Earn Out Agreement

EXHIBIT 10.1

EXECUTION FORM

EARN OUT AGREEMENT

THIS EARN OUT AGREEMENT (" Earn Out Agreement" ) is entered into effective as of June 26, 2008 (" Effective Date" ) by and among Ames Bickford Cottage, L.L.C. , a Kansas limited liability company, Bourbonnais Bickford House, L.L.C., a Kansas limited liability company, Burlington Bickford Cottage, L.L.C., a Kansas limited liability company, Crawfordsville Bickford Cottage, L.L.C. , a Kansas limited liability company, Lincoln Bickford Cottage, L.L.C., a Kansas limited liability company, Marshalltown Bickford Cottage, L.L.C., a Kansas limited liability company, Moline Bickford Cottage, L.L.C., a Kansas limited liability company, Muscatine Bickford Cottage, L.L.C., a Kansas limited liability company, Quincy Bickford Cottage, L.L.C., a Kansas limited liability company, Rockford Bickford House, L.L.C., a Kansas limited liability company, Springfield Bickford House, L.L.C., a Kansas limited liability company, and Urbandale Bickford Cottage, L.L.C., a Kansas limited liability company, (each of the foregoing referred to individually as a " Seller" and collectively as the " Sellers" ), and Care YBE Subsidiary LLC, a Delaware limited liability company (" Buyer" ), and Bickford Master I, L.L.C., a Kansas limited liability company (" Tenant" ), and Bickford Senior Living Group, L.L.C., a Kansas limited liability company (" Manager" ) and Eby Realty Group, L.L.C., a Kansas limited liability company (" Eby" ).

RECITALS

WHEREAS , pursuant to the terms of (a) that certain Purchase and Sale Contract dated as of May 14, 2008 by and among Sellers, Buyer, Tenant, Manager, Eby, and certain additional parties (the " Contract" ), and (b) that certain Master Lease Agreement dated as of the Effective Date by and between Tenant (as tenant) and Buyer (as landlord, and in such capacity, " Landlord" ) (as amended, restated, supplemented or otherwise modified from time to time, the " Lease" ), Sellers have sold to Buyer, and Buyer has purchased from Sellers and then leased back to Tenant (as tenant) certain real, personal and intangible property and improvements constituting twelve (12) assisted living facilities located in Iowa, Nebraska, Indiana and Illinois (each a " Facility" and collectively the " Facilities" ) and more particularly described in the Lease (the " Leased Property" ); and

WHEREAS , as of the Effective Date, Tenant (which is an Affiliate of each of the Sellers) has subleased each Facility back to the respective Seller (as subtenant) of that Facility pursuant to certain subleases dated as of the Effective Date (as the same may be amended, restated, supplemented or otherwise modified from time to time with the consent of Buyer, the " Subleases ," and Sellers in such capacity as subtenants, the " Subtenants" ); and


Earn Out Portfolio


WHEREAS , Sellers, Tenant, Manager and Eby (collectively, the " Seller Parties" ) and Buyer agree that it is in their mutual beneficial interest to optimize the net operating income from, and the fair market value of, the Leased Property; and

WHEREAS , in connection with the purchase of the Leased Property, Buyer has agreed to provide Sellers, under certain terms and conditions as more particularly set forth herein, with the right to receive additional contingent deferred consideration from Buyer for the conveyance of the Leased Property by Sellers if certain conditions are satisfied, all as more particularly set forth hereinbelow.

NOW THEREFORE , in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Buyer and Seller Parties do hereby covenant, stipulate and agree as follows:

1. Ratification . The recitals set forth hereinabove are true and correct.

2. Definitions . For all purposes of this Earn Out Agreement, capitalized terms used herein, or incorporated within the definition of capitalized terms used herein, unless specifically defined otherwise, shall have the meaning assigned to them in the Lease.

" Accounting Period" shall mean each calendar month accounting period of Tenant. If Tenant shall, for a bona fide business reason, change its accounting period during the term of the Lease, as such term may be extended, appropriate adjustments, if any, shall be made with respect to the timing of applicable accounting and reporting requirements of this Earn Out Agreement; provided, however, that in no event shall any such change or adjustment alter the amount or frequency of payment of Minimum Rent (as such Minimum Rent is set forth in Section 3.2 of the Lease and subject to prorations and adjustments as set forth in Section 3.2 of the Lease) within any Fiscal Year, or otherwise increase or reduce any monetary obligation under the Lease. Subtenants have and shall continue to have the same accounting periods as the Tenant.

" Accounting Year" shall mean each period of twelve (12) consecutive Accounting Periods during the term of the Lease, as such term may be extended; the first Accounting Year shall commence with the first full Accounting Period after the commencement date of the Lease.

" Bickford Guaranty" shall mean that certain Guaranty of Lease by Manager dated as of the Effective Date.


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" Earn Out Payment Request Expiration Date" shall mean the date which is two (2) years and one (1) month after the Effective Date.

" Earn Out Payment" or " Earn Out Payments" shall mean additional contingent deferred consideration from Buyer for the conveyance of the Leased Property by Sellers not to exceed the amount of Seven Million One Hundred Seventy-five Thousand and no/100 dollars ($7,175,000.00) less the aggregate amounts of Landlord Expansion Payments funded by Buyer as Landlord under the Lease for Initial Expansion Projects (as said terms are defined in the Lease).

" Eby Guaranty" shall mean that certain Guaranty of Lease by Eby dated as of the Effective Date.

" Facility Property" shall mean the portion of the Land on which a Facility is located (as further described in the Lease), the Leased Improvements on such portion of the Land, the easements, rights and appurtenances relating to such portion of the Land and the Leased Improvements located thereon, the FF&E, Inventories and other personal property with respect to such Facility, the Leased Intangible Property with respect to such Facility, and other property and interests included in the Leased Property with respect to such Facility.

" Facility Revenue" shall mean, for the applicable period of time, but without duplication, all gross revenues and receipts of every kind derived by or for the benefit of a Subtenant, Tenant, or its Affiliates from operating or causing the operation of a Facility Property and all parts thereof, including, but not limited to: income from both cash and credit transactions (after reasonable deductions for bad debts and discounts for prompt or cash payments and refunds) from rental or subleasing of every kind (including any termination or cancellation fees paid in connection therewith); entrance fees, fees for health care and personal care services, in each case, net of all contractual adjustments, license, lease and concession fees and rentals, off premises catering, if any; parking (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise (other than proceeds from the sale of furnishings, fixtures and equipment no longer necessary to the operation of any Facility, which shall be deposited in the Reserve, unless the same is included within the category of Tenant Personal Property) and service charges, to the extent not distributed to employees at the Facility as gratuities, interest income except as specifically provided below; community fees; and deposits forfeited; provided, however, that Facility Revenue shall not include the following: gratuities to Facility employees; federal, state or municipal excise, sales, occupancy, use or similar taxes collected directly from residents or included as part of the sales price of any goods or services; insurance proceeds (but including proceeds of business income/rental interruption insurance); any proceeds from any sale of any Facility Property or from the refinancing of any debt encumbering any Facility Property; proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of any Facility; and interest which accrues on amounts deposited in the Reserve.


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" Fiscal Year" shall mean Tenant' s Fiscal Year which as of the commencement date of the Lease begins on January 1 and ends on December 31 in each calendar year. Any partial Fiscal Year between the commencement date of the Lease and the commencement of the first full Fiscal Year (except with respect to the calculation and payment of minimum rent as referenced in Section 3.1 of the Lease), shall constitute a separate Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal Year and the termination of the Lease shall also constitute a separate Fiscal Year. If Tenant' s Fiscal Year is changed in the future, appropriate adjustments to this Earn Out Agreement' s reporting and accounting procedures shall be made; provided, however, that no such change or adjustment shall alter the term of the Lease or in any way reduce the payments due under the Lease. Each full Fiscal Year shall consist of twelve Accounting Periods. Subtenants have and shall continue to have the same Fiscal Year periods as Tenant.

" Lease Coverage Ratio" shall mean the ratio of (i) Net Operating Income for the preceding six (6) Accounting Periods multiplied by two (2) divided by (ii) the total of all Minimum Rent due under the Lease for the next twelve (12) Accounting Periods, including all scheduled increases in such Minimum Rent during such period, including the increas ...