Affiliate of Company, which continues beyond any applicable notice and
cure period.

 

Section 14.02.                   Default by Company.  An Event of Default with
respect to Company shall occur in the event of any of the following:

 

(a)                                 the Bankruptcy of Company,

 

(b)                                 the gross negligence or willful misconduct
of Company with respect to its obligations under this Agreement, or

 

(c)                                  Company shall fail to (i) timely fund
Working Capital or to fund Capital Replacements pursuant to the Approved Budget
and such failure shall continue for a period of ten (10) Business Days after
notice thereof by Manager or (ii) keep, observe or perform any other material
covenant, agreement, term or provision of this Agreement to be kept, observed or
performed by Company and such failure shall continue (A) for a period of five
(5) Business Days after Company receives notice from Manager in case of monetary
defaults or (B) for a period of twenty (20) Business Days after Company receives
notice from Manager in the case of non-monetary defaults, in each case
specifying the default; provided, however, if such default cannot be cured
within such twenty (20) Business Day period, then Company shall be entitled to
such additional time as shall be reasonable, provided the default is curable,
Company has promptly proceeded to commence cure of such non-monetary default
within said period, and thereafter diligently prosecutes the cure to completion;
provided, however, that in no event shall such additional time to cure
non-monetary defaults exceed ninety (90) days.

 

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Section 14.03.                   Remedies of Company.  Upon the occurrence of an
Event of Default by Manager, Company may terminate this Agreement immediately
upon notice and shall be entitled to exercise any other rights at law or in
equity.

 

Section 14.04.                   Remedies of Manager.  Upon the occurrence of an
Event of Default by Company, Manager may terminate this Agreement on thirty (30)
days’ notice to Company and Company shall pay Manager the Termination Fee within
thirty (30) days of the effective date of termination as liquidated damages and
in lieu of any other remedy of Manager at law or in equity, as well as any
accrued but unpaid fees owed to Manager pursuant to Section 5.01.

 

Section 14.05.                   No Waiver of Default.  The failure by Company
or Manager to insist upon the strict performance of any one of the terms or
conditions of this Agreement or to exercise any right, remedy or election herein
contained or permitted by law shall not constitute or be construed as a waiver
or relinquishment for the future of such term, condition, right, remedy or
election, but the same shall continue and remain in full force and effect.  All
rights and remedies that Company or Manager may have at law, in equity or
otherwise for any breach of any term or condition of this Agreement shall be
distinct, separate and cumulative rights and remedies and no one of them,
whether or not exercised by Company or Manager, shall be deemed to be in
exclusion of any right or remedy of Company or Manager.

 

ARTICLE XV
GOVERNING LAW, ARBITRATION, LIABILITY OF MANAGER AND INDEMNITY

 

Section 15.01.                   Governing Law, Etc.  This Agreement shall be
interpreted, construed, applied and enforced in accordance with the laws of the
State of Maryland applicable to contracts between residents of Maryland which
are to be performed entirely within Maryland, regardless of (a) where this
Agreement is executed or delivered; or (b) where any payment or other
performance required by this Agreement is made or required to be made; or
(c) where any breach of any provision of this Agreement occurs, or any cause of
action otherwise accrues; or (d) where any action or other proceeding is
instituted or pending; or (e) the nationality, citizenship, domicile, principal
place of business, or jurisdiction of organization or domestication of any
party; or (f) whether the laws of the forum jurisdiction otherwise would apply
the laws of a jurisdiction other than Maryland; or (g) any combination of the
foregoing.

 

Section 15.02.                   Arbitration.

 

(a)                                 Any disputes, claims or controversies
between the parties (i) arising out of or relating to this Agreement, or
(ii) brought by or on behalf of any shareholder of any party or a direct or
indirect parent of a party (which, for purposes of this Section 15.02, shall
mean any shareholder of record or any beneficial owner of shares of any party,
or any former shareholder of record or beneficial owner of shares of any party),
either on his, her or its own behalf, on behalf of any party or on behalf of any
series or class of shares of any party or shareholders of any party against any
party or any member, trustee, director, officer, manager (including The RMR
Group LLC or its successor), agent or employee of any party, including disputes,
claims or controversies relating to the meaning, interpretation, effect,
validity, performance or enforcement of this Agreement, including this
arbitration provision, or the declarations of trust, limited liability company
agreements, charters, bylaws or other governing documents of any party hereto

 

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(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 15.02. 
For the avoidance of doubt, and not as a limitation, Disputes are intended to
include derivative actions against trustees, directors, officers or managers of
any party and class actions by a shareholder against those individuals or
entities and any party.  For the avoidance of doubt, a Dispute shall include a
Dispute made derivatively on behalf of one party against another party.  For
purposes of this Section 15.02, the term “party” shall include any direct or
indirect parent of a party.

 

(b)                                 There shall be three (3) arbitrators.  If
there are only two (2) parties to the Dispute, each party shall select one
arbitrator within fifteen (15) days after receipt of a demand for arbitration. 
Such arbitrators may be affiliated or interested persons of such parties.  If
there are more than two (2) 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 within fifteen (15) days after receipt of a demand for arbitration. 
Such arbitrators may be affiliated or interested persons of the claimants or the
respondents, as the case may be.  If either a claimant (or all claimants) or a
respondent (or all respondents) fail to timely select an arbitrator, then the
party (or parties) who has selected an arbitrator may request the AAA to provide
a list of three (3) proposed arbitrators in accordance with the Rules (each of
whom shall be neutral, impartial and unaffiliated with any party) and the party
(or parties) that failed to timely appoint an arbitrator shall have ten
(10) days from the date the AAA provides such list to select one of the three
(3) arbitrators proposed by AAA.  If such party (or parties) fail to select such
arbitrator by such time, the party (or parties) who have appointed the first
arbitrator shall then have ten (10) days to select one of the three
(3) arbitrators proposed by AAA to be the second arbitrator; and, if he/they
should fail to select such arbitrator by such time, the AAA shall select, within
fifteen (15) days thereafter, one of the three (3) arbitrators it had proposed
as the second arbitrator.  The two (2) arbitrators so appointed shall jointly
appoint the third and presiding arbitrator (who shall be neutral, impartial and
unaffiliated with any party) within fifteen (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.

 

(c)                                  The place of arbitration shall be Boston,
Massachusetts unless otherwise agreed by the parties.

 

(d)                                 There shall be only limited documentary
discovery of documents directly related to the issues in dispute, as may be
ordered by the arbitrators.  For the avoidance of doubt, it is intended that
there shall be no depositions and no other discovery other than limited
documentary discovery as described in the preceding sentence.

 

(e)                                  In rendering an award or decision (the
“Award”), the arbitrators shall be required to follow the laws of the State of
Maryland.  Any arbitration proceedings or Award rendered hereunder and the
validity, effect and interpretation of this arbitration provision shall be

 

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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.  Any monetary Award shall be
made and payable in U.S. dollars free of any tax, deduction or offset.  Subject
to Section 15.02(h), each party against which an Award assesses a monetary
obligation shall pay that obligation on or before the thirtieth (30th) day
following the date of such Award or such other date as such Award may provide.

 

(f)                                   Except to the extent expressly provided by
this Agreement or as otherwise agreed by the parties, to the maximum extent
permitted by Maryland law, 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 a party’s Award to the claimant or the claimant’s attorneys.  Each
party (or, if there are more than two (2) parties to the Dispute, all claimants,
on 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 (2) 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 (3rd) appointed arbitrator.

 

(g)                                  Notwithstanding any language to the
contrary in this Agreement, any Award, including but not limited to any interim
Award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration
Rules (“Appellate Rules”).  An Award shall not be considered final until after
the time for filing the notice of appeal pursuant to the Appellate Rules has
expired.  Appeals must be initiated within thirty (30) days of receipt of an
Award by filing a notice of appeal with any AAA office.  Following the appeal
process, the decision rendered by the appeal tribunal may be entered in any
court having jurisdiction thereof.  For the avoidance of doubt, and despite any
contrary provision of the Appellate Rules, the above paragraph relating to costs
and expenses shall apply to any appeal pursuant to this Section 15.02(g) and the
appeal tribunal shall not render an Award that would include shifting of any
costs or expenses (including attorneys’ fees) of any party.

 

(h)                                 Following the expiration of the time for
filing the notice of appeal, or the conclusion of the appeal process set forth
in Section 15.02(g), an Award shall be final and binding upon the parties
thereto and shall be the sole and exclusive remedy between those parties
relating to the Dispute, including any claims, counterclaims, issues or
accounting presented to the arbitrators.  Judgment upon an 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
Section 15.02 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.

 

(i)                                     This Section 15.02 is intended to
benefit and be enforceable by the parties and their respective shareholders,
members, direct and indirect parents, trustees, directors, officers, managers
(including The RMR Group Inc. and The RMR Group LLC), agents or employees of any
party and their respective successors and assigns and shall be binding on the
shareholders of any party and the parties, as applicable, and shall be in
addition to, and not in

 

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substitution for, any other rights to indemnification or contribution that such
individuals or entities may have by contract or otherwise.

 

Section 15.03.                   Consent to Jurisdiction and Forum.  This
Section 15.03 is subject to, and shall not in any way limit the application of,
Section 15.02; in case of any conflict between this Section 15.03 and
Section 15.02, Section 15.02 shall govern.  Notwithstanding anything to the
contrary in Section 15.02, 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 17.01 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.

 

Section 15.04.                   Standard of Care.  Manager shall discharge its
duties in good faith, and agrees to exercise, with respect to all services
provided by Manager under this Agreement, a standard of care, skill, prudence
and diligence under the circumstances then existing as is consistent with
prevailing industry practices.

 

Section 15.05.                   Indemnity.  In any action, proceeding or claim
brought or asserted by a third party, Manager will defend, indemnify and hold
Company (and any of its Affiliates, their respective directors, trustees,
officers, shareholders, employees and agents) harmless from and against any
claims, losses, expenses, costs, suits, actions, proceedings, demands or
liabilities that are asserted against, or sustained or incurred by them because
of Manager’s breach of any material term of this Agreement, or arising from
Manager’s failure to act or not act in accordance with Company’s reasonable
instructions or gross negligence, fraud, or willful misconduct, except to the
extent caused by Company’s breach of any material term of this Agreement, gross
negligence, fraud or willful misconduct.  Company will defend, indemnify, and
hold Manager (and any of its Affiliates, their respective directors, trustees,
officers, shareholders, employees and agents) harmless, from and against any and
all claims, expenses, costs, suits, actions, proceedings, demands, or
liabilities that are asserted against, or sustained or incurred by them in
connection with the performance of Manager’s duties under this Agreement or
otherwise while acting within the scope of the agency established by the parties
to this Agreement and in accordance with Section 15.04, or in the case of an
action, proceeding or claim brought or asserted by a third party against any of
them as a result of Company’s breach of any material term of this Agreement,
violation of Legal Requirements, instructions to Manager to act or not act with
respect to the relevant matter or gross negligence, fraud or willful misconduct,
except to the extent caused by Manager’s breach of any material term of this
Agreement, failure to act or not act in accordance with Company’s reasonable
instructions, gross negligence, fraud or willful misconduct.  The scope of the
foregoing indemnities includes any and all costs and expenses properly incurred
in connection with any proceedings to defend any indemnified claim, or to
enforce the indemnity, or both.  Recovery upon an indemnity contained in this
Agreement shall be reduced dollar-for-dollar by any applicable insurance
collected by the indemnified party with respect to the claims covered by such
indemnity.

 

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Section 15.06.                   Limitation of Liability.  To the maximum extent
permitted by applicable law, no shareholder, member, officer, director, trustee,
employee or agent of any party to this Agreement (and of any Affiliate of such
party that is not a party to this Agreement) shall have any personal liability
with respect to the liabilities or obligations of such party under this
Agreement or any document executed by such party pursuant to this Agreement.

 

ARTICLE XVI
PROPRIETARY MARKS; INTELLECTUAL PROPERTY

 

Section 16.01.                   Proprietary Marks.  During the Term of this
Agreement, the Community shall be known as a “Five Star Senior Living”
community, with such additional identification as may be necessary and agreed to
by Company and Manager to provide local identification or to comply with local
licensing or consumer protection laws.

 

Section 16.02.                   Ownership of Proprietary Marks.  The
Proprietary Marks shall in all events remain the exclusive property of Manager,
and except as expressly set forth in this Agreement, nothing contained herein
shall confer on Company the right to use the Proprietary Marks.  Except as
provided below in this section, upon termination, any use of or right to use the
Proprietary Marks by Company shall cease forthwith, and Company shall promptly
remove, at Manager’s expense, from the Community any signs or similar items that
contain the Proprietary Marks.  Upon termination, Company shall have the right
to use any inventory or Household Replacement items marked with the Proprietary
Marks exclusively in connection with the Community until they are consumed.

 

Section 16.03.                   Intellectual Property.  All Intellectual
Property shall at all times be proprietary to Manager or its Affiliates, and
shall be the exclusive property of Manager or its Affiliates.  During the Term,
Manager shall be entitled to take all reasonable steps to ensure that the
Intellectual Property remains confidential.  Upon termination, all Intellectual
Property shall be removed from the Community by Manager, without compensation to
Company.

 

ARTICLE XVII
MISCELLANEOUS PROVISIONS

 

Section 17.01.                   Notices.  All notices, demands, consents,
approvals, and requests given by either party to the other 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 e-mail, or on the next business
day if transmitted by nationally recognized overnight courier, to the parties at
the following addresses:

 

[·]
c/o Senior Housing Properties Trust

Two Newton Place

255 Washington Street, Suite 300

Newton, Massachusetts 02458

Attn:  Jennifer F. Francis

Telephone: (617) 796-8350

e-mail:  jfrancis@rmrgroup.com

 

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FVE Managers, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Katherine E. Potter

Telephone: (617) 796-8387

e-mail:  kpotter@5ssl.com

 

or to such other address and to the attention of such other person as either
party may from time to time designate in writing.  Notices properly given as
described above shall be effective upon receipt.

 

Section 17.02.                   Severability.  If any term or provision of this
Agreement 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.

 

Section 17.03.                   Gender and Number.  Whenever the context of
this Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.

 

Section 17.04.                   Headings and Interpretation.  The descriptive
headings in this Agreement are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.  References
to “Section” in this Agreement shall be a reference to a Section of this
Agreement unless otherwise indicated.  Whenever the words “include,” “includes”
or “including” are used in this Agreement they shall be deemed to be followed by
“without limitation.”  The words “hereof,” “herein,” “hereby,” and “hereunder,”
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision unless otherwise indicated.  The word “or” shall not be
exclusive.  This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting.

 

Section 17.05.                   Estoppel Certificates.  Each party to this
Agreement shall at any time and from time to time, upon not less than thirty
(30) day’s prior notice from the other party, execute, acknowledge and deliver
to such other party, or to any third party specified by such other party, a
statement in writing:  (a) certifying that this Agreement is unmodified and in
full force and effect (or if there have been modifications, that the same, as
modified, is in full force and effect and stating the modifications);
(b) stating whether or not to the best knowledge of the certifying party: 
(i) there is a continuing default by the non-certifying party in the performance
or observation of any covenant, agreement or condition contained in this
Agreement; or (ii) there shall have occurred any event which, with the giving of
Notice or the passage of time or both, would become such a default, and, if so,
specifying such default or occurrence of which the certifying party may have
knowledge; and (c) stating such other information as the non-certifying party
may reasonably request.  Such statement shall be binding upon the certifying
party and may be relied upon by the non-certifying party and/or such third party
specified by the non-certifying party as aforesaid.  The obligations set forth
in this Section 17.05 shall survive

 

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termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).

 

Section 17.06.                   Confidentiality of Business Information. 
Manager and Company agree to keep confidential and not to use or to disclose to
others, any of their respective secrets or confidential or proprietary
information, customer lists, or trade secrets, or any matter or items relating
to this Agreement, the management of the Community or their association with
each other except (a) to their respective Affiliates, which may in turn disclose
to any holder of a Mortgage, any prospective lender, purchaser or prospective
purchaser of the Community, (b) to any rating agencies, lenders, stock analysts,
accountants, lawyers and other like professionals, (c) as expressly consented to
in writing by the other party, (d) as required by law or the rules of any
national securities exchange or automated quotation system to which Company or
Manager, or any Affiliate of either, is or becomes subject, or (e) as required
by law or the applicable regulators with respect to any initial, renewal or
other required application for licensure, Medicare or Medicaid participation or
other approval or certification of the Community.

 

Section 17.07.                   Confidentiality of Patient Information.  The
parties shall only use or disclose patient information, including Protected
Health Information (as such term is defined by the Standards for Privacy of
Individually Identifiable Health Information, 45 C.F.R. Part 160 and Subparts A
and E of Part 164, as promulgated from time to time by the Department of Health
and Human Services (the “Privacy Standards”)), in compliance with the Privacy
Standards and other applicable law.  The parties shall further reasonably
safeguard the confidentiality, integrity and availability of patient
information, including Protected Health Information, as required by applicable
law, including the Privacy Standards and the Security Standards (45 C.F.R.
Part 160 and Subparts A and E of Part 164).  In the event that patient
information (including Protected Health Information) is disclosed by a party or
its agents to the other party, its employees, contractors, subcontractors or
agents, such other party agrees to take reasonable steps to maintain, and to
require its employees, contractors, subcontractors and agents receiving such
information to maintain, the privacy and confidentiality of such information
consistent with applicable law.  In connection with Manager’s services
hereunder, the parties shall enter into a Business Associate Agreement in a form
acceptable to both parties.

 

Section 17.08.                   Assignment.  Company may assign this Agreement
to any Affiliate (but only as such term is defined in Section 1.04(a) or (c)) of
Company without Manager’s consent.  Manager shall not assign or transfer its
interest in this Agreement without the prior written consent of Company which
may be withheld in Company’s sole and absolute discretion.  If Company consents
to an assignment of this Agreement by Manager, no further assignment shall be
made without the express consent in writing of Company.

 

Section 17.09.                   Amendment.  This Agreement may not be modified,
altered or amended in any manner except by an amendment in writing, duly
executed by the parties hereto.

 

Section 17.10.                   Third Party Beneficiaries.  The terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives or permitted assigns of
each of the parties hereto and except for Owner, which is an intended third
party beneficiary, and as otherwise provided in Section 15.05, no Person other

 

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than the parties hereto and their successors and permitted assigns is intended
to be a beneficiary of this Agreement.

 

Section 17.11.                   Survival.  The following provisions shall
survive termination or expiration of this Agreement:  Sections 11.02, 13.01,
14.03, 14.04 and 14.05, Article XV and Article XVII.

 

Section 17.12.                   Relationship Between the Parties.  The
relationship between Company and Manager pursuant to this Agreement shall not be
one of general agency, but shall be that of an independent contractor
relationship, provided with respect to those specific and limited circumstances
in which (a) Manager is holding funds for the account of Company or (b) Manager
is required or authorized to act as authorized representative for Company with
respect to agreements with Residents, filings with and applications to
governmental bodies or pursuant to licenses or Legal Requirements, the
relationship between Company and Manager shall be that of trustee and authorized
representative (with limited agency), respectively.  Neither this Agreement nor
any agreements, instruments, documents or transactions contemplated hereby shall
in any respect be interpreted, deemed or construed as making Company a partner
or joint venturer with Manager or as creating any similar relationship or
entity, and each party agrees that it will not make any contrary assertion,
contention, claim or counterclaim in any action, suit or other legal proceeding
involving the other.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
under seal by their duly authorized officers, all as of the day and year first
above written.

 

 

Manager:

 

 

 

FVE Managers, Inc.

 

 

 

 

 

By:

 

 

 

Richard A. Doyle

 

 

Chief Financial Officer and Treasurer

 

 

 

Company:

 

 

 

[·]

 

 

 

 

 

By:

 

 

 

Richard W. Siedel, Jr.

 

 

Chief Financial Officer and Treasurer

 

[Signature Page to Management Agreement for [·]]

 

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Exhibit A

 

Community

 

[INSERT NAME AND ADDRESS OF COMMUNITY]

 

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EXHIBIT C

 

FORM OF OMNIBUS AGREEMENT

 

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OMNIBUS AGREEMENT

 

THIS OMNIBUS AGREEMENT is made as of January 1, [2020]1 (the “Effective Date”),
by and among the parties identified herein as the FVE Parties and the parties
identified herein as the SNH Parties.

 

RECITALS:

 

The FVE Parties manage real properties and improvements owned by the SNH Parties
and their Affiliates, which are operated as senior living communities.

 

The SNH Parties and the FVE Parties wish to memorialize certain agreements with
respect to the senior living communities managed, or to be managed, by the FVE
Parties, on the terms and conditions of this Agreement.

 

NOW, THEREFORE, the parties agree as follows:

 

ARTICLE I
DEFINED TERMS

 

1.01.                     Definitions.  The following capitalized terms as used
in this Agreement shall have the meanings set forth below:

 

(1)                                 “Affiliate”  means, with respect to any
Person, (a) any Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with a
Person or (b) any Person of which a Person is the beneficial owner of a 25% or
greater interest or (c) any Person who acquires all or substantially all of the
assets of a Person.  A Person shall be deemed to control another Person if such
Person, directly or indirectly, has the power to direct the management,
operations or business of such Person.  The term “beneficial owner” for this and
other definitions, having the meaning given such term in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.  Notwithstanding the foregoing, in
no event shall any SNH Party be considered an Affiliate of any FVE Party, and in
no event shall any FVE Party be considered an Affiliate of any SNH Party, for
purposes of this Agreement.

 

(2)                                 “Agreement”  means this Omnibus Agreement as
amended from time to time.

 

(3)                                 “Approved Budget” means the Approved Budget
as defined in and as determined pursuant to each Management Agreement.

 

(4)                                 “Business Day” means any day other than
Saturday, Sunday, or any other day on which banking institutions in The
Commonwealth of Massachusetts are authorized by Law or executive action to
close.

 

(5)                                 “Change in Control”  means (a) the
acquisition by any Person, or two or more Persons acting in concert, of
beneficial ownership (within the meaning of Rule 13d-3 of the

 

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1  To be changed to 2021 if the Conversion Time is extended pursuant to the
Transaction Agreement.

 

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Securities and Exchange Commission) of 9.8% or more, or rights, options or
warrants to acquire 9.8% or more, of the outstanding shares of voting stock or
other voting interests of another Person (a “Relevant Person”) or of any direct
or indirect parent of a Relevant Person (“Parent”), or the power to direct the
management and policies of a Relevant Person or Parent, directly or indirectly,
(b) the merger or consolidation of a Relevant Person or Parent with and into any
Person or the merger or consolidation of any Person with and into a Relevant
Person or any Parent (other than the merger or consolidation of any Person into
a Relevant Person or Parent that does not result in a Change in Control of a
Relevant Person or Parent under clauses (a), (c), (d), (e) or (f) of this
definition), (c) any one or more sales, conveyances, dividends or distributions
to any Person of all or any material portion of the assets (including capital
stock or other equity interests) or business of a Relevant Person or Parent,
whether or not otherwise a Change in Control, (d) the cessation, for any reason,
of the individuals who at the beginning of any 24 consecutive month period
(commencing on the date hereof) constituted the board of directors of a Relevant
Person or any Parent (together with any new directors whose election by such
board or whose nomination for election by the shareholders of a Relevant Person
or any Parent 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, but excluding
any individual whose initial nomination for, or assumption of, office as a
member of such board of directors occurs as a result of an actual or threatened
solicitation of proxies or consents for the election or removal of one or more
directors by any Person other than a solicitation for the election of one or
more directors by or on behalf of the board of directors) to constitute a
majority of the board of directors of a Relevant Person or any Parent then in
office, or (e) the adoption of any proposal (other than a precatory proposal) by
a Relevant Person or any Parent not approved by vote of a majority of the
directors of such Relevant Person or Parent, as the case may be, in office
immediately prior to the making of such proposal, or (f) the election to the
board of directors of a Relevant Person or any Parent of any individual not
nominated or appointed by vote of a majority of the directors of such Relevant
Person or Parent in office immediately prior to the nomination or appointment of
such individual.

 

(6)                                 “Code”  means the U.S. Internal Revenue Code
of 1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.

 

(7)                                 “Community” has the meaning ascribed to such
term in the applicable Management Agreement.

 

(8)                                 “Effective Date” is defined in the preamble
to this Agreement.

 

(9)                                 “Extension Conditions”  means (a) no Event
of Default as defined under the Management Agreements by any FVE Party shall
have occurred and be continuing, and (b) the FVE Parties shall have
simultaneously exercised their rights to extend the terms of all Management
Agreements on similar terms and in accordance with their terms.

 

(10)                          “FVE” means Five Star Senior Living Inc., a
Maryland corporation.

 

(11)                          “FVE IL Managers” means FVE IL Managers, Inc., a
Maryland corporation.

 

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(12)                          “FVE Managers” means FVE Managers, Inc., a
Maryland corporation.

 

(13)                          “FVE Parties” means, collectively, FVE, FVE IL
Managers, FVE Managers, and any other subsidiary of FVE that is a party to a
Management Agreement.

 

(14)                          “GAAP”  means generally accepted accounting
principles in the United States applied on a consistent basis.

 

(15)                          “IL Community” means a Community which is operated
exclusively as an independent living community.

 

(16)                          “IL Management Agreement” means a Management
Agreement for an IL Community.

 

(17)                          “Liquidity”  means, as of any determination date,
the amount of (a) unencumbered cash and cash equivalents of FVE, and (b) FVE’s
available borrowing capacity under its revolving credit facilities or similar
on-demand sources of liquidity.

 

(18)                          “Management Agreements” means, collectively, each
management agreement pursuant to which an FVE Party manages an independent
living/assisted living/memory care/skilled nursing community or any other type
of senior living community, in each case owned by SNH or any of its Affiliates,
whether in existence as of the Effective Date or entered into after the
Effective Date.

 

(19)                          “Non-Performing Asset” means a Non-Performing
Asset as defined in and as determined pursuant to the Management Agreements.

 

(20)                          “Person”  means any natural person, corporation,
limited liability company, trust, joint venture, partnership or other entity.

 

(21)                          “Portfolio EBITDA”  means, with respect to any
calendar year, the sum of the EBITDAs of the Communities as defined and
calculated under the Management Agreements (other than any IL Management
Agreement) for such calendar year.  For the avoidance of doubt, if any
Management Agreement (other than any IL Management Agreement) is terminated or
entered into during a calendar year, only the EBITDA for the Community under
such Management Agreement for the period that such Management Agreement was in
effect during such calendar year will be taken into account in determining
Portfolio EBITDA.

 

(22)                          “Portfolio Expenses”  means, with respect to any
calendar year, the sum of the amounts described in Sections 5.01(a) and
5.01(b) of the Management Agreements (other than any IL Management Agreement)
for such calendar year.

 

(23)                          “Portfolio Gross Revenues”  means, with respect to
any calendar year, the sum of the Gross Revenues of the Communities as defined
and calculated under the Management Agreements (other than any IL Management
Agreement) for such calendar year.  For the avoidance of doubt, if any
Management Agreement (other than any IL Management Agreement) is terminated or
entered into during a calendar year, only the Gross Revenues for the Community
under such Management Agreement for the period that such Management Agreement
was in

 

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effect during such calendar year will be taken into account in determining
Portfolio Gross Revenues.

 

(24)                          “Portfolio IL EBITDA”  means, with respect to any
calendar year, the sum of the EBITDAs for the IL Communities as defined and
calculated under the IL Management Agreements for such calendar year.  For the
avoidance of doubt, if any IL Management Agreement is terminated or entered into
during a calendar year, only the EBITDA for the IL Community under such IL
Management Agreement for the period that such IL Management Agreement was in
effect during such calendar year will be taken into account in determining
Portfolio IL EBITDA.

 

(25)                          “Portfolio IL Expenses”  means, with respect to
any calendar year, the sum of the amounts described in Sections 5.01(a) and
5.01(b) of the IL Management Agreements for such calendar year.

 

(26)                          “Portfolio IL Gross Revenues”  means, with respect
to any calendar year, the sum of the Gross Revenues for the IL Communities as
defined and calculated under the IL Management Agreements for such calendar
year.  For the avoidance of doubt, if any IL Management Agreement is terminated
or entered into during a calendar year, only the Gross Revenues for the IL
Community under such IL Management Agreement for the period that such IL
Management Agreement was in effect during such calendar year will be taken into
account in determining Portfolio IL Gross Revenues.

 

(27)                          “Portfolio IL Incentive Fee” means, with respect
to any calendar year, an amount equal to 15% of the amount by which the
Portfolio IL EBITDA (prior to the payment of the Portfolio Incentive Fee) for
such calendar year exceeds the Portfolio IL Target EBITDA for such calendar
year; provided, however, in no event will the Portfolio IL Incentive Fee for any
calendar year exceed the lesser of (a) 1.5% of Portfolio IL Gross Revenues for
such calendar year, and (b) the amount by which Portfolio IL Gross Revenues for
such calendar year exceeds Portfolio IL Expenses for such calendar year.  The
Portfolio IL Incentive Fee will be determined based upon the annual financial
statements for such calendar year required under the IL Management Agreements,
with additional adjustments being made on an annual basis based upon any audits
conducted pursuant to any IL Management Agreement.

 

(28)                          “Portfolio IL Target EBITDA”  means, with respect
to any calendar year, the sum of the Target EBITDAs for the IL Communities as
defined and calculated under the IL Management Agreements for such calendar
year; provided, if any IL Management Agreement is terminated during a calendar
year, then Portfolio IL Target EBITDA for that calendar year will be reduced by
a pro rata portion of the Target EBITDA for the IL Community under such IL
Management Agreement for such calendar year based on the portion of such
calendar year that such IL Management Agreement was not in effect, and if any IL
Management Agreement is entered into during a calendar year, then Portfolio IL
Target EBITDA for that calendar year will be increased by a pro rata portion of
the full calendar year Target EBITDA for the IL Community under such IL
Management Agreement for such calendar year based on the portion of such
calendar year that such IL Management Agreement was in effect.

 

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(29)                          “Portfolio Incentive Fee” means, with respect to
any calendar year, an amount equal to 15% of the amount by which the Portfolio
EBITDA (prior to the payment of the Portfolio Incentive Fee) for such calendar
year exceeds the Portfolio Target EBITDA for such calendar year; provided,
however, in no event will the Portfolio Incentive Fee for any calendar year
exceed the lesser of (a) 1.5% of Portfolio Gross Revenues for such calendar
year, and (b) the amount by which Portfolio Gross Revenues for such calendar
year exceeds Portfolio Expenses for such calendar year.  The Portfolio Incentive
Fee will be determined based upon the annual financial statements for such
calendar year required under the Management Agreements (other than the IL
Management Agreements), with additional adjustments being made on an annual
basis based upon any audits conducted pursuant to any Management Agreement
(other than any IL Management Agreement).

 

(30)                          “Portfolio Target EBITDA”  means, with respect to
any calendar year, the sum of the Target EBITDAs for the Communities (other than
the IL Communities) as defined and calculated under the Management Agreements
(other than the IL Management Agreements) for such calendar year; provided, if
any Management Agreement (other than any IL Management Agreement) is terminated
during a calendar year, then Portfolio Target EBITDA for that calendar year will
be reduced by a pro rata portion of the Target EBITDA for the Community under
such Management Agreement for such calendar year based on the portion of such
calendar year that such Management Agreement was not in effect, and if any
Management Agreement (other than any IL Management Agreement) is entered into
during a calendar year, then Portfolio Target EBITDA for that calendar year will
be increased by a pro rata portion of the full calendar year Target EBITDA for
the Community under such Management Agreement for such calendar year based on
the portion of such calendar year that such Management Agreement was in effect.

 

(31)                          “Restricted Payment” means the declaration or
payment of any dividend or other distribution of assets, properties, cash,
rights, obligations or securities to any person on account of the capital stock
of FVE or the purchase, redemption or other acquisition for value of any shares
of capital stock of FVE, whether now or hereafter outstanding.

 

(32)                          “SNF Community” means a Community which is
operated exclusively as a standalone skilled nursing facility.

 

(33)                          “SNH” means Senior Housing Properties Trust, a
Maryland real estate investment trust.

 

(34)                          “SNH Parties” means any subsidiary of SNH that is
a party to a Management Agreement.

 

(35)                          “Tangible Net Worth”  means as to a particular
Person and date, the excess of total assets over total liabilities of such
Person on such date, each as determined in accordance with GAAP, excluding,
however, from total assets: (a) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents, patent
applications, licenses and rights thereof, and other similar intangibles,
(b) all deferred charges or unamortized debt discount and expense, (c) all
reserves carried and not deducted from assets, (d) treasury stock and capital
stock, obligations or other securities of, or capital contributions to, or
investments in, any subsidiary, (e) deferred gain, and (f) any items not

 

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included in clauses (a) through (e) above that are treated as intangibles in
conformity with GAAP.

 

(36)                          “Transaction Agreement” means that certain
Transaction Agreement, dated as of April 1, 2019, between FVE and SNH.

 

ARTICLE II
INCENTIVE FEES

 

2.01.                     Portfolio Incentive Fee.  Commencing with the 2021
calendar year, the SNH Parties that are parties to the Management Agreements
(other than the IL Management Agreements) shall pay to the FVE Parties that are
parties to the Management Agreements (other than the IL Management Agreements)
the Portfolio Incentive Fee for each calendar year during the term of this
Agreement.  Payment of the Portfolio Incentive Fee shall be made on the last
Business Day of the January following the end of each calendar year, in arrears.

 

2.02.                     Portfolio IL Incentive Fee.  Commencing with the 2021
calendar year, the SNH Parties that are parties to the IL Management Agreements
shall pay to the FVE Parties that are parties to the IL Management Agreements
the Portfolio IL Incentive Fee for each calendar year during the Term of this
Agreement.  Payment of the Portfolio IL Incentive Fee shall be made on the last
Business Day of the January following the end of each calendar year, in arrears.

 

2.03.                     Allocation of Incentive Fees.  The SNH Parties that
are parties to the Management Agreements (other than the IL Management
Agreements) shall determine among themselves which portion of the Portfolio
Incentive Fee shall be allocable to which Communities provided that all such
allocable shares shall equal the Portfolio Incentive Fee.  The SNH Parties that
are parties to the IL Management Agreements shall determine among themselves
which portion of the Portfolio IL Incentive Fee shall be allocable to which IL
Communities provided that all such allocable shares shall equal the Portfolio IL
Incentive Fee.

 

2.04.                     Termination Fee.  In addition to any termination fee
owed under the applicable Management Agreement, in the event any FVE Party
terminates any Management Agreement as a result of an “Event of Default” by any
SNH Party under such Management Agreement, such SNH Party shall pay to such FVE
Party, within 30 days of the effective date of such termination, an amount equal
to the present value of the portion of the annual payments of the Portfolio
Incentive Fee or Portfolio IL Incentive Fee, as applicable, that would have been
allocated to the Community that is subject to such terminated Management
Agreement during the period from the date of termination to the scheduled
expiration date of the initial term of such Management Agreement (not including
any extension of the term, but not for a period in excess of 10 years in any
event) assuming the annual allocated portion of Portfolio Incentive Fee or
Portfolio IL Incentive Fee, as applicable, during such period was equal to the
average of the portion of the Portfolio Incentive Fee or Portfolio IL Incentive
Fee, as applicable, allocated to such Community in each of the 3 calendar years
ended prior to such termination, discounted at an annual rate equal to the
Discount Rate (as defined in such Management Agreement).

 

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ARTICLE III
TERM AND TERMINATION

 

3.01.                     Term.  This Agreement shall continue and remain in
effect until all Management Agreements terminate or expire for any reason. 
Notwithstanding anything in the Management Agreements to the contrary, the right
of any FVE Party to extend the term of any Management Agreement pursuant to the
provisions of such Management Agreement is conditioned on the Extension
Conditions having been satisfied at the time such FVE Party exercises such
extension option, provided, however, the exercise of such extension option shall
not be effective if, in any 2 calendar years out of the 3 calendar years ending
December 31st of the calendar year that is 1 year prior to the expiration of the
then current term, the Portfolio EBITDA and Portfolio IL EBITDA, on a combined
basis, for such calendar year does not equal at least 97% of the sum of the
EBITDAs of the Communities budgeted for such calendar year as identified in the
Approved Budgets for the Communities for such calendar year, in which event the
Management Agreements shall expire at the end of their then current term in
accordance with the provisions of the Management Agreements.

 

3.02.                     Early Termination Rights.

 

(1)                                 Notwithstanding anything in the Management
Agreements to the contrary, and in addition to any termination rights set forth
therein, the SNH Parties shall have the right at any time, without the consent
of the FVE Parties or the payment of any termination or other incremental fees
to the FVE Parties, to terminate (a) any or all Management Agreements if FVE has
made a Restricted Payment such that, after giving effect to such Restricted
Payment, (i) FVE’s Tangible Net Worth would be less than $100,000,000, or
(ii) FVE’s Liquidity would be less than $20,000,000; and (b) any Management
Agreement for (i) any SNF Community, and (ii) any other Community (which
Communities shall be selected by the SNH Parties in their sole discretion) in
connection with the sale of such Community, provided the aggregate gross sale
proceeds for Communities for which the Management Agreements are terminated
pursuant to this clause (b)(ii), together with any senior living communities
sold by SNH, directly or through one or more of its subsidiaries, pursuant to
Section 2.1(6) of the Transaction Agreement, shall not exceed $775,000,000.

 

(2)                                 Notwithstanding anything in the Management
Agreements to the contrary, an SNH Party may not terminate a Management
Agreement as a result of the applicable Community being a Non-Performing Asset
if such termination would result in the SNH Parties having terminated Management
Agreements in the current calendar year as a result of the applicable
Communities being Non-Performing Assets representing, in the aggregate, more
than 20% of the Portfolio Gross Revenues and Portfolio IL Gross Revenues, on a
combined basis, for the calendar year prior to such termination.

 

ARTICLE IV
ADDITIONAL COVENANTS

 

4.01.                     Restricted Payments.  From and after the Effective
Date, FVE shall not make any Restricted Payment if, after giving effect to such
Restricted Payment, (a) SNH would own more than 34.5% of the outstanding FVE
Common Shares determined without taking into account any unvested FVE Common
Shares or options for or other securities convertible into FVE Common Shares
held by persons other than SNH, or (b) FVE Managers would cease to qualify as an
“eligible independent contractor” of SNH within the meaning of
Section 856(d)(9)(A) of the

 

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Code.  In no event shall FVE effect a redemption or repurchase of any FVE Common
Shares held by SNH without SNH’s prior written consent.

 

4.02.                     Additional Independent Director of FVE.  Following the
Effective Date, but in any event not later than six months after the Effective
Date, FVE shall expand its board of directors to add one additional “Independent
Director”, as such term is defined in FVE’s Amended and Restated Bylaws (the
“Additional Director”).  The Additional Director shall meet the requirements of
an Independent Director, shall have a background and experience that complements
the existing FVE board and shall be reasonably satisfactory to SNH.  Following
the Effective Date, FVE will provide the SNH board of directors with the resumes
of and other information provided to the FVE board with respect to the
candidates being considered by the FVE board for the position of the Additional
Director and a reasonable opportunity to interview such candidates.  The
Additional Director, upon his or her appointment or election, as applicable,
will be subject to nomination, re-election and removal as provided with respect
to the Independent Directors of FVE in accordance with FVE’s organizational
documents and other governance requirements; provided, for so long as any
Management Agreement is in effect, FVE will not reduce the number of Independent
Directors to less than four.

 

4.03.                     Financial Statements and Reports.  In addition to the
financial statements and reports that the FVE Parties are required to provide to
the SNH Parties pursuant to the Management Agreements, promptly upon request by
an SNH Party the FVE Parties shall provide to SNH and the SNH Parties, any
additional information or reports relating to the business, condition (financial
or otherwise), operations, performance, properties or prospects of any
Community, any FVE Party or any of their Affiliates as SNH or any SNH Party may
reasonably request, including, without limitation, a Liquidity forecast for FVE.

 

4.04.                     Acquisitions, Financings and Sales.  At no time during
the term of this Agreement may FVE or any subsidiary thereof, directly or
indirectly, own, finance or sell, or participate in the ownership, financing or
sale of, any real estate property (collectively, the “Properties”) of a type
then owned or financed by SNH; provided that if FVE or such subsidiary proposes
to enter into any transaction involving the ownership, financing or sale of a
Property prohibited by this Section 4.04 (a “Proposed Transaction”), it shall
provide notice of the Proposed Transaction to SNH describing the Proposed
Transaction in sufficient detail and offer SNH the right to acquire or finance
the acquisition of the Property and negotiate in good faith with SNH.  If, after
10 Business Days, FVE and SNH have not reached agreement on the terms of the
acquisition, financing or sale, FVE (or such subsidiary) shall be free to
acquire, finance or sell such Property itself or with others, free of the
restrictions of this Section 4.04.  FVE agrees that irreparable damage would
occur if any of the provisions of this Section 4.04 were not performed in
accordance with their terms and that SNH’s remedy at law for FVE’s or its
subsidiary’s breach of its obligations under this Section 4.04 would be
inadequate.  Upon any such breach, SNH shall be entitled (in addition to any
other rights or remedies it may have at law) to seek an injunction enjoining and
restraining FVE or such subsidiary from continuing such breach.  FVE agrees that
the period of restriction and the geographical area of restriction imposed upon
FVE are fair and reasonable.  If the provisions of this Section 4.04 relating to
the period or the area of restriction are determined to exceed the maximum
period or areas which a court having jursidiction over the matter would deem
enforceable, such period or area shall, for purposes of

 

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this Agreement, be deemed to be the maximum period or area which such court
determines valid and enforceable.

 

4.05.                     Restrictions on Ownership; REIT Compliance.  During
the term of this Agreement, (a) FVE will not permit the occurrence of any Change
in Control of any FVE Party, (b) FVE will not take any action that, in the
reasonable judgment of SNH, might reasonably be expected to have an adverse
impact on the ability of SNH to qualify as a “real estate investment trust”
under the Code, and (c) the FVE Parties will use reasonable efforts to take, or
cause to be taken, all appropriate action, as SNH or the SNH Parties may
reasonably deem necessary or desirable in connection for SNH to maintain its
qualification for taxation as a “real estate investment trust” under the Code.

 

4.06.                     Third Party Beneficiary.  The FVE Parties acknowledge
and agree that SNH is an express third party beneficiary of the provisions
contained in this Article IV.

 

ARTICLE V
MISCELLANEOUS PROVISIONS

 

5.01.                     Conflicts with Loan Documentation.  The terms and
conditions of this Agreement are subject to the requirements set forth in any
mortgage or other loan documentation applicable to any Community and to
applicable law (collectively, “Other Requirements”).  To the extent there is any
conflict between the terms and conditions of this Agreement and any Other
Requirements, the provisions of the Other Requirements shall control with
respect to the applicable Community and Management Agreement and neither any FVE
Party nor any SNH Party shall take, or be required to take as a result of this
Agreement, any action that would cause the relevant FVE Party or the relevant
SNH Party to be in breach of such Other Requirement.  The SNH Parties will
provide to the FVE Parties notice of any loan documents applicable to a
Community, which notice will be given prior to such loan documents becoming
applicable to the extent practicable.

 

5.02.                     Addition and Removal of SNH Parties and FVE Parties. 
At any time and from time to time, if any new Management Agreement is entered
into with a SNH Party or FVE Party that has not executed this Agreement, upon
the request of the FVE Parties or the SNH Parties, as applicable, such new SNH
Party or FVE Party shall execute an accession agreement confirming the
applicability of this Agreement to such new Management Agreement and such new
SNH Party or FVE Party.  At any time and from time to time all Management
Agreements pursuant to which a SNH Party or FVE Party is a party to this
Agreement are terminated, the FVE Parties or the SNH Parties, as applicable,
shall execute a release releasing such SNH Party or FVE Party, as applicable,
from all obligations under this Agreement relating to periods from and after the
effective date of the termination of the last of such Management Agreements.

 

5.03.                     Notices.

 

(1)                                 All notices required or permitted to be sent
hereunder shall be deemed to have been given for all purposes of this Agreement
upon the date of electronic confirmation of delivery sent by the sender’s
computer, in the case of a notice by electronic mail, and, in all other cases,
upon the date of receipt or refusal, except that whenever under this Agreement a
notice is

 

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either received on a day which is not a Business Day or is required to be
delivered on or before a specific day which is not a Business Day, the day of
receipt or required delivery shall automatically be extended to the next
Business Day.

 

(2)                                 All such notices shall be addressed,

 

if to any FVE Party, to:

 

Five Star Senior Living Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn: Katherine E. Potter, President

E-Mail: kpotter@5ssl.com

 

If to any SNH Party, to:

 

Senior Housing Properties Trust

Two Newton Place, Suite 300

255 Washington Street

Newton, Massachusetts 02458

Attn: Jennifer F. Francis, President

E-Mail: JFrancis@rmrgroup.com

 

(3)                                 By notice given as herein provided, the
parties and their respective successors and assigns shall have the right from
time to time and at any time during the term of this Agreement to change their
respective addresses effective upon receipt by the other parties of such notice.

 

5.04.                     Applicable Law; Arbitration.  This Agreement shall be
interpreted, construed, applied and enforced in accordance with the laws of the
State of Maryland, with regard to its “choice of law” rules.  Any “Dispute” (as
such term is defined in the Management Agreements) under this Agreement shall be
resolved through final and binding arbitration conducted in accordance with the
procedures and with the effect of, arbitration as provided for in the Management
Agreements.

 

5.05.                     Severability.  If any term or provision of this
Agreement 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.

 

5.06.                     Counterparts, Etc.  This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

 

5.07.                     Section and Other Headings; Interpretation.  The
headings contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or

 

10

--------------------------------------------------------------------------------

 

interpretation of this Agreement.  The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
Section references are to this Agreement, unless otherwise specified.  The
singular and plural use of a defined term shall have the correlative meaning. 
The words “including” and “include” shall be deemed to be followed by the words
“without limitation.”

 

5.08.       Assignment.  Any SNH Party may assign this Agreement to any
Affiliate (but only as such term is defined in Section 1.01(1)(a) or (c)) of
such SNH Party without the consent of the FVE Parties.  No FVE Party shall
assign or transfer its interest in this Agreement without the prior written
consent of the SNH Parties which may be withheld in the sole and absolute
discretion of the SNH Parties.  If the SNH Parties consent to an assignment of
this Agreement by any FVE Party, no further assignment shall be made without the
express consent in writing of the SNH Parties.

 

5.09.       Entire Agreement.  This Agreement, together with the Transaction
Agreement and the Management Agreements, constitute the entire agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersedes all previous contracts and understandings between the parties with
respect to the subject matter hereof and thereof.

 

[Signatures page follows]

 

11

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement with the intention of creating an instrument under seal.

 

 

FVE PARTIES:

 

 

 

FIVE STAR SENIOR LIVING INC.,

 

FVE MANAGERS, INC., and

 

FVE IL MANAGERS, INC.

 

 

 

By:

 

 

 

Katherine E. Potter

 

 

President of each of the foregoing entities

 

--------------------------------------------------------------------------------

 

 

SNH PARTIES:

 

 

 

SNH AL AIMO TENANT, INC.,

 

SNH AL AIMO TENANT II, INC.,

 

SNH AL CRIMSON TENANT INC.,

 

SNH AL CUMMING TENANT LLC,

 

SNH AL GEORGIA TENANT LLC,

 

SNH AL TRS, INC.,

 

SNH AL WILMINGTON TENANT INC.,

 

SNH BRFL TENANT LLC,

 

SNH CALI TENANT LLC,

 

SNH CCMD TENANT LLC,

 

SNH GRANITE GATE TENANT LLC,

 

SNH GRANITE GATE LANDS TENANT LLC,

 

SNH GROVE PARK TENANT LLC,

 

SNH IL PROPERTIES TRUST,

 

SNH IL JOPLIN INC.,

 

SNH NORTHWOODS TENANT LLC,

 

SNH PARK PLACE TENANT I LLC,

 

SNH PARK PLACE TENANT II LLC,

 

SNH PLFL TENANT LLC,

 

SNH SE ASHLEY RIVER TENANT LLC,

 

SNH SE BARRINGTON BOYNTON TENANT LLC,

 

SNH SE BURLINGTON TENANT LLC,

 

SNH SE DANIEL ISLAND TENANT LLC,

 

SNH SE HABERSHAM SAVANNAH TENANT LLC,

 

SNH SE HOLLY HILL TENANT LLC,

 

SNH SE KINGS MTN TENANT LLC,

 

SNH SE MOORESVILLE TENANT LLC,

 

SNH SE N. MYRTLE BEACH TENANT LLC,

 

SNH SE SG TENANT LLC,

 

SNH SE TENANT TRS, INC.,

 

SNH TEANECK TENANT LLC,

 

SNH TELLICO TENANT LLC, and

 

SNH YONKERS TENANT INC.

 

[INSERT ANY NEW SNH TRS ENTITIES CREATED AS PART OF THE LEASE CONVERSIONS]

 

 

By:

 

 

Jennifer F. Francis

 

President of each of the foregoing entities

 

--------------------------------------------------------------------------------

 

SCHEDULE 1

 

MONTHLY RENT ADJUSTMENT SCHEDULE

 

Facility ID

 

Allocated Monthly Rent

 

32020

 

$

7,231.96

 

32030

 

$

61,978.37

 

32040

 

$

0.05

 

32060

 

$

83,653.60

 

32070

 

$

0.05

 

32080

 

$

0.05

 

32081

 

$

17,656.64

 

32082

 

$

40,294.54

 

32083

 

$

0.05

 

32084

 

$

70,941.76

 

33010

 

$

59,434.80

 

33020

 

$

20,373.10

 

33030

 

$

92,332.34

 

33040

 

$

78,756.40

 

33050

 

$

47,198.08

 

33060

 

$

85,532.63

 

33070

 

$

62,033.64

 

35050

 

$

25,453.09

 

35060

 

$

80,163.46

 

35070

 

$

0.05

 

35080

 

$

21,233.71

 

36010

 

$

12,163.91

 

36030

 

$

19,627.89

 

36050

 

$

33,515.69

 

37010

 

$

10,650.54

 

37020

 

$

43,603.20

 

37030

 

$

146,319.38

 

40020

 

$

3,967.43

 

40030

 

$

10,141.50

 

40050

 

$

9,880.24

 

40070

 

$

8,967.11

 

40080

 

$

5,479.57

 

40090

 

$

0.05

 

40100

 

$

0.05

 

40110

 

$

47,577.46

 

41070

 

$

7,509.97

 

41080

 

$

0.05

 

41090

 

$

0.05

 

41091

 

$

62,811.61

 

41092

 

$

0.05

 

41093

 

$

152,016.91

 

41094

 

$

51,757.37

 

42010

 

$

64,048.30

 

 

--------------------------------------------------------------------------------

 

Facility ID

 

 

Allocated Monthly Rent

 

42020

 

$

58,909.31

 

43001

 

$

57,659.54

 

43002

 

$

43,282.94

 

43003

 

$

0.05

 

43004

 

$

13,839.26

 

43006

 

$

49,146.59

 

43007

 

$

5,823.30

 

43008

 

$

43,126.43

 

43012

 

$

19,049.01

 

43013

 

$

12,922.99

 

43014

 

$

48,110.09

 

43015

 

$

58,375.26

 

43025

 

$

46,932.88

 

46003

 

$

72,585.26

 

46004

 

$

60,187.20

 

46005

 

$

18,835.26

 

46006

 

$

20,382.00

 

46007

 

$

70,243.42

 

46009

 

$

26,497.84

 

46010

 

$

56,579.77

 

46011

 

$

37,232.83

 

46012

 

$

39,387.55

 

46013

 

$

12,880.16

 

46014

 

$

75,620.54

 

46017

 

$

44,695.05

 

46018

 

$

57,454.90

 

46019

 

$

41,025.40

 

46020

 

$

25,821.08

 

46021

 

$

12,162.18

 

46022

 

$

29,816.95

 

46023

 

$

30,304.78

 

46024

 

$

32,954.85

 

46025

 

$

161,682.18

 

46031

 

$

11,128.80

 

46032

 

$

7,147.13

 

46034

 

$

118,810.65

 

46035

 

$

0.05

 

46036

 

$

0.05

 

46038

 

$

10,158.39

 

46039

 

$

135,968.74

 

46040

 

$

107,446.83

 

46041

 

$

81,921.13

 

46042

 

$

101,492.64

 

46043

 

$

41,316.79

 

46052

 

$

26,650.65

 

46053

 

$

35,646.45

 

48020

 

$

53,138.10

 

 

--------------------------------------------------------------------------------

 

Facility ID

 

 

Allocated Monthly Rent

 

48030

 

$

176,195.56

 

48040

 

$

28,198.94

 

50010

 

$

4,860.89

 

50020

 

$

0.05

 

50030

 

$

29,736.14

 

50040

 

$

69,823.76

 

50050

 

$

88,429.20

 

54123

 

$

288,752.73

 

54129

 

$

53,623.84

 

54130

 

$

52,530.55

 

54131

 

$

110,350.23

 

54135

 

$

181,315.23

 

54137

 

$

40,098.89

 

54139

 

$

96,619.02

 

54145

 

$

135,266.48

 

54147

 

$

139,278.64

 

54210

 

$

80,318.87

 

54252

 

$

139,478.44

 

54254

 

$

269,032.06

 

54256

 

$

260,338.72

 

54258

 

$

31,976.28

 

54601

 

$

46,657.07

 

54602

 

$

11,387.42

 

54603

 

$

178,331.33

 

54608

 

$

207,488.74

 

54611

 

$

54,609.43

 

54613

 

$

0.05

 

54615

 

$

103,896.72

 

54619

 

$

89,222.20

 

54621

 

$

173,710.98

 

54623

 

$

198,624.21

 

54671

 

$

429,879.76

 

54672

 

$

238,443.11

 

54673

 

$

104,122.54

 

54812

 

$

303,880.29

 

54840

 

$

195,881.52

 

60020

 

$

78,216.05

 

60030

 

$

63,006.82

 

60050

 

$

55,960.85

 

60060

 

$

113,279.83

 

60070

 

$

199,959.91

 

60080

 

$

94,354.60

 

60090

 

$

100,260.92

 

60100

 

$

71,512.18

 

60160

 

$

99,228.17

 

60162

 

$

115,668.73

 

60163

 

$

106,412.47

 

 

--------------------------------------------------------------------------------

 

Facility ID

 

 

Allocated Monthly Rent

 

60164

 

$

86,636.16

 

60166

 

$

117,859.59

 

61000

 

$

22,724.01

 

61001

 

$

28,599.84

 

61002

 

$

30,907.76

 

61006

 

$

0.05

 

61007

 

$

18,938.80

 

61008

 

$

3,393.81

 

61009

 

$

44,810.27

 

61010

 

$

4,107.01

 

61011

 

$

32,293.74

 

61012

 

$

26,446.89

 

61013

 

$

6,056.72

 

61014

 

$

51,251.49

 

61015

 

$

32,948.19

 

61016

 

$

27,211.05

 

61017

 

$

119,278.08

 

61018

 

$

96,947.27

 

61020

 

$

115,320.75

 

61021

 

$

35,749.73

 

61022

 

$

10,602.15

 

61023

 

$

33,385.14

 

61024

 

$

35,874.75

 

61025

 

$

27,031.48

 

61026

 

$

30,161.48

 

61027

 

$

34,029.53

 

61028

 

$

23,642.16

 

61033

 

$

14,399.71

 

61034

 

$

15,837.68

 

61035

 

$

41,276.12

 

61036

 

$

18,975.99

 

61037

 

$

19,424.10

 

61038

 

$

21,270.28

 

61040

 

$

32,299.37

 

61041

 

$

86,036.97

 

61042

 

$

72,953.04

 

61043

 

$

39,391.82

 

61044

 

$

9,091.77

 

61045

 

$

84,443.37

 

61046

 

$

78,561.17

 

81010

 

$

950.11

 

82010

 

$

0.05

 

82040

 

$

0.05

 

82060

 

$

0.05

 

 

 

 

 

 

 

$

11,000,000.00

 

 

--------------------------------------------------------------------------------