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