Execution Copy

 

 

 

 

SECURITIES PURCHASE AGREEMENT

 

BY AND AMONG

 

SENTIO HEALTHCARE PROPERTIES, INC.,

 

Sentio Healthcare Properties OP, L.P.

 

AND

 

SENTINEL RE INVESTMENT HOLDINGS LP

 

DATED AS OF FEBRUARY ___, 2013

 

 

  

 

 

 

TABLE OF CONTENTS

 

    Page       Article I PURCHASE AND SALE OF SECURITIES 2       Section 1.1.
Purchase and Sale of Securities 2 Section 1.2. Effective Date; Closing Dates 2  
    Article II PUT EXERCISE TERMS 2       Section 2.1. Put Exercise Notices 2
Section 2.2. Securities Calculation 4 Section 2.3. Reduction of Remaining Put
Amount 4 Section 2.4. Closing 5       Article III REPRESENTATIONS AND WARRANTIES
OF THE INVESTOR 5     Section 3.1. Organization and Standing of the Investor 5
Section 3.2. Authorization and Power 5 Section 3.3. No Conflicts 5 Section 3.4.
Brokers’ Fees 6 Section 3.5. Investment Representations 6 Section 3.6.
Additional Investment Representations 6 Section 3.7. Funding 7 Section 3.8.
Patriot Act 7 Section 3.9. Legal Proceedings 8       Article IV REPRESENTATIONS
AND WARRANTIES OF THE SENTIO PARTIES 8     Section 4.1. Organization, Good
Standing and Power 8 Section 4.2. Authorization, Enforcement 8 Section 4.3. No
Conflicts 9 Section 4.4. Application of Takeover Protections 10 Section 4.5.
Governmental Consents 10 Section 4.6. Capitalization 10 Section 4.7. Valid
Issuance of Preferred and Common Stock and Preferred Units 11 Section 4.8.
Financial Statements 12 Section 4.9. Reports 12 Section 4.10. No Material
Adverse Effect 13 Section 4.11. No Undisclosed Liabilities 13 Section 4.12.
Assets and Real Property 13 Section 4.13. Litigation 14 Section 4.14. Taxes 14
Section 4.15. Permits and Licenses 17 Section 4.16. Compliance with Laws 17
Section 4.17. Environmental Compliance 17

 

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Section 4.18. Contracts 18 Section 4.19. ERISA 18 Section 4.20. Intellectual
Property 19 Section 4.21. Registration Rights 19 Section 4.22. Investment
Company Act 19 Section 4.23. Illegal Payments 19 Section 4.24. Insurance 20
Section 4.25. General Solicitation 20 Section 4.26. Offering; Exemption 20
Section 4.27. No Integrated Offering 20 Section 4.28. Brokers’ Fees 20 Section
4.29. Indebtedness 20 Section 4.30. Maintenance Requirements 21 Section 4.31.
Management Agreements 21 Section 4.32. Joint Venture Agreements 21 Section 4.33.
Loan Documents 21       Article V COVENANTS 22       Section 5.1. Registration
22 Section 5.2. Compliance with Laws 22 Section 5.3. Keeping of Records and
Books of Account; Unlawful Payments 22 Section 5.4. Other Agreements and Other
Financings 23 Section 5.5. Certain Actions 23 Section 5.6. Financial Statements
25 Section 5.7. Qualification as a REIT 25 Section 5.8. Investment Company Act
25 Section 5.9. Securities 26 Section 5.10. HSR Act 26 Section 5.11. Use of
Proceeds 26 Section 5.12. Future Commission Documents 26 Section 5.13.
Restriction on Issuance of Company Capital Stock 26 Section 5.14. Stockholder
Approvals; Proxy Statements 27 Section 5.15. No Solicitation of Acquisition
Proposals 28 Section 5.16. Consents 32 Section 5.17. Confidentiality 32 Section
5.18. Public Announcements 32 Section 5.19. Transfer Taxes 32 Section 5.20. The
Leases and Management Agreements 33 Section 5.21. Conduct of Business 33 Section
5.22. Restructuring 33       Article VI OPINIONS OF COUNSEL AND CERTIFICATE;
CONDITIONS
TO THE SALE AND PURCHASE OF THE SECURITIES 34       Section 6.1. Opinions of
Counsel and Certificate 34 Section 6.2. Conditions Precedent to the Obligation
of the Sentio Parties 34 Section 6.3. Conditions Precedent to the Obligation of
the Investor 35

 

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Article VII TERMINATION 37       Section 7.1. Term; Termination 37 Section 7.2.
Effect of Termination 39       Article VIII INDEMNIFICATION 40       Section
8.1. Indemnification by the Sentio Parties 40 Section 8.2. Indemnification by
the Investor 40 Section 8.3. Indemnification Procedures 41 Section 8.4. Remedies
Not Exclusive 41 Section 8.5. Adjustment to Purchase Price 42       Article IX
MISCELLANEOUS 42       Section 9.1. Fees and Expenses 42 Section 9.2. Specific
Enforcement, Consent to Jurisdiction, Waiver of Jury Trial 42 Section 9.3.
Entire Agreement; Amendment 43 Section 9.4. Notices 43 Section 9.5. Waivers 45
Section 9.6. Headings 45 Section 9.7. Assignment 45 Section 9.8. Governing Law
45 Section 9.9. Survival 45 Section 9.10. Counterparts 45 Section 9.11.
Interpretation 46 Section 9.12. Disclosure Schedule 47 Section 9.13.
Severability 47 Section 9.14. Further Assurances 47 Section 9.15. Non-Recourse
47 Section 9.16. Competitive Investments 47       ANNEX A      DEFINITIONS i    
  ANNEX B       DISCLOSURE SCHEDULE xiii

 

EXHIBIT A-1 FORM OF ARTICLES SUPPLEMENTARY FOR SERIES A PREFERRED STOCK A-1-1  
  EXHIBIT A-2 FORM OF ARTICLES SUPPLEMENTARY FOR SERIES C PREFERRED STOCK A-2-1

 

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EXHIBIT B SECOND AMENDED AND RESTATED LIMITED PARTNERSHP AGREEMENT OF SENTIO
HEALTHCARE PROPERTIES OP, L.P B-1     EXHIBIT C FORM OF INVESTOR RIGHTS
AGREEMENT C-1     EXHIBIT D FORM OF TRANSITITON TO INTERNAL MANAGEMENT AGREEMENT
D-1     EXHIBIT E FORM OF PUT EXERCISE NOTICE E-1     EXHIBIT F ACQUISITION
CRITERIA F-1     EXHIBIT G FORM OF TAX OPINION G-1     EXHIBIT H FORM OF GENERAL
CLOSING OPINION H-1     EXHIBIT I COMPLIANCE CERTIFICATE J-1

 

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SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT, made and entered into on this 10th day of
February, 2013 (this “Agreement”), by and among Sentinel RE Investment Holdings
LP, a Delaware limited partnership (the “Investor”), Sentio Healthcare
Properties, Inc., a corporation organized under the laws of the State of
Maryland (the “Company”), and Sentio Healthcare Properties OP, L.P., a Delaware
limited partnership (the “Partnership,” and together with the Company, the
“Sentio Parties”). Capitalized terms used but not defined herein will have the
meanings ascribed to such terms in Annex A hereto.

 

RECITALS

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company may issue and sell to the Investor and the
Investor will thereupon purchase from the Company (i) up to 1,000 shares of
newly issued Series A Preferred Shares, par value $0.01 per share, of the
Company (the “Series A Preferred Shares”), or (ii) upon obtaining the approval
of the Company’s stockholders to the Charter Amendment (as defined herein) in
accordance with Section 5.14 of this Agreement, up to 1,000 shares of newly
issued Series C Preferred Shares, par value $0.01 per share, of the Company (the
“Series C Preferred Shares”);

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Partnership may issue and sell to the Investor and the
Investor will thereupon purchase from the Partnership up to $149,900,000 of
newly issued Series B convertible preferred units of limited partnership
interest in the Partnership (the “Series B Convertible Preferred Units,” and
together with the Series A Preferred Shares and the Series C Preferred Shares,
the “Securities”) on a private placement basis pursuant to an exemption from
registration under the Securities Act;

 

WHEREAS, in connection with the transactions contemplated by this Agreement, the
Company, HPC LP TRS, LLC, a Delaware limited liability company, and the Investor
intend to enter into that certain Second Amended and Restated Limited
Partnership Agreement of Sentio Healthcare Properties OP, L.P., in the form
attached as Exhibit B hereto;

 

WHEREAS, in consideration for the Investor’s execution and delivery of, and the
performance of their obligations under, this Agreement, the Sentio Parties and
the Investor are concurrently entering into an investor rights agreement,
substantially in the form attached as Exhibit C hereto (the “Investor Rights
Agreement”) and a Transition to Internal Management Agreement, substantially in
the form attached as Exhibit D hereto (the “Transition to Internal Management
Agreement”); and

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:

 

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Article I
PURCHASE AND SALE OF SECURITIES

 

Section 1.1.      Purchase and Sale of Securities. Upon the terms and subject to
the conditions of this Agreement, during the Put Period and, if exercised,
during the Extension Period, the Company, in its discretion, may issue and sell
to the Investor $100,000 in aggregate liquidation preference amount of Series A
Preferred Shares (the “Preferred Share Put Right”), and the Partnership, in its
discretion, may issue and sell to the Investor $149,900,000 in aggregate
liquidation preference amount of Series B Convertible Preferred Units (the
“Preferred Unit Put Right,” and together with the Preferred Share Put Right, the
“Aggregate Put Right”) by the delivery to the Investor of separate Put Exercise
Notices (as provided in Article II hereof) (i) if during the Put Period, up to
four (4) times per year for a yearly aggregate of up to $75,000,000 per year in
Exercised Put Amounts or (ii) if during the Extension Period, up to four (4)
times per year for a yearly aggregate of up to the Remaining Put Amount. Upon
issuance in accordance with the terms of this Agreement, each of the Series A
Preferred Shares will be duly authorized, validly issued, fully paid and
non-assessable.

 

Section 1.2.       Effective Date; Closing Dates. This Agreement will become
effective and binding upon delivery of counterpart signature pages of this
Agreement executed by each of the parties hereto, and by delivery of the Legal
Opinions of the Sentio Parties as provided in Section 6.1 hereof, to the offices
of DLA Piper LLP (US), 4141 Parklake Avenue, Suite 300, Raleigh, North Carolina
27612, on the Effective Date. In consideration of and in express reliance upon
the representations, warranties and covenants, and otherwise upon the terms and
subject to the conditions, of this Agreement, from and after the Effective Date
and during the Put Period, and, if exercised by the Investor, during the
Extension Period the Sentio Parties will issue and sell to the Investor, and the
Investor agrees to purchase from the Sentio Parties, the Securities in respect
of each Put Exercise Notice. The issuance and sale of Securities to the Investor
pursuant to any Put Exercise Notice will occur at each Closing on the applicable
Closing Date in accordance with Section 2.4, provided in each case that all of
the conditions precedent thereto set forth in Article VI theretofore will have
been fulfilled or (to the extent permitted by applicable law) waived.

 

Article II
PUT EXERCISE TERMS

 

Subject to the satisfaction of the conditions set forth in this Agreement, the
parties agree (unless otherwise agreed upon by the parties in writing) as
follows:

 

Section 2.1.          Put Exercise Notices.

 

(a)          Commencing on the thirtieth day following the Effective Date, the
Sentio Parties may, from time to time in their sole discretion, provide to the
Investor a Put Exercise Notice, substantially in the form attached hereto as
Exhibit E (the “Put Exercise Notice”). Each Put Exercise Notice must:

 

(i)          be delivered to the Investor not later than 9:30 a.m. (Eastern
Standard time) at least fifteen (15) Business Days prior to the Closing Date
specified in the Put Exercise Notice;

 

(ii)         identify the proposed investment opportunity and specify the
criteria supporting the Sentio Parties’ conclusion that such investment
opportunity is a Qualifying Acquisition;

 

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(iii)        specify the Put Exercise Amount; and

 

(iv)        designate the Closing Date.

 

The date on which the Sentio Parties deliver any Put Exercise Notice in
accordance with this Section 2.1 hereinafter will be referred to as a “Put
Exercise Date.”

 

(b)          No later than five (5) Business Days from the Put Exercise Date,
the Investor will notify the Sentio Parties of whether (i) the proposed
investment opportunity is an Approved Acquisition; (ii) the Investor is
exercising a Strike with respect to such proposed investment opportunity; or
(iii) the Investor disputes the Sentio Parties’ conclusion that the proposed
investment opportunity is a Qualifying Acquisition.

 

(c)          At any time prior to the Closing Date set forth in a Put Exercise
Notice, but no later than three (3) Business Days prior to the Closing Date set
forth in such Put Exercise Notice, the Sentio Parties may (i) notify the
Investor that the Sentio Parties are terminating the Put Exercise Notice, in
which case such Put Exercise Notice will expire without further effect, or (ii)
amend such Put Exercise Notice (an “Amended Put Exercise Notice”) and deliver
such Amended Put Exercise Notice to Investor. No later than three (3) Business
Days after Investor’s receipt of an Amended Put Exercise Notice, the Investor
will notify the Sentio Parties of whether (x) the proposed investment
opportunity is an Approved Acquisition; (y) the Investor is exercising a Strike
with respect to such proposed investment opportunity; or (z) the Investor
disputes the Sentio Parties’ conclusion that the proposed investment opportunity
is a Qualifying Acquisition.

 

(d)          If the proposed investment opportunity described in a Put Exercise
Notice (or Amended Put Exercise Notice, as applicable) is an Approved
Acquisition, then upon the terms and subject to the conditions of this
Agreement, the Investor is obligated to accept such Put Exercise Notice (or
Amended Put Exercise Notice, as applicable) prepared and delivered in accordance
with the provisions of this Agreement, and to purchase from the Sentio Parties
the Securities issuable pursuant to and as set forth in such Put Exercise Notice
(or Amended Put Exercise Notice, as applicable).

 

(e)          If the Investor exercises a Strike with respect to the proposed
investment opportunity described in a Put Exercise Notice (or Amended Put
Exercise Notice, as applicable) then the Investor is not obligated to accept
such Put Exercise Notice (or Amended Put Exercise Notice, as applicable) and,
subject to the provisions of Section 7.1(e), such Put Exercise Notice (or
Amended Put Exercise Notice, as applicable) will expire without further effect.

 

(f)          If the Investor disputes the Sentio Parties’ conclusion that the
proposed investment opportunity described in a Put Exercise Notice (or Amended
Put Exercise Notice, as applicable) is a Qualifying Acquisition, then the Sentio
Parties will negotiate with the Investor in good faith to determine the changes
necessary to make the proposed investment opportunity a Qualifying Acquisition
and thereafter the Sentio Parties will resubmit a Put Exercise Notice relating
to the revised investment opportunity as described in Section 2.1(a) hereof.

 

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(g)          On the Business Day that is one (1) year from the Effective Date
(the “First Anniversary”), if the aggregate Exercised Put Amount during the
period from the Effective Date to the First Anniversary is less than
$35,000,000, the Partnership will pay to the Investor a premium equal to 5% of
the difference between (i) $35,000,000 and (ii) the aggregate Exercised Put
Amount during the period from the Effective Date to the First Anniversary.
Notwithstanding the foregoing, no such premium will be paid if the Investor
exercised more than one Strike during the period from the Effective Date to the
First Anniversary.

 

(h)          On the Business Day that is two (2) years from the Effective Date
(the “Second Anniversary”), if the aggregate Exercised Put Amount during the
period from the First Anniversary to the Second Anniversary is less than
$35,000,000, the Partnership will pay to the Investor a premium equal to 5% of
the difference between (i) $35,000,000 and (ii) the aggregate Exercised Put
Amount during the period from the First Anniversary to the Second Anniversary.
Notwithstanding the foregoing, no such premium will be paid if the Investor
exercised more than one Strike during the period from the First Anniversary to
the Second Anniversary.

 

(i)          If the Extension Period is exercised in accordance with Section
7.1(d), on the Business Day that is three (3) years from the Effective Date (the
“Third Anniversary”), if the aggregate Exercised Put Amount during the period
from the Second Anniversary to the Third Anniversary is less than $50,000,000,
the Partnership will pay to the Investor a premium equal to 5% of the difference
between (i) the lesser of (A) $50,000,000 and (B) the Remaining Put Amount, and
(ii) the aggregate Exercised Put Amount during the period from the Second
Anniversary to the Third Anniversary. Notwithstanding the foregoing, no such
premium will be paid if the Investor exercised more than one Strike during the
period from the Second Anniversary to the Third Anniversary.

 

(j)          if the aggregate Exercised Put Amount during the period from the
Effective Date to the First Anniversary is less than $50,000,000, the Aggregate
Put Right will be reduced, on a dollar-for-dollar basis, by an amount equal to
the difference between (i) $50,000,000 and (ii) the aggregate Exercised Put
Amount during the period from the Effective Date to the First Anniversary.

 

Section 2.2.          Securities Calculation. At each Closing the Partnership
will issue to the Investor that number of Series B Convertible Preferred Units
equal to the quotient of: (i) the Exercised Put Amount received by the
Partnership upon such Closing divided by (ii) 100; except upon the first
Closing, in which case, the Company, against receipt of payment of $100,000 of
the Exercised Put Amount for such Closing, will issue to the Investor (subject
to Section 5.14(f)) 1,000 shares of Series A Preferred Stock, and the
Partnership will issue to the Investor that number of Series B Convertible
Preferred Units equal to the quotient of: (a) the balance of the Exercised Put
Amount received by the Partnership upon such Closing, divided by (b) 100.

 

Section 2.3.          Reduction of Remaining Put Amount. Concurrently with each
Closing, the Remaining Put Amount under this Agreement automatically (and
without the need for any amendment to this Agreement) will be reduced, on a
dollar-for-dollar basis, by the total amount of the Exercised Put Amount
received by the Sentio Parties at such Closing.

 

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Section 2.4.          Closing. The payment for, against simultaneous delivery
of, Securities in respect of each Put Exercise will be consummated (each, a
“Closing”) on the Business Day set forth in the Put Exercise Notice with respect
thereto, or on such other date as the parties may agree in writing (each, a
“Closing Date”). At each Closing, the Company or the Partnership, as applicable,
will deliver to the Investor one or more certificates, in form and substance
reasonably satisfactory to the Investor, evidencing the Securities, as
calculated in accordance with Section 2.2, against simultaneous payment of the
applicable Exercised Put Amount to the Company’s and/or the Partnership’s, as
applicable, designated account by wire transfer of immediately available funds.

 

Article III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

 

The Investor hereby makes the following representations and warranties to the
Sentio Parties:

 

Section 3.1.          Organization and Standing of the Investor. The Investor is
duly organized, validly existing and in good standing under the laws of the
state of its formation.

 

Section 3.2.          Authorization and Power. The Investor has all requisite
power and authority to enter into and perform their obligations under this
Agreement and the Related Documents and to purchase the Securities in accordance
with the terms hereof and thereof. The execution, delivery and performance of
this Agreement and the Related Documents by the Investor and the consummation by
the Investor of the transactions contemplated hereby and thereby have been duly
authorized by all necessary organizational action and no further consent or
authorization of the Investor, its board or managers, or any of the Investor’s
equity owners is required. This Agreement and each of the Related Documents has
been duly executed and delivered by the Investor. This Agreement and each of the
Related Documents, assuming due authorization, execution and delivery by the
Sentio Parties, constitutes a valid and binding obligation of the Investor
enforceable against the Investor in accordance with its terms, subject as to
enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar Laws affecting the enforcement of creditors’
rights generally and to general equitable principles (whether considered in a
proceeding in equity or at law).

 

Section 3.3.          No Conflicts. The execution, delivery, terms and
conditions and performance by the Investor of this Agreement and each of the
Related Documents and the consummation by the Investor of the transactions
contemplated herein or therein do not and will not (a) result in a violation of
the Organizational Documents of the Investor, (b) conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would become a
default) under, or give rise to any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which an Investor is a party or is bound, (c) create or impose any Lien on
any property of the Investor under any agreement or any commitment to which the
Investor is party or under which the Investor is bound or under which any of its
properties or assets are bound or (d) result in a violation of any federal,
state, local or foreign law, statute, rule or regulation, or any order, judgment
or decree of any court or governmental agency (collectively, “Laws”) applicable
to the Investor or by which any of the Investor’s properties or assets are bound
or affected. The Investor is not required under any Law applicable to the
Investor to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for the Investor to
execute, deliver or perform any of the obligations under this Agreement or the
Related Documents or to purchase the Securities in accordance with the terms
hereof or thereof.

 

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Section 3.4.          Brokers’ Fees. Neither the Investor nor any Person acting
on the Investor’s behalf has agreed to pay any commission, finder’s or broker’s
fee, or similar payment in connection with the transactions contemplated by this
Agreement or any matter related hereto to any Person for which any of the Sentio
Parties will be liable.

 

Section 3.5.          Investment Representations. The Investor understands that
none of the Securities have been registered under the Securities Act. The
Investor also understands that the Securities are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon the Investor’s representations contained in this Agreement. The
Investor is acquiring the Securities for the Investor’s own account for
investment only and not with a view towards their distribution in violation of
applicable securities laws. The Investor represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act. The
Investor has such knowledge and experience in financial and business matters
that the Investor is capable of evaluating the merits and risks of its
investment in the Securities and is able to bear such risks, and has obtained,
in the Investor’s judgment, sufficient information from the Sentio Parties to
evaluate the merits and risks of such investment. The Investor has evaluated the
risks of investing in the Securities, understands there are substantial risks of
loss incidental to the investment and has determined that it is a suitable
investment for the Investor. Without limiting the foregoing, the Investor has
had an opportunity to discuss the Sentio Parties’ business, management and
financial affairs with officers and management of the Sentio Parties and have
had the opportunity to review the Sentio Parties’operations and facilities. The
Investor also has had the opportunity to ask questions of, and receive answers
from, the Sentio Parties and their management regarding the terms and conditions
of this investment. Nothing in this Section 3.5 will abrogate or otherwise limit
or restrict the right of the Investor to rely on the representations, warranties
and covenants of the Sentio Parties set forth in this Agreement and the Related
Documents.

 

Section 3.6.          Additional Investment Representations.

 

(a)          Except for the transactions provided for in this Agreement and the
Related Documents, neither the Investor nor its Affiliates (a) owns five percent
(5%) or more of the number of outstanding shares of Common Stock, (b) is a
Subsidiary, Affiliate or other closely-related Person of a director, trustee or
officer of the Company or a holder of five percent (5%) or more of the number of
outstanding shares of Common Stock; and neither the Investor nor any of its
Affiliates has a substantial direct or indirect interest in the Company.

 

(b)          Except for the transactions provided for in this Agreement and the
Related Documents, no partner, executive or employee of the Investor or any of
its Affiliates has engaged in any transaction with any of the Sentio Parties or
any Subsidiary thereof, or has any relationship with any of the Sentio Parties
or any Subsidiary thereof, that would be required to be disclosed under Item 404
of Regulation S-K of the Commission if the Company were filing with the
Commission on the Effective Date a report or schedule that provided for
disclosures under Item 404.

 

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(c)          The Investor is not (i) an “employee benefit plan” within the
meaning of Section 3(3) of ERISA that is subject to Title I of ERISA or a “plan”
within the meaning of Section 4975(e)(1) of the Code that is subject to Section
4975 of the Code, and Investor does not hold and is not investing the “plan
assets” of such an employee benefit plan or plan, within the meaning of
Department of Labor Regulation 29 C.F.R. Section 2510.3-101; or (ii) a
“governmental plan” within the meaning of Section 3(32) of ERISA, and Investor
is not subject to federal, state or local statutes regulating investment of, and
fiduciary obligations with respect to, governmental plans.

 

Section 3.7.          Funding. Investor has sufficient cash on hand or has
received executed and binding capital commitments pursuant to which it will have
sufficient cash on hand to consummate the transactions contemplated by this
Agreement and to allow Investor to perform its obligations hereunder (including
without limitation the Investor’s obligation to pay the Aggregate Put Right from
time to time under Put Exercise Notices). To the Knowledge of the Investor, as
of the Effective Date, no event has occurred which, with or without notice,
lapse of time or both, would result in a condition of funding under such capital
commitments not to be met (or any excusal rights with respect to such capital
commitments being triggered) at any applicable Closing Date under this
Agreement.

 

Section 3.8.          Patriot Act.

 

(a)          Neither the Investor nor, to the Investor’s Knowledge, any of its
Affiliates, is in violation of Executive Order No. 13224 on Terrorist Financing,
effective September 24, 2001 and relating to Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism
(the “Executive Order”) and/or, to the Investor’s Knowledge, the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the “Patriot Act”).

 

(b)          Neither the Investor nor, to the Investor’s Knowledge, any of its
Affiliates, is a “Prohibited Person” which is defined as follows:

 

(i)          a person or entity that is listed in the Annex to, or is otherwise
subject to the provisions of, the Executive Order;

 

(ii)         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;

 

(iii)        a person or entity with whom the Company or its successor or
assignee is prohibited from dealing or otherwise engaging in any transaction by
the Executive Order or the Patriot Act;

 

(iv)        a person or entity who commits, threatens or conspires to commit or
supports “terrorism” as defined in the Executive Order;

 

(v)         a person or entity that is named as a “specially designated national
and blocked person” on the most current list published by the U.S. Treasury
Department Office of Foreign Assets Control at its official website,
http://www.treas.gov/ofac/tllsdn.pdf, or at any replacement website or other
replacement official publication of such list; and

 

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(vi)        a person or entity who is affiliated with a person or entity listed
above.

 

(c)          Neither the Investor nor, to the Investor’s Knowledge, any of its
Affiliates, has: (i) conducted any business or engaged in any transaction or
dealing with any Prohibited Person, including the making or receiving any
contribution of funds, goods or services to or for the benefit of any Prohibited
Person; (ii) dealt in or otherwise engaged in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order; or
(iii) engaged in or conspired to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in the Executive Order or the Patriot Act.

 

Section 3.9.          Legal Proceedings. As of the date hereof, there are no
action, suits, claims, investigations or other legal proceedings pending, or to
Investor’s Knowledge, threatened against or by the Investor or one of its
Affiliates that challenge or seek to prevent, enjoin, or otherwise delay the
transactions contemplated by this Agreement and the Related Documents.

 

Article IV
REPRESENTATIONS AND WARRANTIES OF THE SENTIO PARTIES

 

Except as set forth in a correspondingly identified disclosure schedule
delivered by the Sentio Parties to the Investor (which is hereby incorporated by
reference in, and constitutes an integral part of, this Agreement) (the
“Disclosure Schedule”), the Sentio Parties hereby make the following
representations and warranties to the Investor:

 

Section 4.1.          Organization, Good Standing and Power. Each of the Sentio
Parties and their Subsidiaries is duly organized, validly existing and in good
standing under the laws of the state of its formation; has all necessary
corporate power and authority to own its properties and conduct its business as
presently conducted; and is duly qualified to do business and in good standing
in each state in the United States of America where its business requires such
qualification, except where failure to be so duly qualified and in good standing
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. True and accurate copies of the Charter, the Bylaws and
the Partnership Agreement have been made available to the Investor.

 

Section 4.2.          Authorization, Enforcement.

 

(a)          On or prior to the Effective Date, the Board (including a majority
of the Independent Directors thereon) has duly adopted resolutions authorizing
and approving (subject to the consents and approvals set forth in Schedule
4.2(a)) (i) each of the Agreement and the Related Documents and the transactions
contemplated thereby, (ii) the Articles Supplementary, (iii) the Charter
Amendment, (iv) the Series C Articles Supplementary and (v) the Bylaws
Amendment.

 

8

 

 

(b)          On or prior to the Effective Date, the General Partner has
authorized and approved each of the Agreement, the Related Documents and the
Second Amended and Restated Limited Partnership Agreement of Sentio Healthcare
Properties OP, L.P., in the form attached as Exhibit B hereto.

 

(c)          All corporate action on the part of the Company, its officers,
directors, and stockholders has been taken that is necessary for the
authorization, execution, and delivery of the Agreement and the Related
Documents, the performance of all obligations of the Company under each of the
Agreement and the Related Documents, and the authorization, issuance (or
reservation for issuance), sale, and delivery of the (i) Preferred Shares being
sold hereunder has been taken, subject to (A) in the case of the Series A
Preferred Shares, the filing of the Articles Supplementary with the Department
of Assessments and Taxation of the State of Maryland, (B) in the case of the
Series C Preferred Shares, obtaining the affirmative vote of holders of a
majority of the Common Stock present or represented and entitled to vote at a
meeting of stockholders of the Company to approve the Charter Amendment pursuant
to Section 5.14 hereof, (C) in the case of the Series C Preferred Shares, the
filing of the Charter Amendment and the Series C Articles Supplementary with the
Department of Assessments and Taxation of the State of Maryland pursuant to
Section 5.14 hereof and (D) and (ii) shares of Common Stock issuable upon
exchange of Partnership Units in accordance with the terms of the Partnership
Agreement.

 

(d)          All action on the part of the Partnership has been taken that is
necessary for the authorization, execution, and delivery of the Agreement and
the Related Documents, the performance of all obligations of the Partnership
under each of the Agreement and the Related Documents, and the authorization,
sale, and delivery of (i) the Series B Convertible Preferred Units being sold
hereunder and (ii) the Common Units issuable upon conversion of the Series B
Convertible Preferred Units in accordance with the terms of the Partnership
Agreement.         

 

(e)          This Agreement and each of the Related Documents have been duly
executed and delivered by the Sentio Parties. This Agreement and each of the
Related Documents, assuming due authorization, execution and delivery by the
Investor, constitutes a valid and binding obligation of each of the Sentio
Parties enforceable against such Sentio Party in accordance with its terms,
subject as to enforcement, to applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar Laws affecting the enforcement
of creditors’ rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law).

 

Section 4.3.          No Conflicts. The execution, delivery, terms and
conditions and performance by the Sentio Parties of this Agreement and each of
the Related Documents and the consummation by the Sentio Parties of the
transactions contemplated herein or therein do not and will not (a) result in a
violation of the Organizational Documents of the Company or the Partnership, (b)
conflict with, constitute a default (or an event which, with notice or lapse of
time or both, would become a default) under, or give rise to any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which any of the Sentio Parties is a party or is
bound, (c) create or impose any Lien on any property of any of the Sentio
Parties under any agreement or any commitment to which such Sentio Party is
party or under which a Sentio Party is bound or under which any of the Sentio
Parties’ properties or assets are bound or (d) result in a violation of any Law
applicable to the Sentio Parties or by which any of the Sentio Parties’
properties or assets are bound or affected.

 

9

 

 

Section 4.4.          Application of Takeover Protections. Subject to the
restrictions set forth in the Charter (except to the extent that the Investor
has received a waiver in connection herewith granting the Investor an exemption
from the ownership limitations set forth therein), the Company and the Board
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under its Charter, Bylaws and the laws of its state of incorporation that is or
could become applicable to the Investor as a result of the consummation of the
transactions contemplated by the Agreement and the Related Documents, including,
without limitation, as a result of the Company’s issuance of the Series A
Preferred Shares, the Series C Preferred Shares and shares of Common Stock
exchangeable for Partnership Units, as applicable, to the Investor, and the
exercise of the Investor’s rights under the Articles Supplementary and the
Series C Articles Supplementary and the Partnership Agreement.

 

Section 4.5.          Governmental Consents. No consent, approval, order, or
authorization of or registration, qualification, declaration, or filing with,
any federal, state, or local Governmental Authority on the part of the Sentio
Parties is required in connection with the offer, sale, or issuance of the
Securities or the securities issuable upon conversion of the Securities or the
consummation of any other transaction contemplated by this Agreement, except for
the following: (a) the compliance with other applicable state securities laws,
which compliance will have occurred within the appropriate time periods; (b) the
filing with the Commission of such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, and (c) the filing of the Articles Supplementary, Charter
Amendment and the Series C Articles Supplementary with the Department of
Assessments and Taxation of the State of Maryland.

 

Section 4.6.          Capitalization.

 

(a)          The authorized capital stock of the Company consists of 580,000,000
shares of Common Stock, of which 12,804,645 were issued and outstanding as of
January 31, 2013 and 20,000,000 shares of preferred stock, none of which are
issued or outstanding. All issued and outstanding shares of the Company Capital
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Prior to the first Closing Date, the Company will reserve that
number of shares of Common Stock sufficient for issuance upon exchange of the
Securities being issued and sold pursuant to this Agreement and upon exchange of
Partnership Units such Securities may be converted into. Other than as provided
in the Agreement and the Related Documents, there are no other outstanding
rights, options, warrants, preemptive rights, rights of first offer, or similar
rights for the purchase or acquisition from the Company of any securities of the
Company, nor are there any commitments to issue or execute any such rights,
options, warrants, preemptive rights or rights of first offer. Except as
otherwise provided in the Articles Supplementary and the Series C Articles
Supplementary, in each case when filed with the Department of Assessments and
Taxation of the State of Maryland, there are no outstanding obligations of the
Company to repurchase or redeem any of its equity securities. Upon filing the
Articles Supplementary with the Department of Assessments and Taxation of the
State of Maryland, the respective rights, preferences, privileges, and
restrictions of the Series A Preferred Shares and the shares of Common Stock
will be as stated in the Charter (including the Articles Supplementary) and the
provisions of the Articles Supplementary do not conflict with any of the
provisions of the Organizational Documents of the Company. Upon filing the
Series C Articles Supplementary with the Department of Assessments and Taxation
of the State of Maryland, the respective rights, preferences, privileges, and
restrictions of the Series C Preferred Shares and the shares of Common Stock
will be as stated in the Charter (including the Series C Articles Supplementary)
and, upon filing the Charter Amendment with the Department of Assessments and
Taxation of the State of Maryland, the provisions of the Series C Articles
Supplementary will not conflict with any of the provisions of the Organizational
Documents of the Company. The Company does not have outstanding shareholder
purchase rights or “poison pill” or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.

 

10

 

 

(b)          As of January 31, 2013, there were issued and outstanding
12,824,645 Partnership Units, comprised of 12,804,645 Partnership Units held by
the Company in its capacity as the sole general partner of the Partnership, and
20,000 Partnership Units held by HPC LP TRS, LLC in its capacity as the sole
limited partner of the Partnership, and no other Partnership units are
outstanding. All issued and outstanding Partnership Units have been duly
authorized and validly issued. Other than as provided in the Agreement, the
Related Documents, and the Partnership Agreement, there are no other outstanding
rights, options, warrants, preemptive rights, rights of first offer, or similar
rights for the purchase or acquisition from the Partnership of any securities of
the Partnership, nor are there any commitments to issue or execute any such
rights, options, warrants, preemptive rights or rights of first offer. Except as
otherwise provided in the Partnership Agreement, there are no outstanding
obligations of the Partnership to repurchase or redeem any of its equity
securities.

 

Section 4.7.          Valid Issuance of Preferred and Common Stock and Preferred
Units. Each of the Series A Preferred Shares and the Series C Preferred Shares
being purchased by the Investor hereunder, when issued, sold, and delivered in
accordance with the terms of this Agreement for the consideration expressed in
this Agreement, will be duly and validly issued, fully paid, and nonassessable,
and will be free of any Liens or restrictions on transfer other than
restrictions under the Agreement, the Related Documents, the Charter, and under
applicable state and federal securities laws. The sale of each of the Series A
Preferred Shares and the Series C Preferred Shares hereunder is not subject to
any preemptive rights, rights of first offer or any anti-dilution provisions
contained in the Charter, Bylaws or any other agreement (other than any
ownership limitations contained in the Charter for which the Investor has not
received a waiver hereunder). The Series B Convertible Preferred Units being
purchased by the Investor hereunder will be free of any Liens or restrictions on
transfer other than restrictions under the Agreement, the Related Documents, and
the Partnership Agreement. The shares of Common Stock issuable upon exchange of
the Series B Convertible Preferred Units purchased under this Agreement (or upon
exchange of any Partnership Units such Series B Convertible Preferred Units are
converted into pursuant to the Partnership Agreement) have been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Partnership Agreement and the Charter, will be duly and validly issued, fully
paid, and nonassessable and will be free of any Liens or restrictions on
transfer other than restrictions on transfer under the Agreement and the Related
Documents, the Charter and under applicable state and federal securities laws.

 

11

 

 

Section 4.8.          Financial Statements. The financial statements of the
Sentio Parties and their respective Subsidiaries on a consolidated basis for
each of the periods included or incorporated by reference in the Commission
Documents (a) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, in each case as of the date such Commission
Document was filed, and (b) have been prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated in
such financial statements or the notes thereto) and fairly present in all
material respects the consolidated financial position of the Sentio Parties and
their respective consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows of the Sentio Parties
and their respective Subsidiaries for the periods then ended (subject, in the
case of unaudited statements, to normal recurring audit adjustments).

 

Section 4.9.          Reports.

 

(a)          The Company has filed all documents required to be filed with the
SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.

 

(b)          The Commission Documents, when they became effective or were filed
with the Commission, as the case may be, complied as to form in all material
respects with the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder, in each
case as in effect at such time, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make such statements, in the light of the
circumstances in which they were made, not misleading.

 

(c)          Each director of the Company that is designated as “Independent” in
the Commission Documents satisfies the requirements for independence under the
Sarbanes-Oxley Act and the rules of the NASDAQ Stock Exchange, and a majority of
the Company’s directors are so “Independent.”

 

(d)          There is no transaction, arrangement or other relationship between
any of the Sentio Parties or their Subsidiaries and an unconsolidated or other
off-balance sheet entity that is required to be disclosed by the Company in its
Commission Documents and is not so disclosed or that has or otherwise would
reasonably be expected to have a Material Adverse Effect.

 

(e)          The Company (i) has implemented and maintains disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are
reasonably designed to ensure that material information relating to the Company,
including its consolidated Subsidiaries, is made known to the individuals
responsible for the preparation of the Company’s filings with the Commission and
(ii) has disclosed, based on its most recent evaluation prior to the date of
this Agreement, to the Company’s outside auditors and the Audit Committee of the
Board (A) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect
the Company’s ability to record, process, summarize and report financial
information and (B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal
controls over financial reporting. As of the date of this Agreement, to the
Knowledge of the Company, there is no reason that its chief executive officer
and chief financial officer will not be able to give the certifications and
attestations required pursuant to the rules and regulations adopted pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next
due.

 

12

 

 

Section 4.10.         No Material Adverse Effect. Since September 30, 2012, the
Sentio Parties have not experienced or suffered any Material Adverse Effect,
and, to the Knowledge of the Company, there exists no state of facts, condition,
event or development which would have or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

Section 4.11.         No Undisclosed Liabilities. Neither the Sentio Parties nor
any of their Subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would be required to be disclosed on a balance
sheet of any Sentio Party or any Subsidiary thereof (including the notes and
schedules thereto) in conformity with GAAP and are not disclosed in the
Commission Documents, other than those (i) incurred in the ordinary course of
the Sentio Parties’ or their respective Subsidiaries’ businesses since
September 30, 2012, that would not have a material adverse effect on the Sentio
Parties and their respective Subsidiaries, taken as a whole or (ii) which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. There is no existing or continuing default or event of default in
respect of any Indebtedness of the Sentio Parties or any of their Subsidiaries
other than as do not or would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.

 

Section 4.12.         Assets and Real Property. The Sentio Parties and their
Subsidiaries have good and marketable title to all of their respective real and
personal property (including, without limitation, mortgaged assets), free of any
Liens, except for those (i) indicated in the Commission Documents, (ii) that
secure liabilities that are part of the consolidated liabilities of the Company
as reflected in the Company’s financial statements included in the Commission
Documents or (iii) that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. Each of the Sentio Parties and
their Subsidiaries has valid and enforceable leasehold interests in all of its
respective real and personal property (including, without limitation, mortgaged
assets) referred to in the Commission Documents as being leased by them, free of
any Liens, except for those (i) indicated in the Commission Documents, (ii) that
secure liabilities that are part of the consolidated liabilities of the Company
as reflected in the Company’s financial statements included in the Commission
Documents or (iii) that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. To the Knowledge of the Company,
no Person has any possessory interest in any space situated on or in any real
property owned, leased or subleased by the Sentio Parties or any of their
respective Subsidiaries other than pursuant to the Ground Leases, the Leases and
the Resident Agreements. All Ground Leases, Material Leases, Leases over 2,000
square feet and, to the Knowledge of the Company, all Leases under 2,000 square
feet, to which the Sentio Parties or their respective Subsidiaries are a party
are valid and subsisting and in full force and effect and are legally
enforceable against the respective parties thereto and none of the Sentio
Parties nor any of their respective Subsidiaries has advised any, Landlord,
Tenant or Manager of its intent to terminate any Ground Lease or Lease. To the
Knowledge of the Company, none of the Sentio Parties nor any Affiliate of the
Company or the Partnership is aware of any default nor has given or received any
notice claiming the existence of any default under (i) any Ground Lease or
Material Lease, which default remains uncured, or (ii) under any Lease that is
not a Material Lease, which (a) remains uncured and (b) individually or in the
aggregate, would have a material adverse effect on the real property subject to
such Lease. Each of the Sentio Parties has made available to Investor true and
complete, in all material respects, copies of the Ground Leases and Leases in
place at any real property owned, leased or subleased by the Sentio Parties or
their respective Subsidiaries and all amendments, modifications and side letters
or other agreements modifying in any material respect the terms thereof in the
possession of the Sentio Parties. The Sentio Parties and their Subsidiaries have
such consents, easements, rights-of-way or licenses (collectively,
“Rights-of-Way”) from any Person as are necessary to conduct their business in
the manner described in the Commission Documents, except for those which if not
obtained would not, individually or in the aggregate, have a Material Adverse
Effect, and none of such Rights-of-Way contains any restriction that is
materially burdensome to the Sentio Parties or any of their Subsidiaries.

 

13

 

 

Section 4.13.         Litigation. There is no action, suit, proceeding or
investigation pending or, to the Knowledge of the Company, overtly threatened
against, nor any outstanding judgment, order or decree against, the Sentio
Parties or any of their Subsidiaries before or by any Governmental Authority or
arbitral body which in the aggregate have, or if adversely determined, would
reasonably be expected to have, a Material Adverse Effect, with the exception of
any action, suit, proceeding or investigation that may be pending or overtly
threatened against, or any outstanding judgment, order or decree against, the
Sentio Parties or any of their Subsidiaries resulting directly from the
solicitation of the Company’s stockholders by the Company of a vote to amend the
Charter as set forth in Section 5.14. Neither the Sentio Parties nor any of
their Subsidiaries is in default with respect to any judgment, order or decree
of any Governmental Authority which default would reasonably be expected to have
a Material Adverse Effect.

 

Section 4.14.         Taxes.

 

(a)          The Sentio Parties and each of their Subsidiaries has properly and
timely filed (taking into account any extension of time within which to file),
in accordance with applicable Laws, all material federal, foreign, state, local,
and other Tax Returns that are required to be filed by it or with respect to
their assets, which Tax Returns were true and correct in all material respects.

 

(b)          All material Taxes due and owing by any of the Sentio Parties or
their Subsidiaries or their assets (whether or not shown on any Tax Return) have
been timely paid in full and, where payment is not yet due and owing, adequate
reserves for such Taxes have been accrued on the appropriate financial
statements in accordance with GAAP.

 

14

 

 

(c)          The Sentio Parties and each of their Subsidiaries have complied, in
all material respects, with all applicable Laws relating to the payment and
withholding of Taxes (including withholding of Taxes pursuant to Sections 565,
1441, 1442, 1445, 1446 and 3402 of the Code) and all material Taxes required to
be withheld and paid over by the Sentio Parties and their Subsidiaries have been
withheld and timely paid over to the appropriate Tax Authority.

 

(d)          There are no outstanding waivers or extensions of time with respect
to the period for assessing or auditing any material Tax or material Tax Return
of the Sentio Parties or any Subsidiary, except to the extent any such waiver is
a result of an extension to file a Tax Return.

 

(e)          There are no audits or proceedings relating to any material Tax or
material Tax Return of the Sentio Parties or any Subsidiary thereof, or any of
their assets, currently in progress or raised in writing by any Tax Authority
and, to the Knowledge of the Sentio Parties, no such audit or proceeding is
pending or threatened.

 

(f)          Neither the Sentio Parties nor any of their Subsidiaries has
entered into any transaction defined under Section 1.6011-4(b)(2), -4(b)(3) or
-4(b)(4) of the Treasury Regulations, or participated or advised in any
transaction that could give rise to a list maintenance obligation or a
registration obligation under either Section 6111 or 6112 of the Code.

 

(g)          Commencing with the Company’s 2008 taxable year, the Company has
been organized and operated in conformity with the requirements for
qualification as a REIT under the Code, its organization and method of operation
has enabled it to meet the requirements for qualification and taxation as a REIT
under the Code through the date hereof, it has not taken or omitted to take any
action that could reasonably be expected to result in a challenge to its status
as a REIT, and, to the Knowledge of the Sentio Parties, no such challenge is
pending or threatened and the Company intends to continue to operate in such a
manner as to permit it to continue to qualify as a REIT for the taxable year
that will include the Closing Date.

 

(h)          The Partnership, and each Subsidiary that is a partnership (or
disregarded entity) or that files Tax Returns as a partnership for U.S. federal
income tax purposes, has, since inception, been properly classified for U.S.
federal income tax purposes as a partnership (or disregarded entity). No
Subsidiary is taxable as a corporation for U.S. federal income tax purposes,
other than a corporation that is a “qualified REIT subsidiary” within the
meaning of Section 856(i)(2) or a “taxable REIT subsidiary” within the meaning
of Section 856(l).

 

(i)          Neither the Sentio Parties nor any of their Subsidiaries hold any
assets the disposition of which would be subject to Treasury Regulations Section
1.337(d)-7.

 

(j)          The Company has not incurred any liability for taxes under Sections
857(b), 860(c) or 4981 of the Code or any rules similar to Section 1374 of the
Code. To the Knowledge of the Company, no event has occurred, and no condition
or circumstance exists, which presents a risk that any material Tax described in
the preceding sentence will be imposed on the Company. Neither the Sentio
Parties nor any of their Subsidiaries (other than a “taxable REIT subsidiary”)
has engaged at any time in any “prohibited transactions” within the meaning of
Section 857(b)(6) of the Code. To the Knowledge of the Sentio Parties, neither
the Sentio Parties nor any of their Subsidiaries has engaged in any transaction
that would give rise to “redetermined rents, redetermined deductions and excess
interest” described in Section 857(b)(7) of the Code.

 

15

 

 

(k)          The Company has never been a “personal holding company” under
Section 542 of the Code, determined without regard to Section 856(h)(1)(B) of
the Code.

 

(l)          There are no material Liens for Taxes upon any of the assets or
properties of the Sentio Parties or any of their Subsidiaries, other than with
respect to Taxes not yet due and payable.

 

(m)          Neither the Sentio Parties nor any of their Subsidiaries (A) is or
has ever been a member of an affiliated group of corporations filing a
consolidated federal income Tax Return (other than the group of which a
Subsidiary of the Company is currently a member and the common parent of which
is a “taxable REIT subsidiary” of the Company) or (B) has any liability for the
Taxes of any Person (other than the Sentio Parties or any of their Subsidiaries)
under Treasury Regulations Section 1.1502-6 (or any similar provision of any
state, local, or foreign law), as a transferee or successor, by Contract, or
otherwise.

 

(n)          Neither the Sentio Parties nor any of their Subsidiaries has been a
“distributing corporation” or a “controlled corporation” in a distribution in
which the parties to such distribution treated the distribution as one to which
Section 355 of the Code is applicable.

 

(o)          No power of attorney granted by or with respect to the Sentio
Parties or any of their Subsidiaries relating to Taxes is currently in force. No
closing agreement pursuant to Section 7121 of the Code (or any similar provision
of any state, local or foreign law) has been entered into by or with respect to
the Sentio Parties or any of their Subsidiaries.

 

(p)          No written claim has ever been received from any Tax Authority
located in a jurisdiction where the Sentio Parties or any of their Subsidiaries
do not file Tax Returns indicating that such Sentio Party or Subsidiary is or
may be subject to taxation by that jurisdiction.

 

(q)          Neither the Sentio Parties nor any of their Subsidiaries will be
required to include amounts in income, or exclude items of deduction, in a
taxable period beginning after the Closing Date as a result of (i) a change in
method of accounting occurring prior to the Closing Date, (ii) an installment
sale or open transaction arising in a taxable period (or portion thereof) ending
on or before the Closing Date, (iii) a prepaid amount received, or paid, prior
to the Closing Date, (iv) deferred gains arising prior to the Closing Date or
(v) deferred cancellation of indebtedness income, or (vi) election or
transaction which reduced any Tax attribute (including basis in assets).

 

16

 

 

(r)          Neither the Sentio Parties nor any of their Subsidiaries is a party
to, or bound by, or has any obligation under, any Tax allocation or sharing
agreement or similar contract or arrangement, any Tax Protection Agreement or
any agreement that obligates it to make any payment computed by reference to the
Taxes, taxable income or taxable losses of any other Person. As used herein,
“Tax Protection Agreements” shall mean any agreement pursuant to which: (a) any
liability to partners of any Subsidiary or to any transferors of property to the
Sentio Parties or any of their Subsidiaries relating to Taxes may arise, whether
or not as a result of the consummation of the transactions contemplated by this
Agreement or (b) the Sentio Parties or any of their Subsidiaries has agreed to
(i) maintain a minimum level of debt or continue a particular debt or allocate a
certain amount of debt to a particular partner or allow particular partners to
guarantee such debt, (ii) retain or not dispose of assets for a period of time
that has not since expired, (iii) make or refrain from making Tax elections, or
(iv) only dispose of assets in a particular manner.

 

Section 4.15.         Permits and Licenses. The Sentio Parties and their
Subsidiaries and to the Knowledge of the Company, each Tenant and Manager,
possess all Permits, including, but not limited to, all Health Care Licenses and
provider agreements, including, but not limited to Medicare and Medicaid
provider agreements, issued by each Governmental Authority and third party
payor, including, but not limited to, Medicare and Medicaid necessary to conduct
their respective businesses as set forth in the Commission Documents, except
where the failure to possess such Permits would not have or reasonably be
expected to result in a Material Adverse Effect, and neither the Sentio Parties
nor any Subsidiary thereof has received any written notice from any Governmental
Authority, Tenant and/or Manager, as applicable, of proceedings relating to the
revocation or modification of any such Permit. True and correct copies of all
Health Care Licenses held by the Company, its Subsidiaries, each Tenant and/or
the Manager have been provided to the Investor prior to the Effective Date.

 

Section 4.16.         Compliance with Laws. Neither the Sentio Parties nor any
of their Subsidiaries nor, to the Knowledge of the Company, any Tenant or
Manager, is in material violation of any applicable Laws, except where such
violation would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. To the Knowledge of the Company, neither the
Sentio Parties nor any of their Subsidiaries nor any Tenant or Manager is being
investigated with respect to, or has been overtly threatened to be charged with
or given notice of any violation of, any applicable Law, except for such of the
foregoing as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries nor, to the Knowledge of the Company, any Tenant or Manager, is a
party to any Corporate Integrity Agreement or similar corporate compliance
agreement with any Governmental Authority or third party payor. True and correct
copies of the most recent Health Care Surveys issued with respect to the
operations of the Company and its Subsidiaries, the Tenants and/or Managers have
been provided to the Investor prior to the Effective Date.

 

Section 4.17.         Environmental Compliance. Neither the Sentio Parties nor
any of their Subsidiaries is in violation of, or has received notice of any
violation with respect to, any Environmental Law applicable to the Sentio
Parties or any of their Subsidiaries or the business of the Sentio Parties or
any of their Subsidiaries, in each case except for any such violations or
notices as would not reasonably be expected to have a Material Adverse Effect.
Neither the Sentio Parties nor any of their Subsidiaries has received any notice
of, nor, to the Knowledge of the Company, has there been any occurrence or
circumstance that, with notice or passage of time, or both, would reasonably be
expected to give rise to, a claim against the Sentio Parties or any of their
Subsidiaries under or pursuant to any Environmental Law with respect to any
properties currently or previously owned, leased or operated by the Sentio
Parties or any of their Subsidiaries, or the assets of the Sentio Parties or any
of their Subsidiaries, or arising out of the conduct of the business of the
Sentio Parties or any of their Subsidiaries that in each case would reasonably
be expected to have a Material Adverse Effect. The Sentio Parties and their
Subsidiaries have received all Environmental Permits required to conduct their
respective businesses, and each of the Sentio Parties and their Subsidiaries is
in compliance with all terms and conditions of any such Environmental Permit
applicable to it, except for where the failure to obtain an Environmental Permit
or failure to comply with an Environmental Permit would not reasonably be
expected to have a Material Adverse Effect.

 

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Section 4.18.         Contracts. True and complete copies of all agreements to
which the Sentio Parties and their Subsidiaries are a party and which are
required to have been filed by the Company pursuant to the Securities Act or the
Exchange Act have been filed by the Company with the Commission pursuant to the
requirements of the Securities Act or the Exchange Act, as applicable, and since
the filing of the most recent Commission Document filed prior to the date
hereof, there has been no material change or amendment to any such agreement
filed as an exhibit to a Commission Document. Except for such agreements that
have expired or terminated in accordance with their terms, each such agreement
is in full force and effect and is binding on the Sentio Parties and/or their
Subsidiaries, as applicable, and, to the Knowledge of the Company, is binding
upon such other parties, in each case in accordance with its terms, and neither
the Sentio Parties, nor any of their Subsidiaries nor, to the Knowledge of the
Company, any other party thereto, is in breach of or default under any such
agreement, which breach of default would reasonably be expected to have a
Material Adverse Effect.

 

Section 4.19.         ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Sentio Parties and
their Subsidiaries which has had or would have a Material Adverse Effect. No
“prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of
the Code) or “accumulated funding deficiency” (as defined in Section 203 of
ERISA) or any of the events set forth in Section 4043(b) of ERISA has occurred
with respect to any Plan which has had or would have a Material Adverse Effect,
and (subject to the continued accuracy of Investors’ representations in Section
3.6(c)) the execution and delivery of this Agreement and the Related Documents
and the issuance and sale of the Securities do not result in any of the
foregoing events. Each Plan is in compliance in all material respects with
applicable law, including ERISA and the Code; the Sentio Parties have not
incurred nor do they expect to incur liability under Title IV of ERISA with
respect to the termination of, or withdrawal from, any Plan in each case, other
than has not had and would not have a Material Adverse Effect; and each Plan for
which the Sentio Parties would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualifications in each case, other than has not had
and would not have a Material Adverse Effect.

 

18

 

 

Section 4.20.         Intellectual Property.

 

(a)          With respect to each item of Company Intellectual Property, (i) the
Sentio Parties or one or more of their Subsidiaries possesses all rights, titles
and interests in and to each such item that purports to be owned by the Sentio
Parties or one of their Subsidiaries, free and clear of any Lien, license or
other material restriction (other than licenses granted to third parties in the
ordinary course of business and other than Liens, licenses or other restrictions
contained in any agreement disclosed by the Company in any Commission Document
or other publicly-available filing), and, to the Knowledge of the Company,
possesses all rights necessary, in the case of each such item that purports to
be licensed to the Sentio Parties or one of their Subsidiaries, to use such item
in the manner in which it is entitled to use such item under the applicable
license agreement; (ii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending against the Sentio Parties or any
of their Subsidiaries, or, to the Knowledge of the Company, has been or is being
threatened in writing against the Sentio Parties or any of their Subsidiaries
which challenges the legality, validity, enforceability, use or, if applicable,
ownership of the item; (iii) to the Knowledge of the Company, the Sentio Parties
or one of their Subsidiaries has sufficient right, title and interest to use or
own the item, as applicable, without infringement upon any Intellectual Property
right or other right of any third party; and (iv) there is no pending or, to the
Knowledge of the Company, threatened claim or litigation against the Sentio
Parties or any of their Subsidiaries contesting the right to use any third
party’s Intellectual Property rights, asserting the misuse of any thereof, or
asserting the infringement or other violation thereof.

 

(b)          Except as would not reasonably be expected to have a Material
Adverse Effect, the Sentio Parties and their Subsidiaries maintain policies and
procedures regarding data security, privacy and data use that are commercially
reasonable and, in any event, materially comply with the Sentio Parties’
obligations to their customers and/or tenants and applicable Laws, rules and
regulations. Except as would not reasonably be expected to have a Material
Adverse Effect, there have not been, and the transaction contemplated under this
Agreement will not result in, any security breaches of any security policy, data
use restriction or privacy breach under any such policies or any applicable
Laws, rules or regulations.

 

Section 4.21.         Registration Rights. Except as provided in the Investor
Rights Agreement, the Sentio Parties have not granted or agreed to grant, and
are not under any obligation to provide, any rights to register under the
Securities Act any of their presently outstanding securities or any of their
securities that may be issued subsequently.

 

Section 4.22.         Investment Company Act. Neither the Sentio Parties nor any
of their Subsidiaries is an investment company within the meaning of the
Investment Company Act of 1940, as amended (the “Investment Company Act”), or,
directly or indirectly, controlled by or acting on behalf of any Person which is
an investment company, within the meaning of said act.

 

Section 4.23.         Illegal Payments. Neither the Sentio Parties nor any of
their Subsidiaries has, nor, to the Knowledge of the Company, has any Tenant or
Manager or any director, officer, partner, agent or employee of the Sentio
Parties or any of their Subsidiaries, or of any Tenant or Manager, paid, caused
to be paid, or agreed to pay, directly or indirectly, in connection with the
business of the Sentio Parties or of any Tenant or Manager: (a) to any
government or agency thereof, any agent or any supplier or customer, any bribe,
kickback or other similar illegal payment, whether in violation of any state
and/or federal anti-kickback, self-referral, and false claims act or law or
otherwise; (b) any illegal contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
Law); or (c) intentionally established or maintained any unrecorded fund or
asset or made any false entries on any books or records for any purpose.

 

19

 

 

Section 4.24.         Insurance. The Sentio Parties and each of their
Subsidiaries carries, or is covered by, insurance in such amounts and covering
such risks as they deem adequate for the conduct of their businesses and the
value of their respective properties and other assets and as is customary for
companies engaged in similar businesses in similar industries, except where the
absence of such insurance coverage would not, individually or in the aggregate,
have a Material Adverse Effect. The Sentio Parties and each of its Subsidiaries
has obtained title insurance on the fee interests in each of its owned real
properties in an amount that is commercially reasonable for each such owned real
property, but at least equal to the purchase price of such owned real property,
all of which policies of insurance are in full force and effect, except where
the absence of such insurance coverage would not, individually or in the
aggregate, have a Material Adverse Effect.

 

Section 4.25.         General Solicitation. Neither the Sentio Parties, nor any
Affiliate of the Sentio Parties, nor any other Person authorized by the Sentio
Parties to act on their respective behalves, has engaged in a general
solicitation or general advertising (within the meaning of Regulation D of the
Securities Act) of investors with respect to offer or sales of the Securities.
The Sentio Parties have offered the Securities for sale only to the Investor.

 

Section 4.26.         Offering; Exemption. Assuming the accuracy of the
Investor’s representations and warranties set forth in Article III of this
Agreement, no registration under the Securities Act or any applicable state
securities law is required for the offer and sale of the Securities by the
Sentio Parties to the Investor as contemplated hereby or for the conversion or
exchange of the Securities (or any Partnership Units into which the Securities
may be converted) as contemplated by hereby or by the Partnership Agreement.

 

Section 4.27.         No Integrated Offering. Neither the Sentio Parties, nor
any Affiliate of the Sentio Parties, nor, to the Knowledge of the Company, any
Person acting on the behalf of the Sentio Parties has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would cause the offering or issuance of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act that would cause Regulation D or any other applicable
exemption from registration under the Securities Act to be unavailable, or would
cause any applicable state securities law exemptions or any applicable
stockholder approval provisions exemptions, nor will the Sentio Parties take any
action or steps that would cause the offering or issuance of the Securities to
be integrated with other offerings.

 

Section 4.28.         Brokers’ Fees. Neither the Sentio Parties nor any Person
acting on the behalf of either of the Sentio Parties has agreed to pay any
commission, finder’s or broker’s fee, or similar payment in connection with the
transactions contemplated by this Agreement or any matter related hereto to any
Person for which the Investor will be liable.

 

Section 4.29.         Indebtedness. Neither the Sentio Parties nor any of their
respective Subsidiaries is, immediately prior to the Effective Date, or will be,
at the time of a Closing (other than as a result of the transactions
contemplated by this Agreement or the Related Agreements), after giving effect
to such Closing, in default in the payment of any material Indebtedness or in
default under any material agreement relating to its material Indebtedness. None
of the Sentio Parties or any of their Subsidiaries has issued or incurred any
debt security or other Indebtedness that by its terms is convertible into or
exchangeable for, or accompanied by warrants for or options to purchase, any
capital stock of either of the Sentio Parties.

 

20

 

 

Section 4.30.         Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to the Knowledge of the Company is
reasonably likely to, have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration.

 

Section 4.31.         Management Agreements. Each Management Agreement is in
full force and effect and none of the Sentio Parties or any of their
Subsidiaries has advised any Tenant or Manager of its intent to terminate any
Management Agreement as a result of the existence of any default or Event of
Default thereunder. True and correct copies of each Management Agreement and of
all outstanding notices of default issued by any of the Sentio Parties and/or
any of its Subsidiaries under each Management Agreement have been provided to
the Investor prior to the Effective Date.

 

Section 4.32.         Joint Venture Agreements. Each Joint Venture Agreement is
valid, binding and enforceable in accordance with its terms and is in full force
and effect. (A) None of the Sentio Parties or any of their Subsidiaries is and,
to the Knowledge of the Company no other party is in breach or violation of, or
default under, any Joint Venture Agreement, (B) none of the Sentio Parties or
any of their Subsidiaries has received any claim of default under any such Joint
Venture Agreement in the two years preceding the date of this Agreement, and (C)
no event has occurred which would result in a breach or violation of, or a
default under, any Joint Venture Agreement (in each case, with or without notice
or lapse of time or both). True and correct copies of each Joint Venture
Agreement and of all outstanding notices of default issued by any of the Sentio
Parties and/or any of their Subsidiaries under each Joint Venture Agreement have
been provided to the Investor prior to the Effective Date. Except as disclosed
on Schedule 4.32, none of the Sentio Parties or any of its Subsidiaries is
required to make any capital contributions in any Person or any of the
Subsidiaries of the Sentio Parties, other than loans, advances, capital
contributions or investments in any of the wholly owned Subsidiaries of the
Company or the Partnership.

 

Section 4.33.         Loan Documents. Each of the Loan Documents is valid,
binding and enforceable in accordance with its terms and is in full force and
effect. (A) None of the Sentio Parties or any of their Subsidiaries is in breach
or violation of, or default under, any of the Loan Documents, (B) none of the
Sentio Parties or any of their Subsidiaries has received any claim of default
under any such Loan Document in the two years preceding the date of this
Agreement, and (C) no event has occurred which would result in a breach or
violation of, or a default under, any of the Loan Documents (in each case, with
or without notice or lapse of time or both). True and correct copies of all Loan
Documents and of all outstanding notices of default issued by any lender under
the Loan Documents have been provided to the Investor prior to the Effective
Date.

 

21

 

 

Article V
COVENANTS

 

The Sentio Parties and the Investor hereby covenant and agree, for the benefit
of the other parties to this Agreement and their respective assigns, as follows:

 

Section 5.1.          Registration. The Company will take all action necessary
to cause the shares of Common Stock and any additional class or series of
Company Capital Stock registered under Section 12(b) or 12(g) of the Exchange
Act each to continue to be registered as a class of securities under Sections
12(b) or 12(g) of the Exchange Act so long as such securities remain
outstanding, will comply with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Securities Act) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein.

 

Section 5.2.          Compliance with Laws. The Sentio Parties will comply, and
cause each of their Subsidiaries to comply, (a) with all Laws applicable to the
business and operations of the Sentio Paries and their Subsidiaries, except as
would not have a Material Adverse Effect and (b) with all applicable provisions
of the Securities Act and the Exchange Act.

 

Section 5.3.          Keeping of Records and Books of Account; Unlawful
Payments.

 

(a)          The Sentio Paries will keep and cause each Subsidiary to keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP consistently applied, reflecting all financial transactions
of the Sentio Parties and their Subsidiaries, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business will be made. The Company will maintain a system of internal accounting
controls that (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the Sentio Parties and their Subsidiaries; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP consistently applied, and that
receipts and expenditures of the Sentio Paries are being made only in accordance
with authorizations of management of the Sentio Paries; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Sentio Parties’ or their Subsidiaries’
assets that would likely have a material effect on the Sentio Parties’ financial
statements.

 

(b)          The Sentio Parties and their Subsidiaries will not, in connection
with the operation of the business of the Sentio Parties and their Subsidiaries,
(i) use any corporate funds for unlawful contributions, payments, gifts or
entertainment or to make any unlawful expenditures relating to political
activity to government officials, candidates or members of political parties or
organizations, (ii) pay, accept or receive any unlawful contributions, payments,
expenditures or gifts, (iii) violate or operate in noncompliance with any export
restrictions, anti-boycott regulations, embargo regulations or other applicable
Laws, (iv) pay or receive or agree to pay or received any bribe, kickback or
other similar illegal payment whether in violation of any state and/or federal
anti-kickback, self-referral and false claims act or law or otherwise; or (v)
intentionally established or maintained any unrecorded fund or asset or made any
false entries on any books or records for any purpose, except for such
violations or noncompliant operations that would not likely result in a Material
Adverse Effect.

 

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(c)          At any time prior to the first issuance of the Series A Preferred
Shares, the Sentio Parties shall, and shall cause their Subsidiaries, officers,
directors, employees, auditors and other agents and representatives
(collectively, the “Company Representatives”) to (i) afford the officers,
employees, auditors and other agents and representatives of the Investor
(collectively, the “Investor Representatives”), during normal business hours
upon reasonable advance notice to the Company, reasonable access at all
reasonable times to its officers, employees, auditors, legal counsel,
properties, offices, plants and other facilities and to all books and records,
(ii) furnish the Investor with all financial, operating and other data and
information as the Investor, through the Investor Representatives, may from time
to time reasonably request, and (iii) afford the Investor reasonable opportunity
to discuss the Company’s affairs, finances and accounts with the Company’s
officers on a regular basis. Notwithstanding the foregoing, nothing in this
Section 5.3(c) shall give the Investor or their Affiliates any approval rights
over the day-to-day activities of the Company.

 

Section 5.4.          Other Agreements and Other Financings. The Sentio Parties
will not enter into, announce or recommend any agreement, plan, arrangement or
transaction the terms of which would restrict, materially delay or conflict with
the ability or right of the Sentio Parties or any of their Subsidiaries to
perform its obligations under this Agreement or the Related Documents,
including, without limitation, the obligation of the Sentio Parties to deliver
Securities to the Investor in respect of Put Exercise Notices that may be
delivered from time to time pursuant to this Agreement.

 

Section 5.5.          Certain Actions.

 

(a)          Except as expressly permitted or required pursuant to this
Agreement or any Related Document, at any time prior to the first issuance of
either the Series A Preferred Shares or the Series C Preferred Shares, the
Sentio Parties and their Subsidiaries shall (i) conduct their respective
business in all material respects in the ordinary course of business consistent
with past practice, (ii) use commercially reasonable efforts to preserve intact
its and its Subsidiaries’ current business organizations, keep available the
service of their current officers and employees and preserve their relationship
with customers, suppliers, licensors, licensees, advertisers, distributors,
Governmental Authorities and others having business dealings with them to the
end that their goodwill and ongoing business shall be unimpaired, (iii) not take
any action that could cause any representation and warranty contained in Article
IV to be untrue in any material respect or cause a covenant to fail to be
satisfied in any material respect.

 

(b)          Without limiting the generality of Section 5.5(a), at any time
prior to the first issuance of either the Series A Preferred Shares or the
Series C Preferred Shares, the Sentio Parties will not, and will not permit any
of their Subsidiaries to, directly or indirectly, do any of the following:

 

23

 

 

(i)          agree to any action which would restrict, materially delay or
conflict with the rights and preferences of the Series A Preferred Shares or the
Series C Preferred Shares;

 

(ii)         declare, pay or set aside for payment any Extraordinary Dividend
except (for purposes of this clause (b)) as otherwise required for the Company
to continue to satisfy the requirements for qualification and taxation as a REIT
under the Code;

 

(iii)        amend, alter or repeal the provisions of the Charter or Bylaws,
whether by merger or consolidation or otherwise, so as to adversely affect any
right, preference or voting power of the Series A Preferred Shares or the Series
C Preferred Shares;

 

(iv)        except as permitted in accordance with Section 5.13 hereof, redeem,
repurchase or acquire any capital stock of the Sentio Parties or any of their
Subsidiaries;

 

(v)         other than in accordance with the provisions of this Agreement or
the Related Documents, authorize, issue or reclassify any capital stock, or debt
securities convertible into capital stock, of the Company and the Partnership;

 

(vi)        other than in accordance with the provisions of this Agreement or
the Related Documents, change the authorized number of members of the Board of
the Company or the composition of the Board of the Company;

 

(vii)       take any other action specified under Sections 3.2 or 3.3 of the
Investor Rights Agreement which would require the consent of the Investor if
such action were taken immediately following the first issuance of either the
Series A Preferred Shares or the Series C Preferred Shares; or

 

(viii)      enter into any arrangement or Contract or otherwise agree or commit
to take any of the foregoing actions;

 

provided that, prior to receipt by the Company of the Change of Control
Consents, the Sentio Parties and their respective Subsidiaries will have no
obligation to refrain from taking any of the actions described in clauses (i),
(vi), (vii) (solely with respect to actions specified in Sections 3.2(b), (c),
(d), (f), (h), (i), (j) and (l), Sections 3.3(b) through (d) of the Investor
Rights Agreement) and (viii) (solely with respect to arrangements, Contracts,
agreements or commitments to take any of the actions otherwise set forth in this
proviso) of this Section 5.5(b).

 

(c)          The Partnership will not, at any time prior to the first issuance
of Series B Convertible Preferred Units, amend, alter or repeal the provisions
of the Partnership Agreement, whether by merger or consolidation or otherwise,
so as to adversely affect any right or preference of the Series B Convertible
Preferred Units.

 

(d)          The Company will not, at any time prior to the first issuance of
the Series C Preferred Shares, whether by merger, consolidation, amendment to
the Charter, operation of law or otherwise, effect any stock split,
recapitalization or similar adjustment in respect of the Series A Preferred
Shares unless simultaneously in connection therewith the Company effects a
similar adjustment to the terms of the Series C Preferred Shares.

 

24

 

 

(e)          The Sentio Parties will not, at any time prior to the first
issuance of Securities, make or rescind any material Tax election (unless
required by Law or necessary to preserve the Company’s status as a REIT or the
status of any of its Subsidiary as a partnership for federal tax purposes or a
qualified REIT subsidiary or a taxable REIT subsidiary under the applicable
provisions of Section 856 of the Code, as the case may be), settle or compromise
any material Tax liability, change an annual accounting period, adopt or change
any material accounting method with respect to Taxes, enter into any closing
agreement, settle or compromise any material proceeding with respect to any
material Tax claim or assessment, surrender any right to claim a refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any material Tax claim or assessment, enter into, amend or modify any material
Tax Protection Agreement, or take any action that would, or could reasonably be
expected to, violate any material Tax Protection Agreement or otherwise give
rise to any material liability of such Sentio Party or any Subsidiary thereof
with respect thereto, or take any other similar action relating to the filing of
any Tax Return or the payment of any Tax.

 

Section 5.6.          Financial Statements. If the Company no longer is required
to file periodic reports with the Commission pursuant to the Exchange Act, the
Company will deliver to the Investor financial statements, including notes and
schedules thereto, and other information in substantially similar form to the
financial statements and other information required to be filed by Form 10-Q and
Form 10-K of the Exchange Act and within the time periods required under the
Exchange Act; provided, however, that (i) such annual and quarterly reports on
Form 10-K and Form 10-Q will not be required to comply with Regulation G under
the Exchange Act or Item 10(e) of Regulation S-K with respect to any “non-GAAP”
financial information contained therein or Rule 3-10 or Rule 3-16 of Regulation
S-X, (ii) the Company will not be required to comply with Sections 302, 906 and
404 of the Sarbanes-Oxley Act of 2002 or otherwise furnish any information,
certificates or reports required by Items 307 or 308 of Regulation S-K and (iii)
the Company will include the information regarding director, trustee and
management compensation required under the Exchange Act to be included in a
public company’s quarterly and year-end reports, including the compensation
discussion and analysis, summary compensation table and other information
required by Part III of Form 10-K.

 

Section 5.7.          Qualification as a REIT. The Company will use its best
efforts to operate in a manner in accordance with the requirements for
qualification and taxation as a REIT. In the event of the proposed taking of any
action that would cause any representation set forth in Section 4.14(g) to be
incorrect if made as of any date following the Effective Date, including the
Board in good faith determining by resolution that it is no longer in the best
interests of the Company for the Company to continue to so qualify, the Company
will obtain the written consent of the Investor prior to the taking of such
action, subject to receipt by the Company from the Investor of customary
undertakings to maintain such information in confidence and in accordance with
Law.

 

Section 5.8.          Investment Company Act. The Sentio Parties will conduct
their affairs in such a manner so as to reasonably ensure that neither the
Sentio Parties nor any of their Subsidiaries will be or become an “investment
company” required to register under the Investment Company Act.

 

25

 

 

Section 5.9.          Securities. The Company will at all times reserve and keep
available, free of all preemptive and similar rights: (a) solely for issuance
and delivery at a Closing, the requisite aggregate number of authorized but
unissued Series A Preferred Shares and Series C Preferred Shares and (b) solely
for issuance and delivery upon exercise of exchange of the Securities (or
Partnership Units any such Securities are converted into), the number of shares
of Common Stock from time to time issuable upon exchange of all Securities (or
Partnership Units such Securities are converted into).

 

Section 5.10.         HSR Act. Upon request of a party hereunder, from time to
time, each other party hereunder will cooperate with the requesting party and
will promptly furnish to the requesting party all information reasonably
requested by the requesting party in order to determine whether any pre-merger
notification or similar notification or filing is required pursuant to the HSR
Act or any other Law in connection with the consummation of the transactions
contemplated by this Agreement and the Related Documents, and will cooperate
with and assist the requesting party in connection with resolving any
investigation or other inquiry by any governmental entity under the HSR Act or
other Law with respect to the transactions contemplated by this Agreement and
the Related Documents. Each party will promptly prepare and deliver any
pre-merger notification or similar notification or filing that the other parties
hereunder determine to be required or advisable.

 

Section 5.11.         Use of Proceeds. The gross proceeds from the sale of the
Securities at each Closing will be used by the Company and/or the Partnership to
acquire the Approved Acquisition specified in the Put Exercise Notice related to
such Closing, or for such other purpose as Investor may approve in writing. The
Parties acknowledge that the minimum denomination of $100,000 applicable to each
Put Exercise Notice may result in de minimis amounts of unallocated proceeds
upon each Closing.

 

Section 5.12.         Future Commission Documents. Each Future Commission
Document, when such document becomes effective or is filed with the Commission,
as the case may be, will comply in all material respects with the requirements
of the Securities Act or the Exchange Act, as applicable, and other Laws
applicable to it, and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

 

Section 5.13.         Restriction on Issuance of Company Capital Stock. During
the Put Period, and, if exercised, the Extension Period, without the prior
written consent of the Investor and the prior approval of the Board, the Company
will not issue Company Capital Stock except in conformity with this Agreement.
Notwithstanding the foregoing, upon a majority vote by the Board, and without
the prior written consent of the Investor, the Company may reinstate a dividend
reinvestment program (the “DRIP”) and a limited stock repurchase program (the
“SRP”) for existing holders of its Common Stock during the Put Period or the
Extension Period. However, unless approved by the Investor, shares of Common
Stock sold pursuant to the DRIP may not be issued at a price per share below the
greater of $10.02 per share or the then current per share net asset value of the
Company. Furthermore, unless approved by the Investor, the number of shares
redeemed in any quarter pursuant to the SRP may not exceed the number of shares
issued under the DRIP during the preceding quarter, and the price paid by the
Company to redeem shares pursuant to the SRP may not exceed the lesser of $10.02
per share or the then current per share net asset value of the Company.

 

26

 

 

Section 5.14.         Stockholder Approvals; Proxy Statements.

 

(a)          The Company agrees to use its reasonable best efforts to obtain the
affirmative vote of holders of a majority of the Common Stock entitled to vote
on the matter at the 2013 annual meeting of stockholders of the Company (the
“2013 Annual Meeting”) to approve an amendment of the Charter to remove the
following language from the second sentence of Section 9.13 of the Charter:
“provided that, when a privately issued share of Preferred Stock is entitled to
vote on a matter with the holders of shares of Common Stock, the relationship
between the number of votes per such share of Preferred Stock and the
consideration paid to the Corporation for such share shall not exceed the
relationship between the number of votes per any publicly offered share of
Common Stock and the book value per outstanding share of Common Stock” (the
“Charter Amendment”).

 

(b)           As promptly as reasonably practicable following the Effective
Date, the Company will prepare and file with the Commission a proxy statement to
be sent to the Company’s stockholders in connection with the 2013 Annual
Meeting.

 

(c)          In the event the Company’s stockholders do not vote to approve the
Charter Amendment at the 2013 Annual Meeting, the Investor will have the right
to require the Company to use its reasonable best efforts to call a meeting of
the stockholders of the Company on an annual basis coinciding with the Company’s
annual meeting of stockholders, for the purpose of obtaining the affirmative
vote of holders of a majority of the Common Stock entitled to vote on the matter
to approve the Charter Amendment (such meetings, “Subsequent Stockholder
Meetings”).

 

(d)          Subject to the Board’s fiduciary duties, the proxy statements for
the 2013 Annual Meeting and the proxy statements for Subsequent Stockholder
Meetings, if applicable (collectively, the “Proxy Statements”), shall include
the Board’s recommendation that the stockholders vote in favor of the Charter
Amendment. The Investor agrees to furnish to the Company in writing all
information concerning the Investor and its Affiliates as the Company may
reasonably request in connection with the 2013 Annual Meeting and the Subsequent
Stockholder Meetings, if applicable. The Company shall respond reasonably
promptly to any comments received from the Commission with respect to the Proxy
Statements, and the Company shall cause the Proxy Statements to be mailed to the
Company’s stockholders at the earliest reasonably practicable date. The Company
shall provide to the Investor, as promptly as reasonably practicable after
receipt thereof, any written comments from the Commission or any written request
from the Commission or its staff for amendments or supplements to the Proxy
Statements and shall provide the Investor with copies of all correspondence
between the Company, on the one hand, and the Commission and its staff, on the
other hand, relating to the Proxy Statements. Notwithstanding anything to the
contrary stated above, prior to filing or mailing the Proxy Statements (or, in
each case, any amendment or supplement thereto) or responding to any comments of
the Commission or its staff with respect thereto, the Company shall provide the
Investor with a reasonable opportunity to review and comment on such document or
response.

 

27

 

 

(e)          In the event that the Charter Amendment is approved by an
affirmative vote of holders of a majority of the Common Stock entitled to vote
on the matter at the 2013 Annual Meeting, or at a Subsequent Stockholder
Meeting, and conditioned upon the receipt of the Required Consents, the Company
shall promptly file and cause to be made effective with the State Department of
Assessments and Taxation of the State of Maryland the Charter Amendment and
those certain articles supplementary classifying certain Preferred Shares as the
Series C Preferred Shares and setting forth therein the preferences, rights,
privileges, powers, restrictions, limitations and other terms with respect
thereto, in the form attached as Exhibit A-2 (the “Series C Articles
Supplementary”).

 

(f)          Upon effectiveness of the Series C Articles Supplementary, the
following shall occur:

 

(i)          If such effectiveness occurs prior to the first Closing Date
hereunder, then notwithstanding any provisions in this Agreement to the
contrary, the Company shall not be obligated to issue to Investor any Series A
Preferred Shares and will, in lieu thereof, be required to issue the same number
of Series C Preferred Shares at the same price per share set forth in Section
2.2 hereof.

 

(ii)         If such effectiveness occurs subsequent to the first Closing Date
hereunder, then any Series A Preferred Shares outstanding at such time shall be
exchanged by the Company, on a one-for-one basis, for Series C Preferred Shares.
Thereafter, notwithstanding any provisions in this Agreement to the contrary,
the Company shall not be obligated to issue to Investor any additional Series A
Preferred Shares and will, in lieu thereof, be required to issue the same number
of Series C Preferred Shares at the same price per share set forth in Section
2.2 hereof.

 

Section 5.15.         No Solicitation of Acquisition Proposals.

 

(a)          The Sentio Parties and their Subsidiaries will immediately cease
any and all existing discussions (other than to state the Sentio Parties’
obligations set forth in this Section 5.15) or negotiations with any Persons
conducted heretofore with respect to any Acquisition Proposal.

 

(b)          Subject to Section 5.15(c), at all times during the period
commencing with the Effective Date and continuing until the earlier to occur of
the termination of this Agreement pursuant to Section 7.1(a)(iii) and the
thirtieth day following the Effective Date, the Sentio Parties and their
Subsidiaries will not, and they will direct and use reasonable best efforts to
cause their respective directors, officers or other employees, controlled
affiliates, or any investment banker (in its capacity as an investment banker),
attorney or other authorized agent or representative retained by any of them
(collectively, "Representatives") not to, directly or indirectly, (i) solicit,
initiate, knowingly facilitate or knowingly induce the making, submission or
announcement of, or knowingly encourage or assist, an Acquisition Proposal or
any proposal or offer that would reasonably be expected to lead to an
Acquisition Proposal, (ii) other than in the ordinary course of business,
consistent with past practice, and not with the intent of inducing or
encouraging any Acquisition Proposal, furnish to any Person (other than the
Investor or any designees of the Investor) or waive restrictions on the use of
any non-public information relating to the Sentio Parties or any of their
Subsidiaries, or afford to any Person (other than the Investor or any designees
of the Investor) access to the business, properties, assets, books, records or
other non-public information, or to any personnel, of the Sentio Parties or any
of their Subsidiaries, (iii) participate or engage in discussions (other than
discussions with respect to the Sentio Parties’ obligations set forth in this
Section 5.15) or negotiations with any Person (other than the Investor and its
Representatives) with respect to an Acquisition Proposal, (iv) approve, endorse
or recommend an Acquisition Proposal, or (v) enter into any Contract
contemplating or otherwise relating to an Acquisition Transaction (other than an
Acceptable Confidentiality Agreement as contemplated by Section 5.15(c)(ii).

 

28

 

 

(c)          Notwithstanding anything to the contrary set forth in this Section
5.14 or elsewhere in this Agreement, prior to the thirtieth day following the
Effective Date, the Sentio Parties, their Subsidiaries and their Representatives
may, subject to compliance with this Section 5.15(c), (i) participate or engage
in discussions or negotiations with any Person or group of Persons that has made
a bona fide, unsolicited Acquisition Proposal after the date of this Agreement
that the Board (or any committee thereof) determines in good faith, after
consultation with its financial advisor and outside legal counsel, either
constitutes or would reasonably be expected to lead to a Superior Proposal
and/or (ii) furnish to any Person or group of Persons that has made a bona fide,
unsolicited Acquisition Proposal after the date of this Agreement that the Board
(or any committee thereof) determines in good faith, after consultation with its
financial advisor and outside legal counsel, either constitutes or would
reasonably be expected to lead to a Superior Proposal, any non-public
information relating to the Sentio Parties and/or any of their Subsidiaries
and/or afford to any such Person or group of Persons access to the business,
properties, assets, books, records or other non public information, or to any
personnel, of the Sentio Parties and/or any of their Subsidiaries, in each case
under this clause (ii) pursuant to an Acceptable Confidentiality Agreement;
provided, however, that in the case of any action taken pursuant to the
preceding clauses (i) or (ii), (A) the Board shall have determined in good
faith, after consultation with its financial advisor and outside legal counsel,
that the failure to take such action would reasonably be expected to violate the
Board's fiduciary duties to the holders of the Common Stock under applicable
Law, (B) the Company shall as promptly as reasonably practicable give Investor
written notice of the identity of such Person or group of Persons (unless
prohibited by the Acceptable Confidentiality Agreement) and, if applicable,
providing Investor with a summary of the material terms of the Acquisition
Proposal, and (C) promptly after furnishing any non public information or giving
access to such Person or group of Persons, the Company shall give such access
and furnish such non public information to Investor to the extent such access or
information has not been previously furnished to Investor.

 

(d)          If the Sentio Parties become aware of any receipt by any of the
Sentio Parties of (i) any Acquisition Proposal, (ii) any request for information
that would reasonably be expected to lead to an Acquisition Proposal, or (iii)
any inquiry with respect to, or which would reasonably be expected to lead to,
any Acquisition Proposal, the Sentio Parties shall reasonably promptly notify
Investor of the terms and conditions of such Acquisition Proposal, request or
inquiry, and the identity of the Person or group of Persons (unless prohibited
by an Acceptable Confidentiality Agreement) making any such Acquisition
Proposal, request or inquiry. The Sentio Parties shall keep Investor reasonably
informed of any material change in the status or terms of any such Acquisition
Proposal, request or inquiry as promptly as reasonably practicable.

 

29

 

 

(e)          Except as set forth in this Section 5.15(e), the Board shall not
(i) authorize, adopt, approve, recommend or declare advisable, or propose to
authorize, adopt, approve, recommend or declare advisable (publicly or
otherwise), an Acquisition Proposal, or (ii) cause or permit any of the the
Sentio Parties to enter into any Alternative Acquisition Agreement.
Notwithstanding anything to the contrary set forth in this Agreement, prior to
the thirtieth day following the Effective Date, the Board may, if any of the
Sentio Parties receives an Acquisition Proposal that the Board determines in
good faith (after consultation with its financial advisor and outside legal
counsel) constitutes a Superior Proposal, approve, recommend or declare
advisable, and authorize any of the Sentio Parties to enter into an Alternative
Acquisition Agreement with respect to, such Superior Proposal and terminate this
Agreement pursuant to Section 7.1(a)(iii) if:

 

(i)          the Board determines in good faith, after consultation with outside
legal counsel, that failure to do so would be expected to be inconsistent with
the directors’ duties under applicable Law and the Sentio Parties shall have
complied with all of its obligations under this Section 5.15;

 

(ii)         the Company and/or the Partnership shall have provided prior
written notice to the Investor, at least five days in advance, that it intends
to terminate this Agreement pursuant to Section 7.1(a)(iii), which notice shall
specify the basis for the termination and the material terms of such Superior
Proposal;

 

(iii)        after providing such notice and prior to terminating this Agreement
pursuant to Section 7.1(a)(iii), the Company and/or the Partnership shall have,
and shall have caused their Representatives to, negotiate with the Investor in
good faith during such five day period (to the extent Investor desires to
negotiate) to make such adjustments in the terms and conditions of this
Agreement as would permit the Board not to terminate this Agreement pursuant to
Section 7.1(a)(iii); and

 

(iv)        the Board shall have considered in good faith any changes to this
Agreement offered in writing by Investor no later than 5:00 p.m., New York City
time, on the fifth day of such five day period and shall have determined that
such Superior Proposal would continue to constitute a Superior Proposal if such
changes offered in writing by Investor were to be given effect; provided that,
in the event of any material revisions to the Acquisition Proposal that the
Board has determined to be a Superior Proposal, the Company and/or the
Partnership shall be required to deliver a new written notice to Investor in
respect of such modified Acquisition Proposal and to again comply with the
requirements of this Section 5.15(e) with respect to such new written notice,
except that references to the five day period in clause (iii) shall be deemed
references to a forty-eight (48) hour period.

 

(f)          Nothing contained in this Section 5.15 or elsewhere shall be deemed
to prohibit the Company or the Board or any committee thereof from (i) complying
with its disclosure obligations under U.S. federal or state Law with regard to
an Acquisition Proposal, including taking and disclosing to its stockholders a
position contemplated by Rule 14d-9 or Rule 14e-2(a) under the Exchange Act (or
any similar communication to stockholders), (ii) making any
“stop-look-and-listen” communication to the stockholders of the Company pursuant
to Rule 14d-9(f) under the Exchange Act (or any similar communications to the
stockholders of the Company) or (iii) making any disclosure to its stockholders
if, in the good faith judgment of the Board, failure to do so is reasonably
likely to result in a breach of applicable Law.

 

30

 

 

(g)          the Sentio Parties acknowledge and agree that any violation of the
restrictions set forth in this Section 5.15 by any Representatives of the Sentio
Parties shall be deemed to be a breach of this Section 5.15 by the Sentio
Parties.

 

(h)          As used in this Agreement:

 

“Acquisition Proposal” means, other than the transactions contemplated by this
Agreement, any bona fide written offer, proposal, inquiry or indication of
interest from or by any Person relating to or involving (i) any acquisition or
purchase, direct or indirect, of assets equal to 20% or more of the consolidated
assets of the Company or the Partnership or to which 20% or more of the
consolidated revenues or earnings of the Company or the Partnership are
attributable, (ii) any acquisition or purchase, direct or indirect, of 20% or
more of any class of equity or voting securities of the Company, (iii) any
tender offer (including a self-tender offer) or exchange offer that, if
consummated, would result in such Person beneficially owning 20% or more of any
class of equity or voting securities of the Company, (iv) a merger,
consolidation, share exchange, business combination, sale of substantially all
the assets, reorganization, recapitalization, liquidation, dissolution or other
similar transaction involving the Company, the Partnership or any of their
Subsidiaries whose assets, individually or in the aggregate, constitute 20% or
more of the consolidated assets of the Company or the Partnership or to which
20% or more of the consolidated revenues or earnings of the Company or the
Partnership are attributable, or (v) any combination of the foregoing types of
transactions that would result in such Person beneficially owning assets equal
to 20% or more of the consolidated assets of the Company or the Partnership or
to which 20% or more of the consolidated revenues or earnings of the Company or
the Partnership are attributable or 20% or more of any class of equity or voting
securities of the Company.

 

“Acceptable Confidentiality Agreement” means a confidentiality agreement that
contains provisions that are no less favorable in the aggregate to the Company
or the Partnership than those contained in the Nondisclosure Agreement by and
between the Company and the Investor;

 

“Alternative Acquisition Agreement” means any acquisition agreement, merger
agreement or similar definitive agreement, or any letter of intent, memorandum
of understanding or agreement in principle, or any other agreement (other than
an Acceptable Confidentiality Agreement as permitted pursuant to Section
5.15(c)) relating to an Acquisition Proposal.

 

“Superior Proposal” means an Acquisition Proposal on terms that the Board
determines in good faith, after consultation with its financial advisor and
outside legal counsel, and taking into account all relevant terms and conditions
of such Acquisition Proposal, including any conditions to consummation, the
timing of the transaction compared to the Agreement and, if a cash transaction
(whether in whole or in part), whether financing is then fully committed or
determined in good faith by the Board to be available, is more favorable from a
financial point of view to the holders of the Common Stock than the
consideration payable pursuant hereto (taking into account any proposal by the
Investor to amend the terms of this Agreement pursuant to Section 5.15(e)).

 

31

 

 

Section 5.16.         Consents.

 

(a)          From the Effective Date, the Sentio Parties and their Subsidiaries
shall use their reasonable best efforts to obtain the Required Consents and the
Advisory Consent in a manner and form reasonably acceptable to the Investor. The
Investor shall have the right to actively participate in obtaining the Required
Consents and Advisory Consent.

 

(b)          Notwithstanding anything to the contrary herein, if each of the
Required Consents other than the Specified Consent have been received, the
Sentio Parties may, and at the written request of the Investor will, deliver to
Investor a Put Exercise Notice setting forth a Put Exercise Amount equal to the
amount of cash that would, together with available cash (net of customary
working capital) of the Company and its subsidiaries, be required to satisfy and
discharge in full (including the payment of any exit fee or prepayment premium
or penalty) (the “Payoff”) all obligations under the Specified Agreement (the
“Payoff Amount”). If a Put Exercise Notice in respect of a Payoff is delivered
in accordance with this Section 5.16(b), the Payoff will be automatically deemed
an Approved Investment for all purposes hereunder. Concurrently with the Closing
of the Put Exercise in respect of the Payoff, the Sentio Parties will use the
proceeds therefrom, together with cash on hand, to pay the Payoff Amount and
consummate the Payoff.

 

Section 5.17.         Confidentiality. Each party to this Agreement will hold,
and will cause its respective Affiliates and their directors, officers,
employees, agents, consultants and advisors to hold, in strict confidence,
unless disclosure to a regulatory authority is necessary or appropriate in
connection with any necessary regulatory approval or unless disclosure is
required by judicial or administrative process or by other requirement of Law or
the applicable requirements of any regulatory agency, all non-public records,
books, Contracts, instruments, computer data and other data and information
(collectively, “Confidential Information”) concerning the other party hereto
furnished to it by such other party or its Representatives pursuant to this
Agreement (except to the extent that such information was (1) previously known
by such party from other sources, (2) in the public domain through no violation
of this Section 5.17 by such party or (3) later lawfully acquired from other
sources by the party to which it was furnished), and neither party hereto shall
release or disclose such Confidential Information to any other Person, except
its auditors, attorneys, financial advisors, financing sources, other
consultants and advisors.

 

Section 5.18.         Public Announcements. Neither the Investor, on the one
hand, nor the Sentio Parties, on the other hand, will issue any press release or
public statement with respect to the transactions contemplated by this Agreement
and the Related Documents, without the other party’s prior consent, except as
may be required by applicable Law. In addition to the foregoing, the Investor
and the Sentio Parties will consult to the extent reasonably practicable with
each other before issuing, and provide each other with the opportunity to review
and comment upon, any such press release or public statement. The parties agree
that the initial press release or releases to be issued with respect to the
transactions contemplated by this Agreement shall be mutually agreed upon prior
to the issuance thereof.

 

Section 5.19.         Transfer Taxes. All transfer, value-added, documentary,
sales, excise, use, stamp, registration and other such Taxes, and all conveyance
fees, recording charges and other fees and charges (including any penalties and
interest) incurred in connection with the consummation of the transactions
contemplated by this Agreement (“Transfer Taxes”) shall be paid by the Company
or the Partnership, as applicable.

 

32

 

 

Section 5.20.         The Leases and Management Agreements. The Sentio Parties
and their Subsidiaries will use commercially reasonable efforts to ensure
compliance in all material respects by each Landlord, Tenant and Manager as and
when due (including within any applicable cure periods) with the terms of the
Ground Lease, Lease and Management Agreement to which it is a party and will
provide the Investor with copies of any notices of default issued by the Sentio
Parties and/or their Subsidiaries after the Effective Date under each Ground
Lease, Lease and/or Management Agreement.

 

Section 5.21.         Conduct of Business. Each of the Sentio Parties, during
the Put Period and, if exercised by the Investor, the Extension Period, shall
(or, as the case may be, shall cause its applicable Subsidiary to) carry on its
business and operations in substantially the same manner as heretofore carried
on by it and use commercially reasonable efforts to seek to maintain its
business operations intact, maintain existing relationships and goodwill with
Governmental Authorities, residents, suppliers, and other Persons with whom the
Sentio Parties or their Subsidiaries have a business relationship.

 

Section 5.22.         Restructuring.

 

Immediately following the initial issuance of Series B Convertible Preferred
Units to the Investor, the Company shall cause HPC LP TRS, LLC (the “OP TRS”) to
be deemed to liquidate for tax purposes pursuant to the Company and OP TRS
filing Internal Revenue Service (“IRS”) Form 8832 electing “disregarded entity”
status for the OP TRS. Upon such deemed liquidation, the Company shall, subject
to the Transfer Tax Condition (defined below), contribute 100% of the membership
interests in OP TRS to the Partnership in exchange for an additional interest in
the Partnership. At the time of such contribution, the only asset of the OP TRS
shall be its interest in HC Operating Partnership, LP.

 

Notwithstanding the forgoing paragraph, the Company and the OP TRS shall have no
obligation to file such IRS Form 8832 and the Company shall have no obligation
to contribute the membership interests of the OP TRS to the Partnership if
material Transfer Taxes would be triggered by such actions (the “Transfer Tax
Condition”); provided, however, in such event, the Company shall nonetheless
cause the OP TRS to (i) distribute its 0.15% interest in the Partnership to the
Company and (ii) distribute 0.75% of its current 0.90% interest in HC Operating
Partnership, LP to the Company, which shall contribute such 0.75% interests in
HC Operating Partnership, LP to the Partnership in exchange for an additional
interest in the Partnership.

 

33

 

 

Article VI
OPINIONS OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND PURCHASE OF THE
SECURITIES

 

Section 6.1.          Opinions of Counsel and Certificate. Simultaneously with
the execution and delivery of this Agreement the Sentio Parties shall deliver to
the Investor (a) an opinion of outside counsel to the Sentio Parties, dated the
Effective Date, (i) as to tax matters, substantially in the form of Exhibit G
(the “Tax Opinion”) and (ii) as to other general matters related to the
Agreement and the Related Documents and the transactions contemplated hereby and
thereby, substantially in the form of Exhibit H (the “General Closing Opinion”
and together with the Tax Opinion, the “Legal Opinions”) (the Legal Opinions may
be based upon customary representations made by the Sentio Parties and their
Subsidiaries in an officer’s certificate that is reasonably acceptable to the
Investor), (b) evidence satisfactory to the Investor that the Board has taken
all actions necessary and appropriate to cause (i) to be elected to the Board,
effective immediately upon the thirtieth day following the Effective Date, Dan
Decker and Billy Butcher and (ii) to be appointed to the Investment Committee of
the Board, effective immediately upon the thirtieth day following the Effective
Date, Dan Decker and Billy Butcher, (c) (or an Affiliate designated by the
Investor) the Transaction Fee by wire transfer of immediately available funds to
an account designated by the Investor in writing, (d) provided the Investor has
delivered to the Company in advance of the Effective Date a statement setting
forth in reasonable detail the amount of Investor Expenses required to be
reimbursed to the Investor by the Company or the Partnership pursuant to Section
9.1(a), the amount of such costs and expenses by wire transfer of immediately
available funds to an account designated by the Investor in writing, and (e) the
executed Investor Rights Agreement, Transition to Internal Management Agreement
and all other documents, instruments and writings required to be delivered by
the Sentio Parties to the Investor pursuant to this Agreement or otherwise
required in connection herewith.

 

Section 6.2.          Conditions Precedent to the Obligation of the Sentio
Parties. The obligation hereunder of the Sentio Parties to issue and sell the
Securities to the Investor under any Put Exercise Notice is subject to the
satisfaction or (to the extent permitted by applicable law) waiver of each of
the conditions set forth below. These conditions are for the benefit of the
Sentio Parties and (to the extent permitted by applicable law) may be waived by
the Sentio Parties in writing at any time in their sole discretion.

 

(a)          Accuracy of the Investor’s Representations and Warranties. The
representations and warranties of the Investor (A) contained in this Agreement
and the Related Documents (other than Section 3.1 and Section 3.2) (i) that are
not qualified by “materiality” will have been true and correct in all material
respects when made and will be true and correct in all material respects as of
the applicable Put Exercise Date and the applicable Closing Date with the same
force and effect as if made on such dates, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties will be true and correct in all material respects
as of such other date and (ii) that are qualified by “materiality” will have
been true and correct when made and will be true and correct as of the
applicable Put Exercise Date and the applicable Closing Date with the same force
and effect as if made on such dates, except to the extent such representations
and warranties are as of another date, in which case, such representations and
warranties will be true and correct as of such other date, and (B) contained in
Section 3.1 and Section 3.2 shall be true in all respects as of the applicable
Put Exercise Date and the applicable Closing Date with the same force and effect
as if made on such dates.

 

(b)          Performance by the Investor. The Investor will have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Related Documents to be
performed, satisfied or complied with by the Investor at or prior to the
applicable Put Exercise Date and the applicable Closing Date.

 

34

 

 

(c)          HSR Act. If applicable, the waiting period under the HSR Act
applicable to the issuance of Securities under such Put Exercise Notice will
have expired or been terminated.

 

(d)          Legal Investment. No temporary restraining order, preliminary or
permanent injunction or other judgment or order issued by any Governmental
Authority and no Law shall be in effect restraining, enjoining, making illegal
or otherwise prohibiting the consummation of the transactions contemplated by
this Agreement and the Related Documents; provided, however, that each of the
Sentio Parties shall have used its reasonable best efforts to prevent the entry
of any such injunction or order and to appeal as promptly as possible any
injunction or other order that may be entered.

 

Section 6.3.          Conditions Precedent to the Obligation of the Investor.
The obligation hereunder of the Investor to accept a Put Exercise Notice and to
acquire and pay for the Securities is subject to the satisfaction or (to the
extent permitted by applicable law) waiver, at or before each Put Exercise Date
and each Closing Date, of each of the conditions set forth below. These
conditions are for the Investor’s sole benefit and (to the extent permitted by
applicable law) may be waived by the Investor in writing at any time in its sole
discretion.

 

(a)          Accuracy of the the Sentio Parties’ Representations and Warranties.
The representations and warranties of the Sentio Parties (A) contained in this
Agreement and the Related Documents (other than Section 4.1, Section 4.2,
Section 4.6, and Section 4.7) (i) that are not qualified by “materiality” or
“Material Adverse Effect” will have been true and correct in all material
respects when made and will be true and correct in all material respects as of
the applicable Put Exercise Date and the applicable Closing Date with the same
force and effect as if made on such dates, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties will be true and correct in all material respects
as of such other date and (ii) that are qualified by “materiality” or “Material
Adverse Effect” will have been true and correct when made and will be true and
correct as of the applicable Put Exercise Date and the applicable Closing Date
with the same force and effect as if made on such dates, except to the extent
such representations and warranties are as of another date, in which case, such
representations and warranties will be true and correct as of such other date,
(B) contained in Section 4.6 shall be true in all but de minimis respects as of
the applicable Put Exercise Date and the applicable Closing Date with the same
force and effect as if made on such dates, and (C) contained in Sections 4.1,
4.2 and 4.7 shall be true in all respects as of the applicable Put Exercise Date
and the applicable Closing Date with the same force and effect as if made on
such dates. If the representations with respect to litigation set forth in
Section 4.13 hereof are not true and correct at an applicable Put Exercise Date
and applicable Closing Date, then the Sentio Parties will use commercially
reasonable efforts to finally settle or resolve the action, suit, proceeding,
investigation, or judgment, as applicable, within six (6) months from the
applicable Put Exercise Date. If no settlement or resolution can be reached in
that time period and the Investor elects not to waive this condition, the Sentio
Parties may thereafter elect to terminate the Put Period and seek alternative
sources of financing. If the Sentio Parties elect to terminate the Put Period
pursuant to this section, the Investor will have the option to (i) require the
Company to redeem all of the Investor’s Preferred Shares at a price equal to the
Liquidation Preference (as such term is defined in the Articles Supplementary or
the Series C Articles Supplementary, as applicable) plus any accrued and unpaid
distributions thereon, and (ii) require the Partnership to redeem all of the
Investor’s Series B Convertible Preferred Units at the Redemption Price (as such
term is defined in the Partnership Agreement).

 

35

 

 

(b)          Amendment and Restatement of Partnership Agreement. The Company,
HPC LP TRS, LLC, a Delaware limited liability company, and the Investor shall
have amended and restated the Partnership Agreement by entering into that
certain Second Amended and Restated Limited Partnership Agreement of Sentio
Healthcare Properties OP, L.P., in the form attached as Exhibit B hereto.

 

(c)          Corporate Actions and Filings. The Company shall have provided
evidence satisfactory to the Investor of the filing of the Articles
Supplementary with the State Department of Assessments and Taxation of the State
of Maryland, the adoption by the Company of the Bylaws Amendment and, with
respect to any Put Exercise Date or Closing Date following receipt of the
Required Consents and the stockholder approvals described in Section 5.14
hereof, evidence satisfactory to the Investor of the filing of the Charter
Amendment and the Series C Articles Supplementary with the State Department of
Assessments and Taxation of the State of Maryland;

 

(d)          Performance of the Company; Delivery of Certificates. The Sentio
Parties will have (i) performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement and the
Related Documents to be performed, satisfied or complied with by it at or prior
to the applicable Put Exercise Date and the applicable Closing Date and (ii)
delivered to the Investor on the applicable Closing Date a Compliance
Certificate substantially in the form attached hereto as Exhibit J.

 

(e)          No Material Changes to Approved Acquisitions. There shall have been
no material changes to the terms of the Approved Acquisition as described in the
Put Exercise Notice (or Amended Put Exercise Notice, as applicable) between the
date approved by the Investor and the Closing Date.

 

(f)          Securities Authorized and Delivered. The Securities issuable
pursuant to such Put Exercise Notice will have been duly authorized by all
necessary action of the Sentio Parties. The Sentio Parties will have timely
delivered all the Securities relating to all prior Put Exercise Notices to the
Investor.

 

(g)          Indebtedness. The Approved Acquisition described in the Put
Exercise Notice (or Amended Put Exercise Notice, as applicable) contemplates no
Indebtedness other than mortgage debt, and such mortgage debt is not in excess
of 60% of the cost of the Approved Acquisition at the time of the Approved
Acquisition, except that in cases where the Approved Acquisition requires the
assumption of existing in place mortgage debt, mortgage debt is not in excess of
75% of the cost of the Approved Acquisition at the time of the Approved
Acquisition. Furthermore, the Approved Acquisition will not cause the Company’s
or the Partnership’s overall leverage to exceed 60% loan to value (LTV). The
mortgage debt will not have recourse (other than bad boy carve-outs) to any
entity or asset other than the specific single property securing the mortgage
and its single-asset special purpose entity, except that recourse is permitted
if and only if it is on a short-term basis (less than 12 months) and the total
recourse to the Sentio Parties does not exceed $15 million.

 

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(h)          Legal Investment. No temporary restraining order, preliminary or
permanent injunction or other judgment or order issued by any Governmental
Authority and no Law shall be in effect restraining, enjoining, making illegal
or otherwise prohibiting the consummation of the transactions contemplated by
this Agreement and the Related Documents; provided, however, that the Investor
shall have used its reasonable best efforts to prevent the entry of any such
injunction or order and to appeal as promptly as possible any injunction or
other order that may be entered.

 

(i)          Tax Opinion. The Company will have delivered to the Investor on the
applicable Closing Date a Tax Opinion, dated as of such Closing Date.

 

Article VII
TERMINATION

 

Section 7.1.          Term; Termination. This Agreement may be validly
terminated and the transactions contemplated by this Agreement may be abandoned
only as follows:

 

(a)          Prior to the first Closing Date hereunder:

 

(i)          by mutual written agreement of the Investor, and the Sentio
Parties;

 

(ii)         by either Party, in the event that (A) such Party has not breached
any of its representations, warranties or covenants under this Agreement in any
material respect; (B) the other Party shall fail to perform in all material
respects any term, covenant or agreement contained in this Agreement or in any
Related Document, which failure to perform (if susceptible of cure) has
continued uncured for a period of thirty (30) days after the earlier of the
receipt of a notice of such failure to perform from non-breaching Party or the
breaching Party first becoming aware of such failure; or (C) any representation
or warranty of the other Party in this Agreement or any of the Related Documents
shall have been false in any material respect upon the date when made or deemed
to have been made.

 

(iii)        by the Sentio Parties, in the event that (A) the Sentio Parties
have complied in all material respects with Section 5.15, (B) the Company and/or
the Partnership shall have received a Superior Proposal; (C) the Board (or any
committee thereof) shall have determined in good faith (after consultation with
outside legal counsel) that the failure to enter into a definitive agreement
relating to such Superior Proposal would reasonably be expected to be
inconsistent with its fiduciary duties to the holders of the Common Stock under
applicable Law; (D) the Sentio Parties shall have followed the procedures
specified in Section 5.15(e); (E) the Board (or any committee thereof) shall
have determined in good faith (after consultation with outside legal counsel),
after considering the terms of any proposed amendment or modification to this
Agreement, that the failure to enter into a definitive agreement relating to
such Superior Proposal would still reasonably be expected to be inconsistent
with its fiduciary duties to the Stockholders under applicable Law; and (F)
concurrently with the termination of this Agreement, the Company and/or the
Partnership enters into such Superior Proposal and pays Investor (or an
Affiliate designated by the Investor) all outstanding amounts of the Termination
Fee.

 

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(b)          During the Put Period and, if exercised by the Investor, during the
Extension Period hereunder as follows:

 

(i)          by mutual written agreement of the Investor and the Sentio Parties;

 

(ii)         by either Party, in the event that (A) such Party has not breached
any of its representations, warranties or covenants under this Agreement in any
material respect; (B) the other Party shall fail to perform in all material
respects any term, covenant or agreement contained in this Agreement or in any
Related Document, which failure to perform (if susceptible of cure) has
continued uncured for a period of thirty (30) days after the earlier of the
receipt of a notice of such failure to perform from non-breaching Party or the
breaching Party first becoming aware of such failure; or (C) any representation
or warranty of the other Party in this Agreement or any of the Related Documents
shall have been false in any material respect upon the date when made or deemed
to have been made.

 

(c)          Unless earlier terminated as provided hereunder, the rights of the
Sentio Parties to deliver a Put Exercise Notice and the obligations of the
Investor in respect of any Put Exercise Notice pursuant to this Agreement will
terminate automatically on the earlier of (i) the first day of the month
immediately following the second anniversary of the Effective Date and (ii) the
date that the Remaining Put Amount equals zero dollars (the “Put Period”).

 

(d)          Unless earlier terminated as provided hereunder, the Investor, at
the Investor’s discretion, may, by providing written notice to the Sentio
Parties a minimum of 90 days prior to the expiration of the Put Period, extend
the term of this Agreement for an additional period that will terminate
automatically on the earlier of (i) the first day of the month immediately
following the third anniversary of the Effective Date and (ii) the date that the
Remaining Put Amount equals zero dollars (the “Extension Period”).

 

(e)          Upon the Investor’s exercise of a third Strike (a “Strike Out”),
the Put Period or the Extension Period, as applicable, will terminate. Upon the
date of any Strike Out, the Investor’s rights pursuant to Section 4.1 of the
Investor Rights Agreement shall terminate and the Investor will have no further
right to consent to investments by the Sentio Parties in Qualifying
Acquisitions. In addition, if the Exercised Put Amount from the Effective Date
through the date of the Strike Out is:

 

(i)          less than $75,000,000 but greater than $15,000,000, then (A) the
Applicable Conversion Price (as defined in the Partnership Agreement) will
increase by 5%, (B) the Investor’s rights pursuant to Sections 9.2(d)(iv)(B)(bb)
and (cc) of the Partnership Agreement shall terminate, and (C) the Investor
shall reimburse to the Sentio Parties $1,000,000 of the Transaction Fee; or

 

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(ii)         less than $15,000,000, then (A) the Applicable Conversion Price (as
defined in the Partnership Agreement) will increase by 5%, (B) the Investor’s
rights pursuant to Sections 3.2(f) through (l) and (r) of the Investor Rights
Agreement and Sections 9.2(d)(iv)(B)(aa) through (cc) of the Partnership
Agreement shall terminate, (C) the Investor shall reimburse to the Sentio
Parties $1,500,000 of the Transaction Fee, (D) the Company may redeem, at its
option by giving 30 days prior notice to Investor, any or all of the Investor’s
Preferred Shares for an amount equal to the Liquidation Preference (as defined
in the Articles Supplementary or the Series C Articles Supplementary, as
applicable), plus all accrued and unpaid dividends thereon to, but excluding the
date of redemption, and (E) the Partnership may redeem, at its option by giving
notice as provided in the Partnership Agreement, any or all of the Investor’s
Series B Convertible Preferred Units for an amount equal to $100 per unit, plus
all accrued and unpaid dividends thereon (including any accumulation in respect
of distributions that have not been paid prior to such payment date) to, but
excluding the date of redemption. Notwithstanding the foregoing, upon receipt of
the Sentio Parties’ redemption notice, the Investor may in its discretion elect
to convert all of its Series B Convertible Preferred Units in accordance with
the procedures set forth in the Partnership Agreement.

 

(f)          By the Investor, in the event that any of the Sentio Parties or
their respective Subsidiaries is in breach of Section 5.5 (as if such Section
5.5 was in effect from the Effective Time, without regard to the requirement
relating to the issuance of Series A Preferred Stock and without regard to the
proviso to Section 5.5(b)).

 

(g)          By either party following the Required Consent End Date if the
Required Consents shall not have been obtained by such date; provided that the
right to terminate this Agreement pursuant to this Section 7.1(g) shall not be
available to either party whose failure to fulfill any obligation under this
Agreement has primarily caused the failure of the Required Consents to be
obtained prior to the Required Consent End Date.

 

(h)          This Agreement will remain in full force and effect unless
terminated pursuant to Section 7.1, (a), (b), (c), (d), (e), (f) or (g) above or
otherwise by written agreement of the Sentio Parties and the Investor. Any
termination will in all cases be deemed to provide that Section 7.1(e), (f), (g)
and (h), Article VIII and Article IX will remain in full force and effect.

 

Section 7.2.          Effect of Termination. Except as otherwise provided in
Section 7.1(e) and this Section 7.2 of this Agreement, no termination of this
Agreement by any party will affect any cash fees paid or payable to the Investor
or its counsel pursuant to Section 9.1, in each case all of which fees will be
non-refundable, regardless of whether any Put Exercise Notices are issued by the
Sentio Parties or any Closing takes place. In the event of a termination of this
Agreement pursuant to Section 7.1(g), Investor shall reimburse the Sentio
Parties an amount in cash equal to (x) the Transaction Fee minus (y) the
aggregate amount of all Investor Expenses (without regard to the Expense
Reimbursement Cap) for which Investor has not received reimbursement from the
Sentio Parties prior to such termination; provided that if, within twelve (12)
months following such termination, any of the Sentio Parties or their respective
affiliates announce, enter into or consummate a transaction which would be
considered an Acquisition Proposal, the Sentio Parties shall pay to the Investor
or an Affiliate designated by the Investor $4,000,000 less any amounts
previously paid by the Sentio Parties to Investor (or its designee) in respect
of reimbursements for Investor Expenses and Transaction Fees not previously
refunded to the Sentio Parties by the Investor. In the event of a termination of
this Agreement pursuant to Section 7.1Section 7.1(f), the Sentio Parties shall
pay to the Investor or an Affiliate designated by the Investor the Termination
Fee. Nothing in this Section 7.2 will be deemed to release the Sentio Parties or
the Investor from any liability for any breach under this Agreement or to impair
the rights of the Sentio Parties or the Investor to compel specific performance
by the other of their obligations under this Agreement.

 

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Article VIII
INDEMNIFICATION

 

Section 8.1.          Indemnification by the Sentio Parties. The Sentio Parties
will indemnify, defend and hold harmless the Investor, each Affiliate of the
Investor, each member, manager, partner, shareholder or equity owner of the
Investor or such Affiliate, and each officer, director, trustee, employee,
representative, agent and advisor of and to any of the foregoing, and each
Person, if any, who controls the Investor within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act (each, an “Investor
Indemnified Party”) from and against all losses, claims, damages, settlements,
liabilities and expenses (including reasonable costs of defense and
investigation and all attorneys’ fees) (“Damages”) to which the Investor and
each such other Person may become subject (a) resulting from or arising out of
any breach of any representation or warranty, covenant or agreement in this
Agreement or a Related Document by the Sentio Parties or (b) under the
Securities Act or otherwise, insofar as such Damages (or actions in respect
thereof) arise out of or are based upon any violation of United States federal
or state securities laws by the Sentio Parties or any of their respective
Subsidiaries, Affiliates, officers, trustees, directors, partners or employees;
provided, however, that (A) the Sentio Parties will not be liable to the
Investor Indemnified Parties under Section 8.1 to the extent that a court of
competent jurisdiction will have determined by a final judgment (from which no
further appeals are available) that such Damages resulted directly and solely
from (x) any acts or failures to act, undertaken or omitted to be taken by the
Investor through the Investor’s gross negligence, bad faith or willful
misconduct or (y) to the extent, but only to the extent, that such Damages are
directly attributable to the breach by the Investor of any Investor
representation, warranty, covenant or agreement contained in this Agreement and
(B) the indemnity obligations of the Sentio Parties pursuant to Section 8.1 will
not apply to any Damages to the extent, but only to the extent, arising out of
or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Sentio Parties by or on behalf of the Investor
expressly for use in any report, schedule, registration, form, statement,
information or other document furnished or filed by the Company with the
Commission or any amendment thereof.

 

Subject to Section 8.4 and the proviso in Section 8.1 above, the Company and/or
the Partnership will reimburse the Investor Indemnified Parties promptly upon
demand (with accompanying presentation of documentary evidence) for all legal
and other costs and expenses reasonably incurred by the Investor or such
Investor Indemnified Parties in investigating, defending against, or preparing
to defend against any such claim, action, suit or proceeding with respect to
which it is entitled to indemnification.

 

Section 8.2.          Indemnification by the Investor. The Investor will
indemnify, defend and hold harmless the Sentio Parties, each Affiliate thereof,
each member, manager, partner, shareholder or equity owner of the Company, the
Partnership or such Affiliate, and each officer, director, trustee, employee,
representative, agent and advisor of and to any of the foregoing, and each
Person, if any, who controls the Sentio Parties within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act (each, a “Sentio
Indemnified Party” and together with the Investor Indemnified Party, an
“Indemnified Party”) from and against all Damages to which the Sentio Parties
and each such other Person may become subject resulting from or arising out of
any breach of any representation or warranty, covenant or agreement in this
Agreement or a Related Document by the Investor.

 

40

 

 

Subject to Section 8.4, the Investor will reimburse the Sentio Indemnified
Parties promptly upon demand (with accompanying presentation of documentary
evidence) for all legal and other costs and expenses reasonably incurred by the
Sentio Parties or such Sentio Indemnified Parties in investigating, defending
against, or preparing to defend against any such claim, action, suit or
proceeding with respect to which it is entitled to indemnification.

 

Section 8.3.          Indemnification Procedures. Promptly after an Indemnified
Party receives notice of a claim or the commencement of an action for which the
Indemnified Party intends to seek indemnification under Section 8.1 or Section
8.2, as applicable, the Indemnified Party will notify the indemnifying party in
writing of the claim or commencement of the action, suit or proceeding;
provided, however, that failure to notify the indemnifying party will not
relieve the indemnifying party from liability under Section 8.1 or Section 8.2,
as applicable, except to the extent it has been materially prejudiced by the
failure to give notice. The indemnifying party will be entitled to participate
in the defense of any claim, action, suit or proceeding as to which
indemnification is being sought, and if the indemnifying party acknowledges in
writing the obligation to indemnify the party against whom the claim or action
is brought to the extent required hereunder, the indemnifying party may (but
will not be required to) assume the defense against the claim, action, suit or
proceeding with counsel satisfactory to it. After an indemnifying party notifies
an Indemnified Party that the indemnifying party wishes to assume the defense of
a claim, action, suit or proceeding, the indemnifying party will not be liable
for any legal or other expenses incurred by the Indemnified Party in connection
with the defense against the claim, action, suit or proceeding except that if,
in the opinion of counsel to the Indemnified Party (which counsel will be
reasonably acceptable to the indemnifying parties), one or more of the
Indemnified Parties should be separately represented in connection with a claim,
action, suit or proceeding, the indemnifying party will pay the reasonable fees
and expenses of one separate counsel, and one local counsel, for the Investor
Indemnified Parties. Each Indemnified Party, as a condition to receiving
indemnification as provided in Section 8.1 or Section 8.2, as applicable, will
cooperate in all reasonable respects with the indemnifying party in the defense
of any action or claim as to which indemnification is sought. No indemnifying
party will be liable for any settlement of any action effected without its prior
written consent. No indemnifying party will, without the prior written consent
of the Indemnified Party, effect any settlement of a pending or threatened
action with respect to which an Indemnified Party is, or is informed that it may
be, made a party and for which it would be entitled to indemnification, unless
the settlement includes an unconditional release of the Indemnified Party from
all liability and claims which are the subject matter of the pending or
threatened action.

 

Section 8.4.          Remedies Not Exclusive. The remedies provided for in
Article VII and this Article VIII are not exclusive and will not limit any
rights or remedies which may otherwise be available to the Investor, the Company
or any other Indemnified Party, as applicable, at law or in equity.

 

41

 

 

Section 8.5.          Adjustment to Purchase Price. Any indemnity payment under
this Agreement shall be treated as an adjustment to the purchase price for all
Tax purposes, except as otherwise required by applicable Law.

 

Article IX
MISCELLANEOUS

 

Section 9.1.          Fees and Expenses.

 

(a)          The Sentio Parties agree to pay on demand all reasonable costs and
expenses of the Investor in connection with the preparation, execution and
delivery of this Agreement and the Related Documents, and in connection with the
consummation of the transactions contemplated hereby and thereby, as well as all
reasonable costs and expenses of the Investor in connection with the amendment,
waiver or enforcement of this Agreement or any Related Document, including, but
not limited to, fees and expenses of attorneys, accountants, investment bankers
and consultants in connection with the transactions contemplated pursuant to
this Agreement (the “Investor Expenses”); provided, however, that such costs and
expenses paid by the Sentio Parties will not exceed $1,000,000 (the “Expense
Reimbursement Cap”) except as set forth in Section 7.2 hereof or as otherwise
agreed by the Sentio Parties and the Investor.

 

(b)          The Sentio Parties agree to pay to the Investor (or an Affiliate
designated by the Investor) on the Effective Date a transaction fee in the
amount of $2,000,000 upon the execution of this Agreement (the “Transaction
Fee”).

 

Section 9.2.          Specific Enforcement, Consent to Jurisdiction, Waiver of
Jury Trial.

 

(a)          Each Party acknowledges and agrees that irreparable damage would
occur to the other parties hereunder in the event that any of the provisions of
this Agreement or the Related Documents were not performed by such party in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that each party will be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
the Related Documents by any other party and to enforce specifically the terms
and provisions hereof and thereof this being in addition to any other remedy to
which the parties may be entitled by law or equity. Notwithstanding the
foregoing, the parties hereby further acknowledge and agree that, prior to the
termination of the Put Period, the Sentio Parties shall be entitled to seek
specific performance to cause the Investor to draw down the proceeds of the
Equity Financing in an amount equal to the Put Exercise Amount in respect of
each Closing, such amount not to exceed the Remaining Put Amount, and to cause
the Investor to consummate such Closing on the terms and subject to the
conditions in this Agreement, if, but only if, (i) all conditions in Sections
6.1 and 6.3 (other than those conditions that by their nature are to be
satisfied at such Closing) have been satisfied in respect of such Closing, (ii)
the Investor fails to consummate such Closing by the date such Closing is
required to have occurred pursuant to Section 2.4, and (iii) each of the Sentio
Parties has irrevocably confirmed that if specific performance is granted and
the Equity Financing is so funded, then such Closing will occur. For the
avoidance of doubt, under no circumstances can the Sentio Parties seek specific
performance against the Investor to cause Investor to draw down proceeds of the
Equity Financing in excess of an aggregate amount of one hundred fifty million
dollars ($150,000,000).

 

42

 

 

(b)          Each of the Sentio Parties and the Investor (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court and
other courts of the United States sitting in New York City in the State of New
York for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement and the Related Documents and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Sentio Parties and the
Investor consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under this Agreement and agrees that such service will constitute good and
sufficient service of process and notice thereof. Nothing in this Section 9.2
will affect or limit any right to serve process in any other manner permitted by
law.

 

(c)          EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE RELATED DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (B) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (C) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE RELATED DOCUMENTS, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 9.2.

 

Section 9.3.          Entire Agreement; Amendment. This Agreement, together with
the exhibits referred to herein, and the Related Documents, represents the
entire agreement of the parties with respect to the subject matter hereof, and
there are no promises, undertakings, representations or warranties by either
party relative to subject matter hereof not expressly set forth herein. No
provision of this Agreement may be amended other than by a written instrument
signed by all parties hereto. All exhibits to this Agreement are hereby
incorporated by reference in, and made a part of, this Agreement as if set forth
in full herein.

 

Section 9.4.          Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder will be in writing and
will be effective (a) upon hand delivery or facsimile (with facsimile machine
confirmation of delivery received) at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is to
be received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) or (b) on the second Business Day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever will first occur. The address for such
communications will be:

 

43

 

 

If to the Company:

 

Sentio Healthcare Properties, Inc.

189 South Orange Avenue, Suite 1700

Orlando, FL 32801

Telephone Number: (407) 999-7679

Fax: (407) 999-5210

Attention: John Mark Ramsey

 

With copies to (which will not constitute notice):

 

DLA Piper LLP (US)

4141 Parklake Avenue, Suite 300

Raleigh, NC 27612

Telephone Number: (919) 786-2000

Fax: (919) 786-2200

Attention: Damon McLean, Esq.

 

If to the Partnership:

 

Sentio Healthcare Properties OP, L.P.

189 South Orange Avenue, Suite 1700

Orlando, FL 32801

Telephone Number: (407) 999-7679

Fax: (407) 999-5210

Attention: John Mark Ramsey

 

With copies to (which will not constitute notice):

 

DLA Piper LLP (US)

4141 Parklake Avenue, Suite 300

Raleigh, NC 27612

Telephone Number: (919) 786-2000

Fax: (919) 786-2200

Attention: Damon McLean, Esq.

 

If to the Investor:

 

Sentinel RE Investment Holdings, L.P.

c/o Kohlberg Kravis Roberts & Co. L.P.

9 West 57th Street, Suite 4200

New York, NY 10019

Telephone Number: (212) 750-8300

Fax: (212) 750-0003

Attention: Billy Butcher and General Counsel

 

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With copies to (which will not constitute notice):

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Tel: (212) 455-2772

Fax: (212) 455-2502

Attention: Sean Rodgers, Esq.

 

Either party hereto may from time to time change its address for notices by
giving at least 10 days advance written notice of such changed address to the
other parties hereto.

 

Section 9.5.          Waivers. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement will be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof nor will any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. No provision of this Agreement may be
waived other than in a written instrument signed by the party against whom
enforcement of such waiver is sought.

 

Section 9.6.          Headings. The article, section and subsection headings in
this Agreement are for convenience only and will not constitute a part of this
Agreement for any other purpose and will not be deemed to limit or affect any of
the provisions hereof.

 

Section 9.7.          Assignment. Neither this Agreement nor any rights of the
Investor, the Company, or the Partnership hereunder may be assigned to any other
Person without the prior written consent of the other parties, and any purported
assignment without such consent will be void ab initio; provided that this
Agreement and any rights of the Investor may be assigned to any Affiliate of the
Investor without the written consent of the Company or the Partnership; provided
further that no such assignment without the consent of the Company or the
Partnership will relieve Investor of its obligations hereunder.

 

Section 9.8.          Governing Law. This Agreement will be governed by and
construed in accordance with the internal procedural and substantive laws of the
State of New York, without giving effect to the choice of law provisions of such
state that would cause the application of the laws of any other jurisdiction.

 

Section 9.9.          Survival. The representations, warranties, covenants and
agreements of the Sentio Parties and the Investor contained in this Agreement
will survive the execution and delivery hereof until the termination of this
Agreement.

 

Section 9.10.         Counterparts. This Agreement may be executed in one or
more counterparts (including by facsimile or other electronic transmission), all
of which will be considered one and the same agreement and will become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties (including by facsimile or other electronic
transmission).

 

45

 

   

Section 9.11.    Interpretation. When a reference is made in this Agreement to
an Article, a Section, Exhibit or Schedule, such reference will be to an Article
of, a Section of or an Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they will be deemed to be followed by
the words “without limitation.” The words “hereof,” “herein” and “hereunder” and
words of similar import when used in this Agreement will refer to this Agreement
as a whole and not to any particular provision of this Agreement. References to
“this Agreement” will include the Disclosure Schedule. The term “made available”
or “furnished” and words of similar import means, with respect to the Sentio
Parties, that the relevant documents, instruments or materials were posted and
made available to Investor on the due diligence data site created for the
process giving rise to this Agreement and remained available thereon and
accessible by Investor and its advisors as of February 4, 2013, or furnished in
writing by a representative of the Sentio Parties to a representative of the
Investor at least two Business Days prior to the date of this Agreement. All
terms defined in this Agreement will have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any Contract,
instrument or Law defined or referred to herein or in any Contract or instrument
that is referred to herein means such Contract, instrument or Law as from time
to time amended, modified or supplemented, including (in the case of Contracts
or instruments) by waiver or consent and (in the case of Laws) by succession of
comparable successor Laws and references to all attachments thereto and
instruments incorporated therein. References to a Person are also to its
permitted successors and assigns. This Agreement is the product of negotiation
by the parties having the assistance of counsel and other advisers. It is the
intention of the parties that this Agreement not be construed more strictly with
regard to one party than with regard to the others. The parties have
participated jointly in negotiating and drafting this Agreement. In the event
that an ambiguity or a question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties, and no
presumption or burden of proof will arise favoring or disfavoring any party by
virtue of the authorship of any provision of this Agreement. The representations
and warranties in this Agreement are the product of negotiations among the
parties and are for the benefit of the parties. Any inaccuracies in such
representations and warranties are subject to waiver by the parties without
notice or liability to any other Person. In some instances, the representations
and warranties in this Agreement may not be intended as a statement of fact but
may instead represent an allocation among the parties of the risks associated
with particular matters regardless of the knowledge of any of the parties.
Consequently, Persons other than the parties may not rely upon the
representations and warranties in this Agreement as characterizations of actual
facts or circumstances as of the date hereof or any other date. With regard to
all dates and time periods set forth or referred to in this Agreement or any
Related Document, time is of the essence.

 

46

 

 

Section 9.12.    Disclosure Schedule. The information set forth on the
Disclosure Schedule will be deemed to provide disclosure only with respect to
the particular section or subsection of this Agreement to which the information
set forth in the Disclosure Schedule relates provided that disclosure made with
respect to any section or subsection, also will be deemed to be disclosure
against other sections or subsections of this Agreement to the extent that it is
reasonably apparent that such disclosure is applicable to such other section or
subsections.

 

Section 9.13.    Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction will determine that
any one or more of the provisions or part of the provisions contained in this
Agreement will, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability will not affect
any other provision or part of a provision of this Agreement, and this Agreement
will be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

 

Section 9.14.    Further Assurances. From and after the date of this Agreement,
upon the request of the Investor, the Company or the Partnership, each of the
Company, the Partnership and the Investor will execute and deliver such
instrument, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.

 

Section 9.15.    Non-Recourse. This Agreement may only be enforced against, and
any claims or causes of action that may be based upon, arise out of or relate to
this Agreement, or the negotiation, execution or performance of this Agreement
may only be made against the entities that are expressly identified as parties
hereto, and no former, current or future equityholders, controlling persons,
directors, officers, employees, agents or Affiliates of any party hereto or any
former, current or future equityholder, controlling person, director, officer,
employee, general or limited partner, member, manager, agent or Affiliate of any
of the foregoing (each, a “Non-Recourse Party”) shall have any liability for any
obligations or liabilities of the parties to this Agreement or for any claim
(whether in tort, contract or otherwise) based on, in respect of, or by reason
of, the transactions contemplated hereby or in respect of any representations
made or alleged to be made in connection herewith. Without limiting the rights
of any party against the other parties hereto, in no event shall any party or
any of its Affiliates seek to enforce this Agreement against, make any claims
for breach of this Agreement against, or seek to recover monetary damages from,
any Non-Recourse Party.

 

Section 9.16.    Competitive Investments. The Sentio Parties acknowledge and
agree that the Investor and its Affiliates may have investments in or may invest
in, and/or provide management advice to, companies that may be competitive with
the Sentio Parties or their Affiliates and that the execution of this Agreement
and the Related Documents will in no way be construed to prohibit or restrict
the Investor’s or its Affiliates’ ability to maintain, make or consider such
investment or give such advice.

 

[Signature Page Follows]

 

47

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the day and year first above written.

 

    THE COMPANY           Sentio Healthcare Properties, Inc.           By: /s/
John Mark Ramsey     Name: John Mark Ramsey     Title: President and Chief
Executive Officer

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the day and year first above written.

 

    THE PARTNERSHIP           Sentio Healthcare Properties OP, L.P.          
By: Sentio Healthcare Properties, Inc.,     its general partner           By:
/s/ John Mark Ramsey     Name: John Mark Ramsey     Title: President and Chief
Executive Officer

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the day and year first above written.

 

    THE INVESTOR           SENTINEL RE INVESTMENT     HOLDINGS LP           By:
Sentinel RE Investment Holdings GP     LLC, as general partner           By: /s/
Billy Butcher     Name: Billy Butcher     Title: Vice President

 

 

 

 

ANNEX A

 

DEFINITIONS

 

TO THE SECURITIES PURCHASE AGREEMENT

 

“2013 Annual Meeting” will have the meaning assigned to such term in Section
5.14(a) hereof.

 

“Acceptable Confidentiality Agreement” will have the meaning assigned to such
term in Section 5.15(h) hereof.

 

“Acquisition Proposal” will have the meaning assigned to such term in Section
5.15(h) hereof.

 

“Advisory Consent” will have the meaning assigned to such term in Schedule
5.16(a).

 

“Affiliate” of any particular Person means any other Person controlling,
controlled by, or under common control with such particular Person, where
“control” means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, by contract or otherwise.

 

“Aggregate Put Right” will have the meaning assigned to such term in Section 1.1
hereof.

 

“Agreement” will have the meaning assigned to such term in the Preamble.

 

“Alternative Acquisition Agreement” will have the meaning assigned to such term
in Section 5.15(h) hereof.

 

“Amended Put Exercise Notice” will have the meaning assigned to such term in
Section 2.1(c) hereof.

 

“Approved Acquisition” will mean any Qualifying Acquisition with respect to
which the Investor does not exercise a Strike.

 

“Articles Supplementary” will mean those certain Articles Supplementary
classifying certain Preferred Shares as the Series A Preferred Shares and
setting forth therein the preferences, rights, privileges, powers, restrictions,
limitations and other terms with respect thereto, in the form attached as
Exhibit A-1 hereto.

 

“Board” will mean the Board of Directors of the Company.

 

“Business Day” will mean a day which is not a Saturday, Sunday or a day on which
national banks in New York, New York are closed.

 

“Bylaws” will mean the Company’s Bylaws as amended, supplemented, restated or
otherwise modified from time to time.

 

i

 

 

“Bylaws Amendment” will mean amendments to the Bylaws required to effect the
rights, preferences, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of the Series A Preferred
Shares and the Series C Preferred Shares and the Investor Rights Agreement, in
form and substance reasonably acceptable to the Investor.

 

“Change of Control Consents” means each of the Required Consents set forth on
Section 5.5(b) of the Disclosure Schedules.

 

“Charter” will mean the Company’s Articles of Incorporation as amended,
supplemented, restated or otherwise modified from time to time.

 

“Charter Amendment” will have the meaning assigned to such term in Section
5.14(a) hereof.

 

“Closing” will have the meaning assigned to such term in Section 2.4 hereof.

 

“Closing Date” will have the meaning assigned to such term in Section 2.4
hereof.

 

“Code” will mean the Internal Revenue Code of 1986, as amended.

 

“Commission” will mean the Securities and Exchange Commission or any successor
entity.

 

“Commission Documents” will mean (1) all reports, schedules, registrations,
forms, statements, information and other documents filed by the Company with the
Commission pursuant to the requirements of the Securities Act or the Exchange
Act, including all material filed pursuant to Section 13(a) or 15(d) of the
Exchange Act, which have been filed by the Company prior to the Effective Date,
and (2) all information contained in such filings and all documents and
disclosures that have been incorporated by reference therein.

 

“Common Stock” will mean the Company’s common stock, par value $0.01 per share.

 

“Company” will have the meaning assigned to such term in the Preamble.

 

“Company Capital Stock” will mean, collectively, the Common Stock, the Series A
Preferred Shares and all other classes and series of shares of capital stock
provided for in the Charter, as may be amended from time to time.

 

“Contract” will mean any loan or credit agreement, bond, debenture, note,
mortgage, indenture, lease, supply agreement, license agreement, management
agreement or other contract, agreement, obligation, commitment or instrument,
whether written or oral (each, including all amendments thereto), to which the
Company or any of its Subsidiaries is a party or that creates rights or
obligations that are enforceable by or against the Company.

 

“Damages” will have the meaning assigned to such term in Section 8.1 hereof.

 

“Disclosure Schedule” will have the meaning assigned to such term in Article IV.

 

ii

 

 

“DRIP” will mean the Company’s dividend reinvestment program for existing
holders of its Common Stock.

 

“Effective Date” will mean the date of this Agreement.

 

“Environmental Law” will mean any federal, state or local Law relating to the
(i) preservation, protection, conversation, pollution, contamination of, or
releases or threatened releases of hazardous substances into the air, surface
water, ground water or land or the clean up, abatement, removal, remediation or
monitoring of such pollution, contamination or hazardous substances; (ii)
generation, recycling, reclamation, handling, treatment, storage, disposal or
transportation of hazardous substances or solid waste and (iii) the safety or
health of employees or other Persons related to exposure to hazardous
substances, including the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601- 9675, the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 5101-
5127, the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sections
6901- 6992k, the Emergency Planning and Community Right- to- Know Act of 1986,
42 U.S.C. Sections 11001- 11050, the Toxic Substances Control Act, 15 U.S.C.
Sections 2601- 2692, the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Sections 136- 136y, the Clean Air Act, 42 U.S.C. Sections 7401- 7642, the
Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. Sections 1251-
1387, the Safe Drinking Water Act, 42 U.S.C. Sections 300f- 300j- 26, and the
Occupational Safety and Health Act, 29 U.S.C. Sections 651- 678, and any
analogous state Laws, as any of the above have been amended from time to time
and the regulations promulgated pursuant to each of the foregoing.

 

“Environmental Permit” will mean any permit, license, approval or other
authorization under any Environmental Law.

 

“Equity Financing” means the commitments of KKR Fund Holdings L.P. and KKR
Financial Holdings LLC, pursuant to those certain equity commitment letters,
dated as of the date hereof, between the Investor on the one hand and KKR Fund
Holdings L.P. and KKR Financial Holdings LLC, respectively, on the other hand,
and subject to the terms and conditions set forth therein, to invest in Investor
the cash amounts set forth therein.

 

“ERISA” will mean the Employee Retirement Income Security Act of 1974, as
amended.

 

“Exchange Act” will mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.

 

“Executive Order” will have the meaning assigned to such term in Section 3.8(a)
hereof.

 

“Exercised Put Amount” will mean, (i) which respect to any Closing, the actual
liquidation preference amount of Securities issued and sold to the Investor at
such Closing, and (ii) with respect to a given period of time, the aggregate of
the actual liquidation preference amounts of Securities issued and sold to the
Investor at Closings occurring during such period of time.

 

“Expense Reimbursement Cap” will have the meaning assigned to such term in
Section 9.1(a) hereof.

 

iii

 

 

“Extension Period” will have the meaning assigned to such term in Section 7.1(d)
hereof.

 

“Extraordinary Dividend” will mean any dividend or other distribution on shares
of Common Stock other than regular quarterly dividends on the Common Stock.

 

“Fair Market Value” will mean, as of any date of determination, the price at
which such asset would change hands between a hypothetical willing buyer and a
hypothetical willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of the relevant facts, as determined by the
Company in a manner consistent with the methodology and analytics used by the
Company’s executive management in the preparation of the Company’s financial
statements in accordance with historical cost GAAP; provided, however, that if a
financing agreement includes a definition, methodology or formula for
determining fair market value of the securities or other financial assets used
as collateral to secure the obligations thereunder, then such definition,
methodology or formula will be used to determine the Fair Market Value of such
securities or other financial assets hereunder.

 

“First Anniversary” will have the meaning assigned to such term in Section
2.1(g) hereof.

 

“Future Commission Documents” will mean (1) all reports, schedules,
registrations, forms, statements, information and other documents filed by the
Company with the Commission pursuant to the requirements of the Securities Act
or the Exchange Act, including all material filed pursuant to Section 13(a) or
15(d) of the Exchange Act, which are filed by the Company after the Effective
Date, and (2) all information contained in such filings and all documents and
disclosures that have been incorporated by reference therein.

 

“GAAP” will mean generally accepted accounting principles in the United States
set forth 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 such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as of
the date of determination.

 

“General Closing Opinion” will have the meaning assigned to such term in Section
6.1 hereof.

 

“General Partner” will mean the Sentio Healthcare Properties, Inc., the general
partner of the Partnership.

 

“Governmental Authority” will mean any foreign governmental authority, the
United States of America, any state of the United States and any political
subdivision of any of the foregoing, and any agency, instrumentality,
department, commission, board, bureau, central bank, authority, court or other
tribunal, in each case whether executive, legislative, judicial, regulatory or
administrative.

 

iv

 

 

“Ground Lease” means with respect to each real property leased or subleased by
the Sentio Parties or any of their Subsidiaries, all leases, subleases,
licenses, service agreements, concessions or other agreements granting an
interest in the real property to the Sentio Parties or any of their
Susbsidiaries for the use and occupancy of any portion of any such real
property. For the avoidance of doubt, the Ground Lease Agreement, between Floyd
Healthcare Management, Inc., as lessor and Rome LTH Partners, LP, as lessee,
dated as of December 18, 2009 (as amended, supplemented or modified) and the
Lease, Transfer and Reversion Agreement, between the Hospitality Authority of
Floyd Country, as lessor, and Floyd Healthcare Management, Inc., as lessee,
dated as of December 16, 1996 (as amended, supplemented or modified) shall be
deemed Ground Leases.

 

“Health Care Facility” means each assisted living facility, Alzheimer care
facility, skilled nursing facility, rehabilitation hospital and long term acute
care hospital owned by any of the Sentio Parties or their Subsidiaries.

 

“Health Care License” means the license held by the Company, its Subsidiaries,
each Tenant/or Manager, as applicable, under the state law governing the
licensure of each Health Care Facility as an assisted living, Alzheimer’s care,
skilled nursing, rehabilitation hospital and/or long term acute care hospital,
as applicable.

 

“Health Care Survey” means a licensure and/or life safety code survey conducted
with respect to the operation of any Health Care Facility.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

 

“Indebtedness” of a Person, at a particular date, will mean the sum (without
duplication) outstanding at such date of (a) all indebtedness or liability of
such Person for borrowed money and indebtedness in the form of mezzanine debt;
(b) obligations evidenced by bonds, debentures, notes or other similar
instruments; (c) obligations for the deferred purchase price of property or
services; (d) obligations under letters of credit; (e) obligations under
acceptance facilities; (f) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to supply funds, to
invest in any Person or otherwise to assure a creditor against loss; (g)
obligations secured by any Liens, whether or not the obligations have been
assumed; and (h) all preferred shares or other preferred equity issued by such
Person and required by the terms thereof to be redeemed on a scheduled date or
dates, or for which mandatory sinking fund payments are due, by a fixed date.

 

“Indemnified Party” will have the meaning assigned to such term in Section 8.2
hereof.

 

“Independent Directors” will have the meaning assigned to such term in the
Company’s Organizational Documents.

 

“Intellectual Property” will mean, collectively, the patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names, trade dress, logos,
copyrights and other intellectual property of the Sentio Parties and their
Subsidiaries.

 

“Investment Company Act” will have the meaning assigned to such term in Section
4.22 hereof.

 

v

 

 

“Investor” will have the meaning assigned to such term in the Preamble.

 

“Investor Expenses” will have the meaning assigned to such term in Section
9.1(a).

 

“Investor Indemnified Party” will have the meaning assigned to such term in
Section 8.1 hereof.

 

“Investor Rights Agreement” will have the meaning assigned to such term in the
Preamble hereof.

 

“IRS” will have the meaning assigned to such term in Section 5.22 hereof.

 

“Joint Venture Agreement” means any partnership, limited liability company
agreement, joint venture or other similar agreement or arrangement relating to
the formation, creation, operation, management or control of any partnership or
joint venture which is not a wholly-owned Subsidiary of either of the Sentio
Parties.

 

“Knowledge” means, (i) for the Company, with respect to any matter in question,
the actual knowledge of John Mark Ramsey, Sharon C. Kaiser, Scott Larche, Kevin
Thomas and any of their successors and (ii) for the Investor, with respect to
any matter in question, the actual knowledge of Billy Butcher, Peter Sundheim
and Ralph Rosenberg.

 

“Laws” will have the meaning assigned to such term in Section 3.3 hereof.

“Landlord” means any entity which is not the Company, the Partnership or a
Subsidiary and which, from which, pursuant to a Ground Lease, the Company, the
Partnership and/or any of their Subsidiaries leases or subleases any Health Care
Facility or MOB.

 

“Lease” means with respect to all the real property owned or operated by the
Sentio Parties or any of their Subsidiaries, all leases, subleases, licenses,
service agreements, concessions or other agreements granting an interest to any
Person for the use and occupancy of any portion of any of the real property
owned, leased, subleased or operated by any of the Sentio Parties or their
respective Subsidiaries which are in effect or executed as of the date of this
Agreement or which become effective or executed after the date of this
Agreement, together with all security deposits thereunder, if any, but excluding
Resident Agreements.

 

“Legal Opinions” will have the meaning assigned to such term in Section 6.1
hereof.

 

“Lien” will mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, easement, right-of-way or other encumbrance on title
to real property, Lien (statutory or other), charge, preference, priority or
other security interest or preferential arrangement in the nature of a security
interest (including any conditional sale or other title retention agreement, and
any financing lease having substantially the same economic effect as any of the
foregoing).

 

“Loan Documents” means any Contract under which indebtedness for borrowed money
is outstanding or may be incurred or that provides for a guarantee of the
obligations of any Person or pursuant to which any property or asset of any of
the Sentio Parties or their Subsidiaries is mortgaged, pledged or otherwise
subject to a Lien, or any Contract restricting the incurrence of indebtedness or
the incurrence of Liens or restricting the payment of dividends or the transfer
of any property of any of the Sentio Parties or their Subsidiaries.

 

vi

 

 

“Management Agreement” means a Management Agreement to which any of the Sentio
Parties or their Subsidiaries is a party with a Manager with respect to a Health
Care Facility.

 

“Manager” means any entity which is not the Company, the Partnership or a
Subsidiary and which, pursuant to a Management Agreement, manages on behalf of
the Company and/or its Subsidiaries any Health Care Facility which is owned
and/or leased by the Company, the Partnership and/or its Subsidiaries. For the
avoidance of doubt, all references herein to a Manager shall be limited to the
Health Care Facility managed by such Manager pursuant to the applicable
Management Agreement.

 

“Material Adverse Effect” will mean any condition, occurrence, state of facts or
event having any effect on the business, operations, properties, assets or
condition (financial or otherwise) of any of the Sentio Parties that is material
and adverse to the Sentio Parties and their Subsidiaries, taken as a whole, or
any condition, occurrence, state of facts or event that prohibits or otherwise
materially interferes with or materially delays the ability of the Sentio
Parties to perform any of their material obligations under this Agreement or the
Related Documents. A Material Adverse Effect will not include any of the
following: (i) changes in general political, economic or financial market
conditions that do not disproportionately affect the Sentio Parties and their
Subsidiaries; (ii) changes in industry conditions that do not disproportionately
affect the Sentio Parties and their Subsidiaries; (iii) changes resulting from
the parties’ compliance with the terms of this Agreement and the Related
Documents; (iv) changes in GAAP that do not disproportionately affect the Sentio
Parties and their Subsidiaries; (v) changes in Laws that do not
disproportionately affect the Sentio Parties and their Subsidiaries; (vi) acts
of God or (vii) acts of terrorism or war.

 

“Material Leases” means the following Leases (i) the triple net lease at Care
Meridian, (ii) The Speciality Hospital and Floyd Healthcare Management triple
net leases at Floyd Medical Center, (iii) the triple net lease at Baylor Rehab,
(iv) the triple net lease at Mesa Vista and (v) the leases with Medical Edge at
Hedgecoxe.

 

“MOB” means each medical office building owned by the Sentio Parties or its
Subsidiaries.

 

“OP TRS” will have the meaning assigned to such a term in Section 5.22 hereof.

 

“Organizational Documents” will mean, (a) with respect to a corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.

 

vii

 

 

“Partnership” will mean Sentio Healthcare Properties OP, L.P., a Delaware
limited partnership.

 

“Partnership Agreement” will mean the agreement of limited partnership of Sentio
Healthcare Properties OP, L.P., a Delaware limited partnership, as the same may
be amended and restated from time to time.

 

“Partnership Units” will have the meaning assigned to such term in the
Partnership Agreement.

 

“Patriot Act” will have the meaning assigned to such term in Section 3.8(a)
hereof.

 

“Payoff Amount” will have the meaning assigned to such term on Schedule 5.16(b).

 

“Permit” means any permit, license, franchise, certification, authorization,
approval, notice or registration of, by or to any Governmental Authority or
pursuant to any Law.

 

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

 

“Plan” will mean an “employee pension benefit plan” (as defined in Section 3 of
ERISA) which is or has been established or maintained, or to which contributions
are or have been made, by an the Company or any Subsidiary thereof or by any
trade or business, whether or not incorporated, which, together with the Company
or any Subsidiary thereof, is under common control, as described in Section
414(b) or (c) of the Code.

 

“Preferred Share Put Right” will have the meaning assigned to such term in
Section 1.1 hereof.

 

“Preferred Shares” will mean the preferred shares, par value $0.01 per share, of
the Company.

 

“Preferred Unit Put Right” will have the meaning assigned to such term in
Section 1.1 hereof.

 

“Prohibited Person” will have the meaning assigned to such term in Section
3.8(b) hereof.

 

“Proxy Statements” will have the meaning assigned to such term in Section
5.14(d) hereof.

 

“Put Exercise” will mean the transactions contemplated under Section 2.1 through
Section 2.4 hereof.

 

viii

 

 

“Put Exercise Amount” will mean the amount, in denominations of $100,000, of a
Put Exercise request by the Sentio Parties in a Put Exercise Notice delivered
pursuant to Section 2.1 hereof.

 

“Put Exercise Date” will have the meaning assigned to such term in Section
2.1(a) hereof.

 

“Put Exercise Notice” will have the meaning assigned to such term in Section
2.1(a) hereof.

 

“Put Period” will have the meaning assigned to such term in Section 7.1(c)
hereof.

 

“Qualifying Acquisition” will mean any single real estate properties or multiple
real estate property portfolios that meet the acquisition criteria set forth in
Exhibit F hereto.

 

“REIT” means a Person satisfying the requirements for qualification and taxation
as a real estate investment trust for United States federal income tax purposes
pursuant to Section 856 through 860 of the Code.

 

“Related Documents” will mean the Investor Rights Agreement and the Transition
to Internal Management Agreement.

 

“Remaining Put Amount” will mean, as of a given date, the difference between (i)
the Aggregate Put Right and, (ii) the aggregate Exercised Put Amount from the
Effective Date through such date.

 

“Representative” will have the meaning assigned to such term in Section 5.15(b)
hereof.

 

“Required Consents” will have the meaning assigned to such term in Schedule
5.16(a) of the Disclosure Schedules.

 

“Required Consent End Date” will mean November 10, 2013.

 

“Resident Agreements” means with respect to all the real property owned or
operated by the Sentio Parties or any of their respective Subsidiaries, those
leases, occupancy, residency, and similar written agreements entered into with
residents at any of the real property owned or operated by any of the Sentio
Parties or their respective Subsidiaries, and all amendments, modifications,
supplements, renewals, and extensions thereof (including any agreements relating
to any notes, mortgages or other security granted to the Sentio Parties or their
respective Subsidiaries in connection with any concessions of rent).

 

“Rights-of-Way” will have the meaning assigned to such term in Section 4.12
hereof.

 

“Second Anniversary” will have the meaning assigned to such term in Section
2.1(h) hereof.

 

“Securities” will have the meaning assigned to such term in the Preamble hereof.

 

ix

 

 

“Securities Act” will mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.

 

“Sentio Indemnified Party” will have the meaning assigned to such term in
Section 8.2 hereof.

 

“Series A Preferred Shares” will have the meaning assigned to such term in the
Preamble hereof.

 

“Series B Convertible Preferred Units” will have the meaning assigned to such
term in the Preamble hereof.

 

“Series C Articles Supplementary” will have the meaning assigned to such term in
Section 5.14 hereof.

 

“Series C Preferred Shares” will have the meaning assigned to such term in the
Preamble hereof.

 

“Specified Consent” will have the meaning assigned to such term on Schedule
5.16(b).

 

“SRP” will mean the Company’s stock repurchase program for existing holders of
its Common Stock.

 

“Strike” will mean a refusal by the Investor, other than as a result of the
Sentio Parties’ failure to comply with the conditions set forth in Section 6.3
hereof, to accept a Put Exercise Notice relating to a Qualifying Acquisition,
and to purchase from the Sentio Parties the Securities issuable pursuant to and
as set forth in such Put Exercise Notice; provided that no such refusal will
qualify as a strike if the Qualifying Acquisition proposed in such Put Exercise
Notice would require, in connection with the transactions contemplated thereby,
a material third party consent or the receipt or modification of, or delivery of
any notice in connection with, a Permit, unless the Investor’s obligations in
respect of such Qualifying Acquisition (including Investors obligation to pay
the applicable Put Exercise Amount and consummate the Closing thereof) are
expressly conditioned in the applicable Put Exercise Notice upon the
satisfaction of such consent or Permit requirements prior to the Closing
thereof.

 

“Strike Out” will mean the exercise of a third Strike by the Investor.

 

“Subsequent Stockholder Meetings” will have the meaning assigned to such term in
Section 5.14(c) hereof.

 

“Subsidiary” means any Person of which a majority of (a) the securities or other
ownership interest having ordinary voting power (absolutely or contingently) for
the election of directors or other Persons performing similar functions, or (b)
equity interests of such Person, in each of clause (a) or (b), are owned
directly or indirectly by the Sentio Parties.

 

“Superior Proposal” will have the meaning assigned to such term in Section
5.15(h) hereof.

 

x

 

 

“Tax” means all United States federal, state, local or foreign taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, real and personal property, profits, estimated, severance,
occupation, production, capital gains, capital stock, goods and services,
environmental, employment, withholding, stamp, value added, alternative or
add-on minimum, sales, transfer, use, license, payroll and franchise taxes or
any other tax, custom, duty or governmental fee, or other like assessment or
charge of any kind whatsoever, imposed by the United States, or any state,
county, local or foreign government or subdivision or agency thereof, and such
term shall include any interest, penalties , fines, related liabilities or
additions to tax attributable to such taxes, charges, fees, levies or other
assessments.

 

“Tax Authority” means any Governmental Authority responsible having jurisdiction
over the assessment, determination, collection or imposition of any Tax.

 

“Tax Opinion” will have the meaning assigned to such term in Section 6.1 hereof.

 

“Tax Protection Agreements” will have the meaning assigned to such term in
Section 4.14(r).

 

“Tax Return” means any report, return, declaration or other information required
to be supplied to any Tax Authority in connection with Taxes (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return and declaration of estimated Tax.

 

“Tenant” means any entity which is not the Company, the Partnership or a
Subsidiary and which, pursuant to a Lease, leases from the Company, the
Partnership and/or any of their Subsidiaries any Health Care Facility or MOB.
For the avoidance of doubt, all references herein to a Tenant shall be limited
to the Health Care Facility or MOB leased by such Tenant from the Company, the
Partnership or a Subsidiary.

 

“Termination Fee” will mean an amount equal to the sum of: (i) $1,000,000, and
(ii) the positive difference (if any) between the Expense Reimbursement Cap and
the amount of costs and expenses actually reimbursed to the Investor by the
Company pursuant to Section 9.1(a). For avoidance of doubt, in the event the
Company is obligated to pay the Termination Fee, the Investor shall also be
entitled to retain the full amount of (A) all costs and expenses actually
reimbursed to the Investor by the Company pursuant to Section 9.1(a), and (B)
the Transaction Fee.

 

“Third Anniversary” will have the meaning assigned to such term in Section
2.1(i) hereof.

 

“Transaction Fee” will have the meaning assigned to such term in Section 9.1(b)
hereof.

 

“Transfer Tax Condition” will have the meaning assigned to such term in Section
5.22 hereof.

 

“Transfer Taxes” will have the meaning assigned to such term in Section 5.19
hereof.

 

xi

 

 

“Transition to Internal Management Agreement” will have the meaning assigned to
such term in the Preamble hereof.

 

“Treasury Regulations” means the U.S. Treasury regulations promulgated under the
Code.

 

xii

 

 

ANNEX B

DISCLOSURE SCHEDULE

 

TO THE SECURITIES PURCHASE AGREEMENT

 

xiii

 

 

EXHIBIT A-1

 

SENTIO HEALTHCARE PROPERTIES, INC.

[FORM OF] articles supplementary
3% SENIOR CUMULATIVE PREFERRED STOCK, SERIES A

 

Sentio Healthcare Properties, Inc., a corporation organized and existing under
the laws of the State of Maryland (the “Corporation”), hereby certifies to the
State Department of Assessment and Taxation of Maryland that:

 

FIRST:           Pursuant to authority expressly vested in the Board of
Directors of the Corporation (the “Board”) by Article V of the charter of the
Corporation (which, as amended and supplemented from time to time, together with
these Articles Supplementary, is referred to herein as the “Charter”) and
Section 2-208 of the Maryland General Corporation Law, the Board has duly
classified and designated [●] of the authorized but unissued shares of preferred
stock of the Corporation, $0.01 par value per share (the “Preferred Stock”), as
shares of a separate class of Preferred Stock, designated as “Senior Cumulative
Preferred Stock, Series A”, with such preferences and other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption as appear below, which,
upon any restatement of the Charter, shall become a part of Article V of the
Charter (or any successor provision thereto), with any appropriate renumbering
or relettering of the sections or subsections thereof:

 

SENIOR CUMULATIVE PREFERRED STOCK, SERIES A

 

1.          Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the Corporation a series of Preferred
Stock designated as the “Senior Cumulative Preferred Stock, Series A” (“Series A
Preferred Stock”). The Series A Preferred Stock shall have a $0.01 par value per
share.

 

2.          Number of Shares. The number of shares constituting such Series A
Preferred Stock shall be [●].

 

3.          Ranking.    The Series A Preferred Stock will, with respect to
dividend rights and rights on liquidation, winding-up and dissolution of the
Corporation, rank senior to the Common Stock and each other class or series of
capital stock authorized, issued, outstanding or established after February [●],
2013, by the Corporation the terms of which do not expressly provide that it
ranks on a parity with or senior to the Series A Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution of the Corporation.
Any shares of such capital stock that rank on a parity with the Series A
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Corporation are collectively referred to as “Parity
Securities”, and any shares of such capital stock that rank junior to the Series
A Preferred Stock as to dividend rights and rights on liquidation, winding-up
and dissolution of the Corporation are collectively referred to as “Junior
Securities”. Except as may be provided in the Investor Rights Agreement, the
Corporation has the right to authorize and/or issue additional shares or classes
or series of Junior Securities without the consent of the Holders.

 

4.          Dividend Rights.

 

(a)          (i)          The Holders shall be entitled to receive, when, as and
if declared by the Board or a duly authorized committee of the Board, out of any
funds legally available therefor and in preference to dividends on any Junior
Securities, dividends of the type and in the amount determined as set forth in
this Section 4, and no more. Such dividends shall be payable annually in arrears
on each anniversary of [●], 2013 (each, a “Dividend Payment Date”) or, if any
such day is not a Business Day, the preceding Business Day.

 

A-1-1

 

 

(ii)         The Holders shall be entitled to cumulative dividends from the date
of issuance payable in cash at a rate per annum equal to 3 percent of the
Liquidation Preference for each share of Series A Preferred Stock issued.
Dividends payable on the Series A Preferred Stock shall be computed on the basis
of a 360-day year consisting of twelve 30-day months and shall be deemed to
accumulate on a daily basis.

 

(iii)        To the extent not paid pursuant to this Section 4(a), dividends on
the Series A Preferred Stock shall accumulate for each Dividend Period, whether
or not there are funds legally available for the payment of such dividends and
whether or not dividends are declared. Accrued but unpaid dividends for any past
Dividend Periods may be declared by the Board and paid on any date fixed by the
Board, whether or not a regular Dividend Payment Date, to the Holders of record
on the books of the Corporation on such record date as may be fixed by the
Board.

 

(b)          If and to the extent the Corporation does not pay in full the
entire dividend contemplated by Section 4(a) in cash on a Dividend Payment Date
in accordance with Section 4(a) hereof, the unpaid amount of such dividend
(calculated using the dividend rate set forth in Section 4(a)(ii)), until paid,
shall be added to the Liquidation Preference in accordance with the definition
thereof.

 

(c)          Whenever dividends on the Series A Preferred Stock are in arrears,
the Corporation shall not declare or pay, or set apart for payment, dividends
with respect to, or redeem, purchase or acquire any of, its Junior Securities,
other than dividends paid in Junior Securities.

 

(d)          Each dividend will be payable to the Holders of record as they
appear in the records of the Corporation at the close of business on the same
record date (each, a “Record Date”), which shall be the fifth Business Day prior
to the relevant Dividend Payment Date or (ii) in the case of dividends declared
by the Board pursuant to Section 4(a)(iii), no more than 60 days prior to the
payment date thereof.

 

5.        Liquidation.

 

(a)          In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation (a “Liquidation”),
the Holders shall be entitled to receive out of the assets of the Corporation or
proceeds thereof legally available for distribution to stockholders of the
Corporation, after satisfaction of all liabilities, if any, to creditors of the
Corporation and subject to Section 5(b) and before any distribution of such
assets or proceeds is made to or set aside for the holders of Junior Securities,
a liquidating distribution in an amount equal to the Liquidation Preference per
share, together with an amount equal to all dividends or other distributions, if
any, that have been accrued or declared but not paid (or included in an increase
to the Liquidation Preference) on the shares of Series A Preferred Stock prior
to the date of payment of such distribution (including any accumulation in
respect of dividends that have not been declared prior to such payment date).
After payment of the full amount of such liquidation distribution, the Holders
shall not be entitled to any further participation in any distribution of assets
by the Company. A Reorganization Event (as defined in Section 8) shall be deemed
a Liquidation, unless in accordance with the last sentence of Section 8(a) a
majority of the outstanding shares of Series A Preferred Stock elect in a
writing delivered to the Company prior to the closing of such Reorganization
Event to not treat such Reorganization Event as a Liquidation pursuant to
Section 8(a). The Corporation shall mail written notice of any such Liquidation,
not less than 20 days prior to the payment date stated therein, to each holder
of Series A Preferred Stock. If a Reorganization Event involves consideration
other than cash, the liquidating distribution amounts described above shall be
calculated using the Market Value of such non-cash consideration.

 

A-1-2

 

 

(b)          In the event the assets of the Corporation available for
distribution to stockholders upon any liquidation, dissolution or winding-up of
the affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full the amounts payable with respect to all outstanding
shares of the Series A Preferred Stock and any outstanding Parity Securities,
the Holders and the owners of the Parity Securities shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
liquidating distributions to which they would otherwise be respectively
entitled.

 

6.          Maturity. The Series A Preferred Stock shall be perpetual.

 

7.          Redemption. Except as may be provided in Sections 6.3(a) and
7.1(e)(ii) of the Securities Purchase Agreement, Sections 3.2(v), 6.1(c) and
6.1(d) of the Investor Rights Agreement or Section 9.2(d)(iv)(C) of the
Partnership Agreement, the Series A Preferred Stock shall not be subject to
mandatory redemption, sinking fund or other similar provisions.

 

8.          Reorganization Events.

 

(a)          In the event that, with respect to the shares of Series A Preferred
Stock of any Holder there occurs:

 

(i)          any consolidation, merger or other similar business combination of
the Corporation with or into another Person, in each case pursuant to which the
Common Stock will be converted into cash, securities or other property of the
Corporation or another Person;

 

(ii)         any sale, transfer, lease or conveyance to another Person of all or
substantially all of the property and assets of the Corporation, in each case
pursuant to which the Common Stock will be converted into cash, securities or
other property of the Corporation or another Person;

 

(iii)        any reclassification of the outstanding Common Stock into
securities, including securities other than the Common Stock; or

 

(iv)         any statutory exchange of the outstanding shares of Common Stock
for securities of another Person (other than in connection with a merger or
acquisition);

 

(any such event specified in this Section 8(a), a “Reorganization Event”); then,
in the case of a Reorganization Event described in Section 8(a)(i) or (ii) that
involves only cash consideration such Reorganization Event shall be a deemed
Liquidation as described in Section 5. For each other Reorganization Event, the
holders of a majority of the outstanding shares of Series A Preferred Stock may
elect to not treat such Reorganization Event as a deemed Liquidation but instead
convert their shares of Series A Preferred Stock into a new class of preferred
stock in the surviving corporation or the acquiring person, as applicable,
having the same then applicable Liquidation Preference and as nearly identical
terms as possible to the terms of the Series A Preferred Stock.

 

(b)          In the event that (i) the Holders do not make the election
described in Section 8(a) above and (ii) holders of the shares of Common Stock
have the opportunity to elect the form of consideration to be received in such
transaction, the Holders shall also be entitled to make an election with respect
to such consideration.

 

(c)          The above provisions of this Section 8 shall similarly apply to
successive Reorganization Events.

 

(d)          The Corporation shall not enter into any agreement for a
transaction constituting a Reorganization Event (other than a Reorganization
Event described in Section 8(a)(i) or (ii) that involves only cash
consideration) unless such agreement (i) provides for the election to receive
shares of the newly created preferred stock as described in Section 8(a) above
and (ii) absent such election by the Holders, provides for or does not interfere
with the deemed Liquidation described in Section 5.

 

A-1-3

 

 

9.          Voting Rights.

 

(a)          Except as provided by law or as otherwise expressly provided herein
(including, without limitation, as expressly provided in this Section 9) or in
the Transaction Documents, the Holder of each share of Series A Preferred Stock
shall have no voting rights.

 

(b)           So long as any shares of Series A Preferred Stock are outstanding,
the affirmative vote or consent of a majority of the shares of Series A
Preferred Stock at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose, will
be necessary for effecting or validating any of the following actions, whether
or not such approval is required by law:

 

(i)          any amendment, alteration or repeal (including by means of a
merger, consolidation or otherwise) of any provision of the Charter or bylaws of
the Corporation that would alter or change the preferences or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of the Series A Preferred
Stock so as to affect them adversely;

 

(ii)         increase or decrease the total number of authorized shares of
Series A Preferred Stock or issue additional shares of Series A Preferred Stock;

 

(iii)        authorize or issue, or obligate itself to issue, any equity
security (including any security convertible into or exercisable for any such
equity security) that constitutes a Parity Security or that has a preference
over the Series A Preferred Stock with respect to dividend rights and rights on
liquidation, winding up and dissolution of the Corporation;

 

(iv)         redeem, purchase or otherwise acquire (or pay into or set aside for
a sinking fund for such purpose) any Series A Preferred Stock or any Parity
Securities or Junior Securities (including Common Stock) except (A) pursuant to
the Corporation’s stock repurchase program during the periods, in the manner and
subject to the terms, conditions and limitations expressly contemplated by
Section 5.13 of the Securities Purchase Agreement and (B) redemption, purchase
or other acquisition of Series A Preferred Stock expressly contemplated hereby
or by the Securities Purchase Agreement, the Investor Rights Agreement or the
Partnership Agreement, in each case as in effect on the date upon which shares
of Series A Preferred Stock are first issued or as amended with the consent of a
majority of the Holders of the Series A Preferred Stock;

 

(v)         prior to the termination of the Investor Rights Agreement in
accordance with its terms, each of the actions the Corporation has covenanted
and agreed not to take without the prior approval of certain Holders of Series A
Preferred Stock pursuant to Section 3.2 or Section 3.3 of the Investor Rights
Agreement.

 

(c)          (i)          The Holders of the Series A Preferred Stock, voting
together as a separate class, are entitled to elect the following number of
directors to the Board (in addition to any Additional Preferred Stock Directors)
at any special or annual meeting of stockholders of the Corporation called for
the purpose of electing directors or at any special meeting of the Holders of
Series A Preferred Stock or by written consent in lieu thereof:

 

(A)         subject to the proviso to this Section 9(c)(i), at any time that the
Board is comprised of nine or fewer directors (including vacancies, but
excluding Additional Preferred Stock Directors) and the Holders’ Percentage
Interest is less than 40%, the Holders of the Series A Preferred Stock are
entitled to elect two directors to the Board;

 

(B)         at any time that the Board is comprised of ten or more directors
(including vacancies, but excluding Additional Preferred Stock Directors) and
the Holders’ Percentage Interest is less than 40%, the Holders of the Series A
Preferred Stock are entitled to elect directors representing 30% of the Board
(including vacancies, but excluding Additional Preferred Stock Directors),
rounded up to the nearest whole number;

 

A-1-4

 

 

(C)         at any time that the Holders’ Percentage Interest is 40% or more,
but less than 50.01%, the Holders of the Series A Preferred Stock are entitled
to elect directors representing 40% of the Board (including vacancies, but
excluding Additional Preferred Stock Directors), rounded up to the nearest whole
number; and

 

(D)         at any time that the Holders’ Percentage Interest is 50.01% or more,
the Holders of the Series A Preferred Stock are entitled to elect directors
representing 60% of the Board (including vacancies, but excluding Additional
Preferred Stock Directors), rounded up to the nearest whole number;

 

provided that, the Holders of the Series A Preferred Stock will be entitled to
elect at least three directors to the Board (without limiting their right to
elect more directors pursuant to the foregoing provisions of this Section
9(c)(i)) upon and after receipt by the Corporation of a written request therefor
from a majority of such Holders.

 

(ii) If and when dividends on the Series A Preferred Stock have not been
declared and paid in full for at least two consecutive Dividend Payment Dates or
their equivalents, the authorized number of directors then constituting the
Board shall automatically be increased by two and, notwithstanding anything to
the contrary herein or in the bylaws of the Corporation, the Holders of Series A
Preferred Stock, voting together as a single class, shall be entitled to elect
directors to fill such newly created board vacancies (such new directors, the
“Additional Preferred Stock Directors”). Thereafter, at such time as full
dividends have been paid in respect of the Series A Preferred Stock (including
amounts accumulated and previously undeclared or unpaid thereon) for at least
two consecutive Dividend Payment Dates, the rights of the holders of Series A
Preferred Stock to elect the Additional Preferred Stock Directors shall cease,
the term of the Additional Preferred Stock Directors shall automatically expire,
the Additional Preferred Stock Directors shall be automatically removed from the
Board immediately thereafter and the authorized number of directors then
constituting the Board shall be automatically reduced by two to eliminate the
vacancies created by such removals, in each case unless as otherwise set forth
in the Transaction Documents.

 

(iii)        At any time after the holders of Series A Preferred Stock have
power to vote for Preferred Stock Directors and such power is continuing, the
Secretary of the Corporation may, and upon the written request of Holders of a
majority of the outstanding shares of Series A Preferred Stock (addressed to the
Secretary of the Corporation) must, call a special meeting of the Holders of
Series A Preferred Stock for the election of the Preferred Stock Directors.
Notice for such special meeting will be given in the manner provided in the
bylaws of the Corporation for a special meeting of the stockholders, or as
required by law, and shall set forth reasonable procedures for the nomination of
Preferred Stock Directors by Holders of the Series A Preferred Stock. If the
Secretary of the Corporation is required to call a meeting but does not do so
within 20 days after receipt of any such request, then any Holder of Series A
Preferred Stock may (at the Corporation’s expense, and on behalf of, and in the
name of, the Secretary of the Corporation) call such meeting, upon providing
notice pursuant to the preceding sentence and, for that purpose, will be granted
access to the Corporation’s share transfer books and to any other materials used
to determine the current names and addresses of its holders of capital stock in
connection with providing notice of and conducting a special meeting pursuant to
the Corporation’s bylaws. For purposes of any election of one or more Preferred
Stock Directors, the holders of the Series A Preferred Stock shall vote alone as
a separate class and no other class or series of capital stock shall be entitled
to participate in such election. Except as otherwise provided in Section
9(c)(ii), each Preferred Stock Director elected at any meeting of the holders of
the Series A Preferred Stock or the holders of capital stock shall hold office
until the next annual meeting of holders of capital stock and until his
successor shall have been elected and qualified or until his earlier
resignation, removal from office by the holders of shares of Series A Preferred
Stock or death. In case any vacancy occurs among the Preferred Stock Directors,
a successor shall be elected by a majority of the then remaining Preferred Stock
Directors or, if none remains in office, by the vote of the Holders of a
majority of the voting power of the then outstanding shares of Series A
Preferred Stock. The Preferred Stock Directors shall each be entitled to one
vote per director on any matter presented to the Board for a vote.

 

A-1-5

 

 

10.         Replacement Certificates. The Corporation shall replace any
mutilated certificate at the Holder’s expense upon surrender of that certificate
to the Corporation. The Corporation shall replace certificates that become
destroyed, stolen or lost at the Holder’s expense upon delivery to the
Corporation of satisfactory evidence that the certificate has been destroyed,
stolen or lost, together with any indemnity that may be required by the
Corporation.

 

11.         Miscellaneous.

 

(a)          All notices referred to herein shall be in writing, and, unless
otherwise specified herein, all notices hereunder shall be deemed to have been
given upon the earlier of receipt thereof or three Business Days after the
mailing thereof if sent by registered or certified mail (unless first-class mail
shall be specifically permitted for such notice under the terms of the Charter)
with postage prepaid, addressed: (i) if to the Corporation, to its office at 189
South Orange Avenue, Suite 1700, Orlando, Florida, Attention: Chief Executive
Officer, or (ii) if to any Holder, to such Holder at the address of such Holder
as listed in the stock record books of the Corporation, or (iii) to such other
address as the Corporation or any such Holder, as the case may be, shall have
designated by notice similarly given.

 

(b)          The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series A Preferred Stock or shares of Common Stock or
other securities issued on account of Series A Preferred Stock pursuant hereto
or certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax that may be payable in respect of
any transfer involved in the issuance or delivery of shares of Series A
Preferred Stock or Common Stock or other securities in a name other than that in
which the shares of Series A Preferred Stock with respect to which such shares
or other securities are issued or delivered were registered, or in respect of
any payment to any Person other than a payment to the registered holder thereof,
and shall not be required to make any such issuance, delivery or payment unless
and until the Person otherwise entitled to such issuance, delivery or payment
has paid to the Corporation the amount of any such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid or is not
payable.

 

(c)          No share of Series A Preferred Stock shall have any rights of
preemption whatsoever as to any securities of the Corporation, or any warrants,
rights or options issued or granted with respect thereto, regardless of how such
securities, or such warrants, rights or options, may be designated issued or
granted; provided, however, that the Investor Rights Agreement provides the
Holders of the Series A Preferred Stock with a participation right in the case
of any issuance of new equity securities by the Company, subject to and in
accordance with the terms and conditions set forth therein.

 

(d)          The shares of Series A Preferred Stock shall not have any voting
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein, in the Transaction Documents or in the Charter or as provided
by applicable law.

 

(e)          Without the approval of the holders of a majority of the then
outstanding shares of Series A Preferred Stock, the Corporation will not, by
amendment of the Charter or through any recapitalization, reorganization,
transfer of assets, consolidation, merger, statutory share exchange,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of these Articles Supplementary
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holders of the Series A Preferred Stock against
impairment.

 

A-1-6

 

 

12.         Definitions. Unless the context or use indicates another meaning or
intent, the following capitalized terms shall have the meanings set forth below,
whether used in the singular or the plural:

 

“Additional Preferred Stock Director” has the meaning set forth in Section 9(c).

 

“Assumed Conversion Rate” means a fraction, the denominator of which is the
Market Value of each share of Common Stock, and the numerator of which is the
Liquidation Preference for each share of Series A Preferred Stock.

 

“Board” means the Board of Directors of the Corporation.

 

“Business Day” means each day of the calendar year other than a Saturday, Sunday
or any other day on which banks are required or authorized to close in the State
of New York.

 

“Dividend Payment Date” has the meaning set forth in Section 4(a).

 

“Holder” means the Person in whose name the shares of the Series A Preferred
Stock are registered, which may be treated by the Corporation as the absolute
owner of the shares of Series A Preferred Stock for the purpose of making
payment and for all other purposes.

 

“Holders’ Percentage Interest” means, as of any determination date, a fraction,
expressed as a percentage, equal to (x) the number of shares of Common Stock
then held by the Holders, the Permitted Transferees and their respective
Affiliates divided by (y) the number of shares of Common Stock then outstanding.
Solely for purposes of this definition, Common Stock will be deemed to be “held”
by any Person or “outstanding”, in each case, if such Common Stock would be held
by such Person or outstanding after giving effect to the conversion or exchange,
in accordance with their terms, of any and all securities then convertible or
exchangeable, directly or indirectly, into Common Stock, but without giving
effect to any limitations on such conversion or exchange applicable as a result
of the Aggregate Stock Ownership Limit, the Common Stock Ownership Limit or any
comparable limitations. Solely for purposes of determining the Holders’
Percentage Interest, each share of Series A Preferred Stock will be deemed
convertible into shares of Common Stock at the Assumed Conversion Rate.

 

“Independent Investment Banking Firm” means an investment banking firm of
nationally recognized standing that is, in the reasonable judgment of the Person
engaging such firm, qualified to perform the task for which it has been engaged.

 

“Investor Rights Agreement” means the Investor Rights Agreement, dated as of
February [●], 2013, by and among the Corporation, Sentinel RE Investment
Holdings LP and Sentio Healthcare Properties OP, L.P., as may be amended from
time to time.

 

“Issuance Price” means the issuance price for any share of Series A Preferred
Stock.

 

“Junior Securities” has the meaning set forth in Section 3.

 

“Liquidation Preference” means, with respect to the Series A Preferred Stock,
the actual Issuance Price of each share of Series A Preferred Stock (as adjusted
for any split, subdivision, combination, consolidation, recapitalization or
similar event with respect to the Series A Preferred Stock), as further adjusted
pursuant to Section 4(b) from time to time.

 

“Market Value” means, as of any determination date, with respect to Common Stock
(or other relevant capital stock, equity interest or other property) the fair
market value thereof as determined by an Independent Investment Banking Firm
selected by a majority of the Preferred Stock Directors and reasonably
acceptable to the Corporation. The Corporation shall bear the fees and expenses
of any Independent Investment Banking Firm involved in the determination of
Market Value.

 

A-1-7

 

 

“Partnership Agreement” means the Second Amended and Restated Limited
Partnership Agreement of Sentio Healthcare Properties OP, L.P., a Delaware
limited partnership, made and entered into effective as of [●], 2013, as may be
amended from time to time.

 

“Permitted Transferee” has the meaning set forth in the Investor Rights
Agreement.

 

“Person” means any individual, corporation, association, partnership (general or
limited), bank, savings association, joint venture, trust, estate, limited
liability company or other legal entity or organization.

 

“Preferred Stock Director” means any director subject to election by the Holders
of the Series A Preferred Stock, voting together as a separate class, pursuant
to Section 9(c) hereof including, without limitation, the Additional Preferred
Stock Directors.

 

“Record Date” has the meaning set forth in Section 4(d).

 

“Reorganization Event” has the meaning set forth in Section 8(a).

 

“Securities Purchase Agreement” means the Securities Purchase Agreement, dated
as of February [●], 2013, by and among the Corporation, Sentio Healthcare
Properties OP, L.P. and Sentinel RE Investment Holdings LP, as may be amended
from time to time.

 

“Series A Preferred Stock” has the meaning set forth in Section 1.

 

“Transaction Documents” means the Securities Purchase Agreement and the Investor
Rights Agreement.

 

A-1-8

 

 

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to
be signed in its name and on its behalf on this [●] day of [●], 2013, by its
[●], who acknowledges that these Articles Supplementary are the act of the
Corporation and that, to the best of [his][her] knowledge, information and
belief and under penalties for perjury, all matters and facts contained in these
Articles Supplementary are true in all material respects.

 

  SENTIO HEALTHCARE PROPERTIES, INC.           Name: [●]   Title: [●]        
ATTEST           Name: [●]   Title: [●]

 

A-1-9

 

 

EXHIBIT A-2

 

SENTIO HEALTHCARE PROPERTIES, INC.
[FORM OF] articles supplementary
3% SENIOR CUMULATIVE PREFERRED STOCK, SERIES C

 

Sentio Healthcare Properties, Inc., a corporation organized and existing under
the laws of the State of Maryland (the “Corporation”), hereby certifies to the
State Department of Assessment and Taxation of Maryland that:

 

FIRST:           Pursuant to authority expressly vested in the Board of
Directors of the Corporation (the “Board”) by Article V of the charter of the
Corporation (which, as amended and supplemented from time to time, together with
these Articles Supplementary, is referred to herein as the “Charter”) and
Section 2-208 of the Maryland General Corporation Law, the Board has duly
classified and designated [●] of the authorized but unissued shares of preferred
stock of the Corporation, $0.01 par value per share (the “Preferred Stock”), as
shares of a separate class of Preferred Stock, designated as “Senior Cumulative
Preferred Stock, Series C”, with such preferences and other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption as appear below, which,
upon any restatement of the Charter, shall become a part of Article V of the
Charter (or any successor provision thereto), with any appropriate renumbering
or relettering of the sections or subsections thereof:

 

SENIOR CUMULATIVE PREFERRED STOCK, SERIES C

 

1.          Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the Corporation a series of Preferred
Stock designated as the “Senior Cumulative Preferred Stock, Series C” (“Series C
Preferred Stock”). The Series C Preferred Stock shall have a $0.01 par value per
share.

 

2.          Number of Shares. The number of shares constituting such Series C
Preferred Stock shall be [●].

 

3.          Ranking.    The Series C Preferred Stock will, with respect to
dividend rights and rights on liquidation, winding-up and dissolution of the
Corporation, rank senior to the Common Stock and each other class or series of
capital stock authorized, issued, outstanding or established after February [●],
2013, by the Corporation the terms of which do not expressly provide that it
ranks on a parity with or senior to the Series C Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution of the Corporation.
Any shares of such capital stock that rank on a parity with the Series C
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Corporation are collectively referred to as “Parity
Securities”, and any shares of such capital stock that rank junior to the Series
C Preferred Stock as to dividend rights and rights on liquidation, winding-up
and dissolution of the Corporation are collectively referred to as “Junior
Securities”. Except as may be provided in the Investor Rights Agreement, the
Corporation has the right to authorize and/or issue additional shares or classes
or series of Junior Securities without the consent of the Holders.

 

4.          Dividend Rights.

 

(a)          (i)          The Holders shall be entitled to receive, when, as and
if declared by the Board or a duly authorized committee of the Board, out of any
funds legally available therefor and in preference to dividends on any Junior
Securities, dividends of the type and in the amount determined as set forth in
this Section 4, and no more. Such dividends shall be payable annually in arrears
on each anniversary of [●], 2013 (each, a “Dividend Payment Date”) or, if any
such day is not a Business Day, the preceding Business Day.

 

A-2-1

 

 

(ii)         The Holders shall be entitled to cumulative dividends from the date
of issuance payable in cash at a rate per annum equal to 3 percent of the
Liquidation Preference for each share of Series C Preferred Stock issued.
Dividends payable on the Series C Preferred Stock shall be computed on the basis
of a 360-day year consisting of twelve 30-day months and shall be deemed to
accumulate on a daily basis.

 

(iii) To the extent not paid pursuant to this Section 4(a), dividends on the
Series C Preferred Stock shall accumulate for each Dividend Period, whether or
not there are funds legally available for the payment of such dividends and
whether or not dividends are declared. Accrued but unpaid dividends for any past
Dividend Periods may be declared by the Board and paid on any date fixed by the
Board, whether or not a regular Dividend Payment Date, to the Holders of record
on the books of the Corporation on such record date as may be fixed by the
Board.

 

(b)          If and to the extent the Corporation does not pay in full the
entire dividend contemplated by Section 4(a) in cash on a Dividend Payment Date
in accordance with Section 4(a) hereof, the unpaid amount of such dividend
(calculated using the dividend rate set forth in Section 4(a)(ii)), until paid,
shall be added to the Liquidation Preference in accordance with the definition
thereof.

 

(c)          Whenever dividends on the Series C Preferred Stock are in arrears,
the Corporation shall not declare or pay, or set apart for payment, dividends
with respect to, or redeem, purchase or acquire any of, its Junior Securities,
other than dividends paid in Junior Securities.

 

(d)          Each dividend will be payable to the Holders of record as they
appear in the records of the Corporation at the close of business on the same
record date (each, a “Record Date”), which shall be (i) the fifth Business Day
prior to the relevant Dividend Payment Date or (ii) in the case of dividends
declared by the Board pursuant to Section 4(a)(iii), no more than 60 days prior
to the payment date thereof.

 

5.          Liquidation.

 

(a)          In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation (a “Liquidation”),
the Holders shall be entitled to receive out of the assets of the Corporation or
proceeds thereof legally available for distribution to stockholders of the
Corporation, after satisfaction of all liabilities, if any, to creditors of the
Corporation and subject to Section 5(b) and before any distribution of such
assets or proceeds is made to or set aside for the holders of Junior Securities,
a liquidating distribution in an amount equal to the Liquidation Preference per
share, together with an amount equal to all dividends or other distributions, if
any, that have been accrued or declared but not paid (or included in an increase
to the Liquidation Preference) on the shares of Series C Preferred Stock prior
to the date of payment of such distribution (including any accumulation in
respect of dividends that have not been declared prior to such payment date).
After payment of the full amount of such liquidation distribution, the Holders
shall not be entitled to any further participation in any distribution of assets
by the Company. A Reorganization Event (as defined in Section 8) shall be deemed
a Liquidation, unless in accordance with the last sentence of Section 8(a) a
majority of the outstanding shares of Series C Preferred Stock elect in a
writing delivered to the Company prior to the closing of such Reorganization
Event to not treat such Reorganization Event as a Liquidation pursuant to
Section 8(a). The Corporation shall mail written notice of any such Liquidation,
not less than 20 days prior to the payment date stated therein, to each holder
of Series C Preferred Stock. If a Reorganization Event involves consideration
other than cash, the liquidating distribution amounts described above shall be
calculated using the Market Value of such non-cash consideration.

 

A-2-2

 

 

(b)          In the event the assets of the Corporation available for
distribution to stockholders upon any liquidation, dissolution or winding-up of
the affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full the amounts payable with respect to all outstanding
shares of the Series C Preferred Stock and any outstanding Parity Securities,
the Holders and the owners of the Parity Securities shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
liquidating distributions to which they would otherwise be respectively
entitled.

 

6.          Maturity. The Series C Preferred Stock shall be perpetual.

 

7.          Redemption.

 

(a)          Except as may be provided in this Section 7 or otherwise in
Sections 6.3(a) and 7.1(e)(ii) of the Securities Purchase Agreement, Sections
3.2(v), 6.1(c) and 6.1(d) of the Investor Rights Agreement or Section
9.2(d)(iv)(C) of the Partnership Agreement, the Series C Preferred Stock shall
not be subject to mandatory redemption, sinking fund or other similar
provisions.

 

(b)          (i)          (A) The Corporation may (but is not required to)
redeem the all, but not less than all, of the then outstanding Series C
Preferred Stock at the Redemption Price (allocated pro rata among the Holders of
Series C Preferred Stock) if (A) the Market Value of the Series C Preferred
Stock exceeds 9.6% of the Market Value of all of the then-outstanding capital
stock of the Corporation (the “Redemption Threshold”) and (B) solely as a result
of any Holder’s ownership of such Series C Preferred Stock, the Company would,
in the reasonable judgment of the Board, fail to qualify as a REIT (any such
Holder, a “Disqualifying Holder”).

 

(B) Notwithstanding the foregoing, the Corporation’s right of redemption
hereunder shall not be exercisable if the Disqualifying Holder executes and
delivers to the Corporation an ownership limit waiver certificate in the form
set forth in Exhibit C to the Partnership Agreement (an “Ownership Limit
Waiver”) or a TRS Notice (as defined below).

 

(C) If such Holder is unable to execute and deliver the Ownership Limit Waiver,
such Holder (or its Affiliate) shall have the option of exercising its rights
under Section 8.5(c) of the Partnership Agreement (a “TRS Notice”), in which
case the Corporation no longer shall have the right to redeem the
then-outstanding shares of Series C Preferred Stock;

 

(ii)         The Corporation shall determine the Market Value of all of the
then-outstanding Series C Preferred Stock and the Market Value of all of the
then-outstanding capital stock of the Corporation annually (each date of such
determination, a “Market Value Determination Date”), with the first such Market
Value Determination Date occurring during the calendar month in which the
one-year anniversary of the initial issuance of the Series C Preferred Stock
occurs. The Corporation will cause any Independent Investment Banking Firm
responsible for conducting the foregoing Market Value determinations to prepare
and deliver to the Corporation concurrently with such Market Value
determinations a determination of the cash portion of the aggregate Redemption
Price payable in respect of any redemption under this Section 7(b) resulting
from such Market Value determinations; provided that no such determination of
Redemption Price is required if such Market Value determinations indicate that
the Redemption Threshold has not been exceeded.

 

A-2-3

 

 

(iii)        (A)         Notice of every redemption of shares of Series C
Preferred Stock hereunder shall be given by first class mail or other reasonable
means to the Holders of the shares of Series C Preferred Stock to be redeemed at
their respective last addresses appearing on the books of the Corporation. Such
mailing shall be no more than ten days following the Market Value Determination
Date giving rise to such redemption and no less than thirty days and no more
than sixty days before the Redemption Date. Any notice mailed or delivered as
provided in this subsection shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice, but failure duly to give
such notice, or any defect in such notice or in the mailing or delivery thereof,
to any holder of shares of Series C Preferred Stock designated for redemption
shall not affect the validity of the proceedings for the redemption of any other
shares of Series C Preferred Stock. Each such notice of redemption given to a
holder shall state: (1) the date upon which the shares of Series C Preferred
Stock are to be redeemed (the “Redemption Date”); (2) the Redemption Price
payable to such Holder; and (3) the place or places where certificates for such
shares are to be surrendered for payment of the Redemption Price.

 

(B)         As promptly as reasonably practicable after any Market Value
Determination Date, and in any event no later than the date of delivery of a
notice of redemption pursuant to Section 7(b)(iii)(A), the Corporation shall
notify the applicable Disqualifying Holder of its rights, pursuant to Sections
7(b)(i)(B) and (C) hereunder, to deliver an Ownership Limit Waiver and a TRS
Notice to the Corporation. If, at any time prior to the Redemption Date, the
Disqualifying Holder delivers a duly executed Ownership Limit Waiver or a TRS
Notice, the Corporation will promptly deliver a notice of cancellation of
redemption to the Holders of Series C Preferred Stock and return any
certificates representing shares of Series C Preferred Stock then or thereafter
delivered to the Corporation for surrender on the Redemption Date so cancelled.

 

(iv)         The portion of the aggregate Redemption Price payable to each
Holder for the shares of Series C Preferred Stock held by such Holder shall be
payable to such Holder on the Redemption Date against surrender of the
certificate(s) evidencing such shares to the Corporation or its agent or the
delivery by such Holder of an executed affidavit of lost or destroyed
certificates in form and substance reasonably acceptable to the Corporation. The
cash portion of the Redemption Price payable to each Holder of Series C
Preferred Stock shall be paid by wire transfer of immediately available funds to
the account or accounts specified by such Holder to the Corporation in writing.

 

8.          Reorganization Events.

 

(a)          In the event that, with respect to the shares of Series C Preferred
Stock of any Holder there occurs:

 

(i)          any consolidation, merger or other similar business combination of
the Corporation with or into another Person, in each case pursuant to which the
Common Stock will be converted into cash, securities or other property of the
Corporation or another Person;

 

(ii)         any sale, transfer, lease or conveyance to another Person of all or
substantially all of the property and assets of the Corporation, in each case
pursuant to which the Common Stock will be converted into cash, securities or
other property of the Corporation or another Person;

 

(iii)        any reclassification of the outstanding Common Stock into
securities, including securities other than the Common Stock; or

 

(iv)         any statutory exchange of the outstanding shares of Common Stock
for securities of another Person (other than in connection with a merger or
acquisition);

 

(any such event specified in this Section 8(a), a “Reorganization Event”); then,
in the case of a Reorganization Event described in Section 8(a)(i) or (ii) that
involves only cash consideration such Reorganization Event shall be a deemed
Liquidation as described in Section 5. For each other Reorganization Event, the
holders of a majority of the outstanding shares of Series C Preferred Stock may
elect to not treat such Reorganization Event as a deemed Liquidation but instead
convert their shares of Series C Preferred Stock into a new class of preferred
stock in the surviving corporation or the acquiring person, as applicable,
having the same then applicable Liquidation Preference and as nearly identical
terms as possible to the terms of the Series C Preferred Stock.

 

A-2-4

 

 

(b)          In the event that (i) the Holders do not make the election
described in Section 8(a) above and (ii) holders of the shares of Common Stock
have the opportunity to elect the form of consideration to be received in such
transaction, the Holders shall also be entitled to make an election with respect
to such consideration.

 

(c)          The above provisions of this Section 8 shall similarly apply to
successive Reorganization Events.

 

(d)          The Corporation shall not enter into any agreement for a
transaction constituting a Reorganization Event (other than a Reorganization
Event described in Section 8(a)(i) or (ii) that involves only cash
consideration) unless such agreement (i) provides for the election to receive
shares of the newly created preferred stock as described in Section 8(a) above
and (ii) absent such election by the Holders, provides for or does not interfere
with the deemed Liquidation described in Section 5.

 

9.          Voting Rights.

 

(a)          Except as provided by law or as otherwise expressly provided herein
(including, without limitation, as expressly provided in this Section 9) or in
the Transaction Documents, the Holder of each share of Series C Preferred Stock
shall have the right to one vote for each share of As-Converted Common Stock
held by such Holder and (without duplication) its Affiliates and with respect to
such vote, such Holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders’ meeting in
accordance with the bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock as a single class, with respect to any
question upon which holders of Common Stock have the right to vote including,
without limitation, the election of directors.

 

(b)           So long as any shares of Series C Preferred Stock are outstanding,
the affirmative vote or consent of a majority of the shares of Series C
Preferred Stock at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose, will
be necessary for effecting or validating any of the following actions, whether
or not such approval is required by law:

 

(i)          any amendment, alteration or repeal (including by means of a
merger, consolidation or otherwise) of any provision of the Charter or the
bylaws of the Corporation that would alter or change the preferences or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of the Series
C Preferred Stock so as to affect them adversely;

 

(ii)         increase or decrease the total number of authorized shares of
Series C Preferred Stock or issue additional shares of Series C Preferred Stock;

 

(iii)        authorize or issue, or obligate itself to issue, any equity
security (including any security convertible into or exercisable for any such
equity security) that constitutes a Parity Security or that has a preference
over the Series C Preferred Stock with respect to dividend rights and rights on
liquidation, winding up and dissolution of the Corporation;

 

(iv)         redeem, purchase or otherwise acquire (or pay into or set aside for
a sinking fund for such purpose) any Series C Preferred Stock or any Parity
Securities or Junior Securities (including Common Stock) except (A) pursuant to
the Corporation’s stock repurchase program during the periods, in the manner and
subject to the terms, conditions and limitations expressly contemplated by
Section 5.13 of the Securities Purchase Agreement and (B) redemption, purchase
or other acquisitions of Series C Preferred Stock expressly contemplated hereby
or by the Securities Purchase Agreement, the Investor Rights Agreement or the
Partnership Agreement, in each case as in effect on the date upon which shares
of Series C Preferred Stock are first issued or as amended with the consent of a
majority of the Holders of the Series C Preferred Stock;

 

A-2-5

 

 

(v)           prior to the termination of the Investor Rights Agreement in
accordance with its terms, each of the actions the Corporation has covenanted
and agreed not to take without the prior approval of certain Holders of Series C
Preferred Stock pursuant to Section 3.2 or Section 3.3 of the Investor Rights
Agreement.

 

(c)          (i)          The Holders of the Series C Preferred Stock, voting
together as a separate class, are entitled to elect the following number of
directors to the Board (in addition to any Additional Preferred Stock Directors)
at any special or annual meeting of stockholders of the Corporation called for
the purpose of electing directors or at any special meeting of the Holders of
Series C Preferred Stock or by written consent in lieu thereof:

 

(A)         subject to the proviso to this Section 9(c)(i), at any time that the
Board is comprised of nine or fewer directors (including vacancies, but
excluding Additional Preferred Stock Directors), the Holders of the Series C
Preferred Stock are entitled to elect two directors to the Board; and

 

(B)         at any time that the Board is comprised of ten or more directors
(including vacancies, but excluding Additional Preferred Stock Directors), the
Holders of the Series C Preferred Stock are entitled to elect directors
representing 30% of the Board (including vacancies, but excluding Additional
Preferred Stock Directors), rounded up to the nearest whole number;

 

provided that, the Holders of the Series C Preferred Stock will be entitled to
elect at least three directors to the Board (without limiting their right to
elect more directors pursuant to the foregoing provisions of this Section
9(c)(i)) upon and after receipt by the Corporation of a written request therefor
from a majority of such Holders.

 

(ii) If and when dividends on the Series C Preferred Stock have not been
declared and paid in full for at least two consecutive Dividend Payment Dates or
their equivalents, the authorized number of directors then constituting the
Board shall automatically be increased by two and, notwithstanding anything to
the contrary herein or in the bylaws of the Corporation, the Holders of Series C
Preferred Stock, voting together as a single class, shall be entitled to elect
directors to fill such newly created board vacancies (such new directors, the
“Additional Preferred Stock Directors”). Thereafter, at such time as full
dividends have been paid in respect of the Series C Preferred Stock (including
amounts accumulated and previously undeclared or unpaid thereon) for at least
two consecutive Dividend Payment Dates, the rights of the holders of Series C
Preferred Stock to elect the Additional Preferred Stock Directors shall cease,
the term of the Additional Preferred Stock Directors shall automatically expire,
the Additional Preferred Stock Directors shall be automatically removed from the
Board immediately thereafter and the authorized number of directors then
constituting the Board shall be automatically reduced by two to eliminate the
vacancies created by such removals, in each case unless as otherwise set forth
in the Transaction Documents.

 

A-2-6

 

 

(iii)        At any time after the holders of Series C Preferred Stock have
power to vote for Preferred Stock Directors and such power is continuing, the
Secretary of the Corporation may, and upon the written request of Holders of a
majority of the outstanding shares of Series C Preferred Stock (addressed to the
Secretary of the Corporation) must, call a special meeting of the Holders of
Series C Preferred Stock for the election of the Preferred Stock Directors.
Notice for such special meeting will be given in the manner provided in the
bylaws of the Corporation for a special meeting of the stockholders, or as
required by law, and shall set forth reasonable procedures for the nomination of
Preferred Stock Directors by Holders of the Series C Preferred Stock. If the
Secretary of the Corporation is required to call a meeting but does not do so
within 20 days after receipt of any such request, then any Holder of Series C
Preferred Stock may (at the Corporation’s expense and on behalf of and in the
name of the Secretary of the Corporation) call such meeting, upon providing
notice pursuant to the preceding sentence and, for that purpose, will be granted
access to the Corporation’s share transfer books and to any other materials used
to determine the current names and addresses of its holders of capital stock in
connection with providing notice of and conducting a special meeting pursuant to
the Corporation’s bylaws. For purposes of any election of one or more Preferred
Stock Directors, the holders of the Series C Preferred Stock shall vote alone as
a separate class and no other class or series of capital stock shall be entitled
to participate in such election. Except as otherwise provided in Section
9(c)(ii), each Preferred Stock Director elected at any meeting of the holders of
the Series C Preferred Stock or the holders of capital stock shall hold office
until the next annual meeting of holders of capital stock and until his
successor shall have been elected and qualified or until his earlier
resignation, removal from office by the holders of shares of Series C Preferred
Stock or death. In case any vacancy occurs among the Preferred Stock Directors,
a successor shall be elected by a majority of the then remaining Preferred Stock
Directors or, if none remains in office, by the vote of the Holders of a
majority of the voting power of the then-outstanding shares of Series C
Preferred Stock. The Preferred Stock Directors shall each be entitled to one
vote per director on any matter presented to the Board for a vote.

 

10.       Replacement Certificates. The Corporation shall replace any mutilated
certificate at the Holder’s expense upon surrender of that certificate to the
Corporation. The Corporation shall replace certificates that become destroyed,
stolen or lost at the Holder’s expense upon delivery to the Corporation of
satisfactory evidence that the certificate has been destroyed, stolen or lost,
together with any indemnity that may be required by the Corporation.

 

11.       Miscellaneous.

 

(a)          All notices referred to herein shall be in writing, and, unless
otherwise specified herein, all notices hereunder shall be deemed to have been
given upon the earlier of receipt thereof or three Business Days after the
mailing thereof if sent by registered or certified mail (unless first-class mail
shall be specifically permitted for such notice under the terms of the Charter)
with postage prepaid, addressed: (i) if to the Corporation, to its office at 189
South Orange Avenue, Suite 1700, Orlando, Florida 32801, Attention: Chief
Executive Officer, or (ii) if to any Holder, to such Holder at the address of
such Holder as listed in the stock record books of the Corporation, or (iii) to
such other address as the Corporation or any such Holder, as the case may be,
shall have designated by notice similarly given.

 

(b)          The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series C Preferred Stock or shares of Common Stock or
other securities issued on account of Series C Preferred Stock pursuant hereto
or certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax that may be payable in respect of
any transfer involved in the issuance or delivery of shares of Series C
Preferred Stock or Common Stock or other securities in a name other than that in
which the shares of Series C Preferred Stock with respect to which such shares
or other securities are issued or delivered were registered, or in respect of
any payment to any Person other than a payment to the registered holder thereof,
and shall not be required to make any such issuance, delivery or payment unless
and until the Person otherwise entitled to such issuance, delivery or payment
has paid to the Corporation the amount of any such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid or is not
payable.

 

(c)          No share of Series C Preferred Stock shall have any rights of
preemption whatsoever as to any securities of the Corporation, or any warrants,
rights or options issued or granted with respect thereto, regardless of how such
securities, or such warrants, rights or options, may be designated issued or
granted; provided, however, that the Investor Rights Agreement provides the
Holders of the Series C Preferred Stock with a participation right in the case
of any issuance of new equity securities by the Company, subject to and in
accordance with the terms and conditions set forth therein.

 

A-2-7

 

 

(d)          The shares of Series C Preferred Stock shall not have any voting
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein, in the Transaction Documents or in the Charter or as provided
by applicable law.

 

(e)          Without the approval of the holders of a majority of the then
outstanding shares of Series C Preferred Stock, the Corporation will not, by
amendment of the Charter or through any recapitalization, reorganization,
transfer of assets, consolidation, merger, statutory share exchange,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of these Articles Supplementary
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holders of the Series C Preferred Stock against
impairment.

 

12.         Definitions. Unless the context or use indicates another meaning or
intent, the following capitalized terms shall have the meanings set forth below,
whether used in the singular or the plural:

 

“Additional Preferred Stock Director” has the meaning set forth in Section 9(c).

 

“As-Converted Common Stock” means, as of any determination date and with respect
to any Holder, the number of shares of Common Stock then held by such Holder and
its Affiliates after giving effect to the conversion or exchange, in accordance
with their terms, of any and all securities then convertible or exchangeable,
directly or indirectly, into Common Stock, but without giving effect to any
limitations on such conversion or exchange applicable as a result of the
Aggregate Stock Ownership Limit, the Common Stock Ownership Limit or any
comparable limitations; provided that such number shall be a whole number and
any fractional shares of As-Converted Common Stock resulting from giving effect
to such conversion and exchange (after aggregating all such fractional shares
that would be held by each Holder and its Affiliates after such conversion or
exchange) shall be rounded to the nearest whole number (with one-half being
rounded upward).

 

“Assumed Conversion Rate” means a fraction, the denominator of which is the
Market Value of each share of Common Stock, and the numerator of which is the
Liquidation Preference for each share of Series C Preferred Stock.

 

“Board” means the Board of Directors of the Corporation.

 

“Business Day” means each day of the calendar year other than a Saturday, Sunday
or any other day on which banks are required or authorized to close in the State
of New York.

 

“Code” means the Internal Revenue Code of 1986, as amended, and as hereafter
amended from time to time. Reference to any particular provision of the Code
shall mean that provision in the Code at the date hereof and any successor
provision of the Code.

 

“Dividend Payment Date” has the meaning set forth in Section 4(a).

 

“Holder” means the Person in whose name the shares of the Series C Preferred
Stock are registered, which may be treated by the Corporation as the absolute
owner of the shares of Series C Preferred Stock for the purpose of making
payment and for all other purposes.

 

“Holders’ Percentage Interest” means, as of any determination date, a fraction,
expressed as a percentage, equal to (x) the number of shares of Common Stock
then held by the Holders, the Permitted Transferees and their respective
Affiliates divided by (y) the number of shares of Common Stock then outstanding.
Solely for purposes of this definition, Common Stock will be deemed to be “held”
by any Person or “outstanding”, in each case, if such Common Stock would be held
by such Person or outstanding after giving effect to the conversion or exchange,
in accordance with their terms, of any and all securities then convertible or
exchangeable, directly or indirectly, into Common Stock, but without giving
effect to any limitations on such conversion or exchange applicable as a result
of the Aggregate Stock Ownership Limit, the Common Stock Ownership Limit or any
comparable limitations. Solely for purposes of determining the Holders’
Percentage Interest, each share of Series C Preferred Stock will be deemed
convertible into shares of Common Stock at the Assumed Conversion Rate.

 

A-2-8

 

 

“Independent Investment Banking Firm” means an investment banking firm of
nationally recognized standing that is, in the reasonable judgment of the Person
engaging such firm, qualified to perform the task for which it has been engaged.

 

“Investor Rights Agreement” means the Investor Rights Agreement, dated as of
February [●], 2013, by and among the Corporation, Sentinel RE Investment
Holdings LP and Sentio Healthcare Properties OP, L.P., as may be amended from
time to time.

 

“Issuance Price” means the issuance price for any share of Series C Preferred
Stock.

 

“Junior Securities” has the meaning set forth in Section 3.

 

“Liquidation Preference” means, with respect to the Series C Preferred Stock,
the actual Issuance Price of each share of Series C Preferred Stock (as adjusted
for any split, subdivision, combination, consolidation, recapitalization or
similar event with respect to the Series C Preferred Stock), as further adjusted
pursuant to Section 4(b) from time to time.

 

“Market Value” means, as of any determination date, with respect to Common Stock
(or other relevant capital stock, equity interest or other property) the fair
market value thereof as determined by an Independent Investment Banking Firm
selected by a majority of the Preferred Stock Directors and reasonably
acceptable to the Corporation. The Corporation shall bear the fees and expenses
of any Independent Investment Banking Firm involved in the determination of
Market Value.

 

“Partnership Agreement” means the Second Amended and Restated Limited
Partnership Agreement of Sentio Healthcare Properties OP, L.P., a Delaware
limited partnership, made and entered into effective as of [●], 2013, as may be
amended from time to time.

 

“Permitted Transferee” has the meaning set forth in the Investor Rights
Agreement.

 

“Person” means any individual, corporation, association, partnership (general or
limited), bank, savings association, joint venture, trust, estate, limited
liability company or other legal entity or organization.

 

“Preferred Stock Director” means any director subject to election by the Holders
of the Series C Preferred Stock, voting together as a separate class, pursuant
to Section 9(c) hereof including, without limitation, the Additional Preferred
Stock Directors.

 

“Record Date” has the meaning set forth in Section 4(d).

 

“Redemption Price” means (i) an amount of cash in dollars equal to the sum of
(A) the greater of, as of the Market Value Determination Date, (x) the Issuance
Price of all shares of Series C Preferred Stock then outstanding and (y) 7% of
the aggregate Market Value of the Corporation plus (B) the amount of all accrued
and unpaid dividends (whether or not declared) as of the Redemption Date and
(ii) a number of shares of Series A Preferred Stock equal to the number of
shares of Series C Preferred Stock so redeemed. The cash portion of the
Redemption Price shall be allocated among the Holders of the Series C Preferred
Stock pro rata based on the Liquidation Preference of the shares of Series C
Preferred Stock so redeemed from each Holder. The portion of the Redemption
Price payable in Series A Preferred Stock shall allocated among the Holders at a
rate of one share of Series A Preferred Stock for each share of Series C
Preferred Stock redeemed from such Holder.

 

“Reorganization Event” has the meaning set forth in Section 8(a).

 

A-2-9

 

 

“Securities Purchase Agreement” means the Securities Purchase Agreement, dated
as of February [●], 2013, by and among the Corporation, Sentio Healthcare
Properties OP, L.P. and Sentinel RE Investment Holdings LP, as may be amended
from time to time.

 

“Series C Preferred Stock” has the meaning set forth in Section 1.

 

“Transaction Documents” means the Securities Purchase Agreement and the Investor
Rights Agreement.

 

A-2-10

 

 

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to
be signed in its name and on its behalf on this [●] day of [●], 2013, by its
[●], who acknowledges that these Articles Supplementary are the act of the
Corporation and that, to the best of [his][her] knowledge, information and
belief and under penalties for perjury, all matters and facts contained in these
Articles Supplementary are true in all material respects.

 

  SENTIO HEALTHCARE PROPERTIES, INC.           Name: [●]   Title: [●]        
ATTEST           Name: [●]   Title: [●]

 

A-2-11

 

 

EXHIBIT B

 

SECOND AMENDED AND RESTATED

LIMITED PARTNERSHIP AGREEMENT

OF

SENTIO HEALTHCARE PROPERTIES OP, L.P.

a Delaware limited partnership

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO
THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES OR “BLUE SKY” LAWS.

 

Table of Contents

 

    Page       ARTICLE 1 DEFINED TERMS 2     ARTICLE 2 PARTNERSHIP FORMATION AND
IDENTIFICATION 17       2.1. Formation 17       2.2. Name, Office and Registered
Agent 17       2.3. Partners 17       2.4. Term and Dissolution 17       2.5.
Filing of Certificate and Perfection of Limited Partnership 18       2.6.
Certificates Describing Partnership Units 18       ARTICLE 3 BUSINESS OF THE
PARTNERSHIP 19       3.1. Purpose and Business 19       3.2. Powers 19      
3.3. Representations and Warranties by the Parties 19       3.4. Not Publicly
Traded 21       ARTICLE 4 CAPITAL CONTRIBUTIONS 21       4.1. Capital
Contributions 21       4.2. Additional Capital Contributions and Issuances of
Additional Partnership Interests 21       4.3. Additional Funding 23

 

-i-

 

  

Table of Contents

(continued)

 

  Page     ARTICLE 5 ALLOCATIONS; DISTRIBUTIONS 24       5.1. Allocations for
Capital Account Purposes 25       5.2. Requirement and Characterization of
Distributions 25       5.3. REIT Distribution Requirements 26       5.4. No
Right to Distributions In Kind 27       5.5. Limitations of Return of Capital
Contributions 27       5.6. Withholding 27       5.7. Substantial Economic
Effect 27       ARTICLE 6 RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
27       6.1. Management of the Partnership 27       6.2. Delegation of
Authority 30       6.3. Indemnification and Exculpation of Indemnitees 30      
6.4. Liability of the General Partner 32       6.5. Reimbursement of General
Partner 33       6.6. Outside Activities 33       6.7. Employment or Retention
of Affiliates 34       6.8. General Partner Participation 34       6.9. Title to
Partnership Assets 35       6.10. Miscellaneous 35       ARTICLE 7 CHANGES IN
GENERAL PARTNER 35       7.1. Transfer of the General Partner's Partnership
Interest 35       7.2. Admission of a Substitute or Additional General Partner
37       7.3. Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner 38       7.4. Removal of a General Partner 38       ARTICLE 8
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS AND PREFERRED LIMITED PARTNERS 39
      8.1. Management of the Partnership 39       8.2. Power of Attorney 39    
  8.3. Limitation on Liability of Limited Partners and Preferred Limited
Partners 39       8.4. [reserved] 40

 

-ii-

 

 

Table of Contents

(continued)

 

    Page       8.5. Exchange Right 40       8.6. Taxable REIT Subsidiary 41    
  ARTICLE 9 PREFERRED Limited PARTNERSHIP INTERESTS 41       9.1. Series A
Preferred Units 41       9.2. Series B Convertible Preferred Units 43      
ARTICLE 10 TRANSFERS OF PARTNERSHIP INTERESTS 48       10.1. Purchase for
Investment 48       10.2. Restrictions on Transfer of Limited Partnership
Interests and Preferred Limited Partnership Interests 48       10.3. Admission
of Substitute Limited Partner or Substitute Preferred Limited Partner 50      
10.4. Rights of Assignees of Partnership Interests 51       10.5. Effect of
Bankruptcy, Death, Incompetence or Termination of a Limited Partner or Preferred
Limited Partner 51       10.6. Joint Ownership of Interests 51       10.7.
Redemption of Partnership Units 52       ARTICLE 11 BOOKS AND RECORDS;
ACCOUNTING; TAX MATTERS 52       11.1. Books and Records 52       11.2. Custody
of Partnership Funds; Bank Accounts 52       11.3. Fiscal and Taxable Year 52  
    11.4. Annual Tax Information and Report 53       11.5. Tax Matters Partner;
Tax Elections; Special Basis Adjustments 53       11.6. Reports Made Available
to Limited Partners 54       ARTICLE 12 AMENDMENT OF AGREEMENT; MERGER 55    
ARTICLE 13 GENERAL PROVISIONS 55       13.1. Notices 55       13.2. Survival of
Rights 55       13.3. Additional Documents 55       13.4. Severability 55      
13.5. Entire Agreement 56       13.6. Pronouns and Plurals 56       13.7.
Headings 56

 

-iii-

 

 

Table of Contents

(continued)

  

    Page       13.8. Counterparts 56       13.9. Governing Law 56

 

EXHIBIT A - General Partner Limited Partners and Preferred Limited Partners,
Capital Contributions And Percentage Interests A-1     EXHIBIT B-1 - Notice Of
Exercise Of Exchange Right B-1     EXHIBIT B-2 - Notice Of Exercise Of
Conversion Right B-2     EXHIBIT C - Form of Ownership Limit Waiver C-1    
EXHIBIT D - Capital Account Maintenance D-1     EXHIBIT E - Special Allocation
Rules E-1

 

-iv-

 

 

SECOND AMENDED AND RESTATED

LIMITED PARTNERSHIP AGREEMENT

OF

SENTIO HEALTHCARE PROPERTIES OP, L.P.

 

This SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT ( this
“Agreement”) is made and entered into effective as of __, 2013 by and among the
General Partner (as defined below), HPC LP TRS, LLC, a Delaware limited
liability company (“HPC”), Sentinel RE Investment Holdings LP, a Delaware
limited partnership (“KKR”), and the other Persons (as defined below) that are
party hereto from time to time and whose names are set forth on Exhibit A as
attached hereto (as it may be amended from time to time).

 

WITNESSETH:

 

WHEREAS, a limited partnership (the “Partnership”) was formed under the laws of
the State of Delaware, pursuant to a Certificate of Limited Partnership filed
with the Office of the Secretary of State of the State of Delaware on October
17, 2006 between Sentio Healthcare Properties, Inc., a Maryland corporation
(f/k/a Cornerstone Healthcare Plus REIT, Inc., f/k/a Cornerstone Growth & Income
REIT, Inc., f/k/a Cornerstone Growth and Income REIT, Inc. f/k/a Cornerstone
Institutional Growth REIT, Inc.), (the “General Partner”) and the initial
limited partner;

 

WHEREAS, the Partnership filed amendments to its Certificate of Limited
Partnership with the Delaware Secretary of State (i) on May 4, 2007 to change
its name from “Cornerstone Institutional Growth Operating Partnership, L.P.” to
“Cornerstone Growth and Income Operating Partnership, L.P.”, (ii) on July 16,
2007 to change its name from “Cornerstone Growth and Income Operating
Partnership, L.P.” to “Cornerstone Growth & Income Operating Partnership, L.P.”,
(iii) on January 8, 2010 to change its name from “Cornerstone Growth & Income
Operating Partnership, L.P.” to “Cornerstone Healthcare Plus Operating
Partnership, L.P.”, and (iv) on January 25, 2012 to change its name from
“Cornerstone Healthcare Plus Operating Partnership, L.P.” to “Sentio Healthcare
Properties OP, L.P.”;

 

WHEREAS, effective on September 30, 2011, the initial limited partner assigned
one hundred percent of such partner’s limited partnership interest in the
Partnership to HPC;

 

WHEREAS, prior to the date hereof, the business and affairs of the Partnership
have been governed by the Partnership's Limited Partnership Agreement dated
August 12, 2007, as amended by the Amendment to Limited Partnership Agreement
dated September 29, 2011, and as further amended and restated by the Amended and
Restated Limited Partnership Agreement dated January 25, 2012 (together, the
“Prior Agreement”);

 

1

 

 

WHEREAS, the parties hereto intend that, upon the terms and subject to the
conditions contained in that certain Securities Purchase Agreement dated
February 10, 2013 by and among the General Partner, the Partnership and KKR (the
“Securities Purchase Agreement”) and the Related Documents (as such term is
defined in the Securities Purchase Agreement), the General Partner and the
Partnership may issue and sell to KKR up to $150,000,000 of aggregate face value
of newly issued securities in the General Partner and the Partnership, of which
amount $100,000 will be allocated to purchase newly issued Series A Preferred
Shares (as such term is defined in the Securities Purchase Agreement), and the
remainder of which will be allocated to purchase newly issued Series B
Convertible Preferred Units (as defined herein);

 

WHEREAS, KKR is also referred to herein as the “Series B Preferred Unit
Recipient”;

 

WHEREAS, in connection with the transactions contemplated by the Securities
Purchase Agreement and the Related Documents, the General Partner is issuing to
the Series B Preferred Unit Recipient in a private transaction 1,000 Series A
Preferred Shares (the “Series A Preferred REIT Shares”) or 1,000 Series C
Preferred Shares (the “Series C Preferred REIT Shares”);

 

WHEREAS, as required under Section 4.2(a) and (b) of the Agreement, the General
Partner intends to transfer the net proceeds from the issuance of the Series A
Preferred REIT Shares to or for the benefit of the Partnership in exchange for
1,000 additional Partnership Interests in the Partnership having designations,
preferences and other rights, all such that the economic interests are
substantially similar to those of the Series A Preferred REIT Shares (the
“Series A Preferred Units”);

 

WHEREAS, the parties hereto now desire to amend and restate the Prior Agreement
and enter into this Second Amended and Restated Limited Partnership Agreement to
(i) acknowledge the contribution of the net proceeds received in consideration
for the Series A Preferred REIT Shares by the General Partner to the Partnership
in exchange for Series A Preferred Units (as defined herein), (ii) set forth the
designations, preferences and other rights of the Series B Convertible Preferred
Units, and (iii) provide for the issuance of Series B Convertible Preferred
Units to the Series B Preferred Unit Recipient;

 

NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between
the parties hereto, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

ARTICLE 1
DEFINED TERMS

 

The following defined terms used in this Agreement shall have the meanings
specified below:

 

704(c) Value means (i) in the case of Contributed Property, the fair market
value of such Contributed Property at the time of contribution, and (ii) in the
case of Adjusted Property, the fair market value of such Adjusted Property at
the time its carrying value is adjusted pursuant to Exhibit D hereof. The
Partnership shall allocate the aggregate of the 704(c) Values of Contributed
Properties or Adjusted Properties in a single or integrated transaction among
separate properties on a basis proportional to their respective fair market
values.

 

Act means the Delaware Revised Uniform Limited Partnership Act, as it may be
amended from time to time.

 

2

 

  

Additional Funds has the meaning set forth in Section 4.3.

 

Additional Securities means any additional REIT Shares (other than REIT Shares
issued in connection with an exchange pursuant to Section 8.5 hereof or REIT
Shares issued pursuant to a dividend reinvestment plan of the General Partner)
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.2(a)(ii).

 

Adjusted Balance means the Capital Account balance of a Partner, increased by
any Partnership Minimum Gain or Partner Minimum Gain allocable to the Partner
under Regulations Section 1.704-2.

 

Adjusted Property means any property, the Carrying Value of which has been
adjusted pursuant to Exhibit D hereof.

 

Adjusted Capital Account means the Capital Account maintained for each Partner
as of the end of each Partnership taxable year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(l) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections
1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

 

Adjusted Capital Account Deficit means, with respect to any Partner, the deficit
balance, if any, in such Partner’s Adjusted Capital Account as of the end of the
relevant Partnership taxable year.

 

Administrative Expenses means (i) all administrative and operating costs and
expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
Administrative Expenses shall not include any administrative costs and expenses
incurred by the General Partner that are attributable to Properties or
partnership interests in a Subsidiary Partnership (other than this Partnership)
that are owned by the General Partner directly.

 

Advisor or Advisors means the Person or Persons, if any, appointed, employed or
contracted with by the General Partner and responsible for directing or
performing the day-to-day business affairs of the General Partner, including any
Person to whom the Advisor subcontracts substantially all of such functions.

 

Advisory Agreement has the meaning set forth in Section 9.2 hereof. .

 

3

 

 

Affiliate or Affiliated means, as to any individual, corporation, partnership,
trust, limited liability company or other legal entity (other than this
Partnership), (i) any Person, directly or indirectly through one or more
intermediaries controlling, controlled by, or under common control with another
person; (ii) any Person, directly or indirectly owning, controlling, or holding
with power to vote ten percent (10%) or more of the outstanding voting
securities of another Person; (iii) any officer, director, general partner or
trustee of such Person; (iv) any Person ten percent (10%) or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held, with power to vote, by such other Person; and (v) if such other Person is
an officer, director, general partner, or trustee of a Person, the Person for
which such Person acts in any such capacity. For purposes of this definition,
“under common control” shall mean that one Person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) owns 10%
or more of the outstanding voting securities of two or more Persons, in which
case the Person so owned would be affiliates of each other.

 

Agreed Value means (i) in the case of any Contributed Property as of the time of
its contribution to the Partnership, the 704(c) Value of such property, as
reduced by any liabilities either assumed by the Partnership upon such
contribution or to which such property is subject when contributed; and (ii) in
the case of any property distributed to a Partner by the Partnership, the
Partnership’s Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.

 

Agreement means this Agreement of Limited Partnership, as amended, modified
supplemented or restated from time to time, as the context requires.

 

Applicable Conversion Price means the Initial Conversion Price multiplied by the
Conversion Factor.

 

Available Cash means, with respect to any period for which such calculation is
being made, any cash revenues plus any reduction in reserves and less interest
and principal payments on debt, cash expenditures (including capital
expenditures) and any additions to reserves to provide for the proper conduct of
business or to comply with law.

 

Board of Directors means the board of directors of the General Partner.

 

Book-Tax Disparities means, with respect to any item of Contributed Property or
Adjusted Property, as of the date of any determination, the difference between
the Carrying Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of such date. A
Partner’s share of the Partnership’s Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Partner’s Capital Account balance as maintained pursuant to Exhibit
D and the hypothetical balance of such Partner’s Capital Account computed as if
it had been maintained strictly in accordance with federal income tax accounting
principles.

 

4

 

 

Capital Account means the Capital Account maintained for a Partner pursuant to
Exhibit D hereof.

 

Capital Contribution means, with respect to any Partner, the total amount of
cash, cash equivalents, and the Agreed Value of any Contributed Property, which
such Partner contributes or is deemed to contribute, as the context requires, to
the Partnership pursuant to the terms of this Agreement. Any reference to the
Capital Contribution of a Partner shall include the Capital Contribution made by
a predecessor holder of the Partnership Interest of such Partner.

 

Carrying Value means (i) with respect to a Contributed Property or Adjusted
Property, the 704(c) Value of such property, reduced (but not below zero) by all
Depreciation with respect to such property charged to the Partners’ Capital
Accounts following the contribution of or adjustment with respect to such
property; and (ii) with respect to any other Partnership property, the adjusted
basis of such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Exhibit D hereof, and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed reasonably necessary by the General Partner.

 

Cash Amount means an amount of cash per Partnership Unit equal to the Value of
the REIT Shares Amount on the date of receipt by the General Partner of a Notice
of Exchange.

 

Certificate means any instrument or document that is required under the laws of
the State of Delaware, or any other jurisdiction in which the Partnership
conducts business, to be signed and sworn to by the Partners of the Partnership
(either by themselves or pursuant to the power-of-attorney granted to the
General Partner in Section 8.2 hereof) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.

 

Charter means the Articles of Incorporation of the General Partner filed with
the Maryland State Department of Assessments and Taxation, as amended or
restated from time to time.

 

Closing Date has the meaning set forth in the Securities Purchase Agreement.

 

Code means the Internal Revenue Code of 1986, as amended, and as hereafter
amended from time to time. Reference to any particular provision of the Code
shall mean that provision in the Code at the date hereof and any successor
provision of the Code.

 

Common Unit means a Partnership Unit other than any series of units of limited
partnership interest issued and designated as preferred or otherwise different
from the common units, including, but not limited to, with respect to the
payment of distributions, including distributions upon liquidation.

5

 

 

Consenting Holder means the then-largest holder or group of Affiliated holders,
measured by number of Series B Convertible Preferred Units, of Series B
Convertible Preferred Units.

 

Contributed Property means each property or other asset, in such form as may be
permitted by the Act (but excluding cash), contributed or deemed contributed to
the Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Exhibit D hereof, such property shall no longer constitute a
Contributed Property for purposes of Exhibit D hereof, but shall be deemed an
Adjusted Property for such purposes.

 

Conversion Factor means 1.0, subject to adjustment as follows: in case the
Partnership shall subdivide, combine or reclassify the outstanding Common Units
into a greater or lesser number of Common Units, the Conversion Factor in effect
at the opening of business on the day following the date fixed for the
determination of holders of Common Units subject to such subdivision,
combination or reclassification shall be proportionately adjusted so that a
holder of Preferred Units shall be entitled to receive, upon exchange thereof,
the number of Common Units which the holder would have owned at the opening of
business on the day following the date fixed for such determination had such
Preferred Units been converted immediately prior to such determination.

 

Daily Market Price means, with respect to a Trading Day, the last sale price for
REIT Shares, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices for REIT Shares, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or, if
such REIT Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported on the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which such REIT Shares are listed or admitted to trading or, if such REIT
Shares are not listed or admitted to trading on any national securities
exchange, the last quoted price, or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
principal automated quotation system that may then be in use or, if such REIT
Shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
such REIT Shares selected by the Board of Directors or, in the event that no
trading price is available for such REIT Shares, the fair market value of the
REIT Shares, as determined in good faith by the Board of Directors.

 

Depreciation means, for each taxable year or other period, an amount equal to
the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Carrying Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such year or other period,
“Depreciation” shall be an amount which bears the same ratio to the beginning
Carrying Value of such asset as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other period
bears to the beginning adjusted tax basis of such asset; provided, however, that
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year or other period is zero, Depreciation shall be
determined with reference to the beginning Carrying Value of such asset using
any reasonable method selected by the General Partner. Notwithstanding the
foregoing, if the Partnership uses the “remedial allocation method” described in
Regulations Section 1.704-(3)(d) for any asset, then Depreciation for that asset
shall instead be determined in accordance with Regulations Section
1.704-(3)(d)(2).

6

 

 

 

Distribution Payment Date has the meaning provided in Section 9.2(d)(iii)(C)
hereof.

 

Distribution Period means (i) with respect to any series of Series A Preferred
Units issued to the General Partner pursuant to Section 4.2 of this Agreement,
the Distribution Period shall correspond to the distribution period of the
related issuance of securities by the General Partner as provided in Section 4.2
of this Agreement, and (ii) with respect to Preferred Units issued by the
Partnership to Persons other than the General Partner, the Distribution Period
shall mean each period from and including a Distribution Payment Date with
respect to such Preferred Units (or the Issue Date of such Preferred Units for
the first Distribution Payment Date) to but excluding the next Distribution
Payment Date.

 

Distributed Right has the meaning provided in clause (iii) of the definition of
“Exchange Factor” provided herein.

 

Event of Bankruptcy as to any Person means the filing of a petition for relief
as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or
similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.

 

Exchange Factor means 1.0, subject to adjustment as follows:

 

(i) in case the General Partner shall

 

(A) make a distribution on the outstanding REIT Shares in REIT Shares,

 

(B) subdivide or reclassify the outstanding REIT Shares into a greater number of
REIT Shares, or

 

(C) combine or reclassify the outstanding REIT Shares into a smaller number of
REIT Shares,

 

7

 

the Exchange Factor in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive such
distribution or subject to such subdivision, combination or reclassification
shall be proportionately adjusted so that a holder of Common Units shall be
entitled to receive, upon exchange thereof, the number of REIT Shares which the
holder would have owned at the opening of business on the day following the date
fixed for such determination had such Common Units been exchanged immediately
prior to such determination;

 

(ii) in case the Partnership shall subdivide, combine or reclassify the
outstanding Common Units into a greater or lesser number of Common Units, the
Exchange Factor in effect at the opening of business on the day following the
date fixed for the determination of holders of Common Units subject to such
subdivision, combination or reclassification shall be proportionately adjusted
so that a holder of Common Units shall be entitled to receive, upon exchange
thereof, the number of REIT Shares which the holder would have owned at the
opening of business on the day following the date fixed for such determination
had such Common Units been exchanged immediately prior to such determination;

 

(iii) in case the General Partner distributes any rights, options or warrants to
holders of REIT Shares to subscribe for or to purchase or to otherwise acquire
REIT Shares, or other securities or rights convertible into, exchangeable for or
exercisable for REIT Shares, at a price per share less than the Value of a REIT
Share on the record date for such distribution (each a “Distributed Right”),
then, as of the distribution date of such Distributed Rights or, if later, the
time such Distributed Rights become exercisable, the Exchange Factor shall be
adjusted by multiplying the Exchange Factor previously in effect by a fraction

 

(A) the numerator of which shall be the sum of

 

(x) the number of REIT Shares issued and outstanding on the record date (or, if
later, the date such Distributed Rights become exercisable) plus

 

(y) the maximum number of REIT Shares purchasable under such Distributed Rights
and

 

(B) the denominator of which shall be the sum of

 

(x) number of REIT Shares issued and outstanding on the record date (or, if
later, the date such Distributed Rights become exercisable) plus

 

(y) a fraction

 

(1) the numerator of which is the maximum number of REIT Shares purchasable
under such Distributed Rights times the minimum purchase price per REIT Share
under such Distributed Rights and

 

(2) the denominator of which is the Value of a REIT Share as of the record date
(or, if later, the date such Distributed Rights become exercisable);

 

8

 

 

provided, however, that, if any such Distributed Rights expire or become no
longer exercisable, then the Exchange Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights, to reflect a
reduced maximum number of REIT Shares or any change in the minimum purchase
price for the purposes of the above fraction; and

 

(iv) in case the General Partner shall (x) by distribution or otherwise,
distribute to holders of its REIT Shares,

 

(A) capital shares of any class other than its REIT Shares,

 

(B) evidence of its indebtedness or

 

(C) assets (excluding any rights or warrants referred to in clause (iii) above,
any cash distribution lawfully paid under the laws of the state of organization
of the General Partner, and any distribution referred to in clause (i) above),

 

or (y) pay any amounts pursuant to Section 8(f), (g) or (h) under the Advisory
Agreement (the “Promote Amount”).

 

and shall not cause a corresponding distribution to be made to all holders of
Common Units, the Exchange Factor shall be adjusted so that the same shall equal
the ratio determined by multiplying the Exchange Factor in effect immediately
prior to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of which the
numerator shall be the Daily Market Price per REIT Share on the date fixed for
such determination, and of which the denominator shall be such Daily Market
Price per REIT Share less the fair market value (in the case of clause (x)
above, as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board resolution certified
by the Secretary of the General Partner and delivered to the holders of the
Partnership Units, and in the case of clause (y) above, determined by adding (A)
the cash portion of the Promote Amount and (B) the product of (i) the Daily
Market Price per REIT Share and (ii) the number of Common Shares delivered as
part of the Promote Amount) of the portion of the capital shares or evidences of
indebtedness or assets so distributed applicable to one REIT Share, such
adjustment to become effective immediately prior to the opening of business on
the day following the date fixed for the determination of stockholders entitled
to receive such distribution.

 

Exchange Right has the meaning provided in Section 8.5(a) hereof.

 

Exchanging Partner has the meaning provided in Section 8.5(a) hereof.

 

Exercised Put Amount has the meaning set forth in the Securities Purchase
Agreement.

 

General Partner means Sentio Healthcare Properties, Inc., a Maryland
corporation, and any Person who becomes a substitute or additional General
Partner as provided herein, and any of their successors as General Partner.

 

9

 

 

General Partnership Interest means a Partnership Interest held by the General
Partner that is a general partnership interest.

 

Indemnitee means (i) the General Partner or a director, officer or employee of
the General Partner or Partnership, (ii) the Advisor or a director, officer,
employee of the Advisor or another agent of the Advisor if such agent is an
Affiliate of the Advisor and (iii) such other Persons (including Affiliates of
the General Partner, the Advisor or the Partnership) as the General Partner may
designate from time to time, in its sole and absolute discretion.

 

Independent Director means a director of the General Partner who is not an
officer or employee of the General Partner and meets the requirements for
independence as defined by the General Partner's Charter

 

Initial Conversion Price means $10.02.

 

Issue Date means with respect to any Partnership Units, the date on which such
units are first issued.

 

Limited Partner means any Person listed as holding Common Units on Exhibit A
attached hereto, and any Person who becomes a Substitute Limited Partner, in
such Person's capacity as a limited partner in the Partnership, provided
however, that such term shall not include the Preferred Limited Partners unless
such Preferred Limited Partners also holds Common Units.

 

Limited Partnership Interest means the ownership interest of a Limited Partner
in the Partnership at any particular time, including the right of such Limited
Partner to any and all benefits to which such Limited Partner may be entitled as
provided in this Agreement and in the Act, together with the obligations of such
Limited Partner to comply with all the provisions of this Agreement and of such
Act. A Limited Partnership Interest may be (but is not required to be) expressed
as a number of Partnership Units.

 

Liquidation Preference means, with respect to the Series A Preferred Unit, the
Series A Liquidation Preference, and with respect to the Series B Preferred
Unit, the Series B Liquidation Preference.

 

Listing means the approval of the REIT Shares, issued by the General Partner
pursuant to an effective registration statement, on a national securities
exchange or over-the-counter market. Upon Listing, the shares shall be deemed
Listed.

 

National Securities Exchange means any securities exchange registered with SEC
pursuant to Section 6 of the Securities Exchange Act of 1934, as amended.

 

10

 

Net Income means, for any taxable period, the excess, if any, of the
Partnership’s items of income and gain for such taxable period over the
Partnership’s items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Section l(b) of Exhibit D. If an item of income, gain, loss or
deduction that has been included in the initial computation of Net Income is
subject to the special allocation rules in Exhibit E, Net Income or the
resulting Net Loss, whichever the case may be, shall be recomputed without
regard to such item.

 

Net Loss means, for any taxable period, the excess, if any, of the Partnership’s
items of loss and deduction for such taxable period over the Partnership’s items
of income and gain for such taxable period. The items included in the
calculation of Net Loss shall be determined in accordance with federal income
tax accounting principles, subject to the specific adjustments provided for in
Section l(b) of Exhibit D. If an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subject to the
special allocation rules in Exhibit E, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.

 

Nonrecourse Deductions has the meaning set forth in Regulations Section
1.704-2(b)(l), and the amount of Nonrecourse Deductions for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).

 

Notice of Exchange means the Notice of Exercise of Exchange Right substantially
in the form attached as Exhibit B-1 hereto.

 

Offer has the meaning set forth in Section 7.1(b)(ii) hereof.

 

Ownership Limit Waiver has the meaning set forth in Section 8.5(b) hereof.

 

Partner means any General Partner, Limited Partner, Series A Preferred Limited
Partner or Preferred Limited Partner.

 

Partner Minimum Gain means an amount, with respect to each Partner Nonrecourse
Debt, equal to the Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a nonrecourse liability, determined in
accordance with Regulations Section 1.704-2(i)(3).

 

Partner Nonrecourse Debt has the meaning set forth in Regulations Section
1.704-2(b)(4).

 

Partner Nonrecourse Deductions has the meaning set forth in Regulations Section
1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to
a Partner Nonrecourse Debt for a Partnership taxable year shall be determined in
accordance with the rules of Regulations Section 1.704-2(i)(2).

 

Partnership means Sentio Healthcare Properties OP, L.P., a Delaware limited
partnership.

 

11

 

Partnership Interest means an ownership interest in the Partnership held by
either a Limited Partner, Preferred Limited Partner or the General Partner and
includes any and all benefits to which the holder of such a Partnership Interest
may be entitled as provided in this Agreement, together with all obligations of
such Person to comply with the terms and provisions of this Agreement. There may
be one or more classes or series of Partnership Interests. A Partnership
Interest may be (but is not required to be) expressed as a number of Partnership
Units.

 

Partnership Minimum Gain has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in a Partnership Minimum Gain, for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(d).

 

Partnership Record Date means the record date established by the General Partner
for the distribution of cash pursuant to Section 5.2 hereof, which record date
shall be the same as the record date established by the General Partner for a
distribution to its shareholders of some or all of its portion of such
distribution.

 

Partnership Unit means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The allocation of Partnership Units
among the Partners shall be as set forth on Exhibit A, as such Exhibit may be
amended from time to time. The ownership of some or all of the Partnership Units
shall be evidenced by such form of certificate for units as the General Partner
adopts from time to time unless the General Partner determines that the
Partnership Units shall be uncertificated securities.

 

Percentage Interest means the percentage ownership interest in the Partnership
of each Partner, as determined by dividing the Partnership Units (other than the
Series A Preferred Units) owned by a Partner (other than by a Series A Preferred
Partner) (on an as-converted basis) by the total number of Partnership Units
(other than the Series A Preferred Units, and on an as-converted basis) then
outstanding. The Percentage Interest of each Partner shall be as set forth on
Exhibit A, as such Exhibit may be amended from time to time.

 

Permitted Transferee means: (i) any Person that receives Series B Convertible
Preferred Units from the Series B Preferred Unit Recipient or any Permitted
Transferee upon the earliest to occur of (A) the Aggregate Put Right (as defined
in the Securities Purchase Agreement) being exercised, (B) the Put Exercise (as
defined in the Securities Purchase Agreement) being canceled and (C) the third
anniversary of the Effective Date (as defined in the Securities Purchase
Agreement), or (ii) at any time, (A) any Affiliate of the Series B Preferred
Unit Recipient, and (B) any shareholder, partner, managing director, member,
principal or retired partner of the Series B Preferred Unit Recipient upon a pro
rata distribution by a partnership or a limited liability company to its
partners or members or otherwise upon the dissolution or liquidation of the
Series B Preferred Unit Recipient .

 

Person means any individual, partnership, limited liability company,
corporation, joint venture, trust or other entity.

 

PIK Distribution has the meaning set forth in Section 9.2(d)(iii)(B)
hereof.         

12

 

 

Preferred Limited Partner means any Person listed as holding Series B
Convertible Preferred Units on Exhibit A attached hereto, and any Person who
becomes a Substitute Preferred Limited Partner, in such Person's capacity as a
limited partner in the Partnership who holds Series B Convertible Preferred
Units.

 

Preferred Limited Partnership Interest means an ownership interest in the
Partnership held by a Preferred Limited Partner and includes any and all
benefits to which the holder of such a Preferred Limited Partnership Interest
may be entitled as provided in this Agreement, together with all obligations of
such Person to comply with the terms and provisions of this Agreement. A
Preferred Limited Partnership Interest may be (but is not required to be)
expressed as a number of Preferred Units.

 

Preferred Unit means a portion of the Partnership Interest held by a Partner
that represents a unit of preferred interest in the Partnership (other than the
Series A Preferred Units) as identified in this Agreement or otherwise set forth
in an amendment to this Agreement and a unit of any other class or series of
preferred interest in the Partnership that may be issued to a Partner in the
future in accordance with Section 4.2 hereof. Unless otherwise set forth in an
amendment to this Agreement, each class or series of Partnership Units which is
denominated Preferred Units shall be entitled to allocations and distributions
with respect to Priority Return Amounts and Liquidation Preferences on a pari
passu basis with each other class or series of Preferred Units.

 

Priority Return Amount means, for each Distribution Period, for each Partner
holding any class or series of Preferred Units, the Priority Return Percentage
times the Liquidation Preference times the number of Preferred Units held by
such Partner as set forth on Exhibit A hereto (or otherwise set forth in an
amendment to this Agreement). In the case of any Preferred Units issued during a
Distribution Period, the Priority Return Amount attributable to such Preferred
Units for such Distribution Period shall be prorated to reflect the portion of
such Distribution Period during which such Preferred Units were outstanding.

 

Priority Return Percentage means that percentage applicable to a class or series
of Preferred Units set forth on Exhibit A hereto (or otherwise set forth in this
Agreement or in an amendment to this Agreement) used to calculate the Priority
Return Amount.

 

Redemption Rights means the rights of redemption, if any, applicable to
Preferred Units. With respect to any series of Preferred Units issued to the
General Partner pursuant to Section 4.2 of this Agreement, the Redemption Rights
shall correspond to the redemption rights of the related issuance of securities
by the General Partner as provided in Section 4.2 of this Agreement. With
respect to Preferred Units issued by the Partnership to Persons other than the
General Partner, the Redemption Rights with respect to such Preferred Units
shall be set forth in this Agreement or in an amendment to this Agreement.

 

13

 

Redemption Price means an amount selected at the sole option of the Series B
Preferred Unit Recipient, equal to either (A) an aggregate cash amount that
would constitute the greater of (x) a 20% internal rate of return up to but not
including the redemption date on the Series B Preferred Unit Recipient’s Capital
Contribution, (y) a 1.5x multiple of the Series B Preferred Unit Recipient’s
Capital Contribution and (z) the amount of the Series B Preferred Unit
Recipient’s Capital Contribution plus $15 million or (B) (i) an aggregate cash
amount that would constitute the greater of (x) a 12% internal rate of return up
to but not including the redemption date on the Series B Preferred Unit
Recipient’s Capital Contribution, (y) a 1.35x multiple of the Series B Preferred
Unit Recipient’s Capital Contribution and (z) the amount of the Series B
Preferred Unit Recipient’s Capital Contribution plus $10 million plus (ii) a
10-year warrant issued as of the redemption date to purchase from time to time
in the aggregate the number of shares of Common Stock then underlying the
outstanding Series B Convertible Preferred Units, with the exercise price for
such warrant being the Applicable Conversion Price in effect at the redemption
date (with customary anti-dilution protections).

 

Regulations means the Federal income tax regulations promulgated under the Code,
as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.

 

Regulatory Allocations has the meaning set forth in Exhibit E hereof.

 

REIT means a real estate investment trust under Section 856.

 

REIT Expenses means (i) costs and expenses relating to the formation and
continuity of existence and operation of the General Partner and any
Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included
within the definition of General Partner), including taxes, fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
director, officer, or employee of the General Partner, (ii) costs and expenses
relating to any public offering and registration of securities by the General
Partner and all statements, reports, fees and expenses incidental thereto,
including, without limitation, underwriting discounts and selling commissions
applicable to any such offering of securities, and any costs and expenses
associated with any claims made by any holders of such securities or any
underwriters or placement agents thereof, (iii) costs and expenses associated
with any repurchase of any securities by the General Partner, (iv) costs and
expenses associated with the preparation and filing of any periodic or other
reports and communications by the General Partner under federal, state or local
laws or regulations, including filings with the SEC, (v) costs and expenses
associated with compliance by the General Partner with laws, rules and
regulations promulgated by any regulatory body, including the SEC and any
securities exchange, (vi) costs and expenses associated with any 401(k) plan,
incentive plan, bonus plan or other plan providing for compensation for the
employees of the General Partner, (vii) costs and expenses incurred by the
General Partner relating to any issuing or redemption of Partnership Interests,
and (viii) all other operating or administrative costs of the General Partner
incurred in the ordinary course of its business on behalf of or in connection
with the Partnership.

 

REIT Share means a share of common stock, par value $0.01 per share, in the
General Partner (or successor entity, as the case may be).

 

14

 

REIT Shares Amount means a number of REIT Shares equal to the product of the
number of Partnership Units offered for exchange by an Exchanging Partner,
multiplied by the Exchange Factor as adjusted to and including the Specified
Exchange Date; provided that in the event the General Partner issues to all
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the “rights”), and the rights
have not expired at the Specified Exchange Date, then the REIT Shares Amount
shall also include the rights issuable to a holder of the REIT Shares Amount of
REIT Shares on the record date fixed for purposes of determining the holders of
REIT Shares entitled to rights.

 

SEC means the U.S. Securities and Exchange Commission.

 

Securities Act means the Securities Act of 1933, as amended.

 

Securities Purchase Agreement has the meaning set forth in the Recitals hereto.

 

Series A Liquidation Preference has the meaning set forth in Section
9.1(d)(ii)(A) hereof.

 

Series A Preferred REIT Shares has the meaning set forth in the Recitals hereto.

 

Series A Preferred Units has the meaning set forth in the Recitals hereto.

 

Series A Preferred Limited Partner means any Person listed as holding Series A
Preferred Units on Exhibit A attached hereto, including the General Partner, but
only in its capacity as a holder of Series A Preferred Units.

 

Series A Priority Return Amount has the meaning set forth in Section
9.1(d)(iii)(A) hereof..

 

Series A Priority Return Percentage has the meaning set forth in Section
9.1(d)(iii)(A) hereof.

 

Series B Convertible Preferred Units has the meaning set forth in Section 9.2(b)
hereof.

 

Series B Issuance Value has the meaning set forth in Section 9.2(d)(i) hereof.

 

Series B Liquidation Preference has the meaning set forth in Section
9.2(d)(ii)(A) hereof.

 

Series B Preferred Unit Recipient hase the meaning set forth in the Recitals
hereof.

 

Series C Preferred REIT Shares has the meaning set forth in the Recitals hereto.

 

Service means the United States Internal Revenue Service.

 

Specified Exchange Date means the first business day of the month that is at
least 5 business days after the receipt by the General Partner of the Notice of
Exchange.

15

 

 

Subsidiary means, with respect to any Person, any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests is owned, directly or indirectly, by such
Person.

 

Subsidiary Partnership means any partnership of which the partnership interests
therein are owned by the General Partner or a direct or indirect subsidiary of
the General Partner.

 

Substitute Limited Partner or Substitute Preferred Limited Partner means any
Person admitted to the Partnership as a substitute Limited Partner or substitute
Preferred Limited Partner pursuant to Section 10.3 hereof.

 

Successor Entity has the meaning provided in the definition of “Exchange Factor”
contained herein.

 

Surviving General Partner has the meaning set forth in Section 7.1(c) hereof.

 

Tenant means any tenant from which the General Partner derives rent either
directly or indirectly through partnerships or limited liability companies.

 

Trading Days means days on which the primary trading market for REIT Shares, if
any, is open for trading.

 

Transaction has the meaning set forth in Section 7.1(b) hereof.

 

Transfer has the meaning set forth in Section 10.2(a) hereof.

 

TRS means a taxable REIT subsidiary, as defined in Section 856(l) of the Code,
of the General Partner.

 

Unrealized Gain attributable to any item of Partnership property means, as of
any date of determination, the excess, if any, of (i) the fair market value of
such property (as determined under Exhibit D hereof) as of such date; over (ii)
the Carrying Value of such property (prior to any adjustment to be made pursuant
to Exhibit D hereof) as of such date.

 

Unrealized Loss attributable to any item of Partnership property means, as of
any date of determination, the excess, if any, of (i) the Carrying Value of such
property (prior to any adjustment to be made pursuant to Exhibit D hereof) as of
such date; over (ii) the fair market value of such property (as determined under
Exhibit D hereof) as of such date.

 

Valuation Date means the date of receipt by the General Partner of a Notice of
Exchange or, if such date is not a Business Day, the first Business Day
thereafter.

 

Value means, on any Valuation Date with respect to a REIT Share, the average of
the Daily Market Price for the ten (10) consecutive Trading Days immediately
preceding the Valuation Date.

16

 

 

 

ARTICLE 2
PARTNERSHIP FORMATION AND IDENTIFICATION

 

2.1.          Formation. The Partnership was formed as a limited partnership
pursuant to the Act for the purposes and upon the terms and conditions set forth
in this Agreement.

 

2.2.          Name, Office and Registered Agent. The name of the Partnership is
Sentio Healthcare Properties OP, L.P.. The specified office and place of
business of the Partnership shall be 189 South Orange Avenue, Suite 1700,
Orlando FL 32801. The General Partner may at any time change the location of
such office, provided the General Partner gives notice to the Partners of any
such change. The name and address of the Partnership's registered agent is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The sole duty of the registered agent as such is to
forward to the Partnership any notice that is served on him as registered agent.

 

2.3.          Partners.

 

(a)          The General Partner of the Partnership is Sentio Healthcare
Properties, Inc., a Maryland corporation. Its principal place of business is the
same as that of the Partnership.

 

(b)          The Limited Partners are those Persons identified as Limited
Partners on Exhibit A hereto, as amended from time to time.

 

(c)          The Preferred Limited Partners are those Persons identified as
Preferred Limited Partners on Exhibit A hereto, as amended from time to time.

 

2.4.          Term and Dissolution.

 

(a)          The Partnership shall have perpetual duration, except that the
Partnership shall be dissolved upon the first to occur of any of the following
events:

 

(i)          The occurrence of an Event of Bankruptcy as to a General Partner or
the dissolution, death, removal or withdrawal of a General Partner unless the
business of the Partnership is continued pursuant to Section 7.3(b) hereof;
provided that if a General Partner is on the date of such occurrence a
partnership, the dissolution of such General Partner as a result of the
dissolution, death, withdrawal, removal or Event of Bankruptcy of a partner in
such partnership shall not be an event of dissolution of the Partnership if the
business of such General Partner is continued by the remaining partner or
partners, either alone or with additional partners, and such General Partner and
such partners comply with any other applicable requirements of this Agreement;

 

(ii)         The passage of 90 days after the sale or other disposition of all
or substantially all of the assets of the Partnership (provided that if the
Partnership receives an installment obligation as consideration for such sale or
other disposition, the Partnership shall continue, unless sooner dissolved under
the provisions of this Agreement, until such time as such note or notes are paid
in full);

 

17

 

  

(iii)        The exchange of all Limited Partnership Interests, Preferred
Limited Partnership Interests and Series A Preferred Units (other than any of
such interests held by the General Partner or Affiliates of the General Partner)
for REIT Shares or the securities of any other entity; or

 

(iv)        The election by the General Partner that the Partnership should be
dissolved.

 

(b)          Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.3(b) hereof), the General Partner
(or its trustee, receiver, successor or legal representative) shall amend or
cancel the Certificate and liquidate the Partnership's assets and apply and
distribute the proceeds thereof in accordance with Section 5.2(b) hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.

 

2.5.          Filing of Certificate and Perfection of Limited Partnership. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.

 

2.6.          Certificates Describing Partnership Units. At the request of a
Limited Partner or Preferred Limited Partner, the General Partner, at its
option, may issue a certificate summarizing the terms of such Limited Partner's
or Preferred Limited Partner’s interest in the Partnership, including the number
of Partnership Units owned and the Percentage Interest represented by such
Partnership Units as of the date of such certificate. Any such certificate (i)
shall be in form and substance as approved by the General Partner, (ii) shall
not be negotiable and (iii) shall bear a legend to the following effect:

 

This certificate is not negotiable. The Partnership Units represented by this
certificate are governed by and transferable only in accordance with the
provisions of the Agreement of Limited Partnership of Sentio Healthcare
Properties OP, L.P., as amended from time to time.

  

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ARTICLE 3
BUSINESS OF THE PARTNERSHIP

 

3.1.          Purpose and Business. The purpose and nature of the business to be
conducted by the Partnership is (i) to conduct any business that may be lawfully
conducted by a limited partnership organized pursuant to the Act, provided,
however, that such business shall be limited to and conducted in such a manner
as to permit the General Partner at all times to qualify as a REIT, unless the
General Partner otherwise ceases to qualify as a REIT, (ii) to enter into any
partnership, joint venture or other similar arrangement to engage in any of the
foregoing or the ownership of interests in any entity engaged in any of the
foregoing and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting the General Partner's right
to cease qualifying as a REIT (subject to the prior written consent of the
Series B Preferred Unit Recipient, as provided in the Securities Purchase
Agreement), the Partners acknowledge that the General Partner's current status
as a REIT and the avoidance of income and excise taxes on the General Partner
inures to the benefit of all the Partners and not solely to the General Partner.
Notwithstanding the foregoing, the Limited Partners and Preferred Limited
Partners agree that the General Partner may terminate its status as a REIT under
the Code at any time to the full extent permitted under the Charter, subject to
the prior written consent of the Series B Preferred Unit Recipient, as provided
in the Securities Purchase Agreement. The General Partner shall also be
empowered to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a “publicly traded partnership” for
purposes of Section 7704 of the Code; provided, that the General Partner shall
not take any action to ensure that the Partnership will not be classified as a
“publicly traded partnership” for purposes of either Section 469(k)(2) or 7704
of the Code without the prior written consent of the Series B Preferred Unit
Recipient if such action could have a material adverse effect on the economic
interests of the Series B Preferred Unit Recipient.

 

3.2.          Powers. The Partnership is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership, and shall have,
without limitation, any and all of the powers that the General Partner may
direct the Partnership to exercise pursuant to this Agreement; provided,
however, that the Partnership shall not take, or refrain from taking, any action
which, in the good faith judgment of the General Partner; (i) could adversely
affect the ability of the General Partner to qualify and to continue to qualify
as a REIT; (ii) could subject General Partner to any additional taxes under Code
Section 857 or Code Section 4981 or any other related or successor provision of
the Code; or (iii) could violate any law or regulation of any governmental body
or agency having jurisdiction over the General Partner, its securities, or the
Partnership, unless such action (or inaction) under clause (i), clause (ii) or
clause (iii) above shall have been specifically consented to by the General
Partner in writing.

 

3.3.          Representations and Warranties by the Parties.

 

(a)          Each Partner that is an individual (including, without limitation,
each Substitute Limited Partner or Substitute Preferred Limited Partner as a
condition to becoming a Substitute Limited Partner or Substitute Preferred
Limited Partner) represents and warrants to each other Partner that (i) such
Partner has the legal capacity to enter into this Agreement and perform such
Partner’s obligations hereunder; (ii) the consummation of the transactions
contemplated by this Agreement to be performed by such Partner will not result
in a breach or violation of, or a default under, any agreement by which such
Partner or any of such Partner’s property is or are bound, or any statute,
regulation, order or other law to which such Partner is subject; and (iii) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms, as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors’ rights generally, as from time to time in effect, or the
application of equitable principles.

 

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(b)          Each Partner that is not an individual (including, without
limitation, each Substitute Limited Partner or Substitute Preferred Limited
Partner as a condition to becoming a Substitute Limited Partner or Substitute
Preferred Limited Partner) represents and warrants to each other Partner that
(i) its execution and delivery of this Agreement and all transactions
contemplated by this Agreement to be performed by it have been duly authorized
by all necessary action, including without limitation, that of its general
partner(s), committee(s), trustee(s), beneficiaries, director(s), member(s)
and/or stockholder(s), as the case may be, as required; (ii) the consummation of
such transactions shall not result in a violation of its certificate of limited
partnership, partnership agreement, trust agreement, limited liability company
operating agreement, charter or bylaws, as the case may be, a default (or which,
with notice or lapse of time, or both, would become a default) under any
agreement by which such Partner or any of such Partner’s properties is or are
bound, or a violation of any statute, regulation, order or other law to which
such Partner or any of its properties is or are subject; and (iii) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms, as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting the enforcement of creditors’ rights generally, as from time to time
in effect, or the application of equitable principles; provided that in the case
of clause (ii), for such violations or defaults as would not reasonably be
expected to materially and adversely affect the Partner’s ability to perform its
obligations under this Agreement.

 

(c)          Each Partner further represents, warrants, covenants and agrees
that, without the consent of the General Partner, which may be given or withheld
in its sole discretion, no Partner shall take any action that would cause the
Partnership at any time to have more than one hundred (100) partners (including
as partners those Persons indirectly owning an interest in the Partnership
through an entity treated, for U.S. federal income tax purposes, as a
partnership, disregarded entity, S corporation or grantor trust (such entity, a
“flow through entity”), but only if substantially all of the value of such
Person’s interest in the flow through entity is attributable to the flow through
entity’s interest (direct or indirect) in the Partnership).

 

(d)          The representations and warranties contained in this Section 3.3
shall survive the execution and delivery of this Agreement by each Partner (and,
in the case of a Substitute Limited Partner or Substitute Preferred Limited
Partner, the admission of such Substitute Limited Partner or Substitute
Preferred Limited Partner as a Limited Partner or Preferred Limited Partner in
the Partnership) and the dissolution and winding up of the Partnership.

 

(e)          Each Partner (including, without limitation, each Substitute
Limited Partner or Substitute Preferred Limited Partner as a condition to
becoming a Substitute Limited Partner or Substitute Preferred Limited Partner)
hereby acknowledges that no representations as to potential profit, cash flows,
funds from operations or yield, if any, in respect of the Partnership, the
General Partner have been made by any Partner or any employee or representative
or Affiliate of any Partner, and that projections and any other information,
including, without limitation, financial and descriptive information and
documentation, which may have been in any manner submitted to such Partner shall
not constitute any representation or warranty of any kind or nature, express or
implied.

 

20

 

  

3.4.          Not Publicly Traded. The General Partner, on behalf of the
Partnership, shall use its best efforts not to take any action which would
result in the Partnership being a publicly traded partnership within the meaning
of either Section 469(k)(2) or 7704(b) of the Code. Subject to the immediately
preceding sentence, it is expressly acknowledged and agreed by the Partners that
the General Partner may, to the extent necessary to prevent the Partnership from
being a publicly traded partnership within the meaning of either Section
469(k)(2) or 7704(b) of the Code, in its reasonable good faith judgment, waive
or otherwise modify the application with respect to any Partner(s) or
Assignee(s) of any provision herein restricting, prohibiting or otherwise
relating to (i) the transfer of a Partnership Interest or the Partnership Units
evidencing the same; (ii) the admission of any Limited Partners; and (iii) the
Redemption Rights of such Partners, and that such waivers or modifications may
be made by the General Partner at any time or from time to time, including,
without limitation, concurrently with the issuance of any Partnership Units
pursuant to the terms of this Agreement; provided, that the General Partner
shall not take any action to ensure that the Partnership will not be classified
as a “publicly traded partnership” for purposes of either Section 469(k)(2) or
7704(b) of the Code without the prior written consent of the Series B Preferred
Unit Recipient if such action could have a material adverse effect on the
economic interests of the Series B Preferred Unit Recipient.

 

ARTICLE 4
CAPITAL CONTRIBUTIONS

 

4.1.          Capital Contributions. The General Partner, the Limited Partners
and the Preferred Limited Partners have made capital contributions to the
Partnership in exchange for the Partnership Interests set forth opposite their
names on Exhibit A, as amended from time to time.

 

4.2.          Additional Capital Contributions and Issuances of Additional
Partnership Interests. Except as provided in this Section 4.2 or in Section 4.3,
the Partners shall have no right or obligation to make any additional Capital
Contributions or loans to the Partnership. The General Partner may contribute
additional capital to the Partnership, from time to time, and receive additional
Partnership Interests in respect thereof, in the manner contemplated in this
Section 4.2.

 

(a)          Issuances of Additional Partnership Interests.

 

(i)          General. The General Partner is hereby authorized to cause the
Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to time,
to the Partners (including the General Partner) or to other Persons for such
consideration and on such terms and conditions as shall be established by the
General Partner in its sole and absolute discretion, all without the approval of
any Limited Partners (but subject to the specific rights and powers of any
outstanding class or series of Preferred Units). Any additional Partnership
Interests issued thereby may be issued in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined by the General Partner in its sole and absolute discretion and
without the approval of any Limited Partner (but subject to the specific rights
and powers of any outstanding class or series of Preferred Units), subject to
Delaware law, including, without limitation, (i) the allocations of items of
Partnership income, gain, loss, deduction and credit to each such class or
series of Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership; provided, however, that no additional
Partnership Interests shall be issued to the General Partner unless:

 

21

 

 

(1)         (A) the additional Partnership Interests are issued in connection
with an issuance of REIT Shares of or other interests in the General Partner,
which shares or interests have designations, preferences and other rights, all
such that the economic interests are substantially similar to the designations,
preferences and other rights of the additional Partnership Interests issued to
the General Partner by the Partnership in accordance with this Section 4.2 and
(B) the General Partner shall make a Capital Contribution to the Partnership in
an amount equal to the proceeds raised in connection with the issuance of such
shares of stock of or other interests in the General Partner;

 

(2)         the additional Partnership Interests are issued in exchange for
property owned by the General Partner with a fair market value, as determined by
the General Partner, in good faith, equal to the value of the Partnership
Interests; or

 

(3)         the additional Partnership Interests are issued to all Partners
holding Partnership Units in proportion to their respective Percentage
Interests.

 

In addition, subject to the specific rights and powers of any outstanding class
or series of Preferred Units, the General Partner may acquire Partnership
Interests from other Partners pursuant to this Agreement. In the event that the
Partnership issues Partnership Interests pursuant to this Section 4.2(a), the
General Partner shall make such revisions to this Agreement (without any
requirement of receiving approval of the Limited Partners) as it deems necessary
to reflect the issuance of such additional Partnership Interests and any special
rights, powers, and duties associated therewith.

 

Without limiting the foregoing, subject to the specific rights and powers of any
outstanding class or series of Preferred Units, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units for less than
fair market value, so long as the General Partner concludes in good faith that
such issuance is in the best interests of the General Partner and the
Partnership.

 

22

 

 

(ii)         Upon Issuance of Additional Securities. The General Partner shall
not issue any additional REIT Shares (other than REIT Shares issued in
connection with an exchange pursuant to Section 8.5 hereof) or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase REIT Shares (collectively, “Additional Securities”)
other than to all holders of REIT Shares, unless (A) the General Partner shall
cause the Partnership to issue to the General Partner, as the General Partner
may designate, Partnership Interests or rights, options, warrants or convertible
or exchangeable securities of the Partnership having designations, preferences
and other rights, all such that the economic interests are substantially similar
to those of the Additional Securities, and (B) the General Partner contributes
the net proceeds from the issuance of such Additional Securities and from any
exercise of rights contained in such Additional Securities, directly and through
the General Partner, to the Partnership; provided, however, that the General
Partner is allowed to issue Additional Securities in connection with an
acquisition of a property to be held directly by the General Partner, but if and
only if, such direct acquisition and issuance of Additional Securities have been
approved and determined to be in the best interests of the General Partner and
the Partnership by a majority of the Independent Directors (as defined in the
General Partner's Charter). Without limiting the foregoing, the General Partner
is expressly authorized to issue Additional Securities for less than fair market
value, and to cause the Partnership to issue to the General Partner
corresponding Partnership Interests, so long as (x) the General Partner
concludes in good faith that such issuance is in the best interests of the
General Partner and the Partnership, including without limitation, the issuance
of REIT Shares and corresponding Partnership Units pursuant to an employee share
purchase plan providing for employee purchases of REIT Shares at a discount from
fair market value or employee stock options that have an exercise price that is
less than the fair market value of the REIT Shares, either at the time of
issuance or at the time of exercise, and (y) the General Partner contributes all
proceeds from such issuance to the Partnership. For example, in the event the
General Partner issues REIT Shares for a cash purchase price and contributes all
of the proceeds of such issuance to the Partnership as required hereunder, the
General Partner shall be issued a number of additional Partnership Units equal
to the product of (A) the number of such REIT Shares issued by the General
Partner, the proceeds of which were so contributed, multiplied by (B) a
fraction, the numerator of which is 100%, and the denominator of which is the
Exchange Factor in effect on the date of such contribution.

 

(b)          Certain Deemed Contributions of Proceeds of Issuance of REIT
Shares. In connection with any and all issuances of REIT Shares, the General
Partner shall make Capital Contributions to the Partnership of the proceeds
therefrom, provided that if the proceeds actually received and contributed by
the General Partner are less than the gross proceeds of such issuance as a
result of any underwriter's discount or other expenses paid or incurred in
connection with such issuance, then the General Partner shall be deemed to have
made Capital Contributions to the Partnership in the aggregate amount of the
gross proceeds of such issuance and the Partnership shall be deemed
simultaneously to have paid such offering expenses in accordance with Section
6.5 hereof and in connection with the required issuance of additional
Partnership Units to the General Partner for such Capital Contributions pursuant
to Section 4.2(a) hereof.

 

4.3.          Additional Funding. If the General Partner determines that it is
in the best interests of the Partnership to provide for additional Partnership
funds (“Additional Funds”) for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner or any of its Affiliates provide such
Additional Funds to the Partnership through loans or otherwise.

 

23

 

 

ARTICLE 5
ALLOCATIONS; DISTRIBUTIONS

 

5.1.          Allocations for Capital Account Purposes.

 

(a)          For purposes of maintaining Capital Accounts, after giving effect
to the allocations set forth in paragraphs (c) – (f) of Section 1 of Exhibit E,
all Net Income and Net Losses (including all items entering into the
determination of Net Income and Net Losses), as finally determined for each
taxable year of the Partnership, shall be allocated among the Partners so as to
cause each Partner’s Adjusted Balance as of the end of the taxable year to, as
nearly as possible, equal (proportionately) (i) the amount of cash that would be
distributed to the Partner under Section 5.2(b) if, as of the end of the taxable
year, the Partnership were dissolved, its affairs wound up and its assets sold
for cash equal to their Carrying Value, all Partnership liabilities were
satisfied (limited with respect to each non-recourse liability to the Carrying
Value of the assets securing such liability) and the net assets of the
Partnership were distributed to the Partners in accordance with Section 5.2(b),
minus (ii) such Partner’s share of Partnership Minimum Gain and Partner Minimum
Gain, computed immediately prior to the hypothetical sale of assets.

 

(b)          In no event shall Net Losses be allocated to a Limited Partner to
the extent such allocation would result in such partner having an Adjusted
Capital Account Deficit (as determined on a per Unit basis, taking into account
the portion of the Limited Partner’s Adjusted Capital Account Deficit
attributable to such Unit) at the end of any taxable year. All such Net Losses
shall be allocated to the other Partners in accordance with the other provisions
of this Section 5.1(b).

 

(c)          Subject to Section 5.1(d), if and to the extent any payment or
reimbursement to the General Partner made pursuant to Section 6.3 or otherwise
(other than distributions under Section 5.2) is determined for U.S. federal
income tax purposes not to constitute a payment of expenses to the General
Partner, the amount so determined shall constitute a guaranteed payment with
respect to capital within the meaning of Section 707(c) of the Code, shall be
treated consistently therewith by the Partnership and all Partners and shall not
be treated as a distribution for purposes of computing the Partners’ Capital
Accounts.

 

(d)          Notwithstanding any provision in this Agreement to the contrary, if
the Partnership pays or reimburses (directly or indirectly, including by reason
of giving the General Partner Capital Account credit in excess of actual Capital
Contributions made by the General Partner) fees, expenses or other costs
pursuant to Section 4.2, Section 6.3 and/or Section 6.5 or otherwise, and if
failure to treat all or part of such payment or reimbursement as a distribution
to the General Partner, or the receipt of Capital Account credit in excess of
actual capital contributions, would cause the General Partner to recognize
income that would cause the General Partner to fail to qualify as a REIT, then
such payment or reimbursement (or portion thereof) shall be treated as a
distribution to the General Partner for purposes of this Agreement, or the
Capital Account credit in excess of actual capital contributions shall be
reduced, in each case to the extent necessary to preserve the General Partner’s
status as a REIT.  The Capital Account of the General Partner shall be reduced
by such direct or indirect payment or reimbursement (or a portion thereof) in
the same manner as an actual distribution to the General Partner.  To the extent
treated as distributions, such fees, expenses or other costs shall not be taken
into account as Partnership fees, expenses or costs for the purposes of this
Agreement.  In the event that amounts are recharacterized as distributions or
Capital Accounts are reduced pursuant to this Section 5.1(c), allocations under
Section 5.1(a) and (b) for the current and subsequent periods shall be adjusted,
as reasonably determined by the General Partner, so that to the extent possible
the Partners have the same Capital Account balances they would have had if this
Section 5.1(c) had not applied.  This Section 5.1(c) is intended to prevent
direct or indirect reimbursements or payments under this Agreement from giving
rise to a violation of the General Partner’s REIT requirements while at the same
time preserving to the extent possible the parties’ intended economic
arrangement and shall be interpreted and applied consistent with such intent.

 

24

 

 

 

5.2.          Requirement and Characterization of Distributions.

 

(a)          Non-Liquidating Distributions. Subject to Section 5.2(b) and taking
into account Section 5.5, the General Partner shall distribute at least
quarterly (unless otherwise set forth in this Section 5.2(a)) all or such
portion of Available Cash generated by the Partnership during such quarter or
shorter period to the Partners that are Partners on the Partnership Record Date
with respect to such quarter or shorter (or longer) period in the following
priority:

 

(i)          First, to the holder of each Series A Preferred Unit an amount in
cash equal to the cumulative undistributed Series A Priority Return Amount,
payable once annually commencing on each Series A Distribution Date; provided
that, to the extent that cash distributions are not paid in full in accordance
with this Section 5.2(a)(i), such unpaid cash distributions shall accumulate and
may be declared by the General Partner and paid to the holders of the Series A
Preferred Units on any date fixed by the General Partner, whether or not a
regular Distribution Payment Date;

 

(ii)         Second, to the holder of each Preferred Unit an amount in cash
and/or PIK Distribution in accordance with Section 9.2(d)(iii) on December 31,
March 31, June 30 and September 30 of each year, commencing on each Distribution
Payment Date;

 

(iii)        Third, to the holder of each Common Unit until the holder of each
Common Unit has received, pursuant to this Section 5.2(a)(iii), an amount equal
to an aggregate return of 7.5% of the then-current Applicable Conversion Price
per Common Unit per annum, commencing on the date hereof; provided that, to the
extent that cash distributions are unable to be paid in full in accordance with
this Section 5.2(a)(iii), such accrued but unpaid cash distributions will be
added to the distributions payable to the Partners pursuant to this Section
5.2(a)(iii) on the subsequent Distribution Payment Date (for the avoidance of
doubt, such unpaid distributions shall not have priority over the distributions
payable pursuant to subclauses (i) and (ii) of this Section 5.2(a);

 

(iv)        Fourth, to the Partners in accordance with their Percentage
Interests.

 

(v)         Notwithstanding Sections 5.2(a)(i)-(iv), for purposes of any taxable
year, to the extent that (a) any holder of a Preferred Unit has received
distribution(s) pursuant to Section 5.2(a)(ii) in the form of a PIK Distribution
and (b) the Partnership has net taxable income for U.S. federal income tax
purposes for such taxable year allocable to the holder of such Preferred Unit
(or if, in the absence of such taxable income, any income is includible by such
holder of a Preferred Unit with respect to such Preferred Units (e.g., any
income includible pursuant to Section 707(c) of the Code)), the Partnership
shall, prior to making any distributions pursuant to Sections 5.2(a)(i)-(iv),
make a distribution (a “Tax Distribution”) to each such Partner in an amount
equal to the product of (x) the Partner’s allocable share of the Partnership’s
net taxable income (including for these purposes any income includible by a
Preferred Limited Partner with respect to their Preferred Units (e.g., any
income includible pursuant to Section 707(c) of the Code)) allocable to, or
otherwise includible with respect to, such PIK Distribution and (y) an assumed
tax rate equal to the highest combined federal, state and local marginal tax
rate then applicable to individual residents or corporate taxpayers residing in
New York, New York (taking into account the character of the applicable income
and the deductibility of state and local income tax for federal income tax
purposes). All Tax Distributions shall be treated as advances of any amounts
that such Partner would otherwise be entitled to receive pursuant to any other
distribution provision of this Agreement. For the avoidance of doubt, with
respect to the calculation of any Tax Distribution, only amounts allocable, or
otherwise includible, with respect to income received from the Partnership shall
be taken into account.

 

25

 

  

(b)          Liquidating Distributions. Notwithstanding Section 5.2(a) but
subject to Section 5.6, upon liquidation of the Partnership, after payment of or
adequate provision for all debts and obligations to creditors of the
Partnership, including any Partner loans, any remaining assets of the
Partnership shall be distributed to the Partners in the following order of
priority:

 

(i)          First, to the holder of each Series B Convertible Preferred Unit in
the amount of the Liquidation Preference with respect to that Series B
Convertible Preferred Unit pursuant to Section 9.2(d)(ii), in the order of
priority of payment of such liquidation preferences provided in this Agreement,
and among the holders of each Unit entitled to liquidation preferences of the
same priority in proportion to the liquidation preference of such priority
payable to each such Preferred Unit holder.

 

(ii)         Second, to the holder of each Series A Preferred Unit, the
cumulative undistributed Series A Priority Return Amount with respect to that
Unit, and among the Series A Preferred Unit holders in proportion to such
amounts.

 

(iii)        Third, to the holder of each Common Unit until the holder of each
Common Unit has received, pursuant to Section 5.2(a)(iii) and this Section
5.2(b)(iii), an amount equal to an aggregate return of 7.5% of the then-current
Applicable Conversion Price per Common Unit per annum, commencing on the date
hereof, and among the holders of Common Units in proportion to the amount
payable to each under this Section 5.2(b)(iii).

 

(iv)        Fourth, to the holder of each Series A Preferred Unit the amount of
the holder’s Capital Contribution with respect to each Series A Preferred Unit,
and among the holders of Series A Preferred Units in proportion to such amounts.

 

(v)         Fifth, to the holder of each Common Unit the amount of its Capital
Contribution with respect to each Common Unit, and among the holders of Common
Units in proportion to such amounts.

 

(vi)        Sixth, to the Partners in accordance with their Percentage
Interests.

 

5.3.          REIT Distribution Requirements. After giving effect to any
distributions pursuant to Section 5.2, the General Partner shall use its
commercially reasonable efforts to cause the Partnership to distribute amounts
sufficient to enable the General Partner to pay shareholder dividends that will
allow the General Partner to (i) meet its distribution requirement for
qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid
any federal income or excise tax liability imposed by the Code.

 

26

 

  

5.4.          No Right to Distributions In Kind. Subject to Section 5.2(a) and
the specific terms and rights of any outstanding class or series of Preferred
Units, no Partner shall be entitled to demand property other than cash in
connection with any distributions by the Partnership.

 

5.5.          Limitations of Return of Capital Contributions. Notwithstanding
any of the provisions of this Article 5, no Partner shall have the right to
receive and the General Partner shall not have the right to make, a distribution
that includes a return of all or part of a Partner's Capital Contributions,
unless after giving effect to the return of a Capital Contribution, the sum of
all Partnership liabilities, other than the liabilities to a Partner for the
return of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.

 

5.6.          Withholding. The General Partner is hereby authorized and directed
by each Partner to cause the Partnership to withhold from allocations,
distributions or other amounts payable to the Partner such amount or amounts as
shall be required by the Code, the Regulations or applicable provisions of
foreign, state or local tax law, and to remit such amount to the Service or such
other applicable foreign, state or local taxing authority at such times as may
be required by the relevant taxing authority. Any amount so withheld shall be
treated for purposes of this Agreement as a distribution or other payment, if
applicable, by the Partnership to the Partner. If at any time the amount
required to be withheld with respect to any Partner exceeds the amount
distributable (or other amount payable) to the Partner at that time, the
subsequent distribution(s) to such Partner shall be reduced in the amount equal
to the excess. All amounts withheld shall be timely remitted by the Partnership
to the relevant taxing authorities.

 

5.7.          Substantial Economic Effect. It is the intent of the Partners that
the allocations of Net Income and Net Loss under this Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the
Regulations promulgated pursuant thereto. Article 5 and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent; provided, that any required adjustment or maintenance does not have
a material adverse effect on the economic interests of the Partners.

 

ARTICLE 6
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER

 

6.1.          Management of the Partnership.

 

(a)          Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Except as set forth in this Agreement, neither the Limited Partners nor the
Preferred Limited Partners shall have any authority, right, or power to bind the
Partnership, or to manage, or to participate in the management of the business
and affairs of the Partnership in any manner whatsoever. Such management shall
in every respect be the full and complete responsibility of the General Partner
alone as herein provided. Subject to the restrictions specifically contained in
this Agreement, the powers of the General Partner shall include, without
limitation, the authority to take the following actions on behalf of the
Partnership:

 

27

 

  

(i)          to acquire, purchase, own, operate, lease and dispose of any real
property and any other property or assets including, but not limited to notes
and mortgages, that the General Partner determines are necessary or appropriate
or in the best interests of the business of the Partnership;

 

(ii)         to construct buildings and make other improvements on the
properties owned or leased by the Partnership;

 

(iii)        to authorize, issue, sell, redeem or otherwise purchase any
Partnership Interests or any securities (including secured and unsecured debt
obligations of the Partnership, debt obligations of the Partnership convertible
into any class or series of Partnership Interests, or options, rights, warrants
or appreciation rights relating to any Partnership Interests) of the
Partnership;

 

(iv)        to borrow or lend money for the Partnership, issue or receive
evidences of indebtedness in connection therewith, refinance, increase the
amount of, modify, amend or change the terms of, or extend the time for the
payment of, any such indebtedness, and secure such indebtedness by mortgage,
deed of trust, pledge or other lien on the Partnership's assets;

 

(v)         to pay, either directly or by reimbursement, for all operating costs
and general administrative expenses of the Partnership to third parties or to
the General Partner or its Affiliates as set forth in this Agreement;

 

(vi)        to guarantee or become a co-maker of indebtedness of the General
Partner or any Subsidiary thereof, refinance, increase the amount of, modify,
amend or change the terms of, or extend the time for the payment of, any such
guarantee or indebtedness, and secure such guarantee or indebtedness by
mortgage, deed of trust, pledge or other lien on the Partnership's assets;

 

(vii)       to use assets of the Partnership (including, without limitation,
cash on hand) for any purpose consistent with this Agreement, including, without
limitation, payment, either directly or by reimbursement, of all operating costs
and general administrative expenses of the General Partner, the Partnership or
any Subsidiary of either, to third parties or to the General Partner as set
forth in this Agreement;

 

(viii)      to lease all or any portion of any of the Partnership's assets,
whether or not the terms of such leases extend beyond the termination date of
the Partnership and whether or not any portion of the Partnership's assets so
leased are to be occupied by the lessee, or, in turn, subleased in whole or in
part to others, for such consideration and on such terms as the General Partner
may determine;

 

28

 

 

(ix)         to prosecute, defend, arbitrate, or compromise any and all claims
or liabilities in favor of or against the Partnership, on such terms and in such
manner as the General Partner may reasonably determine, and similarly to
prosecute, settle or defend litigation with respect to the Partners, the
Partnership, or the Partnership's assets;

 

(x)          to file applications, communicate, and otherwise deal with any and
all governmental agencies having jurisdiction over, or in any way affecting, the
Partnership's assets or any other aspect of the Partnership business;

 

(xi)         to make or revoke any election permitted or required of the
Partnership by any taxing authority;

 

(xii)        to maintain such insurance coverage for public liability, fire and
casualty, and any and all other insurance for the protection of the Partnership,
for the conservation of Partnership assets, or for any other purpose convenient
or beneficial to the Partnership, in such amounts and such types, as it shall
determine from time to time;

 

(xiii)       to determine whether or not to apply any insurance proceeds for any
property to the restoration of such property or to distribute the same;

 

(xiv)      to establish one or more divisions of the Partnership, to hire and
dismiss employees of the Partnership or any division of the Partnership, and to
retain legal counsel, accountants, consultants, real estate brokers, and such
other persons, as the General Partner may deem necessary or appropriate in
connection with the Partnership business and to pay therefor such reasonable
remuneration as the General Partner may deem reasonable and proper;

 

(xv)       to retain other services of any kind or nature in connection with the
Partnership business, and to pay therefor such remuneration as the General
Partner may deem reasonable and proper;

 

(xvi)      to negotiate and conclude agreements on behalf of the Partnership
with respect to any of the rights, powers and authority conferred upon the
General Partner;

 

(xvii)     to maintain accurate accounting records and to file promptly all
federal, state and local income tax returns on behalf of the Partnership;

 

(xviii)    to distribute Partnership cash or other Partnership assets in
accordance with this Agreement;

 

(xix)       to form or acquire an interest in, and contribute property to, any
further limited or general partnerships, joint ventures or other relationships
that it deems desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to, its Subsidiaries and any
other Person in which it has an equity interest from time to time);

 

(xx)        to establish Partnership reserves for working capital, capital
expenditures, contingent liabilities, or any other valid Partnership purpose;

 

29

 

  

(xxi)       to merge, consolidate or combine the Partnership with or into
another Person;

 

(xxii)      to do any and all acts and things necessary or prudent to ensure
that the Partnership will not be classified as a “publicly traded partnership”
for purposes of Section 7704 of the Code; and

 

(xxiii)     to take such other action, execute, acknowledge, swear to or deliver
such other documents and instruments, and perform any and all other acts that
the General Partner deems necessary or appropriate for the formation,
continuation and conduct of the business and affairs of the Partnership
(including, without limitation, all actions consistent with allowing the General
Partner at all times to qualify as a REIT unless the General Partner voluntarily
terminates its REIT status (subject to the prior written consent of the Series B
Preferred Unit Recipient, as provided in the Securities Purchase Agreement)) and
to possess and enjoy all of the rights and powers of a general partner as
provided by the Act.

 

(b)          Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.

 

6.2.          Delegation of Authority. The General Partner may delegate any or
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.

 

6.3.          Indemnification and Exculpation of Indemnitees.

 

(a)          The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise.

 

Notwithstanding the foregoing, the Partnership shall not provide for
indemnification for an Indemnitee for any liability or loss suffered by any of
them in contravention of Delaware law and unless all of the following conditions
are met:

 

(i)          The Indemnitee determined, in good faith, that the course of
conduct that caused the loss or liability was in the best interests of the
Partnership.

 

(ii)         The Indemnitee was acting on behalf of or performing services for
the Partnership.

 

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(iii)        Such liability or loss was not the result of:

 

(A)         negligence or misconduct by the Indemnitee (excluding the
Independent Directors); or

 

(B)         gross negligence or willful misconduct by the Independent Directors.

 

Any indemnification pursuant to this Section 6.3 shall be made only out of the
assets of the Partnership.

 

(b)          Notwithstanding the foregoing, the Partnership shall not indemnify
an Indemnitee or any Person acting as a broker-dealer for any loss, liability or
expense arising from or out of an alleged violation of federal or state
securities laws by such party unless one or more of the following conditions are
met: (i) there has been a successful adjudication on the merits of each count
involving alleged material securities law violations as to the particular
Indemnitee; (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular Indemnitee; or (iii) a
court of competent jurisdiction approves a settlement of the claims against a
particular Indemnitee and finds that indemnification of the settlement and the
related costs should be made, and the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and of the published position of any state securities regulatory
authority in which securities were offered or sold as to indemnification for
violations of securities laws.

 

(c)          The Partnership shall pay or reimburse reasonable legal expenses
and other costs incurred by the Indemnitee in advance of the final disposition
of a proceeding only if (in addition to the procedures required by the Act) all
of the following are satisfied: (a) the proceeding relates to acts or omissions
with respect to the performance of duties or services on behalf of the
Partnership, (b) the legal proceeding was initiated by a third party who is not
a Limited Partner or Preferred Limited Partner or, if by a Limited Partner or
Preferred Limited Partner acting in his or her capacity as such, a court of
competent jurisdiction approves such advancement and (c) the Indemnitee
undertakes to repay the amount paid or reimbursed by the Partnership, together
with the applicable legal rate of interest thereon, if it is ultimately
determined that the Indemnitee is not entitled to indemnification.

 

(d)          The indemnification provided by this Section 6.3 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.

 

(e)          The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.

 

31

 

 

(f)          For purposes of this Section 6.3, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.3; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.

 

(g)          In no event may an Indemnitee subject the Limited Partners or
Preferred Limited Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.

 

(h)          An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.3 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.

 

(i)          The provisions of this Section 6.3 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

 

(j)          Neither the amendment nor repeal of this Section 6.3, nor the
adoption or amendment of any other provision of the Agreement inconsistent with
Section 6.3, shall apply to or affect in any respect the applicability with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.

 

6.4.          Liability of the General Partner.

 

(a)          Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Limited Partners or Preferred Limited Partners for losses
sustained or liabilities incurred as a result of errors in judgment or of any
act or omission if the General Partner acted in good faith. The General Partner
shall not be in breach of any duty that the General Partner may owe to the
Limited Partners, Preferred Limited Partners or the Partnership or any other
Persons under this Agreement or of any duty stated or implied by law or equity
provided the General Partner, acting in good faith, abides by the terms of this
Agreement.

 

(b)          The Limited Partners and Preferred Limited Partners expressly
acknowledge that the General Partner is acting on behalf of the Partnership,
itself and its shareholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners and
Preferred Limited Partners (including, without limitation, the tax consequences
to Limited Partners and Preferred Limited Partners or the tax consequences of
some, but not all, of the Limited Partners and Preferred Limited Partners) in
deciding whether to cause the Partnership to take (or decline to take) any
actions. In the event of a conflict between the interests of its shareholders on
one hand and the Limited Partners (or Preferred Limited Partners) on the other,
the General Partner shall endeavor in good faith to resolve the conflict in a
manner not adverse to either its shareholders or the Limited Partners (or
Preferred Limited Partners); provided, however, that for so long as the General
Partner directly owns a controlling interest in the Partnership, any such
conflict that the General Partner, in its sole and absolute discretion,
determines cannot be resolved in a manner not adverse to either its shareholders
or the Limited Partner (or Preferred Limited Partners) shall be resolved in
favor of the shareholders. The General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners (or Preferred Limited Partners) in connection with such
decisions, provided that the General Partner has acted in good faith.

 

32

 

  

(c)          Subject to its obligations and duties as General Partner set forth
in Section 6.1 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.

 

(d)          Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to prevent the General Partner from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners and Preferred Limited Partners; provided, that the General
Partner shall not take any action (or omit from taking any action) in
furtherance of subclauses (i) and (ii), above, without the prior written consent
of the Series B Preferred Unit Recipient if such action could have a material
adverse effect on the economic interests of the Series B Preferred Unit
Recipient.

 

(e)          Any amendment, modification or repeal of this Section 6.4 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership, the Limited
Partners and the Preferred Limited Partners under this Section 6.4 as in effect
immediately prior to such amendment, modification or repeal with respect to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when claims relating to such matters may arise or be
asserted.

 

6.5.          Reimbursement of General Partner.

 

(a)          Except as provided in this Section 6.5 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.

 

(b)          The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all Administrative Expenses.

 

33

 

 

6.6.          Outside Activities. Subject to the Charter and any agreements
entered into by the General Partner or its Affiliates with the Partnership or a
Subsidiary, any officer, director, employee, agent, trustee, Affiliate or
shareholder of the General Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities substantially similar
or identical to those of the Partnership. Neither the Partnership nor any of the
Limited Partners or Preferred Limited Partners shall have any rights by virtue
of this Agreement in any such business ventures, interest or activities. None of
the Limited Partners nor Preferred Limited Partners nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
established hereby in any such business ventures, interests or activities, and
the General Partner shall have no obligation pursuant to this Agreement to offer
any interest in any such business ventures, interests and activities to the
Partnership or any Limited Partner or Preferred Limited Partner, even if such
opportunity is of a character which, if presented to the Partnership or any
Limited Partner or Preferred Limited Partner, could be taken by such Person.

 

6.7.          Employment or Retention of Affiliates. Subject to the specific
terms and rights of any outstanding class or series of Preferred Units:

 

(a)          Any Affiliate of the General Partner may be employed or retained by
the Partnership and may otherwise deal with the Partnership (whether as a buyer,
lessor, lessee, manager, furnisher of goods or services, broker, agent, lender
or otherwise) and may receive from the Partnership any compensation, price, or
other payment therefor which the General Partner determines to be fair and
reasonable.

 

(b)          The Partnership may lend or contribute to its Subsidiaries or other
Persons in which it has an equity investment, and such Persons may borrow funds
from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.

 

(c)          The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement, applicable law.

 

(d)          Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.

 

6.8.          General Partner Participation. The General Partner agrees that all
business activities of the General Partner, including activities pertaining to
the acquisition, development or ownership of real property, shall be conducted
through the Partnership or one or more Subsidiary Partnerships; provided,
however, that the General Partner is allowed to make a direct acquisition, but
if and only if, such acquisition is made in connection with the issuance of
Additional Securities, which direct acquisition and issuance have been approved
and determined to be in the best interests of the General Partner and the
Partnership by a majority of the Independent Directors.

 

34

 

  

6.9.          Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.

 

6.10.         Miscellaneous. In the event the General Partner redeems any REIT
Shares (other than REIT Shares redeemed in accordance with the share redemption
program of the General Partner through proceeds received from the General
Partner's dividend reinvestment plan), then the General Partner shall cause the
Partnership to purchase from the General Partner a number of Partnership Units
as determined based on the application of the Exchange Factor on the same terms
that the General Partner exchanged such REIT Shares. Moreover, if the General
Partner makes a cash tender offer or other offer to acquire REIT Shares, then
the General Partner shall cause the Partnership to make a corresponding offer to
the General Partner to acquire an equal number of Partnership Units held by the
General Partner. In the event any REIT Shares are exchanged by the General
Partner pursuant to such offer, the Partnership shall redeem an equivalent
number of the General Partner's Partnership Units for an equivalent purchase
price based on the application of the Exchange Factor.

 

ARTICLE 7
CHANGES IN GENERAL PARTNER

 

7.1.          Transfer of the General Partner's Partnership Interest .

 

(a)          The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as provided
in or in connection with a transaction contemplated by Section 7.1(b), (c) or
(d). Notwithstanding the foregoing, the right of the General Partner to engage
in any transaction contemplated in Section 7.1(b), (c) or (d) shall be subject
to the specific terms and rights of any outstanding class or series of Preferred
Units.

 

(b)          Except as otherwise provided in Section 6.4(b), 7.1(c) or (d)
hereof, the General Partner shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, (other than in connection with a change in the General
Partner's state of incorporation or organizational form) in each case which
results in a change of control of the General Partner (a “Transaction”), unless:

 

(i)          the approval of the holders of a majority of the Partnership Units
(including the Partnership Units held by the General Partner or an Affiliate
thereof) is obtained;

 

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(ii)         as a result of such Transaction all Limited Partners will receive
for each Partnership Unit an amount of cash, securities, or other property equal
to the product of the Exchange Factor and the greatest amount of cash,
securities or other property paid in the Transaction to a holder of one REIT
Share in consideration of one REIT Share, provided that if, in connection with
the Transaction, a purchase, tender or exchange offer (“Offer”) shall have been
made to and accepted by the holders of more than 50% of the outstanding REIT
Shares, each holder of Partnership Units shall be given the option to exchange
its Partnership Units for the greatest amount of cash, securities, or other
property which a Limited Partner would have received had it (A) exercised its
Exchange Right and (B) sold, tendered or exchanged pursuant to the Offer the
REIT Shares received upon exercise of the Exchange Right immediately prior to
the expiration of the Offer; or

 

(iii)        the General Partner is the surviving entity in the Transaction and
either (A) the holders of REIT Shares do not receive cash, securities, or other
property in the Transaction or (B) all Limited Partners (other than the General
Partner or any Subsidiary) receive an amount of cash, securities, or other
property (expressed as an amount per REIT Share) that is no less than the
product of the Exchange Factor and the greatest amount of cash, securities, or
other property (expressed as an amount per REIT Share) received in the
Transaction by any holder of REIT Shares.

 

(c)          Notwithstanding Section 7.1(b), the General Partner may merge with
or into or consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity (the “Surviving General Partner”), other than Partnership Units held by
the General Partner, are contributed, directly or indirectly, to the Partnership
as a Capital Contribution in exchange for Partnership Units with a fair market
value equal to the value of the assets so contributed as determined by the
Surviving General Partner in good faith and (ii) the Surviving General Partner
expressly agrees to assume all obligations of the General Partner, as
appropriate, hereunder. Upon such contribution and assumption, the Surviving
General Partner shall have the right and duty to amend this Agreement as set
forth in this Section 7.1(c). The Surviving General Partner shall in good faith
arrive at a new method for the calculation of the REIT Shares Amount and
Exchange Factor for a Partnership Unit after any such merger or consolidation so
as to approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of REIT Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been exchanged
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Exchange Factor. The Surviving General Partner also
shall in good faith modify the definition of REIT Shares and make such
amendments to Sections 8.5 and 8.7 hereof so as to approximate the existing
rights and obligations set forth in Sections 8.5 and 8.7 as closely as
reasonably possible. The above provisions of this Section 7.1(c) shall similarly
apply to successive mergers or consolidations permitted hereunder.

 

36

 

 

In respect of any transaction described in the preceding paragraph, the General
Partner is required to use its commercially reasonable efforts to structure such
transaction to avoid causing the Limited Partners and the Preferred Limited
Partners to recognize a gain for federal income tax purposes by virtue of the
occurrence of or their participation in such transaction, provided such efforts
are consistent with the exercise of the Board of Directors' fiduciary duties to
the shareholders of the General Partner under applicable law; provided, further,
that the approval of the Series B Preferred Unit Recipient shall be required for
any such merger or consolidation transaction described in the preceding
paragraph that would result in the recognition of a material amount of gain for
federal income tax purposes by the Series B Preferred Unit Recipient.

 

(d)          Notwithstanding Section 7.1(b),

 

(i)          a General Partner may transfer all or any portion of its General
Partnership Interest to (A) a wholly-owned Subsidiary of such General Partner or
(B) the owner of all of the ownership interests of such General Partner, and
following a transfer of all of its General Partnership Interest, may withdraw as
General Partner; and

 

(ii)         the General Partner may engage in Transactions not required by law
or by the rules of any national securities exchange on which the REIT Shares are
listed to be submitted to the vote of the holders of the REIT Shares.

 

7.2.          Admission of a Substitute or Additional General Partner. A Person
shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:

 

(a)          the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.5 hereof in connection
with such admission shall have been performed;

 

(b)          if the Person to be admitted as a substitute or additional General
Partner is a corporation or a partnership it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of such Person's
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and

 

(c)          counsel for the Partnership shall have rendered an opinion (relying
on such opinions from other counsel and the state or any other jurisdiction as
may be necessary) that the admission of the person to be admitted as a
substitute or additional General Partner is in conformity with the Act, that
none of the actions taken in connection with the admission of such Person as a
substitute or additional General Partner will cause (i) the Partnership to be
classified other than as a partnership, or to be classified as a publicly traded
partnership, for federal income tax purposes, or (ii) the loss of any Limited
Partner's or Preferred Limited Partner’s limited liability.

 

37

 

  

7.3.          Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner.

 

(a)          Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.4(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.3(b) hereof. The merger of the
General Partner with or into any entity that is admitted as a substitute or
successor General Partner pursuant to Section 7.2 hereof shall not be deemed to
be the withdrawal, dissolution or removal of the General Partner.

 

(b)          Following the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.4(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners and the Preferred Limited Partners, within 90
days after such occurrence, may elect to continue the business of the
Partnership for the balance of the term specified in Section 2.4 hereof by
selecting, subject to Section 7.2 hereof and any other provisions of this
Agreement, a substitute General Partner by consent of a majority in interest of
each of the Limited Partners and the Preferred Limited Partners, voting
separately. If the Limited Partners and the Preferred Limited Partners elect to
continue the business of the Partnership and admit a substitute General Partner,
the relationship with the Partners and of any Person who has acquired an
interest of a Partner in the Partnership shall be governed by this Agreement.

 

7.4.          Removal of a General Partner.

 

(a)          Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners. The Limited Partners
and the Preferred Limited Partners may not remove the General Partner, with or
without cause.

 

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(b)          If a General Partner has been removed pursuant to this Section 7.4
and the Partnership is continued pursuant to Section 7.3 hereof, such General
Partner shall promptly transfer and assign its General Partnership Interest in
the Partnership to the substitute General Partner approved by a majority in
interest of each the Limited Partners and the Preferred Limited Partners in
accordance with Section 7.3(b) hereof and otherwise admitted to the Partnership
in accordance with Section 7.2 hereof. At the time of assignment, the removed
General Partner shall be entitled to receive from the substitute General Partner
the fair market value of the General Partnership Interest of such removed
General Partner as reduced by any damages caused to the Partnership by such
General Partner. Such fair market value shall be determined by an appraiser
mutually agreed upon by the General Partner and a majority in interest of each
of the Limited Partners and the Preferred Limited Partners, voting separately,
within 10 days following the removal of the General Partner. In the event that
the parties are unable to agree upon an appraiser, the removed General Partner
and a majority in interest of each of the Limited Partners and the Preferred
Limited Partners, voting separately, each shall select an appraiser for a total
of at most three separate appraisals. Each such appraiser shall complete an
appraisal of the fair market value of the removed General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and the
fair market value of the removed General Partner's General Partnership Interest
shall be the average of such appraisals.

 

(c)          The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.4(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead, such
removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.4(b).

 

(d)          All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.

 

ARTICLE 8
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS AND PREFERRED LIMITED PARTNERS

 

8.1.          Management of the Partnership. Except as otherwise expressly
provided in this Agreement, the Limited Partners and Preferred Limited Partners
shall not participate in the management or control of Partnership business nor
shall they transact any business for the Partnership, nor shall they have the
power to sign for or bind the Partnership, such powers being vested solely and
exclusively in the General Partner.

 

8.2.          Power of Attorney. Each Limited Partner and Preferred Limited
Partner hereby irrevocably appoints the General Partner its true and lawful
attorney-in-fact, who may act for each Limited Partner and Preferred Limited
Partner and in its name, place and stead, and for its use and benefit, to sign,
acknowledge, swear to, deliver, file or record, at the appropriate public
offices, any and all documents, certificates, and instruments as may be deemed
necessary or desirable by the General Partner to carry out fully the provisions
of this Agreement and the Act in accordance with their terms, which power of
attorney is coupled with an interest and shall survive the death, dissolution or
legal incapacity of the Limited Partner or Preferred Limited Partner, or the
transfer by the Limited Partner or Preferred Limited Partner of any part or all
of its Partnership Interest.

 

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8.3.          Limitation on Liability of Limited Partners and Preferred Limited
Partners. No Limited Partner or Preferred Limited Partner shall be liable for
any debts, liabilities, contracts or obligations of the Partnership. A Limited
Partner or Preferred Limited Partner shall be liable to the Partnership only to
make payments of its Capital Contribution, if any, as and when due hereunder.
After its Capital Contribution is fully paid, no Limited Partner or Preferred
Limited Partner shall, except as otherwise required by the Act, be required to
make any further Capital Contributions or other payments or lend any funds to
the Partnership.

 

8.4.          [reserved]

 

8.5.          Exchange Right.

 

(a)          Subject to Section 8.5(b) and the provisions of any agreements
between the Partnership and one or more Limited Partners with respect to
Partnership Units held by them, each Limited Partner shall have the right (the
“Exchange Right”) to require the General Partner to purchase directly and
acquire on a Specified Exchange Date all or a portion of the Partnership Units
held by such Limited Partner at an exchange price equal to and in the form of
the REIT Shares Amount to be paid by the General Partner. The Exchange Right
shall be exercised pursuant to a Notice of Exchange delivered to the General
Partner (with a copy to the Partnership) by the Limited Partner who is
exercising the Exchange Right (the “Exchanging Partner”); provided, that no
Limited Partner may deliver more than four Notices of Exchange during each
calendar year. Upon the Specified Exchange Date the General Partner shall
acquire the Partnership Units offered for exchange by the Exchanging Partner and
shall be treated for all purposes of this Agreement as the owner of such
Partnership Units, and each of the Exchanging Partner, the Partnership, and the
General Partner, as the case may be, shall treat the transaction between the
General Partner, as the case may be, and the Exchanging Partner for federal
income tax purposes as a sale of the Exchanging Partner's Partnership Units to
the General Partner, as the case may be. A Limited Partner may not exercise the
Exchange Right for less than 1,000 Partnership Units or, if such Limited Partner
holds less than 1,000 Partnership Units, all of the Partnership Units held by
such Partner. The Exchanging Partner shall have no right, with respect to any
Partnership Units so exchanged, to receive any distribution paid with respect to
Partnership Units if the record date for such distribution is on or after the
Specified Exchange Date. Each Exchanging Partner agrees to execute such
documents as the General Partner may reasonably require in connection with the
issuance of REIT Shares upon exercise of the Exchange Right.

 

(b)          Notwithstanding the provisions of Section 8.5(a), but subject to
Section 8.5(c), unless a Limited Partner executes and delivers to the General
Partner an ownership limit waiver certificate in the form set forth in Exhibit C
hereto (the “Ownership Limit Waiver”) such Limited Partner shall not be entitled
to exercise the Exchange Right if the delivery of REIT Shares to such Partner on
the Specified Exchange Date by the General Partner pursuant to Section 8.5(a)
would result in such Partner or any other person owning, directly or indirectly,
REIT Shares in excess of the Aggregate Stock Ownership Limit or the Common Stock
Ownership Limit (as each is defined in the Charter and calculated in accordance
therewith), except as provided in the Charter.

 

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(c)          Notwithstanding the provisions of Section 8.5(b), if the Series B
Preferred Unit Recipient is unable to execute and deliver the Ownership Limit
Waiver, or comply with the provisions of a previously issued Ownership Limit
Waiver, such Partner shall have to right, by providing written notice to the
General Partner, to cause the General Partner to hold any real property or other
investment through a TRS if such action would allow the Series B Preferred Unit
Recipient to comply with the requirements of the Ownership Limit Waiver;
provided, however (i) the Series B Preferred Unit Recipient shall be solely
responsible for any incremental tax burden and any other expenses associated
with the formation and operations of such TRS and any such incremental tax
burden and other expenses will be applied to reduce the amount of distributions
otherwise payable to the Series B Preferred Unit Recipient in accordance with
Section 9.2(d)(iii) hereof and (ii) such action would not cause the General
Partner to fail to qualify as a REIT. The taxes and expenses described in (i) of
this Section 8.5(c) shall be as reasonably agreed to by the parties at such
time.

 

(d)          Notwithstanding anything to the contrary herein, no redemption of
Series B Convertible Preferred Units or Common Units by the Partnership shall be
effective with respect to a holder thereof (i) unless the Partnership delivers
notice of such redemption to the holder thereof no less than 5 business days
prior to the proposed date of such redemption and (ii) if the holder thereof
delivers to the General Partner an irrevocable Notice of Exchange prior to the
fifth business day following receipt of the notice thereof from the Partnership
(or such later date as may otherwise be permitted in this Section 8.5).

 

8.6.          Taxable REIT Subsidiary. Without limiting the Series B Preferred
Unit Recipient’s rights under Sections 8.5(c) and 9.2(d)(vii), the Series B
Preferred Unit Recipient shall have the right, by providing written notice to
the General Partner, to cause the General Partner to hold any real property or
other investment through a TRS; provided, that (i) the Series B Preferred Unit
Recipient shall be solely responsible for any incremental tax burden and any
other expenses associated with the formation and operations of such TRS and any
such incremental tax burden and other expenses will be applied to reduce the
amount of distributions otherwise payable to the Series B Preferred Unit
Recipient in accordance with Section 9.2(d)(iii) hereof and (ii) such action
would not cause the General Partner to fail to qualify as a REIT. The taxes and
expenses described in (i) of this Section 8.6 shall be as reasonably agreed to
by the parties at such time.

 

ARTICLE 9
PREFERRED Limited PARTNERSHIP INTERESTS

 

9.1.          Series A Preferred Units.

 

(a)          Upon the first Closing Date pursuant to the Securities Purchase
Agreement, the General Partner will contribute the net proceeds received in
consideration of its issuance of the Series A Preferred REIT Shares to the
Partnership.

 

(b)          Upon the contribution of the net proceeds received in consideration
for the Series A Preferred REIT Shares to the Partnership by the General
Partner, and in accordance with Section 4.2 of the Agreement, the Partnership
will issue to the General Partner 1,000 Series A Preferred Units, equal to the
number of Series A Preferred REIT Shares issued by the General Partner pursuant
to the Securities Purchase Agreement, which issuance shall be reflected in
Exhibit A hereto.

 

41

 

  

(c)          For purposes of the Agreement, including the maintenance of Capital
Accounts, the General Partner shall be treated as making a Capital Contribution
of $100,000, equal to the value ascribed pursuant to the Securities Purchase
Agreement to the Series A Preferred REIT Shares.

 

(d)          (d)          The Series A Preferred Units shall have the following
designations, preferences and other rights, powers and duties:

 

(i)          Issuance Value. An issuance value of $100.00 per unit.

 

(ii)         Liquidation Preference.

 

(A)         A liquidation preference of $100.00 per Series A Preferred Unit (as
adjusted for any split, subdivision, combination, consolidation,
recapitalization or similar event with respect to the Series A Preferred Units),
as further adjusted pursuant to Section 9.1(d)(iii)(C) from time to time (the
“Series A Liquidation Preference”).

 

(B)         In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Partnership, the holders of the
Series A Preferred Units shall be entitled to receive out of the assets of the
Partnership or proceeds thereof legally available for distribution to Partners
of the Partnership, after satisfaction of all liabilities, if any, to creditors
of the Partnership and before any distribution of such assets or proceeds is
made to or set aside for the holders of Common Units or any series or class of
Partnership Interest junior to the Series A Preferred Units, a liquidating
distribution in an amount equal to the Liquidation Preference per share,
together with an amount equal to all distributions, if any, that have been
accrued or declared but not paid (or included in an increase to Liquidation
Preference) on the Series A Preferred Units prior to the date of payment of such
distribution (including any accumulation in respect of distributions that have
not been declared prior to such payment date). The Partnership shall mail
written notice of any such liquidation, not less than 20 days prior to the
payment date stated therein, to each holder of Series A Preferred Units.

 

(iii)        Priority Return. A cumulative preferred return thereon commencing
on the date of issuance as follows:

 

(A)         A “Series A Priority Return Amount”, payable in cash, at a “Series A
Priority Return Percentage” equal to 3 percent per annum of the Series A
Liquidation Preference for each Series A Preferred Unit issued, computed on the
basis of a 360-day year consisting of twelve 30-day months, accumulating on a
daily basis;

 

(B)         Such distributions shall be payable annually in arrears on each
anniversary of the date hereof or, if any such day is not a Business Day, the
preceding Business Day (each, a “Series A Distribution Payment Date”);

 

(C)         If and to the extent the Partnership does not pay in full the entire
distribution contemplated by this Section 9.1(d)(iii) in cash on the Series A
Distribution Payment Date in accordance herewith, the unpaid amount of such
distribution (based on the Priority Return Amount described in Section
9.1(d)(iii)(A)), until paid, shall be added to the Series A Liquidation
Preference.

 

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9.2.          Series B Convertible Preferred Units.

 

(a)          Upon each Closing Date pursuant to the Securities Purchase
Agreement, the Series B Preferred Unit Recipient will contribute the Exercised
Put Amount in respect of such Closing Date to the Partnership.

 

(b)          Upon the contribution of an Exercised Put Amount by the Series B
Preferred Unit Recipient, the Partnership will issue to the Series B Preferred
Unit Recipient a number of Series B Convertible Preferred Units equal to the
ratio of the Exercised Put Amount divided by the initial per unit purchase price
of $100.00, which issuance shall be reflected in Exhibit A hereto (the “Series B
Convertible Preferred Units”).

 

(c)          For purposes of the Agreement, including the maintenance of Capital
Accounts, the Series B Preferred Unit Recipient shall be treated as making a
Capital Contribution equal to the Exercised Put Amount in respect of such
Closing Date.

 

(d)          The Series B Convertible Preferred Units shall have the following
designations, preferences and other rights, powers and duties:

 

(i)          Issuance Value. An issuance value of $100.00 per unit (the “Series
B Issuance Value”).

 

(ii)         Liquidation Preference: In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Partnership, the holders of the Series B Convertible Preferred Units shall be
entitled to receive out of the assets of the Partnership or proceeds thereof
legally available for distribution to Partners of the Partnership, after
satisfaction of all liabilities, if any, to creditors of the Partnership and
before any distribution of such assets or proceeds is made to or set aside for
the holders of Common Units or any series or class of Partnership Interest
junior to the Series B Convertible Preferred Units, a liquidating distribution
in an amount equal to the greater of (i) $100.00 per Series B Convertible
Preferred Unit plus all accrued and unpaid distributions thereon (including any
accumulation in respect of distributions that have not been paid prior to such
payment date) and (ii) the amount of the liquidating distributions, as
determined by the General Partner (or the trustee or other Person or Persons
administering the liquidation, dissolution or winding-up of the Partnership in
accordance with applicable law), that would be made on the number of Common
Units into which such shares of Series B Convertible Preferred Units are
convertible immediately before such liquidation, dissolution or winding-up of
the Company (which, for the avoidance of doubt, does not include any
distributions payable solely to the Common Units in accordance with Section
9.2(d)(iii)(F) hereof) (such greater amount, as adjusted pursuant to the last
sentence of Section 9.2(d)(iii)(B) hereof, the “Series B Liquidation
Preference”). The Partnership shall mail written notice of any such liquidation,
not less than 20 days prior to the payment date stated therein, to each holder
of Series B Convertible Preferred Units.

 

(iii)        Priority Return. A cumulative preferred return thereon commencing
on the date of issuance as follows:

 

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(A)         A Priority Return Amount, payable in cash, at a Priority Return
Percentage equal to 7.5 percent per annum of the Series B Liquidation Preference
for each Series B Convertible Preferred Unit issued; or

 

(B)         To the extent insufficient funds are legally or otherwise available
for a cash payment as described in Section 9.2(d)(iii)(A) above, the unpaid
portion of such Priority Return Amount shall be payable in kind in additional
Series B Convertible Preferred Units (instead of the accrued but unpaid cash)
(each such distribution, a “PIK Distribution”) in an amount per Series B
Convertible Preferred Unit equal to (1) the product of (x) the Liquidation
Preference of such Series B Convertible Preferred Unit multiplied by a fraction,
the denominator of which is the Priority Return Amount otherwise payable in cash
on such Distribution Date and the numerator of which is the portion of such
Priority Return Amount not actually distributed in cash to the holder of such
Series B Convertible Preferred Unit on the applicable Distribution Payment Date
in respect of such Priority Return Amount and (y) a rate per annum equal to 10%
applied on the basis of the applicable Distribution Period, divided by (2)
$100.00. Series B Convertible Preferred Units payable as PIK Distributions to
any holder in respect of Series B Convertible Preferred Units will be aggregated
with all other PIK Distributions payable to each holder thereof, with any
remaining fractional Series B Convertible Preferred Units added to the Series B
Liquidation Preference (at a rate of $100 per Series B Convertible Preferred
Unit) until paid on a subsequent Distribution Payment Date.

 

For the avoidance of doubt, and solely by way of example, assuming a single
Series B Convertible Preferred Unit is outstanding (the “Outstanding Unit”),
with a Liquidation Preference of $100, and a Priority Return Amount of $7.50 for
the applicable Distribution Period (assuming a one year period), and assuming
that the Partnership distributes $3.00 in cash to the holder of the Outstanding
Unit on the applicable Distribution Payment Date, 0.06 of a single Series B
Convertible Preferred Unit would be distributed to the holder of the Outstanding
Unit under this Section 9.2(iii)(B), as follows: The Liquidation Preference of
the Outstanding Unit is $100, which is multiplied by a fraction the numerator of
which is the unpaid Priority Return Amount ($7.50 - $3.00 = $4.50) with the
denominator being the Priority Return Amount ($7.50) to result in $60. This $60
is then multiplied by 0.10 for the applicable Distribution Period to result in
$6. Dividing this $6 by 100 results in a 0.06 interest in a single Series B
Convertible Preferred Unit to be distributed to the holder of the Outstanding
Unit.

 

(C)         Such distributions shall be payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year or, if any such day is
not a Business Day, the preceding Business Day (each, a “Distribution Payment
Date”);

 

(D)         With respect to the payment of any PIK Distribution, each Series B
Convertible Preferred Unit issued shall initially have an Applicable Conversion
Price equal to that of the Series B Convertible Preferred Units with respect to
which it is issued. In the case of Series B Convertible Preferred Units issued
as a dividend on Series B Convertible Preferred Units, distributions shall
accrue and be cumulative from the Partnership Record Date in respect of which
such units were issued, or were scheduled to be issued (whether or not the
distributions were actually declared or the Series B Convertible Preferred Units
issued), as a distribution.

 

44

 

  

(E)         Distributions payable on the Series B Convertible Preferred Units
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months and shall be deemed to accumulate on a daily basis. Certificates issued
in payment of any distribution pursuant to this Section 9.2(d), or a notice of
issuance with respect to book entry shares, shall be delivered to the holders
entitled to receive such distribution no later than 15 Business Days following
the Distribution Payment Date.

 

(F)         In addition to the distributions payable on the Series B Convertible
Preferred Units pursuant to Sections 9.2(d)(iii)(A) and (B) hereof, the holders
of the Series B Convertible Preferred Units shall be entitled to receive: (aa) a
distribution per Series B Convertible Preferred Unit (on an as-converted basis)
equivalent to any distribution paid to the Common Units; provided, however, that
each such distribution shall be payable: (i) only if the Common Units have been
paid a cumulative annual distribution since the date hereof of an amount equal
to 7.5 percent of the then Applicable Conversion Price per Common Unit
(provided, that if there is more than one Applicable Conversion Price during any
measurement period, in calculating such amount in this clause (i), the 7.5
percent shall be calculated using the weighted average of the various Applicable
Conversion Prices taking into account the number of days each Applicable
Conversion Price was in effect during such measurement period); (ii) when and as
declared by the General Partner; (iii) on the date such distribution is paid to
the holders of the Common Units and( iv) out of legally available funds; and
(bb) such additional dividends as the General Partner, in its discretion, may
declare.

 

(iv)        Consent Rights.

 

(A)         So long as any Series B Convertible Preferred Units are outstanding,
the vote or consent of the holders of a majority of the Series B Convertible
Preferred Units at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose, will
be necessary for effecting or validating any of the following actions, whether
or not such approval is required by law:

 

(aa) any amendment, alteration or repeal (including by means of a merger,
consolidation or otherwise) of any provision of the Agreement that would alter
or change the rights, preferences or privileges of the Series B Convertible
Preferred Units so as to affect them adversely;

 

(bb) except as specifically contemplated by the Securities Purchase Agreement,
the issuance by the Partnership of additional Series B Convertible Preferred
Units (other than in connection with the declaration or payment of a PIK
Distribution on the Series B Convertible Preferred Units);

 

(cc) the authorization or issuance by the Partnership, or obligation of the
Partnership to issue any Partnership Interest (including any security
convertible into or exercisable for any such Partnership Interest) having a
preference over, or being on a parity with, the Series B Convertible Preferred
Units with respect to distribution rights and rights on liquidation, winding up
and dissolution;

 

45

 

  

(dd) except as specifically contemplated by the Securities Purchase Agreement,
the redemption, purchase or other acquisition (or payment into or setting aside
for a sinking fund for such purpose) by the Partnership of any Preferred Units
or Common Units;

 

(ee) any allowance for the General Partner, from time to time, to hold or
acquire real property or other investments in its own name or otherwise other
than through the Partnership.

 

(B)         Until the earlier of (i) the date upon which no Series B Convertible
Preferred Units are held by the Series B Preferred Unit Recipient or a Permitted
Transferee, or (ii) July 1, 2018, the written consent of the Consenting Holder
will be necessary for effecting or validating any of the following actions,
whether or not such approval is required by law:

 

(aa) dissolution or liquidation, or voluntarily institution of any proceeding
seeking to adjudicate the Partnership bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, protection or relief, under any law
relating to bankruptcy, insolvency, reorganization, protection or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for the Partnership or for any
substantial part of its property;

 

(bb)         other than with respect to investments in Approved Acquisitions,
(A) the acquisition, merger, consolidation, or execution of any similar business
combination transaction with another corporation or other entity involving
aggregate consideration in excess of $1,000,000, (B) the acquisition or
investment in assets not in the ordinary course of business involving aggregate
consideration in excess of $1,000,000; or (C) sale or other disposition of any
of Partnership assets or securities not in the ordinary course of business in
excess of $1,000,000;

 

(cc)         other than with respect to joint ventures, partnerships or similar
arrangements (collectively, “Joint Ventures”) with operating partners in
conjunction with Approved Acquisitions, the entrance of the Partnership into a
Joint Venture which has, or is reasonably expected, to have a value, or to
require aggregate contributions, in excess of $1,000,000; and

 

(dd)         the issuance by the Partnership of any Limited Partnership
Interests other than to the General Partner, the Series B Preferred Unit
Recipient or any Permitted Transferee.

 

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(C)         Notwithstanding Section 9.2(d)(iv)(B), the General Partner may,
prior to the five (5) year anniversary of the Effective Date (as defined in the
Securities Purchase Agreement), initiate any of the transactions or events set
forth in Sections 9.2(d)(iv)(B)(aa)-(cc) without the prior approval of the
Consenting Holder if the General Partner elects to redeem, by giving at least 30
days prior written notice to the Series B Preferred Units Recipient, all of the
then outstanding Series B Convertible Preferred Units at the Redemption Price;
which redemption shall occur simultaneously with, and conditioned upon the
closing of, such transaction or event and the redemption of the Series A
Preferred REIT Shares or Series C Preferred REIT Shares, as applicable, of the
General Partner at a price equal to the Liquidation Preference thereof (as such
term is defined in the Articles Supplementary or the Series C Articles
Supplementary, as applicable) plus any accrued but unpaid dividends and
distributions thereon. Notwithstanding the foregoing, upon receipt of the
Company’s redemption notice, and at any time prior to the closing of the
transaction giving rise to such redemption right, the holder of the then
outstanding Series B Convertible Preferred Units and Permitted Transferees, as
applicable, may elect to convert all of their then outstanding Series B
Convertible Preferred Units into Common Units in accordance with Section
9.2(d)(v) hereof.

 

(v)         Conversion Right. Each Preferred Limited Partner holding Series B
Convertible Preferred Units shall have the right, at any time or from time to
time, to convert some or all of such Series B Convertible Preferred Units into
Common Units, by providing the General Partner with a Notice of Exercise of
Conversion Right as set forth on Exhibit B-2 hereto 5 business days prior to the
effective date of such conversion. Upon the effective date of any such
conversion, each Series B Convertible Preferred Unit which is the subject of
such conversion shall be converted, without necessity of any further action by
the General Partner, into that number of Common Units equal to a fraction, the
numerator of which is the Series B Issuance Value and the denominator of which
is the Applicable Conversion Price, plus an amount of cash equal to the accrued
but unpaid Priority Return Amount in respect of such Series B Convertible
Preferred Unit. In addition, the Preferred Limited Partner holding Series B
Convertible Preferred Units may elect to receive instead a number of Common
Units obtained by multiplying the number of Common Units to be received in the
previous sentence by the Exchange Factor as adjusted to and including the date
of such conversion; provided, that if such election is made with respect to such
newly issued Common Units, the Exchange Factor shall be deemed to be 1.0 with
respect to such Common Units as of the date of such conversion and shall be
further adjusted only for events occurring after such conversion.
Notwithstanding anything to the contrary herein, no redemption of Series B
Convertible Preferred Units by the Partnership shall be effective with respect
to a holder thereof (i) unless the Partnership delivers notice of such
redemption to the holder thereof no less than 5 business days prior to proposed
date of such redemption and (ii) if the holder thereof delivers to the General
Partner an irrevocable Notice of Exercise of Conversion Right prior to the fifth
business day following receipt of the notice from the Partnership (or such later
date as may otherwise be permitted in this Section 9.2(d)(v)).

 

(vi)        Certain Transfers of Series B Convertible Preferred Units.
Notwithstanding the provisions of Section 10.2 hereof (but, in any case, subject
to Sections 10.2(d), (e) and (f) and satisfactory completion of the requirements
set forth in Section 10.3(a)(i) through (vii)) the General Partner will not
withhold its consent to the Transfer of Series B Convertible Preferred Units
from the Series B Preferred Unit Recipient or any Permitted Transferee to any
Permitted Transferee.

 

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(vii)       TRS. In order to assist the Series B Preferred Unit Recipient to
accurately make and/or maintain the representations set forth in the Ownership
Limit Waiver, the Series B Preferred Unit Recipient shall have to right, (i) to
receive monthly reports from the General Partner detailing the list of all
current Tenants, and (ii) by providing written notice to the General Partner at
least 30 days in advance of the expected closing date of an acquisition of any
real property or other investment by the General Partner or the Partnership, to
cause the General Partner to acquire and hold such real property or other
investment through a TRS; provided, however (i) the Series B Preferred Unit
Recipient shall be solely responsible for any incremental tax burden and any
other expenses associated with the formation and operations of such TRS and any
such incremental tax burden and other expenses will be applied to reduce the
amount of distributions otherwise payable to the Series B Preferred Unit
Recipient in accordance with Section 9.2(d)(iii) hereof and (ii) such action
would not cause the General Partner to fail to qualify as a REIT. The taxes and
expenses described in (i) of this Section 9.2(d)(vii) shall be as reasonably
agreed to by the parties at such time.

 

(viii)      Redemption Upon Strike-Out. Notwithstanding any other provisions of
this Agreement, in the event of a Strike Out meeting the criteria set forth in
Section 7.1(e)(ii) of the Securities Purchase Agreement, the Partnership shall
have the right to redeem, by giving at least 30 days prior written notice to the
Series B Preferred Units Recipient, all of the then outstanding Series B
Convertible Preferred Units at a redemption price per unit equal to the Series B
Issuance Value plus all accrued and unpaid dividends thereon to, but excluding
the date of redemption. Notwithstanding the foregoing, upon receipt of the
Company’s redemption notice, and at any time prior to the date of redemption,
the holder of the then outstanding Series B Convertible Preferred Units may
elect to convert all of their then outstanding Series B Convertible Preferred
Units into Common Units in accordance with Section 9.2(d)(v) hereof.

 

ARTICLE 10
TRANSFERS OF PARTNERSHIP INTERESTS

 

10.1.          Purchase for Investment.

 

(a)          Each Limited Partner and Preferred Limited Partner hereby
represents and warrants to the General Partner and to the Partnership that the
acquisition of his Partnership Interests is made as a principal for his account
for investment purposes only and not with a view to the resale or distribution
of such Partnership Interest.

 

(b)          Each Limited Partner and Preferred Limited Partner agrees that he
will not sell, assign or otherwise transfer his Partnership Interest or any
fraction thereof, whether voluntarily or by operation of law or at judicial sale
or otherwise, to any Person who does not make the representations and warranties
to the General Partner set forth in Section 10.1(a) above and similarly agree
not to sell, assign or transfer such Partnership Interest or fraction thereof to
any Person who does not similarly represent, warrant and agree.

 

10.2.          Restrictions on Transfer of Limited Partnership Interests and
Preferred Limited Partnership Interests.

 

(a)          Subject to the provisions of 10.2(b), (c) and (d), and other than a
Transfer by KKR or any Permitted Transferee to a Permitted Transferee, no
Limited Partner or Preferred Limited Partner may offer, sell, assign,
hypothecate, pledge or otherwise transfer all or any portion of his Partnership
Interest, or any of such Limited Partner's or Preferred Limited Partner’s
economic rights as a Limited Partner or Preferred Limited Partner, whether
voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a “Transfer”) without the consent of the General Partner, which
consent may be granted or withheld in its sole and absolute discretion. Any such
purported transfer undertaken without such consent shall be considered to be
null and void ab initio and shall not be given effect. The General Partner may
require, as a condition of any Transfer to which it consents, that the
transferor assume all costs incurred by the Partnership in connection therewith.

 

48

 

  

(b)          No Limited Partner or Preferred Limited Partner may withdraw from
the Partnership other than as a result of a permitted Transfer (i.e., a Transfer
consented to as contemplated by clause (a) above or clause (c) below or a
Transfer pursuant to Section 10.5 below) of all of its Partnership Units
pursuant to this Article 9 or pursuant to an exchange of all of its Partnership
Units pursuant to Section 8.5. Upon the permitted Transfer or redemption of all
of a Limited Partner's or a Preferred Limited Partner’s Partnership Interest,
such Limited Partner or Preferred Limited Partner shall cease to be a Limited
Partner or Preferred Limited Partner, as applicable.

 

(c)          Subject to 10.2(d), (e) and (f) below, a Limited Partner or
Preferred Limited Partner may Transfer, with the consent of the General Partner,
all or a portion of its Partnership Units to (i) a parent or parent's spouse,
natural or adopted descendant or descendants, spouse of such descendant, or
brother or sister, or a trust created by such Limited Partner or Preferred
Limited Partner for the benefit of such Limited Partner or Preferred Limited
Partner and/or any such person(s), of which trust such Limited Partner or
Preferred Limited Partner or any such person(s) is a trustee, (ii) a corporation
controlled by a Person or Persons named in (i) above, or (iii) if the Limited
Partner or Preferred Limited Partner is an entity, its beneficial owners.

 

(d)          No Limited Partner or Preferred Limited Partner may effect a
Transfer of its Partnership Interest, in whole or in part, if, in the opinion of
legal counsel for the Partnership, such proposed Transfer would otherwise
violate any applicable federal or state securities or blue sky law (including
investment suitability standards).

 

(e)          No Transfer (excluding for this purpose any Transfer that is
pursuant to an Exchange Right of the Series B Preferred Unit Recipient) by a
Limited Partner or Preferred Limited Partner of its Partnership Interest, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the General Partner to continue to qualify as a REIT or subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) such transfer is effectuated through an “established securities
market” or a “secondary market (or the substantial equivalent thereof)” within
the meaning of Section 7704 of the Code.

 

(f)          Any Transfer in contravention of any of the provisions of this
Article 10 shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.

 

(g)          Prior to the consummation of any Transfer under this Article 10,
the transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall request
in connection with such Transfer.

 

49

 

  

10.3.          Admission of Substitute Limited Partner or Substitute Preferred
Limited Partner.

 

(a)          Subject to the other provisions of this Article 10, an assignee of
the Limited Partnership Interest of a Limited Partner, or the Preferred Limited
Partnership Interest of a Preferred Limited Partner (which shall be understood
to include any purchaser, transferee, donee, or other recipient of any
disposition of such Limited Partnership Interest or Preferred Limited
Partnership Interest) shall be deemed admitted as a Limited Partner or Preferred
Limited Partner, as applicable, of the Partnership only with the consent of the
General Partner and upon the satisfactory completion of the following:

 

(i)          The assignee shall have accepted and agreed to be bound by the
terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, including a revised Exhibit A, and such other documents or
instruments as the General Partner may require in order to effect the admission
of such Person as a Limited Partner or Preferred Limited Partner.

 

(ii)         To the extent required, an amended Certificate evidencing the
admission of such Person as a Limited Partner or Preferred Limited Partner shall
have been signed, acknowledged and filed for record in accordance with the Act.

 

(iii)        The assignee shall have delivered a letter containing the
representation set forth in Section 10.1(a) hereof and the agreement set forth
in Section 10.1(b) hereof.

 

(iv)        If the assignee is a corporation, partnership or trust, the assignee
shall have provided the General Partner with evidence satisfactory to counsel
for the Partnership of the assignee's authority to become a Limited Partner or
Preferred Limited Partner under the terms and provisions of this Agreement.

 

(v)         The assignee shall have executed a power of attorney containing the
terms and provisions set forth in Section 8.2 hereof.

 

(vi)        The assignee shall have paid all legal fees and other expenses of
the Partnership and the General Partner and filing and publication costs in
connection with its substitution as a Limited Partner or Preferred Limited
Partner.

 

(vii)       The assignee has obtained the prior written consent of the General
Partner to its admission as a Substitute Limited Partner or Substitute Preferred
Limited Partner, which consent may be given or denied in the exercise of the
General Partner's sole and absolute discretion.

 

(b)          For the purpose of allocating Net Income and Net Losses and
distributing cash received by the Partnership, a Substitute Limited Partner or
Substitute Preferred Limited Partner shall be treated as having become, and
appearing in the records of the Partnership as, a Partner upon the filing of the
Certificate described in Section 10.3(a)(ii) hereof or, if no such filing is
required, the later of the date specified in the transfer documents or the date
on which the General Partner has received all necessary instruments of transfer
and substitution.

 

50

 

  

(c)          The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner or Substitute Preferred Limited Partner by
preparing the documentation required by this Section and making all official
filings and publications. The Partnership shall take all such action as promptly
as practicable after the satisfaction of the conditions in this Article 9 to the
admission of such Person as a Limited Partner of the Partnership.

 

10.4.          Rights of Assignees of Partnership Interests.

 

(a)          Subject to the provisions of Sections 10.1 and 10.2 hereof, except
as required by operation of law, the Partnership shall not be obligated for any
purposes whatsoever to recognize the assignment by any Limited Partner or
Preferred Limited Partner of its Partnership Interest until the Partnership has
received notice thereof.

 

(b)          Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest or a Preferred Limited Partner’s
Preferred Limited Partnership Interest, but does not become a Substitute Limited
Partner or Substitute Preferred Limited Partner and desires to make a further
assignment of such Limited Partnership Interest or Preferred Limited Partnership
Interest, shall be subject to all the provisions of this Article 9 to the same
extent and in the same manner as any Limited Partner or Preferred Limited
Partner desiring to make an assignment of its Limited Partnership Interest or
Preferred Limited Partnership Interest.

 

10.5.          Effect of Bankruptcy, Death, Incompetence or Termination of a
Limited Partner or Preferred Limited Partner. The occurrence of an Event of
Bankruptcy as to a Limited Partner or Preferred Limited Partner, the death of a
Limited Partner or Preferred Limited Partner or a final adjudication that a
Limited Partner or Preferred Limited Partner is incompetent (which term shall
include, but not be limited to, insanity) shall not cause the termination or
dissolution of the Partnership, and the business of the Partnership shall
continue if an order for relief in a bankruptcy proceeding is entered against a
Limited Partner or Preferred Limited Partner, the trustee or receiver of his
estate or, if he dies, his executor, administrator or trustee, or, if he is
finally adjudicated incompetent, his committee, guardian or conservator, shall
have the rights of such Limited Partner or Preferred Limited Partner for the
purpose of settling or managing his estate property and such power as the
bankrupt, deceased or incompetent Limited Partner or Preferred Limited Partner
possessed to assign all or any part of his Partnership Interest and to join with
the assignee in satisfying conditions precedent to the admission of the assignee
as a Substitute Limited Partner or Substitute Preferred Limited Partner.

 

10.6.          Joint Ownership of Interests. A Partnership Interest may be
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both owners of
any such jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that the
written consent of only one joint owner will be required if the Partnership has
been provided with evidence satisfactory to the counsel for the Partnership that
the actions of a single joint owner can bind both owners under the applicable
laws of the state of residence of such joint owners. Upon the death of one owner
of a Partnership Interest held in a joint tenancy with a right of survivorship,
the Partnership Interest shall become owned solely by the survivor as a Limited
Partner or Preferred Limited Partner and not as an assignee. The Partnership
need not recognize the death of one of the owners of a jointly-held Partnership
Interest until it shall have received notice of such death. Upon notice to the
General Partner from either owner, the General Partner shall cause the
Partnership Interest to be divided into two equal Partnership Interests, which
shall thereafter be owned separately by each of the former owners.

 

51

 

 

10.7.          Redemption of Partnership Unit. The General Partner will cause
the Partnership to redeem Partnership Units, to the extent it shall have legally
available funds therefor, at any time the General Partner redeems corresponding
shares of capital stock in itself. The number and class or series of Partnership
Units redeemed and the redemption price shall equal the number (multiplied by
the Exchange Factor) and class or series of corresponding shares of capital
stock the General Partner redeems and the redemption price at which the General
Partner redeems such shares, respectively.

 

ARTICLE 11
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS

 

11.1.          Books and Records. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of this Agreement and amendments thereto and any financial statements of
the Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.

 

11.2.          Custody of Partnership Funds; Bank Accounts.

 

(a)          All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.

 

(b)          All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 11.2(b).

 

11.3.          Fiscal and Taxable Year. The fiscal and taxable year of the
Partnership shall be the calendar year.

 

52

 

  

11.4.          Annual Tax Information and Report.

 

(a)          Within 60 days after the end of each fiscal year of the
Partnership, the General Partner shall furnish to each person who was a Limited
Partner or Preferred Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's or Preferred Limited
Partner’s (or their Affiliates’, as applicable) tax returns as shall be
reasonably requested by such Partner. In addition, upon the request of the
Series B Preferred Unit Recipient, the General Partner shall provide to the
Series B Preferred Unit Recipient such other tax-related information that is
within the General Partner’s possession or control or can be readily obtained by
the Partnership, as may be reasonably requested by the Series B Preferred Unit
Recipient.

 

(b)          Without limiting the foregoing:

 

(i)          Within 30 days following the close of each Partnership taxable
year, the General Partner shall require the Partnership, at the expense of the
Partnership, to prepare federal, state and local taxable income calculations for
the Partnership for the immediately preceding taxable year based on
best-available information to date, including allocations of such estimated
amounts to each of the Partners of the Partnership.

 

(ii)         On or before March 31st, May 31st, August 31st, and November 30th
of each taxable year, the General Partner shall require the Partnership, at the
expense of the Partnership, to provide the Partners with an estimate of the
year-to-date taxable income of the Partnership.

 

(iii)        On or before March 1st following the close of each fiscal year, the
General Partner shall require the Partnership, at the expense of the
Partnership, to prepare and submit to the Series B Preferred Unit Recipient for
its review and approval federal, state and local tax returns for the Partnership
and its subsidiaries. The General Partner shall maintain the books and records
of the Partnership and any subsidiary, provide such information, and follow such
procedures as are reasonably necessary or appropriate to enable all tax returns
of the Partnership and its subsidiaries to be properly and timely completed,
prepared and filed.

 

11.5.          Tax Matters Partner; Tax Elections; Special Basis Adjustments.

 

(a)          The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners and Preferred Limited Partners on the date such
petition is filed, or (ii) mail a written notice to all Limited Partners and
Preferred Limited Partners, within such period, that describes the General
Partner's reasons for determining not to file such a petition. Notwithstanding
the foregoing, the Tax Matters Partner shall keep the other Partners reasonably
informed as to any tax actions, examinations or proceedings relating to the
Partnership and shall submit to the other Partners, for their review and
comment, any settlement or compromise offer with respect to any disputed item of
income, gain, loss, deduction or credit of the Partnership. The Tax Matters
Partner shall not, without the consent of the affected Partner, (x) elect to
settle or contest a dispute with respect to any item of income, gain, loss,
deduction or credit of the Partnership in a forum which will require a Partner
to pay any amount of tax liabilities associated with such dispute before the
final resolution of such dispute, or (y) agree to extend the statute of
limitations for the assessment of taxes with respect to the Partnership or any
Partner.

 

53

 

  

(b)          Except as otherwise provided herein, the General Partner shall, in
its reasonable discretion, determine whether to make any available election
pursuant to the Code. Notwithstanding the above, in making any such tax election
the General Partner may, but shall be under no obligation to, take into account
the tax consequences to the Limited Partners and Preferred Limited Partners
resulting from any such election; provided, that no material tax election shall
be made without the written consent of the Series B Preferred Unit Recipient
(without limiting the foregoing, for the avoidance of doubt, such “material tax
elections” shall not include any election generally exercised in the ordinary
course of the General Partner’s day-to-day operations, but shall include any
election under Section 704(c) of the Code).

 

(c)          In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Partnership's assets. Notwithstanding anything contained in Article 5 of this
Agreement, any adjustments made pursuant to Section 754 of the Code shall affect
only the successor in interest to the transferring Partner and in no event shall
be taken into account in establishing, maintaining or computing Capital Accounts
for the other Partners for any purpose under this Agreement. Each Partner will
furnish the Partnership with all information necessary to give effect to such
election.

 

11.6.          Reports Made Available to Limited Partners.

 

(a)          As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), upon written request by a
Limited Partner to the General Partner, the General Partner will make available,
without cost, to each Limited Partner a quarterly report containing financial
statements of the Partnership, or of the General Partner if such statements are
prepared solely on a consolidated basis with the General Partner, for such
fiscal quarter, presented in accordance with generally accepted accounting
principles. As soon as practicable after the close of each fiscal year, upon
written request by a Limited Partner to the General Partner, the General Partner
will make available, without cost, to each Limited Partner an annual report
containing financial statements of the Partnership, or of the General Partner if
such statements are prepared solely on a consolidated basis with the General
Partner, for such fiscal year, presented in accordance with generally accepted
accounting principles.

 

(b)          Any Partner shall further have the right to a private audit of the
books and records of the Partnership at the expense of such Partner, provided
such audit is made for Partnership purposes and is made during normal business
hours.

 

54

 

 

 

ARTICLE 12
AMENDMENT OF AGREEMENT; MERGER

 

The General Partner's consent shall be required for any amendment to this
Agreement. Subject to the specific terms and rights of any outstanding class or
series of Preferred Units, the General Partner, without the consent of the
Limited Partners, may amend this Agreement in any respect or merge or
consolidate the Partnership with or into any other partnership or business
entity (as defined in Section 17-211 of the Act) in a transaction pursuant to
Section 7.1(b), (c) or (d) hereof; provided, however, that the following
amendments and any other merger or consolidation of the Partnership shall
require the consent of the holders of a majority of the Partnership Units
(excluding the Partnership Units held by the General Partner or an Affiliate
thereof):

 

(a)          any amendment affecting the operation of the Exchange Factor or the
Exchange Right (except as provided in Section 8.5(d) or 7.1(c) hereof) in a
manner adverse to the Limited Partners;

 

(b)          any amendment that would adversely affect the rights of the Limited
Partners to receive the distributions payable to them hereunder, other than with
respect to the issuance of additional Partnership Units pursuant to Section 4.2
hereof;

 

(c)          any amendment that would alter the Partnership's allocations of
profit and loss to the Limited Partners, other than with respect to the issuance
of additional Partnership Units pursuant to Section 4.2 hereof; or

 

(d)          any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.

 

ARTICLE 13
GENERAL PROVISIONS

 

13.1.          Notices. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.

 

13.2.          Survival of Rights. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.

 

13.3.          Additional Documents. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.

 

55

 

 

13.4.          Severability. If any provision of this Agreement shall be
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.

 

13.5.          Entire Agreement. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.

 

13.6.          Pronouns and Plurals. When the context in which words are used in
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.

 

13.7.          Headings. The Article headings or sections in this Agreement are
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.

 

13.8.          Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.

 

13.9.          Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware; provided, however, that
causes of action for violations of federal or state securities laws shall not be
governed by this Section 13.9.

 

56

 

 

IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures
to this Second Amended and Restated Limited Partnership, all as of the __th day
of ___________, 2013.

 

  GENERAL PARTNER:         SENTIO HEALTHCARE PROPERTIES, INC.         By:      
John Mark Ramsey     President and Chief Executive Officer         LIMITED
PARTNER:         HPC LP TRS, LLC         By: Sentio Healthcare Properties, Inc.
    its sole member             By:         John Mark Ramsey       President and
Chief Executive Officer           PREFERRED LIMITED PARTNER:           SENTINEL
RE INVESTMENT HOLDINGS LP           By:       [Name]       [Title]  

 

57

 

EXHIBIT A

 

SCHEDULE OF PARTNERS

 

General Partner:  Common Units of
Partnership Interest   Series A Preferred
Units   Series B Convertible
Preferred Units                Sentio Healthcare Properties, Inc.   [XXXX]  
 1000    -                   Limited Partners
and Preferred
Limited Partners:                                 HPC LP TRS, LLC   20,000  
 -    -                   KKR & Co. L.P.   -    -    [XXXX]      [XXXX]  
 [XXXX]    [XXXX] 

 

Series
Preferred
Units  Preferred
Limited
Partner  No. of
Preferred
Units   Liquidation
Preference
Per
Preferred
Unit   Priority
Percentage
Return *   Priority   Conversion
Factor                           A  General Partner   1,000   $    100    3% 
 Senior    None  B  KKR & Co. L.P.   [XXXX]   $    [100]    7.5%   Senior    1 

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

* Priority Return Percentage is expressed as a percentage of the liquidation
preference per Distribution Period. See the Agreement for the definitions of
“Priority Return Percentage,” and “Distribution Period.”

 

A-1

 

EXHIBIT B-1

 

NOTICE OF EXERCISE OF EXCHANGE RIGHT

 

In accordance with Section 8.5 of the Second Amended and Restated Agreement of
Limited Partnership (the “Agreement”) of Sentio Healthcare Properties OP, L.P.,
the undersigned hereby irrevocably (i) presents for exchange ________
Partnership Units in Sentio Healthcare Properties OP, L.P. in accordance with
the terms of the Agreement and the Exchange Right referred to in Section 8.5
thereof, (ii) surrenders such Partnership Units and all right, title and
interest therein, and (iii) directs that the REIT Shares Amount (as defined in
the Agreement) deliverable upon exercise of the Exchange Right be delivered to
the address specified below, and such REIT Shares be registered or placed in the
name(s) and at the address(es) specified below.

 

  Dated: ____________, ____           (Name of Limited Partner)          
(Signature of Limited Partner)           (Mailing Address)          
(City)       (State) (Zip Code)       Signature Guaranteed by:              
Issue REIT Shares to:       Name:               Social Security or Tax I.D.
Number:        

 

B-1

 

EXHIBIT B-2

 

NOTICE OF EXERCISE OF CONVERSION RIGHT

 

In accordance with Section 9.2(d)(v) of the Second Amended and Restated
Agreement of Limited Partnership (the “Agreement”) of Sentio Healthcare
Properties OP, L.P., the undersigned hereby irrevocably (i) elects to convert
________ Series B Convertible Preferred Units in Sentio Healthcare Properties
OP, L.P. in accordance with the terms of the Agreement and the Conversion Right
referred to in Section 9.2(d)(v) thereof, (ii) surrenders such Series B
Convertible Preferred Units and all right, title and interest therein, and (iii)
directs that the Common Units deliverable upon exercise of the Conversion Right
be delivered to the address specified below, and such Common Units be registered
or placed in the name(s) and at the address(es) specified below.

 

  Dated: ____________, ____           (Name of Preferred Limited Partner)      
    (Signature of Preferred Limited Partner)           (Mailing Address)        
  (City)       (State) (Zip Code)       Signature Guaranteed by:              
Issue Common Units to:       Name:               Social Security or Tax I.D.
Number:        

 

B-2

 

EXHIBIT C

 

FORM OF OWNERSHIP LIMIT WAIVER

 

1.The Board of Directors (the “Board”) of Sentio Healthcare Properties, Inc., a
real estate investment trust for United States federal income tax purposes (the
“Company”), has the authority to grant an exemption from the Aggregate Stock
Ownership Limit and the Common Stock Ownership Limit (each as defined in Section
6.1 of the amended and restated charter of the Company (the “Charter”))
applicable to holders of shares of common stock of the Company (the “Common
Shares”), and/or shares of preferred stock of the Company (the “Preferred
Shares” and together with the Common Shares, the “Shares”), provided that
certain conditions are met. Capitalized terms used but not otherwise defined in
this Ownership Limit Waiver have the meanings ascribed to such terms in the
Charter.

 

2.[________________] (the “Investor”) has requested that the Board grant the
Investor an exemption from the Aggregate Stock Ownership Limit and the Common
Stock Ownership Limit in connection with the Investor’s acquisition of the
Company’s Shares.

 

3.Based on the terms and conditions set forth herein, the Board has approved and
granted an exemption from the Aggregate Stock Ownership Limit and the Common
Stock Ownership Limit for the Investor in an aggregate amount of up to [___]%,
which is the Excepted Holder Limit, of the outstanding Common Shares (“Ownership
Limit Waiver”), which amount will be adjusted as appropriate to reflect stock
splits, reverse stock splits, stock dividends, or similar transactions that
affect all shares equally, and the Investor shall be an Excepted Holder.

 

4.The Investor represents and warrants to the Company:

 

a.The Investor is not an “individual” within the meaning of Section 542(a)(2) of
the Internal Revenue Code of 1986, as amended (the “Code”).

 

b.To the Knowledge of the Investor, no “individual” within the meaning of
Section 542(a)(2) of the Code holding an ownership interest in the Investor,
directly or indirectly, Beneficially Owns or Constructively Owns more than 9.8%
(in number or value, whichever is more restrictive) of the outstanding Common
Shares or more than 9.8% (in value) of the outstanding shares of any class or
series of Preferred Shares by reason of the Beneficial Ownership or Constructive
Ownership of Shares acquired by the Investor.

 

 

 

 

c.The Investor does not Beneficially Own or Constructively Own, and, to the
Knowledge of the Investor, no Person owning a direct or indirect interest in the
Investor, owns, actually or Constructively, an interest in any Tenant of the
Company (or a Tenant of an entity owned or controlled by the Company) that would
cause the Company to own, actually or constructively, more than a 9.9% ownership
interest (as set forth in Section 856(d)(2)(B) of the Code) in such Tenant
unless such Tenant is a taxable REIT subsidiary (as defined in Section 856(l) of
the Code) of the Company; provided, that a tenant from whom the Company (or a
tenant of an entity owned or controlled by the Company) derives (and is expected
to continue to derive) a sufficiently small amount of revenues such that, in the
opinion of the Board, rent from such tenant would not adversely affect the
Company’s ability to qualify as a REIT shall not be treated as a tenant of the
Company. “Tenant” means any tenant from which the Company derives rent either
directly or indirectly through partnerships, limited liability companies, or
other subsidiaries.

 

d.The Investor does not Beneficially Own or Constructively Own, and, to the
Knowledge of the Investor, no Person owning a direct or indirect interest in the
Investor, Beneficially Owns or Constructively Owns an interest sufficient to
disqualify any entity treated as either an Eligible Independent Contractor or an
Independent Contractor of the Company from such status. For these purposes,
“Eligible Independent Contractor” is defined in Section 856(d)(9) of the Code
and “Independent Contractor” is defined in Section 856(d)(3) of the Code.

 

e.So long as the Investor Beneficially Owns or Constructively Owns 9.8% or more
(in number or value, whichever is more restrictive) of the outstanding Shares of
the Company, the Holder agrees to notify the Board of Directors of the Company
in writing within ten (10) business days of any acquisition of Shares that could
result in the Percentage Ownership (as defined below) of the Holder increasing
by more than 1%. For purposes of this Ownership Limit Waiver, the term
“Percentage Ownership” means the total value of the outstanding Shares
Beneficially Owned or Constructively Owned by the Investor, divided by the total
value of the outstanding Shares of the Company.

 

f.Investor covenants to notify the Company promptly after it obtains knowledge
that any of the foregoing representations are not accurate.

 

5.The Investor acknowledges and agrees that (i) the Board is relying on the
continuing truth and accuracy of, and compliance with, the representations,
warranties and agreements of the Investor in this Ownership Limit Waiver in
granting the exemption from the Aggregate Stock Ownership Limit and the Common
Stock Ownership Limit to the Investor and that such exemption will be void and
ineffective if any of the representations and warranties is not true and
accurate at any time or any of the agreements is violated, and (ii) such
exemption is solely for the Investor and only with respect to Shares received
and held by the Investor in connection with the Investor’s acquisition and
conversion of the Shares referenced above, and not for any other Person (other
than any Affiliate of the Investor) or for any “individual” within the meaning
of Section 542(a)(2) of the Code. For the avoidance of doubt, the Company
further agrees that the Aggregate Stock Ownership Limit and the Common Stock
Ownership Limit are waived for any future acquisition by the Investor of
Beneficial Ownership of any Shares, which, when added to the Shares Beneficially
Owned or Constructively Owned by the Investor immediately prior to such
acquisition, does not exceed the Ownership Limit Waiver.

 

C-2

 

 

6.The Investor further acknowledges and agrees that if at any time, such
exemption is void or ineffective, Shares deemed to be Beneficially Owned or
Constructively Owned by the Investor in excess of the Aggregate Stock Ownership
Limit or the Common Stock Ownership Limit will be subject to the provisions of
Section 6.2 of the Charter, which provide that Shares held in excess of the
Aggregate Stock Ownership Limit or the Common Stock Ownership Limit will be
deemed transferred to a Trust for the benefit of a Charitable Beneficiary as of
the close of business on the business day prior to the date of the purported
transfer or other event resulting in a stockholder’s ownership of Shares
exceeding the Aggregate Stock Ownership Limit or the Common Stock Ownership
Limit.

 

7.Notwithstanding anything herein to the contrary, the Company reserves its
right to increase the exemption granted herein in the sole and absolute
discretion of the Board, and the Investor will be deemed to have made a request
for any such increase, all subject to the provisions of Section 6.2.7 of the
Charter.

 

8.This Ownership Limit Waiver will become effective upon the acceptance of the
terms and conditions hereof by the Investor.

 

9.Except as otherwise provided herein or as determined by the Board, this
Ownership Limit Waiver will cease to be effective upon any breach of the
representations or covenants set forth herein.

 

10.Miscellaneous

 

a.Assignment. Neither party may assign or transfer its rights and obligations
under this Ownership Limit Waiver, in whole or in part, including by operation
of law or in connection with a merger, consolidation, transfer of equity
interests or other transaction involving any party benefiting from the waiver,
by any party hereto or any of their respective affiliates without the prior
written consent of the other party, and any such assignment contrary to the
terms hereof will be null and void and of no force and effect. In no event will
the assignment by either party of its respective rights or obligations under
this Ownership Limit Waiver release such party from its liabilities and
obligations hereunder.

 

b.Governing Law. All questions concerning the construction, validity and
interpretation of this Ownership Limit Waiver will be governed by and construed
under the laws of the State of Maryland, without giving effect to any choice of
law or conflict of law provision (whether of the State of Maryland or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Maryland.

 

c.All references to any Code provision will be deemed to include any successor
provisions of the Code and any regulatory, judicial or administrative amendment
or interpretation of such statutory provisions.

 

(signature page follows)

 

C-3

 

 

IN WITNESS WHEREOF, the undersigned have executed this Ownership Limit Waiver as
of _____________, 20___.

 

SENTIO HEALTHCARE PROPERTIES, INC.

 

By:       Name: John Mark Ramsey     Title: Chief Executive Officer        
[INVESTOR]         By:       Name:     Title:     Address:  

 

C-4

 

EXHIBIT D

 

CAPITAL ACCOUNT MAINTENANCE

 

1.           Capital Accounts of the Partners

 

(a)          The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv). 
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section l(b) herein and allocated to such Partner pursuant to Section 5.1 of the
Agreement and Exhibit E hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to the Agreement, and (y) all items of Partnership
deduction and loss computed in accordance with Section l(b) herein and allocated
to such Partner pursuant to Section 5.1 of the Agreement and Exhibit E hereof.

 

(b)          For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners’ Capital Accounts, unless
otherwise specified in the Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:

 

(i)          Except as otherwise provided in Regulations
Section 1.704-l(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Partnership; provided, that the amounts of any
adjustments to the adjusted bases of the assets of the Partnership made pursuant
to Section 734 of the Code as a result of the distribution of property by the
Partnership to a Partner (to the extent that such adjustments have not
previously been reflected in the Partners’ Capital Accounts) shall be reflected
in the Capital Accounts of the Partners in the manner and subject to the
limitations prescribed in Regulations Section 1.704-l(b)(2)(iv)(m)(4).

 

(ii)         The computation of all items of income, gain, and deduction shall
be made without regard to the fact that items described in
Section 705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross
income or are neither currently deductible nor capitalized for federal income
tax purposes.

 

(iii)        Any income, gain or loss attributable to the taxable disposition of
any Partnership property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership’s Carrying Value with respect to such property as of such date.

D-1

 

 

(iv)        In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year.

 

(v)         In the event the Carrying Value of any Partnership asset is adjusted
pursuant to Section 1(d) herein, the amount of any such adjustment shall be
taken into account as gain or loss from the disposition of such asset.

 

(vi)        Notwithstanding any other provision of this Section 1(b), any items
that are specially allocated pursuant to Exhibit E or Section 5.1(c) of the
Agreement shall not be taken into account for purposes of computing Net Income
or Net Loss.

 

The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Exhibit E or Section 5.1(c) of
the Agreement shall be determined by applying rules analogous to those set forth
in Sections l(b)(i) through l(b)(v) above.

 

(c)          Generally, a transferee (including an Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor.

 

(d)          (i)          Consistent with the provisions of Regulations
Section 1.704-l(b)(2)(iv)(f), and as provided in Section l(d)(ii), the Carrying
Value of all Partnership assets shall be adjusted upward or downward to reflect
any Unrealized Gain or Unrealized Loss attributable to such Partnership
property, as of the times of the adjustments provided in Section 1 (d)(ii), as
if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale
of each such property and allocated pursuant to Section 5.1 of the Agreement.

 

(ii)         Such adjustments shall be made as of the following times:
(A) immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (B) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; (C) in connection with the
grant of an interest in the Partnership (other than a de minimis interest), as
consideration for the provision of services to or for the benefit of the
Partnership by an existing Partner acting in a partner capacity or by a new
partner acting in a partner capacity or in anticipation of being a partner; and
(D) immediately prior to the liquidation of the Partnership within the meaning
of Regulations Section 1.704-l(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (A), (B) and (C) above shall be made only if the General
Partner determines that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership.

 

(iii)        In accordance with Regulations Section 1.704-l(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any such asset is
distributed.

 

D-2

 

 

(iv)        In determining Unrealized Gain or Unrealized Loss for purposes of
this Exhibit D, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents) shall be determined by
the General Partner using such reasonable method of valuation as it may adopt. 
The General Partner shall allocate such aggregate value among the assets of the
Partnership (in such manner as it determines in its reasonable discretion to
arrive at a fair market value for individual properties).

 

If the Carrying Value of an asset has been determined or adjusted pursuant to
Section l(b)(ii) or Section l(b)(iv), such Carrying Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Net Income and Net Loss.

 

(e)          The provisions of the Agreement (including this Exhibit D and other
Exhibits to the Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. 

 

2.          No Interest

 

No interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners’ Capital Accounts.

 

3.          No Withdrawal

 

No Partner shall be entitled to withdraw any part of his or its Capital
Contribution or his or its Capital Account or to receive any distribution from
the Partnership, except as provided in Articles 4 and 5 of the Agreement.

 

4.          Noncompensatory Partnership Options

 

To the extent applicable, the General Partner and the Series B Preferred Unit
Recipient shall cooperate in good faith to implement the final regulations
relating to noncompensatory partnership options released on February 5, 2013
under T.D. 9612.

D-3

 

EXHIBIT E

 

SPECIAL ALLOCATION RULES

 

1.          Special Allocation Rules

 

Notwithstanding any other provision of the Agreement or this Exhibit E, the
following special allocations shall be made in the following order:

 

(a)          Minimum Gain Chargeback.  Notwithstanding the provisions of
Section 5.1 of the Agreement or any other provisions of this Exhibit E, if there
is a net decrease in Partnership Minimum Gain during any Partnership taxable
year, then, subject to the exceptions set forth in Regulations Sections
1.704-2(f)(2)-(5), each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner’s share of the net decrease in Partnership
Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto.  The items to
be so allocated shall be determined in accordance with Regulations
Section 1.704-2(f)(6).  This Section l(a) is intended to comply with the minimum
gain chargeback requirements in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.

 

(b)          Partner Minimum Gain Chargeback.  Notwithstanding any other
provision of Section 5.1 of the Agreement or any other provisions of this
Exhibit E (except Section 1(a) hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
taxable year, then, subject to the exceptions referred to in Regulations
Section 1.704-2(i)(4), each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner’s share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto.  The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(i)(4).  This
Section 1(b) is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith.

 

(c)          Qualified Income Offset.  In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Section 1.704-l(b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5), or
1.704-l(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 1(a) and 1(b) hereof with respect to such Partnership taxable
year, such Partner has an Adjusted Capital Account Deficit, items of Partnership
income and gain (consisting of a pro rata portion of each item of Partnership
income, including gross income and gain for the Partnership taxable year) shall
be specially allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, its Adjusted Capital
Account Deficit created by such adjustments, allocations or distributions as
quickly as possible. This Section l(c) is intended to constitute a qualified
income offset under Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

E-1

 

 

 

(d)          Gross Income Allocation. In the event that any Partner has an
Adjusted Capital Account Deficit at the end of any Partnership taxable year
(after taking into account allocations to be made under the preceding paragraphs
hereof with respect to such Partnership taxable year), each such Partner shall
be specially allocated items of Partnership income and gain (consisting of a pro
rata portion of each item of Partnership income, including gross income and gain
for the Partnership taxable year) in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, its Adjusted Capital
Account Deficit.

 

(e)          Nonrecourse Deductions.  Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Partners in accordance with their
respective Percentage Interests.  If the General Partner determines in its good
faith discretion that the Partnership’s Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which would satisfy
such requirements.

 

(f)          Partner Nonrecourse Deductions.  Any Partner Nonrecourse Deductions
for any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).

 

2.          Allocations for Tax Purposes

 

(a)          Except as otherwise provided in this Section 2, for federal income
tax purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as its correlative item of “book” income,
gain, loss or deduction is allocated pursuant to Section 5.1 of the Agreement
and Section 1 of this Exhibit E.

 

(b)          Solely for income tax purposes (i) items of income, gain, loss and
deduction with respect to any Contributed Property shall be allocated among the
Partners to take account of any variation between the adjusted basis to the
Partnership of the Contributed Property for federal income tax purposes at the
time it is contributed and its 704(c) Value, in accordance with Code Section
704(c) (taking into account Section 2(c) of this Exhibit E) and the related
Regulations; and (ii) items of income, gain, loss and deduction with respect to
any Adjusted Property shall be allocated among the Partners to take account of
any variation between the adjusted basis of the Adjusted Property for federal
income tax purposes at the time its carrying value is adjusted and its 704(c)
Value in the same manner as under Code Section 704(c) and the related
Regulations.

 

(c)          To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the Partnership shall elect to use the “remedial method” set
forth in Regulations Section 1.704-3(d) and such election shall be binding on
all Partners.

 

E-2

 

  

EXHIBIT C

 

FORM OF INVESTOR RIGHTS AGREEMENT

 

C-1

 

 

EXHIBIT D

 

FORM OF TRANSITION TO INTERNAL MANAGEMENT AGREEMENT

 

D-1

 

 

EXHIBIT E

 

FORM OF PUT EXERCISE NOTICE

 

E-1

 

 

EXHIBIT F

 

ACQUISITION CRITERIA

 

All single property or multiple property portfolio acquisitions will be
Qualifying Acquisitions if they meet the following criteria :

 

1.        The proposed acquisition has:

a.     a required equity investment by the Company of less than $50,000,000;

b.     a total portfolio asset size of less than $100,000,000; and

c.     a single asset size of less than $50,000,000.

 

2.        The proposed acquisition falls within one of the following asset
classes:

a.     Private pay rental senior housing (with less than 10% reimbursement
revenue);

b.     Medical Office Building (MOB);

c.     Long-Term Acute Care Hospital (LTACH);

d.     Skilled Nursing Facility (SNF);

e.      Inpatient Rehabilitation Facility (IRF).

 

3.        The proposed acquisition is not an Entry Fee Continuing Care
Retirement Community (CCRC).

 

4.        Proposed acquisitions of Private pay rental senior housing may be
RIDEA. Otherwise proposed acquisitions, other than MOBs, must be triple net
leased (NNN).

 

5.        SNF properties must not comprise greater than 20% of the Company’s
total asset value or equity value.

 

6.         If a proposed acquisition is NNN, then lease coverage must be at
least 1.15x on a trailing 3 month basis for assets that have been in operation
for at least 18 months. For assets that have been in operation for fewer than 18
months, lease coverage must be at least 1.00x on a trailing 3 month basis. Lease
coverage is to be calculated assuming a 5% management fee and minimum of
$350/unit annual capex reserve.

 

7.        The proposed acquisition must be an asset acquisition (not an entity
acquisition).

 

8.        The proposed acquisition contemplates no debt other than mortgage
debt, and mortgage debt is not in excess of 60% loan to cost (LTC). In cases
where the Company is making an investment that requires the assumption of
existing in place mortgage debt, LTC may not exceed 75%. Notwithstanding this
provision, in no case can the Company’s overall leverage exceed 60% loan to
value (LTV) as a result of any new investment. Permitted debt will not have
recourse (other than bad boy carve-outs) to any entity or asset other than the
specific single property securing the mortgage and its single-asset special
purpose entity. However, recourse is permitted if and only if it is on a
short-term basis (less than 12 months) and the total recourse to the Company
does not exceed $15 million.

 

9.        The proposed acquisition has the following minimum capitalization
rates:

a.     Private pay rental senior housing: greater than or equal to 7% based on
last twelve months net operating income (LTM NOI) (assuming a 5% management fee
and minimum of $350/unit annual capex reserve). In cases where the facility has
been open for less than 18 months, the capitalization rate will be based on the
trailing 3 months normalized NOI.

 

F-1

 

 

b.     MOB: greater than or equal to 6.5% based on LTM NOI. In cases where the
facility has been open for less than 18 months, the capitalization rate will be
based on the trailing 3 months normalized NOI.

c.     Private pay NNN properties: greater than or equal to 7% based on NNN
rental payment (and compliance with the above described lease coverages)

d.     SNF NNN properties: greater than or equal to 9% based on NNN rental
payment (and compliance with the above described lease coverages)

 

F-2

 

 

EXHIBIT G

 

FORM OF TAX OPINION

 

G-1

 

 

EXHIBIT H

 

FORM OF GENERAL CLOSING OPINION

 

H-1

 

 

EXHIBIT I

 

COMPLIANCE CERTIFICATE

 

J-1