LIMITED OFFERING MEMORANDUM

Transcription

1 NEW ISSUE Book-Entry Only LIMITED OFFERING MEMORANDUM RATING: NOT APPLIED FOR In the opinion of Peck, Shaffer & Williams, A Division of Dinsmore & Shohl LLP, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is included in gross income for federal income tax purposes. For a more complete description, see TAX MATTERS herein. $22,905,000 PUBLIC FINANCE AUTHORITY Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) Dated Date: Date of Delivery Maturity Date: July 1, 2017 Interest Rate: 6.00% Reoffering Price: % CUSIP: 74444K AB0 The Public Finance Authority (the Issuer ) is issuing its Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) (the Bonds ) pursuant to a Trust Indenture dated as of July 1, 2015 (the Indenture ), by and between the Issuer and The Huntington National Bank, Cincinnati, Ohio, as trustee (the Trustee ). The Bonds mature on the Maturity Date set forth above and shall bear interest from their Dated Date at the Interest Rate set forth above payable on the Maturity Date and each January 1 and July 1, commencing January 1, See THE BONDS herein. The Bonds are issuable as fully-registered bonds in the denomination of $100,000 or any integral multiple of $5,000 in excess thereof in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds under a book-entryonly system maintained by DTC through brokers and dealers who are, or act through, DTC participants. Purchasers will not be entitled to receive physical delivery of the Bonds. For so long as any purchaser is the beneficial owner of a Bond, such purchaser must maintain an account with a broker or dealer who is, or acts through, a DTC participant in order to receive payment of principal of and interest on such Bond. The Bonds are being issued to finance a loan (the Loan ) to six (6) North Carolina limited liability companies identified herein under the heading PRIVATE PARTICIPANTS (each, a Borrower and, collectively, the Borrowers ). The Bonds are not a debt or liability of Meridian Senior Living, LLC ( Meridian ). Meridian has no direct ownership interest in the Borrowers, Operating Companies, Master Tenant, or Sole Member (each as defined herein), but Meridian will serve as the manager for each of the applicable Facilities (defined below) pursuant to the Management Agreements (as defined herein). The proceeds of the Loan will be used (i) to provide interim financing for a portion of the cost of acquiring six (6) assisted living facilities located in North Carolina (each, a Facility and, collectively, the Facilities ) by paying the purchase price (including amounts owed under the HUD mortgage loans with respect to the Facilities) (ii) to pay the prepayment penalty associated with the HUD loans and (iii) to pay costs of issuance of the Bonds, in anticipation of receiving permanent financing for the Facilities from six (6) mortgage loans to be insured by the Secretary of Housing and Urban Development acting by and through the Federal Housing Administration under Sections 232 and 223(f) of the National Housing Act, as amended. The Loan will be made to the Borrowers pursuant to a Loan Agreement, dated as of July 1, 2015 (the Loan Agreement ), among the Issuer, the Borrowers, and the Trustee, under which the Borrowers have agreed to provide, as described herein, payments to the Issuer in amounts sufficient to pay the principal of and interest on the Bonds when due. The Bonds are subject to optional and mandatory redemption prior to maturity as set forth herein. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE FUNDS PLEDGED FOR THEIR PAYMENT PURSUANT TO THE INDENTURE AND ARE NOT A DEBT OR LIABILITY OF ANY ISSUER MEMBER OR SPONSOR (AS SUCH TERMS ARE DEFINED HEREIN), THE STATE (AS DEFINED HEREIN), OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS. THE BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS, NOR THE FAITH AND CREDIT OF THE ISSUER OR ANY SPONSOR SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE ISSUER HAS NO TAXING POWER. INVESTMENT IN THE BONDS INVOLVES A SIGNIFICANT DEGREE OF RISK AND EACH PROSPECTIVE INVESTOR SHOULD CONSIDER ITS FINANCIAL CONDITION AND THE RISKS INVOLVED TO DETERMINE THE SUITABILITY OF INVESTING IN THE BONDS. SEE RISK FACTORS AND INVESTMENT CONSIDERATIONS HEREIN. The Bonds must be held by and may only be transferred to, and each Holder of the Bonds will be deemed to have represented by its holding or acceptance of the Bonds that it is, a qualified institutional buyer as defined in Rule 144A promulgated under the Securities Act of 1933, as amended (the Securities Act ) or an accredited investor as defined in Rule 501 of Regulation D under the Securities Act. The Bonds will be secured by a pledge and assignment of the Trust Estate (as defined herein), including Loan Payments (as defined herein) made by the Borrowers and funds deposited under the Indenture. The obligations of the Borrowers under the Loan Agreement are secured by the Mortgage (as defined herein) and other collateral documents, which creates a first priority lien on, and security interest in, the Project Revenues (as defined herein) and other collateral documents. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS herein. The Bonds are offered when, as and if issued by the Issuer, subject to prior sale, withdrawal, or modification of the offer without notice and subject to the approving opinion of Peck, Shaffer & Williams, A Division of Dinsmore & Shohl LLP, Cincinnati, Ohio, Bond Counsel to the Issuer and certain other conditions. Certain legal matters will be passed upon for the Issuer by its counsel, von Briesen & Roper, s.c., Milwaukee, Wisconsin; for the Borrowers by their counsel, Womble Carlyle Sandridge & Rice, LLP, Winston-Salem, North Carolina; and for the Underwriter by its counsel, Howell, Linkous & Nettles, LLC, Charleston, South Carolina. It is expected that the Bonds will be available in book-entry form through the facilities of DTC on or about July 9, This cover page contains limited information for ease of reference only. It is not a summary of the Bonds or the security therefor. The entire Limited Offering Memorandum, including the Appendices, must be read to obtain information essential to make an informed investment decision. Date: July 6, 2015 OPPENHEIMER & CO.

2 Copyright, American Bankers Association. CUSIP data herein are provided by Standard & Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP number listed on the cover page is being provided solely for the convenience of Bondholders only at the time of issuance of the Bonds and neither the Borrowers nor the Issuer make any representation with respect to such number nor undertake any responsibility for its accuracy now or at any time in the future. The CUSIP number is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in part of the Bonds or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of the Bonds. NOTICE TO THE INVESTORS OF THE BONDS THE BONDS MAY BE PURCHASED INITIALLY ONLY BY A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ), OR AN ACCREDITED INVESTOR AS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT. THE PURCHASE RESTRICTIONS DESCRIBED IN THIS PARAGRAPH APPLY TO INITIAL PURCHASERS OF THE BONDS AND, TO ALL SUBSEQUENT SALES OR TRANSFERS OF THE BONDS OR BENEFICIAL INTERESTS THEREIN. See THE BONDS Purchase and Transfer Restrictions herein. Oppenheimer & Co. Inc. (the Underwriter ) provided the following sentence for inclusion in this Limited Offering Memorandum. The Underwriter has reviewed the information in this Limited Offering Memorandum in accordance with, and as part of, its responsibilities under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Except for information with respect to The Huntington National Bank (the Trustee ), the Trustee has not provided, or undertaken to determine the accuracy of, any of the information contained in this Limited Offering Memorandum and makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information or (ii) the validity of the Bonds. Upon execution and delivery, the Bonds will not be registered under the Securities Act of 1933, as amended, or any state securities law and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state, or other governmental entity or agency will have passed upon the accuracy or adequacy of this Limited Offering Memorandum or approved the Bonds for sale. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT OR ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, AND SUCH STABILIZING MAY BE DISCONTINUED AT ANY TIME. CERTAIN INFORMATION CONTAINED IN THIS LIMITED OFFERING MEMORANDUM MAY HAVE BEEN OBTAINED FROM SOURCES OTHER THAN RECORDS OF THE BORROWERS AND, WHILE BELIEVED TO BE RELIABLE, IS NOT GUARANTEED AS TO COMPLETENESS OR ACCURACY. THE INFORMATION AND EXPRESSIONS OF OPINION IN THIS LIMITED OFFERING MEMORANDUM ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THIS LIMITED OFFERING MEMORANDUM NOR ANY SALE MADE UNDER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BORROWERS SINCE THE DATE HEREOF. References herein to laws, rules, regulations, agreements, reports, and other documents, do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made therein. Where full texts have not been included as appendices to the Limited Offering Memorandum, they will be furnished upon request made to the Underwriter at the address set forth herein in MISCELLANEOUS - Concluding Statements. No dealer, broker, salesman or other person has been authorized by the Borrowers or the Underwriter to give any information or to make any representations, other than those contained in this Limited Offering Memorandum, and i

3 if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing persons. This Limited Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any state in which it is unlawful for such person to make such offer, solicitation, or sale. NO REGISTRATION STATEMENT RELATING TO THE BONDS HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE SEC ) OR WITH ANY STATE SECURITIES COMMISSION. IN MAKING ANY INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE BORROWER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. THE FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OF THIS LIMITED OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS LIMITED OFFERING MEMORANDUM This Limited Offering Memorandum contains statements which should be considered forward-looking statements, meaning they refer to possible future events or conditions. Such statements are generally identifiable by the use of the future tense or by terms such as may, intend, will, expect, forecast, facility, anticipate, estimate, plan, budget, believe, should, strategy, position, or the negative of such terms or variations of such words or similar expressions. In particular, any statements, express or implied, concerning the successful origination of the 232/223(f) Mortgage Financing (as defined herein) to pay debt service on the Bonds at their maturity are forward-looking statements. In addition, any statements, express or implied, concerning future operating results or the ability to generate Project Revenues (as defined herein) or cash flow to service indebtedness are forward-looking statements. Investors are cautioned that reliance on any of those forward-looking statements involves risks and uncertainties and that, although the Borrowers management believes that the assumptions on which those forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate. Those forward-looking statements, including forecasts, projections, and estimates, are based on currently available information, expectations, estimates, assumptions, and projections and management s judgment about the occupancy level of and operating condition of the Facilities (as defined herein) as well as on general economic conditions in the each of the Facility areas. The forward-looking statements are not guarantees of future performance. Actual results may vary materially and adversely from what is contained in a forward-looking statement. Factors which may cause results different from those expected or anticipated include, among others, the inability of any of the Borrowers to originate the 232/223(f) Mortgage Financing in the amount necessary to pay principal and interest on the Bonds by their Maturity Date, the continued existence of governmental programs to insure mortgage loans such as the 232/223(f) Mortgage Financing, availability of federal government appropriations for such purposes, the competitive environment and related market conditions in the assisted living market, operating efficiencies, access to capital, the cost of compliance with environmental and health standards, litigation and other risks and uncertainties described herein under RISK FACTORS AND INVESTMENT CONSIDERATIONS, and various other events, conditions, and circumstances, many of which are beyond the control of the Borrowers. As a result, the forward-looking statements based on those assumptions also could be incorrect, and actual results may differ materially and adversely from any results indicated or suggested by those assumptions. Such forward-looking statements are included in, among other portions of this Limited Offering Memorandum, PLAN OF FINANCE, THE FACILITIES Prior Operating History and Borrowers Financial Projections, Occupancy, 232/223(f) Mortgage Financing, and Appendix B Unaudited Financial Statements and Projections herein Although the Borrowers believe that any such forward-looking statement, and their expectations are based on assumptions considered reasonable by the Borrowers, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to factors both identified within this Limited Offering Memorandum and publicly available regarding the assisted living market in the Facility areas that could cause the actual results of the Borrowers to differ materially and adversely from those contemplated in such forward-looking statements. Any forward-looking statement speaks only as of the date such statement is made, and the Borrowers undertake no obligation to update any forward-looking statement in this Limited Offering Memorandum to reflect ii

4 events or circumstances after the date of this Limited Offering Memorandum or to reflect the occurrence of unanticipated events. New factors arise or emerge from time to time and it is not possible for the Borrowers to predict all of such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially and adversely from those contained in any forwardlooking statement. iii

5 TABLE OF CONTENTS INTRODUCTION... 1 PLAN OF FINANCE... 4 Acquisition of Facilities... 4 Operation of Facilities and Project Revenues /223(f) Mortgage Financing... 4 Terms of DCR Loan Financing... 5 RISK FACTORS AND INVESTMENT CONSIDERATIONS... 7 Limited Obligations of Issuer... 7 Bonds Not Insured or Guaranteed by HUD or FHA... 7 Nonrecourse Obligations of the Borrower; Security for Repayment... 7 Failure to Originate the 232/223(f) Mortgage Financing... 8 The Borrower and Related Parties; Conflicts of Interest... 8 Absence of Rating; Restrictions on Transfer of Bonds and Lack of Secondary Market... 8 Damage, Destruction or Condemnation of the Facility... 9 Adequacy of the Facility as Security... 9 Facilities are Special Purpose Facilities Other Government Regulation Appraisals Unaudited Financial Information Financial Projections Project Capital Needs Assessment Limitation on Acceleration of the Bonds Risk of Early Redemption Enforceability of Remedies; Prior Claims Environmental Regulation and Environmental Conditions Potential Effects of Bankruptcy Summary HEALTH CARE AND RELATED RISK FACTORS National Health Care Reform through the Affordable Care Act General Health Care Industry Factors Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction, and Other Performance Measures Regulatory Environment Licensing, Surveys and Accreditations Certificate of Need Workforce Shortages Increased Costs Competition THE ISSUER Formation and Governance Powers Issuer Local Approval Requirement Governing Body Resolution; Approval Special Limited Obligations Other Obligations Limited Involvement of the Issuer THE BONDS Terms of Bonds Generally Purchase and Transfer Restrictions Book-Entry-Only System Redemption of the Bonds Page iv

6 Notice of Redemption SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General Repayment of Loan The Mortgage Asset Management Services Agreement Assignment of Membership Interests Account Control Agreements Third Party Report and Filing Fee Escrow Operation of the Facilities Creation of Funds and Accounts Revenue Fund Bond Fund Administration Fund Project Fund Additional Bonds PRIVATE PARTICIPANTS Borrowers and Operating Companies Limited Assets and Obligation of Borrowers The Master Tenant Sole Member Meridian Senior Living, LLC THE FACILITIES Prior Operating History and Borrowers Financial Projections Meridian s Business Plan for the Facilities Facility Management Appraisals Environmental Assessments Project Capital Needs Assessments Insurance /223(f) Mortgage Financing LEGAL MATTERS Legal Proceedings Litigation TAX MATTERS MISCELLANEOUS No Ratings Underwriting Exemption from Continuing Disclosure Requirements CUSIP Numbers Concluding Statements Signature Page... S-1 APPENDIX A INFORMATION REGARDING THE FACILITIES AND SUMMARY OF APPRAISALS, ENVIRONMENTAL REPORTS, AND PHYSICAL NEEDS ASSESSMENTS... A-1 APPENDIX B UNAUDITED FINANCIAL INFORMATION AND PROJECTIONS... B-1 APPENDIX C LETTER OF LINKS MORTGAGE RE: CERTAIN THIRD-PARTY REPORTS... C-1 APPENDIX D DEFINITIONS OF CERTAIN TERMS... D-1 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE TRUST INDENTURE... E-1 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT... F-1 APPENDIX G SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGE... G-1 APPENDIX H FORM OF BOND COUNSEL OPINION... H-1 APPENDIX I DTC AND BOOK-ENTRY ONLY SYSTEM... I-1 v

7 LIMITED OFFERING MEMORANDUM $22,905,000 PUBLIC FINANCE AUTHORITY Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) INTRODUCTION This Limited Offering Memorandum, including the cover page and the Appendices hereto (this Limited Offering Memorandum ), is provided to furnish information in connection with the original issuance by the Public Finance Authority (the Issuer ) of its $22,905,000 Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) (the Bonds ). The Bonds are to be issued pursuant to Sections , and of the Wisconsin Statutes, as amended (the Act ), in conformity with the provisions, restrictions and limitations thereof, and a Trust Indenture dated as of July 1, 2015 (the Indenture ), between the Issuer and The Huntington National Bank, as Trustee (the Trustee ). Certain capitalized terms that are used in this Limited Offering Memorandum and not otherwise defined shall have the definitions ascribed to them in Appendix D Definitions of Certain Terms included herein. This introduction is not a summary of this Limited Offering Memorandum. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Limited Offering Memorandum, including the cover page and Appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Limited Offering Memorandum. The offering of Bonds to potential investors is made only by means of the entire Limited Offering Memorandum. The Bonds are being issued by the Issuer to make a loan (the Loan ) to (i) Goldsboro SIP 2, LLC, (ii) University SIP 2, LLC, (iii) Mocksville SIP 2, LLC, (iv) Meadowview SIP 2, LLC, (v) Cherryville SIP 2, LLC, and (vi) Rocky Mount SIP 2, LLC (each, a Borrower and, collectively, the Borrowers ) each being a North Carolina limited liability company, to provide interim financing for a portion of the cost of acquiring six (6) assisted living facilities (one by each Borrower) located in North Carolina (each, a Facility and, collectively, the Facilities ). Proceeds of the Bonds shall be used by the Borrowers to pay a portion of the purchase price of the Facilities (including all amounts owed under the outstanding HUD mortgage loans with respect to the Facilities), to pay the prepayment penalties associated with the HUD mortgage loans, and to pay costs of issuance of the Bonds, in anticipation of receiving permanent financing for the Facilities. Additional funds needed to pay the purchase price of the Facilities will be provided by a mortgage loan to the Borrowers, the Sole Member (as defined herein), and two individuals who are related persons to the Borrowers. See PLAN OF FINANCE-DCR Loan Financing herein. See PRIVATE PARTICIPANTS and THE FACILITIES herein. The Borrowers each expects to apply for a FHA insured mortgage loan in respect of the Facility it owns through a licensed FHA underwriter, Links Mortgage Corporation ( Links Mortgage ), which will be closed, securitized, and serviced by a licensed Government National Mortgage Association Issuer ( Ginnie Mae Issuer or GNMA ). Each loan will be insured by the Secretary of Housing and Urban Development acting by and through the Federal Housing Administration ( FHA ) under Sections 232 and 223(f) (the Section 232/223(f) Program ) of the National Housing Act, as amended, and regulations promulgated thereunder (the 232/223(f) Mortgage Financing ). Links Mortgage has been approved by HUD to originate, underwrite and service health care loans under HUD s LEAN program for loans insured by HUD under the Section 232/223(f) Program. The program for insured health care loans was instituted during the time period and is the only program currently designated by HUD for originating and underwriting loans to be insured under the provisions of the National Housing Act. Links Mortgage has successfully originated, underwritten and closed 29 insured healthcare loans under the LEAN program. Links Mortgage has never failed to obtain a firm commitment from HUD concerning any application for project mortgage insurance filed by it under the LEAN program. Additionally Links Mortgage has never failed to close and fund a firm commitment issued by HUD under the LEAN program. 1

8 During 2013 HUD instituted a protocol under which it grades all underwriters who have submitted applications for project mortgage insurance under the LEAN protocol. To the best knowledge of Links Mortgage, its chief health care underwriter, Marie A. O Brien, is the only underwriter to receive a perfect underwriting score (100%) for all applications submitted to HUD for insured health care loan during 2013 and Sections 232, 223(f) and 223(a)(7) of the National Housing Act authorize the United States Department of Housing and Urban Development, acting by and through the Federal Housing Administration ( FHA ), to insure mortgages for the acquisition and refinancing of existing health care facilities, and to insure mortgages for the construction of new health care facilities. The term Health Care Facilities includes health care facilities that provide assistance with the activities of daily living and continuous protective oversight to skilled nursing facilities. FHA has authorized a group of approved FHA mortgages who have qualified under its LEAN program to originate, underwrite and submit applications for project mortgage insurance. The LEAN program is the only program currently used by FHA to insure health care facilities. These insured loan programs are designed to offer long term, fixed rate and non-recourse debt to the owners of qualified health care facilities. The Loan of Bond proceeds will be made to the Borrowers under a Loan Agreement dated as of July 1, 2015 (the Loan Agreement ), among the Issuer, the Borrowers, and the Trustee. The Borrowers are jointly and severally obligated under the Loan Agreement to make payments (the Loan Payments ) in such amounts and at such times as will be sufficient to pay, when due, the principal of, premium, if any, and interest on the Bonds as well as pay certain other fees and expenses in connection with the Bonds. As evidence of their obligations to make the Loan Payments with respect to the Bonds the Borrowers will execute and deliver to the Issuer, for assignment to the Trustee, a Promissory Note (the Note ). The Borrowers obligations under the Note and the Loan Agreement will be secured by a Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing, and Environmental Indemnity Agreement (the Mortgage ), dated as of the Closing Date, from the Borrowers in favor of the Trustee for the benefit of the Holders of the Bonds, which creates a first priority mortgage lien on, and security interest in, each of the Facilities and pledge of Project Revenues and other property as described in the Mortgage, subject only to certain Permitted Encumbrances identified therein, as well as the other Collateral Documents. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Mortgage herein. DCR Mortgage VI Sub III, LLC will provide a loan (the DCR Loan ) to the Sole Member, the Borrowers, Charles E. Trefzger, Jr., and Steve Sandholtz (collectively, the DCR Borrowers ) in the amount of $6,850,000 to fund a portion of the costs of acquisition of the Facilities. The payment and performance of obligations of the DCR Borrowers under the DCR Loan will be secured by the real property of the Facilities and the business assets of certain DCR Borrowers, subordinate to the interests of the Trustee in such collateral securing the Bonds and subject to the terms of the Intercreditor Agreement (defined below); provided, however, that in addition, the DCR Loan will be secured by a first priority pledge of and security interest in the ownership interests in the Sole Member, the Master Tenant, the Operating Companies (each as defined herein) and the Borrowers, subject to the terms of the Intercreditor Agreement. See PLAN OF FINANCE Terms of DCR Loan Financing for additional information regarding the DCR Loan. The Borrowers obligations under the Loan Agreement, the Note, and the Mortgage are limited, nonrecourse obligations and the Borrowers have no obligation to make payments of amounts due under the Loan Agreement except from Project Revenues and from amounts held in the Funds and Accounts created under the Indenture and the security provided by the Mortgage. See PLAN OF FINANCE AND SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Mortgage herein for additional information regarding revenues or assets of the Borrowers that will be available for the payment of, or as security for, the Bonds. The right of the Issuer to collect and receive payments under the Loan Agreement has been assigned, with the exception of certain Reserved Rights of the Issuer, to the Trustee under the Indenture. No assets or other revenues of the Issuer are or will be available for the payment of, or as security for, the Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Repayment of Loan herein. The Indenture provides that the Trust Estate created in the Indenture secures for the equal and proportionate benefit, security, and protection of the Holders of the Bonds. The Trust Estate will include all right, title, and interest (if any) of the Issuer in and to (a) the Loan Agreement (except for the Reserved Rights of the Issuer, including any payments in respect thereof), the Note, and the Security Documents; (b) all money, securities, and interest earnings 2

9 from time to time held by the Trustee under the terms of the Indenture; (c) such other rights and interests in property pledged to the Trustee as and for additional security for the Bonds; and (d) to the extent not covered above, all proceeds of the foregoing. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS herein. The Bonds shall mature on the Maturity Date and bear interest on the outstanding principal amount thereof at the Interest Rate set forth on the cover page hereof payable at their maturity and each January 1 and July 1, commencing January 1, The Bonds are subject to optional and mandatory redemption prior to maturity as set forth herein under THE BONDS Redemption of the Bonds. Brief descriptions of the Issuer, the Borrowers, the Facilities, the Bonds, the security for the Bonds, the Indenture, the Loan Agreement, the Mortgage, the DCR Loan, and Links Mortgage are included in this Limited Offering Memorandum. The summaries herein do not purport to be complete and are qualified in their entireties by reference to such documents, agreements, and programs as may be referred to herein, and the summaries herein of the Bonds are further qualified in their entireties by reference to the form of the Bonds included in the Indenture and the provisions with respect thereto included in the aforesaid documents. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE FUNDS PLEDGED FOR THEIR PAYMENT PURSUANT TO THE INDENTURE AND ARE NOT A DEBT OR LIABILITY OF ANY ISSUER MEMBER OR SPONSOR (AS SUCH TERMS ARE DEFINED HEREIN), THE STATE, OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS. THE BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS, NOR THE FAITH AND CREDIT OF THE ISSUER OR ANY SPONSOR SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE ISSUER HAS NO TAXING POWER. AN INVESTMENT IN THE BONDS INVOLVES A SIGNIFICANT DEGREE OF RISK, INCLUDING, AMONG OTHERS, RISKS ASSOCIATED WITH THE LIMITED SOURCE OF PAYMENT FOR THE BONDS AND VARIOUS REAL ESTATE AND OPERATING RISKS. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE STATEMENTS AND INFORMATION CONTAINED IN THIS LIMITED OFFERING MEMORANDUM, INCLUDING THE MATERIAL UNDER THE CAPTION RISK FACTORS AND INVESTMENT CONSIDERATIONS. The Bonds may be purchased initially only by a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act of 1933, as amended (the Securities Act ), or an accredited investor as defined in Rule 501 of Regulation D under the Securities Act. The purchase restrictions described in this paragraph apply to initial purchasers of the Bonds and, to all subsequent sales or transfers of the Bonds or beneficial interests therein. BY ITS PURCHASE OF THE BONDS, EACH PURCHASER OF THE BONDS IS DEEMED TO HAVE REPRESENTED THAT IT IS A QUALIFIED INSTITUTIONAL BUYER OR AN ACCREDITED INVESTOR AND THAT THE TRANSFER OF THE BONDS OR BENEFICIAL INTERESTS THEREIN TO FUTURE PURCHASERS WILL BE RESTRICTED TO PURCHASERS WHO ARE EITHER QUALIFIED INSTITUTIONAL BUYERS OR ACCREDITED INVESTORS. SEE THE BONDS PURCHASE AND TRANSFER RESTRICTIONS HEREIN. 3

10 PLAN OF FINANCE Acquisition of Facilities The Bonds are being issued to finance the Loan to the Borrowers. The proceeds of the Loan will be used (i) to provide interim financing for a portion of the cost of acquiring the Facilities by paying a portion of the purchase price (including all amounts owed under the HUD mortgage loans with respect to the Facilities) (ii) to pay the prepayment penalty associated with the HUD mortgage loans, and (iii) to pay costs of issuance of the Bonds, in anticipation of receiving permanent financing for the Facilities from six (6) mortgage loans to be insured by the Secretary of Housing and Urban Development acting by and through the Federal Housing Administration under Sections 232 and 223(f) of the National Housing Act, as amended. Operation of Facilities and Project Revenues Each Borrower will purchase and be the owner of its respective Facility. Each of the Facilities will be leased by the respective Borrower to JFC Meridian Master Tenant, LLC, a North Carolina limited liability company (the Master Tenant ), pursuant to the terms of the Master Lease dated as of July 9, 2015 (the Master Lease ) for a term of twenty (20) years. JFC SIP 2, LLC, a North Carolina limited liability company (the Sole Member ), owns 100% of the membership interests in six (6) separate, wholly-owned North Carolina limited liability companies (each, an Operating Company and collectively, the Operating Companies). The Master Tenant will sublease each of the Facilities to the applicable Operating Company pursuant to Sublease Agreements (each, a Sublease and, collectively, the Subleases ). The Operating Companies are responsible for the operation and management of their respective Facilities. Meridian Senior Living, LLC ( Meridian ) is being hired by each Operating Company to manage the respective Facilities pursuant to management agreements entered into between each Operating Company and Meridian (the Management Agreements ). See PRIVATE PARTICIPANTS Borrowers and Operating Companies and Meridian Senior Living herein. During the term of the Bonds, each Operating Company will receive Project Revenues with respect to its Facility. Each Operating Company will be obligated under its respective Sublease Agreement to pay from Project Revenues all expenses with respect to its Facility and then pay the balance of Project Revenues on a monthly basis to the Master Tenant. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Master Lease, Subleases, and Account Control Agreements herein. The Master Tenant will be obligated under the Master Lease to pay lease payments in the amount of debt service due on the Bonds to each Borrower with respect to such Borrower s Facility. The Master Tenant will be obligated under the Asset Management Services Agreement to pay the then-current requirement to Links Mortgage to fund the Third Party Report and Filing Fee Escrow (as defined below). The Third Party Report and Filing Fee Escrow is expected to be used to pay among other things, for the payment of third party reports, application fees and other preliminary costs and fees relating to the 232/223(f) Mortgage Financing. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Third Party Report and Filing Fee Escrow herein. The Borrowers are obligated under the Loan Agreement to make Loan Payments to the Trustee to be used to pay debt service on the Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Repayment of the Loan herein. IT IS NOT EXPECTED THAT RECEIPTS OF PROJECT REVENUES WILL BE SUFFICIENT TO PAY DEBT SERVICE ON THE BONDS WHEN DUE. 232/223(f) Mortgage Financing In order to pay the Bonds and provide permanent mortgage financing for all of the Facilities, each Borrower will apply for 232/223(f) Mortgage Financing for its respective Facility from Links Mortgage to be closed, securitized, and serviced by a licensed Ginnie Mae Issuer. Each Borrower expects to close on its respective 232/223(f) Mortgage Financing before the scheduled Maturity Date of the Bonds. Each Borrower expects that its 4

11 respective 232/223(f) Mortgage Financing will be originated on or prior to the Maturity Date of the Bonds and further expects to apply the proceeds of its 232/223(f) Mortgage Financing to the payments of principal and accrued interest on the Bonds. See THE FACILITIES 232/223 Mortgage Financing herein. Links Mortgage is assisting the Borrowers with their applications for the 232/223(f) Mortgage Financing. In the course of that assistance, Links Mortgage has reviewed the Environmental Reports, PCNAs, ALTA Surveys, and Title Insurance Commitments (each as defined below) prepared for each Facility. Based on that review and assuming no material change in the condition and operation of each Facility, Links Mortgage is of the opinion that the Environmental Reports, PCNAs, ALTA Surveys, and Title Insurance Commitments are acceptable for filing the Borrowers applications for 232/223(f) Mortgage Financing with HUD except as described in Appendix C hereto. See THE FACILITIES 232/223(f) Mortgage Financing and Appendix C herein. See Appendix C attached hereto. In the event that the Borrowers successfully originate 232/223(f) Mortgage Financing for all Facilities, the proceeds of that financing will be applied first to the payment of the HUD closing costs (to the extent that moneys held in the Third Party Report and Filing Fee Escrow are insufficient to pay those costs in full) and second to the payment of the redemption price of the Bonds in full. Links Mortgage has provided the Underwriter an estimate of HUD values for the Facilities following certain revenue enhancement and reduction in operating expenses projected by Meridian. See THE FACILITIES Meridian s Business Plan for the Facilities and Appendix C for a description of the revenue enhancement and reduction of operating expenses projected by Meridian. After consultation with a HUD appraiser, Links Mortgage believes a value of between $95,000 and $100,000 per unit is a reasonable expectation. See Appendix C hereto. Terms of DCR Loan Financing DCR Mortgage VI Sub III, LLC ( DCR ) will provide a loan (the DCR Loan ) to the Sole Member, the Borrowers, Charles E. Trefzger, Jr., and Steve Sandholtz (collectively, the DCR Borrowers ) in the amount of $6,850,000 to fund a portion of the costs of acquisition of the Facilities. Charles E. Trefzger, Jr., and Steve Sandholtz are related persons to the Borrowers. The payment and performance obligations under the DCR Loan will be secured by deeds of trust, assignment of rents and security agreements, on the real property of the Facilities and the business assets of certain DCR Borrowers, including all personal property used or in connection with the Facilities, subordinate to the interests of the Trustee in such collateral securing the Bonds and subject to the terms of the Intercreditor Agreement (defined below); provided that, in addition, the DCR Loan is secured by a first priority pledge of and security interest in the ownership interests in the Sole Member, the Master Tenant, the Operating Companies and the Borrowers, subject to the terms of the Intercreditor Agreement (the First Priority Membership Interest Pledge ). The DCR Loan will bear interest at the fixed rate of 16.00% per annum, and is payable in monthly, interestonly payments during the term of the DCR Loan based on a pay rate of 10.00% per annum. The additional 6.00% annual interest accrual will compound annually and be due in one final balloon payment of principal and accrued interest on the day after the Maturity Date of the Bonds (the DCR Loan Maturity Date ). All principal, interest and other sums due under the DCR Loan will be due and payable in full on the DCR Loan Maturity Date. The Intercreditor Agreement, dated as of July 9, 2015 (the Intercreditor Agreement ) between DCR and the Trustee, provides, among other things, that (a) the Trustee consents to DCR s second mortgage lien position against the Facilities, (b) no future advances will be permitted under the Bond Documents, except as may be required to protect the Trustee s lien rights in the encumbered property, (c) the Trustee must deliver to DCR a written notice of default and right to cure prior to acceleration, except for the principal and interest due on the Maturity Date of the Bonds and (d) the Trustee consents to DCR s First Priority Membership Interest Pledge. Through the First Priority Membership Interest Pledge, DCR seeks the ability, after the occurrence of an event of default under the DCR Loan, to exercise the rights of a member of the Borrowers in connection with the operations of the Facilities. The Trustee has a senior lien on, among other collateral, rents and leases generated by the Facilities. 5

12 Cash flows with respect to the Facilities, on a global basis (the Cash Flow ) will be distributed as described below. Prior to an event of default, Links Mortgage, as the Controlling Person (as such term is defined in the Indenture, will review monthly operating and financial information. Following an event of default, the Controlling Person will retain an entity (the Post-Default Consultant ) to advise the Trustee and Links Mortgage regarding actions to be undertaken by the Trustee and/or Links Mortgage under the Indenture and the Asset Management Services Agreement, respectively. Pre-Default Cash Flow will be applied in the following priority: (i) pay operating expenses pursuant to an approved budget; provided, however, that modifications to the approved budget resulting in annual operating expenses in excess of 10% of the approved budget (per Facility) shall require prior written approval of the Controlling Person; (ii) pay Indebtedness under the Bond Documents; (iii) pay current debt service, late fees and other charges on the DCR Loan; (iv) fund the Third Party Report and Filing Fee Escrow; and (v) any remaining amounts may be distributed to or at the direction of the Master Tenant. After the occurrence of an event of default, there will be a cross-default under the Bond Documents evidencing and governing the Loan, but the Trustee will not exercise any rights or remedies under the Bond Documents and no default actions will be undertaken thereafter by the Trustee for so long as the following conditions shall have been satisfied: (1) except with respect to any payment of interest or principal due on the stated Maturity Date of the Bonds, DCR shall have cured any monetary default by the Borrowers under the Bond Documents within 10 days of DCR s receipt of written notice from the Trustee of the existence and nature of such monetary default; (2) DCR shall not have breached or violated any provision of the Intercreditor Agreement; and (3) DCR shall not have violated, or attempted to violate, the application of global cash flows described below. For so long as all of the conditions set forth in the preceding sentence remain satisfied, DCR will be permitted to exercise any and all rights or remedies available to it under its First-Priority Membership Interest Pledge, including, without limitation, the right to exercise decision making authority on behalf of any Borrower. Notwithstanding the foregoing, DCR will be required to obtain the prior written consent of the Post-Default Consultant (or the Trustee) for any of the following decisions: (1) any modification to the approved budget resulting in a change in annual operating expenses in excess of 10% of such approved budget per Facility, (2) any amendment to the application of global Cash Flows described below, and/or (3) any modification or amendment of any payment term contained in any Sublease or the Master Lease. After an Event of Default, each annual operating budget, and any revisions to an operating budget (in excess of the amounts described in the preceding sentence), must be approved by the Controlling Person. Post-Default, global Cash Flows shall be applied by DCR as follows: (i) pay operating expenses pursuant to an approved budget; provided, however, that modifications to the approved budget resulting in annual operating expenses in excess of 10% of the approved budget (per Facility) will require prior written approval of the Controlling Person; (ii) pay current debt service, late fees and other charges on the Indebtedness under the Bond Documents, excluding the acceleration of such Indebtedness; (iii) pay current debt service, late fees and other charges on the DCR Loan, excluding the acceleration of the DCR Loan; (iv) fund the Third Party Report and Filing Fee Escrow; (v) pay the fees and expenses of a post-default consultant selected and engaged by the Controlling Person to provide any approvals or directions required to be provided by the holders of the Bonds under the Bond Documents (the Post-Default Consultant ); and (vi) during any period when any portion of the Indebtedness under any of the Rider attached to the Loan Agreement (the Rider ), the Borrower Documents, or the Indenture is outstanding, any remaining amounts will be held and deposited in a reserve fund, meeting the requirements of the Rider, for the benefit of Trustee (the Reserve Fund ). Prior to the payment in full of the Indebtedness due under any of the Rider, the Borrower Documents, or the Indenture, the Reserve Fund may be used, with the consent of the Trustee, DCR, and the Post-Default Consultant, to pay extraordinary operating expenses or other required project expenditures. After the Indebtedness under the Bond Documents is paid in full, the Trustee s security escrow and Reserve Fund will be terminated. In addition to collateral and security differences between the Loan financed with the proceeds of the Bonds and the DCR Loan, the Loan and DCR Loan also differ by the DCR Loan having the Sole Member and two individuals as borrowers and obligors with respect to the DCR Loans. 6

13 RISK FACTORS AND INVESTMENT CONSIDERATIONS AN INVESTMENT IN THE BONDS INVOLVES A SIGNIFICANT DEGREE OF RISK. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD CAREFULLY CONSIDER ALL POSSIBLE FACTORS WHICH MAY AFFECT THEIR INVESTMENT IN THE BONDS. IN ADDITION TO THE OTHER INFORMATION SET FORTH HEREIN, THE FOLLOWING PROVISIONS IN THIS SECTION, WHILE NOT SETTING FORTH ALL THE FACTORS, CONTAINS SOME OF THE FACTORS THAT SHOULD BE CONSIDERED PRIOR TO PURCHASING THE BONDS. In order to identify risk factors and make an informed investment decision, prospective investors should be thoroughly familiar with this entire Limited Offering Memorandum (including the Appendices hereto, the documents describing the transactions, the third party reports with respect to the Facility, and the documents relating to the formation and organization of the Borrowers) and review the actual documents summarized herein to make a judgment as to whether the Bonds are an appropriate investment for the investor. There are other possible risks not discussed below. Limited Obligations of Issuer THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE FUNDS PLEDGED FOR THEIR PAYMENT PURSUANT TO THE INDENTURE AND ARE NOT A DEBT OR LIABILITY OF ANY ISSUER MEMBER OR SPONSOR, THE STATE, OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS. THE BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS, NOR THE FAITH AND CREDIT OF THE ISSUER OR ANY SPONSOR SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE ISSUER HAS NO TAXING POWER. Bonds Not Insured or Guaranteed by HUD or FHA The Bonds are not insured or guaranteed by HUD or FHA. Nonrecourse Obligations of the Borrower; Security for Repayment The Bonds are payable, if and when available, from the proceeds of the 232/223(f) Mortgage Financing, Loan Payments to be made by the Borrowers under the Loan Agreement and the Note, and from amounts on deposit in the Funds established under the Indenture. The Borrowers obligations to make payments pursuant to the Loan Agreement and the Note are nonrecourse obligations with respect to which the Borrowers have no personal liability. Each Borrower is a single purpose entity; each Borrower s only asset is its interest in its respective Facility. The Loan Agreement and the Note obligate the Borrowers to pay to the Trustee monthly payments equal to the amounts required to pay the semi-annual interest payment with respect to the Bonds; however, it is expected that proceeds of the 232/223(f) Mortgage Financing on all Facilities, when originated, will be sufficient to pay principal and the final interest payment on the Bonds on the Maturity Date. The security for the Bonds (subject to Permitted Encumbrances) will consist entirely of (i) Loan Payments made by the Borrowers pursuant to the Loan Agreement, (ii) the Loan Agreement, the Mortgage, the Note, the Assignment of the Master Lease, and the Assignment of the Subleases. (except for Reserved Rights of the Issuer), (iii) the Trustee s lien on Project Revenues, (iv) all moneys and securities from time to time held by the Trustee under the terms of the Indenture, and (v) and any all other real and personal property from time to time thereafter by delivery or by writing of any kind conveyed, mortgaged, pledged, assigned, or transferred as additional security for the Bonds pursuant to the Indenture. Prospects for uninterrupted payment of principal and interest on the Bonds in accordance with their terms are dependent upon the origination of the 232/223(f) Mortgage Financing for all six of 7

14 the Facilities in amounts necessary to meet the obligations of the Borrowers under the Loan Agreement and the Note, as described above. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Repayment of Loan herein. Failure to Originate the 232/223(f) Mortgage Financing Payment of principal and interest on the Bonds, and the Borrowers obligations with respect to the principal and interest payments on the Bonds, are primarily expected to be paid from proceeds of the 232/223(f) Mortgage Financing for all of the Facilities. Although the Borrowers will execute the Note to evidence their joint and several obligations to repay the Loan, Project Revenues available to be used to pay debt service will not be sufficient to fully retire the Loan by the Maturity Date of the Bonds. In the event the 232/223(f) Mortgage Financing for all of the Facilities does not close and fund, or closes after the Maturity Date of the Bonds, or closes in amounts insufficient to pay the Bonds in full, there are no readily available funds for the Borrowers to pay principal and interest on the Bonds when due. See THE FACILITIES 232/223(f) Mortgage Financing herein. The Borrowers and Related Parties; Conflicts of Interest Each Borrower was organized for the sole purpose of acquiring and operating its respective Facility. Each Borrower has no assets other than its interest in its respective Facility and the rights and revenues incident thereto, and has no intention to acquire other assets. The ability of the Borrowers to pay and perform their obligations under the Loan Agreement and the Note will depend primarily upon the origination of the 232/223(f) Mortgage Financing for all of the Facilities. The Borrowers have limited resources and are dependent on the origination of the 232/223(f) Mortgage Financing to meet their obligations under the foregoing documents. Under the terms of the Loan Agreement and North Carolina law relating to limited liability companies, the manager of any Borrower is not liable for the debts or losses of any of the Borrowers, nor is it obligated to contribute any funds to or on behalf of any Borrower, irrespective of whether the proceeds of the 232/223(f) Mortgage Financing or Project Revenues are insufficient to pay debt service requirements with respect to the Bonds. See PRIVATE PARTICIPANTS The Sole Member herein. The Bonds are not a debt or liability of Meridian. Meridian has no direct ownership interest in the Borrowers, Operating Companies, Master Tenant, or Sole Member, but Meridian will serve as the manager for each of the applicable facilities pursuant to the Management Agreements. Meridian is an affiliate of the Borrowers, the Operating Companies, and the Master Tenant. Links Mortgage will be the Controlling Person under the Bond Documents and is also expected to be the Permanent Financing Lender for the 232/223(f) Mortgage Financing, the proceeds of which are expected to pay principal and interest on the Bonds at their maturity date or earlier redemption. Links Mortgage will be paid a fee of $500/month by the Borrowers for its services as the Controlling Person. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Asset Management Services Agreement for additional information regarding the role of the Controlling Person under the Bond Documents. Meridian, the Sole Member, Links Mortgage, and their affiliates have engaged in, and may continue to engage in, business for their own account, independently or with others, and whether or not in the vicinity of or in competition with the Facility. As a result of other interests and activities, Meridian, the Sole Member, Links Mortgage, and their affiliates may have conflicts of interest with their role in the Facilities, including conflicts in allocating their time and resources between the Facilities and other activities in which they are involved. Absence of Rating; Restrictions on Transfer of Bonds and Lack of Secondary Market No rating has been applied for the Bonds by any rating agency. The absence of a rating could adversely affect the ability of Beneficial Owners to sell their interests in the Bonds or the price at which the Bonds could be sold. There is no existing secondary market for the Bonds, and it is unlikely that such a market will develop. None of the Bonds are registered under federal or state securities laws. The Bonds may not be resold or otherwise transferred unless the Bonds are registered under the Securities Act and applicable state securities laws or an 8

15 exemption from registration is available. In these circumstances, Beneficial Owners may not be able to resell or dispose of the Bonds at a price approximating the purchase price. The Bonds and beneficial interests therein may not be sold or transferred except only to (i) Qualified Institutional Buyers as defined in Rule 144A promulgated under the Securities Act or (ii) accredited investors as defined in Rule 501 under Regulation D of the Securities Act. The transfer restrictions described in this paragraph apply to all subsequent sales or transfers of the Bonds. See THE BONDS Purchase and Transfer Restrictions herein for a description of the restrictions on transfers of the Bonds. Damage, Destruction, or Condemnation of the Facility Each Borrower has arranged for comprehensive insurance coverage which is customary for assisted living facilities such as the Facilities. In the event of damage or condemnation, the applicable Borrower may rely on insurance proceeds and condemnation awards to pay all or part of the costs of restoring its Facility or to redeem the Bonds in accordance with the requirements of the Loan Agreement. Failure of an insurer to pay a claim could result in a default on the Loan. There are certain types of losses which exclude incidents of force majeure or other incidents that are not insured or insurable. Should such a catastrophic casualty occur, the applicable Borrower would suffer losses for which insurance benefits would not be available. Further, there can be no assurance that the Facilities will not suffer losses for which insurance cannot be or has not been obtained or that the amount of any such loss, or the period during which such Facility cannot generate Project Revenues, will not exceed the coverage of such insurance policies. If any Facility or any portion of any Facility is damaged or destroyed, or is taken in a condemnation proceeding, funds derived from proceeds of insurance or any such condemnation award for such Facility must be applied as provided in the Loan Agreement to restore or rebuild that Facility or to redeem the Bonds. Each Borrower has agreed in the Loan Agreement to consult with Links Mortgage to ensure that any repair or restoration complies with HUD requirements for the 232/223(f) Mortgage Financing. There can be no assurance that the amount of funds available to restore or rebuild such Facility or to redeem the Bonds will be sufficient for that purpose, or that any remaining portion of such Facility will generate Project Revenues sufficient to pay the operating expenses of that Facility and the debt service on the Bonds remaining outstanding. Adequacy of the Facility as Security The security for the Bonds includes liens on the Facilities, evidenced by the Mortgage which has been granted in favor of the Trustee. If any Borrower fails (i) to originate the 232/223(f) Mortgage Financing with respect to its Facility on or prior to the Maturity Date of the Bonds or if any Borrower fails to make sufficient and timely payments required under the Loan Agreement, it may be necessary for the Issuer and the Trustee to exercise their remedies under the Mortgage or the Indenture, including foreclosure. There can be no assurance that if and when the Trustee forecloses and obtains possession of any Facility or realizes amounts from the sale thereof, that resulting proceeds or Project Revenues (if the Facility is retained and operated by the Trustee), would be sufficient to pay debt service on the Bonds in full when due and operating expenses of the Facility. The Trustee is not in the business of operating facilities such as the Facilities and any amounts which might be realized from operation of any Facility are uncertain. Further, attempts to foreclose under the Mortgage or to obtain other remedies under such document, the Indenture, the Loan Agreement, or any other documents relating to the Bonds may be met with protracted litigation and/or bankruptcy proceedings, which could cause delays, and a court may decide not to order specific performance of covenants contained in such documents. Thus, there can be no assurance that, upon the occurrence of an event of default on the Bonds, the Trustee will be able to obtain possession of the applicable Facility or generate proceeds of sale or revenues from such Facility, or obtain other relief, in a timely fashion. Furthermore, in the event that foreclosure proceeds are realized, such proceeds will first be applied to pay any fees and expenses of the Issuer and the Trustee, including the fees and expenses of their respective counsel. 9

16 Facilities are Special Purpose Facilities The Facilities have been specifically constructed for assisted living facility purposes and are subject to physical restrictions, as well as zoning codes, that limit the alternative uses that can be made of such property. If any Borrower is unable to operate its Facility successfully as assisted living facilities, the number of entities that would be interested in purchasing or leasing such Facility from the Borrower for other purposes could be extremely limited, and the ability of the Trustee to lease or sell such Facility to third parties would be adversely affected. Therefore, there is no assurance that the Trustee could realize sufficient proceeds from the foreclosure of the Mortgage and the sale of the applicable Facility thereunder to pay the Bonds in their entirety. Furthermore, in the event that foreclosure proceeds are realized, such proceeds will first be applied to pay any fees and expenses of the Issuer and the Trustee, including the fees and expenses of their respective counsel. Other Government Regulation The Facilities are and will continue to be subject to rules and regulations promulgated by various agencies and bodies of federal, state and local governments which have jurisdiction over such matters as employment, environment, safety, traffic, and health. The impact of such rules and regulations on any of the Facilities is unknown and cannot be predicted. Future orders, pursuant to existing or subsequently enacted rules or regulations, may require the expenditure by the Borrowers of substantial sums to effect compliance therewith, thereby reducing Project Revenues that are pledged as security for the Bonds. Appraisals The Borrowers have obtained an appraisal with respect to each respective Facility (the Appraisals ). The Appraisals are based on certain assumptions significant to the operation of the respective Facilities as described therein, and sets forth information as of the date thereof. Some assumed events and circumstances inevitably will not materialize and unanticipated events and circumstances may occur subsequent to the date of the Appraisals. Neither the Issuer, the Underwriter, the Trustee nor any counsel rendering approving or other opinions with respect to the transactions described herein have examined or verified the assumptions and conclusions contained in the Appraisals. A summary of the Appraisals is set forth in this Limited Offering Memorandum. See THE FACILITIES Appraisals and Appendix A herein. The summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full Appraisals. During the initial offering period, complete copies of the Appraisals are available from the Underwriter upon request, as described under MISCELLANEOUS Concluding Statements herein. Unaudited Financial Information The historical Statements of Operations for the 12 months ended February 28, 2015, included in Appendix B Unaudited Financial Information and Projections hereto, were prepared by NCAL-Cherryville, NCAL-Rocky Mount, NCAL-Bond Properties, NCAL-Mocksville, Inc., NCAL Winston-Salem, Inc. and PAKO Investments, Inc., the sellers of the Facilities to the Property Companies. The Borrowers make no representation as to the accuracy of such Statements of Operation. Moreover, the Statements of Operation are unaudited by an accountant, and they are not financial statements prepared in accordance with generally accepted accounting principles. The Statements of Operation do not provide a long-term view of the financial operations of the Facilities. They also do not provide a history of financial operations of the Facilities as they will be owned and operated during the term of the Bonds. There can be no assurance that the financial results achieved in the future will be similar to historical results. Such future results will vary from historical results and the variations may be material. Therefore, the historical financial results cannot be taken as a representation that the Borrowers will be able to fulfil their obligations under the Loan Agreement. 10

17 Financial Projections The one-year financial projections prepared with respect to each Facility and the three-year consolidated projections, included in Appendix B Certain Financial Information and Projections hereto, present the Borrowers estimates of future results of operations of the Facilities and are based upon the assumptions of management of the Borrowers concerning future events, circumstances, and transactions. Realization of the results forecasted will depend on the implementation by the Borrowers of policies and procedures consistent with the assumptions. Future results will also be affected by events and circumstances beyond the control of the Borrowers, for example, general economic conditions; competitive conditions; unanticipated expenses; changes in government regulation; future claims for accidents against the Borrower and the extent of insurance coverage for such claims. For the reasons described above, it is likely that the actual results of the operations of the Facilities will be different from the results forecasted and those differences may be material and adverse. The forecasts were prepared by the management of the Borrowers and have not been certified or examined by an accountant. The Underwriter makes no representation or warranty as to the Borrowers financial forecasts. See THE FACILITIES Operating History and Borrowers Financial Projections herein. SOME ASSUMPTIONS MAY NOT MATERIALIZE AND UNANTICIPATED EVENTS AND CIRCUMSTANCES ARE LIKELY TO OCCUR. THEREFORE, THE ACTUAL RESULTS ATTAINED WILL IN ALL LIKELIHOOD VARY FROM THE PROJECTIONS CONTAINED IN THE PRO FORMA FINANCIAL PROJECTIONS. ACCORDINGLY, NO PERSON CAN MAKE REPRESENTATIONS OR WARRANTIES AS TO THE FUTURE RESULTS OF OPERATIONS OF THE FACILITIES. Project Capital Needs Assessment The Borrowers have obtained a summary project capital needs assessment with respect to each Facility (the PCNA ). Neither the Issuer, the Trustee, nor the Underwriter makes any representation as to the physical condition of the Facilities. See THE FACILITIES Project Capital Needs Assessments and Appendix A herein for a summary of each PCNA. There exists the possibility that the Facilities will require repairs and improvements that were not disclosed in the PCNAs. In that event, there can be no assurance that the Borrowers will have sufficient funds available to repair the Facilities, or that any remaining Project Revenues after paying for such repairs will be sufficient to pay the operating expenses of the Facilities and the debt service on the Bonds. In addition, FHA imposes the limitation that the Facilities in their present condition must meet the general criterion for livability without the necessity of substantial rehabilitation in order to be eligible for consideration under the Section 232/223(f) Program. Failure to meet that limitation would adversely affect the Borrowers ability to originate the 232/223(f) Mortgage Financing to repay the Bonds. During the initial offering period, complete copies of the PCNAs are available from the Underwriter upon request, as described under MISCELLANEOUS Concluding Statements herein. Limitation on Acceleration of the Bonds The Indenture provides that following an Event of Default, and subject to cure provisions thereunder, the maturity of the Bonds may be accelerated by the Trustee and shall be accelerated by the Trustee and upon written request of the holders of a majority of the principal amount of a the Bonds. See Appendix E - Summary of Certain Provisions of the Trust Indenture included herein. The Intercreditor Agreement, as described under PLAN OF FINANCE Terms of DCR Loan Financing, provides: (1) DCR a right to cure defaults (except for the principal and interest due on the Maturity Date of the Bonds) prior to acceleration; and (2) that the Trustee will not exercise any rights or remedies under the Bond Documents and no default actions will be undertaken thereafter by the Trustee for so long as the following conditions have been satisfied: (a) except with respect to any payment of interest or principal due on the stated Maturity Date of the Bonds, DCR shall have cured any monetary default by the Borrowers under the Bond Documents within 10 days of DCR s receipt of written notice from the Trustee of the existence and nature of such monetary default; (b) DCR shall not have breached or violated any provision of the Intercreditor Agreement, and (c) DCR shall not have violated, or attempted to violate, the application of global cash flows described in PLAN OF FINANCE Terms of DCR Loan Financing. 11

18 Risk of Early Redemption There are a number of circumstances under which all or a portion of the Bonds may be redeemed prior to their stated maturity, including the origination of the 232/223(f) Mortgage Financing prior to the Maturity Date of the Bonds. For a description of the circumstances in which Bonds may be redeemed and the terms of redemption, see THE BONDS Redemption of the Bonds herein. Enforceability of Remedies; Prior Claims The Bonds are payable from the payments to be made under the Loan Agreement. Pursuant to the Indenture, the Bonds are secured by an assignment by the Issuer to the Trustee of certain of its rights under the Loan Agreement (except for the Reserved Rights of the Issuer) and by the Mortgage on the Facilities and the security interest in the personal property. The practical realization of the value from this property upon any default will depend upon the exercise of various remedies specified by the Loan Agreement, the Note, the Mortgage, and the Indenture. These and other remedies may require judicial actions, which are often subject to discretion and delay. Under existing law (including, without limitation, the Federal Bankruptcy Code), the remedies specified by the Loan Agreement, the Mortgage, and other Collateral Documents or the Indenture may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in the Loan Agreement, the Mortgage, and other Collateral Documents or the Indenture. The various opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization, or other laws affecting the enforcement of creditors rights generally. In addition, the various security interests established under the Indenture, the Mortgage and the other Collateral Documents (including the lien on Project Revenues) will be subject to Permitted Encumbrances, and may be limited by or subject to other claims and interests. Examples of such claims and interests are: (1) statutory liens and assessments for improvements; (2) rights arising in favor of the United States of America or any agency thereof; (3) constructive trusts, equitable liens, or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction; (4) federal bankruptcy laws affecting amounts earned by the Borrower after institution of bankruptcy proceedings by or against the Borrower; and (5) the requirement that appropriate continuation statements be filed in accordance with the Uniform Commercial Code as from time to time in effect. Environmental Regulation and Environmental Conditions The Facilities will be subject to risks arising out of federal, state, and local environmental law considerations generally associated with ownership of real estate. Such risks include, in general, a decline in value of the Facilities resulting from possible violations of applicable federal or state environmental laws and regulations, including, but not limited to, the Comprehensive Environmental Compensation and Liability Act of 1980 (CERCLA) and the Resource Conservation and Recovery Act of 1976 (RCRA). These risks may be associated with contamination of the Facilities from hazardous substances located in, on, around, or in the vicinity of any of the Facilities. In addition, these laws and regulations could result in liability to the owner of the applicable Facility (and to any beneficiary of the Mortgage on such Facility, particularly following any sale or foreclosure proceeding) for remediating adverse environmental conditions on or relating to the applicable Facility, whether arising from preexisting conditions or conditions arising as a result of the activities conducted in connection with the ownership and operation of such Facility. 12

19 Costs incurred by any Borrower with respect to environmental remediation or liability could adversely impact its financial condition and its ability to own and operate its Facility and to pay debt service on the Bonds. Certain environmental costs might be the responsibility of such Borrower, but such costs would be subject to appropriation and might be a factor in such Borrower s decision concerning the continuation of the Loan Agreement. If excessive costs are incurred by any Borrower in connection with remediating environmental problems or from liability to third parties, such costs could make it impractical for the Loan Agreement to be continued pursuant to its current terms or such costs could make it more difficult to successfully relet or sell the applicable Facility if the Loan Agreement were not renewed. A Phase I Environmental Site Assessment (the Environmental Reports ) for each of the Facility sites was prepared by Engineering and Environmental Services, PLLC, Hickory, North Carolina. A summary of the findings of the Environmental Reports is set forth in THE FACILITIES - Environmental Assessments herein and Appendix A hereto. The Environmental Reports speak only as of their respective dates, and are subject to the limitations therein. More generally, no environmental assessment can completely eliminate uncertainty regarding the potential for recognized environmental conditions in connection with a subject property. Potential investors must refer to the complete Environmental Reports for a full understanding of such limitations, and for additional information pertinent to the assessments. Costs incurred by the Borrower with respect to environmental remediation or liability could adversely affect its financial condition and ability to repay the Bonds. None of the Issuer, the Borrowers, the Underwriter, the Trustee, or any other party makes any representation as to the environmental status of the Facilities. During the initial offering period, complete copies of the Environmental Reports are available from the Underwriter upon request, as described under MISCELLANEOUS Concluding Statements herein. Potential Effects of Bankruptcy If any Borrower were to file a petition for relief (or if a petition were filed against such entity as debtor) under the United States Bankruptcy Code, 11 U.S.C. 101 et seq., as amended, or other similar laws that protect creditors, the filing could operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the property of the debtor. If the bankruptcy court so ordered, the debtor s property and revenues could be used for the benefit of the debtor despite the claims of its creditors (including the registered owners of the Bonds). In the event of the bankruptcy of any Borrower, payment of principal and interest made by such Borrower through the Trustee to the Bondholders within ninety-one days of the filing of the petition in bankruptcy with respect to such Borrower may be determined to be voidable preferences subject to claim by a debtor in possession or a trustee in bankruptcy, or may be subject to applicable State law regarding fraudulent conveyances. In a bankruptcy proceeding, the debtor could file a plan for the adjustment of its debts which modifies the rights of creditors generally or the rights of any class of creditors, secured or unsecured (including the registered owners of the Bonds). The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interest of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly. Summary The foregoing is intended only as a summary of certain risk factors attendant to an investment in the Bonds. In order for potential investors to identify risk factors and make an informed investment decision, potential investors should be thoroughly familiar with this entire Limited Offering Memorandum and the appendices hereto so as to make a judgment as to whether the Bonds are an appropriate investment, and obtain such additional information as they deem advisable in connection with their evaluation of the suitability of the Bonds for investment. 13

20 HEALTH CARE AND RELATED RISK FACTORS Some of the health care policies, laws, regulations, and legislation affecting the Facilities and the health care industry in general are discussed below, but this discussion is not, and is not intended to be, exhaustive. I. National Health Care Reform through the Affordable Care Act In March 2010, the President signed into law comprehensive health care reform through the Patient Protection and Affordable Care Act (Pub. L ) and the Health Care and Education Reconciliation Act of 2010 (Pub. L ), together known as the Affordable Care Act. Some of the provisions of the Affordable Care Act took effect immediately, while others will be phased in over time, ranging from one year to ten years. Because of the complexity of health care reform generally, additional legislation is likely to be considered and enacted over time. The Affordable Care Act will also require the promulgation of substantial regulations with significant effect on the health care industry. Thus, the health care industry is now subject to significant new statutory and regulatory requirements, and, consequently, to structural and operational changes and challenges for a substantial period of time. Management of the Borrowers cannot predict with any reasonable degree of certainty or reliability any interim or ultimate effects of legislation arising out of the Affordable Care Act. A significant component of the Affordable Care Act is reformation of the sources and methods by which consumers will pay for health care for themselves and their families and by which employers will procure health insurance for their employees and dependents and, as a consequence, expansion of the base of consumers of health care services. One of the primary drivers of recent health care reform is to provide or make available, or subsidize the premium costs of, health care insurance for some of the millions of currently uninsured (or underinsured) consumers who fall below certain income levels. The Affordable Care Act intends to accomplish this objective through various provisions, summarized as follows: (i) the creation of active markets (referred to as exchanges) in which individuals and small employers can purchase health care insurance for themselves and their families or their employees and dependents, (ii) providing subsidies from premium costs to individuals and families based upon their income relative to federal poverty levels, (iii) mandating that individual consumers obtain and certain employers provide a minimum level of health care insurance, and providing for penalties or taxes on consumers and employers that do not comply with these mandates, (iv) establishing insurance reforms that expand coverage generally through such provisions as prohibitions on denial of coverage for pre-existing conditions and elimination of lifetime or annual cost caps, and (v) expanding existing public programs, including Medicaid, for individuals and families. To the extent all of any of those provisions produce the intended result, an increase in utilization of health care services by those who are currently avoiding or rationing their health care can be expected and bad debt expenses may be reduced. Some of the specific provisions of the Affordable Care Act that may affect the Facilities operations, financial performance, or financial condition are described below. The listing is not intended to be, nor should be considered by the reader as exhaustive. The Affordable Care Act is complex and comprehensive, and includes a myriad of new programs and initiatives and changes to existing programs, policies, practices, and laws. A. Medicaid Expansion. The Affordable Care Act authorized state-expansion of Medicaid programs to a broader population with incomes up to 133% of the federal poverty level. If a state votes to expand Medicaid, the federal government is responsible for the cost of this coverage expansion in the initial years. Thereafter, each state will share in the financial burden of the expanded coverage. The changes made by the Affordable Care Act are expected to substantially increase the potential number of Medicaid beneficiaries. While management of the Facilities cannot predict the effect of these changes to the Medicaid program on the operations of the Facilities or their financial condition, historically Medicaid reimbursement rates have not kept up with the increasing cost of care. Therefore, increases in the overall proportion of Medicaid beneficiaries at the Facilities pose a financial risk to the Project Revenues. It is uncertain to what extent this risk may be mitigated by increased Medicaid eligibility. To date North Carolina has not approved Medicaid expansion. Management of the Facilities cannot assess or predict the likelihood of future 14

21 unfavorable changes in the Medicaid program, whether enacted by the federal government or the states. B. Waste, Fraud and Abuse Reduction. With varying effective dates, the Affordable Care Act mandated reduction of waste, fraud, and abuse in public programs by allowing provider enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs, and by requiring Medicaid program providers and suppliers to establish compliance programs. The Affordable Care Act requires the development of a database to capture and share health care provider data across federal health care programs and also provides for increased penalties for fraud and abuse violations, and increased funding for anti-fraud activities. C. Independent Payment Advisory Board. Commencing in 2014, the Affordable Care Act established an Independent Payment Advisory Board to develop proposals to improve the quality of care and limitations on cost increases. Those proposals would be automatically implemented if Congress does not act to invalidate them. D. Demonstration Programs and Pilot Projects. The Affordable Care Act implemented various demonstration programs and pilot projects to test, evaluate, encourage, and expand new payment structures and methodologies to reduce health care expenditures while maintaining or improving quality of care, including bundled payments under Medicaid. The outcome of these projects and programs, including their effect on payments to providers and financial performance, cannot be predicted. The enactment of the Affordable Care Act is an example of significant changes in the laws and regulations affecting health care generally. The enactment of other new legislation or the adoption of new regulations in response to the Affordable Care Act could have an adverse effect on the results of operations of the Facilities. Based upon all of the above, it is more difficult to project future performance than it has been in the past, particularly because of the continued passage of additional laws and promulgation of new regulations and guidelines that is expected to occur for an indefinite, but lengthy, period of time into the future. II. General Health Care Industry Factors A. Revenue from Resident Services Services provided by the Facilities are paid for either by the resident out of personal resources or by a thirdparty payor. Third-party payors include private health plans and public programs, such as Medicaid. When residents cannot afford to pay for the services provided by the Facilities or residents have insurance coverage for such services, many of the third-party payors make payments to the Facilities in amounts that may not reflect the direct and indirect costs of the Facilities of providing services to the residents. 1. Self-Pay For many residents, they are personally responsible for the cost of health care and personal care services they receive at the Facilities. However, current factors in the U.S. economy, such as inflation and high unemployment coupled with a slow recovery of the U.S. housing market, have negatively impacted the value and liquidity of personal assets of residents and their families, making it harder for residents to pay for services using private resources. Over time, these market factors have the potential to adversely affect the Facilities financial condition and Project Revenues. 2. Private Third-Party Payors Private third-party payors limit payments made to assisted living facilities for services provided by increasing utilization of review practices and negotiating or demanding discounted fee structures. Accordingly, there 15

22 can be no assurance that payments made under such programs will be adequate to cover the Facilities actual costs of furnishing health care and personal care services and items. The financial performance of the Facilities has been and could be in the future adversely affected by the financial position or the insolvency or bankruptcy of or other delay in receipt of payments from third-party payors that cover the services provided by the Facilities. For example, if the regulators place a financially-troubled thirdparty payor into rehabilitation under state law, or if a third-party payor files for protection under the federal bankruptcy laws, it is unlikely that providers will be reimbursed in full for services furnished to enrollees of the third-party payor. Also, providers may be required by law or court order to continue furnishing health care and personal care services to the enrollees of an insolvent third-party payor, even though the providers may not be reimbursed in full for such services. As a result, the Facilities will have to rely increasingly on the ability of residents to pay for services using their own financial resources. 3. Public Third-Party Payors a. Medicaid A significant portion of the gross revenue from residents receiving care at the Facilities for the 12-months ended December 31, 2014, was derived from the Medicaid program. See the information in Appendix B. Medicaid is the commonly used name for health care reimbursement or payment programs governed by certain provisions of the federal Social Security Act Amendments of The government uses reimbursement as a key tool to implement health care policies, to allocate health care resources, and to control utilization, facility and provider development and expansion, and technology use and development. Medicaid is designed to pay providers for care given to the medically indigent and others who receive federal aid. Medicaid is funded by federal and state appropriations and is administered by an agency of the applicable state. The Facilities receive a significant portion of revenues from government programs, and it is unlikely that the Facilities could ever attract sufficient numbers of private-pay residents to become self-sufficient without payments from governmental programs. b. Medicaid & Other State Health Programs Medicaid is a partially federally-funded state program of health care for the poor. States obtain federal funds for their Medicaid programs by obtaining the approval of the Centers for Medicare and Medicaid Services ( CMS ) of a state plan which conforms to Title XIX of the Social Security Act and its implementing regulations. Within broad national guidelines which the federal government provides, each of the states establishes its own eligibility standards, determines the type, amount, duration, and scope of services, sets the rate of payment for services, and administers its own program. Thus, the Medicaid program varies considerably from state to state, as well as within each state over time. After its state plan is approved, a state is entitled to federal matching funds for Medicaid expenditures. Medicaid operates as a vendor payment program. Providers participating in Medicaid must accept Medicaid payment rates as payment in full. Medicaid payments have not kept pace with the increasing costs incurred by the Facilities with respect to Medicaid beneficiaries. Reimbursement for care provided to Medicaid beneficiaries is subject to appropriation by the respective state legislatures of sufficient funds to pay incurred resident obligations. Delays in state appropriations and state budget deficits, which may occur from time to time, create a risk that payment for services provided to Medicaid beneficiaries will be withheld or delayed. Federal and state governments, including North Carolina, have considered, and are continuing to consider, changes to Medicaid funding, particularly in light of the increasing portion of each state s budget that represents Medicaid funding. Since most states must operate with balanced budgets and since the Medicaid program is often the state s largest program, states, including North Carolina, have adopted or considered adopting legislation designed to reduce their Medicaid expenditures in recent years. The economic downturn and budgetary constraints have resulted in pressure to decrease spending for Medicaid. Historically, states often have attempted to reduce Medicaid spending by limiting benefits and tightening Medicaid eligibility requirements. 16

23 As budgetary pressure increases, there can be no assurance that Medicaid reimbursement will not be affected, or that the States will not make material changes to the Medicaid program, affecting the size of the covered population or scope of the covered benefits. While Medicaid reimbursement is often very low when compared with other payors, the Facilities providing services to individuals who are uninsured do not receive any compensation for such services and the Facilities have to absorb such cost as uncompensated care. Therefore, a reduction in the covered population under Medicaid may have a negative impact on the Facilities. c. Medications Covered by Medicaid Increasing drug prices and the cost of drugs newly approved by the Food and Drug Administration continue to be major issues faced by the North Carolina Medicaid programs. No prediction can be made as to the fiscal impact of the foregoing described issues on the State Medicaid programs. There is no assurance that there will not be delays in appropriations or state budget deficits in the future that may create a risk that payment for services to Medicaid beneficiaries will be withheld or delayed. d. Other Services Covered by Medicaid Medicaid payment for ambulatory care services, rehabilitation services, dialysis services, and home health services are based on regulatory formulas or pre-determined rates. There is no guarantee that these rates, as they may change from time to time, will be adequate to cover the actual cost of providing these services to Medicaid beneficiaries. e. Medicaid Audits Health care facilities, including assisted living facilities, which participate in the Medicaid program are subject from time to time to audits and other investigations relating to various aspects of their operations and billing practices, as well as to retroactive audit adjustments with respect to reimbursements claimed under these programs. Medicaid regulations also provide for withholding reimbursement payments in certain circumstances. New billing rules and reporting requirements for which there is no clear guidance from CMS or state Medicaid agencies could result in claims submissions being considered inaccurate. The penalties for violations may include an obligation to refund money to the Medicaid program, payment of criminal or civil fines, and, for serious or repeated violations, exclusion from participation in federal health programs. CMS has instituted a Medicaid Integrity Program, modelled on the Medicare Integrity Program. Medicaid Integrity Program contractors assist state Medicaid agencies by analyzing Medicaid claims data to identify high-risk areas and potential vulnerabilities and conducting post-payment field audits and desk review audits of Medicaid provider payments. B. Negative Rankings Based on Cost, Quality, Resident Satisfaction, and Other Performance Measures Health plans, Medicaid programs, employers, trade groups, and other purchasers of health services, private standard-setting organizations, and accrediting agencies increasingly are using statistical and other measures in efforts to characterize, publicize, compare, rank and change the quality, safety and cost of health care services and personal care services delivered by providers. Financial and non-financial incentive programs are being introduced to affect the reputation and revenue of health care and personal care providers and to influence the behavior of consumers and providers such as the Facilities. Prevalent currently are measures of quality based on clinical outcomes of resident care, reduction in costs, resident satisfaction, and investment in health information technology. Measures of performance set by others that characterize a health care provider or personal care provider negatively may adversely affect its reputation and financial condition. C. Regulatory Environment The Facilities and the health care industry in general are subject to regulation by a number of governmental agencies, including those that administer the Medicaid program, federal, state, and local agencies responsible for 17

24 administration of health care planning programs, and other federal, state, and local governmental agencies. These laws and regulations also require health care providers and personal care providers to meet various detailed standards relating to the adequacy of medical care, equipment, personnel, information technology, confidentiality, operating policies and procedures, maintenance of adequate records, utilization, rate setting, compliance with building codes and environmental protection laws, and numerous other matters. Failure to comply with applicable regulations can jeopardize a provider s licenses, ability to participate in the Medicaid program, and ability to operate as an assisted living facility. These laws and regulations, as well as similar laws and regulations now in effect, and the adoption of additional laws and regulations in these and other areas could have an adverse effect on the ability of the Facilities to generate Project Revenues in sufficient amounts to timely pay the Bonds. Some of these legal and regulatory requirements are discussed below. 1. Federal and State Fraud and Abuse Laws and Regulations There are a broad range of federal (and state) laws and regulations that govern the operation of health care providers, and in particular, laws and regulations that pertain to the specific manner in which services must be provided and billed for under programs that are paid for, in whole or in part, by the federal government. The most significant of these laws are the federal Anti-Kickback Statute, the federal False Claims Act, and the federal Civil Monetary Penalties Law, all discussed below. There are additional laws and regulations, the violation of which could result in substantial penalties, fines, and exclusion from participation in Medicaid and other federally-funded health care programs. Third party payors, including Medicaid, also may retroactively determine that certain payments previously made to providers should be recouped, and such recoupment may be material, depending upon the facts and circumstances. Because of the complexity of federal rules pertaining to reimbursement, it is even possible that a provider can inadvertently be paid funds to which it is not lawfully entitled. Upon discovery of such overpayments, a provider is required by law to return such funds to the government. Such recoupment or repayment could have a material impact on a provider s revenues. The Facilities have internal policies and procedures and have developed and implemented a compliance program that management believes will effectively reduce exposure for violation of these laws. However, because the government s enforcement efforts presently are widespread within the industry and may vary from region to region, there can be no assurance that the compliance program will significantly reduce or eliminated the exposure of the Facilities to civil or criminal sanctions or adverse administrative determinations. Because the specifics of the various anti-fraud and abuse laws and regulations, and reimbursement rules have historically changed over time, and enforcement priorities often shift materially from year to year, it is not possible to predict changes in such laws, their interpretation, or enforcement policies or the impact of such changes on the Facilities. a. The Anti-Kickback Statute The federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the Anti-Kickback Statute ) make it a criminal felony offense to knowingly and wilfully offer, pay, solicit or receive remuneration in return for or to induce business that may be paid for, in whole or in part, under a federal health care program including, but not limited to, the Medicaid program. In addition to criminal penalties, including fines and imprisonment, violations of the Anti-Kickback Statute can lead to civil monetary penalties and exclusion from the federal health care programs. The scope of prohibited payments in the Anti-Kickback Statute is broad and includes certain payments made as part of economic arrangements involving hospitals, physicians and other health care providers, including joint ventures, space and equipment rentals, recruitment of physicians, purchases of physician practices, and management and personal services contracts. The Facilities conduct activities of these general types or similar activities. The OIG has published safe harbor regulations which describe certain arrangements that will not be deemed to constitute violations of the Anti-Kickback Statute. The safe harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many health care providers consider to be legitimate business arrangements not prohibited by the Anti-Kickback Statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economic arrangements or other 18

25 relationships between health care providers and referral sources, health care providers having these arrangements or relationships need to make their own determination of compliance based on review of the Special Fraud Alerts issued by the OIG, Advisory Opinions (which are technically not precedential) and other informal guidance. Providers may seek their own Advisory Opinions from OIG as well. The Facilities have not obtained an Advisory Opinion for any financial relationship with a referral source that is not within a Safe Harbor. Failure to comply with a statutory exception or regulatory safe harbor does not mean that an arrangement is unlawful but, in the absence of an Advisory Opinion, may increase the likelihood of challenge. Actions which violate the Anti-Kickback Statute or similar laws may also involve liability under the federal civil False Claims Act (the FCA ), which prohibits the knowing presentation of a false, fictitious or fraudulent claim for payment to the United States government. Actions under the FCA may be brought by the United States Department of Justice or as a qui tam action. (See The Federal False Claims Act and Civil Monetary Penalties below). Violation or alleged violation of the Anti-Kickback Law most often results in settlements that require multi-million dollar payments and mandatory compliance agreements that typically include costly audit requirements. The Anti-Kickback Law can be prosecuted either criminally or civilly. Violation is a felony, subject to a fine of up to $250,000 for each act (which may be each item or each bill sent to a federal program), imprisonment and exclusion from the Medicaid program. In addition, civil monetary penalties of $10,000 per item or service in noncompliance (which may be each item or each bill to a federal program) or an assessment of three times the amount claimed may be imposed. The North Carolina General Statutes make it unlawful for any provider of medical assistance under North Carolina s Medicaid program to knowingly and wilfully make or cause to be made any false statement or representation, or to conceal or fail to disclose any material fact, in any application for payment under the State s Medicaid program or for use in determining eligibility for payment or with respect to the conditions or operation of a facility in order that such facility may qualify or remain qualified to participate in the State s Medicaid program. In North Carolina, it is also unlawful for any provider of medical assistance under the State s Medicaid program to present to the State a false or fraudulent claim for payment or approval. The Facilities may have certain relationships with physicians and other referral sources which do not meet all of the requirements of each applicable safe harbor. Nonetheless, management of the Facilities believes that it is currently in material compliance with the Anti-Kickback Laws. However, in light of the narrowness of the safe harbor regulations and the scarcity of case law interpreting the Anti-Kickback Laws and its safe harbor regulations, there can be no assurances that the Facilities will not be found to have violated the Anti-Kickback Laws and, if so, that any sanction imposed would not have a material adverse effect on the operations of the Facilities. b. The Federal False Claims Act and Civil Monetary Penalties The federal False Claims Act (the FCA ) is another broad statute the government often utilizes in fighting fraud and abuse. In the health care field, the most commonly used provisions under the FCA prohibit a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval to the federal government, from knowingly making, using or causing to be made a false record or statement material to a false or fraudulent claim, and from knowingly concealing or improperly avoiding or decreasing an obligation to pay or transmit money or payments to the federal government. These prohibitions extend to claims submitted to federal health care programs, including but not limited to Medicaid. Importantly, the FCA broadly defines the terms knowing and knowingly. Specifically, knowledge will have been proven for purposes of the FCA if the person: (i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information. Moreover, the statute specifically provides that a specific intent to defraud is not required in order to prove that the law has been violated. A person found to have violated the FCA is liable for a per claim civil penalty of not less than $5,500 and not more than $11,000, plus three times the amount of damages sustained by the federal government. In certain limited cases involving prompt disclosure of FCA Act violations, the statute provides for double, rather than treble, 19

26 damages. In addition, the FCA also authorizes qui tam actions in which a private person (known as a relator ) sues on behalf of the government. If the lawsuit is successful, the relator is eligible to receive a percentage of the recovered amount. This powerful incentive appears to have spurred an increase in FCA cases. Violations of the FCA may also result in temporary or permanent exclusion from the federal health care programs (which account for a significant amount of revenue and cash flow of most hospitals, including the Facilities). If determined adversely to a health care provider involved, such actions could have a materially adverse effect on such health care provider. FCA cases may arise in a variety of contexts in which hospitals health care facilities and health care providers operate. In addition to the FCA, the Civil Monetary Penalties Law authorizes the imposition of substantial civil money penalties against an entity that engages in activities including but not limited to the following: (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way; (2) knowingly giving, or causing to be given, false or misleading information reasonably expected to influence the decision to discharge a resident; (3) offering or giving remuneration to any beneficiary of a federal health care program likely to influence the receipt of reimbursable items or services; (4) arranging for reimbursable services with an entity which is excluded from participation from a federal health care program; (5) knowingly or wilfully soliciting or receiving remuneration for a referral of a federal health care program beneficiary; or (6) using a payment intended for a federal health care program beneficiary for another use. The Secretary of HHS, acting through the OIG, has both mandatory and permissive authority to exclude individuals and entities from participation in federal health care programs pursuant to this statute. Finally, it is a criminal federal health care fraud offense to: (1) knowingly and wilfully execute or attempt to execute any scheme to defraud any health care benefit program; or (2) obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned or controlled by any health care benefit program. Penalties for a violation of this federal law include fines and/or imprisonment, and a forfeiture of any property derived from proceeds traceable to the offense. Under the Affordable Care Act, the FCA has been expanded to include overpayments that are discovered by a health care provider and are not promptly refunded to the applicable federal health care program, even if the claims relating to the overpayment were initially submitted without any knowledge that they were false. This expansion of the FCA exposes health care providers to liability under the FCA for a considerably broader range of claims that in the past. 2. Privacy and Security of Individually Identifiable Information The Facilities are subject to the Administrative Simplification provisions of HIPAA, which mandates protection of the privacy and security of individually identifiable health information, as well as other federal and state laws that are designed to ensure protection for individually identifiable information. In addition, the Facilities are subject to other federal and state laws that require the Facilities to protect the confidentiality of certain personal information about the Facilities residents, employees, and donors. HIPAA imposes civil monetary penalties for violations and criminal penalties for knowingly obtaining or using individually identifiable health information. The civil monetary penalties are $100 per violation, up to $50,000 per HIPAA standard violated subject to a calendar year maximum of $1,500,000. The criminal penalties range from $50,000 to $250,000 in fines and/or imprisonment for up to ten years if the information was obtained or used with the intent to sell, transfer, or use the information for commercial advantage, personal gain or malicious harm. The HITECH Act expanded the scope and application of the Administrative Simplification provisions of HIPAA, and its implementing regulations by among other things (i) extending the reach of the Privacy Rule and Security Rule to business associates, (ii) imposing a written notice obligation upon covered entities for security breaches involving unsecured protected health information, (iii) limiting certain uses and disclosures of protected health information, (iv) increasing individuals rights with respect to protected health information, (v) increasing penalties for violations, and (vi) providing for enforcement of violations by State attorneys general. While the 20

27 effects of the HITECH Act cannot be predicted at this time, the obligations imposed thereunder could have a material adverse effect on the financial condition of the Facilities. Management of the Facilities is not aware of any intentional failure to comply with HIPAA or any of the other information privacy and security laws applicable to the Facilities, although there is always the risk that violations will be found and substantial damages assessed. 3. The Deficit Reduction Act of 2005 (DRA) Compliance Policy and Employee Training Requirements Section 6032 of the DRA requires any entity * that furnishes at least $5 million annually in Medicaid payments, to establish written policies and procedures designed to educate their employees (and certain contractors and agents) by providing detailed information about: (i) the federal False Claims Act and remedies under the law, (ii) administrative remedies for false claims and statements established by the federal Program Fraud Civil Remedies Act of 1986, (iii) any state law false claims act and its remedies, (iv) the whistleblower protections provided under such laws, (v) the role of such laws in preventing and detecting fraud, waste and abuse, and (vi) the provider s (or other party s) policies and procedures that are in place for the prevention and detection of fraud, waste and abuse. Providers and other covered parties that do not adequately update their compliance policies, handbooks and other training materials or otherwise abide by these requirements run the risk of losing Medicaid reimbursement and risk potential liability under the False Claims Act and other federal and state fraud and abuse laws. 4. Licensing, Surveys and Accreditations Health care facilities and assisted living facilities, including those of the Facilities, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. Those requirements include credentialing and survey requirements relating to Medicaid participation and payment, state licensing agencies, private payor participation, the National Labor Relations Board and other federal, state and local government agencies. Renewal and continuance of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other reviews. These activities are generally conducted in the normal course of business of health care and assisted living facilities. Nevertheless, an adverse result could be the cause of loss of or reduction in a facility s scope of licensure, certification or accreditation or reduce payments received. There can be no assurance that the requirements of present or future laws, regulations, certifications, and licenses will not materially and adversely affect the operations of the Facilities. Actions in any of these areas could occur and could result in a reduction in utilization or revenues or both, or the loss of the ability of the Facilities to operate all or a portion of their health care facilities, and, consequently, could adversely affect the financial condition of the Facilities, operations, revenues and expenses or their ability to make payments of principal, interest or any premium coming due on the Bonds. 5. Certificate of Need Under the North Carolina Certificate of Need Law (the CON Law ), the operators of the Facilities cannot, without obtaining a certificate of need ( CON ), among other things, make capital expenditures relating to health care exceeding $2,000,000, increase the number of, or relocate, health care beds, including assisted living beds, effect a change in a project (which includes an increase of more than 15% of approved capital expenditures) during development or within a year after completion of a project for which a CON has already been issued, change ownership prior to completion of a project for which a CON has been issued, change its nursing care or assisted living bed capacity or materially fail to comply with representations made in a CON application or conditions imposed in the CON for such a project. The operators of the Facilities are contractually obligated to operate in compliance with the CONs and the representations made in the CON applications for the Facilities. To the extent * Entity is broadly defined in Section 6032 of the DRA and includes, but is not limited to a government agency, organization, unit, corporation, partnership, or other business arrangement, whether for-profit or not-for-profit. 21

28 additional nursing care or assisted living beds may be desired, the ability to obtain such beds may be restricted by determinations of need under the CON Law. Any failure to obtain a CON for additional beds could require the operators of the Facilities to contract with outside providers for the required services. The CON Law may limit or even prevent the operators of the Facilities from undertaking certain new activities and expenditures which might be financially advantageous. In addition, the CON Law may require substantial expenditures by the operators of the Facilities in order to obtain a certificate of need or a determination that a certificate of need is not required or to protect their position with respect to potential competitors in their service area. These expenses may include, among others, consulting fees and legal fees for advice, preparation of applications, review of competing applications, preparation of written comments and participation in public hearings, administrative hearings and judicial review. Recently, some states have amended their certificate of need laws to reduce or remove the restrictions imposed with respect to undertaking covered activities or expenditures related to health care facilities. In each of these states, there were substantial increases in the number of health care facilities providing services. There have recently been efforts in the North Carolina General Assembly to amend the CON Law in a similar manner. If the CON Law is so amended in the future, the Facilities could experience increased competition for certain health care services they currently provide, or their revenues from such services could decline, or both. In addition, the CON Law may be amended in the future to increase regulatory restrictions and resulting costs. For all of these reasons, the CON Law could adversely affect the revenues and operations of the Borrowers. 6. North Carolina Laws & Legislation The North Carolina General Assembly enacted a Special Care Unit Moratorium for the period beginning July 31, 2013 and ending June 30, 2016, which prevents in most cases the development of new special care unit beds for residents with Alzheimer s disease and other forms of dementia and mental health disability. As a result, Facilities cannot convert or add special care unit beds during the moratorium. The Facilities do not currently operate special care unit beds. However, if the Special Care Unit Moratorium is not renewed in 2016, the Facilities and their competitors may develop special care units. Proposed legislation is pending in the North Carolina General Assembly to repeal North Carolina s Certificate of Need (CON) laws, which regulate existing health services, including the number and location of adult care home beds in North Carolina. The CON laws limit the ability of competitors to enter the market in North Carolina. Repeal of the CON laws could increase competition for the Facilities by removing this regulatory barrier to new competitors in the market. At this time, it is uncertain whether the repeal of the CON laws will be passed. D. Workforce Shortages Health care providers depend on qualified nurses and allied health professionals to provide quality service to residents. There is currently a nationwide shortage of qualified nurses and allied health professionals. This shortage, and the more stressful working conditions it creates for those remaining in the profession, are increasingly viewed as a threat to resident safety and may trigger the adoption of state and federal laws and regulations intended to reduce that risk. This could include mandatory staff-to-resident ratios which can increase staffing costs and impact operational flexibility. In response to the shortage of qualified nurses and allied health professionals, health care providers have increased and could continue to increase wages and benefits to recruit or retain professional and nursing staff and have had to hire more expensive contract personnel. The shortage could also limit the operations of health care providers by limiting the number of resident beds available. There can be no assurance that such workforce shortages will not continue or increase over time and adversely affect the Facilities ability to control costs and their financial performance. E. Increased Costs In recent years, there has been a disparity between rising medical costs and reimbursement payments from third party payors. Rising health care costs exceeding inflation, have resulted from, among other factors, staff shortages, additional legal compliance obligations arising from new legislation and regulations, increased costs of 22

29 pharmaceuticals and medical devices, and ever increasing adoption of sophisticated and expensive technology. The Facilities have been affected by the impact of such rising costs, and there can be no assurance that the Facilities will not be similarly affected by the impact of additional unreimbursed costs in the future. Future Project Revenues and expenses of the Facilities and the resulting ability of the Borrowers to make loan repayments pursuant to the Loan Agreement may be affected by economic conditions such as inflation, unemployment, and interest rates which may affect the Manager s ability to control labor and other expenses, demand for health care and personal care services, receipt of grants and contributions, increased use of contracted discounted payment schedules by payors, and investment results and returns. F. Competition The Facilities are located in areas where other assisted living facilities and other facilities offering personal care and respite care services to older adults exist or may be developed. The Facilities may also face additional competition in the future as a result of changing demographic conditions and the construction of new, or the renovation or expansion of existing assisted living facilities in the geographic areas served by the Facilities. Other forms of retirement living, including condominiums, apartment buildings and facilities not specifically designed by the elderly, may offer an alternative to persons willing to forego the availability of health care and personal care services in exchange for lower prices. All of these factors combine to make the elderly housing and health care industry volatile and subject to material exchange that cannot be currently predicted. Furthermore, future Project Revenues may be affected by competition from other assisted living facilities and referring physicians and self-referred residents confidence in the Facilities. See Market Area and Competitors in Appendix A for a description of the Facilities market areas and a list of those assisted living facilities that Management of the Facilities has indicated as competitive with the Facilities. As noted above, repeal of the CON laws in North Carolina may allow other facilities to enter into the market as competitors of the Facilities. G. Litigation Assisted living facilities are subject to lawsuits in the ordinary course of business. There are lawyers and law firms specializing in litigating cases against assisted living facilities in an attempt to obtain large damage awards. The growing risk of litigation has caused the cost of the Facilities liability insurance to increase, which could have a material adverse effect on the financial condition of the Facilities. Formation and Governance THE ISSUER In early 2010, both houses of the Wisconsin Legislature passed 2009 Wisconsin Act 205 (the Act ) which was signed into law by the Governor of the State of Wisconsin (the State ) on April 21, The Act added Section to the Wisconsin Statutes (the Statute ) authorizing two or more political subdivisions to create a commission to issue bonds under that Statute. Before an agreement for the creation of such a commission could take effect, the Act requires that such agreement be submitted to the Attorney General of the State to determine whether the agreement is in proper form and compatible with the laws of the State. The Issuer was formed upon execution of a Joint Exercise of Powers Agreement Relating to the Public Finance Authority dated as of June 30, 2010 as amended by an Amended and Restated Joint Exercise of Powers Agreement Relating to the Public Finance Authority, dated September 28, 2010 (as such may be amended from time to time, the Joint Exercise Agreement ), among Adams County, Wisconsin, Bayfield County, Wisconsin, Marathon County, Wisconsin, Waupaca County, Wisconsin and the City of Lancaster, Wisconsin (each an Issuer Member and, collectively, the Issuer Members, which term shall include any political subdivision designated in the future as a Member of the Issuer pursuant to the Joint Exercise Agreement ). The Joint Exercise Agreement and was approved by the Wisconsin Attorney General on September 30, The Act also provides that only one commission may be formed thereunder. 23

30 Pursuant to the Statute, the Issuer is a unit of government and a body corporate and politic separate and distinct from, and independent of, the State and the Issuer Members. The Issuer was established by local governments, primarily for local governments, for the public purpose of providing local governments a means to efficiently and reliably finance projects that benefit local governments, and nonprofit organizations and other eligible private borrowers in the State and throughout the country. Powers Under the Statute, the Issuer has all of the powers necessary or convenient to any of the purposes of the Act, including the power to issue bonds, notes or other obligations or refunding obligations to finance or refinance a project, make loans to, lease property from or to enter into agreements with a participant or other entity in connection with financing a project. The proceeds of bonds issued by the Issuer may be used for a project in the State or any other state or territory of the United States, or outside the United States if a participation borrower is incorporated and maintains its principal place of business in, the United States or its territories. The Statue defines project as any capital improvement, purchase of receivables, property, assets, commodities, bonds or other revenue streams or related assets, working capital program, or liability or other insurance program, located within or outside of the State. Issuer Local Approval Requirement Under Subsection (11)(a) of the Statute and Section 4 of the Joint Exercise Agreement, financing for all capital improvement projects located outside the State requires approval from the governing body or highestranking executive or administrator of at least one political subdivision within whose boundaries the capital improvement project is located (the Issuer Local Approval Requirement ). Based on certain representations and covenants of the Borrowers, the Issuer has determined that the Facilities do not constitute capital improvement projects for purposes of the Issuer Local Approval Requirement. Governing Body The Joint Exercise Agreement provides for a Board of Directors of the Issuer (the Board ) consisting of seven directors (each a Director and collectively, the Directors ), a majority of whom are required to be public officials or current or former employees of a political subdivision located in the State. The Directors serve staggered three-year terms. The Directors are selected by majority vote of the Board based upon nomination by the organization that nominated the predecessor Director. Four Directors are nominated by the Wisconsin Counties Association, and one Director is nominated from each of the National League of Cities, the National Association of Counties and the League of Wisconsin Municipalities (said organizations being sometimes referred to herein collectively as the Sponsors ). Directors and alternate Directors may be removed and replaced at any time by the Board upon recommendation of the Sponsor that nominated such Director. As of the date of this Limited Offering Memorandum there is one vacant Board seat (representing a nominee of the National League of Cities). Name Title Current Term Expires (May 31) Position William Kacvinsky Chair 2018 Former Bayfield County, Wisconsin, Board Chair Jerome Wehrle Vice Chair 2018 Mayor, City of Lancaster, Wisconsin Heidi Dombrowski Treasurer 2016 Waupaca County, Wisconsin, Finance Director John West Secretary 2016 Adams County, Wisconsin, Supervisor Del D. Twidt Member 2016 Buffalo County, Wisconsin, Board Chair Michael Gillespie Member 2017 Former Chair Madison County, Alabama Board of Commissioners The Issuer has no employees and contracts with a full-service program management firm, HB Consulting, LLC, to manage the day-to-day operations of the Issuer, including, but not limited to, staff and administrative 24

31 support and ongoing compliance matters. All of these services provided by HB Consulting, LLC are subject to review and approval by the Board. Resolution; Approval The Board adopted a Resolution approving the issuance of the Bonds on June 3, Special Limited Obligations THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE FUNDS PLEDGED FOR THEIR PAYMENT PURSUANT TO THE INDENTURE AND ARE NOT A DEBT OR LIABILITY OF ANY ISSUER MEMBER OR SPONSOR, THE STATE OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS. THE BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS, NOR THE FAITH AND CREDIT OF THE ISSUER OR ANY SPONSOR SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE ISSUER HAS NO TAXING POWER. Other Obligations The Issuer has issued, sold, and delivered in the past, and expects to issue, sell, and deliver in the future, obligations other than the Bonds, which other obligations are and will be secured by instruments separate and apart from the Indenture and the Bonds. The holders of such obligations of the Issuer will have no claim on the security for the Bonds, and the owners of the Bonds will have no claim on the security for such other obligations issued by the Issuer. Limited Involvement of the Issuer The Issuer has not reviewed any appraisal for the Facilities or any feasibility study or other financial analysis of the Facilities and has not undertaken to review or approve expenditures for the Facilities, to supervise the construction of the Facilities, or to review the financial statements of the Borrowers. THE ISSUER HAS NOT PARTICIPATED IN THE PREPARATION OF OR REVIEWED THIS LIMITED OFFERING MEMORANDUM AND IS NOT RESPONSIBLE FOR ANY INFORMATION CONTAINED HEREIN, EXCEPT FOR INFORMATION CONCERNING THE ISSUER IN THIS SECTION AND LEGAL MATTERS - LITIGATION - THE ISSUER (WITH RESPECT TO THE ISSUER). NONE OF THE INFORMATION IN THIS LIMITED OFFERING MEMORANDUM HAS BEEN SUPPLIED OR VERIFIED BY THE ISSUER, AND THE ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO, OR ACCEPTS ANY RESPONSIBILITY FOR, THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. Terms of Bonds Generally THE BONDS The Bonds shall be issued in denominations of $100,000 and any integral multiple of $5,000 in excess thereof, and shall mature on the Maturity Date set forth on the cover page hereof (the Maturity Date ). The Bonds are dated their date of delivery and shall bear interest at the Interest Rate set forth on the cover page hereof, payable 25

32 on the Maturity Date or earlier redemption date and each January 1 and July 1, commencing January 1, 2016 (the Interest Payment Dates ). Interest on the Bonds shall be computed on the basis of a 360-day year of 12 months of 30 days each. The principal of and interest on any of the Bonds shall be payable in lawful money of the United States of America. Except as described below under the subcaption Book-Entry-Only System, (a) the principal of any Bond shall be payable when due to a Holder upon presentation and surrender of such Bond at the Designated Office of the Trustee or at the office, designated by the Trustee, of any Paying Agent and (b) interest on any Bond shall be paid on the Interest Payment Dates by check or draft which the Trustee shall cause to be mailed on that date to the Person in whose name the Bond (or one or more Predecessor Bonds) is registered at the close of business of the Regular Record Date applicable to the Interest Payment Date on the Register at the address appearing therein. Purchase and Transfer Restrictions The Bonds may be purchased initially only by a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act or an accredited investor as defined in Rule 501 of Regulation D under the Securities Act. The purchase restrictions described herein apply to initial purchasers of the Bonds and, to all subsequent sales or transfers of the Bonds or beneficial interests in the Bonds. Purchase of the Bonds involves a significant degree of risk. For such reason, each initial and subsequent purchaser of the Bonds, by its purchase of the Bonds or any beneficial interest therein, will be deemed to have acknowledged, represented, warranted, and agreed with and to the Issuer, the Borrowers, the Underwriter, and the Trustee as follows: (a) The purchaser will be deemed to have acknowledged that the Bonds are not general obligations of the Issuer, but are special, limited obligations payable and secured solely as provided for in the Indenture. (b) The purchaser will be deemed to have represented and warranted that it has full power and authority to carry on its business as currently conducted. (c) The purchaser will be deemed to have represented and warranted that it has the ability to bear the economic risks of an investment in the Bonds and is (i) a qualified institutional buyer, as that term is defined under Rule 144A promulgated under the Securities Act or (ii) an accredited investor as defined in Rule 501 of Regulation D under the Securities Act. (d) The purchaser will be deemed to have represented and warranted that it is not now and has never been controlled by, or under common control, with any of the Borrowers, and none of the Borrowers has ever been nor is now controlled by the purchaser. (e) The purchaser will be deemed to have acknowledged that it has received a copy of the Preliminary Limited Offering Memorandum and the Limited Offering Memorandum relating to the Bonds, that it represents and warrants that the information contained therein, along with all other information supplied by the Borrower to purchaser, is sufficient for the purchaser to decide whether to purchase the Bonds, and that it acknowledges and understands that except as otherwise expressly set forth in the Preliminary Limited Offering Memorandum and the Limited Offering Memorandum, neither the Issuer nor the Trustee has undertaken, or will undertake, steps to ascertain the accuracy or completeness of the information contained in the Preliminary Limited Offering Memorandum or the Limited Offering Memorandum or otherwise furnished to the purchaser with respect to the Borrowers, the Bonds, or the Facilities. The purchaser will be deemed to have acknowledged that it has not relied upon nor will he, she, or it rely upon the Issuer or the Trustee in any way with regard to the accuracy or completeness of the information contained in the Preliminary Limited Offering Memorandum, the Limited Offering Memorandum, or otherwise furnished to the purchaser in connection with his, her, or its purchase of the Bonds, nor has any such party made any representation to the purchaser with respect to that information, except as otherwise expressly set forth in the Preliminary Limited Offering Memorandum and the Limited Offering Memorandum. The purchaser represents and warrants that it either has been supplied with or has been given access to information, including financial statements and other financial information to which a reasonable investor would attach 26

33 significance in making investment decisions. The purchaser will be deemed to have acknowledged that it has not relied upon information provided by or advice from the Underwriter or the Issuer in making the decision to purchase the Bonds. The purchaser has made its own independent decision to purchase the Bonds and as to whether the Bonds are appropriate or proper for investment by the purchaser. (f) The purchaser will be deemed to have represented and warranted that it is sufficiently knowledgeable and experienced in financial and business matters, including the purchase and ownership of conduit municipal and other tax-exempt/taxable obligations, to be able to evaluate the risks and merits of the investment represented by the purchase of the Bonds, and is capable of making, and has made, its own investigation of the Borrowers and the Facilities in connection with its decision to purchase the Bonds including reliance on information included in the Limited Offering Memorandum. The purchaser will be deemed to have represented and warranted that it has made its own inquiry and analysis with respect to the Bonds, and the security therefor, and other material factors affecting the security and payment of the Bonds. The purchaser will be deemed to have acknowledged that it is aware that the business of the Borrowers involves certain economic variables and risks that could adversely affect the security for the Bonds. (g) The purchaser will be deemed to have represented and warranted that the Bonds are being purchased by the purchaser for the purpose of investment, and the purchaser intends to hold the Bonds for its own account, without a current view to any distribution or sale of the Bonds. The purchaser will be deemed to have acknowledged that he, she, or it may need to bear the risks of his, her, or its investment in the Bonds for an indefinite time, since any sale prior to maturity may not be possible. Notwithstanding the foregoing, the purchaser has the right to sell, offer for sale, pledge, transfer, convey, hypothecate, mortgage or dispose of the Bonds at some future date determined by him, her, or it, provided that such disposition is not in violation of the restrictions on sale, assignment, negotiation, or transfer of the Bonds. (h) The purchaser will be deemed to have acknowledged that the Bonds will not be listed on any stock or other securities exchange and were issued without registration under the provisions of the Securities Act, or any state securities laws. (i) The purchaser will be deemed to have acknowledged that beneficial ownership of the Bonds may be transferred only to a Qualified Institutional Buyer or accredited investor. Book-Entry-Only System The Bonds will initially be issued to and registered only in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as a securities depository for the Bonds. The Bonds will be available to purchasers under the book-entry system maintained by DTC through brokers and dealers who are, or act through, DTC participants. Purchasers will not be entitled to receive physical delivery of the Bonds. For so long as any purchaser is the beneficial owner of a Bond, such purchaser must maintain an account with a broker or dealer who is, or acts through, a DTC participant in order to receive payment of principal of and interest on such Bond. See Appendix I - DTC and Book-Entry Only System included herein. Redemption of the Bonds Optional Redemption. The Bonds are subject to optional redemption by the Issuer at the direction of the Borrowers, on or after July 1, 2016, in whole or in part at any time, at the redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption; provided, however, that none of the Bonds shall be redeemed unless the Borrower has provided to the Trustee evidence that the Facility has received commitments for Permanent Financing. The Indenture defines the term Permanent Financing to mean a mortgage loan insured by FHA Insurance or, if no FHA Insurance will be provided with respect to the Facility, the Alternate Permanent Financing. For this purpose, Alternate Permanent Financing means a source (or combination of sources) of permanent financing for the Facility other than a mortgage loan insured by FHA insurance under the Section 232/223(f) Program, as evidenced by the delivery to the Trustee of firm, binding commitments for such alternate permanent financing by the providers of such Alternate Permanent Financing. 27

34 Mandatory Redemption of Bonds. The Bonds shall be called for redemption (a) in whole or in part in the event the Facility or any material portion thereof is damaged or destroyed or taken in a condemnation proceeding and Net Proceeds resulting therefrom are to be applied to the payment of the Note as provided in the Loan Agreement, which Net Proceeds are to be used to redeem Bonds at the election of the Borrower made pursuant to the Loan Agreement, (b) in whole in the event the Borrowers exercise their option to terminate the Loan Agreement as described in Appendix F under the heading Defeasance, (c) in whole or in part from proceeds of the Title Policy pursuant to the Loan Agreement, or (d) in whole in the event the Borrowers are required to prepay the Loan following a Default under the Loan Agreement. If called for mandatory redemption at any time as described in (a) through (d) above, the Bonds to be redeemed shall be subject to redemption by the Issuer prior to maturity, in whole at any time or (in the case of redemption pursuant to clause (a) or (c) above) in part at any time (less than all of such Bonds to be selected in accordance with the provisions of the Indenture) at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date; such redemption date, to be a date determined by the Borrower and in the case of redemption pursuant to (d) above, to be the earliest practicable date, following acceleration of amounts due under the Loan. Notice of Redemption. Unless waived by any Holder of Bonds to be redeemed, official notice of redemption will be given by the Trustee on behalf of the Issuer by mailing a copy of an official redemption notice by first-class mail, postage prepaid, to the Holder of each Bond to be redeemed, at the address of such Holder shown on the Register at the opening of business on the fifth day prior to such mailing, not less than 20 days nor more than 30 days prior to the date fixed for redemption. A second notice of redemption will be given, as soon as practicable, by registered or certified mail to the Holder of each Bond which has been so called for redemption (in whole or in part) but has not been presented and surrendered to the Trustee within 30 days following the date fixed for redemption of that Bond. General SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Indenture provides that the Trust Estate created in the Indenture secures for the equal and proportionate benefit, security, and protection of the Holders of the Bonds. The Trust Estate will include all right, title, and interest (if any) of the Issuer in and to (a) the Loan Agreement (except for the Reserved Rights of the Issuer, including any payments in respect thereof), the Note, and the Security Documents; (b) all, money and securities and interest earnings from time to time held by the Trustee under the terms of the Indenture; (c) such other rights and interests in property pledged to the Trustee as and for additional security for the Bonds; and (d) to the extent not covered above, all proceeds of the foregoing (the foregoing collectively referred to as the Trust Estate ). THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE FUNDS PLEDGED FOR THEIR PAYMENT PURSUANT TO THE INDENTURE AND ARE NOT A DEBT OR LIABILITY OF ANY ISSUER MEMBER OR SPONSOR, THE STATE, OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS. THE BONDS DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY ISSUER MEMBER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS, NOR THE FAITH AND CREDIT OF THE ISSUER OR ANY SPONSOR SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE ISSUER HAS NO TAXING POWER. 28

35 Repayment of Loan The Loan. The Issuer agrees, upon the terms and conditions in the Loan Agreement, to lend to the Borrowers the proceeds received by the Issuer from the sale of the Bonds by causing such proceeds to be deposited with the Trustee for disposition as provided in the Indenture. The obligation of the Issuer to make the Loan shall be deemed fully discharged upon the deposit of the proceeds of the Bonds with the Trustee. The Loan shall be evidenced by the Note. Deposit of Project Revenues; Loan Payments; Basic Loan Payments; and Additional Loan Payments. The Borrowers shall make Loan Payments, as described below. Basic Loan Payments. Basic Loan Payments shall be paid in the following manner and in the following amounts: (i) on or before the 1 st day of each month, commencing August 1, 2015, until such time as the principal of and interest on, the Bonds shall have been paid in full, or provisions made for such full payment in accordance with the provisions of the Indenture, to the Trustee for deposit in the applicable Interest Account, a sum equal to the Interest Requirement on the Outstanding Bonds for such month; and (ii) on or before the 1 st day of the month immediately preceding the Maturity Date of the Bonds, to the Trustee for deposit in the Principal Account for the Bonds, a sum equal to the principal amount due on the Bonds on the Maturity Date. The monthly installments of Basic Loan Payments described above payable by the Borrowers under the Loan Agreement shall in any event be equal in the aggregate to an amount that, with other funds in the respective Accounts in the Bond Fund then available for the payment of principal and interest on the Bonds, shall be sufficient to provide for the payment in full of the principal of and interest on the Bonds as they become due and payable. Except as otherwise provided in the Indenture, the Borrowers shall also pay, as Basic Loan Payments, to the Trustee for deposit in the Bond Fund, such amounts as shall, together with any other money available therefor, be sufficient to pay all amounts, if any, required to redeem the Bonds pursuant to the provisions of the Indenture as and when they become subject to redemption pursuant thereto, with all such payments to be made by the Borrowers to the Trustee, for deposit into the applicable Accounts of the Bond Fund on or before the date such money are required by said provisions of the Indenture. Additional Loan Payments. Additional Loan Payments shall be made by the Borrowers promptly upon written demand of the Trustee or the Issuer, and used to pay the following amounts (to the extent such costs and expenses are not paid from the proceeds of the sale of the Bonds): (i) the Ordinary Trustee s Fees and Expenses and Extraordinary Trustee s Fees and Expenses and all other reasonable fees and costs of the Trustee (including without limitation, reasonable fees and expenses of Counsel to the Trustee), payable to the Trustee for services or indemnity under the Indenture and the Borrower Documents (including services in connection with the administration and enforcement thereof and compliance therewith); (ii) all taxes and assessments of any type or character charged to the Issuer affecting the amount available to the Issuer from payments to be received hereunder or in any way arising due to the transactions contemplated hereby (including taxes and assessments assessed or levied by any public agency or governmental authority of whatsoever character having power to levy taxes or assessments); provided, however, that the Borrowers shall have the right to protest any such taxes or assessments and to require the Issuer, at the Borrowers expense, to protest and contest any such taxes or assessments levied upon them and that the Borrowers shall have the right to withhold payment of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would adversely affect the rights or interests of the Issuer; (iii) the Issuer s Fees and Expenses and all other reasonable fees and costs of the Issuer (including without limitation reasonable fees and expenses of Counsel to the Issuer) not otherwise paid under this Loan Agreement or the Indenture, related to the issuance of the Bonds, indemnity or in connection with its administration and enforcement of, and compliance with or interpretation of, the Indenture or any of the Borrower Documents, or otherwise in connection with the Facility and the Bonds; (iv) all reasonable fees and other costs incurred for services of such agents, attorneys and independent accountants as are employed by the Issuer, the Borrowers or the Trustee to perform services required pursuant to the Loan Agreement, the other Borrower Documents or the Indenture; (v) all amounts advanced by the Issuer or the Trustee under authority of the Indenture or any of the Borrower Documents that the Borrowers are obligated to repay, and (vi) the Issuer Annual Fee, which shall be paid in semiannual installments on the six (6)-month anniversary of the Closing Date and subsequently on the same day every sixth (6 th ) month thereafter, with the amount of each semiannual payment being determined by multiplying (a) the principal 29

36 amount of the Bonds Outstanding as of the last day of the calendar month preceding the installment payment due date by (b).015 percent (1.5 basis points) by (c) one-half (1/2). Closing Expenses. In addition to and without in any way limiting its obligations to pay and indemnify the Issuer and the Issuer Indemnified Persons against fees, costs and charges arising out of or in connection with the Loan Agreement, the Bonds or the Indenture, the Borrowers shall pay, upon the closing of the issuance of the Bonds and as a condition thereto: (i) to the Issuer, the Issuer s issuance fee less, if applicable, any application fee heretofore paid by the Borrowers to the Issuer; and (ii) attorney s fees incurred by the Issuer in connection with the issuance of the Bonds. Revenue Fund. The Borrowers shall pay, or cause to be paid, in accordance with the terms of the Loan Agreement, the Loan Payments without any further notice thereof for deposit by the Trustee into the Revenue Fund. All Additional Loan Payments shall be made by the Borrowers to the Trustee for deposit by the Trustee into the Revenue Fund, to be used by the Trustee for payment to the Person or Persons entitled to such payments, payable as set forth in the Loan Agreement and in the order specified in the Indenture. Although the Loan Agreement and the Note jointly and severally obligate the Borrowers to pay to the Trustee monthly payments equal to the amounts required to pay the interest coming due on the Interest Payment Dates with respect to the Bonds, it is expected that proceeds of the 232/223(f) Mortgage Financing for all six of the Facilities, when originated, will be sufficient to pay principal and interest on the Bonds on the Maturity Date. A summary of the provisions of the Loan Agreement is attached to this Limited Offering Memorandum as Appendix F. The Borrowers obligations to make Loan Payments with respect to the Bonds are limited obligations of the Borrowers, and holders of the Bonds will have recourse only to the Facilities, the moneys held in the Funds and Accounts created under the Indenture (except as specifically set forth therein), and the Project Revenues to satisfy the obligations of the Borrowers with respect to the Bonds. The Borrowers have no other assets that will be available for the payment of, or as security for, the Bonds. Pursuant to the Indenture, the Issuer will pledge and assign all its rights and interests (except the Reserved Rights of the Issuer as defined in the Indenture) and all amounts payable (other than certain fees and expenses due to the Issuer, including payments in respect of the Reserved Rights) under the Loan Agreement, the Note, and the Mortgage to the Trustee, in trust, to be held and applied pursuant to the provisions of the Indenture for the benefit of the Holders. The Bonds and the obligations of the Borrowers under the Note as necessary to pay the Basic Loan Payments needed to pay debt service on the Bonds will be secured by a first, senior lien on the Facilities under the Mortgage and in the manner described in the Indenture. The Mortgage To secure the payment of the Loan Payments payable under the Loan Agreement and the Note, the Borrowers will grant to the Trustee under the Mortgage a first priority lien on and a security interest in all of the Facilities and other property as described in the Mortgage, subject only to certain Permitted Encumbrances identified therein. The Mortgage will provide that, upon satisfaction of the following conditions, a Facility will be released (the Release Site ) from the Mortgage: (i) all Indebtedness allocated to the Release Site by the Trustee in its sole discretion (which allocation shall be determined by the Permanent Financing Lender and based on the Permanent Financing amount available for the Release Site), shall have been paid; (ii) all conditions for optional redemption of Bonds shall have been satisfied; (iii) no Event of Default shall have occurred and be continuing under the Bond Documents or the Security Documents, or any other documents executed by Borrowers in conjunction therewith; (iv) the Borrowers other than the owner of the Release Site do not reasonably expect the release of the Release Site to negatively impact the use or operation of the remainder of the Facilities or the remaining collateral; and (v) the Borrowers pay all costs incurred in connection with the partial release. The Mortgaged Property includes generally all the land, the buildings, fixtures, and equipment comprising the Facilities. The Borrowers will provide at the issuance of the Bonds commitments for ALTA loan policies for title insurance issued by Chicago Title 30

37 Insurance Company (the Title Insurance Commitments ) based upon ALTA Surveys of the Facility sites (the ALTA Surveys ). A summary of the Mortgage is attached to this Limited Offering Memorandum as Appendix G. Asset Management Services Agreement The concept of Controlling Person is provided in the Indenture and the Loan Agreement and the Loan Agreement and relates to certain decisions within the purview of the Controlling Person (e.g., determination as to the application of casualty or condemnation proceeds to bond redemptions or to rebuild the property or acquire new property). Due to the interim financing nature of the Bonds, an entity with experience in the processing of 232/223(f) Mortgage Financing is best suited to provide the direction required under the Indenture and Loan Agreement and Links Mortgage has agreed to serve as the Controlling Person pursuant to an Asset Management Services Agreement among Links Mortgage, the Borrowers, the Manager, and the Operating Companies. The initial Controlling Person is Links Mortgage, and the Controlling Person shall not be changed without the prior approval of (i) the Borrowers, (ii) DCR, and (iii) either the Trustee, or the Holders of a majority of the Bonds outstanding. Except in the case of a foreclosure of the Mortgage initiated at the direction of the Issuer, the Controlling Person shall have the right to direct the time, method, and place of conducting certain remedial proceedings available to the Trustee under the Indenture or other Bond Documents or exercising certain powers conferred on the Trustee by the Indenture. Links Mortgage will not have any control or approval rights relating to the security provided to the Bondholders; such rights shall remain in the Trustee s control. The Rider to the Loan Agreement provides that Borrowers may not without the prior written approval of the Controlling Person (and with respect to paragraphs (a), (c), (e), and (g) below, the prior written approval of the Trustee): (a) Convey, assign, transfer, pledge, hypothecate, encumber, or otherwise dispose of the Mortgaged Property or any interest therein, or permit the conveyance, assignment, or transfer of any interest or control in the Borrower (if the effect of such conveyance, assignment or transfer is the creation or elimination of a Principal) unless permitted by the Controlling Person. (b) Enter into any contract, agreement or arrangement to borrow funds or finance any purchase or incur any liability, direct or contingent, other than as approved in writing by the Controlling Person if such contract, agreement, or arrangement does not exceed 10% of the approved budget in the aggregate. (c) Agreement. Pay out any funds in violation of the Rider, the Borrower Documents or the Intercreditor (d) Except for Distributions allowed pursuant to the Rider, pay any compensation, including wages or salaries, in excess of fair and reasonable compensation or incur any obligation to do so, to any officer, director, stockholder, trustee, beneficiary, partner, member, or Principal of the Borrower, or to any nominee thereof, except that, at any time at which Borrower is the operator of the Facility, the Borrower may pay fair and reasonable compensation to employees who are officers, directors, stockholders, trustees, beneficiaries, partners, members or Principals of the Borrower. (e) Convey, assign or transfer any right to receive Income and Distributions of the Mortgaged Property in violation of the Rider, the Borrower Documents, or the Intercreditor Agreement. (f) Remodel, add to, subtract from, construct, reconstruct or demolish any part of the Facilities, except as required by the Controlling Person and except that the Borrower may, without approval of the Controlling Person, (i) dispose of or cause to be disposed of obsolete or deteriorated Fixtures or Personalty if the same are replaced with like items of the same or greater quality or value, and (ii) make minor alterations that do not adversely affect the Mortgaged Property. (g) Permit the use of the Facilities, including any portion of the Facility, for any other purpose except the Approved Use. 31

38 Tenant. (h) Amend the organizational documents of the Borrower, the Operating Companies, or the Master (i) Except in cases funded by proceeds from professional or general liability insurance, settle or compromise any action for specific performance, damages, or other equitable relief, in excess of $100,000, provided such settlements or compromises do not exceed an amount equal to 10% of the approved budget, in the aggregate. (j) Except as provided in any of the Borrower Documents, enter into, or agree to the assignment of, any commercial lease for all or part of the Mortgaged Property. (k) Enter into any agreement or amendment of any contract or lease relating to the Facilities, except to which (i) has a result of negatively and materially effecting net operating income of a Facility or, (ii) materially increases the obligations of the Borrowers, the Operating Companies, or the Master Tenant under such agreement or amendment, or (iii) alters any provision of such contract or lease that requires the approval of the Trustee or the Controlling Person. Collateral Assignment and Pledge of Membership Interest Pursuant to the terms of the Collateral Assignment and Pledge of Membership Interest, dated as of July 9, 2015, the Sole Member has collaterally assigned for the benefit of the Trustee or its nominee its sole membership interest in the Borrowers, the Operating Companies, and the Master Tenant as security for the performance of the Borrowers, Operating Companies, and Master Tenant s obligations under the Bond Documents. This assignment and pledge is subordinate and inferior to the assignment and pledge of such membership interest that secures the DCR Loan; provided, however, that DCR s actions when exercising the membership interests rights are governed, in part, by the Bond Documents and the Intercreditor Agreement. See PLAN OF FINANCE Terms of DCR Loan Financing herein. Master Lease, Subleases, and Account Control Agreements During the term of the Bonds, each Operating Company will be obligated to make rent payments under the Sublease when due. So long as payments by the Operating Companies to the Borrower or the Master Tenant are required under the Subleases, such payments shall be sufficient to allow the Master Tenant to pay the Borrowers pursuant to the Master Lease such amounts as shall be sufficient to allow the Borrowers to pay all Borrowers required Loan payments, including any payments to reserves or escrows for taxes or insurance, replacement reserves, debt service reserves and/or escrows, and to fund any maintenance and/or repairs for which Borrower has responsibility If at the end of any calendar year, or any fiscal year if the Facilities operate on the basis of a fiscal year, payments under the Master Lease have not been sufficient to pay for the above items, the Borrowers and the Master Tenant upon request in writing from the Controlling Person shall renegotiate the amounts due under the Master Lease so that such amounts shall be sufficient to pay for such items. The Operating Companies are each obligated under separate (i) Agreements re: Pledged Accounts dated as of July 9, 2015, and (ii) Deposit Account Instructions and Service Agreements, dated as of July 9, 2015, each among the respective Operating Company, The Private Bank and Trust Company (the Deposit Bank ), and the Controlling Person, to deposit all Project Revenues received by the Operating Company in an account (the Account ) to be held by the Deposit Bank in which the Trustee will be granted a security interest. The Master Tenant will be obligated under the Master Lease to make rent payments when due, and such payments must be sufficient to allow the Borrowers to pay all Borrowers required Loan payments or other payments due under the Borrower Documents, including any payments to reserves for taxes or insurance, replacement reserves, debt service reserves, and to fund any maintenance and/or repairs for which the Borrower has responsibility. If at the end of any calendar year, or any fiscal year if the Facilities operate on the basis of a fiscal year, payments under the Master Lease have not been sufficient to pay for the above items, the Borrowers and Master Tenant upon request in writing from the Controlling Person shall renegotiate the amounts due under the Master Lease so that such amounts shall be sufficient to pay for such items. Each Borrower has assigned its interest in the Master Lease to the Trustee to secure its obligations under the Bond Documents. The Master Tenant will be obligated under the Asset Management Services Agreement to pay the then-current requirement to Links Mortgage to fund the Third Party Report and Filing Fee Escrow. Additionally, during any period in which there is an Event of 32

39 Default under the Bond Documents, the Master Tenant shall establish a reserve fund, meeting the requirements of the Rider attached to the Loan Agreement, for the benefit of Trustee (the Reserve Fund ) and deposit therein all cash flow from the Project which remains after payment of operating expenses, amounts due under the Indenture, Loan Agreement and the DCR Loan, funding of the Third Party Report and Filing Fee Escrow and the fees and expenses of the Post-Default Consultant. Prior to the payment in full of the Indebtedness due under any Bond Document, the Reserve Fund may be used, with the consent of the Trustee at its sole discretion, to pay extraordinary operating expenses or other required project expenditures. After the Indebtedness under the Bond Documents is paid in full, the Trustee s security interest Reserve Fund will be terminated, any amounts on deposit in the Reserve Fund will be paid to or at the direction of DCR (to the extent the DCR Loan is outstanding) or the Borrower and the Reserve Fund will be closed. The Master Lease and the Subleases are subordinate to the Mortgage, the Loan, the Borrower Documents and all other documents securing the Loan. Pursuant to the Rider, the Master Tenant and the Operating Companies have granted security interests (i) upon all of the Master Tenant's and the Operating Companies rights, titles and interest, if any, in the Permits and Approvals and (ii) in all of the Master Tenant s and the Operating Companies rights to personal property used in the operation of the Facilities as additional security for the obligations of the Borrower under the Borrower Documents. To secure the performance of all Obligations (defined below), the Master Tenant and the Operating Companies have granted to the Trustee a continuing security interest in the Master Tenant s and the Operating Companies right, title and interest in and to the property described on Exhibit B to the Rider (the Collateral ). To further secure the Obligations, the Master Tenant and the Operating Companies have granted a security interest and pledges to the Trustee of all of the Master Tenant's and the Operating Companies rights, title and interest under the Master Lease and the Subleases pursuant to the Rider. Obligations means: (1) all liabilities, obligations, covenants, debts and amounts owing from the Borrowers, the Operating Companies, and/or the Master Tenant to the Controlling Person under the Borrower Documents, and (2) the Master Tenant s and the Operating Companies rent and other payments (including all tax, insurance or other capital, repair or impound reserve payments required under the Master Lease and the Subleases) and the performance by the Master Tenant and the Operating Companies of their obligations under the Master Lease and the Subleases. Pursuant to the Rider, the Master Tenant and the Operating Companies have absolutely and unconditionally assigned and transferred to the Controlling Person all of the Rents. Each of the Master Tenant and the Operating Companies has also guaranteed to the Controlling Person the following (collectively, the Obligations ): (i) the prompt payment on demand when due any and all amounts due under any of the Borrower Documents, the Rider or any other agreements or instrument relating to the Loan; (ii) the prompt payment when due and the full and faithful performance and observance by the Borrowers, the Master Tenant and/or the Operating Companies in their respective capacities, of all of the terms, covenants, conditions, agreements, and obligations now or hereafter to be paid, performed, and/or observed by all parties under any of the Borrower Documents, the Rider or any other agreements or instrument relating to the Loan; and (iii) the prompt payment on demand of any and all expenses incurred by the Controlling Person in enforcing any rights under any of the Borrower Documents, the Rider or any other agreements or instrument relating to the Loan. Third Party Report and Filing Fee Escrow The Borrowers have agreed, that certain funds shall be held in the Third Party Report and Filing Fee Escrow Account to be established with and held by Links Mortgage to provide, among other things, for the payment of third party reports, application fees and other preliminary costs and fees relating to the 232/223(f) Mortgage Financing. Commencing on August 1, 2015, and continuing on the first day of each month thereafter, the Borrower shall deposit or cause the deposit, with or at the direction of Links Mortgage the sum of $30, The Third Party Report and Filing Fee Escrow Account will be pledged as additional collateral for the Bonds. 33

40 Operation of the Facilities Payments to be made by the Borrowers pursuant to the Loan Agreement will be derived solely from Project Revenues generated by the operation of the Facility. In addition, the liability of each Borrower under the Loan Agreement is limited to such Borrower s interest in its Facility and the moneys held in the Funds and Accounts held under the Indenture. NO REPRESENTATIONS OR ASSURANCES CAN BE MADE THAT REVENUES WILL BE REALIZED BY THE BORROWERS IN AMOUNTS NECESSARY TO ENABLE THE BORROWERS TO MAKE PAYMENTS PURSUANT TO THE LOAN AGREEMENT SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS. Each Borrower will be the owner of its respective Facility. Each of the Facilities will be leased by the respective Borrower to the Master Tenant, pursuant to the terms of the Master Lease. The Master Tenant will sublease each of the Facilities to the applicable Operating Company pursuant to the Sublease Agreements. The Operating Companies are responsible for the operation and management of their respective Facilities. See PRIVATE PARTICIPANTS Borrowers and Operating Companies herein. Each Facility will be managed pursuant to a Management Agreement entered into between the applicable Operating Company and Meridian. Pursuant to the terms of the Management Agreements, Meridian will be paid a management fee based on a percentage of the gross revenues of each Facility. During the term of the Bonds, each Operating Company will receive Project Revenues with respect to its Facility. Each Operating Company will be obligated under its respective Sublease Agreement to pay from Project Revenues all expenses with respect to its Facility (including the management fee payable to Meridian) and then pay the balance of Project Revenues on a monthly basis to the Master Tenant. See Master Lease, Subleases, and Account Control Agreements under this heading. The Master Tenant will be obligated under the Master Lease to pay lease payments in the amount of debt service due on the Bonds to each Borrower with respect to such Borrower s Facility. The Master Tenant will be obligated under the Asset Management Services Agreement to pay the then-current requirement to Links Mortgage to fund the Third Party Report and Filing Fee Escrow. The Third Party Report and Filing Fee Escrow is expected to be used to pay HUD closing costs on, or third party reports necessary for, the 232/223(f) Mortgage Financing. Any remaining funds held by the Master Tenant may be applied as directed by the Sole Member. As described above, the Borrowers are obligated under the Loan Agreement to make Loan Payments to the Trustee to be used to pay debt service on the Bonds. IT IS NOT EXPECTED THAT RECEIPTS OF PROJECT REVENUES WILL BE SUFFICIENT TO PAY DEBT SERVICE ON THE BONDS WHEN DUE. Creation of Funds and Accounts Revenue Fund The provisions of the Indenture establish the following Funds and Accounts to be held by the Trustee: (a) Bond Fund and therein a Principal Account, an Interest Account and a Special Redemption Account; (b) Project Fund and therein a Costs of Issuance Account; (c) Revenue Fund; and (d) Administration Fund. There shall be deposited in the Revenue Fund (i) all Loan Payments and other amounts paid to the Trustee under the Loan Agreement (other than prepayments required to redeem Bonds, which shall be deposited in the related Special Redemption Account), (ii) all other amounts required to be so deposited pursuant to the terms of the Loan Agreement, including investment earnings to the extent provided in the Indenture, (iii) any amounts derived 34

41 from the Loan Agreement or the Mortgage to be applied to payment of amounts intended to be paid from the Revenue Fund, and (iv) such other money as is delivered to the Trustee by or on behalf of the Issuer or any of the Borrowers with directions for deposit of such money in the Revenue Fund. Money on deposit in the Revenue Fund shall be disbursed monthly in the following order of priority: (i) to the Interest Account for the Bonds, the applicable Interest Requirement for that calendar month, together with an amount equal to any unfunded Interest Requirement for any prior month; then (ii) in the month preceding any Bond Payment Date on which principal is due, to the Principal Account for the Bonds, an amount equal to the principal amount due on the Bonds; and then (iii) to the Administration Fund for the payment of Administration Expenses then due. In the event that, for any month, there are insufficient funds in the Revenue Fund to fund the uses described in clause (i) above, the amount not funded in such month due to such insufficiency of revenues shall be added to the amount to be funded in subsequent months under the same clause until such amount has been in fact funded. Failure to deposit sufficient Loan Payments to make the deposits described above shall not, in itself, constitute an Event of Default. Bond Fund There shall be deposited into the Principal Account (i) money transferred to the Principal Account from the Revenue Fund pursuant to the Indenture and (ii) any other amounts deposited with the Trustee with directions from the Borrower to deposit the same in the Principal Account. There shall be deposited into the Interest Account (i) all accrued interest, if any, on the sale and delivery of the Bonds, (ii) money transferred to the Interest Account from the Revenue Fund pursuant to the Indenture, and (iii) any other amounts deposited with the Trustee with directions from the Borrower to deposit the same in the Interest Account. There shall be deposited in the Special Redemption Account (i) any Net Proceeds of Insurance Proceeds or Condemnation Award to be transferred to the Special Redemption Account pursuant to the Indenture and (ii) all other payments made by or on behalf of the Issuer with respect to the redemption of Bonds pursuant to the Indenture. Amounts on deposit in the Special Redemption Account shall be used to pay the redemption price of Bonds. Except as otherwise described in the Indenture, money in the Principal Account shall be used for the payment of principal of the Bonds as the same shall become due and payable pursuant to the Indenture and on the Maturity Date. Except as otherwise described herein, money in the Interest Account shall be used for the payment of interest on the Bonds as the same becomes due and payable on any Bond Payment Date. Administration Fund Project Fund Amounts on deposit in the Administration Fund shall be used to pay Administration Expenses when due. The Project Fund will be funded with the proceeds of the Bonds on the Closing Date. The Trustee shall disburse such funds on the Closing Date (i) to pay a portion of the purchase price of the Facilities under the Purchase Agreements (including the HUD mortgage financing with respect to each Facility, including prepayment penalties) and (ii) to pay costs of issuance of the Bonds. No moneys or Investment Securities are expected to remain in the Project Fund after the Closing Date. Any amounts remaining in the Project Fund on the date that is three (3) months from the Closing Date shall be transferred to the Principal Account. Additional Bonds No additional Bonds may be issued pursuant to the Indenture. 35

42 PRIVATE PARTICIPANTS The following information concerning the private participants has been provided by representatives of the private participants and has not been independently confirmed or verified by either the Underwriter or the Issuer. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. Borrowers and Operating Companies The Borrowers are North Carolina limited liability companies, each formed as a single asset entity for the specific purpose of acquiring and owning its respective Facility. JFC SIP 2, LLC, a North Carolina limited liability company (the Sole Member ), is the sole member of each of the Borrowers and has a 100% ownership interest in each Borrower. Each Borrower will purchase and be the owner of its respective Facility. The table below sets forth the name of each Borrower and its respective Facility. Each of the Facilities will be leased by the respective Borrower to JFC Meridian Master Tenant, LLC, a North Carolina limited liability company (the Master Tenant ), pursuant to the terms of the Master Lease dated as of July 9, 2015 (the Master Lease ) for a term of twenty (20) years. The Sole Member holds 100% ownership interest in six (6) separate, wholly-owned North Carolina limited liability companies (each, an Operating Company and collectively, the Operating Companies ) set forth in the table below. Each Operating Company will lease its respective Facility (as shown in the table below) from the Master Tenant for a term of twenty (20) years, pursuant to Sublease Agreements (each a Sublease and collectively, the Subleases ). Each Operating Company will hold the CON license with respect to its Facility and will have responsibility to operate that Facility. Meridian is being hired by each Operating Company to manage the respective Facilities pursuant to the Management Agreements with a term of five (5) years. Borrowers Operating Companies Facilities Goldsboro SIP 2, LLC JFC Meridian Opco Goldsboro, LLC Somerset Court of Goldsboro University SIP 2, LLC JFC Meridian Opco Winston-Salem, LLC Somerset Court at University Place Mocksville SIP 2, LLC JFC Meridian Opco Mocksville, LLC Somerset Court of Mocksville Cherryville SIP 2, LLC JFC Meridian Opco Cherryville, LLC Somerset Court of Cherryville Rocky Mount SIP 2, LLC JFC Meridian Opco Rocky Mount, LLC Somerset Court of Rocky Mount Meadowview SIP 2, LLC JFC Meridian Opco Wadesboro, LLC Meadowview Terrace of Wadesboro Limited Assets and Obligations of Borrowers Each Borrower has no substantial assets other than its interest in its respective Facility and does not intend to acquire any other substantial assets or to engage in any substantial business activities other than those related to the ownership of its Facility. However, the Sole Member and its affiliates are engaged in and will continue to engage in the acquisition, development, ownership, and management of similar types of assisted living facilities as well as other business endeavors. They may be financially interested in, as officers, partners or otherwise, and devote substantial times to, business and activities that may be inconsistent or competitive with the interests of the Facilities. The obligations and liabilities of the Borrowers under the Loan Agreement and the Note are of a nonrecourse nature and are limited to the Facilities and moneys derived from the operation of the Facilities. Neither any Borrower nor its members have any personal liability for payments on the Note to be applied to pay the principal of and interest on the Bonds. Furthermore, no representation is made that the Borrowers have substantial funds available for the Facilities. Accordingly, neither the Borrowers financial statements nor those of their members are included in this Limited Offering Memorandum. 36

43 The Master Tenant The Master Tenant will sublease each of the Facilities to the applicable Operating Company pursuant to the Subleases. The Operating Companies are responsible for the operation and management of their respective Facilities. The Sole Member owns 100% of the membership interests in the Master Tenant. Sole Member Tenant. JFC SIP 2, LLC will act as the sole member of each Borrower, each Operating Company, and the Master Meridian Senior Living, LLC Meridian, headquartered in Hickory, North Carolina and Silver Springs, Maryland, provides Assisted Living, Memory Care, and Independent Living residences and services throughout the country. The Bonds are not a debt or liability of Meridian. Meridian has no direct ownership interest in the Borrowers, Operating Companies, Master Tenant, Sole Member or Member Parent, but Meridian will serve as the manager for each of the Facilities pursuant to the separate Management Agreements with each Operating Company. Meridian manages these communities offering home-like settings for residents to ease into their new home and make them feel comfortable. The residents enjoy personalized amenities such as private rooms, private bathrooms, comfort zones for families and friends, activity areas, courtyards and libraries. Meridian s assisted living program offers each resident the opportunity to enjoy assistance when required and freedom when desired. The independent living model offers individual, fully functional apartments for residents in a community setting where meals may be shared and other social activities provided. The memory care units offer programming and support for residents with memory issues from early onset through advanced dementia. Meridian is among the top 10 assisted living providers and facilities in target markets throughout the United States, serving over 9,000 age qualified residents. Meridian has the 10 th largest senior living resident capacity in the United States, ranks as the 5 th largest assisted living provider in the United States and is the 3 rd largest memory care provider in the country. Meridian has been strategically growing, with the number of assisted living facilities increasing from 82 in 2011 to more than 130 in The communities are located in select middle markets to capture the largest contingent of potential residents seeking care. Meridian is an industry leader in providing care to underserved populations and relies on its expert knowledge in state and federal government reimbursement programs. Meridian manages more than 60 facilities in North Carolina, making it the largest senior living manager in North Carolina. Meridian s dedicated team of employees is committed to outstanding service for their residents and personal attention at every level. Meridian owns and manages these communities offering home-like settings for residents to ease into their new home and make them feel comfortable. The residents enjoy personalized amenities such as private rooms, private bathrooms, comfort zones for families and friends, activity areas, courtyards and libraries. Meridian s assisted living program offers each resident the opportunity to enjoy assistance when required and freedom when desired. The independent living model offers individual, fully functional apartments for residents in a community setting where meals may be shared and other social activities provided. The memory care units offer programming and support for residents with memory issues from early onset through advanced dementia. Meridian is comprised of an executive and senior management group directly responsible for all major functional areas. The senior management group functions in a team-oriented approach to design the appropriate mix of resources and support services for each Meridian client. Combined, these professionals possess more than a century of experience in the successful management of long term care communities. Meridian is an affiliate of the Master Tenant, the Borrowers, and the Operating Companies. 37

44 THE FACILITIES Prior Operating History and Borrowers Financial Projections The seller of the Facilities has provided unaudited Statements of Operations for the Facilities for the 12 months ended February 28, See Appendix B hereto. This historical information covers periods during which the Facilities were operated by the seller. No assurance can be given that the operating revenues from the Facilities or operating expenses of the Facilities will be consistent with those historically experienced by the seller of the Facilities. Certain expenses incurred by the prior owner may not be incurred by the Borrowers, and the Borrowers may incur expenses that were not incurred by the prior owner. The Borrowers have prepared one-year projections of future results of operation of each of the Facilities and three-year projections of future results of operation of the Facilities on a consolidated basis (the Projected Operating Statements ). See Appendix B hereto. These are based upon certain assumptions and estimates of the Borrowers regarding future events, transactions, and circumstances, which the Borrowers believe to be reasonable. Realization of the results projected will depend upon implementation by management of the Borrowers of policies and procedures consistent with the assumptions. Set forth below are the basis and assumptions used by Meridian to prepare the projections set forth in Appendix B. Initial three-year projections were calculated based on historical operating performance, with revenue enhancement through Meridian s expertise in maximizing Medicaid revenue through personal care service reimbursement as well as focused regional marketing and sales efforts to maintain at or above 90% occupancy. Anticipated average personal care services revenue is based on Meridian s average Assisted Living Medicaid approval of 80 hours per month per resident reimbursed at $13.88 per hour. Projected operating expenses are based on an average of $52.00 per resident day in the initial three-year period. No feasibility studies have been prepared in connection with the Projected Operating Statements and the Projected Operating Statements have not been independently verified. The Projected Operating Statements have not been prepared or reviewed by any certified public accounting firm. All phases of the operations of the Borrowers involve risks and uncertainties, many of which are outside of the Borrowers control and any one of which, or a combination of which, could materially affect the Borrowers results with respect to operation of the Borrowers. Factors that could cause actual results to differ from those expected include, but are not limited to, general economic conditions; competitive conditions; unanticipated expenses; changes in government regulation; future claims for accidents against the Borrower and the extent of insurance coverage for such claims; and other risks discussed in this Limited Offering Memorandum. See RISK FACTORS herein. Meridian s Business Plan for the Facilities In order to maintain the high performance of the Facilities, and solely in its role as manager of the Facilities, Meridian proposes to monitor the following areas on a daily basis: Marketing / Occupancy. As the manager of the Facilities, Meridian will be responsible for the day-to-day operations of the Facilities. Meridian has realized that marketing is an evolutionary process. To that end, Meridian has implemented the following personnel, policies, and procedures to further the knowledge patrons can gather about itself. Those initiatives are: 1. Implementation of a sophisticated marketing software system to aid in tracking each lead and closing the sale. 2. Coordination with website and marketing specialists, to increase the focus on each Facility s website. 3. Alignment with multiple social media outlets to reach an ever changing market. 38

45 4. Face to face interaction, to include town-hall style summits and Q/A themed meetings with referral sources such as hospitals, Department of Social Services, and physician practices. 5. Utilizing in-house physicians to provide comprehensive care in an effort to reduce the need of transporting residents from their home in the Facility whenever possible. This should also reduce the need of hospital visits and transfers to Skilled Nursing Facilities. The goal is to keep residents happy and healthy in the Facilities as long as possible. Maximizing Revenue. Meridian has recently implemented several measures to efficiently capture the documentation needed to accurately portray those services being rendered to Assisted Living and Memory care residents. The gathered data allows Meridian s operations team to perform the following actions: 1. Perform weekly reviews of approved Personal Care Services reimbursable hours. These weekly reviews allow Meridian to identify additional sources of reimbursable hours. 2. Weekly communication with the Department of Social Services and Medicaid providers, where applicable. This weekly communication allows Meridian s operations team to constantly update the Department of Social Services and Medicaid as to issues with care service and reimbursement. 3. Operational meetings. Upon gathering the aforementioned data, the information is then disseminated through a weekly operations/team meeting allowing all members to identify and/or understand those challenges being faced (should there be any). Meridian also focuses its efforts on the private pay market. For those residents not receiving State or another form of public assistance, Meridian expects to maintain the in-place level of care structure as well as provide competitive private pay rates including the implementation of appropriate rate increases in line with inflation. Implementation of Expense Controls. Meridian has identified and is currently in the process of, implementing several expense controls that will allow for a budget-minded operation. They are: 1. Matrix analytical and tracking software. Meridian is on the cutting edge of technology. As such Meridian needed an enterprise level software solution that would allow for accurate accounts payable, accounts receivable, marketing, and census management. The Matrix software is expected to provide significant corporate level transparency at the Facility level and allow for regional and executive directors alike to in-real-time monitor the health and status of their building(s). 2. Meridian Labor Controls. Recently Meridian has devoted resources to daily labor reporting and analytics. Similar to the data gathered by the Matrix software, daily labor reporting allows for on-thefly adjustment of staffing levels keeping costs at an appropriate level and creating accountability at the Facility level. 3. Meridian Order Guide. For all Meridian facilities, an order guide has been provided to each facility. The order guide provides a roadmap for the ordering of supplies, food, and even durable medical equipment. Meridian has recently realized approximately 35% reduction in wasteful/unnecessary ordering since implementation. Operational Goals. Meridian has the following operational goals for the Facilities: residents have been identified for an increase in PCS hours resulting in increase in revenue in the amount of $42,000 monthly or $504,000 annually. 2. Through the above mentioned marketing efficiencies Meridian will maintain the stabilized 93% annual occupancy for the Facilities. 3. Meridian Senior Living Menus, Staffing and Purchase Order policies will be implemented immediately ensuring cost controls are in place in all departments. THE AMOUNT OF THE 232/223(f) MORTGAGE FINANCING TO BE AVAILABLE FROM HUD IS DIRECTLY DEPENDENT UPON THE SUCCESSFUL FINANCIAL OPERATIONS OF THE FACILITIES DURING THE TERM OF THE BONDS. THOSE FINANCIAL OPERATIONS MUST BE AT LEVEL THAT 39

46 RESULTS IN APPRAISED VALUES FOR THE FACILITIES ADEQUATE TO QUALIFY THE FACILITIES FOR SUFFICIENT 232/223(f) MORTGAGE FINANCING TO PAY IN FULL PRINCIPAL AND INTEREST DUE ON THE BONDS AT THE CLOSING OF THE 232/223(f) MORTGAGE FINANCING. NO REPRESENTATION OR ASSURANCE CAN BE GIVEN THAT THE BORROWERS WILL REALIZE REVENUES IN AMOUNTS SUFFICIENT TO MAKE ALL REQUIRED DEBT SERVICE PAYMENTS ON THE BONDS. THE REALIZATION OF FUTURE REVENUES DEPENDS ON, AMONG OTHER THINGS, THE MATTERS DESCRIBED IN RISK FACTORS AND FUTURE CHANGES IN ECONOMIC AND OTHER CONDITIONS THAT ARE UNPREDICTABLE AND CANNOT BE DETERMINED AT THIS TIME. ALL PROJECTIONS HEREIN HAVE BEEN PREPARED BY THE BORROWERS, EXCEPT AS OTHERWISE NOTED BELOW. Facility Management Each Borrower has entered into the Master Lease with the Master Tenant and the Master Tenant has entered into the Subleases with each Operating Company, in respect of each of the respective Facilities. Each Facility will be managed pursuant to the terms of the applicable Management Agreement. The Master Lease has an initial term of twenty (20) years, with two 10-year extensions. See PRIVATE PARTICIPANTS The Master Lease herein for additional information about the Master Tenant, the Master Lease, and the Subleases. Appraisals A summary of the Appraisal Report (each, an Appraisal ) for each Facility is set forth in Appendix A included herein. Environmental Assessments A summary of the Phase 1 Environmental Site Assessment (each, an Environmental Report ) for each Facility is set forth in Appendix A included herein. Project Capital Needs Assessments A summary of the Project Capital Needs Assessment (each, a PCNA ) for each Facility is set forth in Appendix A included herein. Insurance Under the Loan Agreement, the Borrowers are required to maintain (a) insurance against loss or damage to the improvements by fire and other risks covered by fire and extended coverage insurance in an amount not less than the greater of the full replacement cost of the respective Facilities or the outstanding principal amount of the Bonds, with a customary and reasonable deductible for any casualty; (b) comprehensive general liability insurance on an occurrence basis against claims for personal injury, including bodily injury, death or property damage; (c) during the course of any construction or repair of improvements of the Facilities, builders completed value risk insurance against all risks of physical loss; (d) flood insurance if the property is in an area identified as a special flood hazard area; and (e) such other insurance, in such amounts and against such hazards and risk, as is commonly obtained by prudent owners of property similar in use as to the Facilities and in the areas in which the Facilities are located. All policies of insurance will contain an endorsement or agreement by the insurer that any loss will be payable in accordance with the terms of such policy notwithstanding any act or negligence of the Borrowers, which might otherwise result in forfeiture of such insurance, and the further agreement of the insurer waiving all rights of set-off, counterclaim or deductions against the Borrowers. 40

47 232/223(f) Mortgage Financing The purchase price to be paid by the Borrowers to acquire the Facilities is $26,300,000. In addition, the Borrowers will pay a HUD prepayment penalty ($1,412,467), accrued interest ($43,230), and custodian and administrative expenses ($1,950) in connection with the purchase of the Facilities. The Borrowers expect to obtain permanent financing for all the Facilities by insured mortgage loans to each of the Borrowers from a licensed Ginnie Mae Issuer under the Section 232/223(f) Program. THE AMOUNT OF THE 232/223(f) MORTGAGE FINANCING TO BE AVAILABLE FROM HUD IS DIRECTLY DEPENDENT UPON THE FINANCIAL OPERATIONS OF THE FACILITIES DURING THE TERM OF THE BONDS. THOSE FINANCIAL OPERATIONS MUST BE AT LEVEL THAT RESULTS IN APPRAISED VALUES FOR THE FACILITIES ADEQUATE TO QUALIFY THE FACILITIES FOR SUFFICIENT 232/223(f) MORTGAGE FINANCING TO PAY IN FULL PRINCIPAL AND INTEREST DUE ON THE BONDS AT THE CLOSING OF THE 232/223(f) MORTGAGE FINANCING. The Permanent Mortgage Lender, Links Mortgage, is a licensed Ginnie Mae Issuer and expects, upon satisfaction of certain conditions precedent, to make the mortgage loans to the Borrowers, the proceeds of which will be used to pay principal and interest on the Bonds at the Maturity Date or prior optional redemption. Links Mortgage is a FHA MAP and LEAN approved direct mortgage lender specializing in FHA-insured construction and permanent mortgage loans, for multifamily housing facilities and healthcare facilities across the United States. See PLAN OF FINANCE 232/223(f) Mortgage Financing herein for additional information regarding the mortgage loans to the Borrowers. Oppenheimer proposes bridge financing solutions to owners and property developers seeking earlier funding than can typically be available utilizing FHA insured loans and GNMA financing ( Bridge Loan Program ). In order to qualify for the Bridge Loan Program, borrowers must pass an initial screening that is undertaken by a licensed FHA underwriter and in some cases includes a concept meeting with the local HUD field office. The sources and uses of funds to be applied under the Indenture are projected to be approximately as follows: Sources of Funds: Bond Proceeds $22,905,000 Original Issue Discount (572,625) DCR Loan Proceeds 6,850,000 Total $29,182,375 Uses of Funds: Facilities Purchase Price $27,559,132* Costs of Issuance 1,623,243 Total $29,182,375 *Facilities purchase price as adjusted for prorations and legal fees. Legal Proceedings LEGAL MATTERS The legal proceedings relating to the issuance of the Bonds were prepared by Peck, Shaffer & Williams, A Division of Dinsmore & Shohl LLP, Cincinnati, Ohio, whose approving opinion will be furnished without charge to the purchaser of the Bonds at the time of their delivery. The form of Bond Counsel s opinion is set forth as Appendix H to this Limited Offering Memorandum. Certain legal matters will be passed upon for the Issuer by its counsel, von Briesen & Roper, s.c., Milwaukee, Wisconsin; for the Borrower by its counsel, Womble Carlyle Sandridge & Rice, LLP, Winston-Salem, 41

48 North Carolina; and for the Underwriter by its counsel, Howell, Linkous & Nettles, LLC, Charleston, South Carolina. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. Litigation The Issuer At the time of the issuance and delivery of the Bonds, the Issuer will deliver a certificate to the effect that, to the knowledge of the Issuer, as of the date of such certificate, there is not pending or threatened any litigation restraining or enjoining the issuance or delivery of the Bonds or questioning or affecting the validity of the Bonds or the proceedings or authority under which they are to be issued, nor in any manner questioning the right of the Issuer to enter into the Loan Agreement or the Indenture or to secure the Bonds in the manner provided in the Indenture. The Borrowers At the time of the issuance and delivery of the Bonds, the Borrowers will deliver a certificate to the effect that no litigation and no proceedings are pending or, to their knowledge, threatened against any Borrower, or otherwise with respect to any Facility, or the acquisition and financing thereof, or the issuance of the Bonds or which would materially adversely affect the transactions contemplated by this Limited Offering Memorandum or the financial condition of any Borrower. TAX MATTERS The following is a summary of certain federal income tax consequences relating to the acquisition, ownership and disposition of the Bonds for certain U.S. Holders (as defined below). It does not provide a complete analysis of all potential tax considerations relating to the acquisition, ownership and disposition of the Bonds. This summary is based on the tax laws of the United States, including the current provisions of the Internal Revenue Code of 1986, as amended (the Code ), its legislative history, current final, temporary and proposed Treasury regulations thereunder, published rulings and pronouncements of the IRS and court decisions, all as currently in effect and all of which are subject to change at any time, possibly with retroactive effect, so as to result in federal income tax consequences different from those described below. There can be no assurance that the IRS will not take a contrary view or that a court would not sustain a contrary view, and no ruling from the IRS has been, or is expected to be, sought on the issues discussed herein. Legislative, judicial or administrative changes or interpretations may occur that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences discussed below. THIS SUMMARY DOES NOT ADDRESS FEDERAL GIFT, GENERATION SKIPPING OR ESTATE TAX CONSEQUENCES OR ALTERNATIVE MINIMUM, FOREIGN, STATE, LOCAL OR OTHER TAX CONSEQUENCES, NOR DOES THIS SUMMARY ADDRESS FEDERAL INCOME TAX CONSEQUENCES FOR BONDHOLDERS OTHER THAN U.S. HOLDERS (AS DEFINED BELOW). EACH PROSPECTIVE PURCHASER CONSIDERING THE PURCHASE OF THE BONDS SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THESE MATTERS AND CONCERNING THE TAX TREATMENT OF THE BONDS UNDER STATE AND LOCAL TAX LAWS AND REGULATIONS. The following summary deals only with the Bonds held as capital assets within the meaning of Section 1221 of the Code (generally assets that are held for investment rather than as inventory or as property used in a trade or business) and not with special classes of holders, such as dealers in securities or currencies, holders subject to the provisions of the alternative minimum tax, persons deemed to sell the Bonds under the constructive sale provisions of the Code, banks or other financial institutions, insurance companies, S corporations, partnerships or other pass- 42

49 through entities, grantor trusts, certain former citizens or residents of the United States, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, dealers, persons holding the Bonds as part of a hedging transaction, straddle, conversion transaction, synthetic security transaction or other risk reduction or integrated transaction, persons whose functional currency is not the U.S. dollar, persons who acquire the Bonds in connection with their employment or other performance of services, tax-exempt persons, mutual funds, small business investment companies, real estate mortgage investment conduits, regulated investment companies or real estate investment trusts. If a partnership (or other entity or arrangement treated as a partnership for federal income tax purposes) acquires the Bonds, the federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. A partnership holding the Bonds, and partners in such a partnership, should consult its and their own tax advisors with regard to the federal income tax consequences of the acquisition, ownership, and disposition of the Bonds by the partnership. The federal income tax discussion that appears below is included in this Offering Memorandum for the general information of a prospective purchaser. Some or all of the discussion may not apply to a particular purchaser depending upon the particular situation of that purchaser. Each prospective purchaser should consult its own tax advisor concerning the tax consequences to such purchaser of owning and disposing of the Bonds, including the tax consequences under state, local and other tax laws and the possible effects of changes in federal or other tax laws. As used in this Offering Memorandum, the term U.S. Holder means a beneficial owner of a Bond that is, for federal income tax purposes (a) a citizen or resident of the United States for federal income tax purposes; (b) a corporation (or other entity treated as a corporation for federal income tax purposes) created or organized in or under the laws of the United States, any of the states thereof or the District of Columbia; (c) an estate, the income of which is includible in gross income for federal income tax purposes regardless of its source; (d) a trust that is subject to the supervision of a court within the United States and one or more United States persons as described in Section 7701(a)(30) of the Code has the authority to control all of the substantial decisions with respect to such trust; or (e) certain trusts with a valid election in effect under applicable Treasury regulations to be treated as a United States person within the meaning of the Code. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, PROSPECTIVE PURCHASERS AND BENEFICIAL OWNERS OF THE BONDS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR TAX SITUATIONS AND AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE BONDS. Tax Status of the Bonds. The Bonds are taxable bonds for federal income tax purposes. As such, interest on the Bonds is not excludible from the gross income of Bondholders under Section 103 of the Code and will be fully subject to federal income taxation. Interest. In general, interest paid on the Bonds, original issue discount, if any, and market discount, if any, will be treated as ordinary income to the Bondholders. A Bondholder using the accrual method of accounting for federal income tax purposes generally must include such interest in income as the interest accrues, while a Bondholder using the cash receipts and disbursement method of accounting generally must include such interest in income on the earlier of when payments are actually or constructively received. Original Issue Discount. If the Bonds with a fixed maturity date more than one year from their date of issue are deemed to be issued with original issue discount, Section 1272 of the Code requires the current ratable inclusion in gross income of original issue discount greater than a specified de minimis amount using a constant yield method of accounting. In general, original issue discount is calculated, with regard to any accrual period, by multiplying the Bond s yield to maturity by its adjusted issue price at the beginning of the accrual period, and then reducing the product by any qualified stated interest allocable to the period. The aggregate original issue discount allocable to an accrual period is allocated to each day included in such period. The holder of a Bond with original issue discount must include in gross income the sum of the daily portions of original issue discount attributable to the number of days he owned the instrument. The legislative history of the original issue discount provisions 43

50 indicates that the calculation and accrual of original issue discount should be based on the prepayment assumptions used by the parties in pricing the transaction. Bonds with a fixed maturity date not more than one year from their date of issue are deemed to not be issued with original issue discount and consequently will not be subject to the rules described above. Owners of the Bonds purchased with original issue discount should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning such Bonds. Bond Premium. An investor that acquires a Bond for a cost greater than its remaining stated redemption price at maturity and holds such bond as a capital asset will be considered to have purchased such bond at a premium and, subject to prior election permitted by Section 171(c) of the Code, may generally amortize such premium under the constant yield method. Except as may be provided by regulation, amortized premium will be allocated among, and treated as an offset to, interest payments. The basis reduction requirements of Section 1016(a)(5) of the Code apply to amortizable bond premium that reduces interest payments under Section 171 of the Code. Bond premium is generally amortized over the bond s term using constant yield principles, based on the purchaser s yield to maturity. If a Bondholder does not elect to amortize bond premium, such premium generally would produce a capital loss, which capital loss may be subject to limitations on deductibility. Investors of any Bond purchased with a bond premium should consult their own tax advisors as to the effect of such bond premium with respect to their own tax situation and as to the treatment of bond premium for state tax purposes. Market Discount. An investor that acquires a Bond with a fixed maturity date more than one year from its date of issue after its original issue at a price less than its stated redemption price at maturity, or in the case of a Bond with original issue discount, its revised issue price, may be subject to the market discount rules of Sections 1276 through 1278 of the Code with respect to market discount greater than a specified de minimis amount. Under these sections and the principles applied by the Regulations, market discount means (a) in the case of a Bond not originally issued at a discount, the amount by which the stated redemption price of such bond at maturity exceeds its basis immediately after its acquisition by the new owner and (b) in the case of a Bond issued with original issue discount, the amount by which the issue price of such Bond, increased by the aggregate amount of the original issue discount includible in the gross income of all holders for the periods before the acquisition of the Bond by the new owner, exceeds its basis immediately after its acquisition by the new owner. Under Section 1276 of the Code, the owner of a Bond with market discount greater than a specified de minimis amount will generally be required to treat gain on the disposition of such Bond as ordinary income to the extent such gain does not exceed the accrued market discount on such Bond unless the owner elects to include such market discount as ordinary income in his gross income currently as it accrues on all market discount instruments acquired by such owner on or after the first day of the taxable year to which such election applies. Such election may not be revoked without the consent of the IRS. The Code authorizes the Treasury Department to issue regulations providing for the method for accruing market discount on debt instruments the principal of which is payable in more than one installment. Until such time as regulations are issued by the Treasury Department, market discount will accrue on a ratable basis or on a constant interest rate basis, if elected by the owner, which election shall be irrevocable. A Bondholder that acquired such Bond at a market discount also may be required to defer, until the maturity date of such Bond or its earlier disposition in a taxable transaction, the deduction of a portion of the amount of interest that the Bondholder paid or accrued during the taxable year on indebtedness incurred or continued to purchase or carry such Bond in excess of the aggregate amount of interest (including original issue discount) includable in such Bondholder s gross income for the taxable year with respect to such Bond. The amount of such net direct interest expense deferred in a taxable year will not exceed the amount of market discount accrued on the Bond for the days during the taxable year on which the Bondholder held such Bond and, in general, would be deductible when such market discount is includable in income. The amount of any remaining deferred deduction is to be taken into account in the taxable year in which the Bond matures or is disposed of in a taxable transaction. In the case of a disposition in which gain or loss is not recognized in whole or in part, any remaining deferred deduction will be allowed to the extent gain is recognized on the disposition. This deferral rule does not apply if the Bondholder elects to include such market discount in income currently as it accrues on all market discount obligations acquired by such Bondholder in that taxable year or thereafter. 44

51 Bonds with a fixed maturity date not more than one year from their date of issue are deemed to be without market discount and consequently will not be subject to the rules described above. Medicare Tax. The income of a Bondholder that is an individual, certain trusts or an estate from a Bond is potentially subject to the 3.8% Medicare tax under Section 1411 of the Code on the lesser of (1) the Bondholder s net investment income for the relevant taxable year and (2) the excess of the Bondholder s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual s circumstances). A Bondholder s net investment income generally includes its interest income and its net gains from the disposition of securities, unless such interest income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities) less deductions allowed by the federal income tax properly allocable to such investment income. Bondholders are urged to consult with their tax advisors regarding the applicability of the Medicare tax to income and gains in respect of their investment in the Bonds. Sale, Exchange, Retirement, or Other Taxable Disposition of the Bonds. Upon the sale, exchange, redemption, retirement or other taxable disposition of a Bond, a Bondholder generally will recognize gain or loss equal to the difference between the amount realized on such sale and such owner s adjusted tax basis in such bond. Ordinarily, such gain or loss will be treated as a capital gain or loss. The deductibility of capital losses is subject to limitations. Prospective investors should consult their tax advisors regarding the treatment of capital gains and losses as it applies to them. Defeasance or Material Modification. The legal defeasance or other significant modification of the Bonds may result in a deemed disposition of such Bonds and a deemed reissuance of a new Bond to the Bondholder for federal income tax purposes, in which event a Bondholder will recognize taxable gain or loss equal to the difference between the amount realized from the deemed exchange and the Bondholder s adjusted tax basis in the Bond. The new Bond deemed reissued in such a defeasance or significant modification may be treated as issued with original issue discount in an amount equal to the excess, if any, of the stated redemption price at maturity of the new Bond over its deemed issue price. Prospective investors should consult their tax advisors regarding the tax consequences of a defeasance or material modification of the Bonds. Backup Withholding and Information Reporting. A backup withholding tax, currently at a 28% rate, and information reporting requirements generally apply to specified payments of principal, premium and interest (including original issue discount in some instances) made to, and to the proceeds of sale before maturity by, Bondholders (other than certain exempt recipients, such as organizations exempt from taxation under Section 501(a) of the Code) who fail to provide and certify certain identifying information (e.g., the holder s taxpayer identification number) in the required manner. Under current Treasury regulations, backup withholding will not apply to payments made on a Bond or proceeds from the sale of a Bond if the Bondholder: (a) provides its U.S. taxpayer identification number (typically on IRS Form W-9 or a successor form), certifies that it is a U.S. person, and certifies that (1) it is exempt from backup withholding, (2) it has not been notified by the IRS that it is subject to backup withholding or (3) it has been notified by the IRS that it is no longer subject to backup withholding; or (b) establishes an exemption from backup withholding. Any amounts withheld from a payment to a Bondholder under the backup withholding rules will be refunded or credited against that Bondholder s federal income tax liability, provided that the holder furnishes the required information to the IRS. The amount of any reportable payments for each calendar year and the amount of tax withheld, if any, with respect to those payments will be reported to the Bondholders and to the IRS. State and Local Taxes. Bondholders may be subject to state and local taxes with respect to the purchase, ownership and disposition of the Bonds. Bondholders should consult their tax advisors with respect to the state and local tax consequences of the purchase, ownership and disposition of the Bonds. 45

52 THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR BONDHOLDER IN LIGHT OF THE BONDHOLDER S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. BONDHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE BONDS, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND POSSIBLE EFFECTS OF CHANGES IN TAX LAWS. No Ratings MISCELLANEOUS The Borrowers have not sought a rating on, and there is no rating by any bond rating agency with respect to, the Bonds. Underwriting The Bonds will be purchased at negotiated sale by Oppenheimer & Co. Inc. (the Underwriter ) from the Issuer at a price of $21,988,800, being par less original issue discount and underwriter s discount for re-offering by the Underwriter at an aggregate reoffering price of percent of the principal amount of the Bonds. The Underwriter will enter into a Bond Purchase Agreement with the Issuer and the Borrower that provides that the Underwriter will purchase all of the Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Bonds will be subject to various conditions contained in the Bond Purchase Agreement. The Underwriter intends to offer the Bonds in a limited offering only to Qualified Institutional Buyers as defined in Rule 144A promulgated under the Securities Act and accredited investors as defined in Rule 501 of Regulations D under the Securities Act, at the offering price set forth on the cover page of this Limited Offering Memorandum, which offering price may be subsequently changed from time to time by the Underwriter without any requirement of prior notice. The Underwriter will receive no fee (other than the underwriter s discount described above) from the Issuer for underwriting the Bonds. The Underwriter has reserved the right to permit other securities dealers who are members of the Financial Industry Regulatory Authority to assist in selling the Bonds. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices set forth on the cover page of this Limited Offering Memorandum or otherwise allow concessions to such dealers who may re-allow concessions to other dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Bonds will be deducted from the Underwriter s underwriting discount. In the ordinary course of its various business activities, the Underwriter and its affiliates may purchase, sell or hold a broad array of investments and may actively trade securities, derivatives, loans, commodities, currencies, credit default swaps, and other financial instruments for their own account and for the accounts of customers. Such investment and trading activities may involve or relate to assets, securities, and/or instruments of the Issuer (whether directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Issuer. The Underwriter and its affiliates also may communicate independent investment recommendations, market advice or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and at any time may hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. Exemption from Continuing Disclosure Requirements The issuance of the Bonds is exempt from the continuing disclosure requirements of Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934 pursuant to the provisions of Section 15c2-12(d)(1)(i) thereof. Accordingly, there will be no continuing disclosure undertaking with respect to the Bonds. 46

53 CUSIP Numbers The Borrowers anticipates that CUSIP identification numbers will be assigned to the Bonds without cost to holders of the Bonds, but neither the failure to obtain such assignment nor any error with respect thereto shall constitute cause for a failure or refusal to accept delivery of or pay for any Bond. Concluding Statements Any statements made in this Limited Offering Memorandum involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The references herein to the Act, the Indenture, the Loan Agreement, the Note, the Mortgage, reports, contracts, financial statements, and other documents are brief outlines of certain provisions thereof. Such outlines do not purport to be complete or comprehensive and for a full and complete statement of the provisions thereof, reference is made to the Act and the respective document. During the initial offering period, copies of such documents are available, upon request, from the Underwriter as follows: Oppenheimer Municipal Capital Markets Group, 85 Broad Street, 23rd Floor, New York, NY 10004, telephone (212) The agreement of the Issuer with the Holders of the Bonds is fully set forth in the Indenture, and this Limited Offering Memorandum is not to be construed as constituting any agreement with the purchasers of the Bonds. Insofar as any statements are made in this Limited Offering Memorandum involving matters of opinion, whether or not expressly so stated, they are intended merely as such, and not as representations of fact. The attached Appendices are integral parts of this Limited Offering Memorandum and must be read together with all of the foregoing statements. The Borrowers have reviewed the information contained herein which relates to them and the Facilities and have approved all such information for use within this Limited Offering Memorandum. The Issuer has not participated in the preparation of this Limited Offering Memorandum and has not verified the accuracy of the information contained herein, other than the information respecting the Issuer contained under THE ISSUER and LEGAL MATTERS - Litigation The Issuer. The execution, delivery and distribution of this Limited Offering Memorandum have been duly authorized by the Borrowers. GOLDSBORO SIP 2, LLC By: HOB I LLC, its Manager By: /s/ Charles E. Trefzger, Jr. Name: Charles E. Trefzger, Jr. Title: Manager of HOB I LLC MOCKSVILLE SIP 2, LLC By: HOB I LLC, its Manager By: /s/ Charles E. Trefzger, Jr. Name: Charles E. Trefzger, Jr. Title: Manager of HOB I LLC 47

54 ROCKY MOUNT SIP 2, LLC By: HOB I LLC, its Manager By: /s/ Charles E. Trefzger, Jr. Name: Charles E. Trefzger, Jr. Title: Manager of HOB I LLC UNIVERSITY SIP 2, LLC By: HOB I LLC, its Manager By: /s/ Charles E. Trefzger, Jr. Name: Charles E. Trefzger, Jr. Title: Manager of HOB I LLC MEADOWVIEW SIP 2, LLC By: HOB I LLC, its Manager By: /s/ Charles E. Trefzger, Jr. Name: Charles E. Trefzger, Jr. Title: Manager of HOB I LLC CHERRYVILLE SIP 2, LLC By: HOB I LLC, its Manager By: /s/ Charles E. Trefzger, Jr. Name: Charles E. Trefzger, Jr. Title: Manager of HOB I LLC 48

55 APPENDIX A INFORMATION REGARDING THE FACILITIES AND SUMMARY OF APPRAISALS, ENVIRONMENTAL REPORTS, AND PHYSICAL NEEDS ASSESSMENTS

56 7KLVSDJHLQWHQWLRQDOO\OHIWEODQN1

57 Additional Facilities Information This section contains descriptions of Somerset Court of Goldsboro, Somerset Court at University Place, Somerset Court of Mocksville, Somerset Court of Cherryville, Somerset Court of Rocky Mount, and Meadowview Terrace of Wadesboro (collectively, the Facilities ). Also included in this section are summaries of the appraisals, environmental assessments, and project capital needs assessments of the Facilities. Somerset Court of Goldsboro Somerset Court of Goldsboro (the Goldsboro Facility ) is an assisted living facility located at 603 Lockhaven Court, Goldsboro, North Carolina The Goldsboro Facility is a 60-bed facility built in See the table below for additional information regarding the Goldsboro Facility. The Goldsboro Facility was placed in service in No comprehensive or partial interior renovations have been reported by the owner. Goldsboro SIP 2, LLC does not expect to undertake any substantial rehabilitation of the Facility in the foreseeable future. See Project Capital Needs Assessments under this heading for more information regarding repairs recommended in the PCNA (as hereafter defined). Somerset Court at University Place Somerset Court at University Place (the University Place Facility ) is an assisted living facility located at 1635 East 5 th Street, Winston-Salem, North Carolina The University Place Facility is a 60-bed facility built in See the table below for additional information regarding the University Place Facility. The University Place Facility was placed in service in No comprehensive or partial interior renovations have been reported by the owner. University SIP 2, LLC does not expect to undertake any substantial rehabilitation of the University Place Facility in the foreseeable future. See Project Capital Needs Assessments under this heading for more information regarding repairs recommended in the PCNA. Somerset Court of Mocksville Somerset Court of Mocksville (the Mocksville Facility ) is an assisted living facility located at 150 Ken Dwiggins Drive, Mocksville, North Carolina The Mocksville Facility is a 60-bed facility built in See the table below for additional information regarding the Mocksville Facility. The Mocksville Facility was placed in service in No comprehensive or partial interior renovations have been reported by the owner. Mocksville SIP 2, LLC does not expect to undertake any substantial rehabilitation of the Mocksville Facility in the foreseeable future. See Project Capital Needs Assessments under this heading for more information regarding repairs recommended in the PCNA. Somerset Court of Cherryville Somerset Court of Cherryville (the Cherryville Facility ) is an assisted living facility located at 401 Academy Street, Cherryville, North Carolina The Cherryville Facility is a 60-bed facility built in See the table below for additional information regarding the Cherryville Facility. The Cherryville Facility was placed in service in No comprehensive or partial interior renovations have been reported by the owner. Cherryville SIP 2, LLC does not expect to undertake any substantial rehabilitation of the Cherryville Facility in the foreseeable future. See Project Capital Needs Assessments under this heading for more information regarding repairs recommended in the PCNA. Somerset Court of Rocky Mount Somerset Court of Rocky Mount (the Rocky Mount Facility ) is an assisted living facility located at 918 Westwood Drive, Rocky Mount, North Carolina The Rocky Mount Facility is a 60-bed facility built in See the table below for additional information regarding the Rocky Mount Facility. The Rocky Mount Facility was placed in service in No comprehensive or partial interior renovations have been reported by the owner. Rocky Mount SIP 2, LLC does not expect to undertake any substantial rehabilitation of the Rocky Mount Facility in the foreseeable future. See Project Capital Needs Assessments under this heading for more information regarding repairs recommended in the PCNA. A-1

58 Meadowview Terrace of Wadesboro Meadowview Terrace of Wadesboro (the Wadesboro Facility ) is an assisted living facility, located at 123 Anson High School Road, Wadesboro, North Carolina The Wadesboro Facility is a 60-bed facility built in See the table below for additional information regarding the Wadesboro Facility. The Wadesboro Facility was placed in service in No comprehensive or partial interior renovations have been reported by the owner. Non-Critical Repair requirements set forth in the PCNA for Meadowview SIP 2, LLC include: repair of eroded grounds and replacement of landscaping materials, repair of failed paving at the truck and loading drive aisles, and replacement of all common and unit interior flooring. See Project Capital Needs Assessments under this heading for more information regarding repairs recommended in the PCNA. The table below sets forth certain information regarding the Facilities. Somerset Court of Goldsboro Somerset Court at University Place Somerset Court of Mocksville Somerset Court of Cherryville Somerset Court of Rocky Mount Meadowview Terrace of Wadesboro Built Location Goldsboro, NC Winston-Salem, NC Mocksville, NC Cherryville, NC Rocky Mount, NC Wadesboro, NC Appraised Value $7,030,000 $5,690,000 $6,350,000 $5,470,000 $6,270,000 $5,550,000 Licensed Beds Occupancy (April 2015) 97% 95% 92% 91% 98% 82% Historical NOI $479,545 $385,075 $378,631 $421,792 $422,261 $366,180 Proforma NOI $494,104 $516,830 $454,273 $522,529 $448,936 $481,124 Private Pay Bed (Avg.) 10% 22% 42% 12% 17% 37% Medicaid Beds (Avg.) 90% 78% 58% 88% 83% 63% Information in this table provided by Meridian. Occupancy The table below sets forth historical occupancy of each of the Facilities. Historical occupancy figures set forth below are for the fiscal years ending December 31 of each year: Occupancy Facility Apr- 15* Somerset Court of Goldsboro 94% 93% 96% 97% Somerset Court at University Place 96% 94% 94% 95% Somerset Court of Mocksville 96% 93% 91% 92% Somerset Court of Cherryville 93% 83% 91% 91% Somerset Court of Rocky Mount 98% 94% 94% 100% Meadowview Terrace of Wadesboro 96% 89% 91% 82% Information in this table provided by Meridian. *Occupancy for the month of April only. Market Area and Competitors Market Area and Competitors for Goldsboro Facility The Appraiser of the Goldsboro Facility considers its market area as generally Wayne County. The population of the market area is approximately 122,623 according to the 2010 census. There are several municipalities, including the City of Goldsboro, located in the Facility s market area. According to the Goldsboro Facility Appraisal Report, the county s top three employment industry classifications are: Office/Admin. Support; Sales/Related; and Management. A-2

59 The Appraiser of the Goldsboro Facility has identified 13 other assisted living facilities that draw patients from the Goldsboro Facility s market area. According to the 2014 North Carolina State Medical Facilities Plan, there are currently no proposed units or units under construction in the market area. The Adult Care Home Need Projection from the North Carolina State Medical Facilities Plan estimates demand of 442 beds throughout 2017, for a surplus of 303 beds in the county. Market Area and Competitors for University Place Facility The Appraiser of the University Place Facility considers its market area as generally as Forsyth County. The population of the market area is approximately 350,670 according to the 2010 census. There are several municipalities, including the City of Winston-Salem, located in the Facility s market area. According to the University Place Facility Appraisal Report, the county s top three employment industry classifications are: Office/Admin. Support; Sales/Related; and Management. The Appraiser of the University Place Facility has identified 33 other assisted living facilities that draw patients from the University Place Facility s market area. According to the 2014 North Carolina State Medical Facilities Plan, there are currently no units under construction in the market area, and 96 units proposed in the market area. Market Area and Competitors for Mocksville Facility The Appraiser of the Mocksville Facility considers its market area as generally as Davie County. The population of the market area is approximately 41,240 according to the 2010 census. There are several municipalities, including the Town of Mocksville, located in the Facility s market area. According to the Mocksville Facility Appraisal Report, the county s top three employment industry classifications are: Office/Admin. Support; Sales/Related; and Management. The Appraiser of the Mocksville Facility has identified six other assisted living facilities that draw patients from the Mocksville Facility s market area. According to the 2014 North Carolina State Medical Facilities Plan, there are currently no units under construction in the market area, and no units proposed in the market area. Market Area and Competitors for Cherryville Facility The Appraiser of the Cherryville Facility considers its market area as generally as Gaston County. The population of the market area is approximately 206,086 according to the 2010 census. There are several municipalities, including the City of Cherryville, located in the Facility s market area. According to the Cherryville Facility Appraisal Report, the county s top three employment industry classifications are: Office/Admin. Support; Sales/Related; and Management. The Appraiser of the Cherryville Facility has identified 19 other assisted living facilities that draw patients from the Cherryville Facility s market area. According to the 2014 North Carolina State Medical Facilities Plan, there are currently no units under construction in the market area, and no units proposed in the market area. Market Area and Competitors for Rocky Mount Facility The Appraiser of the Rocky Mount Facility considers its market area as generally as Nash County. The population of the market area is approximately 95,840 according to the 2010 census. There are several municipalities, including the City of Rocky Mount, located in the Facility s market area. According to the Rocky Mount Facility Appraisal Report, the county s top three employment industry classifications are: Office/Admin. Support; Sales/Related; and Management. The Appraiser of the Rocky Mount Facility has identified ten other assisted living facilities that draw patients from the Rocky Mount Facility s market area. According to the 2014 North Carolina State Medical Facilities Plan, there are currently no units under construction in the market area, and no units proposed in the market area. A-3

60 Market Area and Competitors for Wadesboro Facility The Appraiser of the Wadesboro Facility considers its market area as generally as Anson County. The population of the market area is approximately 26,948 according to the 2010 census. There are several municipalities, including the Town of Wadesboro, located in the Facility s market area. According to the Wadesboro Facility Appraisal Report, the county s top three employment industry classifications are: Office/Admin. Support; Sales/Related; and Management. The Appraiser of the Wadesboro Facility has identified one other assisted living facilities that draw patients from the Wadesboro Facility s market area. According to the 2014 North Carolina State Medical Facilities Plan, there are currently no units under construction in the market area, and no units proposed in the market area. Appraisals General The Borrowers have obtained an appraisal with respect to each respective Facility (the Appraisals ). The Appraisals were prepared by Fred H. Beck & Associates, LLC, Charlotte, North Carolina (the Appraiser ) for the Trustee as a part of the Bond financing. The Appraiser is a MAI licensed appraiser. The Appraisal was not prepared in accordance with HUD guidelines. Key elements which differentiate the HUD-defined market value include a mandated methodology whereby HUD requires minimum vacancy allowances for the commercial spaces (if necessary) that may or may not be consistent with the market. In addition, HUD regulations require that all expenses be trended to the date of appraisal. These are arbitrary requirements that may or may not cause the valuations in the Appraisals to be different than a market value consistent with the definition defined in the Uniform Standards of Appraisal Practice. A summary of certain aspects of each Appraisal follows. The summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full Appraisals. During the initial offering period, complete copies of the Appraisals are available from the Underwriter upon request, as described under MISCELLANEOUS Concluding Statements in this Limited Offering Memorandum. The Appraisals include information regarding the procedures utilized in preparing the appraisals and the underlying general assumptions and limiting conditions. The conclusions and much of the other information included in the Appraisals are based on the assumptions and rationale stated therein, as well as hypothetical conditions of the Facilities. In some instances the currently available information may be incomplete, may not necessarily disclose all material facts that might affect the Facilities, and, in any case, may change after the date of the Appraisals. Accordingly, the assumptions and other information in the Appraisals should be carefully evaluated by a prospective investor in the light of the circumstances then prevailing. Appraisals, by their nature, are based on the judgment of the Appraiser, represent only estimates of value, and should not be relied upon as a measure of realizable value. The Appraisals provide the value of each Facility under the hypothetical condition that the Facility is run by a for-profit entity. The Facilities are currently operated by a non-profit corporation. There can be no assurance that information set forth in the Appraisals continues to be accurate in all respects as of the date hereof. In any event, the accuracy of the Appraisals is dependent upon the occurrence of specified assumptions and other future events which cannot be assured, and therefore, the actual results achieved will vary from the forecasts, and the variation may be material. Information taken from the appraisal report prepared by the Appraiser should be evaluated within the context of the full narrative report. Information presented out of the context of the full narrative report may by misleading. There is no assurance that the market values set forth in the Appraisals would be realized in the event of the foreclosure or forced sale of the Facilities. A-4

61 Appraisal for Somerset Court of Goldsboro An Appraisal Report, dated May 19, 2015, with an effective date of valuation of April 20, 2015, was prepared with respect to the Goldsboro Facility. Based upon the assumptions summarized above and more fully set forth in the Appraisal, the Appraiser determined by the income approach valuation method that the market value of the subject property as is as of April 20, 2015, is $7,030,000. Appraisal for Somerset Court at University Place An Appraisal Report, dated May 19, 2015, with an effective date of valuation of April 13, 2015, was prepared with respect to the University Place Facility. Based upon the assumptions summarized above and more fully set forth in the Appraisal, the Appraiser determined by the income approach valuation method that the market value of the subject property as is as of April 13, 2015, is $5,690,000. Appraisal for Somerset Court of Mocksville An Appraisal Report, dated May 19, 2015, with an effective date of valuation of April 20, 2015, was prepared with respect to the Mocksville Facility. Based upon the assumptions summarized above and more fully set forth in the Appraisal, the Appraiser determined by the income approach valuation method that the market value of the subject property as is as of April 20, 2015, is $6,350,000. Appraisal for Somerset Court of Cherryville An Appraisal Report, dated May 19, 2015, with an effective date of valuation of April 7, 2015, was prepared with respect to the Cherryville Facility. Based upon the assumptions summarized above and more fully set forth in the Appraisal, the Appraiser determined by the income approach valuation method that the market value of the subject property as is as of April 7, 2015, is $5,470,000. Appraisal for Somerset Court of Rocky Mount An Appraisal Report, dated May 19, 2015, with an effective date of valuation of April 20, 2015, was prepared with respect to the Rocky Mount Facility. Based upon the assumptions summarized above and more fully set forth in the Appraisal, the Appraiser determined by the income approach valuation method that the market value of the subject property as is as of April 20, 2015, is $6,270,000. Appraisal for Meadowview Terrace of Wadesboro An Appraisal Report, dated May 19, 2015, with an effective date of valuation of April 15, 2015, was prepared with respect to the Wadesboro Facility. Based upon the assumptions summarized above and more fully set forth in the Appraisal, the Appraiser determined by the income approach valuation method that the market value of the subject property as is as of April 15, 2015, is $5,550,000. Environmental Assessments General Engineering and Environmental Services, PLLC, Hickory, North Carolina (the Environmental Engineer ), prepared a Phase I Environmental Site Assessments for each Facility (the Environmental Reports ) for Links Mortgage as part of HUD application for the 232/223(f) Mortgage Financing. The Environmental Reports were prepared in accordance with HUD standards. The Environmental Reports were conducted utilizing the generally accepted Phase I industry standards using the American Society for Testing and Materials (ASTM) Standard Practice E A summary of certain A-5

62 aspects of the Environmental Report follows. The following summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full Environmental Reports. Each Environmental Report speaks only as to the date of the report and is subject to the limitations specified in the report. More generally, no environmental assessment can completely eliminate uncertainty regarding the potential for recognized environmental conditions in connection with a subject property. Potential investors must refer to the complete Environmental Reports for a full understanding of such limitations, and for additional information pertinent to the assessments. Costs incurred by the applicable Borrower with respect to environmental remediation or liability could adversely affect its financial condition and ability to repay the Senior Bonds. None of the Issuer, the Borrowers, the Trustee, the Underwriter, or any other party makes any representation as to the environmental status of any of the Facilities. During the initial offering period, complete copies of each Environmental Report is available from the Underwriter upon request, as described under MISCELLANEOUS Concluding Statements herein. Environmental Report for Somerset Court of Goldsboro An Environmental Report, dated April 3, 2015, was prepared with respect to the Goldsboro Facility. Based upon the assumptions summarized above and more fully set forth in the Environmental Report, the Environmental Engineer concludes in its Environmental Report that no evidence of Recognized Environmental Conditions ( RECs ) have been revealed in connection with the Goldsboro Facility. The Environmental Engineer further opines in the Environmental Report that no additional investigation is required to detect the presence of hazardous substances or petroleum products at the site of the Goldsboro Facility. Environmental Report for Somerset Court at University Place An Environmental Report, dated April 27, 2015, was prepared with respect to the University Place Facility. Based upon the assumptions summarized above and more fully set forth in the Environmental Report, the Environmental Engineer concludes the subject site is listed on the North Carolina State Hazardous Waste Site ( NCDENR SHWS ) list, the Leaking Underground Storage Tank ( LUST ) list, and the Incident Management Data ( IMD ) List. Its presence on each of these lists is related an incident occurring in In addition to the 2001 incident, the following potential RECs have been identified: (1) four North Carolina Department of Environment and Natural Resources Hazardous Substance Disposal Site ( NCDENR HSDS ) sites at distances of between ½ mile and 1 mile from subject site; (2) two additional NCDENR SHWS sites from ¼ to ½ mile from subject site; (3) four additional LUST sites, one site less than 1/8 mile from the subject site and three sites between ¼ mile and ½ mile from the subject site; (4) two Leaking Above Ground Storage Tanks ( LAST ) located ¼ mile to ½ mile from the site; and (5) two NCDENR or Tribal Brownfield sites located ¼ to ½ mile from the subject site. The Environmental Engineer further opines in the Environmental Report that while it is possible that other contamination exists, it is reasonable to conclude that the property has suffered no significant adverse environmental impacts, and no additional investigation is required to detect the presence of hazardous substances or petroleum products at the site of the University Place Facility. On June 11, 2015, North Carolina Department of Environment and Natural Resources Division of Waste Management s Inactive Hazardous Sites Branch confirmed that the site University Place Facility is placed in the No Further Action category as all contaminants detected in the groundwater are below the current groundwater standards. Under the information available, no remedial action is required. Environmental Report for Somerset Court of Mocksville An Environmental Report, dated April 27, 2015, was prepared with respect to the Mocksville Facility. Based upon the assumptions summarized above and more fully set forth in the Environmental Report, the A-6

63 Environmental Engineer concludes the subject site is not listed on any Federal or State environmental databases or lists that represent potential sources for impacts to or remedial liability for the subject site. There is an absence of on-site RECs. The following potential off-site RECs were identified and evaluated: (1) one Federal RCRA CORRACTS site located miles WSW (downgradient) from the subject site; (2) one NCDENR SHWS site located miles WSW from the subject site; (3) nine LUST sites, seven sites between 1/8 mile and ¼ mile from the subject site and two sites between ¼ mile and ½ mile from the subject site (all upgradient from the subject site); (4) three LUST Trust sites between 1/8 mile and ¼ mile from the subject (all upgradient or crossgradient from the location of the subject site); and (5) eight Incident Management Database ( IMD ) sites, six located ¼ mile to ½ mile from the subject site and two located ¼ mile to ½ mile from the subject site (all crossgradient or downgradient from site). Each of the listed sites is described and evaluated as a potential REC in the Environmental Report. The Environmental Engineer opines that no RECs for the subject site were identified from these lists. The Environmental Engineer further opines in the Environmental Report that while it is possible that other contamination exists, it is reasonable to conclude that the property has suffered no significant adverse environmental impacts, and no further investigation is recommended at the site of the Mocksville Facility. Environmental Report for Somerset Court of Cherryville An Environmental Report, dated April 13, 2015, was prepared with respect to the Cherryville Facility. Based upon the assumptions summarized above and more fully set forth in the Environmental Report, the Environmental Engineer concludes in its Environmental Report that no RECs having the potential for impacting the subject site were identified in connection with the Cherryville Facility. Eight LUST sites, including eight IMD sites and two LUST Trust sites were evaluated in the Environmental Report. The Environmental Engineer opines in the Environmental Report that no additional investigation is recommended at the site of the Cherryville Facility. Environmental Report for Somerset Court of Rocky Mount And Environmental Report, dated April 18, 2015, was prepared with respect to the Rocky Mount Facility. Based upon the assumptions summarized above and more fully set forth in the Environmental Report, the Environmental Engineer concludes in its Environmental Report that no RECs were identified in connection with the Rocky Mount Facility. One site listed on the NCDENR SHWS and the NCDENR HSDS is located mile ESE of site. Groundwater was evaluated as flowing to the north in the area of the subject site. Based on its distance from the subject, its cross-gradient location relative to the subject site, and no known contamination at the location, no impacts on the subject site or remedial liability to the subject site from this site are considered likely. This site is not considered a REC for the Rocky Mount Facility. Twenty LUST incidents, two IMD incidents, and one LAST incident have occurred at distances between miles and miles from the subject site. These incidents are not considered to be RECs for the subject site The Environmental Engineer further opines in the Environmental Report that while it is possible that other contamination exists, it is reasonable to conclude that the property has suffered no significant adverse environmental impacts, and no further investigation is recommended at the site of the Rocky Mount Facility. Environmental Report for Meadowview Terrace of Wadesboro An Environmental Report, dated April 2, 2015, was prepared with respect to the Wadesboro Facility. The RECs relating to the subject site or surrounding area are as follows: (1) one NC LUST located mile SSW of subject site (downgradient and on NCDENR Closed Out status); and (2) one NC LUST site is located mile east of the subject site, causing groundwater contamination (cross-gradient to subject site). Based upon the assumptions summarized above and more fully set forth in the Environmental Report, the Environmental Engineer concludes in its Environmental Report that the site has suffered no significant adverse A-7

64 environmental impacts, and that it does not represent a significant future environmental liability. No further investigation of the site is recommended by the Wadesboro Facility. Project Capital Needs Assessments General A Project Capital Needs Assessment for each Facility (the PCNA ) was prepared by Newbanks, Inc., Frederick, Maryland (the Engineer ) for Links Mortgage as a part of the HUD applications for the 232/223(f) Mortgage Financing. The Engineer is a HUD-approved engineer. The following summary does not purport to be complete or definitive and is qualified in its entirety by reference to each full PCNA. Each PCNA provides cost estimates for the critical and non-critical repair needs and expected component replacement and major maintenance needs over the near, long, and remainder term of the 232/223(f) Mortgage Financing with respect to the applicable Facility. Set forth below is a summary of probable costs for each Facility as estimated by the Engineer. There exists the possibility that one or more of the Facilities will require repairs and improvements that were not disclosed in the applicable PCNA. In that event, there can be no assurance that the applicable Borrower will have sufficient funds available to repair that Facility, or that any remaining Facility Revenues after paying for such repairs will be sufficient to pay the operating expenses of that Facility and the debt service on the Senior Bonds. In addition, the FHA imposes the limitation that the Facilities in their present condition must meet the general criterion for livability without the necessity of substantial rehabilitation in order to be eligible for consideration under the Section 232/223(f) Program. Failure to meet that limitation would adversely affect the Borrowers ability to originate the 232/223(f) Mortgage Financing to repay the Senior Bonds. During the initial offering period, complete copies of the PCNAs are available from the Underwriter upon request, as described under MISCELLANEOUS Concluding Statements herein. Project Capital Needs Assessment for Somerset Court of Goldsboro The PCNA prepared by the Engineer for the Goldsboro Facility is dated April 6, No Critical Repairs were identified by the Engineer. No Non-Critical Repair requirements were identified by the Engineer. It is the opinion of the Engineer that any Non-Critical Repairs can be deferred as long as 12 months without impacting the operations or marketability of the Goldsboro Facility. Project Capital Needs Assessment for Somerset Court at University Place The PCNA prepared by the Engineer for the University Place Facility is dated April 6, No Critical Repairs were identified by the Engineer. No Non-Critical Repair requirements were identified by the Engineer. It is the opinion of the Engineer that any Non-Critical Repairs can be deferred as long as 12 months without impacting the operations or marketability of the University Place Facility. Project Capital Needs Assessment for Somerset Court of Mocksville The PCNA prepared by the Engineer for the Mocksville Facility is dated April 6, No Critical Repairs were identified by the Engineer. No Non-Critical Repair requirements were identified by the Engineer. It is the opinion of the Engineer that any Non-Critical Repairs can be deferred as long as 12 months without impacting the operations or marketability of the Mocksville Facility. Project Capital Needs Assessment for Somerset Court of Cherryville The PCNA prepared by the Engineer for the Cherryville Facility is dated March 25, No Critical Repairs were identified by the Engineer. No Non-Critical Repair requirements were identified by the Engineer. It is A-8

65 the opinion of the Engineer that any Non-Critical Repairs can be deferred as long as 12 months without impacting the operations or marketability of the Cherryville Facility. Project Capital Needs Assessment for Somerset Court of Rocky Mount The PCNA prepared by the Engineer for the Rocky Mount Facility is dated April 6, No Critical Repairs were identified by the Engineer. No Non-Critical Repair requirements were identified by the Engineer. It is the opinion of the Engineer that any Non-Critical Repairs can be deferred as long as 12 months without impacting the operations or marketability of the Rocky Mount Facility. Project Capital Needs Assessment for Somerset Court of Wadesboro The PCNA prepared by the Engineer for the Wadesboro Facility is dated April 6, No Critical Repairs were identified by the Engineer. Non-Critical Repair requirements were identified by the Engineer. Non- Critical Repair requirements include: repair of eroded grounds and replacement of landscaping materials, repair of failed paving at the truck and loading drive aisles, and replacement of all common and unit interior flooring. An allowance of $125,000 is recommended to address these Non-Critical Repairs at the Wadesboro Facility. The Borrower intends to use Bond Proceeds to make Non-Critical Repairs which the Borrower will make prior to submitting the HUD application. In the Loan Agreement, the applicable Borrower has covenanted to make the critical repairs identified in the PCNA as directed by the Permanent Lender; provided that the Permanent Lender will direct only those repairs or improvements required by HUD for the origination of an FHA-insured mortgage loan. See Appendix C for repairs necessary to support the conclusion that the Third-Party Reports are acceptable for filing the application for the Mortgage Loan. A-9

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67 APPENDIX B UNAUDITED FINANCIAL INFORMATION AND PROJECTIONS

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69 MERIDIAN SENIOR LIVING - SALEM 6 STATEMENT OF OPERATIONS SUMMARY BY FACILITY (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 Total Cherryville Goldsboro Mocksville Rock Mount Meadowview University T12 Feb-15 T12 Feb-15 T12 Feb-15 T12 Feb-15 T12 Feb-15 T12 Feb-15 T12 Feb-15 Revenue Private pay room and board $ 2,410, $ 208, $ 151, $ 843, $ 295, $ 557, $ 352, Medicaid room and board $ 3,483, $ 665, $ 740, $ 329, $ 647, $ 472, $ 628, Medicaid personal/transportation $ 2,809, $ 539, $ 563, $ 251, $ 543, $ 406, $ 504, Meals $ $ - $ $ - $ $ - Laundry and linen $ $ - $ Other income $ 4, $ $ $ 1, $ $ $ Total Revenue $ 8,707, $ 1,415, $ 1,455, $ 1,425, $ 1,486, $ 1,438, $ 1,486, Expenses Housekeeping 281, , , , , , , Personal care 2,290, , , , , , , Healthcare 106, , , , , , , Dietary 1,185, , , , , , , Recreation therapy 189, , , , , , , Medical related transport 120, , , , , , , Orientation 15, , , , , Administrative expenses 972, , , , , , , Operations and maintenance 966, , , , , , , Property expenses 127, , , , , , , Total Expenses $ 6,254, $ 993, $ 976, $ 1,046, $ 1,064, $ 1,072, $ 1,101, OPERATING INCOME $ 2,453, $ 421, $ 479, $ 378, $ 422, $ 366, $ 385, B-1

70 MERIDIAN SENIOR LIVING - SALEM 6 STATEMENT OF OPERATIONS CONSOLIDATED TRAILING TWELVE MONTH FINANCIALS 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 186, $ 188, $ 201, $ 200, $ 200, $ 210, $ 204, $ 198, $ 202, $ 206, $ 206, $ 204, $ 2,410, Medicaid room and board $ 291, $ 292, $ 296, $ 300, $ 294, $ 285, $ 287, $ 288, $ 284, $ 285, $ 286, $ 289, $ 3,483, Medicaid personal/transportation $ 252, $ 262, $ 242, $ 120, $ 247, $ 246, $ 242, $ 244, $ 238, $ 236, $ 242, $ 232, $ 2,809, Meals $ 6.00 $ 6.00 $ $ - $ - $ - $ $ - $ $ $ - $ - $ Laundry and linen $ $ $ $ $ $ $ $ $ $ $ $ $ Other income $ $ $ $ $ $ $ $ $ $ $ $ $ 4, Total Revenue $ 731, $ 744, $ 741, $ 620, $ 743, $ 743, $ 734, $ 731, $ 726, $ 729, $ 734, $ 725, $ 8,707, Expenses Housekeeping 21, , , , , , , , , , , , , Personal care 181, , , , , , , , , , , , ,290, Healthcare 8, , , , , , , , , , , , , Dietary 93, , , , , , , , , , , , ,185, Recreation therapy 14, , , , , , , , , , , , , Medical related transport 10, , , , , , , , , , , , , Orientation 1, , , , , , , , Administrative expenses 62, , , , , , , , , , , , , Operations and maintenance 105, , , , , , , , , , , , , Property expenses 10, , , , , , , , , , , , , Total Expenses $ 509, $ 552, $ 513, $ 505, $ 521, $ 508, $ 524, $ 564, $ 499, $ 535, $ 536, $ 482, $ 6,254, OPERATING INCOME $ 222, $ 191, $ 228, $ 114, $ 222, $ 234, $ 209, $ 167, $ 226, $ 193, $ 198, $ 243, $ 2,453, B-2

71 Meridian Senior Living - Salem 6: 3 Year Operating Pro Forma Consolidated Consolidated Consolidated Census 93% 93% 93% Capacity Total Private AL Medicaid AL Revenue Year 1 Consolidated Year 2 Consolidated Year 3 Consolidated Private AL $ 2,484, $ 2,613, $ 2,743, Medicaid AL $ 3,496, $ 3,460, $ 3,460, Total R&B Revenue $ 5,980, $ 6,073, $ 6,204, PCS AL $ 3,199, $ 3,199, $ 3,199, Total PCS Revenue $ 3,199, $ 3,199, $ 3,199, Total Revenue $ 9,180, $ 9,273, $ 9,404, Expenses Assisted Living Services 2,467,759 2,504,290 2,513,347 Salaries and Wages 2,370,725 2,406,286 2,414,363 Workers Comp 97,034 98,004 98,984 Activities 256, , ,874 Salaries 198, , ,913 Cable 32,520 32,520 32,520 Supplies 25,920 26,179 26,441 Transportation 93,600 94,752 96,647 Salaries and Wages 72,000 72,720 74,174 Travel Cost 21,600 22,032 22,473 Dietary 989,823 1,013,576 1,037,964 Salaries and Wages 384, , ,719 General and Administrative 70,014 70,014 70,014 Food Cost 535, , ,231 Laundry and Hskpg. 237, , ,738 Salaries and Wages 184, , ,351 Linen and Bedding 18,848 19,037 19,227 Supplies 34,084 35,107 36,160 Maint. 636, , ,896 Salaries and Wages 135, , ,085 Utilities 370, , ,371 R&M 130, , ,439 Administration 1,433,458 1,451,561 1,467,427 Salaries and Wages 304, , ,264 General and Administrative 430, , ,357 Marketing 27,600 27,600 27,600 Insurance 118, , ,391 RE Taxes 93,802 95,678 97,592 Mgmt Fee 459, , ,224 Health Services 148, , ,430 Total Expenses 6,262,942 6,364,311 6,438,321 NOI $ 2,917, $ 2,909, $ 2,966, Margin (%) 31.78% 31.37% 31.54% B-3

72 SOMERSET COURT OF CHERRYVILLE STATEMENT OF OPERATIONS (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 12, $ 16, $ 20, $ 16, $ 15, $ 15, $ 15, $ 15, $ 17, $ 18, $ 21, $ 22, $ 208, Medicaid room and board $ 57, $ 54, $ 56, $ 56, $ 55, $ 55, $ 56, $ 57, $ 56, $ 54, $ 52, $ 54, $ 665, Medicaid personal/transportation $ 51, $ 48, $ 46, $ 24, $ 46, $ 45, $ 45, $ 46, $ 47, $ 47, $ 44, $ 45, $ 539, Meals $ - $ - $ - $ - $ - Laundry and linen Other income $ $ $ - $ $ - $ $ $ $ $ $ $ $ Total Revenue $ 120, $ 119, $ 122, $ 97, $ 116, $ 116, $ 117, $ 119, $ 121, $ 120, $ 118, $ 121, $ 1,415, Expenses Housekeeping 3, , , , , , , , , , , , , Personal care 23, , , , , , , , , , , , , Healthcare 2, , , , , , , , , , , Dietary 13, , , , , , , , , , , , , Recreation therapy 1, , , , , , , , , , , , , Medical related transport 2, , , , , , , , , , , , , Orientation , Administrative expenses 9, , , , , , , , , , , , , Operations and maintenance 13, , , , , , , , , , , , , Property expenses 1, , , , , , Total Expenses $ 71, $ 92, $ 83, $ 75, $ 82, $ 79, $ 75, $ 96, $ 83, $ 85, $ 90, $ 77, $ 993, OPERATING INCOME $ 49, $ 27, $ 39, $ 22, $ 33, $ 37, $ 42, $ 23, $ 38, $ 35, $ 27, $ 44, $ 421, B-4

73 Meridian Senor Living - Salem 6: Cherryville Year One Pro Forma Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Census 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% Yr. 1 Averages Capacity Total Private AL Medicaid AL Revenue Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 Total Private AL $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 193, Medicaid AL $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 56, $ 680, Total R&B Revenue $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 72, $ 874, PCS AL $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 623, Total PCS Revenue $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 51, $ 623, Total Revenue $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 1,497, Expenses Assisted Living Services 30,161 27,243 30,161 29,189 30,161 29,189 30,161 30,161 29,189 30,161 29,189 30, ,127 Salaries and Wages 28,985 26,180 28,985 28,050 28,985 28,050 28,985 28,985 28,050 28,985 28,050 28, ,275 Workers Comp 1,176 1,063 1,176 1,139 1,176 1,139 1,176 1,176 1,139 1,176 1,139 1,176 13,852 Activities 3,889 3,592 3,889 3,790 3,889 3,790 3,889 3,889 3,790 3,889 3,790 3,889 45,975 Salaries 3,069 2,772 3,069 2,970 3,069 2,970 3,069 3,069 2,970 3,069 2,970 3,069 36,135 Cable ,520 Supplies ,320 Transportation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 15,600 Salaries and Wages 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Travel Cost ,600 Dietary 13,538 12,228 13,538 13,101 13,538 13,101 13,538 13,538 13,101 13,538 13,101 13, ,396 Salaries and Wages 5,030 4,543 5,030 4,868 5,030 4,868 5,030 5,030 4,868 5,030 4,868 5,030 59,221 General and Administrative 1, , , ,006 1, , ,006 11,844 Food Cost 7,502 6,776 7,502 7,260 7,502 7,260 7,502 7,502 7,260 7,502 7,260 7,502 88,330 Laundry and Hskpg. 3,120 2,818 3,120 3,020 3,120 3,020 3,120 3,120 3,020 3,120 3,020 3,120 36,737 Salaries and Wages 2,387 2,156 2,387 2,310 2,387 2,310 2,387 2,387 2,310 2,387 2,310 2,387 28,105 Linen and Bedding ,011 Supplies ,621 Maint. 8,610 7,777 8,610 8,333 8,610 8,333 8,610 8,610 8,333 8,610 8,333 8, ,379 Salaries and Wages 1,858 1,679 1,858 1,799 1,858 1,799 1,858 1,858 1,799 1,858 1,799 1,858 21,882 Utilities 4,467 4,035 4,467 4,323 4,467 4,323 4,467 4,467 4,323 4,467 4,323 4,467 52,597 R&M 2,285 2,064 2,285 2,211 2,285 2,211 2,285 2,285 2,211 2,285 2,211 2,285 26,901 Administration 19,708 19,708 19,708 19,708 19,708 19,708 19,708 19,708 19,708 19,708 19,708 19, ,494 Salaries and Wages 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800 General and Administrative 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 69,600 Marketing ,800 Insurance 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 19,524 RE Taxes 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 14,888 Mgmt Fee 6,240 6,240 6,240 6,240 6,240 6,240 6,240 6,240 6,240 6,240 6,240 6,240 74,882 Health Services 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 24,396 Salaries and Wages ,996 General and Administrative 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 Total Expenses 82,359 76,698 82,359 80,472 82,359 80,472 82,359 82,359 80,472 82,359 80,472 82, ,103 NOI $ 42, $ 48, $ 42, $ 44, $ 42, $ 44, $ 42, $ 42, $ 44, $ 42, $ 44, $ 42, $ 522, Margin (%) 34.01% 38.54% 34.01% 35.52% 34.01% 35.52% 34.01% 34.01% 35.52% 34.01% 35.52% 34.01% 34.89% B-5

74 SOMERSET COURT OF GOLDSBORO STATEMENT OF OPERATIONS (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 10, $ 8, $ 12, $ 15, $ 17, $ 17, $ 14, $ 9, $ 9, $ 12, $ 12, $ 12, $ 151, Medicaid room and board $ 62, $ 63, $ 64, $ 62, $ 60, $ 59, $ 58, $ 58, $ 60, $ 62, $ 63, $ 63, $ 740, Medicaid personal care/transportation $ 51, $ 54, $ 45, $ 23, $ 49, $ 49, $ 49, $ 48, $ 46, $ 45, $ 51, $ 48, $ 563, Meals Laundry and linen $ - $ - $ - $ - $ - Other income $ $ $ $ $ $ $ $ $ $ $ $ $ $ 124, $ 125, $ 123, $ 100, $ 127, $ 126, $ 122, $ 116, $ 116, $ 120, $ 128, $ 123, $ 1,455, Expenses Housekeeping 3, , , , , , , , , , , , , Personal care 29, , , , , , , , , , , , , Healthcare , , , , , , , , , , , , Dietary 15, , , , , , , , , , , , , Recreation therapy 2, , , , , , , , , , , , , Medical related transport 1, , , , , , , , , , , Orientation 1, , Administrative expenses 8, , , , , , , , , , , , , Operations and maintenance 15, , , , , , , , , , , , , Property expenses , , , , , , , Total Expenses $ 80, $ 80, $ 75, $ 84, $ 83, $ 79, $ 88, $ 89, $ 75, $ 80, $ 86, $ 72, $ 976, OPERATING INCOME $ 43, $ 45, $ 47, $ 16, $ 43, $ 47, $ 34, $ 26, $ 40, $ 40, $ 41, $ 51, $ 479, B-6

75 Meridian Senior Living - Salem 6: Goldsboro Year One Pro Forma Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Census 93% 93% 93% 93% 93% 93% 93% 93% 93% 93% 93% 93% Yr. 1 Averages Capacity Total Private AL Medicaid AL Revenue Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 Total Private AL $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 15, $ 180, Medicaid AL $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 709, Total R&B Revenue $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 74, $ 889, PCS AL $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 649, Total PCS Revenue $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 649, Total Revenue $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 1,538, Expenses Assisted Living Services 36,178 32,677 36,178 35,011 36,178 35,011 36,178 36,178 35,011 36,178 35,011 36, ,970 Salaries and Wages 34,720 31,360 34,720 33,600 34,720 33,600 34,720 34,720 33,600 34,720 33,600 34, ,800 Workers Comp 1,458 1,317 1,458 1,411 1,458 1,411 1,458 1,458 1,411 1,458 1,411 1,458 17,170 Activities 3,945 3,642 3,945 3,844 3,945 3,844 3,945 3,945 3,844 3,945 3,844 3,945 46,632 Salaries 3,125 2,822 3,125 3,024 3,125 3,024 3,125 3,125 3,024 3,125 3,024 3,125 36,792 Cable ,520 Supplies ,320 Transportation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 15,600 Salaries and Wages 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Travel Cost ,600 Dietary 13,784 12,450 13,784 13,339 13,784 13,339 13,784 13,784 13,339 13,784 13,339 13, ,294 Salaries and Wages 5,121 4,626 5,121 4,956 5,121 4,956 5,121 5,121 4,956 5,121 4,956 5,121 60,298 General and Administrative 1, , , ,024 1, , ,024 12,060 Food Cost 7,638 6,899 7,638 7,392 7,638 7,392 7,638 7,638 7,392 7,638 7,392 7,638 89,936 Laundry and Hskpg. 3,177 2,869 3,177 3,074 3,177 3,074 3,177 3,177 3,074 3,177 3,074 3,177 37,405 Salaries and Wages 2,430 2,195 2,430 2,352 2,430 2,352 2,430 2,430 2,352 2,430 2,352 2,430 28,616 Linen and Bedding ,066 Supplies ,723 Maint. 7,941 7,317 7,941 7,733 7,941 7,733 7,941 7,941 7,733 7,941 7,733 7,941 93,832 Salaries and Wages 1,892 1,709 1,892 1,831 1,892 1,831 1,892 1,892 1,831 1,892 1,831 1,892 22,280 Utilities 4,548 4,108 4,548 4,402 4,548 4,402 4,548 4,548 4,402 4,548 4,402 4,548 53,553 R&M 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 Administration 19,879 19,879 19,879 19,879 19,879 19,879 19,879 19,879 19,879 19,879 19,879 19, ,551 Salaries and Wages 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800 General and Administrative 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 69,600 Marketing ,800 Insurance 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 19,524 RE Taxes 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 14,888 Mgmt Fee 6,412 6,412 6,412 6,412 6,412 6,412 6,412 6,412 6,412 6,412 6,412 6,412 76,939 Health Services 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 24,396 Salaries and Wages ,996 General and Administrative 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 Total Expenses 88,237 82,168 88,237 86,214 88,237 86,214 88,237 88,237 86,214 88,237 86,214 88,237 1,044,680 NOI $ 39, $ 46, $ 39, $ 42, $ 39, $ 42, $ 39, $ 39, $ 42, $ 39, $ 42, $ 39, $ 494, Margin (%) 31.19% 35.92% 31.19% 32.77% 31.19% 32.77% 31.19% 31.19% 32.77% 31.19% 32.77% 31.19% 32.11% B-7

76 SOMERSET COURT OF MOCKSVILLE COMBINED STATEMENT OF OPERATIONS (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 65, $ 67, $ 71, $ 68, $ 64, $ 67, $ 68, $ 73, $ 74, $ 73, $ 74, $ 74, $ 843, Medicaid room and board $ 28, $ 30, $ 29, $ 29, $ 27, $ 25, $ 25, $ 26, $ 26, $ 25, $ 26, $ 27, $ 329, Medicaid personal care/transportation $ 22, $ 26, $ 22, $ 8, $ 21, $ 19, $ 20, $ 22, $ 21, $ 20, $ 21, $ 22, $ 251, Meals $ - $ - $ - $ - $ $ - $ - $ - $ Laundry and linen Other income $ $ $ $ $ $ $ $ $ $ $ $ $ 1, Total Revenue $ 116, $ 124, $ 124, $ 106, $ 114, $ 113, $ 115, $ 122, $ 121, $ 119, $ 122, $ 124, $ 1,425, Expenses Housekeeping 3, , , , , , , , , , , , , Personal care 32, , , , , , , , , , , , , Healthcare 1, , , , Dietary 13, , , , , , , , , , , , , Recreation therapy 3, , , , , , , , , , , , , Medical related transport , Orientation Administrative expenses 12, , , , , , , , , , , , , Operations and maintenance 32, , , , , , , , , , , , , Property expenses 1, , , , , , , , , , , , Total Expenses $ 100, $ 97, $ 88, $ 83, $ 85, $ 80, $ 79, $ 90, $ 83, $ 88, $ 91, $ 78, $ 1,046, OPERATING INCOME $ 16, $ 27, $ 35, $ 22, $ 29, $ 33, $ 35, $ 31, $ 38, $ 31, $ 30, $ 46, $ 378, B-8

77 Meridian Senior Living - Salem 6: Mocksville Year One Pro Forma Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Census 87% 88% 90% 92% 92% 92% 92% 92% 92% 92% 92% 92% Yr. 1 Averages Capacity Total Private AL Medicaid AL Revenue Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 Total Private AL $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 69, $ 828, Medicaid AL $ 26, $ 27, $ 28, $ 29, $ 29, $ 29, $ 29, $ 29, $ 29, $ 29, $ 29, $ 29, $ 347, Total R&B Revenue $ 95, $ 96, $ 97, $ 98, $ 98, $ 98, $ 98, $ 98, $ 98, $ 98, $ 98, $ 98, $ 1,175, PCS AL $ 23, $ 24, $ 25, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 310, Total PCS Revenue $ 23, $ 24, $ 25, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 26, $ 310, Total Revenue $ 118, $ 120, $ 122, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 124, $ 1,485, Expenses Assisted Living Services 33,594 30,927 34,886 34,386 35,532 34,386 35,532 35,532 34,386 35,532 34,386 35, ,612 Salaries and Wages 32,240 29,680 33,480 33,000 34,100 33,000 34,100 34,100 33,000 34,100 33,000 34, ,900 Workers Comp 1,354 1,247 1,406 1,386 1,432 1,386 1,432 1,432 1,386 1,432 1,386 1,432 16,712 Activities 3,722 3,491 3,833 3,790 3,889 3,790 3,889 3,889 3,790 3,889 3,790 3,889 45,651 Salaries 2,902 2,671 3,013 2,970 3,069 2,970 3,069 3,069 2,970 3,069 2,970 3,069 35,811 Cable ,520 Supplies ,320 Transportation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 15,600 Salaries and Wages 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Travel Cost ,600 Dietary 12,799 11,783 13,292 13,101 13,538 13,101 13,538 13,538 13,101 13,538 13,101 13, ,966 Salaries and Wages 4,755 4,378 4,938 4,868 5,030 4,868 5,030 5,030 4,868 5,030 4,868 5,030 58,690 General and Administrative , ,006 1, , ,006 11,738 Food Cost 7,093 6,530 7,366 7,260 7,502 7,260 7,502 7,502 7,260 7,502 7,260 7,502 87,538 Laundry and Hskpg. 2,950 2,716 3,063 3,020 3,120 3,020 3,120 3,120 3,020 3,120 3,020 3,120 36,408 Salaries and Wages 2,257 2,078 2,344 2,310 2,387 2,310 2,387 2,387 2,310 2,387 2,310 2,387 27,853 Linen and Bedding ,984 Supplies ,571 Maint. 8,141 7,494 8,454 8,333 8,610 8,333 8,610 8,610 8,333 8,610 8,333 8, ,470 Salaries and Wages 1,757 1,618 1,825 1,799 1,858 1,799 1,858 1,858 1,799 1,858 1,799 1,858 21,686 Utilities 4,223 3,888 4,386 4,323 4,467 4,323 4,467 4,467 4,323 4,467 4,323 4,467 52,125 R&M 2,160 1,989 2,243 2,211 2,285 2,211 2,285 2,285 2,211 2,285 2,211 2,285 26,659 Administration 19,409 19,521 19,633 19,745 19,745 19,745 19,745 19,745 19,745 19,745 19,745 19, ,266 Salaries and Wages 3,412 3,412 3,412 3,412 3,412 3,412 3,412 3,412 3,412 3,412 3,412 3,412 40,944 General and Administrative 6,819 6,819 6,819 6,819 6,819 6,819 6,819 6,819 6,819 6,819 6,819 6,819 81,828 Marketing ,800 Insurance 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 19,524 RE Taxes 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 14,888 Mgmt Fee 5,911 6,022 6,134 6,246 6,246 6,246 6,246 6,246 6,246 6,246 6,246 6,246 74,282 Health Services 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 24,396 Salaries and Wages ,996 General and Administrative 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 Total Expenses 83,948 79,265 86,494 85,707 87,767 85,707 87,767 87,767 85,707 87,767 85,707 87,767 1,031,369 NOI $ 34, $ 41, $ 36, $ 39, $ 37, $ 39, $ 37, $ 37, $ 39, $ 37, $ 39, $ 37, $ 454, Margin (%) 28.99% 34.19% 29.50% 31.39% 29.74% 31.39% 29.74% 29.74% 31.39% 29.74% 31.39% 29.74% 30.58% B-9

78 SOMERSET COURT OF ROCKY MOUNT COMBINED STATEMENT OF OPERATIONS (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 23, $ 24, $ 23, $ 23, $ 25, $ 23, $ 24, $ 26, $ 25, $ 24, $ 26, $ 26, $ 295, Medicaid room and board $ 53, $ 52, $ 52, $ 56, $ 56, $ 54, $ 53, $ 53, $ 50, $ 51, $ 53, $ 56, $ 647, Medicaid personal/transportation $ 48, $ 49, $ 50, $ 21, $ 50, $ 49, $ 47, $ 46, $ 44, $ 44, $ 45, $ 46, $ 543, Meals $ - Laundry and linen Other income $ $ $ 3.40 $ $ $ - $ $ 7.60 $ - $ 4.60 $ $ 7.90 $ $ 124, $ 126, $ 126, $ 101, $ 131, $ 127, $ 125, $ 126, $ 120, $ 120, $ 125, $ 129, $ 1,486, Expenses Housekeeping 3, , , , , , , , , , , , , Personal care 32, , , , , , , , , , , , , Healthcare 2, , , , , , , , , , , , , Dietary 18, , , , , , , , , , , , , Recreation therapy , , , , , , Medical related transport 1, , , , , , , , , , , , , Orientation Administrative expenses 10, , , , , , , , , , , , , Operations and maintenance 11, , , , , , , , , , , , , Property expenses , , , , , , , Total Expenses $ 82, $ 93, $ 80, $ 86, $ 90, $ 89, $ 94, $ 93, $ 85, $ 89, $ 92, $ 86, $ 1,064, OPERATING INCOME $ 41, $ 33, $ 45, $ 14, $ 41, $ 38, $ 31, $ 33, $ 35, $ 30, $ 33, $ 43, $ 422, B-10

79 Meridian Senior Living - Salem 6: Rocky Mount Year One Pro Forma Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Census 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% Yr. 1 Averages Capacity Total Private AL Medicaid AL Revenue Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 Total Private AL $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 24, $ 294, Medicaid AL $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 54, $ 652, Total R&B Revenue $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 78, $ 946, PCS AL $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 597, Total PCS Revenue $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 49, $ 597, Total Revenue $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 128, $ 1,544, Expenses Assisted Living Services 36,833 33,268 36,833 35,645 36,833 35,645 36,833 36,833 35,645 36,833 35,645 36, ,675 Salaries and Wages 35,588 32,144 35,588 34,440 35,588 34,440 35,588 35,588 34,440 35,588 34,440 35, ,020 Workers Comp 1,245 1,124 1,245 1,205 1,245 1,205 1,245 1,245 1,205 1,245 1,205 1,245 14,655 Activities 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 30,840 Salaries 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 21,600 Cable ,920 Supplies ,320 Transportation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 15,600 Salaries and Wages 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Travel Cost ,600 Dietary 15,516 14,014 15,516 15,015 15,516 15,015 15,516 15,516 15,015 15,516 15,015 15, ,683 Salaries and Wages 7,161 6,468 7,161 6,930 7,161 6,930 7,161 7,161 6,930 7,161 6,930 7,161 84,315 General and Administrative ,038 Food Cost 7,502 6,776 7,502 7,260 7,502 7,260 7,502 7,502 7,260 7,502 7,260 7,502 88,330 Laundry and Hskpg. 3,250 2,964 3,250 3,155 3,250 3,155 3,250 3,250 3,155 3,250 3,155 3,250 38,330 Salaries and Wages 2,472 2,233 2,472 2,393 2,472 2,393 2,472 2,472 2,393 2,472 2,393 2,472 29,109 Linen and Bedding ,600 Supplies ,621 Maint. 10,965 10,039 10,965 10,657 10,965 10,657 10,965 10,965 10,657 10,965 10,657 10, ,421 Salaries and Wages 1,927 1,740 1,927 1,865 1,927 1,865 1,927 1,927 1,865 1,927 1,865 1,927 22,685 Utilities 7,638 6,899 7,638 7,392 7,638 7,392 7,638 7,638 7,392 7,638 7,392 7,638 89,936 R&M 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 16,800 Administration 19,850 19,850 19,850 19,850 19,850 19,850 19,850 19,850 19,850 19,850 19,850 19, ,198 Salaries and Wages 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800 General and Administrative 5,819 5,819 5,819 5,819 5,819 5,819 5,819 5,819 5,819 5,819 5,819 5,819 69,828 Marketing ,800 Insurance 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 RE Taxes 1,097 1,097 1,097 1,097 1,097 1,097 1,097 1,097 1,097 1,097 1,097 1,097 13,165 Mgmt Fee 6,434 6,434 6,434 6,434 6,434 6,434 6,434 6,434 6,434 6,434 6,434 6,434 77,204 Health Services 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 26,400 Salaries and Wages ,000 General and Administrative 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 Total Expenses 92,483 86,206 92,483 90,390 92,483 90,390 92,483 92,483 90,390 92,483 90,390 92,483 1,095,145 NOI $ 36, $ 42, $ 36, $ 38, $ 36, $ 38, $ 36, $ 36, $ 38, $ 36, $ 38, $ 36, $ 448, Margin (%) 28.13% 33.00% 28.13% 29.75% 28.13% 29.75% 28.13% 28.13% 29.75% 28.13% 29.75% 28.13% 29.07% B-11

80 MEADOWVIEW TERRACE ASSISTED LIVING COMBINED STATEMENT OF OPERATIONS (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 49, $ 44, $ 44, $ 46, $ 49, $ 49, $ 49, $ 45, $ 46, $ 49, $ 43, $ 40, $ 557, Medicaid room and board $ 39, $ 39, $ 41, $ 42, $ 40, $ 40, $ 39, $ 38, $ 39, $ 38, $ 37, $ 34, $ 472, Medicaid personal $ 35, $ 36, $ 33, $ 20, $ 36, $ 37, $ 36, $ 35, $ 35, $ 34, $ 34, $ 30, $ 406, Meals $ 6.00 $ 6.00 $ $ - $ - $ - $ $ - $ 6.00 $ $ - $ - $ Laundry and linen $ $ $ $ $ $ $ $ $ $ $ $ $ Other income $ $ $ $ $ $ $ $ $ $ $ $ $ Total Revenue $ 124, $ 121, $ 118, $ 109, $ 126, $ 127, $ 124, $ 119, $ 120, $ 122, $ 115, $ 105, $ 1,438, Expenses Housekeeping 3, , , , , , , , , , , , , Personal care 33, , , , , , , , , , , , , Healthcare 1, , , , , , , , , , , , Dietary 16, , , , , , , , , , , , , Recreation therapy 3, , , , , , , , , , , , , Medical related transport 1, , , , , , , , , , , , , Orientation , Administrative expenses 9, , , , , , , , , , , , , Operations and maintenance 19, , , , , , , , , , , , , Property expenses 4, , , , , , , , , , , , , Total Expenses $ 94, $ 89, $ 92, $ 90, $ 86, $ 88, $ 87, $ 92, $ 87, $ 93, $ 87, $ 82, $ 1,072, OPERATING INCOME $ 30, $ 31, $ 26, $ 19, $ 40, $ 39, $ 37, $ 27, $ 33, $ 29, $ 28, $ 23, $ 366, B-12

81 Meridian Senior Living - Salem 6: Meadowview Terrace Year One Pro Forma Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Census 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% 92% Yr. 1 Averages Capacity Total Private AL Medicaid AL Revenue Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 Total Private AL $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 50, $ 607, Medicaid AL $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 39, $ 468, Total R&B Revenue $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 89, $ 1,075, PCS AL $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 434, Total PCS Revenue $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 36, $ 434, Total Revenue $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 125, $ 1,509, Expenses Assisted Living Services 35,532 32,094 35,532 34,386 35,532 34,386 35,532 35,532 34,386 35,532 34,386 35, ,363 Salaries and Wages 34,100 30,800 34,100 33,000 34,100 33,000 34,100 34,100 33,000 34,100 33,000 34, ,500 Workers Comp 1,432 1,294 1,432 1,386 1,432 1,386 1,432 1,432 1,386 1,432 1,386 1,432 16,863 Activities 3,889 3,592 3,889 3,790 3,889 3,790 3,889 3,889 3,790 3,889 3,790 3,889 45,975 Salaries 3,069 2,772 3,069 2,970 3,069 2,970 3,069 3,069 2,970 3,069 2,970 3,069 36,135 Cable ,520 Supplies ,320 Transportation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 15,600 Salaries and Wages 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Travel Cost ,600 Dietary 13,538 12,228 13,538 13,101 13,538 13,101 13,538 13,538 13,101 13,538 13,101 13, ,396 Salaries and Wages 5,030 4,543 5,030 4,868 5,030 4,868 5,030 5,030 4,868 5,030 4,868 5,030 59,221 General and Administrative 1, , , ,006 1, , ,006 11,844 Food Cost 7,502 6,776 7,502 7,260 7,502 7,260 7,502 7,502 7,260 7,502 7,260 7,502 88,330 Laundry and Hskpg. 3,120 2,818 3,120 3,020 3,120 3,020 3,120 3,120 3,020 3,120 3,020 3,120 36,737 Salaries and Wages 2,387 2,156 2,387 2,310 2,387 2,310 2,387 2,387 2,310 2,387 2,310 2,387 28,105 Linen and Bedding ,011 Supplies ,621 Maint. 7,752 7,320 7,752 7,608 7,752 7,608 7,752 7,752 7,608 7,752 7,608 7,752 92,017 Salaries and Wages 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000 Utilities 4,467 4,035 4,467 4,323 4,467 4,323 4,467 4,467 4,323 4,467 4,323 4,467 52,597 R&M 1,285 1,285 1,285 1,285 1,285 1,285 1,285 1,285 1,285 1,285 1,285 1,285 15,420 Administration 19,657 19,657 19,657 19,657 19,657 19,657 19,657 19,657 19,657 19,657 19,657 19, ,887 Salaries and Wages 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800 General and Administrative 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 69,600 Marketing ,600 Insurance 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 19,524 RE Taxes 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 1,241 14,888 Mgmt Fee 6,290 6,290 6,290 6,290 6,290 6,290 6,290 6,290 6,290 6,290 6,290 6,290 75,475 Health Services 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 24,396 Salaries and Wages ,996 General and Administrative 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 Total Expenses 86,821 81,041 86,821 84,895 86,821 84,895 86,821 86,821 84,895 86,821 84,895 86,821 1,028,370 NOI $ 38, $ 44, $ 38, $ 40, $ 38, $ 40, $ 38, $ 38, $ 40, $ 38, $ 40, $ 38, $ 481, Margin (%) 30.98% 35.57% 30.98% 32.51% 30.98% 32.51% 30.98% 30.98% 32.51% 30.98% 32.51% 30.98% 31.87% B-13

82 SOMERSET COURT OF UNIVERSITY PLACE COMBINED STATEMENT OF OPERATIONS (UNAUDITED) 12 MONTH PERIOD ENDED February 28, 2015 MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB TOTAL Revenue Private pay room and board $ 26, $ 27, $ 29, $ 29, $ 28, $ 36, $ 31, $ 28, $ 29, $ 28, $ 28, $ 28, $ 352, Medicaid room and board $ 50, $ 51, $ 52, $ 52, $ 53, $ 50, $ 53, $ 53, $ 52, $ 52, $ 52, $ 52, $ 628, Medicaid personal/transportation $ 43, $ 47, $ 44, $ 21, $ 44, $ 43, $ 43, $ 45, $ 43, $ 44, $ 44, $ 39, $ 504, Meals $ - Laundry and linen $ - Other income $ $ $ $ $ $ $ $ $ $ $ $ $ Total Revenue $ 120, $ 126, $ 126, $ 104, $ 126, $ 130, $ 128, $ 127, $ 125, $ 125, $ 124, $ 120, $ 1,486, Expenses Housekeeping 4, , , , , , , , , , , , , Personal care 30, , , , , , , , , , , , , Healthcare , , , , , , Dietary 14, , , , , , , , , , , , , Recreation therapy 2, , , , , , , , , , , , , Medical related transport 1, , , , , , , , , , , , , Orientation , Administrative expenses 10, , , , , , , , , , , , , Operations and maintenance 12, , , , , , , , , , , , , Property expenses 1, , , , , , , , , , Total Expenses $ 79, $ 98, $ 93, $ 85, $ 93, $ 92, $ 100, $ 102, $ 84, $ 97, $ 88, $ 85, $ 1,101, OPERATING INCOME $ 41, $ 27, $ 33, $ 18, $ 33, $ 38, $ 27, $ 24, $ 40, $ 27, $ 36, $ 34, $ 385, B-14

83 Meridian Senior Living - Salem 6: University Place Year One Pro Forma Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Census 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% 97% Yr. 1 Averages Capacity Total Private AL Medicaid AL Revenue Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 Total Private AL $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 31, $ 382, Medicaid AL $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 53, $ 638, Total R&B Revenue $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 85, $ 1,020, PCS AL $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 584, Total PCS Revenue $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 48, $ 584, Total Revenue $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 133, $ 1,605, Expenses Assisted Living Services 35,672 32,220 35,672 34,522 35,672 34,522 35,672 35,672 34,522 35,672 34,522 35, ,013 Salaries and Wages 34,162 30,856 34,162 33,060 34,162 33,060 34,162 34,162 33,060 34,162 33,060 34, ,230 Workers Comp 1,510 1,364 1,510 1,462 1,510 1,462 1,510 1,510 1,462 1,510 1,462 1,510 17,783 Activities 3,517 3,256 3,517 3,430 3,517 3,430 3,517 3,517 3,430 3,517 3,430 3,517 41,595 Salaries 2,697 2,436 2,697 2,610 2,697 2,610 2,697 2,697 2,610 2,697 2,610 2,697 31,755 Cable ,520 Supplies ,320 Transportation 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 15,600 Salaries and Wages 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Travel Cost ,600 Dietary 14,276 12,895 14,276 13,816 14,276 13,816 14,276 14,276 13,816 14,276 13,816 14, ,090 Salaries and Wages 5,304 4,791 5,304 5,133 5,304 5,133 5,304 5,304 5,133 5,304 5,133 5,304 62,452 General and Administrative 1, ,061 1,027 1,061 1,027 1,061 1,061 1,027 1,061 1,027 1,061 12,490 Food Cost 7,911 7,146 7,911 7,656 7,911 7,656 7,911 7,911 7,656 7,911 7,656 7,911 93,148 Laundry and Hskpg. 4,369 3,946 4,369 4,228 4,369 4,228 4,369 4,369 4,228 4,369 4,228 4,369 51,443 Salaries and Wages 3,596 3,248 3,596 3,480 3,596 3,480 3,596 3,596 3,480 3,596 3,480 3,596 42,340 Linen and Bedding ,176 Supplies ,928 Maint. 9,960 9,770 9,960 9,897 9,960 9,897 9,960 9,960 9,897 9,960 9,897 9, ,075 Salaries and Wages 1,960 1,770 1,960 1,897 1,960 1,897 1,960 1,960 1,897 1,960 1,897 1,960 23,075 Utilities 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 69,600 R&M 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 26,400 Administration 20,672 20,672 20,672 20,672 20,672 20,672 20,672 20,672 20,672 20,672 20,672 20, ,063 Salaries and Wages 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800 General and Administrative 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 5,800 69,600 Marketing ,800 Insurance 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 1,627 19,524 RE Taxes 1,757 1,757 1,757 1,757 1,757 1,757 1,757 1,757 1,757 1,757 1,757 1,757 21,084 Mgmt Fee 6,688 6,688 6,688 6,688 6,688 6,688 6,688 6,688 6,688 6,688 6,688 6,688 80,255 Health Services 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 24,396 Salaries and Wages ,996 General and Administrative 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 20,400 Total Expenses 91,799 86,092 91,799 89,897 91,799 89,897 91,799 91,799 89,897 91,799 89,897 91,799 1,088,275 NOI $ 41, $ 47, $ 41, $ 43, $ 41, $ 43, $ 41, $ 41, $ 43, $ 41, $ 43, $ 41, $ 516, Margin (%) 31.37% 35.64% 31.37% 32.79% 31.37% 32.79% 31.37% 31.37% 32.79% 31.37% 32.79% 31.37% 32.20% B-15

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85 APPENDIX C LETTER OF LINKS MORTGAGE RE: CERTAIN THIRD-PARTY REPORTS

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87 C-1

88 C-2

89 APPENDIX D DEFINITIONS OF CERTAIN TERMS

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91 APPENDIX D DEFINITIONS OF CERTAIN TERMS Capitalized items used in this Limited Offering Memorandum, and not otherwise defined, are used with the meanings assigned to such terms in the Indenture. The following definitions of such capitalized terms are summaries of the definitions applicable in the Indenture with such modifications as may be appropriate for use in this Limited Offering Memorandum. The following are definitions set forth in the Indenture and used in this Limited Offering Memorandum: Account or Accounts means any one or more, as the case may be, of the named and unnamed accounts established within any Fund. Accredited Investor means an accredited investor as defined in Rule 501 of Regulation D promulgated by the Securities and Exchange Commission under the authority of the Securities Act. Additional Loan Payments means that portion of the Loan Payments described as Additional Loan Payments in the Loan Agreement. Administration Expenses means, collectively, the Ordinary Trustee s Fees and Expenses, the Extraordinary Trustee s Fees and Expenses and the Issuer s Fees and Expenses. Administration Fund means the trust fund by that name established pursuant to the Indenture. Alternate Permanent Financing means a source (or combination of sources) of permanent financing for the Project other than a mortgage loan insured by FHA Insurance, as evidenced by the delivery to the Trustee of firm, binding commitments for such alternate permanent financing by the providers of such Alternate Permanent Financing. Amend or Amendment, as used in the Indenture, refer to any amendment, modification, alteration or supplement to any Bond Document, or any waiver of any provision thereof. Asset Management Services Agreement means the Asset Management Services Agreement by and between the Controlling Person, the Borrowers, the Operators, the Master Tenant and the Manager. Basic Loan Payments means that portion of the Loan Payments described as Basic Loan Payments in the Loan Agreement. Beneficial Owner means with respect to the Bonds, the Person owning the Beneficial Ownership Interest therein, as evidenced to the satisfaction of the Trustee. Beneficial Ownership Interest means the right to receive payments and notices with respect to the Bonds held in a Book-Entry System. Bond Counsel means (a) Peck, Shaffer & Williams, A Division of Dinsmore & Shohl LLP or (b) any Independent Counsel of nationally recognized standing in matters pertaining to the validity of obligations issued by states and political subdivisions, familiar with the transactions contemplated under the Indenture appointed by the Borrowers and reasonably acceptable to the Issuer. Bond Documents means the Indenture and the Borrower Documents. Bond Fund means the trust fund by that name created pursuant the Indenture. Bond Obligation means the then outstanding principal amount of the Bonds. D-1

92 Bond Payment Date means any Interest Payment Date, the Maturity Date and any other date on which the principal of or interest on the Bonds is to be paid to the Holders thereof, whether upon redemption, at maturity or upon acceleration of maturity of the Bonds. Bonds means the Issuer s Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities). Book-Entry Form or Book-Entry System means, with respect to the Bonds, a form or system, as applicable, under which (a) physical Bond certificates in fully registered form are issued only to a Depository or its nominee, with the physical Bond certificates immobilized in the custody of the Depository and (b) the ownership of book-entry interests in Bonds and Debt Service thereon may be transferred only through a book-entry made by persons other than the Issuer or the Trustee. The records maintained by persons other than the Issuer or the Trustee constitute the written record that identifies the owners, and records the transfer, of book-entry interests in those Bonds and Debt Service thereon. Borrowers means Goldsboro SIP 2, LLC, Mocksville SIP 2, LLC, Rocky Mount SIP 2, LLC, University SIP 2, LLC, Meadowview SIP 2, LLC and Cherryville SIP 2, LLC, each a North Carolina limited liability company, and the authorized successors and assigns of each under the Loan Agreement. Borrower Documents means, collectively, the Loan Agreement, the Mortgage, the Note, the Asset Management Services Agreement, the Management Agreement and the Healthcare Documents, together with all other documents or instruments executed by the Borrowers evidencing or securing the Borrowers obligations under the Loan Agreement, in each case as originally executed or as it may thereafter be amended or supplemented in accordance with its respective terms. Borrowers Representative means each person at the time designated to act on behalf of the Borrowers by written certificate furnished to the Issuer and the Trustee on behalf of the Borrowers containing the specimen signature of such person and any designated alternates. Business Day means any day other than a (a) Saturday, (b) Sunday, (c) day on which banking institutions in (i) any city in which the designated corporate trust or principal operations offices of the Trustee are located or (ii) the City of New York, New York, are authorized or obligated by law or executive order to be closed, or (d) day on which the New York Stock Exchange is closed. Certified Public Accountant means any Person who is Independent, appointed by the Borrowers, actively engaged in the business of public accounting and duly licensed as a certified public accountant under the laws of the State. Closing Date means the date of initial issuance and delivery of the Bonds. Compliance Certificate means a certificate of a Borrowers Representative stating that, as of the date of such certificate, the Borrowers are in compliance with all requirements of the Borrower Documents. Condemnation Award means the total condemnation proceeds paid by the condemner as a result of condemnation or eminent domain proceedings with respect to all or any part of the Project or of any settlement or compromise of such proceedings. Consultant means a Person who is Independent, appointed by the Borrowers, and who is nationally recognized as being expert as to matters for which its certificate or advice is required or contemplated. Controlling Person means Links Mortgage Company or any other entity designated in writing by the Trustee and mutually agreeable to (1) the Borrowers, (2) DCR Mortgage VI Sub III, LLC and (3) either the Trustee or the Majority Owner to act as a Controlling Person hereunder. Costs of Issuance means all fees, costs and expenses payable directly or indirectly by the Issuer or the Borrowers and related to the authorization, issuance and sale of the Bonds. D-2

93 Costs of Issuance Account means the account by that name in the Project Fund created pursuant to the Indenture. Costs of the Project means those costs and expenses in connection with the acquisition of the Project permitted by the Act to be paid or reimbursed from Bond proceeds including, but not limited to, the following: (a) payment of the purchase price of the Project, improvements thereon, and the Equipment, and any fixtures to be incorporated into the Project, including all costs incident thereto, payment for labor, services, materials, and supplies used or furnished in furnishing and equipping of the Project, including all costs incident thereto, payment for all real and personal property deemed necessary in connection with the Project, payment of consulting and development fees payable to the Borrowers or others, and payment for the miscellaneous expenses incidental to any of the foregoing items including the premium on any surety bond; (b) payment to the Borrowers of such amounts, if any, as are necessary to reimburse the Borrowers in full for all advances and payments made by it for any of the items set forth in (a) above; and (c) payment of any other costs and expenses relating to the Project that would constitute a cost or expense permitted to be paid by the Issuer under the Act. Counsel means an attorney or firm of attorneys duly admitted to practice law before the highest court of any state reasonably acceptable to the Trustee or the Issuer. Dated Date means the date of issuance and delivery of the Bonds. date. Debt Service means the principal and redemption price of and interest due on the Bonds on any given Default under the Loan Agreement means any of the events described as such in the Loan Agreement. Default Rate with respect to the Loan and Bonds means the interest rate on the Loan or the Bonds plus 3% per annum, and with respect to any other amounts due means 3% per annum, but in no case in excess of the Maximum Rate. Depository means, with respect to the Bonds, DTC, until a successor Depository shall have become such pursuant to the applicable provisions of the Indenture, and thereafter, Depository shall mean the successor Depository. Any Depository will be a securities depository that is a clearing agency under a federal law operating and maintaining, with its participants or otherwise, a Book-Entry System to record ownership of book-entry interests in Bonds or Debt Service thereon, and to effect transfers of book-entry interests in Bonds. Designated Office means, when referring to the Trustee or any Paying Agent, means the office where the Trustee or Paying Agent, as applicable, maintains its designated corporate trust department, which as of the date of the Indenture, shall be the address provided in the Indenture. DTC means The Depository Trust Company (a limited purpose trust company), New York, New York, and its successors or assigns. Environmental Laws means Comprehensive Environmental Response, Compensation and Liability Act of 1980 ( CERCLA ), Public Law No , 94 Stat. 1613; the Resource Conservation and Recovery Act ( RCRA ), the National Environmental Policy Act of 1969, as amended (42 U.S.C et seq.); the Solid Waste Disposal Act (42 U.S.C et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. 136 et seq.); RCRA; the Toxic Substance Control Act, as amended (15 U.S.C et seq.); the Clean Water Act; the Clean Air Act, as amended (42 U.S.C et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C et seq.); the Federal Coastal Zone Management Act, as amended (16 U.S.C et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. 651 et seq.); the Safe Drinking Water Act, as D-3

94 amended (42 U.S.C. 300(f) et seq.); and any other federal, state, or local law, statute, ordinance, and regulation, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof, including, without limitation, any applicable judicial or administrative order, consent decree, or judgment applicable to the Project relating to the regulation and protection of human health and safety and/or the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species, and/or vegetation), including all amendments to such Acts, and any and all regulations promulgated thereunder, and all analogous local or state counterparts or equivalents, and any transfer of ownership notification or approval statutes, and any federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, regulating, relating to or imposing liability or standards of conduct concerning any petroleum, petroleum byproduct (including but not limited to, crude oil, diesel oil, fuel oil, gasoline, lubrication oil, oil refuse, oil mixed with other waste, oil sludge, and all other liquid hydrocarbons, regardless of specific gravity) natural or synthetic gas, products and/or hazardous substance or material, toxic or dangerous waste, substance or material, pollutant or contaminant, as may now or at any time hereafter be in effect. Equipment means the equipment, machinery, furnishings and other personal property located on the Site and all replacements, substitutions, and additions thereto. Event of Default means any occurrence or event specified as such in the Indenture. Extraordinary Expenses means all reasonable expenses properly incurred by the Trustee and any Co- Trustee under the Indenture, other than Ordinary Expenses, including but not limited to, reasonable counsel fees and expenses and reasonable fees of other third party professionals. Extraordinary Services means all services rendered by the Trustee and any Co-Trustee under the Indenture, other than Ordinary Services. Extraordinary Trustee s Fees and Expenses means the fees payable to the Trustee and Paying Agent pursuant to the Indenture for Extraordinary Services and Extraordinary Expenses, including but not limited to, reasonable counsel fees and expenses and reasonable fees of other third party professionals. FHA means the Federal Housing Administration of United States Department of Housing and Urban Development, or any successor entity. FHA Insurance means the insurance on mortgage loans provided by FHA pursuant to Section 223(f) of the National Housing Act of 1937, as amended. Force Majeure means (a) the following: acts of nature; strikes or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the State or of any of their subdivisions, departments, agencies or officials, or of any civil or military authority; insurrections; riots; landslides; earthquakes; fires; floods; explosions, but only to the extent that any such cause or event is not within the control of the Borrowers; and (b) any other cause or event not reasonably within the control of the Borrowers. Fund or Funds means any one or more, as the case may be, of the separate trust funds created and established in the Indenture. Governing Body means (a), with respect to the Issuer, the Board of Directors of the Issuer, or any governing body that succeeds to the functions of the Board of Directors of the Issuer, and (b) with respect to each of the Borrowers, its respective members and manager. Government Obligations means direct obligations of, and obligations the principal of and interest on which are unconditionally guaranteed as to timely payment by, the United States of America. Hazardous Substances means any petroleum or petroleum products and their by-products, flammable explosives, radioactive materials, toxic chemicals and substances, radon, asbestos in any form that is or could D-4

95 become friable, urea formaldehyde foam insulation and polychlorinated biphenyls (PCB), asbestos-containing materials (ACMs), lead-containing or lead-based paint (LBP), radon, medical waste and other bio-hazardous materials and any chemicals, pollutants, materials or substances defined as or included in the definition of hazardous substances as defined pursuant to the federal Comprehensive Environmental Response, Compensation and Liability Act, regulated substances within the meaning of subtitle I of the federal Resource Conservation and Recovery Act and words of similar import under applicable Environmental Laws. Healthcare Documents means, collectively, the Rider to Loan Agreement for Healthcare Properties, by and among the Issuer, the Trustee, the Controlling Person, the Borrowers, the Master Tenant, the Operators and the Manager; the Master Lease, as amended, and the Lease Addendum to the Master Lease, by and between the Borrowers and the Master Tenant; the Estoppel Certificate Master Lease, issued by Borrower and Master Tenant for the benefit of the Issuer and the Trustee; the Subordination Agreement (of Master Lease), by and among the Borrowers, the Master Tenant, the Operators, and the Trustee; the Operator Leases, as amended, and the Lease Addendum to the Operator Leases, by and between the each Operator and the Master Tenant; the Estoppel Certificates Operator Lease, issued by each Operator and the Master Tenant for the benefit of the Issuer and the Trustee; the Subordination Agreements (of Operator Leases), by and between the Master Tenant, each Operator and the Trustee; the Management Certifications - Healthcare Facility issued by each Operator and the Management Agent for the benefit of the Trustee; the Asset Management Services Agreement, by and among the Controlling Person, the Management Agent, the Master Tenant, the Operators and the Borrowers; the Agreements Re: Pledged Accounts, by and among The Private Bank and Trust Company, each Operator and the Trustee; the Deposit Account Instructions and Service Agreements by and among The Private Bank and Trust Company, each Operator and the Trustee; the Collateral Assignment and Pledge of Membership Interest issued by the Member for the benefit of the Trustee; UCC Financing Statements; and any and all other documents, agreements, certificates, and other writings securing the obligation under the Loan Agreement and/or the Note. Holder or Bondholder means the Person or Persons in whose name any Bond is registered on the registration records for the Bonds maintained by the Trustee as registrar. Indebtedness means (a) all indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed, (b) all deferred indebtedness for the payment of the purchase price of properties or assets purchased, (c) all guaranties, endorsements (other than endorsements in the ordinary course of business), assumptions, and other contingent obligations in respect of, or to purchase or to otherwise acquire, indebtedness of others, (d) all indebtedness secured by a mortgage, or secured by a pledge, security interest, or lien existing on property owned which is subject to a mortgage, pledge, security interest, or lien, whether or not the indebtedness secured thereby has been assumed, (e) all capitalized lease obligations, (f) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable, if such amounts were advanced under the credit facility, (g) all amounts required to be paid by the Borrowers as a guaranteed payment to partners or members or a preferred or special dividend, including any mandatory redemption of shares or interests, (h) all unfunded pension funds, or welfare or pension benefit plans or liabilities, and (i) all obligations (calculated on a net basis) of the Borrowers under derivatives in the form of interest rate swaps, credit default swaps, total rate of return swaps, caps, floors, collars and other interest hedge agreements, in each case whether the Borrowers liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations the Borrowers otherwise assures a creditor against loss; provided, however, that for the purpose of computing Indebtedness, there will be excluded any particular Indebtedness if, upon or prior to the maturity thereof, there has been deposited with the proper depository in trust the necessary funds (or Government Obligations not callable or pre-payable by the issuer thereof) for the payment, redemption, or satisfaction of such Indebtedness, and thereafter such funds and such Government Obligations so deposited will not be included in any computation of the assets of the Borrowers and the income derived from such funds and such direct obligations of the United States of America so deposited will not be included in any computation of the income of the Borrowers. Indenture means the Trust Indenture, as in effect on the Closing Date and as it may thereafter be amended or supplemented from time to time in accordance with the terms thereof. Independent means, with respect to Counsel or any Consultant, a person who is not a member of the Governing Body of the Issuer or the Borrowers and is not an officer or employee of the Issuer or the Borrowers and which is not a partnership, corporation or association having a partner, director, officer, member or substantial stockholder who is a member of the Governing Body of the Issuer or the Borrowers or who is an officer or employee D-5

96 of the Issuer or the Borrowers; provided, however, that the fact that such person is retained regularly by or transacts business with the Issuer shall not make such person an employee within the meaning of this definition. Insurance Proceeds means the total proceeds of insurance paid by an insurance company under the policies of property insurance required to be procured by the Borrowers pursuant to the Loan Agreement. Intercreditor Agreement means the Intercreditor Agreement among the Trustee, the Borrowers and DCR Mortgage VI Sub III, LLC, as in effect on the Closing Date and as it may thereafter be amended and supplemented from time to time in accordance with its terms. Interest Account means the trust account by that name in the Bond Fund created with respect to the Bonds pursuant to the Indenture Interest Payment Date means the Maturity Date and each January 1 and July 1, commencing January 1, Interest Period for any Bonds means initially the period from the Dated Date to but not including the Interest Payment Date. Interest Requirement for any Bonds means an amount equal to the interest that would be due and payable on such Bonds on the Interest Payment Date next succeeding the date of determination (assuming that no principal of such Bonds is paid or redeemed between such date and the next succeeding Interest Payment Date) multiplied by a fraction the numerator of which is one and the denominator of which is the number of whole calendar months in the Interest Period in which such date occurs. Investment Securities means any of the following obligations or securities, to the extent permitted by applicable law: (a) Government Obligations; (b) An interest in any trust or fund that invests solely in Government Obligations or repurchase Agreements with respect to Government Obligations; (c) Commercial paper having, at the time of investment or contractual commitment to invest therein, a rating from a nationally recognized rating agency, from which a rating is available in the highest investment category granted thereby; (d) Repurchase and reverse repurchase agreements with a provider whose long-term rating is at least A by a nationally recognized rating agency, which agreement is collateralized with Government Obligations, including those of the Trustee or any of its affiliates; (e) Investment in money market mutual funds having a rating in the highest investment category granted thereby from a nationally recognized rating agency, including, without limitation any mutual fund for which the Trustee or an affiliate of the Trustee serves as investment manager, administrator, shareholder servicing agent, and/or custodian or sub-custodian, notwithstanding that (A) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (B) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (C) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee; (f) Demand deposits, including interest bearing money market accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest-bearing deposits, and certificates of deposit or bankers acceptances of depository institutions, including the Trustee or any of its affiliates which are either (a) rated in the AA long-term ratings category or higher by a nationally recognized rating agency or (b) are fully insured (and within the limits of insurance provided by) the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; and D-6

97 (g) Any investment agreement providing for investment of money held under the Indenture and any substitute agreement for the investment of such money, with or guaranteed by an entity whose unsecured debt rating from a nationally recognized rating agency is (i) at least A-1 if the investment agreement has a term of less than five (5) years, or (ii) A for all other investment agreements, and which upon a downgrading of such rating will assign the agreement to a counterparty whose unsecured debt rating from such rating agency satisfies the foregoing requirements. The term of an investment agreement is its remaining term as of the date on which its eligibility is so determined. Issuer means the Public Finance Authority, a body corporate and politic of the State of Wisconsin, and its successors and assigns. Issuer Indemnified Person means any of the Sponsors and the Members and each and all of their respective past, present and future directors, board members, governing members, trustees, commissioners, elected or appointed officials, officers, employees, Issuer Representatives, attorneys, agents and advisers (including counsel and financial advisers) and any of their respective heirs, personal representatives, successors, transferees or assigns. Issuer Representative means any person designated by resolution of the Issuer (whether such resolution is adopted in connection with the issuance of the Bonds or otherwise) as an Authorized Signatory empowered to, among other things, execute and deliver on behalf of the Issuer the Indenture, the Bond Documents and the Bonds. Issuer s Fees and Expenses means the reasonable fees and expenses, if any, payable to or incurred by the Issuer under any of the Bond Documents (including without limitations payments in respect of the Issuer s Reserved Rights) and any other amounts payable on behalf of or to the Issuer or any Issuer Indemnified Person by way of indemnification to which the Issuer or any Issuer Indemnified Person is entitled under the Loan Agreement. Joint Exercise Agreement means the Joint Exercise of Powers Agreement Relating to the Public Finance Authority, dated June 30, 2010 as amended by an Amended and Restated Joint Exercise of Powers Agreement Relating to the Public Finance Authority, dated September 28, 2010 by and among Adams County, Wisconsin, Bayfield County, Wisconsin, Marathon County, Wisconsin, Waupaca County, Wisconsin and the City of Lancaster, Wisconsin, as such agreement may be amended from time to time. Loan means the loan evidenced by the Note. Loan Agreement means the Loan Agreement among the Issuer, Trustee and the Borrowers, as in effect on the Closing Date and as it may thereafter be amended and supplemented from time to time in accordance with its terms. Loan Payments means, collectively, the Basic Loan Payments and the Additional Loan Payments. Mail means either (a) first class mail by the United States Postal Service, postage prepaid, to the Holders at their respective addresses which appear on the registration books of the Paying Agent on the date of mailing, or (b) actual delivery to the Holders or their representatives evidenced by receipt signed by such Holders or their representatives. Majority Owner means any one Person that is the Beneficial Owner of all Outstanding Bonds; provided, however, if no one Person is the Beneficial Owner of all of the Outstanding Bonds, Majority Owner means the Beneficial Owner or Owners of at least fifty-one percent (51%) in aggregate principal amount of the Outstanding Bonds. Management Agreement means the Management Agreement between the Manager and the Operators, or any substitute agreement providing for the management, maintenance and operation of the Project, in each case as it may be amended and supplemented from time to time. Manager means Meridian Senior Living, LLC, a North Carolina limited liability company, as the manager of all of the facilities comprising the Project. D-7

98 Master Tenant means JFC Meridian Master Tenant, LLC, a North Carolina limited liability company. Material Adverse Effect means (a) a material adverse change in the financial condition of the Borrowers or the Project; or (b) any event or occurrence of whatever nature which would materially and adversely change (i) the Borrowers ability to perform its obligations under the Loan Agreement or any other Borrower Documents; or (ii) the Holders or the Trustee s security interests in the security pledged under the Indenture. Maturity Date means the Principal Maturity Date of the Bonds set forth in the Indenture. Maximum Rate means the lesser of (i) 9% per annum and (ii) the maximum non-usurious rate of interest that may be charged under applicable law. Member means the parties to the Joint Exercise Agreement and any political subdivision that has been designated in the past, or from time to time in the future is designated, as a member of the Issuer pursuant to the Joint Exercise Agreement. Modifications means modifications, repairs, renewals, improvements, replacements, alterations, additions, enlargements, or expansions in, on, or to the Project (other than routine repair or maintenance), including any and all machinery, furnishings, and equipment therefor. Mortgage means the Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Environmental Indemnity Agreement for the benefit of the benefit of the Trustee, securing the repayment of the Loan and the Note and certain additional amounts due and owing under the Loan Agreement, as in effect on the Closing Date and as it may thereafter be amended and supplemented from time to time in accordance with its terms. Mortgaged Property means the real property and all improvements thereon on which the Project is located which is subject to the lien of the Mortgage and the Indenture, as more specifically defined in the Mortgage. Net Proceeds, when used with respect to any Insurance Proceeds or Condemnation Award, means the gross proceeds from such Insurance Proceeds or Condemnation Award, less all expenses (including reasonable attorneys fees of the Borrowers or the Trustee and any extraordinary fees and expenses of the Trustee) incurred in the realization thereof. Note means the note executed by the Borrowers in favor of the Issuer and assigned to the Trustee on behalf of the Holders evidencing the Loan. Operators means JFC Merdian Opco-Goldsboro, LLC, JFC Merdian Opco-Winston-Salem, LLC, JFC Merdian Opco-Mocksville, LLC, JFC Merdian Opco-Wadesboro, LLC, JFC Merdian Opco-Cherryville, LLC and JFC Merdian Opco-Rocky Mount, LLC, each a North Carolina limited liability company. Ordinary Expenses means those reasonable expenses incurred in the ordinary course of business, by a trustee, a registrar, an authenticating agent and a paying agent under instruments similar to the Indenture, but excluding Extraordinary Expenses. Ordinary Services means those services normally rendered by a trustee, a registrar, an authenticating agent and a paying agent under instruments similar to the Indenture, excluding Extraordinary Services. Ordinary Trustee s Fees and Expenses means (i) an amount equal to $11,500 for the Ordinary Services of the Trustee payable in advance on the Closing Date and (ii) the Ordinary Expenses of the Trustee and Paying Agent incurred in connection with their duties under the Indenture payable on the demand of the Trustee. Organizational Documents means the documents under which each Borrower is organized and governed, including its Articles of Organization, Operating Agreement or Bylaws, respectively, as such documents are in effect on the Closing Date and as they may be thereafter amended or supplemented from time to time in accordance with their terms. D-8

99 Outstanding or outstanding with respect to Bonds means, as of any given date, all Bonds which have been authenticated and delivered by the Trustee under the Indenture, except: (a) Bonds cancelled at or prior to such date or delivered to or acquired by the Trustee or Paying Agent on or prior to such date for cancellation; (b) Bonds deemed to be paid in accordance with the Indenture; and (c) Bonds in lieu of which other Bonds have been authenticated under the Indenture. Paying Agent means the Trustee or any successor or additional Paying Agent appointed under the Indenture that satisfies the requirements thereof. Permanent Financing means a mortgage loan insured by FHA Insurance or, if no FHA Insurance will be provided with respect to the Project, the Alternate Permanent Financing. Permanent Financing Lender means the initial Controlling Person, an alternate approved FHA Lender or the provider of the Alternate Permanent Financing. Permitted Encumbrances means, with respect to the Project, the Mortgage and (a) the lien of current real property taxes (if any), ground rents, water charges, sewer rents and assessments not yet due and payable, (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record, none of which, individually or in the aggregate, materially interferes with the current use of the Project or the security intended to be provided by the Mortgage, or with the Borrowers ability to pay its obligations when they become due or materially and adversely affects the value of the Project and (c) the exceptions (general and specific) set forth in the Title Policy or appearing of record, none of which, individually or in the aggregate, materially interferes with the current use of the Project or the security intended to be provided by the Mortgage or with the Borrowers ability to pay its obligations when they become due or materially and adversely affects the value of the Project. Person or person means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a governmental body, any other political subdivision, municipality or authority or any other group or entity. Principal Account means the trust account by that name within the Bond Fund created with respect to the Bonds pursuant to the Indenture. Project means the Site, together with the improvements constructed thereon, consisting of a residential rental facility and related support facilities, including all buildings, structures and improvements now or thereafter constructed thereon, and all fixtures, machinery, equipment, furniture, furnishings and other personal property thereafter attached to, located in, or used in connection with any such structures, buildings or improvements, and all additions, substitutions and replacements thereto, whether now owned or thereafter acquired. The term Project does not include property owned by Persons other than the Borrowers, including the Manager or residents of the Project. Project Fund means the trust fund by that name created pursuant to the Indenture. Project Revenues means for any period, all cash operating and nonoperating revenues of the Project, including rental payments, less (a) any extraordinary and nonrecurring items (including any real property tax refunds), (b) income derived from the sale of assets not in the ordinary course of business which is permitted under the Bond Documents, (c) security, cleaning or similar deposits of tenants until applied or forfeited and (d) Net Proceeds of Insurance Proceeds or Condemnation Awards, but including as Project Revenues (i) any such Net Proceeds resulting from business interruption insurance or other insurance or condemnation proceeds retained by the Borrowers and (ii) amounts received by the Borrowers or the Trustee pursuant to any payment guaranty, operating guaranty or similar agreement with respect to the Project. Qualified Institutional Buyer means a qualified institutional buyer as defined in Rule 144A promulgated by the Securities and Exchange Commission under the authority of the Securities Act. Qualified Investor means a Qualified Institutional Buyer or an Accredited Investor. D-9

100 Reserved Rights of the Issuer means (a) the right of the Issuer to amounts payable to it pursuant to the Loan Agreement, (b) all rights which the Issuer or any Issuer Indemnified Person may have under the Indenture and the Borrower Documents to exculpation from liability and indemnification by the Borrowers and by any other persons and to payments and reimbursements for reasonable fees or expenses incurred by the Issuer itself, or any such Issuer Indemnified Person; (c) the right of the Issuer to receive notices, reports or other information, make determinations and grant approvals under the Indenture and under the other Bond Documents, including rights to notice and reporting requirements and restrictions on transfer of ownership of the Project or the Bonds, and its right to inspect and audit the books, records and premises of the Borrowers and the Project; (d) all rights of the Issuer to enforce, in its own name and on its own behalf the representations, warranties, covenants and agreements of the Borrowers pertaining in any manner or way, directly or indirectly, to the requirements of the Act or of the Issuer, and set forth in any of the Bond Documents or in any other certificate or agreement executed by the Borrowers (including, without limitation, the rights enumerated in clauses (a), (b), (c), (e) and (f) of this paragraph); (e) all rights of the Issuer in connection with the approval, execution and delivery of any amendment to or modification of the Bond Documents; and (f) all enforcement remedies of the Issuer or any Issuer Indemnified Person with respect to the foregoing. Responsible Officer, when used with respect to the Trustee, means any corporate trust officer or assistant corporate trust officer or any other officer of the Trustee within its corporate trust department customarily performing functions similar to those performed by any of the above designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such person s knowledge of and familiarity with the particular subject. Revenue Fund means the trust fund by that name created pursuant to the Indenture. Securities Act means the Securities Act of 1933, as amended. Security Documents means the Borrower Documents and the Healthcare Documents. Site means the real property on which the Project is located. Special Redemption Account means each trust account by that name within the Bond Fund created with respect to the Bonds pursuant to the Indenture. Sponsor means the National League of Cities, the National Association of Counties, the Wisconsin Counties Association, the League of Wisconsin Municipalities, and any other Person that holds itself out, or is identified by the Authority, as an organization sponsoring the Authority. State means the State of North Carolina. Subordinate Debt means that certain loan from DCR with respect to the Project. Supplemental Indenture means any Amendment to the Indenture entered into in accordance with the Indenture. Title Policy means title insurance in the form of an ALTA mortgagee s title policy issued by a title insurance company acceptable to the Underwriter and Trustee in the face amount of at least the principal amount of Bonds insuring that the Trustee has a first priority valid lien in the Mortgaged Property subject only to Permitted Encumbrances. Trust Estate means the property conveyed to the Trustee under the Indenture, including all of the Issuer s right, title and interest in and to the property described in the Granting Clauses of the Indenture. Trustee means The Huntington National Bank or any successors or assigns under the Indenture. Underwriter means Oppenheimer & Co. Inc, the underwriter for the Bonds. D-10

101 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE TRUST INDENTURE

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103 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE TRUST INDENTURE The following is a brief summary of certain provisions of the Indenture. The summary does not purport to be complete or definitive and is qualified in its entirety by reference to the Indenture, a copy of which is on file with the Trustee. Funds and Accounts The following Funds and accounts are created by the Issuer to be held by the Trustee: (a) A Bond Fund and therein, a Principal Account, an Interest Account and a Special Redemption Account; (b) (c) (d) A Project Fund and therein a Costs of Issuance Account; A Revenue Fund; and An Administration Fund. Disbursements from the Project Fund. The Trustee will disburse money in the Costs of Issuance Account to pay the Costs of Issuance upon receipt by the Trustee of a written requisition of the Borrowers or a closing statement (i) that such amount is to be paid to persons, firms or corporations identified therein, and (ii) that such amount is properly payable as a Cost of Issuance. On any date no later than three months after the Closing Date, the Trustee will pay any remaining balance in the Costs of Issuance Account to the Revenue Fund. On the Closing Date, amounts on deposit in the Project Fund will be applied to payment of the Costs of the Project by disbursement thereof in accordance with one or more requisitions of the Borrowers to the Trustee. Net Proceeds of any Insurance Proceeds or Condemnation Awards will be deposited in the Project Fund. The Trustee will be provided with instructions as to the application of the Net Proceeds in accordance with the Indenture. To the extent the Net Proceeds are to be applied to the repair or restoration of the Project, such amounts will be disbursed in accordance with one or more requisitions of the Borrowers to the Trustee. Any amounts remaining in the Project Fund on the date that is three months from the Closing Date will be transferred to the Principal Account. Revenue Fund. There will be deposited in the Revenue Fund (i) all Loan Payments and other amounts paid to the Trustee under the Loan Agreement (other than prepayments required to redeem Bonds pursuant to the Indenture, which will be deposited in the Special Redemption Account), (ii) all other amounts required to be so deposited pursuant to the terms of the Indenture, including investment earnings to the extent provided in the Indenture, (iii) any amounts derived from the Loan Agreement or the Mortgage to be applied to payment of amounts intended to be paid from the Revenue Fund, and (iv) such other money as is delivered to the Trustee by or on behalf of the Issuer or the Borrowers with directions for deposit of such money in the Revenue Fund. Moneys on deposit in the Revenue Fund will be disbursed on the 10th day of each month as described in the front part of this Limited Offering Memorandum under SECURITY AND SOURCES OF PAYMENT OF THE BONDS Revenue Fund. Bond Fund. There will be deposited into the Principal Account of the Bond Fund (i) money transferred to the Principal Account from the Revenue Fund pursuant to the Indenture and (ii) any other amounts deposited with the Trustee with directions from the Borrowers to deposit the same in the Principal Account of the Bond Fund. E-1

104 There will be deposited into the Interest Account of the Bond Fund (i) all accrued interest, if any, on the sale and delivery of the Bonds, (ii) money transferred to the Interest Account from the Revenue Fund pursuant to the Indenture and (iii) any other amounts deposited with the Trustee with directions from the Borrowers to deposit the same in the Interest Account of the Bond Fund. There will be deposited in the Special Redemption Account of the Bond Fund (i) any Net Proceeds of Insurance Proceeds or Condemnation Award to be transferred to a Special Redemption Account pursuant to the Indenture and (ii) all other payments made by or on behalf of the Issuer with respect to the redemption of Bonds pursuant to the Indenture. Amounts on deposit in the Special Redemption Account will be used to pay the redemption price of Bonds of the Bonds being redeemed. Except as otherwise provided in the Indenture, money in the Principal Account will be used for the payment of principal of the Bonds as the same will become due and payable on the Maturity Date. Except as otherwise provided in the Indenture, money in the Interest Account will be used for the payment of interest on the Bonds as the same becomes due and payable on any Bond Payment Date. Administration Fund. The Trustee will deposit in the Administration Fund (i) money transferred from the Revenue Fund pursuant to the Indenture, and (ii) any other amounts required to be deposited in the Administration Fund under the Indenture or under the Loan Agreement or the Mortgage with instructions to deposit the same therein. The Trustee will disburse amounts in the Administration Fund necessary for payment of Administration Expenses then due automatically to the parties due such payment upon presentation of an invoice from such requesting party without any approval of the Borrowers. Bonds Not Presented for Payment. In the event any Bonds will not be presented for payment when the principal thereof becomes due on any Bond Payment Date, if money sufficient to pay such Bonds are held by the Trustee, the Trustee will segregate and hold such moneys in trust, without liability for interest thereon, for the benefit of Holders of such Bonds who will, except as provided in the following paragraph, thereafter be restricted exclusively to such funds for the satisfaction of any claim of whatever nature on their part under the Indenture or relating to said Bonds. All money deposited with the Trustee for the payment of principal of, premium, if any, or interest on the Bonds and not claimed are subject to the applicable escheat laws of the State of Wisconsin. Money Held In Trust. All money required to be deposited with or paid to the Trustee for deposit into any Fund or Account and all moneys withdrawn from the Bond Fund and held by the Trustee will be held by the Trustee, in trust, and such moneys will, while so held, constitute part of the Trust Estate and be subject to the lien of the Indenture. Money held in the Accounts in the Bond Fund will constitute a separate trust fund for the Holders of the Bonds and will not constitute property of the Issuer or the Borrowers. Payment to the Borrowers. After the right, title and interest of the Trustee in and to the Trust Estate and all covenants, agreements and other obligations of the Issuer to the Holders will have ceased, terminated and become void and will have been satisfied and discharged in accordance with the Indenture, and all Administration Expenses and all reasonable fees, expenses and other amounts payable to the Trustee will have been paid in full, any moneys remaining in the Funds and Accounts under the Indenture under will be paid or transferred to the Borrowers upon the written request of a Borrowers Representative. Deposit of Extraordinary Revenues. Any money representing Net Proceeds of Insurance Proceeds or Condemnation Awards upon damage to, destruction of or governmental taking of the Project and deposited with the Trustee pursuant to the Loan Agreement, will be deposited by the Trustee in a segregated account within the Project Fund and held in such account until the Borrowers provide further instructions. With the prior written approval of the Permanent Financing Lender, the Borrowers will instruct the Trustee to disburse moneys held in such account in one of the following manners: (i) if the Borrowers elect to restore the Project, the moneys will be maintained by the Trustee in the Project Fund and disbursed in accordance with the E-2

105 Indenture; (ii) if the Borrowers elect to redeem all or part of the Bonds, the moneys shall be transferred by the Trustee to the Special Redemption Account in accordance with the Indenture and applied to redeem or prepay the Bonds pursuant to the Indenture; or (iii) if the Borrowers elect not to restore the Project nor redeem all or part of the Bonds, the moneys shall be maintained by the Trustee in the Project Fund until the Maturity Date, at which point the Trustee will transfer the moneys to the Special Redemption Account in accordance with the Indenture and applied to redeem or prepay the Bonds pursuant to the Indenture. Title insurance proceeds will be used to remedy any title defect resulting in the payment thereof or deposited in the Bond Fund for use in redeeming Bonds pursuant to the Indenture. Additional Loan Payments. Upon receipt thereof from the Borrowers, the Trustee will transfer any Additional Loan Payments that do not constitute Administration Expenses to the Issuer or the Trustee, as applicable, at the address specified in the Indenture for notice to the Issuer or the Trustee, or as otherwise directed by the Issuer or the Trustee. Investments Money in all Funds and Accounts established under the Indenture will, at the written direction of the Borrowers Representative, be invested and reinvested by the Trustee in Investment Securities. Subject to the further provisions of the Indenture, such investments shall be made by the Trustee as directed and designated by the Borrowers Representative in a certificate of, or telephonic advice promptly confirmed by a certificate of, a Borrowers Representative. As long as no Event of Default shall have occurred and be continuing, the Borrowers will have the right to designate the investments to be sold and otherwise to direct the Trustee in the sale or conversion to cash of the investments made with the money in any Fund or Account. The Borrowers will not direct that any investment be made of any funds which would violate the covenants set forth in the Indenture. Unless otherwise confirmed in writing, an account statement delivered by the Trustee to the Borrowers shall be deemed written confirmation by the Borrowers that the investment transactions identified therein accurately reflect the investment directions given to the Trustee by the Borrowers, unless the Borrowers Representative notifies the Trustee in writing to the contrary within thirty (30) days after the date of such statement. Money in any Fund or Account will be invested in Investment Securities with respect to which payments of principal thereof and interest thereon are scheduled to be paid or are otherwise payable (including Investment Securities payable at the option of the holder) not later than the earlier of (a) the date on which it is estimated that such money will be required by the Trustee, or (b) six (6) months after the date of acquisition thereof by the Trustee. The Trustee may make any and all such investments through its own banking, trust or investment department or through any affiliate. All income attributable to money deposited in any Fund or Account created under the Indenture shall be credited to the Revenue Fund. Any net loss realized and resulting from any such investment shall be charged to the particular fund or account for whose account such investment was made. The Trustee is authorized and directed to sell and reduce to cash a sufficient amount of such investments whenever the cash balance in any fund or account is insufficient to make any withdrawal therefrom as required under the Indenture. The Trustee will not be liable for any depreciation of the value of any investment made pursuant to the Indenture or for any loss resulting from any such investment on the redemption, sale and maturity thereof. The Trustee will at all times maintain accurate records of deposits into each Fund and Account and the sources of such deposits and such records shall be made available to the Borrowers upon reasonable written request. Defeasance If the Issuer will pay or cause to be paid to the Holder of any Bond the principal of and interest due and payable, and thereafter to become due and payable, upon such Bond, or any portion of such Bond in any Authorized Denomination thereof, such Bond or portion thereof shall cease to be entitled to any lien, benefit or security under the Indenture. If the Issuer shall pay or cause to be paid the principal of and interest due and payable on all Outstanding Bonds, and thereafter to become due and payable thereon, and shall pay or cause to be paid all other sums payable under the Indenture by the Issuer, including all reasonable fees, compensation and expenses of the E-3

106 Issuer and the Trustee and receipt by the Trustee of an opinion of Counsel that all conditions precedent have been complied with, then the right, title and interest of the Trustee in and to the Trust Estate shall thereupon cease, terminate and become void and the Trustee shall release or cause to be released the Trust Estate, the Mortgage and any other documents securing the Bonds or execute such documents so as to permit the Trust Estate, the Mortgage and such other documents to be released. Any Bond shall be deemed to be paid within the meaning of the Indenture and for all purposes of the Indenture when (a) payment of the principal of and interest on such Bond to the due date thereof (whether such due date is by reason of maturity or upon redemption as provided in the Indenture) either (i) shall have been made or caused to be made in accordance with the terms thereof or (ii) shall have been provided for by any irrevocable deposit with the Trustee in trust and irrevocably set aside exclusively for such payment, of (A) funds sufficient to make such payment and/or (B) Government Obligations maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient money to make such payment, and (b) all reasonable fees, compensation and expenses of the Issuer and the Trustee pertaining to the Bond with respect to which such deposit is made accrued and to accrue until final payment of the Bonds, whether at maturity or upon redemption, shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such times as a Bond shall be deemed to be paid under the Trust Indenture, as aforesaid, such Bond shall no longer be secured by or entitled to the benefits of the Indenture, except for the purposes of any such payment from such funds or Government Obligations. Notwithstanding the foregoing paragraph, no deposit under clause (a)(ii) of the immediately preceding paragraph shall be deemed a payment of such Bond as aforesaid until the Issuer or the Borrowers, on behalf of the Issuer, shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to notify, as soon as practicable, the Holders in accordance with the Indenture, that the deposit required by (a)(ii) above has been made with the Trustee and that said Bond is deemed to have been paid in accordance with the Indenture and stating the maturity or redemption date upon which money is to be available for the payment of the redemption price of said Bond, plus interest thereon to the due date thereof; or (b) the maturity of such Bond. In addition to the foregoing, no deposit described in clause (a)(ii) of the immediately preceding paragraph shall be deemed a payment of said Bond until the Borrowers have delivered to the Trustee a report of an Independent Certified Public Accountant verifying the sufficiency of the amounts, if any, described in (a)(ii) above to insure payment of such Bond. Defaults and Remedies Events of Default. Each of the following events will constitute an Event of Default under the Indenture with respect to the Bonds: (a) a failure to pay the principal of or premium, if any, on any of the Bonds when the same will become due and payable at maturity or upon redemption; (b) Reserved; (c) a failure by the Issuer to observe and perform any other covenant, condition, agreement or provision (other than as specified in the Indenture) contained in the Bonds or in the Indenture on the part of the Issuer to be observed or performed with respect to the Bonds, which failure continues for a period of thirty (30) days after written notice is provided by the Trustee specifying such failure and requesting that it be remedied, will have been given to the Issuer by the Trustee, which may give such notice in its discretion and will give such notice at the written request of the Controlling Person, unless the Trustee, or the Trustee and Holders which requested such notice, as the case may be, will agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the Holders of such Bonds, as the case may be, will be deemed to have agreed to an extension of such period if corrective action is initiated by the Issuer within such period and is being diligently pursued; provided, further that in no event will such period be extended for more than one hundred twenty (120) days after the date of giving of notice of such failure without the consent of the Controlling Person; or (d) Mortgage. the occurrence of a Default under the Loan Agreement or an Event of Default under the E-4

107 Acceleration; Other Remedies. Upon the occurrence and continuance of an Event of Default, the Trustee, subject to the provisions of the Indenture, may, and at the written request of the Controlling Person (or in the case of an Event of Default under clause (c) above, unanimous written request of the Holders of the Bond Obligation) will, by written notice to the Issuer and the Borrowers, declare the Bonds to be immediately due and payable, whereupon such Bonds will, without further action, become and be immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding, and the Trustee will give notice thereof to the Issuer, and will give notice (which may be given up to the Business Day before the date fixed for redemption) thereof by Mail to Holders of the Bonds. The provisions of the preceding paragraph are subject to the condition that if, after the principal of the Bonds will have been so declared to be due and payable, and before any judgment or decree for the payment of the moneys due will have been obtained or entered as provided in the Indenture, (i) the Issuer will from any payment received from the Borrowers for such purpose deposit with the Trustee a sum sufficient to pay all matured installments of interest on all Bonds and the principal of any and all Bonds which will have become due otherwise than by reason of such declaration (with interest on such principal at the Default Rate) and such amount as will be sufficient to pay Extraordinary Trustee s Fees and Expenses, and (ii) all Events of Default under the Indenture with respect to the Bonds other than nonpayment of the principal of the Bonds which will have become due by said declaration will have been remedied, then, in every such case, upon the written consent of the Controlling Person, such Event of Default will be deemed waived and such declaration and its consequences rescinded and annulled, and the Trustee will promptly give written notice of such waiver, rescission or annulment to the Issuer and will give notice thereof by Mail to all Holders of Bonds; but no such waiver, rescission and annulment will extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Upon the occurrence and continuance of any Event of Default, then and in every such case the Trustee in its discretion may, and upon the written direction of the Controlling Person (or the Issuer, as provided below) and receipt of indemnity to its reasonable satisfaction will, in its own name and as the Trustee of an express trust perform any or all of the following: (a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Holders under the Indenture or the Bonds, including without limitation requiring the Issuer or the Borrowers to carry out any agreements with or for the benefit of the Holders and to perform its or their duties under the Act, the Loan Agreement, the Mortgage, and the Indenture, provided that any such remedy may be taken only to the extent permitted under the applicable provisions of the Loan Agreement, the Mortgage, or the Indenture, as the case may be; (b) bring suit upon the Bonds; (c) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Holders of Bonds; (d) foreclose the Mortgage; or (e) file proofs of claim in any bankruptcy or insolvency proceedings related to the Issuer, the Borrowers or the Project, necessary or appropriate to protect the interests of the Trustee or the Holders of the Bonds. If the Event of Default referred to above arises from an Event of Default under the Loan Agreement that constitutes the Borrowers failure to make any Additional Loan Payment in respect of the Issuer s Reserved Rights, notwithstanding that at the time no other Event of Default has occurred and is continuing, then the Trustee will take the action provided in clause (d) above, upon the written direction of the Issuer and receipt of indemnity to its satisfaction. Restoration to Former Position. In the event that any proceeding taken by the Trustee to enforce any rights under the Indenture have been discontinued or abandoned for any reason, or have been determined adversely to the Trustee, then the Issuer, the Trustee and the Holders will be restored to their former positions and rights under the E-5

108 Indenture, respectively, and all rights, remedies and powers of the Trustee will continue as though no such proceeding had been taken. Cure by Holders. Any Holder of Bonds may, but will not be obligated to, cure an Event of Default under the Indenture, including the advancing of funds ( Advanced Funds ) to the Trustee for payments required under the Indenture, or to indemnify the Trustee under the Indenture. Any Advanced Funds are to be applied by the Trustee in accordance with the instructions of the Holder providing the same; provided, however, that such Holder will not have a right or interest in the Advanced Funds that is superior to any right or interest any other party has under the Indenture. Right of Controlling Person to Direct Proceedings. Anything in the Indenture to the contrary notwithstanding, except in the case of a foreclosure of the Mortgage initiated at the direction of the Issuer (as described above), the Controlling Person will have the right, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings available to the Trustee under the Indenture or exercising any trust or power conferred on the Trustee by the Indenture. Limitation on Holders Right to Institute Proceedings. Subject to the provisions under the heading Acceleration; Other Remedies and unless otherwise provided for in the Indenture, no Holder will have any right to institute any suit, action or proceeding in equity or at law for the execution of any trust or power under the Indenture, or any other remedy under the Indenture or on said Bonds, unless such Holder previously will have given to the Trustee written notice of an Event of Default and unless also the Holders of not less than a majority of the Bond Obligation will have made written request of the Trustee to do so after the right to institute said suit, action or proceeding under the heading Acceleration; Other Remedies will have accrued, and will have afforded the Trustee a reasonable opportunity to proceed to institute the same in either its or their name, and the Trustee will not have complied with such request within a reasonable time. No one or more of the Holders of the Bonds will have any right in any manner whatever by its or their action to affect, disturb or prejudice the security of the Indenture, or to enforce any right under the Indenture or under the Bonds, except in the manner provided in the Indenture, and all suits, actions and proceedings at law or in equity will be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Holders of Bonds. No Obligation to Enforce Assigned Rights. Notwithstanding anything to the contrary in the Indenture, the Issuer will have no obligation to and instead the Trustee and/or the Holders, as the case may be, in accordance with the Indenture, will have the right, without any direction from the Issuer, to take any and all steps, actions and proceedings, to enforce any or all rights of the Issuer under the Indenture and the Loan Agreement (other than the Reserved Rights), including, without limitation, the rights to enforce the remedies upon the occurrence and continuation of an Event of Default and the obligations of the Borrowers under the Loan Agreement. Issuer s Rights Not Impaired. Nothing in the Indenture will be deemed or construed to limit, impair or affect in any way the Issuer s (or any Issuer Indemnified Person s) right to enforce the Reserved Rights, regardless of whether there is then existing an Event of Default (including, without limitation, a payment default), or any action based thereon or occasioned by an Event of Default or alleged Event of Default, and regardless of any waiver or forbearance granted by the Trustee or any Holder in respect thereof. Any default or Event of Default in respect of the Reserved Rights may only be waived with the Issuer s written consent. No Remedy Exclusive. No remedy conferred upon or reserved to the Trustee or to Holders is intended to be exclusive of any other remedy or remedies, and each and every such remedy will be cumulative, and will be in addition to every other remedy given under the Indenture, or now or hereafter existing at law or in equity or by statute; provided, however, that any conditions set forth to the taking of any remedy to enforce the provisions of the Indenture or the Bonds will also be conditions to seeking any remedies under any of the foregoing remedies provided in this summary. No Waiver of Remedies. No delay or omission of the Trustee or of any Holder to exercise any right or power accruing upon any default will impair any such right or power or will be construed to be a waiver of any such default, or an acquiescence therein; and every power and remedy given by the Indenture to the Trustee and to the Holders, respectively, may be exercised from time to time and as often as may be deemed expedient. E-6

109 Application of Money. If an Event of Default occurs with respect to the Bonds, any money held in any Fund or Account under the Indenture or received by any receiver or by the Trustee, by any receiver or by any Holder pursuant to any right given or action taken under the Indenture, after payment of (i) all Administration Expenses and (ii) the costs and expenses of the proceedings resulting in the collection of such money will be deposited in the Revenue Fund; and all money so deposited in the Revenue Fund during the continuance of an Event of Default (other than money for the payment of Bonds which have matured or otherwise become payable prior to such Event of Default or for the payment of interest due prior to such Event of Default) will be applied as follows: (a) Unless the principal of all the Bonds will have been declared due and payable, all such money will be applied (A) first, to the payment to the persons entitled thereto of all installments of interest then due on the Bonds, on a parity and pro rata basis, in the order of maturity of the installments of such interest and, if the amount available will not be sufficient to pay in full any particular installment of interest, then to the payment ratably, according to the amounts due on such installment of interest on the Bonds on a parity and pro rata basis, and (B) second, to the payment to the persons entitled thereto of the unpaid principal of any of the Bonds which will have become due (other than Bonds called for redemption for the payment of which money is held pursuant to the provisions of the Indenture) with interest on such Bonds at the Default Rate from the respective dates upon which they became due and, if the amount available will not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal and interest due on such date, in each case to the persons entitled thereto, without any discrimination or privilege. (b) If the Bond Obligation will have been declared due and payable, all such money will be applied to the payment of the principal and interest then due and unpaid upon the Bonds, on a parity and pro rata basis, without preference or priority of principal over interest or interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege. (c) If the Bond Obligation will have been declared due and payable, and if such declaration will thereafter have been rescinded and annulled under the provisions of the Indenture, then, subject to the provisions of clause (b) of this section which will be applicable in the event that the principal of all the Bonds will later become due and payable, the moneys will be applied in accordance with the provisions of clause (a) above. Whenever money is to be applied pursuant to the provisions of this section, such money will be applied at such times, and from time to time, as the Trustee will determine, having due regard to the amount of such moneys available for application and the likelihood of additional money becoming available for such application in the future. Whenever the Trustee will apply such funds, it will fix the date upon which such application is to be made and upon such date interest on the amounts of principal and interest to be paid on such date will cease to accrue. The Trustee will give notice of the deposit with it of any such money and of the fixing of any such date by Mail to all Holders of Bonds and will not be required to make payment to any Holder of a Bond until such Bond will be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Notwithstanding anything contained in the Indenture to the contrary, the Controlling Person may, with express written consent of the Majority Owner, by written notice to the Trustee, direct the application of funds other than in the manner set forth above, including, without limitation, the application of funds between the principal or acceleration premium of or interest on the Bonds. Notice of Event of Default. If an Event of Default occurs and continues for five (5) Business Days after the Trustee has notice of the same as provided in the Indenture, then the Trustee will give notice thereof by Mail to the Holders, the Controlling Person, the Borrowers, and the Issuer. Costs and Expenses. When the Issuer or the Trustee incurs costs or expenses (including reasonable legal fees, costs and expenses) or renders services after the occurrence of an Event of Default, such costs and expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. E-7

110 Trustee Limitations on Liability. The Trustee may execute any of the trusts or powers granted in the Indenture and perform the duties required of them by or through attorneys, agents, receivers or employees selected by them, and will be entitled to advice of counsel concerning all matters of trust and its duty and to obtain the opinion of Counsel acceptable to the Trustee prior to taking action, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers or employees as is deemed necessary in connection with the performance of the Trustee s duties under the Indenture, and the Trustee will not be answerable for the default or misconduct of any such attorney, agent or employee selected by it with reasonable care. Without limitation, the Trustee will be entitled to the benefit of the foregoing sentence with respect to the delegation to the Trustee s duties under the Indenture with respect to payment of principal, premium, if any, or interest on, or redemption of, the Bonds, the authentication and delivery thereof, and exchange and transfer thereof. The Trustee will not be answerable for the exercise of any discretion or power under the Indenture or for anything whatsoever in connection with the trust created by the Indenture, except only for their own gross negligence or willful misconduct. Notice of Events of Default. The Trustee will not be required to take notice, or be deemed to have notice, of any default or Event of Default under the Indenture, other than an Event of Default relating to a failure to pay the principal of or premium, if any, on any of the Bonds when the same become due and payable at maturity or upon redemption or a failure to pay an installment of interest on any of the Bonds when the same will become due and payable, unless a Responsible Officer of the Trustee has actual knowledge or would have been specifically notified in writing of such default or Event of Default by the Issuer, the Borrowers or by the Holders of at least 25% of the Bond Obligation. The Trustee may, however, at any time, in its discretion, and will, upon the request of at least 25% of the Bond Obligation, require of the Borrowers full information and advice as to the performance of any of the covenants, conditions and agreements contained in the Indenture. Resignation of Trustee. The Trustee may resign and be discharged of the trusts created by the Indenture by executing an instrument in writing resigning such trust and specifying the date when such resignation will take effect, and filing the same with the Issuer and the Borrowers, and by giving notice of such resignation by Mail, not less than fifteen (15) days prior to such resignation date, to all Holders. Such resignation will only take effect on the day a successor Trustee will have been appointed as provided in the Indenture. Removal of Trustee. The Trustee may be removed at any time by the Borrowers or by the Controlling Person with the consent of the Borrowers (not to be unreasonably withheld), by filing with the Trustee so removed, and with the Issuer an instrument or instruments in writing appointing a successor, executed by the Borrowers Representative if the Trustee has been removed by the Borrowers (and notice thereof given by Mail to the Holders and the Issuer), or executed by said Holders of Bonds if the Trustee was removed by said Holders; provided that the Borrowers may not remove the Trustee, and the consent of the Borrowers will not be required (in the case of removal by the Holders), if an Event of Default has occurred and is continuing under the Indenture or a Default has occurred and is continuing under the Loan Agreement. Appointment of Successor Trustee. If at any time the Trustee will resign, be removed, or be dissolved, or if its property or affairs will be taken under the control of any State or federal court or administrative body because of insolvency or bankruptcy, or for any other reason become incapable of acting, then a vacancy will forthwith and ipso facto exist in the office of Trustee and the Borrowers, with written notice to the Issuer, will promptly appoint a successor Trustee. Any such appointment will be made by a written instrument executed by the Borrowers Representative. The Issuer will direct the successor Trustee to give notice of such appointment by Mail, at least once within thirty (30) days of such appointment, to all Holders. If no appointment of a successor Trustee is made within sixty (60) days after the receipt by the Issuer and the Borrowers of the Trustee s notice of resignation or of removal of the Trustee, the retiring Trustee, at the expense of the Borrowers, or any Holder may apply to any court of competent jurisdiction to appoint a successor Trustee. The court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee. Any new Trustee so appointed will immediately and without further act be superseded by a Trustee appointed in the manner above provided. Qualifications of Trustee. The Trustee and every successor Trustee, if any, (a) will be a bank or trust company duly organized under the laws of the United States or any state thereof authorized by law to perform all the duties imposed upon it by the Indenture, (b) will at the time of appointment have a combined capital and surplus E-8

111 aggregating not less than five hundred million dollars ($500,000,000), (c) will be permitted under applicable law to perform the duties of the Trustee and (d) will be acceptable to the Issuer. Paying Agent. The Issuer is appointing the Trustee as the paying agent for the Bonds. Modification of Bond Documents Limitations. Neither the Indenture nor any of the Borrower Documents will be amended in any respect subsequent to the Closing Date except as provided in and in accordance with and subject to the following provisions Supplemental Indentures Without Holder Consent. The Issuer and the Trustee may, from time to time and at any time, without the consent of but with prompt notice to the Holders, enter into Supplemental Indentures as follows: (i) (ii) (iii) (iv) (v) (vi) to cure any formal defect, omission, inconsistency or ambiguity in the Indenture; to add to the covenants and agreements of the Issuer in the Indenture other covenants and agreements, or to surrender any right or power reserved or conferred upon the Issuer if such surrender will not, in the judgment of the Trustee, materially adversely affect the interests of the Holders, the Trustee being authorized to rely on an opinion of Counsel with respect thereto; to confirm, as further assurance, any pledge of or lien on the Loan Agreement or of any other moneys, securities or funds subject to the lien of the Indenture; to comply with the requirements of the Trust Indenture Act of 1939, as from time to time amended; to provide for any Amendment specifically authorized or required by any provision of the Indenture; or with respect to any other Amendment which does not have a material adverse effect on the Holders of the Bonds. Supplemental Indentures Requiring Holders Consent. Except for any Supplemental Indenture entered into and not requiring the consent of the Holders, subject to the terms and provisions contained in this paragraph and not otherwise, the Controlling Person will have the right from time to time to consent to and approve the execution and delivery by the Issuer and the Trustee of any Supplemental Indenture deemed necessary or desirable by the Issuer for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in the Indenture; provided, however, that, unless approved in writing by all Holders of Bonds affected thereby, nothing contained in the Indenture will permit, or be construed as permitting, (i) a change in the times, amounts or currency of payment of the principal of or interest on any Outstanding Bond or a reduction in the principal amount or redemption price of any Outstanding Bond or the rate of interest thereon, (ii) the creation of a claim or lien upon, or a pledge of, the Trust Estate ranking prior to or on a parity with the claim, lien or pledge created by the Indenture, or (iii) a reduction in the aggregate Bond Obligation the consent of the Holders of which is required for any such Supplemental Indenture or which is required, under the Indenture, for any modification, alteration, amendment or supplement to any Borrower Documents, and provided further that if the Supplemental Indenture subjects additional property to the lien of the Indenture, the Trustee shall have been provided with an opinion of Counsel that such Supplemental Indenture is duly authorized in accordance with the terms of the Indenture. Amendment of Borrower Documents Without Holder Consent. Without the consent of but with notice to the Holders, the Trustee may consent to any Amendment of any Borrower Document from time to time as follows: E-9

112 (i) (ii) (iii) (iv) (v) to cure any formal defect, omission, inconsistency or ambiguity in such Borrower Document; to add to the covenants and agreements of the Issuer or the Borrowers in such document other covenants and agreements, or to surrender any right or power reserved or conferred upon the Issuer or the Borrowers, if such surrender will not, in the judgment of the Trustee, materially adversely affect the interests of the Holders, the Trustee being authorized to rely on an opinion of Counsel with respect thereto; to confirm, as further assurance, any lien on or pledge of the Project or the revenues therefrom or of any other property, moneys, securities or funds subject to the Mortgage or any other security for the Loan Agreement; to provide for any Amendment specifically authorized or required by any provision of any Borrower Document; or with respect to any other Amendment which does not have a material adverse effect on the Holders of the Bonds. Amendment of Borrower Documents Requiring Holder Consent. Except in the case of Amendments not requiring the consent of the Holders, the Issuer and the Trustee will not enter into, and will not consent to, any Amendment of any Borrower Document without the written approval or consent of the Controlling Person, given and procured as provided under the heading Supplemental Indentures Requiring Holders Consent ; provided that the foregoing will not permit or be construed as permitting any change referred to in clause (i) under the heading Supplemental Indentures Requiring Holders Consent (substituting for such purpose the term Note for the word Bond ) without the consent of all Holders given and obtained in the manner set forth under such heading. If at any time the Issuer requests the consent of the Trustee to any such proposed modification, alteration, amendment or supplement, the Trustee will cause notice thereof to be given in the same manner as provided under the heading Procedures for Supplemental Indentures Amendments. Such notice will briefly set forth the nature of such proposed modification, alteration, amendment or supplement and will state that copies of the instrument embodying the same are on file at the Designated Office of the Trustee for inspection by all Holders. The Issuer and the Trustee may enter into, or may consent to, any such proposed modification, alteration, amendment or supplement subject to the same conditions and with the same effect as provided under the heading Supplemental Indentures Requiring Holders Consent. Procedures for Supplemental Indentures Amendments. If at any time the Trustee will be requested to enter into any Supplemental Indenture requiring the consent of the Holders or to consent to any Amendment to Borrower Documents requiring the consent of the Holders, the Trustee will cause notice of the proposed Supplemental Indenture or other Amendment to be given by Mail to all Holders. Such notice will briefly set forth the nature of the proposed Supplemental Indenture or other Amendment and will state that a copy thereof is on file at the office of the Trustee for inspection by all Holders. Within two (2) months after the date of the first giving of such notice, the Issuer and the Trustee may enter into such Supplemental Indenture or the Trustee may consent to such Amendment in substantially the form described in such notice, but only if there will have first been delivered to the Trustee (i) the required consents, in writing, of Holders and (ii) the opinion of Counsel required by the Indenture. If Holders of not less than the amount of Bond Obligation required for a Supplemental Indenture or Amendment, as applicable, will have consented to and approved the execution and delivery thereof as provided in the Indenture, no Holder will have any right to object to the execution and delivery of such Supplemental Indenture, or other Amendment, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution and delivery thereof, or to enjoin or restrain the Issuer or the Trustee from executing and delivering or consenting to the same or from taking or permitting any action pursuant to the provisions thereof. Opinions; Certificate. The Trustee will not enter into any Supplemental Indenture or consent to any Amendment of any provision of any Bond Document unless there will have been delivered to the Issuer and the Trustee an opinion of Counsel stating that such Amendment is authorized or permitted by the Act and the applicable E-10

113 Bond Documents. In addition, the Trustee (i) may obtain, and will be protected in relying on, an opinion of Counsel to the effect that such Supplemental Indenture or Amendment is authorized or permitted by the Indenture and complies with the terms thereof; and (ii) may require, as a condition to entering into any such Supplemental Indenture or consenting to any such Amendment, a Compliance Certificate from the Borrowers. Effect of Amendments; Other Consents. Upon the execution and delivery of any Supplemental Indenture or any Amendment to a Borrower Document pursuant to the provisions of the Indenture, the Indenture or such Borrower Document will be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Bond Documents of the Issuer, the Trustee, the Borrowers and all Holders will thereafter be determined, exercised and enforced under the Bond Documents subject in all respects to such modifications and amendments. Notwithstanding anything in the Indenture to the contrary, (i) the Trustee will not be required to enter into any Supplemental Indenture or consent to any Amendment of any Bond Document which, in the sole judgment of the Trustee, might adversely affect the rights, obligations, powers, privileges, indemnities, immunities or other security provided the Trustee under the Indenture or therein; and (ii) except as otherwise required by the Indenture, the Trustee will not enter into or consent to any Amendment of any Bond Document which affects the rights or obligations of the Borrowers or the Issuer unless the Borrowers or the Issuer enters into or consents to such Amendment. [Remainder of page intentionally left blank] E-11

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115 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT

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117 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT The following is a brief summary of certain provisions of the Loan Agreement. The summary does not purport to be complete or definitive and is qualified in its entirety by reference to the Loan Agreement, a copy of which is on file with the Trustee. Issuance of Bonds; Loan to Borrower; Related Obligations To provide funds to assist the Borrowers in financing the acquisition of the Project, the Issuer, concurrently with the execution and delivery of the Loan Agreement, and upon satisfaction of the conditions to the delivery of the Bonds set forth in the Indenture, will issue, sell and deliver the Bonds and will deposit the proceeds of the Bonds with the Trustee in accordance with the Indenture. The Borrowers will make Loan Payments, as provided in the Loan Agreement, in such lawful money as at the time of payments shall be legal tender for the payment of public and private debts. (a) Basic Loan Payments. Basic Loan Payments will be paid in the following manner and in the following amounts: 1. on or before the 1st day of each month until such time as the principal of and interest on, the Bonds will have been paid in full, or provisions made for such full payment in accordance with the provisions of the Indenture, to the Trustee for deposit in the Interest Accounts, a sum equal to the Interest Requirement on the Outstanding Bonds for such month; and 2. on or before the 1st day of the month immediately preceding the Maturity Date, to the Trustee for deposit in the Principal Account, a sum equal to the principal amount due on the Bonds on the Maturity Date. The monthly installments of Basic Loan Payments described in (1) and (2) above payable by the Borrowers under the Loan Agreement are expected to equal in the aggregate an amount that, with other funds in the Bond Fund then available for the payment of principal and interest on the Bonds, will be sufficient to provide for the payment in full of the principal of and interest on the Bonds as they become due and payable. Except as otherwise provided in the Indenture, the Borrowers will also pay, as Basic Loan Payments, to the Trustee for deposit in the Bond Fund, such amounts as will, together with any other money available therefor, be sufficient to pay all amounts, if any, required to redeem the Bonds pursuant to the redemption and purchase provisions of the Indenture, all such payments to be made to the Trustee, for deposit into the applicable Accounts of the Bond Fund on or before the date such moneys are required by said provisions of the Indenture. (b) Additional Loan Payments. Additional Loan Payments will be made by the Borrowers promptly upon written demand of the Trustee or the Issuer, and used to pay the following amounts (to the extent such costs and expenses are not paid from the proceeds of the sale of the Bonds): 1. the Ordinary Trustee s Fees and Expenses and Extraordinary Trustee s Fees and Expenses, and all other reasonable fees and costs of the Trustee (including without limitation, reasonable fees and expenses of Counsel to the Trustee) payable to the Trustee for services or indemnity under the Indenture and the Borrower Documents (including services in connection with the administration and enforcement thereof and compliance therewith); 2. all taxes and assessments of any type or character charged to the Issuer affecting the amount available to the Issuer from payments to be received under the Loan Agreement; F-1

118 provided, however, that the Borrowers shall have the right to protest any such taxes or assessments and to require the Issuer, at the Borrowers expense, to protest and contest any such taxes or assessments levied upon them and that the Borrowers shall have the right to withhold payment of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would adversely affect the rights or interests of the Issuer; 3. the Issuer s Fees and Expenses and all other reasonable fees and costs of the Issuer (including without limitation reasonable fees and expenses of Counsel to the Issuer) not otherwise paid under the Loan Agreement or the Indenture, related to the issuance of the Bonds, indemnity or in connection with its administration and enforcement of, and compliance with or interpretation of, the Indenture or any of the Borrower Documents, or otherwise in connection with the Project and the Bonds; 4. all reasonable fees and other costs incurred for services of such agents, attorneys and independent accountants as are employed by the Issuer, the Borrowers or the Trustee to perform services required pursuant to the Loan Agreement, the other Borrower Documents or the Indenture; and 5. all amount advanced by the Issuer or the Trustee under authority of the Indenture or any of the Borrower Documents that the Borrowers are obligated to repay. 6. the Issuer Annual Fee, which shall be paid in semiannual installments on the six (6) month anniversary of the Closing Date and subsequently on the same day every sixth (6 th ) month thereafter. (c) Closing Expenses. In addition to and without in any way limiting its obligations to pay and indemnify the Issuer and the Issuer Indemnified Persons against fees, costs and charges arising out of or in connection with the Loan Agreement, the Bonds or the Indenture, the Borrowers will pay, upon the closing of the issuance of the Bonds and as a condition thereto: (i) to the Issuer, the Issuer s issuance fee less, if applicable, any application fee paid by the Borrowers to the Issuer; and (ii) attorney s fees incurred by the Issuer in connection with the issuance of the Bonds. In the event the Borrowers shall fail to pay, or fail to cause to be paid, any Loan Payments, the payment not paid shall continue as an obligation of the Borrowers until the unpaid amount has been fully paid, and the Borrowers will pay, or cause to be paid, the same with interest thereon from the date of non-payment until the date so paid at the Default Rate. The requirement that interest be paid at the Default Rate shall be in addition to and not in lieu of any other remedy that may exist for the failure of the Borrowers to make the Loan Payments. Obligations Unconditional; Limited Recourse The obligations of the Borrowers to make the payments required under the Loan Agreement and to perform and observe the other agreements contained in the Loan Agreement will be absolute and unconditional and will not be subject to any defense or any right of setoff, counterclaim or recoupment arising out of any breach by the Issuer or the Trustee of any obligation to the Borrowers whether under the Loan Agreement or otherwise, or out of any Indebtedness or liability at any time owing to the Borrowers by the Issuer or the Trustee. Until such time as the principal of and interest on the Bonds is fully paid or provision for the payment thereof has been made in accordance with the Indenture, the Borrowers (a) will not suspend or discontinue any payments described under the heading Issuance of Bonds; Deposit of Proceeds; Amounts Payable, (b) will perform and observe all other agreements contained in the Loan Agreement, and (c) except as provided in the Loan Agreement, will not terminate the Loan Agreement for any cause, including, without limiting the generality of the foregoing, failure of the Borrowers to complete the acquisition of the Project, the occurrence of any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, the taking by eminent domain of title to or temporary use of any or all of the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either or any failure of the Issuer or the Trustee to perform F-2

119 and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Loan Agreement or otherwise. Nothing contained in this section Obligations Unconditional; Limited Recourse will be construed to release the Issuer from the performance of any of the agreements on its part, and in the event the Issuer or the Trustee fails to perform any such agreement on its part, the Borrowers may institute such action against the Issuer or the Trustee as the Borrowers may deem necessary to compel performance so long as such action does not abrogate the obligations of the Borrowers contained in the first sentence of the paragraph above. The Borrowers may, at its own cost and expense and in its name or in the name of the Issuer and with proper notice to the Issuer, prosecute or defend any action or proceeding or take any other action involving third persons which the Borrowers deem reasonably necessary in order to secure or protect the Borrowers right of possession, occupancy and use of the Project, and in such event the Issuer agrees to cooperate fully with the Borrowers, at the Borrowers sole cost and expense, and to take all action necessary to effect the substitution of the Borrowers for the Issuer in any such action or proceeding if the Borrowers shall so request. Notwithstanding the foregoing or any other provision or obligation to the contrary contained in the Loan Agreement or any other Bond Document, with the exception of any and all of the Borrowers indemnification obligations provided in the Bond Documents (including, without limitation, pursuant to the Loan Agreement and the Indenture), which such indemnities will be a general obligation of the Borrowers, (i) the liability of the Borrowers under the Loan Agreement and the other Bond Documents to any person or entity, including, but not limited to, the Trustee or the Issuer and their successors and assigns, is limited to the Borrowers interest in the Project, the Project Revenues and the amounts held in the Funds and Accounts created under the Indenture or other Bond Documents or any rights of the Borrowers under any guarantees relating to the Project, and such persons and entities will look exclusively thereto, to such other security as may from time to time be given for the payment of obligations arising out of the Loan Agreement or any other agreement securing the obligations of the Borrowers under the Loan Agreement; and (ii) from and after the date of the Loan Agreement, no deficiency or other personal judgment, nor any order or decree of specific performance (other than pertaining to the Loan Agreement, any agreement pertaining to the Project or any other agreement securing the Borrowers obligations under the Loan Agreement), will be rendered against the Borrowers nor any general or limited partner or any member of the Borrowers, the assets of the Borrowers (other than the Borrowers interest in the Project, the Loan Agreement, amounts held in the Funds and Accounts created under the Indenture, any rights of the Borrowers under the Bond Documents), their officers, directors or members or their heirs, personal representatives, successors, transferees assigns, as the case may be, the partners holding ownership interests in the Borrowers, or the officers, directors or employees of the partners in any action or proceeding arising out of the Loan Agreement and the Indenture or any agreement securing the obligations of the Borrowers under the Loan Agreement, or any judgment, order or decree rendered pursuant to any such action or proceeding. Assignment of Issuer s Rights As security for the payment of the Bonds, the Issuer in the Indenture has assigned to the Trustee certain of the Issuer s rights under the Loan Agreement, including the right to receive payments under the Loan Agreement (other than the Reserved Rights and the payments in respect thereof), and each Borrower has assented to such assignment and agrees to make payments directly to the Trustee, without defense or set off by reason of any dispute between the Borrowers and the Issuer or the Trustee. By virtue of such assignment and certain obligations of the Borrowers to the Trustee, the Trustee will have the right to enforce the obligations of the Borrowers under the Loan Agreement (other than in respect of the Issuer s Reserved Rights), subject to the limitations set forth in the Loan Agreement. The Project Acquisition of the Project. The Borrowers interest in any land, buildings and equipment acquired with the proceeds of the Bonds or amounts deposited in the Project Fund shall be a part of the Project, shall belong to and be the property of the Borrowers, and shall be subject to the Loan Agreement. F-3

120 Disbursement of Project Fund. Amounts in the Project Fund will be disbursed by the Trustee as provided in the Indenture, upon delivery by the Borrowers to the Trustee of a requisition executed by a Borrowers Representative setting forth the nature of the amounts to be paid and the name of the payee and certifying that the amounts being paid are Costs of the Project. The execution of each requisition submitted for disbursements by the Borrowers will constitute the certification, warranty, and agreement of the Borrowers as follows: (a) (b) (c) (d) the Project is free and clear of all liens and encumbrances except Permitted Encumbrances; all evidence, statements, and other writings required to be furnished under the terms of the Loan Agreement and the Indenture are true and omit no material fact, the omission of which may make them misleading; all monies previously disbursed from the Project Fund have been used solely to pay for Costs of the Project, and the written evidence to support this item of warranty is in the possession of the Borrowers; and none of the items for which payment is requested have formed the basis for any payment previously made from the Project Fund. Maintenance and Modification of Project. Each Borrower agrees that at all times during the term of the Loan Agreement it will at its own expense (i) keep the Project in a safe condition, (ii) keep the buildings and all other improvements forming a part of the Project in good repair and in good operating condition, making from time to time, all necessary and proper repairs thereto and renewals and replacements thereof, including external and structural repairs, renewals, and replacements, and (iii) use the Equipment in the regular course of its business only, within the normal capacity of the Equipment, without abuse, and in a manner contemplated by the manufacturer thereof, and cause the Equipment to be maintained in accordance with the manufacturer s then currently published standard maintenance contract and recommendations. The Borrowers may, also at their own expense, from time to time make any Modifications to the Project it may deem desirable for its business purposes that do not, in the opinion of an Independent Architect filed with the Trustee, adversely affect the operation or value of the Project. Modifications to the Project so made by the Borrowers will be on the Mortgaged Property, will become a part of the Project, and will become subject to the lien of the Mortgage. Any contract for such Modifications which is in an amount in excess of $500,000 will be made only by a contractor who furnishes performance and labor and material payment bonds in the full amount of such contract, made by the contractor thereunder as the principal and a surety company or companies rated A or higher by A. M. Best & Company, Inc. Such bonds must name the Borrowers, the Issuer, and the Trustee as obligees, and all Net Proceeds received under such bonds will be paid over to the Trustee and deposited in the Project Fund to be applied to the completion of the Modifications. Such money held by the Trustee in the Project Fund will be invested from time to time, as provided in the Indenture. Insurance; Damage, Destruction and Condemnation; Use of Net Proceeds Required Insurance. The Borrowers will procure and maintain continuously in effect during the term of the Loan Agreement policies of insurance with respect to the Project in accordance with the insurance requirements of the Permanent Financing Lender, as set forth in the Loan Agreement. The Borrowers will furnish the Trustee and the Permanent Financing Lender with original or certified copies of certificates of insurance for all required insurance. Insurance Proceeds; Casualty and Condemnation. After the occurrence of any casualty or condemnation to a Project, or any part thereof, the Borrowers will (i) give prompt written notice thereof to the Trustee, the Permanent Financing Lender, and each insurer and (ii) promptly submit a claim to each such insurer(s) for payment of insurance proceeds; the Borrowers will provide the Trustee and the Permanent Financing Lender with a copy of such claim(s). F-4

121 If, as a result of fire or other casualty, the Project, or any part thereof, is damaged or destroyed, or the Project, or any part thereof, is to be condemned or acquired for public use, and Net Proceeds of Insurance Proceeds or Condemnation Awards are received as a result of such event, the Borrowers will cause such Net Proceeds to be deposited in the Project Fund. Promptly upon the Trustee s receipt of such Net Proceeds, the Borrowers will consult with the Permanent Financing Lender regarding the use of such Net Proceeds, including the application of such amounts to repair and restore the Project, redeem all or part of the Bonds, or as otherwise permitted by the Permanent Financing Lender and the Borrowers. Upon the approval of the Permanent Financing Lender of the proposed use of such Net Proceeds, the Trustee shall disburse such funds in accordance with the Indenture. Under the Loan Agreement, each Borrower has authorized each insurer to make payment for any such loss directly to the Trustee instead of making such payment to the Borrowers. Damage or destruction of the Project shall not affect the lien of the applicable Mortgage or the obligations of the Borrowers under the Loan Agreement, and the Trustee is authorized but will not be obligated to compromise and settle all loss claims on said policies if not adjusted promptly by the Borrowers. The application or release by the Trustee of any Insurance Proceeds or Condemnation Awards shall not cure or waive any Default or notice of default under the Loan Agreement or invalidate any act done pursuant to such notice. Other Agreements Continued Existence. Each Borrower agrees that during the term of the Loan Agreement, it will maintain its existence, will continue to be a limited liability company in good standing in the State, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another legal entity or permit one or more other legal entities to consolidate with or merge into it; provided that the Borrowers may, without violating the Loan Agreement consolidate with or merge into another legal entity, or permit one or more legal entities to consolidate with or merge into it, or sell or otherwise transfer to another legal entity all or substantially all of its assets as an entirety and thereafter dissolve; provided (a) that in the opinion of Independent Counsel, the Loan Agreement and the other Borrower Documents will be a valid and enforceable obligation of such surviving, resulting or transferee entity; (b) that no Default has occurred and is continuing under the Loan Agreement; and (c) that prior to such acquisition, consolidation, merger or transfer, the Borrowers shall furnish a Compliance Certificate to the Issuer and the Trustee. Indemnification. To the fullest extent permitted by law, each Borrower agrees to indemnify, hold harmless and defend the Issuer and the Issuer Indemnified Persons and the Trustee and its officers, governing members, directors, officials, employees, attorneys and agents (collectively, the Indemnified Parties ), against any and all losses, damages, claims, actions, liabilities, costs and expenses of any conceivable nature, kind or character (including, without limitation, reasonable attorneys fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) to which the Indemnified Parties, or any of them, may become subject under any statutory law (including federal or state securities laws) or at common law or otherwise (collectively, Liabilities ), arising out of or based upon or in any way relating to: (a) (b) (c) (d) the Bonds or any Bond Documents or the execution or amendment thereof or in connection with transactions contemplated thereby, including the issuance, sale or resale of the Bonds; the performance and observance by or on behalf of the Issuer of those things on the part of the Issuer agreed to be performed or observed under the Loan Agreement or the Indenture; any act or omission of the Borrowers or any of its agents, contractors, servants, employees, tenants or licensees in connection with the Project, the operation of the Project, or the condition, environmental or otherwise, occupancy, use, possession, conduct or management of work done in or about, or from the planning, design, acquisition, installation or construction of, the Project or any part thereof; any lien or charge upon payments by the Borrowers to the Issuer and the Trustee under the Loan Agreement, or any taxes (including, without limitation, all ad valorem taxes and sales taxes), assessments, impositions and other charges imposed on the Issuer or the Trustee in respect of any portion of the Project; F-5

122 (e) (f) (g) (h) (i) any violation of any Environmental Laws with respect to, or the release of any Hazardous Substances from, the Project or any part thereof; the defeasance and/or redemption, in whole or in part, of the Bonds; any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact relating to the Borrowers or the Project contained in any offering or disclosure document or disclosure or continuing disclosure document for the Bonds or any of the documents relating to the Bonds, or any omission or alleged omission from any offering or disclosure document or disclosure or continuing disclosure document for the Bonds relating to the Borrowers or the Project of any material fact necessary to be stated therein in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; the Trustee s acceptance or administration of the trust of the Indenture, or the exercise or performance of any of its powers or duties thereunder or under any of the Bond Documents; or any injury to or death of any Person or damage to property in or upon the Project or growing out of or connected with the use, nonuse, condition or occupancy of the Project; except (A) in the case of the foregoing indemnification of the Trustee or any of its respective officers, members, directors, officials, employees, attorneys and agents, to the extent such damages are caused by the gross negligence or willful misconduct of such Indemnified Party; or (B) in the case of the foregoing indemnification of the Issuer and the Issuer Indemnified Persons, to the extent such damages are caused by the willful misconduct of such Indemnified Party. EACH BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT THE ISSUER AND THE ISSUER INDEMNIFIED PERSONS WILL BE INDEMNIFIED UNDER THE LOAN AGREEMENT WITH RESPECT TO LIABILITIES ARISING FROM THE ISSUER S OR ANY ISSUER INDEMNIFIED PERSON S OWN NEGLIGENCE OF ANY KIND OR DEGREE, OR BREACH OF CONTRACTUAL DUTY, EXCEPT INSOFAR AS AND TO THE EXTENT THAT ANY SUCH LIABILITIES ARISE FROM THE WILLFUL MISCONDUCT OF THE ISSUER INDEMNIFIED PERSON SEEKING INDEMNIFICATION. In the event that any action or proceeding is brought against any Indemnified Party with respect to which indemnity may be sought under the Loan Agreement, the Borrowers, upon written notice from the Indemnified Party, will assume the investigation and defense thereof, including the employment of counsel selected by the Indemnified Party, and will assume the payment of all reasonable expenses related thereto, with full power to litigate, compromise or settle the same in its sole discretion; provided that the Indemnified Party will have the right to review and approve or disapprove any such compromise or settlement. Each Indemnified Party will have the right to employ separate counsel in any such action or proceeding and participate in the investigation and defense thereof, and the Borrowers will pay the reasonable fees and expenses of such separate counsel; provided, however, that such Indemnified Party may only employ separate counsel at the expense of the Borrowers if in the judgment of such Indemnified Party a conflict of interest exists by reason of common representation or if all parties commonly represented do not agree as to the action (or inaction) of counsel. The rights of any persons to indemnity under the Loan Agreement and rights to payment of fees and reimbursement of expenses will survive the final payment or defeasance of the Bonds and in the case of the Trustee any resignation or removal. The provisions of the Loan Agreement related to indemnification will remain valid and in effect notwithstanding repayment of the Loan thereunder or payment, redemption defeasance of the Bonds or termination of the Loan Agreement or the Indenture. Other Indebtedness The Borrowers will not incur any Indebtedness with respect to the Project, other than the Loan and other debts permitted or anticipated in the Loan Agreement, or incurred in the ordinary course of business which do not F-6

123 give rise to a lien or encumbrance on the Project except for Permitted Encumbrances. Notwithstanding the foregoing, any Borrower is permitted to incur any Indebtedness with the consent of the trustee and as approved by the Permanent Financing Lender. Defaults and Remedies Defaults. Each of the following constitutes a Default under the Loan Agreement: (a) (b) (c) (d) (e) Failure by the Borrowers to pay any Basic Loan Payments; provided that failure to make a Basic Loan Payment will not constitute an Event of Default to the extent that the amounts on deposit are sufficient to pay principal of and interest on the Bonds on the next Bond Payment Date or date on which an Interest Requirement is due under the Loan Agreement. Failure by the Borrowers to make, or cause to be made, any Additional Loan Payment on or before the date due. Failure by the Borrowers to perform or observe any of its covenants or agreements contained in the Loan Agreement other than as specified in the subsections (a) and (b) above, and such failure will continue for the period and after the notice specified in the Loan Agreement. The dissolution or liquidation of any Borrower or the filing by any Borrower of a voluntary petition in bankruptcy, or adjudication of any Borrower as bankrupt, or assignment by any Borrower for the benefit of its creditors or the entry by any Borrower into an agreement of composition with its creditors, or the approval by a court of competent jurisdiction of a petition applicable to such Borrower in any proceeding instituted under the provisions of State law or the federal bankruptcy statute, as amended, or under any similar act which may thereafter be enacted. The term dissolution or liquidation of any Borrower, as used in this paragraph, will not be construed to include the cessation of the existence of such Borrower resulting either from a merger or consolidation of such Borrower into or with another entity or a dissolution or liquidation of such Borrower following a transfer of all or substantially all of its assets as an entirety, under the conditions permitting such actions contained in the Loan Agreement. The occurrence or continuance of an Event of Default under the Indenture. The provisions of subsection (c) above are subject to the following limitation: if by reason of Force Majeure the Borrowers are unable in whole or in part to carry out any of its agreements contained in the Loan Agreement (other than its obligations to pay certain amounts under the Loan Agreement), the Borrowers will not be deemed in Default during the continuance of such inability, if, but only if such default is cured as provided in the Loan Agreement. Each Borrower agrees, however, to remedy with all reasonable dispatch the cause or causes preventing such Borrower from carrying out its agreements, provided that, subject to the preceding sentence, the settlement of strikes and other industrial disturbances will be entirely within the discretion of the applicable Borrower and such Borrower will not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is in the judgment of the applicable Borrower, unfavorable to such Borrower. Notice of Default; Opportunity to Cure. Except as provided below, no default under subsection (c) of the section entitled Defaults above will constitute a Default until: (a) (b) The Trustee or the Issuer, by Mail, will give notice to the Borrowers of such default specifying the same; and The Borrowers will have had thirty (30) days after receipt of such notice to correct the default and will not have corrected it or, if such default cannot be corrected within thirty (30) days, will have failed to initiate and diligently pursue appropriate corrective action, provided, that in any event F-7

124 such default must be remedied within one hundred twenty (120) days after the date of occurrence thereof. Remedies. Whenever any Default under the Loan Agreement has happened and is continuing, any or all of the following remedial steps will be available: (a) (b) (c) The Trustee may, and at the written request of the Controlling Person (or at the written request of the Issuer under the Indenture) will, declare the outstanding principal balance and interest accrued on the Loan and all Loan Payments for the remainder of the term of the Loan Agreement to be immediately due and payable, whereupon the same will become immediately due and payable. Upon any such acceleration of the Loan, the Bonds will be subject to mandatory redemption as provided in the Indenture. The Trustee, for and on behalf of the Issuer, may, and with the consent of the Controlling Person of the Bonds will, take whatever action at law or in equity may appear necessary or desirable to collect the Loan Payments then due and thereafter to become due, including, without limitation, pursuing remedies under the Mortgages and the remedies under the Indenture. The Issuer or the Trustee may take whatever action at law or in equity as may be necessary or desirable to enforce performance and observance of any obligation, agreement or covenant of the Borrowers under the Loan Agreement. The provisions of clause (a) however, are subject to the condition that if, at any time after the Loan will have been so declared due and payable, and before any judgment or decree for the payment of the moneys due will have been obtained or entered, there will have been deposited with the Trustee a sum sufficient to pay all the principal of the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal as provided in the Loan Agreement, and the reasonable expenses of the Trustee and the Issuer (including all Additional Loan Payments then due), and any and all other Defaults known to the Trustee (other than in the payment of principal of and interest on the Loan due and payable solely by reason of such declaration) will have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate will have been made therefor, then, and in every such case, the Controlling Person (or the Issuer if applicable) by written notice to the Issuer (or the Controlling Person if applicable) and to the Trustee, may, on behalf of the holders of all the Bonds, rescind and annul such declaration and its consequences and waive such Default; provided that no such rescission and annulment will extend to or will affect any subsequent Default, or will impair or exhaust any right or power consequent thereon. No Obligation to Enforce Assigned Rights. Notwithstanding anything to the contrary in the Loan Agreement, the Issuer shall have no obligation to and instead the Trustee and/or the Holders, as the case may be, in accordance with the Indenture, will have the right, without any direction from the Issuer, to take any and all steps, actions and proceedings, to enforce any or all rights of the Issuer under the Loan Agreement and the Indenture (other than the Reserved Rights), including, without limitation, the rights to enforce the remedies upon the occurrence and continuation of an Event of Default and the obligations of the Borrowers under the Loan Agreement. Issuer s Rights Not Impaired. Nothing in the Loan Agreement shall be deemed or construed to limit, impair or affect in any way the Issuer s (or any Issuer Indemnified Person s) right to enforce the Reserved Rights, regardless of whether there is then existing an Event of Default (including, without limitation, a payment default), or any action based thereon or occasioned by an Event of Default or alleged Event of Default, and regardless of any waiver or forbearance granted by the Trustee or any Holder in respect thereof. Any default or Event of Default in respect of the Reserved Rights may only be waived with the Issuer s written consent. F-8

125 Options to Terminate Agreement Grant of Option to Terminate. The Borrowers are granted the option to prepay the Loan and terminate the Loan Agreement as a whole at any time the Borrowers will cease to use the Project, as declared by such Borrowers in writing, by reason of: (a) (b) (c) the damage or destruction of all or a significant portion of the Project (with property damage equal to at least $100,000) to such extent that, in the reasonable opinion of the Borrowers, the Restoration thereof would not be economical; the condemnation of all or part of the Project or the taking by condemnation of such part, use or control of the Project (with the value of the property so taken or condemned equaling at least $100,000) as to render it unsatisfactory to the Borrowers for its intended use, provided that any temporary taking by condemnation will not give rise to the option unless, in the Borrowers reasonable opinion, such temporary taking will render the Project unsatisfactory to the Borrowers for its intended use for a period of at least six (6) months; any changes in the Constitution of the State of Wisconsin or the Constitution of the United States or of legislative or administrative action (whether state, federal, or local), by which the Loan Agreement will become void or unenforceable or impossible of performance; or The Borrowers may also prepay the Loan in whole and terminate the Loan Agreement with respect to all Borrowers if the Loan is prepaid in whole and in amounts necessary to redeem all or a portion of the Bonds Outstanding pursuant to the Indenture. In addition, any Borrower may prepay that portion of the Loan that is allocated to that portion of the Project owned by such Borrower and terminate the Loan Agreement with respect to such Borrower if (i) such Borrower will cease to use such portion of the Project, as declared by such Borrower in writing, by any of the reasons set forth in subsections (a) through (c) above, or (ii) the Loan is prepaid in an amount allocated to that portion of the Project owned by such Borrower. NOTWITHSTANDING PREPAYMENT OF THE LOAN OR TERMINATION OF THE LOAN AGREEMENT, NO BORROWER SHALL BE RELIEVED OF ANY OBLIGATION UNDER THE LOAN AGREEMENT OR UNDER ANY BOND DOCUMENT IN RESPECT OF INDEMNIFICATION UNDER THE LOAN AGREEMENT OR ANY OTHER OBLIGATION THEREUNDER WHATSOEVER THAT BY ITS TERMS SURVIVES PAYMENT OR DEFEASANCE OF THE BONDS, INCLUDING, WITHOUT LIMITATION, AS PROVIDED IN SURVIVAL PROVISIONS OF THE LOAN AGREEMENT. Exercise of Option to Terminate. To exercise such options, the Borrowers must, within 90 days following the event authorizing such termination, give written notice to the Issuer and the Trustee, and must specify therein the date of termination, which date will be not less than 25 days nor more than 90 days from the date such notice is mailed, and must make arrangements satisfactory to the Trustee for the giving of the required notice of redemption of all of the Bonds. In order to exercise such option, the Borrowers must pay, or cause to be paid, on or prior to the applicable redemption date, to the Trustee, an amount equal to the sum of the following: (a) An amount of money which, when added to the amounts then on deposit under the Indenture and available for such purpose will be sufficient to retire and redeem all the Outstanding Bonds on the earliest possible redemption date after notice as provided in the Indenture, including, without limitation, the principal amount thereof, all interest to accrue to such redemption date; plus F-9

126 (b) (c) An amount of money equal to the Ordinary Trustee s Fees and Expenses under the Indenture accrued and to accrue until such final payment and redemption of the Bonds, including fees and expenses related to such redemption; plus An amount of money equal to the Issuer s Fees and Expenses under the Loan Agreement accrued and to accrue until such final payment and redemption of the Bonds. If any Borrower, in accordance with the terms of the Loan Agreement hereof, elects to exercise an option with respect to that portion of the Loan that is allocated to that portion of the Project owned by such Borrower, the amounts required to be deposited with the Trustee will be reduced to reflect that portion of such amounts allocated to that portion of the Project owned by such Borrower. Miscellaneous Issuer s Performance. None of the provisions of the Loan Agreement will require the Issuer to expend or risk its own funds or otherwise to incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers thereunder, unless payable from the Trust Estate, or unless the Issuer will first have been adequately indemnified to its satisfaction against the cost, expense, and liability which may be incurred thereby. The Issuer will not be under any obligation under the Loan Agreement to perform any administrative service with respect to the Bonds or the Project (including, without limitation, record keeping and legal services), it being understood that such services will be performed or provided by the Trustee or the Borrowers. The Issuer will not be obligated to take any action or execute any instrument pursuant to any provision of the Loan Agreement unless and until it will have (i) been requested to do so by the Borrowers, the Trustee or the Controlling Person; (ii) received from the party requesting such action or execution assurance satisfactory to the Issuer that the Issuer s reasonable expenses incurred or to be incurred in connection with taking such action or executing such instrument have been paid or will be paid or reimbursed to the Issuer; and (iii) if applicable, received in a timely manner the instrument or document to be executed, in form and substance satisfactory to the Issuer. In complying with any provision in the Loan Agreement or in the Indenture requiring the Issuer to cause another Person to take or omit any action, the Issuer will be entitled to rely conclusively (and without independent investigation or verification) on the faithful performance by the Trustee or the Borrowers, as the case may be, of their respective obligations under the Loan Agreement and the Indenture. In acting, or in refraining from acting under the Loan Agreement, the Issuer may conclusively rely on the advice of its counsel. Non-Liability of Issuer. The Issuer will not be obligated to pay the principal or interest on the Bonds or any costs incidental thereto, except from the Trust Estate. Neither the faith and credit nor the taxing power of any Member, the State of Wisconsin or any political subdivision or agency thereof or any political subdivision approving the issuance of the Bonds, nor the faith and credit of the Issuer, will be pledged to the payment of the principal of or interest on, the Bonds or any costs incidental thereto. The Issuer has no taxing power. The Issuer will not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind on any conceivable theory, under or by reason of or in connection with the Loan Agreement, the Bonds or the Indenture, except only to the extent amounts are received for the payment thereof from the Borrowers under the Loan Agreement. Each Borrower acknowledges that the Issuer s sole source of moneys to repay the Bonds will be provided by the Trust Estate, and agrees that if such amounts will ever prove insufficient to pay all principal and interest on the Bonds as the same will become due (whether by maturity, redemption, acceleration or otherwise) or any costs incidental thereto, then the Trustee will give notice to the Borrowers in accordance with the Loan Agreement, to pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal or interest, or costs incidental thereto including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the Borrowers, the Issuer or any third party. Third Party Beneficiaries. It is specifically acknowledged and agreed that, to the extent of their rights under the Loan Agreement (including without limitation, their rights to immunity, indemnification and lack of pecuniary liability), the Indemnified Parties, and each of them, is a third-party beneficiary of the Loan Agreement entitled to enforce such rights in his, her, its or their own name(s). F-10

127 Healthcare Rider. The Healthcare Rider, attached to the Loan Agreement, is incorporated by reference into the Loan Agreement with the same purpose and effect as if the terms of the Healthcare Rider had been set forth in the Loan Agreement. The parties to the Loan Agreement recognize and agree that the terms of the Healthcare Rider and the enforcement of those terms are essential to the security of the Bonds and are entered into for the benefit of the Issuer, the Trustee and the Holders of the Bonds. [Remainder of page intentionally left blank] F-11

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129 APPENDIX G SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGE

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131 APPENDIX G SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGE The following is a brief summary of certain provisions of the Mortgage. The Summary does not purport to be complete or definitive and is qualified in its entirety by reference to the Mortgage, a copy of which is on file with the Trustee. For purposes of this Appendix G, all references to Grantor herein are deemed to refer to each Borrower individually and all references to Beneficiary herein are deemed to refer to the Trustee. Each Borrower will execute a Mortgage in the form summarized below. Granting Clauses Pursuant to the Mortgage, to secure to the Beneficiary the repayment of the Indebtedness evidenced by the Note, which Note has been assigned to the Beneficiary by the Grantor pursuant to the terms of the Note, Loan Agreement, and the Indenture, and all renewals, extensions and modifications of the Indebtedness, and the performance of the covenants and agreements of the Grantor contained in the Note, Grantor mortgages, warrants, grants, conveys and assigns to the Beneficiary for the benefit of Beneficiary all of Grantor s right, title, and interest in, to, and under the Mortgaged Property. Security Agreement The Mortgage is also a security agreement statement under the UCC for any of the Mortgaged Property which, under applicable law, may be subject to a security interest under the UCC, whether acquired now or in the future, and all products and cash and non-cash proceeds thereof (collectively, UCC Collateral ), and Grantor grants to Beneficiary a security interest in the UCC Collateral. The Mortgage also constitutes a financing statement pursuant to the terms of the UCC with respect to any part of the Mortgaged Property that is or may become a Fixture under applicable law, and will be recorded as a fixture filing in accordance with the UCC. Grantor authorizes Beneficiary to file financing statements, continuation statements and financing statement amendments in such form as Beneficiary may require to perfect or continue the perfection of this security interest and Grantor agrees, if Beneficiary so requests, to execute and deliver to Beneficiary such financing statements, continuation statements and amendments. Grantor will pay all filing costs and all costs and expenses of any record searches for financing statements that Beneficiary may require. Without the prior written consent of Beneficiary, Grantor will not create or permit to exist any other lien or security interest in any of the UCC Collateral. Assignment of Rents; Appointment of Receiver; Lender in Possession; and Foreclosure Grantor absolutely and unconditionally assigns and transfers to Beneficiary all Rents. Promptly upon request by Beneficiary, Grantor agrees to execute and deliver such further assignments as Beneficiary may from time to time require. For purposes of giving effect to this absolute assignment of Rents, and for no other purpose, Rents will not be deemed to be a part of the Mortgaged Property. After the occurrence of an Event of Default, (i) Grantor authorizes Beneficiary to collect, sue for and compromise Rents and direct each tenant of the Mortgaged Property to pay all Rents to, or as directed by, Beneficiary, and Grantor will, upon Grantor s receipt of any Rents from any sources, pay the total amount of such receipts to the Beneficiary, and (ii), without the necessity of Beneficiary entering upon and taking and maintaining control of the Mortgaged Property directly, or by a receiver, Grantor s license to collect Rents will automatically terminate and Beneficiary will without notice be entitled to all Rents as they become due and payable, including Rents then due and unpaid. If the Event of Default continues, Beneficiary may, regardless of the adequacy of Beneficiary s security or the solvency of Grantor and even in the absence of waste, enter upon and take and maintain full control of the Mortgaged Property in order to perform all acts that Beneficiary in its discretion determines to be necessary or desirable for the operation and maintenance of the Mortgaged Property. Alternatively, regardless of the adequacy of Beneficiary s security, without regard to Grantor s solvency and without the necessity of giving prior notice (oral or written) to Grantor, Beneficiary may apply to any court having jurisdiction for the appointment of a receiver for the Mortgaged Property to take any or all of the actions on behalf of the Beneficiary. If the Rents are not sufficient to meet the costs of taking control of and managing the Mortgaged Property and collecting the Rents, any G-1

132 funds expended by Beneficiary for such purposes will become an additional part of the Indebtedness as provided in the Mortgage. Any entering upon and taking of control of the Mortgaged Property by Beneficiary or the receiver, as the case may be, and any application of Rents as provided in the Mortgage will not cure or waive any Event of Default or invalidate any other right or remedy of Beneficiary under applicable law or provided for in the Mortgage. Assignment of Leases; Leases Affecting the Mortgaged Property Grantor absolutely and unconditionally assigns and transfers to Beneficiary all of Grantor s right, title and interest in, to and under the Leases, including Grantor s right, power and authority to modify the terms of any such Lease, or extend or terminate any such Lease. For purposes of giving effect to this absolute assignment of the Leases, and for no other purpose, the Leases will not be deemed to be a part of the Mortgaged Property, as that term is defined in the Mortgage. All Leases will be on forms approved by Beneficiary. If customary in the applicable market, residential Leases with terms of less than six months may be permitted with Beneficiary s prior written consent. No Leases will be entered into or materially modified, terminated, or surrendered nor any material terms or conditions thereof be waived without Beneficiary s prior written consent, except to the extent the same occurs in the ordinary course of business upon commercially reasonable terms. Protection of Beneficiary s Security; Preservation, Management and Maintenance of Mortgaged Property If Grantor fails to perform any of its obligations under the Mortgage, or if any action or proceeding is commenced which purports to affect the Mortgaged Property, Beneficiary s security or Beneficiary s rights under the Mortgage, including eminent domain, insolvency, code enforcement, civil or criminal forfeiture, enforcement of Hazardous Materials Laws, fraudulent conveyance or reorganizations or proceedings involving a bankrupt or decedent, then Beneficiary at Beneficiary s option may make such appearances, disburse such sums and take such actions as Beneficiary reasonably deems necessary to perform such obligations of Grantor and to protect Beneficiary s interest, including (1) payment of fees and out-of-pocket expenses of attorneys, accountants, inspectors and consultants, (2) entry upon the Mortgaged Property to make repairs or secure the Mortgaged Property, (3) procurement of the insurance required by the Mortgage, and (4) payment of amounts which Grantor has failed to pay under the Mortgage. Any amounts so disbursed by Beneficiary will be added to, and become part of, the principal component of the Indebtedness, will be immediately due and payable and will bear interest from the date of disbursement until paid as provided in the Loan Agreement. Grantor agrees that it (1) will not commit waste or permit impairment or deterioration of the Mortgaged Property, (2) will not abandon the Mortgaged Property, (3) will restore or repair promptly, in a good and workmanlike manner, any damaged part of the Mortgaged Property to the equivalent of its original condition, or such other condition as Beneficiary may approve in writing, whether or not insurance proceeds or condemnation awards are available to cover any costs of such restoration or repair, (4) will keep the Mortgaged Property in good repair, including the replacement of Personalty and Fixtures with items of equal or better function and quality, (5) will provide for professional management of the Mortgaged Property by a residential rental property manager satisfactory to Beneficiary under a contract approved by Beneficiary in writing, and (6) will give notice to Beneficiary of and, unless otherwise directed in writing by Beneficiary, will appear in and defend any action or proceeding purporting to affect the Mortgaged Property, Beneficiary s security or Beneficiary s rights under the Mortgage. Grantor will not (and will not permit any tenant or other person to) remove, demolish or alter the Mortgaged Property or any part of the Mortgaged Property except in connection with the replacement of tangible Personalty. Environmental Hazards Except as otherwise provided in the Loan Agreement, Grantor will not cause or permit any of the following: G-2

133 (a) (b) (c) (d) the presence, use, generation, release, treatment, processing, storage (including storage in above ground and underground storage tanks), handling, or disposal of any Hazardous Materials on or under the Mortgaged Property or any other property of Grantor that is adjacent to the Mortgaged Property; the transportation of any Hazardous Materials to, from, or across the Mortgaged Property; any occurrence or condition on the Mortgaged Property or any other property of Grantor that is adjacent to the Mortgaged Property, which occurrence or condition is or may be in violation of Hazardous Materials Laws; or any violation of or noncompliance with the terms of any Environmental Permit with respect to the Mortgaged Property or any property of Grantor that is adjacent to the Mortgaged Property. Events of Default The occurrence of a Default under the Loan Agreement will constitute an Event of Default under the Mortgage. Upon the occurrence of an Event of Default, Beneficiary may foreclose the lien of the Mortgage and sell, as an entirety or in separate lots or parcels, the Mortgaged Property, under the judgment or decree of a court or courts of competent jurisdiction. Beneficiary, at its option, is authorized to foreclose the Mortgage subject to the rights of any tenants of the Mortgaged Property and the failure to make any such tenants parties defendant to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted by Grantor to be, a defense to any proceedings instituted by Beneficiary to collect the sums secured by the Mortgage or to collect any deficiency remaining unpaid after the foreclosure sale of the Mortgaged Property. Upon any such foreclosure sale, Beneficiary may bid for and purchase the Mortgaged Property and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability. Upon any such foreclosure sale, Beneficiary may, if permitted by law, after allowing for the proportion of the total purchase price required to be paid in cash and for the costs and expenses of the sale, compensation and other charges, in paying the purchase price apply any portion of or all sums due to Beneficiary under the Note, the Mortgage or any other instrument securing the Note, in lieu of cash, to the amount which will, upon distribution of the net proceeds of such sale, be payable thereon. Beneficiary may proceed by a suit or suits in equity or at law, whether for collection of the Indebtedness secured by the Mortgage, the specific performance of any covenant or agreement in the Mortgage contained or in aid of the execution of any power granted in the Mortgage, or for any foreclosure under the Mortgage or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of competent jurisdiction. Forbearance Beneficiary may (but will not be obligated to) agree with Grantor, from time to time, and without giving notice to, or obtaining the consent of, or having any effect upon the obligations of, any guarantor or other third party obligor, to take any of the following actions: extend the time for payment of all or any part of the Indebtedness; reduce the payments due under the Mortgage or the Loan Agreement; release anyone liable for the payment of any amounts under the Mortgage or the Loan Agreement; accept a renewal of the Loan Agreement; modify the terms and time of payment of the Indebtedness; join in any extension or subordination agreement; release any Mortgaged Property; take or release other or additional security; modify the rate of interest applicable to, or change the amounts payable under the Mortgage or the Loan Agreement; and otherwise modify the Mortgage or the Loan Agreement. Waiver of Marshalling Notwithstanding the existence of any other security interests in the Mortgaged Property held by Beneficiary or by any other party, Beneficiary will have the right to determine the order in which any or all of the Mortgaged G-3

134 Property will be subjected to the remedies provided in the Mortgage, the Loan Agreement or applicable law. Beneficiary will have the right to determine the order in which any or all portions of the Indebtedness are satisfied from the proceeds realized upon the exercise of such remedies. Grantor and any party who now or in the future acquires a security interest in the Mortgaged Property and who has actual or constructive notice of the Mortgage waives any and all right to require the marshalling of assets or to require that any of the Mortgaged Property be sold in the inverse order of alienation or that any of the Mortgaged Property be sold in parcels or as an entirety in connection with the exercise of any of the remedies permitted by applicable law or provided in the Mortgage. [Remainder of page intentionally left blank] G-4

135 APPENDIX H FORM OF BOND COUNSEL OPINION

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137 255 East Fifth Street ^ Suite 1900 Cincinnati, OH July 9, 2015 Public Finance Authority Madison, WI The Huntington National Bank Cincinnati, OH RE: Public Finance Authority Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) Ladies and Gentlemen: We have acted as bond counsel to the Public Finance Authority (the Issuer ) in connection with the issuance of its Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) (the Bonds ), issued pursuant to a Trust Indenture, dated as of July 1, 2015 (the Indenture ), between the Issuer and The Huntington National Bank, as trustee (the Trustee ). The Indenture provides that the Bonds are issued for the stated purpose of making a loan of the proceeds thereof to Goldsboro SIP 2, LLC, Mocksville SIP 2, LLC, Rocky Mount SIP 2, LLC, University SIP 2, LLC, Meadowview SIP 2, LLC and Cherryville SIP 2, LLC, each a North Carolina limited liability company (the Borrowers ) to acquire a six assisted living facilities known as Somerset Court of Goldsboro, Somerset Court of Mocksville, Somerset Court of Rocky Mount, Somerset Court of University Place, Meadowview Terrace of Wadesboro and Somerset Court of Cherryville known as Somerset Court of Goldsboro, Somerset Court of Mocksville, Somerset Court of Rocky Mount, Somerset Court of University Place, Meadowview Terrace of Wadesboro and Somerset Court of Cherryville located at 603 Lockhaven Court, Goldsboro, Wayne County, North Carolina; 150 Ken Dwiggins Drive, Mocksville, Davie County, North Carolina; 918 Westwood Drive, Rocky Mount, Nash County, North Carolina; 1635 East Fifth Street, Winston Salem, Forsyth County, North Carolina (collectively, the Project ), pursuant to a Loan Agreement, dated as of July 1, 2015 (the Loan Agreement ), among the Issuer, the Trustee and the Borrowers. Terms used herein, but not defined, shall have the meanings ascribed to such terms in the Indenture. Under the Loan Agreement, the Borrowers are obligated to make payments ( Loan Payments ) in such amounts and at such times as will be sufficient to pay, when due, the principal of, premium, if any, and interest on the Bonds, as well as certain other fees and expenses in connection with the Bonds. As evidence of its obligations to make the Loan Payments, the Borrower has executed and delivered to the Issuer, for assignment to the Trustee, a promissory note (the Note ). The Borrowers obligations under the Note and the Loan Agreement will be secured by a Deed of Trust (the Mortgage ), dated as of July 9, 2015, from the Borrower in favor of the Trustee for the benefit of the holders of the Bonds, which creates a first priority mortgage lien on, and security interest in, the Project and pledge of certain revenues under the Indenture and other property as described in the Mortgage, subject only to certain Permitted Encumbrances (as defined therein). H-1

138 Public Finance Authority The Huntington National Bank July 9, 2015 Page 2 The Bonds are equally and ratably secured by the Trust Estate (as defined in the Indenture), which includes all right, title, and interest of the Issuer in and to (a) except for the Reserved Rights of the Issuer, the Loan Agreement, the Note and the Mortgage; (b) all money and securities and interest earnings from time to time held by the Trustee under the Indenture; (c) such other rights and interests in property pledged to the Trustee as and for additional security for the Bonds; and (d) to the extent not discussed above, all proceeds of the foregoing. In connection with the issuance of the Bonds, we have reviewed executed counterparts of the Indenture, the Loan Agreement, the Note and the Mortgage, opinions of counsel to the Issuer, the Borrower and others, certificates of the Issuer, the Borrower, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. In rendering this opinion, we have relied upon the opinion of von Briesen & Roper, s.c., dated as of even date herewith, as counsel to the Issuer as to the creation and valid existence of the Issuer, the adoption of the Issuer s resolution authorizing the issuance of the Bonds, and the execution and delivery of the Indenture, the Loan Agreement and the Bonds. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any party thereto. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents and of the legal conclusions contained in the opinions, referred to in the first three paragraphs hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Loan Agreement. We call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Loan Agreement, and their enforceability, may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors rights, to the applications of equitable principals, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public authorities in the State of Wisconsin. Based on and subject to the foregoing, and in reliance thereon, we are of the opinion, as of the date hereof, that: Issuer. 1. The Bonds constitute the valid and binding limited obligations of the 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Issuer. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Trust Estate and any other amounts held by the Trustee in any fund or account established pursuant to the H-2

139 Public Finance Authority The Huntington National Bank July 9, 2015 Page 3 Indenture, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. 3. The Loan Agreement has been duly executed and delivered by, and constitutes a valid and binding agreement of, the Issuer. 4. Interest on the Bonds is not excluded from gross income for federal income tax purposes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of setoff, arbitration, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver of severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Indenture or the Loan Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligations to update this letter. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Limited Offering Memorandum or other offering material relating to the Bonds and express no opinion with respect thereto. Very truly yours, H-3

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141 APPENDIX I DTC AND BOOK-ENTRY ONLY SYSTEM

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143 APPENDIX I THE FOLLOWING INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY ( DTC ) AND DTC S BOOK-ENTRY ONLY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE PUBLIC FINANCE AUTHORITY (THE ISSUER ) AND THE BORROWERS (AS DEFINES IN THIS LIMITED OFFERING MEMORANDUM) BELIEVE TO BE RELIABLE, BUT NEITHER THE ISSUER NOR ANY BORROWER TAKES RESPONSIBILITY FOR THE ACCURACY THEREOF. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Taxable Healthcare Facilities First Mortgage Bonds, Series 2015 (Bridge Loan Program Meridian Senior Living Salem 6 Assisted Living Facilities) (the Bonds ) of the Issuer. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organised under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerised bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organisations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorised representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to I-1

144 any of the documents under which any Bond is issued. For example, the Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Trustee and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds of a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorised by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption payments and principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorised representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Issuer or the Paying Agent on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption payments and principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorised representative of DTC) is the responsibility of the Issuer or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to any Bonds at any time by giving reasonable notice to the Issuer and the Trustee. Under such circumstances, in the event that a successor depository is not obtained, bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC. NEITHER THE ISSUER NOR THE PAYING AGENT NOR ANY BORROWER IS RESPONSIBLE OR LIABLE FOR THE FAILURE OF ANY DIRECT PARTICIPANTS OR ANY INDIRECT PARTICIPANTS TO MAKE ANY PAYMENT OR GIVE ANY NOTICE TO A BENEFICIAL OWNER WITH RESPECT TO THE BONDS OR ANY ERROR OR DELAY RELATING THERETO. Neither the Issuer nor the Paying Agent nor any Borrower gives any assurances that DTC, DTC Participants, or Indirect Participants will distribute to the Beneficial Owners of the Bonds (i) payments of principal, premium, if any, and interest, with respect to the Bonds, (ii) confirmation of beneficial ownership interests in the Bonds, or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as registered owner of the Bonds, or that they will do so on a timely basis, or that DTC, DTC Participants, or Indirect Participants will serve or act in the manner described in this Limited Offering Memorandum. All capitalized terms not otherwise defined in this Appendix shall have the meaning ascribed to such term in this Limited Offering Memorandum. I-2