UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)  

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): June 22, 2015 (June 22, 2015)

 

 

New Senior Investment Group Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   001-36499   80-0912734

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification Number)

 

1345 Avenue of the Americas

New York, New York

  10105
(Address of principal executive offices)   (Zip code)

212-479-3140

(Registrant’s telephone number, including area code)

Not Applicable  

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

 

 

 


Item 1.01. Entry into a Material Definitive Agreement.

On June 22, 2015, New Senior Investment Group Inc. (“New Senior”), through a wholly owned subsidiary (collectively, the “Purchaser”), entered into a Purchase and Sale Agreement (the “Purchase Agreement”), by and among the Purchaser and the Sellers named therein (collectively, the “Seller”). Each Seller is an affiliate of Holiday Acquisition Holdings LLC (“Holiday”). Holiday is majority-owned by private equity funds managed by an affiliate of Fortress Investment Group LLC (“Fortress”). New Senior is externally managed by an affiliate of Fortress. The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, the Purchaser will acquire independent senior living housing properties (the “Facilities” or the “Timber Portfolio”) from the Seller, either directly or by acquisition of the special purpose entity that owns the applicable Facility, for approximately $640 million in cash, subject to certain adjustments and customary prorations (the “Acquisition”). Upon execution of the Purchase Agreement, Purchaser made an earnest money deposit equal to $5 million. New Senior expects to fund the purchase price with a combination of cash on hand and debt and equity financings.

The Timber Portfolio includes 28 properties and 3,298 units located across 21 states, including five states in which New Senior does not currently own any properties (Arizona, South Dakota, South Carolina, Hawaii and Indiana). Following the completion of the Acquisition, New Senior’s portfolio will span 37 states. The Timber Portfolio had an average occupancy rate of 88% for May 2015, compared to the occupancy rate of New Senior’s existing managed portfolio of approximately 84%. Holiday currently operates the Timber Portfolio, and as a condition precedent to closing of the Acquisition, New Senior will enter into a management agreement with Holiday for Holiday to continue to operate the Timber Portfolio following the closing of the Acquisition.

The Purchase Agreement provides, among other things, for the closing of the Acquisition (the “Closing”) to occur on July 30, 2015, subject to Purchaser’s right to extend the closing date to a date not later than August 15, 2015 and, upon the payment of an additional earnest money deposit, again to a date not later than September 15, 2015. In addition to the foregoing, Seller has the right to adjourn the closing for a period of not more than 30 days, in the aggregate, as necessary in order to remove title defects or satisfy any closing conditions. Purchaser’s obligation to consummate the transactions contemplated by the Purchase Agreement is subject to the satisfaction of certain customary conditions precedent. If any such condition precedent has not been satisfied on or before the applicable closing date, Purchaser may, at its option, either waive such condition and proceed to close the Acquisition or terminate the Purchase Agreement and receive a return of its earnest money deposit.

The foregoing description of the Purchase Agreement and the transactions contemplated thereby does not purport to be complete and is subject to and qualified in its entirety by reference to the Purchase Agreement, a copy of which is attached hereto as Exhibit 2.1, and the terms of which are incorporated herein by reference.

The Company is also providing certain financial information with respect to the proposed Acquisition. Specifically, this Current Report on Form 8-K provides: (1) the Company’s unaudited pro forma combined financial information relating to the proposed Acquisition and other transactions described therein, attached hereto as Exhibit 99.1 and (2) the Combined Statement of Revenues and Certain Operating Expenses of The Timber Portfolio for the three months ended March 31, 2015 (unaudited) and for the year ended December 31, 2014, attached hereto as Exhibit 99.2. The information in Exhibit 99.2 was provided by Holiday. The information in Exhibits 99.1 and 99.2 is incorporated herein by reference.

 

Item 7.01. Regulation FD Disclosure.

On June 22, 2015, New Senior issued a press release announcing the Acquisition. A copy of the press release is attached hereto as Exhibit 99.3 and is incorporated herein by reference.

The information furnished pursuant to this Item 7.01 (including Exhibit 99.3 hereto) shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor will such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

 

Item 8.01. Other Events

New Senior is also filing this Current Report on Form 8-K as a result of the adoption of a new accounting standard, described in more detail below. The financial and other information in New Senior’s Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”) that is affected by the adoption of the new accounting standard has been revised, and such revised information is incorporated herein by reference.

All other information in New Senior’s 2014 Form 10-K has not been updated for events or developments that occurred subsequent to its filing with the U.S. Securities and Exchange Commission on February 26, 2015. For developments since the filing of the 2014 Form 10-K, please refer to New Senior’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015, filed on May 8, 2015 and New Senior’s other Current Reports on Form 8-K filed since February 26, 2015.

 

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Change in Accounting Principle

New Senior is filing this Current Report on Form 8-K to also disclose the retrospective impact of the early adoption of the Financial Accounting Standard Board’s amended accounting standard Simplifying the Presentation of Debt Issuance Costs (Accounting Standards Update No. 2015-03) on its historical financial statements included in New Senior’s 2014 Form 10-K. The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.

Forward-Looking Statements

Certain items in this Form 8-K (and the exhibits hereto) may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, New Senior’s expectations with respect to the completion of the Acquisition, including in respect of the satisfaction of the closing conditions contained in the Purchase Agreement; the source of funds used to fund the purchase price for the Acquisition; and the entry by New Senior into management agreements with Holiday relating to the Facilities, which remains subject to the approval of New Senior’s Board of Directors and the completion of the Acquisition. These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. New Senior can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this Form 8-K (and the exhibits hereto). New risks and uncertainties emerge from time to time, and it is not possible for New Senior to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this Form 8-K. New Senior expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in New Senior’s expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

 

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The Combined Statements of Revenues and Certain Operating Expenses of the Timber Portfolio for the three months ended March 31, 2015 (unaudited) and the year ended December 31, 2014 are hereby incorporated by reference to Exhibit 99.2 hereto. The Timber Portfolio will be acquired from unrelated parties. The Company is not aware, after reasonable inquiry, of any material factors relating to the operations of the Timber Portfolio, other than as disclosed herein, that would cause the reported historical financial information not to be necessarily indicative of future operating results. Material factors considered by the Company relating to the operations of the properties in assessing the acquisition of the Timber Portfolio include the number of units, occupancy rates, the geographical locations and the rent revenue as described elsewhere in this Current Report on Form 8-K.

(b) Pro Forma Financial Information

The unaudited pro forma combined financial information as of and for the three months ended March 31, 2015 and for the year ended December 31, 2014 of New Senior and the notes thereto are hereby incorporated by reference to Exhibit 99.1 hereto and the related notes thereto.

(d) Exhibits

 

Exhibit
Number

  

Description

2.1    Purchase and Sale Agreement, dated as of June 22, 2015, by and among the purchaser named therein and the sellers named therein.**
99.1    Unaudited pro forma combined financial information as of and for the three months ended March 31, 2015 and for the year ended December 31, 2014 of New Senior, and the related notes thereto.
99.2    Combined Statement of Revenues and Certain Operating Expenses of The Timber Portfolio for the three months ended March 31, 2015 (unaudited) and the year ended December 31, 2014.
99.3    Press Release announcing the Acquisition.
99.4    Revised Financial Information and Disclosures from New Senior Investment Group Inc.’s Annual Report on Form 10-K for the Year Ended December 31, 2014.
101.INS*    XBRL Instance Document.
101.SCH*    XBRL Taxonomy Extension Schema Document.
101.CAL*    XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*    XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase Document.

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
** The schedules to the Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the SEC upon request.

 

3


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

NEW SENIOR INVESTMENT GROUP INC.
Date: June 22, 2015 By:

/s/ Justine A. Cheng

Name: Justine A. Cheng
Title: Chief Financial Officer and Treasurer

 

4


EXHIBIT INDEX

 

Exhibit
Number

  

Description

2.1    Purchase and Sale Agreement, dated as of June 22, 2015, by and among the purchaser named therein and the sellers named therein.**
99.1    Unaudited pro forma combined financial information as of and for the three months ended March 31, 2015 and for the year ended December 31, 2014 of New Senior, and the related notes thereto.
99.2    Combined Statement of Revenues and Certain Operating Expenses of The Timber Portfolio for the three months ended March 31, 2015 (unaudited) and the year ended December 31, 2014.
99.3    Press Release announcing the Acquisition.
99.4    Revised Financial Information and Disclosures from New Senior Investment Group Inc.‘s Annual Report on Form 10-K for the Year Ended December 31, 2014.
101.INS*    XBRL Instance Document.
101.SCH*    XBRL Taxonomy Extension Schema Document.
101.CAL*    XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*    XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase Document.

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
** The schedules to the Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the SEC upon request.

 

5

Exhibit 2.1

PURCHASE AND SALE AGREEMENT

BETWEEN

 

EACH PARTY LISTED AS A “SELLER” ON SCHEDULE I

AS SELLER

AND

NIC ACQUISITIONS LLC

AS PURCHASER

June 22, 2015


TABLE OF CONTENTS

 

ARTICLE I DEFINED TERMS   1   
ARTICLE II PURCHASE AND SALE, PURCHASE PRICE & DEPOSIT   1   

2.1

Purchase and Sale   1   

2.2

Purchase Price and Deposit   2   

2.3

Escrow Provisions Regarding Deposit   2   
ARTICLE III PURCHASER DILIGENCE   3   

3.1

Data Site   3   

3.2

Property Contracts   3   
ARTICLE IV TITLE   4   

4.1

Title Documents   4   

4.2

Survey   4   

4.3

Permitted Exceptions   4   

4.4

Existing Mortgages & Liens/Security Instruments   4   

4.5

Subsequently Disclosed Exceptions   5   
ARTICLE V CLOSING   6   

5.1

Closing Date   6   

5.2

Seller Closing Deliveries   7   

5.3

Purchaser Closing Deliveries   8   

5.4

Closing Prorations and Adjustments   9   

5.5

Post-Closing Adjustments   12   

5.6

Withholding Rights   12   
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER   13   

6.1

Seller’s Representations   13   

6.2

AS-IS   19   

6.3

Representations and Warranties of Purchaser   20   
ARTICLE VII ADDITIONAL COVENANTS OF SELLER AND PURCHASER   22   

7.1

Interim Operating Covenants   22   

7.2

Liens   22   

7.3

Transactions   22   

7.4

Notice of Breach   22   
ARTICLE VIII CONDITIONS PRECEDENT TO CLOSING   22   

8.1

Purchaser’s Conditions to Closing   22   

8.2

Seller’s Conditions to Closing   24   
ARTICLE IX TERMINATION AND ABANDONMENT   25   

9.1

Termination of this Agreement   25   

9.2

Procedure Upon Termination   25   
ARTICLE X DEFAULTS AND REMEDIES   25   

10.1

Purchaser Default   25   

10.2

Seller Default   26   
ARTICLE XI RISK OF LOSS OR CASUALTY   27   

11.1

Closing   27   

11.2

Repairs   27   

ARTICLE XII EMINENT DOMAIN

  27   

 

i


ARTICLE XIII INDEMNIFICATION & SURVIVAL PROVISIONS

  28   

13.1

Effective Date; Survival   28   

13.2

Indemnification by Seller   28   

13.3

Indemnification by Purchaser   28   

13.4

Limitations on Indemnification   29   

13.5

Indemnification Procedures   30   

13.6

Tax Treatment   32   

13.7

Exclusive Remedy   32   

13.8

Manner of Payment   32   

13.9

REIT Savings Clause   32   

13.10

Brokerage   33   

ARTICLE XIV MISCELLANEOUS

  33   

14.1

Binding Effect of Agreement   33   

14.2

Exhibits; Schedules   33   

14.3

Assignability   33   

14.4

Captions   34   

14.5

Number and Gender of Words   34   

14.6

Notices   34   

14.7

Governing Law and Venue   35   

14.8

Entire Agreement   36   

14.9

Amendments   36   

14.10

Severability   36   

14.11

Multiple Counterparts/Facsimile Signatures   36   

14.12

Construction   36   

14.13

Confidentiality/Press Releases.   36   

14.14

Time of the Essence   37   

14.15

Waiver   37   

14.16

Time Periods   37   

14.17

No Personal Liability of Officers, Trustees or Directors   37   

14.18

No Recording   38   

14.19

Relationship of Parties   38   

14.20

Non-Solicitation   38   

14.21

Survival   38   

14.22

Multiple Purchasers   38   

14.23

Multiple Sellers/Purchasers   38   

14.24

Seller Guarantor   38   

14.25

Post-Closing Cooperation   40   

14.26

Further Assurances   40   

14.27

Bulk Sales Laws   41   

14.28

WAIVER OF JURY TRIAL   41   

 

ii


EXHIBITS AND SCHEDULES

EXHIBITS

 

Exhibit A

Legal Description

Exhibit B

Form of Escrow Agreement

Exhibit C

Form of Bill of Sale

Exhibit D

Form of General Assignment and Assumption

Exhibit E

Form of Assignment and Assumption of Resident Agreements

Exhibit F

Form of Bring Down Certificate

Exhibit G

Form of Certification of Non-Foreign Status

Exhibit H

Form of Resident Notification

Exhibit I

Property Contracts List

Exhibit J

Form of Management Agreement

Exhibit K

Assigned Contracts

Exhibit L

Third Party Reports

Exhibit M

Property Questionnaire

Exhibit N

Form of Facility Owner Interest Assignment

SCHEDULES

 

Schedule I

Sellers; Facility Names; Facility Owners and Locations

Schedule 5.4.4

CapEx Difference Multiple

Schedule 6.1.3

Condemnation; Proceedings

Schedule 6.1.4

Assigned Contract Defaults

Schedule 6.1.7

Notices from Governmental Agencies

Schedule 6.1.11

Required Consents

Schedule 6.1.13

Permits

Schedule 6.1.15

Property Statements

Schedule 6.1.22

Environmental Matters

Schedule 6.1.23

Facility Owner Organizational Structure

Schedule 6.1.26

Orders, Decrees and Judgments Pending Against Facility Owners

ANNEXES

 

Annex 1

Defined Terms

 

iii


PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “ Agreement ”) is entered into as of the 22nd day of June, 2015 (the “ Effective Date ”), by and among each party listed as a “Property Seller” on Schedule I-A attached hereto and made a part hereof, and each party listed as an “Entity Seller” on Schedule I-B attached hereto and made a part hereof, each having a principal address at c/o 5885 Meadows Road, Suite 500, Lake Oswego, Oregon 97035 (each Property Seller and each Entity Seller, individually or collectively, as the context requires, “ Seller ”), and NIC Acquisitions LLC, a Delaware limited liability company (“ Purchaser ”).

NOW, THEREFORE, in consideration of the mutual covenants set forth herein, Seller and Purchaser hereby agree as follows:

RECITALS

Each Property Seller owns the real property identified on Schedule I-A , as more particularly described in Exhibit A-1 attached hereto and made a part hereof, together with the Facilities (as hereinafter defined) located thereon and identified on Schedule I-A (the Land and Improvements described on Schedule I-A, the “ Acquired Real Property ”). Each Entity Seller owns all of the limited partnership or limited liability company interests in each of the entities listed on Schedule I-B (each, a “ Facility Owner ” and such interests, the “ Facility Owner Interests ”), and each Facility Owner is the owner of the real property identified on Schedule I-B , as more particularly described in Exhibit A-2 attached hereto and made a part hereof, together with the Facilities (as hereinafter defined) located thereon and identified on Schedule I-B . Seller desires to sell, and Purchaser desires to purchase, the Acquired Real Property and the Facility Owner Interests on the terms and conditions set forth below. At Seller’s sole election exercisable by delivery of written notice to Purchaser not less than ten (10) days prior to the Closing Date, Seller may elect to modify this Agreement to cause any Facility Owner to become a Property Seller or any Property Seller to become a Facility Owner, and in such event (i) Seller and Purchaser shall make the necessary changes to this Agreement to reflect such modification and (ii) Purchaser shall cause the applicable Facility Owner to join as a party to this Agreement.

ARTICLE I

DEFINED TERMS

Unless otherwise defined herein, any term with its initial letter capitalized in this Agreement shall have the meaning set forth in Annex 1 attached hereto and made a part hereof.

ARTICLE II

PURCHASE AND SALE, PURCHASE PRICE & DEPOSIT

2.1 Purchase and Sale . Seller agrees to sell and convey the Property to Purchaser and Purchaser agrees to purchase the Property from Seller, all in accordance with the terms and conditions set forth in this Agreement. Purchaser agrees that Seller, the Manager or their respective Affiliates are the sole owners of all right, title and interest in and to the Seller Marks

 

1


(or have the right to use such Seller Marks pursuant to license agreements with third parties), that the Property shall not include the Seller Marks and that no right, title or interest in or to the Seller Marks is granted, transferred, assigned or conveyed as a result of this Agreement. Purchaser further agrees that Purchaser will not use the Seller Marks for any purpose. Notwithstanding anything to the contrary contained herein, Seller shall not sell, assign, transfer, convey or deliver to Purchaser, and Purchaser shall not purchase, and the Property shall not include, any of the Sellers’ right, title and interest in the Excluded Assets.

2.2 Purchase Price and Deposit . The total purchase price (“ Purchase Price ”) for the Property shall be an amount equal to Six Hundred Forty Million and 00/100 Dollars ($640,000,000.00), payable by Purchaser, as follows:

2.2.1. At or prior to the execution of this Agreement, and as a condition to the effectiveness and enforceability of this Agreement, Purchaser shall deliver to First American Title Insurance Company (“ Escrow Agent ” or “ Title Company ”) a deposit in the amount of Five Million and 00/100 Dollars ($5,000,000.00) (together with all interest and income accrued thereon, the “ Initial Deposit ” and, together with the Additional Deposit, the “ Deposit ”) by wire transfer of immediately available funds.

2.2.2 The balance of the Purchase Price, subject to adjustments required by this Agreement, shall be paid to and received by Escrow Agent by wire transfer of immediately available funds no later than 1:00 p.m., Central Time, on the Closing Date.

2.2.3 Each of Seller and Purchaser agrees that the allocation of the Purchase Price between and among the items comprising the Property will be the amounts set forth in the allocation statement jointly prepared and mutually and reasonably agreed upon by Seller and Purchaser as soon as practicable following the Effective Date (the “ Allocation Statement ,” and that portion of the Purchase Price allocated to each Facility, the “ Allocated Purchase Price ” for such Facility), which Allocation Statement shall be prepared in a manner consistent with Section 1060 of the Code and the treasury regulations thereunder. Neither Seller nor Purchaser shall take a position in any tax return, examination, or administrative or judicial proceeding relating to any tax return that is inconsistent with the Allocation Statement unless required by applicable law or pursuant to a good faith resolution of a tax contest.

2.2.4 All currency amounts set forth in this Agreement are expressed in United States Dollars.

2.2.5 The provisions of this Section 2.2 shall survive the Closing.

2.3 Escrow Provisions Regarding Deposit .

2.3.1 The Deposit shall be held and applied by Escrow Agent in accordance with the Escrow Agreement among Escrow Agent, Seller and Purchaser being executed on the Effective Date in the form of Exhibit B (the “ Escrow Agreement ”).

2.3.2 The tax identification numbers of the parties shall be furnished to Escrow Agent upon request.

 

2


2.3.3 The parties shall deliver to Escrow Agent an executed copy of this Agreement.

ARTICLE III

PURCHASER DILIGENCE

3.1 Data Site .

3.1.1 Purchaser agrees and acknowledges that (i) prior to the Effective Date, Seller has granted Purchaser and its representatives access to the Data Site, and Seller has afforded Purchaser and each of its agents and representatives an opportunity to review the Property, including the Facility Ownership Interests and each of the Facilities and the documentation, contracts, agreements, reports, third party deliveries, financials and other information related thereto provided on the Data Site (collectively, the “ Materials ”), (ii) Purchaser has reviewed and conducted such independent analyses, studies (including, without limitation, environmental studies and analyses concerning the presence of lead, asbestos, water intrusion and/or fungal growth and any resulting damage, PCBs and radon in and about the Land and Improvements), reports, investigations and inspections as it deems appropriate in connection with its purchase of the Property and (iii) Purchaser has completed such review, and all of its diligence with respect to the Property, to its satisfaction. Purchaser agrees and acknowledges that, except as expressly set forth in the Seller’s Representations, Purchaser shall acquire, at the Closing, the Property, subject to the risk that Purchaser has failed to completely and adequately review and consider any or all of the Materials, any physical and/or other inspections of the Property and/or any other information.

3.1.2 Purchaser agrees and acknowledges that, except as expressly set forth in the Seller’s Representations, Seller makes no representations or warranties with respect to the Property (or any portion thereof), the operation, management and/or leasing of the Property, or concerning any statements made or information delivered or made available to Purchaser (whether by Seller, any of its Affiliates or any agents, representatives, consultants or advisors of any of the foregoing, or any other Person) with respect to the Property (or any portion thereof) or the business of Seller, whether included as part of the Materials or any other information disclosed to the Purchaser or otherwise, and all such representations and warranties are hereby expressly excluded and disclaimed. Purchaser agrees and acknowledges that, except as expressly set forth in the Seller’s Representations, all Materials are and were provided for informational purposes only, and Purchaser shall not in any way be entitled to rely upon the completeness or accuracy of the Materials, and will instead in all instances rely exclusively on its own inspections, consultants and advisors with respect to all matters which it deems relevant to its decision to acquire, own and operate the Property.

3.2 Property Contracts . Purchaser shall pay all fees, charges and related costs in connection with the assignment of any Assigned Contract to Purchaser and any other Property Contract of any Facility Owner. Notwithstanding anything to the contrary contained in this Agreement, no Property Seller shall have the obligation to assign to Purchaser any Property Contract of such Property Seller if Seller and Purchaser have been unable to obtain any consent to such assignment required by the terms of such Property Contract and, in such case of the failure to obtain any such required consent to assign such Property Contract, the parties shall consummate the Transactions by excluding such Property Contract from the Assigned Contracts without any reduction in the Purchase Price.

 

3


ARTICLE IV

TITLE

4.1 Title Documents . Prior to the Effective Date, Seller has caused to be delivered to Purchaser, with respect to each Facility, a standard form commitment or preliminary title report (each, a “ Title Commitment ”) to provide a Title Policy with respect to such Facility, together with copies of all instruments identified as exceptions therein (together with each Title Commitment, collectively, the “ Title Documents ”).

4.2 Survey . Prior to the Effective Date, Seller has delivered to Purchaser the most current existing survey in Seller’s possession with respect to the Land and Improvements for each of the Facilities (each, an “ Existing Survey ”). Purchaser may, at its sole cost and expense, order a new or updated survey either before or after the Effective Date (each such new or updated survey for any Facility, together with any Existing Survey for such Facility, is referred to herein as the “ Survey ”).

4.3 Permitted Exceptions . Each of the Facilities and the related Land and Improvements owned by a Property Seller or Facility Owner shall be subject to the following, all of which shall be deemed “ Permitted Exceptions ” with respect to such Facility and such related Property:

4.3.1 All matters shown in the applicable Title Documents and the applicable Surveys, other than (a) any New Exception to which Purchaser has timely objected in accordance with Section 4.5 , (b) mortgages, judgment liens, tax liens (except for the lien of real estate taxes not yet due and payable as of the Closing Date), broker’s liens, any mechanic’s, materialmen’s or any other monetary liens, in each case to the extent not caused by Purchaser, any of Purchaser’s Affiliates or Purchaser’s agents, representatives, consultants and/or contractors (collectively, “ Purchaser’s Consultants ”), or (c) the standard preprinted exceptions including rights of parties in possession (other than exceptions limited to those parties in possession pursuant to the Resident Agreements and the Commercial Leases) and taxes and assessments (other than exceptions limited to taxes and assessments not yet due and payable as of the Closing Date);

4.3.2 All Resident Agreements and all Commercial Leases;

4.3.3 Any occupancy arrangement pursuant to the Travel Program;

4.3.4 Applicable zoning and governmental regulations and ordinances; and

4.3.5 Any matters, defects in or objections to title to Land and Improvements, or title exceptions or encumbrances, arising by, through, under, on behalf of or due to the fault of Purchaser, Affiliates of Purchaser or Purchaser’s Consultants.

4.4 Existing Mortgages & Liens/Security Instruments . It is understood and agreed that any deed of trust and/or mortgage recorded against the Land and Improvements or any portion thereof, or any Lien against the Facility Owner Interests, which secures any indebtedness

 

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for borrowed money and/or any related security agreement or instrument with respect to such indebtedness in favor of Seller or any Facility Owner (each, a “ Secured Lien ”) shall not be deemed a Permitted Exception, and shall be paid off, satisfied, discharged and/or cured either prior to Closing or from proceeds of the Purchase Price at Closing. In addition, Seller shall cause any matter described in clause (b) of Section 4.3.1 (excluding Secured Liens, which are addressed in the preceding sentence) to be Removed at or prior to Closing; provided , however , that if the aggregate liability (or potential liability) with respect to any matter(s) described in Section 4.3.1(b) with respect to all of the Facilities (excluding Mortgages) and the Property shall exceed one and one-half percent (1.5%) of the Purchase Price (the “ Removal Cap Amount ”, and any such matters giving rise to such excess amounts, the “ Removal Cap Matters ”), in the aggregate, Seller shall have no obligation under this Agreement with respect to any amount in excess of the Removal Cap Amount and/or the Removal Cap Matters and may refuse to Remove the Removal Cap Matters (but shall be obligated to Remove whatever matter or matters can be removed by payment of up to the Removal Cap Amount). If Seller does not Remove all matter(s) described in Section 4.3.1(b) in reliance of the terms of this Section 4.4 at or prior to the Closing, Purchaser may, as its exclusive remedy elect by delivery of written notice to Seller to either (i) terminate this Agreement, in which event the Deposit shall be promptly returned to Purchaser, or (ii) accept all Removal Cap Matters as Permitted Exceptions and proceed with the Transactions without a reduction in the Purchase Price. The failure of Purchaser to make any such election within five (5) days after receipt of written notice of Seller’s election not to Remove all Removal Cap Matters shall be deemed an election by Purchaser of clause (ii) above.

4.5 Subsequently Disclosed Exceptions . Purchaser may order any updates, continuations of, and supplements to, any of the Title Commitments or Existing Surveys (each, a “ Title Update ”) at Purchaser’s sole cost and expense. Purchaser shall instruct the Title Company and any surveyor to simultaneously deliver directly to Purchaser and Seller (and their respective counsel referenced in Section 14.6 of this Agreement) copies of each Title Update (including tax and departmental searches) ordered by Purchaser or otherwise issued by the Title Company or any surveyor, and copies of all underlying documentation referenced as an exception as soon as available. If, at any time after the Effective Date but prior to the Closing, any Title Update discloses any additional item(s) (i) not caused by or the result of any act or omission or fault of Purchaser, Purchaser’s Affiliate(s) or any Purchaser Consultant, (ii) that individually or in the aggregate with any other items first reflected on any Title Update that satisfies clauses (i), (ii) and (iii) of this Section 4.5, would have, or would reasonably be expected to have, a material adverse effect on the current use or value of a Facility and (iii) which are not disclosed on any version of, or update to, any of the prior Title Commitments delivered to Purchaser prior to the Effective Date (each, a “ New Exception ”), Purchaser shall notify Seller in writing of Purchaser’s approval or disapproval of such New Exception not later than the date that is the earlier of (i) three (3) Business Days after the date of its receipt of such Title Update and (ii) the Closing Date (the “ New Exception Review Period Expiration Date ”). If Purchaser fails to deliver written notice of its approval or disapproval of any New Exception prior to the New Exception Review Period Expiration Date (but in any event prior to Closing), such New Exception shall be deemed to be a Permitted Exception. If Purchaser disapproves of the New Exception prior to the New Exception Review Period Expiration Date, Seller may, in Seller’s sole discretion, notify Purchaser as to whether it is willing to attempt to Remove the New Exception (and Seller shall have the right to adjourn the Closing Date for a period of up to five (5) days in order to make such election). If Seller elects to attempt to Remove the New

 

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Exception, Seller shall be entitled to any reasonable adjournments of the Closing Date to Remove the New Exception, not to exceed thirty (30) days in the aggregate (and subject to the third sentence of Section 5.1 ). If Seller fails to deliver a written notice of its election to Purchaser prior to the date that is five (5) days after receipt of Seller’s written notice of disapproval of any New Exception, Seller shall be deemed to have elected not to Remove the New Exception. If Seller does not elect to Remove any New Exception, is deemed to have made such an election, or Seller fails to Remove any New Exception prior to the Closing Date, Purchaser may, as its exclusive remedy elect to either (i) remove from this Agreement the Facility that is subject to the New Exception, in which event the Purchase Price shall be reduced by an amount equal to the Allocated Purchase Price for such Facility and the parties shall proceed to Closing as if such Facility and any portion of the Facility Owner Interests or other Property relating exclusively to such Facility shall no longer be part of the Property (collectively, the “ Excluded Property ”), or (ii) waive its objection to the New Exception and proceed with the Transactions without a reduction in the Purchase Price, in which event Purchaser shall be deemed to have approved the New Exception and such New Exception shall be a Permitted Exception. If Purchaser fails to notify Seller in writing of its election in accordance with the foregoing sentence within ten (10) days after the New Exception Review Period Expiration Date, Purchaser shall be deemed to have elected to approve and irrevocably waive any objections to the New Exception. Notwithstanding the forgoing provisions of this Section 4.5 , if the existence of any New Exception that is not a Permitted Exception constitutes a breach by Seller of Section 7.2 of this Agreement, Purchaser shall have the rights and remedies set forth in Article X in connection with such breach, and if Purchaser consummates this Agreement, Purchaser shall be deemed to have accepted any New Exception as a Permitted Exception and shall have no further rights or remedies with respect to such New Exception.

ARTICLE V

CLOSING

5.1 Closing Date . The Closing shall occur on July 30, 2015 (the “ Scheduled Closing Date ”), through an escrow with Escrow Agent, whereby Seller, Purchaser and their attorneys need not be physically present at the Closing and may deliver documents by overnight air courier or other means. Seller shall have the right, at its sole election, to adjourn the Closing Date one or more times for a combined aggregate of not more than thirty (30) days to Remove any New Exception as contemplated by Section 4.5 or satisfy other closing conditions (each, a “ Seller Adjournment ”). A Seller Adjournment may be effected by delivery by Seller of written notice to Purchaser on or prior to the then scheduled Closing Date (as the same may have been previously extended in accordance with the terms of this Section 5.1 ), in which case the adjourned Closing Date shall be set forth in such written notice and shall be a Business Day not less than five (5) days after the giving of such notice. Purchaser shall have the right, at its sole election, to adjourn the Scheduled Closing Date for a period that ends not later than August 15, 2015 (the “ First Extension Period ”) by delivery of written notice to Seller prior to the Scheduled Closing Date. In addition to the foregoing, Purchaser shall have the right, at its sole election, to adjourn the Closing Date one or more times for a period that ends not later than September 15, 2015 (the “ Second Extension Period ”) provided that, prior to August 15, 2015 and each subsequently scheduled Closing Date, (i) Purchaser shall deliver to Seller written notice of the exercise of such extension option, and (ii) prior to August 15, 2015, Purchaser shall deliver to Escrow Agent a one-time additional deposit in the amount of Two Million and

 

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00/Dollars ($2,000,000.00) (together with all interest and income accrued thereon, the “ Additional Deposit ”) by wire transfer of immediately available funds. Time shall be of the essence with respect to Purchaser’s obligation to consummate the Closing on the Closing Date.

5.2 Seller Closing Deliveries . The applicable Seller shall execute and deliver to Escrow Agent (or cause to be delivered to Escrow Agent) each of the following items on or prior to the Closing Date:

5.2.1 A Deed for each parcel of Land and the related Improvements and other real property included in the Property that is owned by any Property Seller, subject to the Permitted Exceptions with Purchaser or Purchaser’s designee as grantee.

5.2.2 A Bill of Sale for property owned by any Property Seller for the benefit of Purchaser or Purchaser’s designee as grantee in the form attached as Exhibit C .

5.2.3 A General Assignment for Miscellaneous Property Assets and Permits (other than the Excluded Permits) owned by any Property Seller to Purchaser or Purchaser’s designee(s) in the form attached as Exhibit D (the “ General Assignment ”).

5.2.4 An Assignment of Resident Agreements for Resident Agreements to which Property Seller is a party to Purchaser or Purchaser’s designee(s) in the form attached as Exhibit E (the “ Resident Agreements Assignment ”).

5.2.5 An Assignment of Facility Owner Interests to Purchaser or Purchaser’s designee(s) in the form attached as Exhibit N (the “ Facility Owner Interest Assignment ”).

5.2.6 A certificate in the form of Exhibit F attached hereto (the “ Bring Down Certificate ”, together with each Deed, Bill of Sale, General Assignment, Resident Agreements Assignment and Facility Owner Interest Assignment, each a “ Closing Document ”).

5.2.7 A management agreement or sub-management agreement, in substantially the form of Exhibit J (each, a “ Management Agreement ”), for each Facility, by and between either New Facility Owner or Facility Owner (or an Affiliate of either party, as applicable, that is engaged to manage such Facility), and Holiday AL Management Sub LLC (“ Holiday Manager ”), fully executed by Holiday Manager.

5.2.8 Seller’s counterpart signature to the closing statement prepared by the Title Company, which shall include such prorations and adjustments calculated in accordance with the terms of this Agreement (the “ Closing Statement ”).

5.2.9 A title affidavit or an indemnity in a form reasonably acceptable to Seller and Purchaser, which is sufficient to enable the Title Company to delete the standard pre-printed exceptions to the title insurance policy to be issued pursuant to the Title Commitment.

5.2.10 A certification of Seller’s non-foreign status pursuant to Section 1445 of the Code in the form of Exhibit G attached hereto.

 

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5.2.11 Any applicable sales tax, real property transfer tax forms and returns, transfer declaration, ownership information or other similar disclosure forms or reports required by the laws of the State where such Land and Improvements is located or any other governmental authority.

5.2.12 The Allocation Statement.

5.2.13 Resolutions, certificates of good standing, and such other organizational documents as the Title Company or Purchaser shall reasonably require evidencing Seller’s authority to consummate the Transactions.

5.2.14 The most current Rent Roll and Property Statement for each Facility, each prepared in the ordinary course of business certified as true and accurate by Seller as of such date.

5.2.15 An updated Property Contracts List effective as of a date no more than three (3) Business Days prior to the Closing Date.

5.2.16 Such notices, transfer disclosures, affidavits or other similar documents that are required by applicable laws to be executed by Seller or otherwise reasonably necessary in order to consummate the Transactions.

5.2.17 If required by applicable law or requested by Purchaser, notification letters to all Residents prepared and executed by Manager in the form attached hereto as Exhibit H , which shall be delivered to all Residents of the applicable Facility by Holiday Manager immediately after Closing.

5.3 Purchaser Closing Deliveries . Except for the Purchase Price, which is to be delivered at the time specified in Section 2.2.2 , Purchaser shall deliver to Escrow Agent (or cause to be delivered to Escrow Agent), each of the following on or prior to the Closing Date:

5.3.1 The full Purchase Price, less the Deposit, plus or minus the adjustments or prorations required by this Agreement.

5.3.2 Purchaser’s counterpart signature to the Closing Statement.

5.3.3 A countersigned counterpart of the General Assignment.

5.3.4 A countersigned counterpart of the Assignment of Facility Owner Interests.

5.3.5 An executed certificate in the form of the Bring Down Certificate.

5.3.6 A countersigned counterpart of the Resident Agreements Assignment.

5.3.7 A Management Agreement for each Facility countersigned by the New Facility Owner or Facility Owner (or an Affiliate of either party, as applicable, that is engaged to manage such Facility).

 

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5.3.8 Resolutions, certificates of good standing, and such other organizational documents as Title Company or Seller shall reasonably require evidencing Purchaser’s authority to consummate the Transactions.

5.3.9 Such notices, transfer disclosures, affidavits or other similar documents that are required by applicable law to be executed by Purchaser or otherwise reasonably necessary in order to consummate the Transactions.

5.4 Closing Prorations and Adjustments .

5.4.1 General . Subject to Section 5.4.4 , all normal and customarily proratable items relating to the Property and the Facility Owners, including, without limitation, collected rents, operating expenses, real and personal property taxes, other operating expenses and fees, shall be prorated as of 11:59 p.m. (Local Time) on the day immediately prior to the Closing Date in accordance with the proration schedule agreed upon by Seller and Purchaser prior to Closing, the parties agreeing that Seller shall be responsible and charged for all of same attributable to the period up to the Closing Date (and credited for any amounts paid by Seller or any Facility Owner attributable to the period on or after the Closing Date) and Purchaser shall be responsible and charged for all of the same attributable to the period on and after the Closing Date.

5.4.2 Operating Expenses . All of the taxes (other than real estate taxes) and other expenses incurred in connection with the ownership, leasing and operation of the Property shall be prorated on an accrual basis. Seller shall pay all such expenses accruing prior to the Closing Date and Purchaser shall pay all such expenses accruing from and after the Closing Date.

5.4.3 Utilities . A proration for utilities shall be made based upon the most recently ascertainable bills. Seller shall be entitled to the return of any deposit(s) posted by it or its Affiliate with any utility company. On or prior to the Closing Date, Seller and Purchaser shall notify each utility company serving the Property to terminate Seller’s account, effective as of the Closing, and shall arrange utility service for the Property, as of the Closing, in name directed by Purchaser. Notwithstanding the foregoing, Purchaser, at its option, may elect, in accordance with the Management Agreement, not to terminate certain existing utility contracts for certain Facilities, in which case Manager, as agent for Holiday Manager, will keep such utility contracts in place.

5.4.4 Capital Expenditures . As described in the next sentence, a proration for capital expenditures shall be made equal to the difference (the “ Capex Difference ”) between (a) the aggregate amount of capital expenditures made and paid for by Seller or any Facility Owner with respect to the Facilities for the period from and including January 1, 2015 through and including the day immediately prior to the Closing Date (excluding capital expenditures in connection with emergencies) and (b) an amount equal to the product of (i) the amount set forth on Schedule 5.4.4 multiplied by (ii) a fraction having a numerator equal to the number of days from and including January 1, 2015 until and including the day immediately preceding the Closing Date, and having a denominator of three hundred sixty-five (365). If the Capex Difference is positive, such difference shall be credited to Seller on the Closing Date, and if it is negative, such difference shall be credited to Purchaser on the Closing Date.

 

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5.4.5 Real Estate Taxes . Any real estate ad valorem or similar taxes for the Land and Improvements, or any installment of assessments payable in installments which installment is payable in the calendar year of Closing, shall be prorated to the date of Closing, based upon actual days involved. The proration of real property taxes or installments of assessments shall be based upon the assessed valuation and tax rate figures for the year in which the Closing occurs to the extent the same are available; provided, however, that in the event that actual figures (whether for the assessed value of the Land and Improvements or for the tax rate) for the year of Closing are not available at the Closing Date, the proration shall be made using figures from the preceding year or based on a prior installment payment for such calendar year.

5.4.6 Property Contracts . Purchaser shall assume at Closing the obligations arising from and after the Closing Date under the Assigned Contracts (and the Facility Owners shall remain responsible for its Property Contracts); however, operating expenses (including payment obligations under the Assigned Contracts) shall be prorated under Section 5.4.2.

5.4.7 Resident Agreements . All collected rent (whether fixed monthly rentals, additional rentals, escalation rentals, retroactive rentals, operating cost pass-throughs or other sums and charges payable by Residents under the Resident Agreements) and other collected revenues from any portion of the Facilities or the related Land and Improvements shall be prorated as of 11:59 p.m. (Local Time) on the day immediately prior to the Closing Date on the basis of the actual number of days of the month (or year, as applicable) which shall have elapsed as of the Closing Date. Purchaser shall receive all collected rent, income and revenues attributable to dates from and after the Closing Date. Seller shall receive all collected rent and other collected revenues attributable to dates prior to the Closing Date. Notwithstanding the foregoing, no prorations shall be made in relation to rents which have not been collected as of the Closing Date (the “ Uncollected Rents ”). No adjustments shall be made in Seller’s favor for rents which have accrued and are unpaid as of the Closing, but Purchaser shall pay Seller such accrued Uncollected Rents (to the extent attributable to periods prior to the Closing Date and net of reasonable costs of collection) as and when collected by Purchaser, subject to the further provisions of this Section 5.4.7 . Purchaser agrees to bill Residents of the Facilities for all Uncollected Rents and to take reasonable actions (which shall not include an obligation to commence legal action) to collect Uncollected Rents. Purchaser’s collection of rents shall be applied in the following order of priority: (i) first, in payment of rent for the month in which the Closing Date occurs, with such amounts being prorated between Purchaser and Seller based upon the number of days each owned the Property during the month in which the Closing occurs; (ii) second, to the month immediately preceding the month in which the Closing occurs; (iii) third, in payment of rent for any month which commenced after the Closing, but only to the extent payments of rents for such month are then currently due; and (iv) fourth, in payment of rents for months preceding the month in which the Closing occurs. After the Closing, Seller shall not have the right to commence legal actions or proceedings, or take any other action, to collect Uncollected Rents owed to Seller by any current Resident, provided that (a) Holiday Manager shall have the right to send bills in the ordinary course of business to current Residents for Uncollected Rents, and (b) Seller shall have the right to collect Uncollected Rents with respect to any former Resident.

5.4.8 Insurance . No proration shall be made in relation to insurance premiums, and insurance policies will not be assigned to Purchaser.

 

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5.4.9 Employees . Any wages, benefits or other payments due and owing in respect of employment or services rendered to Seller or any Facility Owner on or prior to the Closing by any Facility Employee, as applicable, shall be paid by Seller through the day immediately prior to the Closing Date (or credited to Purchaser on the Closing Date to the extent not paid by Seller as of the Closing Date). Any wages, benefits or other payments due and owing in respect of employment or services rendered following the Closing by any Facility Employee, as applicable, shall be paid by Purchaser (or its Affiliate(s)) in accordance with the Management Agreement, and any wages, benefits or other payments to Facility Employees paid by Seller or any Facility Owner prior to Closing with respect to any period commencing on or after the Closing Date, if any, shall be credited to Seller on the Closing Date.

5.4.10 Closing Costs .

5.4.10.1 Seller shall be responsible for payment of the following Transactions costs: (i) fees of Seller’s attorneys, accountants and other consultants, as well as any accountants’ fees in connection with the preparation of any financial statements of the Property required by the Securities and Exchange Commission; (ii) fees in connection with the preparation of the Title Commitments and the Existing Surveys and any updates requested by Purchaser thereto or otherwise prepared by the Title Company; (iii) fees for UCC, lien, judgment and other searches reasonably requested by Purchaser, (iv) all state, city, county and municipal recording fees and all related charges and costs in connection therewith; (v) all premiums for each Title Policy and all endorsements to any such policy; (vi) seventy-five percent (75%) of all real estate transfer taxes, deed taxes, stamp taxes, intangibles taxes or similar taxes imposed with respect to the Transactions and all sales taxes imposed upon the portion of the Purchase Price allocated to transferred personal property included in the Property (collectively, the “ Transfer Taxes ”); (vii) one-half of the fees and expenses for the Escrow Agent; and (viii) Third-Party Reports provided by Seller.

5.4.10.2 Purchaser shall be responsible for payment of the following Transactions costs: (i) fees of Purchaser’s attorneys, accountants (except for accountants’ fees in connection with the preparation of any financial statements of the Property required by the Securities and Exchange Commission, which shall be paid by Seller) and other consultants, and the fees, costs and expenses in connection with Purchaser’s due diligence (exclusive of the Third Party Reports provided by Seller); (ii) twenty-five percent (25%) of the Transfer Taxes; (iii) one-half of the fees and expenses for the Escrow Agent; (iv) fees and expenses for the investment of the Deposit; and (v) any and all costs, expenses and fees incurred in connection with, or relating to, the preparation of any statements, reports or filings with or required by the Securities and Exchange Commission as a result of Purchaser’s status as a public company (subject to the exception noted above for accountants fees).

5.4.11 Security Deposits . The amount of any security deposits held by Seller or any Facility Owner, as of the day immediately preceding the Closing Date, under the terms of any Resident Agreements, for any period on and extending beyond the Closing Date shall be a credit to the cash to be paid by Purchaser at the Closing.

 

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5.4.12 Possession . Possession of the Property, subject to the Resident Agreements, Assigned Contracts, and Permitted Exceptions, shall be delivered to Purchaser at the Closing upon release from escrow of all items to be delivered by Purchaser pursuant to Section 5.3 . Seller shall make available to Purchaser at the Property on the Closing Date (a) originals or copies of the Resident Agreements, Assigned Contracts, operating manuals and keys and access codes to the Facilities and the related Land and Improvements, and (b) to the extent reasonably available to Seller, lease files, warranties, guaranties, and Seller’s and any Facility Owner’s books and records (other than proprietary information) (the items covered by the foregoing clauses (a) and (b), collectively, “ Seller’s Property-Related Files and Records ”) exclusively relating to the Property. Purchaser agrees, for a period of not less than three (3) years after the Closing (the “ Records Hold Period ”), to (a) provide and allow Seller reasonable access to Seller’s Property-Related Files and Records for purposes of inspection and copying thereof, and (b) reasonably maintain and preserve Seller’s Property-Related Files and Records. If, at any time after the Records Hold Period, Purchaser desires to dispose of Seller’s Property-Related Files and Records, Purchaser must first provide Seller not less than thirty (30) days prior written notice (the “ Records Disposal Notice ”). Seller shall have a period of thirty (30) days after receipt of the Records Disposal Notice to enter the Property (or such other location where such records are then stored), at reasonable times upon reasonable notice, and to remove or copy those of Seller’s Property-Related Files and Records that Seller desires to retain.

5.5 Post-Closing Adjustments . To the extent applicable, Seller and Purchaser, acting in good faith, shall reconcile with each other within ninety (90) days of the Closing Date, the amounts prorated and adjusted in this Article V using any new or updated information, including the reconciliation of estimated amounts with actual amounts, the correction of any errors and the inclusion of any items which should have been included at the Closing. All adjustments to be made based on the mutual agreement of the parties shall be paid to the party entitled to such adjustment within thirty (30) days after the final determination thereof. In the event the parties have not agreed with respect to the adjustments required to be made pursuant to this Section 5.5 within thirty (30) days following expiration of such ninety (90) day period, upon application by any such party, a certified public accountant reasonably acceptable to the parties shall determine any such adjustments which have not theretofore been agreed to between such parties. The charges of such accountant shall be borne by the party that does not prevail in such dispute. All adjustments to be made as a result of the final results of the adjustments shall be paid to the party entitled to such adjustment within thirty (30) days after the final determination thereof. Notwithstanding anything to the contrary contained in this Agreement, (i) in the event that, following the Closing, Purchaser shall receive a refund of real estate taxes which relates to any period of time all or partly prior to the Closing (whether such refund is made by direct payment or in the form of a credit against future real estate tax obligations), such refund (net of the reasonable, out-of-pocket costs of obtaining such refund, which shall be apportioned in the same percentages as the refund itself) shall be apportioned between the parties in proportion to the amount of time that each party owned the Property during the tax period to which the refund relates, and (ii) subject to the requirements of clause (i), neither party shall have any obligation to re-adjust any items after the expiration of the periods set forth in this Section 5.5.

5.6 Withholding Rights . Each Purchaser shall be entitled to deduct and withhold from the consideration otherwise payable to any Seller pursuant to this Agreement such amounts as are required to be deducted and withheld with respect to the making of such payment under applicable tax law. Amounts so withheld and paid over to the appropriate taxing authority shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction or withholding was made.

 

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ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER

The disclosure schedules attached hereto (the “ Disclosure Schedules ”) are arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Agreement to which such sections and subsections of the Disclosure Schedules relate. An exception to a representation or warranty in this Article VI set forth in the Disclosure Schedules effectively modifies the corresponding representation or warranty in this Article VI ; provided that any fact or condition disclosed in any section of the Disclosure Schedules in such a way as to make its relevance to a representation or representations made elsewhere in this Agreement or information called for by another section of the Disclosure Schedules reasonably apparent shall be deemed to be an exception to such representation or representations or to be disclosed on such other section of such Disclosure Schedules notwithstanding the omission of a reference or cross reference thereto. Any fact or item disclosed in any section of the Disclosure Schedules shall not be deemed, solely by reason of such inclusion, to be material and shall not be employed as a point of reference in determining any standard of materiality under this Agreement.

6.1 Seller’s Representations . Seller represents and warrants to Purchaser the following as of the Effective Date and as of the Closing Date, that except as set forth in the Disclosure Schedules (the parties agreeing that Seller shall be deemed to have satisfied its representations and warranties with respect to delivery of any documents or any other materials if such documents or materials are made available through the Data Site prior to and through the Effective Date):

6.1.1 Seller and each Facility Owner is validly existing and in good standing under the laws of the state of its formation; and Seller has the entity power and authority to sell and convey the Property and to execute the documents to be executed by Seller and has taken all corporate, partnership, limited liability company or equivalent entity actions required for the execution and delivery of this Agreement, and the consummation of the Transactions. The execution, delivery and compliance with or fulfillment of the terms and conditions hereof will not (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, Seller’s organizational documents, (ii) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under any contract to which Seller is a party or by which Seller or any Property is otherwise bound, which conflict, breach or default would have a Material Adverse Effect, or (iii) result in a violation or breach, in any material respect, of any legal requirement applicable to Seller or by which Seller or the Property is bound. This Agreement is a valid and binding agreement, enforceable against Seller in accordance with its terms, and upon full execution and delivery of each Closing Document to which Seller is a party, such Closing Document will be a valid and binding agreement, enforceable against Seller in accordance with its terms, in each case except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and equitable principles and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction.

 

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6.1.2 Seller is not a “foreign person,” as that term is used and defined in Section 1445 of the Code.

6.1.3 Except as shown on Schedule 6.1.3 and except for unlawful detainer or similar actions against Residents that are brought in the ordinary course of any Property Seller’s or any Facility Owner’s operation of the Facilities, as of the Effective Date, there are no actions, proceedings, litigation or governmental investigations or condemnation actions either pending, or to Seller’s Knowledge, threatened in writing against any Property Seller, Facility Owner, or the Facilities that, if adversely determined, would be expected to result in any liability or obligation in excess of $25,000 for any single claim, or $750,000 in the aggregate.

6.1.4 All material Property Contracts are described on Exhibit I (the “ Property Contracts List ”). Other than matters reflected in the Title Documents, the Property Contracts List, the Permits identified on Schedule 6.1.13 , the National Contracts, the Resident Agreements and property management contracts, no Property Seller or Facility Owner is party to any material contract, agreement, lease, license, sublicense or other arrangement relating to the use, ownership, management, operation, leasing, maintenance or repair of the Facilities that is necessary to own and operate the Facilities consistent with past practice. Seller has made available to Purchaser complete and correct copies of each of the Property Contracts. Except as otherwise disclosed on Schedule 6.1.4 hereto, no Property Seller or Facility Owner or, to Seller’s Knowledge, any other party is in material default under any of the Property Contracts on the Effective Date.

6.1.5 A rent roll for each Facility (as updated pursuant to Section 5.2.13 , each a “ Rent Roll ”) dated not earlier than thirty (30) days prior to the Effective Date has been made available to Purchaser as part of the Materials and is a true, correct and complete list of all Residents as of the date indicated therein, and the updated Rent Roll delivered pursuant to Section 5.2.13 will be a true, correct and complete list of all Residents as of the date of such update. Each Rent Roll is the rent roll used and relied upon by the applicable Property Seller or Facility Owner in connection with its operation of the applicable Facility. Except pursuant to any Permitted Exception, including the Residents shown on the Rent Roll as of the date indicated therein and any tenant under any Commercial Leases, there are no leases, subleases, occupancies or tenancies or parties in possession of any part of any Facility, and there are no other rights of possession which have been granted to any third party or parties. No interest in the Resident Agreements and/or in any of the rentals due or to become due under the Resident Agreements will be subject to, at Closing, any assignment or encumbrance granted by any Property Seller or Facility Owner (except for any assignment or encumbrance to be released at Closing). To Seller’s Knowledge, the Resident Agreements are in full force and effect in accordance with their terms. Except as shown on the Rent Roll (or to the extent any pre-paid rent attributable to periods after Closing is credited to Purchaser at Closing), there are no deposits and no rent has been pre-paid more than one (1) month in advance.

6.1.6 Seller has made available to Purchaser true and complete copies of the sample form(s) of Resident Agreement (including sample forms of addendum and annexes) used at each of the Facilities (collectively, the “ Resident Agreement Form ”), and all Resident Agreements with respect to any Facility are consistent in all material respects with the applicable form of the Resident Agreement Form.

 

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6.1.7 Other than as described on Schedule 6.1.7 , as of the Effective Date, no Property Seller or Facility Owner has received written notice from any governmental authority with jurisdiction over the Facilities of any violation by any Property Seller, Facility Owners or the Facilities or the related Land and Improvements or the other Property of any laws, ordinances or regulations applicable to any Property Seller, Facility Owner, or Facility that remains uncured or unresolved, except to the extent any such violation has not had, and would not reasonably be expected to have, a Material Adverse Effect.

6.1.8 Except as disclosed in the Title Documents, (i) no Property Seller or Facility Owner has submitted and, to Seller’s Knowledge, no other Person has submitted, in each case as of the Effective Date, an application for the creation of any special taxing district affecting the Facilities or the related Land and Improvements (or any part thereof), or annexation thereby, or inclusion therein and (ii) no Property Seller or Facility Owner has received written notice prior to the Effective Date that any governmental authority has commenced or intends to commence construction of any special or off-site improvements or has imposed or increased or intends to impose or increase any special or other assessment against the Facilities (or the related Land or Improvements or any part thereof).

6.1.9 Neither Seller, any Facility Owner, nor Seller’s general partner or managing member has (A) made a general assignment for the benefit of creditors, (B) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors, (C) suffered the appointment of a receiver to take possession of all, or substantially all, of such party’s assets, which remains pending as of such time, (D) suffered the attachment or other judicial seizure of all, or substantially all, of its assets, which remains pending as of such time, (E) admitted in writing its inability to pay its debts as they come due, or (F) made an offer of settlement, extension or composition to its creditors generally.

6.1.10 Except as disclosed in the Title Documents, no Property Seller or any Facility Owner has granted any option, right of first refusal, first offer or first opportunity, or any similar right, to any party to acquire any fee or ground leasehold interest in any portion of the Land and/or Improvements.

6.1.11 Other than as described on Schedule 6.1.11 (collectively, the “ Required Consents ”), no consent, approval, order or authorization of, or registration, declaration or filing with, any applicable governmental authority is required to be obtained or made by Seller in connection with the execution and delivery of this Agreement or the consummation of the Transactions.

6.1.12 (a) The Land and Improvements relating to each Facility are assessed for real estate tax purposes as one or more wholly independent tax lots, separate from any adjoining land or improvements not constituting a part of the Property, and no other land or improvements are assessed and taxed together with such Land and Improvements.

(b) To Seller’s Knowledge, Purchaser shall not, by acquiring the Property, become a member or owner of a condominium or homeowner’s association or similar entity.

 

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6.1.13 Schedule 6.1.13 identifies, as of the Effective Date, all material Permits possessed by Seller, any Facility Owner, or Manager necessary for the ownership and operation of the Facilities, each of which is valid, effective and remains outstanding, except as otherwise set forth on Schedule 6.1.13 . Either Seller, Facility Owner, or Manager has all material Permits necessary to operate each applicable Facility as currently operated by Property Seller or Facility Owner, as applicable.

6.1.14 All Facility Employees (as defined in the Management Agreement) are employed by Harvest Management Sub TRS Corp. As of the Effective Date, there are no labor or collective bargaining agreements which pertain to the Facility Employees, and no labor unions or other organizations representing, purporting to represent or attempting to represent, any of the Facility Employees.

6.1.15 Attached as Schedule 6.1.15 are copies of the Property Statements prepared as of the date indicated therein for each of the Facilities. The Property Statements are accurate and complete, in all material respects, and fairly present, in all material respects, the financial condition and the results of operations for the Facilities, as applicable, as of the respective dates indicated in such Property Statements.

6.1.16 True, correct and complete copies of certificates of insurance evidencing the insurance maintained by Seller or any Facility Owner as of the Effective Date with respect to the Property have been made available to Purchaser as part of the Materials. No Property Seller or Facility Owner has received written notice from any insurance company identifying any defects or inadequacies in the Property, which, if not corrected, would result in the termination of insurance coverage.

6.1.17 (a) Neither Seller nor any Facility Owner is a Prohibited Person.

(b) None of the Property is the proceeds of specified unlawful activity as defined by 18 B.SC. § 1956(c)(7).

6.1.18 Each property questionnaire in the form of the Property Questionnaire, as completed and delivered by Seller to Purchaser with respect to each of the Facilities, is true, correct and complete in all material respects.

6.1.19 Neither Seller nor any Facility Owner holds any “plan assets” within the meaning of Section 3(42) of the Employee Retirement Income Security Act of 1974, as amended.

6.1.20 The Property is all owned by Seller or Facility Owners (and no other Person) and, together with the Excluded Assets, the National Contracts, and the IT Assets, constitutes all of the material assets and properties used in the operation of the Facilities, other than the personal property owned by Manager.

6.1.21 Property Sellers or Facility Owners have, and at Closing Property Sellers will deliver to Purchaser, good title to the Miscellaneous Property Assets, free and clear of all Liens.

 

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6.1.22 Environmental Matters .

6.1.22.1 Except as (i) disclosed on Schedule 6.1.22 or as identified in the environmental reports, studies and other information relating to the environmental condition of the Land and Improvements delivered by Seller to Purchaser or made available for Purchaser’s review in the Materials or (ii) has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect:

(a) There is no current violation of Environmental Laws related to the Land and Improvements and no Property Seller or Facility Owner has received from any Person, with respect to the Land or Improvements, any (A) written notice or claim alleging liability or a breach of any Environmental Laws, or (B) written request for information pursuant to Environmental Law, which, in each case, remains pending or unresolved and is the source of ongoing obligations or requirements as of the Effective Date.

(b) No Property Seller or Facility Owner currently stores or uses any Hazardous Materials at any Facility, except for Hazardous Materials used in the ordinary course of business at any Facility, including cleaning fluids, insecticides, medicines, petroleum products and other similar items (the “ Common Products ”), which Common Products are used, transported, stored and disposed of by the Seller in compliance with all applicable Environmental Laws.

(c) To the Seller’s Knowledge, there has been no release of Hazardous Materials in contravention of Environmental Law with respect to the Land or Improvements that has not been remediated, and no Property Seller or Facility Owner has received any written notice of any such release that has not been remediated which would reasonably be expected to result in a claim under Environmental Laws or a violation of Environmental Laws or a violation of the term of any license issued to Seller pursuant to applicable Environmental Laws.

6.1.22.2 Seller has, prior to the Effective Date, made available to the Purchaser on the Data Site for each Facility a copy of the most recent Phase I environmental reports in Seller’s possession.

6.1.23 Organizational Structure . The organizational structure of each Facility Owner is set forth in Schedule 6.1.23 attached hereto. No Facility Owner has held or owned any legal or beneficial interest in any other Person.

6.1.24. Title to Facility Owner Interests . Entity Seller holds and owns legally and beneficially, and has good and valid title to, one hundred percent (100%) of the outstanding partnership or membership interests in and to the Facility Owners, free and clear of all Liens. Except as disclosed to Purchaser, the Facility Owner Interests are not certificated and do not constitute “securities” under Article 8 of the Uniform Commercial Code.

6.1.25 No Other Business or Assets . No Facility Owner (i) has carried on any business other than the ownership and operation of its Facility, the Land and Improvements relating thereto and any ancillary activities in connection therewith or (ii) owns any material assets other than assets relating to the ownership and operation of the its Facility.

 

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6.1.26. Orders/Judgments . Except as set forth on Schedule 6.1.26 attached hereto, there are no orders, decrees or judgments pending against any Facility Owner by or before any federal, state or municipal court or other governmental agency, department, commission, board, bureau, instrumentality or other governmental authority.

6.1.27 Entity Documents . Entity Seller has made available to Purchaser in the Materials true, correct and complete copies of the organizational documents of each Facility Owner (the “Entity Documents”). Except for the Entity Documents, there are no other agreements, oral or written, relating to voting, consent or other rights affecting the management or governance of any Facility Owner. No default exists beyond any notice and cure period under the Entity Documents.

6.1.28 Employees . None of the Facility Owners has, or has had, at any time any employees.

6.1.29 Debt . No Facility Owner has created, incurred, assumed, guaranteed or otherwise allowed to exist any Debt that will remain outstanding and/or an obligation of such Facility Owner at Closing (excluding any Debt that is satisfied by Seller at Closing). For the purposes of this Section 6.1.29, “Debt” means, with respect to any Facility Owner, without duplication: (a) all indebtedness of such Facility Owner for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Facility Owner is liable, (b) all unfunded amounts under a loan agreement, letter of credit (unless secured in full by cash), or other credit facility for which such Facility Owner would be liable or subject, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Facility Owner as a guaranteed payment to partners or a guaranteed preferred or special dividend, including any mandatory redemption of shares or interests, (d) all indebtedness guaranteed by such Facility Owner, directly or indirectly, (e) all obligations under leases that constitute capital leases under GAAP for which such Facility Owner or any of its assets is liable or subject, and (f) all net marked-to-market obligations of such Facility Owner under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Facility Owner or any of its assets is liable or subject contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Facility Owner otherwise assures a creditor against loss.

6.1.30 Financials . Since the date of the most recent financial statements of each Facility Owner (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, and (ii) such Facility Owner has not incurred any material liabilities (contingent or otherwise) other than trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice.

6.1.31 Facility Owner Taxes . Each Facility Owner is, and has been at all times since its formation, treated as disregarded entity for U.S. federal income tax purposes. Each Facility Owner (i) has duly and timely filed (or had filed on its behalf) all material tax returns required to be filed by it (after giving effect to any filing extension granted by a governmental authority) and (ii) has paid (or had paid on its behalf) all material taxes that are required to be paid by it (whether or not shown on such tax returns).

 

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6.2 AS-IS . Except as otherwise expressly set forth in Seller’s Representations:

6.2.1 PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT INCLUDING SELLER’S REPRESENTATIONS, AND AS A MATERIAL INDUCEMENT TO THE SELLER’S EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PROPERTY IS EXPRESSLY PURCHASED AND SOLD “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.”

6.2.2 The Purchase Price and the terms and conditions set forth herein are the result of arm’s-length bargaining between entities familiar with transactions of this kind, and the price, terms and conditions set forth in this Agreement reflect the fact that Purchaser is not relying upon any information provided by (or by any Person on behalf of) Seller or statements, representations or warranties, express or implied, made by (or by any Person on behalf of) Seller, including, without limitation, relating to the value of the Property, the physical or environmental condition of the Property, any state, federal, county or local law, ordinance, order or permit, or the suitability, compliance or lack of compliance of the Property with any regulation, or any other attribute or matter of or relating to the Property (except as expressly set forth in the Seller’s Representations). Without limiting Seller’s Representations, Purchaser agrees that Seller shall not be responsible or liable to Purchaser (i) for any defects, errors or omissions in the Materials or (ii) except as the result of a breach by Seller of Article VII , on account of any conditions affecting the Property.

6.2.3 Except for breaches of Seller’s Representations and subject to Purchaser’s rights to indemnification under Article XIII , Purchaser, for itself and on behalf of its successors and assigns, and anyone claiming by, through or under Purchaser, hereby fully releases each of Seller and the other Seller Indemnified Parties from, and irrevocably waives its right to maintain, any and all claims and causes of action that it or they may now have or hereafter acquire or may arise against such Seller Indemnified Parties with respect to any and all Damages arising from or related to any defects, errors, omissions in the Materials or other conditions affecting the Property.

6.2.4 Purchaser acknowledges and agrees that, except for the Seller Representations, no representation has been made, and no responsibility is assumed by Seller, with respect to the financial earning capacity, the continued occupancy levels of the Facilities, or any part thereof or, without limiting any of the foregoing, occupancy at Closing.

6.2.5 Purchaser agrees and acknowledges that, prior to Closing, Property Sellers and Facility Owners shall have the right, but not the obligation, to enforce its rights against any and all Property occupants, guests or Residents. Purchaser agrees that the departure or removal, prior to Closing, of any of such guests, occupants or Residents, in and of itself, shall not be the basis for, nor shall it give rise to, any claim on the part of Purchaser, nor shall it affect the obligations of Purchaser under this Agreement in any manner whatsoever; and Purchaser shall close escrow and accept delivery of the Deeds and the Assignment of Facility Owner Interests with or without such Residents in possession and without any allowance or reduction in the Purchase Price under this Agreement.

 

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6.2.6 Purchaser acknowledges that the Property may be subject to the federal Americans With Disabilities Act (the “ ADA ”) and the federal Fair Housing Act (the “ FHA ”). The ADA requires, among other matters, that Residents and/or owners of “public accommodations” remove barriers in order to make the Facilities accessible to disabled persons and provide auxiliary aids and services for hearing, vision or speech impaired persons. Except as expressly set forth in the Seller’s Representations, Seller makes no warranty, representation or guarantee of any type or kind with respect to the Property’s compliance with the ADA or the FHA (or any similar state or local law), and Seller expressly disclaims any such representations.

The phrase “ Seller’s Knowledge ,” or words of similar import in this Agreement, shall be deemed to refer exclusively to matters within the actual knowledge of Scott Shanaberger and Kai Hsiao (collectively, “ Seller Knowledge Individuals ”), after having made the inquiries referred to in the provision to this sentence but without any further obligation to investigate or make inquiries of other Persons with respect to any of the representations and warranties contained in this Agreement, provided that Seller represents and warrants to Purchaser, as of the Effective Date and the Closing Date, that the Seller Knowledge Individuals are the individuals in Seller’s organization who are most knowledgeable of the matters set forth herein and the Seller Knowledge Individuals have not performed and are not obligated to perform any investigation or review of any files or other information in the possession of Seller, or to make any other inquiry of any Persons, or to take any other actions in connection with the representations and warranties of Seller set forth in this Agreement. Neither the actual, present, conscious knowledge of any other individual or entity, nor the constructive knowledge of the Seller Knowledge Individuals or of any other Person, shall be imputed to the Seller Knowledge Individuals. No Seller Knowledge Individual is a party to this Agreement or shall be subject to any personal liability hereunder.

6.3 Representations and Warranties of Purchaser . For the purpose of inducing Seller to enter into this Agreement and to consummate the sale and purchase of the Property in accordance herewith, Purchaser represents and warrants to Seller the following (collectively, the “ Purchaser’s Representations ”) as of the Effective Date and as of the Closing Date:

6.3.1 Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware.

6.3.2 Purchaser, acting through any of its or their duly empowered and authorized officers or members, has all necessary entity power and authority to own and use its properties and to transact the business in which it is engaged, and has full power and authority to enter into this Agreement, to execute and deliver the documents and instruments required of Purchaser herein, and to perform its obligations hereunder; and no consent of any of Purchaser’s partners, directors, officers or members are required to so empower or authorize Purchaser. The execution, delivery and compliance with or fulfillment of the terms and conditions hereof will not (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any contract to which Purchaser is a party or by which Purchaser is otherwise bound, which conflict, breach or default would have a material adverse effect on Purchaser’s ability to consummate the Transactions or (ii) result in a violation or breach, in any material respect, of any legal requirement applicable to Purchaser or by which Purchaser or the property of Purchaser is bound. This Agreement is a valid and binding agreement, enforceable against

 

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Purchaser in accordance with its terms, and upon full execution and delivery of each Closing Document to which Purchaser is a party, such Closing Document will be a valid and binding agreement, enforceable against Purchaser in accordance with its terms, in each case , except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and equitable principles and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction.

6.3.3 No pending or, to Purchaser’s Knowledge, threatened litigation exists which, if adversely determined (i) would or would reasonably be expected to restrain the consummation of the Transactions or otherwise have a material adverse effect on Purchaser’s ability to consummate the Transactions, or (ii) would or would reasonably be expected to declare illegal, invalid or non-binding any of Purchaser’s obligations or covenants to Seller hereunder.

6.3.4 Purchaser is not a Prohibited Person.

6.3.5 To Purchaser’s Knowledge, the funds Purchaser transfers, and/or will transfer, to Seller under this Agreement are not the property of, or beneficially owned, directly or indirectly, by a Prohibited Person or the proceeds of specified unlawful activity as defined by 18 U.S.C. § 1956(c)(7).

6.3.6 No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with any applicable governmental authority is required to be obtained or made by Purchaser in connection with the execution and delivery of this Agreement or the consummation of the Transactions.

The phrase “ to Purchaser’s Knowledge ,” or words of similar import in this Agreement, shall be deemed to refer exclusively to matters within the actual knowledge of Matthew Lucas (“ Purchaser Knowledge Individuals ”), after having made the inquiries referred to in the proviso to this sentence but without any further obligation to investigate or make inquiries of other Persons with respect to any of the representations and warranties contained in this Agreement, provided that Purchaser represents and warrants to Seller, as of the Effective Date and the Closing Date, that the Purchaser Knowledge Individuals are the individuals in Purchaser’s organization who are most knowledgeable of the matters set forth herein and the Purchaser Knowledge Individuals have not performed and are not obligated to perform any investigation or review of any files or other information in the possession of Purchaser, or to make any other inquiry of any Persons, or to take any other actions in connection with the representations and warranties of Purchaser set forth in this Agreement. Neither the actual, present, conscious knowledge of any other individual or entity, nor the constructive knowledge of the Purchaser Knowledge Individuals or of any other Person, shall be imputed to the Purchaser Knowledge Individuals. No Purchaser Knowledge Individual is a party to this Agreement or shall be subject to any personal liability hereunder.

 

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ARTICLE VII

ADDITIONAL COVENANTS OF SELLER AND PURCHASER

7.1 Interim Operating Covenants . Except as expressly contemplated by this Agreement, until the earlier of Closing or the termination of this Agreement, each Property Seller and Facility Owner shall operate the Facilities in the ordinary course of business consistent with past practice, and each Property Seller and Facility Owner shall use commercially reasonable efforts to (a) maintain the Facilities, or cause the Facilities to be maintained, in substantially their condition as of the Effective Date, reasonable wear and tear, and casualty and condemnation, excepted; (b) comply, in all material respects, with all applicable laws; and (c) keep in full force and effect insurance policies with substantially the same terms as existing policies.

7.2 Liens . Until the earlier of Closing or the termination of this Agreement, neither Seller nor any Facility Owner shall not create or permit to become effective any Lien upon the Property that would be an exception on any Title Policy, other than (i) the Permitted Exceptions, (ii) with respect to any Facility, any easement, license or similar encumbrance (a) entered into in the ordinary course that would not, and would not reasonably be expected to, have a material adverse effect on the current use or value of such Facility or (b) required by applicable law, provided in each case Seller shall deliver to Purchaser notice and a copy of any such Lien prior to executing the same, and (iii) any other Lien arising in the ordinary course of business and consistent with past practice (so long as such other Lien is removed or satisfied by Seller or, if approved by Purchaser in its reasonable discretion, otherwise bonded over at or prior to the Closing, such that such Lien is not included as an exception on any Title Policy).

7.3 Transactions . Until the earlier of Closing or the termination of this Agreement, Seller shall not (and shall not permit any Facility Owner to) directly or indirectly (i) sell, assign, transfer or otherwise dispose of all or any portion of the Property other than, subject to the terms of this Agreement, pursuant to any casualty or condemnation or any other property that is replaced in the ordinary course of business and consistent with past practice or (ii) enter into any agreement to do any of the foregoing.

7.4 Notice of Breach . Until the earlier of Closing or the termination of this Agreement, Seller shall notify Purchaser in writing promptly upon learning or receiving written notice, whichever first occurs, of:

(a) Any event, transaction or occurrence prior to Closing which would or would reasonably be expected to result in a Material Adverse Effect; and

(b) Seller’s breach of any of its representations, warranties or covenants in this Agreement, or any fact or event which would make any covenant or agreement of Seller under this Agreement incapable or substantially less likely of being performed.

ARTICLE VIII

CONDITIONS PRECEDENT TO CLOSING

8.1 Purchaser’s Conditions to Closing . Without limiting any of the rights of Purchaser elsewhere provided for in this Agreement, Purchaser’s obligation to consummate the Transactions shall be subject to and conditioned upon the satisfaction and fulfillment of the following conditions precedent, provided Purchaser may, at its sole option, waive any or all of these conditions, in whole or in part, in writing or otherwise as provided in this Agreement:

8.1.1 All of the documents required to be delivered by Seller to Purchaser at the Closing pursuant to the terms and conditions hereof shall have been delivered in accordance with the terms of Section 5.2 ;

 

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8.1.2 Each of Seller’s Representations shall be true and correct on and as of the Effective Date and the Closing Date (except in each case for Seller’s Representations relating to an earlier date, in which case as of such earlier date), except where the failure of any of such Seller’s Representations to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;

8.1.3 Subject to payment of all title insurance premiums and fees, the Title Company is irrevocably committed to issue the Title Policy for each Facility (and the related real property comprising the Property);

8.1.4 Seller shall have complied with, fulfilled and performed, in all material respects, each of the covenants to be complied with, fulfilled or performed by Seller hereunder on or prior to the Closing Date, provided, with respect to any covenants and obligations that are qualified by “materiality” or “Material Adverse Effect,” such covenants and obligations shall have been performed by Seller in all respects;

8.1.5 Neither Seller nor any Facility Owner shall be a debtor in any bankruptcy proceeding;

8.1.6 There shall not be in force any order, decree, judgment or injunction of any governmental authority enjoining or prohibiting the consummation of the Transactions or declaring illegal, invalid or nonbinding any of the material covenants or obligations of the Seller hereunder;

8.1.7 (i) There shall not be any pending litigation or, to the Knowledge of either Purchaser or Seller, any litigation threatened in writing, which, if adversely determined, would restrain the consummation of the Transactions or declare illegal, invalid or nonbinding any of the material covenants or obligations of Seller hereunder, and (ii) other than as described on Schedule 6.1.7 , there shall not be any actions, proceedings, litigation or governmental investigations or condemnation actions pending against Seller, Facility Owner, or the Property which would have a Material Adverse Effect;

8.1.8 There shall not be any labor or collective bargaining agreements binding the Facility Employees which would have a Material Adverse Effect.

If any condition set forth in this Section 8.1 is not satisfied on or prior to the Outside Closing Date, Purchaser may, as its sole remedy, (a) waive any of the foregoing conditions and proceed to Closing with no offset or deduction from the Purchase Price, or (b) terminate this Agreement and receive a return of the Deposit from the Escrow Agent, and neither party shall have any further obligation or liability to the other except with respect to the Surviving Obligations; provided if such failure of any condition resulted from a Seller Default, Purchaser shall have the right to exercise any of its remedies pursuant to Section 10.2 ; provided , further , Purchaser shall not have the right to terminate this Agreement under this Section 8.1 if Purchaser’s action or failure to act has been the primary cause of the Closing failing to occur on or before such date and such action or failure to act constitutes a breach of this Agreement by Purchaser.

 

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8.2 Seller’s Conditions to Closing . Without limiting any of the rights of Seller elsewhere provided for in this Agreement, Seller’s obligation to close under this Agreement shall be subject to and conditioned upon the satisfaction and fulfillment of the following conditions precedent, provided Seller may, at its sole option, waive any or all of these conditions, in whole or in part, in writing or otherwise as provided in this Agreement:

8.2.1 All of the documents and funds required to be delivered by Purchaser to Seller at the Closing pursuant to the terms and conditions hereof shall have been delivered;

8.2.2 Each of the representations, warranties and covenants of Purchaser contained herein shall be true and correct in all material respects as of the Closing Date;

8.2.3 Purchaser shall have complied with, fulfilled and performed in all material respects each of the covenants to be complied with, fulfilled or performed by Purchaser hereunder;

8.2.4 Purchaser shall not be a debtor in any bankruptcy proceeding; and

8.2.5 There shall not be in force any order, decree, judgment or injunction of any governmental authority enjoining or prohibiting the consummation of the Transactions or declaring illegal, invalid or nonbinding any of the material covenants or obligations of the Purchaser hereunder, and there shall not be any pending litigation or, to either Purchaser’s Knowledge or Seller’s Knowledge, any litigation threatened in writing, which, if adversely determined, would restrain the consummation of the Transactions or declare illegal, invalid or nonbinding any of the material covenants or obligations of the Purchaser hereunder.

If any condition set forth in this Section 8.2 is not satisfied at or prior to the Outside Closing Date, Seller may, as its sole remedy (a) waive any of the foregoing conditions and proceed to Closing, (b) terminate this Agreement, and neither party shall have any further obligation or liability to the other except with respect to the Surviving Obligations; provided if such failure of any condition resulted from a Purchaser Default hereunder, Seller shall have the right to exercise any of its remedies pursuant to Section 10.1 ; provided , further , Seller shall not have the right to terminate this Agreement under this Section 8.2 if Seller’s action or failure to act has been the primary cause of the Closing failing to occur on or before such date and such action or failure to act constitutes a breach of this Agreement by Seller.

 

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ARTICLE IX

TERMINATION AND ABANDONMENT

9.1 Termination of this Agreement .

This Agreement may be terminated and the Transactions may be abandoned at any time on or before the Closing, in each of the following instances:

(a) by mutual written agreement of Seller and Purchaser, in which case the Deposit shall be paid and released in accordance with the mutual direction of Seller and Purchaser;

(b) by Purchaser giving written notice to Seller at any time prior to the Closing in the event of the occurrence and continuance of a Seller Default, in which case the Deposit shall be paid and released in accordance with Section 10.2 ;

(c) by Seller giving written notice to Purchaser at any time prior to the Closing in the event of the occurrence and continuance of a Purchaser Default, in which case the Deposit shall be paid and released in accordance with Section 10.1 ;

(d) by Purchaser pursuant to Section 4.4 , Section 4.5 or Section 8.1 , in which case the Deposit shall be paid and released in accordance with Section 4.4 , Section 4.5 or Section 8.1 , as applicable; or

(e) by Seller pursuant to Section 8.2 , in which case the Deposit shall be paid and released in accordance with Section 8.2 .

9.2 Procedure Upon Termination . In the event either party exercises its right to terminate this Agreement pursuant to Section 9.1 , this Agreement shall immediately terminate and shall be abandoned, without further action by any of the parties. If, prior to the Closing, either party elects to terminate this Agreement pursuant to the terms of Section 9.1 and makes a written demand upon Escrow Agent for payment of the Deposit in accordance with the terms hereof, Escrow Agent shall give written notice to the other party of such election to terminate and of such demand. If Escrow Agent does not receive a written objection from the other party to the proposed payment within 5 Business Days after the giving of such notice, Escrow Agent shall be authorized to make such payment. If Escrow Agent does receive such written objection within such 5-Business Day period, Escrow Agent shall continue to hold such amount until otherwise directed by written instructions from the parties to this Agreement or a final judgment or arbitrator’s decision. However, Escrow Agent shall have the right at any time to deliver the Deposit and interest thereon, if any, with a court of competent jurisdiction. Escrow Agent shall give written notice of such deposit to Seller and Purchaser in accordance with Section 14.6 of this Agreement.

ARTICLE X

DEFAULTS AND REMEDIES

10.1 Purchaser Default . If, prior to the Closing, Purchaser (i) defaults on its obligations hereunder to (a) deliver to Escrow Agent the deliveries specified under Section 5.3 , or (b) deliver the Purchase Price in accordance with Article II and consummate the Transactions on the Closing Date or (ii) defaults or breaches in any material respect on any of its other representations, warranties, covenants or obligations under this Agreement (or with respect to any representation, warranty, covenant or obligation that is qualified by “materiality” or “material adverse effect,” Purchaser defaults or breaches, in any respect, such representation, warranty, covenant or obligation), and such default continues for more than 20 days after written notice from Seller (each, a “ Purchaser Default ”), then Seller may (a) terminate this Agreement

 

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immediately and without the right of Purchaser to receive additional notice or to cure, Purchaser shall forfeit the Deposit to Seller and the Escrow Agent shall deliver the Deposit to Seller as liquidated damages resulting from the Purchaser Default (the parties agreeing that (x) quantifying the amount of Seller’s losses pursuant to termination due to a Purchaser Default would be difficult to quantify, and (y) such sum is not a penalty, but rather a reasonable measure of Seller’s damages resulting from a termination due to a Purchaser Default) or then Seller may (a) terminate this Agreement immediately and without the right of Purchaser to receive notice or to cure pursuant to Section 2.3.3 , Purchaser shall forfeit the Deposit to Seller and the Escrow Agent shall deliver the Deposit to Seller, or (b) subject to the conditions below, seek specific performance of Purchaser’s obligation to consummate the Transactions pursuant to this Agreement, such specific performance being in addition to any other remedy available at law or in equity. Seller may seek specific performance of Purchaser’s obligation to close on the sale of the Property pursuant to this Agreement only if, as a condition precedent to initiating such litigation for specific performance, Seller shall (x) not otherwise be in default under this Agreement; and (y) file suit therefor with the court on or before the 90th day after the Outside Closing Date. If Seller fails to file an action for specific performance within 90 days after the Outside Closing Date, then Seller shall be deemed to have elected to terminate this Agreement in accordance with subsection (a) above.

10.2 Seller Default . If, prior to Closing, Seller (i) defaults on its obligations hereunder to deliver to Escrow Agent or Seller, as applicable, the deliveries specified under Section 5.2 , or to consummate the Transactions on the Closing Dateor, (ii) defaults or breaches in any material respect on any of its representations, warranties, covenants or obligations under this Agreement (or with respect to any representation, warranty, covenant or obligation that is qualified by “materiality” or “Material Adverse Effect,” Seller defaults or breaches in any respect such representation, warranty, covenant or obligation), and such default under this clause (ii) continues for more than twenty (20) days after written notice from Purchaser (each, a “ Seller Default ”), then, at Purchaser’s election and as Purchaser’s exclusive remedy, Purchaser may either (a) terminate this Agreement, and the Deposit shall be returned to Purchaser, or (b) subject to the conditions below, seek specific performance of Seller’s obligations to consummate the Transactions pursuant to and in accordance with this Agreement (but without seeking or collecting any Damages), provided if Purchaser fails to file an action for specific performance within one hundred twenty (120) days after the Closing Date, then Purchaser shall be deemed to have elected to terminate this Agreement and receive a return of the Deposit in accordance with subsection (a) above. In the event that Purchaser terminates this Agreement pursuant to clause (a) of the preceding sentence as a result of Seller’s knowing, intentional and willful actions, then Seller shall pay to the Purchaser an amount equal to Purchaser’s Expenses within ten (10) Business Days following such termination. SELLER AND PURCHASER FURTHER AGREE THAT THIS SECTION 10.2 IS INTENDED TO AND DOES LIMIT THE AMOUNT OF DAMAGES DUE PURCHASER AND THE REMEDIES AVAILABLE TO PURCHASER FOR A DEFAULT BY SELLER PRIOR TO CLOSING, AND SHALL BE PURCHASER’S EXCLUSIVE REMEDY AGAINST SELLER, BOTH AT LAW AND IN EQUITY ARISING FROM OR RELATED TO A DEFAULT BY SELLER PRIOR TO CLOSING. PURCHASER SPECIFICALLY WAIVES THE RIGHT TO FILE ANY LIS PENDENS OR ANY LIEN AGAINST THE PROPERTY UNLESS AND UNTIL IT HAS IRREVOCABLY ELECTED TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT AND HAS FILED AND IS DILIGENTLY PURSUING AN ACTION SEEKING SUCH REMEDY.

 

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ARTICLE XI

RISK OF LOSS OR CASUALTY

11.1 Closing . In the event that any Facility is damaged or destroyed by fire or other casualty prior to Closing, then the parties shall consummate the Transactions in accordance with the terms of this Agreement for the full Purchase Price, notwithstanding any such damage, destruction or casualty, in which case, if applicable, Seller and Purchaser shall, at Closing, execute and deliver an assignment and assumption (in a form reasonably and mutually agreed) of the such Property Seller’s rights and obligations with respect to the insurance claim related to such damage, destruction or casualty, and thereafter Purchaser shall receive (a) all insurance proceeds pertaining to such claim, less the sum of (i) any out-of-pocket costs incurred by Seller or Facility Owner in pursuing or collecting such claim, plus (ii) any amounts which may already have been spent by Seller or Facility Owner for Repairs, and (b) a credit against the Purchase Price at Closing in the amount of any deductible payable by Seller or Facility Owner in connection therewith. Seller shall not (and shall not permit any Property Owner to) settle any claims related to any such damage, destruction or casualty without Purchaser’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

11.2 Repairs . To the extent Seller or any Facility Owner elects to commence any Repairs with respect to any damage or destruction to a Facility (or the Land and/or Improvements related thereto) caused by fire or other casualty prior to Closing, then Seller shall be entitled to receive and apply available insurance proceeds to any portion of such Repairs completed or installed prior to Closing. To the extent that any Repairs have been commenced prior to Closing, then the Property Contracts shall include all construction and other contracts entered into by any Property Seller or Facility Owner in connection with such Repairs (the “ Construction Contracts ”). The Construction Contracts and all plans in connection with any Repairs must be approved by Purchaser, which approval shall not be unreasonably withheld. All Repairs undertaken by Seller or any Facility Owner pursuant to this Section 11.2 shall be performed in accordance with applicable law.

ARTICLE XII

EMINENT DOMAIN

In the event that, prior to Closing, all or any material portion of any Facility is (or previously, but after the Effective Date, has been) acquired, or is about to be acquired, by any governmental agency by the powers of eminent domain or transfer in lieu thereof (a “ Taking ”), or in the event that at such time there is any notice of any such acquisition or intent to acquire by any such governmental agency with respect to all or any material portion of any Facility, then the parties shall consummate the Transactions in accordance with the terms of this Agreement for the full Purchase Price and Purchaser shall have all rights to, and receive the full benefit of, any condemnation award. Seller shall not (and shall not permit any Facility Owner to) settle any claims related to a Taking without Purchaser’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

 

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ARTICLE XIII

INDEMNIFICATION & SURVIVAL PROVISIONS

13.1 Effective Date; Survival . All of the Seller’s Representations and the Purchaser’s Representations are made as of the Effective Date and shall be deemed remade as of the Closing pursuant to Seller’s and Purchaser’s Bring Down Certificate, as applicable. All of the Seller’s Representations, Seller’s Covenants, and the Purchaser’s Representations shall survive Closing for a period of twelve (12) months after the Closing Date (the “ Outside Claim Date ”), it being agreed that none of the covenants contained in this Agreement shall survive the Closing except as otherwise expressly provided herein. Any claim by Seller or Purchaser with respect to any breach of the Seller’s Representations, Seller’s Covenants, or the Purchaser’s Representations, respectively, shall be effective and valid only if made after Closing in writing (specifying in reasonable detail the nature of the claim and the factual and legal basis for any such claim, and the provisions of this Agreement upon which such claim is made) against the other party on or prior to the Outside Claim Date.

Notwithstanding anything to the contrary contained in this Agreement, (i) if to Purchaser’s Knowledge prior to Closing any of the Seller’s Representations is inaccurate, untrue or incorrect in any way, Purchaser shall not be permitted to make any claim and shall have no recourse against Seller pursuant to this Article XIII or otherwise with respect to the breach of such Seller’s Representations, however, Purchaser shall have its rights and remedies set forth in Section 10.2 and (ii) if to Purchaser’s Knowledge any of the covenants of Seller to be performed on or before the Closing Date has not been performed prior to the Closing, and Purchaser consummates the Transactions, Purchaser will be deemed to have waived satisfaction of any such covenants, and Purchaser shall have no recourse, right of action or claim against Seller in respect of any such breach of covenant.

13.2 Indemnification by Seller . Subject to the other provisions of this Article XIII , after the Closing, Seller shall indemnify and hold harmless Purchaser and its Affiliates, and their respective members, managers, partners, directors, officers, shareholders, employees and agents (hereinafter referred to individually as a “ Purchaser Indemnified Party ” and collectively as “ Purchaser Indemnified Parties ”) from and against any and all Damages suffered by any of the Purchaser Indemnified Parties (without duplication) resulting from or arising out of any (collectively, “ Seller Indemnifiable Damages ”) (i) breach of or inaccuracy in any of the Seller’s Representations or (ii) or any breach of Seller’s Covenants, (iii) Excluded Liability, (iv) Excluded Assets or the use, ownership or operation thereof, or (v) any FCA Action.

13.3 Indemnification by Purchaser . Subject to the other provisions of this Article XIII , after the Closing, Purchaser shall indemnify and save harmless Seller and its Affiliates, and their respective members, managers, partners, directors, officers, shareholders, employees and agents (hereinafter referred to individually as a “ Seller Indemnified Party ” and collectively as “ Seller Indemnified Parties ”) from and against any and all Damages suffered by any of the Seller Indemnified Parties (without duplication) resulting from or arising out of any breach of or inaccuracy in any of the Purchaser Representations when made (collectively, “ Purchaser Indemnifiable Damages ”).

 

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13.4 Limitations on Indemnification . Notwithstanding anything to the contrary contained in this Agreement:

13.4.1 Except as provided otherwise herein, (i) the aggregate liability of the Seller for Seller Indemnifiable Damages under Sections 13.2(i), (ii), (iii), (iv) and (v)  shall not exceed the amount of Nineteen Million Two Hundred Thousand and 00/100 Dollars ($19,200,000.00) in the aggregate (“ Seller Liability Cap ”), and (ii) Seller shall be liable for Seller Indemnifiable Damages under Sections 13.2(i) and (ii)  only if the aggregate amount of such damages exceeds the amount of $250,000.00, any then only to the extent of such excess (the “ Seller Representation and Covenant Basket ”); provided, however, that nothing in this Section 13.4.1 or elsewhere in this Agreement shall relieve Seller from liability to any third party for any Excluded Liability (it being understood and agreed that Seller shall retain and remain liable for all Excluded Liabilities and nothing in this Agreement limits or places a cap on Seller’s liability for, or obligation to satisfy, all Excluded Liabilities). For the avoidance of doubt, the Seller Representation and Covenant Basket limitation set forth in this Section 13.4.1 shall not apply in the case of any claim made pursuant to Sections 13.2(iii), (iv) or (v) . Seller’s obligation under Section 13.2 with respect to any Seller Indemnifiable Damages shall be reduced by the amount of insurance proceeds, indemnification payments and other third party payments actually received in connection with such claims (net of any costs incurred in recovering such amounts). Anything contained in this Agreement to the contrary notwithstanding, (i) Seller’s indemnification obligations under Section 13.2 with respect to Seller Indemnifiable Damages resulting from or arising out of any FCA Action shall survive Closing until sixty (60) days following the expiration of the applicable statute of limitations (the “ Outside FCA Claim Date ”), and (ii) any claim by Purchaser with respect to Seller Indemnifiable Damages resulting from or arising out of any FCA Action shall be effective and valid only if made in writing (specifying in reasonable detail the nature of the claim and the factual and legal basis for any such claim, and the provisions of this Agreement upon which such claim is made against Seller) on or prior to the Outside FCA Claim Date.

13.4.2 Following the Closing, subject to the other provisions of this Article XIII , Purchaser shall look solely to the Seller and Seller Guarantor (and to none of the other Seller Indemnified Parties) with respect to any Seller Indemnifiable Damages, and shall have no recourse against any Seller Indemnified Party (other than Seller and Seller Guarantor) with respect to such Seller Indemnifiable Damages, and none of the Purchaser Indemnified Parties shall (or shall have the right to) seek, pursue or enter any judgment or collect (or attempt to collect) an amount in excess of the Seller Liability Cap with respect to claims under Section 13.2(i) and Section 13.2(ii) , in the aggregate. Purchaser shall be required to notify Seller prior to the Outside Claim Date or Outside FCA Claim Date, as applicable, of any claim against Seller for Seller Indemnifiable Damages by the delivery of a written notice setting forth: (i) the dollar amount of the Seller Indemnifiable Damages claim noticed, if reasonably estimable by Purchaser; (ii) the aggregate dollar amount of all prior Seller Indemnifiable Damages pursuant to Section 13.2 of this Agreement asserted by any of the Purchaser Indemnified Parties against Seller or Seller Guarantor to date, if reasonably estimable; (iii) whether the Seller Representation and Covenant Basket (if applicable) has been exceeded; and (iv) the aggregate dollar amount of Seller Indemnifiable Damages paid to Purchaser or any other Purchaser Indemnified Party to date (each such notice, a “ Notice of Claim ” and such claim, a “ Noticed Claim ”). If Purchaser and Seller cannot mutually agree upon the settlement of any such Noticed Claim, Purchaser shall

 

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be deemed to have waived its right to pursue such Noticed Claim (and any right to collect from Seller with respect to such Noticed Claim), unless Purchaser brings a court action with respect to such Noticed Claim on or prior to the date that is thirty (30) days after the Outside Claim Date, or the Outside FCA Claim Date, as applicable.

13.5 Indemnification Procedures . The party or parties making a claim for indemnification under Sections 13.2 or 13.3 shall be, for purposes of this Agreement, referred to as the “ Indemnified Person ” and the party or the parties against whom such claims are asserted under this Section 13.5 shall be, for purposes of this Agreement, referred to as the “ Indemnifying Person .” All Damages suffered by an Indemnified Person for which such Indemnified Person has a claim under this Article XIII shall be, for purposes of this Agreement, referred to as “ Indemnifiable Damages .” All claims by any Indemnified Person under this Article XIII for Third Party Claims shall be asserted and resolved as follows:

13.5.1 In the event of any claim, demand, suit, action, arbitration, investigation, inquiry or proceeding brought by a third party against any Indemnified Person which is covered by the indemnification provisions of this Article XIII (in each such case, a “ Third Party Claim ”), the Indemnified Person shall promptly cause written notice of the assertion of such Third Party Claim to be forwarded to the Indemnifying Person (a “ Notice of Third Party Claim ”). The failure of the Indemnified Person to promptly deliver to the Indemnifying Person any Notice of Third Party Claim shall not release, waive or otherwise affect the Indemnifying Person’s obligations with respect thereto except to the extent that the Indemnifying Person is actually prejudiced as a result of such failure. Subject to Section 13.5.2 , the Indemnifying Person on behalf of the Indemnified Person shall have the right to elect to assume control of the defense of any Third Party Claim with counsel reasonably acceptable to the Indemnified Person. The costs and expenses incurred by the Indemnifying Person in connection with such defense (including reasonable out-of-pocket attorneys’ fees, other professionals’ and experts’ fees and court or arbitration costs) shall be paid by the Indemnifying Person. In the event of a conflict of interest between the Indemnifying Person and the Indemnified Person as to any matter for which indemnification is required hereunder, the Indemnified Person may engage counsel of its own choice to participate in such defense (which counsel shall be reasonably satisfactory to the Indemnifying Person) and at the expense of the Indemnifying Person, in the defense of any Third Party Claim.

13.5.2 With respect to the defense of any Third Party Claim, the Indemnifying Person shall not be entitled to continue control of such defense and shall pay the costs and expenses incurred by the Indemnified Person in connection with such defense if the Indemnifying Person fails to assume control of the defense or materially fails to defend such claim.

13.5.3 If the Indemnifying Person has the right to and does elect to defend any Third Party Claim, the Indemnifying Person shall: (i) conduct the defense of such Third Party Claim actively and diligently and keep the Indemnified Person reasonably informed of material developments in the Third Party Claim at all stages thereof and (ii) to the extent practicable, permit the Indemnified Person and its counsel to confer with the Indemnifying Person and its counsel regarding the conduct of the defense thereof. Purchaser and Seller will make available to each other and each other’s counsel and accountants, without charge, all of their and their

 

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Affiliates’ books and records relating to the Third Party Claim, and each party (at its own expense) will render to the other party such assistance as may be reasonably required in order to ensure the proper and adequate defense thereof and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested by the other party in connection therewith; provided , however , the Indemnified Person shall not have an obligation to disclose any information or documents, that are proprietary, subject to confidentiality restrictions (unless the recipient of such information signs a confidentiality agreement reasonably acceptable to the disclosing Indemnified Person), or privileged (including pursuant to any attorney-client privilege). The Indemnified Person and the Indemnifying Person shall render, and shall cause their respective employees to render, to each other, at the sole cost and expense of the Indemnifying Person such other assistance and cooperation as may reasonably be required to ensure the proper and adequate defense of such claim or demand.

13.5.4 If the Indemnifying Person has the right to and does elect to defend any Third Party Claim, the Indemnifying Person shall have the right to enter into any settlement of a Third Party Claim without the consent of the Indemnified Person provided that (i) no amount is payable by such Indemnified Person in connection with such settlement, (ii) such settlement does not involve any injunctive or other equitable relief or the contractual equivalent thereof binding upon such Indemnified Person, (iii) such settlement expressly and unconditionally releases such Indemnified Person from all liabilities and obligations with respect to such claim, with prejudice and (iv) such settlement does not include an admission of wrongdoing of or by the Indemnified Person; provided , further , that no settlement by the Indemnifying Person of a Third Party Claim shall limit or reduce the right of the Indemnified Person to indemnity hereunder for all Damages they may incur arising out of or resulting from the Third Party Claim to the extent such Indemnified Person is otherwise entitled to be indemnified pursuant to this Article XIII .

13.5.5 In calculating amounts payable to an Indemnified Person, the amount of any Indemnifiable Damages shall be determined net of (i) the present value of any tax benefit inuring to such Indemnified Person on account of such Damages, (ii) payments actually recovered by such Indemnified Person under any insurance policy with respect to such Damages, and (iii) any net prior recovery by such Indemnified Person from any third party with respect to such Damages. If the Indemnifying Person has paid the Indemnified Person pursuant to the provisions of this Article XIII with respect to a claim for which payment of the type described in clauses (ii) and (iii) of the preceding sentence is subsequently received by the Indemnified Person, the Indemnified Person will promptly pay to the Indemnifying Person the amount of such duplicative payment (net of any costs of recovery); provided , that the amount of such payment will not exceed the sums paid by the Indemnifying Person to the Indemnified Person in connection with the occurrence giving rise to the Indemnifiable Damages.

13.5.6 In respect of any Damages for which indemnification may be sought pursuant to Article XIII , the Indemnified Person shall (and shall cause its Affiliates to) (a) use commercially reasonable efforts to pursue all legal rights and remedies available in order to minimize the Damages to which it may be entitled to indemnification under this Agreement except to the extent that the Indemnified Person believes in good faith that the taking of such action would have material and adverse consequences for the Indemnified Person, and (b) select the lowest cost remedy available consistent with good business practice. The terms of Section 13.5 are not intended to modify in any manner the limitations on liability set forth in Section 13.4 .

 

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13.5.7 Notwithstanding anything to the contrary contained herein, Seller shall have the sole right to control any FCA Action including the defense, negotiation or settlement of the same, and no Indemnified Person shall have the right to participate in the same without Seller’s consent so long as Seller is conducting the defense.

13.6 Tax Treatment . Without limiting Section 13.9 , for all tax purposes, the parties agree to treat indemnity payments made pursuant to this Agreement as an adjustment to the Purchase Price.

13.7 Exclusive Remedy . Purchaser and Seller acknowledge and agree that following the Closing the indemnification provisions in this Article XIII shall be the exclusive remedy of Purchaser and Seller (and all other Purchaser Indemnified Parties and Seller Indemnified Parties) with respect to the Transactions.

13.8 Manner of Payment . Any indemnification payments made by Seller or Purchaser pursuant to this Article XIII shall be effected by wire transfer of immediately available funds to the accounts designated by the other party, within five (5) days after the final determination thereof.

13.9 REIT Savings Clause . Notwithstanding anything in this Agreement to the contrary, in no event shall any amount paid to any Purchaser Indemnified Party or Seller Indemnified Party, as the case may be, pursuant to this Agreement in any taxable year exceed the maximum amount that can be paid in such year without causing such party, or any direct or indirect owner of such party, in each case which is a Real Estate Investment Trust (a “REIT”), to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code (the “REIT Requirements”) for such year, determined as if the payment of such amount did not constitute income described in Section 856(C)(2)(A)-(I) and Section 856(C)(3)(A)-(I) of the Code (“Qualifying Income”) as determined by counsel or independent accountants to such party. If the maximum amount that can be paid for any taxable year under the preceding sentence is less than the amount which the indemnifying party would otherwise be obligated to pay to the applicable indemnified party pursuant to Article XIII (the amount of such deficit, the “Deficit Amount”), the such indemnified party shall so notify the indemnifying party, which shall (at the indemnified parties’ sole cost and expense) place the Deficit Amount in escrow and shall not execute any instrumentation permitting a release of any portion thereof to the indemnified parties, and the indemnified parties shall not be entitled to any such amount, unless and until the indemnifying party and escrow holder receive (all at the indemnified parties’ sole cost and expense) notice from the indemnified party, together with either (a) an opinion of such indemnified party’s tax counsel to the effect that such amount, if and to the extent paid, would not constitute gross income which is not Qualifying Income, (b) a ruling from the IRS stating that the receipt by the indemnified parties of the Deficit Amount would either constitute Qualifying Income or would be excluded from gross income within the meaning of Sections 856(c)(2) and (3) of the Code, or (c) a letter from the indemnified party’s independent accountants indicating the maximum amount that can be paid at that time to the indemnified parties without causing any indemnified party or any direct or indirect owner of such

 

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indemnified party, in each case which is a REIT, to fail to meet the REIT Requirements for any relevant taxable year, together with either a ruling from the IRS issued to such indemnified party or an opinion of the indemnified party’s tax counsel to the effect that such payment would not be treated as includible in the income of the applicable indemnified party for any prior taxable year, in which event the escrow holder shall pay such maximum amount. The indemnifying party’s and escrow holder’s obligation to pay any Deficit Amounts shall terminate ten (10) years from the date of this Agreement and, upon such date, the escrow holder shall remit any remaining funds in escrow to the indemnifying party and the indemnifying party shall have no obligation to make any further payments to the indemnified parties notwithstanding that such Deficit Amounts have not been paid as of such date. For all purposes of this Agreement, (A) (i) the Purchaser Indemnified Parties release Seller from any claims that may arise from actions taken by Seller at the request of the Purchaser Indemnified Parties or their agents under this Section 13.9 , and (ii) the Purchaser Indemnified Parties’ right to receive Deficit Amounts shall be limited to the amounts in escrow and Seller shall have no obligation to make any further payments to any Purchaser Indemnified Party with respect to such Deficit Amounts, and (B) (i) the Seller Indemnified Parties release Purchaser from any claims that may arise from actions taken by Purchaser at the request of the Seller Indemnified Parties or their agents under this Section 13.9 , and (ii) the Seller Indemnified Parties’ right to receive Deficit Amounts shall be limited to the amounts in escrow and Purchaser shall have no obligation to make any further payments to any Seller Indemnified Party with respect to such Deficit Amounts.

13.10 Brokerage . Seller and Purchaser each represents and warrants to the other that it has not dealt with or utilized the services of any real estate broker, investment banker, sales person or finder in connection with this Agreement, other than the services of Citigroup Global Markets Inc. in its capacity as financial advisor to Seller (“ Financial Advisor ”). Seller shall pay any and all fees that may be due and payable to Financial Advisor in connection with the Transactions pursuant to a separate agreement with Financial Advisor. Each party agrees to indemnify, hold harmless, and, if requested in the sole and absolute discretion of the indemnitee, defend (with counsel approved by the indemnitee) the other party from and against any breach of the terms of this Section 13.10 and any Damages relating to brokerage commissions and finder’s fees arising from or attributable to the acts or omissions of the indemnifying party.

ARTICLE XIV

MISCELLANEOUS

14.1 Binding Effect of Agreement . This Agreement shall not be binding on either party until executed by both Purchaser and Seller and the Deposit is received by Escrow Agent. Escrow Agent’s execution of this Agreement shall not be a prerequisite to the effectiveness of this Agreement. Subject to Section 14.3 , this Agreement shall be binding upon and inure to the benefit of Seller and Purchaser, and their respective successors and permitted assigns.

14.2 Exhibits; Schedules ; Annexes . All Exhibits, Schedules and Annexes, whether or not annexed hereto, are a part of this Agreement for all purposes.

14.3 Assignability . This Agreement is not assignable by either party without first obtaining the prior written approval of the other party hereto. Notwithstanding the foregoing, Purchaser may assign this Agreement, without first obtaining the prior written approval of Seller,

 

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to an Affiliate of Purchaser so long as Purchaser shall not be released from its liability hereunder and Purchaser provides written notice to Seller of any such proposed assignment. Notwithstanding anything to the contrary contained in this Agreement, Purchaser’s right to appoint, or direct assignment of any of the Property to, a designee shall be limited to any designee that is an Affiliate of Purchaser.

14.4 Captions . The captions, headings, and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify, or modify the terms and provisions hereof.

14.5 Number and Gender of Words . Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate.

14.6 Notices . All notices, demands, requests and other communications required or permitted hereunder shall be in writing, and shall be (a) personally delivered; (b) sent by a nationally-recognized overnight delivery service; (c) sent by certified or registered mail, return receipt requested; or (d) sent by electronic delivery with an original copy thereof transmitted to the recipient by one of the means described in subsections (a) through (c) no later than three (3) Business Days thereafter. All notices shall be deemed effective when actually delivered; provided , however , that if the notice was sent by overnight courier or mail as aforesaid and is affirmatively refused or cannot be delivered during customary business hours by reason of a change of address with respect to which the addressor did not have either knowledge or written notice delivered in accordance with this paragraph, then the first attempted delivery shall be deemed to constitute delivery. Each party shall be entitled to change its address for notices from time to time by delivering to the other party notice thereof in the manner herein provided for the delivery of notices. All notices shall be sent to the addressee at its address set forth following its name below:

 

To Purchaser:

c/o Fortress Investment Group

1345 Avenue of the Americas

New York, NY 10105

Attn: Cameron MacDougall

With a copy to: c/o Fortress Investment Group LLC
2901 North Dallas Parkway, Suite 380
Plano, TX 75093
Attn: Matthew Lucas
Email: mlucas@fortress.com
With a copy to: Kutak Rock LLP
1801 California Street
Suite 3000

 

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Denver, CO 80202
Attn: William S. Martin
Fax: (303) 292-7799
Email: william.martin@kutakrock.com
To Seller:

c/o Holiday Retirement

5885 Meadows Road, Suite 500

Lake Oswego, Oregon 97035

Attention: Chief Legal Officer

Email: legal@holidaytouch.com

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

155 North Wacker Drive, Suite 2700

Chicago, Illinois 60606

Attention: Nancy M. Olson

Email: nancy.olson@skadden.com

Any notice required hereunder to be delivered to the Escrow Agent shall be delivered in accordance with above provisions as follows:

 

First American Title Insurance Company

1125 17th Street, Suite 500

Denver, CO 80202

Attention: Katie L. Miller

Email: katiemiller@firstam.com

Unless specifically required to be delivered to the Escrow Agent pursuant to the terms of this Agreement, no notice hereunder must be delivered to the Escrow Agent in order to be effective so long as it is delivered to the other party in accordance with the above provisions.

14.7 Governing Law and Venue . This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without giving effect to any principles regarding conflict of laws to the extent such principles would require or permit the application of the laws of another jurisdiction. Each of Purchaser and Seller shall submit to the exclusive jurisdiction of the state courts of the State of New York in New York County and to the jurisdiction of the United States District Court for the Southern District of New York for the purposes of each and every suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereof brought by the parties, it being expressly understood and agreed that this consent to jurisdiction shall be self-operative and no further instrument or action, other than service of process in one of the manners specified in this Agreement or as otherwise permitted by such law, shall be necessary in order to confer jurisdiction upon a party in any such court. Each of Purchaser and Seller shall waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any suit, action or proceeding brought in any such court, any claim that either Purchaser or Seller is not subject personally to the jurisdiction of the above-named courts, that Purchaser’s or Seller’s property is exempt or immune from attachment or execution, that the

 

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suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and further agrees to waive, to the fullest extent permitted under applicable law, the benefit of any defense that would hinder, fetter or delay the levy, execution or collection of any amount to which Seller, Purchaser or their successors or permitted assigns are entitled pursuant to the final judgment of any court having jurisdiction.

14.8 Entire Agreement . This Agreement embodies the entire agreement between the parties hereto concerning the subject matter hereof and supersedes all prior conversations, proposals, negotiations, understandings and contracts, whether written or oral.

14.9 Amendments . This Agreement shall not be amended, altered, changed, modified, supplemented or rescinded in any manner except by a written contract executed by all of the parties; provided , however , that, the signature of the Escrow Agent shall not be required as to any amendment of this Agreement other than an amendment of Section 2.3 .

14.10 Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.11 Multiple Counterparts/Facsimile Signatures . This Agreement may be executed in a number of identical counterparts. This Agreement may be executed by facsimile signatures or electronic delivery of signatures which shall be binding on the parties hereto.

14.12 Construction . No provision of this Agreement shall be construed in favor of, or against, any particular party by reason of any presumption with respect to the drafting of this Agreement; both parties, being represented by counsel, having fully participated in the negotiation of this instrument.

14.13 Confidentiality/Press Releases . Each party hereto agrees that the provisions of this Agreement, all understandings, agreements and other arrangements between and among the parties, and all other non-public information received from or otherwise relating to, the Property (or any portion thereof), Purchaser and/or Seller or their respective Affiliates shall be, and be kept, confidential, and shall not be disclosed or otherwise released to any other Person (other than by the party to such party’s Affiliates), without the written consent of Purchaser or Seller, as applicable. Any information obtained by Purchaser in the course of its inspection of the Property, and any Materials provided by Seller to Purchaser hereunder, in each case that is proprietary to Seller (including, without limitation, information regarding Seller’s operating results from the Property) shall be confidential and Purchaser shall be prohibited from making public or disclosing such information to any other Person, without Seller’s prior written authorization, which may be granted or denied in Seller’s sole discretion. The obligations of the parties hereunder shall not apply in the following instances:

14.13.1 to the extent that the disclosure of information otherwise determined to be confidential is required by legal requirements, or by any regulations or securities exchange listing rules applicable to such party or its Affiliates, provided that (A) prior to disclosing such confidential information, such disclosing party shall notify the other party thereof, which notice shall include the basis upon which such disclosing party believes the information is required to be disclosed; and (B) such disclosing party shall, if requested by the other party and, to the extent practicable, provide reasonable cooperation with the other party to protect the continued confidentiality thereof;

 

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14.13.2 the disclosure of confidential information to any directors, officers, employees, consultants, financial advisors, other professional advisors, shareholders, investors and lenders (both actual and potential) of a party who agree to hold confidential such information substantially in accordance with this Section 14.13 or who are otherwise bound by a duty of confidentiality to such party; and

14.13.3 Purchaser (or any of its Affiliates) shall have the right to disclose such confidential information as is, in the opinion of Purchaser’s counsel, required to be disclosed in connection with Purchaser’s (or any of its Affiliates’) quarterly earnings results or financing activities.

14.13.4 All pre-Closing publicity concerning the Transactions shall be jointly planned, coordinated, approved and released by and among the Seller and Purchaser, and no other press release shall be made by either party; provided, however, that nothing herein shall prohibit either party from making any press release or disclosure as may be permitted pursuant to Section 14.13(a) .

14.14 Time of the Essence . It is expressly agreed by the parties hereto that time is of the essence with respect to this Agreement and any aspect thereof.

14.15 Waiver . No delay or omission to exercise any right or power accruing upon any default, omission, or failure of performance hereunder shall impair any right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver, amendment, release, or modification of this Agreement shall be established by conduct, custom, or course of dealing and all waivers must be in writing and signed by the waiving party.

14.16 Time Periods . All times referenced herein shall be as determined under the Central Time Zone of the United States. Should the last day of a time period contemplated by this Agreement fall on a day other than a Business Day, the next Business Day thereafter shall be considered the end of the time period.

14.17 No Personal Liability of Officers, Trustees or Directors . Purchaser acknowledges that this Agreement is entered into by and among Seller, Seller Guarantor and Purchaser, and Purchaser agrees that none of the Seller Indemnified Parties (other than Seller and Seller Guarantor) shall have any personal liability under this Agreement or any document executed in connection with the Transactions. Seller acknowledges that this Agreement is entered into by and among Seller, Seller Guarantor and Purchaser, and Purchaser agrees that none of Purchaser Indemnified Parties (other than Purchaser) shall have any personal liability under this Agreement or any document executed in connection with the Transactions.

 

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14.18 No Recording . Purchaser shall not cause or allow this Agreement or any contract or other document related hereto, nor any memorandum or other evidence hereof, to be recorded or become a public record without Seller’s prior written consent, which consent may be withheld at Seller’s sole discretion. If Purchaser records this Agreement or any other memorandum or evidence thereof, Purchaser shall be in default of its obligations under this Agreement.

14.19 Relationship of Parties . Purchaser and Seller acknowledge and agree that the relationship established between the parties pursuant to this Agreement is only that of a seller and a purchaser of property. Neither Purchaser nor Seller is, nor shall either hold itself out to be, the agent, employee, joint venturer or partner of the other party.

14.20 Non-Solicitation . Until the earlier of the termination of this Agreement or the Closing, Purchaser shall not (and shall not permit any of Purchaser’s Affiliates), without the prior written consent of the Seller, take hire, solicit or entice any employee of Seller (or any employee of any Affiliate of Seller) to leave the employment of, or terminate the engagement by, Seller or its Affiliate.

14.21 Survival . The provisions of Section 2.3 , Section 4.4 , Section 4.5 , Section 5.4 , Section 8.1 , Section 8.2 , Article IX , Article X , Section 11.1 , Article XII , Section 13.9 and this Article XIV (excluding Section 14.20 ) shall survive the termination of this Agreement. The provisions of Section 2.2.3 , Section 2.3 , Section 3.1 , Article V , Article VI , Article XIII and this Article XIV (excluding Section 14.20 ) shall survive the Closing.

14.22 Multiple Purchasers . As used in this Agreement, the term “ Purchaser ” includes all entities acquiring any interest in the Property at the Closing, including, without limitation, any assignee(s) of the original Purchaser pursuant to Section 14.3 of this Agreement. In the event that “ Purchaser ” has any obligations or makes any covenants, representations or warranties under this Agreement, the same shall be made jointly and severally by all entities being a Purchaser hereunder. If Seller delivers notice to one Purchaser hereunder, such notice shall be deemed delivered to each Purchaser.

14.23 Multiple Sellers . In the event that “Seller” has any obligations or makes any covenants, representations or warranties under this Agreement, the same shall be made jointly and severally by all entities being a Seller hereunder. If Purchaser delivers notice to one Seller hereunder, such notice shall be deemed delivered to each Seller.

14.24 Seller Guarantor .

14.24.1 Seller Guarantor acknowledges and agrees that it is an affiliate of Seller and that the consummation of the Transactions will provide substantial and direct benefit to Seller Guarantor. As an inducement to Purchaser to enter into this Agreement, Seller Guarantor, for value received, subject to the terms contained herein, does hereby unconditionally, absolutely and irrevocably, guarantee, as principal and not as surety, (a) the due and punctual payment of all monetary obligations hereafter due and payable by Seller under Article XIII of this Agreement and (b) Purchaser’s Expenses if and only if Purchaser is entitled to recover the same pursuant to

 

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the provisions of Section 10.2 (collectively, the “ Seller Guaranty ”). This Seller Guaranty is unconditional, absolute and irrevocable irrespective of circumstances which might otherwise constitute a legal or equitable discharge of, or any defense, setoff or counterclaim available to, Seller Guarantor. Seller Guarantor hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against Seller, protest, notice and all demands whatsoever in connection with the payment of all monetary obligations hereafter due and payable by Seller under Article XIII of this Agreement. The guarantee under this Section 14.24 constitutes a guarantee of payment when due and not merely of collection.

14.24.2 For the purpose of inducing Purchaser to enter into this Agreement and to consummate the sale and purchase of the Property in accordance herewith, Seller Guarantor represents and warrants to Purchaser the following as of the Effective Date:

14.24.2.1 Seller Guarantor is a limited partnership duly organized, validly existing and in good standing under the laws of Delaware.

14.24.2.2 Seller Guarantor, acting through any of its or their duly empowered and authorized officers or members, has full power and authority to enter into this Agreement and to perform its obligations hereunder, and no consent of any of Seller Guarantor’s partners, directors, officers or members are required to so empower or authorize Seller Guarantor. The execution, delivery and compliance with or fulfillment of the terms and conditions hereof will not (i) conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any contract to which Seller Guarantor is a party or by which Seller Guarantor is otherwise bound, which conflict, breach or default would have a material adverse effect on Seller Guarantor’s ability to perform its obligations hereunder or (ii) result in a violation or breach, in any material respect, of any legal requirement applicable to Seller Guarantor or by which Seller Guarantor or the property of Seller Guarantor is bound.

14.24.2.3 This Agreement is a valid and binding agreement, enforceable against Seller Guarantor in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and equitable principles and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction.

14.24.2.4 No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with any applicable governmental authority is required to be obtained or made by Seller Guarantor in connection with the execution and delivery of this Agreement, or the consummation of the Transactions which Seller Guarantor has not already obtained or made.

14.24.2.5 In the event that Seller Guarantor, after the Closing, enters into an agreement while this Seller Guaranty remains in effect pursuant to which Seller Guarantor agrees to sell or transfer all or substantially all of its assets or to consummate any other transaction, and the Net Worth of Seller Guarantor immediately following the consummation of such transaction (excluding the cash proceeds of such sale or transfer or other transaction) is reasonably estimated to be less than $100,000,000, Seller Guarantor shall prior to the consummation of such transaction (i) cause a replacement guarantor with a Net Worth in

 

39


excess of $100,000,000 to assume in writing the obligations of Seller Guarantor under this Seller Guaranty, or (ii) escrow funds with Escrow Agent in an amount satisfactory to Purchaser in its sole discretion (the “ Escrow Funds ”), in which case this Seller Guaranty shall automatically terminate and the Escrow Funds shall be held by Escrow Agent pursuant to an escrow agreement in form reasonably acceptable to Seller Guarantor and Purchaser and used for the purpose of satisfying the Seller Indemnifiable Damages, if any.

14.25 Post-Closing Cooperation .

14.25.1 [Intentionally Deleted]

14.25.2 At any time and from time to time within a period of three (3) years after the Closing, Seller shall use its best efforts to assist Purchaser (at Purchaser’s sole cost and expense) in (i) the preparation of any and all historical and pro forma financial statements relating to the Property as determined by Purchaser are necessary for Purchaser or its Affiliate to satisfy the requirements under applicable rules and regulations of the Securities and Exchange Commission, including, without limitation, by obtaining and providing relevant data and providing access to individuals with knowledge of such data; (ii) obtaining an unqualified audit opinion in accordance with GAAP from Ernst & Young LLP (or such other registered independent accounting firm as Purchaser shall specify, the “Accounting Firm”) with respect to such financial statements (including the consent of the Accounting Firm to the inclusion of such opinion in one or more reports or registration statements that may be filed by Purchaser or its Affiliates with the Securities and Exchange Commission); (iii) causing the Accounting Firm to issue one or more customary comfort letters with respect to the financial information of Seller or Purchaser; and (iv) causing the Accounting Firm to perform a review of any interim financial periods in accordance with AU 722 as promulgated by the Public Company Accounting Oversight Board in order to be able to provide customary comfort with respect to such periods. Without limiting the foregoing, Seller shall, promptly following the request of the Accounting Firm, cause to be delivered to the Accounting Firm a representation letter in such form as may be reasonably requested by the Accounting Firm. Upon receipt by Seller of Purchaser’s reasonable written request at any time and from time to time within a period of three (3) years after the Closing, Seller shall, at Seller’s principal place of business, during Seller’s normal business hours, make all records relating to the Property available to Purchaser for inspection and copying (at Purchaser’s sole cost and expense).

14.26 Further Assurances . In addition to the acts and deeds recited herein and contemplated to be performed, executed or delivered by Seller or Purchaser, Seller or Purchaser, as applicable, hereby agrees to perform, execute and deliver, or cause to be performed, executed and delivered, on the Closing Date or thereafter any and all such further acts, deeds and assurances Seller or Purchaser, as applicable, may reasonably require in order to consummate fully the transactions contemplated hereunder.

 

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14.27 Bulk Sales Laws . Seller hereby waives Purchaser’s compliance with the bulk transfer provisions of the state in which the Property is located or similar laws. Seller shall comply with the bulk transfer provisions of the state in which the Property is located or similar laws and indemnify, protect, defend and hold harmless Purchaser for any loss related thereto.

14.28 WAIVER OF JURY TRIAL . THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT.

[Remainder of page intentionally left blank.]

 

41


NOW, THEREFORE, the parties hereto have executed this Agreement as of the date first set forth above.

 

  Seller:
  HARVEST ASPEN MEADOWS RETIREMENT RESIDENCE LLC, a Delaware limited liability company
  HARVEST ECHO RIDGE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
  HARVEST HOLIDAY HILLS ESTATES RETIREMENT RESIDENCE LLC, a Delaware limited liability company
  FLINT RETIREMENT RESIDENCE LLC, a Delaware limited liability company
  By:    HARVEST MEZZANINE II LLC, a Delaware limited liability company

 

 By:  

 

 Name:   Scott Shanaberger
 Title:   Chief Financial Officer

 

    LITTLE ROCK RETIREMENT RESIDENCE LIMITED
PARTNERSHIP, an Oregon limited partnership
  HANFORD RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
  PARKROSE RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
  ELM PARK ESTATES RETIREMENT RESIDENCE LIMITED PARTNERSHIP, a Delaware limited partnership
  By:    HARVEST GENERAL PARTNER I LLC, a Delaware limited liability company

 

 By:  

 

 Name:   Scott Shanaberger
 Title:   Chief Financial Officer


HARVEST ARCADIA PLACE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST GREENWOOD TERRACE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST NIAGARA VILLAGE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST QUAIL RUN ESTATES RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST REDBUD HILLS RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST UNIVERSITY PINES RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST MONTARA MEADOWS RETIREMENT RESIDENCE LLC, a Delaware limited liability company
MACON RETIREMENT RESIDENCE LLC, a Delaware limited liability company
WILMINGTON RETIREMENT RESIDENCE LLC, a Delaware limited liability company
By: HARVEST MEZZANINE I LLC, a Delaware limited liability company

 

 By:

 

 Name: Scott Shanaberger
 Title: Chief Financial Officer

 

ESCONDIDO RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
NAPA RETIREMENT RESIDENCE LIMITED PARTNERSHIP, a Washington limited partnership
By: HARVEST GENERAL PARTNER II LLC, a Delaware limited liability company

 

 By:

 

 Name: Scott Shanaberger
 Title: Chief Financial Officer


KALAMA HEIGHTS RETIREMENT RESIDENCE L.L.C., a Washington limited liability company
BEND RETIREMENT RESIDENCE LLC, an Oregon limited liability company
BURLINGTON RETIREMENT RESIDENCE LLC, an Oregon limited liability company
HILTON HEAD RETIREMENT RESIDENCE LIMITED LIABILITY COMPANY, an Oregon limited liability company
JACKSONVILLE RETIREMENT RESIDENCE LLC, an Oregon limited liability company
MADISON RETIREMENT RESIDENCE LLC, an Oregon limited liability company
OCALA RETIREMENT RESIDENCE LLC, an Oregon limited liability company
DENVER RETIREMENT RESIDENCE LIMITED LIABILITY COMPANY, an Oregon limited liability company
TOLEDO RETIREMENT RESIDENCE LLC, an Oregon limited liability company
By: HARVEST MANAGING MEMBER I LLC, a Delaware limited liability company

 

 By:

 

 Name: Scott Shanaberger
 Title: Chief Financial Officer


EXECUTED FOR THE SOLE PURPOSE OF
AGREEING TO BE BOUND BY SECTION 14.24
Seller Guarantor:
Harvest Facility Holdings LP , a Delaware limited partnership
By: Harvest Facility Holdings GP LLC, a Delaware limited liability company, its general partner

 

By:

 

Name: Scott Shanaberger
Title: Chief Financial Officer


Purchaser:

NIC Acquisitions LLC, a

Delaware limited liability company

By:

 

Name:

 

Title:

 


EXHIBIT A

LEGAL DESCRIPTIONS

Aspen View

Property Address: 3075 Avenue C, Billings, MT 59102

Real property in the City of Billings, County of Yellowstone, State of Montana, described as follows:

Lot 18A, Block 4, of Amended Plat of Lots 1 through 12 and Lots 18 through 21, Block 4, of Judd Center Subdivision, in the City of Billings, Yellowstone County, Montana, according to the official plat on file in the office of the Clerk and Recorder of said County, under Document #1609913.

 

Exhibit A-1


Augustine Landing

Property Address: 10141 Old Street Augustine Road, Jacksonville, FL 32257

Real property in the City of Jacksonville, County of Duval, State of Florida, described as follows:

A PORTION OF GOVERNMENT LOT 1 OF THE SOUTHEAST ONE-QUARTER OF SECTION 32, TOWNSHIP 3 SOUTH, RANGE 27 EAST, DUVAL COUNTY, FLORIDA, BEING THAT LAND DESCRIBED AS PARCELS 4, 5 AND A PORTION OF PARCEL 7 AS RECORDED IN OFFICIAL RECORDS VOLUME 6254, PAGE 987 OF THE CURRENT PUBLIC RECORDS OF SAID COUNTY, LYING EAST OF OLD ST. AUGUSTINE ROAD (A 100 FOOT RIGHT OF WAY, AS NOW ESTABLISHED). BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCE AT A 4 INCH BY 4 INCH CONCRETE MONUMENT (STAMPED PRM #2117) AT THE INTERSECTION OF THE EASTERLY RIGHT OF WAY LINE OF SAID OLD ST. AUGUSTINE ROAD WITH THE NORTHERLY LINE OF SAID GOVERNMENT LOT 1, ALSO BEING THE SOUTHWESTERLY CORNER OF LOT 5, HUNTINGTON FOREST UNIT ONE, AS RECORDED IN PLAT BOOK 35, PAGES 78 AND 78A OF THE CURRENT PUBLIC RECORDS OF SAID COUNTY; THENCE SOUTH 33° 30’36” EAST, ALONG SAID EASTERLY RIGHT OF WAY LINE, A DISTANCE OF 357.62 FEET TO A FOUND ONE HALF INCH IRON PIPE (STAMPED CLARY & ASSOC.). BEING AN ANGLE POINT IN SAID RIGHT OF WAY LINE AND THE NORTHWESTERLY CORNER OF THOSE LANDS DESCRIBED AND RECORDED IN OFFICIAL RECORDS BOOK 8444, PAGE 2382 OF THE CURRENT PUBLIC RECORDS OF SAID COUNTY; THENCE SOUTH 33°17’35” EAST ALONG THE SOUTHWESTERLY LINE OF LAST SAID LANDS AND SAID EASTERLY RIGHT OF WAY LINE, A DISTANCE OF 205.81 FEET TO A 2 INCH IRON PIPE (NO IDENTIFICATION). BEING THE SOUTHWESTERLY CORNER OF THOSE LAST MENTIONED LANDS AND THE NORTHWESTERLY CORNER OF THOSE LANDS DESCRIBED AS AFORESAID PARCEL 5, AS RECORDED IN OFFICIAL RECORDS VOLUME 6254, PAGE 987, SAID 2 INCH IRON PIPE (NO IDENTIFICATION) BEING THE POINT OF BEGINNING; THENCE NORTH 56° 14’59” EAST, ALONG THE NORTHWESTERLY LINE OF LAST SAID LANDS AND THE SOUTHEASTERLY LINE OF SAID LANDS DESCRIBED AND RECORDED IN OFFICIAL RECORDS BOOK 8444, PAGE 2382, A DISTANCE OF 194.77 FEET TO A ONE HALF INCH IRON PIPE (STAMPED CLARY MILLER). BEING THE SOUTHEASTERLY CORNER OF THOSE LAST MENTIONED LANDS AND THE SOUTHWESTERLY CORNER OF THOSE LANDS DESCRIBED AS AFORESAID PARCEL 7, AS RECORDED IN OFFICIAL PUBLIC RECORDS VOLUME 6254, PAGE 987; THENCE NORTH 33°05’58” WEST, ALONG THE SOUTHWESTERLY LINE OF LAST SAID LANDS AND THE NORTHEASTERLY LINE OF SAID LANDS DESCRIBED AND RECORDED IN OFFICIAL RECORDS BOOK 8444, PAGE 2382, A DISTANCE OF 25.03 FEET TO A ONE HALF INCH IRON PIPE (STAMPED RLS/5586); THENCE NORTH 54°48’50” EAST, A DISTANCE OF 378.53 FEET TO A ONE HALF INCH IRON PIPE (STAMPED RLS/5586). SAID IRON PIPE BEING SITUATE IN THE SOUTHERLY BOUNDARY LINE OF SAID HUNTINGTON FOREST UNIT ONE; THENCE NORTH 89°18’07” EAST, ALONG LAST SAID LINE, A DISTANCE OF 150.75 FEET TO A ONE HALF INCH IRON PIPE (STAMPED RLS/5586). AT THE INTERSECTION WITH THE WESTERLY BOUNDARY LINE OF SAID HUNTINGTON FOREST UNIT ONE; THENCE SOUTH 00°36’51” EAST, ALONG LAST SAID LINE, A DISTANCE OF 102.34 FEET TO A 4 INCH BY 4 INCH CONCRETE MONUMENT (STAMPED PRM/2117). AT THE INTERSECTION WITH THE SOUTHERLY BOUNDARY LINE OF SAID HUNTINGTON FOREST UNIT ONE;

 

Exhibit A-2


THENCE SOUTH 87°47’19” EAST, ALONG LAST SAID LINE, A DISTANCE 105.00 FEET TO A 4 INCH BY 4 INCH CONCRETE MONUMENT (STAMPED PRM/2117); BEING AN ANGLE POINT IN THE SOUTHERLY BOUNDARY LINE OF SAID HUNTINGTON FOREST UNIT ONE; THENCE CONTINUE SOUTH 62°16’51” EAST, ALONG LAST SAID LINE, A DISTANCE OF 2.94 FEET TO A 4 INCH BY 4 INCH CONCRETE MONUMENT (UNABLE TO READ IDENTIFICATION); BEING THE NORTHWEST BOUNDARY CORNER OF LOT 4D, RAINTREE UNIT ONE, AS RECORDED IN PLAT BOOK 39, PAGES 9, 9A, 9B, 9C AND 9D, INCLUSIVE OF THE CURRENT PUBLIC RECORDS OF SAID COUNTY; THENCE SOUTH 02°27’06” EAST, ALONG THE WESTERLY BOUNDARY LINE OF SAID RAINTREE, UNIT ONE, A DISTANCE OF 56.57 FEET TO THE SOUTHEASTERLY CORNER OF THOSE LANDS DESCRIBED AS AFORESAID PARCEL 5, AS RECORDED IN OFFICIAL RECORDS VOLUME 6254, PAGE 987, AND THE NORTHEASTERLY CORNER OF AFORESAID LANDS DESCRIBED AND RECORDED IN OFFICIAL RECORDS VOLUME 5939, PAGE 1897; THENCE SOUTH 55°06’01” WEST, ALONG THE NORTHWESTERLY LINE OF LAST SAID LANDS AND THE SOUTHEASTERLY LINE OF SAID PARCELS 4 AND 5 RECORDED IN OFFICIAL RECORDS VOLUME 6254, PAGE 987, A DISTANCE OF 698.19 FEET TO A ONE HALF INCH IRON PIPE (STAMPED RLS/5586); BEING THE SOUTHWESTERLY CORNER OF SAID PARCEL 4, AND THE NORTHWESTERLY CORNER OF THOSE AFORESAID LANDS DESCRIBED AND RECORDED IN OFFICIAL RECORDS VOLUME 5939, PAGE 1897, SAID IRON PIPE BEING SITUATE IN AFORESAID EASTERLY RIGHT OF WAY LINE OF OLD ST. AUGUSTINE ROAD; THENCE NORTH 34°22’30” WEST ALONG SAID EASTERLY RIGHT OF WAY LINE, A DISTANCE OF 260.00 FEET TO THE POINT OF BEGINNING.

APN: 148992-0050

 

Exhibit A-3


Andover Place

Property Address: 2601 Andover Court, Little Rock, AR 72227

Real property in the City of Little Rock, County of Pulaski, State of Arkansas, described as follows:

Little Rock Retirement Residence, an Addition to the City of Little Rock, Pulaski County, Arkansas, as shown in Plat Book C at Page 563.

Together with an easement for ingress and egress, drainage and utilities over and across the following described property:

Part of The SW 1/4 of The NW 1/4 of The SE 1/4 of Section 26, Township 2 North, Range 13 West, Pulaski County, Arkansas, and being more particularly described as follows: Commencing at the Southeast Corner of the above SW 1/4 of The NW 1/4 of these 1/4 of Section 26; Thence North 00 Degrees 8’00” East, along the East line thereof, 545.25 feet to the Northeast Corner of Little Rock Retirement Residence addition; Thence along the North line of the Little Rock Retirement Residence the following courses and distances; Thence South 75 Degrees 51’38” West, 49.23 feet; Thence South 45 Degrees 58’16” West 17.72 feet to the Point of Beginning; Thence South 45 Degrees 58’16” West 7.84 feet; Thence leaving the North line of the above said Little Rock Retirement Residence addition, North 0 Degrees 22’36” West, 4.23 feet; Thence North 77 Degrees 52’50” East, 5.79 feet to the Point of Beginning,

and

Commencing at the Southeast Corner of the above said SW 1/4 of the NW 1/4 of these 1/4 of Section 26; Thence North 00 Degrees 8’00” East, along the East line thereof, 545.25 feet to the Northeast Corner of Little Rock Retirement Residence addition; Thence along the North line of the Little Rock Retirement Residence the following courses and distances; Thence South 75 Degrees 51’36” West, 49.23 feet; Thence South 45 Degrees 58’16” West 71.10 feet to the Point of Beginning; Thence South 45 Degrees 58’16” West, 12.35 feet; Thence South 43 Degrees 32’59” West, 54.43 feet to the Easterly Right-of-Way line of Andover Court; Thence along the Easterly Right-of-Way line of Andover Court on the arc of a curve to the left (said curve having a radius of 388.10 feet and a Delta of 5 Degrees 51’27”) and a chord bearing and distance of North 1 Degrees 32’32” East, 39.66 feet; Thence along the arc of a curve to the left (said curve having a radius of 15.0 feet and a Delta of 13 Degrees 10’08”) and a chord bearing and distance of North 85 Degrees 36’44” East, 3.44 feet; Thence North 79 Degrees 01’41” East, 42.66 feet to the Point of Beginning.

Parcel ID: 43L0580500100

 

Exhibit A-4


Arcadia Place

Property Address: 1080 Arcadia Avenue, Vista, CA 92084

Real property in the City of Vista, County of San Diego, State of California, described as follows:

LOTS 46 AND 47 OF MULL ESTATES, IN THE CITY OF VISTA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 2185, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, JULY 2, 1930.

EXCEPTING THEREFROM THE EAST 20.00 FEET OF SAID LOTS 46 AND 47 TOGETHER WITH ALL THAT PORTION OF EAST VISTA WAY, FORMERLY INLAND HIGHWAY, WITHIN SAID SUBDIVISION ADJOINING SAID LOTS ON THE EAST.

ALSO EXCEPTING THEREFROM THAT PORTION OF SAID LOT 47 LYING WESTERLY OF THE WEST LINE OF SAID EAST 20.00 FEET AND LYING SOUTHEASTERLY OF A 25.00 FOOT RADIUS CURVE CONCAVE NORTHWESTERLY THAT IS TANGENT BOTH TO SAID WEST LINE OF THE EAST 20.00 FEET OF LOT 47 AND TO THE SOUTH LINE OF SAID LOT.

APN: 173-041-25-00

 

Exhibit A-5


Elm Park Estates

Property Address: 4230 Elm View Road, Roanoke, VA 24018

Real property in the City of Roanoke, County of Roanoke, State of Virginia, described as follows:

ALL that certain lot, piece or parcel of land, with all improvements thereon and appurtenances thereto belonging, lying and being in the County of Roanoke, Virginia shown and designated as “New Lot 1” on plat entitled, “PLAT SHOWING SUBDIVISION AND COMBINATION OF OMN #077.20-01-51.00-0000 PROPERTY OF ELM PARK ESTATES RETIREMENT RESIDENCE LIMITED PARTNERSHIP D.B. 1434, PG.930 AND OMN #077.20-01-48.00-0000 PROPERTY OF DNAL HOLDINGS III, LLC INSTRUMENT #200612671 CREATING HEREON NEW LOT 1 – 6.0962 AC. PROPERTY OF ELM PARK ESTATES RETIREMENT RESIDENCE LIMITED PARNERSHIP AND NEW LOT 2 – 9.4334 AC. PROPERTY OF DNAL HOLDINGS III, LLC SITATED ALONG ELEM VIEW ROAD CAVE SPRING MAGISTERIAL DISTRICT ROANOKE COUNTY, VIRGINIA” recorded in the Clerk’s Office, Circuit Court, Roanoke County, Virginia, as Instrument No. 200613943, to which plat reference is hereby made for a more particular description of the property hereby conveyed.

 

Exhibit A-6


Echo Ridge

Property Address: 8458 Gleason Drive, Knoxville, TN 37919

Real property in the City of Knoxville, County of Knox, State of Tennessee, described as follows:

SITUATED IN SIXTH CIVIL DISTRICT OF KNOX COUNTY, TENNESSEE AND WITHIN THE 46TH WARD OF THE CITY OF KNOXVILLE, TENNESSEE AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT AN EXISTING IRON PIN IN THE SOUTH MARGIN OF GLEASON DRIVE, LOCATED 247 FEET, MORE OR LESS IN A NORTHEASTERLY DIRECTION FROM THE INTERSECTION OF THE EAST MARGIN OF GALLAHER VIEW ROAD WITH THE SOUTH MARGIN OF GLEASON DRIVE; THENCE WITH THE SOUTH MARGIN OF GLEASON DRIVE, NORTH 72 DEGREES 46 MINUTES 15 SECONDS EAST, 493.88 FEET TO A SET IRON PIN; THENCE LEAVING THE SOUTH MARGIN OF GLEASON DRIVE AND WITH THE WEST LINE OF KNOXVILLE RETIREMENT INVESTORS, LTD, (WARRANTY DEED BOOK 1970, PAGE 1088), SOUTH 25 DEGREES 18 MINUTES 47 SECONDS EAST 904.38 FEET TO A SET IRON PIN IN THE LINE OF RONALD B. ANDERSON AND ROBERT A. ANDERSON (WARRANTY DEED BOOK 2036, PAGE 570); THENCE WITH ANDERSON’S LINE NORTH 77 DEGREES 35 MINUTES WEST, 618.28 FEET TO AN EXISTING IRON PIN; THENCE CONTINUING WITH ANDERSON’S LINE NORTH 25 DEGREES 18 MINUTES 37 SECONDS WEST 286.40 FEET TO AN EXISTING IRON PIN; THENCE CONTINUING WITH ANDERSON’S LINE NORTH 25 DEGREES 18 MINUTES 37 SECONDS WEST 309.08 FEET TO THE POINT OF BEGINNING.

BEING THE SAME PROPERTY CONVEYED TO HARVEST ECHO RIDGE RETIREMENT RESIDENCE LLC BY QUIT CLAIM DEED OF RECORD IN INSTRUMENT NO. 20070320-0076250 IN THE REGISTER’S OFFICE FOR KNOX COUNTY, TENNESSEE.

 

Exhibit A-7


Genesee Gardens

Property Address: 4495 Calkins Road, Flint Township, MI 48532

Real property in the City of Flint Township, County of Genesee, State of Michigan, described as follows:

Parcel V (Southeast corner of Calkins Road and Linden Road)

Part of the Northwest 1/4 of Section 16, Township 7 North, Range 6 East, Flint Township, Genesee County, Michigan, more particularly described as follows: Beginning at the Northwest corner of Section 16, Township 7 North, Range 6 East; thence North 89 degrees 52 minutes 15 seconds East 436.71 feet along the centerline of Calkins Road; thence South 00 degrees 00 minutes 00 seconds East 608.33 feet; thence North 75 degrees 27 minutes 52 seconds West 295.28 feet; thence North 76 degrees 12 minutes 43 seconds West 76.20 feet; thence North 90 degrees 00 minutes 00 seconds West 76.90 feet to a point on the West line of said Section 16; thence North 00 degrees 00 minutes 00 seconds West 515.08 feet along said West line of Section 16, to the point of beginning.

 

Exhibit A-8


Pinegate

Property Address: 300 Charter Boulevard, Macon, GA 31210

Real property in the City of Macon, County of Bibb, State of Georgia, described as follows:

All that tract or parcel of land lying and being in Land Lot 338 of the 13th District, City of Macon, Bibb County, Georgia, and being more particularly described as follows:

Beginning at a point at the intersection of the Northeast right of way line of U.S. Highway No. 23 and 41 (a/k/a Forsyth Road) (variable right of way) and the Northwest right of way line of Charter Boulevard (80-foot right of way); run thence along the Northeast right of way line of U.S. Highway No. 23 and 41 the following courses and distances: North 54 degrees 37 minutes 07 seconds West a distance of 41.25 feet to a concrete right of way monument; North 57 degrees 17 minutes 59 seconds West a distance of 253.47 feet to a concrete right of way monument; North 52 degrees 09 minutes 19 seconds West a distance of 150.47 feet to a concrete right of way monument; North 57 degrees 38 minutes 41 seconds West a distance of 63.00 feet to a point; thence leaving said right of way line run North 38 degrees 06 minutes 11 seconds East a distance of 360.50 feet to a point; run thence South 51 degrees 53 minutes 49 seconds East a distance of 47.61 feet to a point; run thence south 81 degrees 53 minutes 49 seconds East a distance of 161.50 feet to a point; run thence south 59 degrees 53 minutes 49 seconds East a distance of 173.00 feet to a point; run thence North 63 degrees 48 minutes 27 seconds East a distance of 124.72 feet to a point on the West right of way line of Charter Boulevard; run thence in a southerly and southwesterly direction along said right of way line the following courses and distances; along the arc of a curve to the right an arc distance of 292.72 feet to a  1 2 -inch rebar (said arc having a radius of 440.00 feet and being subtended by a chord bearing South 19 degrees 02 minutes 50 seconds West a distance of 287.35 feet); South 38 degrees 06 minutes 11 seconds West 247.69 feet to a point; South 38 degrees 06 minutes 11 seconds West 25.70 feet to a point at the intersection of the Northeast right of way line of U.S. Highway No. 23 and 41 (a/k/a Forsyth Road) and the Northwest right of way line of Charter Boulevard, said point being the Point of Beginning; said parcel containing 4.99 acres as Tract MRR-1 and .01 acre as Tract MRR-2, said tracts being shown on and described according to that certain survey entitled “ALTA/ACSM Land Title Survey & Topographical Survey of Macon Retirement Residence for Colson & Colson Construction Co.”, prepared by Collins & Company, bearing the seal and certification of Jesse Collins, Jr., Georgia Registered Land Surveyor No. 2085, dated June 2, 2000, last revised August 9, 2000, and that certain survey entitled “Subdivision Survey for Macon Retirement Residence, Colson & Colson Construction Co.”, which said survey is recorded in Plat Book 90, Page 16, Records of Bibb County, Georgia, said surveys being incorporated herein by reference.

Together with and as an appurtenance to the above-described tract of land that certain sanitary sewer easement described in and granted by Sanitary Sewer Easement Agreement by and among GFSE Holdings, L.L.C., a Georgia limited liability company, Macon Retirement Residence LLC, a Delaware limited liability company and Macon Northside Hospital, L.L.C., a Georgia limited liability company, dated as of November 7, 2000, filed for record November 10, 2000 at 1:30 p.m., recorded in Deed Book 4787, Page 38, Records of Bibb County, Georgia.

 

Exhibit A-9


And also together with and as an appurtenance to the above-described tract of land those certain easements which benefit said tract and which are described in and granted by Easement Agreement with Covenants and Restrictions by and between Macon Northside Hospital, L.L.C., a Georgia limited liability company and Macon Retirement Residence, L.L.C., a Delaware limited liability company, dated October 31, 2000, filed for record November 10, 2000 at 1:30 p.m., recorded in Deed Book 4787, Page 18, aforesaid records.

 

Exhibit A-10


Alexis Gardens

Property Address: 4560 West Alexis Road, Toledo, OH 43623

Real property in the City of Toledo, County of Lucas, State of Ohio, described as follows:

Parcel I (Parcel No. 24-00301):

A parcel of land being part of the Southwest 1/4 of the Southeast 1/4 of Section 1, Town 9, South, Range 6 East, in the City of Toledo, Lucas County, Ohio, said parcel of land being bounded and described as follows:

Commencing at the Southwest corner of the said Southeast 1/4 of Section 1;

Thence in an Easterly direction along the South line of the said Southeast 1/4 of Section 1, having an assumed bearing of North 88º 16’ 01” East, a distance of 683.28 feet to the intersection of the East line of the West 20.48 acres (so-called) of the Southwest 1/4 of the Southeast 1/4 of Section 1, said intersection being the true point of beginning;

Thence North 00º 00’ 00” East along the said East line of the West 20.48 acres (so-called) of the Southwest 1/4 of the Southeast 1/4 of Section 1, a distance of 220.61 feet to a point;

Thence South 56º 19’ 03” East along a line, a distance of 360.77 feet to a point; said point being 200.00 feet Northwesterly of the centerline of Alexis Road as measured at right angles to the said centerline of Alexis Road;

Thence South 22º 02’ 20” East along a line drawn at right angles to the said centerline of Alexis Road, a distance of 12.20 feet to the intersection of the said South line of the Southeast 1/4 of Section 1;

Thence South 88º 16’ 01” West along the said South line of the Southeast 1/4 of Section 1, a distance of 304.92 feet to the true point of beginning.

Parcel II (Parcel No. 24-01009):

A parcel of land being a part of the Northwest 1/4 of the Northeast 1/4 of Section 12, Township 9 South, Range 6 East, in the City of Toledo, Lucas County, Ohio, and being more particularly described as follows:

Commencing at an iron pin at the Northwest corner of the Northeast 1/4 of Section 12, Township 9 South, Range 6 East;

Thence North 88º 16’ 47” East on the North line of the Northeast 1/4, a distance of 297.00 feet to an iron pipe, said iron pipe being the true point of beginning of the parcel herein described;

 

Exhibit A-11


Thence continuing North 88º 16’ 47” East on the North line of the Northeast 1/4, a distance of 196.50 feet to an iron pipe;

Thence South 07º 34’ 59” East, a distance of 271.18 feet to an iron pipe on the Northerly right-of-way line of Alexis Road;

Thence continuing South 07º 34’ 59” East, a distance of 30.13 feet to a point on the centerline of Alexis Road;

Thence South 77º 09’ 48” West on the centerline of Alexis Road, a distance of 105.50 feet to a brass plate;

Thence South 79º 43’ 38” West and continuing on the centerline of Alexis Road, a distance of 117.26 feet to a point;

Thence North 03º 02’ 37” West, a distance of 30.21 feet to a concrete monument found at the Southeast corner of Lot Number 1 of the Robertson Addition;

Thence continuing North 03º 02’ 37” West on the East line of Lot Number 1 of Robertson Addition, a distance of 169.79 feet to a concrete monument;

Thence continuing North 03º 02’ 37” West, a distance of 137.60 feet to the true point of beginning of the parcel herein described.

Excepting therefrom that pat deeded to the City of Toledo, an Ohio Municipal Corporation, for road purposes by Official Record 20030701-0034410.

Parcel III (Parcel No. 24-01017):

That part of the West 4.88 acres of that part of the Northwest 1/4 of the Northeast 1/4 of Section 12, Town 9 South, Range 6 East, in the City of Toledo, Lucas County, Ohio, lying North of the center of Alexis Road and described as follows:

Beginning at the Northeast corner of said 4.88 acres;

Thence South along the Easterly line of said 4.88 acres to the center of Alexis Road;

Thence in a Westerly direction along the center line of Alexis Road, a distance of 120 feet;

Thence in a Northerly direction to a point on the North line of said 4.88 acres, 145 feet West of the Northeast corner of said 4.88 acres;

Thence East along the Northerly line of said 4.88 acres to the place of beginning.

Excepting therefrom that part deeded to the City of Toledo, an Ohio Municipal Corporation, for road purposes by Official Record 20030701-0034410.

 

Exhibit A-12


Parcel IV (Parcel No. 24-01014):

Tract I:

The East 2.7509 acres of that part of the Northwest 1/4 of the Northeast 1/4 of Section 12, Town 9 South, Range 6 East in the City of Toledo, Lucas County, Ohio, lying Northerly of the centerline of Toledo and Sylvania Plank Road, so-called, less a parcel of land being part of the Northwest 1/4 of the Northeast 1/4 of Section 12, Town 9 South, Range 6 East, in City of Toledo, Lucas County, Ohio, said parcel of land being bounded and described as follows:

Commencing at the Northwest corner of the said Northeast 1/4 of Section 12;

Thence in an Easterly direction along the North line of the said Northeast 1/4 of Section 12, having an assumed bearing of North 88º 16’ 47” East, a distance of 988.20 feet to the intersection of a line drawn at right angles to the centerline of Alexis Road, said intersection being the true point of beginning;

Thence continuing North 88º 16’ 47” East along the said North line of the Northeast 1/4 of Section 12, a distance of 428.16 feet to the intersection of the East line of the West 1/2 of the said Northeast 1/4 of Section 12;

Thence South 02º 33’ 04” East along the said East line of the West 1/2 of the Northeast 1/4 of Section 12, a distance of 45.98 feet to the intersection of the said centerline of Alexis Road;

Thence South 86º 25’ 25” West along the said centerline of Alexis Road, a distance of 13.82 feet to an angle point;

Thence South 67º 57’ 40” West along the said centerline of Alexis Road, a distance of 373.10 feet to the intersection of said line drawn at right angles to the centerline of Alexis Road;

Thence North 22º 02’ 20” West along said line drawn at right angles to the centerline of Alexis Road, a distance of 187.56 feet to the true point of beginning.

Tract II:

A parcel of land being part of the Northwest 1/4 of the Northeast 1/4 of Section 12, Town 9 South, Range 6 East, in the City of Toledo, Lucas County, Ohio, said parcel of land being bounded and described as follows:

Commencing at the Northwest corner of the said Northeast 1/4 of Section 12;

Thence in an Easterly direction along the North line of the said Northeast 1/4 of Section 12, having an assumed bearing of North 88º 16’ 47” East, a distance of 638.50 feet to the intersection of the East line of the West 4.88 acres of the said Northwest 1/4 of the Northeast 1/4 of Section 12, lying North of the centerline of Alexis Road, said intersection being the true point of beginning;

 

Exhibit A-13


Thence continuing North 88º 16’ 47” East along the said North line of the Northeast 1/4 of Section 12, a distance of 57.54 feet to the intersection of the West line of the East 2.7509 acres of the said Northwest 1/4 of the Northeast 1/4 of Section 12, lying North of the centerline of Alexis Road;

Thence South 02º 33’ 04” East along the said West line of the East 2.7509 acres of the Northwest 1/4 of the Northeast 1/4 of Section 12 lying North of the centerline of Alexis Road, a distance of 264.87 feet to the intersection of the said centerline of Alexis Road;

Thence South 77º 09’ 48” West along the said centerline of Alexis Road, a distance of 61.00 feet to the intersection of the East line of the West 4.88 acres of the Northwest 1/4 of the Northeast 1/4 of Section 12 lying North of the centerline of Alexis Road;

Thence North 02º 27’ 03” West along the said East line of the West 4.88 acres of the Northwest 1/4 of the Northeast 1/4 of Section 12, lying North of the centerline of Alexis Road, a distance of 276.62 feet to the true point of beginning.

Excepting therefrom that part deeded to the City of Toledo, an Ohio Municipal Corporation, for road purposes by Official Record 20030701-0034410 and Excepting therefrom that part conveyed to The Board of County Commissioners of Lucas County, Ohio by deed recorded in Volume 1647 of Deeds, Page 323, Lucas County, Ohio Records.

Said Parcels I, II, III and IV are also described as follows:

Part of the Southeast 1/4 of Section 1 and part of the Northeast 1/4 of Section 12 in Town 9 South, Range 6 East, City of Toledo, Lucas County, Ohio, bounded and described as follows:

Commencing at a found R.R. spike over a brass plate monument at the intersection of the West line of the Northeast 1/4 of said Section 12 and the centerline of Survey of Alexis Road as shown on the Plat of Robertson Addition, a Subdivision in the City of Toledo recorded in Volume 109 of Plats, Page 48, Lucas County Records; thence N-79°43’38”-E along the centerline of Survey of Alexis Road (variable width) a distance of 303.00 feet to the point of beginning; thence N-02°58’34”-W along the East line of the said Plat of Robertson Addition and said line extended North, a distance of 337.63 feet to a found iron pipe on the North line of the Northeast 1/4 rod said Section 12, passing through a found 6 inch concrete monument at 30.25 feet and at 200.00 feet; thence N-88°16’47”-E along the North line of the Northeast 1/4 of said Section 12, a distance of 386.03 feet to a found iron pipe; thence N-00°00’00”-E along the East line of the West 20.48 acres of the Southwest 1/4 of the Southeast 1/4 of said Section 1 and said line extended South, a distance of 220.76 feet to a found iron pipe at the Southwest corner of Lot 2 in Flanders Hill Plat One, a Subdivision in the City of Toledo recorded in Volume 103 of Plats, Page 26, Lucas County Records; thence S-56°19’03”-E along the Southwesterly line of the said plat of Flanders Hill Plat One, a distance of 360.77 feet to a found iron pipe; thence S-22°02’20”-E along the Southwesterly line of the said plat of Flanders Hill Plat One, a distance of 200.00 feet to a point on the centerline of Alexis Road, passing through a found iron pipe at 140.00 feet and a set capped 1/2 inch iron pipe rod at 170.00 feet; thence s_67°57’40”-W along the centerline of Alexis Road a distance of 121.97 feet to a found concrete monument in a box;

 

Exhibit A-14


thence S-77°09’48”-W and continuing along the centerline of Alexis Road a distance of 15.93 feet to a point; thence N-12°50’12”-W along the Northeasterly line of land described in Volume 1647 of Deeds, Page 323 a distance of 40.00 feet to a point; Thence S-74°18’03”-W along the Northerly line of said parcel a distance of 200.25 feet to a point; thence S-12°50’12”-E along the Southwesterly line of said parcel a distance of 30.00 feet to a point on the centerline of Alexis Road; thence S-77°09’48”-W along the centerline of Alexis Road a distance of 312.26 feet to a found concrete monument in a box; thence S-79°43’38”-W and continuing along the centerline of Alexis Road a distance of 117.41 feet to the point of beginning.

 

Exhibit A-15


Indigo Pines

Property Address: 110 Gardner Drive, Hilton Head, SC 29926

Real property in the City of Hilton Head, County of Beaufort, State of South Carolina, described as follows:

All that certain piece, parcel or tract of land situate, lying and being on Hilton Head Island, Beaufort County, South Carolina, containing 6.0 acres, more or less, being a portion of Parcel I and being more particularly shown on a Plat entitled “An Alta Survey of 6.00 Acres on Gardner Drive, A Section of Indigo Run,” prepared by Jack Jones, SC RLS #13852, dated February 21, 1997 and recorded April 28, 1997 in Plat Book 60 at Page 88, Office of the Register of Deeds for Beaufort County.

This being the same property conveyed to Hilton Head Retirement Residence Limited Liability Company by Deed of Indigo Run Limited Partnership recorded April 30, 1997 in Book 940 at Page 798, as re-recorded March 23, 1999 in Book 1025 at Page 1151, Office of the Register of Deeds for Beaufort County.

TMS: R510-008-000-00005-0000 (For Informational Purposes Only)

 

Exhibit A-16


Kalama Heights

Property Address: 101 Kanani Road, Kihei, HI 96753

Real property in the City of Kihei, County of Maui, State of Hawaii, described as follows:

ALL OF THOSE CERTAIN PARCELS OF LAND BEING THE CONSOLIDATION AND RESUBDIVISION OF LOTS 1, 2 AND 3 OF THE EZAKI-ISOBE SUBDIVISION, SITUATED ON THE NORTHERLY SIDE OF KANANI ROAD, AT KAMAOLE (KULA), WAILUKU, ISLAND AND COUNTY OF MAUI, STATE OF HAWAII. BEING ALSO PORTION OF GRANT 5598 TO AKUNA AKINA, BEING ALSO PORTION OF LOT 21, KAMAOLE HOMESTEADS, DESCRIBED AS FOLLOWS:

LOT 2:

ALL OF THAT CERTAIN PARCEL OF LAND (BEING A PORTION OF GRANT 5598 TO AKUNA AKINA) SITUATED ON THE NORTHERLY SIDE OF KANANI ROAD, THE SOUTHERLY SIDE OF AUHANA ROAD, AND THE EASTERLY SIDE OF KANOE STREET AT KAMAOLE (KULA), WAILUKU, ISLAND AND COUNTY OF MAUI, STATE OF HAWAII, BEING LOT 2 OF THE KALAMA HEIGHTS SUBDIVISION, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE SOUTHWESTERLY CORNER OF THIS LOT, THE COORDINATES OF SAID POINT OF BEGINNING REFERRED TO GOVERNMENT SURVEY TRIANGULATION STATION “PUU-O-KALI” BEING 985.32 FEET SOUTH AND 20,984.80 FEET WEST AND RUNNING BY AZIMUTHS MEASURED CLOCKWISE FROM TRUE SOUTH:

1. 172° 01’ 100.33 FEET ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA, BEING ALSO ALONG LOT 1 OF KALAMA HEIGHTS SUBDIVISION TO A POINT;

2. 182° 00’ 173.89 FEET ALONG SAME TO A POINT;

3. 90° 41’ 235.15 FEET ALONG SAME TO A POINT;

4. 41° 19’ 175.98 FEET ALONG SAME TO A POINT;

5. THENCE ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA, BEING ALSO ALONG LOT 3 (ROAD WIDENING LOT) OF KALAMA HEIGHTS SUBDIVISION ON A CURVE TO THE LEFT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 255° 05’ 19”, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 235° 55’, HAVING A RADIUS OF 193.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 155° 30’ 09.5” 64.28 FEET TO A POINT;

6. 145° 55’ 171.09 FEET ALONG SAME TO A POINT;

 

Exhibit A-17


7. 270° 41’ 360.08 FEET ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA TO A POINT;

8. 192° 40’ 92.33 FEET ALONG SAME TO A POINT;

9. 282° 40’ 462.10 FEET ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA, BEING ALSO ALONG LOT 4 (ROAD WIDENING LOT) OF KALAMA HEIGHTS SUBDIVISION TO A POINT;

10. THENCE ALONG SAME ON A CURVE TO THE RIGHT HAVING A RADIUS OF 200.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 293° 00’ 71.75 FEET TO A POINT;

11. 303° 20’ 550.26 FEET ALONG SAME TO A POINT;

12. THENCE ALONG SAME ON A CURVE TO THE RIGHT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 213° 20, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 279° 57’, HAVING A RADIUS OF 17.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 336° 38’ 30” 18.67 FEET TO A POINT;

13. THENCE ALONG SAME ON A CURVE TO THE RIGHT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 279° 57, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 9° 57’, HAVING A RADIUS OF 20.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 54° 57’ 28.28 FEET TO A POINT;

14. 99° 57’ 22.78 FEET ALONG THE NORTHERLY SIDE OF KANANI ROAD TO A POINT;

15. 92° 09’ 837.62 FEET ALONG SAME TO THE POINT OF BEGINNING AND CONTAINING AN AREA OF 6.577 ACRES, MORE OR LESS.

LOT 3:

ALL OF THAT CERTAIN PARCEL OF LAND (BEING A PORTION OF GRANT 5598 TO AKUNA AKINA) SITUATED ALONG THE EASTERLY SIDE OF OF KANOE STREET AT KAMAOLE (KULA), WAILUKU, ISLAND AND COUNTY OF MAUI, STATE OF HAWAII, BEING LOT 3 (ROAD WIDENING LOT) OF THE KALAMA HEIGHTS SUBDIVISION, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE NORTHWESTERLY CORNER OF THIS LOT, THE COORDINATES OF SAID POINT OF BEGINNING REFERRED TO GOVERNMENT SURVEY TRIANGULATION STATION “PUU-O-KALI” BEING 641.27 FEET SOUTH AND 21,473.81 FEET WEST AND RUNNING BY AZIMUTHS MEASURED CLOCKWISE FROM TRUE SOUTH:

 

Exhibit A-18


1. 270° 41’ 7.30 FEET ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA TO A POINT;

2. 325° 55’ 171.09 FEET ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA, BEING ALSO ALONG LOT 2 OF KALAMA HEIGHTS SUBDIVISION TO A POINT;

3. THENCE ALONG SAME ON A CURVE TO THE RIGHT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 235° 55, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 283° 25’ 07”, HAVING A RADIUS OF 193.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 349° 40’ 3.50” 155.47 FEET TO A POINT;

4. THENCE ALONG SAME ON A CURVE TO THE LEFT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 103° 25’ 07”, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 2° 09’, HAVING A RADIUS OF 30.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 322° 47’ 03.5” 46.39 FEET TO A POINT;

5. 92° 09’ 6.12 FEET ALONG THE NORTHERLY SIDE OF KANANI ROAD TO A POINT;

6. THENCE ALONG THE EASTERLY SIDE OF KANOE STREET ON A CURVE TO THE RIGHT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 2° 09’, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 103° 44’ 04”, HAVING A RADIUS OF 30.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 142° 56’ 32” 46.49 FEET TO A POINT;

7. THENCE ALONG SAME ON A CURVE TO THE LEFT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 283° 44’ 04”, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 235° 55’, HAVING A RADIUS OF 187.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 169° 49’ 32” 151.58 FEET TO A POINT;

8. 145° 55’ 175.25 FEET ALONG SAME TO THE POINT OF BEGINNING AND CONTAINING AN AREA OF 0.051 ACRE, MORE OR LESS.

 

Exhibit A-19


LOT 4:

ALL OF THAT CERTAIN PARCEL OF LAND (BEING A PORTION OF GRANT 5598 TO AKUNA AKINA) SITUATED ALONG THE SOUTHERLY SIDE OF AUHANA ROAD AND THE NORTHERLY SIDE OF KANANI ROAD AT KAMAOLE (KULA), WAILUKU, ISLAND AND COUNTY OF MAUI, STATE OF HAWAII, BEING LOT 4 (ROAD WIDENING LOT) OF THE KALAMA HEIGHTS SUBDIVISION, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE NORTHWESTERLY CORNER OF THIS LOT, THE COORDINATES OF SAID POINT OF BEGINNING REFERRED TO GOVERNMENT SURVEY TRIANGULATION STATION “PUU-O-KALI” BEING 552.64 FEET SOUTH AND 21,085.55 FEET WEST AND RUNNING BY AZIMUTHS MEASURED CLOCKWISE FROM TRUE SOUTH:

1. 282° 40’ 499.12 FEET ALONG THE THE SOUTHERLY SIDE OF AUHANA ROAD TO A POINT;

2. 303° 20’ 587.27 FEET ALONG SAME TO A POINT;

3. THENCE ALONG THE SOUTHERLY SIDE OF AUHANA ROAD AND ON THE NORTHERLY SIDE OF KANANI ROAD ON A CURVE TO THE RIGHT HAVING A RADIUS OF 20.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 21° 38’ 30” 39.17 FEET TO A POINT;

4. 99° 57’ 3.00 FEET ALONG THE THE NORTHERLY SIDE OF KANANI ROAD TO A POINT;

5. THENCE ALONG THE REMAINDER OF GRANT 5598 TO AKUNA AKINA, BEING ALSO ALONG LOT 2 OF KALAMA HEIGHTS SUBDIVISION ON A CURVE TO THE LEFT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 9° 57’, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 279° 57’, HAVING A RADIUS OF 20.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 234° 57’ 28.28 FEET TO A POINT;

6. THENCE ALONG SAME ON A CURVE TO THE LEFT WITH THE POINT OF CURVATURE AZIMUTH FROM THE RADIAL POINT BEING: 279° 57’, AND THE POINT OF TANGENCY AZIMUTH FROM THE RADIAL POINT BEING: 213° 20’, HAVING A RADIUS OF 17.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 156° 38’ 30” 18.67 FEET TO A POINT;

7. 123° 20’ 550.26 FEET ALONG SAME TO A POINT;

8. THENCE ALONG SAME ON A CURVE TO THE LEFT HAVING A RADIUS OF 200.00 FEET, THE CHORD AZIMUTH AND DISTANCE BEING: 113° 00’ 71.75 FEET TO A POINT;

9. 102° 40’ 462.10 FEET ALONG SAME TO A POINT;

10. 192° 40’ 3.00 FEET ALONG SAME TO THE POINT OF BEGINNING AND CONTAINING AN AREA OF 0.079 ACRE, MORE OR LESS.

AS TO LOTS 3 AND 4

NOTE: LOTS 3 AND 4 ARE FOR ROAD WIDENING PURPOSE AND IS TO BE DEDICATED TO THE COUNTY OF MAUI, UPON COMPLETION OF THE ROADWAY IMPROVEMENTS, AS SET FORTH ON SURVEY MAP OF REED M. ARIYOSHI, LICENSED PROFESSIONAL LAND SURVEYOR, CERTIFICATE NO. 6597, WITH WARREN S. UNEMORI-ENGINEERING, INC. DATED JUNE 21, 1999.

 

Exhibit A-20


BEING ALL OF THE PREMISES CONVEYED BY WARRANTY DEED RECORDED JULY 2, 1999 AS REGULAR SYSTEM DOCUMENT NO. 99-106811 OF OFFICIAL RECORDS.

GRANTOR: KALAMA HEIGHTS, INC., A WASHINGTON CORPORATION

GRANTEE: KALAMA HEIGHTS RETIREMENT RESIDENCE L.L.C., A WASHINGTON LIMITED LIABILITY COMPANY

APN: 3-9-017-068-0000

 

Exhibit A-21


Montara Meadows

Property Address: 3150 East Tropicana Avenue, Las Vegas, NV 89121

Real property in the City of Las Vegas, County of Clark, State of Nevada, described as follows:

THAT PORTION OF THE REAL PROPERTY LOCATED IN THE SOUTH ONE HALF (S 1/2) OF THE SOUTHEAST QUARTER (SE 1/4) OF SECTION 24, TOWNSHIP 21 SOUTH, RANGE 61 EAST, MOUNT DIABLO MERIDIAN (M.D.M.), IN THE STATE OF NEVADA, COUNTY OF CLARK AND MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE SOUTH QUARTER CORNER OF SECTION 24, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.M., CLARK COUNTY, NEVADA; THENCE NORTH 89°37’47” EAST 792.73 FEET ALONG THE SOUTH LINE OF SAID SECTION 24; THENCE NORTH 00°22’13” WEST 50.00 FEET TO THE SOUTHEASTERLY CORNER OF MONTARA ESTATES UNIT NO. 2A ALSO BEING ON THE NORTHERLY RIGHT-OF-WAY LINE OF EAST TROPICANA AVENUE; THENCE NORTH 89°37’47” EAST ALONG SAID NORTHERLY LINE 0.41 FEET TO THE TRUE PLACE OF BEGINNING:

THENCE NORTH 6°55’06” EAST 219.54 FEET; THENCE SOUTH 83°47’33” EAST 14.90 FEET; THENCE NORTH 7°01’46” EAST 51.02 FEET; THENCE NORTH 84°50’36” WEST 1.94 FEET; THENCE NORTH 5°43’23” EAST 46.57 FEET; THENCE NORTH 86°01’53” WEST 6.74 FEET; THENCE NORTH 1°07’50” EAST 50.90 FEET; THENCE NORTH 86°31’58” WEST 1.79 FEET; THENCE NORTH 1°22’16” EAST 99.37 FEET; THENCE SOUTH 87°30’37” EAST 5.90 FEET; THENCE NORTH 1°11’26” WEST 56.28 FEET; THENCE NORTH 0°06’35” EAST 43.46 FEET; THENCE SOUTH 88°31’01” EAST 100.75 FEET; THENCE NORTH 83°52’46” EAST 35.09 FEET; THENCE SOUTH 88°16’34” EAST 110.18 FEET; THENCE SOUTH 1°29’40” WEST 78.37 FEET; THENCE SOUTH 83°58’15” EAST 124.13 FEET; THENCE NORTH 68°04’06” EAST 43.20 FEET; THENCE SOUTH 83°57’31” EAST 111.46 FEET TO A POINT OF THE WESTERLY RIGHT-OF-WAY LINE OF MOJAVE ROAD; THENCE SOUTHWESTERLY ALONG SAID RIGHT-OF-WAY LINE 440.85 FEET A CURVE TO THE RIGHT WHOSE CHORD BEARS SOUTH 8°25’21” WEST 440.48 FEET; HAVING A CENTRAL ANGLE OF 8°10’05” AND A RADIUS OF 3092.40 FEET TO A POINT OF COMPOUND CURVE; THENCE SOUTHWESTERLY ALONG SAID RIGHT-OF-WAY LINE 14.47 FEET A CURVE TO THE LEFT WHOSE CHORD BEARS SOUTH 10°12’13” WEST 14.46 FEET, HAVING A CENTRAL ANGLE OF 4°36’20” AND A RADIUS OF 180.00 FEET TO A POINT OF REVERSE CURVE; THENCE SOUTHWESTERLY ALONG SAID RIGHT-OF-WAY 35.66 FEET, A CURVE TO THE RIGHT WHOSE CHORD BEARS SOUTH 48°45’55” WEST 32.71 FEET, HAVING A CENTRAL ANGLE OF 81°43’44” AND A RADIUS OF 25.00 FEET TO A POINT OF TANGENCY, SAID POINT BEING ON THE NORTHERLY RIGHT-OF-WAY LINE OF TROPICANA AVENUE; THENCE SOUTH 89°37’47” WEST ALONG SAID NORTHERLY RIGHT-OF-WAY LINE 476.27 FEET TO THE PLACE OF BEGINNING.

 

Exhibit A-22


NOTE: THE ABOVE METES AND BOUNDS DESCRIPTION APPEARED PREVIOUSLY IN THAT CERTAIN DOCUMENT RECORDED MARCH 27, 2007 IN BOOK 20070327 AS INSTRUMENT NO. 02148, OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA.

APN: 162-24-801-003

 

Exhibit A-23


Niagara Village

Property Address: 2380 Village Common Drive, Erie, PA 16506

Real property in the City of Erie, County of Erie, State of Pennsylvania, described as follows:

ALL THAT CERTAIN lot or piece of ground situate in the Township of Millcreek, County of Erie, and Commonwealth of Pennsylvania being Lot No. 14 in the Subdivision of Property for NIAGARA VILLAGE PHASE 2 as recorded in the Recorder’s Office at No. 1997-409 on December 29, 1997.

APN: 33-123-418.0-033.00

 

Exhibit A-24


Quail Run Estates

Property Address: 50 Cardinal Drive, Agawam, MA 01001

Real property in the City of Agawam, County of Hampden, State of Massachusetts, described as follows:

Commencing at a point located on the easterly line of Cooper Street, which point being the southwesterly corner of the hereon described premises:

Thence: N 41°-44’-26” E, 81.05’ along the easterly line of Cooper Street,

Thence: Along the arc of a curve to the left having a radius of 15.00’, a length of 25.98’, a central angle of 99°-13’-16”,

Thence: S 57°-28’-50” E, 261.82’,

Thence: Along the arc of a curve to the left having a radius of 200.00’, a length of 64.67’, a central angle of 18°-31’-40”,

Thence: Along the arc of a curve to the right having a radius of 250.00’, a length of 80.84’, a central angle of 18°-31’-40”,

Thence: S 57°-28’-50” E, 113.18’

Thence: S 34°-54’-04” E, 130.22,

The preceding six courses being along land of N/F The Italian Sporting Club, Inc. (a.k.a. Lot 2) and Lot 1 in part by each

Thence: N 57°-28’-50” W, 233.42’,

Thence: Along the arc of a curve to the left having a radius of 200.00, a length of 64.67’, a central angle of 18°-31’-40”,

Thence: Along the arc of a curve to the right having a radius of 250.00’, a length of 80.84’, a central angle of 18°-31’-40”,

Thence: N 57°-28’-50” W, 274.81,

Thence: Along the arc of a curve to the left having a radius of 15.00’, a length of 21.15’, a central angle of 80°-46’-44”,

To the point and place of beginning.

 

Exhibit A-25


The preceding five courses being along land of N/F Margaret D. & James E. Flynn and Edward, Freda & Rose Deloghia, M. Flynn & D. Webler in part by each. Containing 30,219 square feet of 0.6937 acres.

Lot 1

A certain parcel of land located in the Commonwealth of Massachusetts, County of Hampden, Town of Agawam, being bounded and described as follows:

Commencing at a point located along the northerly line of Cardinal Drive, which point is the westerly corner of the hereon described premises.

Thence: Along the arc of a curve to the left having a radius of 30.00’, a length of 40.40’, a central angle of 77°-09’-38”,Thence: Along the arc of a curve to the right having a radius of 60.00’, a length of 20.00’, a central angle of 19°-05’-55”,

Thence: N 35°-26’-57” E, 145.39’

The preceding three courses being along land of N/F The Italian Sporting Club, Inc.

Thence: N 69°-27’-36” E, 522.94’ along land of N/F of Victor P. & Marion R. Ramah,

Thence: S 68°-56’-50” E, 112.02 along land of N/F Richard & Joanne Everett,

Thence: S 21°-27’-20” W, 150.00’,

Thence: S 68°-56’-50” E, 150.00’,

Thence: N 21°-27’-20” E, 150.00’,

The preceding three courses being along land of N/F Douglas Wood,

Thence: S 70°-17’-25” E, 106.37’ along land of N/F Victoria T. Donovan,

Thence: S 85°-04’-04” E, 53.06’ along the southerly line of Federal Street Extension,

Thence: S 31°-11’-07” W, 140.00,

Thence: S 56°-32’-20” E, 50.00,

Thence: S 00°-28’-40” W, 56.00’,

Thence: S 61°-55’-10” E, 89.23’,

Thence: N 28°-39’-03” E, 207.50’,

 

Exhibit A-26


The preceding five courses being along land of N/F Edward M & Freda M. Deloghia,

Thence: S 73°-05’-45” E, 50.31’ along the southerly line of Fairview Avenue,

Thence: S 28°-39’-03” W, 257.41’,

Thence: S 09°-26’-02” E, 69.83’,

Thence: S 66°-46’-10” E, 78.90,

The preceding three courses being along land of N/F Edward M. & Freda M. Deloghia,

Thence: S 24°-46’-00” W, 51.00’,

Thence: S 36°-05’-15” W, 111.08’,

Thence: S 01°-25’-45” E, 184.22’,

Thence: N 67°-28’-57” W, 224.74’,

Thence: S 12°-14’-03” W, 265.18’,

The preceding six courses being along land of N/F Genesis Health Ventures of Mass, Inc.,

Thence: North 87°-47’-40” W, 532.65’ along land of the City of Springfield Water Department

Thence: N 18°-07’-20” E, 498.73’ along land of N/F Matthew J. & Catherine A. Siano, land of N/F Edward, Freda & Rose Deloghia, M. Flynn & D. Webler, and land of N/F Edward M., Freda & Rose Deloghia in part by each,

Thence: N 57°-28’-50” W, 349.21’ along land of N/F Edward, Freda & Rose Deloghia and land of N/F Margaret D. & James E. Flynn in part by each,

Thence: N 34°-54’-04” W, 130.22’,

Thence: N 57°-28’-50” W, 69.96’,

The preceding two courses being along Cardinal Drive to the point and place of beginning.

Containing 798,405 square feet, 18.3289 acres.

All of the foregoing property is shown on plan entitled “Plan Showing Amendment to the Definitive Plan of Cardinal Estates prepared for Colson & Colson, Cardinal Drive, Agawam, MA,” dated June 5, 1996 and revised through July 8, 1996, consisting of two sheets prepared by Luchs Associates, Inc. and recorded with Hampden County Registry of Deeds on Book of Plans 299, Pages 28 and 29.

 

Exhibit A-27


Together with the benefit of the terms of Cross Easement Agreement dated August 10, 1995 and recorded with said Deeds of August 15, 1995 in Book 9216, Page 355, as affected by a Supplemental Agreement to Cross Easement Agreement, dated November 25, 1996, recorded with said Deeds at Book 9716, Page 186.

Together with a Right of Way Easement from Springfield Board of Water and Sewer Commissioners, recorded with said Deeds June 4, 1997 at Book 9883, Page 448.

Together with an easement for ingress and egress identified as Easement #1 as shown on a plan dated January 30, 1990, sheet No. 10F1 and recorded in the Hampden County Registry of Deeds in Plan Book 272, Page 97 on July 19, 1990 and created in that certain conveyance recorded July 24, 1990 with said Deeds at Book 7508, Page 281.

 

Exhibit A-28


Quincy Place

Property Address: 7200 East Quincy Avenue, Denver, CO 80237

Real property in the City of Denver, County of Denver, State of Colorado, described as follows:

Parcel 1:

That part of the Northeast 1/4 of Section 8, Township 5 South, Range 67 West of the 6th P.M., described as follows:

Commencing at the Northeast corner of said Section 8;

thence West along the North line of said Section 8, a distance of 707.71 feet;

thence on an angle to the left of 90° a distance of 60 feet to the True Point of Beginning;

thence continuing along the last mentioned course an additional distance of 50 feet;

thence on an angle to the left of 45° a distance of 153.28 feet to a point of curvature;

thence along a curve to the left having a radius of 125.00 feet and a central angle of 45° an arc distance of 98.17 feet to a point of tangency;

thence along the tangent to the aforesaid curve a distance of 79.24 feet to a point of curvature;

thence along a curve to the right having a radius of 220.00 feet and a central angle of 80°54’22” an arc distance of 310.66 feet to a point of reverse curvature;

thence along a curve to the left having a radius of 25.00 feet and a central angle of 80°42’06” an arc distance of 35.21 feet to a point of tangency;

thence along the tangent of the aforesaid curve a distance of 128.22 feet to a point on the West right of way line of South Quebec Street;

thence North on an angle to the left of 90° and along said West right of way line a distance of 401.74 feet to the point of intersection with the South right of way line of Quincy Avenue;

thence West on an angle to the left of 90°12’16” and along said South right of way line a distance of 647.50 feet to the True Point of Beginning, City and County of Denver, State of Colorado.

Parcel 2:

Those certain easements as set forth in Reciprocal Easement, Construction and Maintenance Agreement recorded July 19, 1985 at Reception No. 041392, as amended by instrument recorded February 14, 1997 at Reception No. 9700018434.

 

Exhibit A-29


Redbud Hills

Property Address: 3211 East Moores Pike, Bloomington, IN 47401

Real property in the City of Bloomington, County of Monroe, State of Indiana, described as follows:

LOT NUMBER 1A IN BLOOMINGTON RETIREMENT RESIDENCE SUBDIVISION AMENDMENT ONE, AS SHOWN BY THE PLAT THEREOF, RECORDED IN PLAT CABINET D, ENVELOPE 110, IN THE OFFICE OF THE RECORDER OF MONROE, COUNTY INDIANA.

 

Exhibit A-30


Greenwood Terrace

Property Address: 11150 Greenwood Street, Lenexa, KS 66215

Real property in the City of Lenexa, County of Johnson, State of Kansas, described as follows:

LOT 1, OLATHE RETIREMENT RESIDENCE, A SUBDIVISION IN THE CITY OF OLATHE, JOHNSON COUNTY, KANSAS.

 

Exhibit A-31


Marion Woods

Property Address: 1661 SouthEast 31st SouthEast, Ocala, FL 34471

Real property in the City of Ocala, County of Marion, State of Florida, described as follows:

COMMENCING AT THE SW CORNER OF THE NW 1/4 OF SECTION 28, TOWNSHIP 15 SOUTH, RANGE 22 EAST, MARION COUNTY, FLORIDA, THENCE S.89°56’41“E., ALONG THE SOUTH BOUNDARY OF SAID NW 1/4 A DISTANCE OF 613.41 FEET TO THE POINT OF BEGINNING, SAID POINT BEING THE SE CORNER OF THOSE LANDS AS DESCRIBED IN O.R. BOOK 1359, PAGE 774, PUBLIC RECORDS OF MARION COUNTY, FLORIDA, THENCE N.00°05’53“W., ALONG THE EAST BOUNDARY OF SAID LANDS 849.13 FEET TO THE NE CORNER OF SAID LANDS; THENCE N.89°59’19“W., ALONG THE NORTH BOUNDARY OF SAID LANDS 12.20 FEET TO THE SE CORNER OF THOSE LANDS AS DESCRIBED IN O.R. BOOK 716, PAGE 495, PUBLIC RECORDS OF MARION COUNTY, FLORIDA, THENCE N.00°17’08“W., ALONG THE EAST BOUNDARY OF SAID LANDS 470.65 FEET TO THE SOUTHWESTERLY RIGHT OF WAY LINE OF SE 31ST ROAD (OAKHURST ROAD) AS DESCRIBED IN O.R. BOOK 1059, PAGE 26, PUBLIC RECORDS OF MARION COUNTY, FLORIDA, THENCE S.56°21’15“E., ALONG SAID SOUTHWESTERLY RIGHT OF WAY LINE 575.50 FEET; THENCE DEPARTING SAID SOUTHWESTERLY RIGHT OF WAY LINE S.00°12’48“E., A DISTANCE OF 1001.37 FEET TO A POINT ON THE SOUTH BOUNDARY OF SAID NW 1/4; THENCE N.89°56’41“W., ALONG SAID SOUTH BOUNDARY 466.86 FEET TO THE POINT OF BEGINNING. EXCEPT THE RIGHT OF WAY TAKING, AS DESCRIBED IN O.R. BOOK 2534, PAGE 329, PUBLIC RECORDS OF MARION COUNTY, FLORIDA.

APN: 29851-003-00 and 29851-003-00

 

Exhibit A-32


Jefferson, The

Property Address: 9401 Old Sauk Road, Middleton, WI 53562

Real property in the City of Middleton, County of Dane, State of Wisconsin, described as follows:

PARCEL 1:

Lot One (1) of Certified Survey Map No. 11080, recorded in the Office of the Register of Deeds for Dane County, Wisconsin, in Volume 66 of Certified Survey Maps, Page 287, as Document No. 3918683, located in the City of Madison, Dane County, Wisconsin.

PARCEL 2:

Non-exclusive Easement as set forth on the Certified Survey Map No. 11080, as Document No. 3918683 and as contained in the Access and Storm Sewer Easement dated June 22, 2004 and recorded on June 24, 2004 as Document No. 3932835 in the Office of the Register of Deeds for Dane County, Wisconsin as modified by an Amended Access and Storm Sewer Easement dated September 23, 2004, and recorded on September 24, 2004, as Document No. 3971478 recorded in the Office of the Register of Deeds for Dane County, Wisconsin.

 

Exhibit A-33


The Springs of Escondido

Property Address: 1261 East Washington Avenue, Escondido, CA 92027

Real property in the City of Escondido, County of San Diego, State of California, described as follows:

THAT PORTION OF LOT 7 IN BLOCK 179 OF RANCHO RINCON DEL DIABLO, IN THE CITY OF ESCONDIDO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 723, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, AUGUST 13, 1892, DESCRIBED AS FOLLOWS:

BEGINNING AT THE MOST WESTERLY CORNER OF SAID LOT 7; THENCE ALONG THE NORTHWESTERLY LINE OF SAID LOT 7, NORTH 53° 59’ 20” EAST, 226.83 FEET (RECORD - NORTH 54° 36’ 00” EAST, 227.39 FEET) TO THE CENTER LINE OF THE 80.00 FOOT RIGHT OF WAY FOR THE SAN DIEGO AQUEDUCT AS DESCRIBED IN THAT FINAL ORDER OF CONDEMNATION RECORDED NOVEMBER 19, 1949 AS FILE NO. 103884 OF OFFICIAL RECORDS; THENCE ALONG SAID CENTER LINE SOUTH 34° 27’ 46” EAST (RECORD - SOUTH 34° 54’ 00” EAST) 417.74 FEET TO THE NORTHERLY BOUNDARY OF LAND DESCRIBED IN PARCEL 4 IN THAT FINAL ORDER OF CONDEMNATION UNDER SUPERIOR COURT CASE NO. 302247 RECORDED JUNE 28, 1972 AS FILE NO. 166379 OF OFFICIAL RECORDS, BEING A POINT ON THE ARC OF A NON-TANGENT 1077.00 FOOT RADIUS CURVE, CONCAVE SOUTHERLY, A RADIAL LINE OF SAID CURVE BEARS NORTH 05° 47’ 22” WEST TO SAID POINT; THENCE ALONG THE BOUNDARY OF SAID PARCEL 4 AS FOLLOWS: WESTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 03° 03’ 03” A DISTANCE OF 57.35 FEET; ALONG A RADIAL LINE OF SAID CURVE SOUTH 08°50’25’’ EAST, 13.00 FEET TO A POINT ON THE ARC OF A 1064.00 FOOT RADIUS CURVE WHICH IS CONCENTRIC WITH THE ABOVE DESCRIBED CURVE; AND WESTERLY ALONG THE ARC OF SAID CONCENTRIC CURVE THROUGH A CENTRAL ANGLE OF 15°39’53’’ A DISTANCE OF 290.90 FEET TO THE WESTERLY LINE OF SAID LOT 7; THENCE ALONG SAID WESTERLY LINE NORTH 15°39’00’’ WEST, 330.74 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM THAT PORTION DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN THE NORTH LINE OF SAID LOT 7 DISTANT THEREON NORTH 53°59’20’’ EAST 226.83 FEET FROM THE NORTHWESTERLY CORNER THEREOF, SAID POINT BEING ALSO A POINT IN THE CENTERLINE OF THAT CERTAIN PERPETUAL EASEMENT FOR PIPELINE PURPOSES AS CONDEMNED IN FAVOR OF THE UNITED STATES OF AMERICA IN FINAL DECREE OF CONDEMNATION RECORDED NOVEMBER 19, 1949, AS INSTRUMENT NO. 103884 OF OFFICIAL RECORDS; THENCE ALONG SAID CENTERLINE SOUTH 35°34’05’’ EAST (RECORD SOUTH 34° 54’ EAST) 417.70 FEET TO A POINT IN THE NORTHERLY BOUNDARY OF THE LAND CONVEYED TO THE CITY OF ESCONDIDO BY DEED RECORDED DECEMBER 20, 1968, AS FILE NO. 223861 OF OFFICIAL RECORDS, SAID

 

Exhibit A-34


POINT BEING ALSO A POINT IN THE ARC OF A 1077 RADIUS CURVE CONCAVE SOUTHERLY, A RADIAL OF WHICH BEARS NORTH 6° 54’ 21” WEST TO SAID POINT; THENCE WESTERLY ALONG SAID CURVE 45.08 FEET THROUGH A CENTRAL ANGLE OF 2° 23’ 54”; THENCE LEAVING SAID CURVE NORTH 35° 34’ 05” WEST 8.88 FEET TO THE BEGINNING OF A TANGENT 1000 FOOT RADIUS CURVE CONCAVE SOUTHWESTERLY; THENCE NORTHWESTERLY ALONG SAID CURVE 82.25 FEET THROUGH A CENTRAL ANGLE OF 4° 42’ 46”; THENCE TANGENT TO SAID CURVE NORTH 40° 16’ 41” WEST 287.81 FEET TO THE BEGINNING OF A TANGENT 20 FOOT RADIUS CURVE CONCAVE SOUTHERLY; THENCE COUNTER- CLOCKWISE ALONG SAID CURVE 29.93 THROUGH A CENTRAL ANGLE OF 85° 43’ 49” TO A POINT OF TANGENCY IN THE NORTH LINE OF SAID LOT 7; THENCE ALONG SAID NORTH LINE 53°59’20’’ EAST 87.12 FEET TO THE POINT OF BEGINNING.

APN: 230-141-09-00

 

Exhibit A-35


The Springs of Napa

Property Address: 3460 Villa Lane, Napa, CA 94558

Real property in the City of Napa, County of Napa, State of California, described as follows:

PARCEL ONE:

BEGINNING AT THE MOST WESTERN CORNER OF THE 7.34 ACRE TRACT OF LAND DESCRIBED IN THE DEED BY DANIEL BEELER, ET UX TO A. E. VIDAL OF RECORD IN BOOK 142 AT PAGE 472 OF OFFICIAL RECORDS OF NAPA COUNTY; THENCE FROM SAID POINT OF BEGINNING NORTH 70° 15’ EAST 469.7 FEET TO THE MOST NORTHERN CORNER OF SAID 7.34 ACRE TRACT; THENCE SOUTH 13° 15’ EAST ALONG THE EASTERN LINE OF SAID 7.34 ACRE TRACT 335.5 FEET, SAID POINT BEING NORTH 13° 15’ WEST 875.00 FEET DISTANT FROM THE SOUTHEASTERLY CORNER THEREOF; AND BEING THE NORTHERN LINE OF THE PARCEL OF LAND DESCRIBED IN THE DEED TO CRAWFORD W. RATCLIFF, ET UX, RECORDED MAY 18, 1966 IN BOOK 746 AT PAGE 387 OF OFFICIAL RECORDS OF NAPA COUNTY; THENCE SOUTH 77° 00’ WEST ALONG THE LAST NAMED LINE AND ITS DIRECT EXTENSION 371.06 FEET TO THE SOUTHWESTERN LINE OF THE AFOREMENTIONED 7.34 ACRE TRACT; THENCE NORTH 32° 30’ WEST ALONG THE LAST NAMED LINE, 291.07 FEET TO THE POINT OF BEGINNING.

APN 038-170-038

PARCEL TWO:

AN EXCLUSIVE, PERMANENT EASEMENT FOR THE CONSTRUCTION, LOCATION, INSTALLATION, USE, REPAIR, REPLACEMENT, OPERATION AND MAINTENANCE OF STORM DRAINAGE PIPES AND RELATED FACILITIES OVER, UNDER AND UPON THAT REAL PROPERTY, AS CREATED BY THAT CERTAIN GRANT OF EASEMENT AGREEMENT RECORDED AUGUST 14, 1984 IN BOOK 1351 AT PAGE 482 OF OFFICIAL RECORDS OF NAPA COUNTY, BEING A PORTION OF PARCEL A AS SHOWN ON THE MAP ENTITLED, “RECORD OF SURVEY MAP OF THE LANDS OF MYRON STANDLEY, ET UX”, FILED NOVEMBER 23, 1960 IN BOOK 7 OF SURVEYS AT PAGE 58 IN THE OFFICE OF THE COUNTY RECORDER OF SAID NAPA COUNTY, AS FOLLOWS:

A) A STRIP OF LAND, 15.00 FEET IN WIDTH, THE SOUTHWESTERN LINE OF WHICH COMMENCES AT THE SOUTHERNMOST CORNER OF SAID PARCEL “A”; AND RUNS THENCE NORTH 32° 25’ 30” WEST ALONG THE SOUTHWESTERN LINE OF SAID PARCEL “A” A DISTANCE OF 282.37 FEET TO THE WESTERNMOST CORNER OF SAID PARCEL, THE NORTHEASTERN LINE OF SAID STRIP OF LAND BEING PROLONGED AS NECESSARY TO INTERSECT THE SOUTHEASTERN AND NORTHWESTERN LINES OF SAID PARCEL “A”.

 

Exhibit A-36


B) A STRIP OF LAND, 20.00 FEET IN WIDTH, THE NORTHWESTERN LINE OF WHICH COMMENCES AT THE WESTERNMOST CORNER OF SAID PARCEL “A”; AND RUNS THENCE NORTH 57° 18’ EAST ALONG THE NORTHWESTERN LINE OF SAID PARCEL “A”, A DISTANCE OF 270.73 FEET TO THE NORTHERNMOST CORNER OF SAID PARCEL, THE SOUTHEASTERN LINE OF SAID STRIP OF LAND BEING PROLONGED AS NECESSARY TO INTERSECT THE SOUTHWESTERN AND NORTHEASTERN LINES OF SAID PARCEL “A”.

 

Exhibit A-37


Stone Lodge

Property Address: 1460 Northeast 27th, Bend, OR 97701

Real property in the City of Bend, County of Deschutes, State of Oregon, described as follows:

PARCEL B OF PARTITION PLAT NO. 1990-61, BEING LOCATED IN A PORTION OF THE NORTHWEST QUARTER OF THE NORTHWEST QUARTER (NW1/4NW1/4) OF SECTION 35, TOWNSHIP 17 SOUTH, RANGE 12, EAST OF THE WILLAMETTE MERIDIAN, DESCHUTES COUNTY, OREGON.

EXCEPTING THEREFROM THE WEST 10 FEET.

NOTE: THIS LEGAL DESCRIPTION WAS CREATED PRIOR TO JANUARY 01, 2008.

 

Exhibit A-38


Cedar Ridge

Property Address: 2680 South Mebane Street, Burlington, NC 27215

Real property in the City of Burlington, County of Alamance, State of North Carolina, described as follows:

The land referred to in this Commitment is situated in the City of Burlington, County of Alamance, State of North Carolina, and is described as follows:

Being all of Lot Number One (1) as shown on map entitled “Final Plat for Woods at Groove Park, Inc.” recorded in the Office of the Register of Deeds for Alamance County, NC in Plat Book 69, Page 417, reference to which plat is hereby made for a more complete description.

 

Exhibit A-39


The Remington

Property Address: 2727 North 11th Avenue, Hanford, CA 93230

Real property in the City of Hanford, County of Kings, State of California, described as follows:

LOT 2 OF COUNTY TRACT NO. 490, IN THE CITY OF HANFORD, COUNTY OF KINGS, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF RECORDED IN BOOK 12 AT PAGE 21 OF LICENSED SURVEYOR PLATS, KINGS COUNTY RECORDS.

APN: 007-270-001-000

 

Exhibit A-40


Holiday Hills Estates

Property Address: 2620 Holiday Lane, Rapid City, SD 57702

Real property in the City of Rapid City, County of Pennington, State of South Dakota, described as follows:

Description 1

Lot 3R and Lot 4 of Sandstone Ridge Subdivision in the City of Rapid City, Pennington County, South Dakota, as shown on the plat filed in Plat Book 28, Page 96.

Description 2

Temporary Easement granted to Colson & Colson Construction Co., an Oregon partnership, as the Owner of Lot 3R and Lot 4 of Sandstone Ridge Subdivision, for the purpose of excavating, grading and reseeding, generally in accordance with the grading plan attached thereto as Exhibit “A”, within the landscaping easement across Tract SB of Spring Brook Acres Addition as shown and depicted in Exhibit “B”, and for an easement for the constructing, maintaining, using, altering and repairing a drainage facility across said Tract SB of Spring Brook Acres Addition, that is an earthen berm or drainage swale, adequate to divert water away from Lot 3R and Lot 2 of Sandstone Ridge Subdivision onto Lot 4 of Sandstone Ridge Subdivision as shown and demonstrated on Exhibit “C” attached thereto, and an easement for constructing, maintaining and repairing a temporary fire department turn-around to the extent generally shown and demonstrated in said Exhibit “B”, as set forth in instrument dated January 29, 1998, recorded February 24, 1998, in Book 71, Page 6128.

Description 3

Easement granted to Colson & Colson Construction Co., an Oregon partnership, owner of Lot 3R and Lot 4 of Sandstone Ridge Subdivision, to enter upon that portion of Lot 5 of Sandstone Ridge Subdivision more specifically described in Exhibit “A” and Exhibit “B” attached thereto, at any time as it may deem necessary to construct, maintain, use, operate, alter and repair a storm water and run-off detention pond, including an outlet drainage pipe and all necessary attachments and appurtenances thereto, together with the right to excavate and refill ditches and trenches for the location of such pipeline, as more specifically demonstrated, shown and described on said Exhibit “A” and Exhibit “B”, with understanding that the surface of said Lot 5 shall be restored to at least as good a condition as when disturbed, and that the owner of said Lot 5 agrees not to build, create or construct, or permit to be built, created or constructed, any obstruction, building, engineering work or other structures, which would interfere with the use of said pond or pipeline, or the rights of Colson & Colson Construction Co., except to the extent that the owner of said Lot 5 intends to build a parking lot and/or landscaping over the pipeline referenced in said Exhibits “A” and “B”, together with terms, restrictions, reservations, exceptions, liens or charges contained in Exhibit “C” attached thereto, as set forth in instrument dated January 30, 1998, recorded February 24, 1998, in Book 71, Page 6136.

 

Exhibit A-41


Description 4

Perpetual Drainage Easement granted to Colson & Colson Construction Co., an Oregon partnership, and Michael Tennyson, Patrick R. Hall and Kenneth L. Kirkeby, to allow water drainage, overflow and runoff from Lots 3R, 4 and 5 of Sandstone Ridge Subdivision, over and across a strip of Lot 25 of Fairway Hills P.R.D., as demonstrated, defined and described in Exhibit “A” entitled “Drainage Easement” attached thereto, for the purpose of maintenance, improvement, repair and otherwise do those things necessary, for the purpose, if necessary, to maintain and preserve this Drainage Easement, as set forth in instrument dated January 28, 1998, recorded February 24, 1998, in Book 71, Page 6141.

 

Exhibit A-42


Parkrose Chateau

Property Address: 3141 NorthEast 148th Avenue, Portland, OR 97230

Real property in the City of Portland, County of Multnomah, State of Oregon, described as follows:

A TRACT OF LAND SITUATED IN THE NORTHWEST ONE-QUARTER OF SECTION 25, TOWNSHIP 1 NORTH, RANGE 2 EAST OF THE WILLAMETTE MERIDIAN, IN THE CITY OF PORTLAND, COUNTY OF MULTNOMAH AND STATE OF OREGON, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT A BRASS CAP MONUMENT AT THE SOUTHWEST CORNER OF THE GEORGE HAMILTON DONATION LAND CLAIM IN SAID NORTHWEST ONE-QUARTER;

THENCE SOUTH 89°53’02” EAST ALONG THE SOUTH LINE OF SAID DONATION LAND CLAIM, A DISTANCE OF 430.81 FEET TO THE NORTHWEST CORNER OF THAT TRACT OF LAND CONVEYED TO THE BUREAU OF WATER WORKS OF THE CITY OF PORTLAND, OREGON, A MUNICIPAL CORPORATION, BY DEED AS DESCRIBED IN BOOK 2022, PAGE 1302, RECORDED ON JULY 09, 1987, MULTNOMAH COUNTY DEED RECORDS, AND TO A POINT OF NON-TANGENT CURVATURE;

THENCE SOUTHEASTERLY 108.63 FEET ALONG THE SOUTHWESTERLY LINE THEREOF, ON THE ARC OF A 293.31 FOOT RADIUS CURVE TO THE LEFT THROUGH A CENTRAL ANGLE OF 21°13’09”, (LONG CHORD BEARS SOUTH 47°32’08” EAST, A DISTANCE OF 108.01 FEET), TO THE SOUTH CORNER OF SAID BUREAU OF WATER WORKS TRACT AND TO A POINT OF NON-TANGENCY;

THENCE NORTH 00°06’51” EAST ALONG THE EAST LINE THEREOF, A DISTANCE OF 72.76 FEET TO A POINT IN THE SOUTH LINE OF SAID HAMILTON DONATION LAND CLAIM;

THENCE SOUTH 89°53’02” EAST ALONG SAID SOUTH LINE, A DISTANCE OF 43.48 FEET TO THE MOST SOUTHERLY SOUTHEAST CORNER OF SAID HAMILTON LAND CLAIM;

THENCE SOUTH 87°38’32” EAST, A DISTANCE OF 284.92 FEET TO A POINT ON THE WEST RIGHT OF WAY OF NE 148TH AVENUE (80.00 IN WIDTH);

THENCE SOUTH 01°15’32” WEST ALONG SAID WEST RIGHT OF WAY LINE, A DISTANCE OF 306.82 FEET;

THENCE NORTH 89°48’43” WEST A DISTANCE OF 829.39 FEET, TO A POINT ON THE EAST LINE OF THE W.G. WILKES DONATION LAND CLAIM;

THENCE NORTH 00°28’54” WEST ALONG LAST SAID EAST LINE, A DISTANCE OF 316.88 FEET, TO THE ABOVE REFERENCED POINT OF BEGINNING OF THIS DESCRIPTION.

 

Exhibit A-43


THE LEGAL DESCRIPTION WAS CREATED PRIOR TO JANUARY 01, 2008.

APN: R318770

 

Exhibit A-44


University Pines

Property Address: 8991 University Parkway, Pensacola, FL 32514

Real property in the City of Pensacola, County of Escambia, State of Florida, described as follows:

COMMENCE AT THE NORTHWEST CORNER OF SECTION 14, TOWNSHIP 1 SOUTH, RANGE 30 WEST, ESCAMBIA COUNTY. FLORIDA; THENCE GO SOUTH 00°03’00” WEST ALONG THE WEST LINE OF SAID SECTION 14, A DISTANCE OF 2640.00 FEET TO THE NORTHWEST CORNER OF GOVERNMENT LOT 5; THENCE GO SOUTH 88°34“00” EAST ALONG THE NORTH LINE OF SAID GOVERNMENT LOT 5 A DISTANCE OF 1503.61 FEET TO THE NORTHWEST CORNER OF GOVERNORS SQUARE (A PLANNED UNIT DEVELOPMENT SUBDIVISION); THENCE CONTINUE SOUTH 88°34’00” EAST ALONG SAID NORTH LINE OF GOVERNMENT LOT 5 A DISTANCE OF 238.44 FEET TO THE NORTHEAST CORNER OF SAID GOVERNORS SQUARE SUBDIVISION, WHICH CORNER IS ALSO THE NORTHWEST CORNER OF PRIVATE PARCEL “C” SHOWN ON SAID SUBDIVISION PLAT; THENCE CONTINUE SOUTH 88°34’00” EAST ALONG THE SAID NORTH LINE OF GOVERNMENT LOT 5 (ALSO THE NORTH LINE OF SAID PRIVATE PARCEL “C”; A DISTANCE OF 76.20 FEET TO THE NORTHEAST CORNER OF SAID PRIVATE PARCEL “C”; THENCE CONTINUE SOUTH 88°34’00” EAST ALONG THE SAID GOVERNMENT LOT 5 A DISTANCE OF 85.53 FEET; THENCE GO SOUTH 00°15’00” EAST. A DISTANCE OF 67.60 FEET; THENCE GO NORTH 89°45’00” EAST A DISTANCE OF 174.14 FEET TO CONCRETE MONUMENT (0340) FOR THE POINT OF BEGINNING OF THIS DESCRIPTION; THENCE CONTINUE NORTH 89°45’00” EAST A DISTANCE OF 0.86 FEET TO THE NORTHEAST CORNER OF THE WEST 175.00 FEET OF THAT PROPERTY DESCRIBED IN OFFICIAL RECORD BOOK 2954 AT PAGE 484 OF THE PUBLIC RECORDS OF SAID COUNTY; THENCE SOUTH 00°15’00” EAST ALONG THE EAST LINE OF THE SAID WEST 175.00 FEET A DISTANCE OF 256.71 FEET TO A POINT, SAID POINT BEING ON A CURVE CONCAVE TO THE NORTH HAVING A RADIUS OF 377.58 FEET, SAID POINT BEING ON THE NORTHERLY RIGHT-OF-WAY LINE OF CONSTITUTION PLACE (VARYING IN WIDTH, A PUBLIC RIGHT-OF-WAY DEDICATED WITH THE PLAT OF SAID GOVERNORS SQUARE SUBDIVISION); THENCE GO NORTHEASTERLY ALONG SAID CURVE AND RIGHT-OF·WAY LINE AN ARC DISTANCE OF 147.85 FEET (CHORD DISTANCE: 146.91 FEET; CHORD BEARING NORTH 73°58’04” EAST; DELTA 22°26’08”) TO THE POINT OF TANGENCY OF SAID CURVE; THENCE GO NORTH 62°45’00” EAST ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF 130.53 FEET TO THE POINT OF CURVATURE OF A CURVE CONCAVE TO THE SOUTH HAVING A RADIUS OF 112.88 FEET; THENCE GO EASTERLY ALONG THE ARC OF SAID CURVE AND SAID NORTHERLY RIGHT-OF-WAY LINE AN ARC DISTANCE OF 56.51 FEET (CHORD DISTANCE: 55.93 FEET; CHORD BEARING: NORTH 77°05’39” EAST; DELTA: 28°41’08”) TO A POINT ON THE WESTERLY RIGHT-OF-WAY LINE OF UNIVERSITY PARKWAY (RIGHT-OF-WAY VARIES); THENCE GO NORTH 53°18’44” EAST ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF 38.34 FEET; THENCE GO NORTH 02°18’50” EAST ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF 134.13 FEET; THENCE NORTH

 

Exhibit A-45


00°15’00” WEST ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF 280.00 FEET; THENCE GO SOUTH 89°45’00” WEST A DISTANCE OF 150.00 FEET TO A POINT OF CURVATURE OF A CURVE CONCAVE TO THE NORTH HAVING A RADIUS OF 1010.00 FEET; THENCE GO WESTERLY ALONG SAID CURVE AN ARC, DISTANCE OF 201.32 FEET, (CHORD DISTANCE: 200.99 FEET; CHORD BEARING: NORTH 84°32’22” WEST, DELTA 11°25’15”); THENCE GO SOUTH 00°15’00” FEET A DISTANCE OF 311.54 FEET TO THE POINT OF BEGINNING.

TOGETHER WITH AN ACCESS EASEMENT OVER THE FOLLOWING DESCRIBED PROPERTY:

COMMENCE AT THE NORTHWEST CORNER OF SECTION 14, TOWNSHIP 1 SOUTH, RANGE 30 WEST, ESCAMBIA COUNTY, FLORIDA; THENCE GO SOUTH 89°40’00” EAST ALONG THE NORTH LINE OF THE AFORESAID SECTION 14 A DISTANCE OF 2648.40 FEET TO THE NORTHEAST CORNER OF GOVERNMENT LOT 3; THENCE GO SOUTH O0°15’00” EAST ALONG THE EAST LINE OF THE AFORESAID GOVERNMENT LOT 3 A DISTANCE OF 2691.18 FEET TO THE SOUTH EAST CORNER OF THE AFORESAID GOVERNMENT LOT 3; THENCE GO NORTH 88°34’00” WEST ALONG THE SOUTH LINE OF THE AFORESAID GOVERNMENT LOT 3 A DISTANCE OF 235.10 FEET TO THE WESTERLY RIGHT·OF-WAY LINE OF UNIVERSITY PARKWAY (100’ R/W); THENCE GO NORTH 00°15’00” WEST ALONG THE WESTERLY RIGHT-OF-WAY LINE OF UNIVERSITY PARKWAY A DISTANCE OF 239.36 FEET; THENCE GO SOUTH 89°45’00” WEST A DISTANCE OF 25.00 FEET TO THE POINT OF BEGINNING OF THE FOLLOWING 60 WIDE ACCESS EASEMENT; THENCE GO SOUTH 89°45’00” WEST A DISTANCE OF 125.00 FEET TO A POINT OF CURVATURE, SAID CURVE CONCAVE TO THE NORTH, HAVING A RADIUS OF 1010.00 FEET, A CENTRAL ANGLE OF 11°25’25”, A TANGENT DISTANCE OF 101.00 FEET, A CHORD BEARING AND DISTANCE OF NORTH 84°32’22” WEST, 200.99 FEET; THENCE GO WESTERLY ALONG SAID CURVE AN ARC DISTANCE OF 201.32 FEET; THENCE DEPARTING SAID CURVE GO NORTH 00°15’00” WEST A DISTANCE OF 61.29 FEET TO A POINT ON A CURVE, SAID CURVE CONCAVE TO THE NORTH HAVING A RADIUS OF 950.00 FEET, CENTRAL ANGLE OF 12°09’10”, A TANGENT DISTANCE OF 101.13 FEET, A 2 CHORD BEARING AND DISTANCE OF SOUTH 84°10’25” EAST, 201.12 FEET; THENCE GO EASTERLY ALONG SAID CURVE AN ARC DISTANCE OF 201.50 FEET TO A POINT OF TANGENCY; THENCE GO NORTH 89°45’00” EAST A DISTANCE OF 125.00 FEET; THENCE GO SOUTH 00°15’00” EAST A DISTANCE OF 60.00 FEET TO THE POINT OF BEGINNING. THE ABOVE DESCRIBED ACCESS EASEMENT IS SITUATED IN SECTION 14, TOWNSHIP 1 SOUTH, RANGE 30 WEST, ESCAMBIA COUNTY, FLORIDA.

 

Exhibit A-46


The Woods at Holly Tree

Property Address: 4610 Holly Tree Road, Wilmington, NC 28409

Real property in the City of Wilmington, County of New Hanover, State of North Carolina, described as follows:

Lying and being in Wilmington Township, New Hanover County, North Carolina, and being more particularly described as follows:

Beginning on a point located on the southern right-of-way of Holly Tree extension (a 60 foot wide public right-of-way), said point being in the center of the run of Watson’s branch, said point being further located at the following bearings and distances from a concrete monument located at the intersection of the centerline of Holly Tree extension and the eastern right-of-way line of NC Highway 132 (South College road), said concrete monument having a N.C. grid coordinate of N=163,657.65 E=2,335,909.37 (N.A.D. 1927), South 06°56’09” West 30.00 feet; thence South 83°03’51” East 217.34 feet to said beginning point; thence from the beginning point so established, proceed with the southern right-of-way of Holly Tree extension South 83°03’51” East 156.80 feet to an iron; thence continuing with the said right-of-way, being a curve to the right having a radius of 720 feet, having a chord bearing of South 78°52’33” East, a distance of 105.17 feet to an iron; thence continuing with said right-of-way South 74°41’14” East 427.33 feet to an iron; thence with said right-of-way (irregular width at this point) South 54°33’03” East 127.81 feet to an iron; thence South 77°19’04” East 124.94 feet to an iron, said iron being the northernmost corner of Lot 52 of Henleigh Hills Subdivision as shown on a plat recorded in Plat Book 20, Page 16, New Hanover County Registry; thence with Lots 63, 64, 65, 71 and other land as shown on said Subdivision plat, South 44°56’39” West 179.56 feet to an iron; thence South 42°16’24” West 169.54 feet to an iron; thence North 83°03’51” West 917.80 feet to an iron; thence South 51°56’07” West 16.97 feet to an iron on the eastern right-of-way of NC Highway 132 (South College road, a 200 foot wide right-of-way); thence with said right-of-way North 06°56’56” East 4.16 feet to a point in the run of Watson’s Branch; thence with said run the following bearings and distances: North 17°56’56” East 141.70 feet to a point; thence North 23°09’57” East 91.57 feet to a point; thence North 49°00’49” East 230.99 feet to a point; thence North 23°47’41” East 34.08 feet to the point and place of beginning, and containing 8.549 acres, more or less .

 

Exhibit A-47


EXHIBIT B

FORM OF ESCROW AGREEMENT

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this “ Escrow Agreement ”), dated as of June 22, 2015, is entered into by and among each party listed as a “Seller” on Schedule I of the Purchase Agreement (as defined below) (individually and collectively, “ Seller ”); NIC Acquisitions LLC, a Delaware limited liability company (“ Purchaser ”), and First American Title Insurance Company (“ Escrow Agent ”).

WITNESSETH :

WHEREAS , Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated as of June 22, 2015 (as amended from time to time, the “ Purchase Agreement ”). A copy of the Purchase Agreement has been provided to Escrow Agent.

WHEREAS , the Purchase Agreement provides that at or prior to the execution of the Purchase Agreement, an initial deposit in the amount of Five Million Dollars ($5,000,000) (together with all interest earned thereon and the proceeds thereof, the “ Initial Deposit ”) shall be deposited into the escrow account described in Section 3 below, as security for certain obligations of Purchaser under the Purchase Agreement;

WHEREAS, the Purchase Agreement further provides that Purchaser may extend the Scheduled Closing Date upon the satisfaction of certain conditions, including, in the event of a Second Extension Period, the delivery to Escrow Agent by Purchaser of an additional deposit in the amount of Two Million Dollars ($2,000,000) (together with all interest earned thereon and the proceeds thereof, the “ Additional Deposit ,” and together with the Initial Deposit, the “ Deposit ”);

WHEREAS, the Purchase Agreement further provides that Purchaser shall deliver to Escrow Agent on the Closing Date the amount by which the Purchase Price (subject to prorations and/or adjustments required by the Purchase Agreement) exceeds the Deposit (such amount, together with the Deposit, the “ Escrowed Funds ”).

WHEREAS , Escrow Agent is willing to act as Escrow Agent with respect to such Escrowed Funds on the terms and conditions set forth in this Escrow Agreement.

NOW, THEREFORE , in consideration of the promises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of all of which is hereby acknowledged, the parties agree as follows:

1. Terms. Except as otherwise defined in this Escrow Agreement, each capitalized term appearing herein shall have the meaning ascribed to it in the Purchase Agreement.

2. Appointment of Escrow Agent. Purchaser and Seller hereby appoint Escrow Agent as escrow agent for the purposes set forth herein. Escrow Agent accepts such appointment to act as escrow agent in accordance with the terms hereof.

 

EXHIBIT B-1


3. Deposit of Escrowed Funds. On or before the date hereof, Purchaser shall deposit the Initial Deposit in immediately available funds by wire transfer to Escrow Agent in connection with the execution of the Purchase Agreement. In the event Purchaser elects to adjourn the Scheduled Closing date for both the First Extension Period and Second Extension Period in accordance with Section 5.1 of the Purchase Agreement, Purchaser shall, upon exercise of the second adjournment option, deliver to Escrow Agent the Additional Deposit by wire transfer of immediately available funds. At or before Closing, Purchaser shall deposit the remainder of the Purchase Price in immediately available funds by wire transfer to Escrow Agent in connection with Purchaser’s payment of the Purchase Price under the Purchase Agreement. Upon receipt of any Escrowed Funds, Escrow Agent shall deposit the Escrowed Funds in an interest-bearing escrow account with a federally insured financial institution acceptable to Purchaser and Seller. The Escrow Agent agrees to hold, administer, safeguard, and disburse the Escrowed Funds pursuant to the terms and conditions set forth in this Escrow Agreement. All or any portion of the Escrowed Funds, plus any interest earned thereon are collectively referred to herein as the “Escrowed Amount.”

4. Release of Escrowed Amount .

(a) Upon termination of the Purchase Agreement prior to Closing, Escrow Agent shall promptly release and deliver the Escrowed Amount in accordance with Articles 8, 9, or 10 of the Purchase Agreement, as applicable. Upon written notice to Escrow Agent by either Purchaser or Seller (the “First Party”), with copy to the other party (the “Other Party”), to distribute all or part of the Escrowed Amount in accordance with this Section 4 (a “Direction Notice”), Escrow Agent shall, within twenty four (24) hours, give written confirmation to the Other Party of its receipt of such demand (the “ Escrow Agent Notice ”). If Escrow Agent does not receive, prior to 5:00 p.m. (Eastern time) on the date that is five (5) business days following the Other Party’s receipt of the Escrow Agent Notice, written objection from the Other Party (an “ Objection ”), with copy to the First Party, Escrow Agent shall distribute the Escrowed Amount (or part thereof referred to in the Direction Notice) in the manner set forth in the Direction Notice. Notwithstanding the foregoing, Escrow Agent shall not comply with the direction of any Direction Notice unless same (i) has as an attachment thereto the notice of termination of the Purchase Agreement giving rise to the disbursement of the Funds and (ii) cites the provision of the Purchase Agreement pursuant to which the Funds shall be distributed.

(b) Upon receipt of unconditional authorization to close the transactions contemplated by the Purchase Agreement, Escrow Agent shall distribute the Escrowed Amount to Seller and the full amount of such Escrowed Amount shall be applied to the Purchase Price as set forth in the Purchase Agreement.

5. Rights, Duties and Liabilities of Escrow Agent . The acceptance by Escrow Agent of its duties under this Escrow Agreement is subject to the following terms and conditions:

(a) The Escrow Agent undertakes to perform such duties and only such duties as are specifically set forth in this Escrow Agreement, and no implied covenants or obligations shall be read into this Escrow Agreement against Escrow Agent.

(b) Whenever Escrow Agent is required by the terms hereof to take action upon the occurrence of any event or contingency, the time prescribed for such action shall in all cases be as promptly as practicable.

 

EXHIBIT B-2


(c) In performing its duties under this Escrow Agreement or upon the claimed failure to perform any of its duties hereunder, Escrow Agent shall not be liable to anyone for damages, losses, or expenses that may be incurred as a result of Escrow Agent so acting or failing to so act; provided, however, Escrow Agent shall not be relieved from liability for damages arising out of its willful misconduct, gross negligence, bad faith, and/or fraud. The Escrow Agent shall in no event incur any liability with respect to: (i) any action taken or omitted to be taken in good faith upon advice of legal counsel given with respect to any questions relating to the duties and responsibilities of Escrow Agent hereunder; or (ii) any action taken or omitted to be taken in reliance upon any document delivered to Escrow Agent and reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties.

(d) Distribution of the Escrowed Amount hereunder shall be made only in strict accordance with the terms of this Escrow Agreement.

(e) The Escrow Agent shall have no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of Purchaser or Seller with respect to arrangements or contracts with each other or with others, Escrow Agent’s sole duty hereunder being to hold the Escrowed Amount and to dispose of and deliver the same in accordance with this Escrow Agreement.

(f) The duties of Escrow Agent hereunder shall be only to Purchaser or Seller and their respective successors, heirs, assigns, executors and administrators and to no other person, firm, corporation or other entity whatsoever.

(g) In addition to the foregoing, Escrow Agent shall have the right to tender into the registry or custody of any court having jurisdiction any part of or all of the Escrowed Amount. Upon such tender, the parties hereto agree that Escrow Agent shall be discharged from all further duties under this Escrow Agreement.

(h) While any suit or legal proceeding arising out of or relating to this Escrow Agreement, the Escrowed Amount and the parties hereto is pending, whether the same be initiated by Escrow Agent or by others, Escrow Agent shall have the right at its option to stop all further performance of this Escrow Agreement and instructions received hereunder until all differences shall have been resolved by agreement or until the rights of all parties shall have been fully and finally adjudicated by the court. For purposes of any suit or legal proceeding arising out of or relating to this Escrow Agreement to which Escrow Agent may be a party, the parties hereto hereby consent and submit to the jurisdiction of the appropriate court, whether federal or state, sitting in New York, New York. The rights of Escrow Agent under this Section 5(i) are in addition to all other rights which it may have by law or otherwise.

(i) Seller and Purchaser agree to pay equally all of Escrow Agent’s expenses incurred in connection with this Escrow Agreement (“ Expenses ”), including, but not limited to, reasonable out-of-pocket legal fees and expenses, in the event Escrow Agent deems it necessary to retain counsel; provided, however, prior to retaining such counsel, Escrow Agent shall notify Purchaser and Seller for their pre-approval of the particular counsel Escrow Agent has selected. Such Expenses shall be paid to Escrow Agent within thirty (30) days following receipt by Seller of a written statement setting forth such Expenses. Escrow Agent agrees that, in consideration of the fees charged and paid to Escrow Agent or its Affiliate for the title insurance issued in connection with the transactions contemplated by the Purchase Agreement, no additional fee shall be charged hereunder.

 

EXHIBIT B-3


(j) Each of Purchaser and Seller (severally and not jointly), to the extent legally permitted, hereby agrees to indemnify and hold Escrow Agent and its directors, employees, officers, agents, successors and assigns harmless from and against any and all out of pocket losses, claims, damages, liabilities and expenses (the “ Losses ”) which may be imposed on Escrow Agent or incurred by it in connection with its acceptance of this appointment as Escrow Agent hereunder or the performance of its duties hereunder, other than Losses resulting from Escrow Agent’s breach of this Escrow Agreement or Escrow Agent’s gross negligence, willful misconduct, bad faith or fraud. Such indemnity includes, without limitation, all Losses (including reasonable out-of-pocket counsel fees and expenses) incurred in connection with any litigation (whether at the trial or appellate levels) arising from this Escrow Agreement or involving the subject matter hereof. The indemnification provisions contained in this Section 5(j) are in addition to any other rights any of the indemnified parties may have by law or otherwise and shall survive the termination of this Escrow Agreement or the resignation or removal of Escrow Agent.

6. Resignation or Substitution of Escrow Agent. The Escrow Agent may resign and be discharged of its duties hereunder at any time by giving written notice of such resignation to Purchaser and Seller, which notice will specify a date not less than thirty (30) days after the giving of such notice when the resignation will take effect. Promptly after such notice, a successor escrow agent will be appointed jointly by Purchaser and Seller, and such successor escrow agent shall agree to the same terms as those contained herein or such other terms as are mutually acceptable to Purchaser, Seller, and such successor escrow agent. The successor escrow agent will become Escrow Agent upon the resignation date specified in the notice. The Escrow Agent will continue to serve until its successor accepts the escrow and receives the Escrowed Amount or until Escrow Agent interpleads the same into the registry of the appropriate court.

7. Termination of Escrow Agent. Escrow Agent may be discharged from its duties under this Escrow Agreement upon thirty (30) days written notice from Purchaser and Seller and upon payment of any and all Fees or Expenses due to Escrow Agent. In such event, Escrow Agent shall be entitled to rely upon written instructions from Purchaser and Seller as to the disposition and delivery of the Escrowed Amount. Upon thirty (30) days after receipt of such written notice of termination, if no successor has been named, Escrow Agent shall immediately cease further action under this Escrow Agreement and shall have no further obligations hereunder except to hold the Escrowed Amount as a depository.

8. Termination of Agreement. This Escrow Agreement shall terminate upon the distribution by Escrow Agent of all the Escrowed Amount held by it hereunder pursuant to Section 4 of this Escrow Agreement. All Fees and Expenses owed to Escrow Agent hereunder shall be paid in full prior to such distribution of the Escrowed Amount, and Escrow Agent is hereby authorized and directed by Purchaser and Seller to withhold release or distribution of the Escrowed Amount until such time as Escrow Agent has received payment in full of such Fees and Expenses.

 

EXHIBIT B-4


9. Taxes. For purposes of federal income taxes and other taxes based on income, the Purchaser shall be the owner of the Escrowed Amount until the distribution of the Escrowed Amount (or such portion thereof) is made to Seller in accordance herewith. Only at that time shall Seller be deemed to be the owner of that portion of the Escrowed Amount actually received by Seller. Purchaser and Seller each represent that it’s Taxpayer Identification Number assigned by the Internal Revenue Service (“ IRS ”) is true and correct, and that each will notify the Escrow Agent in writing immediately upon any change to such number.

10. Notices. Any notice, demand or communication required, permitted, or desired to be given hereunder shall be in writing and shall be deemed to have been duly given on the earlier of the date actually received by the party in question, by whatever means and however addressed, or on the date of personal delivery if delivered by hand, or on the date signed for if sent by an overnight delivery service, to the following addresses:

 

If to Purchaser:

 

c/o Fortress Investment Group

1345 Avenue of the Americas

New York, NY 10105

Attn: Cameron MacDougall

Email: cmacdougall@fortress.com

With a Copy To:

 

c/o Fortress Investment Group LLC

2901 North Dallas Parkway, Suite 380

Plano, TX 75093

Attn: Matthew Lucas

Email: mlucas@fortress.com

If to Seller:

 

c/o Holiday Retirement

5885 Meadows Road, Suite 500

Lake Oswego, Oregon 97035

Attention: Chief Legal Officer

Email: legal@holidaytouch.com

With a copy to:

 

c/o Fortress Investment Group LLC

1345 Avenue of the Americas

New York, New York 10105

Attn: Brittain Rogers

 

and

 

Skadden, Arps, Slate, Meagher & Flom LLP

155 North Wacker Drive, Suite 2700

Chicago, Illinois 60606

Attention: Nancy M. Olson

Email: nancy.olson@skadden.com

If to Escrow Agent:

 

First American Title Insurance Company

1125 17th Street, Suite 500

Denver, CO 80202

Attention: Katie L. Miller

Email: katiemiller@firstam.com

 

EXHIBIT B-5


or to such other address, and to the attention of such other person or officer as any party may designate in written notice to the other parties.

11. Entire Agreement. This Escrow Agreement constitutes the entire agreement among Escrow Agent and the other parties hereto in connection with the subject matter of this escrow and shall supersede any and all prior agreements.

12. Assignment. This Escrow Agreement shall not be assignable by any party absent written consent of the other parties hereto. Notwithstanding the foregoing, all covenants contained in this Escrow Agreement by or on behalf of the parties hereto shall bind and inure to the benefit of such parties and their respective heirs, administrators, legal representatives, successors and permitted assigns, which shall specifically include any successor entity of Escrow Agent as a result of merger or acquisition.

13. Governing Law/Waiver of Jury Trial. The validity, enforcement and construction of this Escrow Agreement shall be governed by the laws of the State of New York, without giving effect to the principles of conflict of laws thereof. Venue for any actions arising out of this Agreement shall be in the state courts of the State of New York in New York County or the United States District Court for the Southern District of New York. EACH PARTY HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY (AND MAY HAVE A TRIAL BEFORE A JUDGE ONLY) IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS ESCROW AGREEMENT.

14. Counterparts. This Escrow Agreement may be executed in one or more counterparts, each of which will be deemed to be an original and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Escrow Agreement and of signature pages by facsimile transmission or other electronic means shall constitute effective execution and delivery of this Escrow Agreement as to the parties and may be used in lieu of the original Escrow Agreement for all purposes.

15. Expenses and Attorneys’ Fees. If any action is brought by any party to enforce any provision of this Escrow Agreement, the prevailing party shall be entitled to recover its court costs, arbitration expenses and reasonable out-of-pocket attorneys’ fees; provided, however, that in no case shall Escrow Agent be required to pay such costs, expenses or fees.

16. Modification of Escrow Agreement. The provisions of this Escrow Agreement shall not be waived, modified, amended, altered or supplemented, in whole or in part, except by a writing signed by all the parties hereto.

17. Severability. If any provision of this Escrow Agreement or the application thereof to any party or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Escrow Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

[SIGNATURE PAGE FOLLOWS]

 

EXHIBIT B-6


IN WITNESS WHEREOF , the parties hereto have executed this Escrow Agreement as of the day first above written.

 

Seller:
HARVEST ASPEN MEADOWS RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST ECHO RIDGE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST HOLIDAY HILLS ESTATES RETIREMENT RESIDENCE LLC, a Delaware limited liability company
FLINT RETIREMENT RESIDENCE LLC, a Delaware limited liability company
By: HARVEST MEZZANINE II LLC, a Delaware limited liability company
By:

 

Name: Scott Shanaberger
Title: Chief Financial Officer
LITTLE ROCK RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
HANFORD RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
PARKROSE RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
ELM PARK ESTATES RETIREMENT RESIDENCE LIMITED PARTNERSHIP, a Delaware limited partnership
By: HARVEST GENERAL PARTNER I LLC, a Delaware limited liability company
By:

 

Name: Scott Shanaberger
Title: Chief Financial Officer


HARVEST ARCADIA PLACE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST GREENWOOD TERRACE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST NIAGARA VILLAGE RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST QUAIL RUN ESTATES RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST REDBUD HILLS RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST UNIVERSITY PINES RETIREMENT RESIDENCE LLC, a Delaware limited liability company
HARVEST MONTARA MEADOWS RETIREMENT RESIDENCE LLC, a Delaware limited liability company
MACON RETIREMENT RESIDENCE LLC, a Delaware limited liability company
WILMINGTON RETIREMENT RESIDENCE LLC, a Delaware limited liability company
By: HARVEST MEZZANINE I LLC, a Delaware limited liability company
By:

 

Name: Scott Shanaberger
Title: Chief Financial Officer
ESCONDIDO RETIREMENT RESIDENCE LIMITED PARTNERSHIP, an Oregon limited partnership
NAPA RETIREMENT RESIDENCE LIMITED PARTNERSHIP, a Washington limited partnership
By: HARVEST GENERAL PARTNER II LLC, a Delaware limited liability company
By:

 

Name: Scott Shanaberger
Title: Chief Financial Officer


KALAMA HEIGHTS RETIREMENT RESIDENCE L.L.C., a Washington limited liability company
BEND RETIREMENT RESIDENCE LLC, an Oregon limited liability company
BURLINGTON RETIREMENT RESIDENCE LLC, an Oregon limited liability company
HILTON HEAD RETIREMENT RESIDENCE LIMITED LIABILITY COMPANY, an Oregon limited liability company
JACKSONVILLE RETIREMENT RESIDENCE LLC, an Oregon limited liability company
MADISON RETIREMENT RESIDENCE LLC, an Oregon limited liability company
OCALA RETIREMENT RESIDENCE LLC, an Oregon limited liability company
DENVER RETIREMENT RESIDENCE LIMITED LIABILITY COMPANY, an Oregon limited liability company
TOLEDO RETIREMENT RESIDENCE LLC, an Oregon limited liability company
By: HARVEST MANAGING MEMBER I LLC, a Delaware limited liability company
By:

 

Name: Scott Shanaberger
Title: Chief Financial Officer


ESCROW AGENT:
FIRST AMERICAN TITLE INSURANCE COMPANY
By:

 

Name:
Title:


PURCHASER:
NIC ACQUISITIONS LLC, a Delaware limited liability company
By:

 

Name:

 

Title:

 


EXHIBIT C

FORM OF BILL OF SALE

THIS BILL OF SALE (“ Bill of Sale ”) is made this                      day of                      , 20      by                                          a                                  (“ Seller ”), in favor of                                          , a                                          (“ Purchaser ”).

WITNESSETH:

WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of              , 20      (the “ Purchase Agreement ”) with respect to the sale of certain Property identified therein. (Any capitalized term used, but not otherwise defined herein, shall have the meaning set forth in the Purchase Agreement.)

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller does hereby absolutely and unconditionally give, grant, bargain, sell, transfer, set over, assign, convey, release, confirm and deliver to Purchaser all of Seller’s right, title and interest in and to the Fixtures and Tangible Personal Property, without representation or warranty of any kind whatsoever except as set forth in and subject to the terms of the Purchase Agreement.

EXCEPT AS MAY BE SET FORTH IN AND SUBJECT TO THE TERMS OF THE PURCHASE AGREEMENT, WITH RESPECT TO ALL MATTERS TRANSFERRED, WHETHER TANGIBLE OR INTANGIBLE, PERSONAL OR REAL, SELLER EXPRESSLY DISCLAIMS A WARRANTY OF MERCHANTABILITY AND WARRANTY FOR FITNESS FOR A PARTICULAR USE OR ANY OTHER WARRANTY EXPRESSED OR IMPLIED THAT MAY ARISE BY OPERATION OF LAW OR UNDER THE UNIFORM COMMERCIAL CODE FOR THE STATE IN WHICH THE PROPERTY IS LOCATED (OR ANY OTHER STATE).

This Bill of Sale shall be binding upon and inure to the benefit of the successors and permitted assigns of Purchaser and Seller.

This Bill of Sale shall be governed by, interpreted under, and construed and enforceable in accordance with, the laws of the State of [                      ].

[Remainder of page intentionally left blank.]

 

EXHIBIT C-1


IN WITNESS WHEREOF, the undersigned has executed this Bill of Sale as of the day and year first written above.

 

Seller:
[                                           ], a
[                                           ]
By:

 

Name:

 

Title:

 

 

EXHIBIT C-2


EXHIBIT D

FORM OF GENERAL ASSIGNMENT AND ASSUMPTION

This General Assignment and Assumption (this “ Assignment ”) is executed by and between [SELLER] , a [                              ] (“ Seller ”), and [PURCHASER] , a [                              ] (“ Purchaser ”) as of                      , 20      (the “ Effective Date ”).

WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of                      , 20      (the “ Purchase Agreement ”) with respect to the sale of certain Property identified therein. (Any capitalized term used, but not otherwise defined herein, shall have the meaning set forth in the Purchase Agreement.)

WHEREAS, pursuant to the Purchase Agreement, Seller has agreed to assign, without recourse or warranty, to Purchaser all of Seller’s right, title and interest, if any, in and to the Miscellaneous Property Assets and the Permits (other than the Excluded Permits).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows:

1. Assignment . As of the Effective Date, Seller hereby assigns, sells and transfers, without recourse or warranty, to Purchaser all of Seller’s right, title and interest, if any, in and to the Miscellaneous Property Assets and the Permits (other than the Excluded Permits).

2. Assumption . As of the Effective Date, Purchaser expressly agrees to assume and hereby assumes all liabilities and obligations of the Seller in connection with the Miscellaneous Property Assets and the Permits (other than the Excluded Permits).

3. Counterparts . This Assignment may be executed in a number of identical counterparts. Signatures may be delivered by facsimile or electronic delivery, and such signatures shall be binding on the parties hereto, with original signatures to be delivered as soon as reasonably practical thereafter.

4. Applicable Law . This Assignment shall be governed by and interpreted in accordance with the laws of the [                      ].

6. Binding Effect . This Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

EXCEPT AS MAY BE SET FORTH IN AND SUBJECT TO THE TERMS OF THE PURCHASE AGREEMENT, WITH RESPECT TO ALL MATTERS TRANSFERRED, WHETHER TANGIBLE OR INTANGIBLE, PERSONAL OR REAL, SELLER EXPRESSLY DISCLAIMS A WARRANTY OF MERCHANTABILITY AND WARRANTY FOR FITNESS FOR A PARTICULAR USE OR ANY OTHER WARRANTY EXPRESSED OR IMPLIED THAT MAY ARISE BY OPERATION OF LAW OR UNDER THE UNIFORM COMMERCIAL CODE FOR THE STATE IN WHICH THE PROPERTY IS LOCATED (OR ANY OTHER STATE).

 

EXHIBIT D-1


IN WITNESS WHEREOF, the undersigned has executed this General Assignment and Assumption as of the day and year first written above.

 

Seller:
[                                           ], a
[                                           ]
By:

 

Name:

 

Title:

 

[Purchaser’s Signature Page Follows]

 

EXHIBIT D-2


Purchaser:
[                                           ], a
[                                           ]
By:

 

Name:

 

Title:

 

 

EXHIBIT D-3


EXHIBIT E

FORM OF ASSIGNMENT AND ASSUMPTION OF RESIDENT AGREEMENTS

This Assignment and Assumption of Resident Agreements (this “ Assignment ”) is executed by and between [SELLER] , a [                              ] (“ Seller ”) and [PURCHASER] , a [                              ] (“ Purchaser ”) as of                      , 20      (the “ Effective Date ”).

WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of                              , 20      (the “ Purchase Agreement ”) with respect to the sale of certain Property more particularly described in the Purchase Agreement. (Any capitalized term used, but not otherwise defined herein, shall have the meaning set forth in the Purchase Agreement.)

WHEREAS, Seller, as landlord, has entered into certain Resident Agreements for the use of the Property by Residents (collectively, together with all amendments, modifications, supplements, restatements and guarantees thereof, the “ Resident Agreements ”).

WHEREAS, the Purchase Agreement requires Seller and Purchaser to execute this Assignment.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows:

1. Assignment and Assumption . As of the Effective Date, Seller hereby irrevocably assigns, sets over, transfers and conveys to Purchaser all of Seller’s right, title and interest in and to the Resident Agreements. Purchaser hereby accepts this Assignment and the rights granted herein, and Purchaser hereby expressly assumes, for itself and its successors, assigns and legal representatives, the Resident Agreements and all of the obligations and liabilities, fixed and contingent, of Seller thereunder accruing from and after the Effective Date with respect to the Resident Agreements and agrees to (i) be fully bound by all of the terms, covenants, agreements, provisions, conditions, obligations and liability of Seller thereunder, which accrue from and after the Effective Date and (ii) keep, perform and observe all of the covenants and conditions contained therein on the part of Seller to be kept, performed and observed, from and after the Effective Date.

2. General Provisions .

a. Successors . This Assignment shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns.

b. Counterparts . This Assignment may be executed in a number of identical counterparts. Signatures may be delivered by facsimile or electronic delivery, and such signatures shall be binding on the parties hereto, with original signatures to be delivered as soon as reasonably practical thereafter.

 

EXHIBIT E-1


c. Governing Law . This Assignment and the legal relations between the parties hereto shall be governed by and construed and enforced in accordance with the laws of the State wherein the Property is located, without reference to the conflict of law provisions thereof.

[Remainder of page intentionally left blank.]

 

EXHIBIT E-2


IN WITNESS WHEREOF, the undersigned has executed this Assignment and Assumption of Resident Agreements as of the day and year first written above.

 

Seller:
[                                           ], a
[                                           ]
By:

 

Name:

 

Title:

 

[Signature Page]

 

EXHIBIT E-3


Purchaser:
[                                           ], a
[                                           ]
By:

 

Name:

 

Title:

 

[Signature Page]

 

EXHIBIT E-4


EXHIBIT F

FORM OF BRING DOWN CERTIFICATE

[DATE]

Reference is hereby made to that certain Purchase and Sale Agreement (the “Purchase

Agreement”) dated as of                      , 2015, by and among the entities listed as [Seller/Purchaser] on Schedule 1 thereof (collectively, the “Company”), the entities listed as [Purchaser/Seller] on Schedule 1 thereof, and, solely with respect to Section 14.24, Harvest Facility Holdings LP, as Seller Guarantor. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

Pursuant to Section [5.2.5/5.3.4] of the Purchase Agreement, the undersigned, hereby certifies as follows:

1. That the representations and warranties of the Company contained in Section [6.1/6.3] were true and correct as of the date of the Purchase Agreement and are true and correct as of the Closing Date, with the same force and effect as if made as of the Closing Date (except to the extent any such representation or warranty speaks as of any other date, in which case such representation or warranty was true and correct in all respects as of such date), except in each case to the extent the failure of such representations and warranties to be true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect, it being understood that, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” and other qualifications using the terms “in any material respect” or “in all material respects” or similar materiality qualifiers in such other representations and warranties will be disregarded.

2. The Company has performed in all material respects all agreements and covenants required to be performed by it under the Purchase Agreement at or prior to the Closing.

 

EXHIBIT F-1


IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the date first above written.

 

[Seller/Purchaser]:
[                                           ], a[n] [                                           ]
By:

 

Name:

 

Title:

 

 

EXHIBIT F-2


EXHIBIT G

FORM OF CERTIFICATION OF NON-FOREIGN STATUS

[Facility Name]

Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by the undersigned Transferor, the undersigned hereby certifies the following:

1. Transferor is not a foreign person, foreign corporation, foreign partnership, foreign trust, or foreign estate (as those items are defined in the Internal Revenue Code and Income Tax Regulations);

2. Transferor’s Taxpayer Identification Number is:                     

3. Transferor’s address is:

5885 Meadows Road, Suite 500, Lake Oswego, Oregon 97035

The undersigned understands that this certification may be disclosed to the Internal Revenue Service by transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury, the undersigned declares that he has examined this certification and to the best of his knowledge and belief it is true, correct and complete.

DATED as of the      day of                      , 2015.

 

TRANSFEROR:

[Seller], a(n)                     

By:

 

 

Name:

 

 

Title:

 

 

 

EXHIBIT G-1


EXHIBIT H

FORM OF RESIDENT NOTIFICATION 1

[Date]

Dear Holiday Resident:

I am writing to let you know that on                      , Holiday Retirement sold a portfolio of 28 communities to affiliates of New Senior Investment Group, Inc., a publicly traded real estate investment trust that focuses on investing in senior housing. [Name of community] was included in this transaction.

The formal name and address of the new landlord is                                          .

While the ownership of the underlying property has changed hands, we will continue to manage [name of community] as a Holiday Retirement community. As a result of this transaction, you will see no changes in the day-to-day operation of your community. We at Holiday remain completely committed to offering you great service and great value. Furthermore, as a result of the resident satisfaction survey we completed last year, we are looking at a variety of ways to make new investments into our programs, products and people.

Please continue to make all rent checks payable to your community and make all rental payments at the time and place you are accustomed to. In accordance with your residency agreement, rent may be paid in the form of personal or official checks, or by automatic bank account withdrawals. Rent checks may be delivered in person to the Community Manager’s office during normal business hours.

The legal name of the Holiday Retirement company managing the communities is Holiday AL Management Sub LLC. The address and telephone number of the manager is 5885 Meadows Road, Suite 500, Lake Oswego, OR 97035, (971) 245-8122. The manager is authorized to act for and on behalf of the landlord for the purpose of service of process and for the purpose of receiving notices and demands.

In closing, we value the opportunity to serve you each day. When I visit Holiday communities each week, I love to hear from residents, especially when they praise the people who work so hard in our communities to offer a great experience. I hope to meet you in my travels.

Sincerely,

Kai Hsiao

President and Chief Executive Officer

 

 

1   Form to be reviewed by local counsel.

 

EXHIBIT H-1


EXHIBIT I

PROPERTY CONTRACTS LIST

1) Alexis Gardens

 

  a. Single-Point Billing Agreement June 14, 2002 between Toledo Retirement Residence LLC and Buckeye Cablevision, Inc.

 

  b. Purchased Services Agreement dated September 5, 2014 between Harvest Management Sub LLC and Ace Diversified Services

 

  c. Purchased Services Agreement dated September 5, 2014 between Harvest Management Sub LLC and A2Z Hood Cleaning

 

  d. Landscape Maintenance Agreement dated March 19, 2014 between Harvest Management Sub LLC and Daystar LLC

 

  e. Beauty Salon Agreement dated September 1, 2011 between Harvest Management Sub LLC and Carrie Shaffer

2) Andover Place

 

  a. Services Agreement dated February 1, 2009 between Little Rock Retirement Residence Limited Partnership and Comcast of Little Rock, Inc.

 

  b. Compensation Agreement dated February 1, 2009 between Little Rock Retirement Residence Limited Partnership and Comcast of Little Rock, Inc.

 

  c. Purchased Services Agreement dated July 21, 2014 between Harvest Management Sub LLC and Value Stream Environmental

 

  d. Purchased Services Agreement dated July 21, 2014 between Harvest Management Sub LLC and Mid-South Industrial Cleaning

 

  e. Landscape Maintenance Agreement dated March 18, 2014 between Harvest Management Sub LLC and U.S. Lawns of Little Rock – North

 

  f. Beauty Salon Agreement dated April 1, 2014 between Little Rock Retirement Residence Limited Partnership and SW Hair Services PLLC

 

  g. Lease of Office Space dated August 20, 2014 between Little Rock Retirement Residence Limited Partnership and Dignity Enterprises, Inc.

3) Arcadia Place

 

  a. Private Cable Agreement dated October 11, 1995, between Vista Retirement Residence and American Distributing Corporation

 

  b. Purchased Services Agreement dated August 1, 2014, between Harvest Management Sub LLC and Shannon Diversified Inc.

 

  c. Landscape Maintenance Agreement dated                     between Harvest Management Sub LLC and Lucena Landscape & Maintenance, Inc.

 

  d. Lease of Office Space dated March 1, 2015 between Harvest Arcadia Place Retirement Residence LLC and Integrity Health Care Solutions

 

  e. Beauty Salon Agreement dated June 21, 2014 between Harvest Arcadia Place and Bertha Whitmore

 

EXHIBIT I-1


4) Aspen View

 

  a. MDU Service Agreement dated November 30, 2009 between Aspen View Retirement and Bresnan Communications, LLC

 

  b. Purchased Services Agreement dated September 12, 2014 between Harvest Management Sub LLC and Baker Commodities

 

  c. Purchased Services Agreement dated September 12, 2014 between Harvest Management Sub LLC and Advanced Hood Cleaning

 

  d. Landscape Maintenance Agreement dated August 15, 2014 between Harvest Management Sub LLC and the Lawn Ranger

 

  e. Beauty Salon Agreement dated January 1, 2014 between Harvest Aspen Meadows Retirement Residence LLC and April Hyem

 

  f. Lease of Office Space dated July 21, 2014 between Harvest Aspen Meadows Retirement Residence LLC and Yellowstone River of Care, Inc.

5) Augustine Landing

 

  a. Services Agreement dated February 1, 2009 between Jacksonville Retirement Residence LLC and Comcast of Greater Florida / Georgia, Inc.

 

  b. Compensation Agreement dated February 1, 2009 between Jacksonville Retirement Residence LLC and Comcast of Greater Florida / Georgia, Inc.

 

  c. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Metro Rooter Environmental Services

 

  d. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Webco Hood Cleaning

 

  e. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and The Lake Doctor’s Inc.

 

  f. Lease of Office Space dated March 1, 2015 between Jacksonville Retirement Residence LLC and Genesis Rehab Service

 

  g. Lease of Office Space dated September 9, 2014 between Jacksonville Retirement Residence LLC and American Home Therapy, Inc.

 

  h. Beauty Salon Agreement dated November 1, 2011 between Harvest Management Sub LLC and Linda Savoca

6) Cedar Ridge

 

  a. Service and Marketing Agreement dated October 1, 2012 between Burlington Retirement Residence LLC and Time Warner Cable Inc.

 

  b. Landscape Maintenance Agreement dated February 19, 2014 between Harvest Management Sub LLC and Color Landscapes by Michael Dickey, Inc.

 

  c. Purchased Services Agreement dated November 18, 2014 between Harvest Management Sub LLC and Fire Control Systems, Inc.

 

  d. Lease of Office Space dated April 28, 2015 between Burlington Retirement Residence LLC and LHCG L, LLC

 

EXHIBIT I-2


  e. Lease of Office Space dated May 5, 2015 by Burlington Retirement Residence LLC and Legacy Healthcare Services

 

  f. Lease of Office Space dated June 11, 2015 between Burlington Retirement Residence LLC and Affordable Family Care Services

 

  g. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Salon @ Cedar Ridge

7) Echo Ridge

 

  a. Services Agreement dated February 1, 2009 between Harvest Echo Ridge Retirement Residence LLC and Comcast of the South

 

  b. Compensation Agreement dated February 1, 2009 between Harvest Echo Ridge Retirement Residence LLC and Comcast of the South

 

  c. Purchased Services Agreement dated July 8, 2014 between Harvest Management Sub LLC and Valley Proteins Inc.

 

  d. Purchased Services Agreement dated September 14, 2014 between Harvest Management Sub LLC and Powerclean Pressure Washing

 

  e. Landscape Maintenance Agreement dated February 25, 2014 between Harvest Management Sub LLC and Tru Green LandCare

 

  f. Lease of Office Space dated January 31, 2015 between Harvest Echo Ridge Retirement Residence LLC and East Tennessee Personal Care Service, LLC

 

  g. Beauty Salon Agreement dated November 1, 2011 between Harvest Echo Ridge Retirement Residence LLC and Tabitha A. Dyer and Angela Walls

8) Elm Park Estates

 

  a. License for Access and Service Agreement dated December 1, 2006 between Elm Park Retirement Residence Limited Partnership and Cox Communications Roanoke

 

  b. Landscape Maintenance Agreement dated February 7, 2014 between Harvest Management Sub LLC and Clark Landscaping & Lawn Care, Inc.

 

  c. Snow Plowing & Ice Removal Agreement dated November 20, 2014 between Harvest Management Sub LLC and Varsity Landscaping Grounds LLC

 

  d. Construction Services Agreement dated May 11, 2015 between Elm Park Retirement Residence Limited Partnership and U.S. Asphalt Maintenance, LLC

 

  e. Lease of Office Space dated April 23, 2015 between Elm Park Retirement Residence Limited Partnership and At Home Caregivers, Inc.

 

  f. Lease of Office Space dated July 22, 2014 between Elm Park Estates Retirement Residence Limited Partnership and Gentle Care Home Services

 

  g. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Unique Technique Styling Salon

9) Genesee Gardens

 

  a. Services Agreement dated January 6, 2009 between Flint Retirement Residence LLC and Comcast of Flint, Inc.

 

EXHIBIT I-3


  b. Compensation Agreement dated January 6, 2009 between Flint Retirement Residence LLC and Comcast of Flint, Inc.

 

  c. Purchased Services Agreement dated August 24, 2014 between Harvest Management Sub LLC and Dar Pro Solutions

 

  d. Purchased Services Agreement dated September 29, 2014 between Harvest Management Sub LLC and Rapid Fire Protection Inc.

 

  e. Landscape Maintenance Agreement dated April 8, 2014 between Harvest Management Sub LLC and Diamond Lawn Care

 

  f. Beauty Salon Agreement dated September 27, 2013 between Flint Retirement Residence LLC and Keith Cross

 

  g. Lease of Office Space dated September 16, 2014 between Flint Retirement Residence LLC and All Americans Home Care

10) Greenwood Terrace

 

  a. Services Agreement dated February 1, 2009 between Harvest Greenwood Terrace Retirement Residence LLC and Comcast of Missouri Inc.

 

  b. Compensation Agreement dated February 1, 2009 between Harvest Greenwood Terrace Retirement Residence LLC and Comcast of Missouri Inc.

 

  c. Purchased Services Agreement dated September 16, 2014 between Harvest Management Sub LLC and Brooks Grease Service

 

  d. Purchased Services Agreement dated July 23, 2014 between Harvest Management Sub LLC and Bare Metal Standard Midwest

 

  e. Landscape Maintenance Agreement dated February 10, 2014 between Harvest Management Sub LLC and Illusion Lawn

 

  f. Lease of Office Space dated February 11, 2015 between Harvest Greenwood Terrace Retirement Residence LLC and The Caring Groups – Kansas

 

  g. Beauty Salon Agreement dated January 30, 2014 between Harvest Greenwood Terrace Retirement Residence LLC and Jamie Giersch

11) Holiday Hills Estates

 

  a. Service Agreement dated July 1, 1999 between Holiday Holding Company L.L.C. TCI Cablevision of South Dakota, Inc.

 

  b. Purchased Services Agreement dated August 6, 2014 between Harvest Management Sub LLC and Hills Septic Service

 

  c. Purchased Services Agreement dated November 18, 2013 between Harvest Management Sub LLC and Diamond D. Steam Cleaning

 

  d. Landscape Maintenance Agreement dated February 1, 2014 between Harvest Management Sub LLC and All Seasons Property Care

 

  e. Beauty Salon Agreement dated May 1, 2013 between Harvest Holiday Hills Estates Retirement Residence LLC and Jacquelyn Dahlquist

 

  f. Lease of Office Space dated April 1, 2015 between Harvest Holiday Hills Estates Retirement Residence LLC and SEDD Enterprises LLC

 

  g. Lease of Office Space dated May 27, 2015 between Harvest Holiday Hills Estates Retirement Residence LLC and State Home Care Services, Inc.

 

EXHIBIT I-4


12) Indigo Pines

 

  a. Service and Marketing Agreement dated October 1, 2012 between Hilton Head Retirement Residence Limited Liability Company and Time Warner Cable Inc.

 

  b. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Degler Waste Services

 

  c. Landscape Maintenance Agreement dated May 1, 2014 between Harvest Management Sub LLC and Ocean Woods Landscaping Co., Inc.

 

  d. Beauty Salon Agreement dated July 26, 2010 between Harvest Management Sub LLC and Amanda Ospina

13) The Jefferson

 

  a. Nonexclusive Installation and Service Agreement dated December 1, 2008 between Madison Retirement Residence LLC and Charter Cable Partners, LLC

 

  b. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Sanimax

 

  c. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Badger Hood Cleaning

 

  d. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Lori Kane

 

  e. Lease of Office Space dated February 4, 2015 between Madison Retirement Residence LLC and Genesis Elder Care Rehabilitation

 

  f. Lease of Office Space dated March 29, 2015 between Madison Retirement Residence LLC and HealthCorps Inc.

14) Kalama Heights

 

  a. Service Agreement dated November 16, 2000 between Kalama Heights Retirement Residence, L.L.C. and Time Warner Entertainment Company, L.P.

 

  b. Landscape Maintenance Agreement dated May 1, 2014 between Harvest Management Sub LLC and KAP Landscape

 

  c. Purchased Services Agreement dated November 18, 2014 between Harvest Management Sub LLC and Blue Protection Inc.

 

  d. Beauty Salon Agreement dated November 1, 2013 between Kalama Heights Retirement Residence L.L.C. and Wendy Gusman

 

  e. Lease of Office Space dated June 1, 2014 between Kalama Heights Retirement Residence L.L.C and ADL, LLC

15) Marion Woods

 

  a. Access and Service Agreement dated June 13, 2003 between Ocala Retirement Residence LLC and CoxCom, Inc.

 

  b. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Brown Septic System

 

  c. Landscape Maintenance Agreement dated January 19, 2014 between Harvest Management Sub LLC and Above and Beyond Lawn Maintenance Inc.

 

EXHIBIT I-5


  d. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Aquatic Maintenance, Inc.

 

  e. Lease of Office Space dated August 19, 2014 between Ocala Retirement Residence LLC and TLC Rehab, Inc.

 

  f. Beauty Salon Agreement dated January 1, 2012 between Ocala Retirement Residence LLC and Janice Chetock

 

  g. Lease of Office Space dated January 29, 2015 between Ocala Retirement Residence LLC and Americare Home Therapy, Inc.

16) Montara Meadows

 

  a. Cox Services and Access Agreement dated March 11, 2013 between Harvest Montara Meadows and Cox Communications Las Vegas Inc.

 

  b. Landscape Maintenance Agreement dated May 25, 2014 between Harvest Management Sub LLC and TruGreen Landcare of Las Vegas, LLC

 

  c. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Nelida Bellnomo

 

  d. Lease of Office Space dated September 1, 2014 between Harvest Montara Meadows Retirement Residence LLC and All Care Staffing

17) Niagara Village

 

  a. License for Access and Service Agreement dated July 1, 1999 between Erie Retirement Residence Limited Partnership and Parnassos LP

 

  b. Landscape Maintenance Agreement dated April 1, 2014 between Harvest Management Sub LLC and Jesstone Landscape Service

 

  c. Purchased Services Agreement dated May 21, 2014 between Harvest Management Sub LLC and Roto-Rooter

 

  d. Purchased Services Agreement dated September 23, 2014 between Harvest Management Sub LLC and Presque Isle Power Clean

 

  e. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Annamarie DelleCurti

18) Parkrose Chateau

 

  a. Services Agreement dated February 1, 2009 between Parkrose Retirement Residence Limited Partnership and Comcast of Oregon II Inc.

 

  b. Compensation Agreement dated February 1, 2009 between Parkrose Retirement Residence Limited Partnership and Comcast of Oregon II Inc.

 

  c. Landscape Maintenance Agreement dated March 31, 2014 between Harvest Management Sub LLC and Northwest Landscape Services

 

  d. Beauty Salon Agreement dated January 1, 2014 between Parkrose Retirement Residence Limited Partnership and Marylou Longanecker

19) Pinegate

 

  a. License for Access and Service Agreement dated December 1, 2006 between Macon Retirement Residence LLC and Cox Communications Middle Georgia

 

EXHIBIT I-6


  b. Purchased Services Agreement dated February 24, 2014 between Harvest Management Sub LLC and Hulsey Grease Company

 

  c. Purchased Services Agreement dated June 16, 2014 between Harvest Management Sub LLC and Hoodz North America

 

  d. Landscape Maintenance Agreement dated May 12, 2014 between Harvest Management Sub LCL and Riverfront Landscaping

 

  e. Lease of Office Space dated November 10, 2014 between Macon Retirement Residence LLC and HomeNurse, Inc.

 

  f. Lease of Office Space dated May 25, 2015 between Macon Retirement Residence LLC and FiveStar Healthcare, Inc.

 

  g. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Pinegate Hair Salon

20) Quail Run Estates

 

  a. Services Agreement dated January 6, 2009 between Harvest Quail Run Estates Retirement Residence LLC

 

  b. Compensation Agreement dated January 6, 2009 between Harvest Quail Run Estates Retirement Residence LLC

 

  c. Purchased Services Agreement dated August 21, 2014 between Harvest Management Sub LLC and Harmony Environmental Inc.

 

  d. Purchased Services Agreement dated August 21, 2014 between Harvest Management Sub LLC and Advanced Air Quality

 

  e. Landscape Maintenance Agreement dated April 7, 2014 between Harvest Management Sub LLC and R. J. Landscapes

 

  f. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Karen Mitchell

21) Quincy Place

 

  a. Services Agreement dated February 1, 2009 between Harvest Managing Member I LLC and Mile Hi Cable Partners, LP

 

  b. Compensation Agreement dated February 1, 2009 between Harvest Managing Member I LLC and Mile Hi Cable Partners, LP

 

  c. Landscape Maintenance Agreement dated March 1, 2014 between Harvest Management Sub LLC and Green Meadow Landscaping, LLC

 

  d. Beauty Salon Agreement dated September 11, 2012 between Denver Retirement Residence Limited Liability Company and Denise Chavez

 

  e. Lease of Office Space dated September 5, 2014 between Denver Retirement Residence Limited Liability Company Summit Life Solutions I, LLC

 

  f. Lease of Office Space dated August 25, 2014 between Denver Retirement Residence Limited Liability Company and Legacy Healthcare Services, Inc.

22) Redbud Hills

 

  a. Services Agreement dated February 1, 2009 between Harvest Redbud Hills Retirement Residence LLC and Comcast of Illinois/Indiana/Ohio, LLC

 

EXHIBIT I-7


  b. Compensation Agreement dated February 1, 2009 between Harvest Redbud Hills Retirement Residence LLC and Comcast of Illinois/Indiana/Ohio, LLC

 

  c. Purchased Services Agreement dated September 18, 2014 between Harvest Management Sub LLC and Ace Sanitation Services

 

  d. Purchased Services Agreement dated September 18, 2014 between Harvest Management Sub LLC and National Exhaust Cleaning

 

  e. Landscape Maintenance Agreement dated March 27, 2014 between Harvest Management Sub LLC and Outdoor Improvements LLC

 

  f. Beauty Salon Agreement dated January 1, 2011 between Harvest Management Sub LLC and Lisa Sullivan

 

  g. Lease of Office Space dated June 10, 2014 between Harvest Redbud Hills Retirement Residence LLC and Elder Care

 

  h. Lease of Office Space dated July 28, 2014 between Harvest Redbud Hills Retirement Residence LLC and Legacy Healthcare Services Inc.

23) The Remington

 

  a. Services Agreement dated February 1, 2009 between Hanford Retirement Residence Limited Partnership and Comcast of Sierra Valley Inc.

 

  b. Compensation Agreement dated February 1, 2009 between Hanford Retirement Residence Limited Partnership and Comcast of Sierra Valley Inc.

 

  c. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Shannon Diversified Inc.

 

  d. Landscape Maintenance Agreement dated January 1, 2015, and any Addendums thereto, between Harvest Management Sub LLC and Silvas Lawn Service

 

  e. Lease of Office Space dated May 12, 2015 between Hanford Retirement Residence Limited Partnership and Valley Medical Systems, Inc.

 

  f. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Remington Styling Salon

24) Springs of Escondido

 

  a. License for Access and Service Agreement dated July 1, 2001 between Escondido Retirement Residence Limited Partnership and CoxComm, Inc.

 

  b. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Shannon Diversified Inc.

 

  c. Landscape Maintenance Agreement dated April 18, 2014 between Harvest Management Sub LLC and Lucene Landscape & Maintenance, Inc.

 

  d. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Eugenia Ann Sanches

 

  e. Lease of Office Space dated November 30, 2014 between Escondido Retirement Residence Limited Partnership and Always Best Care Senior Services

 

  f. Lease of Office Space dated August 1, 2014 between Escondido Retirement Residence Limited Partnership and Together We Care

 

EXHIBIT I-8


25) Springs of Napa

 

  a. Services Agreement dated March 1, 2009 between Napa Retirement Residence Limited Partnership and Comcast of East San Fernando Valley LP

 

  b. Compensation Agreement dated March 1, 2009 between Napa Retirement Residence Limited Partnership and Comcast of East San Fernando Valley LP

 

  c. Landscape Maintenance Agreement dated November 27, 2013 between Harvest Management Sub LLC and Cagwin & Dorward Landscape Contractors

 

  d. Purchased Services Agreement dated August 1, 2014 between Harvest Management Sub LLC and Shannon Diversified

 

  e. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Leigh Ann Churchfield

26) Stone Lodge

 

  a. Premises Access and Cable Service Agreement for Multi-unit Dwellings dated November 8, 2004 between Bend Retirement Residence LLC and BendCable Communications, LLC

 

  b. Landscape Maintenance Agreement dated March 21, 2014 between Harvest Management Sub LLC and Northwest Landscape Services

 

  c. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Connie Wright

 

  d. Lease of Office Space dated June 6, 2015 between Bend Retirement Residence LLC and Cascade In Home Care, LLC

27) University Pines

 

  a. License for Access and Service Agreement dated December 1, 2006 between Pensacola Retirement Residence Limited Partnership and Cox Communications Gulf Coast, L.L.C.

 

  b. Purchased Services Agreement dated February 24, 2014 between Harvest Management Sub LLC and Hulsey Grease Company

 

  c. Purchased Services Agreement dated June 16, 2014 between Harvest Management Sub LLC and Hoodz North America

 

  d. Landscape Maintenance Agreement dated February 16, 2014 between Harvest Management Sub LLC and IV Seasons Landscape & Lawncare

 

  e. Beauty Salon Agreement dated January 1, 2010 between Harvest Management Sub LLC and Nila M. Maloney

 

  f. Lease of Office Space dated June 24, 2014 between Harvest University Pines Retirement Residence LLC and STAT Home Health Florida Panhandle, LLC

28) Woods at Holly Tree

 

  a. Service and Marketing Agreement dated October 1, 2012 between Wilmington Retirement Residence Limited Liability Company and Time Warner Cable Inc.

 

  b. Landscape Maintenance Agreement dated February 26, 2014 between Harvest Management Sub LLC and Superior Lawns of Wilmington Inc.

 

  c. Purchased Services Agreement dated September 22, 2014 between Harvest Management Sub LLC and Valley Proteins, Inc.

 

EXHIBIT I-9


  d. Beauty Salon Agreement dated November 1, 2014 between Wilmington Retirement Residence LLC and Joyce R. Perdue

 

  e. Lease of Office Space dated November 30, 2014 between Wilmington Retirement Residence LLC and Assisted Care, Inc.

 

  f. Lease of Office Space dated April 1, 2015 between Wilmington Retirement Residence LLC and Martha’s Inc.

 

  g. Lease of Office Space dated May 5, 2015 between Wilmington Retirement Residence LLC and Legacy Healthcare Services

 

EXHIBIT I-10


EXHIBIT J

FORM OF MANAGEMENT AGREEMENT

EXHIBIT J TO PURCHASE AGREEMENT

MANAGEMENT AGREEMENT

between

                     (“MANAGER”)

and

                     (“OWNER”)

             , 2015

 

EXHIBIT J-1


TABLE OF CONTENTS

 

         Page  
1.  

Appointment

     1   
2.  

Management Responsibilities

     1   
3.  

Operating Responsibilities and Operating Account

     12   
4.  

Books and Records

     14   
5.  

Indemnification

     14   
6.  

Insurance

     15   
7.  

Payment/Fees

     17   
8.  

Term

     19   
9.  

Remedies/Termination

     19   
10.  

Subordination of Management Agreement

     23   
11.  

Branding/Proprietary Materials

     24   
12.  

Status; Authority; Binding Effect

     24   
13.  

Assignment

     25   
14.  

Attorney’s Fees

     26   
15.  

Confidentiality

     26   
16.  

Notices

     26   
17.  

Entire Agreement; Binding Nature

     26   
18.  

No Waiver

     26   
19.  

Severability

     27   
20.  

Governing Law

     27   
21.  

Counterparts

     27   
22.  

Force Majeure

     27   
23.  

Relationship of the Parties

     27   
24.  

Construction

     27   
25.  

Consents

     27   
26.  

Withholding Taxes and State Income Tax Returns

     28   
27.  

Inspection of the Facility

     28   
28.  

Amendments

     28   
29.  

Failure to Perform

     28   
30.  

REIT Status

     28   
31.  

Independent Contractor

     29   
32.  

Certain Definitions

     29   

Schedules

Schedule 2(l) – Monthly Reports

Schedule 2(m) – 2015 Annual Budget

Schedule 6 – Insurance

Schedule 7(a) – Base Fee Amount


MANAGEMENT AGREEMENT 1

THIS MANAGEMENT AGREEMENT (this “ Agreement ”) is effective as of             , 2015 (the “ Effective Date” ), and is entered into by and between [            ], a [Delaware limited liability company] (“ Manage r”) and [            ], a [            ] (“ Owner” ). Owner owns the senior living facility known as [            ] (such facility, together with the land on which such facility is located, as more particularly described on Exhibit A attached hereto (but excluding any separate facility developed thereon), the “ Facility ”), which is located at [            ], and desires to retain Manager to manage and operate the Facility pursuant to the terms and conditions of this Agreement. As parties hereto, Manager and Owner agree:

1. Appointment : As of the Effective Date and subject to the terms and conditions of this Agreement, Owner hereby appoints Manager as its exclusive operating, managing and leasing agent for the Facility, which includes the power and authority to act in the name of and on behalf of Owner to transact the business of operating and managing the Facility and to make and execute contracts, leases, and other writings, assurances, and instruments which may be needed to operate and manage the Facility as a senior housing community providing independent living services. Manager hereby accepts such appointment, together with all the rights, powers, and authority provided by Owner, and Manager hereby agrees that as the operator of the Facility, it shall act in accordance with the terms of this Agreement. Owner shall retain its ownership interest in, and nothing herein shall be construed to give Manager any interest in (other than such rights to possession or use as may be required to allow Manager to perform its obligations under this Agreement): (a) the Facility; and (b) any other assets of Owner (including, without limitation, any furnishings, fixtures, trade fixtures, equipment, supplies, consumables, inventories, tangible and intangible personal property, accounts and accounts receivable, agreements with residents and other contracts or agreements relating to the Facility (excluding any National Contract (as defined in Section 2(f)))) necessary or convenient to the ownership, leasing, use, and operation of the Facility and acquired with Owner’s funds or revenues of the Facility.

2. Management Responsibilities : Manager, upon its own initiative, shall use commercially reasonable efforts to bring to Owner’s attention opportunities to (i) increase or stabilize the revenues of the Facility and control or minimize the expenses of the Facility and (ii) improve the quality of services to the Residents. Manager shall promptly notify Owner of (A) any events or conditions with respect to the Facility that have, or could reasonably be expected to have, a material adverse effect on Owner or the Facility, (B) any condemnation with respect to the Facility, (C) any material casualty with respect to the Facility, (D) receipt of written notice of default of any material legal obligation of Owner, and (E) the initiation of any legal matters or proceedings that under Section 2(o) cannot be settled without Owner’s consent. In addition to Manager’s obligations set forth elsewhere in this Agreement, Manager shall perform the duties and provide the services described in this Section 2 below.

(a) Facility Management Team : Manager shall recruit, evaluate, select, employ, train, supervise, manage and discharge the Facility’s management team, who shall be responsible for the functional operation of the Facility and execution on a day-to-day basis of policies established by Manager in accordance with this Agreement.

 

1   Prior to signing, this agreement will be revised as appropriate to reflect tax structuring.

 

1


(b) Personnel :

(i) Manager (or an Affiliate of Manager) shall be the employer of all personnel employed from time to time at the Facility and all Facility marketing personnel (collectively, “ Facility Employees ”) and certain off-site personnel. All matters pertaining to the employment, selection, training, supervision, compensation, promotion and discharge of the Facility Employees are the responsibility of Manager, with respect to which Manager shall exercise reasonable care. Manager shall maintain staffing levels at the Facility at all times at levels which are sufficient to operate the Facility consistent with the Performance Standard. Subject to the other terms of this Agreement, Manager shall have the sole power to hire, discipline and/or dismiss all personnel employed at the Facility and to make all staffing decisions, provided, at Owner’s reasonable prior written request, Manager shall consult with Owner regarding recruitment, hiring and dismissal with respect to any lead community manager. Furthermore, upon prior written notice to Manager, Manager shall make any lead community manager reasonably available for discussions with Owner, provided that Manager shall be entitled to have a designated representative present during any such meetings. Manager shall establish all necessary and desirable personnel policies, wage structures and staff schedules for employment of personnel at the Facility. All Facility Employees’ duties in connection with their employment shall be exclusively dedicated to the Facility, provided that (so long as sufficient staffing levels are maintained as provided above) Manager may from time to time assign any Facility Employee to provide services to any senior housing facility (owned or managed by Manager or its Affiliates) other than the Facility, in which event all costs relating to such Facility Employee shall be allocated to the Facility and to the other facilities receiving the benefit of such services, provided the methodology used to allocate expenses to the Facility is reasonable and equitable and approved by Owner.

(ii) Subject to prior notice to Owner, Manager shall negotiate with any union lawfully entitled to represent employees and may execute in its own name, and not as agent for Owner, collective bargaining agreements or labor contracts resulting therefrom, provided that, in no event shall Manager, without Owner’s prior written consent (which consent shall not be unreasonably withheld), enter into any collective bargaining agreements or labor contracts which shall cause Manager to incur expenses with respect to the Facility for any year in excess of the amounts contemplated by the Annual Budget for such year unless Manager agrees in writing that it shall be solely responsible for any material increase in costs resulting therefrom.

(iii) Manager shall comply, in all material respects, with all Applicable Laws having to do with worker’s compensation, social security, unemployment insurance, hours of labor, wages, working conditions and other employer/employee related subjects with respect to the Facility Employees.

(iv) Within five (5) days after the end of each calendar month during the term of this Agreement, Manager shall deliver to Owner a notification of the hiring and/or discharge, as applicable, of any manager, co-manager or marketing personnel during such calendar month. In addition, upon written request of Owner (but in any event not more often than one (1) time in any thirty (30) day period), Manager shall provide to Owner a written schedule listing, as of a date that is not more than thirty (30) days prior to the date of delivery, all Facility Employees, such Facility Employee’s title or job description, salary and additional compensation or perquisites (such as lodging, meals, maintenance, moving expenses, bonus and incentive compensation and the like).

(c) Operational Policies : Subject to the other terms of this Section 2, Manager shall maintain and develop all operational policies, procedures and manuals as may be necessary to ensure compliance with any licensure requirements of Owner and/or the Facility and to ensure establishment and maintenance of the standards of resident services appropriate to operating the Facility as a senior independent living community.

 

2


(d) Forms : Manager shall maintain and develop all invoices and other such forms necessary for the operation of the Facility.

(e) Charges : Manager shall establish the schedules of recommended charges for occupancy, products and services, including any and all special charges to the residents of the Facility. Manager may periodically review and adjust any and all such charges.

(f) Utility and Service Contracts : Manager shall, on behalf of the Facility (in the name of Manager or its affiliate(s) (if necessary or beneficial) or in the name of, and as agent for, Owner), enter into or cause the execution of service contracts as required in the ordinary course of business for the operation of the Facility including, but not limited to, contracts for water, electricity, natural gas, telephone, sewer, cleaning, trash removal, pest control, cable television, elevator, and boiler maintenance, and other services related to the maintenance of the Facility or to the health and safety of its occupants and employees and such other contracts as may be necessary to carry out the obligations imposed on Manager under this Agreement (it being understood that Harvest Management Sub LLC will, as agent for [Sub-]Manager, keep in place certain existing utility contracts for the Facility)]. All Facility contracts (excluding (i) National Contracts (defined below) and (ii) contracts with Affiliates of Manager), which are in effect at the expiration or termination of this Agreement and which were entered into in accordance with the terms of this Agreement and are assignable, to the extent not in the name of Owner, shall be assigned by Manager to Owner or its designee effective as of the date of such expiration or termination of this Agreement; provided that if any contract requires consent to assignment pursuant to the terms thereof, and the counterparty to such contract will not consent to an assignment, any early termination fees shall be the responsibility of Owner or its designee and Manager shall have no liability with respect thereto. Manager shall use good faith efforts to negotiate terms in each contract (other than National Contracts and any contract with a term of sixty (60) days or fewer) (x) permitting assignment to Owner or its designee upon expiration or termination of this Agreement at no cost to Owner or its designee and (y) requiring no termination or assignment fees. Manager shall perform as and when required under Facility contracts the duties and responsibilities imposed on Owner under the terms thereof. Facility contracts may consist of any National Contract to the extent that (a) such National Contract offers competitive prices, (b) the prices charged by the vendors under such National Contract with respect to the Facility are no greater than the prices charged for the same goods or services with respect to other facilities covered by such National Contracts and located in the same geographical region as the Facility and (c) Owner has the right to review and approve the allocation methodology for each National Contract in connection with the Proposed Annual Budget. “ National Contracts ” shall mean any national or other contracts in the name of Manager or one of its Affiliates [or Sub-Manager or one of its Affiliates] pursuant to which the Facility, as well as any facility other than those owned or leased by Owner or an Affiliate of Owner, is receiving goods, services and/or other benefits. Manager shall use commercially reasonable efforts to obtain for the benefit of the Facility and Owner all Rebates available, including by making bulk purchases and early payment of invoices. In the event that Manager or its Affiliates receive any Rebates, such Rebates shall accrue exclusively to the benefit of the Facility, except that, with respect to any Rebates under any National Contracts, Manager agrees to allocate a fair and reasonable portion of such Rebates to the Facility. Manager shall use a reasonable competitive bidding process with respect to any contracts or orders that are reasonably likely to result in the aggregate amount payable with respect thereto exceeding $100,000 in any twelve (12) month period. Manager shall not execute any contract with Manager or any Affiliate of Manager (it being agreed that, for purposes of this sentence, “control” (as used in the definition of the term “Affiliate”) of any entity shall include ownership of more than ten percent (10%) of the equity interests in such entity, as well as the power to direct the management or policies of such entity) relating to the provision of goods or services for the Facility if Owner is required to pay the costs of such contract pursuant to the terms of this Agreement, unless (A) Manager has disclosed such affiliation to Owner in writing, and (B) Owner has approved such contract in writing (after Manager’s disclosure of such affiliation), which consent shall not be unreasonably withheld, conditioned or delayed,

 

3


provided that the restriction set forth in this sentence shall not apply to any National Contract so long as the terms of subsections (a), (b) and (c) above are satisfied with respect to such National Contract. Upon Owner’s request from time to time, Manager shall provide Owner with a complete list and copies of all Facility contracts, including all Occupancy Agreements (as defined in Section 2(n) below). From time to time, upon Owner’s request, Manager shall provide to Owner a schedule of all existing contracts to which Manager [or Sub-Manager] is a party for the provision of goods or services to the Facility.

(g) Purchasing : Manager shall purchase or arrange for the purchase of inventories, provisions, supplies, and operating equipment necessary for the maintenance and operation of the Facility.

(h) Maintenance and Repair : Manager shall coordinate the repair and maintenance of the Facility in a condition that is substantially the same or better than existed as of the Effective Date (or, if later, the date of completion of any capital improvement to the Facility in accordance with the terms hereof), ordinary wear and tear and casualty excepted, including but not limited to cleaning, painting, decorating, plumbing, electrical, HVAC, appliances, carpentry and ground care.

(i) Information and Other Requirements :

(i) Marketing and Overall Business Plan : Manager shall develop and implement the overall business and marketing plans for the Facility.

(ii) Owner and Manager Representative Communications : Each party shall select a representative from time to time, and as notified to the other party in writing, for purposes of communications between Owner and Manager with respect to the management and operation of the Facility, the Proposed Annual Budget, the Annual Budget and other matters requiring communication pursuant to the terms of this Agreement.

(iii) In-Person Meeting with Owner : Upon not less than ten (10) business days’ prior written request by Owner, Manager shall cause a representative of Manager to meet at the Facility or participate in phone conversations with representatives of Owner to discuss matters concerning the Facility (including, without limitation, the reports provided pursuant to Section 2(l) ).

(j) Equipment and Improvements :

(i) Manager shall advise Owner as to any recommended improvements to the Facility and/or as to the replacement of obsolete or run-down equipment. Owner shall review and decide upon Manager’s recommendations as soon as practicable. Manager shall not be liable for any cost or liability which Manager or Owner may incur, or to which Owner may be subject, in the event Owner fails to act on or disregards Manager’s recommendations (or for any failure of Manager to comply with this Agreement caused by such failure of Owner, and Manager shall not be deemed to be in default hereunder as a result thereof) to the extent resulting from the failure of Owner to follow or to act upon such recommendations. Notwithstanding the foregoing, Manager shall maintain the equipment and improvements in the same or better condition as existed as of the Effective Date (or, if applicable, as of such later date of completion of a capital improvement or equipment purchase with respect to such improvement or equipment), ordinary wear and tear and casualty excepted, and Manager shall cause all repairs, replacements and maintenance to be performed for such purpose; provided, however, that the same shall at all times be undertaken in a workmanlike and lien free manner. Subject to the terms of Section 2(j)(ii) below, Manager shall use the Facility’s on-site maintenance personnel for all day-to-day maintenance activities, as and when reasonably practicable, and, as necessary, shall contract with qualified third party contractors to provide necessary services with respect to the Facility.

 

4


(ii) Owner, in its sole discretion, may elect to make any repairs or capital improvements at the Facility, provided, if the same are unbudgeted, the cost for such additional repairs or capital improvements are paid by the Owner outside of the Annual Budget (or pursuant to a modification of the Annual Budget) (each, an “ Owner Project ”). With respect to any Owner Project, except with respect to an emergency or as necessary to comply with Facility Loan Documents or other legal obligations (in which case as much prior notice shall be provided to Manager as is practicable), Owner shall provide not less than sixty (60) days’ written notice of the proposed repair or capital improvement project and coordinate with Manager to minimize disruption to operations at the Facility. If any repair or capital improvement project undertaken pursuant to the terms of this Section 2(j)(ii) results in a Disruption Condition for a period in excess of thirty (30) days and at the time of such project the occupancy at the Facility is not less than 90%, the Fee paid to Manager for any month in which all or a portion of a Disruption Period occurs shall not be less than the average Fee paid for the most recent three (3) month period during which there existed no Disruption Condition. Manager shall cause any repair or capital improvement contemplated by this Section 2(j)(ii) to be completed pursuant to Section 2(h) ; provided , however , if any such repair or capital improvement project is estimated to cost $50,000 or more, Owner shall have the right, at its election, to manage and control the project, including, but not limited to, selecting and managing the contractors. Notwithstanding anything to the contrary contained in this Agreement, if Owner makes such election to manage and control any project (such project, an “ Owner Controlled Project ”), Manager shall have no liability or obligation hereunder or otherwise with respect to any Owner Controlled Project, the personnel and/or contractors selected by Owner or their performance (or failure to perform), the quality of their work and/or any claims, demands, causes of action, losses, damages, fines, penalties, liabilities, costs and expenses that arise from any Owner Controlled Project, and Owner shall be solely responsible for any Owner Controlled Project and indemnify and hold harmless Manager for any Claims arising out of any such Owner Controlled Project. Furthermore, for any project which Owner does not elect to control pursuant to this Section 2(j) (any such project, a “ Manager-Controlled Project ”), Manager shall have no liability with respect to such Manager Controlled Project, the personnel and/or contractors selected by Manager or their performance (or failure to perform), the quality of their work and/or any claims, demands, causes of action, losses, damages, fines, penalties, liabilities, costs and expenses that arise from any Manager Controlled Project, provided Manager’s performance of its duties with respect to such Manager Controlled Project does not constitute gross negligence or willful misconduct. For the purposes of this Section 2(j)(ii) , with respect to any repair or capital improvement project undertaken pursuant to this Section 2(j)(ii) , (i) “ Disruption Condition ” shall mean that not less than ten percent (10%) of the residential units at the Facility are unavailable for occupancy due to such project, and (ii) “ Disruption Period ” shall mean that period commencing on the date the applicable Disruption Condition commences and ending on the date that is the earlier of sixty (60) days following the date such Disruption Condition ceases to exist and the date all of the applicable units are occupied. In connection with any Manager-Controlled Project, Manager shall use commercially reasonable efforts to prevent any liens from being filed against the Facility, and shall seek (and, for any work or materials which cost more than $10,000 or for which acknowledgements, waivers and releases are required under any Applicable Facility Loan Documents, Superior Leases and Title Documents, shall obtain as a condition to payment therefor) payment acknowledgments, claim waivers and lien releases from the personnel and contractors performing work or furnishing materials, in connection with such project, but only to the extent that Owner has made funds available to Manager to pay for such work or materials.

(k) Bookkeeping and Accounting : Manager shall keep, prepare and maintain books and records of the Facility in the ordinary course using a consistent method from period to period, accurately reflecting the operational and financial affairs of the Facility. All financial reports shall be prepared in accordance with GAAP, provided, for the avoidance of doubt, the parties agree that any move-in fees or other incentives paid by a resident will be reflected in the financial statements and amortized over the remaining expected length of stay for such resident on a straight line basis in

 

5


accordance with GAAP. Manager will prepare and deliver, or cause to be prepared and delivered, to Owner for its review, and file or cause to be filed, all property-level tax returns of the Facility, including sales and use tax returns, personal property tax returns and business, professional and occupational license tax returns, as applicable. Subject to the provisions of this Agreement, Manager shall use commercially reasonable efforts (i) to cause the Facility to be operated in a manner to assure that Owner and the Facility receive all benefits of applicable tax exemptions or credits available thereto from any Governmental Authority and (ii) to appeal any tax assessments (x) in the event that Manager determines such assessments to be incorrect or unreasonable or (y) at the direction of Owner, provided in each case Manager shall consult with Owner in connection with such appeal process. Manager shall provide Owner data in Manager’s possession, or otherwise available to Manager, relating to the Facility which Owner may need for the preparation of federal and state tax returns. Manager shall provide Owner all documents and data in Manager’s possession, or otherwise available to Manager, relating to the Facility which Owner may need for the preparation of federal and state income tax returns. Manager shall provide such documents and information promptly upon request by Owner. Manager shall not be responsible for the preparation of any of Owner’s income tax returns.

(l) Reports : Manager shall deliver or cause to be delivered to Owner the following financial statements and reports with respect to its operations at the Facility:

(i) annual financial statements (balance sheet, cash flow statement, income statement, and book and tax depreciation schedules), certified to be true, accurate and complete, in all material respects, by Manager, and audited by an independent certified public accounting firm reasonably selected by Owner, within 30 days after the end of each calendar year (the “ Annual Financial Statement ”);

(ii) each of the monthly reports set forth and designated as “Monthly Reports” on Schedule 2(l) attached hereto (collectively, the “ Monthly Reports ”). The Monthly Reports shall be provided to Owner in the format and within the number of days after the end of each such calendar month specified in Schedule 2(l) and shall be certified by Manager to be true, accurate and complete in all material respects;

(iii) the reports, statements and other items relating to the Facility or Manager which are required, as and (subject to Section 2(q)(i) ) when required, under Sections 8.02, 8.03 and 13.02(a)(6) of the Multifamily Loan and Security Agreement in effect between Owner and the Facility Lender as of the Effective Date, so long as the same remains in effect;

(iv) any other reports or statements set forth on Schedule 2(l) ; and

(v) any other reports or statements reasonably requested by Owner.

All costs and expenses incurred in connection with the preparation of any statements, schedules, computations and other reports required under clauses (ii), (iii) and (iv) above shall be at Manager’s expense. All costs and expenses incurred in connection with the delivery of audited financial statements pursuant to clause (i) above and Manager’s out-of-pocket costs incurred in delivering any report or statement pursuant to clause (v) shall be at Owner’s expense.

So long as Owner has paid to Manager all amounts due and owing to Manager pursuant to the terms of this Agreement and with respect to any such report, Manager’s obligations under this Section 2(l) to prepare and deliver any report to Owner shall survive the expiration of the Term or earlier termination of this Agreement but only with respect to the reports that would have been due and delivered by Manager for the applicable reporting period ending on or immediately after such expiration or termination date.

 

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(m) Operating Plans and Budgets : The Annual Budget for calendar year 2015 shall be the budget attached hereto as Schedule 2(m) (the “ Initial Budget ”). Each of Owner and Manager agrees and acknowledges that it has had a reasonable opportunity to review, and has approved, the Initial Budget. With respect to each subsequent calendar year during the Term, Manager shall prepare and shall submit to Owner, for Owner’s review and approval, an annual operating plan and budget for the Facility setting forth in reasonable detail the estimated receipts and expenditures (capital, operating, maintenance and other) for the Facility on a monthly and an annual basis (including projected EBITDARM), a proposed cash flow statement, a proposed marketing plan, the method of calculation of the rates and prices for occupancy, products and services provided at the Facility, a proposed schedule of salaries and benefits for the Facility Employees and a financial analysis for any new programs to be established or any recommendations to close existing programs, which proposed annual operating plan and budget (“ Proposed Annual Budget ”) shall be [comparable in form to the Initial Budget 2 ]. “ Annual Budget ” refers to the then operable annual plan and budget, which is either agreed upon by the parties or determined in accordance with Section 2(m)(iii) and Section 2(m)(iv) below, subject to the terms of this Agreement. Manager shall submit to Owner on or prior to November 1 of each year for the succeeding calendar year a complete draft of the Proposed Annual Budget for Owner’s review. Manager and Owner shall use good faith efforts to update, finalize and approve the Proposed Annual Budget prior to December 31 of each year. Once the Proposed Annual Budget has been submitted to Owner the following provisions shall apply with respect to the review and approval thereof:

(i) If Owner disagrees with any portion of the Proposed Annual Budget, Owner will notify Manager in writing of the same on or prior to the later of (x) thirty (30) days after delivery to Owner of the Proposed Annual Budget, or (y) December 10 of the year prior to the year covered by the Proposed Annual Budget (the “ Budget Response Deadline ”). If Owner fails to respond or does not reject all or any portion of the Proposed Annual Budget for a given year on or prior to the Budget Response Deadline, Manager delivers to Owner a notice stating that Owner will be deemed to have approved the Proposed Annual Budget unless Owner responds within five (5) days, and Owner fails to respond or does not reject all or any portion of the Proposed Annual Budget during such five (5) day period, then Owner shall be deemed to have approved the entire Proposed Annual Budget.

(ii) If Owner rejects in writing any portion of the Proposed Annual Budget for any calendar year on or prior to the Budget Response Deadline (or prior to the deemed approval of the entire Proposed Annual Budget), Manager shall respond to Owner’s objections no later than seven (7) days after Owner’s rejection. If Owner and Manager remain in disagreement with respect to the Proposed Annual Budget following such response from Manager, Owner and Manager shall use good faith efforts to resolve such disagreement prior to the date that is the later of (the “ Budget Finalization Period ”) (x) ninety (90) days after the date of delivery to Owner of the Proposed Annual Budget for such calendar year, or (y) March 31 of the calendar year relating to such Proposed Annual Budget.

(iii) Manager shall implement the Annual Budget and shall not incur expenses with respect to the Facility for any year in excess of the amounts contemplated by the Annual Budget for such year without Owner’s prior written consent. Notwithstanding the foregoing, Manager shall not be deemed to be in default of its obligations under this Section 2(m)(iii) in the event: [(u) Manager pays the Sub-Management Fee in accordance with the Sub-Management Agreement (even if such fee exceeds the amount set forth in the Annual Budget therefor, so long as Manager’s estimate therefor set forth in the Proposed Annual Budget was its good faith estimate of such fee)] (v) Manager

 

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The form of budget will be substantially the same as the Initial Budget but may be more specific in certain respects and will be provided by Manager to Owner prior to closing for review/approval.

 

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incurs any expenditures for taxes and similar charges, utility costs and insurance premiums in respect of the Facility, (w) Manager incurs any expenditures that must be made immediately in order to cure any violation, or to avoid any imminent violation, of Applicable Law that would impose material liability on Owner or Manager, (x) Manager incurs any expenditures that do not cause the aggregate operating expenses or capital expenditures (as applicable) set forth in the Annual Budget to be exceeded by more than 5%, (y) in the event of an occurrence or condition that poses an imminent risk of damage to the Facility or injury to its occupants or employees, Manager incurs any expenditures required in connection therewith to protect the Facility and/or the health and safety of the Facility occupants and employees, and/or (z) Manager incurs any other expenditures specifically required or permitted pursuant to the terms of this Agreement (the foregoing, together with any other expenditures approved by Owner, and any expenditures contemplated by any Annual Budget, “ Permitted Expenditures ”). Any other expenditures, including capital expenditures for repairs, replacements or improvements not contemplated by the Annual Budget (except as contemplated by this subsection (iii)), shall be subject to the prior written approval of Owner; provided, however, Owner shall not be deemed to have unreasonably withheld its approval if (aa) Owner lacks the financial resources to cover the cost of such expenditure or (bb) the cost of any expenditure will exceed $15,000 individually or in the aggregate with other unbudgeted expenditures in the same calendar year.

(iv) In the event an Annual Budget (or portion thereof) has not been agreed upon on or prior to the beginning of a given calendar year, the Annual Budget (or corresponding portion thereof) for the prior calendar year shall serve as the applicable operating plan and budget until the earlier of (x) the date Owner and Manager mutually agree upon the Annual Budget for such calendar year and (y) the expiration of the Budget Finalization Period; provided that if Owner and Manager do not mutually agree upon the Annual Budget (and until such time as they so mutually agree) (1) each line item in such operating budget (or portion thereof) shall be an amount equal to 103% of the corresponding line item amount reflected in the prior calendar year’s Annual Budget, (2) such operating budget shall be further increased to reflect (A) all revenue increases or decreases and variable cost increases or decreases resulting from any increase or decrease in the rate of occupancy at the Facility over the rate of occupancy contemplated in the prior year’s Annual Budget and (B) increased or decreased costs relating to utility expenses, fuel, general real estate taxes, insurance premiums and other items not within the control of the Manager and (C) increased or decreased costs incurred under the terms of any National Contract over which Manager does not have discretion thereunder, and (3) any amounts included in the Annual Budget for the prior calendar year for specific capital improvements shall be disregarded only to the extent such improvements have been completed and paid for. To the extent that Manager and Owner cannot resolve any disputed matters with respect to any Proposed Annual Budget on or prior to the expiration of the Budget Finalization Period, then Owner shall make a final determination regarding such disputed matters and the Annual Budget for such calendar year shall reflect such final decisions.

(n) Occupancy Agreements : Manager shall, on behalf of and solely as agent for Owner (and not in its own capacity), enter into agreements with the residents of the Facility (the “ Resident Agreements ”) and other agreements, if any, for the use or occupancy of space in the Facility (whether by licensees, concessionaires, permissive use arrangement, subtenants, or otherwise) (such other agreements, together with the Resident Agreements, the “ Occupancy Agreements ”) and perform, as and when required thereunder, the duties and responsibilities imposed on Owner under the terms thereof. Manager shall use commercially reasonable efforts to ensure that all Occupancy Agreements entered into after the Effective Date, taken together in the aggregate, contain economic terms which are consistent with the then applicable Annual Budget as contemplated by Section 2(m) . Manager shall prepare the forms of Occupancy Agreement to be used at the Facility and shall obtain the approval of Owner (not to be unreasonably withheld, conditioned or delayed), and (if required under the Facility Loan Documents) the Facility Lender, of such forms, before they are used at the Facility. From time to time Manager may reasonably modify any of the forms of Occupancy Agreement used at the Facility to the extent such

 

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modifications (i) are required by Applicable Law or (ii) are made with respect to a particular Resident, comply with Applicable Law and are on market terms. Manager shall not otherwise amend or modify the previously approved Resident Agreement form(s) without Owner’s approval (not to be unreasonably withheld, conditioned or delayed).

(o) Legal Proceedings : Manager shall, through legal counsel reasonably selected by Manager and, to the extent Owner’s approval is required under this Section 2(o) for the initiation or settlement of the applicable legal matter or proceeding, approved by Owner, coordinate all legal matters and proceedings relating to the Facility, provided Owner shall have the exclusive right to approve (i) if, and only if, Owner holds in its own name regulatory licenses and certifications with respect to the Facility, all settlements of administrative proceedings and litigation related to such licensure or certifications of the Facility, (ii) the initiation by Manager of any claim or lawsuit with respect to the Facility involving an amount equal to or greater than $25,000 (other than any eviction proceeding, which shall not require the prior approval of Owner), and (iii) the settlement of any contract claim or other claim (other than any claim enforcing the obligations of any resident under any Resident Agreement or any claim against the Facility covered by insurance (and for which counsel has been appointed or approved by the insurance company), which shall not require the prior approval of Owner) with respect to any matter relating to the Facility involving an amount equal to or greater than $25,000. Notwithstanding the foregoing, (x) any legal matter or proceeding naming, or involving the assertion of claims against, the Manager which does not involve relief sought by or through Owner and could not reasonably be expected to result in any judgment or lien against, or citation of, the Facility or the Owner or any cost to Owner directly or pursuant to Owner’s indemnity obligation hereunder (whether pursuant to a settlement or otherwise), may, at Manager’s sole option, be controlled solely, and may be settled, by Manager and counsel appointed by Manager in its sole discretion and at Manager’s sole cost, (y) Owner agrees that Manager shall have the right to reasonably approve any legal counsel with respect to any legal matter or proceeding contemplated herein that names or otherwise involves Manager and all strategies, decisions and/or settlements with respect to any such matter or proceeding shall be subject to the prior consent of Manager, which consent may be granted or withheld in Manager’s sole discretion in the case of a matter or proceeding described in clause (x) above and (z) any legal matter, claim, or suit brought by Manager against Owner or by Owner against Manager shall not be subject to the terms of this Section 2(o) .

(p) Licensing : At all times during the Term, Owner will be the named licensee on the permits, licenses and certifications, if any, for the Facility. The parties hereby agree and acknowledge that, during the term of this Agreement, Manager shall maintain in full force and effect the permits, licenses and certifications, if any, required by Applicable Law for the operation of the Facility (and Owner shall assist Manager and cooperate with Manager as reasonably required in connection therewith). In order to ensure Manager’s compliance with its obligations under this Agreement, if Owner intends to enter into any regulatory agreement or order, Owner shall promptly provide Manager with a copy of such agreement or order, and prior to signing any such regulatory agreement or order, Owner shall, to the extent permitted by Applicable Law, provide Manager the right and reasonable opportunity to review, comment on, and, if such agreement or order modifies Manager’s obligations with respect to the Facility, consult with Owner regarding, the same.

(q) Standard of Performance : Manager shall use commercially reasonable efforts to manage the Facility at all times as an independent living senior housing community in compliance with Applicable Laws (in all material respects), Manager’s Standards, this Agreement, the Annual Budget and all material requirements of any and all Applicable Facility Loan Documents, Superior Leases and Title Documents (the “ Performance Standard ”).

 

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(i) With respect to any documents or information relating to the Facility required to be delivered pursuant to any Applicable Facility Loan Document, Superior Lease or Title Document, Manager shall use commercially reasonable efforts to provide the same to Owner in sufficient time for Owner to reasonably review any such documents and information and deliver the same to the party entitled thereto prior to the due date under such Applicable Facility Loan Document, Superior Lease or Title Document. In the event that Manager has reason to believe that any Applicable Law or Facility Loan Document, Superior Lease or Title Document may be violated with respect to the Facility, Manager shall promptly notify Owner.

(ii) Owner understands that Manager or Affiliates of Manager manage and operate other senior housing communities (whether owned or leased or managed by Manager and its Affiliates or third parties) that compete or may potentially compete with the Facility (collectively, “ Competing Facilities ”). Manager agrees that it (i) shall act in an impartial manner with respect to managing, operating, leasing and marketing the Facility and any Competing Facilities (ii) shall avoid a course of conduct giving preferential treatment to any Competing Facilities over the Facility, after taking into account all reasonable and relevant factors and circumstances that relate to the Facility, any Competing Facilities and the residents therein, and (iii) during the Term of this Agreement and for a period of six (6) months after the termination of this Agreement, shall not (and shall cause its Affiliates not to) intentionally solicit or persuade any resident of the Facility or any family member or guardian of any resident of the Facility to become the resident of or move the resident to another facility owned, operated or managed by Manager or any of its Affiliates; provided, however, the foregoing shall not apply to any recommendation of the removal or transfer of a resident if it (x) is in the best interest of the care of the resident or (y) is in response to an unsolicited request by the resident or his/her family or caregiver for a recommendation for alternative facilities or (z) if Manager or its Affiliates engage in such actions in the ordinary course of operating their business consistent with past practice (including, without limitation, the use of mass mailing or broadly distributed media) and such actions do not have, and could not reasonably be expected to have, a material, persistent, or recurring adverse effect on the Facility. The parties acknowledge that the remedies available at law for any breach of this Section 2(q)(ii) will, by their nature, be inadequate. Accordingly, Owner may obtain injunctive or other equitable relief to restrain a breach or threatened breach of this provision or to specifically enforce this provision, without proving that any monetary damages have been sustained. The terms of this Section 2(q)(ii) shall survive the expiration or termination of this Agreement.

(iii) Manager shall not, and shall cause its Affiliates and the Facility Employees and their respective agents not to, violate the FCA in any manner that affects the Facility or the occupants of the Facility. Manager shall provide information to, and consult with, Owner as reasonably requested by Owner from time to time with respect to the internal controls and policies maintained by Manager and its Affiliates in order to ensure compliance with the foregoing covenant, provided that no such provision of information or consultation will relieve Manager of its obligation to comply with such covenant or will impose any obligation or liability on Owner with respect thereto. Manager shall notify Owner promptly upon receiving written notice of any actual or alleged violation of the FCA or any investigation or inquiry in connection therewith.

(r) Limitations : Notwithstanding anything to the contrary contained in this Section 2 or elsewhere in this Agreement, without the prior written consent of Owner, Manager shall not (i) enter into any contract on behalf of the Facility (other than any National Contract) unless the same has a term of less than sixty (60) days or can be terminated upon sixty (60) days’ notice or less without the payment of any termination fee in excess of $2,500, (ii) enter into or renew (or increase the payments with respect to) any contract on behalf of the Facility involving annual payments by Owner (including if the contract could reasonably be expected to result in annual payments to Owner) of more than $15,000, even if the amount contemplated by such contract is set forth in the then applicable Annual Budget, (iii) enter into on behalf of the Facility any contract with any Affiliate of Manager, or (iv) enter into any contract with respect to the Facility that contains any restriction on assignment by Manager or Owner or any change of control of Owner or Manager.

 

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(s) Units : Manager shall be entitled at all times to up to two (2) residential units for its use at the Facility for occupancy by the resident managers of the Facility, provided that Manager shall pay to Owner the monthly rental amount that would be charged to third-party residents (i) for the use of any such unit to the extent such unit is actually occupied by any resident manager of the Facility or (ii) if Manager reserves or directs Owner to reserve such unit for occupancy by any resident manager of the Facility. In addition, Manager shall be entitled from time to time to make available any unoccupied guest units at the Facility for use by participants of the Travel Program so long as Residents of the Facility are permitted to use unoccupied guest units at other facilities managed by Manager pursuant to, and in accordance with, the terms of the Manager’s Travel Program.

(t) Manager’s Obligations Generally : Notwithstanding anything to the contrary contained in this Agreement, Manager shall not be in default of the terms of this Agreement for failure to perform any agreement or obligation required hereunder or otherwise for failure to comply with the terms of this Agreement to the extent (A) Manager is unable to perform in accordance with the terms of this Agreement because the Annual Budget is not sufficient due to factors that are not within Manager’s reasonable control, provided Manager has provided written notice to Owner identifying the insufficiency of the applicable line item, and Owner elects not to adjust the Annual Budget to remedy such insufficiency, or (B) Owner fails to fund any amount required to be funded to the Operating Account (including funds required to pay Permitted Expenditures) in accordance with the terms of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, Manager shall not have any obligation or liability with respect to any non-renewal, withdrawal, suspension, violation or administrative review of Owner’s licenses and/or certifications required for the operation of the Facility to the extent resulting from the actions or inaction of Owner.

(u) SOX Compliance : Manager shall cooperate with Owner, at Owner’s sole cost and expense, as Owner may reasonably request from time to time to enable Owner to comply with all provisions of the Sarbanes-Oxley Act of 2002, and all rules and regulations promulgated thereunder or implementing the provisions thereof applicable to Owner, including, without limitation, taking any actions reasonably requested by Owner from time to time to enable Owner to (i) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (ii) establish and maintain disclosure controls and procedures that are effective in timely alerting Owner’s principal executive officer and its principal financial officer to material information required to be included in Owner’s periodic reports required under the Securities Exchange Act of 1934.

(v) Status; Authority; Binding Effect . Manager represents and warrants that, as of the date hereof, (i) Manager is duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, qualified to conduct business in the State in which the Facility is located, and has all requisite power and authority to manage the Facility and any other managed property, to carry on its business as it is now being conducted, to enter into this Agreement and to observe and perform its terms; (ii) the consummation of the transactions contemplated herein have been duly authorized and approved by all necessary limited liability company action of Manager; and (iii) assuming this Agreement is enforceable against Owner, this Agreement shall constitute the legal, valid, and binding obligation of Manager, enforceable against Manager in accordance with its terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by application of equitable principles).

 

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(w) Notice of Events . If required by the Facility Loan Documents, Manager will, promptly after obtaining written notice or actual knowledge thereof, provide Owner notice of (i) the occurrence of any material injury to any person at the Facility or any condition that could reasonably be expected to result in material injury to any person at the Facility, (ii) the occurrence of any material damage to the Facility or any condition that could reasonably be expected to result in material damage to the Facility, (iii) a material threat of litigation with respect to the Facility, (iv) an investigation by a Governmental Authority of an incident at the Facility or (v) any lapse in insurance coverage required to be maintained pursuant to the terms of this Agreement. Owner has the right to require that notice of any such material threat of litigation be given to any insurance provider. Within forty-eight (48) hours of receipt by Manager of any material written notice from any Governmental Authority including, without limitation, any notice of violation or other material correspondence, surveys, complaint investigation report, licensing renewals or plan of correction, Manager shall provide Owner with a copy of such notice by fax, overnight mail, email or other comparable means of expedited transmission. Within forty-eight (48) hours of receipt by Owner of any material written notice from any Governmental Authority including, without limitation, any notice of violation or other material correspondence, surveys, complaint investigation report, licensing renewals or plan of correction. Owner shall provide Manager with a copy of such notice by fax, overnight mail, email or other comparable means of expedited transmission.

3. Operating Responsibilities and Operating Account :

(a) Operating Costs : Except as otherwise specifically provided to the contrary in this Agreement with respect to certain costs for which Manager is expressly responsible and except for costs for which Manager may be held responsible under the default and/or indemnification provisions of this Agreement, all costs, wages, salaries of Facility Employees and all expenses, fees, obligations and liabilities incident to or arising out of the ownership, leasing or operation of the Facility, including all real estate and personal property taxes and assessments, whether or not specified in this Agreement, and otherwise incurred by Manager in accordance with the terms of this Agreement including, without limitation, all Permitted Expenditures (collectively, the “ Facility Expenses ”), shall be the responsibility of Owner, and shall be paid by Manager as and when due from the funds in the Operating Account as contemplated by Section 3(b) ; provided, however, all real property taxes, all debt service (and all fees, penalties and costs related thereto) and any reserves and/or escrows required by the terms of any Facility Loan Documents shall be paid in a timely manner directly by Owner and Manager shall have no obligation with respect thereto. Notwithstanding the foregoing, in the event the funds available in the Operating Account are insufficient to pay (i) payroll (to the extent Permitted Expenditures), (ii) amounts due under National Contracts when owed (to the extent Permitted Expenditures), (iii) expenditures required to cause compliance with Applicable Law (to the extent Permitted Expenditures) or (iv) expenditures required to protect the Facility and/or the health and safety of the Facility occupants or employees in the event of an imminent threat thereto, Manager shall have the right, but not the obligation, to pay such expenses from its own funds and to seek reimbursement therefor from Owner or from funds in the Operating Account. Facility Expenses shall also include a pro rata portion of any expenses incurred by Manager for the benefit of the Facility which also benefit one or more other facilities operated by Manager or an Affiliate of Manager, provided that the methodology used to allocate expenses to the Facility is reasonable and equitable and approved by Owner. Notwithstanding the foregoing, Manager is specifically responsible for all expenses (w) relating to all corporate offsite personnel and other offsite overhead expenses of Manager and its Affiliates (specifically excluding expenses relating to any employee that are payable by Owner pursuant to any contract, which contract is approved by Owner), (x) of any in-house risk manager, architect, accountant, attorney or professional advisor or consultant employed by Manager or its Affiliate or by Owner, in consultation with Manager, to ensure compliance with the Performance Standard, (y) incurred in the management or operation of properties or communities other than the Facility, and (z) otherwise designated hereunder as an obligation or responsibility of Manager.

 

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(b) Operating Account : Manager shall establish and maintain an operating account in the name, and for the benefit, of Owner with regard to the operation of the Facility and complying with the terms of any Applicable Facility Loan Documents, Superior Leases and Title Documents (the “ Operating Account ”) and a security deposit account (the “ Security Deposit Account ” together with the Operating Account, the “ Accounts ”). At all times during the Term, Owner shall maintain a balance in the Operating Account equal to [$            ] 3 (after payment from the Operating Account of Monthly Debt Payments (as defined below)) (the “ Minimum Balance ”) in the Operating Account. With respect to the Accounts, during the Term, Manager shall have sole control of the Accounts and shall be authorized to deposit funds, check balances, withdraw funds, execute checks, and make disbursements in accordance with the terms of this Agreement. Pursuant to written authorization which shall be given by Manager to the Bank, Owner shall have the right to deposit funds and the right to view-only on-line access to account information (the parties agreeing that, unless Manager is in default beyond all notice and cure periods under this Agreement, Owner shall have no right to withdraw funds, execute checks and/or make or direct any other disbursements whatsoever from the Accounts or to close the Accounts). Such Accounts shall be established with a bank(s) designated by Owner (the “ Bank ”). All funds received from or in connection with the operation of the Facility (other than security deposits, which shall be deposited in the Security Deposit Account) shall be deposited in the Operating Account and, subject to Owner fulfilling its obligations hereunder with respect to funding any Cash Flow Shortfall (as defined below), Manager shall pay when due the payroll obligations for the Facility Employees, taxes and insurance premiums (except to the extent paid from an escrow account pursuant to the Facility Loan Documents), accounts payable incurred in the operation of the Facility, and all other Facility Expenses (provided, in each case, that the same are Permitted Expenditures). Manager shall not be responsible for payment of debt service and/or any fees, penalties and costs related thereto and/or the amounts needed for Owner to fund reserves and/or escrows required by any Facility Loan Documents (collectively, the “ Monthly Debt Payments ”); however, Owner and/or any Facility Lender may arrange (and Manager shall cooperate with Owner and/or such Facility Lender (as applicable) as necessary to arrange) for an automatic withdrawal from the Operating Account of the Monthly Debt Payments. In the event Manager fails to pay when due any amounts due in connection with the operation of the Facility for which sufficient funds were available in the Operating Account, Manager shall be responsible for any fees or penalties resulting from such delinquent payment and shall indemnify Owner with respect to any Claims (as defined in Section 5 ) related thereto. Notwithstanding anything to the contrary contained herein, in the event that operating cash flows of the Facility are, at any time, insufficient to cause the Operating Account to have a balance at least equal to the greater of (x) the amount necessary to pay Facility Expenses constituting Permitted Expenditures from time to time or (y) the Minimum Balance (such amount required to be maintained, the “ Required Balance ”, and such shortfall, a “ Cash Flow Shortfall ”), then Owner shall, within twenty (20) days after receipt of a written request of Manager (such period, the “ Funding Cure Period ”), deposit in the Operating Account funds sufficient to cover such Cash Flow Shortfall. Promptly following delivery by Manager to Owner of the Monthly Reports for any month during the Term, Manager shall disburse to Owner any surplus funds from the Operating Account (the parties agreeing that “ surplus funds ” is the amount, if any, of cash in the Operating Account as of the last day of the month for which the Monthly Reports were delivered minus the Required Balance. The Security Deposit Account shall be used exclusively for depositing resident security deposit funds. Manager shall not deposit any income or proceeds from the Facility in any account other than the Accounts, nor shall Manager co-mingle funds belonging to Manager in the Operating Account.

(c) Authority and Responsibility : Subject to the terms of this Agreement, Manager shall (i) prepare the payroll and prepare and file all payroll tax returns and reports, (ii) prepare and sign checks, (iii) pay all accounts payable as they become due, (iv) prepare and file such cost reports as required to establish reimbursement rates and/or receive payment under all federal or state third party

 

 

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AMOUNT TO BE DISCUSSED

 

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reimbursement programs, and (v) except to the extent real property taxes are escrowed with Facility Lender (in which event Manager’s sole responsibility under this clause (v) will be to forward property tax bills, assessments and other notices received at the Facility to Owner or any person designated by Owner), obtain bills for real estate and personal property taxes, improvement assessments and other like charges that are, or may become, liens against the Facility, recommend to Owner payment thereof or appeal therefrom and, unless otherwise directed by Owner, make payment thereof in a timely manner and promptly provide evidence of payment thereof to Owner (and any service provider designated by Owner). It is specifically agreed that Manager has sole responsibility, power and authority for the preparation, filing and payment out of the Operating Account of all payrolls and payroll taxes of every nature with respect to the Facility Employees.

(d) Collection of Accounts : Manager shall issue bills and collect accounts and monies owed for goods and services performed and furnished at the Facility during the Term, including, but not limited to, subject to the terms of Section 2(o) , enforcing the rights of Owner, Manager and/or the Facility as creditor under any Occupancy Agreement or contract or in connection with the rendering of any services; provided, however, that (i) regardless of any standard of performance set forth in this Agreement, Owner acknowledges and agrees that there can be no assurances that Manager will be able to collect any or all of such accounts receivable and (ii) the accounting, billing and collection policies at the Facility (including with respect to the write-off of any amounts owed) shall be subject to the reasonable approval of Owner.

4. Books and Records : (a) Manager shall maintain records, books and accounts with respect to the management and operation of the Facility that are true and accurate and shall retain those records during the Term and, to the extent a subsequent operator of the Facility elects not to take possession of the same upon termination of the Term, for a period of three (3) years thereafter, or such longer period as required under Applicable Law. Upon the expiration of the Term or termination of this Agreement, Manager will provide all files, books, records and checks to Owner in an electronic or other format reasonably requested by Owner. Notwithstanding anything to the contrary contained herein and for the avoidance of doubt, the Manager shall maintain books and records with respect to the operations of the Facility only and shall not have any obligation to maintain the Owner’s books and records generally.

(b) Subject to the requirements of Applicable Law, during the Term, Owner and its agents, representatives, employees and auditors may, at such reasonable times as Owner may request, inspect, audit and copy (i) the books and records of the Facility that are reasonably requested by such auditor and of the type that would customarily be required for the purpose of the performance of a standard audit for an owner of senior living facilities and (ii) any other books, records or materials pertaining exclusively to the Facility. If an audit by Owner discloses any sum due Owner by Manager or any overpayment to Manager, Manager will promptly reimburse Owner for any amounts due. If the audit discloses any sum due to Manager by Owner, Owner shall promptly reimburse Manager for any amounts due. If the audit discloses any sum due Owner or any overpayment to Manager of more than five percent (5%) of the aggregate amounts to which Owner is entitled hereunder, Manager will be solely responsible for the reasonable cost of the audit. Otherwise, the audit will be at Owner’s sole expense.

5. Indemnification :

(a) In addition to indemnity obligations set forth elsewhere in this Agreement, subject to Section 5(c) , Owner shall reimburse, indemnify, defend and hold harmless Manager and its Affiliates and their respective direct and indirect owners, partners, members, directors, officers, employees, agents and advisors for, from and against any and all Claims sustained or incurred by or asserted against any one or more of them caused by (i) the gross negligence, willful misconduct, fraud or illegal acts of Owner or its Affiliates and their respective agents (other than Manager) and employees, (ii)

 

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Manager’s performance of its duties and obligations within the scope of its authority pursuant to the terms of this Agreement, and/or (iii) any breach by Owner of any provision of this Agreement, including, without limitation, any failure of Owner to timely fund to the Operating Account amounts necessary to pay, or to reimburse Manager for, Permitted Expenditures, in each case except to the extent such Claims are Manager Liability Claims. As used in this Agreement, “ Claims ” means any claims, demands, causes of action, losses, damages, fines, penalties, liabilities, costs and expenses, including reasonable attorneys’ fees and court costs, but, in each case, excluding any consequential, punitive, indirect or special damages.

(b) Subject to Section 5(c) , Manager shall reimburse, indemnify, defend and hold harmless Owner and its Affiliates and their respective direct and indirect owners, partners, members, directors, officers, employees, agents and advisors for, from and against any and all Claims sustained or incurred by or asserted against any one or more of them caused by (i) the gross negligence, willful misconduct, fraud or illegal acts of Manager or its Affiliates and their respective agents and employees (but excluding any Facility Employee absent gross negligence in the hiring or supervising of such Facility Employee), (ii) any actual or alleged violation of the FCA, or any actual or alleged illegal conduct with respect to benefits or deferrals of rent for veterans or their family members, in each case on the part of or caused by Manager, any of its Affiliates or any Facility Employees or their respective agents, (iii) any claim that Manager’s use of intellectual property infringes the rights of a third party (collectively, “ Manager Liability Claims ”), and/or (iv) any breach by Manager of any provisions of this Agreement (but excluding breaches caused by any Facility Employee absent gross negligence in the hiring or supervising of such Facility Employee).

(c) The parties hereto agree and acknowledge that the indemnification rights and obligations herein do not, and will not, diminish any other rights and remedies available hereunder in the event of a default by any party hereunder or derogate from the final sentence of Section 3(a) .

6. Insurance :

(a) Required Insurance : Unless Owner and Manager agree otherwise for Owner to maintain such insurance, Manager shall at all times during the Term maintain, or cause to be maintained, with insurance companies reasonably acceptable to Owner, the insurance listed on Schedule 6 (the “ Required Insurance ”); provided, however, that Owner shall have the right to elect (by written notice to Manager) to obtain the insurance coverage specified in clauses (a)(1) – (a)(8) of Schedule 6 to the extent Owner is able to obtain such insurance at a lower cost than Manager. Except as otherwise provided in clause (d) of Schedule 6, the cost of the Required Insurance, including any applicable deductibles or self-insured retention amounts, shall be Owner’s expense and paid by Manager to the extent funds are available in the Operating Account. As long as Sub-Manager maintains insurance coverage for the Facility under any program of insurance that also covers other properties owned or operated by Sub-Manager or any of its Affiliates (all properties covered by such program, the “ Insurance Pool Properties ”), except as otherwise provided in this Agreement, with respect to the insurance coverage specified in clauses (a)(9), (a)(10), (a)(12) and (a)(14) of Schedule 6 Manager shall cause Sub-Manager to allocate the insurance premiums, fixed costs, third-party administrator charges, surcharges, taxes, fees and expected losses for any self-insured retention to Owner according to its usual and customary allocation methodology applicable to other Insurance Pool Properties (and Owner shall have the right to review and reasonably approve the allocation methodology and calculations and to receive copies of actuarial reports in connection therewith).

(b) Certain Requirements :

(i) All Required Insurance shall name Manager and Owner and their respective members and principals as insureds and shall protect their interests as they may appear. In addition, the Facility Lender shall be named as mortgagee, loss payee and an additional insured party, as applicable.

 

15


(ii) Each policy of Required Insurance shall have attached thereto an endorsement that such policy shall not be canceled (except for non-payment of premium) or materially changed without at least thirty (30) days’ prior written notice to Owner and Manager and that such policy shall not be cancelled for non-payment of premium without at least ten (10) days’ prior written notice to Owner and Manager.

(iii) Policies must be written on a per occurrence basis except for earthquake, general and professional liability coverage, and any excess liability coverage.

(iv) Coverage must be issued by an insurance carrier with an A.M. Best general policyholder’s rating of “A” or better and a performance index rating of “X” or higher and a rating of “A-” by S&P or Moody’s or Fitch rating agencies.

(v) All policies and renewals of Required Insurance are to be written for not less than one year.

(vi) All existing or new policies of Required Insurance must be paid in full and cannot be financed; provided, that policies may be paid in installments or within the time limits specified in the particular insurance policy.

(vii) All policies of Required Insurance shall be primary and non-contributory and provide that any insurance maintained by Owner or its Affiliates is excess of the Required Insurance.

(viii) All policies of Required Insurance shall include a waiver of subrogation rights, and all rights of recovery, that is in favor and for the benefit of Owner, the Facility Lender and their respective Affiliates, shareholders, directors, officers, employees and agents.

(c) Tail Insurance : With respect to the liability policies of Required Insurance, Manager may obtain and maintain liability insurance on a claims-made basis; provided, however, that (i) the retroactive date must be or precede the Effective Date, (ii) upon the expiration or termination of this Agreement, Manager shall keep in force equivalent liability insurance required under this Agreement for, or shall acquire or purchase an extended reporting period or “tail insurance” on the policy existing as of the date of expiration or termination of this Agreement that has a term of, at least three (3) years after the expiration or termination of this Agreement, (iii) if the retroactive date is advanced or the policy is cancelled or not renewed and not replaced with a policy with the same retroactive date, Manager shall acquire or purchase an extended reporting period for such cancelled or non-renewed policy of not less than three (3) years following the date such policy was cancelled or not renewed, and (iv) the obligations referenced in clauses (ii) and (iii) of this Section 6(c) shall survive the expiration or termination of this Agreement. The cost of all tail coverage required herein and all losses within any retention of such tail insurance shall be at Owner’s expense.

(d) Collateral : If Manager’s insurance carrier for the insurance coverage specified in clause (a)(14) of Schedule 6 requires Manager to post cash or letters of credit or other security for its obligation to pay claims within the deductible, then Owner shall be required to provide its allocable share of such collateral in the same form of such security for the period commencing on the Effective Date. The parties acknowledge and agree that any cash or other security posted by Owner will remain the property of Owner and will be returned to Owner upon withdrawal of the Facility from such insurance program in accordance with Section 6(e) below. Manager further agrees that it will use commercially

 

16


reasonable efforts to ensure that all cash posted by Owner is held in an interest bearing account (to the extent allowable by the respective insurer) and, to the extent that Owner’s cash is in such an account and the respective insurer permits periodic distributions of interest from such account, Manager will pass along to Owner its allocable share of any such distributed interest earnings on a periodic basis.

From time to time after the Effective Date but no less frequently than once per annum (including promptly following the date of the termination of this Agreement or concurrently with the periodic collateral review-and-release process or policy renewal process of the applicable insurance carrier), Manager shall review and evaluate the collateral needs associated with its workers compensation programs and will determine Owner’s allocable share of such collateral. Such allocation will be made by Manager reasonably and in good faith, and Owner shall have the right to review and reasonably approve the allocation methodology and calculations. The Facility’s pro rata share of the collateral requirement will be based upon the Facility’s share of ultimate aggregate losses for the periods during which it has participated or expects to participate in the shared loss program as a percentage of the ultimate aggregate losses for all facilities covered by the insurance policies requiring the collateral. Owner agrees promptly to post with Manager any additional cash or letter of credit that is determined to be owed by Owner in connection with any such review (including as required by the annual renewal of the policy). Manager agrees promptly to refund to Owner any cash and/or reduce the amount of the associated letter of credit previously posted by Owner in excess of the amount that is determined to be owed by Owner in connection with any such review, as appropriate in light of the collateral review.

(e) Withdrawal : Upon the termination of this Agreement or the withdrawal of the Facility from Manager’s shared loss workers compensation program, Owner will be entitled to the refund of any cash it has deposited and/or the release of any letter of credit which it has posted conditioned upon Owner: (i) making a payment to Manager representing its allocable share of estimated future claims incurred as of the withdrawal date under such program (including fully developed incurred by not reported claims as estimated by an actuarial firm engaged by Manager), and (ii) making a payment equal to third-party administrator charges associated with its future liabilities for claims under such program (in the amount of the then-current standard third-party administrator charges). Upon the termination of this Agreement or the withdrawal of the Facility from Manager’s shared loss general liability and professional liability programs, Owner shall (i) make a payment to Manager representing its allocable share of estimated future claims incurred as of the withdrawal date under such programs (including fully developed incurred by not reported claims as estimated by an actuarial firm engaged by Manager), and (ii) make a payment equal to its allocable share of Manager’s internal costs for the administration of claims for which Owner has future liabilities under such programs.

 

7. Payment/Fees 4 :

(a) Calculation of Fee : As consideration for the services rendered by Manager in accordance with this Agreement, Owner shall pay to Manager during the Term a monthly fee equal to 5.0% of the monthly Effective Gross Income (as defined below) of the Facility, determined on an accrual basis (the “ Monthly Fee ”). As additional consideration for the services rendered by Manager in accordance with this Agreement and the Other Management Agreements, Owner and its Affiliates that are party to the Other Management Agreements shall pay to Manager during the Term, with respect to each calendar year, an annual incentive fee, if any, equal to 20% of the EBITDARM for such calendar year that is in excess of the Base Fee Amount (as hereinafter defined), determined on an accrual basis (the “ Annual Incentive Fee ,” collectively, the Monthly Fee and the Annual Incentive Fee are referred to as the “ Fee ”); provided that the Annual Incentive Fee (which is payable, for avoidance of doubt, under this Agreement and the Other Management Agreements collectively) for any calendar year shall not exceed

 

 

4  

Subject to modification based on tax structure.

 

17


the sum of (i) 2.0% of the Effective Gross Income for such calendar year and (ii) 2.0% of the Effective Gross Income (as defined in each of the Other Management Agreements) for all of the facilities managed under the Other Management Agreements in the aggregate for such calendar year. “ Base Fee Amount ” shall mean, with respect to each calendar year during the Initial Term, the total amount set forth for such year on Schedule 7(a) attached hereto (as increased each subsequent calendar year by 2.5%); provided that, if this Agreement or any of the Other Management Agreements is terminated (but this Agreement and the Other Management Agreements are not all terminated) during any calendar year in the Initial Term (other than on account of a default by Manager), then the Base Fee Amount for such calendar year and the balance of the calendar years during the Initial Term shall be reduced by the amount set forth opposite the applicable facility for the applicable year on Schedule 7(a) (multiplied, in the case of the year in which such termination occurs, by a fraction whose numerator is the number of days in such year following the date of such termination and whose denominator is 365). The Monthly Fee shall accrue monthly and be paid on the fifth (5 th ) business day of the immediately succeeding calendar month. Promptly following the end of each calendar year, Manager shall deliver to Owner a reconciliation that includes the Annual Financial Statement, together with a statement setting forth the calculation of the Monthly Fee (for all twelve (12) months, in the aggregate) for such year, and, in the event of any overpayment or underpayment with respect to any month in such calendar year, Manager and Owner shall promptly make a payment to the other in the amount of the excess or shortfall, as applicable. Payment of the Annual Incentive Fee shall be due within ten (10) business days of demand therefor after submission by Manager to Owner and its Affiliates that are party to the Other Management Agreements of the Annual Financial Statement, together with a statement setting forth the calculation of the Annual Incentive Fee for such year. “ Facility EBITDARM ” shall mean, for the period of determination, Effective Gross Income less operating expenses for the Facility (before Fees) for such period. “ EBITDARM ” shall mean, for the period of determination, the sum of (x) the Facility EBITDARM hereunder for such period and (y) the Facility EBITDARM (as defined in each of the Other Management Agreements) for all of the facilities managed under the Other Management Agreements in the aggregate for such period. In addition to other operating expenses, for clarity, (A) the following are expressly included among operating expenses: (1) insurance costs and expenses pertaining to the Facility, (2) real and personal property taxes or related governmental charges payable by or assessed against [Sub-]Manager, Owner, or the Facility relating exclusively to the Facility (other than income or other taxes based on [Sub-]Manager’s or Owner’s receipt of income from the operation of the Facility), (3) any and all payments under personal property leases used in the operation of the Facility (but excluding payments relating to any real property lease(s)), (4) all fees paid by Owner to Manager pursuant to this Agreement or paid pursuant to any Sub-Management Agreement, and (5) all legal and accounting costs related to the Facility, and (B) the following are expressly excluded among operating expenses: (1) franchise taxes, (2) sales taxes, and (3) use taxes.

(b) Effective Gross Income : “ Effective Gross Income ” means all revenues during such period from the operation of the Facility, from whatever source, determined in accordance with GAAP (including without limitation, income from residents, space rentals, service fee income and beverage income, income from vending machines, assisted living income, guest fees, and any other income generated from the operation of the Facility, but excluding , insurance proceeds (except for business interruption insurance proceeds), condemnation awards, security deposits (unless forfeited) and loan proceeds and advances, and interest on investments).

(c) Pro-Rata Fee Payment : If the services of Manager commence or terminate other than on the first day of the month, the Monthly Fee shall be pro-rated proportionate to the number of days in the month for which services are actually rendered. With respect to the calendar year in which this Agreement commences, expires or terminates, Manager will be paid the Annual Incentive Fee, if any, calculated in accordance with Section 7(a) , except that the EBITDARM for the full calendar months after the Effective Date or prior to the expiration or termination of this Agreement, as applicable, shall be annualized and the Annual Incentive Fee shall be pro-rated proportionate to the number of days in the calendar year included in the Term.

 

18


(d) Source of Payment : Any Monthly Fee due to Manager hereunder and a portion of the Annual Incentive Fee due to Manager under this Agreement and the Other Management Agreements for any year (which portion is equal to (i) the total amount of the Annual Incentive Fee for such year multiplied by (ii) a fraction whose numerator is the Facility EBITDARM for such year and whose denominator is the EBITDARM for such year) may be disbursed by Manager to itself out of the Operating Account. To the extent the Operating Account has insufficient funds to cover any such disbursement, or to reimburse Manager for any Facility Expenses paid from its own funds as contemplated by Section 3(a) , then Owner shall be obligated to pay any such amounts to Manager promptly upon demand. [Any amounts disbursed by Sub-Manager to itself out of the Operating Account, or paid directly by Owner to Sub-Manager, on account of the Sub-Management Fee in accordance with the Sub-Management Agreement shall be credited against the Fee payable to Manager hereunder.]

(e) Casualty : If the Facility is damaged as the result of a casualty and such damage results in the temporary or permanent closure of the Facility, or any portion thereof resulting in a Disruption Condition, thereby interrupting the Effective Gross Income upon which Manager’s payment of the Fee is based, Owner shall pay to Manager as the Fee for any period of such interruption during which Manager is continuing to operate the Facility monthly amounts equal to the greater of (i) the Monthly Fee due to Manager pursuant to Section 7(a) hereof, or (ii) 50% of the average monthly Fee (including the Monthly Fee and Annual Incentive Fee) earned by Manager pursuant to this Section 7 for the twelve (12) months immediately preceding the interruption. Owner hereby directs Manager to maintain business interruption insurance during the Term in accordance with the terms of Section 6 , and any cost incurred in connection therewith shall be funded into the Operating Account, as necessary in accordance with Section 3(b) , by Owner.

8. Term : The Term of this Agreement shall commence on the Effective Date and, unless earlier terminated in accordance with the provisions hereof, shall expire on the fifth (5 th ) anniversary of the Effective Date (the “ Initial Term ”), provided the Initial Term shall be extended continuously and automatically for one (1) year periods (each, an “ Extended Period ” and together with the Initial Term, the “ Term ”) unless either Owner or Manager delivers to the other a written notice of termination of this Agreement not less than ninety (90) days prior to commencement of the next Extended Period.

9. Remedies/Termination : Any party shall be deemed to be in “ Default ” hereunder if such party breaches, in any material respect, this Agreement and (i) with respect to any monetary default, fails to cure the same within five (5) days of written notice from the non-breaching party of the default or (ii) with respect to any other default, fails to cure the same within thirty (30) days of written notice from the non-breaching party of the default, provided if such default contemplated by clause (ii) cannot be cured with the use of reasonable and diligent efforts within such 30-day period, such breaching party shall have such additional cure period (not to exceed ninety (90) days during the first year of the Term and sixty (60) days thereafter) as is reasonable to cure so long as such party continuously and diligently pursues such cure. In the event of any Default by any party hereunder, the other party shall have any and all rights and remedies available at law and in equity, which rights and remedies shall survive the expiration and/or termination of this Agreement, provided that, subject to Section 9(c) , each party’s right to terminate this Agreement shall be limited to the provisions of this Section 9 . This Agreement may be terminated (x) by mutual agreement of Manager and Owner, and (y) upon the written notice of the party terminating this Agreement to the other party, after the occurrence of any of the events described in Section 9(a) or Section 9(b) , as applicable.

 

19


(a) Termination by Owner :

(i) Default : Owner may terminate this Agreement upon the occurrence of a Default (beyond the notice and cure periods contemplated by the first paragraph of Section 9) by Manager by delivery of written notice to Manager, provided that no such termination notice shall be effective if the Default is cured prior to the receipt by Manager of the termination notice.

(ii) Bankruptcy or Dissolution and Certain Other Events : Owner may terminate this Agreement upon the occurrence of any Bankruptcy/Dissolution Event with respect to Manager. For purposes of this clause (ii), a “ Bankruptcy/Dissolution Event with respect to Manager ” shall mean the commencement or occurrence of any of the following: Manager shall apply for or consent to the appointment of a receiver, trustee, or liquidator of all or a substantial part of Manager’s assets, file a voluntary petition in bankruptcy, make a general assignment for the benefit of creditors, file a petition or any answer seeking reorganization or arrangement with creditors, or take advantage of any insolvency law, or if any order, judgment, or decree shall be entered by any court of competent jurisdiction on the application of a creditor adjudicating Manager as bankrupt or insolvent or approving a petition seeking reorganization of Manager, or appointing a receiver, trustee, or liquidator with respect to all or a substantial part of Manager’s assets, and such order, judgment, or decree shall continue for any period of ninety (90) consecutive days. In addition, Owner may terminate this Agreement upon the occurrence of any of the following: (1) any fraud, gross negligence or willful misconduct of Manager (not including any fraud, gross negligence or willful misconduct of any Facility Employee absent gross negligence in the hiring or supervising of such Facility Employees) affecting Owner or the Facility or (2) the conviction of any of Manager’s employees or agents providing services at the Facility of any crime at or with respect to the Facility unless Manager, subject to the requirements of Applicable Law and any employment contract, terminates such employee or agent or takes such other reasonable action such that such employee or agent is no longer providing services at or with respect to the Facility.

(iii) Casualty or Condemnation : Owner may terminate this Agreement in the event Owner (x) temporarily or permanently closes the Facility on account of damage to or destruction of, or a taking by (or sale under threat of) eminent domain of, all or substantially all of the Facility or (y) is required under the Facility Loan Documents to restrict access to the Facility on account of damage to or destruction of, or a taking by (or sale under threat of) eminent domain of, all or any portion of the Facility.

(iv) Termination Without Cause : Owner may exercise the right to terminate this Agreement for any or no reason by delivery of prior written notice to Manager, which notice shall become effective on the date identified in such notice, but such notice shall not become effective less than ninety (90) days following delivery of such notice to Manager and shall in no event become effective prior to [            ] 5 , or, if Owner is exercising such termination right to protect the REIT status of any direct or indirect owners of Owner, such notice shall not become effective less than ten (10) days following delivery of such notice).

(v) Termination for Performance . At any time after the first (1st) anniversary of the Effective Date, Owner may terminate this Agreement upon thirty (30) days’ prior written notice to Manager if the EBITDARM for any calendar year following such first (1st) anniversary is less than eighty percent (80%) of the lesser of (a) the EBITDARM as set forth in the applicable annual budgets for such calendar year and (b) the EBITDARM during the twelve (12) calendar months of the prior calendar year.

 

 

5   Insert first anniversary of Effective Date.

 

20


(vi) Default/Termination Under Facility Loan Documents . Subject to the terms of any agreement contemplated by Section 10 hereof, this Agreement shall terminate if any Facility Lender exercises its right to terminate this Agreement following a default under the Facility Loan Documents; provided, however, that Owner shall be obligated to pay to Manager Manager’s reasonable and documented out-of-pocket costs and expenses resulting from such termination (up to $             6 ) if this Agreement is terminated pursuant to the terms of this subsection (vi) and such termination results from the fault of Owner and/or any Affiliate of Owner (as opposed to the fault of Manager, a Manager default hereunder, a condition caused by Manager or some other reason not caused by Owner and/or any Affiliate of Owner).

(vii) Change of Control/Transfer of Interests . In the event there occurs a sale, transfer or other disposition, in one or more transactions, that results directly or indirectly, in a change in control of Manager, unless Owner approves, Owner may terminate this Agreement at any time within one year from the date of the consummation of any such transaction by delivering thirty (30) days’ prior written notice to Manager.

(viii) Termination of Other Agreements . Owner may terminate this Agreement, upon ten (10) days’ prior written notice, in the event any other management agreement between Owner (or any entity owned directly or indirectly by New Senior Investment Group Inc. and/or its successors and assigns) (each, and “ Owner Party ”) and Manager (or any entity owned directly or indirectly by Holdiay AL Holdings LP and/or its successors and assigns) is terminated by any Owner Party; provided, however, that Owner shall be obligated to pay to Manager Manager’s reasonable and documented out-of-pocket costs and expenses resulting from such termination (up to $            ) in connection with a termination of this Agreement pursuant to this subsection (viii).

(b) Termination by Manager :

(i) Default : Manager may terminate this Agreement upon the occurrence of a Default (beyond the notice and cure periods contemplated by the first paragraph of Section 9) by Owner by delivery of written notice to Owner, provided that no such termination notice shall be effective if the Default is cured prior to the receipt by Owner of the termination notice, provided Owner shall pay to Manager Manager’s actual, out-of-pocket costs and expenses resulting from such termination (up to [            ]) within ten (10) days of the effective date of such termination.

(ii) Bankruptcy or Dissolution : Manager may terminate this Agreement upon the occurrence of any Bankruptcy/ Dissolution Event with respect to Owner. For purposes of this clause (ii), a “ Bankruptcy/Dissolution Event with respect to Owner ” shall mean the commencement or occurrence of any of the following: If Owner shall apply for or consent to the appointment of a receiver, trustee, or liquidator of all or a substantial part of Owner’s assets, file a voluntary petition in bankruptcy, make a general assignment for the benefit of creditors, file a petition or any answer seeking reorganization or arrangement with creditors, or take advantage of any insolvency law, or if an order, judgment, or decree shall be entered by a court of competent jurisdiction on the application of a creditor adjudicating Owner as bankrupt or appointment a receiver, trustee, or liquidator of Owner with respect to all or a substantial part of Owner’s assets, and such order, judgment or decree shall continue in effect for any period of ninety (90) consecutive days.

(iii) Casualty or Condemnation : Manager may terminate this Agreement in the event Owner temporarily or permanently closes the Facility on account of damage to or destruction of, or a taking by (or sale under threat of) eminent domain of, all or a substantially all of the Facility.

 

 

6   AMOUNT TO BE DISCUSSED

 

21


(iv) Insufficient Funds : Manager may terminate this Agreement if the Facility is not generating sufficient revenue to pay the costs and expenses of the Facility that are Permitted Expenditures, there are insufficient funds in the Operating Account, and Owner has failed, within five (5) days of receipt of notice from Manager of the expiration of the applicable Funding Cure Period, to deposit sufficient funds in the Operating Account to pay all such costs and expenses, provided Owner shall pay to Manager Manager’s actual, out-of-pocket costs and expenses resulting from such termination (up to [            ]) within ten (10) days of the effective date of such termination.

(v) Termination Without Cause : Manager may exercise the right to terminate this Agreement for any or no reason by delivery of prior written notice to Owner, which notice shall become effective on the date identified in such notice (but such notice shall not become effective less than ninety (90) days following delivery of such notice to Manager and shall in no event become effective prior to [            ] 7 ).

(vi) Budget : Manager may terminate this Agreement at any time on five (5) business days’ written notice to Owner if Manager has a reasonable basis to believe that any or all of the amounts set forth in any Annual Budget are not sufficient to allow Manager to operate the Facility for the applicable calendar year in compliance with the terms of this Agreement, unless Owner adopts the operating budget then proposed by Manager for such year within such five (5) business day period.

(vii) Sale or Transfer/Change of Control . In the event Owner sells, assigns, or otherwise disposes of its interest in the Facility to an unaffiliated buyer or transferee (or there occurs a sale, transfer or other disposition, in one or more transactions, that results, directly or indirectly, in a change of control of Owner), Manager may terminate this Agreement at any time within one (1) year from the date of the consummation of such transaction by delivering thirty (30) days’ prior written notice to Owner.

(c) Effect of Termination : Termination of this Agreement, or expiration of the Term, shall terminate all rights and obligations of the parties hereunder, except for any provision of this Agreement which is expressly described as surviving any expiration or termination of this Agreement. Such termination or expiration, however, shall not terminate the rights and obligations of the parties (including any compensation due to Manager under this Agreement) which accrued prior to the effective date of termination or expiration nor shall it prejudice the rights of either party against the other for any Default under this Agreement. The terms of this Section 9(c) shall survive the expiration or termination of this Agreement.

(d) Final Accounting : Upon the expiration of the Term or any other termination of this Agreement as herein provided, Manager shall (i) deliver to Owner a final accounting within sixty (60) days of such expiration or termination; (ii) surrender and deliver to Owner possession of the Facility on the effective date of such termination or expiration; (iii) surrender and deliver to Owner possession and control of the Operating Account, and all rents and income of the Facility and other monies of Owner on hand and in any bank account as soon as reasonably practicable (but not later than the effective date of such termination or expiration); (iv) deliver to Owner, as received, any monies due Owner under this Agreement but received after such termination or expiration as soon as reasonably practicable (but not later than ten (10) business days after receipt); (v) deliver to Owner all materials and supplies, keys, contracts and documents, and all accounting papers and records, pertaining exclusively to the Facility as soon as reasonably practicable (but not later than the effective date of such termination or expiration); (vi) subject to Section 2(f), assign contract rights with respect to the Facility to Owner or its designee as soon as reasonably practicable (but no later than the effective date of such termination or expiration); and

 

 

7  

Insert first anniversary of Effective Date.

 

22


(vii) deliver to Owner, or Owner’s duly appointed agent, all other books and records, contracts, leases, resident’s agreements, receipts for deposits and unpaid bills relating exclusively to the Facility as soon as reasonably practicable (but no later than the effective date of such termination or expiration) which shall include access to all data files (either through the cloud or Manager’s servers). The terms of this Section 9(d) shall survive the expiration or termination of this Agreement.

(e) Cooperation After Term :

(i) In the event this Agreement is terminated or expires, Manager shall reasonably cooperate with Owner in good faith to ensure that operational responsibility for the Facility is transferred to Owner or such other entity as may be designated by Owner as soon as practicable. Without limiting the generality of the foregoing, Manager shall (i) take all actions reasonably necessary to ensure that, from and after the expiration or earlier termination of this Agreement, Owner or its designee shall directly receive all funds and monies due Owner and (ii) do all acts and execute and deliver all documents reasonably requested by Owner (at Owner’s cost and expense, unless this Agreement is terminated pursuant to Section 9(a)(i) or 9(a)(ii) ) to ensure or facilitate an orderly continuation of the business of the Facility and an orderly transfer of the management and operation of the Facility to Owner or any entity designated by Owner.

(ii) At least fifteen (15) business days prior to the effective date of expiration or termination of this Agreement or if the parties do not have at least thirty (30) days’ prior notice of such expiration or termination, ten (10) business days after Owner receives a notice of termination of this Agreement from Manager or any Facility Lender, Owner or its designee may, with respect to each then current Facility Employee (whether directly employed by Manager or an Affiliate of Manager), either (x) offer such employee employment with Owner or its designee, effective as of the expiration or termination date, or (y) inform Manager that Owner does not intend to offer employment to such Facility Employee, in which case, Manager (or Manager’s Affiliate, as applicable) may, at its sole option, continue to employ such Facility Employee or terminate such Facility Employee’s employment. For those Facility Employees hired by Owner or its designee upon expiration or termination of this Agreement, Owner (or such designee) will credit such employees with all vacation, paid time off, or other leave benefits that such employees had earned and accrued but not yet used while employed by Manager (or its Affiliate) and Manager shall pay Owner (or Owner’s designee) a cash amount for such amount as of the date of expiration or termination of this Agreement. Manager agrees not to solicit or otherwise interfere with Owner’s efforts to so employ any Facility Employee to whom Owner elects to offer such employment.

(iii) Notwithstanding anything in this Agreement to the contrary, from and after any expiration or termination of this Agreement, upon Owner’s request, Manager shall continue to provide the management services provided by Manager hereunder on the terms and conditions contained herein for such period of time (not to exceed ninety (90) days) after the expiration or termination as may be required for Owner (acting with reasonable diligence) to engage a new manager or operator and to insure or facilitate an orderly continuation of the business of the Facility and to accomplish an orderly transfer of the operation and management of the Facility to Owner or a new manager or operator.

(iv) The terms of this subsection (e) shall survive the expiration or termination of this Agreement.

10. Subordination of Management Agreement :

(a) Manager agrees to execute upon request, in favor of any Facility Lender, a consent to collateral assignment of management agreement or any similar agreement required by such Facility Lender in connection with the Facility Loan Documents, in each case, in form reasonably acceptable to Manager and the applicable counterparty, which agreement shall include, without limitation, customary subordination provisions and representations and covenants by Manager, and to comply with any agreement executed by Manager in favor of any Facility Lender.

 

23


(b) Manager acknowledges that Owner is authorized (and is entitled to authorize any Facility Lender) to file any financing statements, continuation statements, termination statements and amendments (including an “all assets” or “all personal property” collateral description or words of similar import) with respect to Owner’s assets in form and substance as any Facility Lender may require in order to protect and preserve such Facility Lender’s lien priority and security interest in the Facility and Owner’s assets (and to the extent any Facility Lender has filed any such financing statements, continuation statements or amendments prior to the Effective Date, such filings by the Facility Lender are expressly permitted hereunder).

(c) Lender shall have the right to terminate this Agreement at any time upon the occurrence and during the continuance of an “Event of Default” under the Facility Loan Documents.

11. Branding/Proprietary Materials : Manager shall have the right, at its sole election, to use its own branding, trade names and trademarks in connection with the management and operation of the Facility, including, without limitation, displaying the same on signage, marketing and promotional materials, or internal or external business documents being used in connection with the operation of the Facility during the term of this Agreement. Owner acknowledges and agrees that, at such time as this Agreement expires or is terminated, Owner shall have no right to continue to use such branding, trade names and/or trademarks in connection with the operation of the Facility and all of the same will be removed and destroyed by Owner promptly after the effective date of the termination or expiration of this Agreement (and Manager’s replacement with a successor manager or operator of the Facility), unless Manager elects (and at its sole cost and expense) to make other arrangements to remove and retain the same. In addition, all separate forms and operating procedures developed and employed by Manager in the performance of its duties and obligations pursuant to this Agreement are proprietary in nature and shall remain the property of Manager, provided that to the extent such forms are in use at the Facility as of the termination or expiration of this Agreement, Manager hereby grants Owner and its designee a license to continue to use and modify such forms (excluding any of Manager’s branding, trade names and/or trademarks contained therein) exclusively in the operation of the Facility, provided any derivative works shall remain the property of Manager. The terms of this Section 11 shall survive the expiration or termination of this Agreement.

12. Status; Authority; Binding Effect :

(a) Owner represents and warrants to Manager that, as of the Effective Date, (i) Owner is duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, qualified to conduct business in the State in which the Facility is located, and has all requisite power and authority to own and operate the Facility and any other property owned or operated by it, to carry on its business as it is now being conducted, to enter into this Agreement and to observe and perform its terms; (ii) the consummation of the transactions contemplated herein have been duly authorized and approved by all necessary [            ] action of Owner; (iii) the execution, delivery and performance by Owner of this Agreement will not (A) require the consent of, notice to or other action by any Person under, conflict with, result in a violation or breach of, constitute a default under or result in the acceleration of any obligation pursuant to, any provision of any instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Owner is a party or by which Owner’s property is bound or (B) violate, in any material respect, any applicable law relating to Owner or its property; and (iv) assuming this Agreement is enforceable against Manager, this Agreement shall constitute the legal, valid, and binding obligation of Owner, enforceable against Owner

 

24


in accordance with its terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by application of equitable principles).

(b) Manager represents and warrants to Owner that, as of the Effective Date, (i) Manager is duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, qualified to conduct business in the State in which the Facility is located, and has all requisite power and authority to manage, operate and lease the Facility in accordance with the terms of this Agreement, to carry on its business as it is now being conducted, to enter into this Agreement and to observe and perform its terms; (ii) the consummation of the transactions contemplated herein have been duly authorized and approved by all necessary limited liability company action of Manager; (iii) the execution, delivery and performance by Manager of this Agreement will not (A) require the consent of, notice to or other action by any Person under, conflict with, result in a violation or breach of, constitute a default under or result in the acceleration of any obligation pursuant to, any provision of any instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Manager is a party or by which Manager’s property is bound or (B) violate, in any material respect, any applicable law relating to Manager or its property; and (iv) assuming this Agreement is enforceable against Owner, this Agreement shall constitute the legal, valid, and binding obligation of Manager, enforceable against Manager in accordance with its terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by application of equitable principles).

13. Assignment : This Agreement may not be assigned or transferred by either of Manager or Owner to any Person without the prior written consent of the other party hereto, except as follows:

(a) Manager may assign or transfer this Agreement and its rights and obligations hereunder to an Affiliate of Manager upon prior written notice to Owner (provided Manager shall remain jointly and severally liable with such assignee or transferee);

(b) in connection with (and as a condition to) the sale, assignment, transfer or other disposition of the Facility by Owner, Owner shall assign this Agreement to any transferee and such transferee shall assume the obligations of Owner hereunder (and, upon such assignment, Owner shall be fully released from any liability accruing under this Agreement from and after such assignment);

(c) subject to the terms of Section 10 hereof, Owner may, upon notice to but without the need to secure the consent of Manager, assign this Agreement as collateral security for any debt secured by the Facility; and

(d) Owner may assign this Agreement to an Affiliate as set forth in, and in accordance with, Section 30 hereof.

[Notwithstanding the foregoing, Manager shall have the right to delegate its duties hereunder, and the authority granted hereunder to Manager to perform such duties, pursuant to the terms of that certain Sub-Management Agreement, dated as of the date hereof, by and between Manager and Holiday AL Management Sub LLC, a Delaware limited liability company (including any successor or counterparty pursuant to any Sub-Management Agreement, “ Sub-Manager ”) (as agreed and acknowledged by Owner) or any other sub-management agreement approved by Owner (the “ Sub-Management Agreement ”), provided that at all times (i) the Sub-Management Agreement is subject and subordinate to the terms of this Agreement and all of Owner’s approval and other rights hereunder and (ii) Sub-Manager qualifies as an independent contractor. In the event that Sub-Manager is in violation of, or fails to comply with, any of the terms of Section 34 of the Sub-Management Agreement, Manager shall immediately terminate the

 

25


Sub-Management Agreement at the written direction of Owner. Owner shall have the right to terminate this Agreement if Manager fails to terminate the Sub-Management Agreement in accordance with the terms of this Section 13. Manager agrees that the Sub-Management Agreement shall not be amended or modified without the prior written consent of Owner.]

14. Attorney’s Fees : In the event either party brings an action to enforce this Agreement, the prevailing party in such action shall be entitled to receive the reasonable out of pocket attorney’s fees and costs incurred by it in such amount as a court may deem reasonable, whether at trial or appellate court level. The terms of this Section 14 shall survive the expiration or termination of this Agreement.

15. Confidentiality : All non-public information provided by one party to the other party (the “ Receiving Party ”) pursuant to or relating to this Agreement shall be kept confidential by the Receiving Party; provided, however, that the Receiving Party shall be permitted to disclose any such information to its Affiliates and its and their respective employees, partners, members, officers, directors, managers, agents and advisors and to current and prospective lenders, purchasers or replacement operators or managers, and shall be permitted to disclose any such information as required to perform its duties and obligations under this Agreement, by Applicable Law or stock exchange rule (applicable to it or any of its Affiliates or any of their respective direct or indirect equityholders), in pleadings or other submissions in any judicial and arbitration proceedings between the parties, or by mutual agreement of the parties hereto; in each instance such persons receiving any confidential information shall be subject to this confidentiality provision and shall be notified accordingly. The covenants contained in this Section 15 shall continue for three (3) years after the termination of or expiration of this Agreement.

16. Notices : All notices, demands and other communications which may be or are required to be given hereunder or with respect hereto shall be in writing and shall be deemed to have been duly given if delivered (a) personally, (b) by overnight courier service, (c) by United States registered mail, postage prepaid, or (d) via electronic mail, in each case directed to the respective parties as follows, or to such other address as either party may, from time to time, designate by notice pursuant to this Section 16 . Notices sent by personal delivery, overnight courier and electronic mail shall be deemed given when delivered (if delivered prior to 5:00 p.m. (local time)), and notices sent by United States registered mail shall be deemed given four (4) business days after the date of deposit in the United States mail:

 

MANAGER

[                                 ]

OWNER

[                                 ]

17. Entire Agreement; Binding Nature : This Agreement constitutes the entire agreement between the parties and supersedes and cancels any and all other agreements between the parties relating to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assignees as provided in this Agreement.

18. No Waiver : No waiver by either party of any breach of the other party or of any event, circumstance or condition permitting a party to terminate this Agreement or to otherwise exercise remedies shall constitute a waiver of any other default of the other party or of any other event, circumstance or condition permitting such termination or exercise of remedies, whether of the same or of any other nature or type and whether preceding, concurrent or succeeding; and no failure on the part of either party to exercise any right it may have by the terms hereof or by law or in equity upon the default of the other party and no delay in the exercise of such right shall prevent the exercise thereof by the party not in breach at any time when the other party may continue to be so in default, and no such failure or delay and no waiver of default shall operate as a waiver of any other default, or as a modification in any respect of the provisions of this Agreement. The subsequent acceptance of any payment or performance pursuant to this Agreement shall

 

26


not constitute a waiver of any preceding default by a party not in breach or of any preceding event, circumstance or condition permitting termination hereunder, other than default in the payment of the particular payment or the performance of the particular matter so accepted, regardless of the knowledge of the party not in breach of the preceding breach or the preceding event, circumstance or condition, at the time of accepting such payment or performance, nor shall the acceptance by the party not in default of such payment or performance after termination constitute a reinstatement, extension or renewal of this Agreement or revocation of any notice or other act by the party not in breach.

19. Severability : If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to the persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby; and, each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.

20. Governing Law : This Agreement shall be governed by the laws of the State of nEW yORK without regard to its conflict of laws provision or the conflict of laws provisions of any other jurisdiction which would cause the applicable of any other law other than that of the state of nEW yORK.

21. Counterparts : This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same instrument, binding on the parties, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. This Agreement may be delivered by facsimile or email transmission. This Agreement shall be effective if each party hereto has executed and delivered at least one counterpart hereof.

22. Force Majeure : Notwithstanding anything to the contrary contained herein, neither party will be deemed to be in violation of this Agreement to the extent it is prevented from performing any of its obligations hereunder for any reason beyond its control, including, without limitation, strikes, shortages, war, acts of God or any statute, regulation or rule of federal, state or local government or agency (or modification thereof), it being understood that financial inability, general economic conditions or changes in the capital markets or the senior housing industry generally which, in each case (except financial inability), do not disproportionately harm the Facility shall not constitute such a reason.

23. Relationship of the Parties : The relationship of the parties shall be that of a principal and independent contractor and all acts performed by Manager during the Term shall be deemed to be performed in its capacity as an independent contractor. Nothing contained in this Agreement is intended to or shall be construed to give rise to or create a partnership or joint venture or lease between Owner, its successors and assigns on the one hand, and Manager, its successors and assigns, on the other hand.

24. Construction : Each of the parties acknowledges and agrees that it has participated in the drafting and negotiation of this Agreement. Accordingly, in the event of a dispute with respect to the interpretation or enforcement of the terms hereof, no provision shall be construed so as to favor or disfavor either party hereto.

25. Consents : Except as otherwise specifically provided herein, in any instance that consent of any party is required hereunder, such consent shall not be unreasonably withheld, conditioned or delayed by the party having such consent right.

 

27


26. Withholding Taxes and State Income Tax Returns : Manager confirms that: (a) Owner is not required to withhold taxes from any amounts payable to Manager under this Agreement under the Code; (b) to the extent required by law, to exempt Owner from withholding on payments to Manager, Manager shall promptly deliver a Form W-9 to Owner dated as of the date of this Agreement (and shall update such form as necessary or upon request); and (c) Manager files, or is included in state income tax returns filed by Manager’s direct or indirect parent and such entity files, state income tax returns in each state where Manager, directly or indirectly or through its subsidiaries, leases or operates any property owned by Owner or its Affiliates.

27. Inspection of the Facility . Owner and any Facility Lender and their respective employees and agents and consultants may, upon prior written notice and at reasonable times, visit the Facility for the purpose of (i) inspecting the Facility, (ii) inspecting the performance by Manager of its obligations under this Agreement or (iii) showing the Facility to current or prospective purchasers, investors, lessees or lenders. Upon reasonable prior request, Manager shall facilitate access permitted under this Section 27 .

28. Amendments : The terms, conditions and provisions of this Agreement may not be modified except in writing executed and delivered by each of the parties hereto.

29. Failure to Perform : If Manager shall at any time fail to perform any obligation on its part to be performed hereunder, then without limiting its other remedies Owner, after ten (10) business days’ written notice (or such shorter notice as may be required for Owner to take action to prevent a default or an event of default under the Facility Loan Documents) to Manager, may (but shall not be obligated to) perform any obligation on Manager’s part to be performed as provided in this Agreement and may enter upon the Facility for said purpose and take all such action thereon as may be necessary or desirable therefor. Any out-of-pocket sums paid or costs or expenses incurred in connection therewith shall be paid by Manager to Owner within five (5) days of written demand of Manager therefor. The rights of Owner and Manager pursuant to this Section 29 shall survive the expiration of the Term and any earlier termination of this Agreement.

30. REIT Status : 8 Manager acknowledges that: (i) Operations (or the direct or indirect owner of Operations) intends to qualify as a “taxable REIT subsidiary” under the Code, (ii) one or more of Owner’s direct or indirect parent entities intend to qualify as REITs and (iii) Operations, Owner and their direct or indirect owners therefore are subject to operating and other restrictions under the Code. Notwithstanding anything to the contrary in this Agreement:

(a) if Operations determines that this Agreement or Manager’s operation of the Facility under this Agreement could jeopardize Operations’s (or Operations’s owner’s) qualification as a taxable REIT subsidiary or the qualification of Owner’s direct or indirect parent as a REIT, Manager shall reasonably cooperate with Operations to revise this Agreement or restructure this arrangement so that Operations is satisfied with such qualification; provided, that (a) any such actions shall be completed at no additional unreimbursed cost to Manager and (b) the economic terms of this Agreement shall not be materially modified or changed.

(b) if Operations and Manager cannot take actions to the satisfaction of Operations to protect such tax status, Operations shall have the right to terminate this Agreement upon 5 days’ notice to Manager without payment of the Termination Fee; .

 

 

8   To be revised/supplemented based on Owner’s structure.

 

28


(c) Manager shall not enter into any Occupancy Agreement for the Facility (or any part of it), except Resident Agreements of a form approved by Owner, without first giving Owner a copy of such document for Owner’s approval, and Owner may withhold such approval if: (a) such lease, sublease, or occupancy agreement violates this Agreement; or (b) such lease, sublease or occupancy agreement (1) could provide for a rental to be paid by the occupant thereunder based (or considered to be based), in whole or in part, on the net income or profits of any person, or any other formula such that any portion of the rent payable under the Occupancy Agreement could fail to qualify as “rents from real property” within the meaning of Code Section 856(d) or (2) otherwise could jeopardize such REIT’s qualification as such for federal income tax purposes.

31. Independent Contractor . Manager represents and warrants (i) that the management fee payable under this Agreement is an arm’s length management fee that provides adequate compensation for Manager’s services hereunder and (ii) that, as of the Effective Date, Manager is an Independent Contractor. Throughout the Term, (i) Manager shall ensure that it qualifies as an Independent Contractor, and (ii) Manager shall not cause the Facility to be treated as a “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. Manager shall, from time to time, provide to Owner information requested by Owner to allow Owner to confirm Manager’s status as an Independent Contractor and the Facility’s status as other than a qualified health care property. If Manager or any Affiliate of Manager becomes aware that Manager may no longer constitute an Independent Contractor or the Facility may be treated as a qualified health care property, then Manager shall promptly (but in any event within five (5) days) so notify Owner. This Section 31 shall apply for so long as the Facility is owned by an entity, or through an ownership structure, that is subject to REIT tax requirements.

32. Certain Definitions :

(a) “ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, controls or is controlled by, or is under common control with, such Person.

(b) “ Applicable Facility Loan Documents, Superior Leases and Title Documents ” means all (A) Facility Loan Documents, Superior Leases and Title Documents in effect as of the Effective Date and (B) all Facility Loan Documents, Superior Leases and Title Documents entered into after the date hereof, but (with respect to this clause (B)) only to the extent (i) Manager has received written notice of, and an opportunity to consult and comment on, the obligations imposed by such instrument on Manager or the Facility prior to the imposition of such obligations and (ii) such obligations are reasonable and customary for facilities similar to the Facility and may be performed by Manager using commercially reasonable efforts without additional cost to Manager (unless such cost is de minimis or reimbursed by Owner).

(c) “ Applicable Law(s) ” means all statutes, laws, ordinances, rules, regulations, requirements, judgments, orders and decrees of any Governmental Authority, including, without limitation, any requirement(s) or standard of any agency or other Governmental Authority required for any party to maintain licensure or certifications.

(d) “ Code ” means the Internal Revenue Code of 1986, as amended from time to time. References to Code Sections include any similar or successor provisions thereto.

(e) “ Facility Lender ” means any lender under any Facility Loan.

(f) “ Facility Loan ” means any loan made to Owner or any of its Affiliates on or after the Effective Date and secured by the Facility or equity interests in direct or indirect owners thereof.

 

29


(g) “ Facility Loan Documents ” means any agreement, document or other instrument evidencing or securing any Facility Loan so long as a true, correct and complete copy of such agreement, document or other instrument has been provided to Manager.

(h) “ FCA ” means the False Claims Act, 31 U.S.C. §§ 3729-3733, any successor or similar federal or state statutes or laws, and any regulations promulgated under any of the foregoing, in each case as amended from time to time.

(i) “ Governmental Authority ” means (i) any government or political subdivision thereof, whether foreign or domestic, national, state, county, municipal or regional; (ii) any agency or instrumentality of any such government, political subdivision or other government entity (including any central bank or comparable agency); and (iii) any court, in each case, to the extent having jurisdiction over the Facility, the Owner or the Manager, as applicable.

(j) “ GAAP ” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.

(k) “ Independent Contractor ” means a person that satisfies the following requirements, at all times while they are a party to this Agreement or while their status as an Independent Contractor is relevant under this Agreement:

(i) Such person does not own, directly or indirectly (for purposes of Code Section 856(d)), more than 35% of the shares of Manager, Owner or any Affiliate of Manager or Owner;

(ii) Not more than 35% of the total combined voting power (or value) or the total shares of such person’s stock is owned, directly or indirectly, by one or more persons that own 35% or more of the shares of Manager, Owner or any Affiliate of Manager or Owner, provided, that, for any class of stock of Manager, Owner or any Affiliate of Manager or Owner that is regularly traded on an established securities market, only persons owning, directly or indirectly, more than 5% of such class of stock (for purposes of Code Section 856(d)) shall be taken into account as owning any stock of such class (but all of the outstanding stock of such class shall be considered outstanding in order to compute the denominator for purposes of determining the applicable percentage of ownership);

(iii) None of Manager, Owner or any related person (for purposes of Code Section 856) thereto derives any income from such person, any Affiliate of such person or any entity in which such person owns a direct or indirect interest without the prior written consent of Owner, which Owner may grant or withhold in its sole and absolute discretion;

(iv) To the extent that any of Manager, Owner or any related person (for purposes of Code Section 856) derives income from any direct or indirect owner of such person that intends to qualify as an Independent Contractor or any entity that has a common parent with such person, such owner or entity shall keep its own books and records, operate as a separate entity from its Affiliates and have, or its direct or indirect parent shall have, its own officers and employees; and

(v) Such person otherwise qualifies as an “independent contractor” for purposes of Code Section 856.

 

30


(l) “ Manager’s Standards ” means, at any time and from time to time, operational and physical standards that are materially consistent with the practices and standards then implemented at senior housing communities managed or operated by Manager or any of its Affiliates [(if the Sub-Management Agreement is not then in effect) or Holiday Retirement or any of its Affiliates (if the Sub-Management Agreement is then in effect)].

(m) “ Other Management Agreements ” means the management agreements entered into by Owner or its Affiliate, on the one hand, and Manager or its Affiliate, on the other hand, as of the Effective Date, pursuant to that certain Purchase and Sale Agreement dated June [    ], 2015, by and among Seller and Purchaser (as such terms are defined therein).

(n) “ Person ” means any individual, sole proprietorship, joint venture, corporation, partnership, limited liability company, governmental body, regulatory agency or other entity of any nature.

(o) “ Rebates ” means any discounts, rebates and/or other monetary benefits on items purchased or services rendered at Owner’s cost for the benefit of the Facility (whether only for the Facility or for the Facility in combination with other facilities managed by Manager or its Affiliates).

(p) “ REIT ” means a “real estate investment trust” within the meaning of Code Section 856 through 860.

(q) “ Resident ” means any individual residing at the Facility.

(r) [ “Sub-Management Fee ” means the “Fee” as defined in the Sub-Management Agreement.]

(s) “ Superior Lease ” means any lease pursuant to which Owner leases all or any portion of the Facility so long as a true, correct and complete copy of such agreement, document or other instrument has been provided to Manager.

(t) “ Title Document ” means any easement, covenant, condition, restriction or similar document or instrument affecting title to the Facility (whether fee or leasehold or otherwise) and recorded in the land records of the jurisdiction in which the Facility is located so long as a true, correct and complete copy of such agreement, document or other instrument has been provided to Manager.

(u) “ Travel Program ” means the program administered by Manager whereby residents of a Manager-managed facility are permitted to stay, subject to the availability of a guest room at the subject location, at another Manager-managed facility up to seven nights free of charge.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates set forth below.

 

MANAGER
[            ]
By:  
Name:
Title:
Date:             , 2015


EXHIBIT J TO PURCHASE AGREEMENT

 

OWNER
[            ]
By:  
Name:
Title:
Date:             , 2015


Schedule 2(l)

Monthly Reports

 

(a) balance sheet as of month end (including current month, prior month, and period to period change);

(b) detailed profit and loss statement, showing monthly and year-to-date comparisons to Annual Budget, with summary explanation of any material variances from the Annual Budget;

 

(c) 12-month profit and loss trend report;

 

(d) rent roll as of month end;

 

(e) general ledger;

 

(f) cash disbursements journal; and

 

(g) cash receipts journal.

[OTHERS]

 

Schedule 2(l)


Schedule 2(m)

2015 Annual Budget

See attached.

 

Schedule 2(m)


Schedule 6

Insurance

 

(a) Required Insurance Coverage.

(1) Property damage to be covered by an “All Risk” Property Insurance Policy for the Facility which must not include a coinsurance provision. The policy amount must cover one hundred percent (100%) full replacement cost of the improvements of the Facility and terrorism coverage must be included or procured as a separate policy covering the Facility. The deductible may not exceed $100,000.00 per occurrence. Such policy must provide business interruption coverage on actual loss sustained or minimum twelve (12) months’ gross income/rents/actual loss sustained with a maximum deductible of seventy-two (72) hours per occurrence. An extended period of indemnity for three hundred and sixty five (365) days is required.

(2) Windstorm and Flood coverage, and exclusions are acceptable, provided a separate policy or coverage is obtained for these exclusions as applicable. Such coverage shall be required for the Facility when the property damage insurance excludes any type of wind or flood related event. State insurance plans are acceptable if that is the only coverage available in that insurance market. Business income/rent loss coverage is in the manner set forth in clause (1)  above. One hundred percent (100%) replacement cost is required or an amount agreed to by Owner. Maximum deductible is five percent (5%) of the total insured value. If the Facility lies within Special Flood Hazard Area (SFHA) A or V, flood coverage is required at one hundred percent (100%) full replacement cost of the improvements of the Facility. If one hundred percent (100%) replacement cost is not available, then the maximum amount of insurance available under the National Flood Insurance Program (NFIP) must be obtained and amount agreed to by Owner. The maximum deductible is five percent (5%) of the Total Insured Value as listed on the policy. The NFIP policy declaration page is acceptable evidence of coverage. An excess flood or Difference in Conditions (DIC) policy must provide for the difference, if any, between the maximum limit provided by NFIP policies and the full replacement cost. Business income/rent loss is required in the manner set forth in clause (1)  above.

(3) Ordinance and Law coverage, and if the Facility is a legal non-conforming use project, the policy must include coverage for Loss to Undamaged Portion of the Building (Coverage A) which must equal one hundred percent (100%) replacement costs of the structure(s), Demolition Cost (Coverage B) and Increased Cost of Construction (Coverage C), each at a minimum of twenty percent (20%) of full replacement cost of the Facility.

(4) Boiler and Machinery coverage shall be required where any centralized HVAC, boiler, water heater or other type of pressure-fired vessel is in operation at the Facility. Such coverage must be equal to one hundred percent (100%) full replacement cost of the Facility. The deductible may not exceed property insurance policy deductible.

(5) Earthquake coverage, and the seismic risk will be determined for properties in Seismic Zones 3 or 4. Such coverage is required if the Probable Maximum Loss (PML / SUL) is twenty percent (20%) or greater. If earthquake insurance is required, the amount of coverage required will be determined based on Facility Loan requirements or earthquake simulation modeling for the Facility. The maximum deductible is five percent (5%) of the total insured value.

(6) Business Income/Rent Loss coverage for Actual loss sustained or minimum of twelve (12) months’ of gross income/rents. Extended period of indemnity – three hundred and sixty five (365) days’ loss of income/rents. Such coverage is required for all property insurance coverage including windstorm, flood, earthquake and terrorism even if written on a stand-alone basis. The maximum deductible is seventy-two (72) hours per occurrence.

 

Schedule 6 - 1


(7) Builder’s Risk coverage is required during construction after an insured loss or general construction. Must be written for one hundred percent (100%) of the completed value on a non-reporting basis. The maximum deductibles are $50,000.00 per occurrence.

(8) Sinkhole/Mine Subsidence coverage is required if the Facility is in an area prone to these geological phenomena. One hundred percent (100%) replacement cost is required. The maximum deductibles are $100,000.00 per occurrence or the applicable earthquake deductible if earth movement coverage applies.

(9) General Liability coverage for the minimum limit of general liability coverage for bodily injury, death and property damage must be $1,000,000.00 per occurrence/claim, with a $2,000,000.00 general aggregate limit, and excess over a $2,000,000.00 self-insured retention. Terrorism coverage must be provided.

(10) Excess/Umbrella Liability coverage with limits of not less than $25,000,000.00 per occurrence/claim and aggregate limits for bodily injury, death and property damage, and excess over a $2,000,000.00 self-insured retention.

(11) Commercial Auto Liability coverage for $1,000,000.00 per occurrence is required where the Facility uses cars, vans or trucks for business purposes.

(12) Healthcare Professional and Excess Liability covering bodily injury and property damage. Minimum Professional Liability and Excess Liability Insurance is $25,000,000.00, and excess over a $2,000,000 self-insured retention.

(13) Crime / Fidelity coverage at a minimum of $1,000,000.00 per occurrence is required and the maximum deductible or self-insured retention is $75,000.00, covering the Facility Employees in job classifications normally bonded in the seniors housing industry or as otherwise required by Applicable Law, and comprehensive crime insurance to the extent Manager determines it is necessary for the Facility.

(14) Workers Compensation and Employers Liability Coverage with Coverage A with statutory limits and Coverage B with limit of $500,000 per occurrence for bodily injury and by disease and policy limit. In states where insured are legally able to non-subscribe, Manager may elect to do so, as long as Manager has an approved non-subscriber plan in such state. Insurance under this clause may include a deductible or self-insured retention of no more than $1,000,000 per occurrence.

(b) Additional Owner Requirements .  Notwithstanding anything in Section 6 of the Agreement or this Schedule 6 to the contrary, Owner may, from time to time, and upon 30 days’ prior notice to Manager, require Manager to obtain and maintain higher liability limits, lower deductibles or additional insurance coverages or to obtain any coverages from and maintain them with insurers that (in each case) are (i) required under the Facility Loan Documents or (ii) deemed advisable by Owner in its reasonable judgment for its protection against claims, liabilities and losses arising out of or connected with Manager’s performance under this Agreement, in each case to the extent that such requirements are generally available using commercially reasonable efforts to operators of senior living facilities of a similar type and (in the case of clause (ii) ) customary.

 

Schedule 6 - 2


(c) Additional Requirements.

(1) Manager shall provide Owner and the Facility Lender a satisfactory ACORD 25 Liability and ACORD 28 Property certificate evidencing the existence of the insurance required by this Agreement and showing the interests of Owner and Facility Lender prior to the commencement of the Term or, for a renewal policy, not less than five (5) days following the expiration date of the policy being renewed. Manager shall provide a complete copy of the related policy within ten (10) days after a request therefor by Owner or the Facility Lender or within ten (10) days after Manager has received such policy from the insurer following the request.

(2) Manager may satisfy the requirements for insurance coverage under this Agreement through coverage under a so-called blanket policy or policies of insurance carried and maintained by Manager; provided, however, that the coverage afforded Owner will not be reduced or diminished or otherwise be materially different from that which would exist under a separate policy meeting all other requirements of this Agreement by reason of the use of such blanket policy of insurance.

(3) Manager shall provide immediate written notice (A) to the insurer, the Facility Lender and Owner of any material claim, or event of loss payable, under the policy for the insurance coverage specified in clauses (a)(1) (a)(8) of Schedule 6 , and (B) to the Facility Lender and Owner of Manager’s receipt of any proceeds relating to any event of loss described in clause (A) above. Owner may require Manager to deliver to the Facility Lender in accordance with the Facility Loan Documents any proceeds received by Manager.

 

(d) Insurance Coverage by Contractors and Other Vendors.

(1) Manager shall make commercially reasonable efforts to secure certificates of insurance from any contractors, service providers, and vendors that provide maintenance or repairs on or in the premises, or that provide supplies and inventory to the Facility, in either case in an amount exceeding $100,000.00 per year (collectively, “ Service Providers ”), which certificates (A) evidence valid and enforceable policies issued by insurers licensed and approved to do business in the state in which the Facility is located and having general policyholders and financial ratings of not less than “A-” and “VII”, respectively, in the then current A.M. Best’s Insurance Report; (B) name Owner, Manager and the Facility Lender as additional insureds by endorsement on Service Provider’s commercial general liability insurance policy; (C) are written on an occurrence policy form; (D) are primary and non-contributory and provide that any insurance maintained by Manager or Owner for the Facility is excess of Service Provider’s insurance; and (E) provide a waiver of subrogation and all rights of recovery by the insurer against and in favor of Manager and Owner.

(2) Service Providers shall have and maintain insurance coverage with limits of not less than (A) $1,000,000.00 for each occurrence, (B) $1,000,000.00 for personal/advertising injury, (C) $2,000,000.00 general aggregate, and (D) $2,000,000.00 aggregate for products and completed operations. In addition, Service Providers shall have and maintain (I) workers’ compensation coverage for injuries sustained by Service Provider’s employees in the course of their employment and otherwise consistent with all Applicable Laws and employer’s liability coverage with limits not less than $1,000,000.00 each accident, $1,000,000.00 bodily injury due to disease each employee and $1,000,000.00 bodily injury due to disease policy limit, and (II) automobile liability coverage for all owned and non-owned vehicles, including rented and leased vehicles, covering bodily injury, including death, and property damage with a limit of $1,000,000.00 each accident.

 

Schedule 6 - 3


Schedule 7(a)

Base Fee Amount

 

Schedule 7(a)


EXHIBIT K

ASSIGNED CONTRACTS

The contracts identified on Exhibit I are incorporated herein by reference.

 

EXHIBIT K-1


EXHIBIT L

THIRD PARTY REPORTS

Alexis Gardens

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Andover Place

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Arcadia Place

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

  5. Seismic Risk Assessment

Aspen View

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Augustine Landing

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Cedar Ridge

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Echo Ridge

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

EXHIBIT L-1


Elm Park Estates

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Genesee Gardens

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Greenwood Terrace

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Holiday Hills

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Indigo Pines

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Jefferson, The

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Kalama Heights

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Marion Woods

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

EXHIBIT L-2


Montara Meadows

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Niagara Village

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Parkrose Chateau

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Pinegate

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Quail Run Estates

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Quincy Place

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Redbud Hills

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

EXHIBIT L-3


Remington, The

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

  5. Seismic Risk Assessment

Springs of Escondido

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

  5. Seismic Risk Assessment

Springs of Napa

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

  5. Seismic Risk Assessment

Stone Lodge

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

University Pines

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

Woods at Holly Tree

 

  1. Title Report

 

  2. Survey

 

  3. Phase I Environmental Report

 

  4. Property Condition Assessment

 

EXHIBIT L-4


EXHIBIT M

PROPERTY QUESTIONNAIRE

 

EXHIBIT M-1


EXHIBIT N

FORM OF FACILITY OWNER INTEREST ASSIGNMENT

ASSIGNMENT AGREEMENT

This ASSIGNMENT AGREEMENT (this “ Agreement ”) dated                      , 2015, is entered by and among                              (“ Assignor ”), and                              (“ Assignee ”).

W I T N E S S E T H

WHEREAS, Assignor is the holder of 100% of the [membership/partnership] interests in                              (the “ Assigned Interest ”);

WHEREAS, Assignor and                      entered into that certain Purchase and Sale Agreement, dated as of June      , 2015, pursuant to which Assignor has agreed to transfer, assign and convey to Assignee all of Assignor’s right, title and interest in and to the Assigned Interest (the “ Assignment ”); and

WHEREAS, the parties desire to effect the Assignment pursuant to, and on the terms contained in, this Agreement.

NOW, THEREFORE, in consideration of the premises and the agreements herein contained, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

Section 1. Assignment . Assignor hereby unconditionally and irrevocably transfers, assigns, and conveys to Assignee to the fullest extent permissible under applicable law, and hereby relinquishes, quitclaims, and releases any claims to, all of Assignor’s right, title, and interest in and to the Assigned Interest.

Section 2. Acceptance . Assignee hereby accepts the Assignment.

Section 3. Miscellaneous .

(a) Multiple Counterparts and Facsimile or Electronic Signatures. This Agreement may be signed in multiple counterparts, and when each party or his, her, or its authorized representative has signed a counterpart hereof, each such counterpart shall be a binding and enforceable agreement as an original. In addition, this Agreement may be executed by facsimile or electronic signatures, and such facsimile or electronic signatures will be deemed to be as valid as an original signature whether or not confirmed by delivering the original signatures in person, by courier, or mail, although it is the parties’ intentions to deliver original signatures after delivery of facsimile or electronic signatures.

(b) Binding on Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns and is enforceable against them in accordance with its terms.

[Signature page follows.]

 

Exhibit N-1


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

 

Assignor
By:

 

Name:
Title:
Assignee
By:

 

Name:
Title:

 

EXHIBIT N-2


SCHEDULE I-A

Property Sellers; Facility Names and Locations

 

   

Facility

  

City

   State   

Property Seller

1.   Aspen View    Billings    MT    Harvest Aspen Meadows Retirement Residence LLC
2.   Arcadia Place    Vista    CA    Harvest Arcadia Place Retirement Residence LLC
3.   Genesee Gardens    Flint Township    MI    Flint Retirement Residence LLC
4.   Indigo Pines    Hilton Head    SC    Hilton Head Retirement Residence Limited Liability Company
5.   Quail Run Estates    Agawam    MA    Harvest Quail Run Estates Retirement Residence LLC
6.   Redbud Hills    Bloomington    IN    Harvest Redbud Hills Retirement Residence LLC
7.   Springs of Escondido, The    Escondido    CA    Escondido Retirement Residence Limited Partnership
8.   Springs of Napa, The    Napa    CA    Napa Retirement Residence Limited Partnership
9.   Stone Lodge    Bend    OR    Bend Retirement Residence LLC
10.   Remington, The    Hanford    CA    Hanford Retirement Residence Limited Partnership
11.   Parkrose Chateau    Portland    OR    Parkrose Retirement Residence Limited Partnership

 

S CHEDULE I


SCHEDULE I-B

Property Sellers; Facility Names and Locations

 

   

Facility

 

City

  State  

Facility Owner

  

Entity Seller

12.   Augustine Landing   Jacksonville   FL   Jacksonville Retirement Residence LLC   

Harvest Mezzanine I LLC

Harvest Managing Member I LLC

13.   Andover Place   Little Rock   AR   Little Rock Retirement Residence Limited Partnership   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

14.   Elm Park Estates   Roanoke   VA   Elm Park Estates Retirement Residence Limited Partnership   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

15.   Echo Ridge   Knoxville   TN   Harvest Echo Ridge Retirement Residence LLC   

Harvest Mezzanine II LLC

Harvest General Partner II LLC

16.   Pinegate   Macon   GA   Macon Retirement Residence LLC   

Harvest Mezzanine I LLC

17.   Alexis Gardens   Toledo   OH   Toledo Retirement Residence LLC   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

18.   Kalama Heights   Kihei   HI   Kalama Heights Retirement Residence LLC   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

19.   Montara Meadows   Las Vegas   NV   Harvest Montara Meadows Retirement Residence LLC   

Harvest Mezzanine I LLC

20.   Niagara Village   Erie   PA   Harvest Niagara Village Retirement Residence LLC   

Harvest Mezzanine I LLC

21.   Quincy Place   Denver   CO   Denver Retirement Residence Limited Liability Company   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

22.   Greenwood Terrace   Lenexa   KS   Harvest Greenwood Terrace Retirement Residence LLC   

Harvest Mezzanine I LLC

23.   Marion Woods   Ocala   FL   Ocala Retirement Residence LLC   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

24.   Jefferson, The   Middleton   WI   Madison Retirement Residence LLC   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

25.   Cedar Ridge   Burlington   NC   Burlington Retirement Residence LLC   

Harvest Mezzanine I LLC

Harvest General Partner I LLC

26.   Holiday Hills Estates   Rapid City   SD   Harvest Holiday Hills Estates Retirement Residence, LLC   

Harvest Mezzanine II LLC

Harvest General Partner II LLC

27.   University Pines   Pensacola   FL   Harvest University Pines Retirement Residence LLC   

Harvest Mezzanine I LLC

28.   Woods at Holly Tree, The   Wilmington   NC   Wilmington Retirement Residence LLC   

Harvest Mezzanine I LLC

 

S CHEDULE I


ANNEX 1

DEFINED TERMS

ADA ” shall have the meaning set forth in Section 6.26 .

Additional Deposit ” shall have the meaning set forth in Section 5.1 .

Affiliate ” shall mean, with respect to any Person, any other Person which Controls, is Controlled by or is under common Control with the first Person.

Agreement ” shall have the meaning set forth in the introductory paragraph.

Allocation Statement ” shall have the meaning set forth in Section 2.2.3 .

Assigned Contract ” means each Commercial Lease and each other Property Contract set forth on Exhibit K attached hereto, subject to receipt of any required consents.

Bring Down Certificate ” shall have the meaning set forth in Section 5.2.5 .

Broker ” shall have the meaning set forth in Section 13.10 .

Business Day ” means any day other than a Saturday or Sunday or Federal holiday or legal holiday in the State of New York or the State of Oregon.

Capex Difference ” shall have the meaning set forth in Section 5.4.4 .

Closing ” means the consummation of the purchase and sale and related transactions contemplated by this Agreement in accordance with the terms and conditions of this Agreement.

Closing Date ” means the Scheduled Closing Date or, if applicable, such other date as mutually agreed by the parties or such date to which the Scheduled Closing Date is adjourned pursuant to an extension of the Scheduled Closing Date as contemplated by the terms of Section 5.1 .

Code ” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

Commercial Lease ” means all real property leases, subleases and other occupancy contracts, whether or not of record, which provide for the use or occupancy of space or facilities at any Facility or any portion of the Property and which are in force as of the Closing Date, other than any Resident Agreement with any Resident.

Consolidated Subsidiary ” shall mean, with respect to Seller Guarantor, any subsidiary or other entity the accounts of which would be consolidated with those of Seller Guarantor in its consolidated financial statements if such statements were prepared as of such date.

 

A NNEX I - 1


Control ” shall mean, as applied to any Person, the possession, directly or indirectly, of the power to direct the management and policies of that Person, whether through ownership, voting control, by contract or otherwise.

Cumulative Straight-line Rent ” shall mean the sum of all non-cash straight-line rent adjustments made by Seller Guarantor or its Consolidated Subsidiaries, whether made before or after the date of calculation, but only to the extent such adjustments remain directly reflected as an asset or as a liability on the balance sheet of Seller Guarantor as of the applicable date of calculation.

Damage Notice ” shall have the meaning set forth in Section 11.1 .

Damages ” means all actions, suits, proceedings, governmental investigations, injunctions, demands, charges, claims, judgments, awards, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, fees and expenses (including court costs and reasonable and documented out-of-pocket attorneys’ and accountants’ fees and expenses); provided , however , Damages will not include punitive, consequential, special or indirect damages, including without limitation business interruption, loss of future revenue, profits or income, or loss of business reputation or diminution in value, except to the extent that such damages are payable by an Indemnified Person to a thirty party in a Third Party Claim; provided further , however , that, with respect to any breach of or inaccuracy, when made, in Seller’s Representations set forth in the first sentence of Section 6.1.5 or in Section 6.1.15 , any Damages resulting therefrom will include consequential damages to the extent that such damages were reasonably foreseeable.

Data Site ” means the Intralinks data room titled “Project Timber.”

Deed ” shall mean a special warranty deed (or the equivalent in the applicable jurisdiction).

Deposit ” means shall have the meaning set forth in Section 2.2.1 .

Disclosure Schedules ” shall have the meaning set forth in Article VI .

Effective Date ” shall have the meaning set forth in the preamble to this Agreement.

Environmental Laws ” means the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. Section 6901 et seq ., the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. Sections 9601 et seq ., the Clean Water Act, 33 U.S.C. Section 1251 et seq. , the Toxic Substances Control Act, the Clean Air Act, 42 U.S.C. Section 7401 et seq ., the Safe Drinking Water Act 42 U.S.C. Section 300(f) et seq . and all other applicable state, county, municipal, or, administrative ordinances, rules, regulations, judgments, and orders relating or pertaining to (A) the protection, preservation or reclamation of the environment or natural resources or (B) the management, release and threatened release of Hazardous Materials.

Escrow Agent ” shall have the meaning set forth in Section 2.2.1 .

 

A NNEX I - 2


Escrow Agreement ” shall have the meaning set forth in Section 2.3.1 .

Existing Survey ” shall have the meaning set forth in Section 4.2 .

Excluded Assets ” means (i) Excluded Property, (ii) receivables, (iii) any Property Seller’s Excluded Permits, (iv) any Property Contracts and any other contracts described as items (ii) and (iii) in the definition of Property Contracts (other than the Assigned Contracts), (v) cash or other funds, whether in petty cash or house “banks,” or on deposit in bank accounts or in transit for deposit, (vi) refunds, rebates or other claims, or any interest thereon, for periods or events occurring prior to the Closing Date, (vii) utility and other deposits, (viii) prepaid insurance premiums and other prepaid items, (ix) proprietary books and records, and (x) any right, title, or interest in or to the Seller Marks.

Excluded Liabilities ” shall mean any third-party claim made against Purchaser (or its designee hereunder) arising out of, or relating to (i) acts or omissions of any Person (other than Purchaser and/or any representative, employee and/or agent of Purchaser) in connection with the Property or the ownership, operation, management or use thereof, in each case, occurring prior to the Closing, (ii) any indebtedness of Seller, (iii) any federal, state or local taxes, whether or not accrued, assessed or currently due and payable related to the Property attributable to the period prior to the Closing, (iv) the Excluded Assets or the ownership, operation, management or use thereof, whether arising or accruing prior to or from and after Closing, and (v) any FCA Action.

Excluded Permits ” means those Permits which, under applicable law, are nontransferable.

Excluded Property ” shall have the meaning set forth in Section 4.5 .

Facilities ” shall mean the facilities identified on Schedule I-A and I-B , and each a “ Facility ”.

Facility Employees ” shall have the meaning set forth in Section 6.1.14 .

Facility Owner ” shall have the meaning set forth in the Recitals.

FCA Action ” shall mean any actual or alleged violation of the False Claims Act, 31 U.S.C. §§ 3729-3733, any successor or similar federal or state statutes or laws, and any regulations promulgated under any of the foregoing, in each case as amended, or any actual or alleged illegal conduct with respect to benefits or deferrals of rent for veterans or their family members, in each case by, or caused by, Seller, any of its Affiliates or any of its or its Affiliates’ respective agents and employees, or any inquiry, investigation or litigation relating to such (actual or alleged) violation or conduct to the extent occurring or arising prior to the Closing Date.

FHA ” shall have the meaning set forth in Section 6.2.5 .

 

A NNEX I - 3


Fixtures and Tangible Personal Property ” means all fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus, appliances and other articles of tangible personal property located on the Land or in the Improvements as of the Closing Date, to the extent transferable, and used or usable exclusively in connection with the occupation or operation of all or any part of the Property; provided , however , that the term “Fixtures and Tangible Personal Property” specifically excludes (a) assets that are not owned or leased by Seller or any Facility Onwer (including, without limitation, assets owned or leased by any Resident or guest, employee or other person furnishing goods or services to the Property), and (b) assets owned by Seller or any Facility Owner but not used exclusively for the business, operation or management of the Property. In addition, the term “Fixtures and Tangible Personal Property” specifically excludes IT Assets. Seller shall have the right to remove any software or data from any computer equipment used to operate security or gate systems at the Property that it determines to be proprietary, confidential or otherwise not essential to the operation of the security or gate system in its sole and absolute discretion.

General Assignment ” shall have the meaning set forth in Section 5.2.3 .

Governmental Authority ” shall mean any court, board, agency, commission or authority of any nature whatsoever for any governmental unit (including federal, state, county, municipal, district, city or otherwise) whether in existence or hereafter in existence having jurisdiction over Seller, any Facility Owner, or the Property, or the Purchaser, as applicable.

Hazardous Materials ” means any and all substances, wastes, materials, pollutants, contaminants, compounds, chemicals or elements which are defined or classified as a “hazardous substance,” “hazardous material,” “toxic substance,” “hazardous waste,” “pollutant,” “contaminant” or words of similar import under any Environmental Law, including all dibenzodioxins and dibenzofurans, polychlorinated biphenyls (PCBs), petroleum hydrocarbon, including crude oil or any derivative thereof, asbestos-containing materials in any form, and radon gas.

Holiday Manager ” shall have the meaning set forth in Section 5.2.6 .

Improvements ” means all buildings and improvements located on the Land (including, but not limited to, the Facilities).

Indemnified Person ” shall have the meaning set forth in Section 13.5 .

Indemnifying Person ” shall have the meaning set forth in Section 13.5 .

Initial Deposit ” means shall have the meaning set forth in Section 2.2.1 .

IRS ” means the United States Internal Revenue Service.

IT Assets ” means (i) all mobile and personal communication devices, including, without limitation all cellular phones, smartphones, tablets, phablets, netbooks and check and credit card scanning devices and (ii) desktop, laptop and peripheral computers and data storage devices together with related electronic devices, accessories, printers (other than any copier machines owned by Seller or any Facility Owner), monitors and keyboards other than computer equipment necessary to operate security or gate systems at the Facilities.

 

A NNEX I - 4


Land ” means all of those certain tracts of land Facilities described on Exhibit A , and all rights, privileges and appurtenances pertaining thereto.

Laws ” means all federal, state and local laws, statutes, codes, regulations, rules, ordinances, orders, policy directives, judgments or decrees (including common law) including those of judicial and administrative bodies.

Lien ” shall mean any lien, claim, charge, encumbrance, security interest, mortgage, pledge, easement, or conditional sale or other title retention contract.

Management Agreement ” has the meaning set forth in Section 5.2.6 .

Manager ” means Harvest Management Sub LLC, the current Manager of each of the Facilities.

Material Adverse Effect ” means any result, occurrence, fact, event, change or effect that, individually or in the aggregate with other such results, occurrences, facts, events, changes, or effects, has had and/or would have a materially adverse effect on (a) the business, affairs, assets, results of operations or financial condition of any Property Seller, Facility Owner and the Property, taken as a whole, or (b) the ability of Seller to consummate the Transactions; provided , however , that for purposes of clause (a) “Material Adverse Effect” shall not include any event, circumstance, change or effect to the extent arising out of or resulting from (i) any failure of any Property Seller or Facility Owner to meet any projections or forecasts (it being understood and agreed that any event, circumstance, change or effect giving rise to such failure shall be taken into account in determining whether there has been a Material Adverse Effect), (ii) any events, circumstances, changes or effects that affect the senior living industry in the United States generally, (iii) any changes in the United States or global economy or capital, financial or securities markets generally, including changes in interest or exchange rates, (iv) any changes in the applicable laws in the geographic regions in which any Property Seller or Facility Owner operates or owns or leases properties, (v) the commencement, escalation or worsening of a war or armed hostilities or the occurrence of acts of terrorism or sabotage, (vi) the negotiation, execution or announcement of this Agreement, or the consummation or anticipation of the Transactions (including the identity of the Purchaser and the impact of any of the foregoing on relationships, contractual or otherwise, with tenants, suppliers, lenders, investors, future partners or employees), (vii) the taking of any action permitted by the terms of this Agreement, or the failure to take any action expressly prohibited by, this Agreement, or the taking of any action at the written request or with the prior written consent of Purchaser, (viii) earthquakes, hurricanes or other natural disasters, (ix) any damage or destruction of the Property (or any portion thereof) that is substantially covered by insurance, or (x) changes in law or generally accepted accounting principles, which in the case of each of clauses (ii), (iii), (v) and (x) do not disproportionately affect the Property Sellers and Facility Owners, taken as a whole, relative to other participants in the senior living industry in the United States, and in the case of clauses (iv) and (viii) do not disproportionately affect the Property Sellers and Facility Owners, taken as a whole, relative to other participants in the senior living industry in the geographic regions in which any Property Seller or Facility Owner operates or owns or leases properties.

Materials ” shall have the meaning set forth in Section 3.1.1 .

 

A NNEX I - 5


Miscellaneous Property Assets ” means all warranties, plans, drawings and other items of intangible personal property relating to the ownership or operation of the Land and Improvements and owned by any Property Seller or Facility Owner. The term “ Miscellaneous Property Assets ” also shall include all of any Property Seller’s or Facility Owner’s rights, if any, in and to the Facility names identified in Schedule I .

National Contracts ” shall mean any national or other contracts in the name of Manager or one of its Affiliates pursuant to which any Facility, as well as any facility that is not a part of the Property, is receiving goods, services and/or other benefits.

Net Worth ” means, as of the date of determination, for Seller Guarantor and, if applicable, its Consolidated Subsidiaries determined on a consolidated basis, an amount equal to the book value of Seller Guarantor’s tangible assets as of such date, plus (a) (i) accumulated depreciation and (ii) the Cumulative Straight-line Rent (to the extent reflected as a liability on the balance sheet of Seller Guarantor as of the applicable date of calculation), minus (b) (i) the liabilities of Seller Guarantor as of such date, and (ii) the Cumulative Straight-line Rent (to the extent reflected as an asset on the balance sheet of Seller Guarantor as of the applicable date of calculation), each as determined in accordance with GAAP.

New Exception ” shall have the meaning set forth in Section 4.5 .

New Exception Review Period Expiration Date ” shall have the meaning set forth in Section 4.5 .

New Facility Owner ” shall mean, with respect to each Facility, the entity that acquires fee ownership in such Facility from any Property Seller.

Notice of Claim ” and “ Noticed Claim ” shall have the meaning set forth in Section 13.4.2 .

Notice of Third Party Claim ” shall have the meaning set forth in Section 13.5.1 .

Outside Claim Date ” shall have the meaning set forth in Section 13.1 .

Outside Closing Date ” shall mean the Scheduled Closing Date or, if the Purchaser exercises its right to extend the Scheduled Closing Date pursuant to the terms of Section 5.1 hereof, the last day of the First Extension Period or the Second Extension Period, as applicable.

Permits ” means all licenses, permits and authorizations granted by any applicable governmental authority having jurisdiction over the Property and required in order to own and operate the Property.

Permitted Exceptions ” shall have the meaning set forth in Section 4.3 .

Person ” means any individual, corporation, proprietorship, firm, partnership, limited partnership, trust, association or other entity.

 

A NNEX I - 6


Prohibited Person ” means any of the following: (a) a person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, Executive Order No. 13224 on Terrorist Financing (effective September 24, 2001) (the “ Executive Order ”); (b) a person or entity owned or controlled by, or acting for or on behalf of any person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order; (c) a person or entity that is named as a “specially designated national” or “blocked person” on the most current list published by the U.S. Treasury Department’s Office of Foreign Assets Control (“ OFAC ”) at its official website, http://www.treas.gov/offices/enforcement/ofac; (d) a person or entity that is otherwise the target of any economic sanctions program currently administered by OFAC; or (e) a person or entity that is affiliated with any person or entity identified in clause (a), (b), (c) and/or (d) above.

Property ” means (i) the Facility Owner Interests and (ii) with respect to each Property Seller, (a) the Land and Improvements and all rights of the Property Sellers and Facility Owners, if any, in and to all of the easements, rights, privileges, and appurtenances belonging or in any way appertaining to such Land and Improvements, (b) the Assigned Contracts, Resident Agreements, Permits (other than Excluded Permits) and the Fixtures and Tangible Personal Property, and (c) the Miscellaneous Property Assets which are located on the Land and Improvements and/or used exclusively in its operation, but specifically excluding the Excluded Assets and the Excluded Property.

Property Contracts ” means all contracts, agreements, equipment leases, purchase orders, maintenance, service, and similar contracts, regardless of whether entered into by a Property Seller, Facility Owner, Manager, or an Affiliate of any of the foregoing, which relate exclusively to the ownership, maintenance, on-going construction, repair and/or operation of the Property (or any portion thereof), whether or not assignable by their terms, including any Commercial Lease, but not including (i) any Resident Agreements, (ii) any National Contracts and (iii) any cellular phone contract or property management contract for the Property.

Property Contracts List ” shall have the meaning set forth in Section 6.1.4 .

Property Questionnaire ” shall mean the Property Questionnaire attached hereto as Exhibit         .

Property Statements ” shall mean the statements identified in Schedule 6.1.15 , including the notes and schedules thereto.

Purchase Price ” means the consideration to be paid by Purchaser to Seller for the purchase of the Property pursuant to Section 2.2 .

Purchaser ” shall have the meaning set forth in the introductory paragraph.

Purchaser Consultants ” shall have the meaning set forth in Section 4.3.1 .

Purchaser Default ” shall have the meaning set forth in Section 10.1 .

Purchaser Indemnifiable Damages ” shall have the meaning set forth in Section 13.3 .

 

A NNEX I - 7


Purchaser Indemnified Parties ” shall have the meaning set forth in Section 13.2 .

Purchaser Knowledge Individuals ” shall have the meaning set forth in Section 6.3 .

Purchaser’s Expenses ” means all actual out-of-pocket, reasonably documented costs and expenses incurred by Purchaser and/or its Affiliates or designees in connection with the transactions contemplated by this Agreement, including, without limitation, due diligence expenses, legal and travel expenses; provided, that Seller’s obligations to reimburse Purchaser for such expenses pursuant to this Agreement shall not in any event exceed an amount equal to $250,000.00.

Purchaser’s Knowledge ” shall have the meaning set forth in Section 6.3 .

Purchaser’s Representations ” shall have the meaning set forth in Section 6.3 .

Qualifying Income ” shall have the meaning set forth in Section 13.9 .

Records Disposal Notice ” shall have the meaning set forth in Section 5.4.12 .

Records Hold Period ” shall have the meaning set forth in Section 5.4.12 .

REIT ” shall have the meaning set forth in Section 13.9 .

Remove ” shall mean, with respect to any matter disclosed in the Title Documents, that Seller causes, at Seller’s expense, the Title Company to remove or affirmatively insure over (in form and substance approved by Purchaser in its reasonable discretion) such matter as an exception to the applicable Title Policy for the benefit of Purchaser by bonding, indemnity of Seller or otherwise (provided that in the case of a Secured Lien not granted by Purchaser, “Remove” shall mean the delivery by the holder thereof of a recordable cancellation or release or a payoff letter satisfactory to the Title Company and Purchaser unconditionally obligating such holder to release or cancel, upon repayment by Seller on or before Closing, the indebtedness secured thereby).

Rent Roll ” shall have the meaning set forth in Section 6.1.5 .

Repairs ” means demolition, restoration and/or replacement of all or any portion of any Facility and the related Property.

Required Consents ” shall have the meaning set forth in Section 6.1.11 .

Resident ” means any person or entity entitled to occupy any portion of the Property under a Resident Agreement.

Resident Agreements ” means all leases, subleases and other occupancy contracts, whether or not of record, which provide for the use or occupancy of residential space or facilities in any Facility and which are in force as of the Closing Date.

Resident Agreement Form ” shall have the meaning set forth in Section 6.1.6 .

 

A NNEX I - 8


Resident Agreements Assignment ” shall have the meaning set forth in Section 5.2.4 .

Scheduled Closing Date ” shall have the meaning set forth in Section 5.1 .

Secured Lien ” shall have the meaning set forth in Section 4.4 .

Seller ” shall have the meaning set forth in the introductory paragraph.

Seller Default ” shall have the meaning set forth in Section 10.2 .

Seller Guarantor ” means Harvest Facility Holdings LP.

Seller Guaranty ” shall have the meaning set forth in Section 14.24.1 .

Seller Indemnifiable Damages ” shall have the meaning set forth in Section 13.2 .

Seller Indemnified Parties ” shall have the meaning set forth in Section 13.3 .

Seller Knowledge Individuals ” shall have the meaning set forth in Section 6.2 .

Seller Liability Cap ” shall have the meaning set forth in Section 13.4.1 .

Seller Marks ” means all words, phrases, slogans, materials, software, proprietary systems, trade secrets, proprietary information and lists, and other intellectual property owned or used by any Property Seller, any Facility Owner, Manager, or any Affiliate of Seller in the marketing, operation or use of the Property (or in the marketing, operation or use of any other properties managed by the Manager and owned by any Property Seller, Facility Owner, or an Affiliate of either Manager or Seller), excluding all of Seller’s or any Facility Owner’s rights, if any, in and to the names of the Facilities.

Seller’s Covenants ” means the covenants set forth in Section 7.1 .

Seller’s Knowledge ” shall have the meaning set forth in Section 6.2 .

Seller’s Property-Related Files and Records ” shall have the meaning set forth in Section 5.4.11 .

Seller Representation and Covenant Basket ” shall have the meaning set forth in Section 13.4.1 .

Seller’s Representations ” means the representations and warranties set forth in Section 6.1 and Section 14.24.2 , in each case as modified by the Disclosure Schedules in accordance with the first paragraph of Article VI .

Survey ” shall have the meaning set forth in Section 4.2 .

Surviving Obligations ” shall mean those obligations which, pursuant to the express terms of this Agreement, survive termination of this Agreement or the Closing, as applicable.

 

A NNEX I - 9


Taking ” shall have the meaning set forth in Article XII .

Third Party Claim ” hall have the meaning set forth in Section 13.5.1 .

Third-Party Reports ” means any reports, studies or other information prepared or compiled by Seller, and Facility Owner, or Purchaser by any consultant or other third-party for Purchaser’s use in connection with Purchaser’s investigation of the Property, including, without limitation, the Third Party Reports identified on Exhibit L attached hereto.

Title Commitment ” shall have the meaning set forth in Section 4.1 .

Title Company ” shall have the meaning set forth in Section 2.2.1 .

Title Documents ” shall have the meaning set forth in Section 4.1 .

Title Policy ” means, with respect to each Facility, a standard American Land Title Association owner’s title insurance policy for the Land and Improvements issued by the Title Company pursuant to the applicable Title Commitment, using the current policy jacket customarily provided by the Title Company in the applicable state in an amount equal to that portion of the Purchase Price allocated to such Facility, excluding the personal property components thereof, pursuant to the Allocation Statement, subject only to the Permitted Exceptions.

Title Update ” shall have the meaning set forth in Section 4.5 .

Transactions ” means any and all transactions contemplated by the terms of this Agreement.

Transfer Taxes ” shall have the meaning set forth in Section 5.4.10.1 .

Travel Program ” means the program administered by Manager whereby residents of a Manager-managed facility are permitted to stay, subject to the availability of a guest room at the subject location, at another Manager-managed facility up to seven nights free of charge, as more particularly described in the Materials.

Uncollected Rents ” shall have the meaning set forth in Section 5.4.7.1 .

 

A NNEX I - 10

Exhibit 99.1

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined financial information was derived from the application of pro forma adjustments to the consolidated financial statements of New Senior Investment Group Inc. (“New Senior,” “the Company,” “we” or “our”). The unaudited pro forma combined statements of operations for the three months ended March 31, 2015 and the year ended December 31, 2014 give effect to the Pro Forma Transactions (as defined below) as if the Pro Forma Transactions had occurred or had become effective as of January 1, 2014. The unaudited pro forma combined balance sheet as of March 31, 2015 gives effect to the Pro Forma Transactions as if the Pro Forma Transactions had occurred or had become effective as of March 31, 2015. However, to the extent the Pro Forma Transactions were already reflected in the underlying historical data, no pro forma adjustment has been made to the historical financial statements.

The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable in order to reflect, on a pro forma basis, the impact of the transactions listed below on our historical financial information. The unaudited pro forma combined financial information is provided for informational and illustrative purposes only and should be read in conjunction with our unaudited financial statements as of and for the three months ended March 31, 2015 and the notes thereto included in our Quarterly Report on Form 10-Q filed on May 8, 2015 with the Securities and Exchange Commission (“SEC”), our audited financial statements for the year ended December 31, 2014 and the notes thereto included herein, the Combined Statements of Revenues and Certain Operating Expenses of the Timber Portfolio (as described below) for the three months ended March 31, 2015 (Unaudited) and the year ended December 31, 2014 and the notes thereto, included herein, and the Statement of Revenues and Certain Operating Expenses of the Hawthorn Portfolio (as described below) for the year ended December 31, 2014 and the notes thereto, included as Exhibit 99.2 in our Form 8-K filed on May 14, 2015 with the SEC.

The unaudited pro forma combined financial information has been prepared to reflect adjustments to our historical consolidated financial information that are (i) directly attributable to the Pro Forma Transactions, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on our results. However, such adjustments are estimates and may not prove to be accurate. Information regarding these adjustments is subject to risks and uncertainties that could cause actual results to differ materially from our unaudited pro forma combined financial information.

The unaudited pro forma combined information set forth below reflects the historical information of New Senior, as adjusted to give effect to the following transactions (together, the “Pro Forma Transactions”):

 

    the acquisition of the Hawthorn Portfolio which comprises 17 private pay, IL-only properties (“Hawthorn Portfolio Acquisition”) and related financing on March 27, 2015;

 

    the mortgage financing, which comprises the refinancing of mortgage loans (“Mortgage Loan Refinancing”) and the additional financing secured by existing properties (“Additional Financing”), on March 27, 2015;

 

    the anticipated issuance by us of              shares of common stock of the Company (“Common Stock Issuance”), to finance primarily the acquisition of the Timber Portfolio as well as general corporate purposes, and which for purposes of this unaudited pro forma financial information reflects the issuance of 17,500,000 shares at the closing price on June 19, 2015, which was $15.76;

 

    the anticipated acquisition of the Timber Portfolio which comprises 28 private pay, IL-only properties (“Timber Portfolio Acquisition”) and related financing; and

 

    the continuing effect of the transactions described above on management fees payable to FIG LLC (an affiliate of Fortress Investment Group LLC), the Company’s manager (the “Manager”), pursuant to the management agreement entered into between New Senior and the Manager effective as of the spinoff on November 6, 2014.

The impact of the Hawthorn Portfolio Acquisition and related financing, Mortgage Loan Refinancing and Additional Financing are already reflected in the Company’s historical consolidated balance sheet as of March 31, 2015; accordingly, no pro forma balance sheet adjustments for those transactions are presented herein. In addition, the Company’s historical consolidated statement of operations for the three months ended March 31, 2015 includes the impact of the Hawthorn Portfolio Acquisition and related financing, Mortgage Loan Refinancing, and Additional Financing for the period from March 27, 2015 through March 31, 2015;

 

1


accordingly, pro forma adjustments in the unaudited pro forma combined statement of operations for the three months ended March 31, 2015 are only for the period from January 1, 2015 through March 26, 2015.

The attached unaudited pro forma combined financial information is provided for informational purposes only. The unaudited pro forma combined statements of operations do not purport to represent what New Senior’s results of operations would have been had such transactions been consummated on the date indicated, nor do they represent our results of operations for any future date or period.

 

2


UNAUDITED PRO FORMA COMBINED BALANCE SHEET

March 31, 2015

(dollars in thousands, except share data)

 

     Historical     Common Stock
Issuance
    Timber Portfolio
Acquisition and
related financing
    Pro Forma  

Assets

        

Real estate investments:

        

Land

   $ 170,690      $ —        $ 40,312 (A)    $ 211,002   

Buildings, improvements and other

     1,907,393        —          531,915 (A)      2,439,308   

Accumulated depreciation

     (70,391     —          —          (70,391
  

 

 

   

 

 

   

 

 

   

 

 

 

Net real estate property

  2,007,692      —        572,227      2,579,919   
  

 

 

   

 

 

   

 

 

   

 

 

 

Acquired lease and other intangible assets

  239,557      —        67,773 (A)    307,330   

Accumulated amortization

  (95,811   —        —        (95,811
  

 

 

   

 

 

   

 

 

   

 

 

 

Net real estate intangibles

  143,746      —        67,773      211,519   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net real estate investments

  2,151,438      —        640,000      2,791,438   

Cash and cash equivalents

  107,090      266,147 (J)    (198,000 )(C)(D)    175,237   

Receivables and other assets, net

  69,208      —        —        69,208   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

$ 2,327,736    $ 266,147    $ 442,000    $ 3,035,883   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

Liabilities

Mortgage notes payable, net

$ 1,614,759    $ —      $ 445,000 (C)  $ 2,059,759   

Due to affiliates

  9,924      —        —        9,924   

Dividends payable

  —        —        —        —     

Accrued expenses and other liabilities

  75,753      —        —        75,753   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

$ 1,700,436    $ —      $ 445,000    $ 2,145,436   
  

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

Equity

Preferred stock $0.01 par value, 100,000,000 shares authorized and none outstanding

$ —      $ —      $ —      $ —     

Common stock $0.01 par value, 2,000,000,000 shares authorized on a historical and pro forma basis, 66,415,415 shares issued and outstanding on a historical basis, 83,915,415 shares issued and outstanding on a pro forma basis

  664      175 (J)    —        839   

Additional paid-in capital

  672,604      265,972 (J)    —        938,576   

Accumulated deficit

  (45,968   —        (3,000 )(D)    (48,968
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

$ 627,300    $ 266,147    $ (3,000 $ 890,447   
  

 

 

   

 

 

   

 

 

   

 

 

 
         
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

$ 2,327,736    $ 266,147    $ 442,000    $ 3,035,883   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited pro forma combined financial information.

 

3


UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

Three Months Ended March 31, 2015

(dollars in thousands, except share and per share data)

 

     Historical     Timber Portfolio
Acquisition and
related financing
    Hawthorn Portfolio
Acquisition and
related financing
    Mortgage Loan
Refinancing and
Additional
Financing
    Other pro forma
adjustments
    Pro Forma  

Revenues

            

Resident fees and services

   $ 47,188      $ 21,030 (B)    $ 14,010 (E)    $ —        $ —        $ 82,228   

Rental revenue

     26,672        —          —          —          —          26,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

  73,860      21,030      14,010      —        —        108,900   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

Property operating expense

  34,271      12,514 (B)    7,629 (E)    —        —        54,414   

Depreciation and amortization

  30,157      10,638 (A)    7,898 (F)    —        —        48,693   

Interest expense

  15,312      4,963 (C)    2,040 (G)    (974 )(I)    —        21,341   

Acquisition, transaction and integration expense

  3,918      —        (872 )(H)    —        —        3,046   

Management fee to affiliate

  3,050      —        —        —        1,034 (K)    4,084   

General and administrative expense

  3,409      —        —        —        —        3,409   

Loss on extinguishment of debt

  5,091      —        —        (5,091 )(I)    —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

  95,208      28,115      16,695      (6,065   1,034      134,987   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Income Taxes

  (21,348   (7,085   (2,685   6,065      (1,034   (26,087

Income tax benefit

  (95   —   (M)    —   (M)    —   (M)    —   (M)    (95
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

$ (21,253 $ (7,085 $ (2,685 $ 6,065    $ (1,034 $ (25,992
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss Per Share of Common Stock

Basic and diluted

$ (0.32 $ (0.31 )(L) 
  

 

 

           

 

 

 

Weighted Average Number of Shares of Common Stock Outstanding

Basic and diluted

  66,415,415      83,915,415 (L) 
  

 

 

           

 

 

 

See notes to unaudited pro forma combined financial information.

 

4


UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

Year Ended December 31, 2014

(dollars in thousands, except share and per share data)

 

     Historical     Timber Portfolio
Acquisition and
related financing
    Hawthorn Portfolio
Acquisition and
related financing
    Mortgage Loan
Refinancing and
Additional
Financing
    Other pro forma
adjustments
    Pro Forma  

Revenues

            

Resident fees and services

   $ 156,993      $ 82,311 (B)    $ 56,600 (E)    $ —        $ —        $ 295,904   

Rental revenue

     97,992        —          —          —          —          97,992   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

  254,985      82,311      56,600      —        —        393,896   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

Property operating expense

  112,242      49,396 (B)    31,197 (E)    —        —        192,835   

Depreciation and amortization

  103,279      42,552 (A)    33,451 (F)    —        —        179,282   

Interest expense

  57,026      19,850 (C)    8,640 (G)    (2,643 )(I)    —        82,873   

Acquisition, transaction and integration expense

  14,295      —        —        —        —        14,295   

Management fee to affiliate

  8,470      —        —        —        7,859 (K)    16,329   

General and administrative expense

  7,416      —        —        —        —        7,416   

Other (income) expense

  (1,500   —        —        —        —        (1,500
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

  301,228      111,798      73,288      (2,643   7,859      491,530   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Income Taxes

  (46,243   (29,487   (16,688   2,643      (7,859   (97,634

Income tax expense

  160      —   (M)    —   (M)    —   (M)    —   (M)    160   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

$ (46,403 $ (29,487 $ (16,688 $ 2,643    $ (7,859 $ (97,794
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss Per Share of Common Stock

Basic and diluted

$ (0.70 $ (1.17 )(L) 
  

 

 

           

 

 

 

Weighted Average Number of Shares of Common Stock Outstanding

Basic and diluted

  66,400,914      83,900,914 (L) 
  

 

 

           

 

 

 

See notes to unaudited pro forma combined financial information.

 

5


NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

(dollars in thousands, unless otherwise noted)

Timber Portfolio Acquisition and Related Financing

 

  (A) Reflects preliminary measurement of the fair value of the acquired assets and resulting depreciation and amortization of the buildings, building improvements, furniture, fixtures and equipment and intangible assets. The Company’s acquisition accounting for this transaction is still preliminary, and as a result, the related pro forma calculation for depreciation and amortization expense is preliminary and subject to completion. The acquired finite-lived intangible assets are being amortized over their estimated useful lives using the straight-line method. The following table summarizes the calculation of the pro forma adjustment for depreciation and amortization expense resulting from the Timber Portfolio Acquisition:

 

                 Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Asset class

   Weighted
average useful
life (years)
   Preliminary
Fair Value
     Recalculated
depreciation and
amortization
     Recalculated
depreciation and
amortization
 

Real estate investments:

           

Land

   Indefinite    $ 40,312       $ —         $ —     

Building

   40      502,687         3,142         12,567   

Building improvements

   10      5,054         126         505   

Furniture, fixtures & equipment

   5      24,174         1,209         4,835   

Amortized intangible assets:

           

In-place leases

   2.75      67,773         6,161         24,645   
     

 

 

       

Total assets acquired

$ 640,000   
     

 

 

    

 

 

    

 

 

 

Pro forma adjustment

$ 10,638    $ 42,552   
        

 

 

    

 

 

 

 

  (B) Reflects revenues and certain operating expenses of the Timber Portfolio for the three months ended March 31, 2015 and the year ended December 31, 2014 as adjusted for the items detailed in the footnotes below. The historical amounts were derived from the Combined Statements of Revenues and Certain Operating Expenses of the Timber Portfolio for the three months ended March 31, 2015 and the year ended December 31, 2014 included herein.

 

     Three months ended March 31, 2015      Year ended December 31, 2014  
     Historical      Adjustments     Pro forma
adjustment
     Historical      Adjustments     Pro forma
adjustment
 

Revenue:

               

Rent revenue

   $ 21,030       $ —   (i)    $ 21,030       $ 82,311       $ —   (i)    $ 82,311   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Certain operating expenses:

Facility operating expenses

$ 10,581    $ —      $ 10,581    $ 41,821    $ —      $ 41,821   

Property management fee

  736      316 (ii)    1,052      2,881      1,235 (ii)    4,116   

Real estate taxes

  881      —        881      3,459      —        3,459   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Property operating expenses

$ 12,198    $ 316    $ 12,514    $ 48,161    $ 1,235    $ 49,396   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

  i. Rent revenue has been classified as “Resident fees and services” to conform to the Company’s presentation.

 

  ii. The Timber Portfolio has historically been charged a property management fee equal to 3.5% of rent revenue. Upon acquisition, the Company will enter into new property management agreements for the Timber Portfolio which provide for a property management fee equal to 5% of effective gross income. The effective gross income represents the rent revenue of the Timber Portfolio, as expected to be defined in the respective property management agreements.

The following table reflects the impact of the property management fee increase to 5% of effective gross income:

 

     Three Months Ended
March 31, 2015
    Year Ended
December 31, 2014
 

Resident fees and services

   $ 21,030      $ 82,311   

Property management fee rate

     5.00     5.00
  

 

 

   

 

 

 

Pro forma property management fee

  1,052      4,116   

Less: historical Timber Portfolio property management fee

  (736   (2,881
  

 

 

   

 

 

 

Total adjustment to property management fee

$ 316    $ 1,235   
  

 

 

   

 

 

 

 

 

6


  (C) The Company expects to finance the Timber Portfolio Acquisition with $190.0 million of cash available from both the Common Stock Issuance and cash on hand, and with $450.0 million of mortgage notes. Financing costs of approximately $5.0 million are expected to be incurred with the issuance of the mortgage notes. The financing costs have been capitalized and are presented as a reduction to Mortgage notes payable, net on the unaudited pro forma combined balance sheet as a result of the Company’s adoption of Accounting Standards Update No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . For pro forma purposes, the deferred financing costs have been amortized using the effective interest method over the term of the mortgage notes in the unaudited pro forma combined statement of operations.

For purposes of this unaudited pro forma financial information the mortgage notes reflect the following principal balance and weighted average interest rate:

 

Principal balance   Weighted average
interest rate
  Fixed or
variable
  Maturity
$450,000   4.30%   Fixed   10 years

The following table reflects the pro forma adjustment to interest and amortization of deferred financing costs related to the mortgage notes as follows:

 

     Three months ended      Year ended  
     March 31, 2015      December 31, 2014  

Pro forma interest expense

   $ 4,838       $ 19,350   

Amortization of deferred financing costs

     125         500   
  

 

 

    

 

 

 

Pro forma adjustment to interest expense

$ 4,963    $ 19,850   
  

 

 

    

 

 

 

 

  (D) Reflects acquisition and transaction related costs of $3.0 million expected to be incurred or incurred subsequent to March 31, 2015 by the Company directly attributable to the Timber Portfolio Acquisition, which primarily consist of legal, consulting and accounting fees. Acquisition and transaction related costs of $3.0 million, financing costs of approximately $5.0 million (see note C) and $190.0 million of cash available from both the Common Stock Issuance and cash on hand (see note C) together amount to the cash and cash equivalents pro forma adjustment of $198.0 million on the unaudited pro forma combined balance sheet.

Hawthorn Portfolio Acquisition and Related Financing

 

  (E) Reflects revenues and certain operating expenses of the Hawthorn Portfolio for the period from January 1, 2015 through March 26, 2015 and the year ended December 31, 2014 as adjusted for the items detailed in the footnotes below. The historical amounts were derived from the unaudited Statement of Revenues and Certain Operating Expenses of the Hawthorn Portfolio for the period from January 1, 2015 through March 26, 2015 (not included herein) and the audited Statement of Revenues and Certain Operating Expenses of the Hawthorn Portfolio for the year ended December 31, 2014 (included as Exhibit 99.2 of our Form 8-K filed on May 14, 2015 pursuant to Rule 3-14 of Regulation S-X), respectively.

 

7


     Three months ended March 31, 2015 (1)      Year ended December 31, 2014  
                  Pro forma                   Pro forma  
     Historical      Adjustments     adjustment      Historical      Adjustments     adjustment  

Revenue:

               

Rent revenue

   $ 14,010       $ —   (i)    $ 14,010       $ 56,600       $ —   (i)    $ 56,600   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Certain operating expenses:

Facility operating expenses

$ 6,252    $ —      $ 6,252    $ 25,341    $ —      $ 25,341   

Property management fee

  490      211 (ii)    701      1,981      849 (ii)    2,830   

Real estate taxes

  676      —        676      3,026      —        3,026   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Property operating expenses

$ 7,418    $ 211    $ 7,629    $ 30,348    $ 849    $ 31,197   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

  (i) Rent revenue has been classified as “Resident fees and services” to conform to the Company’s presentation.

 

  (ii) The Hawthorn Portfolio has historically been charged a property management fee equal to 3.5% of rent revenue. Upon acquisition, the Company entered into new property management agreements for the Hawthorn Portfolio which provide for a property management fee equal to 5% of effective gross income. The effective gross income represents the rent revenue of the Hawthorn Portfolio, as defined in the respective property management agreements.

The following table reflects the impact of the property management fee increase to 5% of effective gross income:

 

     Three months ended
March 31, 2015 (1)
    Year ended
December 31, 2014
 

Resident fees and services

   $ 14,010      $ 56,600   

Property management fee rate

     5.00     5.00
  

 

 

   

 

 

 

Pro forma property management fee

  701      2,830   

Less: historical Hawthorn Portfolio property management fee

  (490   (1,981
  

 

 

   

 

 

 

Total adjustment to property management fee

$ 211    $ 849   
  

 

 

   

 

 

 

 

(1) Represents the pre-acquisition period from January 1, 2015 through March 26, 2015.

 

8


  (F) Reflects depreciation and amortization of the buildings, building improvements, furniture, fixtures and equipment and intangible assets based on our preliminary measurement of the fair value of the acquired assets. The Company’s acquisition accounting for this transaction is still preliminary, and as a result, the related pro forma calculation for depreciation and amortization expense is preliminary and subject to completion. The acquired finite-lived intangible assets are being amortized over their estimated useful lives using the straight-line method. The following table summarizes the calculation of the pro forma adjustment for depreciation and amortization expense resulting from the Hawthorn Portfolio Acquisition:

 

                 Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Asset class

   Weighted
average
useful life
(years)
   Preliminary
Fair Value
     Recalculated
depreciation and
amortization
     Recalculated
depreciation and
amortization
 

Real estate investments:

           

Land

   Indefinite    $ 27,737       $ —         $ —     

Buildings

   40      347,607         2,173         8,690   

Building improvements

   10      14,935         373         1,494   

Furniture, fixtures & equipment

   5      15,952         798         3,190   

Amortized intangible assets:

           

In-place leases

   2.75      55,212         5,019         20,077   
     

 

 

    

 

 

    

 

 

 
$ 461,443      8,363      33,451   
     

 

 

    

 

 

    

 

 

 

Less: historical New Senior depreciation and amortization

  (465   —     
        

 

 

    

 

 

 

Pro forma adjustment

$ 7,898    $ 33,451   
        

 

 

    

 

 

 

 

  (G) The Hawthorn Portfolio Acquisition was financed in part with $326.8 million of additional borrowings (see note I for further information). Financing costs of approximately $2.9 million were attributable to the financing of the Hawthorn Portfolio Acquisition.

The financing consists of the following principal balance and weighted average interest rate:

 

Principal balance   Weighted average
interest rate
  Fixed or
variable
  Maturity
$326,815   2.52%   Variable   7 years

The following adjustment represents the pro forma adjustment to interest and amortization of deferred financing costs related to the borrowing as follows:

 

     Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Pro forma interest expense

   $ 2,056       $ 8,223   

Amortization of deferred financing costs

     104         417   

Less: historical New Senior interest expense

     (120      —     
  

 

 

    

 

 

 

Pro forma adjustment to interest expense

$ 2,040    $ 8,640   
  

 

 

    

 

 

 

A 0.125% change in the variable interest rate would amount to a change in total annual pro forma interest expense of approximately $0.4 million.

 

  (H) Reflects the elimination of acquisition and transaction related costs of $0.9 million incurred in the three months ended March 31, 2015 by the Company directly attributable to the Hawthorn Portfolio Acquisition, which primarily consist of legal, consulting and accounting fees.

 

9


Mortgage Financing

 

  (I) In March 2015, the Company obtained financing of $670.0 million (“Freddie Financing”). The Freddie Financing consists of (i) the Hawthorn Portfolio Acquisition related financing of $326.8 million (see note G); (ii) the Mortgage Loan Refinancing of $297.0 million, which replaced our existing floating and fixed rate mortgage loans; and (iii) Additional Financing of $46.2 million which is secured by our existing properties.

Approximately $8.4 million of deferred financing costs associated with the Freddie Financing were capitalized, of which $2.9 million is attributable to the Hawthorn Portfolio Acquisition and $5.5 million is attributable to the Mortgage Loan Refinancing and Additional Financing. For pro forma purposes, the deferred financing costs have been amortized using the effective interest method over the respective terms of the financing facilities.

The Mortgage Loan Refinancing and Additional Financing, collectively, consist of the following principal balance and weighted average interest rate:

 

Principal balance   Weighted
average
interest rate
  Fixed or
variable
  Maturity
$343,185   2.52%   Variable   7 years

The following table summarizes the adjustments in the unaudited pro forma combined statements of operations to reflect the adjustments to interest expense related to the Mortgage Loan Refinancing and Additional Financing:

 

     Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Pro forma interest expense

   $ 2,159       $ 8,635   

Amortization of deferred financing costs

     198         791   

Less: historical New Senior interest expense

     (3,331      (12,069
  

 

 

    

 

 

 

Pro forma adjustment to interest expense

$ (974 $ (2,643
  

 

 

    

 

 

 

A 0.125% change in the variable interest rate would amount to a change in total annual pro forma interest expense of approximately $0.4 million.

The unaudited pro forma combined statement of operations for the three months ended March 31, 2015 also reflects the elimination of the $5.1 million loss on extinguishment of debt recorded in the unaudited historical statement of operations for the three months ended March 31, 2015, which is directly related to the Mortgage Loan Refinancing.

 

10


Common Stock Issuance

 

  (J) Reflects the anticipated issuance of              shares of common stock of the Company due to its continuing impact to management fees and incentive compensation (see note K) and which for purposes of this unaudited pro forma financial information reflects the issuance of 17,500,000 shares at the closing price on June 19, 2015, which was $15.76. A significant portion of the proceeds will be used to fund the Timber Portfolio Acquisition as well as general corporate purposes. The Company expects to incur issuance costs of approximately $9.7 million. The following table summarizes the adjustments in the unaudited pro forma combined balance sheet to reflect the adjustments related to the Common Stock Issuance (in thousands, except share and per share data):

 

Capital raise information

Shares issued

  17,500,000   

Offering price per share

$ 15.76   
  

 

 

 

Gross proceeds

$ 275,800   

Less: issuance costs

$ (9,653
  

 

 

 

Pro forma proceeds from share issuance, net of issuance costs

$ 266,147   
  

 

 

 

 

     March 31, 2015  

Balance sheet pro forma adjustments

   Common Stock
Issuance
 

Common stock $0.01 par value

     175   

Additional paid-in capital

     265,972   

Other Pro Forma Adjustments

 

  (K) Represents the impact to management fees as a result of the Pro Forma Transactions.

 

     Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Pro forma base management fee - spin-off adjustment (1)

   $ —         $ 10,332   

Pro forma base management fee - Common Stock Issuance adjustment  (2)

     1,034         4,137   

Pro forma incentive compensation (3)

     —           —     

Less: historical New Senior management fee (4)

     —           (6,610
  

 

 

    

 

 

 

Pro forma adjustment

$ 1,034    $ 7,859   
  

 

 

    

 

 

 

 

(1) The pro forma base management fees for the three months ended March 31, 2015 and the year ended December 31, 2014 reflect the continuing effect on management fees pursuant to the management agreement entered into between New Senior and the Manager in connection with the spin-off of New Senior from Newcastle on November 6, 2014. The amounts are based on applying the base management fee rate payable by New Senior of 1.5% to the invested capital. This pro forma adjustment reflects the base management fee as though invested capital at the spin-off date was the invested capital as of January 1, 2014.
(2) The pro forma base management fee for the three months ended March 31, 2015 and the year ended December 31, 2014 reflects the continuing effect on management fees pursuant to the management agreement entered into between New Senior and the Manager in connection with the Common Stock Issuance. The pro forma adjustment below reflects the base management fee adjustment for the Common Stock Issuance:

 

     Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Gross equity increase due to Common Stock Issuance

   $ 275,800       $ 275,800   

Base pro forma management fee of 1.5% of share issuance

     1,034         4,137   
  

 

 

    

 

 

 

Pro forma adjustment

$ 1,034    $ 4,137   
  

 

 

    

 

 

 

 

(3) Reflects the impact of the Common Stock Issuance, the Timber Portfolio Acquisition and related financing, the Hawthorn Portfolio Acquisition and related financing, the Mortgage Loan Refinancing and Additional Financing on the pro forma incentive compensation calculation.
(4) Represents the allocated portion of management fees paid by Newcastle Investment Corp. for management services provided by the Manager during the period prior to the spin-off, pursuant to Newcastle’s management agreement with the Manager.

 

11


  (L) Pro forma basic loss per common share attributable to common stockholders has been calculated based on the number of shares assumed to be outstanding, due to its continuing impact to management fees and incentive compensation. The calculations assume that such shares were outstanding for the full period presented.

The following table presents the computation of unaudited pro forma basic and diluted loss per share attributable to common stockholders (in thousands, except share and per share data):

 

     Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Net Income (Loss)

   $ (25,992    $ (97,794

Shares

     83,915,415         83,900,914   

Loss per share of common stock, basic and diluted

   $ (0.31    $ (1.17

Shares utilized in the calculation of pro forma basic and diluted loss per share attributable to common stockholders are as follows:

 

     Three months ended
March 31, 2015
     Year ended
December 31, 2014
 

Weighted-average shares outstanding, basic & diluted - historical shares

     66,415,415         66,400,914   

Weighted-average shares outstanding, basic & diluted - additional shares issued (see note J) (1)

     17,500,000         17,500,000   
  

 

 

    

 

 

 

Pro forma weighted-average shares outstanding, basic & diluted

  83,915,415      83,900,914   
  

 

 

    

 

 

 

 

  (1) The Company expects to issue 10% of the number of shares issued in the offering, as options to the Manager pursuant to the management agreement in connection with the Common Stock Issuance. However, this issuance of options does not impact the pro forma diluted loss per share calculations, as their effect would have been anti-dilutive.

 

  (M) New Senior has been operating so as to qualify as a REIT for U.S. federal and state income tax purposes. Therefore, certain activities including the Timber Portfolio Acquisition and related financing, the Hawthorn Portfolio Acquisition and related financing, the Mortgage Loan Refinancing and Additional Financing would not be subject to income tax. Accordingly, no adjustment to pro forma income tax expense has been reflected in the unaudited pro forma combined statements of operations.

 

12

Exhibit 99.2

Independent Auditors’ Report

The Partners

Harvest Facility Holdings LP

We have audited the accompanying combined Statement of Revenues and Certain Operating Expenses (the “Statement”) of The Timber Portfolio (the “Portfolio”) for the year ended December 31, 2014.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of the Statement in accordance with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the Statement that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statement. The procedures selected depend on the auditor’s judgment, including the assessment of risks of material misstatements of the Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statement.

We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the Statement referred to above presents fairly, in all material respects, the combined revenues and certain operating expenses described in Footnote 1 of the Portfolio for the year ended December 31, 2014 in conformity with U.S. generally accepted accounting principles.


Basis of Accounting

As described in Footnote 1 to the combined financial statement, the Statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of New Senior Investment Group Inc., and are not intended to be a complete presentation of the Portfolio’s combined revenues and expenses. Our opinion is not modified with respect to this matter.

 

/s/ Ernst & Young LLP

 

Chicago, Illinois
June 22, 2015


The Timber Portfolio

Combined Statements of Revenues and Certain Operating Expenses

(In thousands)

 

     Three Months
Ended March 31,
2015
     Year Ended
December 31,
2014
 
     (unaudited)         

Revenue

     

Rent revenue

   $ 21,030       $ 82,311   

Certain Operating Expenses:

     

Facility operating expenses

     10,581         41,821   

Property management fee

     736         2,881   

Real estate taxes

     881         3,459   
  

 

 

    

 

 

 

Revenue in excess of certain operating expenses

$ 8,832    $ 34,150   
  

 

 

    

 

 

 

See accompanying notes to the combined statements of revenues and certain operating expenses


The Timber Portfolio

Combined Statements of Revenues and Certain Operating Expenses

For the Three Months Ended March 31, 2015 (Unaudited) and the Year Ended December 31, 2014

 

1. Organization

The accompanying Statements of Revenues and Certain Operating Expenses (the “Statements”) include the operations of 28 independent living senior housing properties (collectively, the “Timber Portfolio”) that Harvest Facility Holdings LP expects to sell. The Timber Portfolio is 100% private pay and contains 3,298 units located across 21 states.

 

2. Basis of Presentation

The Statements have been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. Accordingly, the Statements are not intended to be a complete presentation of the combined revenues and expenses of the Timber Portfolio. The Statements exclude certain expenses such as depreciation and amortization and other costs not directly related or comparable to, or expected to be incurred in, the future operations of the Timber Portfolio.

 

3. Summary of Significant Accounting Policies

Use of Estimates - The preparation of the accompanying Statements in conformity with U.S. generally accepted accounting principles require the use of estimates and assumptions that affect the reported amounts of revenues and expenses during the periods. Actual results could differ from these estimates and assumptions.

Revenue Recognition – Rent revenue is recorded as it becomes due as provided in the residents’ lease agreements. Residents’ agreements are generally for a term of 30 days with rent payments due monthly in advance.

Certain properties have residency agreements that require the resident to pay an upfront community fee prior to occupying the unit. These community fees are nonrefundable after a stated period (typically 90 days) and are recognized on a straight-line basis as part of rent revenue over an estimated three-year average stay of the residents in the Timber Portfolio. Community fees recognized in rent revenue totaled $0.4 million and $1.5 million for the three months ended March 31, 2015 and the year ended December 31, 2014, respectively.

Certain residency agreements provide for free rent or incentives for a stated period of time. Incentives are recognized on a straight-line basis as a reduction of rent revenue over an estimated three-year average stay of the residents in the Timber Portfolio.

The Timber Portfolio owns properties in two states that generated an aggregate of approximately 24% of rent revenue for the three months ended March 31, 2015 and the year ended December 31, 2014, and each generated more than 10% of the rent revenue. The percentage of rent revenue for the two states is summarized below:

 

California

  13

Florida

  11

 

4. Property Management

The Timber Portfolio is currently operated by Holiday AL Holdings LP (“Holiday”), which is owned by private equity funds managed by an affiliate of Fortress Investment Group LLC. The Timber Portfolio is charged a management fee equal to 3.5% of rent revenue covering employee and other overhead costs attributable to managing the Timber Portfolio.


The Timber Portfolio

Combined Statements of Revenues and Certain Operating Expenses

For the Three Months Ended March 31, 2015 (Unaudited) and the Year Ended December 31, 2014

 

Harvest Facility Holdings LP expects to sell the Timber Portfolio and Holiday expects to continue to operate the Timber Portfolio under new property management agreements. The terms and management fee rates of the new property management agreements may be different from the existing property management agreement.

 

5. Subsequent Events

In preparation of the accompanying Statements, the Timber Portfolio has been evaluated for events and transactions occurring after June 22, 2015, the date the Statements were available to be issued, and no events have occurred that require additional disclosure.

LOGO

Contact:

David Smith

212-479-3140

NEW SENIOR ANNOUNCES AGREEMENT TO ACQUIRE $640 MILLION

OF HIGH QUALITY SENIOR HOUSING ASSETS

NEW YORK — June 22, 2015 — New Senior Investment Group Inc. (“New Senior” or the “Company”) (NYSE: SNR) announced today it has entered into an agreement to acquire a 28-property portfolio of private pay, independent living senior housing properties (the “Portfolio”) from affiliates of Holiday Retirement (“Holiday”) for approximately $640 million. The Company expects to invest approximately $190 million of equity and incur approximately $450 million of debt to acquire the Portfolio.

The Portfolio is 100% private pay and contains 3,298 independent living units located across 21 states and had an average occupancy rate of 88% as of May 2015. The Portfolio is currently operated by Holiday, and the Company expects Holiday will continue to operate the Portfolio following the closing of the acquisition under new property management agreements. The Company expects the Portfolio to generate an initial cash net operating income (“NOI”) yield (after property management fees) of approximately 6.4%.

“We are excited to add 28 independent living properties to our portfolio through this accretive acquisition. This transaction further increases our industry-leading private pay senior housing NOI exposure to 91% of our portfolio,” New Senior Chief Executive Officer Susan Givens said.

Upon closing of the acquisition, the Company’s portfolio will include 152 properties with approximately 18,900 beds across 37 states.

Strategic Benefits of the Acquisition

 

    Increased and Industry-Leading Private Pay Senior Housing NOI : Upon closing, the Company expects NOI from private pay independent living and assisted living / memory care communities to increase to approximately 91%, the highest among the publicly-traded healthcare REITs. New Senior’s portfolio will be attractively balanced between business models, with its managed portfolio expected to account for approximately 51% of NOI and its triple-net leased portfolio expected to account for approximately 49% of NOI following the acquisition.

 

    High-Quality Portfolio with an Attractive Yield and Growth Potential: The Portfolio has strong occupancy of 88%. Furthermore, the Portfolio generated strong NOI margins (after property management fees) of approximately 40% for the first quarter of 2015 and is expected to generate an initial cash NOI yield of approximately 6.4%.

 

    Additional Geographic Diversification: The acquisition will increase the geographic diversification of the Company’s portfolio, adding five new states (AR, SD, SC, HI and IN). Following the acquisition, New Senior’s portfolio will span 37 states.

 

    Expanded Relationship with a Proven Best-in-Class Senior Housing Operator: The Company expects Holiday, the largest independent living operator in the U.S. with over 300 properties in 43 states, to continue to manage the properties after the closing of the acquisition, which should allow for a seamless transition in the property operations. The terms of the management agreement will include a base management fee along with an incentive fee to align the interests of Holiday and New Senior in driving performance and growth. Holiday is majority owned by private equity funds managed by an affiliate of the Company’s manager.

 

1


    Accretive Transaction: The Company expects the acquisition to be accretive to the Company’s adjusted funds from operations (“AFFO”) and normalized funds available for distribution (“Normalized FAD”).

The Company expects the closing of the acquisition to occur by the third quarter of 2015. The closing is subject to customary closing conditions, and there can be no assurance as to the timing or the occurrence of the closing.

The transaction was unanimously approved by a committee of the Company’s Board of Directors composed of the Company’s independent directors (the “Transaction Committee”), with Greenhill & Co., LLC acting as the Transaction Committee’s financial advisor and Davis Polk & Wardell LLP acting as its legal advisor. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Holiday.

ABOUT NEW SENIOR

New Senior is a real estate investment trust focused on investing in senior housing properties across the United States. The Company is one of the largest owners of senior housing properties and currently owns 124 properties in 32 states. New Senior is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm. More information about New Senior can be found at www.newseniorinv.com .

FORWARD-LOOKING STATEMENTS

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the amount of the expected debt and equity investment, the Portfolio’s expected an initial cash NOI yield, which represents the expected cash NOI from the Portfolio for a full year period divided by the purchase price for the Portfolio, the Company’s expected NOI from private pay independent living and assisted living / memory care communities and the expected balance between managed and triple-net leased properties, the expectation that Holiday will continue to manage the properties after the closing of the acquisition, the expectation that the acquisition will be accretive to AFFO and normalized FAD or at all, the expectation that the Company will complete the acquisition of the Portfolio and the expected closing date of the acquisition. These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are available on the Company’s website (www.newseniorinv.com). Factors which could have a material adverse effect on the Company’s operations and future prospects include, but are not limited to, various risks relating to the acquisition and the inability to obtain, or delays in obtaining the benefits from the acquisition. In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

 

2

Table of Contents

Exhibit 99.4

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

          Page  
PART II   

Item 6.

  

Selected Financial Data

     2   

Item 7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     5   

Item 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

     27   

Item 8.

  

Financial Statements and Supplementary Data

     29   


Table of Contents

PART II

ITEM 6. SELECTED FINANCIAL DATA

The Company’s initial acquisition of senior care facilities on July 18, 2012 was accounted for as a business combination which gave rise to a new basis of accounting. Activities prior to and including July 17, 2012 are referred to as the “Predecessor” period and are prepared on a combined basis. Activities on and after July 18, 2012 are referred to as the “Successor” period and are prepared on a consolidated basis. The financial data as of and for the years ended December 31, 2014 (audited), December 31, 2013 (audited), the period from July 18, 2012 to December 31, 2012 (audited) and the period from January 1, 2012 to July 17, 2012 (audited) has been derived from our audited financial statements for those dates and periods included elsewhere in this Form 10-K. The financial data as of December 31, 2012 (audited) and the financial data as of and for the years ended December 31, 2011 (audited) and December 31, 2010 (unaudited) has been derived from our historical Consolidated and Combined Financial Statements that are not included in this Form 10-K. The selected financial data provided below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical Consolidated and Combined Financial Statements and related notes.

As described in Note 2 of our Consolidated Financial Statements included in this filing, we applied acquisition accounting as of July 18, 2012 in connection with the acquisition of the initial portfolio of senior housing properties by Newcastle. As a result, the financial data for the Successor periods is not comparable to that of our Predecessor.

Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2015 or for any future period. The impact of acquisitions, change in the Management Agreement and other changes due to the spin-off are discussed in greater detail within the “Consolidated Financial Information” section of this filing. The data should be read in conjunction with the Consolidated and Combined Financial Statements, related notes and other financial information included herein.

 

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Operating Data

 

(dollars in thousands, except share data)                                            
     Successor           Predecessor  
     For the Year Ended
December 31,
    For the
Period from
July 18, 2012
to
December 31,
2012
          For the
Period from
January 1,
2012

to July 17,
2012
     For the Year Ended
December 31,
 
     2014     2013             2011      2010  
                                           (Unaudited)  

Revenues

                   

Resident fees and services

   $ 156,993      $ 83,218      $ 18,000           $ 19,680       $ 36,419       $ 34,570   

Rental revenue

     97,992        1,918        —               —           —           —     
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Total revenues

  254,985      85,136      18,000        19,680      36,419      34,570   
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Expenses

 

Property operating expense

  112,242      59,726      13,011        13,778      25,512      25,050   

Depreciation and amortization

  103,279      26,933      5,784        1,203      2,418      2,580   

Interest expense

  57,026      10,589      1,767        2,534      —        —     

Acquisition, transaction and integration expense

  14,295      13,294      6,037        —        4,699      4,767   

Management fee to affiliate

  8,470      1,796      464        —        —        —     

General and administrative expense

  7,416      2,188      274        20      16      31   

Other (income) expense

  (1,500   —        —          —        —        —     
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Total expenses

  301,228      114,526      27,337        17,535      32,645      32,428   
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 
 

Income (loss) before income taxes

  (46,243   (29,390   (9,337     2,145      3,774      2,142   

Income tax expense

  160      656      150        —        —        —     
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Net income (loss)

$ (46,403 $ (30,046 $ (9,487   $ 2,145    $ 3,774    $ 2,142   
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Income (loss) per share of common stock, basic and diluted

$ (0.70 $ (0.45 $ (0.14   $ 0.03    $ 0.06    $ 0.03   
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Weighted average number of shares of common stock outstanding, basic and diluted

  66,400,914      66,399,857      66,399,857        66,399,857      66,399,857      66,399,857   
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Dividends declared per share of common stock

$ 0.23    $ —      $ —        $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

        

 

 

    

 

 

    

 

 

 

Cash Flow Data

 

(dollars in thousands)    Successor           Predecessor  
     For the Year Ended
December 31,
    For the
Period from
July 18, 2012
to
December 31,
2012
          For the
Period from
January 1,
2012
to July 17,
2012
    For the Year Ended
December 31,
 
     2014     2013            2011     2010  
                                         (Unaudited)  

Net cash provided by (used in)

                 

Operating activities

   $ 46,611      $ 42,532      $ (1,486        $ 3,076      $ 6,973      $ 4,861   

Investing activities

     (331,858     (1,253,174     (44,411          (251     (1,092     (1,129

Financing activities

   $ 481,231      $ 1,231,315      $ 55,617           $ (2,955   $ (6,331   $ (3,506

 

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Balance Sheet Data

 

(dollars in thousands)    Successor            Predecessor  
     As of December 31            As of December 31  
     2014      2013      2012            2011     2010  
                                      (Unaudited)  

Total assets

   $ 1,966,159       $ 1,507,616       $ 194,080            $ 46,124      $ 48,269   

Total mortgage notes payable, net

     1,223,224         1,035,193         118,275              69,810        71,387   

Total liabilities

     1,317,623         1,099,781         124,376              73,309        74,641   

Total equity

   $ 648,536       $ 407,835       $ 69,704            $ (27,185   $ (26,372

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of New Senior. The following should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 within this Annual Report on Form 10-K. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in Part I. Item 1A. “Risk Factors” of this Annual Report on Form 10-K.

OVERVIEW

Our Business

We invest in a diversified portfolio of senior housing properties across 27 states in the United States. We were formed as Newcastle Senior Living Holdings LLC, a Delaware limited liability company, in 2012. We converted to a Delaware corporation on May 30, 2014 and changed our name to New Senior Investment Group Inc. on June 16, 2014.

On November 6, 2014, our spin-off was completed with the distribution of all of our outstanding shares to the holders of Newcastle common stock. Newcastle was our sole stockholder until the spin-off. Following the spin-off, we are a separate publicly traded REIT primarily focused on investing in senior housing properties and listed on the NYSE under the symbol “SNR.” We are headquartered in New York, New York.

We conduct our business through two reportable segments: Managed Properties and Triple Net Lease Properties. See our Consolidated Financial Statements and the related notes, including “Note 1. Organization,” included in Part II, Item 8 of this Annual Report on Form 10-K.

We are externally managed by the Manager and advised by Fortress on various aspects of our business and our operations, subject to the supervision of our board of directors. For its services, the Manager is entitled to an annual management fee and incentive compensation, both as defined in, and in accordance with the terms of, the Management Agreement.

Acquisitions

For a discussion of acquisitions made in the current year, See Part I, Item 1- “Business—Acquired Properties” of this Annual Report on Form 10-K.

We intend to continue to acquire senior housing properties for both our Managed Properties and Triple Net Lease Properties segments.

MARKET CONSIDERATIONS

We invest in assets that generate significant cash flows and have the potential for meaningful capital appreciation. We seek to employ a conservative capital structure to generate attractive risk adjusted returns throughout different business cycles and interest rate environments. We take an active approach centered around identifying and executing on opportunities, responding to the changing market environment, and managing our investment portfolio to enhance returns. Specifically:

 

    we expect projected changes in demographics to drive increased demand for senior housing, creating favorable supply-demand fundamentals;

 

    targeting smaller portfolios enables us to reduce competition with other active REIT buyers of large portfolios; and

 

    capitalizing on the experience of our Manager in the senior housing industry, we expect to generate growth in property-level net operating income when operational and structural efficiencies are achieved.

 

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We made eight acquisitions of senior housing portfolios comprised of 16 properties during the year ended December 31, 2014. We continue to explore opportunities to invest in additional senior housing properties across the United States. While we generally target small portfolios, we have invested in large portfolios that we believe offer attractive risk-adjusted returns.

Our senior housing acquisitions have been financed with a combination of fixed and floating rate debt. Rising interest rates would increase the cost of our floating rate financing and negatively impact the returns on our senior housing investments.

 

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RESULTS OF OPERATIONS

Comparability of Information

We have a limited operating history as we acquired our first portfolio of senior housing properties in July 2012. Prior to November 7, 2014 we were not operating as a separate, standalone entity, and our results of operations were prepared on a spin-off basis from the Consolidated Financial Statements and accounting records of Newcastle and reflected Newcastle’s basis in the acquired properties. Management believes that the assumptions and methods of allocation used in our results of operations are reasonable.

Segment Overview

We evaluate our business operations and allocate resources based on two segments: (i) Managed Properties and (ii) Triple Net Lease Properties. Under our Managed Properties segment, we operate 43 properties under property management agreements with the Property Managers. Under our Triple Net Lease Properties segment, we lease 57 of our properties under three triple net master leases.

We evaluate performance of these reportable business segments based on segment net operating income (“NOI”). We consider NOI as an important supplemental measure used to evaluate the operating performance of our segments because it allows investors, analysts and our management to assess our unleveraged property-level operating results and to compare our operating results with other real estate companies, and between periods on a consistent basis. We define NOI as total revenue less property operating expense.

Our Managed Properties segment operates various types of senior housing properties and provides our customers with a broad range of services that management believes are integral to the success and growth of this segment. Our Triple Net Lease Properties segment leases senior housing properties on a long-term basis whereby we do not manage the underlying operations, as our tenants are typically responsible for bearing operating costs including maintenance, utilities, taxes, insurance, repairs and capital improvements. Thus, resident fees and services, property operating expense, general and administrative expense, other income and expense and income tax expense are not relevant to the Triple Net Lease Properties segment. Because of such differences in the nature of the segments’ activities, each segment requires a different type of management focus. As such, these segments are managed separately. In deciding how to allocate resources and assess performance, our chief operating decision maker regularly evaluates the performance of our reportable segments on the basis of NOI.

 

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Year ended December 31, 2014 compared to the year ended December 31, 2013

The following table sets forth our historical results of operations for the years ended December 31, 2014 and December 31, 2013, derived from our audited Consolidated Financial Statements included elsewhere in this Form 10-K.

 

(dollars in thousands)    Year Ended
December 31, 2014
    Year Ended
December 31, 2013
 
     Amount      Percent of
Revenues
    Amount      Percent of
Revenues
 

Revenues

          

Resident fees and services

   $ 156,993         61.6   $ 83,218         97.7

Rental revenue

     97,992         38.4     1,918         2.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues

  254,985      100.0   85,136      100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Expenses

Property operating expense

  112,242      44.0   59,726      70.2

Depreciation and amortization

  103,279      40.5   26,933      31.6

Interest expense

  57,026      22.4   10,589      12.4

Acquisition, transaction and integration expense

  14,295      5.6   13,294      15.6

Management fee to affiliate

  8,470      3.3   1,796      2.1

General and administrative expense

  7,416      2.9   2,188      2.6

Other (income) expense

  (1,500   (0.6 )%    —        0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses

  301,228      118.1   114,526      134.5
  

 

 

    

 

 

   

 

 

    

 

 

 

    

  

 

 

    

 

 

   

 

 

    

 

 

 

Loss before income taxes

  (46,243   (18.1 )%    (29,390   (34.5 )% 

Income tax expense

  160      0.1   656      0.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss

$ (46,403   (18.2 )%  $ (30,046   (35.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

 

The operating results shown above include both the Managed Properties and Triple Net Lease Properties segments. Our initial Triple Net Lease Properties were acquired in December 2013. As these properties were acquired in December 2013, they had a negligible impact on operating results for the year ended December 31, 2013. A significant portion of the changes in revenues and expenses between the years ended December 31, 2014 and December 31, 2013 are a direct result of owning the 51 Triple Net Lease Properties that were acquired in December 2013 for the full year ended December 31, 2014.

The following table provides a comparison of the results of operations of our segments for the years ended December 31, 2014 and December 31, 2013:

 

(dollars in thousands)    Year Ended
December 31, 2014
    Year Ended
December 31, 2013
 
     Amount      Percent of
Revenues
    Amount      Percent of
Revenues
 

Managed Properties

          

Resident fees and services

   $ 156,993         100.0   $ 83,218         100.0

Property operating expense

     112,242         71.5     59,726         71.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Segment NOI for Managed Properties

  44,751      28.5   23,492      28.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Triple Net Lease Properties

Rental revenue

  97,992      100.0   1,918      100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Segment NOI for Triple Net Lease Properties

$ 97,992      100.0 $ 1,918      100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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The following table provides the reconciliation of our segment NOI to net loss, and compares the results of operations for the years ended December 31, 2014 and December 31, 2013:

 

(dollars in thousands)    Year Ended
December 31, 2014
    Year Ended
December 31, 2013
 
     Amount      Percent of
Revenues
    Amount      Percent of
Revenues
 

Total revenue

   $ 254,985         100.0   $ 85,136         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Segment NOI for Managed Properties

  44,751      17.6   23,492      27.6

Segment NOI for Triple Net Lease Properties

  97,992      38.4   1,918      2.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Segment NOI

  142,743      56.0   25,410      29.9

Expenses

Depreciation and amortization

  103,279      40.5   26,933      31.6

Interest expense

  57,026      22.4   10,589      12.4

Acquisition, transaction and integration expense

  14,295      5.6   13,294      15.6

Management fee to affiliate

  8,470      3.3   1,796      2.1

General and administrative expense

  7,416      2.9   2,188      2.6

Other (income) expense

  (1,500   (0.6 )%    —        —     

Income tax expense

  160      0.1   656      0.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss

$ (46,403   (18.2 )%  $ (30,046   (35.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

 

Managed Properties

During 2014, we acquired 10 senior housing properties in seven different portfolios bringing the total number of Managed Properties to 43 as of December 31, 2014. We accounted for each acquisition under the acquisition method, whereby all assets acquired and liabilities assumed are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred. The results of operations from the acquisitions are reflected in our Consolidated Financial Statements from the date of respective acquisition.

 

     As of and for the Year Ended
December 31,
 
     2014     2013  

Total properties

     43        33   

Total beds

     5,362        4,453   

Average occupancy rate

     83.6     82.5

Same store information, as used herein, is defined as information for 12 properties owned for the entirety of comparable periods. The following table presents Same Store Segment NOI, Segment NOI for non-Same Store properties and Total Segment NOI for the years ended December 31, 2014 and December 31, 2013:

 

(dollars in thousands)    Year Ended December 31,      Increase (Decrease)  
     2014      2013      Amount      Percentage  

Managed Properties

           

Resident fees and services

   $ 58,759       $ 53,967       $ 4,792         8.9

Property operating expense

     (39,685      (37,749      (1,936      5.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Same Store Segment NOI

  19,074      16,218      2,856      17.6

Segment NOI for non-Same Store properties

  25,677      7,274      NM      NM   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Segment NOI

$ 44,751    $ 23,492      NM      NM   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

NM – Not meaningful

 

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Resident fees and services

Resident fees and services represent residents’ monthly rental and care fees. Revenue from resident fees and services for the years ended December 31, 2014 and December 31, 2013 was $157.0 million and $83.2 million, respectively. For the year ended December 31, 2014, resident fees and services include revenues derived from the additional ten properties that were acquired after December 31, 2013 and have been part of operations since their acquisition date. This series of acquisitions increased the total number of beds by 909 to bring the total bed count to 5,362 for the Managed Properties segment at December 31, 2014. Average occupancy rates for the years ended December 31, 2014 and December 31, 2013 were 83.6% and 82.5%, respectively.

Same store resident fees and services increased by $4.8 million to $58.8 million for the year ended December 31, 2014 from $54.0 million for the year ended December 31, 2013. This increase was driven by an increase in rental rates, offset by a 0.7% decrease in average occupancy rates on a same store basis from 83.5% as of December 31, 2013 to 82.8% as of December 31, 2014.

Property operating expense

Property operating expense for the years ended December 31, 2014 and December 31, 2013 were $112.2 million and $59.7 million, respectively. The increase was primarily due to increases in labor, food, utilities, marketing and other costs as a result of the additional properties that were acquired after December 31, 2013 and have been part of our operations since their respective acquisition dates. Property operating expense as a percent of segment revenues decreased to 71.5% for the year ended December 31, 2014 from 71.8% for the year ended December 31, 2013.

Property operating expense include property management fee and travel reimbursements paid to Property Managers of $9.7 million and $5.2 million for the years ended December 31, 2014 and December 31, 2013, respectively. With the exception of the addition of JEA as a Property Manager, there have been no changes to the basis by which property management fees are paid to the Property Managers.

Same store property operating expense increased by $1.9 million to $39.7 million from $37.8 million for the years ended December 31, 2014 and December 31, 2013, respectively, primarily due to an increase in labor costs.

Segment NOI for Managed Properties

Segment NOI for Managed Properties was $44.8 million and $23.5 million, or as a percent of resident fees and services, 28.5% and 28.2%, for the years ended December 31, 2014 and December 31, 2013, respectively. The increase in segment NOI was primarily due to the increase in resident fees and services, as explained above, and reflects the impact of the ten senior housing property acquisitions since December 31, 2013.

Same Store Segment NOI for the Managed Properties segment increased by $2.9 million, to $19.1 million for the year ended December 31, 2014 from $16.2 million for the year ended December 31, 2013, due to proportionally larger increases in rental rates when compared to increases in labor costs.

 

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Triple Net Lease Properties

Rental revenue and Segment NOI for Triple Net Lease Properties

Segment NOI for Triple Net Lease Properties was $98.0 million and $1.9 million for the years ended December 31, 2014 and December 31, 2013, respectively. The Holiday Portfolios, our initial Triple Net Lease Properties, were acquired in December 2013. Therefore, a significant portion of the increase in revenues between the year ended December 31, 2014 and December 31, 2013 is a direct result of the 51 Triple Net Lease Properties that were acquired in December 2013. As a percentage of rental revenue, segment NOI was 100% of revenue for each fiscal year as the lessee operates the property and bears the related costs, including repairs, maintenance, capital expenditures, utilities, taxes, insurance and the payroll expense of property-level employees.

Expenses

Depreciation and amortization

Depreciation and amortization expense was $103.3 million and $26.9 million for the years ended December 31, 2014 and December 31, 2013, respectively. The increase was primarily the result of depreciation and amortization related to the Holiday Portfolios that were acquired in December 2013. In addition, 16 additional properties were acquired in our Managed Proprieties and Triple Net Lease segments after December 31, 2013 and have been part of our operations since their respective acquisition dates.

Interest expense

Interest expense was $57.0 million and $10.6 million for the years ended December 31, 2014 and December 31, 2013, respectively. The increase was primarily the result of additional interest expense related to the Holiday Portfolios that were acquired in December 2013. In addition, we incurred an additional $195.1 million in debt since December 31, 2013 and repaid $13.7 million of mortgage notes payable. The net increase in mortgage notes payable, related to the acquisition of 16 properties since December 31, 2013, resulted in increased interest expense.

The weighted average effective interest rate for the years ended December 31, 2014 and December 31, 2013 was 5.00% and 4.15%, respectively.

Acquisition, transaction and integration expense

Acquisition, transaction and integration expense for the years ended December 31, 2014 and December 31, 2013 was $14.3 million and $13.3 million, respectively. Acquisition and transaction expenses included costs related to completed and potential acquisitions and transactions and include advisory, legal, accounting, valuations and other professional or consulting fees and spin-off related costs. Integration expenses include costs directly related to the integration of acquired businesses such as lender mandated repairs, licensing, rebranding and training. Acquisition, transaction and integration expense includes $9.3 million and $1.7 million of spin-off related costs and $0.4 million and $0.7 million of integration costs for the years ended December 31, 2014 and December 31, 2013, respectively.

Management fee to affiliate

Management fee to affiliate expense was $8.5 million and $1.8 million for the years ended December 31, 2014 and December 31, 2013, respectively.

Subsequent to the spin-off, we are party to a management agreement with the Manager, and management fee to affiliate expense for the period from November 7, 2014 to December 31, 2014 was $1.9 million. We pay a management fee equal to 1.5% per annum of our gross equity, which is generally the equity invested by Newcastle as of the distribution date, plus certain

 

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adjustments as defined in the agreement with the Manager. The Manager is also entitled to receive, on a quarterly basis, incentive compensation. Prior to the spin-off, Newcastle was party to a management agreement with the Manager, and, as a subsidiary of Newcastle, we were allocated a portion of the relevant management fee calculated as 1.5% of daily gross equity, as defined in the management agreement.

General and administrative expense

General and administrative expense for the years ended December 31, 2014 and December 31, 2013 was $7.4 million and $2.2 million, respectively. The increase was primarily driven by growth in the portfolio, coupled with expenses associated with the implementation of Sarbanes-Oxley compliant accounting policies and procedures as part of becoming a standalone public company.

Other (income) expense

We recognized $1.5 million in other income for the year ended December 31, 2014 related to the change in fair value of contingent consideration attributable to a portfolio of senior housing facilities acquired in 2013.

Income tax expense

We have been operating so as to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. During the years ended December 31, 2014 and December 31, 2013, our TRS recorded approximately $0.2 million and $0.7 million in income tax expense, respectively.

 

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Year ended December 31, 2013 compared to the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012

The following table sets forth our historical results of operations for the year ended December 31, 2013, the period from July 18, 2012 to December 31, 2012, and the period from January 1 to July 17, 2012, derived from our audited Consolidated Financial Statements included elsewhere in this Form 10-K.

 

     Successor           Predecessor  
(dollars in thousands)    Year Ended
December 31, 2013
    July 18, 2012 to
December 31, 2012
          January 1, 2012
to July 17, 2012
 
     Amount     Percent of
Revenues
    Amount     Percent of
Revenues
          Amount      Percent of
Revenues
 

Revenues

                  

Resident fees and services

   $ 83,218        97.7   $ 18,000        100.0        $ 19,680         100.0

Rental revenue

     1,918        2.3     —          —               —           —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Total revenues

  85,136      100.0   18,000      100.0     19,680      100.0
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Expenses

 

Property operating expense

  59,726      70.2   13,011      72.3     13,778      70.0

Depreciation and amortization

  26,933      31.6   5,784      32.1     1,203      6.1

Interest expense

  10,589      12.4   1,767      9.8     2,534      12.9

Acquisition, transaction and integration expense

  13,294      15.6   6,037      33.5     —        —     

Management fee to affiliate

  1,796      2.1   464      2.6     —        —     

General and administrative expense

  2,188      2.6   274      1.5     20      0.1
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Total expenses

  114,526      134.5   27,337      151.8     17,535      89.1
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Loss before income taxes

  (29,390   (34.5 )%    (9,337   (51.8 )%      2,145      10.9
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Income tax expense

  656      0.8   150      0.8     —        —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Net loss

$ (30,046   (35.3 )%  $ (9,487   (52.6 )%    $ 2,145      10.9
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

While the operating results shown above include both the Managed Properties and Triple Net Lease Properties segments, our initial Triple Net Lease Properties were acquired in December 2013. Thus, the overall results for the year ended December 31, 2013, the period from July 18, 2012 to December 31, 2012, and the period from January 1,2012 to July 17, 2012 are primarily those of the Managed Properties segment. In addition, a significant portion of the changes in revenues and expenses between the years ended December 31, 2013 and December 31, 2012 are a direct result of the series of acquisitions completed in the fourth calendar quarter of 2012 and in 2013, which increased the total number of properties owned from 12 as of December 31, 2012 to 84 as of December 31, 2013.

 

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The following table provides a comparison of the results of operations of our segments for the year ended December 31, 2013, the period from July 18, 2012 to December 31, 2012 and the period from January 1, 2012 to July 17, 2012:

 

     Successor           Predecessor  
(dollars in thousands)    Year Ended
December 31, 2013
    July 18, 2012 to
December 31, 2012
          January 1, 2012
to July 17, 2012
 
     Amount      Percent of
Revenues
    Amount      Percent of
Revenues
          Amount      Percent of
Revenues
 

Managed Properties

                    

Resident fees and services

   $ 83,218         100.0   $ 18,000         100.0        $ 19,680         100.0

Property operating expense

     59,726         71.8     13,011         72.3          13,778         70.0
  

 

 

    

 

 

   

 

 

    

 

 

        

 

 

    

 

 

 

Segment NOI for Managed Properties

  23,492      28.2   4,989      27.7     5,902      30.0
  

 

 

    

 

 

   

 

 

    

 

 

        

 

 

    

 

 

 
 

Triple Net Lease Properties

 

Rental revenue

  1,918      100.0   —        —          —        —     
  

 

 

    

 

 

   

 

 

    

 

 

        

 

 

    

 

 

 

Segment NOI for Triple Net Lease Properties

$ 1,918      100.0   —        —          —        —     
  

 

 

    

 

 

   

 

 

    

 

 

        

 

 

    

 

 

 

The following table provides the reconciliation of our segment NOI to net loss, and compares the results of operations for the year ended December 31, 2013, the period from July 18, 2012 to December 31, 2012, and period from January 1, 2012 to July 17, 2012:

 

     Successor           Predecessor  
(dollars in thousands)    Year Ended
December 31, 2013
    July 18, 2012 to
December 31, 2012
          January 1, 2012
to July 17, 2012
 
     Amount     Percent of
Revenues
    Amount     Percent of
Revenues
          Amount      Percent of
Revenues
 

Total revenue

   $ 85,136        100.0   $ 18,000        100.0        $ 19,680         100.0
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Segment NOI for Managed Properties

  23,492      27.6   4,989      27.7     5,902      30.0

Segment NOI for Triple Net Lease Properties

  1,918      2.3   —        —          —        —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Total Segment NOI

  25,410      29.8   4,989      27.7     5,902      30.0

Expenses

 

Depreciation and amortization

  26,933      31.6   5,784      32.1     1,203      6.1

Interest expense

  10,589      12.4   1,767      9.8     2,534      12.9

Acquisition, transaction and integration expense

  13,294      15.6   6,037      33.5     —        —     

Management fee to affiliate

  1,796      2.1   464      2.6     —        —     

General and administrative expense

  2,188      2.6   274      1.5     20      0.1

Income tax expense

  656      0.8   150      0.8     —        —     
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Net loss

$ (30,046   (35.3 )%  $ (9,487   (52.6 )%    $ 2,145      10.9
  

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Managed Properties

During 2013, we acquired 21 senior housing properties in seven different portfolios bringing the total number of Managed Properties to 33 as of December 31, 2013. We accounted for each acquisition under the acquisition method, whereby all assets acquired and liabilities assumed are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred. The results of operations from the acquisitions are reflected in our Consolidated Financial Statements from the date of respective acquisition.

 

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     As of and for the Year Ended
December 31,
 
     2013      2012  

Total properties

     33         12   

Total beds

     4,453         1,426   

Resident fees and services

Resident fees and services represent residents’ monthly rental and care fees. Revenue from resident fees and services for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012 was $83.2 million, $18.0 million and $19.7 million, respectively. Resident fees and services include revenues derived from the acquisitions of 21 senior housing facilities in 2013 and subsequent operations of such facilities. This series of acquisitions increased the total number of beds by 3,027, and brought the total bed count to 4,453 for the Managed Properties segment at December 31, 2013. Average occupancy rates for the year ended December 31, 2013 and the period July 18, 2012 to December 31, 2012 were 82.5% and 86.3%, respectively.

Property operating expense

Property operating expense for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012 was $59.7 million, $13.0 million and $13.8 million, respectively. The increase was primarily due to increases in labor, food, utilities, marketing and other costs as a result of the additional properties that were acquired and have been part of the operations. As a percentage of segment revenues, property operating expense remained fairly stable at 71.8%, 72.3% and 70.0% for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively.

Property operating expense includes property management fee and travel reimbursements paid to property managers of $5.2 million, $1.1 million and $1.0 million, for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively. Pursuant to our property management agreements, we pay fees equal to either (i) 5% of the property’s effective gross income (as defined in each respective agreement) or (ii) 6% of the property’s effective gross income (as defined in each respective agreement) for the first two years and 7% thereafter. The increase in dollar amount is due to additional properties acquired and managed by property managers. JEA was not a property manager in either 2013 or 2012.

Segment NOI for Managed Properties

Segment NOI for Managed Properties was $23.5 million, $5.0 million and $5.9 million, or as a percent of segment revenues was 28.2%, 27.7% and 30.0% for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively. The decrease in NOI as a percent of resident fees and services was due to increase in property operating expenses as discussed above. The dollar increase reflects the impact of the acquisitions of 33 senior housing properties since July 2012.

Triple Net Lease Properties

Rental revenue and Segment NOI for Triple Net Lease Properties

We completed the acquisition of the Holiday Portfolios in December 2013 which resulted in the creation of our Triple Net Lease Properties segment. Due to the timing of this acquisition, the results of operations for this segment have only limited results. Rental revenue was $1.9 million for the year ended December 31, 2013 and $0 in prior periods. Rental revenue is comprised of fixed lease payments from the Master Tenants and is generally not impacted by the performance of the properties. The average occupancy rate during the period of time that the Triple Net Lease Properties were held in 2013 was 89.1%. As a percentage of rental revenue, segment NOI was 100% for the year ended December 31, 2013.

 

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Expenses

Depreciation and amortization

As of July 18, 2012, our real estate investments were recorded at fair value as a result of the acquisition of our initial portfolio of senior housing properties. Consequently, because of the change in basis in our real estate investments, depreciation and amortization is not comparable between the Predecessor and Successor periods. We recorded $26.9 million in depreciation and amortization for the year ended December 31, 2013, $5.8 million for the period from July 18, 2012 to December 31, 2012, and $1.2 million for the period from January 1, 2012 to July 17, 2012.

Interest expense

Interest expense was $10.6 million, $1.8 million and $2.5 million for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively. Because all but one of the mortgages relating to Managed Properties acquired were refinanced, interest expense between Predecessor and Successor periods is not directly comparable.

In 2013, we incurred an additional $957.0 million and repaid $0.7 million of mortgage notes payable. The weighted average interest rate for the year ended December 31, 2013 and the period from July 18, 2012 to December 31, 2012 was 4.15% and 3.60%, respectively.

Acquisition, transaction and integration expense

Acquisition, transaction and integration expense for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012 was $13.3 million, $6.0 million and $0, respectively. Acquisition and transaction expenses included costs related to completed and potential acquisitions and transactions and include advisory, legal, accounting, valuations and other professional or consulting fees and spin-off related costs. Integration expenses include costs directly related to the integration of acquired businesses such as lender mandated repairs, licensing, rebranding and training. Acquisition, transaction and integration expense include $1.7 million for spin-off related costs during the year ended December 31, 2013. No such costs were incurred during the previous periods. The remaining increase in dollar amounts was a result of the acquisition of 21 properties in 2013, up from 12 properties during the period from July 18, 2012 to December 31, 2012. Integration costs of $0.7 million for the year ended December 31, 2013 has been reclassified from Property operating expense to Acquisition, transaction and integration expense to conform to the 2014 presentation.

Management fee to affiliate

Management fee to affiliate expense was $1.8 million, $0.5 million and $0, for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively.

Newcastle was party to a management agreement with the Manager during the Successor period, and as a subsidiary of Newcastle, we were allocated a portion of this management fee, calculated as 1.5% of daily gross equity, as defined. We were not party to the management agreement between the Manager and Newcastle during the Predecessor periods.

General and administrative expense

General and administrative expense for the year ended December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012 was $2.2 million, $0.3 million and $0.0 million, respectively. We acquired 21 properties in 2013 and 12 properties during the period from July 18, 2012 to December 31, 2012. The increase in general and administrative expense was a result of an increase in the number of properties being operational subsequent to respective acquisition dates.

 

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Income tax expense

We have been operating so as to qualify as a REIT under the requirements of the Code. However, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes. During the year ended December 31, 2013, and the period from July 18, 2012 to December 31, 2012, our TRS recorded approximately $0.7 million and $0.2 million in income tax expense, respectively. In the Predecessor period, we were treated as a disregarded single-member limited liability entity for U.S. federal and state income tax purposes, and, consequently, were not subject to, and did not record, any income tax expense.

 

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OUR PORTFOLIO

See Item 1 - “Business - Our Portfolio” for a description of our portfolio of senior housing.

TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES

Management Agreements

See Item 1 - “Business - Management Agreements” included in part I, Item 1 of this Annual report on Form 10-K and “Note 10. Transactions with Affiliates and Affiliated Entities,” included in part II, Item 8 of this Annual report on Form 10-K for more information on the Management Agreement.

Property Management Agreements

We are party to property management agreements for each senior housing property within the Managed Properties segment. We enter into long-term property management agreements for our managed properties with Blue Harbor, Holiday and JEA. Blue Harbor and Holiday’s property management agreements have initial ten-year terms, with successive automatic one-year renewal periods. JEA’s property management agreement has an initial five-year term, with successive automatic one-year renewal periods. Under these agreements, we pay monthly property management fees. For AL/MC properties managed by Blue Harbor and Holiday, we pay management fees equal to 6% of effective gross income for the first two years and 7% thereafter. For IL-only properties managed by Blue Harbor and Holiday, we pay management fees equal to 5% of effective gross income. We pay management fees equal to 5% of gross revenues for the property managed by JEA.

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity needs are to (i) fund operating expenses, (ii) meet debt service requirements, (iii) fund recurring capital expenditures and acquisition activities and (iv) make dividend distributions. At December 31, 2014, we had approximately $226.4 million in liquidity, consisting of unrestricted cash and cash equivalents. In connection with the spin-off, Newcastle contributed cash to us in the amount of $197.0 million. Accordingly, we had approximately $245.2 million in liquidity at the spin-off date. Cash flow provided by operations constitutes a critical component of our liquidity. Essentially, our cash flow provided by operations is equal to (i) revenues received from our senior housing portfolios, less (ii) operating expenses (primarily management fees, property operating expense, professional fees, insurance and taxes), less (iii) interest on the mortgage notes payable. Net cash provided by (used in) operating activities was $46.6 million, $42.5 million, $(1.5) million, and $3.1 million for the years ended December 31, 2014 and December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively.

We anticipate that our cash on hand combined with our cash flows provided by operating activities will be sufficient to fund our business operations, recurring capital expenditures, debt service and distributions to our shareholders over the next twelve months. In addition, we may elect to meet certain liquidity requirements through proceeds from the sale of assets or from borrowings and/or equity and debt offerings.

These expectations are forward-looking and subject to a number of uncertainties and assumptions, which are described below under “Factors That Could Impact Our Liquidity, Capital Resources and Capital Obligations” as well as “Risk Factors.” If our expectations about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and this shortfall may occur rapidly and with little or no notice, which would limit our ability to address the shortfall on a timely basis.

 

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Table of Contents

Factors That Could Impact Our Liquidity, Capital Resources and Capital Obligations

The following factors could impact our liquidity, capital resources and capital obligations. As such, if their outcomes do not meet our expectations, changes in these factors may negatively impact liquidity:

 

    Access to Financing : Decisions by investors, counterparties and lenders to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with covenant terms, industry and market trends, the availability of capital and our investors’, counterparties’ and lenders’ policies and rates applicable thereto and the relative attractiveness of alternative investment or lending opportunities.

 

    Impact of Expected Additional Borrowings or Sales of Assets on Cash Flows : The availability and timing of and proceeds from additional borrowings may be different than expected or may not occur as expected. Proceeds from sales of assets are unpredictable and may vary materially from their estimated fair value and carrying value.

Debt Obligations

Mortgage notes related to certain senior housing properties contain various customary loan covenants, in some cases including a Debt Service Coverage Ratio and Project Yield, as defined in the agreements. We were in compliance with all of the covenants as of December 31, 2014.

See Note 8 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K, for further information related to our non-recourse mortgage notes as of December 31, 2014.

Capital Expenditures

For our Managed Properties segment, we anticipate that capital expenditures will be funded through operating cash flows from the Managed Properties along with additional borrowings. However, our borrowing capability may be limited or restricted in certain circumstances by our existing contractual debt obligations and, therefore, limit our ability to fund capital expenditures.

With respect to our Triple Net Lease Properties segment, the terms of these arrangements typically require the tenants to fund all necessary capital expenditures in order to maintain and improve the applicable senior housing properties. To the extent that our tenants are unwilling or unable to fund these capital expenditure obligations under the existing lease arrangements, we may fund capital expenditures with additional borrowings or cash flow from the operations of these senior housing properties. We may also provide corresponding loans or advances to tenants which would increase the rent payable to us.

Cash Flows

The following table provides a summary of our cash flows for the year ended December 31, 2014, the year ended December 31, 2013, the period from July 18 to December 31, 2012, and the period from January 1, 2012 to July 17, 2012:

 

(dollars in thousands)    Successor           Predecessor  
     Year Ended
December 31,
2014
    Year Ended
December 31,
2013
    July 18, 2012
to December 31,
2012
          January 1,
2012 to July 17,
2012
 

Net cash provided by (used in)

             

Operating activities

   $ 46,611      $ 42,532      $ (1,486        $ 3,076   

Investing activities

     (331,858     (1,253,174     (44,411          (251

Financing activities

     481,231        1,231,315        55,617             (2,955
  

 

 

   

 

 

   

 

 

        

 

 

 

Net increase (decrease) in cash and cash equivalents

  195,984      20,673      9,720        (130

Cash and cash equivalents, beginning of period

  30,393      9,720      —          1,057   
  

 

 

   

 

 

   

 

 

        

 

 

 

Cash and cash equivalents, end of period

$ 226,377    $ 30,393    $ 9,720      $ 927   
  

 

 

   

 

 

   

 

 

        

 

 

 

Operating activities

Net cash provided by (used in) operating activities was $46.6 million, $42.5 million, $(1.5) million, and $3.1 million for the years ended December 31, 2014 and December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively.

 

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The $4.1 million increase from the year ended December 31, 2013 to the year ended December 31, 2014 was primarily driven by an increase in cash flows provided by resident fees and services as a result of an increased number of properties in the Managed Properties segment and rental revenue in the Triple Net Lease Properties segment. The increase in cash provided by resident fees and services due to the increased number of properties was largely offset by a proportional increase in property operating expense for the additional properties acquired within the Managed Properties segment, and the increase in rental revenue in the Triple Net Lease Properties segment was partially offset by increased interest expense related to debt issued to finance acquisitions in the Triple Net Lease Properties segment.

The increase in cash from operating activities for the year ended December 31, 2013 over prior periods was primarily driven by incremental cash received from resident fees and services in the Managed Properties segment along with cash received from rental revenue in the Triple Net Lease Properties segment. Conversely, cash flow from operating activities for the period from July 18, 2012 to December 31, 2012 decreased from the period from January 1, 2012 to July 17, 2012 as a result of additional costs incurred by the Company in connection with the integration of our acquisitions.

Investing activities

Net cash used in investing activities was $331.9 million, $1,253.2 million, $44.4 million, and $0.3 million for the years ended December 31, 2014 and December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively.

Net cash used in investing activities during the year ended December 31, 2014 was less than net cash used during the year ended December 31, 2013 due to a change in the relative magnitude of acquisitions between the respective periods. During the year ended December 31, 2014, we acquired 16 properties for $314.9 million, whereas during the year ended December 31, 2013, we acquired 72 properties for $1,249.2 million. During the years ended December 31, 2014 and December 31, 2013, cash used and cash reserved for capital expenditures amounted to $12.1 million and $3.5 million, respectively. Net cash used in investing activities during the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012 was significantly lower compared to the year ended December 31, 2013 because our operations had only recently commenced, and there were only four properties acquired in the period from July 18, 2012 to December 31, 2012 while there were no significant acquisitions in the period from January 1, 2012 through July 17, 2012.

Financing activities

Net cash provided by (used in) financing activities was $481.2 million, $1,231.3 million, $55.6 million and $(3.0) million for the years ended December 31, 2014 and December 31, 2013 and the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, respectively.

Compared to December 31, 2013, cash flow from financing activities for the year ended December 31, 2014 decreased $750.1 million, primarily because we acquired 14 properties financed with $195.1 million in long term debt during the year ended December 31, 2014 whereas we acquired 72 properties financed with $904.5 million in long-term debt during the year ended December 31, 2013. Net cash provided by financing activities further decreased during the year ended December 31, 2014 when compared to the year ended December 31, 2013 because the net amount of contributions and distributions from Newcastle decreased by $65.9 million due to the decrease in property acquisitions.

Compared to the periods from July 18, 2012 to December 31, 2012 and January 1, 2012 to July 17, 2012, cash flow from financing activities for the year ended December 31, 2013 increased $1,178.7 million, primarily because we acquired 72 properties financed with $904.5 million in long-term debt, offset by $40.6 million in finance costs during the year ended December 31, 2013, whereas we acquired four properties financed with $32.1 million in long-term debt during the period from July 18, 2012 to December 31, 2012 and had no significant acquisitions in the period from January 1, 2012 to July 17, 2012. Net cash provided by financing activities further increased between the year ended December 31, 2013 and the period from July 18, 2012 to December 31, 2012 because the net amount of contributions and distributions from Newcastle increased by $343.9 million.

 

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REIT Compliance Requirements

We have been operating so as to qualify as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, excluding net capital gains. We intend to pay dividends greater than all of our REIT taxable income to holders of our common stock in 2014, if, and to the extent, authorized by our board of directors. We note that a portion of this requirement may be able to be met in future years with stock dividends, rather than cash distributions, subject to limitations. We expect that our operating cash flows will exceed REIT taxable income due to depreciation and other non-cash deductions in computing REIT taxable income. However, before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our obligations. If we do not have sufficient liquid assets to enable us to satisfy the 90% distribution requirement, or if we decide to retain cash, we may sell assets, issue additional equity securities or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

Income Tax

We have been operating so as to qualify as a REIT under the requirements of the Code. Currently, certain of our activities are conducted through our TRS and therefore are subject to federal and state income taxes at regular corporate tax rates. Our TRS leases properties from our REIT entities for which the TRS is charged rent based on market rates following the terms of the lease agreements between the TRS and the REIT entities. As of December 31, 2014, the Company is in the process of reviewing these agreements and we may modify certain provisions in order to clarify existing terms. Any modification to the timing or extent of lease payments between our REIT entities and the TRS would result in a change to our taxable income, although our pre-tax income would remain unchanged due to the fact that our REIT entities and the TRS are consolidated and transactions between consolidated entities are eliminated.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2014, we do not have any off-balance sheet arrangements. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose or variable interest entities established to facilitate off-balance sheet arrangements. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.

CONTRACTUAL OBLIGATIONS

As of December 31, 2014, we had the following material contractual obligations (dollars in thousands):

 

Contractual obligation

   2015      2016      2017      2018      2019      Thereafter  

Mortgage notes payable (A)

   $ 17,046       $ 42,302       $ 204,128       $ 206,774       $ 140,657       $ 647,663   

 

(A) These amounts include only scheduled principal repayments. See Note 8 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K, for further information about interest rates.

In addition to mortgage notes payable, we are a party to the Management Agreement with the Manager and property management agreements with Property Managers. However, at this time, the amount of this obligation is not estimable. We also committed to making available $6.5 million immediately for capital improvements and other repairs in the properties under certain lease agreements and also agreed to make available an additional $9.0 million at certain intervals during the lease period, under the same lease agreements, to be used for further capital improvements. Upon funding the capital improvements, we will be entitled to rent increases. No capital improvements or other repairs have been funded as of December 31, 2014.

 

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Finally, we have two ground leases with initial terms of 74 and 82 years. The ground leases require equal annual rent payments that together amount to $0.4 million over the life of the leases. We do not have any supplier contracts or other material commitments at this time.

INFLATION

Our triple net leases provide for either fixed increases in base rents and/or indexed escalators, based on the CPI. In our Managed Properties segment, resident agreements are generally month to month agreements affording us the opportunity to increase prices subject to market and other conditions. We believe that inflationary increases in costs and expenses will be offset, at least in part, by contractual rent and resident fee increases.

NON-GAAP FINANCIAL MEASURES

We believe that net income, as defined by GAAP, is the most appropriate earnings measurement. However, we consider certain non-GAAP financial measures to be useful supplemental measures of our operating performance. A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not excluded from or included in the most comparable GAAP measure. The following describes the non-GAAP financial measures based on which management evaluates our operating performance and that we consider most useful to investors, and sets forth reconciliations of these measures to the most directly comparable GAAP financial measures.

The non-GAAP financial measures we present in this Form 10-K may not be identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. You should not consider these measures as alternatives to net income (determined in accordance with GAAP) as indicators of our financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of our liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine these measures in conjunction with net income as presented in our Consolidated Financial Statements and other financial data included elsewhere in this Form 10-K.

We have a limited operating history and we acquired our first portfolio of senior housing properties on July 18, 2012. Since real estate investments have been remeasured to fair value as of the date of acquisition, the carrying amount of these assets on our consolidated balance sheets, as well as the related depreciation expense, in the Successor periods increased significantly which, accordingly, cannot be meaningfully compared to depreciation expense for the Predecessor periods as it is based on a lower historical cost basis. In addition, because we typically refinance the mortgages associated with the senior housing properties that we acquire, interest expense for the Successor and Predecessor periods is not directly comparable. Also, during the successor period, but prior to our spin-off from Newcastle, our Parent was party to a management agreement with FIG LLC, a subsidiary of Fortress, and we were allocated a portion of the management fee. Since the spin-off, we have been party to the Management Agreement with FIG LLC, for which we pay a management fee. We were not party to any management agreement during the Predecessor periods. As such, we believe the non-GAAP financial measures for the Predecessor periods are not meaningful to investors, analysts and our management to assess the financial performance of the Company and have not been presented herein.

Funds From Operations and Normalized Funds From Operations

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. To overcome this problem, we consider Funds From Operations (“FFO”) and Normalized FFO to be appropriate measures of operating performance of an equity REIT. In particular, we believe that Normalized FFO is useful because it allows investors, analysts and our management to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by period specific items and events such as transaction costs.

 

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We use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as net income (computed in accordance with GAAP) excluding gains (losses) from sales of depreciable real estate assets, impairment charges of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and joint ventures to reflect FFO on the same basis. We define Normalized FFO as FFO excluding the following income and expense items (which may be recurring in nature): (a) acquisition, transaction and integration related costs and expenses; (b) the write off of unamortized deferred financing fees, or additional costs, make whole payments, penalties or premiums incurred as the result of early repayment of debt; and (c) changes in the fair value of contingent consideration and financial instruments.

The following table sets forth a reconciliation of net loss to FFO and Normalized FFO for the year ended December 31, 2014, the year ended December 31, 2013 and the period from July 18 to December 31, 2012:

 

(dollars in thousands)    Successor  
     Year Ended
December 31, 2014
    Year Ended
December 31, 2013
    July 18 2012 to
December 31, 2012
 

Net income (loss)

   $ (46,403   $ (30,046   $ (9,487

Depreciation and amortization

     103,279        26,933        5,784   
  

 

 

   

 

 

   

 

 

 

FFO

  56,876      (3,113   (3,703

Acquisition, transaction and integration expense

  14,295      13,294      6,037   

Change in fair value of contingent consideration (A)

  (1,500   —        —     
  

 

 

   

 

 

   

 

 

 

Normalized FFO

$ 69,671    $ 10,181    $ 2,334   
  

 

 

   

 

 

   

 

 

 

 

  (A) Included in other (income) expense in the Consolidated Statements of Operations.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

We consider Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) as an important supplemental measure to net income because it provides additional information with which to evaluate our operating performance on an unleveraged basis. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, excluding acquisition, transaction and integration expense, gains (losses) on sales of real estate, impairment charges and changes in fair value of contingent consideration and financial instruments. Adjusted EBITDA does not represent, and should not be considered as an alternative to, net income as determined in accordance with GAAP.

The following table sets forth a reconciliation of net loss to Adjusted EBITDA for the year ended December 31, 2014, the year ended December 31, 2013, and the period from July 18, 2012 to December 31, 2012:

 

(dollars in thousands)   Successor  
    Year Ended
December 31, 2014
    Year Ended
December 31, 2013
    July 18 to
December 31, 2012
 

Net loss

  $ (46,403   $ (30,046   $ (9,487

Interest expense

    57,026        10,589        1,767   

Income tax expense

    160        656        150   

Depreciation and amortization

    103,279        26,933        5,784   

Acquisition, transaction and integration expense

    14,295        13,294        6,037   

Change in fair value of contingent consideration (A)

    (1,500     —          —     
 

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 126,857    $ 21,426    $ 4,251   
 

 

 

   

 

 

   

 

 

 

 

  (A) Included in other (income) expense in the Consolidated Statements of Operations.

 

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APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations is based upon our historical financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates. Management believes that the estimates and assumptions utilized in the preparation of the Consolidated Financial Statements are prudent and reasonable. Actual results historically have been in line with management’s estimates and judgments used in applying each of the accounting policies described below, as modified periodically to reflect current market conditions.

A summary of our significant accounting policies is presented in Note 2 to our Consolidated Financial Statements. The following is a summary of our accounting policies that are most effected by judgments, estimates and assumptions.

Revenue Recognition

Resident Fees and Services - Resident fees and services include monthly rental revenue, care income and ancillary income recognized from the Managed Properties segment. Resident fees and services are recognized monthly as services are provided. Lease agreements with residents are cancelable by the resident with 30 days’ notice. Ancillary income primarily relates to non-refundable community fees. Non-refundable community fees are recognized on a straight-line basis over the average length of stay of residents, which we estimate to be approximately 24 months for AL/MC properties and approximately 33 months for IL-only properties.

Rental revenue - Rental revenue from the Triple Net Lease Properties segment is recognized on a straight-line basis over the applicable term of the lease when collectability is reasonably assured. Recognizing rental revenue on a straight-line basis typically results in recognizing revenue in excess of cash amounts contractually due from the Company’s tenants during the first half of the lease term, creating a straight-line rent receivable that is included in receivables and other assets, net.

Acquisition Accounting

The Company has determined that all of its acquisitions should be accounted for under the acquisition method. The accounting for acquisitions requires the identification and measurement of all acquired tangible and intangibles assets and assumed liabilities at their respective fair values as of the respective transaction dates. Recognized intangible assets primarily include the fair value of in-place resident leases and above/below market lease intangibles. In measuring the fair value of net tangible and identified intangible assets acquired and liabilities assumed, management uses information obtained as a result of pre-acquisition due diligence, marketing, leasing activities and independent appraisals. In the case of real property, the fair value of the tangible assets acquired is determined by valuing the property as if it were vacant.

We estimate the fair value of in-place leases as (i) the present value of the estimated rental revenue that would have been forgone, offset by variable costs that would have otherwise been incurred during a reasonable lease-up period, as if the acquired units were vacant and (ii) the estimated absorption costs, such as additional marketing costs that would have been incurred during the lease-up period. The acquisition fair value of the in-place lease intangibles is amortized over the average length of stay of the residents at the senior housing properties on a straight-line basis, which is estimated to be 24 months for AL/MC and CCRC properties and 33 months for IL-only properties.

We estimate the fair value of above/below market lease intangibles as the difference between contract rent and market rent over the remaining lease term for each leased property, on a discounted basis. Above/below market lease intangibles also include ground lease intangibles that are amortized over the contractual lives of the leases.

Other intangibles recognized upon acquisition include intangible assets such as non-compete intangibles. Non-compete intangibles reflect the fair value of non-compete agreements at acquisition. We estimate the fair value of non-compete

 

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intangibles as the sum of (i) the present value of the consulting services during the non-compete period and (ii) the difference between (a) the present value of the net operating income with the non-compete agreements in place and (b) the present value of the net operating income, as if the non-compete agreements were not in place. The acquisition fair value of the non-compete intangibles is amortized over the non-compete period on a straight-line basis.

Contingent consideration, if any, is measured at fair value on the date of acquisition. In subsequent reporting periods, the fair value of the contingent consideration is remeasured at each reporting date, with any change recorded in other income and expense in the Consolidated Statements of Operations.

Acquisition and transaction expense includes costs related to completed and potential acquisitions and transactions and include advisory, legal, accounting, valuation and other professional or consulting fees. Integration expense includes costs directly related to the integration of acquired businesses such as lender mandated repairs, licensing, rebranding and training incurred in connection with the acquisition.

Acquisition, transaction and integration costs are expensed as incurred. Integration costs of $0.7 million for the year ended December 31, 2013 have been reclassified from Property operating expense to Acquisition, transaction and integration expense to conform to the 2014 presentation.

Provision for Uncollectible Receivables

We assess the collectibility of our rent receivables on an ongoing basis. We base our assessment on several factors, including, resident payment history, the financial strength of the resident and any guarantors, the value of the underlying collateral, if any, and current economic conditions. If our evaluation of these factors indicates it is probable that the Company will not be able to recover the full value of the receivable, we provide a specific reserve against the portion of the receivable that we estimate may not be recovered.

Impairment of Long Lived Assets

We periodically evaluate long-lived assets, including definite lived intangible assets, primarily consisting of our real estate investments, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, market conditions and our current intentions with respect to holding or disposing of the asset are considered. We adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. An impairment loss is recognized at the time any such determination is made.

For further information on significant accounting policies, refer to Note 2 to the Consolidated Financial Statements, included in Item 8.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . ASU 2014-08 raises the threshold for disposals to qualify as discontinued operations. A discontinued operation is defined as: (1) a component of an entity or group of components that has been disposed of or classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results; or (2) an acquired business that is classified as held for sale on the acquisition date. ASU 2014-08 also requires additional disclosures regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations. This update is effective for New Senior in the first quarter of 2015. New Senior does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements until it disposes of its assets in future periods.

 

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In May 2014, the FASB and the International Accounting Standards Board (“IASB”) issued ASU 2014-09 Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU is effective for the Company in the first quarter of 2017. Early application is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In November 2014, the Emerging Issues Task Force (EITF) and FASB issued ASU 2014-17 Pushdown Accounting . The guidance will allow but not require an acquired entity to apply pushdown accounting upon acquisition by a new parent. It will give acquired entities that are businesses or nonprofit activities the option to apply pushdown accounting in their separate financial statements when an acquirer obtains control of them. The guidance represents a significant change from current practice which requires registrants to apply pushdown accounting when they become substantially wholly owned and prohibits pushdown accounting at ownership levels of less than 80%. The guidance is effective immediately from November 18, 2014. The election to apply pushdown accounting can be made either in the period in which the change of control occurred, or in a subsequent period. If the election is made in a subsequent period, it would be considered a change in accounting principle and treated in accordance with Topic 250, Accounting Changes and Error Corrections. This ASU is applicable to the Company as it is considered a variable interest entity (“VIE”) due to the terms of the Management Agreement with the Manager, and the Manager has been deemed the primary beneficiary. As the Manager is a wholly owned subsidiary of Fortress, Fortress is consolidating New Senior as of November 7, 2014, and we have elected not to apply push down accounting

In February 2015, the FASB issued ASU 2015-02 which amends the consolidation guidance in ASC 810. The standard eliminates the deferral of FAS 167, per ASC 810-10-65-2(a), that has allowed certain investment funds to follow the previous consolidation guidance in FIN 46 (R). The standard changes whether (1) fees paid to a decision maker or service provider represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact, if any, it may have on its Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs . The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies, and early adoption is permitted. The Company has elected to early adopt the provisions of this ASU and it requires retrospective application to all prior periods. Accordingly, “Mortgage notes payable, net” is reported net of deferred financing costs of $36,206 and $41,979 as of December 31, 2014 and 2013, respectively, in the Consolidated Balance Sheets.

The FASB has recently issued or discussed a number of proposed standards on such topics as financial statement presentation, leases, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on the Company’s Consolidated Financial Statements. The Company has not yet fully evaluated the potential impact of all these proposals, but will make such an evaluation as the standards are finalized.

 

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates, credit spreads, foreign currency exchange rates, commodity prices and equity prices. The primary market risks that we are exposed to are interest rate risk and credit risk. These risks are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. All of our market risk sensitive assets and liabilities are for non-trading purposes only. In addition, we are exposed to liquidity risk, which may impact our access to capital resources and repayment of capital obligations.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates on borrowings under our mortgage loans that are floating rate obligations. These market risks result primarily from changes in LIBOR or prime rates. We continuously monitor our level of floating rate debt with respect to total debt and other factors, including our assessment of current and future economic conditions.

For fixed rate debt, interest rate fluctuations generally affect the fair value, but do not impact our earnings or cash flows. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until such obligations mature or until we elect to prepay and refinance such obligations. If interest rates have risen at the time our fixed rate debt matures or is refinanced, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of maturity or refinancing may lower our overall borrowing costs.

For floating rate debt, interest rate fluctuations can affect the fair value, as well as earnings or cash flows. If market interest rates rise, our earnings and cash flows could be adversely affected by an increase in interest expense. In contrast, lower interest rates may reduce our borrowing costs and improve our operational results.

At December 31, 2014 we had $393.4 million of floating rate debt, representing approximately 31.3% of our total indebtedness, with a weighted average rate of 4.0%. A 100 basis point change in interest rates, excluding the impact of the 1% LIBOR floor that our floating rate debt is subject to, would change annual interest expense by $3.9 million on an annualized basis.

Credit Risk

We derive a portion of our revenue from long-term triple net leases in which the minimum rental payments are fixed with scheduled periodic increases. We also earn revenue from senior housing properties operated pursuant to property management agreements. For these properties, rental rates may fluctuate due to lease rollovers and renewals and economic or market conditions.

The Master Tenants account for a significant portion of our total revenues and net operating income, and such concentration creates credit risk. We could be adversely affected if the Master Tenants become unable or unwilling to satisfy their obligations to us. There is no assurance that the Master Tenants or the related guarantors will have sufficient assets, income and access to financing to enable them to satisfy their obligations to us.

Furthermore, although our leases, financing arrangements and other agreements with our tenants and operators generally provide us the right under specified circumstances to terminate a lease, evict an operator or tenant, or demand immediate repayment of certain obligations to us, the bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization that may render certain of these remedies unenforceable, or delay our ability to pursue such remedies.

 

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Liquidity Risk

In addition to the discussion in “Risk Factors,” the following factors could affect our liquidity, access to capital resources and our capital obligations. As such, if their outcomes do not fall within our expectations, changes in these factors could negatively affect our liquidity.

 

    Decisions by investors, counterparties and lenders to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with the terms of our current credit and derivative arrangements, industry and market trends, the availability of capital and our investors’, counterparties’ and lenders’ policies and rates applicable thereto, and the relative attractiveness of alternative investment or lending opportunities.

 

    Real estate investments are relatively illiquid, and our ability to quickly sell or exchange our properties in response to changes in economic or other conditions is limited. In the event we desire or need to sell any of our properties, the value of those properties and our ability to sell at a price or on terms acceptable to us could be adversely affected by a downturn in the real estate industry or any weakness in the senior housing and healthcare industries. We cannot assure you that we will recognize the full value of any property that we sell for liquidity or other reasons, and the inability to respond quickly to changes in the performance of our investments could adversely affect our business, results of operations and financial condition.

 

    Because we derive substantially all of our revenues from triple net lease and managed property tenants and operators, any inability or unwillingness by these tenants and operators to satisfy their respective obligations to us or to renew their leases with us upon expiration of the terms thereof could have a material adverse effect on our liquidity, financial condition, our ability to service our indebtedness and to make distributions to our stockholders.

 

    To comply with the 90% distribution requirement applicable to REITs and to avoid income and excise taxes, we must make distributions to our stockholders. Such distributions will limit our liquidity to finance investments, acquisitions and new developments and may limit our ability to engage in transactions that are otherwise in the best interests of our stockholders. Although we do not anticipate any inability to satisfy the REIT distribution requirement, from time to time, we may not have sufficient cash or other liquid assets to do so. For example, timing differences between the actual receipt of income and actual payment of deductible expenses, on the one hand, and the inclusion of that income and deduction of those expenses in arriving at our taxable income, on the other hand, or non-deductible expenses such as principal amortization or repayments or capital expenditures in excess of non-cash deductions may cause us to fail to have sufficient cash or liquid assets to enable us to satisfy the 90% distribution requirement. In the event that timing differences occur or we decide to retain cash or to distribute such greater amount as may be necessary to avoid income and excise taxation, we may seek to borrow funds, issue additional equity securities, pay taxable stock dividends, distribute other property or securities or engage in a transaction intended to enable us to meet the REIT distribution requirements. Any of these actions may require us to raise additional capital to meet our obligations; however, limitations on our ability to access capital, as described above, could have an adverse effect on our ability to make required payments on our debt obligations, make distributions to our stockholders or make future investments necessary to implement our business strategy. The terms of the instruments governing our existing indebtedness restrict our ability to engage in certain types of these transactions.

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

     Page  

Index to Consolidated (Successor) and Combined (Predecessor) Financial Statements:

  

Report of Independent Registered Public Accounting Firm

     30   

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

     31   

Consolidated Balance Sheets as of December 31, 2014 and 2013

     32   

Consolidated (Successor) and Combined (Predecessor) Statements of Operations for the years ended December 31, 2014, December 31, 2013, for the period from July 18, 2012 to December 31, 2012 (Successor) and for the period from January 1, 2012 to July 17, 2012 (Predecessor)

     33   

Consolidated (Successor) and Combined (Predecessor) Statements of Equity (Deficit) for the years ended December 31, 2014, December 31, 2013, for the period from July 18, 2012 to December 31, 2012 (Successor) and for the period from January 1, 2012 to July 17, 2012 (Predecessor)

     34   

Consolidated (Successor) and Combined (Predecessor) Statements of Cash Flows for the years ended December 31, 2014, December 31, 2013, for the period from July 18, 2012 to December 31, 2012 (Successor) and for the period from January 1, 2012 to July 17, 2012 (Predecessor)

     35   

Notes to Consolidated (Successor) and Combined (Predecessor) Financial Statements

     37   

Schedule III – Real Estate and Accumulated Depreciation

     67   

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

New Senior Investment Group Inc.

We have audited the accompanying consolidated balance sheets of New Senior Investment Group Inc. and Subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated (Successor) and combined (Predecessor) statements of operations, changes in equity (deficit) and cash flows for each of the two years in the period ended December 31, 2014 and for the period from July 18, 2012 to December 31, 2012 (Successor), and the period from January 1, 2012 to July 17, 2012 (Predecessor). Our audits also included the financial statement schedule included in Item 8. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of New Senior Investment Group Inc. and Subsidiaries at December 31, 2014 and 2013, and the consolidated (Successor) and combined (Predecessor) results of their operations and their cash flows for each of the two years in the period ended December 31, 2014 and for the period from July 18, 2012 to December 31, 2012 (Successor), and the period from January 1, 2012 to July 17, 2012 (Predecessor), in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 7 to the consolidated financial statements, the Company changed its method for presentation of debt issuance costs related to a recognized debt liability as a result of the early adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2015-03, “ Simplifying the Presentation of Debt Issuance Costs .”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), New Senior Investment Group Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 26, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New York, New York

February 26, 2015, except for Notes 2, 4, 7 and 8,

as to which the date is June 22, 2015

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

New Senior Investment Group Inc.

We have audited New Senior Investment Group Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework), (the COSO criteria). New Senior Investment Group Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, New Senior Investment Group Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of New Senior Investment Group Inc. and Subsidiaries as of December 31, 2014 and 2013, and the related consolidated (Successor) and combined (Predecessor) statements of operations, changes in equity (deficit) and cash flows for each of the two years in the period ended December 31, 2014 and for the period from July 18, 2012 to December 31, 2012 (Successor), and the period from January 1, 2012 to July 17, 2012 (Predecessor) of New Senior Investment Group Inc. and Subsidiaries and our report dated February 26, 2015 expressed an unqualified opinion thereon.

 

/s/ Ernst & Young LLP
New York, New York
February 26, 2015

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

 

     December 31,  
     2014     2013  

Assets

    

Real estate investments:

    

Land

   $ 138,799      $ 102,064   

Buildings, improvements and other

     1,500,130        1,271,364   

Accumulated depreciation

     (56,988     (10,526
  

 

 

   

 

 

 

Net real estate property

  1,581,941      1,362,902   
  

 

 

   

 

 

 

Acquired lease and other intangible assets

  178,615      123,063   

Accumulated amortization

  (79,021   (22,174
  

 

 

   

 

 

 

Net real estate intangibles

  99,594      100,889   
  

 

 

   

 

 

 

Net real estate investments

  1,681,535      1,463,791   

Cash and cash equivalents

  226,377      30,393   

Receivables and other assets, net

  58,247      13,432   
  

 

 

   

 

 

 

Total Assets

$ 1,966,159    $ 1,507,616   
  

 

 

   

 

 

 

Liabilities and Equity

Liabilities

Mortgage notes payable, net

$ 1,223,224    $ 1,035,193   

Due to affiliates

  6,882      5,894   

Accrued expenses and other liabilities

  72,241      58,694   

Dividends payable

  15,276      —     
  

 

 

   

 

 

 

Total Liabilities

  1,317,623      1,099,781   
  

 

 

   

 

 

 

Commitments and contingencies (note 15)

Equity

Preferred stock $0.01 par value, 100,000,000 shares authorized and none outstanding as of December 31, 2014

  —        —     

Common stock $0.01 par value, 2,000,000,000 shares authorized, 66,415,415 shares issued and outstanding as of December 31, 2014

  664      —     

Additional paid-in capital

  672,587      407,835   

Accumulated deficit

  (24,715   —     
  

 

 

   

 

 

 

Total Equity

  648,536      407,835   
  

 

 

   

 

 

 

Total Liabilities and Equity

$ 1,966,159    $ 1,507,616   
  

 

 

   

 

 

 

See notes to Consolidated Financial Statements.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) STATEMENTS OF OPERATIONS

(dollars in thousands, except share data)

 

     Successor           Predecessor  
     For the Year
Ended
December 31,
2014
    For the Year
Ended
December 31,
2013
    For the period
from July 18,
2012 to
December 31,

2012
          For the period
from January 1,
2012 to

July 17,
2012
 

Revenues

             

Resident fees and services

   $ 156,993      $ 83,218      $ 18,000           $ 19,680   

Rental revenue

     97,992        1,918        —               —     
  

 

 

   

 

 

   

 

 

        

 

 

 

Total revenues

  254,985      85,136      18,000        19,680   
  

 

 

   

 

 

   

 

 

        

 

 

 
 

Expenses

 

Property operating expense

  112,242      59,726      13,011        13,778   

Depreciation and amortization

  103,279      26,933      5,784        1,203   

Interest expense

  57,026      10,589      1,767        2,534   

Acquisition, transaction and integration expense

  14,295      13,294      6,037        —     

Management fee to affiliate

  8,470      1,796      464        —     

General and administrative expense

  7,416      2,188      274        20   

Other (income) expense

  (1,500   —        —          —     
  

 

 

   

 

 

   

 

 

        

 

 

 

Total expenses

  301,228      114,526      27,337        17,535   
  

 

 

   

 

 

   

 

 

        

 

 

 
 

Income (Loss) Before Income Taxes

  (46,243   (29,390   (9,337     2,145   

Income tax expense

  160      656      150        —     
  

 

 

   

 

 

   

 

 

        

 

 

 

Net Income (Loss)

$ (46,403 $ (30,046 $ (9,487   $ 2,145   
  

 

 

   

 

 

   

 

 

        

 

 

 
 

Income (Loss) Per Share of Common Stock

 

Basic and diluted

$ (0.70 $ (0.45 $ (0.14   $ 0.03   
 

Weighted Average Number of Shares of Common Stock Outstanding

 

Basic and diluted

  66,400,914      66,399,857      66,399,857        66,399,857   

See notes to Consolidated Financial Statements.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

(dollars in thousands, except share data)

 

     Common Stock                     
     Shares      Amount      Accumulated
Deficit
    Additional
Paid In
Capital
    Total Equity  

Predecessor: Equity (Deficit) - December 31, 2011

     —         $ —         $ —        $ (27,185   $ (27,185
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Capital contributions

  —        —        —        91      91   

Capital distributions

  —        —        —        (1,988   (1,988

Net income (loss)

  —        —        —        2,145      2,145   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Predecessor: Equity - July 17, 2012

  —      $ —      $ —      $ (26,937 $ (26,937

Successor: Equity - July 18, 2012

  —      $ —      $ —      $ 54,900    $ 54,900   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Capital contributions

  —        —        —        27,704      27,704   

Capital distributions

  —        —        —        (3,413   (3,413

Net income (loss)

  —        —        —        (9,487   (9,487
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Equity - December 31, 2012

  —      $ —      $ —      $ 69,704    $ 69,704   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Capital contributions

  —        —        —        397,015      397,015   

Capital distributions

  —        —        —        (28,838   (28,838

Net income (loss)

  —        —        —        (30,046   (30,046
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Equity - December 31, 2013

  —      $ —      $ —      $ 407,835    $ 407,835   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Capital contributions

  —        —        —        461,218      461,218   

Capital distributions

  —        —        —        (158,980   (158,980

Net income (loss)

  —        —        —        (36,964   (36,964

Effect of New Senior spin-off

  66,399,857      664      —        (664   —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Equity - November 7, 2014

  66,399,857    $ 664    $ —      $ 672,445    $ 673,109   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Exercise of stock options

  14,188      —        —        119      119   

Director’s shares issued

  1,370      —        —        23      23   

Dividends declared

  —        —        (15,276   —        (15,276

Net income (loss)

  —        —        (9,439   —        (9,439
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Equity - December 31, 2014

  66,415,415    $ 664    $ (24,715 $ 672,587    $ 648,536   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See notes to Consolidated Financial Statements.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

     Successor           Predecessor  
     For the Year
Ended
December 31,
2014
    For the Year
Ended
December 31,
2013
    For the Period
from July 18,
2012
to December 31,
2012
          For the Period
from January 1,
2012

to July 17,
2012
 

Cash Flows From Operating Activities

             

Net income (loss)

   $ (46,403   $ (30,046   $ (9,487        $ 2,145   
 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

             

Depreciation and amortization

     103,398        26,933        5,784             1,203   

Amortization of deferred financing fees

     8,331        896        136             92   

Amortization of deferred community fees

     (1,420     (404     (53          (282

Amortization of premium on mortgage notes payable

     850        344        —               —     

Non-cash straight line rent

     (25,932     (522     —               —     

Change in fair value of contingent consideration

     (1,500     —          —               —     

Changes in:

             

Receivables and other assets, net

     (5,131     (8,773     (2,039          (64

Due to affiliates

     989        4,011        1,520             (8

Accrued expenses and other liabilities

     13,429        50,093        2,653             (10
  

 

 

   

 

 

   

 

 

        

 

 

 

Net cash provided by (used in) operating activities

$ 46,611    $ 42,532    $ (1,486   $ 3,076   
  

 

 

   

 

 

   

 

 

        

 

 

 

Cash Flows From Investing Activities

 

Acquisition of real estate investments

$ (314,935 $ (1,249,167 $ (44,114   $ —     

Capital expenditures

  (8,538   (3,502   (297     (251

Funds reserved for future capital expenditures

  (3,530   —        —          —     

Deposits paid for investments

  (4,855   (505   —          —     
  

 

 

   

 

 

   

 

 

        

 

 

 

Net cash provided by (used in) investing activities

$ (331,858 $ (1,253,174 $ (44,411   $ (251
  

 

 

   

 

 

   

 

 

        

 

 

 

Cash Flows From Financing Activities

 

Proceeds from mortgage notes payable

$ 195,144    $ 904,509    $ 32,125      $ —     

Principal payments of mortgage notes payable

  (13,736   (746   —          (1,058

Payment of deferred financing costs

  (2,557   (40,625   (555     —     

Purchase of derivative instruments

  —        —        (244     —     

Contributions

  461,218      397,015      27,704        91   

Distributions

  (158,980   (28,838   (3,413     (1,988

Issuance of common stock and exercise of options

  142      —        —          —     
  

 

 

   

 

 

   

 

 

        

 

 

 

Net cash provided by (used in) financing activities

$ 481,231    $ 1,231,315    $ 55,617      $ (2,955
  

 

 

   

 

 

   

 

 

        

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

  195,984      20,673      9,720        (130

Cash and Cash Equivalents, Beginning of Period

  30,393      9,720      —          1,057   
  

 

 

   

 

 

   

 

 

        

 

 

 

Cash and Cash Equivalents, End of Period

$ 226,377    $ 30,393    $ 9,720      $ 927   
  

 

 

   

 

 

   

 

 

      

 

 

 

 

Continued on next page

 

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Table of Contents

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) STATEMENTS OF CASH FLOWS

(dollars in thousands)

 

     Successor            Predecessor  
     For the Year
Ended
December 31,
2014
     For the Year
Ended
December 31,
2013
     For the Period
from July 18,
2012
to December 31,
2012
           For the Period
from January 1,
2012

to July 17,
2012
 

Supplemental Disclosure of Cash Flow Information

                

Cash paid during the period for interest expense

   $ 45,026       $ 9,252       $ 1,338            $ 2,569   

Cash paid during the period for income taxes

     1,357         899         —                —     

Supplemental Schedule of Non-Cash Investing and Financing Activities

                

Common stock dividend declared but not paid

     15,276         —           —                —     

Recognized contingent consideration at fair value

     50         1,500         —                —     

Assumption of mortgage notes payable at fair value

     —           43,128         —                —     

Issuance of seller financing for acquisition at fair value

     —           9,407         —                —     

Contributions of net assets by Newcastle

     —           —           54,900              —     

Issuance of common stock and exercise of options

   $ 23       $ —         $ —              $ —     

See notes to Consolidated Financial Statements.

 

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Table of Contents

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

1. ORGANIZATION

New Senior Investment Group Inc. (“New Senior” or “the Company”) invests in a diversified portfolio of senior housing properties across 27 states in the United States. The Company was formed as Newcastle Senior Living Holdings LLC, a Delaware limited liability company, in 2012 and converted to a Delaware corporation on May 30, 2014 and changed its name to New Senior Investment Group Inc. on June 16, 2014.

On November 6, 2014, the spin-off of New Senior was completed with the distribution of all of the outstanding shares of New Senior to the holders of Newcastle Investment Corp. (“Newcastle”) common stock. Newcastle was the sole stockholder of the Company until the spin-off. Following the spin-off, New Senior is a separate publicly traded Real Estate Investment Trust (“REIT”) primarily focused on investing in senior housing properties and listed on the New York Stock Exchange (“NYSE”) under the symbol “SNR.” The Company is headquartered in New York, New York.

New Senior has been operating so as to qualify as a REIT for U.S. federal income tax purposes for the tax year ending December 31, 2014. As such, New Senior will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.

The Company has invested in 100 senior housing properties as of December 31, 2014 and operates in two reportable segments: (1) Managed Properties and (2) Triple Net Lease Properties.

Managed Properties – The Company has engaged property managers to manage 43 of its properties on a day-to-day basis under the Managed Properties segment. These properties consist of four dedicated independent living facilities (“IL-only”) and 39 properties with a combination of assisted living/memory care (“AL/MC”) facilities. The Company’s Managed Properties are managed by Holiday Acquisition Holdings LLC (“Holiday”), a portfolio company that is majority owned by private equity funds managed by an affiliate of FIG LLC (the “Manager”), a subsidiary of Fortress Investment Group LLC (“Fortress”), FHC Property Management LLC (together with its subsidiaries, “Blue Harbor”), an affiliate of the Manager, or Jerry Erwin Associates, Inc. (“JEA”), collectively, the “Property Managers,” under property management agreements (the “Property Management Agreements”). Under the Property Management Agreements, the Property Managers are responsible for the day-to-day operations of the Company’s senior housing properties and are entitled to a management fee in accordance with the terms of the Property Management Agreements.

The Company has entered into long-term property management agreements for its managed properties with Blue Harbor, Holiday and JEA. Blue Harbor and Holiday’s property management agreements have initial ten-year terms, with successive, automatic one-year renewal periods. JEA’s property management agreement has an initial five-year term, with successive, automatic one-year renewal periods. Under these agreements, the Company pays monthly property management fees. For AL/MC properties managed by Blue Harbor and Holiday, the Company pays management fees equal to 6% of effective gross income for the first two years and 7% thereafter. For IL-only properties managed by Blue Harbor and Holiday, the Company pays management fees equal to 5% of effective gross income. The Company pays management fees equal to 5% of gross revenues for the property managed by JEA.

Triple Net Lease Properties – As of December 31, 2014, the Company has also invested in 57 properties (the “Holiday Portfolios” and the LCS Portfolio, as defined in Note 3) subject to triple net lease arrangements under the Triple Net Lease Properties segment. These properties consist of 52 IL-only properties, four Continuing Care Retirement Communities (“CCRC”) properties and one AL/MC property. In a triple net lease arrangement, the Company purchases property and leases it back to the seller or to a third party, and the lessee agrees to operate and maintain the property at its own expense, including repairs, maintenance, capital expenditures, utilities, taxes, insurance and the payroll expense of property-level employees. The Company’s triple net lease agreements have initial terms of approximately 15 or 17 years and include renewal options and periodic rent increases ranging from 2.5% to 4.5% in future years.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying Consolidated (Successor) and Combined (Predecessor) Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP’’). The Consolidated Financial Statements include the accounts of New Senior and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. New Senior consolidates those entities in which it has control over significant operating, financial and investing decisions of the entity. At December 31, 2014 and December 31, 2013, the Company did not have any investments in Variable Interest Entities (“VIEs”). VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

On July 18, 2012 (the “Initial Acquisition Date” and “Commencement of Operations”), New Senior completed the initial acquisition of a portfolio of senior housing properties (the “BPM Portfolio”). The acquisition was accounted for as a business combination using the acquisition method of accounting. As a result, the Consolidated Financial Statements reflect a new basis of accounting for periods subsequent to the Initial Acquisition Date, and the financial information is referred to as “Successor” information. Successor information includes the results of the BPM portfolio and all subsequent acquisitions.

Financial information through, but not including, the Initial Acquisition Date (i.e., financial information on or before July 17, 2012) is referred to as “Predecessor” company information, which has been prepared using the prior owner historical cost basis of accounting. Information in the Combined Financial Statements for the Predecessor period reflects a different ownership and capital structure and does not include the effects of acquisition accounting prior to the Initial Acquisition Date. As a result of the application of acquisition accounting on the Initial Acquisition Date, the Consolidated Financial Statements for the Successor periods are presented on a different basis of accounting when compared to the Predecessor period and, therefore, are not comparable. Black lines have been drawn to separate the Successor’s financial information from that of the Predecessor.

During the Predecessor period, the BPM Portfolio comprised stand-alone businesses under common management and control. Therefore, Combined Financial Statements are presented for the Predecessor period. These Combined Financial Statements have been derived using the historical basis of such properties’ assets and liabilities.

During a portion of the Successor period, the Company was not operated as a stand-alone business from Newcastle. Information in the Consolidated Financial Statements for Successor periods prior to November 7, 2014 have been prepared on a stand-alone basis from the Consolidated Financial Statements and accounting records of Newcastle. Information in the Consolidated Financial Statements for periods prior to November 7, 2014 does not necessarily reflect what New Senior’s consolidated results of operations, financial position and cash flows would have been had New Senior operated as an independent company prior to the spin-off. Management believes the assumptions and methods of allocation used in the accompanying Consolidated Financial Statements are reasonable.

Information in the Consolidated Financial Statements for the period from November 7, 2014 through December 31, 2014 and as of December 31, 2014 reflect the revenues, expenses, cash flows and financial position of the Company as a stand-alone company.

The Consolidated (Successor) and Combined (Predecessor) Financial Statements reflect all revenues, expenses and cash flows directly attributable to the Company. Certain expenses of Newcastle, comprised primarily of a portion of its management fee, acquisition and transaction costs and general and administrative costs, have been allocated to New Senior to the extent they were directly associated with the Company for Successor periods prior to the spin-off. The portion of the management fee allocated to New Senior prior to the spin-off represents the product of the management fee rate payable by Newcastle, 1.50%

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

and New Senior’s gross equity, which management believes is a reasonable method for quantifying the cost of the services provided by the employees of the Manager to the Company. New Senior and Newcastle have not shared any costs subsequent to the spin-off. See Note 10 for details related to management agreement terms.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Use of Estimates

Management is required to make estimates and assumptions when preparing financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the accompanying Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from management’s estimates.

Revenue Recognition

Resident Fees and Services - Resident fees and services include monthly rental revenue, care income and ancillary income recognized from the Managed Properties segment. Resident fees and services are recognized monthly as services are provided. Lease agreements with residents are cancelable by the resident with 30 days’ notice. Ancillary income primarily relates to non-refundable community fees. Non-refundable community fees are recognized on a straight-line basis over the average length of stay of residents, which management estimates to be approximately 24 months for AL/MC properties and approximately 33 months for IL-only properties.

Rental Revenue - Rental revenue from the Triple Net Lease Properties segment is recognized on a straight-line basis over the applicable term of the lease when collectability is reasonably assured. Recognizing rental revenue on a straight-line basis typically results in recognizing revenue in excess of cash amounts contractually due from the Company’s tenants during the first half of the lease term, creating a straight-line rent receivable that is included in other assets. As of December 31, 2014 and December 31, 2013, straight-line rent receivables were $26,454 and $522, respectively.

Acquisition Accounting

The Company has determined that all of its acquisitions should be accounted for under the acquisition method. The accounting for acquisitions requires the identification and measurement of all acquired tangible and intangibles assets and assumed liabilities at their respective fair values as of the respective transaction dates. Recognized intangible assets primarily include the fair value of in-place resident leases and above/below market lease intangibles. In measuring the fair value of net tangible and identified intangible assets acquired and liabilities assumed, management uses information obtained as a result of pre-acquisition due diligence, marketing, leasing activities and independent appraisals. In the case of real property, the fair value of the tangible assets acquired is determined by valuing the property as if it were vacant.

The Company estimates the fair value of in-place leases as (i) the present value of the estimated rental revenue that would have been forgone, offset by variable costs that would have otherwise been incurred during a reasonable lease-up period, as if the acquired units were vacant and (ii) the estimated absorption costs, such as additional marketing costs that would have been incurred during the lease-up period. The acquisition fair value of the in-place lease intangibles is amortized over the average length of stay of the residents at the senior housing properties on a straight-line basis, which is estimated to be 24 months for AL/MC and CCRC properties and 33 months for IL-only properties.

The Company estimates the fair value of above/below market lease intangibles as the difference between contract rent and market rent over the remaining lease term for each leased property, on a discounted basis. Above/below market lease intangibles also include ground lease intangibles that are amortized over the contractual lives of the leases.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Other intangibles recognized upon acquisition include intangible assets such as non-compete intangibles. Non-compete intangibles reflect the fair value of non-compete agreements at acquisition. The Company estimates the fair value of non-compete intangibles as the sum of (i) the present value of the consulting services during the non-compete period and (ii) the difference between (a) the present value of the net operating income with the non-compete agreements in place and (b) the present value of the net operating income, as if the non-compete agreements were not in place. The acquisition fair value of the non-compete intangibles is amortized over the non-compete period on a straight-line basis.

Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of the contingent consideration is remeasured at each reporting date with any change recorded in other (income) and expense in the Consolidated Statements of Operations.

Acquisition and transaction expense includes costs related to completed and potential acquisitions and transactions and include advisory, legal, accounting, valuation and other professional or consulting fees. Integration expense includes costs directly related to the integration of acquired businesses such as lender mandated repairs, licensing, rebranding and training incurred in connection with the acquisition.

Acquisition, transaction and integration costs are expensed as incurred. Integration costs of $726 for the year ended December 31, 2013 have been reclassified from property operating expense to acquisition, transaction and integration expense to conform to the 2014 presentation.

Real Estate Investments

Real estate investments are recorded at cost less accumulated depreciation or accumulated amortization.

Depreciation is calculated on a straight-line basis using estimated remaining useful lives not to exceed 40 years for buildings, 3 to 10 years for building improvements and 3 to 5 years for other fixed assets.

Amortization is calculated on a straight-line basis using estimated useful lives of 24 to 33 months and 5 to 13 years for in-place lease intangibles and other intangibles, respectively. Above/below market lease intangibles are generally amortized over a period of 15 to 17 years except for ground lease intangibles which are amortized over a period of 74 to 82 years.

Impairment of Long Lived Assets

The Company periodically evaluates long-lived assets, including definite lived intangible assets, primarily consisting of the Company’s real estate investments, for impairment indicators. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, market conditions and the Company’s current intentions with respect to holding or disposing of the asset are considered. The Company adjusts the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. An impairment loss is recognized at the time any such determination is made.

The Company did not record any impairment charges related to its real estate assets and related intangibles during any of the reporting periods presented.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and all highly liquid short term investments with maturities of 90 days or less, when purchased.

Deferred Financing Costs

The Company amortizes deferred financing costs as a component of interest expense over the terms of the related borrowings using a method that approximates the effective interest rate method. Deferred financing costs are presented as a direct deduction from the carrying amount of the Mortgage Notes payable pursuant to ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs.”

Receivables and Other Assets

Receivables and other assets consist primarily of escrows held by lenders, net resident receivables, prepaid expenses and straight-line rent receivables. The Company assesses the collectibility of rent receivables on an ongoing basis, based on an assessment of several factors, including, resident payment history, the financial strength of the resident and any guarantors, the value of the underlying collateral, if any, and current economic conditions. If the evaluation of these factors indicates it is probable that the Company will not be able to recover the full value of the receivable, the Company provides a specific reserve against the portion of the receivable that the Company estimates may not be recovered.

Deferred Revenue

Deferred revenue primarily includes non-refundable community fees received by the Company when residents move in. Deferred revenue amounts are amortized into income on a straight-line basis over the average length of stay of the residents, and are included within accrued expenses and liabilities on the Consolidated Balance Sheets.

Income Taxes

New Senior has been operating so as to qualify as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (“Code”). Requirements for qualification as a REIT include various restrictions on ownership of stock, requirements concerning distribution of taxable income and certain restrictions on the nature of assets and sources of income. A REIT must distribute at least 90% of its taxable income to its stockholders of which 85% plus any undistributed amounts from the prior year must be distributed within the taxable year in order to avoid the imposition of an excise tax. Distribution of the remaining balance may extend until timely filing of New Senior’s tax return in the subsequent taxable year. Qualifying distributions of taxable income are deductible by a REIT in computing taxable income.

Certain activities are conducted through a taxable REIT subsidiary (“TRS”) and therefore are subject to federal and state income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases upon the change in tax status. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

New Senior recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the Consolidated Statements of Operations. As of December 31, 2014 and December 31, 2013, the Company had no uncertain tax positions.

For the Successor periods, the Company’s Consolidated Financial Statements have been prepared based upon the operations of the Company separate from those of Newcastle and include current and deferred income taxes calculated in accordance with the operations of the spin-off. During the Predecessor periods, the Company was treated as a disregarded single-member limited liability entity for U.S. federal and state income tax purposes and was not subject to income taxes.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Fair Value Measurement

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy, which is described below, prioritizes the inputs used by the Company in measuring fair value:

 

    Level 1 - Quoted prices for identical instruments in active markets.

 

    Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

 

    Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Stock Options

Options granted to New Senior’s directors are measured at fair value at the grant date with the related expense recognized over the service term, if any.

Equity

Net income earned prior to the spin-off is included in additional paid in capital instead of retained earnings since the accumulation of retained earnings began as of the date of spin-off from Newcastle.

Expense Recognition

Management Fee to Affiliate – During the Successor period and prior to the spin-off from Newcastle, this represents an amount of the management fee charged to Newcastle by the Manager and allocated to the Company. During the Successor period and after the spin-off from Newcastle, this represents amounts due to the Manager (as defined in Note 10) pursuant to the Management Agreement between the Manager and New Senior (as defined in Note 10).

Advertising Costs – The Company expenses advertising costs as incurred. Advertising costs were $495, $336, and $71 for the year ended December 31, 2014, December 31, 2013, and the period from July 18, 2012 to December 31, 2012, respectively, and are included in property operating expense in the Consolidated Statements of Operations. Advertising costs were $76 for the period from January 1, 2012 to July 17, 2012 and are included in property operating expense in the Combined Statement of Operations.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . ASU 2014-08 raises the threshold for disposals to qualify as discontinued operations. A discontinued operation is defined as: (1) a component of an entity or group of components that has been disposed of or classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results; or (2) an acquired business that is classified as held for sale on the acquisition date. ASU 2014-08 also requires additional disclosures regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations. This update is effective for New Senior in the first quarter of 2015. New Senior does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements until it disposes of a component of its business in future periods.

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) issued ASU 2014-09 Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU is effective for the Company in the first quarter of 2017. Early application is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In November 2014, the Emerging Issues Task Force (EITF) and FASB issued ASU 2014-17 Pushdown Accounting . The guidance will allow but not require an acquired entity to apply pushdown accounting upon acquisition by a new parent. It will give acquired entities that are businesses or nonprofit activities the option to apply pushdown accounting in their separate financial statements when an acquirer obtains control of them. The guidance represents a significant change from current practice which requires registrants to apply pushdown accounting when they become substantially wholly owned and prohibits pushdown accounting at ownership levels of less than 80%. The guidance is effective immediately from November 18, 2014. The election to apply pushdown accounting can be made either in the period in which the change of control occurred, or in a subsequent period. If the election is made in a subsequent period, it would be considered a change in accounting principle and treated in accordance with Topic 250, Accounting Changes and Error Corrections. This ASU is applicable to the Company as it is considered a variable interest entity (“VIE”) due to the terms of the Management Agreement with the Manager, and the Manager has been deemed the primary beneficiary. As the Manager is a wholly owned subsidiary of Fortress, Fortress is consolidating New Senior as of November 7, 2014, and New Senior has elected not to apply push down accounting.

In February 2015, the FASB issued ASU 2015-02 which amends the consolidation guidance in ASC 810. The standard eliminates the deferral of FAS 167, per ASC 810-10-65-2(a), that has allowed certain investment funds to follow the previous consolidation guidance in FIN 46 (R). The standard changes whether (1) fees paid to a decision maker or service provider represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact, if any, it may have on its Consolidated Financial Statements.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

In April 2015, the FASB issued ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs . The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies, and early adoption is permitted. The Company has elected to early adopt the provisions of this ASU and it requires retrospective application to all prior periods. Accordingly, “Mortgage notes payable, net” is reported net of deferred financing costs of $36,206 and $41,979 as of December 31, 2014 and 2013, respectively, in the Consolidated Balance Sheets.

The FASB has recently issued or discussed a number of proposed standards on such topics as financial statement presentation, leases, financial instruments and hedging. Some of these proposed changes are significant and could have a material impact on New Senior’s Consolidated Financial Statements. The Company has not yet fully evaluated the potential impact of all these proposals, but will make such an evaluation as the standards are finalized.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

3. ACQUISITIONS

During the year ended December 31, 2014, the Company completed the acquisitions of eight portfolios representing 16 senior housing properties for total consideration of $314,935, of which $195,144 was financed through debt issued in connection with the acquisitions, and the remainder paid in cash. Ten of these properties (nine AL/MC properties and one IL-only property) were integrated into the Company’s Managed Properties segment while the remaining six properties (four CCRC, one AL/MC and one IL-only (together, the “LCS Portfolio”)) are subject to triple net leases with a third party (“LCS”) and are included in the Company’s Triple Net Lease segment. Included in Resident fees and services, Rental revenue, and Net Loss is $16,327, $8,799, and $9,543, respectively, attributable to these acquisitions.

The Company has retained Holiday, Blue Harbor and JEA to manage two, seven and one of the properties, respectively, acquired in the Managed Properties segment during the year ended December 31, 2014.

During the year ended December 31, 2013, the Company completed the acquisitions of nine portfolios representing 72 senior housing properties. Seven of the portfolios (representing 21 properties) were integrated into the Company’s Managed Properties segment and the Company retained Holiday and Blue Harbor to manage 18 and three of the properties, respectively. Two portfolios (representing 51 properties) were integrated into the Triple Net Lease segment and were leased to Holiday.

The following table summarizes the acquisition date fair value of identifiable assets acquired and liabilities assumed in connection with the acquisitions completed in the years ended December 31, 2014 and December 31, 2013, in accordance with the acquisition method of accounting:

 

     2014 Acquisitions     2013 Acquisitions  
     Managed
Properties
(A)
    Triple Net
Lease
Properties
    Total     Managed
Properties
(B)
    Triple Net
Lease
Properties
    Total  

Real estate investments

   $ 116,674      $ 143,869      $ 260,543      $ 268,011      $ 937,596      $ 1,205,607   

In-place lease intangibles

     15,301        39,894        55,195        31,673        57,830        89,503   

Above/below market lease intangibles

     —          819        819        —          5,049        5,049   

Other intangibles

     —          —          —          5,200        —          5,200   

Assumed mortgage notes payable

     —          —          —          (43,128     —          (43,128

Other assets, net of other liabilities

     (70     (1,552     (1,622     (2,157     —          (2,157
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Consideration

  131,905      183,030      314,935      259,599      1,000,475      1,260,074   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage notes payable

  (80,144   (115,000   (195,144   (175,871   (719,350   (895,221
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

  51,761      68,030      119,791      83,728      281,125      364,853   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total acquisition related expenses

$ 2,105    $ 993    $ 3,098    $ 5,810    $ 4,513    $ 10,323   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Includes $50 for the fair value of earn-out consideration. The earn-out is limited to $750 as per the agreement.
(B) Includes $1,500 for the fair value of earn-out consideration. In 2014, this earn-out was remeasured to zero.

The Company’s acquisition accounting for transactions completed during the year ended December 31, 2014 is still preliminary (with the exception of properties acquired during the first quarter of 2014 for which the acquisition accounting has been finalized), pending the completion of various analyses and the finalization of estimates used in the determination of fair values. During the measurement period, additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary measurement of net assets acquired may be adjusted after obtaining additional information regarding, among other things, asset valuations (including market and other information with which to determine fair values), liabilities assumed, the analysis of assumed contracts, and revisions of previous estimates. These adjustments may be significant and will be accounted for retrospectively.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

During the year ended December 31, 2014, measurement period adjustments were made based on the valuation of assets acquired and liabilities assumed. For the year ended December 31, 2014, the adjustments included a decrease of $18,379 to real estate investments, an increase of $18,164 to in-place lease intangibles, an increase of $141 to above/below market lease intangibles and an increase of $74 to other liabilities. None of the measurement period adjustments had a material impact on the Company’s previously reported results of operations.

The following table illustrates the effect of the acquisitions completed in the year ended December 31, 2014 on revenues and pre-tax net income (loss) as if they had been consummated as of January 1, 2013:

 

     For the Year Ended
December 31, 2014
     For the Year Ended
December 31, 2013
 

Revenues

   $ 278,900       $ 267,822   

Pre-tax net Income (loss)

   $ (55,028    $ (53,767

The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred as of January 1, 2013, nor are they necessarily indicative of future operating results.

 

4. SEGMENT REPORTING

As of December 31, 2014, the Company operated in two reportable business segments: Managed Properties and Triple Net Lease Properties. Under its Managed Properties segment, the Company invests in senior housing properties throughout the United States and engages property managers to manage those senior housing properties. Under its Triple Net Lease Properties segment, the Company invests in senior housing and healthcare properties throughout the United States and leases those properties to healthcare operating companies under triple net leases that obligate the tenants to pay all property-related expenses, including repairs, maintenance, capital expenditures, utilities, taxes, insurance and the payroll expense of property-level employees.

The Company evaluates performance of the combined properties in each reportable business segment based on segment net operating income (“NOI”). The Company defines NOI as total revenues less property-level operating expenses, which include property management fees and travel cost reimbursements to affiliates. The Company believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, the Company believes that segment NOI serves as a useful supplement to net income because it allows investors, analysts and management to measure unlevered property-level operating results and to compare the Company’s operating results to the operating results of other real estate companies and between periods on a consistent basis. Segment NOI should not be considered as an alternative to net income as determined in accordance with GAAP.

Interest expense, depreciation and amortization, general and administrative expense, acquisition, transaction and integration expense, management fee to affiliate, income tax expense, discontinued operations (if any) and other non-property specific revenues and expenses are not allocated to individual segments for purposes of assessing segment performance. There are no intersegment sales or transfers.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

     Year Ended December 31, 2014  
     Triple Net
Lease
Properties
     Managed
Properties
     Consolidated  

Revenues

        

Resident fees and services

   $ —         $ 156,993       $ 156,993   

Rental revenue

     97,992         —           97,992   

Less: Property operating expense

     —           112,242         112,242   
  

 

 

    

 

 

    

 

 

 

Segment NOI

$ 97,992    $ 44,751    $ 142,743   
  

 

 

    

 

 

    

 

 

 

Depreciation and amortization

  103,279   

Interest expense

  57,026   

Acquisition, transaction and integration expense

  14,295   

Management fee to affiliate

  8,470   

General and administrative expense

  7,416   

Other (income) and expense

  (1,500

Income tax expense

  160   
        

 

 

 

Net loss

$ (46,403
        

 

 

 
     Year Ended December 31, 2013  
     Triple Net
Lease
Properties
     Managed
Properties
     Consolidated  

Revenues

        

Resident fees and services

   $ —         $ 83,218       $ 83,218   

Rental revenue

     1,918         —           1,918   

Less: Property operating expense

     —           59,726         59,726   
  

 

 

    

 

 

    

 

 

 

Segment NOI

$ 1,918    $ 23,492    $ 25,410   
  

 

 

    

 

 

    

 

 

 

Depreciation and amortization

  26,933   

Interest expense

  10,589   

Acquisition, transaction and integration expense

  13,294   

Management fee to affiliate

  1,796   

General and administrative expense

  2,188   

Income tax expense

  656   
        

 

 

 

Net loss

$ (30,046
        

 

 

 

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

     Managed Properties  
     Successor            Predecessor  
     For the
period from
July 18,
2012 to
December 31,
2012
           For the
period from
January 1,
2012 to
July 17,
2012
 

Revenues

          

Resident fees and services

   $ 18,000            $ 19,680   

Less: Property operating expense

     13,011              13,778   
  

 

 

         

 

 

 

Segment NOI

$ 4,989      $ 5,902   
  

 

 

         

 

 

 
 

Depreciation and amortization

  5,784        1,203   

Interest expense

  1,767        2,534   

Acquisition, transaction and integration expense

  6,037        —     

Management fee to affiliate

  464        —     

General and administrative expense

  274        20   

Income tax expense

  150        —     
  

 

 

         

 

 

 

Net loss

$ (9,487   $ 2,145   
  

 

 

         

 

 

 

Property operating expense includes property management fees and travel reimbursement costs. The Company also reimbursed the Property Managers for property-level payroll expenses. See Note 10 for additional information on these expenses.

Assets by reportable business segment are as follows:

 

     December 31, 2014     December 31, 2013  
     Amount      Percentage     Amount      Percentage  

Assets:

          

Triple Net Lease Properties

   $ 1,175,690         59.8   $ 1,001,590         66.4

Managed Properties

     790,469         40.2     506,026         33.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Assets

$ 1,966,159      100.0 $ 1,507,616      100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Capital expenditures, including investments in real estate property, by reportable business segment are as follows:

 

     Year Ended December 31, 2014     Year Ended December 31, 2013  
     Amount      Percentage     Amount      Percentage  

Capital Expenditures:

          

Triple Net Lease Properties

   $ —           —        $ —             —     

Managed Properties

     8,538         100     3,502         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Capital Expenditures

$        8,538      100 $        3,502      100
  

 

 

    

 

 

   

 

 

    

 

 

 

The tenant for the Holiday Portfolios, an affiliate of Fortress, accounted for 35% of the total revenues for the year ended December 31, 2014. The Company’s properties in Florida and Texas accounted for approximately 25.2% and 12.9% of the Company’s revenues for the year ended December 31, 2014, respectively. None of the Company’s other properties accounted for more than 10% of the Company’s revenues.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

5. REAL ESTATE INVESTMENTS

 

    December 31, 2014     December 31, 2013  
    Gross
Carrying
Amount
    Accumulated
Depreciation
    Net
Carrying
Value
    Gross
Carrying
Amount
    Accumulated
Depreciation
    Net
Carrying
Value
 

Land

  $ 138,799      $ —        $ 138,799      $ 102,064      $ —        $ 102,064   

Building and improvements

    1,434,200        (43,164     1,391,036        1,220,578        (8,359     1,212,219   

Furniture, fixtures and equipment

    65,930        (13,824     52,106        50,786        (2,167     48,619   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

$ 1,638,929    $ (56,988 $ 1,581,941    $ 1,373,428    $ (10,526 $ 1,362,902   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation expense for the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012 was $46,622, $8,984 and $1,559, respectively. Depreciation expense for the period from January 1, 2012 to July 17, 2012 was $1,203.

The following tables summarize the Company’s real estate intangibles as of December 31, 2014 and December 31, 2013:

 

    December 31, 2014     December 31, 2013  
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Value
    Weighted
Average
Amortization
Period
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Value
    Weighted
Average
Amortization
Period
 

Above/below market lease intangibles, net

  $ 5,868      $ (167   $ 5,701        52.1 years      $ 5,049      $ (3   $ 5,046        57.5 years   

In-place lease intangibles

    166,951        (77,889     89,062        2.3 years        112,214        (21,824     90,390        2.5 years   

Other intangibles

    5,796        (965     4,831        9.6 years        5,800        (347     5,453        9.5 years   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Total intangibles

$ 178,615    $ (79,021 $ 99,594    $ 123,063    $ (22,174 $ 100,889   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Amortization expense for the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012 was $56,776, $17,949 and $4,225, respectively. Amortization expense for the period from January 1, 2012 to July 17, 2012 was zero. Accretion of below market leases of $119, $3 and $0 is included in rental revenue for the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012, respectively.

Estimated future amortization of intangible assets is as follows:

 

Years Ending December 31

      

2015

   $ 59,330   

2016

     31,338   

2017

     784   

2018

     600   

2019

     484   

Thereafter

     7,058   
  

 

 

 

Total

$ 99,594   
  

 

 

 

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

6. RECEIVABLES AND OTHER ASSETS, NET

 

     December 31, 2014      December 31, 2013  

Straight line rent receivables

   $ 26,454       $ 522   

Escrows held by lenders (A)

     10,768         2,834   

Other receivables

     5,845         1,119   

Prepaid expenses

     3,217         2,444   

Resident receivables, net

     3,162         2,993   

Deferred tax asset

     4,672         1,179   

Security deposits

     1,225         1,289   

Income tax receivable

     1,870         —     

Other assets

     1,034         1,052   
  

 

 

    

 

 

 
$ 58,247    $ 13,432   
  

 

 

    

 

 

 

 

  (A) Escrows held by lenders represent amounts deposited in tax, insurance, and replacement reserve escrow accounts that are related to mortgage notes collateralized by New Senior’s properties.

Following is a summary of the allowance for doubtful accounts and the related provision for resident receivables:

 

Allowance for Doubtful Accounts:

   Balance at
Beginning of Year
     Charged to Bad
Debt
     Writeoffs, Net of
Recoveries
     Balance at End of
Year
 

January 1, 2012 - July 17, 2012

   $ 1       $ —         $ (1    $ —     

July 18, 2012 - December 31, 2012

     —           11         (2      9   

Year ended December 31, 2013

     9         314         (20      303   

Year ended December 31, 2014

   $ 303       $ 922       $ (1,035    $ 190   

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

7. DEFERRED FINANCING COSTS

In April 2015, the FASB issued ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs . The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has elected to early adopt the provisions of this ASU and is retrospectively applying this standard to all prior periods, as set forth below:

 

     December 31, 2014      December 31, 2013  
     Previous
Presentation
     Adjustment     Current
Presentation
     Previous
Presentation
     Adjustment     Current
Presentation
 

Assets:

               

Deferred financing costs, net

   $ 36,206       $ (36,206   $ —         $ 41,979       $ (41,979   $ —     

Liabilities:

               

Mortgage notes payable, net

   $ 1,259,430       $ (36,206   $ 1,223,224       $ 1,077,172       $ (41,979   $ 1,035,193   

The deferred financing costs summarized in the following table are presented as a reduction to “Mortgage notes payable, net” in the Consolidated Balance Sheets.

 

     December 31, 2014      December 31, 2013  

Gross carrying amount

   $ 45,569       $ 43,011   

Accumulated amortization

     (9,363      (1,032
  

 

 

    

 

 

 

Deferred financing costs, net

$ 36,206    $ 41,979   
  

 

 

    

 

 

 

Amortization of deferred financing costs is reported within interest expense in the Consolidated Statements of Operations.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

8. MORTGAGE NOTES PAYABLE, NET

 

               December 31, 2014      December 31, 2013  
    

Final

Stated
Maturity

  

Stated
Interest
Rate

   Outstanding
Face
Amount
     Carrying
Value (A)
     Weighted
Average
Maturity
(Years)
     Outstanding
Face
Amount
     Carrying
Value (A)
 

Managed Properties

              

Fixed Rate (B)(C)

   Aug 2018-Mar 2020    1.60% to 4.93%    $ 156,763       $ 154,696         4.3       $ 159,228       $ 155,694   

Floating Rate (D)

   Aug 2016-Sep 2019    LIBOR +2.75% to LIBOR +3.75%      278,424         275,689         3.3         198,584         196,110   

Triple Net Lease Properties

              

Fixed Rate (E)

   Jan 2021-Jan 2024    3.83% to 8.00%      708,383         679,333         7.1         719,350         683,389   

Floating Rate

   Oct 2017    LIBOR + 3.25%      115,000         113,506         2.8         —           —     
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,258,570    $ 1,223,224      5.5    $ 1,077,162    $ 1,035,193   
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(A) The totals are reported net of deferred financing costs of $36,206 and $41,979 as of December 31, 2014 and 2013, respectively.
(B) Includes a loan with an outstanding face amount of $11,432, as of December 31, 2014, which has an interest rate based on the applicable U.S. Treasury Security rates for the first two years. The interest rate is 4.5%, 4.75% and 5.0% for years three through five, respectively.
(C) Includes loans with an outstanding face amount of $40,584, as of December 31, 2014, for which the Company bought down the interest rate to 4.0% for the first two years. The interest rate will range from 5.99% to 6.76% thereafter.
(D) Includes floating rate mortgage loans with a total carrying value of $164,974, as of December 31, 2014, which have a LIBOR floor of 1.0%.
(E) Includes loans with an outstanding face amount of $356,818 and $312,157, as of December 31, 2014, for which the Company bought down the interest rates to 4.00% and 3.83%, respectively, through January 2019. The interest rates will increase to 4.99% and 4.56%, respectively, thereafter.

The carrying value of collateral relating to fixed rate and floating rate mortgages was $1,130,582 and $524,996 as of December 31, 2014 and $1,193,616 and $269,117 as of December 31, 2013, respectively.

The Company’s mortgage notes payable have contractual maturities as follows:

 

2015

$ 17,046   

2016

  42,302   

2017

  204,128   

2018

  206,774   

2019

  140,657   

Thereafter

  647,663   
  

 

 

 

Total

$ 1,258,570   
  

 

 

 

The Company’s mortgage notes payable contain various customary financial and other covenants, in some cases including Debt Service Coverage Ratio and Project Yield, as defined in the agreements. The Company was in compliance with the covenants in its mortgage notes payable agreements as of December 31, 2014.

The fair values of mortgage notes payable as of December 31, 2014 and December 31, 2013 was $1,283,109 and $1,075,390, respectively. Mortgage notes payable are not measured at fair value in the Consolidated Balance Sheets. The disclosed fair

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

value of mortgage notes payable, classified as level 3 within the fair value hierarchy, is based on a discounted cash flow valuation model. Significant inputs in the model include amounts and timing of expected future cash flows and market yields which are constructed based on inputs implied from similar debt offerings.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

9. ACCRUED EXPENSES AND OTHER LIABILITIES

 

     December 31, 2014      December 31, 2013  

Security deposits payable

   $ 50,917       $ 43,679   

Accounts payable

     6,058         2,578   

Mortgage interest payable

     3,651         1,237   

Deferred community fees, net

     3,113         1,686   

Rent collected in advance

     2,530         1,660   

Deferred tax liability

     —           853   

Property tax payable

     1,627         774   

Contingent consideration

     50         1,500   

Income tax payable

     —           243   

Other liabilities

     4,295         4,484   
  

 

 

    

 

 

 
$ 72,241    $ 58,694   
  

 

 

    

 

 

 

The Company incurred $2,486, $1,519 and $426 in workers’ compensation expense during the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012, respectively. The Company incurred $462 in workers’ compensation expense during the period from January 1, 2012 to July 17, 2012.

 

10. TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES

Management Agreements

In conjunction with the spin-off, New Senior entered into a management agreement (the “Management Agreement”) with the Manager dated November 6, 2014 (effective November 7, 2014), under which the Manager advises the Company on various aspects of its business and manages its day-to-day operations, subject to the supervision of the Company’s board of directors. For its management services, the Manager is entitled to a fee of 1.5% per annum of the Company’s gross equity. Gross equity is generally defined as the equity invested by Newcastle as of the distribution date calculated and payable monthly in arrears in cash, plus the aggregate offering price from stock offerings, plus certain capital contributions to subsidiaries, less capital distributions (calculated without regard to depreciation and amortization) and repurchases of common stock. Between November 7, 2014 and December 31, 2014, the Company incurred $1,860 in management fees under the Management Agreement which has been included in the management fee to affiliate caption of the Consolidated Statements of Operations.

The Manager is entitled to receive, on a quarterly basis, incentive compensation on a cumulative, but not compounding basis, in an amount equal to the product of (A) 25% of the dollar amount by which (1)(a) funds from operations (as defined in the Management Agreement) before the incentive compensation per share of common stock, plus (b) gains (or losses) from sales of property per share of common stock, plus (c) internal and third party acquisition-related expenses, plus (d) unconsummated transaction expenses, and plus (e) Other Non-Routine Items, exceed (2) an amount equal to (a) the weighted average value per share of the equity invested by Newcastle in the assets of the Company (including total cash contributed to the Company) as of the distribution date and the price per share of the Company’s common stock in any offerings by the Company (adjusted for prior capital dividends or capital distributions, which shall be calculated without regard to depreciation and amortization) multiplied by (b) a simple interest rate of 10% per annum, multiplied by (B) the weighted average number of shares of common stock outstanding. The Manager earned no incentive compensation during the period from November 7, 2014 to December 31, 2014.

Because the Manager’s employees perform certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, the Manager is paid or reimbursed for the cost of performing

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

such tasks, provided that such costs and reimbursements are no greater than those which would be paid to outside professionals or consultants on an arm’s-length basis. The Company is also required to pay all operating expenses, except those specifically required to be borne by the Manager under the Management Agreement. The Company is required to pay expenses that include, but are not limited to, issuance and transaction costs incidental to the sourcing, evaluation, acquisition, management, disposition, and financing of the Company’s investments, legal, underwriting, sourcing, asset management and auditing fees and expenses, the compensation and expenses of independent directors, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of the Company (including commitment fees, legal fees, closing costs, etc.), expenses associated with other securities offerings of the Company, the costs of printing and mailing proxies and reports to the Company’s stockholders, costs incurred by employees or agents of the Manager for travel on the Company’s behalf, costs associated with any computer software or hardware that is solely used by the Company, costs to obtain liability insurance to indemnify directors and officers and the compensation and expenses of the Company’s transfer agent. During the period from November 7, 2014 to December 31, 2014, the Company reimbursed the Manager for $1,551 for other tasks and services under the Management Agreement.

As of, and for the Successor periods prior to, November 6, 2014, the Company was not party to a stand-alone management agreement with the Manager. However, the Company was allocated a portion of the fees paid by Newcastle to the Manager for management services in the amount of $6,610, $1,796 and $464 for the period from January 1, 2014 to November 6, 2014, for the year ended December 31, 2013 and for the period from July 18, 2012 to December 31, 2012, respectively.

Newcastle’s management agreement with the Manager provides that Newcastle reimburses the Manager for various expenses incurred by the Manager or its officers, employees and agents on its behalf, including costs of legal, accounting, tax, auditing, administrative and other similar services rendered for Newcastle by providers retained by the Manager or, if provided by the Manager’s employees, based on amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. Newcastle’s Manager was also entitled to receive an incentive return on a cumulative, but not compounding basis, and subject to certain performance targets and contingent events. Because none of the conditions requiring an incentive payment by Newcastle to the Manager were met, no incentive expense was allocated to the Company. As such, no incentive expense was allocated to the Company.

Property Management Agreements

Within the Company’s Managed Properties segment, the Company is party to Property Management Agreements with Blue Harbor and Holiday, both affiliates of Fortress, to manage a portion of its senior housing properties. Pursuant to these Property Management Agreements, the Company pays monthly property management fees. For AL/MC properties managed by Blue Harbor and Holiday, the Company pays management fees equal to 6% of effective gross income for the first two years and 7% thereafter. For IL-only properties managed by Blue Harbor and Holiday, the Company pays management fees equal to 5% of effective gross income. Property management fees are included in property operating expense. Property operating expense for Property Managers affiliated with Fortress include property management fees of $9,327, $4,976 and $1,082 and travel reimbursement costs of $318, $181 and $35 for the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012, respectively. The payroll expense is structured as a reimbursement to the Property Manager, who is the employer of record. The Company reimbursed the Property Managers affiliated with Fortress for approximately $58,017, $32,520 and $6,761 of property-level payroll expenses relating to the Company’s operations during the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012, respectively. The Property Management Agreements with affiliated managers have an initial term of 10 years and provide for automatic one-year extensions after the initial term, subject to termination rights.

During the Predecessor period, the Company was party to property management agreements with Regent Assisted Living, Inc. and BPM Senior Housing Company to manage its senior housing properties. BPM Senior Housing Company was also the employer of record. Pursuant to these property management agreements, the Company paid management fees equal to 5% of

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

the property’s effective gross income, as defined in the respective agreements. During the period from January 1, 2012 to July 17, 2012, property management fees expensed in property operating expense amounted to $988. Additionally, the Company reimbursed payroll costs of $3,538 for the period from January 1, 2012 to July 17, 2012.

Triple Net Lease Agreements

Within the Company’s Triple Net Lease segment, the Company is party to triple net master leases with the tenant for the Holiday Portfolios. Pursuant to the leases, the tenant pays monthly lease payments at a fixed rate through the lease term which expires in 2031. For the year ended December 31, 2014, December 31, 2013 and the period from July 18, 2012 to December 31, 2012, such payments amounted to $65,031, $1,399 and $0, respectively.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

11. INCOME TAXES

New Senior has been operating so as to qualify as a REIT under the requirements of the Code. However, certain of the Company’s activities are conducted through its TRS and therefore are subject to federal and state income taxes at regular corporate tax rates.

During the Predecessor periods, the Company was treated as a disregarded single-member limited liability for U.S. federal and state income tax purposes and was not subject to income taxes. Accordingly, amounts included below apply only to the Successor period.

The provision for income taxes consists of the following:

 

     Successor  
     For the Year
Ended
December 31,
2014
     For the Year
Ended
December 31,
2013
     For the period
from July 18,
2012

to December 31,
2012
 

Current

        

Federal

   $ (925    $ 437       $ 501   

State and local

     170         93         101   
  

 

 

    

 

 

    

 

 

 

Total current provision

  (755   530      602   
  

 

 

    

 

 

    

 

 

 

Deferred

Federal

  907      116      (404

State and local

  8      10      (48
  

 

 

    

 

 

    

 

 

 

Total deferred provision

  915      126      (452
  

 

 

    

 

 

    

 

 

 

Total provision for income taxes

$ 160    $ 656    $ 150   
  

 

 

    

 

 

    

 

 

 

During the year ended December 31, 2014, December 31, 2013, and the period from July 18, 2012 to December 31, 2012, New Senior’s TRS recorded approximately $160, $656 and $150 in current and deferred income tax expense, respectively. Generally, the Company’s effective tax rate differs from the federal statutory rate as a result of state and local taxes and non-taxable REIT income. The table below provides a reconciliation of the Company’s provision, based on the statutory rate of 35%, to the effective tax rate.

 

     Successor  
     For the Year
Ended
December 31,
2014
    For the Year
Ended
December 31,
2013
    For the Period
from July 18,
2012

to December 31,
2012
 

Statutory U.S. Federal income tax rate

     35.00     35.00     35.00

Non-taxable REIT (loss)

     (35.03 )%      (36.90 )%      (36.42 )% 

State and local taxes

     (0.29 )%      (0.24 )%      (0.19 )% 

Other

     (0.03 )%      (0.09 )%      —     
  

 

 

   

 

 

   

 

 

 

Effective income tax rate

  (0.35 )%    (2.23 )%    (1.61 )% 
  

 

 

   

 

 

   

 

 

 

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities as of December 31, 2014, 2013 and 2012 are presented below:

 

     Successor  
     December 31, 2014      December 31, 2013      December 31, 2012  

Deferred tax assets:

        

Depreciation and amortization

   $ 837       $ —         $ 4   

Prepaid fees and rent

     2,091         1,156         448   

Net operating loss

     1,724         —           —     

Other

     20         23         —     
  

 

 

    

 

 

    

 

 

 

Total deferred tax assets

  4,672      1,179      452   
  

 

 

    

 

 

    

 

 

 

Less valuation allowance

  —        —        —     
  

 

 

    

 

 

    

 

 

 

Net deferred tax assets

  4,672      1,179      452   
  

 

 

    

 

 

    

 

 

 

Deferred tax liabilities:

Depreciation and amortization

  —        853      —     

Deferred revenues

  —        —        —     
  

 

 

    

 

 

    

 

 

 

Total deferred tax liabilities

  —        853      —     
  

 

 

    

 

 

    

 

 

 

Total net deferred tax assets (liabilities)

$ 4,672    $ 326    $ 452   
  

 

 

    

 

 

    

 

 

 

On the Consolidated Balance Sheets, deferred tax assets are recorded within receivables and other assets and deferred tax liabilities are recorded within accrued expenses and other liabilities.

As of December 31, 2014, New Senior had a loss carryforward of approximately $4,149 for federal income tax purposes. The net operating loss carryforward can generally be used to offset future taxable income, if and when it arises. The net operating loss carryforward will expire in 2034.

In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. New Senior has not recorded a valuation allowance against its deferred tax assets as of December 31, 2014, as management believes that it is more likely than not that its deferred tax assets will be realized.

New Senior and its TRS file income tax returns with the U.S. federal government and various state and local jurisdictions. New Senior is no longer subject to tax examinations by tax authorities for tax years ended December 31, 2012, December 31, 2013 and December 31, 2014. New Senior recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Generally, New Senior has assessed its tax positions for all open years, which includes 2012 to 2014, and concluded that there are no material uncertainties to be recognized. Interest and penalties, if any, on uncertain tax positions are included as a component of the provision for income taxes in the Consolidated Statements of Operations.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

12. EQUITY AND EARNINGS PER SHARE

Equity and Dividends

On November 6, 2014, the spin-off of New Senior was effected as a taxable pro rata distribution of all of the outstanding shares of common stock of New Senior to the holders of Newcastle common stock. Newcastle distributed one share of New Senior common stock for each share of Newcastle common stock held by Newcastle stockholders of record as of the record date, October 27, 2014. The distribution occurred on November 6, 2014. The distribution ratio was based on the number of Newcastle shares outstanding of 66,399,857.

In connection with the spin-off, Newcastle contributed to New Senior all of its investments in senior housing properties, any liabilities relating to these properties and a cash and cash equivalents balance of $245,244.

On October 23, 2014, the Company’s certificate of incorporation was amended so that its authorized capital stock now consists of 2 billion shares of common stock, par value $0.01 per share and 100 million shares of preferred stock, par value $0.01 per share. On the spin-off date, there were 66,399,857 issued and outstanding shares of common stock which was based on the number of Newcastle’s shares of common stock outstanding on October 27, 2014 and a distribution ratio of one share of New Senior common stock for each share of Newcastle common stock.

On December 19, 2014, New Senior’s board of directors declared a dividend of $15,276, or $0.23 per share, payable to shareholders of record on January 2, 2015. This dividend was paid on January 30, 2015.

1,071,658 shares of New Senior’s common stock were held by Fortress, through its affiliates, and its principals as of December 31, 2014.

Option Plan

Effective upon the spin-off, the Company has a Nonqualified Stock Option and Incentive Award Plan (the “Plan”) which provides for the grant of equity-based awards, including restricted stock, stock options, stock appreciation rights, performance awards, tandem awards and other equity-based and non-equity based awards, in each case to the Manager and to the directors, officers, employees, service providers, consultants and advisors of the Manager who perform services for New Senior and to New Senior’s directors, officers, service providers, consultants and advisors. New Senior has initially reserved 30 million shares of its common stock for issuance under the Plan; on the first day of each fiscal year beginning during the ten-year term of the Plan in and after calendar year 2014, that number will be increased by a number of shares of New Senior’s common stock equal to 10% of the number of shares of common stock newly issued by New Senior during the immediately preceding fiscal year. New Senior’s board of directors may also determine to issue options to the Manager that are not subject to the Plan, provided that the number of shares underlying any options granted to the Manager in connection with capital raising efforts would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules.

Prior to the spin-off, Newcastle had issued rights relating to shares of Newcastle’s common stock (the “Newcastle options”) to the Manager in connection with capital raising activities. In connection with the spin-off, 5.5 million options that were held by the Manager, or by the directors, officers or employees of the Manager, were converted into an adjusted Newcastle option and a right relating to a number of shares of New Senior common stock (the “New Senior option”). The exercise price of each adjusted Newcastle option and New Senior option was set to collectively maintain the intrinsic value of the Newcastle option immediately prior to the spin-off and to maintain the ratio of the exercise price of the adjusted Newcastle option and the New Senior option, respectively, to the fair market value of the underlying shares as of the spin-off date, in each case based on the five day average closing price subsequent to the spin-off date. The options expire between January 12, 2015 and August 18, 2024.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Upon joining the board, non-employee directors were, in accordance with the Plan, granted options relating to an aggregate of 20,000 shares of common stock. The fair value of such options was not material at the date of grant.

In December 2014, New Senior issued an aggregate of 1,370 shares of its common stock to independent directors as compensation for their services.

New Senior’s outstanding options are summarized as follows:

 

     December 31, 2014      December 31, 2013  
     Issued Prior
to

2012
     Issued in
2012-

2014
     Total      Issued Prior
to
2012
     Issued in
2012-

2013
     Total  

Held by the Manager

     623,623         4,368,129         4,991,752         715,258         3,866,906         4,582,164   

Issued to the Manager and subsequently transferred to certain of the Manager’s employees

     42,202         466,645         508,847         290,929         216,668         507,597   

Issued to the independent directors

     —           20,000         20,000         —           666         666   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  665,825      4,854,774      5,520,599      1,006,187      4,084,240      5,090,427   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes New Senior’s outstanding options as of December 31, 2014. The last sale price on the NYSE for New Senior’s common stock in the year ended December 31, 2014 was $16.45 per share.

 

Recipient

  

Date of Grant/
Exercise (A)

   Number of
Options
    Options
Exercisable as of
December 31,

2014
     Weighted
Average Exercise
Price (B)
     Intrinsic Value as
of December 31,

2014
(millions)
 

Directors

   November 2014      20,000        667       $ 17.21         —     

Manager (C)

   2004 - 2007      227,073        199,993       $ 56.99         —     

Manager (C)

   March 2011      182,527        182,527       $ 7.18       $ 1.7   

Manager (C)

   September 2011      283,305        283,305       $ 4.09       $ 3.5   

Manager (C)

   April 2012      311,191        306,991       $ 7.66       $ 2.7   

Manager (C)

   May 2012      377,495        372,440       $ 8.75       $ 2.9   

Manager (C)

   July 2012      416,522        397,869       $ 8.71       $ 3.2   

Manager (C)

   January 2013      958,331        734,720       $ 14.42       $ 1.9   

Manager (C)

   February 2013      383,331        281,109       $ 16.85         —     

Manager (C)

   June 2013      670,829        402,497       $ 17.89         —     

Manager (C)

   November 2013      965,847        418,534       $ 19.23         —     

Manager (C)

   August 2014      765,416        102,055       $ 20.89         —     

Exercised (D)

   December 2014      (14,188     N/A       $ 8.41         N/A   

Expired unexercised

   2004      (27,080     N/A       $ 61.11         N/A   
     

 

 

   

 

 

    

 

 

    

Outstanding

  5,520,599      3,682,707    $ 16.33   
     

 

 

   

 

 

    

 

 

    

 

(A) Options expire on the tenth anniversary from date of grant.
(B) The strike prices are subject to adjustment in connection with return of capital dividends.
(C) The Manager assigned certain of its options to Fortress’s employees as follows:

 

Date of Grant    Range of Strike Prices      Total Unexercised Inception to
Date
 

2004 - 2007

   $ 53.26-60.92         42,202   

2012

   $ 7.66-8.75         199,988   

2013

   $ 14.42-19.23         266,657   
     

 

 

 

Total

  508,847   
     

 

 

 

 

  (D) The options were exercised by a former employee of Fortress for an equal amount of New Senior shares.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Earnings Per Share

New Senior is required to present both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period. New Senior’s common stock equivalents are its outstanding stock options.

Basic and Diluted EPS for all periods prior to the spin-off reflect the number of distributed shares on November 7, 2014, or 66.4 million shares. For 2014 year-to-date calculations, these shares are treated as issued and outstanding from January 1, 2014 for purposes of calculating historical basic EPS, similar to a stock split. At the time of the spin-off, the Newcastle options were converted to awards of New Senior, and, therefore, there were no potentially dilutive securities outstanding for historical periods. For 2014, the Company determined its weighted average diluted shares outstanding assuming that the date of New Senior’s separation from Newcastle was the beginning of the period.

During the fiscal year ended December 31, 2014, 162,563 potentially dilutive shares were excluded given the Company’s loss position. During the years ended December 31, 2013 and December 31, 2012, there were no potentially dilutive shares outstanding as EPS for those periods assumes the same number of shares outstanding as issued upon its spin-off from Newcastle.

 

13. CONCENTRATION OF CREDIT RISK

As of December 31, 2014, December 31, 2013 and December 31, 2012, Blue Harbor and Holiday managed and operated approximately 32%, 32% and 100%, of the Company’s real estate investments (based on their carrying amount), respectively. Also, as of December 31, 2014, December 31, 2013 and December 31, 2012, senior housing properties under triple net master leases constituted approximately 67%, 68% and 0%, respectively, of the Company’s real estate investments (based on their carrying amount).

Managed Properties

Blue Harbor and Holiday managed 96.5%, 100% and 100% of segment real estate investment; 99.8%, 100% and 100% of segment revenue; and 99.7%,100% and 100% of segment NOI as of and for the years ended December 31, 2014, December 31, 2013 and December 31, 2012, respectively.

Because Blue Harbor and Holiday manage, but do not lease New Senior’s properties in the Managed Properties segment, the Company is not directly exposed to their credit risk in the same manner or to the same extent as the Company’s triple net lease tenants. However, the Company relies on Blue Harbor and Holiday’s personnel, expertise, accounting resources and information systems, proprietary information, good faith and judgment to manage the Company’s properties efficiently and effectively. New Senior also relies on Blue Harbor and Holiday to otherwise operate the Company’s properties in compliance with the terms of the Property Management agreements, although the Company has various rights as the property owner to terminate and exercise remedies under the Property Management agreements. Blue Harbor’s and Holiday’s inability or unwillingness to satisfy their obligations under those agreements, to efficiently and effectively manage the Company’s properties, or to provide timely and accurate accounting information could have a material adverse effect on the Company. In addition, significant changes in Blue Harbor’s and Holiday’s senior management or adverse developments in their business and affairs or financial condition could have a material adverse effect on the Company.

Triple Net Lease Properties

For the year ended December 31, 2014, December 31, 2013, and for the period from July 18, 2012 through December 31, 2012, approximately 35.0%, 2.3% and 0% respectively, of New Senior’s total revenues and 62.5%, 7.8% and 0% respectively, of segment NOI were derived from lease agreements with the tenant for the Holiday Portfolios, an affiliate of Fortress.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Triple net leases obligate the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to comply with the terms of the mortgage financing documents, if any, affecting the properties. In addition, each of these leases has guaranty and cross-default provisions tied to other leases with the same tenant.

Because the properties leased to the tenant for the Holiday Portfolios account for a significant portion of total revenues and NOI, the Company’s financial condition and results of operations could be weakened and the Company’s ability to service its indebtedness and to make distributions to stockholders could be limited if the tenant for the Holiday Portfolios becomes unable or unwilling to satisfy its obligations to the Company or to renew leases with the Company upon expiration of the terms thereof. New Senior cannot assure that the tenant for the Holiday Portfolios will have sufficient assets, income and access to financing to enable it to satisfy its respective obligations to the Company, and any inability or unwillingness by the tenant for the Holiday Portfolios to do so could have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity, the Company’s ability to service its indebtedness and other obligations and ability to make distributions to stockholders, as required for the Company to continue to qualify as a REIT. New Senior also cannot assure that the tenant for the Holiday Portfolios will elect to renew leases with the Company upon expiration of the terms thereof or that New Senior will be able to reposition any properties that are not renewed on a timely basis or on the same or better economic terms, if at all.

Each triple net master lease includes (i) a covenant requiring the tenant for the Holiday Portfolios to maintain a minimum lease coverage ratio, which the triple net master lease defines as net operating income less a reserve for capital expenditures for the applicable trailing 12-month period for the Holiday Portfolios divided by the base rental revenue for such trailing 12-month period, which steps up during the term of the lease and is subject to certain cure provisions, (ii) minimum capital expenditure requirements, (iii) customary operating covenants, events of default, and remedies, (iv) a non-compete clause restricting certain affiliates of the tenant for the Holiday Portfolios from developing or constructing new independent living properties within a specified radius of any property acquired by the Company in this transaction, and (v) restrictions on a change of control of the tenant for the Holiday Portfolios and Guarantor (as defined below), subject to certain exceptions. The triple net master leases also require the tenant for the Holiday Portfolios to fund a security deposit in the amount of approximately $43,400, which serves as security for the tenant for the Holiday Portfolios’ performance of its obligations to the Company. Additionally, the tenant for the Holiday Portfolios granted the Company a first priority security interest in certain personal property and receivables arising from the operations of the Holiday Portfolios, which security interest also secures the tenant for the Holiday Portfolios’ obligations under the triple net master leases. The tenant for the Holiday Portfolios’ obligations to the Company under the triple net master leases are further guaranteed by Holiday AL Holdings LP, (the “Guarantor”), an affiliate of Fortress. The Guarantor is required to maintain a minimum net worth of $150,000, a minimum fixed charge coverage ratio of 1.10 and a maximum leverage ratio of 10 to 1.

 

14. FUTURE MINIMUM RENTS

The following table sets forth future contracted minimum rental receipts from tenants within the Triple Net Lease Properties segment, excluding contingent payment escalations, as of December 31, 2014:

 

     Total  

2015

   $ 82,439   

2016

     86,040   

2017

     89,798   

2018

     92,882   

2019

     95,972   

Thereafter

     1,269,839   
  

 

 

 

Total

$ 1,716,970   
  

 

 

 

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

15. COMMITMENTS AND CONTINGENCIES

As of December 31, 2014, management believes there are no material contingencies that would affect the Company’s results of operations, cash flows or financial position.

Certain Obligations, Liabilities and Litigation

The Company may be subject to various obligations, liabilities and litigation assumed in connection with or arising out of its acquisitions or otherwise arising in connection with its on-going business. Some of these liabilities may be indemnified by third parties. However, if these liabilities are greater than expected or were not known to the Company at the time of acquisition, if the Company is not entitled to indemnification, or if the responsible third party fails to indemnify the Company for these liabilities, such obligations, liabilities and litigation could have a material adverse effect on the Company. In addition, in connection with the sale or leasing of properties, the Company may incur various obligations and liabilities, including indemnification obligations, relating to the operations of those properties, which could have a material adverse effect on the Company’s financial position, cash flows and results of operations.

Certain Tax-Related Covenants

If New Senior is treated as a successor to Newcastle under applicable U.S. federal income tax rules, and if Newcastle fails to qualify as a REIT, New Senior could be prohibited from electing to be a REIT. Accordingly, Newcastle has (i) represented that it has no knowledge of any fact or circumstance that would cause New Senior to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Senior as necessary to enable New Senior to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to New Senior and its tax counsel with respect to the composition of Newcastle’s income and assets, the composition of its stockholders and its operation as a REIT, and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Newcastle’s taxable years ending on or before December 31, 2015 (unless Newcastle obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the Internal Revenue Service (“IRS”) to the effect that Newcastle’s failure to maintain its REIT status will not cause New Senior to fail to qualify as a REIT under the successor REIT rule referred to above).

Proceedings Indemnified and Defended by Third Parties

From time to time, the Company is party to certain legal actions, regulatory investigations and claims for which third parties are contractually obligated to indemnify, defend and hold the Company harmless. While the Company is presently not being defended by any tenant and other obligated third parties in these types of matters, there is no assurance that its tenants, their affiliates or other obligated third parties will continue to defend the Company in these matters, or that such parties will have sufficient assets, income and access to financing to enable them to satisfy their defense and indemnification obligations to the Company.

Environmental Costs

As a commercial real estate owner, the Company is subject to potential environmental costs. As of December 31, 2014, management of the Company is not aware of any environmental concerns that would have a material adverse effect on the Company’s financial position or results of operations.

 

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NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

Capital Improvement, Repair and Lease Commitments

The Company is committed to making $6,500 available for capital improvements to the triple net lease properties under the LCS Portfolio and also agreed to make available an additional $9,000 at certain intervals over the 15 year lease period to be used for further capital improvements. Upon funding the capital improvements, the Company will be entitled to a rent increase. No capital improvements and repairs have been funded as of December 31, 2014. The Company has two ground leases with initial terms of 74 and 82 years. Both ground leases require equal annual rent payments that amount to an aggregate $368 over the life of the leases.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

16. SUBSEQUENT EVENTS

These Consolidated Financial Statements include a discussion of material events, if any, which have occurred subsequent to December 31, 2014 (referred to as subsequent events) through the issuance of the Consolidated Financial Statements.

On January 22, 2015, the Company consummated the acquisition of a four property portfolio, the “CSL Portfolio” for total consideration of $36,299. The CSL Portfolio consists of four IL-only properties and will be included in the Company’s Managed Properties segment.

The following table illustrates the effect of the CSL Portfolio acquisition on revenues and pre-tax net income as if they had been consummated as of January 1, 2013:

 

     For the Year Ended
December 31, 2014
     For the Year Ended
December 31, 2013
 

Revenues

   $ 9,846       $ 9,582   

Pre-tax net Income (loss)

   $ (548    $ (676

On December 21, 2014, the Company entered into a Purchase and Sale Agreement with an affiliate of Hawthorn Retirement Group LLC to acquire 17 IL-only properties for approximately $435,000 in cash, subject to customary adjustments and prorations, which the Company intends to integrate into the Managed Properties segment. The acquisition is subject to various conditions, including the completion of due diligence, and is expected to close in March 2015.

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED (SUCCESSOR) AND COMBINED (PREDECESSOR) FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012

(dollars in thousands, except share data)

 

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

 

2014    Quarter Ended     Year Ended
December 31
 
     March 31     June 30     September 30     December 31    

Revenue

   $ 57,835      $ 59,623      $ 67,145      $ 70,382      $ 254,985   

Net operating income

     32,276        33,427        38,369        38,671        142,743   

Net income/(loss) before tax

     (10,578     (10,403     (10,801     (14,461     (46,243

Income tax expense (benefit)

     360        627        350        (1,177     160   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

$ (10,938 $ (11,030 $ (11,151 $ (13,284 $ (46,403
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) per share of common stock

Basic and diluted

  (0.16   (0.17   (0.17   (0.20   (0.70

Weighted average number of shares of common stock outstanding

Basic and diluted

  66,399,857      66,399,857      66,399,857      66,404,051      66,400,914   

 

2013    Quarter Ended     Year Ended
December 31
 
     March 31     June 30     September 30     December 31    

Revenue

   $ 12,979      $ 13,509      $ 24,257      $ 34,391      $ 85,136   

Net operating income

     3,777        4,254        6,605        10,774        25,410   

Net income/(loss) before tax

     (1,956     (3,640     (8,612     (15,182     (29,390

Income tax expense (benefit)

     211        436        67        (58     656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

$ (2,167 $ (4,076 $ (8,679 $ (15,124 $ (30,046
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) per share of common stock

Basic and diluted

  (0.03   (0.06   (0.13   (0.23   (0.45

Weighted average number of shares of common stock outstanding

Basic and diluted

  66,399,857      66,399,857      66,399,857      66,399,857      66,399,857   

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2014

(dollars in thousands)

 

        Location           Initial Cost to the Company           Gross Amount Carried at Close of Period                          

Property
Name

  Type
(A)
  City   State     Encumbrances     Land     Buildings and
Improvements
    Furniture,
Fixtures
and
Equipment
    Costs
Capitalized
Subsequent
to
Acquisition
    Land     Buildings and
Improvements
    Furniture,
Fixtures
and
Equipment
    Total
(B)
    Accumulated
Depreciation
    Net
Book
Value
    Year
Constructed /

Renovated
  Year
Acquired
  Life on
Which
Depreciation
in Income
Statement is
Computed

Managed Properties

                                 

Desert Flower

  AL/MC   Scottsdale     AZ        16,120        2,295        16,901        101        362        2,295        17,147        217        19,659        (1,215     18,444      1999/2005   2012   3-40 years

Sun Oak

  AL/MC   Citrus Heights     CA        3,363        821        3,145        59        68        821        3,184        88        4,093        (255     3,838      1997/2011   2012   3-40 years

Orchard Park

  AL/MC   Clovis     CA        15,086        1,126        16,889        45        241        1,126        17,035        140        18,301        (1,157     17,144      1998/2007   2012   3-40 years

Sunshine Villa

  AL/MC   Santa Cruz     CA        19,533        2,243        21,082        58        349        2,243        21,264        225        23,732        (1,488     22,244      1990/NA   2012   3-40 years

Bradenton Oaks

  AL/MC   Bradenton     FL        10,049        1,161        9,207        748        461        1,161        9,272        1,144        11,577        (612     10,965      1973/1988   2013   3-40 years

Summerfield

  AL/MC   Bradenton     FL        15,346        1,367        14,361        1,247        410        1,367        14,444        1,574        17,385        (962     16,423      1988/NA   2013   3-40 years

The Grande

  AL/MC   Brooksville     FL        9,816        1,754        8,537        568        332        1,754        8,681        756        11,191        (533     10,658      1960/2012   2013   3-40 years

Spring Oaks

  AL/MC   Brooksville     FL        5,620        700        5,078        439        176        700        5,116        577        6,393        (365     6,028      1988/NA   2013   3-40 years

Barkley Place

  AL/MC   Fort Myers     FL        10,688        1,929        9,159        1,040        301        1,929        9,320        1,180        12,429        (420     12,009      1988/NA   2013   3-40 years

Emerald Park

  AL/MC   Hollywood     FL        5,037        897        4,165        509        492        897        4,329        837        6,063        (379     5,684      1998/NA   2013   3-40 years

The Plaza at Pembroke

  AL/MC   Hollywood     FL        5,382        924        4,630        399        226        924        4,677        578        6,179        (329     5,850      1988/2012   2013   3-40 years

Balmoral

  AL/MC   Lake Placid     FL        5,930        1,173        4,548        838        174        1,173        4,570        990        6,733        (457     6,276      2007/NA   2013   3-40 years

Lake Morton Plaza

  AL/MC   Lakeland     FL        8,930        1,098        14,707        918        225        1,098        14,784        1,066        16,948        (833     16,115      1984/NA   2013   3-40 years

Bayside Terrace

  AL/MC   Pinellas Park     FL        10,610        1,407        9,481        849        346        1,407        9,588        1,088        12,083        (652     11,431      1986/2007   2013   3-40 years

Village Place

  AL/MC   Port Charlotte     FL        9,263        1,064        8,503        680        252        1,064        8,543        892        10,499        (560     9,939      1998/NA   2013   3-40 years

Royal Palm

  AL/MC   Port Charlotte     FL        14,250        2,019        13,697        1,371        731        2,019        14,225        1,574        17,818        (917     16,901      1985/NA   2013   3-40 years

Renaissance

  AL/MC   Sanford     FL        5,457        1,390        8,900        630        218        1,390        8,976        772        11,138        (557     10,581      1984/NA   2013   3-40 years

Forest Oaks

  AL/MC   Spring Hill     FL        7,315        786        5,614        530        101        786        5,631        614        7,031        (398     6,633      1988/2006   2013   3-40 years

Sunset Lake Village

  AL/MC   Venice     FL        13,710        1,073        13,254        838        170        1,073        13,288        974        15,335        (774     14,561      1998/NA   2013   3-40 years

Spring Haven

  AL/MC   Winter Haven     FL        18,882        3,446        21,524        1,477        489        3,446        21,674        1,816        26,936        (1,293     25,643      1984/NA   2013   3-40 years

Willow Park

  AL/MC   Boise     ID        12,583        1,456        13,548        58        173        1,456        13,665        114        15,235        (977     14,258      1997/2011   2012   3-40 years

Grandview

  AL/MC   Peoria     IL        —          1,640        12,289        280        —          1,640        12,289        280        14,209        (33     14,176      2014   2014   3-40 years

Ashford Court

  IL   Westland     MI        8,858        1,500        9,000        450        191        1,500        9,128        513        11,141        (331     10,810      1988/1992/1997   2014   3-40 years

The Gardens

  AL/MC   Ocean Springs     MS        —          850        7,034        460        130        850        7,075        549        8,474        (83     8,391      1999 / 2004 /
2013
  2014   3-40 years

Courtyards at Berne Village

  AL/MC   New Bern     NC        14,191        1,657        12,892        1,148        261        1,657        12,957        1,344        15,958        (871     15,087      1985/2004   2013   3-40 years

Kirkwood Corners

  AL/MC   Lee     NH        2,191        577        1,847        124        129        577        1,901        199        2,677        (59     2,618      1996   2014   3-40 years

Pines of New Market

  AL/MC   Newmarket     NH        5,040        628        4,879        353        122        628        4,971        383        5,982        (134     5,848      1999   2014   3-40 years

 

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NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2014

(dollars in thousands)

 

      Location       Initial Cost to the Company       Gross Amount Carried at Close of Period                

Property
Name

Type
(A)
  City   State   Encumbrances   Land   Buildings and
Improvements
  Furniture,
Fixtures
and
Equipment
  Costs
Capitalized
Subsequent
to
Acquisition
  Land   Buildings and
Improvements
  Furniture,
Fixtures
and
Equipment
  Total
(B)
  Accumulated
Depreciation
  Net
Book
Value
  Year
Constructed /

Renovated
Year
Acquired
Life on
Which
Depreciation
in Income
Statement is
Computed

Pine Rock Manor

   AL/MC  Warner   NH      8,375      780      8,580      378      165      780      8,665      458      9,903      (217   9,686    1994 2014 3-40 years

Manor at Woodside

   IL  Poughkeepsie   NY      14,100      —        12,130      670      485      —        12,539      746      13,285      (734   12,551    2001/NA 2013 3-40 years

Lamplight

   AL/MC  Dayton   OH      8,136      1,056      7,755      750      182      1,056      7,819      868      9,743      (375   9,368    1994/NA 2014 3-40 years

Regent Court

   AL/MC  Corvallis   OR      5,034      1,044      4,974      8      133      1,044      5,049      66      6,159      (365   5,794    1999/NA 2012 3-40 years

Sheldon Park

   AL/MC  Eugene   OR      18,113      929      20,662      91      188      929      20,816      125      21,870      (1,446   20,424    1998/NA 2012 3-40 years

Glen Riddle

   AL/MC  Media   PA      16,875      1,931      16,169      870      267      1,931      16,316      990      19,237      (866   18,371    1995/NA 2013 3-40 years

Schenley Gardens

   AL/MC  Pittsburgh   PA      8,250      3,227      11,521      410      447      3,227      11,768      610      15,605      (585   15,020    1996/NA 2013 3-40 years

Raintree

   AL/MC  Knoxville   TN      7,637      643      8,642      490      106      643      8,673      565      9,881      (101   9,780    2012 2014 3-40 years

Powell

   AL/MC  Powell   TN      5,901      761      6,482      310      60      761      6,489      363      7,613      (62   7,551    2013 2014 3-40 years

Windsor

   AL/MC  Dallas   TX      33,750      5,580      31,306      1,250      151      5,580      31,404      1,303      38,287      (355   37,932    1972/2009 2014 3-40 years

Courtyards

   AL/MC  Fort Worth   TX      16,101      2,140      16,671      672      396      2,140      16,927      812      19,879      (1,535   18,344    1986/NA 2012 3-40 years

Heritage Place

   AL/MC  Bountiful   UT      8,806      570      9,558      50      887      570      10,030      465      11,065      (708   10,357    1978/2000 2012 3-40 years

Canyon Creek

   AL/MC  Cottonwood Heights   UT      14,915      1,488      16,308      58      301      1,488      16,454      213      18,155      (1,159   16,996    2001/NA 2012 3-40 years

Chateau Brickyard

   IL  Salt Lake City   UT      3,471      700      3,297      15      618      700      3,691      239      4,630      (279   4,351    1984/2007 2012 3-40 years

Golden Living

   AL/MC  Taylorsville   UT      3,699      1,111      3,126      39      441      1,111      3,354      252      4,717      (313   4,404    1976/1994 2012 3-40 years

Heritage Oaks

   IL  Richmond   VA      8,775      1,630      9,570      705      329      1,630      9,759      845      12,234      (523   11,711    1987/NA 2013 3-40 years
           

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Managed Properties Total

  

  435,188      60,571      461,622      22,983      12,286      60,571      467,487      29,404      557,462      (26,267   531,195   
           

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Triple Net Lease

Vista de la Montana

   IL  Surprise   AZ      9,667      1,131      11,077      635      —        1,131      11,077      635      12,843      (425   12,418    1998/NA 2013 3-40 years

The Westmont

   IL  Santa Clara   CA      14,152      —        18,049      754      —        —        18,049      754      18,803      (643   18,160    1991/NA 2013 3-40 years

Simi Hills

   IL  Simi Valley   CA      19,673      3,209      21,999      730      —        3,209      21,999      730      25,938      (725   25,213    2006/NA 2013 3-40 years

Parkwood Estates

   IL  Fort Collins   CO      14,653      638      18,055      627      —        638      18,055      627      19,320      (598   18,722    1987/NA 2013 3-40 years

Greeley Place

   IL  Greeley   CO      11,143      237      13,859      596      —        237      13,859      596      14,692      (482   14,210    1986/NA 2013 3-40 years

Courtyard at Lakewood

   IL  Lakewood   CO      12,041      1,327      14,198      350      —        1,327      14,198      350      15,875      (453   15,422    1992/NA 2013 3-40 years

Pueblo Regent

   IL  Pueblo   CO      11,006      446      13,800      377      —        446      13,800      377      14,623      (433   14,190    1985/NA 2013 3-40 years

Village Gate

   IL  Farmington   CT      20,407      3,591      23,254      268      —        3,591      23,254      268      27,113      (652   26,461    1989/NA 2013 3-40 years

Lodge at Cold Spring

   IL  Rocky Hill   CT      19,879      —        25,807      605      —        —        25,807      605      26,412      (796   25,616    1998/NA 2013 3-40 years

Regency Residence

   IL  Port Richey   FL      12,105      1,100      14,088      771      —        1,100      14,088      771      15,959      (522   15,437    1987/NA 2013 3-40 years

Desoto Beach Club

   IL  Sarasota   FL      19,175      668      23,944      669      —        668      23,944      669      25,281      (765   24,516    2005/NA 2013 3-40 years

Cherry Laurel

    IL  Tallahassee   FL      16,857      1,100      20,457      669      —        1,100      20,457      669      22,226      (679   21,547    2001/NA 2013 3-40 years

Palmer Hills

   IL  Bettendorf   IA      9,658      1,488      10,878      466      —        1,488      10,878      466      12,832      (378   12,454    1990/NA 2013 3-40 years

 

68


Table of Contents

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2014

(dollars in thousands)

 

      Location       Initial Cost to the Company       Gross Amount Carried at Close of Period                

Property
Name

Type
(A)
  City   State   Encumbrances   Land   Buildings and
Improvements
  Furniture,
Fixtures
and
Equipment
  Costs
Capitalized
Subsequent
to
Acquisition
  Land   Buildings and
Improvements
  Furniture,
Fixtures
and
Equipment
  Total
(B)
  Accumulated
Depreciation
  Net
Book
Value
  Year
Constructed /

Renovated
Year
Acquired
Life on
Which
Depreciation
in Income
Statement is
Computed

Illahee Hills

IL  Urbandale   IA      9,898      694      11,980      476      —        694      11,980      476      13,150      (415   12,735    1995/NA 2013 3-40 years

Blair House

IL  Normal   IL      11,721      329      14,498      627      —        329      14,498      627      15,454      (512   14,942    1989/NA 2013 3-40 years

Thornton Place

IL  Topeka   KS      11,649      327      14,415      734      —        327      14,415      734      15,476      (530   14,946    1998/NA 2013 3-40 years

Grasslands Estates

IL  Wichita   KS      14,559      504      17,888      802      —        504      17,888      802      19,194      (635   18,559    2001/NA 2013 3-40 years

Jackson Oaks

IL  Paducah   KY      15,417      267      19,195      864      —        267      19,195      864      20,326      (681   19,645    2004/NA 2013 3-40 years

Summerfield Estates

IL  Shreveport   LA      4,765      524      5,584      175      —        524      5,584      175      6,283      (180   6,103    1988/NA 2013 3-40 years

Blue Water Lodge

IL  Fort
Gratiot
  MI      12,840      62      16,034      833      —        62      16,034      833      16,929      (599   16,330    2001/NA 2013 3-40 years

Briarcrest Estates

IL  Ballwin   MO      13,872      1,255      16,509      525      —        1,255      16,509      525      18,289      (539   17,750    1990/NA 2013 3-40 years

Country Squire

IL  St. Joseph   MO      13,534      864      16,353      627      —        864      16,353      627      17,844      (561   17,283    1990/NA 2013 3-40 years

Orchid Terrace

IL  St. Louis   MO      21,473      1,061      26,636      833      —        1,061      26,636      833      28,530      (864   27,666    2006/NA 2013 3-40 years

Chateau Ridgeland

IL  Ridgeland   MS      6,658      967      7,277      535      —        967      7,277      535      8,779      (307   8,472    1986/NA 2013 3-40 years

Grizzly Peak

IL  Missoula   MT      13,208      309      16,447      658      —        309      16,447      658      17,414      (563   16,851    1997/NA 2013 3-40 years

Jordan Oaks

IL  Cary   NC      17,856      2,103      20,847      774      —        2,103      20,847      774      23,724      (706   23,018    2003/NA 2013 3-40 years

Durham Regent

IL  Durham   NC      19,430      1,061      24,149      605      —        1,061      24,149      605      25,815      (753   25,062    1989/NA 2013 3-40 years

Sky Peaks

IL  Reno   NV      16,152      1,061      19,793      605      —        1,061      19,793      605      21,459      (652   20,807    2002/NA 2013 3-40 years

Maple Downs

IL  Fayetteville   NY      20,559      782      25,656      668      —        782      25,656      668      27,106      (804   26,302    2003/NA 2013 3-40 years

Fleming Point

IL  Greece   NY      16,695      699      20,644      668      —        699      20,644      668      22,011      (676   21,335    2004/NA 2013 3-40 years

The Regent

IL  Corvallis   OR      6,818      1,111      7,720      228      —        1,111      7,720      228      9,059      (245   8,814    1983/NA 2013 3-40 years

Stoneybrook Lodge

IL  Corvallis   OR      15,552      1,543      18,119      843      —        1,543      18,119      843      20,505      (650   19,855    1999/NA 2013 3-40 years

Sheldon Oaks

IL  Eugene   OR      14,776      1,577      17,380      675      —        1,577      17,380      675      19,632      (598   19,034    1995/NA 2013 3-40 years

Rock Creek

IL  Hillsboro   OR      10,452      1,617      11,783      486      —        1,617      11,783      486      13,886      (407   13,479    1996/NA 2013 3-40 years

Hidden Lakes

IL  Salem   OR      14,241      1,389      16,639      893      —        1,389      16,639      893      18,921      (618   18,303    1990/NA 2013 3-40 years

Fountains at Hidden Lakes

IL  Salem   OR      5,622      903      6,568      —        —        903      6,568      —        7,471      (187   7,284    1990/NA 2013 3-40 years

Walnut Woods

IL  Boyertown   PA      14,196      308      18,058      496      —        308      18,058      496      18,862      (567   18,295    1997/NA 2013 3-40 years

Manor at Oakridge

IL  Harrisburg   PA      19,670      992      24,379      764      —        992      24,379      764      26,135      (788   25,347    2000/NA 2013 3-40 years

Essex House

IL  Lemoyne   PA      20,622      936      25,585      669      —        936      25,585      669      27,190      (800   26,390    2002/NA 2013 3-40 years

Uffelman Estates

IL  Clarksville   TN      8,614      625      10,521      298      —        625      10,521      298      11,444      (335   11,109    1993/NA 2013 3-40 years

Arlington Plaza

IL  Arlington   TX      7,987      319      9,821      391      —        319      9,821      391      10,531      (342   10,189    1987/NA 2013 3-40 years

Parkwood Healthcare

CCRC  Bedford   TX      15,159      2,746      15,463      755      —        2,746      15,463      755      18,964      (278   18,686    1986/2008 2014 3-40 years

Parkwood Retirement

IL  Bedford   TX      11,809      2,829      11,639      306      —        2,829      11,639      306      14,774      (186   14,588    1986/2007 2014 3-40 years

The Bentley

IL  Dallas   TX      11,401      2,351      12,271      526      —        2,351      12,271      526      15,148      (429   14,719    1996/NA 2013 3-40 years

Whiterock Court

IL  Dallas   TX      11,657      2,837      12,205      446      —        2,837      12,205      446      15,488      (416   15,072    2001/NA 2013 3-40 years

Autumn Leaves

CCRC  Dallas   TX      18,926      3,851      18,729      1,097      —        3,851      18,729      1,097      23,677      (352   23,325    1971/2012 2014 3-40 years

Monticello West

AL/
MC
 Dallas   TX      20,617      3,344      21,226      1,225      —        3,344      21,226      1,225      25,795      (391   25,404    1980/2013 2014 3-40 years

Signature Pointe

CCRC  Dallas   TX      28,982      5,192      29,486      1,579      —        5,192      29,486      1,579      36,257      (535   35,722    1998/2013 2014 3-40 years

Walnut Place

CCRC  Dallas   TX      19,507      5,241      18,255      907      —        5,241      18,255      907      24,403      (324   24,079    1980/2012 2014 3-40 years

 

69


Table of Contents

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2014

(dollars in thousands)

 

    Location       Initial Cost to the Company       Gross Amount Carried at Close of Period                

Property
Name

Type
(A)
City State   Encumbrances   Land   Buildings and
Improvements
  Furniture,
Fixtures
and
Equipment
  Costs
Capitalized
Subsequent
to
Acquisition
  Land   Buildings and
Improvements
  Furniture,
Fixtures
and
Equipment
  Total
(B)
  Accumulated
Depreciation
  Net Book
Value
  Year
Constructed
/

Renovated
Year
Acquired
Life on
Which
Depreciation
in Income
Statement is
Computed

Dogwood Estates

IL Denton   TX      15,235      1,002      18,525      714      —        1,002      18,525      714      20,241      (636   19,605    2005/NA 2013 3-40
years

Pinewood Hills

IL Flower
Mound
  TX      15,301      2,073      17,552      704      —        2,073      17,552      704      20,329      (609   19,720    2007/NA 2013 3-40
years

Ventura Place

IL Lubbock   TX      15,168      1,018      18,034      946      —        1,018      18,034      946      19,998      (677   19,321    1997/NA 2013 3-40
years

The El Dorado

IL Richardson   TX      10,805      1,316      12,220      710      —        1,316      12,220      710      14,246      (470   13,776    1996/NA 2013 3-40
years

Madison Estates

IL San
Antonio
  TX      12,529      1,528      14,850      268      —        1,528      14,850      268      16,646      (437   16,209    1984/NA 2013 3-40
years

Pioneer Valley Lodge

IL North
Logan
  UT      14,949      1,049      17,920      740      —        1,049      17,920      740      19,709      (632   19,077    2001/NA 2013 3-40
years

Colonial Harbor

IL Yorktown   VA      17,007      2,211      19,523      689      —        2,211      19,523      689      22,423      (653   21,770    2005/NA 2013 3-40
years

Oakwood Hills

IL Eau Claire   WI      15,078      516      18,872      645      —        516      18,872      645      20,033      (631   19,402    2003/NA 2013 3-40
years
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Triple Net Lease Total

  

  823,382      78,228      966,713      36,526      —        78,228      966,713      36,526      1,081,467      (30,721   1,050,746   
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Grand Total

  

  1,258,570      138,799      1,428,335      59,509      12,286      138,799      1,434,200      65,930      1,638,929      (56,988   1,581,941   
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

(A) AL/MC represents assisted living and memory care; IL represents independent living and CCRC represents continuing care retirement communities.
(B) For United States federal income tax purposes, the initial aggregate cost basis, including furniture, fixtures, and equipment, for New Senior’s senior housing real estate assets at December 31, 2014 was approximately $1.66 billion.

The following is a rollforward of the gross carrying amount and accumulated depreciation (depreciation is calculated on a straight line basis using the estimated useful lives detailed in Note 2) of senior housing real estate for the years ended December 31, 2014, December 31, 2013 and December 31, 2012:

 

Gross carrying amount

   December 31,
2014
     December 31,
2013
     December 31,
2012 (A)
 

Beginning of period

   $ 1,373,428       $ 164,360       $ 126,201   
  

 

 

    

 

 

    

 

 

 

Acquisitions

  260,543      1,205,607      37,872   

Additions

  8,538      3,502      297   

Disposals and other

  (3,580   (41   (10
  

 

 

    

 

 

    

 

 

 

End of period

$ 1,638,929    $ 1,373,428    $ 164,360   
  

 

 

    

 

 

    

 

 

 

Accumulated depreciation

  

 

 

    

 

 

    

 

 

 

Beginning of period

$ (10,526 $ (1,558 $ —     
  

 

 

    

 

 

    

 

 

 

Depreciation expense

  (46,622   (8,984   (1,559

Disposals and other

  160      16      1   
  

 

 

    

 

 

    

 

 

 

Balance at end of year

$ (56,988 $ (10,526 $ (1,558
  

 

 

    

 

 

    

 

 

 

 

(A) The rollforward of the gross real estate investment for the period ended December 31, 2012 excludes any activity in the predecessor period as such balances are on a different basis of accounting. The balance at the beginning of the period for the period reflects the Company’s initial investment in senior housing properties as of July 18, 2012.

 

70