Highland Springs Inc.

“Under the bylaws of the organization, the board has delegated authority to an executive committee comprised of the organization's chairman, president, secretary and treasurer. The executive committee has and may exercise all of the powers and authority of the board in the management of the business and affairs of the organization except for those actions reserved solely to the member or the directors under the general laws of the state of maryland.”

“On april 30, 2010, highland springs, inc. Entered into a new management and marketing agreement with erickson living management, llc ("elm") to provide the services previously provided by erc. Elm is a subsidiary of redwood-erc senior living holdings, llc, now known as erickson living holdings, llc which, together with other related entities,purchased the majority of the assets of erc. Elm is a maryland limited liability company which operates and manages large scale continuing care retirement communities. An amendment was made to the master lease and use agreement to change the lease term from 27.5 years with two 10-year renewal options and one 2.5 year renewal option, to 20 years with three 10-year renewal options, and to allow the organization to exercise its purchase option at 20 years and at the end of each renewal period, instead of 27.5 years (and at the end of each renewal period). This amendment was made retroactive to may 1, 2010. Amendments were made to the master lease and the management agreement as of january 1, 2013. The amendments were made primarily to address the obligations of the parties to fund repositioning and routine "life cycle" capital expenditures as well as other matters and include: a reduction in the purchase price to 95% of fair market value in the event that the community exercises the buyout option; elimination of the annual reserve for repositioning projects of up to 2% of the aggregate asset value of the community; and in lieu thereof establishing a repositioning reserve that will be funded by 7% out of the community's ebitdar; and an agreement by the landlord to match any expenditure from the repositioning reserve on a 2-for-1 basis and to fund any excess cost beyond that total. That effectively reduced the community's liability for the cost of repositioning projects from 100% as in the original lease to no more than one-third of the cost under the amendment. The amendments also established a capital expenditures reserve the effect of which is to even out the funding of "life cycle" expenditures. The master lease agreement was revised as "amended and restated" with a new effective date. Amendments were also made to the management agreement to address the capital expenditure and capital repositioning reserves. During the year, the community opened its "continuing care" facility to residents. At that time, the community negotiated amendments to the management and marketing agreement. In exchange for certain fee concessions by the manager, the community agreed to enter into an amended and restated management and marketing agreement on july 26, 2013 with a ten year term effective as of january 1, 2013. The purpose of the amendment was to change the timing of the first market evaluation of the management fee from the third year to the fourth year of the term of the agreement in order to allow the community additional time to study the market and determine whether it would be to its advantage to initiate the review. The following officers are listed in part vii, as non-compensated officers of the filing organization, john hall, james walter, and chris rathmann. Their duties are considered performed pro bono. Matthew neville, executive director, gillian sullen, director of finance, christopher emmett, vp regional operations, tina ricciardi, director of human resources, jennifer o'reilly, director of sales, and christina christie, retirement counselor, are leased employees from the management company. The filing organization reimburses the management company for their compensation which is reported on form 990, part vii, section a.”

“Highland springs, inc.'s sole member is national senior campuses, inc. ("nsc"). Nsc is a maryland non-stock corporation. Nsc is a "supporting organization" with respect to highland springs, as well as certain other organizations specified in its governing documents. As required by the regulations relating to "supporting organizations," certain members of the board of directors of nsc will also be members of the board of directors of the organization.”

“National senior campuses, inc. Has the right to appoint and elect all directors.”

“Certain extraordinary actions of the corporation require the approval of the member under applicable state law.”

“The board appoints a committee from among its directors as well as the directors from one or more related entities to oversee the preparation of form 990. The board chair has the responsibility to review form 990 prior to its filing or to designate another board member to review the form. The full board is given the opportunity to review the final version of form 990 before it is filed and ask questions of the committee or the reviewer regarding the form. The board chair designates an officer to sign form 990.”

“Highland springs, inc.'s conflict of interest policy covers all directors, officers, key employees, employees and volunteers in a position to exercise substantial influence over highland springs, inc.'s affairs, committee members, prospective directors, and senior staff providing services to the organization under a management agreement. Each covered person completes a conflict of interest disclosure statement annually and as potential conflicts arise during the year. These statements are reviewed by the board chair. If the conflict involves a covered employee, the chair determines whether a conflict exists and, if so, how it is to be handled, or the chair may refer the matter to the board of directors for consideration. For all other conflicts, the board of directors or a committee of disinterested directors will determine whether a conflict actually exists. A covered person may not participate in any discussion or debate by the board but may answer questions or provide clarifying information unless any board member objects.”

“The board has approved a directors' compensation policy which establishes the process by which all director compensation is determined. Officers serve without compensation. A review of the directors' compensation is conducted each fiscal year. Compensation is approached on an overall basis and the total value of all forms of compensation is established and monitored. An independent compensation consultant is periodically retained to perform an analysis of highland springs, inc.'s compensation using comparables of both for-profit and non-profit peers. A committee of the nsc board reviews the consultant's report and makes a recommendation to the organization as to appropriate compensation of directors. The full board has access to highland springs inc.'s consultant's report and an opportunity to question the consultant about the process, metrics, and comparables that were used in determining the recommended compensation. The board then votes on the compensation recommendations and a contemporaneous record is made of the meeting and the vote. The consultant review was last undertaken in 2012 and was acted upon by the board in early 2013.”

“The governing documents, conflict of interest policy, and the financial statements are available upon request at the executive director's office.”

“Highland springs spirit club income netted on financial statements reversal of prior amortization -3,580,458.”

“Mortgages and other notes payable - part x, line 23 the organization entered into a new working capital loan agreement in the amount of up to $2,134,000 to fund working capital deficits. The new working capital loan agreement provides that the organization's payment obligation may be deferred without penalty to allow the organization to maintain certain required cash on hand until such time as it is able to resume making payments on the loan and meet the requirements for cash reserves (if payment would cause the organization to fall below regulatory requirements for cash reserves). The outstanding balance on the wcla was $1,310,063 and $0 as of december 31, 2013 and 2012.”