BB&T Capital Markets a division of Scott & Stringfellow, LLC

Transcription

1 NEW ISSUE BOOK ENTRY ONLY NOT RATED In the opinion of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel to the Authority, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, interest on the Bonds (i) is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. See "TAX MATTERS" herein for a description of certain other provisions of law which may affect the federal tax treatment of interest on the Bonds. In addition, in the opinion of Bond Counsel to the Authority, under the existing statutes of the Commonwealth of Virginia, the income from the Bonds, including any profit made from the sale thereof is exempt from all taxation by the Commonwealth of Virginia or any political subdivision thereof.. $41,110,000 ECONOMIC DEVELOPMENT AUTHORITY OF THE COUNTY OF CHESTERFIELD RETIREMENT FACILITIES FIRST MORTGAGE REVENUE BONDS (BRANDERMILL WOODS PROJECT), SERIES 2012 Dated: Date of Delivery Due: As shown on the inside cover The above referenced bonds (the "Bonds") are being issued by the Economic Development Authority of the County of Chesterfield (the "Authority") pursuant to a Trust Agreement dated as of November 1, 2012 (the "Trust Agreement") between the Authority and Branch Banking and Trust Company, as trustee (the "Bond Trustee"). The Bonds are being issued for the purpose of assisting Senior Living Choices of Virginia, Inc. (the "Corporation") in (a) refinancing a portion of certain existing indebtedness incurred to finance and refinance a portion of the costs of the acquisition, construction and equipping of the Corporation's existing facility known as Brandermill Woods (the "Existing Facility"), (b) financing a portion of the costs of the construction and equipping certain capital improvements at the Existing Facility, including (i) paving of streets and parking lots, (ii) additional parking facilities, (iii) renovation of existing health care facility common areas and rooms, (iv) certain renovations of the independent living and assisted living areas of the Existing Facility, including the construction of a new maintenance storage building, and (v) certain preliminary expenditures related to the expansion of the Existing Facility, (c) funding a debt service reserve fund, and (d) paying certain expenses incurred in connection with the issuance of the Bonds. The Bonds and the premium, if any, and the interest thereon shall not be deemed to constitute a debt or a pledge of faith and credit of the Commonwealth of Virginia, or any political subdivision thereof, including the Authority and the County of Chesterfield, Virginia. Neither the Commonwealth of Virginia nor any political subdivision thereof, including the Authority and the County of Chesterfield, Virginia, shall be obligated to pay principal of or premium, if any, or interest on the Bonds or other costs incident thereto except from the revenues and moneys pledged therefor. Neither the faith and credit nor the taxing power of the Commonwealth of Virginia or any political subdivision thereof, including the Authority and the County of Chesterfield, Virginia, is pledged to the payment of the principal of the Bonds or interest thereon or other costs incident thereto. The Bonds will be issued as fully registered bonds in denominations of $5,000 and multiples thereof. Purchases of the Bonds will be made in book-entry form only, and individual purchasers will not receive physical delivery of bond certificates. When issued, the Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). So long as Cede & Co. is the registered owner of the Bonds, principal and interest payments on the Bonds will be made to Cede & Co., which will in turn remit such payments to its Participants for subsequent disbursement to the beneficial owners of the Bonds, all as described herein. So long as Cede & Co. is the registered owner of the Bonds, references herein to the Holders or registered owners of the Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. Interest on the Bonds is payable on each January 1 and July 1, beginning on January 1, The Bonds are subject to optional, extraordinary optional and mandatory redemption prior to maturity as described in "THE BONDS." FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS, SEE "BONDHOLDERS' RISKS." This cover page contains certain information for quick reference only. It is not a summary of this Official Statement. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered subject to prior sale, when, as and if issued by the Authority and accepted by the Underwriter, subject to the approval of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel to the Authority. Certain legal matters will be passed upon for the Corporation by Saunders, Patterson & Mack, Richmond, Virginia; for the Authority by Hunton & Williams LLP, Richmond, Virginia; and for the Underwriter by McGuireWoods LLP, Richmond, Virginia. It is expected that the Bonds will be available for delivery through the facilities of DTC on or about November 7, BB&T Capital Markets a division of Scott & Stringfellow, LLC October 18, 2012

2 $41,110,000 ECONOMIC DEVELOPMENT AUTHORITY OF THE COUNTY OF CHESTERFIELD RETIREMENT FACILITIES FIRST MORTGAGE REVENUE BONDS (BRANDERMILL WOODS PROJECT), SERIES 2012 Maturity (January 1) Principal Amount $8,895,000 Serial Bonds - Due as follows: Interest Rate Price Yield CUSIP (Base: 16639U) 2014 $750, % % AA , AB , AC , AD , AE , AF , AH , AG3 $3,810, % Term Bonds due January 1, 2024, Priced at % to Yield 4.250%, CUSIP 16639U AL2 $3,315, % Term Bonds due January 1, 2027, Priced at % to Yield 4.800%, CUSIP 16639U AM0 $6,670, % Term Bonds due January 1, 2032, Priced at % to Yield 5.040%, CUSIP 16639U AN8 $21,705, % Term Bonds due January 1, 2043, Priced at % to Yield 5.270%, CUSIP 16639U AQ1

3 THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE BONDS, INCLUDING TRANSACTIONS TO (A) OVERALLOT IN ARRANGING THE SALE OF THE BONDS AND (B) MAKE PURCHASES AND SALES OF BONDS FOR LONG OR SHORT ACCOUNT, ON A WHEN-ISSUED BASIS OR OTHERWISE, AT SUCH PRICES, IN SUCH AMOUNTS AND IN SUCH MANNER AS THE UNDERWRITER MAY DETERMINE. The Bonds are exempt from registration under the Securities Act of 1933 and the securities laws of the Commonwealth of Virginia. No dealer, broker, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such other information or representations should not be relied upon as having been authorized by the Authority, the Corporation or the Underwriter. This Official Statement 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 jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the Authority, the Corporation and other sources that are deemed to be reliable, but is not guaranteed as to accuracy or completeness by the Underwriter. This Official Statement speaks as of its date except where specifically noted otherwise and is subject to change without notice. Neither the delivery of this Official Statement, any sale made hereunder nor any filing or other use of this Official Statement shall under any circumstances create an implication that there has been no change in the affairs of the Authority or the Corporation since the date hereof or imply that any information herein is accurate or complete as of any later date. Certain statements contained in this Official Statement reflect not historical facts but forecasts and "forward-looking statements." In this respect, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking statements. All projections, forecasts, assumptions, expressions of opinions, estimates and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CORPORATION DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. -i-

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5 TABLE OF CONTENTS INTRODUCTION... 1 THE AUTHORITY... 2 THE BONDS... 2 General... 2 Book-Entry-Only System... 3 Redemption Provisions... 3 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS... 6 General... 6 Security for Obligation No Debt Service Reserve Fund... 7 Covenants; Additional Indebtedness... 7 Bankruptcy... 8 Additional Members of the Obligated Group... 8 Amendment of Master Indenture... 8 Enforcement of Remedies... 8 THE CORPORATION... 9 THE PLAN OF FINANCE... 9 Plan of Refunding... 9 Current Project... 9 Expansion Project ESTIMATED SOURCES AND USES OF FUNDS ANNUAL DEBT SERVICE REQUIREMENTS BONDHOLDERS' RISKS General Limited Assets of the Obligated Group Uncertainty of Full Occupancy and Fee Collection Competition Proposed Expansion Project Rights of Residents; State Regulation Limited Assets of Corporation Limited Value at Foreclosure Reimbursement Under Federal and State Programs Health Care Reform Tax Consequences to Residents Organized Resident Activity Market for Bonds; Absence of Rating Tax-Exempt Status Financial Assistance; Obligation to Residents Legislation Affecting Tax-Exempt Bonds Environmental Risks Future Legislation and Regulation Staffing Labor Union Activity Insurance Bankruptcy Limitations on Enforceability of Remedies Other Risk Factors SELECTED COVENANTS Rate Covenant Liquidity Covenant Rating Solicitation Covenant Approval of Management Consultants Page -ii-

6 TABLE OF CONTENTS (continued) Page CONTINUING DISCLOSURE AND ADDITIONAL DISCLOSURE Continuing Disclosure Additional Disclosure Limited Information LITIGATION UNDERWRITING BONDS ELIGIBLE FOR INVESTMENT AND SECURITY FOR PUBLIC DEPOSITS LEGAL MATTERS VERIFICATION OF MATHEMATICAL COMPUTATIONS TAX MATTERS Opinion of Bond Counsel Certain Ongoing Federal Tax Requirements and Covenants Certain Collateral Federal Tax Consequences Original Issue Discount Bond Premium Information Reporting and Backup Withholding Miscellaneous NO RATING ON THE BONDS FINANCIAL STATEMENTS RELATIONSHIP OF PARTIES MISCELLANEOUS APPENDIX A - CERTAIN INFORMATION CONCERNING SENIOR LIVING CHOICES OF VIRGINIA, INC. APPENDIX B - FINANCIAL STATEMENTS APPENDIX C - DEFINITION OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D - PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX E - BOOK-ENTRY-ONLY SYSTEM -iii-

7 OFFICIAL STATEMENT $41,110,000 ECONOMIC DEVELOPMENT AUTHORITY OF THE THE COUNTY OF CHESTERFIELD RETIREMENT FACILITIES FIRST MORTGAGE REVENUE BONDS (BRANDERMILL WOODS PROJECT), SERIES 2012 INTRODUCTION This Official Statement, including the cover page and the appendices, furnishes information regarding the offering by the Economic Development Authority of the County of Chesterfield (the "Authority") of its $41,110,000 Retirement Facilities First Mortgage Revenue Bonds (Brandermill Woods Project), Series 2012 (the "Bonds"). The Bonds are being issued pursuant to the Industrial Development and Revenue Bond Act, Title 15.2, Chapter 49 of the Code of Virginia, 1950, as amended (the "Act"), and a Trust Agreement dated as of November 1, 2012 (the "Trust Agreement"), between the Authority and Branch Banking and Trust Company, as trustee (the "Bond Trustee"). Concurrently with the issuance of the Bonds, the Authority will enter into a Loan Agreement dated as of November 1, 2012 (the "Loan Agreement"), with Senior Living Choices of Virginia, Inc., a Virginia nonprofit nonstock corporation (the "Corporation"). Pursuant to the Loan Agreement, the Authority will lend the proceeds of the Bonds to the Corporation to provide funds to be used to (a) refinance a portion of certain existing indebtedness incurred to finance and refinance a portion of the costs of the acquisition, construction and equipping of the Corporation's existing facilities known as Brandermill Woods (the "Existing Facility") as described in "THE PLAN OF FINANCE," (b) finance a portion of the costs of the Current Project (see "THE PLAN OF FINANCE"), (c) finance a portion of the preliminary costs of the Expansion Project (see "THE PLAN OF FINANCE"), (d) fund a debt service reserve fund, and (e) pay certain expenses incurred in connection with the issuance of the Bonds. The Bonds will be limited obligations of the Authority, payable solely from money to be received from the Corporation, pursuant to the terms of the Loan Agreement and the Corporation's promissory note, dated as of the date of delivery of the Bonds, designated Obligation No. 1 ("Obligation No. 1"). The Corporation will execute and deliver Obligation No. 1 pursuant to (1) a Master Trust Indenture dated as of November 1, 2012 (as supplemented pursuant to its terms, the "Master Indenture"), between the Corporation and Branch Banking and Trust Company, as trustee (the "Master Trustee"), and (2) a Supplemental Indenture for Obligation No. 1, dated as of November 1, 2012 ("Supplement No. 1"), between the Corporation and the Master Trustee. Payments on Obligation No. 1 will be required to be sufficient to pay the principal of, premium, if any, and interest on the Bonds as they become due and payable. Obligation No. 1 will be a joint and several general obligation of the Members of the Obligated Group, as described below. To secure payment of the Bonds, the Authority will assign to the Bond Trustee (a) all right, title and interest in and to Obligation No. 1 and (b) substantially all right, title and interest in and to the Loan Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS." As security for repayment of all Obligations issued under the Master Indenture, including Obligation No. 1, the Corporation will execute and deliver a Deed of Trust dated as of November 1, 2012 (as amended from time to time pursuant to its terms, the "Corporation Deed of Trust"), to a deed of trust trustee for the benefit of the Master Trustee, pursuant to which the Corporation will grant a first lien on the Mortgaged Property, as more particularly described in the Corporation Deed of Trust, subject to Permitted Liens. In addition, pursuant to the Master Indenture, each Member of the Obligated Group has granted to the Master Trustee a first priority security interest in its Pledged Assets, subject to Permitted Liens. The lien on the Mortgaged Property and the security interest in the Pledged Assets are also subject to the right of the Members of the Obligated Group to transfer Property, Plant and Equipment free of such lien and security interest under certain circumstances (see in Appendix C "SUMMARY OF THE MASTER INDENTURE - Limitation on Creation of Liens" and "-Transfers of Property, Plant, and Equipment; Transfers of Cash and Investments" and "SUMMARY OF THE CORPORATION DEED OF TRUST - Release of Land from Lien of Corporation Deed of Trust"). All Obligations issued under the Master Indenture are secured pari passu by the lien on the Mortgaged Property created by the Corporation Deed of Trust

8 and the security interest in the Pledged Assets created by the Master Indenture. The Members of the Obligated Group are subject to certain covenants under the Master Indenture restricting, among other things, incurrence of Indebtedness, existence of Liens, consolidation or merger and disposition of assets. Upon delivery of the Master Indenture, the Corporation will be the sole Member of the Obligated Group. The Master Indenture permits any Persons that are not Members of the Obligated Group and other corporations that are successor corporations to any Member of the Obligated Group through merger or consolidation as permitted by the Master Indenture to become Members of the Obligated Group upon compliance with certain financial and other requirements. The Master Indenture also permits, upon compliance with certain requirements, any Member of the Obligated Group to withdraw from the Obligated Group. The Loan Agreement, however, prohibits the withdrawal of the Corporation from the Obligated Group. Certain information concerning the Corporation, the Existing Facility, the Current Project and the Expansion Project (collectively, the "Facilities") is contained in Appendix A and certain financial statements of the Corporation audited by Dauby O'Connor & Zaleski, LLC ("Dauby O'Connor & Zaleski"), independent certified public accountants, are contained in Appendix B. See "FINANCIAL STATEMENTS." This introduction provides summary information and is qualified by reference to the entire Official Statement. Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust (see in Appendix C "DEFINITIONS OF CERTAIN TERMS"). Brief descriptions and summaries of the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust are included in Appendix C. Such descriptions and summaries do not purport to be comprehensive or definitive, and all references in this Official Statement to the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust are qualified in their entirety by reference to such documents, and all references to the Bonds are qualified by reference to the definitive forms of the Bonds contained in the Trust Agreement. Copies of such documents may be obtained from the Underwriter prior to the delivery of the Bonds at BB&T Capital Markets, a division of Scott & Stringfellow, LLC, 901 East Byrd Street, Suite 260, Richmond, Virginia, Attention: John R. Franklin, and thereafter at the corporate trust office of the Bond Trustee at 223 Nash Street West, 2 nd Floor, Wilson, North Carolina 27893, Attention: Corporate Trust Division. THE AUTHORITY The Authority is a political subdivision of the Commonwealth of Virginia, created by an ordinance adopted by the Board of Supervisors of Chesterfield County, Virginia, to promote and further the purposes of the Act. The Authority is empowered, among other things, to acquire, improve, maintain, equip, furnish, lease, and dispose of various types of facilities, including facilities for the residence or care of the aged, to finance the same by the issuance of revenue bonds, to refund bonds previously issued by it, and to assist facilities for the residence or care for the aged owned and operated by 501(c)(3) organizations by refinancing existing debt incurred for such facilities. General THE BONDS The Bonds will be dated the date of their delivery and will bear interest from their date at the rates set forth on the inside front cover of this Official Statement, payable on January 1, 2013 and on each January 1 and July 1 thereafter (each, an "Interest Payment Date"). The Bonds will bear interest based on a 360-day year of twelve 30- day months. The Bonds will mature, subject to earlier redemption, on January 1 in the years and amounts as set forth on the inside front cover of this Official Statement. The Bonds will be issued as fully registered bonds in denominations of $5,000 and multiples thereof. Purchases of the Bonds will be made in book-entry form only, and individual purchasers will not receive physical delivery of bond certificates. -2-

9 Both the principal of and the interest on the Bonds shall be payable in any coin or currency of the United States of America that is legal tender for the payment of public and private debts on the respective dates of payment thereof. The principal of all Bonds shall be payable at the principal corporate trust office of the Bond Trustee upon the presentation and surrender of such Bonds as the same shall become due and payable. Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid by check mailed by the Bond Trustee to the person in whose name that Bond is registered at the close of business on the fifteenth day (whether or not a business day) of the calendar month preceding any Interest Payment Date. Book-Entry-Only System The Depository Trust Company, New York, New York ("DTC"), will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co., DTC's partnership nominee. One fully-registered Bond certificate will be issued for each maturity of the Bonds, as set forth on the inside front cover hereof, each in the aggregate principal amount of such maturity, and will be deposited with DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE BONDS, AS DTC'S PARTNERSHIP NOMINEE, REFERENCE HEREIN TO THE HOLDERS OR REGISTERED OWNERS OF THE BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS. See Appendix E for more information regarding the book entry-only system. Redemption Provisions The Bonds may not be called for redemption by the Authority except as provided below. Optional Redemption. The Bonds maturing on or after January 1, 2023, are required to be redeemed by the Authority, upon the direction of the Obligated Group Representative, in whole or in part (by lot) on any date on or after January 1, 2022, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus interest accrued to the redemption date. Mandatory Redemption. The Bonds that are stated to mature on January 1, 2024, will be subject to mandatory redemption in part by lot on January 1 in the years and amounts set forth below at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, all in the manner provided in the Trust Agreement: Year Amount 2021 $895, , , ,010,000 The Bonds that are stated to mature on January 1, 2027, will be subject to mandatory redemption in part by lot on January 1 in the years and amounts set forth below at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, all in the manner provided in the Trust Agreement: Year Amount 2025 $1,055, ,105, ,155,000-3-

10 The Bonds that are stated to mature on January 1, 2032, will be subject to mandatory redemption in part by lot on January 1 in the years and amounts set forth below at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, all in the manner provided in the Trust Agreement: Year Amount 2028 $1,205, ,270, ,330, ,400, ,465,000 The Bonds that are stated to mature on January 1, 2043, will be subject to mandatory redemption in part by lot on January 1 in the years and amounts set forth below at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, all in the manner provided in the Trust Agreement: Year Amount Year Amount 2033 $1,540, $2,020, ,620, ,125, ,705, ,235, ,790, ,345, ,880, ,465, ,980,000 Extraordinary Optional Redemption. The Bonds will be subject to redemption, in whole or in part, on any date by the Authority, upon the direction of an Obligated Group Representative, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date, from amounts received by any Member of the Obligated Group as insurance proceeds with respect to any casualty loss or failure of title or as condemnation awards (provided such amount is not less than $100,000) upon the damage or destruction of all or any part of the Facilities by fire or casualty, or loss of title to or use of all or any part the Facilities as a result the failure of title or as a result of Eminent Domain proceedings or proceedings in lieu thereof (if such damage or destruction or loss of title causes the Facilities as a whole to be impracticable to operate, as evidenced by an Officer's Certificate filed with the Authority and the Bond Trustee); provided, however, that in the event an amount greater than 10% of the aggregate principal amount of Obligation No. 1 and all other Obligations is prepaid, the Corporation will file with the Authority and the Bond Trustee (a) an Officer's Certificate to the effect that the forecasted Long-Term Debt Service Coverage Ratio for the Fiscal Year next succeeding the Fiscal Year in which such prepayment is made will not be less than 1.30 or (b) a report of a Management Consultant to the effect that the forecasted Long-Term Debt Service Coverage Ratio for the Fiscal Year next succeeding the Fiscal Year in which such prepayment is made will not be less than The Bonds will also be subject to redemption, in whole, on any date by the Authority, upon the direction of an Obligated Group Representative, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date, upon the occurrence of the following events: changes in the Constitution of the United States of America or of the Commonwealth of Virginia or legislation or administrative action or failure of administrative action by the United States of America or the Commonwealth of Virginia, or any agency or political subdivision of either, or any judicial decision to the extent that, in the opinion of the Board of Directors of the Corporation (expressed in a resolution) and in the opinion of a Management Consultant both filed with the Authority and the Bond Trustee (a) the Loan Agreement is impossible to perform without unreasonable delay or (b) unreasonable burdens or excessive liabilities not being imposed on the date of the Loan Agreement are imposed on the Corporation. Mandatory Redemption Upon Determination of Taxability. The Bonds are required to be redeemed by the Authority in whole from amounts received from the Corporation pursuant to the Loan Agreement on any date -4-

11 selected by the Bond Trustee, upon the direction of the Corporation, which date shall be no later than 120 days after the date of the occurrence of a Determination of Taxability at a redemption price equal to 103% of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date. The Authority shall give written notice of any Determination of Taxability promptly to the Corporation and the Bond Trustee. "Determination of Taxability" means and shall be deemed to have occurred on the date when (a) the Authority is advised in writing by the Internal Revenue Service that the Internal Revenue Service has made a final determination, from which no further right of administrative appeal exists, that interest on the Bonds is includable in gross income for federal income tax purposes as a result of any action, or failure to act, by the Authority or the Corporation, or (b) the Authority receives written notice from any existing or former Holder (or beneficial owner) of the Bonds that the Internal Revenue Service has issued a statutory notice of deficiency or similar notice to such Holder (or beneficial owner) which asserts, in effect, that interest on the Bonds is includable in the gross income of such Holder (or beneficial owner) for federal income tax purposes (together with a copy of such notice of deficiency or similar notice), as a result of any action, or failure to act, by the Authority or the Corporation. General Redemption Provisions. If less than all the Bonds are to be called for optional or extraordinary redemption, the maturities to be redeemed will be selected by an Obligated Group Representative. If less than all the Bonds within a maturity are to be called for redemption, the Bonds (or portions thereof) within each maturity to be redeemed will be selected (a) so long as a book-entry-only system is used for determining beneficial ownership of such Bonds, by the securities depository for the book-entry system or (b) if a book-entry system is not then being used, by the Bond Trustee, by lot, each $5,000 portion of principal being counted as one Bond for such purpose. Notice of redemption will be mailed by the Bond Trustee, first class, postage prepaid, at least 30 but not more than 60 days prior to the redemption date to each registered owner of the Bonds called for redemption in whole or in part at the address shown on the registration books (or sent by Electronic Means if so required or requested by a Holder). Failure to mail any such notice to any registered owner or any defect therein will not affect the validity of the proceedings for the redemption of the Bonds of any other registered owners as to which notice was properly given. Notice of redemption will also be given by the Bond Trustee at least 30 days prior to the redemption date to one designated securities depository and at least one of three designated information services that disseminate redemption notices; provided, however, that failure to give such notice or any defect therein will not affect the sufficiency of the proceedings for the redemption of such Bonds. On the date fixed for redemption, notice having been given as provided above, the Bonds or portions thereof called for redemption will be due and payable at the redemption price provided therefor, plus accrued interest to the redemption date. If, on the date fixed for redemption, money or Defeasance Obligations, or a combination of both, sufficient to pay the Redemption Price of the Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Bond Trustee in trust for the registered owners of the Bonds to be redeemed, interest on the Bonds so called for redemption will cease to accrue from and after the redemption date, such Bonds will cease to be entitled to any benefit or security under the Trust Agreement or to be deemed Outstanding, and the registered owners of such Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to the date fixed for redemption. In the case of an optional or extraordinary optional redemption of Bonds, the redemption notice may state that (a) it is conditioned upon the deposit of moneys or Defeasance Obligations, or a combination of both, in an amount equal to the amount necessary to effect the redemption, with the Bond Trustee no later than the scheduled redemption date or (b) the Corporation retains the right to rescind such notice on or prior to the scheduled redemption date (in either case, a "Conditional Redemption"), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded as provided in the Trust Agreement. In the case of a Conditional Redemption subject to the deposit of moneys or Defeasance Obligations, the failure of the Corporation or any other Person to make such moneys or obligations available in part or in whole on or before the scheduled redemption date shall not constitute an Event of Default under the Trust Agreement and any Bonds subject to such Conditional Redemption shall remain Outstanding. Any Conditional Redemption subject to rescission may be rescinded in whole or in part at any time on or prior to the scheduled redemption date if a Corporation Representative instructs the Bond Trustee in writing to rescind the redemption notice. Any Bonds subject to Conditional Redemption where redemption has been rescinded shall remain Outstanding, and the rescission shall not constitute an Event of Default hereunder. If a Conditional Redemption for which notice has been sent to Holders will not occur, either because moneys or obligations to effect such redemption are not available -5-

12 on or before the scheduled redemption date or the Corporation has rescinded such notice in accordance with the Trust Agreement, the Bond Trustee shall immediately give notice to the affected Holders of any Bonds that the redemption will not occur and that the Bonds called for redemption and not so paid will remain Outstanding. So long as a book-entry system is being used for determining beneficial ownership of Bonds, the Bond Trustee will send such notice with respect to the redemption of such Bonds to DTC (or its nominee). Any failure of DTC to notify any DTC Participant of any such notice, or of any Direct Participant or Indirect Participant to notify the beneficial owner of any such notice, will not affect the validity of the redemption of such Bonds. General SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The principal of, premium, if any, and interest on the Bonds will be payable from moneys paid by the Corporation and any other Members of the Obligated Group pursuant to the Loan Agreement and Obligation No. 1. Obligation No. 1 is a joint and several general obligation of each Member of the Obligated Group. Upon the issuance of the Bonds, the Corporation will be the sole Member of the Obligated Group. The Authority will assign to the Bond Trustee (1) its right, title and interest in and to Obligation No. 1, (2) its rights under the Master Indenture and the Corporation Deed of Trust as owner of Obligation No. 1 and (3) its right, title and interest in and to the Loan Agreement, including the right to receive loan payments thereunder (except for certain reserved rights, including its rights to indemnification and the payment of certain expenses, its rights to give certain approvals and consents and its rights to receive certain documents, information and notices), as security for the payment of the principal of, redemption premium, if any, and interest on the Bonds. The Bonds will be secured by the moneys and securities held by the Bond Trustee in certain funds and accounts created under the Trust Agreement and by the Master Trustee in Reserve Fund No. 1 under the Master Indenture, as described below. The Bonds and the premium, if any, and the interest thereon shall not be deemed to constitute a debt or a pledge of faith and credit of the Commonwealth of Virginia, or any political subdivision thereof, including the Authority and the County of Chesterfield, Virginia. Neither the Commonwealth of Virginia nor any political subdivision thereof, including the Authority and the County of Chesterfield, Virginia, shall be obligated to pay principal of or premium, if any, or interest on the Bonds or other costs incident thereto except from the revenues and moneys pledged therefor. Neither the faith and credit nor the taxing power of the Commonwealth of Virginia or any political subdivision thereof, including the Authority and the County of Chesterfield, Virginia, is pledged to the payment of the principal of the Bonds or interest thereon or other costs incident thereto. Security for Obligation No. 1 Pursuant to the Master Indenture, each Member of the Obligated Group has granted to the Master Trustee a security interest in its Pledged Assets as security for the payment of amounts due on any Obligations issued thereunder, including Obligation No. 1. Pledged Assets consist of all Gross Receipts, Accounts, Equipment, general intangibles, inventory, documents, instruments and chattel paper of each Member of the Obligated Group, now owned or hereafter acquired, and all proceeds thereof; provided, however, that Pledged Assets shall not include contract rights consisting of charitable pledges. The security interest in the Pledged Assets will be perfected to the extent, and only to the extent, that such security interest may be perfected by filing financing statements under the UCC. Continuation statements with respect to such filings must be filed as required by law to continue the perfection of such security interest. The security interest in the Pledged Assets is subject to Permitted Liens that exist prior to or that may be created subsequent to the time the security interest in the Pledged Assets attaches and is subject to the right of the Members of the Obligated Group to transfer Property, Plant and Equipment free of the security interest created in the Pledged Assets under certain circumstances. See in Appendix C "SUMMARY OF THE MASTER INDENTURE - Limitation on Creation of Liens" and "-Transfers of Property, Plant and Equipment; Transfers of Cash and Investments." -6-

13 If an Event of Default under the Master Indenture shall have occurred and be continuing, the Master Trustee may require that each Member of the Obligated Group deliver all Gross Receipts to it. Each Member of the Obligated Group will covenant in the Master Indenture that, if an Event of Default under the Master Indenture shall have occurred and be continuing, it will, immediately upon receipt of a written request from the Master Trustee, deliver to or direct to be delivered to the Master Trustee all Gross Receipts thereafter received until such Event of Default has been cured, such Gross Receipts to be applied in accordance with the Master Indenture. Pursuant to the Corporation Deed of Trust, as security for the payment of amounts due on any Obligations issued under the Master Indenture, including Obligation No. 1, the Corporation will grant a first lien on the Mortgaged Property described therein to the Master Trustee, subject to Permitted Liens and the right of the Members of the Obligated Group to transfer Property, Plant and Equipment free of the lien on the Mortgaged Property under certain circumstances (see in Appendix C "SUMMARY OF THE MASTER INDENTURE - Limitation on Creation of Liens" and "-Transfers of Property, Plant and Equipment; Transfers of Cash and Investments" and "SUMMARY OF THE CORPORATION DEED OF TRUST - Release of Land from Lien of Corporation Deed of Trust"). Simultaneously with the delivery of the Bonds, the Corporation will deliver to the Master Trustee a mortgagee title insurance policy insuring that the Corporation Deed of Trust constitutes a first priority lien of record, subject to Permitted Liens, on the Mortgaged Property described therein. The stated amount of such policy will be the aggregate outstanding principal amount of Obligation No. 1, less the amount initially deposited in Reserve Fund No. 1. In the event that any Member of the Obligated Group acquires or constructs in Chesterfield County, Virginia, real property, building, improvements or fixtures as an addition to or in replacement of or substitution for the Existing Facilities, such Member of the Obligated Group is required to follow the proper procedure under the laws of the Commonwealth of Virginia to subject such property to the lien of a deed of trust securing all Obligations on a pari passu basis. Real property, buildings, improvements or fixtures are deemed to be an addition to the Existing Facilities if they comprise facilities that are functionally related to, and operated on an integrated basis with, the Existing Facilities. In the event that any Obligation is issued pursuant to the Master Indenture to acquire or finance real property or improvements to real property, the Member of the Obligated Group acquiring or financing such real property or improvements is required to take all action required by law to subject such property to the lien of a deed of trust or mortgage securing all Obligations on a pari passu basis. Debt Service Reserve Fund The Master Trustee will deposit into Reserve Fund No. 1 created by the Master Indenture an amount equal to the Debt Service Reserve Fund Requirement ($2,655,631.26). The Master Indenture requires the Master Trustee to use amounts in Reserve Fund No. 1 to make transfers to the Bond Trustee for deposit in the Interest Account, the Principal Account, and the Sinking Fund Account to the extent necessary to pay interest on and principal of (whether at maturity, by acceleration or in satisfaction of the Sinking Fund Requirement therefor) the Bonds, whenever and to the extent that the money on deposit in the Interest Account, the Principal Account and the Sinking Fund Account is insufficient for such purposes. The Master Trustee may establish one or more Debt Service Reserve Funds as security for one or more Obligations issued under the Master Indenture. Each Debt Service Reserve Fund, including Reserve Fund No. 1, may serve as security for more than one Obligation under the Master Indenture, in which case all Obligations secured under such Debt Service Reserve Fund will be secured equally and ratably by amounts on deposit in such Debt Service Reserve Fund. Each Debt Service Reserve Fund will be required to be funded in an amount equal to the Debt Service Reserve Fund Requirement. See in Appendix C "DEFINITIONS OF CERTAIN TERMS" for the definition of "Debt Service Reserve Fund Requirement" and "SUMMARY OF THE MASTER INDENTURE - Debt Service Reserve Funds." Covenants; Additional Indebtedness The Members of the Obligated Group are subject to covenants under the Master Indenture relating to, among other things, maintenance of a Long-Term Debt Service Coverage Ratio and restricting incurrence of Indebtedness, existence of Liens on Property, consolidation and merger, transfers of assets, addition of Members to -7-

14 the Obligated Group and withdrawal of Members from the Obligated Group. See Appendix C "SUMMARY OF THE MASTER INDENTURE." The Master Indenture permits each Member of the Obligated Group to issue or incur additional Indebtedness evidenced by Obligations that will share the security for Obligation No. 1 on a parity with Obligation No. 1. Such additional Obligations will not be secured by the money or investments in any fund or account held by the Bond Trustee under the Trust Agreement as security for the Bonds. Bankruptcy Title 11 of the United States Code (the "Bankruptcy Code") permits a bankruptcy court to modify the rights of a creditor holding a secured claim under certain circumstances. In the event of a bankruptcy proceeding involving the Corporation or any other Member of the Obligated Group, by virtue of the Master Indenture, the Master Trustee should be treated under the Bankruptcy Code as one holding a secured claim to the extent provided in the Master Indenture; and by virtue of the Corporation Deed of Trust, the Master Trustee should be similarly treated to the extent provided in the Corporation Deed of Trust (as suggested by the legislative history of the Bankruptcy Code, although there is no direct authority on the point). The potential effects of bankruptcy of the Corporation or any other Member of the Obligated Group could be, among other things, (1) to delay enforcement of remedies otherwise available to the Master Trustee and allow the bankruptcy court, under certain circumstances, to substitute other assets of the Corporation or any other Member of the Obligated Group for collateral under the Master Indenture or the Corporation Deed of Trust, (2) to sell all or part of the collateral under the Master Indenture or the Corporation Deed of Trust without application of the proceeds to the payment of the Obligations, including Obligation No. 1, (3) to subordinate the rights and liens created by the Master Indenture and the Corporation Deed of Trust to liens securing borrowing approved by the bankruptcy court, (4) to permit the Corporation or any other Member of the Obligated Group to cure defaults and reinstate the Master Indenture and the Corporation Deed of Trust, (5) to compel release of the Corporation Deed of Trust or termination of the Master Indenture by payment of an amount determined by the bankruptcy court to be the value of the collateral thereunder (even though less than the total of the Obligations thereunder) or (6) to modify the terms of or payments due under the Obligations, including Obligation No. 1. For additional detail, reference is made to the Bankruptcy Code, 11 U.S.C. 101 et seq. Additional Members of the Obligated Group The Master Indenture provides that under certain conditions Persons that are not Members of the Obligated Group may, with the prior written consent of the then current Members of the Obligated Group, become Members of the Obligated Group. See in Appendix C "SUMMARY OF THE MASTER INDENTURE - Parties Becoming Members of the Obligated Group." Amendment of Master Indenture The Holders of a majority in aggregate principal amount of Obligations outstanding under the Master Indenture (including Obligations issued in the future) may approve amendments to the Master Indenture. Such amendments may result in elimination of, or a reduction or alteration in, the covenants and other provisions provided to secure payments of the Bonds. Enforcement of Remedies The security interest in the Pledged Assets may not be enforceable against third parties unless the Pledged Assets are transferred to the Master Trustee (which transfer Members of the Obligated Group are required to make only if requested by the Master Trustee upon the occurrence and continuation of an Event of Default under the Master Indenture) and is subject to certain exceptions under the UCC. In such event, the Master Trustee may not be able to compel certain third-party payors to make payment directly to the Master Trustee. The enforcement of the security interest in the Pledged Assets may further be limited by the following: (1) statutory liens, (2) rights arising in favor of the United States of America or any agency thereof, (3) current or future prohibitions against assignment contained in any federal or Virginia statutes or regulations, (4) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction and (5) federal -8-

15 bankruptcy laws or fraudulent conveyance laws or similar laws affecting creditors' rights that may affect the enforceability of the Master Indenture or the security interest in the Pledged Assets. The remedies specified in the Loan Agreement, the Trust Agreement, the Master Indenture and the Corporation Deed of Trust may, in many respects, require judicial action of a nature that is often subject to discretion and delay. Under existing law, the remedies specified in the Loan Agreement, the Trust Agreement, the Master Indenture and the Corporation Deed of Trust may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in those documents. The various legal 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 Virginia and federal laws, rulings and decisions affecting remedies and by bankruptcy, fraudulent conveyance, reorganization and other laws affecting the enforcement of creditors' rights generally and by general equitable principles. THE CORPORATION The Corporation is a Virginia nonprofit nonstock corporation exempt from income taxation under Section 501(a)(3) of the Internal Revenue Code of 1986, as amended (the "Code") by virtue of being an organization described under Section 501(c)(3) of the Code. The Corporation operates a retirement community in Chesterfield, Virginia known as Brandermill Woods, currently consisting of 197 independent living apartments, 59 assisted living units and 60 skilled nursing beds. For more information on the Corporation and the Existing Facility, see Appendix A hereto. THE PLAN OF FINANCE The proceeds of the Bonds will be used to (a) refund the outstanding principal amount of the Authority's Revenue Refunding Bonds (Brandermill Woods Project), Series 1998 (the "Series 1998 Bonds") incurred to finance and refinance a portion of the costs of the acquisition, construction and equipping of the Existing Facility, (b) finance a portion of the costs of the Current Project, (c) finance a portion of the preliminary costs of the Expansion Project, (d) fund Reserve Fund No. 1, and (e) pay certain expenses incurred in connection with the issuance of the Bonds (collectively, the "Plan of Finance"). Plan of Refunding A portion of the net proceeds from the sale of the Bonds will be used to refund all of the outstanding principal balance of the Series 1998 Bonds. Upon delivery of the Bonds, a portion of the net proceeds of the Bonds will be deposited in an escrow fund (the "Escrow Fund") established pursuant to an Escrow Deposit Agreement dated as of November 1, 2012 (the "Escrow Deposit Agreement"), between the Authority and U.S. Bank National Association, as escrow agent (the "Escrow Agent"). Amounts in the Escrow Fund will be held in cash and investments that will be sufficient to provide for payment of all principal and interest on the Series 1998 Bonds to be refunded when due, and to redeem on January 1, 2013, the outstanding principal amount of the Series 1998 Bonds to be refunded, at a redemption price equal to 100% of the principal amount redeemed plus interest accruing to the redemption date. See the section "VERIFICATION OF MATHEMATICAL COMPUTATIONS." Upon deposit of such amounts with the Escrow Agent in the Escrow Fund, the Series 1998 Bonds to be refunded will be defeased and the Corporation will no longer be obligated to make payments on the Series 1998 Bonds to be refunded, except from such escrowed funds. Neither the principal of or interest on amount held in the Escrow Fund will be available to pay the principal of or interest on the Bonds. Current Project A portion of the net proceeds from the sale of the Bonds will be used to finance certain capital improvements related to the renovation and expansion of the Existing Facility (the "Current Project"), including, but not limited to, (i) paving of streets and parking lots, (ii) additional parking facilities, (iii) renovation of existing health care facility common areas and rooms, and (iv) certain renovations of the independent living and assisted -9-

16 living areas of the Existing Facility, including the construction of a new maintenance storage building. See "CURRENT AND FUTURE PROJECTS Current Project" in Appendix A. Expansion Project A portion of the net proceeds from the sale of the Bonds will be used to finance a portion of the preliminary expenses related to the expansion project described in "CURRENT AND FUTURE PROJECTS Expansion Project" in Appendix A (the "Expansion Project"). ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the issuance of the Bonds and the Plan of Finance are as follows: Bonds Sources: (1) Par Amount $41,110, Less Net Original Issue Discount (589,567.30) Series 1998 Bond Fund 1,755, Series 1998 Debt Service Reserve Fund 1,450, Equity Contribution 292, Total $44,018, Uses: (1) Refunding of Series 1998 Bonds $30,252, Current Project Costs 8,400, Expansion Project Costs 1,600, Costs of Issuance (2) 1,103, Reserve Fund No. 1 (3) 2,655, Additional Proceeds 7, Total $44,018, (1) (2) (3) Amounts are rounded to the nearest dollar. Includes underwriters' discount, legal fees, accounting fees, verification agent fees, printing costs, fees and expenses of the Bond Trustee and the Master Trustee and other miscellaneous fees and expenses related to the issuance and sale of the Bonds. See the section herein "UNDERWRITING." The amount of the Reserve Fund No. 1 is equal to the Debt Service Reserve Requirement as defined in Appendix C "DEFINITIONS OF CERTAIN TERMS." -10-

17 ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth, for each Bond Year ending on December 31, the annual debt service requirements under Obligation No. 1 relating to the Bonds. Bond Year Ending (December 31) Obligation No. 1/ Series 2012 Bonds Total Debt Service* Principal Interest* 2013 $0 $285,726 $285, ,000 1,904,838 2,654, ,000 1,889,838 2,654, ,000 1,874,538 2,654, ,000 1,857,963 2,652, ,000 1,839,081 2,654, ,000 1,817,688 2,652, ,000 1,784,638 2,654, ,000 1,756,363 2,651, ,000 1,719,444 2,654, ,000 1,680,875 2,650, ,010,000 1,640,863 2,650, ,055,000 1,599,200 2,654, ,105,000 1,550,406 2,655, ,155,000 1,499,300 2,654, ,205,000 1,445,881 2,650, ,270,000 1,385,631 2,655, ,330,000 1,322,131 2,652, ,400,000 1,255,631 2,655, ,465,000 1,185,631 2,650, ,540,000 1,112,381 2,652, ,620,000 1,033,456 2,653, ,705, ,431 2,655, ,790, ,050 2,653, ,880, ,313 2,651, ,980, ,963 2,654, ,020, ,488 2,593, ,125, ,963 2,594, ,235, ,056 2,596, ,345, ,513 2,591, ,465, ,331 2,591,331 *Rounded to the nearest dollar. -11-

18 BONDHOLDERS' RISKS General So long as the Corporation is the sole Member of the Obligated Group, payment of the Bonds will depend primarily upon the Corporation's ability to generate revenues from the Facilities sufficient to provide for payment of Obligation No. 1 while paying the operating expenses and other indebtedness of the Corporation, including the other Obligations. The Corporation's ability to generate revenues and the overall financial condition of the Corporation may be adversely affected by a wide variety of future events and conditions, including changes in demand for facilities similar to those provided by the Corporation affecting the Corporation's ability to maintain full occupancy, fluctuations in public confidence both in the Corporation and the services it provides, changes in government licensing procedures and regulations and competition. The following are some of the factors that may affect the Corporation's operations and economic well-being and its ability to pay Obligation No. 1. Limited Assets of the Obligated Group The Corporation's sole business is expected to consist of the ownership and operation of the Facilities. Although it may seek donations from groups and individuals, the Corporation has no other sources of funds if revenues from operation of the Facilities are not sufficient to cover its expenses, including debt service on Obligation No. 1. Uncertainty of Full Occupancy and Fee Collection Payment of Obligation No. 1 is dependent in part on the ability of the Corporation (a) to collect community fees, monthly service fees and per diem fees from residents occupying residential units or health care center beds and (b) to keep the Facilities occupied by residents who can pay such fees. Many factors, including economic conditions such as a depressed housing market, could prevent prospective residents from selling their homes and generating cash sufficient to pay such fees. Recent developments in the national housing market could have an adverse effect on the ability of potential residents to sell their homes and realize funds sufficient to pay required fees. It is assumed that regular increases in community fees, monthly fees and per diem fees will be necessary to offset increasing costs due primarily to inflation and increases in health care costs. There can be no assurance that such increases can or will be made or that increases in expenses will be no greater than assumed. In addition, since many of the residents will be living on fixed incomes, there can be no assurance that any such fee increases can be paid by residents or that such increases will not adversely affect the utilization of the Facilities. It is possible that residents who unexpectedly become unable to make such payments would be allowed to remain residents, even though the costs of caring for them could have an adverse effect on the financial condition of the Corporation. As a charitable tax-exempt organization, the Corporation may be unable or unwilling to require residents who lack adequate financial resources to leave the Facilities. In the future, the Corporation could possibly be required to accept residents unable to pay all fees or be required to provide services to a certain number of indigent persons unable to pay any fees, in order to maintain its tax exempt status. See "Financial Assistance; Obligation to Residents" below. The current fee structure for the Existing Facilities is described in "THE FACILITY" in Appendix A. The Corporation sets such fees based on, among other things, forecasts and actuarial tables. If the number of deaths and permanent transfers to the health care facility is less than assumed, the revenues of the Corporation could be adversely affected. -12-

19 Competition The Corporation faces competition from existing facilities for the elderly, including nursing homes, homes for the aged and retirement centers and apartment buildings that offer similar services. In addition, the Corporation may face competition from the renovation or expansion of such facilities or the construction of new facilities. federal and state governments have indicated an intention to encourage new types of facilities and programs in order to reduce the need for institutionalized care of the elderly. See "PRIMARY MARKET-Competition" in Appendix A. Proposed Expansion Project As described in "CURRENT AND FUTURE PROJECTS Expansion Project" in Appendix A, the Corporation is in the final planning stages of the Expansion Project, and a portion of the Bonds is to be used for preliminary components of such renovation and expansion. The construction, phasing and fill-up of the Expansion Project presents risks to the Corporation's financial stability. While the Corporation believes that it will be able to obtain funding for the Expansion Project, primarily through the issuance of additional indebtedness, and that such funding will be sufficient to cover the estimated cost thereof, uncertainties inherent in construction (such as design, obtaining permits, strikes, material shortages and adverse weather conditions) may result in escalations of the cost of the Expansion Project or delays in its completion. Costs overruns for a project of such magnitude may occur due to change orders and other factors. Further, delays in completion of the Expansion Project, failure to meet targets for marketing and occupancy of a variety of other events could slow the rate at which the Expansion Project is occupied. It is difficult to market units while under construction, because prospective residents have no assurance that the Expansion Project will be completed in a timely way. The failure to successfully finance, construct or market the Expansion Project could have an adverse effect on the Corporation's operations and financial condition. While the Corporation is currently conducting final planning for the Expansion Project and its financing, there can be no assurances that the Expansion Project will proceed as currently anticipated. Rights of Residents; State Regulation Under Virginia law, the Corporation's assisted living units are regulated by the Virginia Department of Social Services as "assisted living facilities" and the nursing care beds are subject to extensive legislative, regulatory, and inspection requirements of various federal and state agencies. Furthermore, the Virginia Continuing Care Provider Registration and Disclosure Act (the "Statute") requires the Corporation to file an annual disclosure statement with the Commonwealth of Virginia and to make the annual disclosure statement available by written notice to each resident at no cost. The Statute also regulates the form of resident contracts and establishes certain rights of residents, including the right to organize, to obtain refunds under certain circumstances and not to have resident contracts canceled except for good cause. The Statute gives the State Corporation Commission power to promulgate regulations and issue injunctions and cease-and-desist orders. Compliance with the Statute has not materially affected operations of the Corporation to date. However, the enactment of further legislation restricting operation of care facilities, creating additional residents' rights or requiring certain financial reserves could adversely affect the financial condition of the Corporation. In addition, the ability of the Trustee to enforce remedies and rights under the financing documents may be adversely affected by litigation on behalf of residents. Although under the current care contracts, residents will have no special lien or claim against any property of the Corporation, there can be no certainty that residents could not successfully claim or otherwise restrict the use of the Corporation's property in bankruptcy proceedings or other disputes. The Corporation expects to continue to use the continuing care concept of contracting with residents, but is under no obligation to do so. Although the Current Project does not require receipt of a Certificate of Public Need ("COPN"), the future expansion of the Existing Facilities, could require a COPN approval, which can be a time-consuming and expensive process with no guarantee of success. The current plans to expand the Health Care Center, which is a part of the Expansion Project (as described in "CURRENT AND FUTURE PROJECTS Expansion Project"), will require -13-

20 a COPN. The inability of the Corporation to obtain the COPN for the expansion of the Health Care Center or any future project could adversely affect the operations of the Corporation and its ability to attract residents. Limited Assets of Corporation The Corporation's sole business consists of the ownership and operation of the Facilities. Although it may seek donations from groups and individuals, the Corporation has no guaranteed sources of funds if revenues from operation of the Facilities are not sufficient to cover expenses, including debt service on the Note. Limited Value at Foreclosure The Facilities have been specifically designed and constructed as residential care facilities for the aged. The number of entities that could be expected to purchase or lease the Facilities is limited, and thus the ability of the Master Trustee to realize funds from the sale or rental of the Facilities upon an event of default may be limited. Under State law, licenses to operate continuing care facilities are not transferable. Accordingly, an entity purchasing the Facilities at a foreclosure sale would need to obtain its own license to operate the Facilities as a continuing care facility. Such value may be also limited by actual or alleged rights of residents. See "State Regulation; Rights of Residents" above. No appraisals have been performed on the Facilities. There is no assurance that the Facilities will maintain their value. Reimbursement Under Federal and State Programs The Corporation receives reimbursement from Medicare, Medicaid and other governmental programs for some persons treated at the health care center portion of the Facilities, although management expects such reimbursement will constitute less than 10% of the Corporation's annual operating revenues. Reimbursement under these programs is subject to both federal and state law and regulations. Inability to comply with such laws and regulations may affect receipt of Medicare reimbursement and may thus adversely affect the Corporation's revenues. Furthermore, participation in such programs subjects the Corporation to extensive regulation, including a range of criminal, civil and administrative sanctions. Because of the complexity of the applicable statutes, regulations and other restrictions and increased enforcement, there are numerous circumstances where alleged violations may trigger investigations, audits and inquiries that could result in expensive and prolong enforcement actions against the Corporation. Health Care Reform The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, PPACA made significant changes in the way health care services are to be delivered and reimbursed. Several provisions of PPACA are already in effect, with various provisions becoming effective in phases until full implementation in As these changes are implemented, they could result in, among other things, higher operating costs, lower reimbursement for health care services, utilization changes, increased government enforcement of fraud and abuse activities, and increased cost-savings initiatives. PPACA requires all individuals to have health insurance that meets minimum coverage standards (the Individual Mandate); requires employers to provide certain contributions to coverage of employees; expands public programs, including Medicare and Medicaid; provides premium subsidies to certain individuals and employers; imposes certain taxes on individuals and employers; creates insurance pooling mechanisms or health insurance exchanges; mandates a minimum level of benefits; makes certain changes to insurance industry regulation; implements certain cost-containment mechanisms, including requiring certain changes in health information recordkeeping and provisions designed to reduce fraud, waste, and abuse that are expected to result in cost savings in administrative costs; and reduces provider payments under Medicare and Medicaid and payments under Medicare Advantage plans. PPACA also has provisions designed to improve the quality of outcomes and health system performance, and creates prevention and wellness programs. On June 28, 2012, the Supreme Court of the United States issued its opinion in the case of National Federation of Independent Business v. Sebelius, a legal challenge to PPACA s consitutionality. The Court upheld the constitutionality of the law, but made an expansion by the states of -14-

21 Medicaid coverage voluntary, rather than mandatory, increasing uncertainty as to how that provision will be applied in the various states. The outcome of the challenges to PPACA and the impact on the Facilities cannot be predicted at this time. In the event that PPACA survives the current challenges, the uncertainty surrounding the impact of PPACA on the Facilities will continue for the foreseeable future until implementing regulations are finalized and the various reform measures become effective. Possible impacts on the Facilities include, without limitation, significant regulatory changes that increase the cost of operations; increased activity by government agencies regarding fraud, waste, and abuse; decreased reimbursements for health care services from third-party payors, including Medicare and Medicaid; significant changes to current payment methodologies for health care services; and changes to the costs and expenses of providing health insurance coverage to Facilities employees. Tax Consequences to Residents Section 7872 of the Internal Revenue Code of 1986, as amended (the "Code") provides that, in each year of a "below market loan," the lender will be treated as receiving taxable interest income calculated at the "applicable federal rate" in each year of the loan, even if the obligation to pay the loan does not provide for payment of any interest. The payment to the Corporation of the Entrance Fee, which must be refunded to such resident in certain circumstances in diminishing amounts for a period of time (see Appendix A), may be deemed to be a below market loan. If, however, the Corporation and the residents satisfy the conditions of Section 7872(h) of the Code dealing with certain payments to a "qualified continuing care facility" pursuant to a "continuing care contract," an Entrance Fee will not be treated as a "below market loan." No Treasury Regulations interpreting Section 7872(h) or the committee reports have been issued. If a resident's payment of an Entrance Fee does not satisfy the conditions of Section 7872(h), then the prospect of a resident having to pay taxes on amounts not actually received will increase the resident's costs and may increase the time necessary to fill vacancies in the Facilities. This, in turn, could adversely affect revenues of the Corporation. Section 7872 of the Code could have an adverse effect on the Corporation's ability to maintain current reservations or to market additional units of the Facilities. Organized Resident Activity The Corporation may, from time to time, be subject to pressure from organized groups of residents seeking, among other things, to raise the level of services or to maintain the level of monthly fees with respect to the Facilities or other charges without increase. Moreover, the Corporation may be subject to conflicting pressures from different groups of residents, some of whom may seek an increase in the level of services while others wish to hold down monthly fees and other charges. No assurance can be given that the Corporation will be able satisfactorily to meet the needs of such resident groups. Market for Bonds; Absence of Rating The Bonds have not received any credit rating by any recognized rating agency. The absence of any such rating could adversely affect the ability of Holders to sell the Bonds or the price at which the Bonds can be sold. Tax-Exempt Status The Corporation has received a letter from the Internal Revenue Service ("IRS") determining that the Corporation is a tax-exempt organization described in Section 501(c)(3) of the Code based on the representations it made to the IRS. In order to maintain such status, the Corporation is required to conduct its operations in a manner consistent with representations previously made to the IRS and with current and future IRS regulations and rulings governing tax-exempt continuing care retirement facilities. Loss of tax-exempt status would likely have a significant adverse effect on the Corporation and its operations and could result in the includability of interest on the Bonds in gross income for federal income tax purposes for owners of the Bonds retroactively to their date of issue. In the Loan Agreement and the Master Indenture, the Corporation has covenanted to maintain its status as a taxexempt organization. -15-

22 Financial Assistance; Obligation to Residents The Corporation provides financial assistance to residents unable to pay full charges by reasons of circumstances beyond their control. The current amount of such assistance is discussed in "BRANDERMILL WOODS FOUNDATION AND FINANCIAL ASSISTANCE" in Appendix A. As a tax-exempt organization operating facilities for the elderly, the Corporation must maintain a policy of generally not requiring residents to leave its facilities because of the inability to pay and the Corporation has always maintained such a policy. Such requirement and policy may require the Corporation in the future to provide increased financial assistance or absorb greater operating losses. the Corporation monitors the amount of financial assistance it currently provides, and is likely to have to provide in the future, analyzes the financial resources of residents that it admits and encourages its residents to enroll in Medicare Parts A and B and to maintain either supplemental Medicare insurance or equivalent comprehensive health insurance. There may be circumstances, however, under which the requirements for greater financial assistance may have a material adverse effect on the financial condition of the Corporation and any future Members of the Obligated Group that are tax-exempt organizations. Also, the Corporation's charitable mission and its long term contractual obligations to residents may restrict its ability to close existing facilities that incur operating losses. Legislation Affecting Tax-Exempt Bonds In recent years the IRS and members of Congress have expressed concern about the need for more restrictive rules governing the tax-exempt status of 501(c)(3) organizations generally and of retirement communities in particular. Legislation has been previously introduced restricting the ability of such organizations to utilize tax-exempt bonds unless they maintain a required percentage of low to moderate-income residents. Although the Corporation has covenanted in the Loan Agreement to take all appropriate measures to maintain its tax-exempt status, compliance with current and future regulations and rulings of the IRS could adversely affect the ability of the Corporation to charge and collect revenues at the desired level, finance or refinance indebtedness on a tax-exempt basis or otherwise generate revenues necessary to provide for payment of Obligation No. 1. Environmental Risks The Corporation obtained a Phase I environmental site assessment report of the Existing Facilities in July The report revealed no evidence of on-site recognized environmental conditions and the consultant recommended no further assessment of the Corporation's property at that time. If the Facilities or other property owned by the Corporation were found to be environmentally contaminated and became a "Superfund site" under the Comprehensive Environmental Response, Compensation and Liability Act, the federal government may require its clean-up and the Corporation may be required to pay all or a part of such clean-up costs. If the Corporation were unable to continue operations at the Facilities because of its status as a Superfund site, the value of such Facilities at foreclosure could be reduced by the cost of any clean-up. Future Legislation and Regulation The Corporation is subject to federal and state regulatory actions, legislative and policy changes by federal, state and local governments and agencies. A wide variety of bills and regulations intended to regulate the health care industry are often proposed and introduced in Congress, state legislatures and regulatory agencies. Because of the many possible financial effects that could result from enactment of any bills or regulatory actions affecting the health care industry, it is not possible at this time to predict with assurance the effect on the business of the Corporation, if any, of such laws, bills or regulatory actions. Staffing In past years the health care industry has suffered from a shortage of skilled nursing personnel. The industry-wide shortage has created increased costs of operating health care facilities by creating upward pressure on nursing wage scales. Factors underlying this industry trend include an increase in the proportion of the population -16-

23 that is elderly, an increase in the tendency to institutionalize senior citizens as opposed to providing nursing care in the home, a decrease in the number of persons entering the nursing profession and an increase in the number of nurses specializing in home health care. These factors may intensify in years to come, aggravating the shortage of skilled personnel. As competition for skilled nursing personnel intensifies, staffing shortages could have the effect of significantly increasing the Corporation's personnel costs and could have a material adverse effect on the financial results of the Corporation and on the Corporation's ability to sustain minimum staffing levels necessary to maintain licensure and certification. Labor Union Activity Currently there is no known organizing activity at the Corporation by any labor organizations. The unionization of employees of the Corporation in the future could have an adverse effect on the financial condition of the Corporation. Insurance The Corporation is obligated to carry insurance as described in the Master Indenture. See Appendix C "SUMMARY OF THE MASTER INDENTURE - Insurance." Claims and increases in insurance premiums could, to the extent not covered by increased revenues, adversely affect the Corporation's financial condition. Bankruptcy Although the security under the Corporation Deed of Trust and the lien on the Pledged Assets given for the benefit of holders of Obligations are superior to the claims of other creditors (subject to the limitations set forth in "Security for Obligation No. 1" in "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS"), bankruptcy and similar proceedings against the Corporation and usual equity principles may affect the enforcement of rights to such security. A court may invoke other equity principles to refuse to enforce specifically rights to such security. If such security is inadequate for payment in full of the Bonds, bankruptcy proceedings and usual equity principles may also limit any attempt by the Master Trustee to seek payment from other property, if any, of the Corporation. Although the residency agreements with the residents of the Obligated Group Facilities give the residents no lien on or claim against any property of the Corporation, foreclosure or other enforcement proceedings by the Master Trustee may be adversely affected by claims of residents for reimbursement of Entrance Fees and other funds. Bankruptcy proceedings by the Corporation could have adverse effects on Holders that might reduce or delay payments on the Bonds. Federal bankruptcy law also permits adoption of a reorganization plan without the approval of the Holders if they are provided with the benefit of their original security or the "indubitable equivalent." In addition, if a bankruptcy court concludes that the Holders have "adequate protection," the court may (1) substitute other security for the Holders' security and (2) subordinate the security of the Holders to (a) claims by persons supplying goods, services or credit to the Corporation after bankruptcy and (b) the administrative expenses of the bankruptcy proceeding. In the event of such bankruptcy, the amount realized by the Holders may depend on the court's interpretation of "indubitable equivalent" and "adequate protection" under then existing circumstances. The effect of these and the provisions of federal bankruptcy law cannot be predicted and may be significantly affected by judicial interpretation. Courts may restrict the ability of the Master Trustee to compel the liquidation of the property of the Corporation or any future Member of the Obligated Group to pay a judgment against it for payment of the Bonds because it is a nonprofit corporation carrying out charitable purposes. Furthermore, recent judicial decisions concerning the status of debt service reserve funds held by an indenture trustee have concluded that such reserves are "cash collateral" of a debtor in bankruptcy and have cast doubt on the ability of the Bond Trustee to use moneys in the Reserve Fund No. 1 to make payments on the Bonds in the event of a bankruptcy of the Corporation or any future Member of the Obligated Group. Under the terms of the Master Indenture, each Member of the Obligated Group is obligated to pay and to grant security interest in Pledged Assets to secure the payment of all Obligations issued thereunder, including -17-

24 Obligations issued before it became a Member. The enforceability of the Obligation No. 1 and any subsequent Obligations of the Corporation against future Members of the Obligated Group and the security interests granted in Pledged Assets by them as security for Bonds may be limited under fraudulent conveyance laws and the federal bankruptcy code. Limitations on Enforceability of Remedies Initially, the Corporation will be the only Member of the Obligated Group. In the future, if there is more than one Member of the Obligated Group, the financial results of all the Members of the Obligated Group will be combined for purposes of various covenants and tests, including debt incurrence tests, under the Master Indenture. Although the assets of the Corporation are expected to produce revenues necessary to provide for payment of the Bonds, under the terms of the Master Indenture, substantial portions of all such assets could be conveyed to other Members. In an action involving the enforceability of an Obligation or the security interest in Pledged Assets granted as security therefor, against a Member of the Obligated Group, payment of such Obligation may not be enforced if sufficient consideration was not received by such Member for the Obligation and its incurrence will render such Member insolvent. The realization of any rights upon a default will depend upon the exercise of various remedies specified in the Trust Agreement, the Loan Agreement, the Master Indenture and the Corporation Deed of Trust. Any attempt by the Bond Trustee or the Master Trustee to enforce such remedies may require judicial action, which is often subject to discretion and delay. Under existing law, certain of the legal and equitable remedies specified in the Trust Agreement, the Loan Agreement, the Corporation Deed of Trust and the Master Indenture may not be readily available. Any default in the performance of a covenant set forth in the Trust Agreement (including a default which has become an Event of Default thereunder), the Loan Agreement, the Corporation Deed of Trust or the Master Indenture would constitute an Event of Default under the Master Indenture only following notice by the Master Trustee and lapse of time, as further described in Appendix C "SUMMARY OF THE MASTER INDENTURE - Defaults and Remedies." The Master Trustee may give such notice at any time in its discretion, but is not required to give such notice without the request of the Holders of at least 25% in aggregate principal amount of the Obligations Outstanding under the Master Indenture. Events of Default specified by the Master Indenture are remediable through an enforcement action taken by the Master Trustee in its discretion or at the request of the Holders of not less than 25% in aggregate principal amount of the Obligations Outstanding under the Master Indenture. Notwithstanding any provision of the Master Indenture described in this paragraph, the Holders of not less than a majority in aggregate principal amount of Obligations then Outstanding under the Master Indenture will have the right to control all remedial proceedings. Upon issuance of the Bonds, the principal amount of Obligation No. 1 will be 100% of the aggregate principal amount of all Obligations Outstanding under the Master Indenture. The Master Indenture permits the issuance of Additional Obligations under the circumstances specified therein, so the proportion of the principal amount of Obligation No. 1 to the principal amount of all Obligations at any time Outstanding under the Master Indenture is subject to change. The bank or trust company serving as Bond Trustee or Master Trustee may acquire other Obligations, either as holder for its own account or in a fiduciary capacity similar to that of Master Trustee. In exercising its respective duties and discretion, the Master Trustee might exercise its rights under different Obligations differently, reducing such proportion that otherwise might have been sufficient for the Master Trustee to control enforcement proceedings under the Master Indenture. The Master Trustee and Bond Trustee may in certain circumstances have other conflicts of interest. Upon an acceleration of Obligation No. 1 and all other Obligations issued under the Master Indenture, after paying the expenses and other amounts due the Master Trustee, amounts available to pay the Obligations will be prorated among all Holders of Obligations without preference or priority of principal or premium over interest or of interest over principal or premium, or of any Obligation over any other Obligation. -18-

25 Other Risk Factors Various other factors, such as (without limitation) fluctuations in interest rates and changes in tax laws affecting the Corporation's cost of capital, disproportionate increases in medical costs or nursing costs, the inability to obtain necessary certificates of public need for future expansions of the health care center, adoption of other federal, state or local laws or regulations that impact the Corporation's operations or business, and the inability to obtain necessary zoning variances could also affect the future financial strength or operational efficiency of the Corporation, and therefore its ability to make required payments of principal and interest on Obligation No. 1. A significant portion of the Corporation's budget relates to fixed expenses, which cannot be easily reduced or eliminated. SELECTED COVENANTS Set forth below are summaries of certain covenants in the Master Indenture. These summaries do not purport to be complete, and reference is made to the Master Indenture, a copy of which is on file with the Bond Trustee, for a complete statement of the rights, duties and obligations of the parties thereto. Rate Covenant Under the Master Indenture, each Member of the Obligated Group covenants to set rates and collect charges for its Facilities, services and products such that the Long-Term Debt Service Coverage Ratio, calculated as of the end of each Fiscal Year, commencing with the first full Fiscal Year following the Fiscal Year during which the Stabilization Date occurs, but no later than the Fiscal Year ending June 30, 2013, will not be less than 1.20; provided, however, that in any case where Long-Term Indebtedness has been incurred to acquire or construct capital improvements, the Long-Term Debt Service Requirement with respect thereto shall not be taken into account in making the foregoing calculation until the first full Fiscal Year commencing after substantially all of such capital improvements are placed in service (except that with respect to capital improvements consisting, in whole or in part, of independent or assisted living units or health care beds, the Long-Term Debt Service Requirement with respect thereto shall not be taken into account until the earlier to occur of (i) the first full Fiscal Year next succeeding the Fiscal Year in which the occupancy of such independent or assisted living units or health care beds reaches ninety percent (90%) or (ii) the first full Fiscal Year following the Fiscal Year in which occurs that date which is eighteen (18) months following the date upon which substantially all of such independent or assisted living units or health care beds are placed in service; in either case, the Obligated Group agrees that it will notify the Master Trustee of such event within ten (10) days following its occurrence). In the event the Long-Term Service Debt Coverage Ratio, calculated as of the end of any Fiscal Year, is less than 1.20 but greater than 1.10 and the Reserve Ratio as of the end of such Fiscal Year is not less than 0.35, no Event of Default shall be deemed to have occurred and no further action need be taken. In the event the Long-Term Debt Service Coverage Ratio, calculated as of the end of any Fiscal Year, is less than 1.20 but greater than 1.10 and the Reserve Ratio as of the end of such Fiscal Year is less than 0.35, the Obligated Group shall retain a Management Consultant to analyze the reasons for the failure to achieve a Long- Term Debt Service Coverage Ratio of 1.20 and to make recommendations to increase the Long-Term Debt Service Coverage Ratio for the following Fiscal Year to such amount. If, for two (2) successive Fiscal Years, the Long- Term Debt Service Coverage Ratio is less than 1.20 but greater than 1.10 and the Reserve Ratio as of the end of each such Fiscal Year is less than 0.35, it shall be an Event of Default. In the event the Long-Term Debt Service Coverage Ratio, calculated as of the end of any Fiscal Year, is less than 1.10, the Obligated Group shall retain a Management Consultant to make recommendations to increase the Long-Term Debt Service Coverage Ratio for the following Fiscal Year to 1.20 or, if the Reserve Ratio as of the end of such Fiscal Year is not less than 0.35, to If the Long-Term Debt Service Coverage Ratio is less than 1.10 for two (2) successive Fiscal Years, it shall be an Event of Default. In the event the Obligated Group fails to make a selection of a Management Consultant and fails to give notice of such selection to the Master Trustee within thirty (30) days after its receipt of Financial Statements for a -19-

26 Fiscal Year referred to in either of the two preceding paragraphs (or such later date permitted as described in the subsection entitled "Approval of Management Consultants" below), the Master Trustee shall, upon the direction of at least 50% of the holders of the Outstanding Obligations, select, on behalf of the Obligated Group, a Management Consultant, the costs of which shall be paid by the Obligated Group, to make the recommendations described above. A copy of such recommendations must be filed with the Master Trustee within ninety (90) days after the date the Management Consultant is selected unless the Master Trustee extends, by prior written consent, the time within which such recommendations must be so filed. The Obligated Group agrees that it will, to the extent permitted by law and consistent with the status of any Member of the Obligated Group as a Tax-Exempt Organization, follow any recommendations of the Management Consultant. Liquidity Covenant Under the Master Indenture, each Member of the Obligated Group has agreed to conduct its business so that on each June 30 and December 31, commencing December 31, 2012 (each, a "Liquidity Testing Date"), the Obligated Group shall, not less than forty-five (45) days after each Liquidity Testing Date occurring on December 31 st and not less than one hundred twenty (120) days after each Liquidity Testing Date occurring on June 30 th, deliver an Officer s Certificate setting forth such calculation for such Liquidity Testing Date to the Master Trustee. Each Member of the Obligated Group shall conduct its business so that on each Liquidity Testing Date the Obligated Group shall have no less than one hundred fifty (150) Days Cash on Hand (the Liquidity Requirement ). If the Obligated Group has not achieved the Liquidity Requirement by the next Liquidity Testing Date following delivery of the Officer's Certificate required in the preceding paragraph, the Members of the Obligated Group shall, within thirty (30) days after delivery of the Officer's Certificate disclosing such second (2 nd ) consecutive deficiency (or such later date permitted as described in the subsection entitled "Approval of Management Consultants" below), retain a Management Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group, the Obligated Group's methods of operation and other factors affecting its financial condition in order to achieve the Liquidity Requirement on future Liquidity Testing Dates. Each Member of the Obligated Group shall follow each recommendation of the Management Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member of the Obligated Group) and permitted by law. Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Liquidity Requirement for any Liquidity Testing Date shall not constitute an Event of Default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for adopting a plan or retaining a Management Consultant and follows each recommendation contained in such plan or Management Consultant's report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Corporation) and permitted by law. Rating Solicitation Covenant Not later than one hundred fifty (150) days after receipt by the Obligated Group of Financial Statements for the Fiscal Year ending June 30, 2013, and each Fiscal Year thereafter, the Obligated Group will approach any Rating Agency to obtain a credit rating until the Obligated Group obtains a credit rating of "BBB-" (or an equivalent rating) or better from any Rating Agency (an "Investment Grade Credit Rating"). Notwithstanding the foregoing, the requirement to annually approach a Rating Agency shall terminate when the Obligated Group obtains an Investment Grade Credit Rating. Notwithstanding the foregoing, the Obligated Group shall not be required to approach a Rating Agency to obtain a credit rating if the Obligated Group Representative reasonably believes that the Obligated Group will not meet the criteria of any Rating Agency for an Investment Grade Credit Rating based on the then existing published rating criteria of the Rating Agencies. -20-

27 Approval of Management Consultants If at any time the Members of the Obligated Group are required to engage a Management Consultant under the Master Indenture covenants described above, such Management Consultant shall be engaged in the manner set forth under this subheading. Upon selecting a Management Consultant as required under the provisions of the Master Indenture, the Obligated Group Representative will notify the Master Trustee and the Authority of such selection. While any Authority Bonds are outstanding, each Management Consultant must be acceptable to the Authority. The Authority shall indicate acceptance of each Management Consultant as soon as practicable, but in any case, no longer than five (5) Business Days after receipt of notice. The Master Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the Holders of all Outstanding Obligations of such selection. Such notice shall, based solely upon the information provided to the Master Trustee, (i) include the name of the Management Consultant and a brief description of the Management Consultant, (ii) state the reason that the Management Consultant is being engaged including a description of the covenant(s) of the Master Indenture that require the Management Consultant to be engaged, and (iii) state that the Holder of the Obligation will be deemed to have consented to the selection of the Management Consultant named in such notice unless such Holder submits an objection to the selected Management Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within twenty (20) days after the date that the notice is sent to the Holders. No later than two Business Days after the end of the twenty (20) day objection period, the Master Trustee shall notify the Obligated Group of the number of objections. If the Holders of two-thirds (66.6%) or more in aggregate principal amount of the Outstanding Obligations have been deemed to have consented to the selection of the Management Consultant, the Obligated Group Representative may engage the Management Consultant. If the Holders of more than one-third (33.3%) in aggregate principal amount of the Outstanding Obligations have objected to the Management Consultant selected, the Obligated Group Representative shall select another Management Consultant, which may be engaged upon compliance with the procedures described under this subheading, within thirty (30) days after receipt of notice from the Master Trustee. When the Master Trustee notifies the Holders of such selection, the Master Trustee will also request any Related Bond Trustee send a notice containing the information required by the preceding paragraph to the registered owners of all of the Related Bonds outstanding. Such Related Bond Trustee shall, as the Holder of an Obligation securing such Related Bonds, consent or object to the selection of the Management Consultant in accordance with the response of the owners of such Related Bonds. If the owners of two-thirds (66.6%) or more in aggregate principal amount of the outstanding Related Bonds have been deemed to have consented to the selection of the Management Consultant, the Bond Trustee shall approve the Management Consultant. If the owners of more than one-third (33.3%) in aggregate principal amount of the outstanding Related Bonds have objected to the Management Consultant selected, the Bond Trustee shall not approve the Management Consultant. The twenty (20) day notice period described in the second paragraph above may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds twenty (20) days to respond to the notice given by the Related Bond Trustee. By acceptance of an Obligation securing any Related Bonds, the Related Bond Trustee agrees to comply with the provisions described under this subheading. Continuing Disclosure CONTINUING DISCLOSURE AND ADDITIONAL DISCLOSURE To permit the Underwriter to comply with Rule 15c2-12 (the "Rule") promulgated by the Securities and Exchange Commission (the "SEC"), the Corporation will undertake in the Loan Agreement to provide to the Municipal Securities Rulemaking Board ("MSRB"): (a) by not later than 120 days after the end of each Fiscal Year of the Obligated Group, commencing with the Fiscal Year ending June 30, 2013, the Financial Statements for such Fiscal Year, if available, or, if such Financial Statements are not available by 120 days after the end of such Fiscal Year, the Unaudited Financial Statements (defined below) for such Fiscal Year to be replaced subsequently by the Financial Statements to be delivered within 15 days after such Financial Statements become available for distribution; -21-

28 (b) by not later than 120 days after the end of each Fiscal Year, commencing with the Fiscal Year ending June 30, 2013, the financial and statistical data as of a date not earlier than the end of the preceding Fiscal Year for the type of information described in the tables entitled "Independent Living Units Configuration and Fees," "Assisted Living Units Configuration and Fees," "Health Care Center Configuration and Fees," and "Occupancy by Level of Care" in Appendix A hereto; (c) by not later than 120 days after the end of each Fiscal Year, commencing with the Fiscal Year ending June 30, 2013, the Long-Term Debt Service Coverage Ratio and Reserve Ratio for such Fiscal Year and the number of Days' Cash on Hand as of the end of such Fiscal Year, to the extent such items are not included in the Financial Statements provided pursuant to clause (a) above, if required to be calculated as described in "SELECTED COVENANTS - Rate Covenant" and "-Liquidity Covenant" herein. (d) in a timely manner, not in excess of ten business days after the occurrence of the event, notice of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on any debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax of the Bonds (7) modifications to the rights of the beneficial owners of the Bonds, if material; (8) bond calls (other than calls for mandatory sinking fund redemption), if material, and tender offers; (9) defeasances; (10) release, substitution or sale of any property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of any Member of the Obligated Group, which for purposes of this event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for any Member of the Obligated Group in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of any Member of the Obligated Group, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of any Member of the Obligated Group; (13) the consummation of a merger, consolidation, or acquisition involving any Member of the Obligated Group or the sale of all or substantially all of the assets of any Member of the Obligated Group, other then in the ordinary course of business, the entry into a definitive agreement to undertake such -22-

29 an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional Bond Trustee or the change of name of a Bond Trustee, if material; and (e) in a timely manner, notice of a failure of the Corporation to provide required annual financial information described in (a), (b) or (c) above on or before the date specified. The Corporation shall provide the documents referred to above to the MSRB in an electronic format as prescribed by the MSRB and accompanied by identifying information as prescribed by the MSRB. The Corporation may also discharge its undertaking described above by transmitting such information in any other manner subsequently authorized or required by the SEC. See in Appendix C "DEFINITIONS OF CERTAIN TERMS" for the definition of "Financial Statements." For the purposes of continuing disclosure, "Unaudited Financial Statements" has the same meaning as Financial Statements, except that such financial statements have not been audited and reported upon by an Accountant (or, in the case of any Member of the Obligated Group which is not an Affiliate, the accounts of such Member of the Obligated Group to be added to unaudited combining financial statements described above are not extracted from audited financial statements of such Member of the Obligated Group and its Affiliates, if any). If the Corporation fails to comply with the undertaking described above, the Bond Trustee or any beneficial owner of the Bonds then Outstanding may take action to protect and enforce the rights of beneficial owners with respect to such undertaking, including an action for specific performance and, if such failure is not cured and becomes an Event of Default under the Loan Agreement, the Bond Trustee also may exercise any other remedy available to it upon the occurrence of an Event of Default. All actions shall be instituted, had and maintained in the manner provided in this paragraph for the benefit of all beneficial owners of the Bonds. The Corporation reserves the right to modify from time to time the information to be provided to the extent necessary or appropriate in the judgment of the Corporation, provided that: (a) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Obligated Group; (b) the information to be provided, as modified, would have complied with the requirements of the Rule as of the date of this Official Statement, after taking into account any amendments or interpretations of the Rule, as well as any changes in circumstances; and (c) any such modification does not materially impair the interests of the beneficial owners of the Bonds, as determined either by parties unaffiliated with the Corporation (such as the Bond Trustee or Bond Counsel), or by approving vote of the registered owners of not less than a majority in principal amount of the Bonds then Outstanding pursuant to the terms of the Trust Agreement, as it may be amended from time to time. The Corporation agrees that any annual financial information containing modified operating data or financial information will explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided. The requirements described above shall terminate upon payment, or provision having been made for payment in a manner consistent with the Rule, in full of the principal of and interest on all of the Bonds. Any person subsequently becoming a Member of the Obligated Group is required to deliver to the Bond Trustee an instrument containing the agreement of such Person to become subject to the provisions of this section -23-

30 entitled "Continuing Disclosure" to the extent that such provisions are applicable to such Member of the Obligated Group. Additional Disclosure Under the Loan Agreement, the Corporation covenants that it will provide the following additional information: Within forty-five (45) days after the end of each quarter of each Fiscal Year of the Corporation, commencing with the fiscal quarter ending December 31, 2012, the Corporation shall send by Electronic Means or mail first-class, postage prepaid, to the Authority, (upon written request), the Bond Trustee, the Underwriter, and the MSRB (collectively, the "Required Information Recipients"), the following information: (1) quarterly unaudited financial statements of the Obligated Group, including a combined or combining statement of revenues and expenses (including a comparison to budget) and statement of cash flows of the Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, a management discussion and analysis and payor mix information of the type described in the table "Historical Payor Mix" in Appendix A, (2) an Officer's Certificate of the calculation of (i) the Long-Term Debt Service Coverage Ratio and the Reserve Ratio but only if required to be calculated as of the end of such quarter under the Master Indenture and (ii) the Days' Cash on Hand as of the end of such quarter; provided, however, the Day's Cash on Hand is not tested for compliance for the quarters ending March 31 and September 30; (3) an Officer's Certificate stating whether, to the best of the knowledge of the signer of such Officer's Certificate, the Corporation is not in compliance with any covenant contained in the Master Indenture, the Trust Agreement or in the Loan Agreement (including any covenant in the Tax Certificate incorporated into the Loan Agreement by reference) and, if so, specifying each failure to comply of which the signer may have knowledge and the steps that are being taken to cure such non-compliance; (4) until completion of the Current Project, an abbreviated narrative on the status of the Current Project; and (5) until completion of the Expansion Project, an abbreviated narrative describing the status of the Expansion Project, including, but not limited to, a description of the marketing efforts for the planned additional units to be a part of the Expansion Project. Notwithstanding any provision described above to the contrary, if the Long-Term Debt Service Coverage Ratio for any Fiscal Year is less than 1.00 and Days' Cash on Hand is less than the Liquidity Requirement for any test date as provided in the Master Indenture, the Corporation will deliver the information described in the paragraphs described above on a monthly basis within 45 days after the end of each month until the Long-Term Debt Service Coverage Ratio is at least 1.00 and Days' Cash on Hand is at least equal to the Liquidity Requirement. The Corporation further covenants that it will file with the Authority, the Bond Trustee and the other Required Information Recipients (i) a copy of the operating budget and capital budget of the Obligated Group for the ensuing Fiscal Year not later than the first day prior to each Fiscal Year and (ii) any amendments to such budgets approved by the Governing Body of the Corporation not later than 30 days after such amendments are approved. At any time during the Fiscal Year, to the Required Information Recipients copies of any correspondence to or from the Internal Revenue Service questioning or contesting the status of a Member of the Obligated Group as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of the Bonds the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes, promptly upon receipt. -24-

31 The Corporation shall send by Electronic Means or mail first-class, postage prepaid, to the Required Information Recipients, within ten (10) days following its delivery to the Master Trustee, a copy of any Officer's Certificate and any report and recommendations of any Management Consultant required to be delivered to the Master Trustee under the Master Indenture as it relates to compliance with the Long-Term Debt Service Coverage Ratio and Days' Cash on Hand. See "SELECTED COVENANTS" herein. Within ten (10) days after the occurrence of such event, the Corporation shall send by Electronic Means or mail first-class, postage prepaid, to the Required Information Recipients, notice of the failure to make any Loan Repayment when due if such failure has not been cured. Limited Information The obligations described above will require the Obligated Group to provide only limited specified information at specified times and may not provide all the information necessary to value the Bonds at any given time. LITIGATION There is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body pending, or, to the best knowledge of the Authority, threatened against or affecting the Authority wherein an unfavorable decision, ruling or finding would adversely affect (1) the transactions contemplated by, or the validity or enforceability of, the Bonds, the Trust Agreement, the Loan Agreement, or described in this Official Statement, or (2) the tax-exempt status of interest on the Bonds. No action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body is pending or, to the best knowledge of the Corporation, threatened against or affecting the Corporation, including the litigation described below, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the financial condition of the Corporation or would adversely affect (1) the transactions contemplated by, or the validity or enforceability of, the Bonds, the Trust Agreement, the Loan Agreement, the Master Indenture, Supplement No. 1, Obligation No. 1 or the Corporation Deed of Trust, or described in this Official Statement, or (2) the tax-exempt status of interest on the Bonds. UNDERWRITING Pursuant to a Bond Purchase Agreement (the "Purchase Agreement") among BB&T Capital Markets, a division of Scott & Stringfellow, LLC (the "Underwriter"), the Authority, and approved by the Corporation, the Underwriter will purchase the Bonds at the principal amount thereof less an original issue discount in the amount of $589, and an underwriters' discount in the amount of $678, (1.65% of the principal amount of the Bonds). The obligation of the Underwriter to pay for the Bonds is subject to certain terms and conditions set forth in the Purchase Agreement, including specified opinions of counsel and a certificate of the Corporation that there has been no material adverse change in its condition (financial or otherwise) from that set forth in this Official Statement. The Corporation has agreed in the Bond Purchase Agreement to indemnify the Underwriter and the Authority against certain liabilities relating to this Official Statement. The Underwriter may offer and sell the Bonds to certain dealers (including dealer banks and dealers depositing Bonds into investment trusts) and others at prices lower than the public offering prices stated on the inside front cover of this Official Statement. Such initial public offering prices may be changed from time to time by the Underwriter. -25-

32 BONDS ELIGIBLE FOR INVESTMENT AND SECURITY FOR PUBLIC DEPOSITS The Act provides that bonds issued pursuant thereto shall be securities in which all public officers and public bodies of the Commonwealth of Virginia and all its political subdivisions, all insurance companies, trust companies, banking associations, investment companies, executors, trustees and other fiduciaries may properly and legally invest funds. No representation is made as to the eligibility of the Bonds for investment or any other purpose under any law of any other state. The Act also provides that bonds issued pursuant thereto may properly and legally be deposited with and received by any state or municipal officer or any agency or political subdivision of the Commonwealth of Virginia for any purpose for which the deposit of bonds or obligations of the Commonwealth of Virginia is now or may hereafter be authorized by law. LEGAL MATTERS Legal matters incident to the authorization and validity of the Bonds are subject to the approving opinion of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel to the Authority. The proposed form of such opinion is contained in Appendix D. In its capacity as Bond Counsel to the Authority, Hawkins Delafield & Wood LLP has not been engaged by the Authority to confirm or verify and expresses no opinion as to the accuracy, completeness or fairness of the statements made in the Official Statement related to the Bonds or in any other reports, financial statements, offering or disclosure documents or other information pertaining to the Authority, the Corporation or the Bonds that may be made available to the purchasers of the Bonds by the Authority, the Corporation or the Underwriter. Certain legal matters will be passed on for the Corporation by Saunders, Patterson & Mack, Richmond, Virginia, for the Authority by Hunton & Williams LLP, Richmond, Virginia, and for the Underwriter by McGuireWoods LLP, Richmond, Virginia. VERIFICATION OF MATHEMATICAL COMPUTATIONS Dauby O'Connor & Zaleski, LLC ("Dauby O'Connor & Zaleski"), independent certified public accountants, will verify from the information provided to them the mathematical accuracy as of the date of the closing on the Bonds of the computations contained in the provided schedules (i) to determine that the anticipated receipts from the securities and cash deposits listed in the Underwriter's schedules, to be held in escrow, will be sufficient to pay, when due, the principal and interest payment requirements of the Series 1998 Bonds; and (ii) to support the conclusions that the Bonds are not "arbitrage bonds" under Section 148 of the Code. Dauby O'Connor & Zaleski will express no opinion on the assumptions provided to them, nor as to the exemption from taxation of the interest on the Bonds. Opinion of Bond Counsel TAX MATTERS In the opinion of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel to the Authority, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, interest on the Bonds (i) is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact and statements of reasonable expectations made by the Authority and the Corporation in connection with the Bonds, and Bond Counsel has assumed compliance by the Authority and the Corporation with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. In addition, in rendering its opinion, Bond Counsel has relied on the opinion of counsel to the Corporation regarding, among other matters, the current qualifications of the Corporation as an organization described in Section 501(c)(3) of the Code. -26-

33 In addition, in the opinion of Bond Counsel to the Authority, under the existing statutes of the Commonwealth of Virginia (including the Act), the income from the Bonds, including any profit made from the sale thereof is exempt from all taxation by the Commonwealth of Virginia or any political subdivision thereof. Bond Counsel expresses no opinion regarding any other federal or state tax consequences with respect to the Bonds. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update, revise or supplement its opinion to reflect any action hereafter taken or not taken, or any facts or circumstances that may hereafter come to its attention, or changes in law or in interpretations thereof that may hereafter occur, or for any other reason. Bond Counsel expresses no opinion on the effect of any action hereafter taken or not taken in reliance upon an opinion of other counsel on the exclusion from gross income for federal income tax purposes of interest on the Bonds or under state and local tax law. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain ongoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Bonds, yield and other restrictions on investments of gross proceeds and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the federal government. Noncompliance with such requirements may cause interest on the Bonds to become included in gross income for federal income tax purposes retroactive to their issue date without regard to the date on which such noncompliance occurs or is discovered. The Authority and the Corporation have covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral federal income tax matters with respect to the Bonds. It does not purport to address all aspects of federal taxation that may be relevant to a particular owner of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Bonds. Prospective owners of the Bonds should be aware that the ownership of such obligations may result in collateral federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for federal income tax purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount "Original issue discount" ("OID") is the excess of the sum of all amounts payable at the stated maturity of a Bond (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the "issue price" of a maturity means the first price at which a substantial amount of the Bonds of that maturity was sold (excluding sales to bond houses, brokers or similar persons acting in the capacity as underwriters, placement agents or wholesalers). In general, the issue price for each maturity of Bonds is expected to be the initial public offering price set forth on the inside cover page of the Official Statement. Bond Counsel further is of the opinion that, for any Bonds having OID (a "Discount Bond"), OID that has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross income for federal income tax purposes to the same extent as other interest on the Bonds. In general, under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Bond. An owner's adjusted basis in a Discount Bond is -27-

34 increased by accrued OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Bond even though there will not be a corresponding cash payment. Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding and disposing of Discount Bonds. Bond Premium In general, if an owner acquires a Bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the Bond after the acquisition date (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates), that premium constitutes "bond premium" on that Bond (a "Premium Bond"). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner's yield over the remaining term of the Premium Bond determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium Bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner's regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner's original acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange or other disposition of Premium Bonds. Information Reporting and Backup Withholding Information reporting requirements apply to interest paid on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, "Request for Taxpayer Identification Number and Certification", or if the recipient is one of a limited class of exempt recipients. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to "backup withholding", which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a "payor" generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner's federal income tax once the required information is furnished to the Internal Revenue Service. Miscellaneous Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under federal or state law or otherwise prevent beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. In addition, such legislation or actions (whether currently proposed, proposed in the future, or enacted) and such decisions could affect the market price or marketability of the Bonds. -28-

35 Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters. NO RATING ON THE BONDS No party involved in the issue of the Bonds has applied to Moody's Investors Service, Inc., Standard & Poor's Rating Services, or Fitch, Inc. or any other similar rating service for an investment rating of the Bonds. FINANCIAL STATEMENTS The financial statements of the Corporation included in Appendix B to this Official Statement as of and for the fiscal years ended June 30, 2012 and 2011 have been audited by Dauby O'Connor & Zaleski, LLC ("Dauby O'Connor & Zaleski"), independent certified public accountants, as stated in their report thereon, which appears in Appendix B hereto. Dauby O'Connor & Zaleski has not been engaged to perform and have not performed, since the date of their report included herein, any procedures on the financial statements addressed in that report. Dauby O'Connor & Zaleski has not performed any procedures relating to this Official Statement. RELATIONSHIP OF PARTIES BB&T Capital Markets, a division of Scott & Stringfellow, LLC, (1) is serving as underwriter for the Bonds and (2) is a wholly-owned subsidiary of BB&T Corporation, which owns Branch Banking and Trust Company, which is serving as Bond Trustee and Master Trustee. Hunton & Williams LLP, counsel to the Authority, has represented, continues to represent or expects to represent in the future the Underwriter in unrelated matters. N. Leslie Saunders, Esq., counsel to the Corporation, is a member of the board of directors of the Corporation. MISCELLANEOUS The Corporation has furnished all information herein relating to the Corporation. Any statements involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The Authority and its staff assume no responsibility for the accuracy or completeness of any representation or statement in this Official Statement except for material with respect to them included under the sections entitled "THE AUTHORITY" and "LITIGATION." Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as a contract with the owner of any of the Bonds. -29-

36 The Authority has duly authorized the execution and delivery of, and the Corporation has approved, this Official Statement. ECONOMIC DEVELOPMENT AUTHORITY OF THE COUNTY OF CHESTERFIELD By: /s/ Terri C. Beirne Chair Approved: SENIOR LIVING CHOICES OF VIRGINIA, INC. By: /s/ Wayne L. Edmunds President and Chair of the Board -30-

37 APPENDIX A CERTAIN INFORMATION CONCERNING SENIOR LIVING CHOICES OF VIRGINIA, INC.

38 TABLE OF CONTENTS OVERVIEW... 2 Introduction... 2 History of the Organization... 2 Recent Recognition and Awards... 4 Governance... 4 SENIOR MANAGEMENT AND STAFF... 5 THE FACILITY... 6 General Description... 6 Independent Living... 9 Assisted Living The Chesterfield and The Holly Inn The Health Care Center Occupancy Memberships and Licenses RESIDENCY AGREEMENTS Independent Living Units Assisted Living Facilities Health Care Center BRANDERMILL WOODS FOUNDATION AND FINANCIAL ASSISTANCE PRIMARY MARKET AREA General Competition FINANCIAL INFORMATION Sources of Revenue Historical Payor Mix Summary of Cash Position Historical Long-Term Debt Service Coverage (Pro-forma) Summary Statements of Operations Management's Discussion of Financial Performance CURRENT AND FUTURE PROJECTS Strategic Plan and Future Initiatives Current Project Expansion Project INVESTMENT POLICY BUDGETING AND OTHER MATTERS Page A-1

39 OVERVIEW Introduction Senior Living Choices of Virginia, Inc. (the "Corporation") is a 501(c)(3) organization, originally formed in 1980 in the Commonwealth of Pennsylvania under the name of Boarding Home Life Style Improvement Society, Inc. to own and operate continuing care facilities. In 1989, the name of the corporation was changed to Senior Living Choices, Inc. In 2001 the Board of Directors of Senior Living Choices, Inc. determined to establish the Corporation as a not-for-profit, non-stock corporation organized and existing under the laws of the Commonwealth of Virginia and merged Senior Living Choices, Inc. into the Corporation. The Corporation continues to do business under the trade names Senior Living Choices, Inc. and Brandermill Woods Retirement Community. The Corporation's offices are located in Midlothian, Virginia. The Corporation has received an exemption from federal income taxation under Section 501(c)(3) of the Internal Revenue Code and an exemption from state income taxation in the Commonwealth of Virginia under its applicable tax provisions. The Corporation owns and operates a rental continuing care retirement community in Chesterfield County, Virginia known as Brandermill Woods ("Brandermill Woods"). The Corporation's mission is to provide quality housing and services for seniors through a continuum of care founded on the principle that each person's life is a gift meant to be lived in dignity, comfort and security. The Corporation strives to provide a compliment of services in a supportive and attractive atmosphere through dedicated and caring professionals. The respect, empathy, privacy and independence of the residents of Brandermill Woods are of paramount importance to the Corporation. As a rental continuing care retirement community, Brandermill Woods does not currently charge its residents an entrance fee. See "THE FACILITY" for a description of the monthly fees and per diem rates and "THE RESIDENCY AGREEMENTS" for a description of the Corporation's residency agreements. Brandermill Woods currently has 197 independent living units consisting of 131 single-family cluster homes (the "Cottage Homes") and 66 single-family apartments (the "Club Home Apartments", and together with the Cottage Homes, the "Independent Living Units"). In addition, Brandermill Woods has 40 assisted living units in the assisted living facility ("The Chesterfield"),19 assisted living units for those residents with memory impairment ("The Holly Inn" and, together with The Chesterfield, the "Assisted Living Facilities" or the "Assisted Living Units") and 60 skilled and intermediate care nursing beds in the nursing home ("The Health Care Center"), together with a clubhouse (the "Clubhouse"), which contains common areas, including a restaurant, lounge, and recreational facilities. History of the Organization Original Ownership. The concept for Brandermill Woods began in the early 1980s and was originally planned and operated as an entrance fee retirement community. Since its inception in 1985, Brandermill Woods, Ltd., a Georgia corporation, owned the 57 entrance fee independent living units of Brandermill Woods while BW of Virginia, Inc., a Virginia corporation, since its inception November 4, 1986, owned The Chesterfield's 60 assisted living units and the Health Care Center's 60-bed skilled nursing facility. Brandermill Woods, Ltd. was a limited partnership (the "Partnership") with Elderly Care Associates, Co. as its general partner. The sole purpose of the Partnership was (i) to develop a residential continuing care facility by means of acquiring certain real property in Chesterfield County, Virginia and constructing certain improvements thereon, (ii) to market the retirement community to prospective A-2

40 residents thereof, and (iii) to operate the retirement community on an ongoing basis. In 1985, the Partnership obtained financing for constructing the retirement community through various resources for an aggregate principal amount of $22,000,000. During construction of the project, Brandermill Woods began to experience financial issues and required additional monies to complete the project. In August 1986, Continuing Care Consultants, a Georgia corporation, replaced Elderly Care Associates, Co. as the general partner of the Partnership and Elderly Care Associates, Co. became a limited partner. In 1988, RPHI, Inc., a Delaware corporation, replaced Continuing Care Consultants as the general partner of Brandermill Woods, Ltd. RPHI, Inc.'s intent was to seek tax-exempt financing (the "Tax-Exempt Bonds") that would enable to the project to be completed and operate at the capacity that was originally planned. Immediately following RPHI, Inc.'s succession as general partner, the Virginia State Corporation Commission (the "Virginia SCC") required Brandermill Woods, Ltd. to enter into an agreement dated October 6, 1989, under which Brandermill Woods, Ltd. agreed to make no further sales of the existing cottages prior to the date of issuance of the Tax-Exempt Bonds. In November, 1990, RPHI, Inc. determined that it was in the best interests of Brandermill Woods to convert from an entrance fee concept retirement community to a landlord-tenant relationship, and to transfer ownership of Brandermill Woods to Senior Living Choices, Inc. All of the residents who resided in Brandermill Woods at the time agreed to sign new leases effective upon the sale of Brandermill Woods to Senior Living Choices, Inc. and the existing entrance fees related to such residents were refunded Acquisition by Senior Living Choices, Inc. On August 1, 1991, Brandermill Woods, Ltd. and BW of Virginia, Inc. transferred Brandermill Woods to Senior Living Choices, Inc. The acquisition of the existing facility and construction of 140 additional independent living units were financed by the issuance of Industrial Development Authority of Chesterfield County, Virginia Mortgage Revenue Bonds, Series 1991 in the aggregate principal amount of $50,726,716 (the "Series 1991 Bonds"). The Series 1991 Bonds were issued in three series: the Series 1991A Bonds were issued in the aggregate principal amount of $44,026,700; the Subordinate Series 1991B Bonds were issued in the aggregate principal amount of $3,200,016; and the Taxable Series 1991C Bonds were issued in the aggregate principal amount of $3,500, Restructuring and Transfer of Control. Senior Living Choices, Inc. incurred losses larger than estimated and was unable to support all of the debt service payments on the Series 1991 Bonds. Senior Living Choices, Inc. entered into a number of waiver and forbearance agreements with the holders of the Series 1991 Bonds and the last forbearance agreement expired on September 1, Pursuant to the forbearance agreements, Senior Living Choices, Inc. employed Moore Diversified Services as a management consultant and Hamlyn Senior Marketing as a marketing consultant to identify operational deficiencies and to develop a remedial plan. As a result of Senior Living Choices, Inc. following the recommendations of both consultants, occupancy at Brandermill Woods increased and additional services were made available to residents. Despite these improvements, Senior Living Choices, Inc. remained unable to pay all of its debt service payments. On September 8, 1997, Senior Living Choices, Inc. filed Chapter 11 bankruptcy due to its inability to extend or renegotiate the outstanding forbearance agreement. The bankruptcy was completed on December 10, Pursuant to the Second Amended Joint Plan of Reorganization, the Board of Directors of Senior Living Choices, Inc. (the "Board") was restructured and the members of the Chesterfield County Health Center Commission were appointed directors of the restructured Board. In 1998 the outstanding principal amount of the Series 1991 Bonds was refinanced with the proceeds of the Industrial Development Authority of the County of Chesterfield Mortgage Revenue Refunding Bonds (Brandermill Woods Project) Series 1998 (the "Series 1998 Bonds"). A-3

41 1998 to Present. Senior Living Choices, Inc. was originally incorporated as a Pennsylvania corporation. In 2001, the Board determined that it was no longer beneficial for Senior Living Choices, Inc. to subject itself to the jurisdiction of the courts of the Commonwealth of Pennsylvania since Brandermill Woods, the sole asset of Senior Living Choices, Inc., was located in Chesterfield County, Virginia, and Senior Living Choices, Inc. had no assets or operations in the Commonwealth of Pennsylvania. The Board voted to form Senior Living Choices of Virginia, Inc., as a Virginia nonstock corporation, and to merge Senior Living Choices, Inc. into Senior Living Choices of Virginia, Inc. In 2001, Senior Living Choices, Inc. merged into Senior Living Choices of Virginia, Inc. and Senior Living Choices of Virginia, Inc. was the sole surviving entity. Presently, the Corporation also does business under the tradenames "Senior Living Choices, Inc." and "Brandermill Woods Retirement Community." The Corporation's total revenues and operating margin have consistently increased since the restructuring in In addition, since 1998, the Corporation has never failed to comply with its debt service coverage ratio covenant (as calculated in accordance with the bond documents for the Series 1998 Bonds), which ranged from 1.23x to 1.79x for an average of 1.47x. Recent Recognition and Awards Brandermill Woods has been featured in ICAA's nationally recognized magazine in 2008, 2010, and 2011 for its innovative ideals and participation in Active Aging Week. The ICAA is dedicated to changing the way we age by uniting professionals in the retirement, assisted living, fitness, rehabilitation, and wellness fields to dispel society's myths about aging. Since 2009, Brandermill Woods' monthly newsletter for its Assisted Living Facilities and Health Care Center has received recognition by VHCA. VHCA has also awarded two of the Corporation's longterm staff member, "Certified Nursing Assistant of the Year" in 2003 and in Most recently, Brandermill Woods was voted and received second place in Virginia Living Magazine's "Best of Virginia 2012" issue for "Best Retirement Community" in Central Virginia. Governance The Corporation is governed by a board of directors (the "Board" or "Board of Directors") comprised of at least three (3) and no more than nine (9) directors. The directors serve three year terms. The terms of the Board members are staggered, with approximately one-third of the directors being nominated and appointed to the Board each year. Directors continue to serve until their successors have been duly appointed to the Board. A-4

42 The Board meets four times annually and at such other times as the Board may determine. Each director is compensated $2,250 per fiscal quarter. The Board may, from time to time, establish other committees or task forces as it deems advisable. Members of the Board, their principal business affiliations and their number of years on the Board are summarized below: Name Position Occupation Years on the Board Wayne L. Edmunds President and Chairman Accountant, Gregory & Associates and Professor of Accounting, Virginia Commonwealth University Frasier Brickhouse Vice President Retired Educator & Assistant Dean, Virginia State University School of Business N. Leslie Saunders, Esq. Secretary Attorney, Saunders, Patterson & Mack Bradford S. Hammer Treasurer Retired Deputy County Administrator, Chesterfield County Human Services 14 years 14 years 14 years 6 years SENIOR MANAGEMENT AND STAFF Management of the Corporation consists of the following individuals: Mira D. Pallotta, Executive Director (48). Ms. Pallotta is a 22-year employee of Brandermill Woods and has served as the Executive Director for nine years. She also served as the Associate Executive Director of Finance and Human Resources for six years and as the Accounting Director for seven years prior before becoming the Executive Director. Prior to Brandermill Woods, Ms. Pallotta had extensive experience with health care accounting, systems and billing practices through Medicare, Medicaid and third party payers. L. Charmaine Preiss, Independent Services Director (54). Ms. Preiss was appointed Independent Services Director in 2009 and has been with Brandermill Woods for nine years. Ms. Preiss has also served as Director of Accounting and Human Resources. Ms. Preiss is responsible for financial management and daily business operations as well as assisting the Executive Director with budgeting. Her position is responsible for the oversight of 240+ staff members and the management of resident services and the facilities' systems. She has worked in management, accounting and finance for over 23 years with over 17 years in the health care industry and six years in the Real Estate and Property Management industry. Cynthia L. Ritter, LNHA, Administrator (48). Ms. Ritter was named Administrator of the Brandermill Woods Health Care Center and Chesterfield Assisted Living in November of Ms. Ritter's prior experience includes overseeing accounts receivable and payable, insurance and governmental billing and reimbursement and overall budgeting matters, as well as serving as Administrator for Envoy Healthcare and Golden Living Centers in Virginia. As Administrator, she has overall responsibility for management of the Healthcare Center and Assisted Living. Ms. Ritter holds a bachelor's degree in Business Management with a minor in Marketing from East Central University in Ada, Oklahoma. A-5

43 Amy Willmarth, Sales & Marketing Director (55). Ms. Willmarth was named Sales and Marketing Director in 2009 and has been with Brandermill Woods for a total of fifteen years serving in various capacities. She originally came to Brandermill Woods in 1991 as the Assistant to the Clubhouse Manager where she also performed duties as the Marketing Assistant, Move-In Coordinator and Transportation Coordinator. Ms. Willmarth later served as Human Resources Director, followed by Resident Services Director. Ms. Willmarth holds a bachelor's degree in Interior Design and Fine Arts from Western Michigan University. Tomeka Scott, Director of Nursing (38). Ms. Scott is a 17-year employee of Brandermill Woods and has served as the Director of Nursing for one year. Prior to being named the Director of Nursing, she was the Assistant Director of Nursing for six years and the In-service Coordinator for one year. Ms. Scott has also served as a charge Nurse in both the Health Care Center and the Assisted Living. She started at Brandermill Woods as a certified Nursing Assistant in 1995 and acquired her medication aide certificate shortly thereafter. Ms. Scott is responsible for the daily operations of the Health Care Center and the Assisted Living, including managing over 80 staff members, residents, and family relations. She has worked in the health care industry for over 20 years, mainly in long term care and skilled nursing. Ms. Scott attended John Tyler Community College where she studied to become a registered nurse. Ms. Scott attended South Side College where she studied to become a practical nurse and was on the Dean's list. Ms. Scott's past work history includes working at Virginia Commonwealth University in Oncology where she became chemotherapy Certified. General Description THE FACILITY Brandermill Woods is located in Midlothian, Virginia, which is a suburb approximately 13 miles southwest of downtown Richmond, Virginia. Brandermill Woods is located on a acre site within the master planned community of Brandermill in Chesterfield County, Virginia (the "Community"). The Community was started in the mid-1970s, and as of 2012 has a population of over 13,000 persons in over 3,600 housing units. The Community is a 2,600-acre mixed-use development, integrating planned residential, office/business and multifunctional regional centers consisting of over 80 neighborhoods. These neighborhoods offer a diverse range of home styles and price ranges. Brandermill Woods' residents have the same privileges as other Community residents. Walking and biking trails, parks and recreational areas, and a 1,700 acre lake are all integrated into the Community. The Community also offers shopping, banking, medical offices and several restaurants. It has been recognized in a national competition as one of the best planned communities in the United States. Under the current master plan, Brandermill Woods is the only retirement community and health care center in the Community. As a rental continuing care retirement community, Brandermill Woods does not currently charge its residents an entrance fee. See "THE FACILITY Independent Living Units," "- Assisted Living Units" and "- The Health Care Center" for a description of the monthly fees and per diem rates and "THE RESIDENCY AGREEMENTS" for a description of the Corporation's residency agreements. Brandermill Woods currently has 197 Independent Living Units, 40 Assisted Living Units and 60 skilled and intermediate nursing beds in the Health Care Center. A-6

44 A map of the Community is located below. Brandermill Woods The Health Care Center Independent Living Campus A-7

45 A map of the Brandermill Woods campus is included below. Brandermill Woods Community Map A-8

46 Independent Living Brandermill Woods currently is comprised of 197 Independent Living Units, consisting of 131 Cottage Homes and 66 Club Home Apartments. The Cottage Homes are single-family homes connected in clusters of 3 to 5 and are grouped around cul-de-sacs. The Cottage Homes include a living/dining room with access to a covered porch; kitchen/breakfast nook, including a double sink with garbage disposal, range, refrigerator, microwave and dishwasher; a walk-in closet and a full bath; a utility closet; a washer and dryer; and a one car attached garage. Lower level units provide a finished walk-out basement with a number of room variations offered, i.e. some units have a family room/den, extra bedrooms, bathrooms, laundry, storage and work areas. The 66 Club Home Apartments are apartment-style living units in two, three-story buildings which connect to the Clubhouse. Each building houses 12 one bedroom units and 21 two bedroom units. All units include a living/dining room; kitchen including a double sink with garbage disposal, range, refrigerator, microwave and dishwasher; a master bedroom with walk in closet; connecting full bath, utility room, additional hall storage and an assigned covered parking area with storage. Two bedroom units include an additional bedroom/den and full bath. The following table summarizes the type, number, approximate square footage, and the monthly service fees for the Independent Living Units in the existing facilities of the Community, effective July 1, 2012: Independent Living Units Configuration and Fees Square Footage Monthly Rental Rate Description Total Units APARTMENTS One Bedroom Chelsea - 1st Floor $3,491 One Bedroom Chelsea - 2nd Floor ,524 One Bedroom Chelsea - 3rd Floor ,457 Two Bedroom Franklin - 1st Floor 4 1,207 3,880 Two Bedroom Franklin - 2nd Floor 4 1,207 3,909 Two Bedroom Franklin - 3rd Floor 4 1,207 3,851 Two Bedroom Stratford - 1st Floor 10 1,246 3,880 Two Bedroom Stratford - 2nd Floor 10 1,246 3,909 Two Bedroom Stratford - 3rd Floor 10 1,246 3,851 Total/Weighted Average: 66 1,124 $3,738 COTTAGES One Bedroom Wyndham 5 1,057 $3,326 Two Bedroom Windsor 26 1,231 3,635 Two Bedroom Windsor End 2 1,331 3,893 Two Bedroom Windsor Lower Level 5 2,302 4,173 Two Bedroom Queensbury 30 1,231 3,817 Two Bedroom Queensbury End 8 1,331 3,942 Two Bedroom Queensbury Lower Level 6 2,302 4,456 Two Bedroom Queensbury End Lower Level 1 2,302 4,487 Three Bedroom Kent/Brighton 39 1,412 4,456 Three Bedroom Kent/Brighton Lower Level 9 2,867 4,856 Total/Weighted Average: 131 1,496 $4,081 ILU Facility Total/Weighted Average: 197 1,372 $3,966 A-9

47 Annual Rate Increases. The table below shows the average community fee and monthly fee increases at Brandermill Woods for the fiscal years ended June 30, 2010 through Fiscal Year Average Community Fee Percentage of Monthly Fee Increase from Previous Year 2009 $3, % , , , , Services. The following services are provided to residents of the Independent Living Units: All utilities (excluding telephone) Basic cable television Maintenance 15 meals per person per month Bi-weekly housekeeping services (only in Cottage Homes Club Home Apartments receive housekeeping one a week. Around-the-clock security Scheduled transportation to nearby shops and services Scheduled activities and full-time Activities Director Clubhouse with library, arts and crafts room, Fitness Center, game rooms, lounge, dining room, An individualized Health and Wellness Program with our Wellness Coordinator Daily fitness classes from aerobic and strengthening to those specifically designed to enhance balance, build leg muscles and a special class for those with arthritis Access to the extensive recreational amenities offered by the planned community of Brandermill, including a 1,700 acre lake and bike and walking trails A social membership (swimming and dining) to the Brandermill Country Club. Golf and tennis memberships offered at reduced rates. Brandermill Woods pays the membership fees, and residents are only responsible for paying for membership upgrades, meals, incidentals at the club, etc. Assisted Living The Chesterfield and The Holly Inn The Assisted Living Facilities known as "The Chesterfield" opened in April 1989 and include 60 apartment units. In March 2001, the first floor of The Chesterfield was converted into a memory-care designated floor known as The Holly Inn and was reduced from 20 units to 19 units. One unit was converted into kitchen and dining space that provides a more home-like environment for the memory care residents. Currently, the Assisted Living Facilities are comprised of 59 total assisted living units, of which 19 are memory-care assisted living units. Individuals who do not live in the Independent Living Units may be admitted directly to the Assisted Living Facilities or to the Health Care Center described below and may transfer from the Assisted Living Units to the Health Care Center and vice versa. Under the terms of each residency agreement, in the event the Health Care Center or the Assisted Living Facilities are fully occupied, the Corporation must place a resident who needs to move to the Health Care Center or the Assisted Living Facilities in another health care facility providing a level of care similar to that of the Health Care Center or the Assisted Living Facilities, respectively. To avoid having to transfer its residents to an outside A-10

48 facility, the Corporation's practice is to at times restrict the admission of individuals directly to the Health Care Center or the Assisted Living Facilities from outside Brandermill Woods. Similarly, the Corporation will transfer persons directly admitted to the Assisted Living Facilities to the Health Care Center only to the extent space is available, taking into account the priority access to residents who initially moved to an Independent Living Unit. This practice is intended to enable the Corporation to maintain enough space to meet the anticipated needs of current residents who originally were residents of the Independent Living Units of Brandermill Woods under the terms of a ILU Residency Agreement. To date, the Corporation has only been required to seek outside placement of a resident when there are more than two individuals seeking placement at the same time. During a resident's stay at an outside facility, the Corporation maintains communication with such outside facility to monitor the resident and transfers the resident back to Brandermill Woods as soon as there is availability in the Assisted Living Facilities or Health Care Center, as applicable Unit Types. The Assisted Living Facilities are offered in three different floor plans designed to meet the needs of residents who require assistance with various activities of daily living, as described below: Efficiency Apartment Units. All efficiency units have wall-to-wall carpeting, non-slip floor coverings in uncarpeted areas, blinds, an individually controlled climate control system, smoke detectors, sprinkler systems, bathroom safety features and an emergency call system. The efficiency is a large and spacious one room unit with private bath, shower and walk-in closet. Alcove Units. Alcove units have wall-to-wall carpeting, non-slip floor coverings in uncarpeted areas, blinds, an individually controlled climate control system, smoke detectors, sprinkler systems, bathroom safety features and an emergency call system. The Alcove is a large unit with a living/dining and bedroom area, kitchenette (excludes cooktops or cooking surfaces) with refrigerator, sink, counter and cabinets; private bath with shower and walk-in closet. One Bedroom Apartment Units. The one bedroom units have wall-to-wall carpeting, non-slip floor coverings in uncarpeted areas, blinds, an individually controlled climate Control system, smoke detectors, sprinkler systems, bathroom safety features and an emergency call system. The one bedroom is the largest assisted living unit with living/dining area, kitchenette (excludes cooktops or cooking surfaces) with refrigerator, sink, counter and cabinets; a separate bedroom with a connecting private bath and walkin closet. A-11

49 The following table summarizes the type, number, approximate square footage, and the daily service fees for the Assisted Living Facilities, effective July 1, 2012: Assisted Living Units Configuration and Fees Unit Type Description Total Units Square Footage Average Daily Per Diem Rate The Chesterfield Assisted Living Units Efficiency $151 Alcove One Bedroom Total/Weighted Average: $160 The Holly Inn Memory-Care Assisted Living Units Efficiency $183 Alcove One Bedroom Total/Weighted Average: $188 Combined Total/Weighted Average: $169 Individuals who were not residents of the Independent Living Units and who are directly admitted to the Assisted Living Facilities are charged a one-time non-refundable $3,000 community fee. Residents directly admitted to the Health Care Center who transfer to the Assisted Living Facilities are also charged the $3,000 community fee upon transferring to the Assisted Living Facilities. Services and Amenities. Residents of the Assisted Living Facilities enjoy the following services and amenities: Patio and beautifully landscaped grounds Beauty and barber salon Emergency medical care - licensed nurse available 24 hours Three meals prepared and served daily and snacks provided throughout the day Well-organized recreation and social programs Call bells in each room and visiting area Basic cable television Personal linen/laundry service Housekeeping Monitoring system at each exit Scheduled transportation to nearby shops and medical appointments All utilities (excluding telephone) Social & Activity Spaces on every floor Individually controlled heat and air Priority admission to The Health Care Center Medication administration and monitoring Assistance with bathing, dressing, grooming, toileting, transferring, eating and incontinence management as well as on-going supervision for safety Physical, occupational and speech therapy, as needed Assistance with arranging Home Health Services, as necessary Coordination of medical appointments A-12

50 The Health Care Center The Health Care Center opened in October 1988 and includes 60 skilled nursing beds. Current residents of the Independent Living Units and the Assisted Living Facilities who have signed and paid fees in accordance with the terms of a residency agreement are given priority admission to outside referrals. As further described in "Assisted Living The Chesterfield and The Holly Inn" above. The Health Care Center consists of 60 skilled and intermediate nursing beds that are utilized by residents to receive medical care on both a short and/or long term basis. The Health Care Center offers 29 semi-private rooms and 2 private rooms that provide an average of 345 square feet per bed accommodation. All 60 of the health care beds are licensed by Medicare and provide both skilled and intermediate levels of care, and 30 beds are also certified by Medicaid. Semi-private rooms have one-half bath and a vanity with sink for residents to share in each room. The Health Care Center also provides furnishings including a wardrobe, bed, nightstand, and chair to each resident. The site of the Health Care Center has undeveloped acreage located behind and beside the Health Care Center. The original master plan for Brandermill Woods included the construction of another 60-bed skilled nursing wing. The future expansion of the Health Care Center is dependent on market demand, licensing approvals and the Corporation's ability to obtain financing. See "CURRENT AND FUTURE PROJECTS" below. The following table summarizes the type, number, approximate square footage, and the daily per diem service fee for the Health Care Center existing facilities, effective July 1, 2012: Health Care Center Configuration and Fees Description Total Units Square Footage Daily Per Diem Rate Private $280 Semi-Private - Bed A Semi-Private - Bed B Total/Weighted Average: $248 A-13

51 Services and Amenities. The following services are available to all residents of the Health Care Center and are supported by the daily per diem. Under these agreements, residents are entitled to the following facilities, programs, and services: Occupancy Medicare and Medicaid certified Physical, occupational and speech therapy Licensed nurses 24 hours per day Assessment and care management 24 hour security, including a nursing call system Daily activities, including scheduled transportation for trips, shopping and medical appointments Special diets ordered by a physician and reviewed by Registered Dietitian All utilities (excluding telephone) Basic cable television Beauty and barber salon Active, stimulating environment Wall-to-wall carpeting Individual climate controls for rooms Beautifully landscaped grounds and courtyards The following table summarizes the historical occupancy for Brandermill Woods for the four fiscal years ended June 30, Fiscal Year Average Residences/Beds Available Average Residences/Beds Occupied Average Percentage Occupied Independent Living %* Assisted Living Nursing Care Total Facility *See "FINANCIAL INFORMATION Management's Discussion of Financial Performance Fiscal Year Ended June 30, 2009" A-14

52 As of August 31, 2012, Brandermill Woods had a total inventory of 312 units of which 179 of the Independent Living Units were occupied, 57 of the Assisted Living Units were occupied, and 57 beds in the Health Care Center were occupied, for an average percentage occupancy of approximately 93.9%. As of August 31, 2012, Brandermill Woods had a total census of 336 residents. As described further in "CURRENT AND FUTURE PROJECTS Expansion Project" below, the Corporation anticipates that approximately 13 Cottage Homes will be demolished (the "Demo Units") in order to make room for the construction of 93 new independent living apartment units. In preparation for the impending demolition, Management has begun to transfer existing residents of the Demo Units to other Independent Living Units as they become available. As of August 31, 2012, the occupants of four of the thirteen Demo Units have been transferred to other Independent Living Units. As the Demo Units are vacated, the Corporation then removes the Demo Units from the community's existing inventory, therefore, the occupancy numbers as of August 31, 2012 shown above reflect the removal of the four Demo Units from the community's existing inventory. Memberships and Licenses Brandermill Woods is a member of the American Association of Homes and Services for the Aging (now Leading Age), the Virginia Association of Non Profit Homes for the Aging ("VANHA"), the Virginia Health Care Association ("VHCA"), the International Council on Active Aging ("ICAA"), the Chesterfield County Chamber of Commerce, and the Better Business Bureau. In addition, Brandermill Woods' Assisted Living Facilities and Health Care Center are licensed by the Virginia Department of Health and the Department of Social Services. Independent Living Units RESIDENCY AGREEMENTS Under the terms of the residency agreements for Independent Living Units (the "ILU Residency Agreements"), the Corporation generally accepts as residents those persons at least 65 years of age or older at the time of occupancy (only one member of a couple must meet this requirement in the Independent Living Unit to be occupied) who are able to care for themselves with limited or no assistance and are able to demonstrate the necessary financial resources to meet the Corporation's minimum fee requirements. The ILU Residency Agreements are one-year lease agreements with one year renewal periods, which are terminable with a 30-day written notice prior to the end of the one year term. Pursuant to the terms of the ILU Residency Agreement, a resident is required to pay the one-time, non-refundable community fee of $4,000 and a monthly service fee for the term of the Residency Agreement. Residents may terminate their ILU Residency Agreements, as described below. Prior to Occupancy: Upon ten (10) days written notice to the Corporation, a resident may terminate the ILU Residency Agreement prior to commencement of the initial term for the following reasons: (i) illness or death prevents the resident from meeting the requirements of tenancy or (ii) the resident is unable to sell his or her current residence prior to commencement of the initial term. After Initial Twelve Month Term: At the end of the initial twelve month term or the end of any successive twelve month term, either the Corporation or the resident may terminate the ILU Residency Agreement by giving thirty (30) days written notice in advance of the end of such term to the other party. If the resident is in default of the ILU Residency Agreement prior to the expiration of the initial term or successive terms, the A-15

53 Corporation may retake possession of the Independent Living Unit by giving the resident thirty (30) days written notice, and the resident will be liable for all remaining monthly fee obligations under the residency agreement, to the extent the Corporation is unable to re-lease such Independent Living Unit prior to the end of the term of such residency agreement. Upon Death or Long Term Illness. If a resident should require a permanent transfer to the Assisted Living Facilities or the Health Care Center, the resident may terminate the ILU Residency Agreement immediately upon written notice to the Corporation. If more than one resident occupies the Independent Living Unit, the remaining resident may not terminate the ILU Residency Agreement; however, the monthly fees due under the ILU Residency Agreement will be adjusted to account for the transfer of the applicable resident. Current residents have one of four ILU Residency Agreements, as described below: Note Holder Agreements. These ILU Residency Agreements were executed in connection with the acquisition of Brandermill Woods by the Corporation in 1991, as previously described in "OVERVIEW History of the Organization Acquisition by Senior Living Choices, Inc." and are no longer available. There is currently one remaining Note Holder Agreement, for a married couple occupying an Independent Living Unit. Pursuant to the Note Holder Agreement, the residents receive a 10% discount off their monthly fees and a credit of twenty free days in the in the Assisted Living Facilities and/or the Health Care Center. The credit is available to each resident (i) after the resident has paid for the first five days in the Assisted Living Facilities and/or the Health Care Center, (ii) once per twelve consecutive month period from the commencement date or the date of the previous credit and (ii) if their health care costs are not covered by Medicare, Medicaid and/or private insurer for the duration of the resident's stay in the Assisted Living Facilities or the Health Care Center. The credit does not accrue from year to year. Security Deposit - ILU Residency Agreements Executed between 1990 and These ILU Residency Agreements require residents to pay a one-month security deposit refundable with accrued interest at resident move-out based on the condition of the vacated unit. As of August 31, 2012, there are 64 security deposit ILU Residency Agreements. Residents under these ILU Residency Agreements do not receive a discount off their monthly fees but they do receive a credit of ten free days in the Assisted Living Facilities and/or the Health Care Center. The credit is available to each resident (i) after the resident has paid for the first five days in the Assisted Living Facilities and/or the Health Care Center, (ii) once per twelve consecutive month period from the commencement date or the date of the previous credit and (ii) if their health care costs are not covered by Medicare, Medicaid and/or private insurer for the duration of the resident's stay in the Assisted Living Facilities or the Health Care Center. The credit does not accrue from year to year. Community Fee - ILU Residency Agreements Executed between 2006 and July In 2006 the Corporation revised its ILU Residency Agreements to require that residents pay a one-time non-refundable community fee rather than a refundable security deposit. As of August 31, 2012, there are 114 of these ILU Residency Agreements. Residents under these ILU Residency Agreements do not receive a discount off their monthly fees but they do receive a credit of ten free days in the A-16

54 Assisted Living Facilities and/or the Health Care Center. The credit is available to each resident (i) after the resident has paid for the first five days in the Assisted Living Facilities and/or the Health Care Center, (ii) once per twelve consecutive month period from the commencement date or the date of the previous credit and (ii) if their health care costs are not covered by Medicare, Medicaid and/or private insurer for the duration of the resident's stay in the Assisted Living Facilities or the Health Care Center. The credit does not accrue from year to year. ILU Residency Agreements Executed After July These agreements consist of all agreements signed after July Residents under these agreements do not receive a discount off their monthly fees but do receive a $1,000 service fee credit. The credit is available to each resident (i) after the resident has completed a thirty consecutive day stay at the Assisted Living Facilities or the Health Care Center, (ii) after the resident has resided at Brandermill Woods for more than twelve months, (iii) once per twelve consecutive month period from the commencement date or the date of the previous credit and (iv) if their health care costs are not covered by Medicare, Medicaid and/or private insurer for the duration of the resident's stay in the Assisted Living Facilities or the Health Care Center. The credit does not accrue from year to year. Assisted Living Facilities The Board approved the revised ILU Residency Agreements to provide the Corporation with additional fiscal control with respect to admissions of residents into the Assisted Living Facilities and the Health Care Center. As described in "Assisted Living The Chesterfield and The Holly Inn" above, the Corporation gives priority admission into the Assisted Living Facilities and the Health Care Center to its current Independent Living Unit residents. The revised ILU Residency Agreements are intended to provide the fee credits to those residents that have been residents of the Independent Living Units for at least twelve months. This change is in response to a number of new residents signing ILU Residency Agreements for the purpose of receiving priority admission into the Assisted Living Facilities and the Health Care Center versus applying for direct admission into the Assisted Living Facilities or the Health Care Center. Residents of Assisted Living Facilities enter into a residency agreement (the "AL Residency Agreements") with the Corporation that complies with all Virginia Department of Social Services guidelines for residency. Under the AL Residency Agreements, residents are required (i) to be assessed pursuant to the Virginia Uniform Assessment Instrument ("UAI") periodically to determine the level of assistance the resident requires and (ii) to pay a daily rate plus level surcharge and ancillary costs. The AL Residency Agreements may be terminated by either party upon fourteen days written notice to the other party. Individuals who were not residents of the Independent Living Units and who are directly admitted to the Assisted Living Facilities are charged a one-time non-refundable $3,000 community fee. Residents directly admitted to the Health Care Center who transfer to the Assisted Living Facilities are also charged the $3,000 community fee upon transferring to the Assisted Living Facilities. A-17

55 Health Care Center Residents of the Health Care Center enter in to an admissions and residency agreement (the "HC Residency Agreement") with the Corporation that complies with all Virginia Department of Health, federal and state regulatory guidelines for residency, care, service and reimbursement provisions provided by Medicare, Medicaid, and third party insurance carriers. Under the HC Residency Agreements, residents are required to pay a daily per diem rate determined by the payer source and level of care provided. Medicare, Medicaid, third party payer and/or private funds are acceptable payment methods for the Corporation's daily per diem rate, ancillary and other expenses incurred. The HC Residency Agreements may be terminated by either party upon fourteen days written notice to the other party. If the Corporation terminates the HC Residency Agreement, the Corporation assists in seeking an alternative placement for the resident. BRANDERMILL WOODS FOUNDATION AND FINANCIAL ASSISTANCE In 2000 Brandermill Woods Foundation (the "Foundation") was organized and formed as a nonprofit, non-stock organization existing under the laws of the Commonwealth of Virginia. The Foundation has received an exemption from federal income taxation under Section 501(c)(3) of the Internal Revenue Code, as amended, and an exemption from state income taxation in the Commonwealth of Virginia under its applicable tax provisions. The Foundation's primary purpose is to provide financial support to the Corporation and to provide benevolent assistance to the residents of Brandermill Woods. No revenues or assets of the Foundation are pledged to the payment of the Series 2012 Bonds. The Foundation is not a member of the Obligated Group. Upon the recommendation of the Resident Assistance Committee of the Foundation, a standing committee of the Board of Directors, the Foundation established a charitable fund (the "Benevolence Fund"). The Foundation maintains an active, on-going campaign to raise funds for the Benevolence Fund in order to benefit of Brandermill Woods and its residents. Through the Foundation, the Corporation has provided financial support to a number of residents seeking and qualifying for financial assistance. The fund balances of the Benevolence Fund as of the fiscal years ended June 30, 2011 and 2012, were $249,839 and $262,549, respectively. The Foundation has a policy of assisting any resident of Brandermill Woods who becomes unable to pay in full the monthly fees and other charges by reason of circumstances beyond the resident's control. If the Foundation, in consultation with the Corporation, determines that there are facts justifying such assistance, the Foundation may subsidize in whole or in part a resident's monthly service fee and other charges. A-18

56 The Foundation is governed by a board of directors (the "Foundation Board") composed at any time of up to nine members. The current members of the Board and their principal business affiliations and years on the Foundation Board are as follows: Name Position Occupation Years on the Board John Hughes President Insurance Consultant 10 years Fraiser Brickhouse Secretary/Treasurer Retired Educator & Assistant Dean, Virginia State University School of Business 10 years Robbin Cory Kolbe Board Member Rehab/Respiration Consultant, West Home Health Care, Inc. Tommy Baer Board Member Attorney, Canfield, Shapiro, Baer, Holler & Johnston, LLC Dick English* Ex-Officio Board Member Director of International Leaf, Phillip Morris Frances Wadkins* Board Member Retired, Elementary School Teacher and Principal Mike Cheney Board Member Owner, James River Stucco/ James River Exteriors Mike Hatch Board Member Director of Operations and President, Acumen Golf Management Jack Bettin Board Member Retired, Director of Strategic Alliances, Panini North America *Current residents of Brandermill Woods. 9 years 9 years 1 year 6 years 4 years 2 years 1 month A-19

57 PRIMARY MARKET AREA General Brandermill Woods' primary market area ("PMA") consists of the geographic area from which the majority of residents of the community can be expected to be drawn. The Independent Living Market Area ("IL-MA") includes the following specific zip codes: 23234, 23120, 23832, 23225, 23236, 23235, 23113, 23114, and The market area for short-term rehabilitation is smaller than the IL-MA and consists of the following zip codes: 23112, 23113, 23114, 23235, and A map of the Il-MA is included below. Source: Microsoft Map Point and Brecht Associates, Inc. A-20

58 Certain demographic characteristics of the IL-MA are presented in the table below: * Estimated 2012 Projected 2017 Change Annual Growth Rate Total population 271, ,933 16, % Population ,074 22,609 7, Population ,535 35,401 8, Households ,461 12,792 1, Households 85+ 3,054 3, Median household income, age $37,829 $39,993 $2, Median household income, age 85+ $29,071 $31,538 $2, Home value $248,326 $273,837 $25, * The demographics used in producing this table and similar tables for the other communities come from Nielsen Claritas Senior Life Report. The home values reported are based on owner-occupied homes, not current selling prices. Sale prices tend to be dominated by new home construction, which may not be representative of the homes that seniors wish to sell. The Claritas home values are regarded as a more conservative estimate. Competition There are four existing communities in the IL-MA that may be considered competitors of Brandermill Woods: Crossings at Bon Air, Heritage Oaks, Lucy Corr Village, and The Virginian. A summary of the existing competitors is below. The Crossings at Bon Air is a for-profit rental independent living and assisted living community. Opened in 2009, the Crossings at Bon Air consists of 119 independent living units, 62 assisted living units, and 20 Alzheimer beds. The Laurels of Bon Air Skilled Nursing and Rehabilitation Center is also located on the campus. As of August 31, 2012, the Crossings at Bon Air was 99% occupied with a wait list time of three months. Heritage Oaks is a for-profit rental independent living residences with 121 units. An onsite health agency provides care within resident apartments. As of August 31, 2012, Heritage Oaks was 98% occupied. Lucy Corr Village (also known as Springdale at Lucy Corr Village) is a not-for-profit feefor-service continuing care retirement community. The community consists of 77 independent living units, 48 assisted living units, and 232 nursing beds. As of August 31, 2012, the community was approximately 65% occupied in its independent living. The Virginian is a for-profit rental independent living community with 112 units. Occupancy for The Virginian is not available. A-21

59 A map of the competitive independent living communities within the IL-MA is included below. Sources of Revenue FINANCIAL INFORMATION The following table sets forth the percentage of gross revenues derived from each level of care provided at Brandermill Woods. Percentage of Gross Revenues by Level of Care (1) Fiscal Year Ended June 30 Level of Care Independent Living Units 48.8% 48.00% 48.0% 49.0% Assisted Living Units (Non-Memory Care) Assisted Living Units (Memory Care) Health Care Center Beds (1) Includes monthly resident fees, community fees, and other operating income. A-22