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TORONTO, Nov. 6, 2015 /CNW/ – Kingsway Arms Retirement Residences Inc. (“Kingsway” or the “Company“) (TSX.V: KWA) today announced a reverse takeover transaction  (the “Reverse Takeover“). Pursuant to a binding commitment letter dated November 5, 2015 (the “Commitment Letter“), the Company has agreed to acquire from Mainstreet Investment Company, LLC, an affiliate of Mainstreet Property Group, LLC (including its affiliates, “Mainstreet“), all of its issued and outstanding shares of Mainstreet Health Holdings Inc. (“MHI Holdco“), a newly formed Cayman Islands corporation, (the “Mainstreet MHI Holdco Shares“) for an implied purchase price of approximately US$15.6 million. The Mainstreet MHI Holdco Shares will constitute approximately 75% of the issued and outstanding shares of MHI Holdco (assuming that none of the convertible debentures of MHI Holdco are exercised prior to the completion of the Reverse Takeover).

MHI Holdco indirectly acquired a portfolio of 10 senior care properties on October 30, 2015, and has agreed to acquire an eleventh senior care property in 2016 (the eleven properties are referred to as the “Symphony Portfolio“). The initial 10 properties in the Symphony Portfolio were acquired for a purchase price of approximately US$268.4 million, plus approximately US$7.8 million for expenses, which was funded by MHI Holdco through the issuance of approximately US$20.7 million of common shares to Mainstreet and third party investors, the issuance of approximately US$108.0 million of convertible debentures to third party investors, approximately US$142.3 million of senior bank financing, a US$2.0 million loan from Mainstreet and negative working capital of approximately US$3.2 million. The purchase price for the eleventh senior property, located in Hanover Park, Illinois, (the “Hanover Park Property“) which is anticipated to be acquired in early 2016, will be approximately US$34.1 million, plus expenses, which is expected to be funded through the issuance of additional common shares (including pursuant to the Funding Commitment, as defined below) and convertible debentures of MHI Holdco and senior bank financing.

In consideration for the Mainstreet MHI Holdco Shares, the Company will issue to Mainstreet approximately 81,160,000 common shares in the capital of Kingsway (“Common Shares“) and approximately 307,659,850 non-voting shares in the capital of Kingsway (the “Non-Voting Shares“) at an implied price of US$.04 per share (but, in any event, no less than CDN$.05 per share). The effect of the transaction will be a reverse take-over of Kingsway by Mainstreet, resulting in Mainstreet becoming a new control person of Kingsway within the meaning of TSX Venture Exchange (“TSX-V“) policies. Following completion of the Reverse Takeover, Mainstreet will own approximately 95% of the outstanding Common Shares and Non-Voting Shares, in the aggregate.

About the Symphony Portfolio

The Symphony Portfolio consists of ten skilled nursing properties (“SNF“), comprising a total of 2,335  licensed beds, and one assisted living property (“ALF“), comprising 120 licensed units. The Symphony Portfolio is located in Illinois and a majority of the Properties in the Symphony Portfolio (the “Properties“) are located in the Chicago area. Concurrently with the acquisition of the Symphony Portfolio by MHI Holdco, the portfolio was leased under a master lease to a third party operator on a triple net lease basis. Annual rent in the first year of the lease will be approximately US$24,200,000 (including rent payable in respect of the eleventh property to be acquired in 2016), with annual rent escalators as described below. The Symphony Portfolio includes excess bed licenses that may be utilized in the future, including pursuant to the development agreement with Mainstreet (described below).

The following table provides certain information for each of the Properties and the related leases:

(1) Date indicates year built, and, if applicable, the year in which it was most recently renovated.
(2) Acquisition of The Claremont of Hanover Park is expected to close in early 2016.

The Symphony Portfolio is subject to a master lease with an initial term of 15 years, with three 5-year renewal options. Annual rental escalators under the master lease provide that annual rent will escalate at a rate of 1.0% in year one, 1.5% in year two and at a rate equal to CPI (with a floor rental escalator of 2.25% and a ceiling rental escalator of 3.0%) for each lease year thereafter.

Mainstreet Management Agreement and Development Agreement

The Commitment Letter contemplates that, in connection with the completion of the Reverse Takeover, the Company will enter into a management agreement and development agreement with Mainstreet.

Under the management agreement, Mainstreet will be the asset manager for properties owned by the Company or its subsidiaries, including the Symphony Portfolio, in consideration for (i) an annual management fee equal to 0.3% of the annual gross book value of the assets of the Company and its subsidiaries up to a gross book value of $1 billion, plus 0.1% of gross book value in excess of gross book value of $1 billion and (ii) an annual incentive fee equal to the product of (a) 15% of the Company’s adjusted funds from operation (AFFO) per share in excess of a target to be determined, and (b) the weighted average number of issued and outstanding Common Shares and Non-Voting Shares over the applicable Fiscal Year.

The management and incentive fees will be payable, at Mainstreet’s election (and subject to regulatory approval), in a combination of shares and/or cash. Mainstreet will also be required to provide the Company with the services of a Chief Executive Officer, President, Chief Investment Officer and a Chief Financial Officer, who will initially be Paul Ezekiel Turner, Scott White, Adlai Chester and Scott Higgs, respectively. The management agreement is for a term of five years and will renew for additional five-year terms, provided Mainstreet is not in material default on the renewal date. At such time as the Company has achieved a fully-diluted market capitalization of $500 million based on the volume weighted average price of the outstanding shares on a recognized stock exchange over a 20 business day period and the directors of the Company have determined that it is in the best interest of the Company’s shareholders to internalize management, the management agreement will terminate (at no additional cost to the Company) and the management of the Company will be internalized.

Under the development agreement, Mainstreet will be required to offer the Company, on an annual basis, the opportunity to provide mezzanine financing for the first $100 million gross book value of developments (which are not already committed to certain other third parties under existing agreements with Mainstreet) involving senior care properties that meet certain criteria, including properties that are to be triple-net leased to an identified creditworthy tenant. The Company will have a purchase option to acquire any property in which it has provided mezzanine financing. In particular, when a development property is approximately 90% complete and so long as such property would be accretive to the Company, as determined by the board of directors of the Company, the fair market value of the property will be determined by an independent third-party appraiser. If the acquisition of the property at a price equal to its appraised fair market value would provide Mainstreet with a rate of return on investment agreed upon in advance, Mainstreet will be required to offer to sell the property to the Company for such price, which will be payable, at Mainstreet’s election (and subject to regulatory approval), in a combination of equity of the Company or one of its subsidiaries and/or cash. The board of directors of the Company will determine, in its discretion, whether to accept the property and, if accepted, Mainstreet will consummate the sale of the property at the time agreed upon by Mainstreet and the Company. If a sale of the property at the appraised value would not provide Mainstreet with the agreed upon return, or if the board directors of the Company determines not to acquire the property, Mainstreet will retain the property.

Board and Management

The Commitment Letter provides that, following completion of the Reverse Takeover, the members of the board of directors (other than Dan Amadori) and management of the Company will resign. The new board of directors and management of the Company will consist of the following individuals:

Paul Ezekiel Turner – Chairman and Chief Executive Officer: Paul Ezekiel Turner is the chief executive officer of Mainstreet, which he founded in 2002. Mr. Turner and his team took the Mainstreet senior housing and care portfolio public as HealthLease Properties Real Estate Investment Trust (“HLP“) on the Toronto Stock Exchange in 2012 with an initial public offering of $121 million. Mr. Turner was the chairman and chief executive officer of HLP. In November 2014, Mainstreet and Welltower Inc. (formerly, Health Care REIT, Inc.) (“HCN“) finalized a $2.3 billion partnership, which, in part, included HCN acquiring HLP. Mr. Turner is a sought-after speaker and is regularly interviewed by trade publications and national media outlets, including Bloomberg TV, CNBC, Fox Business and the Wall Street Journal. He has received numerous local and national awards. Most recently, Ernst & Young named Mr. Turner the 2015 Entrepreneur of the Year for the Ohio Valley region in the real estate design, construction and lodging category. In 2014, Real Estate Forum Magazine named Mr. Turner to its “50 Under 40” class. Mr. Turner graduated cum laude from Taylor University, where he earned bachelor’s degrees in both international business (with finance and economic concentrations) and business administration/systems.

Dan Amadori – Director: Dan Amadori founded Lamerac Financial Corp. in November 1988, positioned as a mid-market M&A and corporate finance advisory services firm. Since inception, Lamerac has successfully completed transactions across North America, South America and Europe in a wide cross-section of industries. Between 1985 and 1988, Mr. Amadori served as president of a private, Toronto-based communications and advertising company, which he grew through a series of strategic acquisitions. He led the sale of that business to a major international public company in 1987. Between 1974 and 1985, Mr. Amadori worked in the Toronto office of Arthur Andersen & Co., Chartered Accountants, during which time he practiced in the audit, tax and restructuring divisions and also led their Canadian M&A practice for several years. Mr. Amadori graduated from McGill University in 1972 and received a Master’s in Business Administration from the Ivey School of Business in 1974. He is a Canadian Chartered Accountant and completed his ICD.D certification at the Rotman School of Business in 2010. Over the past two decades, Mr. Amadori has served as a director of multiple Canadian and United States-based public and private companies in the technology, energy, industrial and health care sectors and he has served as chair of the board of directors of Kingsway since 2011. Mr. Amadori has also served as a director of many not-for-profit organizations  including, amongst others, the Association for Corporate Growth, Prostate Cancer Canada, the Markham Stouffville Hospital and Huron University College.

Brad Benbow – Director: Brad Benbow  is the chairman and chief executive officer of JDA, a national, full-service advertising, strategy, media and branding agency, which he co-founded in 2005. With more than 10 years at JDA, Mr. Benbow has worked intimately on many national accounts, designing and implementing multi-year strategic marketing plans for Fortune 500 clients, including former telecommunications giant Ameritech. Prior to joining JDA, Mr. Benbow co-founded Rutter Communications Network, the top-producing cable advertising sales firm in the country. Mr. Benbow graduated from Wabash College, where he earned a bachelor’s degree in economics. He currently serves on the board of directors of Answers in Genesis and is a former board member of both Habitat for Humanity and Warner University.

Rob Dickson – Director: Rob Dickson has over 30 years of business strategy, operations, M&A, legal and board experience. Currently, Mr. Dickson is the managing partner of R&D Venture Partners, a strategic advisor to marketing and communications companies, particularly in the digital space. Previously, Mr. Dickson was the managing director of MDC Partners Inc. (“MDC”) (the parent company of 50 leading advertising and marketing communication companies in North America). During his tenure, Mr. Dickson was instrumental in overseeing several large acquisitions, helping to transform MDC into the seventh-largest marketing communications firm in the world. Mr. Dickson received a bachelor of arts degree from University College, Oxford and a bachelor of laws degree from the University of Toronto. He was a practicing corporate lawyer for 17 years. Mr. Dickson is a trustee and chair of the audit committees for both H&R REIT and Edgefront REIT. He is also an investor in and advisor to numerous companies in the ad tech space.

Shaun Hawkins – Director: Shaun Hawkins is the founder of the ProSyte Companies, a diversified holding entity investing in businesses and real estate in the United States midwest, as well as communications and infrastructure entities in West Africa. From 2012 until his departure in 2015, Mr. Hawkins was vice president of new ventures and private equity investing at Eli Lilly and Company (“Eli Lilly”). In this capacity, Mr. Hawkins was responsible for Eli Lilly’s venture capital, private equity and venture formation activities, managing over $1.5 billion. Mr. Hawkins joined Eli Lilly in 2001 and held various roles in sales and corporate business development at the company. In 2010, Mr. Hawkins was promoted to chief diversity officer to lead the development and implementation of Eli Lilly’s global diversity and inclusion strategy. Mr. Hawkins graduated magna cum laude with a bachelor’s degree in business from the University of Tennessee in 1995, and earned a master’s degree in business administration from the Kellogg School of Management at Northwestern University in 2000. Mr. Hawkins currently serves on the ImmuneWorks, Inc. board of directors as well as the advisory council of the Indianapolis Recorder Newspaper. He was previously the board chair for Audion Therapeutics, B.V. (Netherlands) and Muroplex Therapeutics, Inc. (U.S.) as well as a board member of the Accelerator Corporation (U.S.) and Zymeworks, Inc (Canada). He was also a member of the limited partner advisory committees of BioCrossroads’ Indiana Enterprise Fund (U.S.), Epidarex Capital (U.K.), the Indiana Future Fund/INext Fund (U.S.) and TVM Capital (Canada and Germany).

Richard Turner – Director: Richard Turner is president and chief executive officer of TitanStar Investment Group Inc., a private company engaged in the provision of private equity capital to mid-market businesses and capital for real estate developments and acquisitions. Mr. Turner previously served on both the organizing and audit committees of the Vancouver 2010 Olympic and Paralympic Winter Games. He has also previously acted on the boards of the Insurance Corporation of British Columbia, the British Columbia Lottery Corporation, HLP, Sunrise Senior Living REIT, the Vancouver Board of Trade, the British Columbia Business Council and the operating subsidiary of IAT Air Cargo Facilities Income Fund, a business involved in the development and management of real estate at airports. In 2003, he received the H.R.H. Queen Elizabeth’s Golden Jubilee Award. Mr. Turner holds a bachelor of commerce in finance from the University of British Columbia, a diploma from the Canadian Securities Institute and has earned a ICD.D designation from the Institute of Corporate Directors. Mr. Turner currently serves on the boards of several public and private companies, including Pure Industrial Real Estate Trust, WesternOne Inc., the Vancouver Fraser Port Authority and TitanStar Properties Inc. He also serves as the honorary consul for the Hashemite Kingdom of Jordan in Vancouver.

Katherine C. Vyse – Director: Katherine C. Vyse is an accomplished senior business executive with over 25 years of diverse experience, including real estate, infrastructure, renewable power, asset management/private equity, retail and financial services. Ms. Vyse retired from Brookfield Asset Management in June 2013 as a partner and a senior vice president of investor relations after more than a decade at the firm. Her career experience also includes management roles in communications, human resources and consulting at  a major North American real estate company and one of Canada’s largest financial institutions as well as Ryerson University, where she taught marketing. Ms. Vyse is currently providing investor relations and communications advice and counsel to select clients and is a guest speaker at conferences and post-secondary institutions. Ms. Vyse holds a master’s in business administration from the Richard Ivey School of Business, a bachelor of arts from the University of Western Ontario and a diploma in retail management from Sheridan College. In addition, she earned the Institute of Corporate Director’s, ICD.D designation and the Canadian Securities Institute’s CSC. She was also awarded the Canadian Investor Relations Institute 2014 Award of Excellence in Investor Relations and named one of Canada’s 100 Most Powerful Women. Ms. Vyse is a member of the board of directors of the Royal LePage Shelter Foundation. She is a former member of the Brookfield Partners Foundation, as well as both the national and Ontario boards of the Canadian Investor Relations Institute.

Scott White – President: Scott White will serve as the president of the Company, responsible for the day-to-day operations and overall strategy. Mr. White joined the Mainstreet team in 2013 and was previously an executive vice president with HLP. Prior to joining Mainstreet, Mr. White spent over 15 years on Wall Street. Most recently, Mr. White served as a senior vice president in the private funds group of Brookfield Asset Management, where he was responsible for raising capital for various alternative asset vehicles across real estate, private equity and infrastructure. His career experience also includes a tenure as director and head of deal management at Citigroup’s alternatives distribution group. At Citigroup, he advised clients on alternative capital raising activities in private equity, real estate, hedge and infrastructure funds. Mr. White was responsible for executing 25 capital raising assignments at over $30 billion. Before focusing his career on alternative assets, he was part of the healthcare group at Citi’s Investment Bank, working with clients in the healthcare sector on M&A and capital raising assignments. He began his career in public accounting as an auditor for PricewaterhouseCoopers. Mr. White earned a bachelor’s degree with highest honors in political science and journalism from Rutgers University. He received his master’s in business administration from Rutgers Graduate School of Management and his law degree from the University of Pennsylvania Law School. He is a certified public accountant, is admitted to the bars of New York and New Jersey, and holds securities industry FINRA licenses Series 7, 24 and 63.

Adlai Chester – Chief Investment Officer: Adlai Chester joined the Mainstreet team in April 2009 and will be the chief investment officer of the Company, overseeing investment policy and strategy for the company. Mr. Chester was previously the chief financial officer of HLP. Mr. Chester began his career in public accounting, working as an auditor with PricewaterhouseCoopers and Whitinger & Company, LLC. He then left public accounting and served as the chief financial officer for a telecommunications company where he was instrumental in the sale of one of its most profitable divisions to Comcast. During his time as chief financial officer, he played a significant role in business development, cost and cash management, and oversaw the accounting and human resource departments. Mr. Chester was a faculty member in the accounting department at Ball State University for several years. His main focus was managerial accounting and financial statement analysis. He has received several awards. Most recently, the Indianapolis Business Journal named Mr. Chester to its 2015 “Forty Under 40” class. In 2014, the Indianapolis Business Journal named Mr. Chester Chief Financial Officer of the Year for private companies under $100 million in revenue. Mr. Chester obtained bachelor’s and master’s degrees in accounting from Ball State University.

Scott Higgs – Chief Financial Officer: Scott Higgs joined the Mainstreet team in 2013 and will serve as the chief financial officer for the Company, responsible for the financial oversight and accounting policies of the company. Since starting with Mainstreet, Mr. Higgs has arranged almost one billion dollars of debt financing, and has assisted in raising significant equity and mezzanine financing. Prior to joining Mainstreet, Mr. Higgs was a senior manager in the audit practice at KPMG LLP, where he served a variety of industries, including real estate, software and manufacturing. He has significant experience working with public companies and has assisted in multiple initial public offerings. Mr. Higgs earned his bachelor’s degree in accounting, with highest honors, from Butler University. He is a certified public accountant and a member of the AICPA. He is the chairman of the board of directors of Play Ball Indiana and is a committee member for the Alzheimer’s Association of Indiana.

Definitive Purchase Agreement and Other Conditions

The Commitment Letter is conditional on (i) the parties entering into a definitive purchase agreement that contains customary representations and warranties, covenants and conditions for a transaction of this kind, including (among others) those described below, and (ii) the directors, executive officers and certain shareholders of Kingsway, who in the aggregate beneficially own at least 43% of the outstanding common shares of Kingsway (on a non-diluted basis), having agreed pursuant to voting and support agreements to vote their common shares in favour of the Reverse Takeover.

Shareholders will be asked to approve the Reverse Takeover at a special meeting of shareholders. The definitive purchase agreement will provide that completion of the Reverse Takeover will be subject to a number of conditions, including but not limited to, approval by the TSX-V and the shareholders of Kingsway, certain approval rights in favour of the security holders (other than Mainstreet) of MHI Holdco not having been exercised, execution of the management agreement and development agreement, there not having been a material adverse effect in respect of the Company and other conditions that are customary for a transaction of this kind. The Reverse Takeover cannot close until the required shareholder approval is obtained. There can be no assurance that the Reverse Takeover will be completed as proposed or at all.

The definitive purchase agreement will also provide that, at the meeting to approve the Reverse Takeover, shareholders will also be asked to consider a number of additional items in connection with the Reverse Takeover, including, among other things: (i) the consolidation of Common Shares on the basis of one post-consolidation Common Share for every 200 pre-consolidation Common Shares (provided that the consolidation will not be effected until such time that the Company would meet the distribution requirements under the TSX-V rules on a post-consolidation basis); (ii) the change of the Company’s name from “Kingsway Arms Retirement Residences Inc.” to “Mainstreet Health Investments Inc.”; (iii) the amendment of the authorized capital of Kingsway to create a new class of Non-Voting Shares; (iv) the continuation of the Company from Ontario into British Columbia; (v) the approval of a restricted share unit plan and deferred share unit plan of the Company; (vi) the removal of the existing auditors of the Company and the appointment of new auditors of the Company; (vii) the issuance of Common Shares and/or Non-Voting Shares to Mainstreet pursuant to the Management Agreement; (viii) the issuance of Common Shares and/or Non-Voting Shares to the shareholders of MHI Holdco (other than Mainstreet) in exchange for their shares of MHI Holdco, on the same basis as the issuance of the Common Shares and Non-Voting Shares to Mainstreet pursuant to the Reverse Takeover and (ix) the assumption by the Company of Mainstreet’s obligation to fund approximately US$1.97 million of the purchase price for the Hanover Park Property and, to the extent that the Company requires funding to satisfy such obligation, the issuance of Common Shares and/or Non-Voting Shares to Mainstreet at a price of US$.04 per share (but, in any event, no less than CDN$.05 per share) (the “Funding Commitment“).

Following the Reverse Takeover, all of the Company’s assets will be located in the United States. As such, the Company intends to change its TSX-V listing from a Canadian dollar listing to a US dollar listing, subject to approval of the TSX-V.

BMO Capital Markets is acting as financial advisor to Mainstreet on the Reverse Takeover and the acquisition of the Symphony Portfolio. KeyBank Capital Markets LLC and National Bank Financial Markets acted as Joint Lead Arrangers and Joint Book Runners and KeyBank National Association acted as Administrative Agent on the senior credit facility in connection with the acquisition of the Symphony Portfolio.

Investors are cautioned that, except as disclosed in the Management Information Circular to be prepared in connection with the Reverse Takeover, any information released or received with respect to the Reverse Takeover may not be accurate or complete and should not be relied upon. Trading the securities of Kingsway should be considered highly speculative.

Kingsway and Mainstreet intend to apply to the TSX-V for an exemption or waiver of the sponsorship requirements under the applicable rules of the TSX-V. There is no guarantee that such exemption or waiver will be granted.

About Mainstreet

Mainstreet is a national company specializing in real estate development, value investments and health care. As the nation’s largest developer of transitional care properties, Mainstreet has been recognized by Senior Housing News, winning the Architecture & Design Award in 2013 and 2014, and has been named to the Inc. 500/5000 five times since 2010. For additional information, visit www.mainstreetinvestment.com. Mainstreet Investment Company, LLC is an Indiana limited liability company controlled by Paul Ezekiel Turner, a resident of Indiana.

Completion of the Reverse Takeover is subject to a number of conditions, including TSX-V acceptance and disinterested shareholder approval. The Reverse Takeover cannot close until the required shareholder approval is obtained. There can be no assurance that the Reverse Takeover will be completed as proposed or at all.

Neither the TSX-V nor any securities regulatory authority has in any way passed upon the merits of the Reverse Takeover described in this press release.

Neither the TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this news release.

Forward-Looking Statements

Certain information in this press release contains forward-looking statements or information (“forward looking statements“), including details about the Reverse Takeover. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Company’s control, including the impact of general economic conditions, industry conditions, currency fluctuations, environmental risks, operational risks, competition from other industry participants, stock market volatility, the risks that the parties will not proceed with the Reverse Takeover, that the conditions for completion of the Reverse Takeover will not be satisfied or waived, that the conditions for completion of the acquisition of the Hanover Park Facility by MHI Holdco will not be satisfied or waived, that the ultimate terms of the Reverse Takeover will differ from those that are currently contemplated and the ability to access sufficient capital from internal and external sources. Although the Company believes that the expectations in its forward-looking statements are reasonable, its forward-looking statements have been based on factors and assumptions concerning future events which may prove to be inaccurate. Those factors and assumptions are based upon currently available information. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on the forward-looking statements, as no assurance can be provided as to future results, levels of activity or achievements. Risks, uncertainties, material assumptions and other factors that could affect actual results are discussed in our public disclosure documents available at www.sedar.com. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, the Company does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.