$119,020,000 REVENUE BONDS

Transcription

1 NEW ISSUES/BOOK-ENTRY RATING: NOT RATED In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel, under existing federal statutes, decisions, regulations and rulings, interest on the Tax-Exempt Series 2012 Bonds, as defined herein, is excludable from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), and is not treated as an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations. Such exclusion is conditioned upon continuing compliance by the Issuer, the Corporation and any future Members of the Obligated Group with the Tax Covenants, all as defined herein. In the opinion of Bond Counsel, under existing statutes, decisions, regulations, and rulings, interest on the Tax-Exempt Series 2012 Bonds is exempt from income taxation in the State of Indiana. See TAX MATTERS herein and APPENDIX D hereto. HOWEVER, INTEREST ON THE TAXABLE SERIES 2012D BONDS IS NOT EXCLUDIBLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. $119,020,000 REVENUE BONDS (The Barrington of Carmel Project) $7,000,000 Mayflower Communities, Inc. Taxable Revenue Bonds, Series 2012D (Taxable Mandatory Paydown Securities (Taxable MPS)) $112,020,000 CITY OF CARMEL, INDIANA REVENUE BONDS consisting of $94,575,000 Revenue Bonds, Series 2012A $3,000,000 Revenue Bonds, Series 2012B (Accelerated Redemption Reset Option Securities (ARROSSM)) $7,905,000 Revenue Bonds, Series 2012C-2 (Mandatory Paydown Securities (TEMPS-65SM)) $3,515,000 Revenue Bonds, Series 2012C-1 (Mandatory Paydown Securities (TEMPS-75SM)) $3,025,000 Revenue Bonds, Series 2012C-3 (Mandatory Paydown Securities (TEMPS-50SM)) Dates, Interest Rates, Prices, Yields and CUSIPs are Shown on the Inside of the Front Cover The City of Carmel, Indiana (the Issuer ) is issuing its $94,575,000 Revenue Bonds, Series 2012A (The Barrington of Carmel Project) (the Series 2012A Bonds ), its $3,000,000 Revenue Bonds, Series 2012B (The Barrington of Carmel Project) (Accelerated Redemption Reset Option Securities (ARROSSM)) (the Series 2012B Bonds ), its $3,515,000 Revenue Bonds, Series 2012C-1 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-75SM)) (the Series 2012C-1 Bonds ), its $7,905,000 Revenue Bonds, Series 2012C-2 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-65SM)) (the Series 2012C-2 Bonds ), its $3,025,000 Revenue Bonds, Series 2012C-3 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-50SM)) (the Series 2012C-3 Bonds and together with the Series 2012C-1 Bonds and the Series 2012C-2 Bonds, the Series 2012C Bonds and, together with the Series 2012A Bonds and the Series 2012B Bonds, the Tax-Exempt Series 2012 Bonds ). The Tax-Exempt Series 2012 Bonds will be issued and secured under a Bond Trust Indenture (the Tax-Exempt Bond Indenture ) between the Issuer and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the Tax-Exempt Bond Trustee ). The proceeds of each series of the Tax-Exempt Series 2012 Bonds will be loaned to Mayflower Communities, Inc. d/b/a The Barrington of Carmel, a Delaware non-stock, nonprofit corporation qualified to do business in the State of Indiana (the Corporation ), pursuant to the Loan Agreement (as described herein). The Corporation is issuing its $7,000,000 Taxable Revenue Bonds, Series 2012D (The Barrington of Carmel Project) (Taxable Mandatory Paydown Securities (Taxable MPS)) (the Series 2012D Bonds and, together with the Tax-Exempt Series 2012 Bonds, the Series 2012 Bonds ). The Series 2012D Bonds will be issued and secured under a Bond Trust Indenture dated as of August 1, 2012 (the Taxable Bond Indenture and, together with the Tax-Exempt Bond Indenture, the Bond Indentures ) between the Corporation and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the Taxable Bond Trustee ). The Tax-Exempt Bond Trustee and the Taxable Bond Trustee are occasionally referred to herein as the Bond Trustee. THE SERIES 2012D BONDS ARE BEING ISSUED BY THE CORPORATION AND ARE ITS SOLE RESPONSIBILITY. THE ISSUER HAS NEITHER ISSUED NOR APPROVED THE ISSUANCE OF THE SERIES 2012D BONDS AND HAS NO LIABILITY OR OBLIGATION WHATSOEVER WITH RESPECT TO THE SERIES 2012D BONDS. The Proceeds of the Series 2012 Bonds will be used primarily to (i) pay or reimburse the Corporation for the payment of certain costs of acquiring, constructing, developing and equipping a continuing care retirement community containing independent living units, catered living units, assisted living units, memory support units and a skilled nursing facility located in Carmel, Indiana (the Project ); (ii) pay or reimburse certain Project costs incurred prior to the issuance of the Series 2012 Bonds; (iii) fund a debt service reserve fund; (iv) pay interest on the Series 2012 Bonds for a period of approximately 20 months; (v) fund supplemental and special project liquidity support funds; and (vi) pay certain of the costs relating to the issuance of the Series 2012 Bonds, and, with respect to the Tax-Exempt Series 2012 Bonds, all as permitted by the Act, as defined herein. A more detailed description of the use of the proceeds from the sale of the Series 2012 Bonds is included under the captions ESTIMATED SOURCES AND USES OF FUNDS and PLAN OF FINANCE. Except as described in this Official Statement, each series of the Series 2012 Bonds will be payable solely from and secured by a pledge of payments to be made under the Loan Agreement, if applicable, and the related Series 2012 Obligation issued by the Corporation under a Master Trust Indenture (the Master Indenture ) between the Corporation and The Bank of New York Mellon Trust Company, N.A., as master trustee (the Master Trustee ). The sources of payment of, and security for, each series of the Series 2012 Bonds are more fully described in this Official Statement. The Series 2012 Bonds, when issued, will be registered initially only in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Series 2012 Bonds. Purchasers of the Series 2012 Bonds will not receive certificates representing their interests in the Series 2012 Bonds purchased. Ownership by the beneficial owners of the Series 2012 Bonds will be evidenced by book-entry only. Principal of and interest on the Series 2012 Bonds and the purchase price of tendered Series 2012 Bonds will be paid by the Bond Trustee to DTC, which in turn will remit such principal, interest and purchase price payments to its participants for subsequent disbursement to the beneficial owners of Series 2012 Bonds. As long as Cede & Co. is the registered owner as nominee of DTC, payments on the Series 2012 Bonds will be made to such registered owner, and disbursement of such payments will be the responsibility of DTC and its participants. See Book-Entry ONLY System. An investment in the Series 2012 Bonds involves a certain degree of risk related to the nature of the business of the Corporation, the regulatory environment, and the provisions of the principal documents. A prospective Series 2012 Bondholder is advised to read SECURITY FOR THE SERIES 2012 BONDS, SECURITY FOR THE SERIES 2012 OBLIGATIONS and RISK FACTORS herein for a description of the security for the Series 2012 Bonds and for a discussion of certain risk factors which should be considered in connection with an investment in the Series 2012 Bonds. The Series 2012 Bonds will be subject to optional, mandatory and extraordinary redemption, as more fully described herein. The Series 2012 Bonds are also subject to mandatory tender for purchase and the Series 2012B Bonds are subject to optional tender for purchase, as described herein. THE SERIES 2012 BONDS AND THE INTEREST THEREON DO NOT REPRESENT OR CONSTITUTE A DEBT OR OBLIGATION OF THE ISSUER, THE STATE OF INDIANA (THE STATE ) OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF OR A PLEDGE OF THE FAITH AND CREDIT OF THE ISSUER, THE STATE OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF. THE TAX-EXEMPT SERIES 2012 BONDS, AS TO BOTH PRINCIPAL AND INTEREST, ARE SPECIAL, LIMITED OBLIGATIONS OF THE ISSUER AND ARE PAYABLE SOLELY FROM THE SOURCES SPECIFIED IN THE TAX-EXEMPT BOND INDENTURE. THE SERIES 2012 BONDS DO NOT GRANT THE OWNERS OR HOLDERS THEREOF ANY RIGHT TO HAVE THE ISSUER, THE STATE, ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF OR THE STATE S GENERAL ASSEMBLY, LEVY ANY TAXES OR APPROPRIATE ANY FUNDS FOR THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2012 BONDS. The Series 2012 Bonds are being offered when, as and if issued and received by the Underwriter, subject to prior sale, withdrawal or modification of the offer without notice and to the approval of legality of and the status of the Tax-Exempt Series 2012 Bonds by Ice Miller LLP, Indianapolis, Indiana, Bond Counsel. Certain legal matters will be passed upon for the Issuer by its counsel, Douglas Haney, Esq., Carmel, Indiana; for the Underwriter by its counsel, Katten Muchin Rosenman LLP, Chicago, Illinois and for the Corporation by its special counsels, Thompson & Knight L.L.P., Dallas, Texas and Kroger, Gardis & Regas LLP, Indianapolis, Indiana. It is expected that the Series 2012 Bonds in definitive form will be available for delivery to the Bond Trustee on behalf of DTC by Fast Automated Securities Transfer on or about August 30, This cover page contains certain information for ease of reference only. It does not constitute a summary of the Series 2012 Bonds or the security therefor. Potential investors must read this entire Official Statement, including the Appendices, to obtain information essential to the making of an informed investment decision. Official Statement dated August 16, 2012 SM ARROS, TEMPS-75, TEMPS-65 and TEMPS-50 are each a Service Mark of B.C. Ziegler and Company.

2 THE SERIES 2012A BONDS Dated: Date of Delivery Due: November 15, as shown below The Series 2012A Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Series 2012A Bonds will be payable on each May 15 and November 15, commencing on November 15, $6,235, % Term Bonds due November 15, 2022, Priced: % to yield 6.25%, CUSIP AB3 $7,290, % Term Bonds due November 15, 2027, Priced: %* to yield 6.625%, CUSIP AC1 $10,230, % Term Bonds due November 15, 2032, Priced: 100% to yield 7.00%, CUSIP AD9 $34,665, % Term Bonds due November 15, 2042, Priced: % to yield 7.200%, CUSIP AE7 $36,155, % Term Bonds due November 15, 2047, Priced: % to yield 7.300%, CUSIP AA5 THE SERIES 2012B BONDS Dated: Date of Delivery Due: November 15, 2047 The Series 2012B Bonds initially will bear interest at the rate set forth below until the Initial Rate Change Date set forth below. Principal Initial Initial Rate Amount Interest Rate Price Change Date CUSIP $3,000, % 100% November 15, AF4 The Series 2012B Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. From and after the Initial Rate Change Date and each subsequent Rate Change Date thereafter, the Series 2012B Bonds will bear interest at a rate and for a period determined in accordance with the Tax-Exempt Bond Indenture. Interest on the Series 2012B Bonds will be payable on each May 15 and November 15, commencing on November 15, On each Rate Change Date, the holders of outstanding Series 2012B Bonds may tender such Series 2012B Bonds to the Tax-Exempt Bond Trustee for purchase at a price equal to the principal amount thereof, subject to the availability of sufficient moneys therefor. The maximum rate payable on the Series 2012B Bonds will be the lesser of (a) 15% per annum or (b) the maximum interest rate permitted by then applicable Indiana law. THE SERIES 2012C-1 BONDS Dated: Date of Delivery Due: November 15, 2019 The Series 2012C-1 Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Series 2012C-1 Bonds will be payable on each May 15 and November 15, commencing on November 15, $3,515, % Term Bonds due November 15, 2019, Priced: 100% to yield 5.750%, CUSIP AG2 THE SERIES 2012C-2 BONDS Dated: Date of Delivery Due: November 15, 2018 The Series 2012C-2 Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Series 2012C-2 Bonds will be payable on each May 15 and November 15, commencing on November 15, $7,905, % Term Bonds due November 15, 2018, Priced: 100% to yield 5.250%, CUSIP AH0 THE SERIES 2012C-3 BONDS Dated: Date of Delivery Due: November 15, 2018 The Series 2012C-3 Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Series 2012C-3 Bonds will be payable on each May 15 and November 15, commencing on November 15, $3,025, % Term Bonds due November 15, 2018, Priced: 100% to yield 4.500%, CUSIP AJ6 THE SERIES 2012D BONDS Dated: Date of Delivery Due: November 15, 2017 The Series 2012D Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Series 2012D Bonds will be payable on each May 15 and November 15, commencing on November 15, $7,000, % Term Bonds due November 15, 2017, Priced: 100% to yield 6.250%, CUSIP AA3 * Priced to call CUSIP is a registered trademark of American Bankers Association. CUSIP data herein is provided by Standard & Poor s CUSIP Bureau, a division of The McGraw Hill Companies, Inc. The CUSIP numbers are provided for convenience of reference only.

3 Artist s Rendering of The Barrington of Carmel Entrance

4 Greater Indianapolis Location Map ZIONSVILLE DANVILLE CARMEL FISHERS INDIANAPOLIS BEECH GROVE GREENWOOD INDIANAPOLIS

5 Vicinity Map W. Carmel Dr. N. College Ave. Lenox Ln. I n for m at i o n C e n t e r Parking S. Guilford Rd. E. 116th St. F uture S i t e Mitchell Rd. Woodview N. Dr. Woodview S. Dr. Woodview E. Dr. Parkins St. Senie Lane

6 Site Plan

7 Artist s Rendering of Independent Living Unit Living Room Kitchen

8 Artist s Rendering of Independent Living Unit Bedroom Patio

9 Level Plans Level Storage Main Deck Outdoor Courtyard Elevators Shipton Dunreith Hynsdale Amhurst 1106 Theater Outdoor Courtyard Creative Arts Mail Clubb Room Library ry ry Living Room Offices & Lobby Business sss Centerr Concierge 2 Main Dining Room Private Dining Bistro Bistro Patio Restrooms Salon & Barber Shop 230 Fitness Center Great Hall Great Hall Patio Offices O Shipto Dunre Hynsd Amhu Hartmoor Kentshire Noblewood Laurelwood Dimensions are subject to change. Dimension Level Level Storage Card Room Shipton Dunreith Hynsdale Amhurst Hartmoor Kentshire Noblewood Laurelwood Dimensions are subject to change Guest Suite Guest Suite Storage 3202 Elevators 3502 Elevators Storage Shipton Dunreith Hynsdale Amhurst 3106 Hartmoor Kentshire Noblewood Laurelwood Dimensions are subject to change

10 [THIS PAGE INTENTIONALLY LEFT BLANK]

11 TABLE OF CONTENTS SUMMARY STATEMENT... i INTRODUCTION... 1 Purpose of this Official Statement... 1 The Issuer... 1 The Corporation... 2 The Series 2012 Bonds... 2 Purpose of the Series 2012 Bonds... 2 Security for the Series 2012 Bonds... 3 The Financial Feasibility Study... 5 PLAN OF FINANCE... 6 The Project... 6 Development and Management of the Project... 6 Pre-Finance Capital... 6 Affiliation with Senior Quality Lifestyles Corporation... 7 Liquidity Support Agreement... 8 ESTIMATED SOURCES AND USES OF FUNDS... 9 ANNUAL DEBT SERVICE REQUIREMENTS THE FIXED RATE SERIES 2012 BONDS General Description THE SERIES 2012B BONDS General Description Interest on the Series 2012B Bonds Optional Tender of Series 2012B Bonds Purchase of Tendered Series 2012B Bonds REMARKETING REDEMPTION OF THE SERIES 2012 BONDS Optional and Mandatory Redemption of the Series 2012A Bonds Optional and Mandatory Redemption of the Series 2012B Bonds Optional and Mandatory Redemption of the Series 2012C Bonds Optional and Mandatory Redemption of the Series 2012D Bonds Provisions Applicable to All Series 2012 Bonds Selection for Redemption Notice of Redemption; Effect Mandatory Tender for Purchase Exchange and Transfer BOOK-ENTRY ONLY SYSTEM SECURITY FOR THE SERIES 2012 BONDS General Debt Service Reserve Fund Other The State Not Liable on the Series 2012 Bonds; Agreement of the State Page

12 SECURITY FOR THE SERIES 2012 OBLIGATIONS General Additional Indebtedness Certain Covenants of the Corporation and any Future Member of the Obligated Group LIQUIDITY SUPPORT AGREEMENT Liquidity Support Funds Priority of Application of Liquidity Support Funds Reductions of the Liquidity Support Obligations Draws on the Liquidity Support Funds General Investment Subordination Provisions Amendments and Waivers PRIORITY OF DRAWINGS FROM VARIOUS FUNDS THE ISSUER Limitations Applicable to the Series 2012 Bonds Description of the Issuer Bonds of the Issuer RISK FACTORS General Impact of Market Turmoil Sale of Personal Residences Changes in Members of the Obligated Group Feasibility Study Purchase of Series 2012B Bonds Construction Risks Construction Consultant Approval of Construction Draws Adequacy of Remedies Development and Management Application of Amounts on Deposit in Project Funds Payments of Subordinated Loans and SQLC Allocated Over-Head; Remaining Operational Funds.. 57 Uncertainty of Revenues Failure to Achieve or Maintain Turnover or Occupancy Utilization Demand Competition Nature of Facilities Malpractice Claims and Losses Rights of Residents Regulation Proposed Legislation Licensing Delay Medicare Certification Present and Prospective Federal and State Regulation Health Care Reform Medicare and Medicaid Programs Regulation of the Health Care Industry Increases in Medical Costs Other Legislation Intermediate Sanctions... 69

13 Possible Changes in Tax Status Lack of Marketability for the Series 2012 Bonds Increases in Medical Costs Nursing Shortage Change of Security and Payment Source (Substitution of Series 2012 Obligations) Amendments to the Documents Bankruptcy Additional Debt Certain Matters Relating to Enforceability of the Master Indenture Interest Rate Swap and Other Hedge Risk Environmental Matters Uncertainty of Investment Income Absence of a Bond Rating Other Possible Risk Factors FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting Continuing Disclosure LITIGATION The Issuer The Corporation LEGAL MATTERS TAX MATTERS Tax Exemption Amortizable Bond Premium Original Issue Discount FEASIBILITY STUDY NO RATING UNDERWRITING MISCELLANEOUS APPENDICES APPENDIX A THE BARRINGTON OF CARMEL APPENDIX B FINANCIAL FEASIBILITY STUDY APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS APPENDIX D FORM OF OPINION OF BOND COUNSEL WITH RESPECT TO THE TAX- EXEMPT SERIES 2012 BONDS

14 [THIS PAGE INTENTIONALLY LEFT BLANK]

15 REGARDING USE OF THIS OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING OF THE SERIES 2012 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2012 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No dealer, broker, sales representative or other person has been authorized by the Issuer, the Corporation or the Underwriter 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 must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2012 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The securities laws of certain states impose additional requirements prior to the offer or sale of the Series 2012D Bonds to the public in such states. Accordingly, in such states, the Series 2012D Bonds are not being offered and will not be offered until compliance with any such requirements has been completed. The information contained in this Official Statement has been furnished by the Corporation, the Issuer, DTC and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof. The information set forth herein relating to the Issuer under the headings THE ISSUER and LITIGATION The Issuer has been obtained from the Issuer. All other information herein has been obtained by the Underwriter from the Corporation and other sources deemed by the Underwriter to be reliable, and is not to be construed as a representation by the Issuer or the Underwriter. The Issuer has not reviewed or approved any information in this Official Statement except information relating to the Issuer under the headings THE ISSUER and LITIGATION The Issuer. THE SERIES 2012 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE BOND INDENTURES AND THE MASTER INDENTURE HAVE NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2012 BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAWS OF THE STATES IN WHICH SERIES 2012 BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE SERIES 2012 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

16 CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, anticipate or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in SUMMARY STATEMENT Forecasted Financial Information of the Corporation, APPENDIX A THE BARRINGTON OF CARMEL and APPENDIX B FINANCIAL FEASIBILITY STUDY herein. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. 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.

17 SUMMARY STATEMENT The information set forth in this Summary Statement is subject in all respects to more complete information set forth elsewhere in this Official Statement, which should be read in its entirety. The offering of the Series 2012 Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or otherwise to use it without this entire Official Statement. For the definitions of certain words and terms used herein, see SUMMARY OF PRINCIPAL DOCUMENTS in APPENDIX C. The Series 2012 Bonds The City of Carmel, Indiana (the Issuer ) proposes to issue its $94,575,000 Revenue Bonds, Series 2012A (The Barrington of Carmel Project) (the Series 2012A Bonds ), its $3,000,000 Revenue Bonds, Series 2012B (The Barrington of Carmel Project) (Accelerated Redemption Reset Option Securities (ARROS SM )) (the Series 2012B Bonds ), its $3,515,000 Revenue Bonds, Series 2012C-1 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-75 SM ))(the Series 2012C-1 Bonds ), its $7,905,000 Revenue Bonds, Series 2012C-2 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-65 SM )) (the Series 2012C-2 Bonds ), its $3,025,000 Revenue Bonds, Series 2012C-3 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-50 SM )) (the Series 2012C-3 Bonds and together with the Series 2012C-1 Bonds and the Series 2012C-2 Bonds, the Series 2012C Bonds and, together with the Series 2012A Bonds and the Series 2012B Bonds, the Tax-Exempt Series 2012 Bonds ). Mayflower Communities, Inc. is issuing its $7,000,000 Taxable Revenue Bonds, Series 2012D (The Barrington of Carmel Project) (Taxable Mandatory Paydown Securities (Taxable MPS)) (the Series 2012D Bonds and, together with the Tax-Exempt Series 2012 Bonds, the Series 2012 Bonds ). THE SERIES 2012D BONDS ARE BEING ISSUED BY THE CORPORATION AND ARE ITS SOLE RESPONSIBILITY. THE ISSUER HAS NEITHER ISSUED NOR APPROVED THE ISSUANCE OF THE SERIES 2012D BONDS AND HAS NO LIABILITY OR OBLIGATION WHATSOEVER WITH RESPECT TO THE SERIES 2012D BONDS. The Series 2012A Bonds, the Series 2012C Bonds and the Series 2012D Bonds are occasionally referred herein to as the Fixed Rate Series 2012 Bonds. Each series of the Series 2012 Bonds will be subject to optional, mandatory and extraordinary redemption, as described in this Official Statement. The Series 2012B Bonds will also be subject to optional and mandatory tender, as described in this Official Statement. A description of each series of the Series 2012 Bonds is contained in this Official Statement under the captions THE FIXED RATE SERIES 2012 BONDS and THE SERIES 2012B BONDS. The Tax-Exempt Series 2012 Bonds will be issued pursuant to Indiana Code and (collectively, the Act ) and a Bond Trust Indenture, dated as of August 1, 2012 (the Tax-Exempt Bond Indenture ), by and between the Issuer and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the Tax-Exempt Bond Trustee ). The proceeds of the Tax-Exempt Series 2012 Bonds will be loaned to Mayflower Communities, Inc. d/b/a The Barrington of Carmel, a Delaware non-stock, nonprofit corporation qualified to do business in the State of Indiana (the Corporation ), pursuant to a Loan Agreement dated as of August 1, 2012 (the Loan Agreement ), by and between the Corporation and the Issuer. The Series 2012D Bonds will be issued and secured under a Bond Trust Indenture, dated as of August 1, 2012 (the Taxable Bond Indenture and, together with the Tax-Exempt Bond Indenture, the Bond Indentures ), by and between the Corporation and The Bank of New York Mellon Trust (i)

18 Company, N.A., as bond trustee (the Taxable Bond Trustee ). The Tax-Exempt Bond Trustee and the Taxable Bond Trustee are occasionally referred to herein as the Bond Trustee. Purpose of the Series 2012 Bonds The Corporation will use the proceeds from the sale of the Series 2012 Bonds, together with other available funds, to (i) pay or reimburse the Corporation for the payment of certain costs of acquiring, constructing, developing and equipping a community consisting of 134 independent living units, 7 catered living units, 56 assisted living units, 26 memory support units and 48 skilled nursing beds and related parking, common and administrative areas in Carmel, Indiana (the Project ); (ii) pay or reimburse certain Project costs incurred prior to the issuance of the Series 2012 Bonds; (iii) fund a debt service reserve fund; (iv) pay interest on the Series 2012 Bonds for a period of approximately 20 months; (v) fund supplemental and special project liquidity support funds; and (vi) pay certain of the costs relating to the issuance of the Series 2012 Bonds, and, with respect to the Tax-Exempt Series 2012 Bonds, all as permitted by the Act. A more detailed description of the use of the proceeds from the sale of the Series 2012 Bonds is included under the captions ESTIMATED SOURCES AND USES OF FUNDS and PLAN OF FINANCE. Security for the Series 2012 Bonds Special and Limited Obligations of the Issuer. The Tax-Exempt Series 2012 Bonds will be special and limited obligations of the Issuer. The Series 2012 Bonds and the interest thereon do not constitute indebtedness or an obligation, general or moral, or a pledge of the full faith or a loan of credit of the Issuer, the State of Indiana (the State ) or any agency or political subdivision thereof, within the purview of any constitutional or statutory limitation or provision. The Issuer is obligated to pay the principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds and other costs incidental thereto only from the sources specified in the Tax-Exempt Bond Indenture. No owner of any Series 2012 Bond shall have the right to compel the taxing power, if any, of the Issuer, the State or any agency or political subdivision thereof to pay the principal of, premium, if any, or interest on the Series 2012 Bonds. General Obligation of the Corporation. The Series 2012D Bonds will be a general obligation of the Corporation. The Corporation will agree pursuant to the Taxable Bond Indenture to make payments sufficient to pay in full when due all principal of, premium, if any, and interest on the Series 2012D Bonds. Loan Agreement. The Issuer and the Corporation will enter into the Loan Agreement with respect to the Tax-Exempt Series 2012 Bonds whereby the Issuer will loan the proceeds of the Tax- Exempt Series 2012 Bonds to the Corporation and the Corporation will agree to make loan repayments sufficient to pay in full when due all principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds. The Master Indenture and the Series 2012 Obligations. The Series 2012A Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012A in the aggregate principal amount of $94,575,000 (the Series 2012A Obligation ), the Series 2012B Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012B in the aggregate principal amount of $3,000,000 (the Series 2012B Obligation ), the Series 2012C-1 Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012C-1 in the aggregate principal amount of $3,515,000 (the Series 2012C-1 Obligation ), the Series 2012C-2 Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012C-2 in the aggregate principal amount of $7,905,000 (the Series 2012C-2 Obligation ), the Series 2012C-3 Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012C-3 in the aggregate principal amount of $3,025,000 (the Series 2012C-3 (ii)

19 Obligation and, together with the Series 2012C-1 Obligation and the Series 2012C-2 Obligation, the Series 2012C Obligations and, together with the Series 2012A Obligation and the Series 2012B Obligation, the Tax-Exempt Series 2012 Obligations ) and the Series 2012D Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012D in the aggregate principal amount of $7,000,000 (the Series 2012D Obligation and, together with the Tax-Exempt Series 2012 Obligations, the Series 2012 Obligations ). The Series 2012 Obligations will each be issued pursuant to a Master Trust Indenture dated as of August 1, 2012 (the Master Indenture ), by and between the Corporation, as the initial and sole member of an obligated group (a Member, and collectively with any other entities that may become a Member, the Obligated Group ), and The Bank of New York Mellon Trust Company, N.A., as master trustee (the Master Trustee ). The Issuer will pledge and assign the related Tax-Exempt Series 2012 Obligations and certain of its rights under the Loan Agreement to the Tax- Exempt Bond Trustee as security for the respective series of Tax-Exempt Series 2012 Bonds. The Series 2012D Obligation will be issued directly to the Taxable Bond Trustee. The terms of each Series 2012 Obligation will require payments by the Corporation which, together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the respective series of Series 2012 Bonds. Each Series 2012 Obligation will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Corporation by the Master Indenture. The Members of the Obligated Group will be jointly and severally liable on all Obligations, including the Series 2012 Obligations, which are issued pursuant to the Master Indenture. All Obligations issued by the Corporation will be equally and ratably secured by (i) a mortgage on the Mortgaged Property described below and (ii) a security interest in the Gross Revenues of the Obligated Group, subject in each case only to Permitted Encumbrances. See SECURITY FOR THE SERIES 2012 OBLIGATIONS General. In certain circumstances, the Corporation may issue Additional Obligations under the Master Indenture that may be equally and ratably secured with the Obligations outstanding under the Master Indenture, including the Series 2012 Obligations, or that may be entitled to the benefit of security in addition to that securing the Obligations outstanding under the Master Indenture, which security need not be extended to any other Obligations. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Additional Indebtedness as well as the subsections The Mortgage and Security Interest in Gross Revenues below. The Mortgage. Pursuant to a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of August 1, 2012 (the Mortgage ), the Corporation will grant the Master Trustee: (i) a first mortgage lien on the real property on which the Project is being constructed, and (ii) a security interest in the personal property and fixtures located in the Project (collectively, the Mortgaged Property ), in each case subject to Permitted Encumbrances, as security for the payment of the Series 2012 Obligations and all other Obligations hereafter issued under the Master Indenture. Security Interest in Gross Revenues. Pursuant to the Master Indenture, each Member of the Obligated Group will grant a security interest in its Gross Revenues (subject to Permitted Encumbrances) as security for the payment of the Series 2012 Obligations and all other Obligations hereafter issued under the Master Indenture. See SECURITY FOR THE SERIES 2012 BONDS and RISK FACTORS Certain Matters Relating to Enforceability of the Master Indenture herein. Gross Revenues means all receipts, revenues, rentals, income, insurance proceeds (including, without limitation, all Medicaid, Medicare and other third-party payments), condemnation awards, Entrance Fees and other moneys received by or on behalf of any Obligated Group Member, including (without limitation) revenues derived from (a) the ownership, operation or leasing of any portion of the (iii)

20 Facilities (including, without limitation, fees payable by or on behalf of residents of the Facilities) and all rights to receive the same (other than the right to receive Medicaid and Medicare payments), whether in the form of accounts, general intangibles or other rights, and the proceeds of such accounts, general intangibles and other rights, whether now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (b) gifts, grants, bequests, donations and contributions heretofore or hereafter made that are legally available to meet any of the obligations of the Obligated Group Member incurred in the financing, operation, maintenance or repair of any portion of the Facilities; provided, however, that there shall be excluded from Gross Revenues (i) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (ii) gifts, grants, bequests, donations and contributions to an Obligated Group Member heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payments required under the Master Indenture, (iii) any moneys received by any Obligated Group Member from prospective residents or commercial tenants in order to pay for customized improvements to those Independent Living Units or other areas of the Facilities to be occupied or leased to such residents or tenants, (iv) payments or deposits under a Residency Agreement that by its terms or applicable law are required to be held in escrow or trust for the benefit of a resident until the conditions for the release of such payment or deposit have been satisfied, and (v) all deposits and/or advance payments made in connection with any residency of the Independent Living Units or other areas of the Facilities to be occupied by residents or tenants and received prior to receipt of such certificate and licenses for occupancy of such units. The Tax-Exempt Bond Indenture. Under the Tax-Exempt Bond Indenture the Issuer will pledge and assign to the Tax-Exempt Bond Trustee as security for the payment of principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds, all of its right, title and interest in and to (i) the Series 2012 Tax-Exempt Obligations, (ii) the Loan Agreement and all payments derived by the Issuer from the Corporation under the Loan Agreement (except the Issuer s Unassigned Rights), and (iii) all moneys and securities (except moneys and securities held in the Rebate Fund and the Purchase Fund with respect to the Tax-Exempt Bond Indenture) held by the Tax-Exempt Bond Trustee under the Tax-Exempt Bond Indenture. See SECURITY FOR THE SERIES 2012 BONDS herein. The Debt Service Reserve Funds. Payment of the principal of, premium, if any, and interest on each series of the Series 2012 Bonds will be additionally secured by moneys deposited to the credit of the accounts in the Debt Service Reserve Fund established under the related Bond Indenture. See SECURITY FOR THE SERIES 2012 BONDS. The Corporation The Corporation was incorporated in November The Corporation was formed for the purpose of developing, owning and operating a senior living community known as The Barrington of Carmel (the Barrington or the Community ) located in Carmel, Indiana. The Corporation was organized exclusively for charitable and benevolent purposes and to provide quality housing, health care services and other programs to senior citizens. The Corporation is the initial and sole member of the Obligated Group under the Master Indenture. It has received a determination letter from the Internal Revenue Service that it is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ), is exempt from federal income taxation under Section 501(a) of the Code and is not a private foundation under Section 509(a) of the Code. As of August 16, 2012, the Corporation had received Entrance Fee Deposits for 95 Independent Living Units, representing approximately 70.9% of the total number of planned Independent Living Units. Further information regarding the Corporation is included in APPENDICES A and B hereto. (iv)

21 Pre-Finance Capital GCI Carmel, L.P. ( GCI Carmel ) is a limited partnership whose general partner GDC Carmel, LLC, a Delaware limited liability company, is a wholly-owned subsidiary of Greystone Partners, Ltd. which is controlled by principals of Greystone Development Company II, LP ( GDC ). Limited partners in GCI Carmel currently include The Ziegler Companies, Inc., Ziegler Equity Funding IV, LLC, Ziegler Equity Funding V, LLC, Greystone Senior Living Investments, L.P., and Senior Quality Lifestyles Corporation ( SQLC ), a Texas nonprofit corporation which is the sole member of the Corporation. Greystone Senior Living Investments L.P. is also controlled by principals of GDC and a wholly-owned subsidiary of GDC and whose limited partners include the Underwriter, affiliates of the Underwriter and affiliates of GDC. Since 2009, Mr. Charles Brewer, the Corporation s Chairman, President and Director, has been a limited partner of Greystone Senior Living Investments, L.P. which owns an interest in GCI Carmel. As a result of his investment in Greystone Senior Living Investments, L. P., Mr. Brewer s indirect interest in GCI Carmel, L.P. predated SQLC s affiliation with the Corporation. In connection with SQLC s affiliation with the Corporation, Mr. Brewer divested the indirect interest he had in GCI Carmel, L.P. while retaining his limited partnership interest in Greystone Senior Living Investments, L.P. GCI Carmel was formed to fund up to $7,500,000 of pre-finance capital ( Pre-Finance Capital ) for the Corporation to develop the Project. GCI Carmel also funded subsequent Pre-Finance Capital contributions of $2,700,000. All risk for advances of Pre-Finance Capital associated with the failure to achieve closing on the financing will be borne by GCI Carmel. The Corporation anticipates that the Pre- Finance Capital funded by GCI Carmel, along with a Fixed Base Fee (hereinafter defined) in the amount of $4,916,670, will be repaid to GCI Carmel upon delivery of the Series 2012 Bonds. The remaining $3,750,000 of the Fixed Base Fee will be paid from the proceeds of the Series 2012 Bonds or from funds of the Corporation, as such funds are released from the Liquidity Support Funds pursuant to the Liquidity Support Agreement. Approximately $1,875,000 of the $3,750,000 Fixed Base Fee that will be paid over time is attributable to SQLC s participation in the Limited Partnership. Upon receipt of these funds, SQLC is obligated under a loan agreement between SQLC and the Corporation to loan such funds to the Corporation. The Corporation will enter into a subordinated note with respect to the $1,875,000 loan from SQLC. See LIQUIDITY SUPPORT AGREEMENT, APPENDIX A PRE-FINANCE DEVELOPMENT COSTS, DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY Development Consulting Agreement and GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans and APPENDIX B FINANCIAL FEASIBILITY STUDY herein. Affiliation with Senior Quality Lifestyles Corporation Pursuant to a Term Sheet dated May 7, 2012, the Corporation agreed to affiliate with SQLC. In accordance with the provisions of the Term Sheet, on June 15, 2012, SQLC became the sole corporate member of the Corporation. SQLC is also an affiliate of Northwest Senior Housing Corporation which owns and operates a senior living community known as Edgemere in Dallas, Texas; Buckingham Senior Living Community, Inc. which owns and operates a senior living community known as The Buckingham in Houston, Texas; Barton Creek Senior Living Center, Inc. which owns and operates a senior living community known as Querencia at Barton Creek in Austin, Texas; SQLC Senior Living Center at Corpus Christi, Inc. which owns and operates a senior living community known as Mirador in Corpus Christi, Texas; and Tarrant County Senior Living Center, Inc. which owns and operates a senior living community known as The Stayton at Museum Way in Fort Worth, Texas. See HISTORY AND BACKGROUND and GOVERNANCE AND MANAGEMENT in APPENDIX A hereto for more information about SQLC and the SQLC Affiliates and the Corporation s relationship with SQLC. SQLC AND ITS AFOREMENTIONED AFFILIATES ARE NOT MEMBERS OF THE OBLIGATED GROUP AND ARE NOT OBLIGATED TO MAKE ANY PAYMENTS ON THE (v)

22 LOAN AGREEMENT, THE SERIES 2012 OBLIGATIONS OR WITH RESPECT TO THE SERIES 2012 BONDS. SQLC LSA, LLC, a wholly-owned subsidiary of SQLC, has agreed to provide $2,000,000 of liquidity support to the Corporation pursuant to the Liquidity Support Agreement. Also, as funds are released from the Special Project Liquidity Support Fund, SQLC has agreed to loan to the Corporation as much as $1,875,000. For information on the Liquidity Support Agreement, see the description under the caption LIQUIDITY SUPPORT AGREEMENT herein. SQLC also has agreed to loan $200,000 to the Corporation to fund Project costs. The Corporation has entered into subordinated notes with respect to these loans. For information about the repayment terms of such loans, see GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans in APPENDIX A. Development and Management of the Project The Corporation and GDC have entered into a Development Consulting Agreement, as amended (the Development Consulting Agreement ), pursuant to which GDC (or its assignee Greystone Development Services XIX, LLC) will provide certain consulting development services for the Project. See APPENDIX A DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY for more information regarding the development of the Project. GDC is a Delaware limited partnership. In addition, the Corporation has entered into a Management and Marketing Services Agreement, as amended (the Management Agreement ) with Greystone Management Services Company, LLC ( GMS ) to provide certain day-to-day operations and management services to the Corporation and the Community. See APPENDIX A DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY hereto for more information regarding the management of the Community. GMS is a Delaware limited liability company. See APPENDIX A for more information about GMS and its experience and operations. Liquidity Support Agreement The Corporation, SQLC LSA, LLC, the Master Trustee and the Bond Trustee, will enter into a liquidity support agreement (the Liquidity Support Agreement ) upon closing of the Series 2012 Bonds. At closing SQLC LSA, LLC will transfer to the Master Trustee $2,000,000 for deposit into the Liquidity Support Fund (the Liquidity Support Fund ); the Bond Trustee will transfer to the Master Trustee $2,375,000 of proceeds of the Series 2012D Bonds for deposit into the Supplemental Liquidity Support Fund (the Supplemental Liquidity Support Fund ); and the Bond Trustee will transfer to the Master Trustee $1,875,000 of proceeds of the Series 2012D Bonds for deposit into the Special Project Liquidity Support Fund (the Special Project Liquidity Support Fund and, together with the Liquidity Support Fund and the Supplemental Liquidity Support Fund, the Liquidity Support Funds ). The Liquidity Support Funds available under the Liquidity Support Agreement may be drawn by the Bond Trustee, the Master Trustee or the Corporation to pay for Project construction costs, principal of, premium, if any, and interest on the Series 2012 Bonds, or any operating expenses in conjunction with the Community, if no other funds are available for those purposes in any trustee-held fund held by the Bond Trustee (other than the Debt Service Reserve Fund) or Master Trustee subject to the provisions of the Liquidity Support Agreement. Such draws cannot be made for costs that would result in a betterment of the Project or the services offered by the Project without the approval of the Construction Consultant or GDC. See LIQUIDITY SUPPORT AGREEMENT herein. If, pursuant to the terms of the Liquidity Support Agreement, less than $2,000,000 is released to SQLC LSA, LLC, the Corporation has repayment obligations with respect to the shortfall which are described in APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. (vi)

23 Certain Covenants of the Corporation and any Future Member of the Obligated Group Rates and Charges. The Obligated Group covenants and agrees that the Obligated Group Agent will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the earlier of (a) the last day of the first full Fiscal Year after Stable Occupancy for the Project has been achieved, or (b) December 31, 2018 (the Initial Testing Date ), and deliver a copy of such calculation to the Required Information Recipients. For the purposes of the Master Indenture covenant described under this heading, when calculating the Historical Debt Service Coverage Ratio of the Obligated Group, principal and interest payable on Affiliate Related Subordinated Indebtedness shall be excluded from Debt Service Requirements. If for the Fiscal Year with respect to which the Initial Testing Date relates, the Historical Debt Service Coverage Ratio of the Obligated Group is less than 1.10:1, the Obligated Group, at the Obligated Group s expense, shall select a Consultant within 30 days following the calculation described above, to make recommendations with respect to the rates, fees and charges of the Members and the Obligated Group s methods of operation and other factors affecting its financial condition in order to generate a Historical Debt Service Coverage Ratio of at least 1.20:1 for the following Fiscal Year. If the Historical Debt Service Coverage Ratio of the Obligated Group for the Fiscal Year following the Fiscal Year with respect to which the Initial Testing Date relates, and for any Fiscal Year thereafter, is less than 1.20:1, the Obligated Group, at the Obligated Group s expense, shall retain a Consultant within 30 days following the calculation described in the second preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group s methods of operation and other factors affecting its financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year. The Consultants selected as described in this heading shall be approved and selected as summarized below and in APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants. If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required by the Master Indenture and summarized above, the Obligated Group shall not be required to select a Consultant to make recommendations in certain instances. If the Obligated Group fails to achieve an Historical Debt Service Coverage Ratio of at least 1.00:1 for any Fiscal Year such failure shall constitute an event of default under the Master Indenture. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Rates and Charges herein and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Rates and Charges in APPENDIX C. Liquidity Covenant. The Obligated Group covenants that it will calculate the Days Cash on Hand or the Cash to Indebtedness Ratio of the Obligated Group as of June 30 and December 31 of each Fiscal Year (each such date being a Testing Date ), commencing with the Initial Testing Date. The Obligated Group shall deliver an Officer s Certificate setting forth such calculation as of June 30 to the Master Trustee no later than August 15, and include such calculation as of December 31 in the Officer s Certificate delivered pursuant to the Master Indenture and described under the heading FINANCIAL REPORTING AND CONTINUING DISCLOSURE herein. (vii)

24 The Master Indenture requires that each Obligated Group Member conduct its business so that on each Testing Date the Obligated Group shall have a Cash to Indebtedness Ratio of: (a) no less than 0.25 for the first two Testing Dates, starting with the Initial Testing Date, and (b) no less than for the next year (the next two Testing Dates), and (c) no less than 0.30 thereafter (the Liquidity Requirement ). At the option of the Obligated Group Agent, the Liquidity Requirement can be converted to a covenant to maintain no less than 180 Days Cash on Hand on each Testing Date if for three consecutive Fiscal Years the Obligated Group has reported (a) an Historical Debt Service Coverage Ratio of 1.40:1 or more, and (b) a Cash to Indebtedness Ratio of 0.30 or more on each Testing Date. The Obligated Group Agent may elect to convert the Liquidity Requirement as of a specified date (the Liquidity Requirement Conversion Date ) in an Officer s Certificate demonstrating compliance with the tests in the preceding sentence. After the Liquidity Requirement Conversion Date, the Liquidity Requirement will be a covenant to maintain no less than 180 Days Cash on Hand on each June 30 and December 31. For information regarding the liquidity covenant and remedies, see SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Liquidity Covenant and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Liquidity Covenant in APPENDIX C. Marketing Covenant. Beginning with the fiscal quarter ending September 30, 2012 and ending at the end of the first full fiscal quarter following the date on which Stable Occupancy of the Independent Living Units included in the Project has been achieved, the Obligated Group will use its best efforts to maintain the percentage of Independent Living Units which are Reserved (the Percentage of Reserved Independent Living Units ) at or above the applicable levels set forth below, which determinations shall be measured as of the last day of the applicable quarter (the Marketing Requirements ). The applicable Marketing Requirements for the applicable quarter shall be either (i) the Level I Marketing Requirements as long as the Adjusted Level I Occupancy Requirements set forth under Occupancy Covenant on the next page have not been satisfied or (ii) the Adjusted Level I Marketing Requirements if the Adjusted Level I Occupancy Requirements set forth under Occupancy Covenant on the next page have been satisfied. (viii)

25 Percentage of Reserved Independent Living Units (%) Quarter Ending Level I Adjusted Level I September 30, % December 31, % March 31, % June 30, % September 30, % December 31, % 63.4% March 31, % 61.9% June 30, % 63.4% September 30, % 65.6% December 31, % 67.9% March 31, % June 30, % September 30, % December 31, % March 31, % June 30, % September 30, % December 31, % March 31, % June 30, % through Stable Occupancy For information regarding the marketing covenant and remedies, see SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Marketing Covenant and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Marketing and Occupancy Covenants Marketing Covenant in APPENDIX C. Occupancy Covenant. For each fiscal quarter (a) commencing with the first fiscal quarter which ends not less than 60 days following the issuance of the initial Occupancy Certificate for all of the Independent Living Units to be occupied included in the Project and (b) ending at the end of the first full fiscal quarter following the date on which Stable Occupancy with respect to the Independent Living Units included in the Project has been achieved (an Occupancy Quarter ), the Obligated Group will use its best efforts to have Occupied the percentage of the total number of all Independent Living Units included in the Project (the Percentage of Units Occupied ) at or above the Level I Occupancy requirements set forth on the next page, which levels shall be measured as of the last day of the applicable Occupancy Quarter (the Occupancy Requirements ): (ix)

26 Level I Adjusted Level I Occupancy Occupancy Requirements Projected Occupancy Requirements Quarter (%) Occupancy (%) (1) (%) (2) 1 5.2% 9.0% 20.1% % 26.1% 35.8% % 38.8% 50.0% % 47.8% 63.4% % 56.7% 75.4% % 65.7% % 74.6% % 81.3% % 85.8% % 88.1% % 91.0% % 94.0% % 95.0% % 95.0% % 95.0% % 95.0% 17 and thereafter 90.0% 95.0% (1) This information is based on management s forecast as contained in the Feasibility Study which should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B FINANCIAL FEASIBILITY STUDY. This information is not included in the Master Indenture and is set forth herein for purposes of comparison only. There can be no assurance that the Project will achieve the occupancy levels forecasted. (2) This information is for use with the marketing covenant only, as set forth in Marketing Covenant above. For information regarding the occupancy covenant and remedies, see SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group, Occupancy Covenant and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Marketing and Occupancy Covenants Occupancy Covenant in APPENDIX C. (x)

27 Cumulative Cash Operating Loss Covenant. The Obligated Group covenants that during the period commencing with (a) the first fiscal quarter ending after the earliest date a resident has taken physical possession of one of the Independent Living Units included in the Project (the Initial Occupancy Date ) if such date is more than 30 days prior to the end of such fiscal quarter or (b) the first full fiscal quarter ending after the Initial Occupancy Date if such Initial Occupancy Date is less than 30 days prior to the end of a fiscal quarter, it will calculate its Cumulative Cash Operating Loss as of the last day of each such fiscal quarter (a CCOL Testing Date ). Each Member is required to conduct its business so that as of each CCOL Testing Date, the Obligated Group will have Cumulative Cash Operating Loss no greater than the amount set forth below: Quarter Cumulative Cash Operating Loss Forecasted Cumulative Cash Operating Loss (1) 1 ($2,300,000) ($798,218) 2 (4,500,000) (2,032,542) 3 (6,500,000) (3,774,013) 4 (8,500,000) (5,339,708) 5 (9,750,000) (6,441,262) 6 (10,750,000) (7,254,428) 7 (11,500,000) (7,838,601) 8 (11,900,000) (7,969,969) 9 (12,100,000) (7,999,697) 10 (12,300,000) (8,047,891) 11 (12,400,000) (8,055,192) 12 and thereafter (12,500,000) (8,348,423) (1) This information is based on management s forecast as contained in the Feasibility Study which should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B FINANCIAL FEASIBILITY STUDY. This information is not included in the Master Indenture and is set forth herein for purposes of comparison only. There can be no assurance that the Project will not exceed the operating losses forecasted. Excludes net turn over Entrance Fees. For information regarding the cumulative cash operating loss covenant and remedies, see SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Cumulative Cash Operating Loss Covenant and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Cumulative Cash Operating Loss Covenant in APPENDIX C. Incurrence of Additional Indebtedness. The Obligated Group agrees in the Master Indenture to restrictions on the incurrence of additional indebtedness, as more fully described under the captions SECURITY FOR THE SERIES 2012 OBLIGATIONS Additional Indebtedness herein and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Permitted Additional Indebtedness. To the extent that the conditions provided in the Master Indenture are met, such indebtedness may be secured on a parity basis with the Series 2012 Obligations. Disposition of Property. The Corporation and each future Member of the Obligated Group agrees in the Master Indenture to restrictions on the disposition of its Property, as more fully described under the caption SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Sale, Lease or Other Disposition of Property in APPENDIX C hereto. (xi)

28 Application for Rating. Not later than 150 days after receipt by the Obligated Group Agent of audited financial statements of the Obligated Group for the first full Fiscal Year following the achievement of Stable Occupancy with respect to the Project, and each Fiscal Year thereafter during which the Obligated Group does not maintain an Investment Grade Credit Rating, the Obligated Group will approach any Rating Agency to obtain a credit rating until the Obligated Group obtains a credit rating of at least BBB- (or an equivalent rating) from any Rating Agency (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 Agent 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. Also see APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Application for Rating. Payments on Affiliate Related Subordinated Indebtedness and Affiliate Related Management Agreements. The Obligated Group agrees in the Master Indenture that a Member will not make payments to Affiliates on Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements, other than Initial SQLC Obligations and the Initial SQLC Management Agreement, unless the Obligated Group Agent delivers an Officer s Certificate to the Master Trustee prior to any payment to Affiliates on Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements that contains the following certifications: (a) there have been two consecutive full fiscal quarters in which the percentage of all units included in the Project which are Occupied has averaged at least 90% for each such fiscal quarter; (b) if the proposed payment to Affiliates on the Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements had occurred as of the last day of the most recent fiscal quarter for which financial statements have been delivered under the provisions of the Master Indenture, the Obligated Group would have satisfied the Liquidity Requirement after that payment; (c) if the proposed payment on the Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements had occurred during the most recent Fiscal Year for which audited financial statements of the Obligated Group are available, the Historical Debt Service Coverage Ratio for that Fiscal Year would have been not less than 1.30; (d) no Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds remain outstanding; and (e) there is no event existing that constitutes, or with the giving of notice or the passing of time or both would constitute, an event of default under the Master Indenture or the Loan Agreement. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Payments on Affiliate Related Subordinated Indebtedness and Management Fees to Affiliates herein and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE hereto. The repayment requirements for the Initial SQLC Obligations are described in APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. The payment requirements for the Initial SQLC Management Agreement are described in APPENDIX A GOVERNANCE AND MANAGEMENT Administration and Operational Oversight Agreement hereto. Approval of Consultants. Pursuant to the Master Indenture, the Owners of outstanding Obligations have certain approval rights as to Consultants selected by the Obligated Group Representative. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Approval of Consultants, and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants. Change of Security and Payment Source (Substitution of Series 2012 Obligations). Under the circumstances described in the Bond Indentures, the Series 2012 Obligations may be exchanged for (xii)

29 the Obligations of SQLC and other parties named (the SQLC Obligated Group ) in the SQLC Master Trust Indenture. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Change of Security and Payment Source (Substitution of Series 2012 Obligations) and RISK FACTORS Change of Security and Payment Source (Substitution of Series 2012 Obligations) herein and SUMMARIES OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURES Release and Substitution of the Tax-Exempt Obligations from the Master Indenture and SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Release and Substitution of the Series 2012D Obligation from the Master Indenture in APPENDIX C. Entrance Fees Fund. Pursuant to the Master Indenture, the Members of the Obligated Group agree that all Initial Entrance Fees received by such Members shall be transferred to the Master Trustee within five Business Days of the receipt thereof for deposit into the Entrance Fees Fund established with the Master Trustee and held under the Master Indenture. Moneys in the Entrance Fees Fund shall be disbursed by the Master Trustee on the first Business Day of each month (or as otherwise described under FIFTH below), as follows: FIRST: to the Members to pay refunds of Entrance Fee Deposits required for terminations of the Reservation or Residency Agreements prior to occupancy. Such disbursements shall be made upon receipt by the Master Trustee of a written certificate of an Authorized Officer of a Member certifying that it is required by the Reservation or Residency Agreement to pay refunds within the next 30 days and the amount of such refunds. SECOND: to the Working Capital Fund established under the Master Indenture, until the total principal amount deposited into the Working Capital Fund equals $12,500,000. The Master Trustee shall not replenish funds withdrawn from the Working Capital Fund or transfer Entrance Fees from the Entrance Fees Fund into the Working Capital Fund in excess of a total of $12,500,000. THIRD: to the Operating Reserve Fund established under the Master Indenture, until the amount on deposit in the Operating Reserve Fund equals $3,000,000 (the Operating Reserve Fund Requirement ). On each Review Date (as defined in FIFTH below), the Master Trustee shall disburse the amount needed, if any, to increase the amount on deposit in the Operating Reserve Fund to the Operating Reserve Fund Requirement. The Master Trustee shall replenish up to $3,000,000 of any funds withdrawn from the Operating Reserve Fund from funds deposited in the Entrance Fees Fund for a total aggregate deposit of not more than $6,000,000. Notwithstanding the foregoing limitations on the amount of Initial Entrance Fees deposited in the Operating Reserve Fund, if a transfer of moneys from the Liquidity Support Fund or from any other source of funds pursuant to the Liquidity Support Agreement to the Operating Reserve Fund has occurred as described in the Master Indenture or in the Liquidity Support Agreement, the Master Trustee shall deposit to the Operating Reserve Fund the amount, if any, needed to increase the amount on deposit in the Operating Reserve Fund to $2,000,000. FOURTH: to the Liquidity Support Fund, the Supplemental Liquidity Support Fund and the Special Project Liquidity Support Fund (pro rata) any amount necessary to reimburse any amounts advanced under the Liquidity Support Agreement to pay costs prior to issuance of the initial Occupancy Certificate with respect to the Project. FIFTH: after the transfers pursuant to the preceding numbered paragraphs have been made, the Master Trustee shall review the amount on deposit in the Entrance Fees Fund on the first day of each January, April, July and October, or more frequently upon request of the (xiii)

30 Corporation (each such day a Review Date ). Moneys in the Entrance Fees Fund on each Review Date (or, upon request of the Obligated Group Agent, on any Business Day) shall be disbursed by the Master Trustee as follows: (i) to the Taxable Bond Trustee, for deposit into the Optional Redemption Fund established under the Taxable Bond Indenture for redemption of Series 2012D Bonds pursuant to the provisions of the Taxable Bond Indenture and prepayment of the Series 2012D Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (ii) after making all of the transfers described in (i) above, to the Tax- Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012C-3 Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012C-3 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (iii) after making all of the transfers described in (i) and (ii) above, to the Tax-Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012C-2 Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012C-2 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (iv) after making all of the transfers described in (i) through (iii) above, to the Tax-Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012C-1 Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012C-1 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (v) after making all of the transfers described in (i) through (iv) above, to the Tax-Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012B Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012B Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (vi) Funds shall be transferred on each Review Date as described above regardless of the amount to be so transferred. There is no minimum amount that may be transferred on a regularly scheduled quarterly Review Date. However, any funds transferred at the request of the Obligated Group Agent on a Business Day other than a regularly scheduled Review Date may be transferred only if the amount to be so transferred from the Entrance Fees Fund is at least $100,000. As provided in the Bond Indentures, amounts transferred as described in (i) through (v) above shall remain on deposit in the respective Optional Redemption Fund until the respective Series 2012 (xiv)

31 Bonds may be redeemed in accordance with the applicable optional redemption provisions as described in REDEMPTION OF THE SERIES 2012 BONDS. SIXTH: when the Obligated Group Agent delivers an Officer s Certificate to the Master Trustee stating that (A) all Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds have been redeemed, (B) no Event of Default has occurred and is continuing under the Master Indenture, and (C) requesting that any funds on deposit in the Entrance Fees Fund be transferred to the Corporation, the Members of the Obligated Group need not deposit any Initial Entrance Fees into the Entrance Fees Fund, any amounts on deposit in the Entrance Fees Fund shall be remitted to the Corporation by the Master Trustee, and the Entrance Fees Fund shall be closed. For information regarding the Entrance Fees Fund, see SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Entrance Fees Fund and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Entrance Fees Fund. Working Capital Fund. The Master Trustee shall establish and maintain a separate account to be known as the Working Capital Fund Mayflower Communities, Inc. (the Working Capital Fund ). All moneys received by the Master Trustee and held in the Working Capital Fund shall be trust funds under the terms of the Master Indenture for the benefit of all of the Obligations outstanding thereunder (except as otherwise provided) and shall not be subject to lien or attachment of any creditor of any Member of the Obligated Group. Such moneys shall be held in trust and applied in accordance with the provisions of the Master Indenture. Moneys in the Working Capital Fund shall be disbursed by the Master Trustee to or for the account of the Corporation within three (3) business days after receipt by the Master Trustee of a Written Request to the Master Trustee certifying that such request is for (A) costs of the initial construction and equipping of the Project, (B) development and marketing fees and expenses relating to the Project, (C) operating expenses relating to the Project, (D) the costs of needed repairs to the Project, (E) routine capital expenditures relating to the Project, (F) judgments against any Member of the Obligated Group, (G) refunds of Entrance Fee Deposits as required by Reservation or Residency Agreements pursuant to which such Entrance Fees were received, (H) amounts required to restore funds on deposit in each account of the Debt Service Reserve Fund created under the Bond Indentures to required levels, or (I) amounts due on any Obligations (other than optional prepayment or redemption or tenders of the Series 2012B Bonds), but not to reimburse amounts advanced under the Liquidity Support Agreement or otherwise advanced by an Affiliate or to pay Affiliate Related Subordinated Indebtedness or Affiliate Related Management Fees. All amounts on deposit in the Working Capital Fund may be released to the Obligated Group Agent and the Working Capital Fund will be closed upon receipt by the Master Trustee of an Officer s Certificate of the Obligated Group Agent requesting such release which Officer s Certificate shall state that (i) all Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds have been redeemed, (ii) Stable Occupancy with respect to the Project has been achieved and (iii) no Event of Default has occurred and is continuing under the Master Indenture. Operating Reserve Fund. The Master Trustee shall establish and maintain a separate account to be known as the Operating Reserve Fund Mayflower Communities, Inc. (the Operating Reserve Fund ). All moneys received by the Master Trustee and held in the Operating Reserve Fund shall be trust funds under the terms of the Master Indenture for the benefit of all of the Obligations outstanding thereunder (except as otherwise provided) and shall not be subject to lien or attachment of any creditor of (xv)

32 any Member of the Obligated Group. Such moneys shall be held in trust and applied in accordance with the provisions of the Master Indenture. Moneys in the Operating Reserve Fund shall be disbursed by the Master Trustee to or for the account of the Corporation within three business days of receipt by the Master Trustee of an Officer s Certificate of the Corporation to the effect that (i) the withdrawal is made to pay (A) costs of the initial construction and equipping of the Project, (B) development and marketing fees and expenses relating to the Project, (C) operating expenses relating to the Project, (D) the costs of needed repairs to the Project, (E) routine capital expenditures relating to the Project, (F) judgments against any Member of the Obligated Group, (G) amounts required to restore funds on deposit in the Debt Service Reserve Fund created under the Bond Indentures to required levels, (H) refunds of Entrance Fee Deposits as required by Reservation or Residency Agreements pursuant to which such Entrance Fees were received or (I) amounts due on any Obligations (other than optional prepayment or redemption or tenders of the Series 2012B Bonds), but not to reimburse amounts advanced under the Liquidity Support Agreement or other amounts owed under Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements, (ii) moneys anticipated to be expended in the calendar month following the month in which such Officer s Certificate is submitted, together with an itemized budget describing the uses for which such moneys are needed and the amount needed for each such use, and (iii) no other funds are available or will reasonably be available to make such payments. All amounts on deposit in the Operating Reserve Fund may be released to the Corporation, and the Operating Reserve Fund shall be closed, upon receipt by the Master Trustee of an Officer s Certificate of the Obligated Group Agent requesting such release which Officer s Certificate shall state that (i) all Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds have been redeemed, (ii) Stable Occupancy with respect to the Project has been achieved and (iii) no Event of Default has occurred and is continuing under the Master Indenture. Investment of Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund. Any moneys held by the Master Trustee in the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund shall be invested by the Master Trustee, upon the written direction of the Obligated Group Agent, in Permitted Investments. The Obligated Group Agent shall select investments which shall mature on or prior to the date or dates that moneys therefrom are anticipated to be required. The Master Trustee, unless specifically prohibited by the Obligated Group Agent in writing, may trade with itself, or any bank affiliated with it, in the purchase and sale of such investments and may receive compensation in connection with such investments. The Master Trustee shall not be liable or responsible for any loss resulting from such investments. Any investment income or other gain from any investment of moneys on deposit in the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund shall be retained therein. Any loss resulting from such investments shall be charged to the Entrance Fees Fund, Working Capital Fund or Operating Reserve Fund, as the case may be. Investment management fees relating to the investment of the Entrance Fees Fund, the Working Capital Fund and the Operating Reserve Fund shall be charged to such Funds. The investment of the moneys held in the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund shall be subject to yield restriction as provided in the Tax Certificates until the Obligated Group Agent delivers an opinion of nationally recognized municipal bond counsel (which counsel and opinion are in a form acceptable to the Master Trustee) to the Master Trustee to the effect that no such yield restriction is required to maintain any exemption from federal income taxation to which the interest on any Related Bonds would otherwise be entitled. For more information, see SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Entrance Fees (xvi)

33 Fund, Working Capital Fund, Operating Reserve Fund, and Investment of Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund as well as SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Entrance Fees Fund, Working Capital Fund, Operating Reserve Fund and Investment of the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund in APPENDIX C. Feasibility Study CliftonLarsonAllen LLP, independent certified public accountants, have prepared a financial feasibility study dated August 16, 2012 (the Feasibility Study ), which is included as APPENDIX B hereto. The Feasibility Study was originally prepared on July 9, 2012 and has been updated to reflect changes in the financial structure and terms of the Series 2012 Bonds and other items discussed therein. The Feasibility Study includes management s financial forecast of the Corporation for the six years ending December 31, As stated in the Feasibility Study, there will usually be differences between the forecasted data and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. THE FEASIBILITY STUDY SHOULD BE READ IN ITS ENTIRETY, INCLUDING MANAGEMENT S NOTES AND ASSUMPTIONS SET FORTH THEREIN. See APPENDIX B hereto. Forecasted Financial Information of the Corporation The following table reflects the forecasted funds available for debt service and other financial ratios as of and for the fiscal year ending December 31, 2017 and has been extracted from management s financial forecast included in the Feasibility Study. For purposes of calculating debt service requirements in the table below, the Underwriter has provided to CliftonLarsonAllen LLP the structure and terms of the Series 2012 Bonds as follows: The Series 2012A Bonds consist of $94,575,000 nonrated fixed rate bonds, with annual principal payments assumed maturing on or before November 15, The Series 2012A Bonds are assumed to bear average interest rates ranging from 6.00% to 7.125% per annum and average annual yields ranging from 6.25% to 7.30%. The Series 2012B Bonds consist of $3,000,000 which are ARROS SM anticipated to be redeemed in full by approximately 77.3% initial occupancy of the Independent Living Units by approximately November 15, 2015 and with an interest rate of 6.00% per annum until November 15, 2019 (the Initial Rate Change Date ) at which time any outstanding Series 2012B Bonds will bear interest at a rate and for a period determined in accordance with the Tax-Exempt Bond Indenture. The Series 2012C-1 Bonds consist of $3,515,000 fixed rate bonds with an interest rate of 5.75% per annum and are anticipated to be redeemed in full by 71.6% initial occupancy of the Independent Living Units by approximately August 15, The Series 2012C-2 Bonds consist of $7,905,000 fixed rate bonds with an interest rate of 5.25% per annum and are anticipated to be redeemed in full by 65% initial occupancy of the Independent Living Units by approximately August 15, The Series 2012C-3 Bonds consist of $3,025,000 fixed rate bonds with an interest rate of 4.50% per annum and are anticipated to be redeemed in full by 44.2% initial occupancy of the Independent Living Units by approximately February 15, (xvii)

34 The Series 2012D Bonds consist of $7,000,000 taxable fixed rate bonds with an interest rate of 6.25% per annum and are anticipated to be redeemed in full by 50% initial occupancy of the Independent Living Units by approximately November 15, The Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds, and the Series 2012B Bonds each have early call provisions that provide for redemption prior to the maturity date without penalties, and are assumed to be redeemed in full prior to their respective maturities based on the availability of Initial Entrance Fee receipts. (xviii)

35 FORECASTED SCHEDULE OF FINANCIAL RATIOS FOR THE YEAR ENDING DECEMBER 31, (000s Omitted, Except Ratios) Debt Service Coverage Ratio 2017 Change in Unrestricted Net Assets $ (1,189) Non-cash items and add backs Entrance fee amortization (912) Depreciation and amortization 3,226 Interest expense 6,676 Net entrance fees received from resident turnover 2,723 Deferral of Corporation s Allocable Overhead 265 Income Available for Debt Service $ 10,789 Annual Debt Service (1) $ 7,541 Annual Debt Service Coverage Ratio (2) 1.43x Maximum Annual Debt Service (3) $ 7,542 Maximum Annual Debt Service Coverage Ratio (4) 1.43x Days Cash on Hand (2) 2017 Cash and cash equivalents $ 500 Investments 23,063 Special Project Liquidity Support Fund (5) 938 Total $ 24,501 Operating expenses (6) $ 17,540 Daily cash operating expenses $ 48 Days cash on hand 510 Cash to Long-Term Debt Ratio (2) 2017 Cash and Cash Equivalents $ 500 Investments 23,063 Special Project Liquidity Support Fund (5) 938 Debt Service Reserve Fund 7,542 Total Funds Available for Debt Service $ 32,043 Total Long-Term Debt Outstanding (7) $ 91,814 Cash to Long-Term Debt Ratio.35x (1) Actual annual debt service is equal to the forecasted annual debt service on the Series 2012 Bonds. Calculations as described in the Master Indenture. (3) Maximum annual debt service is equal to the forecasted maximum annual debt service on the Series 2012 Bonds. (4) This ratio is not required by the Master Indenture. (5) The Special Project Liquidity Support Fund is forecasted to be included in the calculation pursuant to the Master Indenture. (6) Operating expenses are equal to total operating expenses less depreciation and amortization expense, deferred interest on the Subordinated Notes, and the deferral of the Corporation s Allocated Overhead. (7) Total Long-Term Debt Outstanding excludes the forecasted current maturities of the Series 2012 Bonds, the original issue discount related to the Series 2012 Bonds, the Subordinated Notes, and the Corporation s Allocated Overhead. The above tables should be considered in conjunction with the entire Feasibility Study to understand management s assumptions upon which the Feasibility Study is based, including those assumptions relating to the average annual interest rates pertaining to the Series 2012 Bonds. There will (xix)

36 usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Financial Reporting and Disclosure Financial Reporting. The Master Indenture requires the Obligated Group Agent to furnish or cause to be furnished to, among others, the Master Trustee, the Underwriter, the Bond Trustee, EMMA (as described below) and any other municipal securities information repositories identified by the Securities and Exchange Commission, the Issuer and all owners of any Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership) (the Required Information Recipients ), the following: (i) Until the end of the fiscal quarter in which the Obligated Group achieves Stable Occupancy with respect to the Project, a monthly statement of the Obligated Group as soon as practicable after the information is available but in no event more than 45 days after the completion of such month, including: (A) prior to the issuance of the initial Occupancy Certificate for any portion of the Project, (I) a calculation of the marketing/reservation levels for the Project as of the end of such month, including the number of units that have been Reserved or cancelled during that month and on an aggregate; (II) a summary statement as to the status of construction; (III) unaudited financial reports on the development costs of the Project incurred during that month and on an aggregate basis; and (IV) statements of the balances for each fund and account required to be held under the Master Indenture or under the Liquidity Support Agreement or under any related Bond Indenture as of the end of such month (to the extent available from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Agent, and (B) after the issuance of the initial Occupancy Certificate for any portion of the Project, (I) a calculation of the marketing/reservation levels for the Project as of the end of such month, including the number of units that have been Reserved or cancelled during that month and on an aggregate basis; (II) information with respect to the payor mix for the health center portion of the Project; (III) occupancy levels of the Project as of the end of such month including the number of units that were Occupied and vacated during that month and on an aggregate basis; (IV) a summary statement on the status of construction until the issuance of the last Occupancy Certificate for the Project; (V) unaudited financial reports on the development costs incurred during that month and on an aggregate basis until the issuance of the last Occupancy Certificate for the Project; (VI) an unaudited statement of revenues and expenses and statement of cash flows of the Obligated Group for such month with a comparison to the operating budget, and an unaudited balance sheet of the Obligated Group as of the end of such month; (VII) a calculation of the Cumulative Cash Operating Loss as of the end of such month; (VIII) statements of the balances for each fund and account held under the Master Indenture, under the Liquidity Support Agreement or under any related Bond Indenture as of the end of such month (obtained from the applicable trustee), and (IX) a statement showing the amount of Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds that have been redeemed in the aggregate and during that calendar month, all in reasonable detail and certified by an officer of the Obligated Group Agent. The Obligated Group Agent does not need to deliver any monthly statement of the Obligated Group described in this subparagraph (i) after the end of the fiscal quarter in which Stable Occupancy with respect to the Project has been achieved and the Obligated Group has commenced delivery of the quarterly reports required by subparagraph (ii) below. (xx)

37 (ii) Beginning with the first full fiscal quarter following the date that Stable Occupancy with respect to the Project is achieved, the following information as soon as practicable after it is available but in no event more than 45 days after the completion of such fiscal quarter: (A) quarterly unaudited financial statements of the Obligated Group (including a report with respect to the fourth quarter of each Fiscal Year), including a combined or combining statement of revenues and expenses and a statement of cash flows of the Obligated Group during such period, and a combined or combining balance sheet as of the end of each such fiscal quarter with a comparison to the operating budget, (B) a calculation of Days Cash on Hand or Cash to Indebtedness Ratio, as applicable, as of the last day of such quarter, the Historical Debt Service Coverage Ratio of the Obligated Group for such quarter, the Cumulative Cash Operating Loss, to be calculated or submitted for such fiscal quarter, (C) information with respect to the payor mix for the health center portion of the Project, and (D) a calculation of the marketing/reservation levels for the Project as of the end of each month in the quarter, including the number of units that have been reserved or cancelled during that month and on an aggregate basis; occupancy levels of the Project as of the end of each such month including the number of units that were Occupied and vacated during that month and on an aggregate basis; all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Agent, with a management s discussion and analysis of results. (iii) If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 or the Cash to Indebtedness Ratio or the Days Cash on Hand, as applicable, of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided in the Master Indenture, the Obligated Group will deliver the financial information and the calculations described in paragraph (ii) above on a monthly basis with the Historical Debt Service Coverage Ratio calculated on a year to date basis each month, within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and the Cash to Indebtedness Ratio or the Days Cash on Hand, as applicable, of the Obligated Group is at least equal to the applicable Liquidity Requirement. (iv) Within 150 days of the end of each Fiscal Year commencing with the Fiscal Year ended December 31, 2012, an annual financial report of the Obligated Group audited by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year, a combined and an unaudited combining statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants auditing such report containing calculations of the Obligated Group s Historical Debt Service Coverage Ratio for said Fiscal Year and of the Obligated Group s Cash to Indebtedness Ratio or Days Cash on Hand, as applicable (beginning with the Fiscal Year in which such calculations are first required to be made), as of the last day of such Fiscal Year and, if such accountants shall have obtained knowledge of any default or defaults under the Master Indenture, they shall disclose in such statement the default or defaults and the nature thereof. (v) On or before the date of delivery of the financial reports referred to in subsection (iv) above, an Officer s Certificate of the Obligated Group Agent (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the marketing and occupancy percentages, Cumulative Cash Operating Loss, Days Cash on Hand or Cash to Indebtedness Ratio, as applicable, and Historical Debt Service Coverage Ratio, required to be calculated for such Fiscal Year by the Master Indenture, as of the end of such fiscal period or Fiscal Year, as appropriate, and (C) commencing with the first Fiscal Year of operations, a (xxi)

38 comparison of the audited financial statements with the operating budget for the preceding Fiscal Year. (vi) Within 150 days of the end of the Fiscal Year ending December 31, 2017, and within 150 days of the end of each third Fiscal Year thereafter, the Obligated Group will obtain an actuarial report, including a calculation of funded status, and the Obligated Group Agent shall deliver an executive summary of such report, including a calculation of the Obligated Group s funded status. Should the Obligated Group engage an actuary to report on funding status more frequently than in the preceding sentence, an executive summary of such report will be provided. (vii) Within 45 days of the end of each Fiscal Year, the Obligated Group Agent shall deliver a summary of the operating and capital budgets for the Fiscal Year then started. (viii) At any time during the Fiscal Year, copies of (A) any board-approved revisions to the annual budget or (B) any correspondence to or from the Internal Revenue Service contesting the status of a Member as an organization described in Section 501(c)(3) of the Code or contesting the tax-exempt status of the Series 2012 Tax-Exempt Bonds or any Related Bonds the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes, promptly upon receipt. (ix) Within 30 days of receipt of any Occupancy Certificate for any portion of the Project, the Corporation will notify the Master Trustee that such Occupancy Certificate has been received. (x) Within 45 days of achieving Stable Occupancy with respect to the Project, the Corporation will notify the Master Trustee that Stable Occupancy has been achieved. (xi) Upon withdrawal of any funds from the Liquidity Support Funds as provided under the Master Indenture, the Corporation shall notify the Master Trustee and each Required Information Recipient as required under the Master Indenture. See FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting herein and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Financial Statements and Related Matters in APPENDIX C hereto for further information. Continuing Disclosure. Offerings of municipal securities must comply with the provisions of Rule 15c2-12 of the Securities and Exchange Commission (as amended from time to time, the Rule ). Given the sources of repayment for the Series 2012 Bonds and the Issuer s special and limited obligation in respect thereof, the Issuer has determined that its financial and operating data are not material to a decision to purchase, hold or sell the Series 2012 Bonds. Consequently, the Issuer will not provide any such information. However, the Corporation has agreed pursuant to a Continuing Disclosure Agreement to make certain financial information and certain operating data with respect to it available to holders of the Series 2012 Bonds through EMMA ( the information repository of the Municipal Securities Rulemaking Board, to comply with the Rule. The Corporation is solely responsible for providing such continuing disclosure and the Issuer will not provide any such information. In addition, the Corporation will provide a copy of the information described under the heading FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting to EMMA. See FINANCIAL REPORTING AND CONTINUING DISCLOSURE herein. (xxii)

39 Risk Factors AN INVESTMENT IN THE SERIES 2012 BONDS INVOLVES A CERTAIN DEGREE OF RISK INCLUDING THOSE SET FORTH UNDER THE HEADING RISK FACTORS HEREIN. A PROSPECTIVE SERIES 2012 BONDHOLDER IS ADVISED TO READ SECURITY FOR THE SERIES 2012 BONDS General, SECURITY FOR THE SERIES 2012 OBLIGATIONS AND RISK FACTORS FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES 2012 BONDS. Careful consideration should be given to these risks and other risks described elsewhere in this Official Statement. Among other things, careful evaluation should be made of management s assumptions and rationale described in the Feasibility Study, and certain factors that may adversely affect the ability of the Corporation or any future Members of the Obligated Group to generate sufficient revenues to pay expenses of operation, including the principal of, premium, if any, and interest on the Series 2012 Bonds. The Principal Documents THE DESCRIPTIONS AND SUMMARIES OF VARIOUS DOCUMENTS SET FORTH IN THIS OFFICIAL STATEMENT, INCLUDING APPENDIX C, DO NOT PURPORT TO BE COMPREHENSIVE OR DEFINITIVE, AND REFERENCE IS MADE TO EACH DOCUMENT FOR COMPLETE DETAILS OF ALL TERMS AND CONDITIONS. ALL STATEMENTS HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY THE TERMS OF EACH SUCH DOCUMENT. DURING THE PERIOD OF THE OFFERING, COPIES OF DRAFTS OF THE BONDS, THE BOND INDENTURES, THE LOAN AGREEMENT, THE SERIES 2012 OBLIGATIONS, THE MASTER INDENTURE, THE LIQUIDITY SUPPORT AGREEMENT, AND THE CONTINUING DISCLOSURE AGREEMENT ARE AVAILABLE FROM THE UNDERWRITER, AND FOLLOWING DELIVERY OF THE BONDS, COPIES OF THE EXECUTED ORIGINALS THEREOF MAY BE EXAMINED AT THE PRINCIPAL CORPORATE TRUST OFFICE OF THE BOND TRUSTEE. (xxiii)

40 [THIS PAGE INTENTIONALLY LEFT BLANK]

41 $94,575,000 Revenue Bonds, Series 2012A OFFICIAL STATEMENT $119,020,000 REVENUE BONDS (THE BARRINGTON OF CARMEL PROJECT) $7,000,000 THE BARRINGTON OF CARMEL TAXABLE REVENUE BONDS, SERIES 2012D (TAXABLE MANDATORY PAYDOWN SECURITIES (TAXABLE MPS)) $7,905,000 Revenue Bonds, Series 2012C-2 (Mandatory Paydown Securities (TEMPS-65 SM )) $112,020,000 CITY OF CARMEL, INDIANA REVENUE BONDS consisting of $3,000,000 Revenue Bonds, Series 2012B (Accelerated Redemption Reset Option Securities (ARROS SM )) $3,025,000 Revenue Bonds, Series 2012C-3 (Mandatory Paydown Securities (TEMPS-50 SM )) $3,515,000 Revenue Bonds, Series 2012C-1 (Mandatory Paydown Securities (TEMPS-75 SM )) Purpose of this Official Statement INTRODUCTION The purpose of this Official Statement, including the cover page, the summary statement and the appendices, is to set forth certain information in connection with the offering by the City of Carmel, Indiana (the Issuer ) of its $94,575,000 Revenue Bonds, Series 2012A (The Barrington of Carmel Project) (the Series 2012A Bonds ), its $3,000,000 Revenue Bonds, Series 2012B (The Barrington of Carmel Project) (Accelerated Redemption Reset Option Securities (ARROS SM )) (the Series 2012B Bonds ), its $3,515,000 Revenue Bonds, Series 2012C-1 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-75 SM )) (the Series 2012C-1 Bonds ), its $7,905,000 Revenue Bonds, Series 2012C-2 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-65 SM ) (the Series 2012C-2 Bonds ), its $3,025,000 Revenue Bonds, Series 2012C-3 (The Barrington of Carmel Project) (Mandatory Paydown Securities (TEMPS-50 SM )) (the Series 2012C-3 Bonds and together with the Series 2012C-1 Bonds and the Series 2012C-2 Bonds, the Series 2012C Bonds and together with the Series 2012A Bonds and the Series 2012B Bonds, the Tax-Exempt Series 2012 Bonds ) and by Mayflower Communities, Inc. of its $7,000,000 Taxable Revenue Bonds (Taxable Mandatory Paydown Securities (Taxable MPS)) (the Series 2012D Bonds and, together with the Tax-Exempt Series 2012 Bonds, the Series 2012 Bonds ). The Series 2012A Bonds, the Series 2012C Bonds and the Series 2012D Bonds are occasionally referred to herein as the Fixed Rate Series 2012 Bonds. Certain capitalized terms used in this Official Statement and not otherwise defined herein are defined in APPENDIX C. The Official Statement speaks only as of its date, and the information contained herein is subject to change. The Issuer The City of Carmel, Indiana is authorized by the Constitution and statutes of the State of Indiana, particularly Indiana Code, Title 36, Article 7, Chapters 11.9 and 12 (the Act ) to issue revenue bonds and lend the proceeds to the Corporation. The Tax-Exempt Series 2012 Bonds being issued by the Issuer are issued pursuant to the Act and an ordinance (the Bond Ordinance ) adopted by the Common Council of the Issuer. For further information concerning the Issuer, see the information under the caption THE ISSUER.

42 The Corporation Mayflower Communities, Inc., a Delaware non-stock, nonprofit corporation (the Corporation ) was incorporated in November The Corporation was formed for the purpose of developing, owning and operating a senior living community known as The Barrington of Carmel (the Barrington or the Community ) located in Carmel, Indiana. The Corporation was organized exclusively for charitable and benevolent purposes and to provide quality housing, health care services and other programs to senior citizens. The Corporation is the initial and sole member of the Obligated Group under the Master Indenture. It has received a determination letter from the Internal Revenue Service that it is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ), is exempt from federal income taxation under Section 501(a) of the Code and is not a private foundation under Section 509(a) of the Code. As of August 16, 2012, the Corporation had received Entrance Fee Deposits for 95 Independent Living Units, representing approximately 70.9% of the total number of planned Independent Living Units. See APPENDICES A and B for a more detailed description of the history, organization and financial performance of the Corporation. Also see PLAN OF FINANCE herein. The Series 2012 Bonds The Tax-Exempt Series 2012 Bonds will be issued pursuant to the Act, a resolution of the Issuer (the Resolution ) and a Bond Trust Indenture dated as of August 1, 2012 (the Tax-Exempt Bond Indenture ), by and between the Issuer and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the Tax-Exempt Bond Trustee ). The proceeds of the Tax-Exempt Series 2012 Bonds will be loaned to the Corporation pursuant to a Loan Agreement dated as of August 1, 2012 (the Loan Agreement ), by and between the Corporation and the Issuer. The Series 2012D Bonds will be issued and secured under a Bond Trust Indenture, dated as of August 1, 2012 (the Taxable Bond Indenture and, together with the Tax-Exempt Bond Indenture, the Bond Indentures ), by and between the Corporation and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the Taxable Bond Trustee ). The Tax-Exempt Bond Trustee and the Taxable Bond Trustee are occasionally referred to herein as the Bond Trustee. THE SERIES 2012D BONDS ARE BEING ISSUED BY THE CORPORATION AND ARE ITS SOLE RESPONSIBILITY. THE ISSUER HAS NEITHER ISSUED NOR APPROVED THE ISSUANCE OF THE SERIES 2012D BONDS AND HAS NO LIABILITY OR OBLIGATION WHATSOEVER WITH RESPECT TO THE SERIES 2012D BONDS. Purpose of the Series 2012 Bonds The Corporation will use the proceeds from the sale of the Series 2012 Bonds, together with other available funds, to (i) pay or reimburse the Corporation for the payment of certain costs of acquiring, constructing, developing and equipping a community consisting of 134 independent living units, 7 catered living units, 56 assisted living units, 26 memory support units and 48 skilled nursing beds and related parking, common and administrative areas in Carmel, Indiana (the Project ); (ii) pay or reimburse certain Project costs incurred prior to the issuance of the Series 2012 Bonds; (iii) fund a debt service reserve fund; (iv) pay interest on the Series 2012 Bonds for a period of approximately 20 months; (v) fund supplemental and special project liquidity support funds; and (vi) pay certain of the costs relating to the issuance of the Series 2012 Bonds, and, with respect to the Tax-Exempt Series 2012 Bonds, all as permitted by the Act. A more detailed description of the use of the proceeds from the sale of the Series -2-

43 2012 Bonds is included under the captions ESTIMATED SOURCES AND USES OF FUNDS and PLAN OF FINANCE. Security for the Series 2012 Bonds Special and Limited Obligations of the Issuer. The Tax-Exempt Series 2012 Bonds will be special and limited obligations of the Issuer. The Series 2012 Bonds and the interest thereon do not constitute indebtedness or an obligation, general or moral, or a pledge of the full faith or a loan of credit of the Issuer, the State of Indiana (the State ) or any agency or political subdivision thereof, within the purview of any constitutional or statutory limitation or provision. The Issuer is obligated to pay the principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds and other costs incidental thereto only from the sources specified in the Tax-Exempt Bond Indenture. Neither the full faith and credit nor the taxing powers, if any, of the Issuer, the State or any agency or political subdivision thereof is pledged to the payment of the principal of, premium, if any, and interest on the Series 2012 Bonds or other costs incidental thereto, except as otherwise provided in the Tax-Exempt Bond Indenture. No owner of any Series 2012 Bond shall have the right to compel the taxing power, if any, of the Issuer, the State or any agency or political subdivision thereof to pay the principal of, premium, if any, or interest on the Series 2012 Bonds. General Obligation of the Corporation. The Series 2012D Bonds will be a general obligation of the Corporation. The Corporation will agree pursuant to the Taxable Bond Indenture to make payments sufficient to pay in full when due all principal of, premium, if any, and interest on the Series 2012D Bonds. Loan Agreement. The Issuer and the Corporation will enter into the Loan Agreement with respect to the Tax-Exempt Series 2012 Bonds whereby the Issuer will loan the proceeds of the Tax- Exempt Series 2012 Bonds to the Corporation and the Corporation will agree to make loan repayments sufficient to pay in full when due all principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds. The Master Indenture and the Series 2012 Obligations. The Series 2012A Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012A in the aggregate principal amount of $94,575,000 (the Series 2012A Obligation ), the Series 2012B Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012B in the aggregate principal amount of $3,000,000 (the Series 2012B Obligation ), the Series 2012C-1 Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012C-1 in the aggregate principal amount of $3,515,000 (the Series 2012C-1 Obligation ), the Series 2012C-2 Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012C-2 in the aggregate principal amount of $7,905,000 (the Series 2012C-2 Obligation ), the Series 2012C-3 Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012C-3 in the aggregate principal amount of $3,025,000 (the Series 2012C-3 Obligation and, together with the Series 2012C-1 Obligation and the Series 2012C-2 Obligation, the Series 2012C Obligations and together with the Series 2012A Obligation and the Series 2012B Obligation, the Tax-Exempt Series 2012 Obligations ) and the Series 2012D Bonds will be secured in part by the Corporation s Direct Note Obligation, Series 2012D in the aggregate principal amount of $7,000,000 (the Series 2012D Obligation and, together with the Tax-Exempt Series 2012 Obligations, the Series 2012 Obligations ). The Series 2012 Obligations will each be issued pursuant to a Master Trust Indenture dated as of August 1, 2012 (the Master Indenture ), between the Corporation, as the initial member of an obligated group (a Member, and collectively with any other entities that may become a Member, the Obligated Group ), and The Bank of New York Mellon Trust Company, N.A., as master trustee (the Master Trustee ). The Issuer will pledge and assign the related Tax-Exempt Series 2012 Obligations and certain of its rights under the Loan Agreement to the Tax-Exempt Bond Trustee as -3-

44 security for the Tax-Exempt Series 2012 Bonds. The Series 2012D Obligation will be issued directly to the Taxable Bond Trustee. The terms of each Series 2012 Obligation will require payments by the Corporation which, together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the respective series of Series 2012 Bonds. Each Series 2012 Obligation will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Corporation by the Master Indenture. The Obligated Group will be obligated on all Obligations, including the Series 2012 Obligations, which are issued pursuant to the Master Indenture. All Obligations issued by the Corporation will be equally and ratably secured by (i) a mortgage on the real property on which the Project is located and the fixtures thereon and (ii) a security interest in the Gross Revenues of the Obligated Group, subject in each case only to Permitted Encumbrances. See SECURITY FOR THE SERIES 2012 OBLIGATIONS General. In certain circumstances, the Corporation may issue Additional Obligations under the Master Indenture that may be equally and ratably secured with the Obligations outstanding under the Master Indenture, including the Series 2012 Obligations, or that may be entitled to the benefit of security in addition to that securing the Obligations outstanding under the Master Indenture, which security need not be extended to any other Obligations. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Additional Indebtedness. Payment of the principal of, premium, if any, and interest on each series of the Series 2012 Bonds will be additionally secured by moneys deposited to the credit of the applicable account of the Debt Service Reserve Funds for the Series 2012 Bonds established under the Bond Indentures. See SECURITY FOR THE SERIES 2012 BONDS General, Debt Service Reserve Fund. The Mortgage. Pursuant to a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of August 1, 2012 (the Mortgage ), the Corporation will grant the Master Trustee: (i) a first mortgage lien on the real property on which the Project is being constructed, and (ii) a security interest in the personal property and fixtures located in the Project (the Mortgaged Property ), in each case subject to Permitted Encumbrances, as security for the payment of the Series 2012 Obligations and all other Obligations hereafter issued under the Master Indenture. Security Interest in Gross Revenues. Pursuant to the Master Indenture, each Member of the Obligated Group will grant a security interest in its Gross Revenues (subject to Permitted Encumbrances) as security for the payment of the Series 2012 Obligations and all other Obligations hereafter issued under the Master Indenture. See SECURITY FOR THE SERIES 2012 BONDS and RISK FACTORS Certain Matters Relating to Enforceability of the Master Indenture herein. Gross Revenues means all receipts, revenues, rentals, income, insurance proceeds (including, without limitation, all Medicaid, Medicare and other third-party payments), condemnation awards, Entrance Fees and other moneys received by or on behalf of any Obligated Group Member, including (without limitation) revenues derived from (a) the ownership, operation or leasing of any portion of the Facilities (including, without limitation, fees payable by or on behalf of residents of the Facilities) and all rights to receive the same (other than the right to receive Medicaid and Medicare payments), whether in the form of accounts, general intangibles or other rights, and the proceeds of such accounts, general intangibles and other rights, whether now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (b) gifts, grants, bequests, donations and contributions heretofore or hereafter made that are legally available to meet any of the obligations of the Obligated Group Member incurred in the financing, operation, maintenance or repair of any portion of the Facilities; provided, however, that there shall be excluded from Gross Revenues (i) any amounts received by an Obligated -4-

45 Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (ii) gifts, grants, bequests, donations and contributions to an Obligated Group Member heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payments required under the Master Indenture, (iii) any moneys received by any Obligated Group Member from prospective residents or commercial tenants in order to pay for customized improvements to those Independent Living Units or other areas of the Facilities to be occupied or leased to such residents or tenants, (iv) payments or deposits under a Residency Agreement that by its terms or applicable law are required to be held in escrow or trust for the benefit of a resident until the conditions for the release of such payment or deposit have been satisfied, and (v) all deposits and/or advance payments made in connection with any residency of the Independent Living Units or other areas of the Facilities to be occupied by residents or tenants and received prior to receipt of such certificate and licenses for occupancy of such units. The Tax-Exempt Bond Indenture. Under the Tax-Exempt Bond Indenture, the Issuer will pledge and assign to the Tax-Exempt Bond Trustee, as security for the payment of principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds, all of its right, title and interest in and to (i) the Series 2012 Tax-Exempt Obligations, (ii) the Loan Agreement and all payments derived by the Issuer from the Corporation under the Loan Agreement (except the Issuer s Unassigned Rights), and (iii) all moneys and securities (except moneys and securities held in the Rebate Fund and the Purchase Fund with respect to the Tax-Exempt Bond Indenture) held by the Tax-Exempt Bond Trustee under the Tax-Exempt Bond Indenture. See SECURITY FOR THE SERIES 2012 BONDS herein. Additional Obligations and Additional Indebtedness. The Master Indenture permits the Corporation to issue Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Obligation issued under the Master Indenture. In certain circumstances, the Corporation may issue Additional Obligations under the Master Indenture to the Issuer or to persons other than the Issuer that will not be pledged under either Bond Indenture but will be equally and ratably secured with the Series 2012 Obligations. Under the terms of the Master Indenture, Additional Obligations may also be entitled to the benefit of security in addition to that securing the Obligations outstanding under the Master Indenture (including the Series 2012 Obligations). See SECURITY FOR THE SERIES 2012 OBLIGATIONS Additional Indebtedness. The Series 2012 Obligations and any Additional Obligations to be issued by the Corporation under the Master Indenture (whether or not pledged under a Bond Indenture) are collectively referred to herein as the Obligations. The Financial Feasibility Study CliftonLarsonAllen LLP, independent certified public accountants, has prepared a Financial Feasibility Study dated August 16, 2012 (the Feasibility Study ), which is included as APPENDIX B hereto. The Feasibility Study was originally prepared on July 9, 2012 and has been updated to reflect changes in the financial structure and terms of the Series 2012 Bonds and other items discussed therein. The Feasibility Study includes management s financial forecast of the Corporation for the six years ending December 31, As stated in the Feasibility Study, there will usually be differences between the forecasted data and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B hereto. -5-

46 PLAN OF FINANCE The Corporation will use the proceeds from the sale of the Series 2012 Bonds, together with other available funds, to (i) pay or reimburse the Corporation for the payment of certain costs of the Project; (ii) pay or reimburse certain Project costs incurred prior to the issuance of the Series 2012 Bonds; (iii) fund a debt service reserve fund; (iv) pay interest on the Series 2012 Bonds for a period of approximately 20 months; (v) fund supplemental and special project liquidity support funds; and (vi) pay certain of the costs relating to the issuance of the Series 2012 Bonds, and, with respect to the Tax-Exempt Series 2012 Bonds, all as permitted by the Act. A more detailed description of the use of the proceeds from the sale of the Series 2012 Bonds is included under the caption ESTIMATED SOURCES AND USES OF FUNDS. The Project The Community is planned to include the following components 134 independent living units (the Independent Living Units ), 7 catered living units (the Catered Living Units ), an 82 unit assisted living center (the Assisted Living Center ) consisting of 56 residential style assisted living apartments (the Assisted Living Units ) and 26 memory support assisted living suites (the Memory Support Units ), a 48-bed nursing facility (the Health Center ), separate common and support areas for each level of care, and 141 underground and 252 open surface parking spaces (the Common Areas ). The Community is planned to total approximately 372,000 square feet. See THE BARRINGTON OF CARMEL in APPENDIX A and the maps on the third and fourth pages inside the cover of this Official Statement for additional information about the existing campus. The Issuer makes no warranty or representation, whether express or implied, with respect to the Project or the location, use, operation, design, workmanship, merchantability, fitness, suitability or use for particular purpose, condition or durability thereof or title thereto. Development and Management of the Project The Corporation and Greystone Development Company II, LP ( GDC ) have entered into a Development Consulting Agreement, as amended (the Development Consulting Agreement ), pursuant to which GDC (or its assignee Greystone Development Services XIX, LLC) will provide certain consulting development services for the Project. See APPENDIX A DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY for more information regarding the development of the Project. GDC is a Delaware limited partnership. In addition, the Corporation has entered into a Management and Marketing Services Agreement, as amended (the Management Agreement ) with Greystone Management Services Company, LLC ( GMS ) to provide certain day-to-day operations and management services to the Corporation and the Community. See APPENDIX A DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY hereto for more information regarding the management of the Community. GMS is a Delaware limited liability company. See APPENDIX A for more information about GMS and its experience and operations. Pre-Finance Capital GCI Carmel, L.P. ( GCI Carmel ) is a limited partnership whose general partner GDC Carmel, LLC, a Delaware limited liability company, is a wholly-owned subsidiary of Greystone Partners, Ltd. which is controlled by principals of GDC. Limited partners in GCI Carmel currently include The Ziegler Companies, Inc., Ziegler Equity Funding IV, LLC, Ziegler Equity Funding V, LLC, Greystone Senior Living Investments, L.P., and Senior Quality Lifestyles Corporation ( SQLC ), a Texas nonprofit -6-

47 corporation which is the sole member of the Corporation. Greystone Senior Living Investments L.P. is also controlled by principals of GDC and a wholly-owned subsidiary of GDC and whose limited partners include the Underwriter, affiliates of the Underwriter and affiliates of GDC. Since 2009, Mr. Charles Brewer, the Corporation s Chairman, President and Director, has been a limited partner of Greystone Senior Living Investments, L.P. which owns an interest in GCI Carmel. As a result of his investment in Greystone Senior Living Investments, L. P., Mr. Brewer s indirect interest in GCI Carmel, L.P. predated SQLC s affiliation with the Corporation. In connection with SQLC s affiliation with the Corporation, Mr. Brewer divested the indirect interest he had in GCI Carmel, L.P. while retaining his limited partnership interest in Greystone Senior Living Investments, L.P. GCI Carmel was formed to fund up to $7,500,000 of pre-finance capital ( Pre-Finance Capital ) for the Corporation to develop the Project. GCI Carmel also funded subsequent Pre-Finance Capital contributions of $2,700,000. All risk for advances of Pre-Finance Capital associated with the failure to achieve closing on the financing will be borne by GCI Carmel. The Corporation anticipates that the Pre-Finance Capital funded by GCI Carmel, along with a Fixed Base Fee (hereinafter defined) in the amount of $4,916,670, will be repaid to GCI Carmel upon delivery of the Series 2012 Bonds. The remaining $3,750,000 of the Fixed Base Fee will be paid from the proceeds of the Series 2012 Bonds or from funds of the Corporation, as such funds are released from the Liquidity Support Funds pursuant to the Liquidity Support Agreement. Approximately $1,875,000 of the $3,750,000 Fixed Base Fee that will be paid over time is attributable to SQLC s participation in the Limited Partnership. Upon receipt of these funds, SQLC is obligated under a loan agreement between SQLC and the Corporation to loan such funds to the Corporation. The Corporation will enter into a subordinated note with respect to the $1,875,000 loan from SQLC. See LIQUIDITY SUPPORT AGREEMENT, APPENDIX A PRE-FINANCE DEVELOPMENT COSTS, DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY Development Consulting Agreement and GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans and APPENDIX B FINANCIAL FEASIBILITY STUDY herein. Affiliation with Senior Quality Lifestyles Corporation Pursuant to a Term Sheet dated May 7, 2012, the Corporation agreed to affiliate with SQLC. In accordance with the provisions of the Term Sheet, on June 15, 2012, SQLC became the sole corporate member of the Corporation. SQLC is also an affiliate of Northwest Senior Housing Corporation which owns and operates a senior living community known as Edgemere in Dallas, Texas; Buckingham Senior Living Community, Inc. which owns and operates a senior living community known as The Buckingham in Houston, Texas; Barton Creek Senior Living Center, Inc. which owns and operates a senior living community known as Querencia at Barton Creek in Austin, Texas; SQLC Senior Living Center at Corpus Christi, Inc. which owns and operates a senior living community known as Mirador in Corpus Christi, Texas; and Tarrant County Senior Living Center, Inc. which owns and operates a senior living community known as The Stayton at Museum Way in Fort Worth, Texas. See HISTORY AND BACKGROUND and GOVERNANCE AND MANAGEMENT in APPENDIX A hereto for more information about SQLC and the SQLC Affiliates and the Corporation s relationship with SQLC. SQLC AND ITS AFOREMENTIONED AFFILIATES ARE NOT MEMBERS OF THE OBLIGATED GROUP AND ARE NOT OBLIGATED TO MAKE ANY PAYMENTS ON THE LOAN AGREEMENT, THE SERIES 2012 OBLIGATIONS OR WITH RESPECT TO THE SERIES 2012 BONDS. SQLC LSA, LLC, a wholly-owned subsidiary of SQLC, has agreed to provide $2,000,000 of liquidity support to the Corporation pursuant to the Liquidity Support Agreement. Also, as funds are released from the Special Project Liquidity Support Fund, SQLC has agreed to loan to the Corporation as much as $1,875,000. For information on the Liquidity Support Agreement, see the description under the caption LIQUIDITY SUPPORT AGREEMENT herein. SQLC also has agreed to loan $200,000 to -7-

48 the Corporation to fund Project costs. The Corporation has entered into subordinated notes with respect to these loans. For information about the repayment terms of such loans, see GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans in APPENDIX A. Liquidity Support Agreement The Corporation, SQLC LSA, LLC, the Master Trustee and the Bond Trustee, will enter into a liquidity support agreement (the Liquidity Support Agreement ) upon closing of the Series 2012 Bonds. At closing SQLC LSA, LLC will transfer to the Master Trustee $2,000,000 for deposit into the Liquidity Support Fund (the Liquidity Support Fund ); the Bond Trustee will transfer to the Master Trustee $2,375,000 of proceeds of the Series 2012D Bonds for deposit into the Supplemental Liquidity Support Fund (the Supplemental Liquidity Support Fund ); and the Bond Trustee will transfer to the Master Trustee $1,875,000 of proceeds of the Series 2012D Bonds for deposit into the Special Project Liquidity Support Fund (the Special Project Liquidity Support Fund and, together with the Liquidity Support Fund and the Supplemental Liquidity Support Fund, the Liquidity Support Funds ). The Liquidity Support Funds available under the Liquidity Support Agreement may be drawn by the Bond Trustee, the Master Trustee or the Corporation to pay for Project construction costs, principal of, premium, if any, and interest on the Series 2012 Bonds, or any operating expenses in conjunction with the Community, if no other funds are available for those purposes in any trustee-held fund held by the Bond Trustee (other than the Debt Service Reserve Fund) or Master Trustee subject to the provisions of the Liquidity Support Agreement. Such draws cannot be made for costs that would result in a betterment of the Project or the services offered by the Project without the approval of the Construction Consultant (as hereinafter defined) or GDC. See LIQUIDITY SUPPORT AGREEMENT herein. If, pursuant to the terms of the Liquidity Support Agreement, less than $2,000,000 is released to SQLC LSA LLC, the Corporation has repayment obligations with respect to the shortfall which are described in APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. -8-

49 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds, net of investment earnings, are as follows: SOURCES OF FUNDS Series 2012A Bonds $ 94,575,000 Series 2012B Bonds 3,000,000 Series 2012C-1 Bonds 3,515,000 Series 2012C-2 Bonds 7,905,000 Series 2012C-3 Bonds 3,025,000 Series 2012D Bonds 7,000,000 Less Net Original Issue Discount (1,044,759) Subordinate Loan 200,000 Entrance Fees (1) 15,500,000 Total Sources of Funds $133,675,241 USES OF FUNDS Construction and other Project costs $88,831,230 Working Capital Fund (2) 12,500,000 Operating Reserve Fund (2) 3,000,000 Funded Interest Fund (3) 12,879,491 Supplemental Liquidity Support Fund 2,375,000 Special Project Liquidity Support Fund 1,875,000 Debt Service Reserve Fund Series 2012A Bonds 7,542,425 Series 2012B Bonds 180,000 Series 2012C-1 Bonds 202,113 Series 2012C-2 Bonds 415,013 Series 2012C-3 Bonds 136,125 Series 2012D Bonds 437,500 Costs of Issuance 3,301,344 Total Uses of Funds $133,675,241 (1) To be received over several years after the completion of the Project. Entrance Fees will be used for a variety of purposes not shown in this table including for the repayment of the Series 2012D Bonds, the Series 2012C Bonds and the Series 2012B Bonds. (2) Funded with Entrance Fees which will be received over several years after the completion of the Project. (3) Represents approximately 20 months interest on the Series 2012 Bonds. -9-

50 ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth the amounts required for the payment of principal of the Series 2012A Bonds at maturity or by mandatory sinking fund redemption, and for the anticipated optional redemption and prepayment of principal of the Series 2012B Bonds, the Series 2012C-1 Bonds, the Series 2012C-2 Bonds, the Series 2012C-3 Bonds and the Series 2012D Bonds from anticipated Entrance Fees, and for the payment of interest on the Series 2012 Bonds for each Bond Year ending November 15. Bond Year Ending November 15, The Series 2012A Bonds The Series 2012B Bonds The Series 2012C-1 Bonds The Series 2012C-2 Bonds The Series 2012C-3 Bonds The Series 2012D Bonds Total Debt Service (1) Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest $1,384,672 $37,500 $42,107 $86,461 $28,359 $91,146 $1,670, ,646, , , , , ,500 8,017, ,646, , , ,013 $820, ,125 $7,000, ,094 15,790, ,646,425 $3,000, ,250 $3,515, ,584 $7,905, ,606 2,205,000 24,806 23,803, ,646,425 6,646, $895,000 6,646,425 7,541, ,000 6,592,725 7,537, ,005,000 6,536,025 7,541, ,065,000 6,475,725 7,540, ,130,000 6,411,825 7,541, ,195,000 6,344,025 7,539, ,270,000 6,272,325 7,542, ,355,000 6,183,425 7,538, ,450,000 6,088,575 7,538, ,555,000 5,987,075 7,542, ,660,000 5,878,225 7,538, ,780,000 5,762,025 7,542, ,905,000 5,637,425 7,542, ,035,000 5,504,075 7,539, ,180,000 5,361,625 7,541, ,330,000 5,209,025 7,539, ,495,000 5,045,925 7,540, ,670,000 4,868,156 7,538, ,860,000 4,677,919 7,537, ,065,000 4,474,144 7,539, ,285,000 4,255,763 7,540, ,520,000 4,021,706 7,541, ,770,000 3,770,906 7,540, ,040,000 3,502,294 7,542, ,325,000 3,214,444 7,539, ,635,000 2,906,288 7,541, ,965,000 2,576,044 7,541, ,315,000 2,222,288 7,537, ,695,000 1,843,594 7,538, ,100,000 1,437,825 7,537, ,080,000 1,003,200 15,083,200 Total $94,575,000 $174,681,416 $3,000,000 $564,750 $3,515,000 $597,916 $7,905,000 $1,105,092 $3,025,000 $325,416 $7,000,000 $919,740 $297,214,329 (1) The Series 2012B Bonds, Series 2012C-1 Bonds, Series 2012C-2 Bonds, Series 2012C-3 Bonds and Series 2012D Bonds will mature November 15, 2017, November 15, 2018, November 15, 2018, November 15, 2019 and November 15, 2047, respectively, and are not subject to mandatory bond sinking fund redemption. Management of the Obligated Group anticipates redeeming the Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds in full in compliance with the terms of the Master Indenture and the Bond Indentures from Entrance Fees on November 15, 2014, February 15, 2015, August 15, 2015, August 15, 2015 and November 15, 2015, respectively. The actual timing of the prepayment of the Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds may differ from the anticipated timing because of timing differences in the receipt of Entrance Fees. (2) The Series 2012B Bonds are variable rate obligations. The interest rate on the Series 2012B Bonds is assumed to be 6.00% (for the life of the Series 2012B Bonds). Actual interest rates may differ from the assumed interest rates. -10-

51 THE FIXED RATE SERIES 2012 BONDS The information in this section applies only to the Series 2012A Bonds, the Series 2012C Bonds and the Series 2012D Bonds (collectively, the Fixed Rate Series 2012 Bonds ). The Series 2012A Bonds and the Series 2012C Bonds will be issued pursuant to the Tax-Exempt Bond Indenture and the proceeds of the Series 2012A Bonds and the Series 2012C Bonds will be loaned to the Corporation pursuant to the Loan Agreement. Contemporaneously with the issuance of the Series 2012A Bonds and the Series 2012C Bonds and to secure repayment of the loan made by the Issuer to the Corporation under the Loan Agreement, the Corporation will issue and deliver to the Issuer the Series 2012A Obligation, the Series 2012C-1 Obligation, the Series 2012C-2 Obligation and the Series 2012C-3 Obligation. The Series 2012B Bonds are also being issued pursuant to the Tax-Exempt Bond Indenture but are being issued in a variable rate mode. See THE SERIES 2012B BONDS below. The Series 2012D Bonds will be issued pursuant to the Taxable Bond Indenture. Contemporaneously with the issuance of the Series 2012D Bonds and to secure repayment of the Series 2012D Bonds, the Corporation will issue and deliver to the Taxable Bond Trustee the Series 2012D Obligation. General Description The Fixed Rate Series 2012 Bonds will be issued only in fully registered form in Authorized Denominations of $5,000 or any integral multiple thereof. The Fixed Rate Series 2012 Bonds will bear interest (based on a 360-day year of twelve 30-day months) at the respective rates per annum and will mature, subject to earlier redemption, in the amounts and on the dates set forth on the inside cover page of this Official Statement. The Fixed Rate Series 2012 Bonds will bear interest from their dated date, payable on May 15 and November 15 (the Fixed Rate Interest Payment Dates ) of each year, commencing November 15, The Fixed Rate Series 2012 Bonds, as initially issued, will be dated the date of issuance of the Fixed Rate Series 2012 Bonds (the Closing Date ). Except as described in the next sentence, subsequently issued Fixed Rate Series 2012 Bonds will be dated as of the later of the Closing Date or the most recent preceding Fixed Rate Interest Payment Date to which interest has been paid thereon. Fixed Rate Series 2012 Bonds issued on a Fixed Rate Interest Payment Date to which interest has been paid will be dated as of such date. So long as Cede & Co. is the registered owner, the Bond Trustee will pay such principal of, premium, if any, and interest on the Fixed Rate Series 2012 Bonds to DTC, which will remit such principal, redemption price, if any, and interest to the Beneficial Owners (as hereinafter defined) on the Fixed Rate Series 2012 Bonds, as described under the caption BOOK-ENTRY ONLY SYSTEM herein. THE SERIES 2012B BONDS The information in the following section applies only to the Series 2012B Bonds. The Series 2012B Bonds will be issued pursuant to the Tax-Exempt Bond Indenture and the proceeds of the Series 2012B Bonds will be loaned to the Corporation pursuant to the Loan Agreement. Contemporaneously with the issuance of the Series 2012B Bonds and to secure repayment of the loan made by the Issuer to the Corporation under the Loan Agreement, the Corporation will issue and deliver to the Issuer the Series 2012B Obligation. The Series 2012A Bonds and the Series 2012C Bonds are also being issued pursuant to the Tax-Exempt Bond Indenture and the Series 2012D Bonds are being issued pursuant to the Taxable Bond Indenture but such Series 2012 Bonds are being issued in a fixed rate mode. See THE FIXED RATE SERIES 2012 BONDS above. General Description The Series 2012B Bonds are issuable only in fully registered form, without coupons, in Authorized Denominations of $5,000 or any integral multiple thereof. The Series 2012B Bonds will bear -11-

52 interest from their dated date or from the most recent interest payment date to which interest has been paid, payable on May 15 and November 15 (the 2012B Interest Payment Dates ) of each year, commencing November 15, The Series 2012B Bonds, as initially issued, will be dated the Closing Date. Except as described in the next sentence, subsequently issued Series 2012B Bonds will be dated as of the later of the Closing Date or the most recent preceding Interest Payment Date to which interest has been paid thereon. Series 2012B Bonds issued on an Interest Payment Date will be dated as of such date. The Series 2012B Bonds shall bear interest computed on the basis of a 360-day year of twelve 30-day months. So long as Cede & Co. is the registered owner, the Bond Trustee will pay such principal of, premium, if any, and interest on the Series 2012B Bonds, to DTC, which will remit such principal, premium, if any, redemption price, if any, and interest to the Beneficial Owners (as hereinafter defined) of the Series 2012B Bonds, as described in BOOK-ENTRY ONLY SYSTEM herein. Interest on the Series 2012B Bonds The Series 2012B Bonds shall initially bear interest at the Adjustable Long-Term Rate equal to the Initial Interest Rate shown on the inside front cover of this Official Statement until but not including the Initial Rate Change Date (November 15, 2019). The Series 2012B Bonds will bear interest at the Reset Rate from and after such Initial Rate Change Date, or from any succeeding Rate Change Date (which is November 15 of each year after the Initial Rate Change Date), until the next succeeding Rate Change Date. AFTER THE INITIAL RATE CHANGE DATE, THE INTEREST RATE ON THE SERIES 2012B BONDS WILL RESET ANNUALLY ON EACH RATE CHANGE DATE. The Reset Rate shall be the lowest rate that, in the judgment of the Remarketing Agent (having due regard to the prevailing market conditions and the credit quality of the Corporation), would be necessary to enable the Series 2012B Bonds to be sold at par on the Rate Change Date, and shall not exceed the lesser of (a) 15% per annum or (b) the maximum interest rate permitted by then applicable Indiana law (the Maximum Rate ). Other than for the period commencing upon issuance of the Series 2012B Bonds and ending with the Initial Rate Change Date, the initial Reset Rate for the Series 2012B Bonds from and after any Rate Change Date (with respect to the Series 2012B Bonds, the Initial Reset Rate ) shall be the interest rate determined by the Remarketing Agent on a date not less than 40 days prior to such Rate Change Date, except as otherwise provided in the Tax-Exempt Bond Indenture and summarized below. Upon such determination of the Initial Reset Rate, the Remarketing Agent shall promptly notify the Tax-Exempt Bond Trustee and the Corporation of the Initial Reset Rate. Not less than 35 days prior to the applicable Rate Change Date, the Tax-Exempt Bond Trustee shall promptly notify each owner of the Series 2012B Bonds of the Initial Reset Rate that will be applicable to the Series 2012B Bonds on and after the Rate Change Date. If the Series 2012B Bonds are tendered for purchase by the owners thereof as described below and the Remarketing Agent is unable to remarket all of such tendered Series 2012B Bonds at the Initial Reset Rate, the Remarketing Agent may, on a date no more than fifteen (15) days and no less than three (3) days prior to Rate Change Date, increase (but may not decrease) the Initial Reset Rate to that rate of interest which shall be the lowest rate that, in the judgment of the Remarketing Agent (having due regard to the prevailing market conditions) would be necessary to enable the Series 2012B Bonds to be sold at par on the Rate Change Date (the Revised Reset Rate ); provided that the applicable Revised Reset Rate shall not exceed the Maximum Rate. The Remarketing Agent will give notice to the Tax-Exempt Bond Trustee and the Corporation of the Revised Reset Rate. Within one Business Day after receiving notice of the Revised Reset Rate, the Tax-Exempt Bond Trustee shall promptly notify each registered owner of the Series 2012B Bonds in writing of the Revised Reset Rate that will be applicable to the Series 2012B Bonds on or after the Rate Change Date. -12-

53 If the Remarketing Agent has been unable to remarket all of such tendered Series 2012B Bonds at the Revised Reset Rate as described above, the Revised Reset Rate on the Series 2012B Bonds (the Final Reset Rate ) will be the greater of (i) the Revised Reset Rate; (ii) an annual interest rate equal to the yield of The Bond Buyer 25-Bond Revenue Index (as published in The Bond Buyer or any successor publication thereto) for the most recent period for which such information is available before the giving of notice of the Reset Rate by the Tax-Exempt Bond Trustee to the owners of Series 2012B Bonds, plus 300 basis points, or if such index or its equivalent is no longer published, the interest rate currently in effect; or (iii) the then highest market yield on any maturity of the Series 2012A Bonds, provided the Final Reset Rate may not exceed the Maximum Rate. The Remarketing Agent will give notice to the Tax-Exempt Bond Trustee and the Corporation of the Final Reset Rate. Within one Business Day after receiving notice of the Final Reset Rate, the Bond Trustee shall promptly notify each registered owner of the Series 2012B Bonds in writing of the Final Reset Rate that will be applicable to the Series 2012B Bonds, on or after the Rate Change Date. In addition, the interest rate on the Series 2012B Bonds will not be reset on any Rate Change Date unless the Obligated Group Agent causes to be delivered at its expense to the Issuer, the Tax- Exempt Bond Trustee and the Remarketing Agent an Opinion of Bond Counsel to the effect that such reset in interest rate will not have an adverse effect on any exemption from federal income taxation to which the interest on the Series 2012B Bonds would otherwise be entitled. The Borrower shall use its best efforts to cause such Opinions of Bond Counsel to be delivered to the Tax-Exempt Bond Trustee in accordance with the provisions of the Tax-Exempt Bond Indenture. In the event such Opinions of Bond Counsel are not delivered, (i) the interest rate on the Series 2012B Bonds currently in effect shall remain in effect as the Reset Rate for the next Rate Period, (ii) the Series 2012B Bonds shall continue to be subject to optional tender pursuant to the Tax-Exempt Bond Indenture and (iii) the Tax-Exempt Bond Trustee shall give the owners of the Series 2012B Bonds Immediate Notice of the events described in this sentence. Optional Tender of Series 2012B Bonds The Series 2012B Bonds are subject to optional tender for purchase by the Tax-Exempt Bond Trustee on behalf of the Corporation on each Rate Change Date. The Corporation s obligation to purchase Series 2012B Bonds on any Rate Change Date is limited as described below under Purchase of Tendered Series 2012B Bonds. The Tax-Exempt Bond Trustee shall give written notice of any Rate Change Date to the owners of the Series 2012B Bonds when delivering notice of the new Reset Rate. Any owner of a Series 2012B Bond may exercise the option to tender such Series 2012B Bond for purchase by delivering a Tender Notice to the Tax-Exempt Bond Trustee and the Remarketing Agent no later than 4:00 p.m., Central time, on a Business Day not less than 15 days and not more than 35 days prior to the applicable Rate Change Date. The Tender Notice must state (i) the principal amount of such Series 2012B Bonds that are to be purchased (which amount shall be in an Authorized Denomination of $5,000 or an integral multiple thereof) and the portion retained, if any (which amount must be in an Authorized Denomination of $5,000 or an integral multiple thereof), and (ii) if less than all of the owner s Series 2012B Bonds are to be purchased, the CUSIP number of the Series 2012B Bonds to be purchased. The delivery of the Tender Notice by an owner of Series 2012B Bonds in connection with a Rate Change Date shall be irrevocable and binding on such owner and cannot be withdrawn. Failure of any owner of Series 2012B Bonds to give a Tender Notice not less than 15 days nor more than 35 days prior to a Rate Change Date, or otherwise to comply with the procedures described above, shall result in such owner s loss of the right to tender Series 2012B Bonds for purchase on such Rate Change Date. Not later than 9:30 a.m., Central time, on the Rate Change Date, the owner of Series 2012B Bonds to be tendered for purchase on such date shall deliver to the Tax-Exempt Bond Trustee the Series 2012B Bonds for purchase. -13-

54 If the owner of a Series 2012B Bond has properly exercised such owner s option to tender such Series 2012B Bond for purchase in accordance with the terms of the Tax-Exempt Bond Indenture, and sufficient funds for the payment of the Tender Price are on deposit with the Tax-Exempt Bond Trustee, the tendering owner shall be entitled from and after such Rate Change Date solely to payment of the Tender Price for such Series 2012B Bond (without interest), such Series 2012B Bond shall be deemed to be purchased and shall from and after such Rate Change Date not be Outstanding under the Tax-Exempt Bond Indenture. Purchase of Tendered Series 2012B Bonds The Remarketing Agent shall offer for sale and use its best efforts to remarket any optionally tendered Series 2012B Bonds for purchase at their principal amount on each Rate Change Date, any remarketing to be made on the date on which the Series 2012B Bonds are to be purchased, at a price equal to 100% of the principal amount thereof plus accrued interest, if any. In the event that the tendered Series 2012B Bonds cannot be remarketed, amounts received by the Tax-Exempt Bond Trustee from or on behalf of the Corporation for deposit into the Purchase Fund will be applied to purchase the Series 2012B Bonds. No such deposits by the Corporation are permitted to the extent that they would cause the Cash and Investments of the Obligated Group to fall below the amount necessary to permit the Obligated Group to meet the Liquidity Requirement set forth in the Master Indenture plus an additional 20 Days Cash on Hand. Funds on deposit in the Operating Reserve Fund, Working Capital Fund and Liquidity Support Fund may not be used to purchase Series 2012B Bonds. See SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Liquidity Covenant below. In the event that all or a portion of the Series 2012B Bonds tendered for purchase are purchased by the Corporation through the deposit of funds as described in the preceding paragraph, the Remarketing Agent shall continue to use its best efforts to remarket such Series 2012B Bonds and such bonds will not be cancelled unless so directed by the Corporation. In the event that there are not sufficient moneys available from the proceeds of remarketing or purchase or amounts received from or on behalf of the Corporation to pay the Tender Price of the Series 2012B Bonds tendered for purchase, the Series 2012B Bonds to be purchased on such date shall be selected in such random manner as the Tax-Exempt Bond Trustee shall deem appropriate. The owner of any unpurchased Series 2012B Bonds will remain the owner for all purposes under the Tax-Exempt Bond Indenture. Such unpurchased Series 2012B Bonds will bear interest at the Adjustable Long-Term Rate, which such Series 2012B Bonds would have borne if they had not been tendered for purchase. THERE CAN BE NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE TO PURCHASE ANY OR ALL SERIES 2012B BONDS TENDERED FOR PURCHASE ON ANY RATE CHANGE DATE. THE FAILURE OF THE CORPORATION TO PURCHASE ALL SERIES 2012B BONDS TENDERED FOR PURCHASE ON A RATE CHANGE DATE BECAUSE OF A FAILURE TO MEET THE LIQUIDITY COVENANT AS DESCRIBED ABOVE SHALL NOT CONSTITUTE AN EVENT OF DEFAULT UNDER THE LOAN AGREEMENT, TAX-EXEMPT BOND INDENTURE OR THE SERIES 2012 OBLIGATIONS. REMARKETING B.C. Ziegler and Company has been appointed as Remarketing Agent for the Series 2012B Bonds. The Remarketing Agent may be removed or replaced at any time by the Issuer upon 35 days -14-

55 notice, at the direction of the Corporation. The Remarketing Agent may also resign upon 35 days written notice to the Corporation, the Tax-Exempt Bond Trustee and the Issuer. Under certain circumstances, there shall be no remarketing of the Series 2012B Bonds. Anything in the Tax-Exempt Bond Indenture to the contrary notwithstanding, the Remarketing Agreement contains a number of circumstances in which the Remarketing Agent is not obligated to remarket the Series 2012B Bonds which include, but are not limited to, circumstances in which the Corporation is in default of their obligations, an event has occurred adversely affecting the tax exempt status of the interest on the Series 2012B Bonds or the occurrence of certain material adverse changes in the properties, business or operations of the Corporation. Further, the Remarketing Agreement provides that the Remarketing Agent can suspend remarketing of the Series 2012B Bonds if, in its sole judgment, the Remarketing Agent believes that it cannot remarket the Series 2012B Bonds at reasonable rates of interest. The Remarketing Agent, for its own account or as broker or agent for others, may deal in Series 2012B Bonds and may do anything any other Series 2012B Bondholder may do to the same extent as if the Remarketing Agent were not serving as such. The registered owners of Series 2012B Bonds have the option to tender their Series 2012B Bonds to the Tax-Exempt Bond Trustee for purchase on each Rate Change Date. See THE SERIES 2012B BONDS Optional Tender of Series 2012B Bonds above. The only sources of moneys available to make payments of the purchase price of the Series 2012B Bonds on each Rate Change Date are (i) the proceeds of the remarketing thereof, and (ii) moneys required to be deposited in the Purchase Fund by the Corporation pursuant to the Loan Agreement. THERE CAN BE NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE TO PURCHASE ANY OR ALL SERIES 2012B BONDS TENDERED FOR PURCHASE ON ANY RATE CHANGE DATE. Failure to purchase Series 2012B Bonds tendered for purchase on any Rate Change Date does not constitute an event of default under the Tax-Exempt Bond Indenture, the Loan Agreement or the Series 2012 Obligations. See THE SERIES 2012B BONDS Purchase of Tendered Series 2012B Bonds above. REDEMPTION OF THE SERIES 2012 BONDS Optional and Mandatory Redemption of the Series 2012A Bonds Optional Redemption of the Series 2012A Bonds. The Series 2012A Bonds maturing on or after November 15, 2027, 2032, 2042 and 2047 are callable for redemption prior to maturity on or after November 15, 2022, by the Issuer upon the direction of the Corporation, out of amounts prepaid on the Series 2012A Obligation and deposited in the Optional Redemption Fund, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (and if less than all of a single maturity is being redeemed, in such random manner as the Tax-Exempt Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to the principal amount of the Series 2012A Bonds to be redeemed on the redemption date, plus accrued interest to the redemption date, without premium. Mandatory Sinking Fund Redemption of Series 2012A Bonds. The Issuer shall pay or redeem Series 2012A Bonds (to the extent funds are deposited in the Series 2012A Account of the Bond Sinking Fund from the Revenue Fund) from moneys on deposit in the Series 2012A Account of the Bond Sinking Fund, at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, in the amounts and at the times, as follows: -15-

56 Series 2012A Bonds Maturing November 15, 2022 November 15 of the Year Principal Amount , , ,005, ,065, ,130, ,195,000 Scheduled Maturity Series 2012A Bonds Maturing November 15, 2027 November 15 of the Year Principal Amount 2023 $1,270, ,355, ,450, ,555, ,660,000 Scheduled Maturity Series 2012A Bonds Maturing November 15, 2032 November 15 of the Year Principal Amount 2028 $1,780, ,905, ,035, ,180, ,330,000 Scheduled Maturity Series 2012A Bonds Maturing November 15, 2042 November 15 of the Year Principal Amount Scheduled Maturity 2033 $2,495, ,670, ,860, ,065, ,285, ,520, ,770, ,040, ,325, ,635,

57 Series 2012A Bonds Maturing November 15, 2047 November 15 of the Year Principal Amount Scheduled Maturity 2043 $4,965, ,315, ,695, ,100, ,080,000 The Mandatory Bond Sinking Fund payments shown above shall be reduced (a) by the amount of Series 2012A Bonds acquired and delivered in accordance with the Tax-Exempt Bond Indenture in satisfaction of such Bond Sinking Fund requirements, and (b) in connection with a partial redemption of the Series 2012A Bonds if the Corporation elects to reduce mandatory Bond Sinking Fund redemptions in the manner provided in the Tax-Exempt Bond Indenture and described below under REDEMPTION OF THE SERIES 2012 BONDS Provisions Applicable to All Series 2012 Bonds. See additional provisions relating to the redemption of all Series 2012 Bonds under the caption REDEMPTION OF THE SERIES 2012 BONDS Provisions Applicable to All Series 2012 Bonds below. Optional and Mandatory Redemption of the Series 2012B Bonds Optional Redemption of Series 2012B Bonds. The Series 2012B Bonds are callable for redemption prior to maturity on or after May 15, 2014, by the Issuer upon the direction of the Corporation, out of amounts prepaid on the Series 2012B Obligation and deposited in the Optional Redemption Fund, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (and if less than all of a single maturity is being redeemed, in such random manner as the Tax-Exempt Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to the principal amount of the Series 2012B Bonds to be redeemed on the redemption date, plus accrued interest to the redemption date, without premium. Mandatory Redemption of Series 2012B Bonds from Entrance Fees. The Corporation anticipates that it will redeem the Series 2012B Bonds prior to maturity from Entrance Fees transferred to the Tax-Exempt Bond Trustee by the Master Trustee in accordance with the Master Indenture. If Series 2012B Bonds are redeemed from Entrance Fees as provided in the Tax-Exempt Bond Indenture, the Series 2012B Bonds shall be redeemed as described above by applying such Entrance Fees first to the redemption of the Series 2012D Bonds outstanding, then to the Series 2012C-3 Bonds outstanding, then to the redemption of Series 2012C-2 Bonds outstanding, then to the redemption of Series 2012C-1 Bonds outstanding and then to the redemption of Series 2012B Bonds then Outstanding, at the principal amount thereof plus accrued interest to the redemption date, without premium. No Mandatory Sinking Fund Redemption of Series 2012B Bonds. The Series 2012B Bonds are not redeemable with sinking fund payments prior to their maturity. See additional provisions relating to the redemption of all Series 2012 Bonds under the caption REDEMPTION OF THE SERIES 2012 BONDS Provisions Applicable to All Series 2012 Bonds below. -17-

58 Optional and Mandatory Redemption of the Series 2012C Bonds Optional Redemption of Series 2012C-1 Bonds. The Series 2012C-1 Bonds are callable for redemption prior to maturity on or after May 15, 2014, by the Issuer upon the direction of the Corporation, out of amounts prepaid on the Series 2012C-1 Obligation and deposited in the Optional Redemption Fund, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (and if less than all of a single maturity is being redeemed, in such random manner as the Tax-Exempt Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to the principal amount of the Series 2012C-1 Bonds to be redeemed on the redemption date, plus accrued interest to the redemption date, without premium. Optional Redemption of Series 2012C-2 Bonds. The Series 2012C-2 Bonds are callable for redemption prior to maturity on or after November 15, 2013, by the Issuer upon the direction of the Corporation, out of amounts prepaid on the Series 2012C-2 Obligation and deposited in the Optional Redemption Fund, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (and if less than all of a single maturity is being redeemed, in such random manner as the Tax-Exempt Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to the principal amount of the Series 2012C-2 Bonds to be redeemed on the redemption date, plus accrued interest to the redemption date, without premium. Optional Redemption of Series 2012C-3 Bonds. The Series 2012C-3 Bonds are callable for redemption prior to maturity on or after November 15, 2013, by the Issuer upon the direction of the Corporation, out of amounts prepaid on the Series 2012C-3 Obligation and deposited in the Optional Redemption Fund, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (and if less than all of a single maturity is being redeemed, in such random manner as the Tax-Exempt Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to the principal amount of the Series 2012C-3 Bonds to be redeemed on the redemption date, plus accrued interest to the redemption date, without premium. Mandatory Redemption of Series 2012C Bonds from Entrance Fees. The Corporation anticipates that it will redeem the Series 2012C Bonds prior to maturity from Entrance Fees transferred to the Tax-Exempt Bond Trustee by the Master Trustee in accordance with the Master Indenture. If Series 2012C Bonds are redeemed from Entrance Fees as provided in the Tax-Exempt Bond Indenture, the Bonds shall be redeemed as described above by applying such Entrance Fees first to the redemption of the Series 2012D Bonds outstanding, then to the Series 2012C-3 Bonds outstanding, then to the redemption of Series 2012C-2 Bonds outstanding, then to the redemption of Series 2012C-1 Bonds outstanding and then to the redemption of Series 2012B Bonds outstanding, at the principal amount thereof plus accrued interest to the redemption date, without premium. No Mandatory Sinking Fund Redemption of Series 2012C Bonds. The Series 2012C Bonds are not redeemable with sinking fund payments prior to their maturity. See additional provisions relating to the redemption of all Series 2012 Bonds under the caption REDEMPTION OF THE SERIES 2012 BONDS Provisions Applicable to All Series 2012 Bonds below. Optional and Mandatory Redemption of the Series 2012D Bonds Optional Redemption of Series 2012D Bonds. The Series 2012D Bonds are callable for redemption prior to maturity on or after November 15, 2013, by the Corporation out of amounts prepaid on the Series 2012D Obligation and deposited in the Optional Redemption Fund, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (and if less than all -18-

59 of a single maturity is being redeemed, in such random manner as the Taxable Bond Trustee shall deem appropriate). The redemption price for any such redemption shall be equal to the principal amount of the Series 2012D Bonds to be redeemed on the redemption date, plus accrued interest to the redemption date, without premium. Mandatory Redemption of Series 2012D Bonds from Entrance Fees. The Corporation anticipates that it will redeem the Series 2012D Bonds prior to maturity from Entrance Fees transferred to the Taxable Bond Trustee by the Master Trustee in accordance with the Master Indenture. If Series 2012D Bonds are redeemed from Entrance Fees as provided in the Taxable Bond Indenture, the Series 2012D Bonds shall be redeemed as described above by applying such Entrance Fees first to the redemption of the Series 2012D Bonds outstanding, then to the Series 2012C-3 Bonds outstanding, then to the redemption of Series 2012C-2 Bonds outstanding, then to the redemption of Series 2012C-1 Bonds outstanding and then to the redemption of Series 2012B Bonds outstanding, at the principal amount thereof plus accrued interest to the redemption date, without premium. No Mandatory Sinking Fund Redemption of Series 2012D Bonds. The Series 2012D Bonds are not redeemable with sinking fund payments prior to their maturity. See additional provisions relating to the redemption of all Series 2012 Bonds under the caption REDEMPTION OF THE SERIES 2012 BONDS Provisions Applicable to All Series 2012 Bonds below. Provisions Applicable to All Series 2012 Bonds Extraordinary Optional Redemption of Series 2012 Bonds Resulting from Damage or Condemnation. The Series 2012 Bonds are callable for redemption prior to maturity, in the event of damage to or destruction of the Facilities of any Member or any part thereof or condemnation or sale consummated under threat of condemnation of the Facilities of any Member or any part thereof if the Net Proceeds of insurance, condemnation or sale received in connection therewith exceed the greater of (a) 3% of Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (b) $1,000,000 (indexed to the Construction Index from August 1, 2012) but only to the extent of the funds provided for pursuant to the Master Indenture. See APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Damage or Destruction and Condemnation. In such cases, the Series 2012 Bonds shall be subject to redemption by the Issuer or the Corporation, as appropriate, at any time, in whole or in part on any date, and, if in part, by maturities or portions thereof designated by the Corporation (and if less than all of a maturity is being redeemed, in such random manner as the Bond Trustee deems appropriate), at the principal amount thereof plus accrued interest to the redemption date and without premium; provided, however, that in no event shall the principal amount of Series 2012 Bonds so redeemed exceed the amount of such Net Proceeds. Required Optional Redemption. If any recalculation of the average reasonably expected economic life of the facilities financed or refinanced with the proceeds of the Tax-Exempt Series 2012 Bonds, verified by an independent consultant, demonstrates that the average maturity of the Tax-Exempt Series 2012 Bonds exceeds 120 percent of the average reasonably expected economic life of such facilities (determined in accordance with the Code), the Tax-Exempt Bond Trustee will call Tax-Exempt Series 2012 Bonds for optional redemption from funds deposited in the Optional Redemption Fund by the Corporation. The Corporation has agreed pursuant to the Loan Agreement to deposit in the Optional Redemption Fund established under the Tax-Exempt Bond Indenture as a prepayment of the related Tax- Exempt Series 2012 Obligations, an amount which, when applied by the Tax-Exempt Bond Trustee to redeem Tax-Exempt Series 2012 Bonds, is sufficient in the Opinion of Bond Counsel to cause the average maturity of the Tax-Exempt Series 2012 Bonds, to be no more than 120 percent of the average reasonably -19-

60 expected economic life of the facilities financed or refinanced with the proceeds of the Tax-Exempt Series 2012 Bonds. Selection for Redemption No redemption of less than all of a particular series of the Series 2012 Bonds at the time outstanding, other than in accordance with the mandatory bond sinking fund redemption provisions of the related Bond Indenture, shall be made unless the total aggregate principal amount of the Series 2012 Bonds of such series to be redeemed is equal to or more than $100,000 and is an Authorized Denomination and the aggregate principal amount of Series 2012 Bonds outstanding after the redemption is an Authorized Denomination. In lieu of redeeming the Series 2012 Bonds, the Bond Trustee may, at the request of the Corporation, use such funds otherwise available under the related Bond Indenture for redemption of Series 2012 Bonds to purchase for cancellation such Series 2012 Bonds specifically designated by the Corporation in the open market at a price not exceeding the redemption price then applicable under the related Bond Indenture. In the case of any optional or extraordinary redemption or any purchase and cancellation of Tax-Exempt Series 2012 Bonds with serial maturities, the Issuer shall receive credit against its required Bond Sinking Fund deposits with respect to Bonds of such serial maturities. In the case of any optional or extraordinary redemption or any purchase and cancellation of term Tax-Exempt Series 2012 Bonds, the Issuer shall receive credit against its required Bond Sinking Fund deposits with respect to the Series 2012 Bonds in such order as the Corporation shall designate in writing prior to such redemption or purchase and cancellation or, if no such election is made, in the inverse order thereof. Notice of Redemption; Effect Notice of the redemption of Series 2012 Bonds pursuant to the provisions summarized above will be given by mailing a copy of such notice of redemption by first-class mail, postage prepaid not less than 20 nor more than 60 days prior to the redemption date to the registered owners of the Series 2012 Bonds to be redeemed at the address shown on the Bond Register; provided, however, that failure to give such notice by mailing, or any defect therein, will not affect the validity of any proceedings for the redemption of Series 2012 Bonds as to which notice has been properly given. Except for mandatory bond sinking fund redemptions, prior to the date that a redemption notice is first mailed, funds shall be placed with the Bond Trustee to pay the Series 2012 Bonds to be redeemed and the accrued interest thereon to the redemption date and the premium, if any, or such notice shall state that the redemption is conditional on such funds being deposited on the redemption date and that failure to make such a deposit shall not constitute an event of default under the Bond Indentures. If notice of redemption has been given and if funds have been placed with the Bond Trustee to pay such Series 2012 Bonds and accrued interest thereon to the redemption date and the premium, if any, then the Series 2012 Bonds, or portions thereof, thus called for redemption will not bear interest after such redemption date, will no longer be protected by the related Bond Indenture, and will not be deemed to be outstanding under the related Bond Indenture. Mandatory Tender for Purchase The Issuer, with respect to the Tax-Exempt Series 2012 Bonds, and, by their acceptance of the Series 2012 Bonds, the Series 2012 Bondholders irrevocably grant to the Corporation and any assigns of the Corporation with respect to this right, the option to purchase, at any time and from time to time, any Series 2012 Bond which would be otherwise subject to optional redemption as described above at a purchase price equal to the optional redemption price therefor. To exercise such option, the Corporation shall give the Bond Trustee a Written Request exercising such option within the time period specified in the Bond Indentures, as though such Written Request were a written request of the Issuer for redemption, and the Bond Trustee shall thereupon give the holders of the Series 2012 Bonds to be purchased notice of -20-

61 such mandatory tender and purchase in the same manner as a notice of redemption as described above. The purchase of such Series 2012 Bonds shall be mandatory and enforceable against the Series 2012 Bondholders and such Bondholders will not have the right to retain their Series 2012 Bonds. On the date fixed for purchase pursuant to any exercise of such option, the Corporation shall pay or cause to be paid the purchase price of the Series 2012 Bonds then being purchased to the Bond Trustee in immediately available funds not later than 10:00 a.m. Central time on the purchase date, and the Bond Trustee shall pay the same to the sellers of such bonds against delivery thereof. Following such purchase, the Bond Trustee shall cause such Series 2012 Bonds to be registered in the name of the Corporation or its nominee or as otherwise directed by the Corporation and shall deliver them to the Corporation or its nominee or as otherwise directed by the Corporation. In the case of the purchase of less than all of a series of Series 2012 Bonds, the particular bonds to be purchased shall be selected in accordance with the selection process for redemption of Series 2012 Bonds as described above. No purchase of the Series 2012 Bonds shall operate to extinguish the indebtedness of the Issuer, with respect to the Tax-Exempt Series 2012 Bonds, or the Corporation, with respect to the Series 2012D Bonds, evidenced thereby. Notwithstanding the foregoing, no such purchase shall be made unless the Corporation shall have delivered to the Bond Trustee and, in the case of the Tax-Exempt Series 2012 Bonds, the Issuer concurrently with such purchase an Opinion of Bond Counsel to the effect that such purchase and any resale thereof will not affect the validity of the Series 2012 Bonds any exemption from federal income taxation to which the interest on the Tax-Exempt Series 2012 Bonds would otherwise be entitled. Exchange and Transfer Upon surrender for transfer or exchange of any Series 2012 Bond at the designated corporate trust office of the Bond Trustee accompanied by a written instrument or instruments of transfer or authorization for exchange in form and with guaranty of signature satisfactory to the Bond Trustee and duly executed by the registered owner or such owner s duly authorized attorney, the Issuer shall execute and the Bond Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Series 2012 Bond in Authorized Denominations of the same series and the same maturity for the aggregate principal amount that the registered owner is entitled to receive. Any Series 2012 Bonds may be exchanged at said office of the Bond Trustee for a like aggregate principal amount of Bonds of other Authorized Denominations of the same series and the same maturity. No service charge shall be imposed upon the owner of any Series 2012 Bond requesting an exchange or transfer of any Series 2012 Bond, but the Issuer and the Bond Trustee may require the payment by the Series 2012 Bondholder requesting an exchange or transfer of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto, except in the case of the issuance of a Bond or Bonds for the unredeemed portion of a Bond surrendered for redemption in part. The Issuer and the Bond Trustee shall not be required to register the transfer of or exchange of any Series 2012 Bond after notice calling such Bond or portion thereof for redemption has been mailed or during the period of 15 days next preceding mailing of a notice of redemption of any Series 2012 Bonds of the same series and maturity. As to any Series 2012 Bond, the person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of and/or interest on any such Series 2012 Bond, shall be made only to or upon the written order of the registered owner thereof or such owner s legal representative, but such registration may be changed only as described in the respective Bond Indenture. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Series 2012 Bond to the extent of the sum or sums so paid. -21-

62 BOOK-ENTRY ONLY SYSTEM The Depository Trust Company ( DTC ), New York, NY, will act as the depository for the Series 2012 Bonds. The Series 2012 Bonds will be issued as fully-registered Bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. The ownership of one fully-registered Series 2012 Bond for each maturity, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has received a Standard and Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Series 2012 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2012 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2012 Bond ( Beneficial Owner and collectively, the Beneficial Owners ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2012 Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2012 Bonds, except in the event that use of the book-entry system for the Series 2012 Bonds is discontinued. To facilitate subsequent transfers, all Series 2012 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2012 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2012 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2012 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. -22-

63 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. Beneficial Owners may desire to make arrangements with a Direct Participant or Indirect Participant so that all notices of redemption or other communications to DTC which affect such Beneficial Owners will be forwarded in writing by such Direct Participant or Indirect Participant. If less than all of the Series 2012 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2012 Bonds unless authorized by a Direct Participant in accordance with DTC s Money Market Instruments ( MMI ) Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the Record Date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2012 Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy ). Principal and interest payments on the Series 2012 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Bond Trustee or, if applicable, the Issuer, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Bond Trustee or, if applicable, the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Bond Trustee or, if applicable, the Issuer. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Series 2012 Bonds purchased or tendered, through its Participant, to the Bond Trustee or the Remarketing Agent, and shall effect delivery of such Series 2012 Bonds by causing the Direct Participant to transfer the Participant s interest in the Series 2012 Bonds, on DTC s records, to the Bond Trustee or the Remarketing Agent. The requirement for physical delivery of Series 2012 Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2012 Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Series 2012 Bonds to the Remarketing Agent s DTC account. DTC may discontinue providing its services as depository with respect to the Series 2012 Bonds at any time by giving reasonable notice to the Issuer and the Bond Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2012 Bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository with respect to the Tax-Exempt Series 2012 Bonds) or the Corporation may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository with respect to the Series 2012D Bonds). In that event, related Series 2012 Bond certificates will be printed and delivered as described. THE INFORMATION PROVIDED ABOVE HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE ISSUER, THE CORPORATION OR THE UNDERWRITER -23-

64 AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF. For so long as the Series 2012 Bonds are registered in the name of DTC or its nominee, Cede & Co., the Issuer and the Bond Trustee will recognize only DTC or its nominee, Cede & Co., as the registered owner of the Series 2012 Bonds for all purposes, including payments, notices and voting. Under the Tax-Exempt Bond Indenture, payments made by the Bond Trustee to DTC or its nominee will satisfy the Issuer s obligations under the Tax-Exempt Bond Indenture and the Corporation s obligations under the Loan Agreement, to the extent of the payments so made. Under the Taxable Bond Indenture, payments made by the Bond Trustee to DTC or its nominee will satisfy the Corporation s obligations under the Taxable Bond Indenture. None of the Issuer, the Underwriter, the Corporation nor the Bond Trustee will have any responsibility or obligation with respect to (i) the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any Series 2012 Bond, (ii) the delivery to any Direct Participant or Indirect Participant or any other Person, other than an owner, as shown in the applicable Bond Register, of any notice with respect to any Series 2012 Bonds including, without limitation, any notice of redemption, tender, purchase or any event which would or could give rise to a tender or purchase right or option with respect to any Series 2012 Bond, (iii) the payment of any Direct Participant or Indirect Participant or any other Person, other than an owner, as shown in the applicable Bond Register, of any amount with respect to the principal of, premium, if any, or interest on, or the purchase price of, any Series 2012 Bonds or (iv) any consent given by DTC as registered owner. Prior to any discontinuation of the book-entry only system described above, the Issuer and the Bond Trustee may treat DTC as, and deem DTC to be, the absolute owner of the Series 2012 Bonds for all purposes whatsoever, including, without limitation, (i) the payment of principal of, premium, if any, and interest on the Series 2012 Bonds, (ii) giving notices of redemption and other matters with respect to the Series 2012 Bonds, (iii) registering transfers with respect to the Series 2012 Bonds and (iv) the selection of Series 2012 Bonds for redemption. General SECURITY FOR THE SERIES 2012 BONDS The Tax-Exempt Series 2012 Bonds will be special and limited obligations of the Issuer and will be payable solely from (i) payments or prepayments on the Series 2012A Obligation, the Series 2012B Obligation, the Series 2012C-1 Obligation, the Series 2012C-2 Obligation and the Series 2012C-3 Obligation; (ii) payments or prepayments made under the Loan Agreement (other than payments with respect to Unassigned Rights); (iii) moneys and investments held by the Tax-Exempt Bond Trustee under, and to the extent provided in, the Tax-Exempt Bond Indenture; and (iv) in certain circumstances, proceeds from insurance and condemnation awards or proceeds of sales made under the threat of condemnation. The Series 2012D Bonds are the general obligation of the Corporation payable from (i) payments or prepayments on the Series 2012D Obligation; (ii) moneys and investments held by the Taxable Bond Trustee under, and to the extent provided in, the Taxable Bond Indenture; and (iii) in certain circumstances, proceeds from insurance and condemnation awards or proceeds of sales made under the threat of condemnation. -24-

65 Certain investment earnings on moneys held by the Tax-Exempt Bond Trustee, may be transferred to a Rebate Fund established pursuant to a Tax Certificate. Amounts held in such Rebate Fund will not be part of the trust estate pledged to secure the Series 2012 Bonds, and consequently will not be available to make payments on the Series 2012 Bonds. Similarly, amounts held in the Purchase Fund will not be part of the trust estate pledged to secure the Series 2012 Bonds, and consequently will not be available to make payments on the Series 2012 Bonds other than to pay the Tender Price of properly tendered Series 2012B Bonds. The Issuer will enter into the Loan Agreement with respect to the Tax-Exempt Series 2012 Bonds with the Corporation, whereby the Issuer will loan the proceeds of the Tax-Exempt Series 2012 Bonds to the Corporation, and the Corporation will agree to make loan repayments sufficient to pay in full when due all principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds. The Corporation s obligation to make payments on the Series 2012A Obligation, the Series 2012B Obligation, the Series 2012C-1 Obligation, the Series 2012C-2 Obligation and the Series 2012C-3 Obligation shall be satisfied to the extent payments are made by the Corporation under the Loan Agreement. The Loan Agreement will also impose certain restrictions on the actions of the Corporation for the benefit of the Issuer and the owners of the Tax-Exempt Series 2012 Bonds. The Corporation s obligation to make payments on the Series 2012D Obligation shall be satisfied to the extent payments are made by the Corporation to the Taxable Bond Trustee for the payment of the Series 2012D Obligation. The rights of the Issuer in and to the Tax-Exempt Series 2012 Obligations with respect to the Tax-Exempt Series 2012 Bonds and the amounts payable thereon and the amounts payable to the Issuer under the Loan Agreement (other than payments with respect to Unassigned Rights) will be assigned to the Tax-Exempt Bond Trustee under the Tax-Exempt Bond Indenture to provide for and to secure the payment of principal of, premium, if any, and interest on the Tax-Exempt Series 2012 Bonds. The Corporation agrees under the Loan Agreement to make payments on the Tax-Exempt Series 2012 Obligations pledged under the Tax-Exempt Bond Indenture directly to the Tax-Exempt Bond Trustee and agrees in the Taxable Bond Indenture to make payments on the Series 2012D Bonds directly to the Taxable Bond Trustee. See SECURITY FOR THE SERIES 2012 OBLIGATIONS General below. Debt Service Reserve Fund Pursuant to the Tax-Exempt Bond Indenture, a Debt Service Reserve Fund will be established and held by the Tax-Exempt Bond Trustee for the benefit of the Tax-Exempt Series 2012 Bonds (the Tax-Exempt Debt Service Reserve Fund ). Pursuant to the Taxable Bond Indenture, a Debt Service Reserve Fund will be established and held by the Taxable Bond Trustee for the benefit of the Series 2012D Bonds (the Taxable Debt Service Reserve Fund and, collectively with the Tax-Exempt Debt Service Reserve Fund, the Debt Service Reserve Fund ). At the time of issuance of the Series 2012 Bonds, $7,542,425 will be deposited into the Series 2012A Account of the Debt Service Reserve Fund, $180,000 will be deposited into the Series 2012B Account of the Debt Service Reserve Fund, $202, will be deposited in the Series 2012C-1 Account of the Debt Service Reserve Fund, $415, will be deposited in the Series 2012C-2 Account of the Debt Service Reserve Fund, $136, will be deposited in the Series 2012C-3 Account of the Debt Service Reserve Fund and $437,500 will be deposited in the Series 2012D Account of the Debt Service Reserve Fund. Such deposits are equal to the initial Debt Service Reserve Fund Requirement for each such Account. See DEFINITIONS OF CERTAIN TERMS Debt Service Reserve Fund Requirement in APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS hereto. Moneys in the Series 2012A Account, the Series 2012B Account, the Series 2012C-1 Account, the Series 2012C-2 Account, -25-

66 the Series 2012C-3 Account and the Series 2012D Account of the Debt Service Reserve Fund will be maintained in an amount equal to the Debt Service Reserve Fund Requirement with respect to the applicable series of the Series 2012 Bonds. Moneys on deposit in the Tax-Exempt Debt Service Reserve Fund shall be used to make up any deficiencies in the Interest Fund and the Bond Sinking Fund (in the order listed) attributable to the series of Tax-Exempt Series 2012 Bonds for which such fund was established and are not available to pay the interest on or principal of the Tax-Exempt Series 2012 Bonds with respect to any other series of Tax- Exempt Series 2012 Bonds; provided, however, that in connection with any partial redemption or defeasance prior to maturity of the Tax-Exempt Series 2012 Bonds of any series, the Tax-Exempt Bond Trustee may, at the request of the Corporation, use any amounts on deposit in any Tax-Exempt Debt Service Reserve Account which will be in excess of the Debt Service Reserve Fund Requirement for such series of Tax-Exempt Series 2012 Bonds after such redemption or defeasance to pay the principal portion of the redemption price of the Tax-Exempt Series 2012 Bonds of such series to be redeemed or defeased. Money on deposit in the Tax-Exempt Debt Service Reserve Fund shall be invested in Qualified Investments as provided in the Tax-Exempt Bond Indenture. Moneys on deposit in the Taxable Debt Service Reserve Fund shall be used solely to make up any deficiencies in the Series 2012D Interest Account of the Interest Fund; provided, however, that in connection with any partial redemption or defeasance prior to maturity of the Series 2012D Bonds, the Taxable Bond Trustee may, at the request of the Corporation, use any amounts on deposit in the Series 2012D account of the Taxable Debt Service Reserve Fund which will be in excess of the Debt Service Reserve Fund Requirement for the Series 2012D Bonds after such redemption or defeasance to pay the principal portion of the redemption price of the Series 2012D Bonds to be redeemed or defeased. Money on deposit in the Debt Service Reserve Fund shall be invested in Qualified Investments as provided in the Taxable Bond Indenture. Qualified Investments deposited in each account of the Tax-Exempt Debt Service Reserve Fund shall be valued by the Tax-Exempt Bond Trustee and Qualified Investments deposited in the Series 2012D account of the Taxable Debt Service Reserve Fund shall be valued by the Taxable Bond Trustee on each December 31 (the Valuation Date ) on the basis of fair market value (which valuation shall take into account any accrued and unpaid interest). If on any Valuation Date the amount on deposit in the Series 2012A Account, the Series 2012B Account, the Series 2012C-1 Account, the Series 2012C-2 Account, the Series 2012C-3 Account or the Series 2012D Account of the Debt Service Reserve Fund is less than 100% of the Debt Service Reserve Fund Requirement for such account as a result of the Debt Service Reserve Fund account having been drawn upon as provided in the Tax-Exempt Bond Indenture, the Loan Agreement or the Taxable Bond Indenture, as applicable, requires the Corporation to restore the amount on deposit in the applicable Debt Service Reserve Fund account to an amount equal to the applicable Debt Service Reserve Fund Requirement by deposit with the Bond Trustee of an amount equal to such deficiency in not more than 12 substantially equal monthly installments beginning with the first day of the seventh month after the month in which such draw occurred. If on any Valuation Date the amount on deposit in the Series 2012A Account, the Series 2012B Account, the Series 2012C-1 Account, the Series 2012C-2 Account, the Series 2012C-3 Account or the Series 2012D Account of the Debt Service Reserve Fund is less than 90% of the Debt Service Reserve Fund Requirement for such accounts, as a result of a decline in the market value of the investments on deposit in the Debt Service Reserve Fund, the Loan Agreement or Taxable Bond Indenture, as applicable, requires the Corporation to deposit in the applicable Debt Service Reserve Fund account the amount necessary to restore the amount on deposit in the applicable Debt Service Reserve Fund account to an amount equal to the applicable Debt Service Reserve Fund Requirement within 120 days following the date on which the Corporation receives notice of such deficiency. For more information concerning the Debt Service Reserve Fund, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF -26-

67 THE BOND INDENTURE Funds; Disposition of Revenues 4. Debt Service Reserve Fund in APPENDIX C and SUMMARY OF CERTAIN PROVISIONS OF THE TAXABLE BOND INDENTURE - Funds; Disposition of Revenues 3. Tax-Exempt Debt Service Reserve Fund. See also SECURITY FOR THE SERIES 2012 OBLIGATIONS for information about additional Security for the Series 2012 Bonds. Other All or any portion of the Series 2012 Bonds may be advance refunded through the deposit in escrow of cash or Government Obligations for the benefit of the owners of such refunded Series 2012 Bonds. See SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Satisfaction of the Tax-Exempt Bond Indenture and SUMMARY OF CERTAIN PROVISIONS OF THE TAXABLE BOND INDENTURE Satisfaction of the Taxable Bond Indenture in APPENDIX C. The State Not Liable on the Series 2012 Bonds; Agreement of the State The Tax-Exempt Series 2012 Bonds are special and limited revenue obligations of the Issuer and are payable solely and only from the payments to be made under the Loan Agreement and the security therefor, including without limitation, the Tax-Exempt Series 2012 Obligations, which Loan Agreement and Tax-Exempt Series 2012 Obligations are pledged and assigned to the payment of the Tax-Exempt Series 2012 Bonds. The Series 2012 Bonds will not constitute a debt or liability of the State or of any agency or political subdivision thereof. The Tax-Exempt Series 2012 Bonds are payable solely from the funds pledged therefor in accordance with the Tax-Exempt Bond Indenture. The issuance of the Tax- Exempt Series 2012 Bonds under the provisions of the Act will not, directly, indirectly or contingently, obligate the State or any agency or political subdivision thereof to levy any form of taxation for the payment thereof or to make any appropriation for their payment. The Series 2012 Bonds and the interest payable thereon shall never constitute a debt of the State within the meaning of the Constitution or the statutes of the State and shall never constitute a charge against the credit or taxing power of the Issuer, the State or any agency or political subdivision thereof. The State shall not in any event be liable for the payment of the principal of, premium, if any, or interest on the Series 2012 Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever which may be undertaken by the Issuer. No breach by the Issuer of any such pledge, mortgage, obligation or agreement may impose any liability, pecuniary or otherwise, upon the State or any charge upon its general credit or against its taxing power. General SECURITY FOR THE SERIES 2012 OBLIGATIONS The Corporation s obligations under the Loan Agreement will be secured by the Tax-Exempt Series 2012 Obligations and the Corporation s obligations under the Taxable Bond Indenture will be secured by the Series 2012D Obligation, each of which will be issued and secured under the Master Indenture. The Series 2012 Obligations will entitle the Bond Trustee, as the holder of the Series 2012 Obligations, to the protection and benefit of the covenants, restrictions and other obligations imposed on the Corporation by the Master Indenture. The Master Indenture provides that payments on the Series 2012 Obligations and any Additional Obligations issued under the Master Indenture will be the obligations of the Corporation as the initial Member of the Obligated Group and any future Member of the Obligated Group. The accounts of the -27-

68 Corporation and any future Member of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the issuance of Additional Indebtedness) are satisfied. See RISK FACTORS Certain Matters Relating to Enforceability of the Master Indenture. The Obligations, including the Series 2012 Obligations, will be secured by a mortgage on certain real property of the Corporation and all buildings, structures, improvements and appurtenances standing or thereafter placed upon such real estate, and a security interest in all machinery, equipment, furniture and spare parts on such real estate, all judgments, awards of damages, settlements and other compensation heretofore or hereafter made resulting from condemnation proceeds or the taking of the real estate subject to the Mortgage, and any and all other property of every kind and nature owned by the Corporation conveyed, pledged, assigned or transferred as additional security to the Master Trustee (collectively, the Mortgaged Property ), subject only to Permitted Encumbrances. The Mortgaged Property includes all of the property on which the primary operations of the Corporation, including the Project, are located. For a summary of certain provisions of the Mortgage, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGE in APPENDIX C. The Corporation will also deliver a mortgagee title insurance policy for the mortgaged property, with the Master Trustee being the named insured. The title policy will be for an amount at least equal to the initial aggregate principal amount of the Series 2012 Obligations. The Obligations, including the Series 2012 Obligations, will also be secured by a security interest in the Gross Revenues of the Corporation and any future Member of the Obligated Group, subject only to Permitted Encumbrances. See SUMMARY OF PRINCIPAL DOCUMENTS Definitions of Certain Terms Gross Revenues in APPENDIX C. Additional Indebtedness The Master Indenture permits the Obligated Group to incur Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Obligation issued under the Master Indenture. Under certain conditions specified therein, the Master Indenture will permit the Obligated Group to issue Additional Obligations that will not be pledged under the Bond Indentures, but will be equally and ratably secured by the Master Indenture with the Series 2012 Obligations. In addition, the Master Indenture will permit such Additional Obligations to be secured by security including Liens on the Property of the Obligated Group and letters and lines of credit and insurance, which additional security or Liens need not be extended to secure any other Obligations (including the Series 2012 Obligations). See SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Liens on Property and Permitted Additional Indebtedness in APPENDIX C. In determining compliance with a number of provisions of the Master Indenture, including the provisions governing the incurrence of Additional Indebtedness, the Obligated Group may assume that certain types of Indebtedness which bear interest at varying rates and which may not be payable over an extended term will bear interest over time at interest rates approximating current or recent long term fixed rates, will remain outstanding for a long term and will be amortized on a level debt service basis. The actual interest rates and payments on such Indebtedness may vary from such assumptions, and such variance may be material. See SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Calculation of Debt Service and Debt Service Coverage in APPENDIX C. -28-

69 Certain Covenants of the Corporation and any Future Member of the Obligated Group For the definitions of certain words and terms used in this section, see SUMMARY OF PRINCIPAL DOCUMENTS in APPENDIX C. Rates and Charges. The Members covenant and agree that the Obligated Group Agent will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the earlier of (a) the last day of the first full Fiscal Year after Stable Occupancy for the Project has been achieved, or (b) December 31, 2018 (the Initial Testing Date ), and to deliver a copy of such calculation to the Required Information Recipients. For the purposes of the Master Indenture covenant described under this heading, when calculating the Historical Debt Service Coverage Ratio of the Obligated Group, principal and interest payable on Affiliate Related Subordinated Indebtedness shall be excluded from Debt Service Requirements. If the Historical Debt Service Coverage Ratio of the Obligated Group is less than 1.10:1 for the Fiscal Year with respect to which the Initial Testing Date relates, the Obligated Group, at the Obligated Group s expense, shall select a Consultant within 30 days following the calculation described above, to make recommendations with respect to the rates, fees and charges of the Members and the Obligated Group s methods of operation and other factors affecting its financial condition in order to generate a Historical Debt Service Coverage Ratio of at least 1.20:1 for the following Fiscal Year. If the Historical Debt Service Coverage Ratio of the Obligated Group for the Fiscal Year following the Fiscal Year with respect to which the Initial Testing Date relates, and for any Fiscal Year thereafter, is less than 1.20:1, the Obligated Group, at the Obligated Group s expense, shall select a Consultant within 30 days following the calculation described in the second preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group s methods of operation and other factors affecting its financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year. For specific information regarding the process under the Master Indenture for selection of Consultants, see Approval of Consultants below and SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants in APPENDIX C hereto. A copy of the Consultant s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Required Information Recipient within 60 days of retaining the Consultant. Each Member shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member) and permitted by law. This provision of the Master Indenture shall not be construed to prohibit any Member from serving indigent patients or residents to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of patients or residents without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of the Master Indenture summarized in this section. The foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required above, the Obligated Group shall not be required to retain a Consultant to make such recommendations if: (a) there is filed with the Master Trustee (who shall provide a copy to each Required Information Recipient) a written report addressed to them of a Consultant (which Consultant and report, including without limitation the scope, form, substance and other aspects of such report, are not objected to by the Master Trustee) which contains an opinion of such Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year sufficient to meet the requirements -29-

70 of the Master Indenture summarized above, and, if requested by the Master Trustee, such report is accompanied by a concurring opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are not objected to by the Master Trustee) as to any conclusions of law supporting the opinion of such Consultant; (b) the report of such Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Consultant, the Obligated Group has generated the maximum amount of Revenues reasonably practicable given such laws or regulations; and (c) the Historical Debt Service Coverage Ratio of the Obligated Group for such Fiscal Year was at least 1.00:1. The Obligated Group shall not be required to cause the Consultant s report referred to in the preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two Fiscal Years the Obligated Group provides to the Master Trustee (who shall provide a copy to each Related Bond Trustee) an opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are not objected to by the Master Trustee) to the effect that the applicable laws and regulations underlying the Consultant s report delivered in respect of the previous Fiscal Year have not changed in any material way. If the Obligated Group fails to achieve an Historical Debt Service Coverage Ratio of at least 1.00:1 for any Fiscal Year, such failure shall constitute an event of default under the Master Indenture. For specific information regarding the process under the Master Indenture for selection of Consultants, see Approval of Consultants below and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants. Also see APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Rates and Charges. Liquidity Covenant. The Obligated Group covenants that it will calculate the Days Cash on Hand or the Cash to Indebtedness Ratio of the Obligated Group as of June 30 and December 31 of each Fiscal Year (each such date being a Testing Date ), commencing with the Initial Testing Date. The Obligated Group shall deliver an Officer s Certificate setting forth such calculation as of June 30 to the Master Trustee no later than August 15, and include such calculation as of December 31 in the Officer s Certificate delivered pursuant to the Master Indenture and described under the heading FINANCIAL REPORTING AND CONTINUING DISCLOSURE herein. The Master Indenture requires that each Obligated Group Member conduct its business so that on each Testing Date the Obligated Group shall have a Cash to Indebtedness Ratio of: (a) no less than 0.25 for the first two Testing Dates, starting with the Initial Testing Date, and (b) no less than for the next year (the next two Testing Dates), and (c) no less than 0.30 thereafter (the Liquidity Requirement ). At the option of the Obligated Group Agent, the Liquidity Requirement can be converted to a covenant to maintain no less than 180 Days Cash on Hand on each Testing Date if for three consecutive Fiscal Years the Obligated Group has reported (a) an Historical Debt Service Coverage Ratio of 1.40:1 or more, and (b) a Cash to Indebtedness Ratio of 0.30 or more on each Testing Date. The Obligated Group Agent may elect to convert the Liquidity Requirement as of a specified date (the Liquidity Requirement Conversion Date ) in an Officer s Certificate demonstrating compliance with the tests in the preceding sentence. After the Liquidity Requirement Conversion Date, the Liquidity Requirement will be a covenant to maintain no less than 180 Days Cash on Hand on each June 30 and December 31. If the Cash to Indebtedness Ratio or the amount of Days Cash on Hand as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Agent shall, within 30 days after delivery of the Officer s Certificate disclosing such deficiency, deliver an Officer s Certificate approved by a resolution of the Governing Body of the Obligated Group Agent to the Master Trustee setting forth in reasonable -30-

71 detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to raise the level of the Cash to Indebtedness Ratio or Days Cash on Hand to the Liquidity Requirement for future periods. If the Obligated Group has not raised the level of the Cash to Indebtedness Ratio or Days Cash on Hand, as applicable, to the Liquidity Requirement by the Testing Date immediately subsequent to delivery of the Officer s Certificate required in the preceding paragraph, the Obligated Group Agent shall, within 30 days after delivery of the Officer s Certificate disclosing such deficiency, select a Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group and the Obligated Group s methods of operation and other factors affecting its financial condition in order to increase the Cash to Indebtedness Ratio or the Days Cash on Hand, as applicable, to the Liquidity Requirement for future periods. A copy of the Consultant s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Required Information Recipient within 60 days after the date such Consultant is retained. Each Member of the Obligated Group shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law. Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Liquidity Requirement for any 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 Consultant and follows each recommendation contained in such plan or Consultant s report to the extent feasible (as determined by the Governing Body of the Obligated Group Agent) and permitted by law. For specific information regarding the process under the Master Indenture for selection of Consultants, see Approval of Consultants below and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants. For more information regarding the liquidity covenant, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Liquidity Covenant in APPENDIX C. Marketing Covenant. Beginning with the fiscal quarter ending September 30, 2012 and ending at the end of the first full fiscal quarter following the date on which Stable Occupancy of the Independent Living Units included in the Project has been achieved, the Obligated Group will use its best efforts to maintain the percentage of Independent Living Units which are Reserved (the Percentage of Reserved Independent Living Units ) at or above the applicable levels set forth below, which determinations shall be measured as of the last day of the applicable quarter (the Marketing Requirements ). The applicable Marketing Requirements for the applicable quarter shall be either (i) the Level I Marketing Requirements as long as the Adjusted Level I Occupancy Requirements set forth under Occupancy Covenant on the next page have not been satisfied or (ii) the Adjusted Level I Marketing Requirements if the Adjusted Level I Occupancy Requirements set forth under Occupancy Covenant on the next page have been satisfied. -31-

72 Percentage of Reserved Independent Living Units (%) Quarter Ending Level I Adjusted Level I September 30, % December 31, % March 31, % June 30, % September 30, % December 31, % 63.4% March 31, % 61.9% June 30, % 63.4% September 30, % 65.6% December 31, % 67.9% March 31, % June 30, % September 30, % December 31, % March 31, % June 30, % September 30, % December 31, % March 31, % June 30, % through Stable Occupancy If the report submitted pursuant to the financial reporting requirements of the Master Indenture states that the Percentage of Reserved Independent Living Units for any fiscal quarter is less than the applicable Marketing Requirements set forth above for that fiscal quarter, the Obligated Group Agent shall submit to the Master Trustee, within 45 days after the end of such fiscal quarter, a marketing corrective action plan (a Marketing Corrective Action Plan ) which includes the following information: (a) the Percentage of Reserved Independent Living Units, including the number of reservations and cancellations during such fiscal quarter and on an aggregate basis, (b) a forecast, prepared by management of the Corporation, of the number of reservations expected in the fiscal quarter immediately succeeding the fiscal quarter with respect to which the Marketing Corrective Action Plan is being prepared, and (c) a detailed description of the reasons for the Obligated Group s failure to satisfy the Marketing Requirements and management s plan to increase the Percentage of Reserved Independent Living Units to at least the level required by the Marketing Requirements set forth herein by the end of the fiscal quarter immediately succeeding the fiscal quarter with respect to which the Officer s Certificate is being submitted. If the report submitted pursuant to the financial reporting requirements of the Master Indenture states that the Obligated Group has failed to meet the Marketing Requirement for any two consecutive fiscal quarters, the Obligated Group Agent shall select a Consultant within 45 days after the end of such second consecutive fiscal quarter to make recommendations regarding the actions to be taken to increase the Percentage of Reserved Independent Living Units to at least the Marketing Requirement set forth above on the earliest date practicable (the Initial Marketing Consultant Report Event ). Subsequent to an Initial Marketing Consultant Report Event, if any, in the event that the report submitted pursuant to the financial reporting requirements of the Master Indenture states that the Obligated Group has failed to meet the Marketing Requirement for any three consecutive fiscal quarters, the Obligated Group Agent -32-

73 shall select a Consultant within 45 days after the end of such third consecutive fiscal quarter to make recommendations regarding the actions to be taken to increase the Percentage of Reserved Independent Living Units to at least the Marketing Requirement set forth above on the earliest date practicable. In either event, such Consultant shall be approved and retained as set forth in the Master Indenture. Within 60 days of retaining any such Consultant, the Obligated Group Agent shall cause a copy of the Consultant s report and recommendations, if any, to be filed with each Member, the Master Trustee and each Required Information Recipient. Each Member shall follow each recommendation of the Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Board of such Member) and permitted by law. The Obligated Group shall not be required to obtain a Consultant s report more than one time in any nine month period. Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Marketing Requirements for any fiscal quarter 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 preparing a Marketing Corrective Action Plan or obtaining a Consultant s report and adopting a plan and follows each recommendation contained in such Marketing Corrective Action Plan or Consultant s report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Agent) and permitted by law. For more information regarding the marketing covenant, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Marketing and Occupancy Covenants Marketing Covenant in APPENDIX C. For specific information regarding the process under the Master Indenture for selection of Consultants, see Approval of Consultants below and APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants. Occupancy Covenant. For each fiscal quarter (a) commencing with the first fiscal quarter which ends not less than 60 days following the issuance of the initial Occupancy Certificate for all of the Independent Living Units to be occupied included in the Project and (b) ending at the end of the first full fiscal quarter following the date on which Stable Occupancy with respect to the Independent Living Units included in the Project has been achieved (an Occupancy Quarter ), the Obligated Group will use its best efforts to have Occupied the percentage of the total number of all Independent Living Units included in the Project (the Percentage of Units Occupied ) at or above the Level I Occupancy requirements set forth on the next page, which levels shall be measured as of the last day of the applicable Occupancy Quarter (the Occupancy Requirements ): -33-

74 Level I Adjusted Level I Occupancy Occupancy Requirements Projected Occupancy Requirements Quarter (%) Occupancy (%) (1) (%) (2) 1 5.2% 9.0% 20.1% % 26.1% 35.8% % 38.8% 50.0% % 47.8% 63.4% % 56.7% 75.4% % 65.7% % 74.6% % 81.3% % 85.8% % 88.1% % 91.0% % 94.0% % 95.0% % 95.0% % 95.0% % 95.0% 17 and thereafter 90.0% 95.0% (1) This information is based on management s forecast as contained in the Feasibility Study, which should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B FINANCIAL FEASIBILITY STUDY. This information is not included in the Master Indenture and is set forth herein for purposes of comparison only. There can be no assurance that the Project will achieve the occupancy levels forecasted. (2) This information is for use with the marketing covenant only, as set forth in Marketing Covenant above. See also SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Marketing and Occupancy Covenants in APPENDIX C. If the report submitted pursuant to the financial reporting requirements of the Master Indenture states that the Percentage of Units Occupied for any Occupancy Quarter is less than the Level I Occupancy Requirement set forth above for that Occupancy Quarter, the Obligated Group Agent shall within 45 days of the end of such Occupancy Quarter submit an occupancy corrective action plan prepared by management to the Master Trustee setting forth in detail the reasons therefor and the plan to increase the Percentage of Units Occupied to at least the Level I Occupancy Requirement set forth above by the Occupancy Quarter immediately succeeding the Occupancy Quarter with respect to which the corrective action plan is being submitted (a Corrective Occupancy Action Plan ). If the report submitted pursuant to the financial reporting requirements of the Master Indenture states that the Percentage of Units Occupied for two consecutive Occupancy Quarters is less than the Level I Occupancy Requirement set forth above for those Occupancy Quarters, the Obligated Group Agent shall select a Consultant within 45 days of the end of such second fiscal quarter to make recommendations regarding the actions to be taken to increase the Percentage of Units Occupied to at least the Level I Occupancy Requirement set forth above on the earliest date practicable (the Initial Occupancy Consultant Report Event ). After an Initial Occupancy Consultant Report Event, if any, in the event that the report submitted pursuant to the financial reporting requirements of the Master Indenture states that the Percentage of Units Occupied for three consecutive Occupancy Quarters is less than the Level I Occupancy Requirement set forth above for those Occupancy Quarters, the Obligated Group Agent shall select a Consultant within 45 days of the end of such third fiscal quarter to make -34-

75 recommendations regarding the actions to be taken to increase the Percentage of Units Occupied to at least the Level I Occupancy Requirement set forth above on the earliest date practicable. In either event, such Consultant shall be approved and retained as set forth in the Master Indenture. Within 60 days after retaining any such Consultant, the Obligated Group Agent shall cause a copy of the Consultant s report and recommendations, if any, to be filed with each Member, the Master Trustee and each Required Information Recipient. Each Member shall follow each recommendation of the Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Board of such Member) and permitted by law. The Obligated Group shall not be required to obtain a Consultant s report more than one time during any nine month period. Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Occupancy Requirement for any Occupancy Quarter 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 preparing a Corrective Occupancy Action Plan or obtaining a Consultant s report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Agent) and permitted by law. For more information regarding the occupancy covenant, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Marketing and Occupancy Covenants Occupancy Covenant in APPENDIX C. Cumulative Cash Operating Loss Covenant. The Obligated Group covenants that commencing with (a) the first fiscal quarter ending after the earliest date a resident has taken physical possession of one of the Independent Living Units included in the Project (the Initial Occupancy Date ) if such date is more than 30 days prior to the end of such fiscal quarter or (b) the first full fiscal quarter ending after the Initial Occupancy Date if such Initial Occupancy Date is less than 30 days prior to the end of a fiscal quarter, it will calculate its Cumulative Cash Operating Loss as of the last day of each such fiscal quarter (a CCOL Testing Date ). The requirement to test Cumulative Cash Operating Loss shall end on the last fiscal quarter prior to the Initial Testing Date. Each Member is required to conduct its business so that as of each such CCOL Testing Date the Obligated Group will have Cumulative Cash Operating Loss no greater than the amount set forth below: Quarter Cumulative Cash Operating Loss Forecasted Cumulative Cash Operating Loss (1) 1 ($2,300,000) ($798,218) 2 (4,500,000) (2,032,542) 3 (6,500,000) (3,774,013) 4 (8,500,000) (5,339,708) 5 (9,750,000) (6,441,262) 6 (10,750,000) (7,254,428) 7 (11,500,000) (7,838,601) 8 (11,900,000) (7,969,969) 9 (12,100,000) (7,999,697) 10 (12,300,000) (8,047,891) 11 (12,400,000) (8,055,192) 12 and thereafter (12,500,000) (8,348,423) (1) This information is based on management s forecast as contained in the Feasibility Study, which should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B FINANCIAL FEASIBILITY STUDY. This information is not included in the Master Indenture and is set forth herein for purposes of comparison only. There can be no assurance that the Project will not exceed the occupancy levels forecasted. Excludes net turn over Entrance Fees. -35-

76 If the report submitted pursuant to the financial reporting requirements of the Master Indenture states that as of any CCOL Testing Date, the Cumulative Cash Operating Loss of the Obligated Group is greater than the amounts required above, the Obligated Group Agent shall, within 45 days of such CCOL Testing Date, deliver an Officer s Certificate to each Required Information Recipient setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to achieve the required level of Cumulative Cash for future periods. If, as of any two consecutive CCOL Testing Dates, the Cumulative Cash Operating Loss is greater than the levels set forth above required, the Obligated Group Agent shall, within 45 days after the second such CCOL Testing Date select a Consultant to make recommendations with respect to the Obligated Group s methods of operation and other factors affecting its financial condition in order to decrease Cumulative Cash Operating Loss to the required level for future periods. Such Consultant shall be approved and retained as set forth in the Master Indenture. A copy of the Consultant s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Required Information Recipient within 60 days after the date the Consultant is retained. Each Member of the Obligated Group shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law. Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the required Cumulative Cash Operating Loss level will not constitute an event of default under the Master Indenture if the Obligated Group takes all action necessary to comply with the required procedures for preparing a report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Agent) and permitted by law. For more information regarding the cumulative cash operating loss covenant, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Cumulative Cash Operating Loss Covenant in APPENDIX C. Change of Security and Payment Source (Substitution of Series 2012 Obligations). In April 2006, the Tarrant County Cultural Education Facilities Finance Corporation issued its Retirement Facility Revenue Bonds (Northwest Senior Housing Corporation Edgemere Project) (the Series 2006 Bonds ) for the benefit of Northwest Senior Housing Corporation ( NSHC ) which owns and operates Edgemere in Dallas, Texas. In connection with the issuance of the Series 2006 Bonds, SQLC and NSHC entered into that certain Amended and Restated Master Trust Indenture, Deed of Trust and Security Agreement, dated as of November 15, 1999, and effective as of April 1, 2006 (the SQLC Master Indenture ). The SQLC Master Indenture created an obligated group that includes SQLC and NSHC (the SQLC Obligated Group ), and authorizes the SQLC Obligated Group to, upon the satisfaction of certain covenants and conditions, admit additional members to the SQLC Obligated Group. Upon the satisfaction of certain covenants, the Corporation may become a member of the SQLC Obligated Group, which currently consists of SQLC and NSHC. Upon the Corporation becoming a member of the SQLC Obligated Group, which may, from time to time, include other corporations affiliated with SQLC, the Bond Trustee is required to surrender the Series 2012 Obligations to the Master Trustee upon receiving (1) a copy of the executed SQLC Master Indenture, together with the Admission Supplement thereto executed by the Corporation, (2) an original replacement note or similar obligation issued by the Corporation (the Substitute Note ) under and pursuant to and secured by the SQLC Master -36-

77 Indenture, (3) an opinion of Independent Counsel, (4) an Opinion of Bond Counsel that the surrender of the Series 2012 Obligations and the acceptance by the Bond Trustee of the Substitute Note will not, in and of itself, adversely affect the validity of the Series 2012 Bonds or any exemption for the purpose of federal income taxation to which interest on the Series 2012 Tax-Exempt Bonds would otherwise be entitled, (5) an Officer s Certificate of the Corporation to the effect that the conditions necessary to be met under the SQLC Master Indenture have been met and the Corporation is a member of the SQLC Obligated Group, (6) evidence satisfactory to the Bond Trustee that the Premises (as defined in the SQLC Master Indenture) will, concurrently with the surrender of the Series 2012 Obligations, be subject to a first priority lien granted to the SQLC Master Trustee and that the Property of the Corporation will be included in the Trust Estate (as such term is defined in the SQLC Master Indenture) and (7) such other opinions as the Bond Trustee may reasonably require. Upon the Corporation becoming a member of the SQLC Obligated Group, the Substitute Note and all other obligations issued under the SQLC Master Indenture will be secured on a parity basis by both the Project and the additional property then subject to the lien of the SQLC Master Indenture. The SQLC Master Indenture currently secures $78,455,000 principal amount of obligations, all related to the Series 2006 Bonds. See RISK FACTORS Change of Security and Payment Source (Substitution of Series 2012 Obligations) herein and SUMMARIES OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURES Release and Substitution of the Tax-Exempt Obligations from the Master Indenture in APPENDIX C. UPON SURRENDER OF THE SERIES 2012 OBLIGATIONS TO THE MASTER TRUSTEE, THE SERIES 2012 BONDS WILL NO LONGER BE ENTITLED TO THE SECURITY OF THE MASTER INDENTURE, BUT WILL BE SECURED BY THE SUBSTITUTE NOTE UNDER THE SQLC MASTER INDENTURE. THE SUBSTITUTE NOTE WILL BE SECURED ON A PARITY BASIS WITH ALL OTHER OBLIGATIONS THEN SECURED BY THE SQLC MASTER INDENTURE. THERE IS NO GUARANTEE THAT THE SUBSTITUTION OF THE SQLC MASTER INDENTURE WILL NOT ADVERSELY AFFECT THE SECURITY POSITION OF THE OWNERS OF THE SERIES 2012 BONDS. Approval of Consultants. The Master Indenture provides that if at any time the Members of the Obligated Group are required to engage a Consultant under the provisions of the Master Indenture summarized under Rates and Charges, Liquidity Covenant, Marketing Covenant, Occupancy Covenant and Cumulative Cash Operating Loss Covenant described above, LIQUIDITY SUPPORT AGREEMENT General below or SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Lock-Box Provisions in APPENDIX C such Consultant shall be engaged in the manner set forth below in this section. Upon selecting a Consultant as required under the provisions of the Master Indenture, the Obligated Group Agent will notify the Master Trustee of such selection. 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 Obligations outstanding under the Master Indenture of such selection. Such notice shall (i) include the name of the Consultant and a brief description of the Consultant, (ii) state the reason that the Consultant is being engaged including a description of the covenant(s) of the Master Indenture that require the Consultant to be engaged and (iii) state that the holder of the Obligation will be deemed to have consented to the selection of the Consultant named in such notice unless such Obligation holder submits an objection to the selected Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within 15 days of the date that the notice is sent to the Obligation holders. No later than two Business Days after the end of the 15-day objection period, the Master Trustee shall notify the Obligated Group of the number of objections. If more than two-thirds in aggregate principal amount of the holders of the outstanding Obligations have been deemed to have consented to the selection of the -37-

78 Consultant, the Obligated Group Agent may engage the Consultant. If more than one-third in aggregate principal amount of the owners of the Obligations outstanding have objected to the Consultant selected, the Obligated Group Agent shall select another Consultant which may be engaged upon compliance with the procedures as described above. When the Master Trustee notifies the holders of Obligations of such selection, the Master Trustee will also request any Related Bond Trustee send a notice containing the information required by the provisions of the Master Indenture summarized above to the owners of all of the Outstanding Related Bonds outstanding. Such Related Bond Trustee shall, as the owner of an Obligation securing such Related Bonds, consent or object to the selection of the Consultant in accordance with the response of the owners of such Related Bonds. If more than two-thirds in aggregate principal amount of the Related Bonds have been deemed to have consented to the selection of the Consultant, the applicable Bond Trustee shall approve the Consultant. If more than one-third in aggregate principal amount of the owners of the Related Bonds have objected to the Consultant selected, the applicable Bond Trustee shall not approve the Consultant. The 15-day notice period described above may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds 15 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 of the Master Indenture summarized under this heading. The Master Indenture further provides that all Consultant reports required thereunder shall be prepared in accordance with then-effective industry-appropriate standards. For further information about the approval of consultants, see APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Approval of Consultants. Application for Rating. Not later than 150 days after receipt by the Obligated Group Agent of audited financial statements of the Obligated Group for the first full Fiscal Year following the achievement of Stable Occupancy with respect to the Project, and each Fiscal Year thereafter during which the Obligated Group does not maintain an Investment Grade Credit Rating, the Obligated Group will approach any Rating Agency to obtain a credit rating until the Obligated Group obtains a credit rating of at least BBB- (or an equivalent rating) from any Rating Agency (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 Agent 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. Also see APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Application for Rating. Disposition of Property. The Corporation and each future Member of the Obligated Group agrees in the Master Indenture to restrictions on the disposition of its Property, as more fully described under the caption APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS Summary of the Master Indenture Sale, Lease or Other Disposition of Property hereto. Payments on Affiliate Related Subordinated Indebtedness and Affiliate Related Management Agreements. The Obligated Group agrees in the Master Indenture that a Member will not make payments to Affiliates on Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements, other than Initial SQLC Obligations and the Initial SQLC Management Agreement, unless the Obligated Group Agent delivers an Officer s Certificate to the Master Trustee prior -38-

79 to any payment to Affiliates on Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements that contains the following certifications: (a) there have been two consecutive full fiscal quarters in which the percentage of all units included in the Project which are Occupied has averaged at least 90% for each such fiscal quarter; (b) if the proposed payment to Affiliates on the Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements had occurred as of the last day of the most recent fiscal quarter for which financial statements have been delivered under the provisions of the Master Indenture, the Obligated Group would have satisfied the Liquidity Requirement after that payment; (c) if the proposed payment on the Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements had occurred during the most recent Fiscal Year for which audited financial statements of the Obligated Group are available, the Historical Debt Service Coverage Ratio for that Fiscal Year would have been not less than 1.30; (d) no Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds remain outstanding; and (e) there is no event existing that constitutes, or with the giving of notice or the passing of time or both would constitute, an event of default under the Master Indenture or the Loan Agreement. See APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Payments on Affiliate Related Subordinated Indebtedness and Management Fees to Affiliates hereto. The repayment requirements for the Initial SQLC Obligations are described in APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. The payment requirements for the Initial SQLC Management Agreement are described in APPENDIX A GOVERNANCE AND MANAGEMENT Administration and Operational Oversight Agreement hereto. Entrance Fees Fund. Pursuant to the Master Indenture, the Members of the Obligated Group agree that all Initial Entrance Fees received by such Members shall be transferred to the Master Trustee within five Business Days of the receipt thereof for deposit into the Entrance Fees Fund established with the Master Trustee and held under the Master Indenture. Moneys in the Entrance Fees Fund shall be disbursed by the Master Trustee on the first Business Day of each month (or as otherwise described under FIFTH below), as follows: FIRST: to the Members to pay refunds of Entrance Fee Deposits required for terminations of the Reservation or Residency Agreements prior to occupancy. Such disbursements shall be made upon receipt by the Master Trustee of a written certificate of an Authorized Officer of a Member certifying that it is required by the Reservation or Residency Agreement to pay refunds within the next 30 days and the amount of such refunds. SECOND: to the Working Capital Fund established under the Master Indenture, until the total principal amount deposited into the Working Capital Fund equals $12,500,000. The Master Trustee shall not replenish funds withdrawn from the Working Capital Fund or transfer Entrance Fees from the Entrance Fees Fund into the Working Capital Fund in excess of a total of $12,500,000. THIRD: to the Operating Reserve Fund established under the Master Indenture, until the amount on deposit in the Operating Reserve Fund equals $3,000,000 (the Operating Reserve Fund Requirement ). On each Review Date (as defined in FIFTH below), the Master Trustee shall disburse the amount needed, if any, to increase the amount on deposit in the Operating Reserve Fund to the Operating Reserve Fund Requirement. The Master Trustee shall replenish up to $3,000,000 of any funds withdrawn from the Operating Reserve Fund from funds deposited in the Entrance Fees Fund for a total aggregate deposit of not more than $6,000,000. Notwithstanding the foregoing limitations on the amount of Initial Entrance Fees deposited in the Operating Reserve Fund, if a transfer of moneys from the Liquidity Support Fund or from any -39-

80 other source of funds pursuant to the Liquidity Support Agreement to the Operating Reserve Fund has occurred as described in the Master Indenture or in the Liquidity Support Agreement, the Master Trustee shall deposit to the Operating Reserve Fund the amount, if any, needed to increase the amount on deposit in the Operating Reserve Fund to $2,000,000. FOURTH: to the Liquidity Support Fund, the Supplemental Liquidity Support Fund and the Special Project Liquidity Support Fund (pro rata), any amount necessary to reimburse any amounts advanced under the Liquidity Support Agreement to pay costs prior to issuance of the initial Occupancy Certificate with respect to the Project. FIFTH: after the transfers pursuant to the preceding numbered paragraphs have been made, the Master Trustee shall review the amount on deposit in the Entrance Fees Fund on the first day of each January, April, July and October, or more frequently upon request of the Corporation (each such day a Review Date ). Moneys in the Entrance Fees Fund on each Review Date (or, upon request of the Obligated Group Agent, on any Business Day) shall be disbursed by the Master Trustee as follows: (i) to the Taxable Bond Trustee, for deposit into the Optional Redemption Fund established under the Taxable Bond Indenture for redemption of Series 2012D Bonds pursuant to the provisions of the Taxable Bond Indenture and prepayment of the Series 2012D Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (ii) after making all of the transfers described in (i) above, to the Tax- Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012C-3 Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012C-3 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (iii) after making all of the transfers described in (i) and (ii) above, to the Tax-Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012C-2 Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012C-2 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (iv) after making all of the transfers described in (i) through (iii) above, to the Tax-Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012C-1 Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012C-1 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (v) after making all of the transfers described in (i) through (iv) above, to the Tax-Exempt Bond Trustee, for deposit into the Optional Redemption Fund established under the Tax-Exempt Bond Indenture for redemption of Series 2012B Bonds pursuant to the provisions of the Tax-Exempt Bond Indenture and prepayment of the Series 2012B -40-

81 Obligation; provided, however, that if the amount on deposit in the Operating Reserve Fund is less than $2,000,000 and the aggregate amount on deposit under the Liquidity Support Funds is $0, no such transfer shall be made. (vi) Funds shall be transferred on each Review Date as described above regardless of the amount to be so transferred. There is no minimum amount that may be transferred on a regularly scheduled quarterly Review Date. However, any funds transferred at the request of the Obligated Group Agent on a Business Day other than a regularly scheduled Review Date may be transferred only if the amount to be so transferred from the Entrance Fees Fund is at least $100,000. As provided in the Bond Indentures, amounts transferred as described in (i) through (v) above shall remain on deposit in the respective Optional Redemption Fund until the respective Series 2012 Bonds may be redeemed in accordance with the applicable optional redemption provisions as described in REDEMPTION OF THE SERIES 2012 BONDS. SIXTH: when the Obligated Group Agent delivers an Officer s Certificate to the Master Trustee stating that (A) all Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds have been redeemed, (B) no Event of Default has occurred and is continuing under the Master Indenture, and (C) requesting that any funds on deposit in the Entrance Fees Fund be transferred to the Corporation, the Members of the Obligated Group need not deposit any Initial Entrance Fees into the Entrance Fees Fund, any amounts on deposit in the Entrance Fees Fund shall be remitted to the Corporation by the Master Trustee, and the Entrance Fees Fund shall be closed. For information regarding the Entrance Fees Fund, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Entrance Fees Fund. The following sets forth a diagram of the flow of Initial Entrance Fees funds as described above, but assumes the costs of the Project are fully paid from the Project Fund and the earnings thereon and that there is no draw on the Liquidity Support Fund to pay those Project Costs: -41-

82 The Corporation Receives Initial Entrance Fees and transfers them to the Master Trustee within five Business Days of receipt ($49.9 million total Entrance Fee pool at 100% occupancy) ($47.4 million total Entrance Fee pool at 95% occupancy) The initial deposit to the Operating Reserve Fund will be $3 million and the Operating Reserve Fund is subject to $3 million of replenishment, for a maximum deposit of $6 million. After the Working Capital Fund and the Operating Reserve Fund have received the full initial deposit amount, subsequent Initial Entrance Fees may be used to restore the balances of the Liquidity Support Funds to their initial levels under Liquidity Support Agreement but only until the opening of the Project. If the Liquidity Support Agreement is drawn upon and the aggregate Support Obligations remaining balance falls below $1.0 million, an amount equal to the remaining Support Obligation balance will be transferred from the Liquidity Support Fund to the Operating Reserve Fund. Thereafter, Initial Entrance Fees may be transferred to the Operating Reserve Fund on a monthly basis in order to maintain a minimum balance of $2.0 million. The Entrance Fee Fund will automatically be swept no less than quarterly (or on any Business Day at the request of the Obligated Group Agent). The Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds, in that order, will be repaid gradually during the fill-up period. No less than quarterly redemptions from Initial Entrance Fees of the Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds, in that order, will only occur if the steps described above have occurred. Once the preceding items are satisfied and all Series 2012D Bonds, Series 2012C-3 Bonds, Series 2012C-2 Bonds, Series 2012C-1 Bonds and Series 2012B Bonds, in that order, have been repaid, all future Entrance Fee proceeds can be used by the Corporation as unrestricted cash. Trustee Deposits Initial Entrance Fees into Entrance Fees Fund upon receipt from the Corporation. The Master Trustee will apply these funds on the first Business Day of such month (or on the First Business Day of each January, April, July and October in the case of Temporary Debt Redemption) as shown below. To pay Refunds prior to Occupancy (As required by Residency Agreements) Working Capital Fund $12.5 million Operating Reserve Fund $3 million Temporary Debt Redemption The Debt Service Reserve Funds will be released at the final redemption date of the Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds Par amounts to be redeemed are: $7 million Series 2012D Bonds less Debt Service Reserve Fund $437,500 $3.025 million Series 2012C-3 Bonds less Debt Service Reserve Fund $136,125 $7.905 million Series 2012C-2 Bonds less Debt Service Reserve Fund $415, $3.515 million Series 2012C-1 Bonds less Debt Service Reserve Fund $202, $3 million Series 2012B Bonds less Debt Service Reserve Fund $180,000 Unrestricted Cash to the Corporation Remaining proceeds of Initial Entrance Fees $ million (at 100% occupancy, assuming no replenishment) $8.848 million (at 95% occupancy, assuming no replenishment) Approximate Percentage Occupancy (1) 25% 31% 44% 50% 65% 72% 77% (1) This information is based on management s forecast as contained in the Feasibility Study. See APPENDIX B FINANCIAL FEASIBILITY STUDY. This information is not included in the Master Indenture and is set forth herein for purposes of comparison only. There can be no assurance that the Project will achieve the occupancy levels forecasted. These percentages assume no replenishment. -42-

83 Working Capital Fund. The Master Trustee shall establish and maintain a separate account to be known as the Working Capital Fund Mayflower Communities, Inc. (the Working Capital Fund ). All moneys received by the Master Trustee and held in the Working Capital Fund shall be trust funds under the terms of the Master Indenture for the benefit of all of the Obligations outstanding thereunder (except as otherwise provided) and shall not be subject to lien or attachment of any creditor of any Member of the Obligated Group. Such moneys shall be held in trust and applied in accordance with the provisions of the Master Indenture. Moneys in the Working Capital Fund shall be disbursed by the Master Trustee to or for the account of the Corporation within three (3) business days after receipt by the Master Trustee of a Written Request to the Master Trustee certifying that such request is for (A) costs of the initial construction and equipping of the Project, (B) development and marketing fees and expenses relating to the Project, (C) operating expenses relating to the Project, (D) the costs of needed repairs to the Project, (E) routine capital expenditures relating to the Project, (F) judgments against any Member of the Obligated Group, (G) refunds of Entrance Fee Deposits as required by Reservation or Residency Agreements pursuant to which such Entrance Fees were received, (H) amounts required to restore funds on deposit in each account of the Debt Service Reserve Fund created under the Bond Indentures to required levels, or (I) amounts due on any Obligations (other than optional prepayment or redemption or tenders of the Series 2012B Bonds), but not to reimburse amounts advanced under the Liquidity Support Agreement or otherwise advanced by an Affiliate or to pay Affiliate Related Subordinated Indebtedness or Affiliate Related Management Fees. All amounts on deposit in the Working Capital Fund may be released to the Obligated Group Agent and the Working Capital Fund will be closed upon receipt by the Master Trustee of an Officer s Certificate of the Obligated Group Agent requesting such release which Officer s Certificate shall state that (i) all Series 2012B Bonds, the Series 2012C-1 Bonds, the Series 2012C-2 Bonds, the Series 2012C- 3 Bonds and the Series 2012D Bonds have been redeemed, (ii) Stable Occupancy with respect to the Project has been achieved and (iii) no Event of Default has occurred and is continuing under the Master Indenture. Operating Reserve Fund. The Master Trustee shall establish and maintain a separate account to be known as the Operating Reserve Fund Mayflower Communities, Inc. (the Operating Reserve Fund ). All moneys received by the Master Trustee and held in the Operating Reserve Fund shall be trust funds under the terms of the Master Indenture for the benefit of all of the Obligations outstanding thereunder (except as otherwise provided) and shall not be subject to lien or attachment of any creditor of any Member of the Obligated Group. Such moneys shall be held in trust and applied in accordance with the provisions of the Master Indenture. Moneys in the Operating Reserve Fund shall be disbursed by the Master Trustee to or for the account of the Corporation within three business days of receipt by the Master Trustee of an Officer s Certificate of the Corporation to the effect that (i) the withdrawal is made to pay (A) costs of the initial construction and equipping of the Project, (B) development and marketing fees and expenses relating to the Project, (C) operating expenses relating to the Project, (D) the costs of needed repairs to the Project, (E) routine capital expenditures relating to the Project, (F) judgments against any Member of the Obligated Group, (G) refunds of Entrance Fee Deposits as required by Reservation or Residency Agreements pursuant to which such Entrance Fees were received, (H) amounts required to restore funds on deposit in the Debt Service Reserve Fund created under the Bond Indentures to required levels, or (I) amounts due on any Obligations (other than optional prepayment or redemption or tenders of the Series 2012B Bonds), but not to reimburse amounts advanced under the Liquidity Support Agreement or other amounts owed under Affiliate Related Subordinated Indebtedness or Affiliate Related Management Agreements, (ii) moneys anticipated to be expended in the calendar month following the month in which -43-

84 such Officer s Certificate is submitted, together with an itemized budget describing the uses for which such moneys are needed and the amount needed for each such use, and (iii) no other funds are available or will reasonably be available to make such payments. All amounts on deposit in the Operating Reserve Fund may be released to the Corporation, and the Operating Reserve Fund shall be closed, upon receipt by the Master Trustee of an Officer s Certificate of the Obligated Group Agent requesting such release which Officer s Certificate shall state (i) all Series 2012B Bonds, the Series 2012C-1 Bonds, the Series 2012C-2 Bonds, the Series 2012C-3 Bonds and the Series 2012D Bonds have been redeemed, (ii) Stable Occupancy with respect to the Project has been achieved and (iii) no Event of Default has occurred and is continuing under the Master Indenture. Investment of Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund. Any moneys held by the Master Trustee in the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund shall be invested by the Master Trustee, upon the written direction of the Obligated Group Agent, in Permitted Investments. The Obligated Group Agent shall select investments which shall mature on or prior to the date or dates that moneys therefrom are anticipated to be required. The Master Trustee, unless specifically prohibited by the Obligated Group Agent in writing, may trade with itself, or any bank affiliated with it, in the purchase and sale of such investments and may receive compensation in connection with such investments. The Master Trustee shall not be liable or responsible for any loss resulting from such investments. Any investment income or other gain from any investment of moneys on deposit in the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund shall be retained therein. Any loss resulting from such investments shall be charged to the Entrance Fees Fund, Working Capital Fund or Operating Reserve Fund, as the case may be. Investment management fees relating to the investment of the Entrance Fees Fund, the Working Capital Fund and the Operating Reserve Fund shall be charged to such Funds. The investment of the moneys held in the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund shall be subject to yield restriction as provided in the Tax Certificate until the Obligated Group Agent delivers an opinion of nationally recognized municipal bond counsel (which counsel and opinion are in a form acceptable to the Master Trustee) to the Master Trustee to the effect that no such yield restriction is required to maintain any exemption from federal income taxation to which the interest on any Related Bonds would otherwise be entitled. For more information, see SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Entrance Fees Fund, Working Capital Fund, Operating Reserve Fund and Investment of the Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund in APPENDIX C. Liquidity Support Funds LIQUIDITY SUPPORT AGREEMENT Liquidity Support Fund. Under the Liquidity Support Agreement, SQLC LSA, LLC ( SQLC LSA ) has agreed deposit with the Master Trustee $2,000,000 (the Liquidity Support Obligation ). The Corporation will establish the Liquidity Support Fund with the Master Trustee pursuant to the Liquidity Support Agreement and SQLC LSA will fund such fund concurrently with the delivery of the Series 2012 Bonds. The Liquidity Support Fund shall be the property of the Corporation, but shall be pledged to fund and secure the Corporation s obligations under the Liquidity Support Agreement. Supplemental Liquidity Support Fund. Under the Liquidity Support Agreement, the Corporation has agreed to deposit $2,375,000 (the Supplemental Liquidity Support Obligation ) which -44-

85 will be funded with proceeds of the Series 2012D Bonds. The Corporation will establish the Supplemental Liquidity Support Fund with the Master Trustee pursuant to the Liquidity Support Agreement and the Corporation will fund such fund concurrently with the delivery of the Series 2012 Bonds. The Supplemental Liquidity Support Fund shall be the property of the Corporation, but shall be pledged to fund and secure the Corporation s obligations under the Liquidity Support Agreement. Special Project Liquidity Support Fund. Under the Liquidity Support Agreement, the Corporation has agreed to deposit with the Master Trustee into the Special Project Liquidity Support Fund $1,875,000 (the Special Project Liquidity Support Obligation ) which will be funded with proceeds of the Series 2012D Bonds. The Special Project Liquidity Support Fund shall be the property of the Corporation, but shall be pledged to fund and secure the Corporation s obligations under the Liquidity Support Agreement. Collectively, the Special Project Support Obligation, the Supplemental Support Obligation and the Liquidity Support Obligation are sometimes referred to herein as the Liquidity Support Obligations and the Special Project Liquidity Support Fund, the Liquidity Support Fund and the Supplemental Liquidity Support Fund are sometimes referred to herein as the Liquidity Support Funds. Priority of Application of Liquidity Support Funds The Liquidity Support Funds will be drawn upon pro rata at equal priority. Reductions of the Liquidity Support Obligations The aggregate amount available for payment under each Support Obligation shall be reduced to each of the amounts described below in the next three paragraphs if the conditions described therein have been met. Anticipated Reductions. (A) Initial Regular Reduction. The Liquidity Support Obligation, the Supplemental Liquidity Support Obligation and the Special Project Support Obligation shall be reduced to the greater of the amount currently drawn under the related Liquidity Support Funds or $1,000,000 with respect to the Special Project Support Obligation, $1,187,500 with respect to the Supplemental Support Obligation and $937,500 with respect to the Supplemental Liquidity Support Obligation, when: (i) the Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer Outstanding; and (ii) the Corporation delivers to the Master Trustee and the Bond Trustee an Officer s Certificate certifying that: (w) for the most recent six-month period, the average overall occupancy of the independent living units, the catered living units, the assisted living units, the memory support units and the nursing beds included in the Project was, in the aggregate, at least 90% and the average occupancy for the independent living units was at least 88% occupied; (x) the Historical Debt Service Coverage Ratio of the Obligated Group for the most recent fiscal year for which audited financial statements are available was not less than 1.10; (y) the Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than 0.20; and -45-

86 (z) no Event of Default has occurred and is continuing under the Master Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an Event of Default to occur under the Master Indenture. Within five (5) Business Days after any such reduction, the Master Trustee shall transfer the funds released for disbursement, (a) from the Liquidity Support Fund to SQLC LSA, (b) from the Supplemental Liquidity Support Fund to Greystone Development Services XIX, LLC ( GDS ), and (c) from the Special Project Liquidity Support Fund to GDS. Within five (5) Business Days of receipt by SQLC, SQLC will loan to the Corporation an amount equal to the amount of funds received from GDS or its affiliate from the Special Project Liquidity Support Fund. See APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. (B) Final Regular Reduction. The Liquidity Support Obligations shall be reduced to zero and the Liquidity Support Agreement shall cease to be of any further force and effect, when: (i) the Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer Outstanding, (ii) at least 12 months have lapsed since the reduction in the Support Obligations described in subsection (A) above has occurred, and (iii) The Corporation delivers to the Master Trustee and the Bond Trustee an Officer s Certificate certifying that: (v) for the most recent six-month period, the average overall occupancy of the independent living units, the catered living units, the assisted living units, the memory support units and the nursing beds included in the Project was, in the aggregate, at least 90% and the average occupancy for the independent living units was at least 88% occupied; (w) the Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than the Cash to Indebtedness Ratio then required under the Master Indenture; (x) the Historical Debt Service Coverage Ratio of the Obligated Group for the most recent fiscal year for which audited financial statements are available was not less than 1.20; (y) the Historical Debt Service Coverage Ratio of the Obligated Group for the last fiscal year prior to the year described in the above bullet was not less than 1.10; and (z) no Event of Default has occurred and is continuing under the Master Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an Event of Default to occur under the Master Indenture. Within five (5) Business Days after any such reduction, the Master Trustee shall transfer the funds released for disbursement, (a) from the Liquidity Support Fund to SQLC LSA, (b) from the Supplemental Liquidity Support Fund to GDS, and (c) from the Special Project Liquidity Support Fund to GDS. Within five (5) Business Days of receipt by SQLC, SQLC will loan to the Corporation an amount equal to the amount of funds received from GDS or its affiliate from the Special Project Liquidity Support -46-

87 Fund. See APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. (C) High Performance Reduction. The Liquidity Support Obligations shall be reduced to zero and the Liquidity Support Agreement shall cease to be of any further force and effect, when: (i) the Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer Outstanding; and (ii) the Corporation delivers to the Master Trustee and the Bond Trustee an Officer s Certificate certifying that: (v) for the most recent six-month period, the average overall occupancy of the independent living units, the catered living units, the catered living units, the assisted living units, the memory support units and the nursing beds included in the Project was, in the aggregate, at least 90% and the average occupancy for the independent living units was at least 88% occupied; (w) the Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than 0.35; (x) the Historical Debt Service Coverage Ratio of the Obligated Group for the most recent fiscal year for which audited financial statements are available was not less than 1.40; (y) the Historical Debt Service Coverage Ratio of the Obligated Group for the last fiscal year from operations only was not less than 1.00; and (z) no Event of Default has occurred and is continuing under the Master Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an Event of Default to occur under the Master Indenture. Within five (5) Business Days after any such reduction, the Master Trustee shall transfer the funds released for disbursement, (a) from the Liquidity Support Fund to SQLC LSA, (b) from the Supplemental Liquidity Support Fund to GDS, and (c) from the Special Project Liquidity Support Fund to GDS. Within five (5) Business Days of receipt by SQLC, SQLC will loan to the Corporation an amount equal to the amount of funds received from GDS or its affiliate from the Special Project Liquidity Support Fund. See APPENDIX A GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans hereto. Draws on the Liquidity Support Funds Moneys can be drawn on from the Liquidity Support Funds to the extent necessary to pay costs of the Project in accordance with the Liquidity Support Agreement. The Corporation may withdraw moneys from the Liquidity Support Funds for any purposes which the funds in the Working Capital Fund or the Operating Reserve Fund may otherwise be used. Moneys deposited in the Liquidity Support Fund shall be paid out, from time to time, by the Master Trustee as follows: (a) If moneys are on deposit in the Project Fund under the Bond Indentures and all other available funds (including project contingency funds and immediately available insurance proceeds, if any) are insufficient to pay costs of the Project an Approved Change in Services or Facilities (as defined in the Liquidity Support Agreement) or additional construction costs and expenses arising from unanticipated events or problems including without limitation changes -47-

88 required pursuant to applicable law or requirements of governmental authorities (and not arising from a Discretionary Change (as defined in the Liquidity Support Agreement)), the Corporation will deliver to the Master Trustee a written request for payment of funds required to pay those costs of the Project. Upon receipt of the written request, the Master Trustee shall transfer moneys requested thereby, pro rata from the Supplemental Liquidity Support Fund, the Supplemental Liquidity Support Fund and the Special Project Liquidity Support Fund, to the Bond Trustee for deposit in the Project Funds under the Bond Indentures but only if they are to pay those costs of the Project. Notwithstanding the foregoing, no moneys in the Liquidity Support Funds shall be used to pay interest on the Series 2012 Bonds until all moneys in the Special Interest Accounts of Interest Funds under the Bond Indentures are exhausted. (b) If at any time (i) the Corporation needs money for payment of any expenses that (A) would have been payable from the Working Capital Fund or the Operating Reserve Fund under the Master Indenture and (B) are either (1) consistent with the level of services described in the form of Residency Agreement as of the Closing Date, (2) the result of an Approved Change in Services or Facilities, or (3) required pursuant to applicable law or requirements of governmental authorities (which expenses may include without limitation interest payments on the Series 2012 Obligations), and (ii) no moneys are on deposit in the Working Capital Fund and the Operating Reserve Fund held under the Master Indenture (other than amounts on deposit therein previously committed to pay such costs and expenses) or such Funds and the Entrance Fee Fund have been closed in accordance with the provisions of the Master Indenture, then the Corporation will deliver a Written Request to the Master Trustee to transfer moneys pro rata from the Liquidity Support Funds to the Corporation for the payment of any such expenses (other than Management Fees to an Affiliate). Upon receipt of any such Written Request, the Master Trustee shall make such transfer, but only so long as the total amount remaining in the Liquidity Support Funds after that transfer is not less than $1,000,000. Notwithstanding the foregoing, no moneys in the Liquidity Support Funds shall be used to pay interest on the Series 2012 Bonds until all moneys in the Special Interest Accounts of the Interest Funds under the Bond Indentures are exhausted. (c) If at any time (i) the total amount in the Liquidity Support Funds drops below $1,000,000 and (ii) no moneys are on deposit in the Working Capital Fund and the Operating Reserve Fund held under the Master Indenture, then the Master Trustee shall promptly, without further authorization or direction, transfer all remaining moneys in the Liquidity Support Funds to the Operating Reserve Fund under the Master Indenture (unless the Operating Reserve Fund has been closed in accordance with the Master Indenture, in which case no transfer shall be made pursuant to this subsection). (d) If funds held in an account in the Special Interest Accounts of the Interest Funds and the Bond Sinking Funds under the Bond Indentures are insufficient to pay the principal of or interest on a related series of Series 2012 Bonds as the same come due, then moneys in the Working Capital Fund, the Operating Reserve Fund, the Supplemental Liquidity Support Fund, the Liquidity Support Fund and the Special Project Liquidity Support Fund (pro rata from the Liquidity Support Funds) shall be used for that purpose before any moneys in the related Debt Service Reserve Fund held under the Bond Indentures are used. The Master Trustee shall transfer such funds to the Bond Trustee in accordance with the preceding sentence as needed for that purpose without further instructions from the Corporation. -48-

89 General Under the Master Indenture, the Master Trustee is required at all times to monitor the amounts in the Liquidity Support Funds. If the combined amount in the Liquidity Support Funds drops below $1,000,000 before the Operating Reserve Fund is closed pursuant to the terms of the Master Indenture, then the Master Trustee shall transfer the remaining moneys in the Liquidity Support Funds to the Operating Reserve Fund. If there is an initial withdrawal from the Liquidity Support Funds, (i) within five days of the initial withdrawal, the Master Trustee shall notify each Required Information Recipient of the withdrawal and (ii) within 30 days of the initial withdrawal, the Obligated Group Agent shall submit an Officer s Certificate to each Required Information Recipient containing a management report setting forth (A) the expected amount needed to be sufficient, along with revenues and other available moneys, to pay expenses, Project costs and debt service until management expects to achieve an Historical Debt Service Coverage Ratio of 1.0, (B) whether management expects that the Liquidity Support Funds, together with other moneys expected to be available, will be sufficient for that purpose, (C) a revised fill-up schedule for the Project, and (D) the expected schedule for the redemption of the Series 2012D, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds. If funds in the Liquidity Support Funds are transferred to the Operating Reserve Fund pursuant to the terms of the Master Indenture, (i) within five days of that transfer, the Master Trustee shall notify each Required Information Recipient of the transfer and (ii) the Obligated Group Agent shall engage a Consultant to make recommendations regarding (A) an overall corrective action plan, (B) the projected amount needed to be sufficient, along with revenues and other available moneys, to pay expenses, Project costs and debt service until the Obligated Group is projected to achieve an Historical Debt Service Coverage Ratio of 1.0, (C) a revised fill-up schedule for the Series 2012 Project, (D) a plan for the payment of the Series 2012D Bonds, the Series 2012C-3 Bonds, the Series 2012C-2 Bonds, the Series 2012C-1 Bonds and the Series 2012B Bonds, (E) a plan to improve the profitability of the Obligated Group and (F) a recommendation regarding additional sources of working capital. The Obligated Group Agent shall select a Consultant and notify the Master Trustee of the selection within 30 days after the transfer and shall thereafter engage the Consultant in accordance with the terms of the Master Indenture described above under SECURITY FOR THE SERIES 2012 OBLIGATIONS Certain Covenants of the Corporation and any Future Member of the Obligated Group Approval of Consultants. The Obligated Group shall not be required to obtain a Consultant s report more than one time in any sixmonth period. Investment Moneys held in the Liquidity Support Funds shall, pursuant to written direction of the Corporation, be invested and reinvested by the Master Trustee in accordance with the provisions thereof in Permitted Investments (as defined in the Master Indenture). The interest earned on and any profit realized from Permitted Investments held in each Liquidity Support Fund shall be deposited into the related Liquidity Support Fund until any reduction in the related Liquidity Support Obligation shall occur. At each time of valuation, if the amount on deposit in: (i) the Liquidity Support Fund is in excess of $1,000,000, (ii) the Supplemental Liquidity Support Fund is in excess of $1,187,500 and/or, (iii) the Special Project Liquidity Support Fund is $937,5000, the amount of such excess shall be distributed as follows: (a) from the Liquidity Support Fund to SQLC LSA, (b) from the Supplemental Liquidity Support Fund to GDS, and (c) from the Special Project Liquidity Support Fund to GDS. Investment management fees relating to the investment of the Liquidity Support Funds may be paid from amounts on deposit in such Funds. Permitted Investments held in the Liquidity Support Funds shall be valued as of June 30 and -49-

90 December 31 in each Fiscal Year, at the time of any withdrawal from the Liquidity Support Funds, at the time of any reduction of the Support Obligation, and at any other time requested by the Corporation. EXCEPT AS OTHERWISE DESCRIBED HEREIN UNDER SECURITY FOR THE SERIES 2012 OBLIGATION CERTAIN COVENANTS OF THE CORPORATION AND ANY FUTURE MEMBER OF THE OBLIGATED GROUP ENTRANCE FEES FUND HEREIN, THERE IS NO REPLENISHMENT REQUIREMENT FOR THE LIQUIDITY SUPPORT OBLIGATIONS. Subordination Provisions The Corporation s obligation to repay certain payments made under and in accordance with the Liquidity Support Agreement are more fully described in GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans in APPENDIX A hereto. Amendments and Waivers (a) Except as described subparagraph (b) below, the Master Trustee, the Bond Trustee and the Corporation may amend or modify the Liquidity Support Agreement, or any provision thereof, or may consent to the amendment or modification thereof, in any manner not inconsistent with the terms and provisions of the Liquidity Support Agreement, for any one or more of the following purposes: (i) to cure any ambiguity or formal defect in the Liquidity Support Agreement; (ii) to grant to or confer upon the Master Trustee or the Bond Trustee, for the benefit of the owners of the Series 2012 Obligations and the Series 2012 Bonds, any additional rights, remedies, powers or authorities that lawfully may be granted to or conferred upon the Bond Trustee or the Master Trustee; (iii) to amend or modify the Agreement, or any part thereof, in any manner specifically required or permitted by the terms hereof, including, without limitation, as may be necessary to maintain the exclusion from gross income for purposes of federal income taxation of the interest on the Tax-Exempt Series 2012 Bonds; (iv) to modify, amend or supplement the Liquidity Support Agreement, or any part thereof, or any supplement thereto, in such manner as the Master Trustee, the Bond Trustee and the Corporation deem necessary in order to comply with any statute, regulation, judicial decision or other law; (v) to provide for the appointment of a successor Bond Trustee as provided in the Bond Indentures or a successor Master Trustee as provided in the Master Indenture; and (vi) to make any other change which, in an opinion of a nationally recognized counsel expert in municipal securities law delivered to the Master Trustee and Bond Trustee, does not have a material adverse effect upon the interests of the Bondholders. (b) Other than the amendments described in subparagraph (a) above, the Corporation shall submit a copy of any proposed amendment to GDS, the Master Trustee and the Bond Trustee. As soon as practicable but in no case longer than five Business Days after receipt of such proposed amendment, the Master Trustee or the Bond Trustee, as applicable, shall send notice of such proposed amendments to the Required Information Recipients (as such term is defined in the Master Indenture) and the owners of all of the Series 2012 Bonds outstanding. Such notice shall (i) include a summary of the proposed amendments and information describing how the Required Information Recipients and Bondholders may obtain a copy of the proposed amendment and the Liquidity Support Agreement and (ii) state that each owner of the Series 2012 Bonds will be deemed to have consented to the proposed amendment unless such owner submits an objection to the proposed amendment in writing to the Bond Trustee within 15 days of the date that the notice is sent to the owners of the Series 2012 Bonds. No later than two Business Days after the end of the 15-day objection period, the Bond Trustee shall notify the Master Trustee, the Corporation and GDS of the percentage of the bond owners which have objected. If the owners of more than two-thirds in aggregate principal amount of the Series 2012 Bonds have been deemed to have consented to the proposed amendment or have not responded to the request for consent, the amendment shall become effective. If the owners of more than one-third in aggregate principal amount of the outstanding Series 2012 Bonds have objected to the proposed amendment, the amendment shall not become effective. -50-

91 PRIORITY OF DRAWINGS FROM VARIOUS FUNDS The following diagrams illustrate the priorities of drawings from the Working Capital Fund, Operating Reserve Fund, Debt Service Reserve Fund and under the Liquidity Support Agreement. Expected Priority of Draws Upon Various Reserves and Funds (In the Event of a Funding Shortfall) Priority of Draws on These Funds: Comments 1st 2nd Working Capital Fund Draw down until the balance is fully depleted, no replenishment permitted Operating Reserve Fund Draw down the initial $3 million, plus $3 million replenishment, if necessary. Additional replenishment will begin only when the balance of the Liquidity Support Funds reaches $1 million (see below) 3rd Liquidity Support Funds Once the balance in the Liquidity Support Draw down funds in the Liquidity Support Funds Funds is equal to $1 million or less, and no moneys are on deposit in the Working Capital Fund or the Operating Reserve Fund, the remaining funds in the Liquidity Support Funds are transferred to the Operating Reserve Fund. 4th Operating Reserve Fund Draw on the Operating Reserve Fund as Maintained at a minimum $2 million balance on a monthly basis (replenished with Entrance Fees) necessary to the extent funds are available. 5th Debt Service Reserve Fund To be drawn upon only if the funds above are fully depleted, and only to pay debt service Note: The chart above relates to the period after the Project has opened. Prior to opening of the Project, the Liquidity Support Funds are available but only after all other funding sources have been depleted, including the Project Fund and all contingency funds. If the Liquidity Support Funds are drawn upon prior to opening of the Project for this purpose, Entrance Fees can be used to replenish the Liquidity Support Funds after opening, as shown in the preceding diagram. Such replenishment would occur after the Working Capital Fund is funded and the Operating Reserve Fund is funded but before any of the redemptions of the Series 2012B Bonds, the Series 2012C Bonds or the Series 2012D Bonds. -51-

92 Limitations Applicable to the Series 2012 Bonds THE ISSUER THE TAX-EXEMPT SERIES 2012 BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER AND ARE PAYABLE OUT OF THE REVENUES AND OTHER AMOUNTS DERIVED FROM THE LOAN AGREEMENT AND THE TAX-EXEMPT SERIES 2012 OBLIGATIONS OR AS OTHERWISE AUTHORIZED BY THE BOND ORDINANCE OR THE TAX-EXEMPT BOND INDENTURE AND PERMITTED BY LAW (EXCEPT TO THE EXTENT PAID OUT OF MONEYS ATTRIBUTABLE TO THE PROCEEDS DERIVED FROM THE SALE OF THE TAX-EXEMPT SERIES 2012 BONDS OR TO INCOME FROM THE TEMPORARY INVESTMENT THEREOF). THE SERIES 2012 BONDS DO NOT CONSTITUTE INDEBTEDNESS OF THE ISSUER WITHIN THE MEANING OF ANY INDIANA CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION, AND DO NOT CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER OR A CHARGE AGAINST THEIR GENERAL CREDIT OR THE TAXING POWER OF THE ISSUER, THE STATE OF INDIANA OR ANY POLITICAL SUBDIVISION THEREOF. Description of the Issuer The City of Carmel, Indiana is authorized by the Constitution and statutes of the State of Indiana, particularly Indiana Code, Title 36, Article 7, Chapters 11.9 and 12 (the Act ) to issue revenue bonds and lend the proceeds to the Corporation. The Series 2012 Bonds being issued by the Issuer are issued pursuant to the Act and an ordinance (the Bond Ordinance ) adopted by the Common Council of the Issuer. Bonds of the Issuer The Issuer may from time to time issue bonds as provided in the Act for the purposes set forth in the Act. Any bonds issued by the Issuer (and any interest thereon) shall not be or become an indebtedness or obligation, general or moral, of the State or any agency or political subdivision thereof nor be or become a pledge of the full faith and credit of the State or any agency or political subdivision thereof. The Series 2012 Bonds of the Issuer as described herein are special and limited obligations of the Issuer payable solely from the specific sources and revenues of the Issuer specified in the Bond Ordinance and the Tax-Exempt Bond Indenture authorizing the issuance of the Series 2012 Bonds. No Owner of any Series 2012 Bond shall have the right to compel any taxing power of the Issuer, the State or any agency or political subdivision thereof to pay the principal of, premium, if any or interest on the Series 2012 Bonds. The Issuer makes no warranty or representation, whether express or implied, with respect to any of the Facilities or the use thereof. Further, the Issuer has not prepared any material for inclusion in this Official Statement, except that material under the headings INTRODUCTION The Issuer, THE ISSUER and LITIGATION The Issuer has been reviewed by the Issuer. The distribution of this Official Statement has been duly approved and authorized by the Issuer. Such approval and authorization does not, however, constitute a representation or approval by the Issuer of the accuracy or sufficiency of any information contained herein except to the extent of the material under the headings referenced in this paragraph. RISK FACTORS Set forth below are certain risk factors which should be considered before any investment in the Series 2012 Bonds is made. These risk factors are not, and should not be considered, definitive or exhaustive. -52-

93 General As described herein under the caption, INTRODUCTION Security for the Series 2012 Bonds, the principal of, premium, if any, purchase price of, and interest on the Series 2012 Bonds, except to the extent that the Series 2012 Bonds will be payable from the proceeds thereof or investment income thereon or, under certain circumstances, proceeds of insurance, sale or condemnation awards or net amounts by recourse to the Mortgage, are payable solely from amounts payable by the Corporation under the Loan Agreement or the Corporation and any future Member of the Obligated Group under the Master Indenture or of future obligors under a substitute master indenture as described in SECURITY FOR THE SERIES 2012 OBLIGATIONS Change of Security and Payment Source (Substitution of Series 2012 Obligations). No representation or assurance is given or can be made that revenues will be realized by the Corporation or any future Member of the Obligated Group in amounts sufficient to pay debt service on the Series 2012 Bonds when due and other payments necessary to meet the obligations of the Corporation. The Series 2012 Bondholders risks discussed below should be considered in evaluating the ability of the Corporation to make payments in amounts sufficient to provide for the payment of the principal of, the premium, if any, and interest on the Series 2012 Bonds. The net revenues of the Corporation and any future Member of the Obligated Group will be subject to, among other factors, federal and state policies affecting the senior housing and health care industries (including changes in reimbursement rates and policies), increased competition from other senior housing and health care providers, the capability of the management of the Corporation and any future Member of the Obligated Group and future economic and other conditions that are impossible to predict. The extent of the ability of the Corporation and any future Member of the Obligated Group to generate future revenues has a direct effect upon the payment of the principal of, premium, if any, and interest on the Series 2012 Bonds. Neither the Underwriter nor the Issuer has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Corporation or any future Member of the Obligated Group. Impact of Market Turmoil The economic turmoil of the past few years had severe negative repercussions upon the United States and global economies. This impact was particularly severe in the financial sector, prompting a number of banks and other financial institutions to seek additional capital, to merge, and, in some cases, to cease operating. The effects of this turmoil can still be seen in the scarcity of credit, lack of confidence in the financial sector, volatility in the financial markets, fluctuations in interest rates, reduced economic activity, increased business failures, high unemployment and increased consumer and business bankruptcies. The recent turmoil and any similar future market turmoil could affect the market and demand for the Series 2012 Bonds in addition to adversely affecting the value of any investments of the Corporation or any future Member of the Obligated Group. Sale of Personal Residences It is anticipated that a number of prospective residents of the Community will be required to sell their current homes to pay the Entrance Fee prior to occupancy or to meet other financial obligations under their residency agreements. If prospective residents encounter difficulties in selling their current homes due to local or national economic conditions affecting the sale of residential real estate, such prospective residents may not have sufficient funds to pay the Entrance Fee or to meet other financial obligations under their residency agreements, thereby causing a delay in scheduled occupancy of the Community or the remarketing of vacated units which would have an adverse impact on the revenues of the Corporation. -53-

94 Changes in Members of the Obligated Group The Corporation is the initial Member of the Obligated Group. Upon satisfaction of certain conditions in the Master Indenture, other corporations can become members of the Obligated Group or certain members of the Obligated Group can exit. See APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Entrance into the Obligated Group. Management of the Corporation currently has no plans to add additional members to the Obligated Group. However, if and when new members are added, the Obligated Group s financial situation and operations will likely be altered from that of the Corporation alone. Feasibility Study The financial forecast contained in the Feasibility Study included in APPENDIX B hereto is based upon assumptions made by the management of the Corporation. As stated in the Feasibility Study, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. In addition, the financial forecast is only for the six years ending December 31, 2017 and consequently does not cover the whole period during which the Series 2012 Bonds may be outstanding. See the Feasibility Study included herein as APPENDIX B, which should be read in its entirety, including management s notes and assumptions as set forth therein. BECAUSE THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH THE ASSUMPTIONS MADE, NO GUARANTEE CAN BE MADE THAT THE FINANCIAL FORECAST IN THE FEASIBILITY STUDY WILL CORRESPOND WITH THE RESULTS ACTUALLY ACHIEVED IN THE FUTURE. ACTUAL OPERATING RESULTS MAY BE AFFECTED BY MANY UNCONTROLLABLE FACTORS, INCLUDING BUT NOT LIMITED TO INCREASED COSTS, LOWER THAN ANTICIPATED REVENUES, EMPLOYEE RELATIONS, TAXES, GOVERNMENTAL CONTROLS, CHANGES IN APPLICABLE GOVERNMENTAL REGULATION, CHANGES IN DEMOGRAPHIC TRENDS, CHANGES IN THE RETIREMENT LIVING AND HEALTH CARE INDUSTRIES, AND GENERAL ECONOMIC CONDITIONS. Purchase of Series 2012B Bonds The registered owners of Series 2012B Bonds have the option to tender their Series 2012B Bonds, as appropriate, to the Bond Trustee for purchase on each Optional Tender Date. The only sources of moneys available to make payments of the purchase price of the Series 2012B Bonds, as appropriate, on each Optional Tender Date are (i) the proceeds of the remarketing thereof, (ii) moneys required to be deposited in the Purchase Fund by the Corporation pursuant to the Loan Agreement will be applied to purchase the Series 2012B Bonds to the extent that such deposit shall not reduce the Cash and Investments of the Obligated Group below the amount necessary to permit the Obligated Group to meet the Liquidity Requirement set forth in the Master Indenture plus an additional 20 Days Cash on Hand, and (iii) any additional amounts deposited into the Purchase Fund by the Corporation, at its sole option, from any available moneys of the Corporation. Therefore, if any of the Series 2012B Bonds tendered on any Optional Tender Date are not remarketed at par, the Tender Agent may not have available funds with which to purchase such Series 2012B Bonds. In the event sufficient funds are not available, the registered owners of the tendered but unpurchased Series 2012B Bonds will be required to retain their Series 2012B Bonds, as appropriate, at the new interest rate determined by the Remarketing Agent. THERE CAN BE NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE TO PURCHASE ANY OR ALL SERIES 2012B BONDS TENDERED FOR PURCHASE ON ANY OPTIONAL TENDER DATE. Failure to purchase Series 2012B Bonds tendered for purchase on any Optional Tender Date does not constitute an event of default under the Tax-Exempt Bond Indenture or the Loan Agreement. See THE -54-

95 SERIES 2012B BONDS herein. In addition, there can be no assurance that any Reset Rate with respect to some or all the Series 2012B Bonds will not cause a material burden on the financial condition of the Corporation. Construction Risks There can be no assurances given that the Project will be completed, or that it can be completed for the cost and within the time as set forth in this Official Statement. Failure to complete the Project, or to complete it in a timely fashion at the estimated cost could adversely affect the ability of the Corporation to generate sufficient revenues to continue its planned operations and to make payments with respect to the Series 2012 Bonds. For example, the plan of finance assumes that Entrance Fees payable on or before initial occupancy of the Project by individual residents will be used to fund the Operating Reserve Fund and the Working Capital Fund and to redeem Series 2012D Bonds, Series 2012C Bonds and Series 2012B Bonds. If the completion of the Project is delayed, the receipt of Entrance Fees necessary for such purposes, as well as the receipt of monthly service fees necessary to fund operations, may be adversely impacted. Whether or not the Project will be completed on schedule depends upon a large number of factors, many of which may be beyond the control of the Corporation. These include, but are not limited to, adverse weather, strikes, delays in the delivery of or shortages of materials, delays in the issuance of required building permits, environmental restrictions or similar unknown or unforeseeable contingencies. Further, although construction work will be inspected periodically by the Construction Consultant, there can be no assurance that the Project will conform to construction specifications or state or local regulations. The occurrence of any of the foregoing could result in increases in construction costs or considerable delays in, or complete impossibility of, completion of the Project, resulting in a failure to achieve anticipated operating results. Construction costs could exceed the amounts originally forecast due to a number of factors. See LIQUIDITY SUPPORT AGREEMENT above with respect to certain situations where the Corporation can access certain funds to cover any increased construction costs. Construction of the Project is subject to the usual risks associated with construction projects, including, but not limited to, delays in issuance of required building permits or other necessary approvals or permits, strikes, shortages of materials and adverse weather conditions. Such events could result in delaying occupancy of the Project and thus the Entrance Fees and other revenue flow therefrom. Management of the Corporation anticipates that the building permits will be obtained in due course. See APPENDIX A THE COMMUNITY - Regulatory Permits and Approvals. It is anticipated that the proceeds from the sale of the Series 2012 Bonds, together with anticipated investment earnings thereon and certain funds of the Corporation, will be sufficient to complete the construction and equipping of the Project based upon the fixed price obtained from the construction manager for the Project. However, cost overruns for projects of this magnitude may occur due to change orders and other factors. In addition, the date of substantial completion may be extended by reason of changes authorized by the Corporation, delays due to acts or neglect of the Corporation or by independent contractors employed by the Corporation or by labor disputes, fire, unusual delay in transportation, adverse conditions not reasonably anticipated, unavoidable casualties or any causes beyond the control of the contractors. Cost overruns could also result in the Corporation not having sufficient moneys to complete construction of the Project, thereby materially affecting the receipt of revenues needed to pay debt service on the Series 2012 Bonds. Construction Consultant Approval of Construction Draws The ability of the Corporation to receive disbursements from the Project Funds held under the Bond Indentures is subject to compliance by the Corporation with various requirements of the -55-

96 Construction Disbursement and Monitoring Agreement by and among the Corporation, zumbrunnen, Inc., (the Construction Consultant ) and the Master Trustee. If the conditions to receipt of disbursements are not met, the Construction Consultant may temporarily suspend certain items within a construction draw or the entire construction draw. A temporary suspension of funding might cause delay in completion and related cost overruns. Proceeds remaining in the Project Funds together with other funds held under the Bond Indentures may not be sufficient to pay the principal of the Series 2012 Bonds upon acceleration. Adequacy of Remedies The Bond Trustee and the Issuer must look solely to the Project, the Gross Revenues and any funds held under the Bond Indentures and the Master Indenture to pay and satisfy the Series 2012 Bonds in accordance with their terms. The Bondholders are dependent upon the success of the Corporation s facilities and the value of the assets of the Obligated Group for the payment of the principal of, redemption price, if any and interest on, the Series 2012 Bonds. The Corporation has not made any representations to Bondholders regarding the current market value of its facilities. In the event of a default, the value of the Project may be less than the amount of the outstanding Series 2012 Bonds, since the Obligated Group s facilities exist for the narrow use as retirement, assisted care and nursing home facilities. In addition, even without consideration of the special purpose nature of the facilities, the sale of property at a foreclosure sale may not result in the full value of such property being obtained. The special design features of a continuing care facility and the continuing rights of residents under continuing care and lease agreements may make it difficult to convert the facilities to other uses, which may have the effect of reducing their attractiveness to potential purchasers. There can be no assurance that upon an acceleration the amount of money or foreclosure receipts available will be adequate to repay the Obligated Group s Indebtedness. Furthermore, whatever is realized will be distributed pro rata to all holders of Indebtedness under the Master Indenture. Accordingly, in the event of foreclosure and sale of the Project, Bondholders may not receive all principal and interest due under the terms of the Series 2012 Bonds. Development and Management The successful development and operation of the Community is heavily dependent upon the efforts of Greystone Management Services Company, LLC (the Manager ) and Greystone Development Services XIX, LLC (the Development Consultant ). The Corporation has contracted for development services with the Development Consultant and for management services with the Manager for the day-today management and operation of the Community. The Corporation does not currently have the capacity to duplicate the services offered by the Development Consultant and the Manager. If the Corporation were to terminate its relationships with the Development Consultant or the Manager, it would need to hire and train a development and/or management team for the Community or contract for similar services at equivalent rates with other companies. For more information, see APPENDIX A DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY. Application of Amounts on Deposit in Project Funds Except as described in the next sentence, if the principal of and interest on the Series 2012 Bonds become due or are declared due and payable but are not paid, the Bond Indentures require that all moneys in the funds maintained by the applicable Bond Trustee be applied (i) to the payment of the amounts, if any, payable pursuant to the Tax Certificates (as hereinafter defined) and (ii) to the payment of interest and principal then due on the Series 2012 Bonds. However, the moneys held in the Project Funds created under the Bond Indentures are required to be retained in the Project Funds and held by the Bond Trustee to be used to pay the costs of the Project except to the extent required to be transferred to the Rebate Fund in accordance with the Tax Certificates. See SUMMARY OF PRINCIPAL DOCUMENTS -56-

97 SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Application of Moneys and SUMMARY OF CERTAIN PROVISIONS OF THE TAXABLE BOND INDENTURE Application of Moneys in APPENDIX C. Payments of Subordinated Loans and SQLC Allocated Over-Head; Remaining Operational Funds The Corporation will enter into the following Subordinated Loan arrangements with SQLC and SQLC LSA, LLC (collectively, the SQLC Subordinate Obligations ) upon closing of the Series 2012 Bonds: Subordinated Promissory Note between the Corporation and SQLC LSA, LLC in the principal amount of up to $2,000,000; Subordinated Promissory Note between the Corporation and SQLC in the principal amount of up to $1,875,000; and Subordinated Promissory Note between the Corporation and SQLC in the principal amount of $200,000. Repayment of the SQLC Subordinate Obligations is subject to the Corporation meeting certain financial and operational tests and are at all times subordinate to the scheduled payments of the Series 2012 Bonds. Additionally, under the SQLC Oversight Agreement, the payment by the Corporation of its share of the expenses and costs incurred by SQLC in the provision of administrative oversight, governance support and operational oversight to all of SQLC s Communities (based on the proportion the total number of residential units (i.e., independent living units, catered living units, assisted living units, memory support units, and skilled nursing beds) in the Community bears to the aggregate residential units of all of the SQLC Communities but excluding salaries, benefits and reimbursable expenses of employees of SQLC which are directly allocated to one or more SQLC Communities) (the Allocated Over-Head ), is subject to the Corporation meeting certain financial and operational tests. When those tests are met, the Corporation is obligated to repay the SQLC Subordinate Obligations and to pay its Allocated Over-Head. Repayment of the SQLC Subordinate Obligations and the Allocated Over-Head may reduce Corporation funds available for future development of the Community. See GOVERNANCE AND MANAGEMENT Administration and Operational Oversight Agreement and SQLC Subordinated Loans in APPENDIX A. Uncertainty of Revenues The Corporation is a development stage company and has not previously built or operated a project. Additionally, the Corporation has no assets other than the Project and is not expected to have any revenues except those derived from operations of the Project. As noted elsewhere, except to the extent that the Series 2012 Bonds will be payable from the proceeds thereof or investment income thereon or, under certain circumstances, proceeds of insurance, sale or condemnation awards, each series of the Series 2012 Bonds will be payable solely from payments or prepayments to be made by the Corporation under the Loan Agreement and by the Corporation and any future Member of the Obligated Group on the related Series 2012 Obligation. The ability of the Corporation to make payments under the Loan Agreement and the Series 2012 Obligations is dependent upon the generation by the Corporation of revenues in the amounts necessary for the Corporation to pay the principal, premium or purchase price, if any, and interest on the Series 2012 Bonds, as well as other operating and capital expenses. The realization of future revenues and expenses are subject to, among other things, the capabilities of the management of the Corporation and by the Corporation and any future Member of the Obligated Group, government regulation and future economic and other conditions that -57-

98 are unpredictable and that may affect revenues and payment of principal of and interest on the Series 2012 Bonds. No representation or assurance can be made that revenues will be realized by the Corporation and any future Member of the Obligated Group in amounts sufficient to make the required payments with respect to debt service on the Series 2012 Bonds. Failure to Achieve or Maintain Turnover or Occupancy The economic feasibility of the Project depends in large part upon the ability of the Corporation to initially attract sufficient numbers of residents to the Project and to achieve and maintain substantial occupancy throughout the term of the Series 2012 Bonds. This depends to some extent on factors outside management s control, such as the residents right to terminate their residency agreements, subject to the conditions provided in the residency agreements. Moreover, if a substantial number of residents live beyond the anticipated life expectancies assumed by the Corporation or if the permanent transfers to the assisted living, memory support and nursing beds of the Community are substantially less than assumed by the Corporation, or if market changes require a reduction in the amount of the Entrance Fees payable by new residents, the receipt of additional Entrance Fees would be curtailed, with a consequent impairment of the revenues of the Project. Such impairment would also result if the Corporation is unable to remarket units becoming available when residents die, withdraw, or are permanently transferred to a health care facility or any other facility. If the Project fails to maintain occupancy levels as management forecasted in the Feasibility Study, there may be insufficient funds to pay the debt service on the Series 2012 Bonds. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B FINANCIAL FEASIBILITY STUDY hereto. Utilization Demand Several factors could, if implemented, affect demand for services of the Community including: (i) efforts by insurers and governmental agencies to reduce utilization of nursing home and long-term care facilities by such means as preventive medicine and home health care programs; (ii) advances in scientific and medical technology; (iii) a decline in the population, a change in the age composition of the population or a decline in the economic conditions of the service area of the Project; and (iv) increased or more effective competition from nursing home, assisted living facilities and long-term care facilities now or hereafter located in the service area of the Community. See Comparable Retirement Communities, Existing Comparable Assisted Living Facilities and Description and Profile of Nursing Facilities in APPENDIX B hereto. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. Competition The Corporation provides services in areas where other competitive facilities exist and may face additional competition in the future as a result of the construction or renovation of competitive facilities in the primary or secondary market area of the Corporation. There may also arise in the future competition from other continuing care facilities, some of which may offer similar facilities, but not necessarily similar services, at lower prices. See APPENDIX A and APPENDIX B. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. See APPENDIX B FINANCIAL FEASIBILITY STUDY hereto. Nature of Facilities The Project is not and will not be comprised of general purpose buildings and generally would not be suitable for industrial or commercial use. Consequently, it could be difficult to find a buyer or lessee for such facilities and, upon any default, the Master Trustee may not realize the amount of the outstanding Series 2012 Bonds or any other Additional Indebtedness outstanding from the sale or lease of -58-

99 such facilities if it were necessary to proceed against such facilities, pursuant to a judgment, if any, against the Corporation including in the event of foreclosure under the Mortgage. Further, the real property upon which the Project is to be located, is subject to certain covenants which run with the land, including a covenant that restricts any additions or alterations or change of use of the property unless a special use permit or approvals of Hamilton County, Indiana and the City of Carmel, Indiana are obtained. Such covenants could also affect the value of the Project to any potential buyer or lessee. Malpractice Claims and Losses The operations of the Corporation may be affected by increases in the incidence of malpractice lawsuits against physicians, elder care facilities and care providers in general and by increases in the dollar amount of client damage recoveries. These may result in increased insurance premiums and an increased difficulty in obtaining malpractice insurance. It is not possible at this time to determine either the extent to which malpractice coverage will continue to be available to the Corporation or the premiums at which such coverage can be obtained. Rights of Residents The Corporation enters into residency agreements with its residents. For more information about the residency agreements, see APPENDIX A RESIDENCY AGREEMENT. Although these agreements give to each resident a contractual right to use space and not any ownership rights in the Community, in the event that a Bond Trustee or the holders of the Series 2012 Bonds seek to enforce any of the remedies provided by the related Bond Indenture upon the occurrence of a default or the Master Trustee seeks to enforce remedies under the Mortgage or the Master Indenture, it is impossible to predict the resolution that a court might make of competing claims among the Master Trustee, the Bond Trustee, the Issuer or the holders of the Series 2012 Bonds and a resident of the Community who has fully complied with all the terms and conditions of his or her residency agreement. Regulation As described under the heading APPENDIX A THE COMMUNITY - Regulatory Permits and Approvals, the Community is and will continue to be subject to certain governmental regulation. Indiana has enacted comprehensive legislation which will regulate the Community. Such legislation is not expected to have a material adverse effect on operations at the Community or the Project. Proposed Legislation Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Tax-Exempt Series 2012 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. As one example, on September 12, 2011, the Obama Administration announced a legislative proposal entitled the American Jobs Act of For tax years beginning on or after January 1, 2013, the American Jobs Act of 2011, if enacted, would limit the exclusion from gross income of interest on obligations like the Tax- Exempt Series 2012 Bonds to some extent for certain individual taxpayers. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the Tax-Exempt Series 2012 Bonds. Prospective purchasers of the Series 2012 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation. -59-

100 Licensing Delay The timeline to achieve licensure for the Community s assisted living, memory support and nursing beds may be longer than expected and negatively impact occupancy levels and revenues of the Corporation. In certain other similar projects, the timing associated with opening the assisted living, memory support or nursing beds exceeded the number of months assumed in the facility s financial forecast causing greater operating losses than had been forecast for such facility. Any delay in the licensing and full operation of the assisted living, memory support or nursing beds would result in losses in excess of those projected in the Feasibility Study in APPENDIX B. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. Medicare Certification The Corporation anticipates receiving certification to provide services that are reimbursed by Medicare in the Community s Health Center. Any delay in receipt of or failure to receive Medicare certification may negatively impact revenues of the Corporation. The Corporation has made certain assumptions upon receipt of Medicare certification regarding reimbursement rates and the timeframe to receive reimbursement. A delay in receipt of reimbursement or a lower than anticipated reimbursement rate may negatively impact revenues of the Corporation. Present and Prospective Federal and State Regulation General. The operations of the Community, like other health care facilities throughout the country, will be affected on a day-to-day basis by numerous legislative, regulatory and industry-imposed operations and financial requirements which are administered by a variety of federal and state governmental agencies as well as by self-regulatory associations and commercial medical insurance reimbursement programs. It is impossible, however, to predict the effect of any such legislation and regulation on the operations or financial condition of the Corporation s facilities. Nursing care facilities, including those of the Corporation, are subject to numerous licensing, certification, accreditation, and other governmental requirements. These include, but are not limited to, requirements relating to Medicare participation and payment, requirements relating to state licensing agencies, private payors and accreditation organizations and certificate of need approval by state agencies of certain capital expenditures. Sheltered and assisted living facilities, including those of the Corporation, are also subject to licensing requirements. Renewal and continuance of certain of these licenses, certifications, approvals and accreditations are based upon inspections, surveys, audits, investigations or other review, some of which may require or include affirmative action or response by the Corporation. An adverse determination could result in a loss, fine or reduction in the Corporation s scope of licensure, certification or accreditation, could affect the ability to undertake certain expenditures or could reduce the payment received or require the repayment of the amounts previously remitted. The Corporation currently anticipates no difficulty obtaining the necessary licenses, certifications and accreditations. Third-Party Payment Programs. A portion of the net resident service revenues of the Corporation will be from third party payors that reimburse or pay for the services and items provided to residents covered by such third parties for such services, including the federal Medicare program, state Medicaid program and private health plans and insurers. These third-party payors may make payments to the Corporation at rates other than the direct charges of the Corporation, which rates may be determined other than on the basis of the actual costs incurred in providing services and items to residents. Accordingly, there can be no assurance that payments made under these programs will be adequate to cover the actual costs incurred by the Corporation in furnishing health care services and items. In addition, the financial performance of the Corporation could be adversely affected by the insolvency of, or other delay in receipt of payments from, third-party payors, which provide coverage for services to -60-

101 their residents. Changes to reimbursement rates or reimbursement methodologies in the future are likely to directly affect the Corporation and those effects could be material and adverse. Health Care Reform The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 (collectively referred to herein as the Affordable Care Act ) are designed to overhaul the United States health care system and regulate many aspects of health care delivery and financing. The key provisions of the Affordable Care Act include: (1) dramatically increasing health care coverage of individuals through expansion of Medicaid eligibility and the creation of cooperative insurance purchasing pools; (2) modifying payment methodology and practice for health care providers; (3) evaluating health care providers on a variety of quality and efficacy standards to support pay-forperformance systems; (4) increasing regulations to address fraud and abuse; and (5) exploring and evaluating innovative practices in an attempt to reduce health care related costs. The Supreme Court s decision in National Federation of Independent Business v. Sebelius declared unconstitutional the portion of the law that sanctioned states with the loss of their existing federal Medicaid matching funds if they failed to comply with the Medicaid expansion. It is uncertain what impact, if any, this decision will have on the Corporation since Indiana has not officially opted in to or out of the expansion at this time. In addition, many states, including Indiana, have enacted, or are considering enacting, measures designed to reduce their Medicaid expenditures and change private health care insurance. States have also adopted, or are considering, legislation designed to reduce coverage and program eligibility, enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance or expand states Medicaid systems. This focus on health care reform may increase the likelihood of significant changes affecting the health care industry. Possible future changes in the Medicare, Medicaid, and other state programs, including Medicaid supplemental payments pursuant to upper payment limit programs, may significantly reduce reimbursements to the Corporation and any future Members of the Obligated Group and may also increase their operating expenses. Medicare and Medicaid Programs Medicare and Medicaid are the commonly used names for reimbursement or payment programs governed by certain provisions of the federal Social Security Act. Medicare is an exclusively federal program and Medicaid is a combined federal and state program. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, disabled or qualify for the End Stage Renal Disease Program. Medicare Part A covers inpatient services and certain other services, and Medicare Part B covers outpatient services, certain physician services, medical supplies and durable medical equipment. Medicare Part D provides a prescription drug benefit. Medicaid is designed to pay providers for care given to the medically indigent and others who receive federal aid. Medicaid is funded by federal and state appropriations and is administered by an agency of the applicable state. The Centers for Medicare & Medicaid Services ( CMS ), an agency of the United States Department of Health & Human Services ( HHS ), administers the Medicare Program and works with the states to administer the Medicaid Program, as well as other health care programs. At this time, it is contemplated that the Corporation will obtain Medicare certification for all of the nursing beds in the Health Center but will not seek Medicaid certification. Management anticipates that approximately 13% (6 of the 48 total nursing beds) of the nursing beds will be utilized by Medicare patients. Certification under either program will subject the Corporation to various regulatory requirements relating thereto, including, without limitation, limits on reimbursement, anti-fraud and abuse provisions, restrictions on referrals, and various reporting requirements. Changes in the structure of the Medicare -61-

102 system, as well as potential limitations on payments from governmental and other third party payors, could potentially have an adverse effect on the results of operations of the Corporation. Actions by governmental agencies concerning the licensure and certification of the Project or the initiation of audits and investigations concerning billing practices could also potentially have an adverse effect on the results of operations of the Corporation. There is an expanding and increasingly complex body of law, regulation and policy (both federal and state) relating to the Medicaid and Medicare programs, which is not directly related to payments under such programs. This includes reporting and other technical rules as well as broadly stated prohibitions regarding improper inducements for referrals, referrals by physicians for designated health services to entities with which the physicians have a prohibited financial relationship, and payment of kickbacks in connection with the purchase of goods and services (see Medicare and Medicaid Anti-Fraud and Abuse Provisions, Restrictions on Referrals, Criminal False Claims Act and Civil False Claims Act/Qui Tam Actions below). Violations of prohibitions against false claims, improper inducements and payments, prohibited physician referrals, and illegal kickbacks may result in civil and/or criminal sanctions and penalties. Civil penalties range from monetary fines that may be levied on a per-violation basis to temporary or permanent exclusion from the Medicaid and Medicare programs. The determination that any of the facilities of the Corporation and any future members of Obligated Group were in violation of these laws could have a material adverse effect on finances of the Corporation and any future members of the Obligated Group. Medicare. Medicare Audits. The Corporation and any future Member of the Obligated Group will receive payments for various services provided to Medicare beneficiaries based upon charges or other reimbursement methodologies, including prospective payment systems, which are then reconciled annually based upon the annual cost reports prepared by the Corporation and any future Member of the Obligated Group and submitted to Medicare. Estimates for the annual cost reports are reflected as amounts due to/from third- party payors and represent several years of open cost reports due to time delays in the fiscal intermediaries audits and the basic complexity of billing and reimbursement regulations. These estimates are adjusted periodically based upon correspondence received from the Medicare fiscal intermediary. Medicare regulations also provide for withholding Medicare payment in certain circumstances if it is determined that an overpayment of Medicare funds has been made. In addition, under certain circumstances, payments may be determined to have been made as a consequence of improper claims subject to the Federal False Claims Act or other federal statutes, subjecting the Corporation and any future Member of the Obligated Group to civil or criminal penalties or administrative sanctions. Skilled Nursing Care. Health care providers, including the Corporation and any future Member of the Obligated Group, may participate in the Medicare program subject to certain conditions of participation and acceptance of a provider agreement from the Secretary of the HHS. Only covered services, upon the satisfaction of certain criteria, are eligible for Medicare reimbursement. Medicare Part A reimburses for certain post-hospital inpatient skilled nursing and rehabilitation care for up to 100 days during the same spell of illness. For skilled nursing facilities ( SNFs ), the federal government has implemented a Prospective Payment System ( PPS ) for Medicare reimbursement, which utilizes prospective, case-mix adjusted per diem rates applicable to all covered SNF services. Reimbursement under PPS also incorporates adjustments to account for resident specific case-mix using the Resource Utilization Groups ( RUGs ) system. SNF PPS payment rates are adjusted annually based on the SNF market basket index, or the cost of providing SNF services. There is no guarantee that the SNF rates, as they may change from time to time, will cover the actual costs of providing care to Medicare SNF patients. Future actions by the federal government relative to limiting or reducing the total amount of funds available under Medicare, or otherwise restructuring Medicare, may decrease or eliminate the -62-

103 amount of reimbursement available to the Corporation. No assurance can be given as to the timing, nature or extent of any further changes. Medicaid. Medicaid (Title XIX of the federal Social Security Act) is a health insurance program for certain low-income and needy individuals that is jointly funded by the federal government and the states. Nursing Facility Services. The reimbursement system used by IHFS is a prospective payments system that sets rates for each facility for future periods with no retroactive reconciliation of rates paid to actual expenditures. Components of a facility s rate include: (a) support costs laundry, food, housekeeping, utility, and administrative expenses limited to actual allowable costs, of that facility, up to specified ceilings and allowing a profit for facilities that operate below the ceilings; (b) nursing and program costs a case mix reimbursement system is used to reimburse nursing and program costs based on the use of minimum data set assessments on each resident; (c) capital costs depreciation, rent, interest and property taxes per diem rates are determined through a blending of the uniform building value and the building specific historical cost per bed, subject to certain limitations. Property taxes are reimbursed as part of the capital costs but are determined separately and are not included in the uniform building value. As a result of budget constraints, Medicaid funding has been limited to levels below the funding that would have otherwise been calculated. At this time, the Corporation does not anticipate obtaining Medicaid certification and therefore does not believe that this reduced Medicaid funding or delay in payment will materially adversely affect its financial condition. Regulation of the Health Care Industry General. The health care industry is highly dependent on a number of factors which may limit the ability of the Corporation and any future Member of the Obligated Group to meet their respective obligations under the Loan Agreement, the Master Indenture and the Series 2012 Obligations. Among other things, participants in the health care industry (such as the Corporation) are subject to significant regulatory requirements of federal, state and local governmental agencies and independent professional organizations and accrediting bodies, technological advances and changes in treatment modes, various competitive factors and changes in third party reimbursement programs. Discussed below are certain of these factors which could have a significant effect on the future operations and financial condition of the Corporation. This discussion is not, is not intended to be, nor should be considered to be comprehensive. State Laws. States are increasingly regulating the delivery of health care services. State legislatures have cited their right and obligation to regulate and oversee health care insurance and have enacted sweeping measures that aim to protect consumers and, in some cases, providers. Indiana Regulations Governing Assisted Living, Long Term Care and Life Care Facilities. The Community will be regulated by the Securities Division of the Office of the Indiana Secretary of State in accordance with Indiana Code (the CCRC Statute ). Registration with the Indiana Securities Commissioner is required by any facility charging an entrance fee and assuring individuals places within the facility for one or more months. The Corporation is required to file an annual disclosure within four months after the end of each fiscal year, the contents of which are proscribed by the CCRC Statute and related regulations and cannot contain a misstatement of material fact or omit a material fact necessary in order to make the statements of fact therein not misleading. The Corporation is also required to deliver a current disclosure statement to prospective residents before they enter into a residency agreement. Violation of these regulations can result in material penalties including refunds of certain payments made by residents and a prohibition from entering new residency agreements. Any such violation could have a material adverse effect on the future performance or general financial condition of -63-

104 the Corporation. Additionally, if the Indiana Securities Commissioner has reason to believe that the Community is insolvent, they may petition the court for the appointment of a receiver to assume the management and possession of the Community and its assets. Nursing care and assisted living facilities, including those of the Community, are subject to numerous licensing, certification, accreditation, and other governmental requirements (the Licensure Requirements ). These include, but are not limited to, requirements relating to licensing by the Indiana State Department of Health. Renewal and continuance of certain of the Licensure Requirements is based upon random or planned inspections, surveys, audits, investigations or other review, which may require affirmative action or response by the Corporation. An adverse determination could result in a fine or a loss or reduction in the Corporation s scope of licensure, certification or accreditation which may severely impair the ability of the Community to operate and the revenues and financial position of the Corporation. Federal and state governments have a range of criminal, civil and administrative sanctions available to penalize and remediate health care fraud and abuse, including recoveries of amounts paid to the provider, imprisonment, exclusion of the provider from participation in the Medicare and Medicaid programs, civil monetary penalties and suspension of payments. Fraud and abuse cases may be prosecuted by one or more government entities and/or private individuals, and more than one of the available penalties may be imposed for each violation. The federal government has made the investigation and prosecution of health care fraud and abuse a priority, and Congress has authorized significant funding of this effort. As a result, there have been a substantial number of investigations, prosecutions and civil enforcement proceedings of health care-related fraud and abuse in recent years. Laws governing fraud and abuse apply to virtually all individuals and entities with which a health care provider does business, including hospitals, home health agencies, long-term care entities, infusion providers, pharmaceutical providers, insurers, health maintenance organizations ( HMOs ), preferred provider organizations ( PPOs ), third party administrators, physicians, physician groups, physician practice management companies, ambulatory care entities, laboratories, diagnostic testing facilities, suppliers of medical items and services and other potential referral sources. Fraud and abuse prosecutions can have a catastrophic effect on such entities and a material adverse impact on the financial condition of other entities in the health care delivery system of which that entity is a part. Even the assertion of a violation could have an effect. Medicare and Medicaid Anti-Fraud and Abuse Provisions. The Medicare and Medicaid antifraud and abuse provisions of the Social Security Act (the Anti-Kickback Law ) make it a felony, subject to certain exceptions, to engage in illegal remuneration arrangements with physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients. Violation of these provisions constitutes a felony and may result in imprisonment for up to five years and fines of up to $25,000 for each incident or offense, although under 18 U.S.C. 3521, this fine may be increased to $250,000 for individuals and $500,000 for organizations. In addition, HHS has the authority to impose civil assessments and fines, and may exclude providers engaged in prohibited activities from participation in the Medicare and Medicaid programs, as well as certain other state and federal health care programs. The Secretary of HHS is required to exclude from such programs any providers convicted of a criminal offense relating to the delivery of Medicare or Medicaid services, for not less than five years. Exclusion from these programs would have a material adverse effect on the operations and financial condition of the Corporation and any future Member of the Obligated Group. The scope of prohibited payments in the Anti-Kickback Law is broad. Generally, courts have taken a broad interpretation of the scope of the Anti- Kickback Law. Courts have held that the Anti-Kickback Law may be violated if merely one purpose of a financial arrangement is to induce future referrals of federal or state health care program covered items or services. HHS has published regulations which describe certain arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. The safe harbors described in the regulations are narrow -64-

105 and do not cover a wide range of economic relationships which many hospitals, physicians and other health care providers consider to be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economic arrangements or other relationships between health care providers and referral sources, health care providers having these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Law. Health care providers have exposure under the Anti-Kickback Law. Because of the government's vigorous enforcement efforts, many health care providers may be subject to some type of government investigation for alleged Anti-Kickback Law violations involving relationships such as those between healthcare providers and physicians, as well as the operations of any nursing homes, home health agencies, hospices and ancillary service providers owned or operated by a healthcare provider. The outcome of any government efforts to enforce the Anti-Kickback Law against health care providers is difficult to predict and defense efforts can be costly. Management of the Corporation anticipates that the Corporation will have a compliance program to ensure material compliance with the Anti-Kickback Law. In light of the narrowness of the safe harbor regulations and the scarcity of case law interpreting the Anti- Kickback Law, there can be no assurances that the Corporation and any future Member of the Obligated Group will not be found to have violated the Anti-Kickback Law, and, if so, whether any sanction imposed would have a material adverse effect on the operations of facilities owned by the Corporation and any future Member of the Obligated Group. Restrictions on Referrals. Current federal law (known as the Stark law provisions) prohibits providers of designated health services from billing Medicare or Medicaid when the patient is referred by a physician or an immediate family member with a financial relationship with the designated health services provider, with limited exceptions. Designated health services include the following: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The sanctions under the Stark law include denial and refund of payments, civil monetary penalties and exclusion from the Medicare and Medicaid programs. The Stark law includes specific reporting requirements providing that each entity furnishing covered items or services, upon request, must provide the Secretary of DHHS with certain information concerning its ownership, investment and compensation arrangements. Reportable information includes the covered items and services provided by the entity and the names and unique physician identification numbers of all physicians who have a financial relationship with the entity. Failure to adhere to these reporting requirements may subject the entity to significant civil money penalties. Management of the Corporation will have a compliance program to ensure material compliance with the Stark law provisions. However, in light of the scarcity of case law interpreting the Stark law provisions, there can be no assurances that the Corporation and any future Members of the Obligated Group will not be found to have violated the Stark law provisions, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the Corporation and any future Member of the Obligated Group. Criminal False Claims Act. The criminal False Claims Act ( Criminal FCA ) prohibits anyone from knowingly and willfully making a false statement or misrepresentation of a material fact in submitting a claim to a government health care program (defined as any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in -65-

106 part, by the United States Government other than the Federal Employees Health Benefit Program). There are numerous specific rules that a health care provider must follow with respect to the submission of claims. Violation of the Criminal FCA can result in imprisonment of five years and a fine of up to $25,000. Violation of the Criminal FCA also results in mandatory exclusion from participation in the government health care programs. Civil False Claims Act/Qui Tam Actions. Medicare requires that extensive financial information be reported on a periodic basis and in a specific format or content. These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel. Unlike criminal statutes, which require the government to prove that the health care provider intended to violate, or recklessly disregarded, the law, civil statutes may be violated simply by the provider s participation in a prohibited financial arrangement or actual or assumed knowledge that its claims procedures are not in full compliance with the law. With respect to certain types of required information, the civil False Claims Act and the Social Security Act may be violated by mere negligence or recklessness in the submission of information to the government even without any specific intent to defraud. New billing systems, new medical procedures and procedures for which there is not clear guidance may all result in liability. If a health care provider is found to have violated the civil False Claims Act, the potential liability is substantial. The violator can be held liable for up to triple the actual damages incurred by the government and a fine of $5,500 to $11,000 for each violation of the civil False Claims Act. The penalties for violation also may include, for serious or repeated violations, exclusion from participation in the Medicare program. On May 20, 2009, Secretary of HHS Kathleen Sebelius and Attorney General Eric Holder announced the creation of the Health Care Fraud Prevention and Enforcement Action Team ( HEAT ), an interagency effort focused specifically on combating health care fraud. HEAT includes senior officials from the Department of Justice ( DOJ ) and HHS who are strengthening existing programs, as well as investing in new resources and technologies, to prevent and combat fraud, waste, and abuse. As a key component of its efforts, the HEAT taskforce utilizes and supports the joint HHS-DOJ Medicare Fraud Strike Force team in select locations across the country. The Strike Force teams coordinate law enforcement operations with other Federal, State and local law enforcement entities. The False Claims Act provides that an individual may bring a civil action for a violation of the Act. These actions are referred to as Qui Tam actions. In this way, an individual would be able to sue on behalf of the U.S. government if he/she believes that the healthcare entity has violated the False Claims Act. If the government proceeds with an action brought by this individual, then he/she could receive as much as 25 percent of any money recovered. The potential exists that a Qui Tam action could be brought against the Corporation or any future Members of the Obligated Group. Increases in Medical Costs Because the Corporation and any future Member of the Obligated Group are obligated to provide a majority of its residents with certain medical care, a deviation from the anticipated mortality rate or medical care requirements of the resident population or substantial unanticipated increases in the cost of medical care could have a negative impact on the operations of the Corporation and any future Member of the Obligated Group. The undertaking to provide such medical care is a contractual obligation of the Corporation and any future Member of the Obligated Group, and no assurance can be given that the Corporation and any future Member of the Obligated Group will have sufficient funds to meet its anticipated obligations. Residents are required to obtain Medicare Part A, Medicare Part B and supplemental insurance satisfactory to the Corporation; however, Medicare does not cover the cost of nursing home care except under certain limited circumstances (including up to 100 days of skilled nursing care following a 3-day hospital stay). In addition, the cost of providing healthcare services may increase -66-

107 due to increases in salaries paid to nurses and other healthcare personnel and due to shortages in such personnel which may require use of employment agencies. Licensure. The Corporation and its operations are subject to regulation and certification by various federal, state and local government agencies. No assurance can be given as to the effect on future operations of the Corporation of existing laws, regulations and standards for certification or accreditation or of any future changes in such laws, regulations and standards. The Corporation s assisted living units, memory support units and health center are subject to various licensing requirements. Privacy and Security Regulations. The confidentiality and security of patient medical records and other health information is subject to considerable regulation by state and federal governments. The administrative simplification provisions of HIPAA mandated that standards and requirements be adopted for the electronic transmission of certain health information. DHHS has issued a series of regulations to comport with this mandate, including regulations governing the privacy and security of protected health information. In addition, DHHS published final regulations: (a) adopting standards for specific types of electronic administrative and financial health care transactions; and for the code sets used in conjunction with those transactions; and (b) creating a unique health identifier for health care providers. Physicians and other persons exchanging patient information with the Corporation are required to comply with these laws and regulations. In December 2000, DHHS issued a final rule regarding privacy standards covering health plans, health care clearinghouses, and health care providers. Most covered entities had to be in compliance with the rule by April 14, The Corporation is considered a covered entity. DHHS also published a final rule regarding the security of electronic health information. Most covered entities had to comply with the rule by April 20, The Corporation intends to operate in material compliance with HIPAA. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the Recovery Act ). Title XIII of the Recovery Act, otherwise known as the Health Information Technology for Economic and Clinical Health Act (the HITECH Act ), provides for an investment of almost $20 billion in public monies for the development of a nationwide health information technology ( HIT ) infrastructure. The HIT infrastructure is intended to improve health care quality, reduce health care costs and facilitate access to necessary information. Among other things, the HITECH Act provides financial incentives, through the Medicaid and Medicare programs, loans and grants to encourage practitioners and providers to adopt and use qualified electronic health records. Eventually, Medicare payments are reduced for providers and practitioners who do not use electronic health records. In addition to the HITECH Act, President Obama s federal fiscal year 2010 budget ( Budget ) establishes a reserve fund of more than $630 billion over ten years to finance fundamental reform of America s healthcare system in an effort to reduce costs and expand healthcare coverage. The fund will be paid for by a combination of tax revenue and reductions in Medicare and Medicaid spending. The HITECH Act also expands the scope and application of the administrative simplification provisions of HIPAA, and its implementing regulations. Among other things, the HITECH Act imposes a written notice obligation upon covered entities for security breaches involving unsecured protected health information, expands the scope of an electronic health record provider s disclosure tracking obligations, and substantially limits the ability of health care providers to sell protected health information without patient authorization. The HITECH Act also increases penalties for violations of HIPAA, and provides for enforcement of HIPAA violations by State attorneys general. -67-

108 While the effect of the HITECH Act and the Budget cannot be predicted at this time, the obligations imposed by the HITECH Act and the Budget could have a material adverse effect on the financial condition of the Corporation. In addition, there is no guarantee that the financial incentives for adopting the qualified electronic health records system will be sufficient to offset the Corporation s costs for development and implementation of such a system. If the Corporation is found to have violated any state or federal statute or regulation with regard to the security, confidentiality, dissemination or use of patient medical information, the violator could be liable for damages, or civil or criminal penalties. Under HIPAA, the penalty for failure to comply with the standards is a fine of up to $100 for each violation, with a maximum penalty of $25,000 imposed for all violations of an identical requirement during a calendar year. Congress also established criminal penalties for knowingly violating patient privacy. Criminal penalties include up to $50,000 and one year in prison for obtaining or disclosing protected health information; up to $100,000 and up to five years in prison for obtaining protected health information under false pretenses ; and up to $250,000 and up to ten years in prison for obtaining or disclosing protected health information with the intent to sell, transfer or use it for commercial advantage, personal gain or malicious harm. In addition, the HITECH Act authorizes state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten state residents. These standards impose very complex procedures and operational requirements with which the Corporation is required to comply. There can be no assurance that differing interpretations of existing laws and regulations or the adoption of new laws and regulations would not have a material adverse effect on the ability of the Corporation to obtain or use health information which, in turn, could have a material adverse effect on the business of the Corporation. Similarly, because of the complexity of these regulations, there can be no assurances that the Corporation would not be reviewed, found to violate these standards and assessed penalties for such violations. Other Legislation Imputed Interest on Certain Refundable Entrance Fees. Section 7872 of the Code (Treatment of Loans with Below-Market Interest Rates), provides for, in certain circumstances, the imputation of interest income to a lender when the rate of interest charged by the lender is below prevailing market rates (as determined under a formula) or, even if the below market interest rate loan would otherwise be exempt from the provisions of Section 7872, when one of the principal purposes for such below-market rate loan is the avoidance of federal income taxation. A refundable entrance fee payment made by a resident to certain continuing care facilities has been determined under Section 7872 to constitute a below market interest rate loan by the resident to the facility to the extent that the resident is not receiving a market rate of interest on the refundable portion of the entrance fee. Section 7872(h) provides a safe harbor exemption for certain types of refundable entrance fees. The statutory language of Section 7872 does not permit a conclusive determination as to whether the Residency Agreements come within the scope of the continuing care facility safe harbor or within the statute itself. Provided the Residency Agreement falls within the scope of Section 7872, the safe harbor exemption under Section 7872(h) is applicable (i) if such loan was made pursuant to a continuing care contract, (ii) if the resident (or the resident's spouse) has attained age 62 before the close of the year and (iii) irrespective of the amount of the loan by the resident (or the resident's spouse) to the continuing care facility. Section 425 of the Tax Relief and Health Care Act of 2006 amended Section 7872(h) to make the exemption for loans to qualifying care facilities permanent. Any determination of applicability of Section 7872 could have the effect of discouraging potential residents from becoming or remaining residents of the Community. -68-

109 Passive Income Received from Health System Subsidiary. Section 512(b)(13) of the Code provides that rents, royalties, annuities and interest income received from controlled subsidiaries are subject to the unrelated business income tax ( UBIT ) by the tax-exempt parent to the extent the payment reduces the net unrelated income (or increases any unrelated loss) of the controlled entity. Under this tax law, such income is subject to UBIT if the parent organization owns more than 50 percent of the subsidiary, based on voting power or value. In addition, a parent exempt organization will be deemed to control any subsidiary which it controls either directly or indirectly (e.g., as a second-tier subsidiary). This provision may force some multi-member health care systems to chose between maintaining control and incurring UBIT liability where business considerations dictate the use of intra-system loans, leases, and licensing arrangements. It is not clear at this time how this provision will affect the Corporation. Intermediate Sanctions On July 31, 1996, the Taxpayers Bill of Rights 2 (the Taxpayers Act ) was signed into law. The Taxpayers Act provides the IRS with an intermediate tax enforcement tool to combat violations by taxexempt organizations of the private inurement prohibition of the Code. Previous to the intermediate sanctions law, the IRS could punish such violations only through revocation of an entity s tax-exempt status. Intermediate sanctions may be imposed where there is an excess benefit transaction, defined to include a disqualified person (i.e., an insider) (1) engaging in a non-fair market value transaction with the tax-exempt organization; (2) receiving unreasonable compensation from the tax-exempt organization; or (3) receiving payment in an arrangement that violates the private inurement proscription. A disqualified person who benefits from an excess benefit transaction will be subject to a first tier penalty excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in an excess benefit transaction knowing it to be improper are subject to a first-tier penalty excise tax of 10% of the amount of the excess benefit, subject to a maximum penalty of $10,000. A second tier penalty excise tax of 200% of the amount of the excess benefit may be imposed on the disqualified person (but not the organizational manager) if the excess benefit transaction is not corrected in a specified time period. Other Tax Status Issues The IRS has issued Revenue Rulings dealing specifically with the manner in which a facility providing residential services to the elderly must operate in order to maintain its exemption under Section 501(c)(3) of the Code. Revenue Rulings and state that, if otherwise qualified, a facility providing residential services to the elderly is exempt under Section 501(c)(3) if the organization: (1) is dedicated to providing, and in fact provides or otherwise makes available services for, care and housing to aged individuals who otherwise would be unable to provide for themselves without hardship; (2) to the extent of its financial ability, renders services to all or a reasonable proportion of its residents at substantially below actual cost; and (3) renders services that minister to the needs of the elderly and relieve hardship or distress. Revenue Ruling states that a facility providing residential services to the elderly may admit only those tenants who are able to pay full rental charges, provided that those charges are set at a level that is within the financial reach of a significant segment of the community s elderly persons. The Revenue Ruling also states that the facility must be committed, by established policy, to maintain persons as residents, even if they become unable to pay their monthly charges after being admitted to the facility. The IRS has audit guidelines which implement a policy to scrutinize more closely the activities of health care providers to ensure that they satisfy the requirements for status. Given these audit guidelines and other related pronouncements by the IRS, it may be more difficult for health care providers to -69-

110 maintain their status. Health-care providers, such as the Corporation, may be forced to forego otherwise favorable opportunities for certain joint ventures, recruitment and other arrangements to maintain their status or to avoid other sanctions. Possible Changes in Tax Status General. The possible modification or repeal of certain existing federal income or state tax laws or other loss by the Corporation of the present advantages of certain provisions of the federal income or state tax laws could materially and adversely affect the status of the Corporation and thereby the revenues of any future Member of the Obligated Group. Failure of the Corporation or the Issuer to comply with certain requirements of the Code, or adoption of amendments to the Code to restrict the use of bonds for facilities such as those being financed or refinanced with Series 2012 Bond proceeds, could cause interest on the Series 2012 Bonds to be included in the gross income of Bondholders or former Bondholders for federal income tax purposes. In such event, the Tax-Exempt Bond Indenture does not contain any specific provision for acceleration of the Series 2012 Bonds nor provide that any additional interest will be paid to the owners of the Series 2012 Bonds. See APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Events of Default and SUMMARY OF CERTAIN PROVISIONS OF THE TAXABLE BOND INDENTURE Events of Default. The Corporation has obtained a letter from the Internal Revenue Service determining that it is exempt from federal income taxation under Section 501(a) of the Code by virtue of being an organization described in Section 501(c)(3) of the Code. The Feasibility Study includes an assumption that the Corporation will continue to be treated as an organization described in Section 501(c)(3) of the Code. The failure of the Corporation to remain qualified as an exempt organization would affect the funds available to the Corporation for payments to be made on the Series 2012 Obligations. As an exempt organization, the Corporation is subject to federal, state and local laws, regulations, rulings and court decisions relating to its organization and operation, including its operation for charitable purposes. There can often be a tension between the rules designed to regulate a wide range of charitable organizations and the day-to-day operations of a complex senior living organization. Over the past several years, an increasing number of the operations or practices of not for profit organizations have been challenged or questioned to determine if they are consistent with related regulatory requirements. These challenges are broader than concerns about compliance with federal and state statutes and regulations, such as Medicare and Medicaid compliance, and in many cases are examinations of core business practices of the not for profit organizations. Areas which have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption from real property taxation, and others. These challenges and questions have come from a variety of sources, including state Attorneys General, the Internal Revenue Service (referred to as the IRS), labor unions, Congress, state legislatures, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others: Federal Congressional Hearings. The Senate Finance Committee has conducted hearings on required reforms to the nonprofit sector and released staff discussion drafts on proposals for reform in the area of organizations, including a proposal for a five-year review of status by the IRS. The House Committee on Ways and Means has held several hearings to examine the sector, hospital tax exemptions and the use of tax-preferred bond financings. It is uncertain if any of these Committees will pursue further investigations or will recommend legislative changes as a result of these inquiries. IRS Examination of Compensation Practices. In August 2004, the IRS announced a new enforcement effort to identify and halt abuses by organizations that pay excessive compensation and benefits to their officers and other insiders. The IRS announced that it would contact nearly 2,

111 charities and foundations to seek more information about their compensation practices and procedures. In February 2009, the IRS issued its Hospital Compliance Project Final Report (the IRS Final Report ) based on its examination of such organizations. The IRS Final Report indicates that the IRS (i) will continue to heavily scrutinize executive compensation arrangements, practices and procedures and (ii) in certain circumstances, may conduct further investigations or impose fines on organizations. In February 2009, Senator Kohl, of the Senate s Special Committee on Aging, requested that the U.S. Government Accountability Office ( GAO ) study the finances, operations and governance of CCRCs. The GAO delivered its report and it is unlikely that the report will lead the Special Committee on Aging to pursue further investigation into CCRCs or legislative changes that could affect CCRCs. Revision of IRS Form 990 for Organization. The IRS Form 990 is used by many organizations exempt from federal income taxation as organizations described in Section 501(c)(3) of the Code to submit information required by the federal government. On December 20, 2007, the IRS released a revised Form 990 that requires detailed public disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The revised form also requires the disclosure of a significantly greater amount of information on community benefit and establishes uniform standards for reporting of information relating to bonds, including compliance with the arbitrage rules and rules limiting private use of bond-financed facilities, including compliance with the safe harbor guidance in connection with management contracts and research contracts. The redesigned Form 990 is intended to result in enhanced transparency as to the operations of exempt organizations. It is also likely to result in enhanced enforcement, as the redesigned Form 990 will make detailed information on compliance risk areas available to the IRS and other stakeholders. At this time it is difficult to predict the additional burden that completion of the revised Form 990 may place on the Corporation and any future Member of the Obligated Group. It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of nonprofit corporations. There can be, however, no assurance that future changes in the laws and regulations of the federal, state or local governments will not materially and adversely affect the operations and revenues of the Corporation by requiring it to pay income taxes. Lack of Marketability for the Series 2012 Bonds Although the Underwriter intends, but is not obligated, to make a market for the Series 2012 Bonds, there can be no assurance that there will be a secondary market for the Series 2012 Bonds, and the absence of such a market for the Series 2012 Bonds could result in investors not being able to resell the Series 2012 Bonds should they need to or wish to do so. The Underwriter is the initial Remarketing Agent for the Series 2012B Bonds. Increases in Medical Costs Because the Corporation is obligated to provide a majority of its residents with certain medical care, a deviation from the anticipated mortality rate or medical care requirements of the resident population or substantial unanticipated increases in the cost of medical care could have a negative impact on the operations of the Community. The undertaking to provide such medical care is a contractual obligation of the Corporation, and no assurance can be given that the Corporation will have sufficient funds to meet its anticipated obligations. Residents are required to obtain supplemental insurance satisfactory to the Corporation. In addition, the cost of providing healthcare services may increase due to increases in salaries paid to nurses and other healthcare personnel and due to shortages in such personnel which may require use of employment agencies. -71-

112 Nursing Shortage From time to time, the healthcare industry has experienced a shortage of nursing and other technical staff, which has resulted in increased costs due to the need to hire agency nursing personnel at higher rates and increased compensation levels. If such shortages occur, it could adversely affect the Corporation s operations or financial condition. Change of Security and Payment Source (Substitution of Series 2012 Obligations) Under the circumstances described in the Bond Indenture, the Series 2012 Obligations may be exchanged for the Obligations of the SQLC Obligated Group in the SQLC Master Trust Indenture. This would lead to the substitution of different security in the form of notes backed by the SQLC Obligated Group. The SQLC Obligated Group could have substantial debt outstanding that would rank on parity with the substitute notes. In order to so exchange the Series 2012 Obligations, the Corporation must meet certain tests and requirements, as described in SECURITY FOR THE SERIES 2012 OBLIGATIONS Change of Security and Payment Source (Substitution of Series 2012 Obligations) herein and SUMMARIES OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Release and Substitution of the Tax-Exempt Obligations from the Master Indenture and SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Release and Substitution of the Series 2012D Obligation from the Master Indenture in APPENDIX C. Amendments to the Documents Certain amendments to the Bond Indentures and Loan Agreement may be made with the consent of the owners of a majority of the principal amount of the related outstanding Series 2012 Bonds and certain amendments to the Master Indenture and the Mortgage may be made with the consent of the holders of a majority of the principal amount of outstanding Obligations. Such amendments may adversely affect the security of the Bondholders and, with respect to the Master Indenture and the Mortgage, such percentage may be composed wholly or partially of the holders of Additional Obligations. See APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Supplemental Master Indentures and Amendments to the Mortgage not Requiring Consent of Obligation Holders, and Supplemental Master Indentures and Amendment of the Mortgage Requiring Consent of Obligation Holders, SUMMARY OF CERTAIN PROVISIONS OF THE TAX-EXEMPT BOND INDENTURE Supplemental Bond Indentures, SUMMARY OF CERTAIN PROVISIONS OF THE TAXABLE BOND INDENTURE Supplemental Bond Indentures and Summary of Certain Provisions of the Loan Agreement Supplements and Amendments to the Loan Agreement. Bankruptcy If the Corporation were to file a petition for relief under Chapter 11 of the Federal Bankruptcy Code, its revenues and certain of its accounts receivable and other property acquired after the filing (and under certain conditions some or all thereof acquired within 120 days prior to the filing) would not be subject to the security interests created under the Master Indenture. The filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Corporation and its property and as an automatic stay of any act or proceeding to enforce a lien upon its property. If the bankruptcy court so ordered, the Corporation s property, including its accounts receivable and proceeds thereof, could be used for the benefit of the Corporation despite the security interest of the Master Trustee therein, provided that adequate protection is given to the lienholder. -72-

113 In a bankruptcy proceeding, the petitioner could file a plan for the adjustment of its debts which modifies the rights of creditors generally, or any class of creditors, secured or unsecured. The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interests of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly in favor of junior creditors. Certain judicial decisions have cast doubt upon the right of a trustee, in the event of a health care facility s bankruptcy, to collect and retain for the benefit of bondholders portions of revenues consisting of Medicare and other governmental receivables. On April 20, 2005, the Healthcare Bankruptcy Bill was enacted (the Healthcare Bankruptcy Act ). The stated goal of the Healthcare Bankruptcy Act was to encourage healthcare companies to consider the patients rights and interests when administering their bankruptcy cases related to (1) disposal of patient records, (2) transferring patients to new facilities, (3) appointment of a patient ombudsman, and (4) exclusions of a debtor from Medicare and other federal healthcare programs. In the event of bankruptcy of the Corporation, there is no assurance that certain covenants, including tax covenants, contained in the Bond Indentures, the Loan Agreement, the Master Indenture and certain other documents would survive. Accordingly, the Corporation, as debtor in possession, or a bankruptcy trustee could take action that would adversely affect the exclusion of interest on the Bonds from gross income of the Owners for federal income tax purposes. Additional Debt The Master Indenture permits the Obligated Group to incur Additional Indebtedness which may be equally and ratably secured with the Series 2012 Obligations. Any such additional parity indebtedness would be entitled to share ratably in security interest with the owners of the Series 2012 Obligations. Any moneys realized from the exercise of remedies in the event of a default by the Obligated Group could reduce the Maximum Annual Debt Service Coverage Ratio and could impair the ability of the Obligated Group to maintain its compliance with certain covenants described in APPENDIX C under the caption SUMMARY OF PRINCIPAL DOCUMENTS SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Rates and Charges. There is no assurance that, despite compliance with the conditions upon which Additional Indebtedness may be incurred at the time such debt is created, the ability of the Obligated Group to make the necessary payments to repay the Series 2012 Obligations may not be materially, adversely affected upon the incurrence of Additional Indebtedness. Certain Matters Relating to Enforceability of the Master Indenture The obligations of the Obligated Group under the Series 2012 Obligations will be limited to the same extent as the obligations of debtors typically are affected by bankruptcy, insolvency and the application of general principles of creditors rights and as additionally described below. The accounts of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the incurrence of Additional Indebtedness) are met, notwithstanding the uncertainties as to the enforceability of certain obligations of the Obligated Group contained in the Master Indenture which bear on the availability of the assets and revenues of the Obligated Group to pay debt service on Obligations, including the Series 2012 Obligations pledged under the Bond Indentures as security for the -73-

114 Series 2012 Bonds. The obligations described herein of the Obligated Group to make payments of debt service on Obligations issued under the Master Indenture (including transfers in connection with voluntary dissolution or liquidation) may not be enforceable to the extent (1) enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the enforcement of creditors rights and by general equitable principles and (2) such payments (i) are requested with respect to payments on any Obligations issued by a Member other than the Member from which such payment is requested, issued for a purpose which is not consistent with the charitable purposes of the Member of the Obligated Group from which such payment is requested or issued for the benefit of a Member of the Obligated Group which is not a Organization; (ii) are requested to be made from any moneys or assets which are donor-restricted or which are subject to a direct or express trust which does not permit the use of such moneys or assets for such a payment; (iii) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the Member of the Obligated Group from which such payment is requested; or (iv) are requested to be made pursuant to any loan violating applicable usury laws. The extent to which the assets of any future Member of the Obligated Group may fall within the categories (ii) and (iii) above with respect to the Series 2012 Obligations cannot now be determined. The amount of such assets which could fall within such categories could be substantial. A Member of the Obligated Group may not be required to make any payment on any Obligation, or portion thereof, the proceeds of which were not loaned or otherwise disbursed to such Member of the Obligated Group to the extent that such payment would render such Member of the Obligated Group insolvent or which would conflict with or not be permitted by or which is subject to recovery for the benefit of other creditors of such member of the Obligated Group under applicable laws. There is no clear precedent in the law as to whether such payments from a member of the Obligated Group in order to pay debt service on the Series 2012 Obligations may be voided by a trustee in bankruptcy in the event of bankruptcy of a Member of the Obligated Group, or by third-party creditors in an action brought pursuant to Indiana fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under Indiana fraudulent conveyance statutes and common law, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, (1) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and (2) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or Indiana fraudulent conveyance statutes, or the guarantor is undercapitalized. Application by courts of the tests of insolvency, reasonably equivalent value and fair consideration has resulted in a conflicting body of case law. It is possible that, in an action to force a Member of the Obligated Group to pay debt service on an Obligation for which it was not the direct beneficiary, a court might not enforce such a payment in the event it is determined that the Member of the Obligated Group is analogous to a guarantor of the debt of the Member of the Obligated Group who directly benefited from the borrowing and that sufficient consideration for such Member s guaranty was not received and that the incurrence of such Obligation has rendered or will render the Member of the Obligated Group insolvent. The effectiveness of the security interest in the Obligated Group s Gross Revenues granted in the Master Indenture may be limited by a number of factors, including: (i) present or future prohibitions against assignment contained in any applicable statutes or regulations; (ii) certain judicial decisions which cast doubt upon the right of the Master Trustee, in the event of the bankruptcy of any Member of the Obligated Group, to collect and retain accounts receivable from Medicare, Medicaid, General Assistance and other governmental programs; (iii) commingling of the proceeds of Gross Revenues with other moneys of a Member of the Obligated Group not subject to the security interest in Gross Revenues; (iv) statutory liens; (v) rights arising in favor of the United States of America or any agency thereof; (vi) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the -74-

115 exercise of its equitable jurisdiction; (vii) federal bankruptcy laws which may affect the enforceability of the Mortgage or the security interest in the Gross Revenues of the Obligated Group which are earned by the Obligated Group within 90 days preceding or, in certain circumstances with respect to related corporations, within one year preceding and after any effectual institution of bankruptcy proceedings by or against a Member of the Obligated Group; (viii) rights of third parties in Gross Revenues converted to cash and not in the possession of the Master Trustee; and (ix) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the applicable Uniform Commercial Code as from time to time in effect. Pursuant to the Master Indenture, each member of the Obligated Group who pledges its Gross Revenues under the Master Indenture covenants and agrees that, if an event of default involving a failure to pay any installment of interest or principal on an Obligation should occur and be continuing, it will deposit daily the proceeds of its Gross Revenues. Such deposits will continue daily until such default is cured. It is unclear whether the covenant to deposit the proceeds of Gross Revenues with the Master Trustee is enforceable. In light of the foregoing and of questions as to limitations on the effectiveness of the security interest granted in such Gross Revenues, as described above, no opinion will be expressed by counsel to the Corporation as to enforceability of such covenant with respect to the required deposits. There exists, in addition to the foregoing, common law authority and authority under Indiana statutes pursuant to which the Indiana courts may terminate the existence of a not-for-profit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes or has taken some action which renders it unable to carry out such purposes. Such court action may arise on the court s own motion pursuant to a petition of the Indiana Attorney General or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses. Interest Rate Swap and Other Hedge Risk Currently, the Corporation is not party to an interest rate swap or other hedge agreement. However, the Corporation or any future Members of the Obligated Group may enter into such an agreement in the future. Any interest rate swap or other hedge agreement to which the Corporation or any future Members of the Obligated Group is a party may, at any time, have a negative value to the Obligated Group. If either a swap or other hedge counterparty or the Corporation or any future Members of the Obligated Group terminates such an agreement when the agreement has a negative value to the Obligated Group, the Obligated Group would be obligated to make a termination payment to the counterparty in the amount of such negative value, and such payment could be substantial and potentially materially adverse to the financial condition of the Obligated Group. A counterparty generally may only terminate such an agreement upon the occurrence of defined termination events such as nonpayment by the Obligated Group, a bankruptcy type event, cross default to specified indebtedness or other swaps, other breaches of covenants in such agreements or the withdrawal of the ratings assigned to the Obligated Group s indebtedness, if applicable, or a downgrade of such ratings below specified levels. Many swap agreements require each party to provide additional security for its obligations in certain circumstances including without limitation a downgrade of the rating assigned to the long-term Indebtedness issued on its behalf and the occurrence of certain other events. The Master Indenture permits the Obligated Group to grant a security interest and lien on collateral for this purpose. -75-

116 Environmental Matters Health care providers are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations which address, among other things, health care operations, facilities and properties owned or operated by health care providers. Among the type of regulatory requirements faced by health care providers are (a) air and water quality control requirements, (b) waste management requirements, including medical waste disposal, (c) specific regulatory requirements applicable to asbestos, polychlorinated biphenyls and radioactive substances, (d) requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the clinics, (e) requirements for training employees in the proper handling and management of hazardous materials and wastes and (f) other requirements. In its role as the owner and operator of properties or facilities, the Corporation and any future Member of the Obligated Group may be subject to liability and practical, financial and legal risks for investigating and remedying any hazardous substances that exist on its property or that may have migrated off of its property. Typical health care operations include, but are not limited to, in various combinations, the handling, use, storage, transportation, disposal and discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. As such, health care operations are particularly susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may (a) result in damage to individuals, property or the environment, (b) interrupt operations and increase their cost, (c) result in legal liability, damages, injunctions or fines and (d) result in investigations, administrative proceedings, penalties or other governmental agency actions. There is no assurance that the Corporation and any future Member of the Obligated Group will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Corporation and any future Member of the Obligated Group. Uncertainty of Investment Income The investment earnings of, and accumulations in, certain funds established pursuant to the Bond Indentures have been estimated and are based on assumed interest rates as indicated. While these assumptions are believed to be reasonable in view of the rates of return presently and previously available on the types of securities in which the Bond Trustee is permitted to invest under the Bond Indentures, there can be no assurance that similar interest rates will be available on such securities in the future, nor can there be any assurance that the estimated funds will actually be realized. Guaranteed investment contracts may be entered into with respect to certain of the funds held under the Bond Indentures. See ESTIMATED SOURCES AND USES OF FUNDS above. Absence of a Bond Rating The Series 2012 Bonds are unrated. When any Bondholder attempts to sell his or her Series 2012 Bonds, this absence of a rating could adversely affect the market price and marketability thereof. Other Possible Risk Factors The occurrence of any of the following events, or other unanticipated events, could adversely affect the operations of the Corporation or any future Members of the Obligated Group: 1. Inability to control increases in operating costs, including salaries, wages and fringe benefits, supplies and other expenses, given an inability to obtain corresponding increases in revenues from residents whose incomes will largely be fixed; -76-

117 2. Unionization, employee strikes and other adverse labor actions which could result in a substantial increase in expenditures without a corresponding increase in revenues; 3. Adoption of other federal, state or local legislation or regulations having an adverse effect on the future operating or financial performance of the Corporation or any future Members of the Obligated Group; 4. A decline in the population, a change in the age composition of the population or a decline in the economic conditions of the market area of the Corporation; 5. The cost and availability of energy; 6. Increased unemployment or other adverse economic conditions in the service area of the Corporation and any future Member of the Obligated Group which would increase the proportion of patients who are unable to pay fully for the cost of their care; 7. Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the Corporation or any future Members of the Obligated Group; 8. Inflation or other adverse economic conditions; 9. Changes in tax, pension, social security or other laws and regulations affecting the provision of health care, retirement benefits and other services to the elderly; 10. Inability to control the diminution of patients assets or insurance coverage with the result that the patients charges are reimbursed from government reimbursement programs rather than private payments or funded from assets of the Corporation or any future Members of the Obligated Group; 11. The occurrence of natural disasters, including floods and earthquakes, which may damage the facilities of the Obligated Group, interrupt utility service to the facilities, or otherwise impair the operation and generation of revenues from said facilities; 12. Cost and availability of any insurance, such as malpractice, fire, automobile and general comprehensive liability, that organizations such as the Corporation generally carry; or 13. Changes in the tax laws and regulations eliminating or adversely impairing the value of the tax exemption afforded the Tax-Exempt Series 2012 Bonds. Financial Reporting FINANCIAL REPORTING AND CONTINUING DISCLOSURE Under the Master Indenture, the Obligated Group Agent will furnish or cause to be furnished to, among others, the Master Trustee, the Underwriter, each Related Bond Trustee, EMMA (as described below) and any other municipal securities information repositories identified by the Securities and Exchange Commission and all owners of any Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership) (the Required Information Recipients ) the following: -77-

118 (i) Until the end of the fiscal quarter in which the Obligated Group achieves Stable Occupancy with respect to the Project, a monthly statement of the Obligated Group as soon as practicable after the information is available but in no event more than 45 days after the completion of such month, including: (A) prior to the issuance of the initial Occupancy Certificate for any portion of the Project, (I) a calculation of the marketing/reservation levels for the Project as of the end of such month, including the number of units that have been Reserved or cancelled during that month and on an aggregate; (II) a summary statement as to the status of construction; (III) unaudited financial reports on the development costs of the Project incurred during that month and on an aggregate basis; and (IV) statements of the balances for each fund and account required to be held under the Master Indenture, or under the Liquidity Support Agreement or under any related Bond Indenture as of the end of such month (to the extent available from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Agent, and (B) after the issuance of the initial Occupancy Certificate for any portion of the Project, (I) a calculation of the marketing/reservation levels for the Project as of the end of such month, including the number of units that have been Reserved or cancelled during that month and on an aggregate basis; (II) information with respect to the payor mix for the health center portion of the Project; (III) occupancy levels of the Project as of the end of such month including the number of units that were Occupied and vacated during that month and on an aggregate basis; (IV) a summary statement on the status of construction until the issuance of the last Occupancy Certificate for the Project; (V) unaudited financial reports on the development costs incurred during that month and on an aggregate basis until the issuance of the last Occupancy Certificate for the Project; (VI) an unaudited statement of revenues and expenses and statement of cash flows of the Obligated Group for such month with a comparison to the operating budget, and an unaudited balance sheet of the Obligated Group as of the end of such month; (VII) a calculation of the Cumulative Cash Operating Loss as of the end of such month; (VIII) statements of the balances for each fund and account held under the Master Indenture, under the Liquidity Support Agreement or under any related Bond Indenture as of the end of such month (obtained from the applicable trustee), and (IX) a statement showing the amount of Series 2012B Bonds, Series 2012C Bonds and Series 2012D Bonds that have been redeemed in the aggregate and during that calendar month, all in reasonable detail and certified by an officer of the Obligated Group Agent. The Obligated Group Agent does not need to deliver any monthly statement of the Obligated Group described in this subparagraph (i) after Stable Occupancy with respect to the Project has been achieved. (ii) Beginning with the first full fiscal quarter following the date that Stable Occupancy with respect to the Project is achieved, the following information as soon as practicable after it is available but in no event more than 45 days after the completion of such fiscal quarter: (A) quarterly unaudited financial statements of the Obligated Group (including a report with respect to the fourth quarter of each Fiscal Year), including a combined or combining statement of revenues and expenses and a statement of cash flows of the Obligated Group during such period, and a combined or combining balance sheet as of the end of each such fiscal quarter with a comparison to the operating budget, (B) a calculation of Days Cash on Hand or Cash to Indebtedness Ratio, as applicable, as of the last day of such quarter, the Historical Debt Service Coverage Ratio of the Obligated Group for such quarter, the Cumulative Cash Operating Loss, to be calculated or submitted for such fiscal quarter, (C) information with respect to the payor mix for the health center portion of the Project, and (D) a calculation of the marketing/reservation -78-

119 levels for the Project as of the end of each month in the quarter, including the number of units that have been reserved or cancelled during that month and on an aggregate basis; occupancy levels of the Project as of the end of each such month including the number of units that were Occupied and vacated during that month and on an aggregate basis; all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Agent, with a management s discussion and analysis of results. (iii) If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 or the Cash to Indebtedness Ratio or the Days Cash on Hand, as applicable, of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided in the Master Indenture, the Obligated Group will deliver the financial information and the calculations described in paragraph (ii) above on a monthly basis with the Historical Debt Service Coverage Ratio calculated on a year-to-date basis each month, within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and the Cash to Indebtedness Ratio or the Days Cash on Hand, as applicable, of the Obligated Group is at least equal to the applicable Liquidity Requirement. (iv) Within 150 days of the end of each Fiscal Year commencing with the Fiscal Year ending December 31, 2012, an annual financial report of the Obligated Group audited by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year, a combined and an unaudited combining statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants auditing such report containing calculations of the Obligated Group s Historical Debt Service Coverage Ratio for said Fiscal Year and of the Obligated Group s Cash to Indebtedness Ratio or Days Cash on Hand, as applicable (beginning with the Fiscal Year in which such calculations are first required to be made) as of the last day of such Fiscal Year and if such accountants shall have obtained knowledge of any default or defaults under the Master Indenture, they shall disclose in such statement the default or defaults and the nature thereof. (v) On or before the date of delivery of the financial reports referred to in subsection (iv) above, an Officer s Certificate of the Obligated Group Agent (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the marketing and occupancy percentages, Cumulative Cash Operating Loss, Days Cash on Hand or Cash to Indebtedness Ratio, as applicable, and Historical Debt Service Coverage Ratio, to be calculated for such Fiscal Year by the Master Indenture, as of the end of such fiscal period or Fiscal Year, as appropriate, and (C) commencing with the first Fiscal Year of operations, a comparison of the audited financial statements with the operating budget for the preceding Fiscal Year. (vi) Within 150 days of the end of the Fiscal Year ending December 31, 2017, and within 150 days of the end of each third Fiscal Year thereafter, the Obligated Group will obtain an actuarial report, including a calculation of funded status, and the Obligated Group Agent shall deliver an executive summary of such report, including a calculation of the Obligated Group s funded status. Should the Obligated Group engage an actuary to report on funding status more frequently than in the preceding sentence, an executive summary of such report will be provided. (vii) Within 45 days of the end of each Fiscal Year, the Obligated Group Agent shall deliver a summary of the operating and capital budgets for the Fiscal Year then started. -79-

120 (viii) At any time during the Fiscal Year, copies of (A) any board-approved revisions to the annual budget or (B) any correspondence to or from the Internal Revenue Service contesting the status of a Member as an organization described in Section 501(c)(3) of the Code or contesting the tax-exempt status of the Series 2012 Tax-Exempt Bonds or any Related Bonds the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes, promptly upon receipt. (ix) Within 30 days of receipt of any Occupancy Certificate for any portion of the Project, the Corporation will notify the Master Trustee that such Occupancy Certificate has been received. (x) Within 45 days of achieving Stable Occupancy with respect to the Project, the Corporation will notify the Master Trustee that Stable Occupancy has been achieved. (xi) Upon withdrawal of any funds from the Liquidity Support Funds as provided under the Master Indenture, the Corporation shall notify the Master Trustee and each Required Information Recipient submit the information required under the Master Indenture. Continuing Disclosure General. Offerings of municipal securities must comply with the provisions of Rule 15c2-12 of the Securities and Exchange Commission (as amended from time to time, the Rule ). Given that the Series 2012 Bonds are special and limited obligations of the Issuer, the Issuer has determined that no financial or operating data concerning the Issuer is material to any decision to purchase, hold or sell the Series 2012 Bonds, and the Issuer will not provide any such information. The Obligated Group has undertaken all responsibilities for any continuing disclosure to holders of the Series 2012 Bonds as described below, and the Issuer shall have no liability to the holders or any other Person with respect to such disclosures. The Obligated Group has covenanted for the benefit of the Series 2012 Bondholders, and the Beneficial Owners (as hereinafter defined under this caption), pursuant to a Continuing Disclosure Agreement (the Disclosure Agreement ) to be executed and delivered by the Obligated Group, to provide or cause to be provided (i) on a monthly basis, certain financial information for the Obligated Group (the Additional Monthly Report ) by not later than the date 45 days after the end of each month, commencing with the Additional Monthly Report for the month ended September 30, 2012 and ending at the end of the fiscal quarter in which Stable Occupancy is achieved; (ii) on a quarterly basis, certain financial information for the Obligated Group (the Quarterly Report ) by not later than the date 45 days after the last day of the fiscal quarter of the Obligated Group, commencing with the Quarterly Report for the first fiscal quarter following the date that Stable Occupancy is achieved; (iii) each year, certain financial information for the Obligated Group and operating data relating to the Obligated Group (the Annual Report ) by not later than the date 150 days after the last day of the fiscal year of the Obligated Group, commencing with the Annual Report for the fiscal year ended December 31, 2012; provided, however, that if the audited financial statements of the Obligated Group are not available by such date, unaudited financial statements for such party will be included in the Quarterly Report or the Annual Report, as appropriate, and audited financial statements will be provided when and if available; and (iv) timely notices of the occurrence of certain enumerated events. Currently the fiscal year of the Obligated Group commences on January 1. Beneficial Owners means, under this caption only, any Person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2012 Bonds (including Persons holding Series 2012 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Series 2012 Bonds for federal income tax purposes. -80-

121 The information will be made available to holders of the Bonds through Electronic Municipal Markets Access ( ( EMMA ), the information repository of the Municipal Securities Rulemaking Board, to comply with the Rule. The monthly, quarterly and annual reports described above under Financial Reporting will be filed by or on behalf of the Obligated Group with EMMA, or such other information repository designated from time to time by the SEC, for so long as such monthly, quarterly and annual reports are required to be delivered under the Disclosure Agreement. In addition, any notice of the following events will be filed with EMMA: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Any unscheduled draw on debt service reserves reflecting financial difficulties; (4) Any unscheduled draw 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 or other material notices or determinations with respect to the tax status of the Series 2012 Bonds or other material events affecting the tax status of the Series 2012 Bonds; (7) Modifications to rights of the security holders, if material; (8) Bond calls, if material; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the securities, if material; (11) Tender offers; (12) Rating changes; (13) Bankruptcy, insolvency, receivership, or similar proceedings of the Corporation; (14) The consummation of a merger, consolidation or acquisition involving the Corporation or the sale of all or substantially all of the assets of the Corporation, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (15) Appointment of a successor or additional trustee, or the change of name of a trustee, if material; (16) Any entrance by another entity into the Obligated Group or cessation of any Obligated Group Member from the Obligated Group, if material; and (17) Any other material events that are added to the Rule after the date of the Disclosure Agreement. -81-

122 (b) If an event listed above (each a Listed Event ) occurs and the Corporation determines that such Listed Event is material, or if there is no materiality requirement for such Listed Event, the Corporation shall file a notice of such occurrence with EMMA within 10 Business Days. If the Corporation determines that it failed to give notice as required under the Continuing Disclosure Agreement, it is required to promptly file a notice of such determination in the same manner. Annual Report. The Annual Report will contain or incorporate by reference at least the following items: (a) The audited financial statements of the Corporation for the fiscal year immediately preceding the due date of the Annual Report; provided, however, that if such audited financial statements are not available by the deadline for filing the Annual Report, they shall be provided when and if available, and unaudited financial statements shall be included in the Annual Report. The financial statements shall be prepared in accordance with generally accepted accounting principles and shall be audited by an independent certified public accountant. (b) An update of the material financial information including but not limited to the data of the same general nature as that contained in the chart in APPENDIX B FINANCIAL FEASIBILITY STUDY Forecasted Schedule of Financial Ratios as well as material operating data, including marketing, occupancy and turnover information and a management discussion and analysis. Quarterly Reports. Quarterly Reports will be submitted beginning with the first full fiscal quarter following the date that Stable Occupancy is achieved, in no event more than 45 days after the end of each quarterly fiscal period of each Fiscal Year, and will contain the following: (a) the unaudited financial statements for that period, including a statement of revenues and expenses (including a comparison to budgeted revenues and expenses) and a statement of cash flow during that period, and a balance sheet as of the end of that period, in each case on either a combined or combining basis for the Obligated Group; (b) a calculation of the Cash to Indebtedness Ratio or Days Cash on Hand, and of the Historical Debt Service Coverage Ratio, if required to be calculated or submitted as of the end of that fiscal quarter, all of the foregoing to be in reasonable detail and certified, subject to year end adjustment, by the chief executive officer, the chief financial officer or other authorized financial officer of the Obligated Group Agent; and (c) an occupancy report and a management s discussion and analysis. Additional Monthly Reports. Monthly Reports will be submitted until the end of the fiscal quarter in which Stable Occupancy is achieved and will contain monthly management-prepared financial statements of the Corporation including a summary of the actual monthly expenditures for the Project compared to budgeted expenditures for the Project and the latest report from the Construction Monitor as well as marketing, occupancy and turnover information. If the Historical Debt Service Coverage Ratio for any Fiscal Year is less than 1.00 and the Cash to Indebtedness Ratio or the number of Days Cash on Hand, as applicable, is less than the Liquidity Requirement for any Liquidity Testing Date, the Obligated Group will deliver the financial information and the calculations described in FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting paragraph (iii) above on a monthly basis within 45 days of the end of each month until the Historical Debt Service Coverage Ratio is at least 1.00 and the Cash to Indebtedness Ratio or the Days Cash on Hand, as applicable, is at least equal to the Liquidity Requirement. -82-

123 Any or all of the items listed above may be included by specific reference to other documents which previously have been provided to EMMA or the SEC. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Corporation shall clearly identify each such other document as included by reference. Failure to Comply. In the event of a failure of the Obligated Group to comply with any provision of the Disclosure Agreement, any Series 2012 Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Obligated Group to comply with the obligations under the Disclosure Agreement. A failure to comply with the Disclosure Agreement shall not be deemed an event of default under the Bond Indentures or the Loan Agreement. The sole remedy under the Disclosure Agreement in the event of any failure of the Obligated Group to comply with the Disclosure Agreement shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damage thereunder under any circumstances. This will be the first Disclosure Agreement to which the Obligated Group will be a party, and consequently, there has been no previous history of the Obligated Group s compliance with the Rule. Amendment of the Disclosure Agreement. The Obligated Group and the Dissemination Agent may amend the Disclosure Agreement, and any provision of the Disclosure Agreement may be waived by the Dissemination Agent, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule or adjudication of the Rule by a final decision of a court of competent jurisdiction. The Obligated Group may modify from time to time the specific types of information provided in an Annual Report to the extent necessary as a result of a change in legal requirements, change in law or change in the nature of the Obligated Group or its businesses, provided that any such modification will be done in a manner consistent with the Rule and will not, in the opinion of the Dissemination Agent or another party unaffiliated with the Issuer or the Obligated Group, materially impair the interests of the Series 2012 Bondholders. The Issuer LITIGATION There is not now pending (as to which the Issuer has received service of process) or, to the actual knowledge of the Issuer, threatened, any litigation against the Issuer restraining or enjoining the issuance or delivery of the Series 2012 Bonds or questioning or affecting the validity of the Series 2012 Bonds or the proceedings or authority under which the Series 2012 Bonds are to be issued. Neither the creation, organization or existence of the Issuer nor the title of any of the present members or other officers of the Issuer to their respective offices is being contested. There is no litigation against the Issuer pending (as to which the Issuer has received service of process) or, to the actual knowledge of the Issuer, threatened against the Issuer which in any manner questions the right of the Issuer to enter into the Tax-Exempt Bond Indenture, the Loan Agreement or the Tax-Exempt Bond Purchase Contract or to secure the Series 2012 Bonds in the manner provided in the Tax-Exempt Bond Indenture and the Act. The Corporation The Corporation has advised that no litigation, proceedings or investigations are pending or, to its knowledge, threatened against it except (i) litigation, proceedings or investigations in which the probable ultimate recoveries and the estimated costs and expenses of defense, in the opinion of management, will be entirely within the applicable insurance policy limits (subject to applicable deductibles) or are not in -83-

124 excess of the total reserves held under the applicable self-insurance program, or (ii) litigation, proceedings or investigations which if adversely determined will not, in the opinion of management, have a material adverse effect on the operations or condition, financial or otherwise, of the Corporation. The Corporation also has advised that there is no litigation pending or, to the knowledge of the Corporation, threatened, which in any manner questions the right of the Corporation to enter into the financing described herein. LEGAL MATTERS All legal matters incidental to the authorization and issuance of the Tax-Exempt Series 2012 Bonds by the Issuer are subject to the approval of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel. Bond Counsel has been retained by the Corporation. Certain legal matters with respect to the Series 2012 Bonds will be passed upon for the Issuer by its counsel, Douglas Haney, Esq., Carmel, Indiana; for the Underwriter by its counsel, Katten Muchin Rosenman LLP, Chicago, Illinois and for the Corporation by its special counsels, Thompson & Knight L.L.P., Dallas, Texas and Kroger, Gardis & Regas LLP, Indianapolis, Indiana. Tax Exemption TAX MATTERS In the opinion of Ice Miller LLP, Indianapolis, Indiana ( Bond Counsel ), under existing federal statutes, decisions, regulations and rulings, interest on the Tax-Exempt Series 2012 Bonds is excludable from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations. This opinion relates only to the exclusion from gross income of interest on the Tax-Exempt Series 2012 Bonds for federal income tax purposes under Section 103 of the Code and is conditioned on continuing compliance by the Issuer, the Corporation and any future Members of the Obligated Group with the Tax Covenants (as hereinafter defined). Failure to comply with the Tax Covenants could cause interest on the Tax-Exempt Series 2012 Bonds to lose the exclusion from gross income for federal income tax purposes retroactive to the date of issue. In the opinion of Bond Counsel, under existing laws, regulations, judicial decision and rulings, interest on the Tax-Exempt Series 2012 Bonds is exempt from income taxation in the State. This opinion relates only to the exemption of interest on the Tax-Exempt Series 2012 Bonds for State income tax purposes. See APPENDIX D hereto for the form of the approving opinion of Bond Counsel. The Code imposes certain requirements which must be met subsequent to the issuance of the Tax- Exempt Series 2012 Bonds as a condition to the exclusion from gross income of interest on the Tax- Exempt Series 2012 Bonds for federal income tax purposes. The Issuer and the Corporation will covenant not to take any action, nor fail to take any action within their respective power and control, with respect to the Tax-Exempt Series 2012 Bonds that would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Tax-Exempt Series 2012 Bonds pursuant to Section 103 of the Code (collectively, the Tax Covenants ). The Tax-Exempt Bond Indenture, the Loan Agreement and certain certificates and agreements to be delivered on the date of delivery of the Tax- Exempt Series 2012 Bonds establish procedures under which compliance with the requirements of the Code can be met. It is not an event of default under the Tax-Exempt Bond Indenture if interest on the Tax-Exempt Series 2012 Bonds is not excludable from gross income for federal income tax purposes or -84-

125 otherwise pursuant to any provision of the Code which is not in effect on the issue date of the Tax- Exempt Series 2012 Bonds. Indiana Code imposes a franchise tax on certain taxpayers (as defined in Indiana Code 6-5.5) which, in general, are all corporations which are transacting the business of a financial institution in the State. The franchise tax is measured in part by interest excluded from gross income under Section 103 of the Code minus associated expenses disallowed under Section 265 of the Code. Taxpayers should consult their own tax advisors regarding the impact of this statute on their ownership of the Tax-Exempt Series 2012 Bonds. Although Bond Counsel will render an opinion on the federal tax matters described above, the accrual or receipt of interest on the Tax-Exempt Series 2012 Bonds may otherwise affect a Bondholder s federal or state income tax liability. The nature and extent of these other tax consequences will depend upon the Bondholder s particular tax status and the Bondholder s other items of income or deduction. Taxpayers who may be affected by such other tax consequences include, without limitation, financial institutions, certain insurance companies, S corporations, certain foreign corporations, individual recipients of Social Security or railroad retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry the Tax-Exempt Series 2012 Bonds. Bond Counsel expresses no opinion regarding any other such tax consequences. Prospective purchasers of the Tax-Exempt Series 2012 Bonds should consult their own tax advisors with regard to the other tax consequences of owning the Tax-Exempt Series 2012 Bonds. Amortizable Bond Premium The initial offering price of certain maturities of the Tax-Exempt Series 2012 Bonds is greater than the principal amount payable at maturity or call date (the Premium Bonds ). As a result, the Premium Bonds will be considered to be issued with amortizable bond premium (the Bond Premium ). An owner who acquires a Premium Bond in the initial offering will be required to adjust the owner s basis in the Premium Bond downward as a result of the amortization of the Bond Premium, pursuant to Section 1016(a)(5) of the Code. Such adjusted tax basis will be used to determine taxable gain or loss upon the disposition of the Premium Bonds (including sale, redemption or payment at maturity or call). The amount of amortizable Bond Premium will be computed on the basis of the owner s yield to maturity, with compounding at the end of each accrual period. Rules for determining (i) the amount of amortizable Bond Premium and (ii) the amount amortizable in a particular year are set forth in Section 171(b) of the Code. No income tax deduction for the amount of amortizable Bond Premium will be allowed pursuant to Section 171(a)(2) of the Code, but amortization of Bond Premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining other tax consequences of owning the Premium Bonds. Owners of the Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the treatment of Bond Premium upon the sale or other disposition of Premium Bonds and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. Special rules governing the treatment of Bond Premium, which are applicable to dealers in tax exempt securities are found at Section 75 of the Code. Dealers in tax exempt securities are urged to consult their own tax advisors concerning treatment of Bond Premium. Original Issue Discount The initial offering price of certain maturities of the Tax-Exempt Series 2012 Bonds is less than the principal amounts payable at maturity or call date (the Discount Bonds ). As a result, the Discount Bonds will be considered to be issued with original issue discount. The difference between the initial public offering price of each maturity of the Discount Bonds (or portions thereof) as set forth on the -85-

126 inside cover page of this Official Statement (assuming it is the first price at which a substantial amount of that maturity, or a portion thereof, is sold) (the Issue Price for such maturity ), and the amount payable at maturity of the Discount Bonds will be treated as original issue discount. A taxpayer who purchases a Discount Bond in the initial public offering at the Issue Price for such maturity, or a portion thereof, and who holds such Discount Bond to maturity may treat the full amount of original issue discount as interest which is excludable from the gross income of the owner of that Discount Bond for federal income tax purposes and will not, under present federal income tax law, realize taxable capital gain upon payment of the Discount Bond at maturity. The original issue discount on each of the Discount Bonds is treated as accruing daily over the term of such Discount Bonds on the basis of a constant interest rate compounded on an accrual basis at the end of each accrual period (with straight line interpolation between compounding dates). Section 1288 of the Code provides, with respect to tax-exempt obligations such as the Discount Bonds, that the amount of original issue discount accruing each period will be added to the owner s tax basis for the Discount Bonds. Such adjusted tax basis will be used to determine taxable gain or loss upon disposition of the Discount Bonds (including sale, redemption or payment at maturity). Owners of the Discount Bonds who dispose of Discount Bonds prior to maturity should consult their tax advisors as to the amount of original discount accrued over the period held and the amount of taxable gain or loss upon the sale or other disposition of such Discount Bonds prior to maturity. As described under the caption TAX MATTERS above, the original issue discount that accrues in each year to an owner of a Discount Bond may result in certain collateral federal income tax consequences. Owners of any Discount Bonds should be aware that the accrual of original issue discount in each year may result in a tax liability from these collateral tax consequences even though the owners of such Discount Bonds will not receive a corresponding cash payment until a later year. Owners who purchase Discount Bonds in the initial public offering but at a price different from the Issue Price for such maturity should consult their own tax advisers with respect to the tax consequences of the ownership of the Discount Bonds. The Code contains certain provisions relating to the accrual of original issue discount in the case of subsequent purchasers of bonds such as the Discount Bonds. Owners who do not purchase Discount Bonds in the initial public offering should consult their own tax advisers with regard to the other tax consequences of owning the Discount Bonds. Owners of Discount Bonds should consult their own tax advisers with respect to the state and local tax consequences of owning Discount Bonds. It is possible under the applicable provisions governing the determination of state and local income taxes that accrued interest on the Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment until a later year. INTEREST ON THE TAXABLE SERIES 2012D BONDS IS NOT EXCLUDIBLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. PROSPECTIVE PURCHASERS OF THE SERIES 2012 BONDS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS PRIOR TO ANY PURCHASE OF THE SERIES 2012 BONDS AS TO THE IMPACT OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, UPON THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE TAX-EXEMPT SERIES 2012 BONDS. -86-

127 FEASIBILITY STUDY Management s financial forecast, included as part of the Feasibility Study included in APPENDIX B hereto, has been examined by CliftonLarsonAllen LLP, independent certified public accountants, as stated in their report appearing in APPENDIX B. As stated in the Feasibility Study, there will usually be differences between the forecasted data and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. The Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. NO RATING THE SERIES 2012 BONDS ARE NOT RATED; NEITHER THE ISSUER NOR THE CORPORATION HAS APPLIED TO ANY RATING SERVICE FOR A RATING OF THE SERIES 2012 BONDS. UNDERWRITING Pursuant to purchase contracts by and among the Issuer, the Corporation, and B.C. Ziegler and Company, as underwriter (the Underwriter ) (the Tax-Exempt Bond Purchase Agreement ), and by and between the Corporation and the Underwriter (the Taxable Bond Purchase Agreement and, together with the Tax-Exempt Bond Purchase Agreement, the Bond Purchase Agreements ) the Underwriter will (i) purchase the Series 2012A Bonds at a purchase price of $91,951,097.05, which purchase price reflects $1,579, of underwriter s discount and $1,044, of net original issue discount; (ii) purchase the Series 2012B Bonds at a purchase price of $2,910,000, which purchase price reflects $90,000 of underwriter s discount; (iii) purchase the Series 2012C-1 Bonds at a purchase price of $3,448,412.50, which purchase price reflects $66, of underwriter s discount; (iv) purchase the Series 2012C-2 Bonds at a purchase price of $7,767,762.50, which purchase price reflects $137, of underwriter s discount; (v) purchase the Series 2012C-3 Bonds at a purchase price of $2,958,500, which purchase price reflects $66,500 of underwriter s discount; and (vi) purchase the Series 2012D Bonds at a purchase price of $6,838,125, which purchase price reflects $161,875 of underwriter s discount. The Bond Purchase Agreements will provide that the Underwriter will purchase all of the Series 2012 Bonds if any are purchased. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2012 Bonds to the public. The Bond Purchase Agreements will provide for the Corporation to indemnify the Underwriter and the Issuer against certain liabilities. The obligation of the Underwriter to accept delivery of the Series 2012 Bonds will be subject to various conditions of the Bond Purchase Agreements. In connection with this financing, the Corporation will establish various funds and accounts with the Bond Trustee that will hold net bond proceeds and various funds and accounts held with the Master Trustee that will be funded with Entrance Fees and other funds provided for the benefit of the Project, in each case, until they are withdrawn and expended. Under the terms of the Bond Indentures and the Master Indenture, the Corporation may direct the Bond Trustee and/or the Master Trustee, respectively to invest some or all of the funds within the investment parameters established in the related Bond Indenture or the Master Indenture, as applicable. The Corporation hired Ziegler Lotsoff Capital Management LLC, an affiliate of the Underwriter, to direct the investment of some of these funds. Ziegler Lotsoff Capital Management, LLC will receive a fee for managing those assets. -87-

128 MISCELLANEOUS The references herein to the Act, the Master Indenture, the Series 2012 Obligations, the Bond Indentures, the Loan Agreement, the Mortgage and the Disclosure Agreement are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and for full and complete statements of the provisions thereof reference is made to the Act, the Master Indenture, the Series 2012 Obligations, the Bond Indentures, the Loan Agreement, the Mortgage and the Disclosure Agreement. Copies of such documents are on file at the office of the Issuer and following the delivery of the Series 2012 Bonds will be on file at the office of the Bond Trustee. All estimates and other statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. It is anticipated that CUSIP identification numbers will be printed on the Series 2012 Bonds, but neither the failure to print such numbers on any Series 2012 Bond nor any error in the printing of such numbers shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2012 Bonds. All statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Corporation or the Issuer and the purchaser or owners of any of the Series 2012 Bonds. Pursuant to the documents under which the Issuer has agreed to sell and the Underwriter has agreed to purchase the Series 2012 Bonds, the Corporation has agreed to indemnify the Issuer and the Underwriter against certain liabilities, including liabilities under the federal securities laws. The execution and delivery of this Official Statement have been duly authorized by the Issuer. The Issuer has not, however, prepared nor made any independent investigation of the information contained in this Official Statement except for its review of the information under the captions THE ISSUER and LITIGATION The Issuer. The attached APPENDICES are integral parts of this Official Statement and must be read together with all of the foregoing statements. The Corporation has reviewed the information contained herein which relates to it, its Property and operations, and has approved all such information for use within this Official Statement. [Signature Page Follows] -88-

129 The Issuer has duly authorized the distribution of, and the Corporation has approved this Official Statement. MAYFLOWER COMMUNITIES, INC. d/b/a THE BARRINGTON OF CARMEL By: /s/ Charles B. Brewer President -89-

130 [THIS PAGE INTENTIONALLY LEFT BLANK]

131 APPENDIX A THE BARRINGTON OF CARMEL The Information in this Appendix has been provided by the Corporation

132 TABLE OF CONTENTS THE OBLIGOR... A-1 HISTORY AND BACKGROUND... A-1 Local Affiliation St. Vincent Health, Inc.... A-2 GOVERNANCE AND MANAGEMENT... A-2 Board of Directors The Obligor... A-2 Board of Directors SQLC... A-4 Management Team SQLC... A-4 Relationship of Parties... A-5 Administration and Operational Oversight Agreement... A-6 SQLC Subordinated Loans... A-7 THE COMMUNITY... A-11 General Description... A-11 Independent Living Units... A-11 Catered Living Units... A-11 Assisted Living and Memory Support Units... A-12 Health Center... A-13 Land Purchase Agreement... A-13 Regulatory Permits and Approvals... A-14 RESERVATION AGREEMENT... A-14 RESIDENCY AGREEMENT... A-14 Resident Fee Structure... A-15 Charter Resident Benefits... A-17 Financial Assistance... A-18 Services to Life Care Residents... A-18 Life Care Benefit... A-18 Termination and Refunds... A-19 MARKETING... A-21 Marketing Program... A-21 Reservation of Independent Living Units... A-22 PRE-FINANCE DEVELOPMENT COSTS... A-23 DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY... A-24 Greystone Development Consulting Services... A-24 GCI Carmel, L.P.... A-24 The Development Consultant GDC... A-25 Greystone Development Experience... A-25 Greystone Corporate Officers... A-30 Development Consulting Agreement... A-32 Management and Marketing Services Agreement... A-35 OTHER PROFESSIONAL SERVICES... A-37 Construction Contract... A-37 The General Contractor... A-38 The Architect... A-40 Construction Consultant... A-40 Page i

133 THE OBLIGOR Mayflower Communities, Inc. (the Obligor or Mayflower ), a Delaware nonprofit, nonstock corporation qualified to do business in Indiana, was established in November The Internal Revenue Service (the IRS ) issued a letter, dated December 13, 2011, stating its determination that the Obligor is a charitable organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ), and is, therefore, exempt from federal income taxation under Section 501(a) of the Code and is not a private foundation within Section 509(a) of the Code. HISTORY AND BACKGROUND The Obligor was formed for the purpose of developing, owning and operating a senior living community known as The Barrington of Carmel ( The Barrington or the Community ) located in Carmel, Indiana. Its mission is to provide quality housing, health care services and other programs to senior citizens. Pursuant to a Term Sheet dated May 7, 2012, the Obligor agreed to affiliate with Senior Quality Lifestyles Corporation ( SQLC ). In accordance with the provisions of the Term Sheet, on June 15, 2012, SQLC became the sole corporate member of Mayflower and Mayflower formally became an affiliate of SQLC. SQLC is the sole corporate member of the following organizations: Northwest Senior Housing Corporation ( NSHC ) which owns and operates a senior living community known as Edgemere ( Edgemere ) in Dallas, Texas the first phase of which opened in December 2001 and the second phase of which opened in September 2007; Buckingham Senior Living Community, Inc. ( BSLC ) which owns and operates a senior living community known as The Buckingham ( The Buckingham ) in Houston, Texas which opened in May 2005; Barton Creek Senior Living Center, Inc. ( BCSLC ) which owns and operates a senior living community known as Querencia at Barton Creek ( Querencia ) in Austin, Texas which opened in June 2007; SQLC Senior Living Center at Corpus Christi, Inc. ( SQLC-Corpus ) which owns and operates a senior living community known as Mirador ( Mirador ) in Corpus Christi, Texas which opened in June 2011; Tarrant County Senior Living Center, Inc. ( TCSLC ) which owns and operates a senior living community known as The Stayton at Museum Way ( The Stayton ) in Fort Worth, Texas which opened in October 2011; and SQLC LSA, LLC ( SQLC LSA ), a limited liability company established to participate in certain transactions in conjunction with the financings for certain SQLC Affiliates. SQLC has received a determination letter from the IRS stating it is a charitable organization described in Section 501(c)(3) of the Code and is, therefore, exempt from federal income taxation under Section 501(a) of the Code and is not a private foundation within Section 509(a) of the Code. SQLC serves as the sole corporate member of the Obligor, NSHC, BSLC, BCSLC, TCSLC and SQLC-Corpus. A-1

134 The Obligor, NSHC, BSLC, BCSLC, TCSLC, SQLC-Corpus and SQLC are separate corporate entities, and no guarantees or other conditions of support exist between the Obligor and NSHC, BSLC, BCSLC, TCSLC, SQLC-Corpus or SQLC at this time. Collectively, Edgemere, The Buckingham, Querencia, The Stayton, Mirador and The Barrington are referred to herein as the SQLC Communities. NSHC, BSLC, BCSLC, TCSLC, SQLC-Corpus, SQLC LSA and SQLC are not members of the Obligated Group and are not obligated to make any payments on the Loan Agreements, the Series 2012 Obligations or with respect to the Series 2012 Bonds. SQLC LSA has agreed to provide $2,000,000 of liquidity support to the Obligor pursuant to the Liquidity Support Agreement. Also, as funds are released from the Special Project Liquidity Support Fund, SQLC has agreed in the SQLC Loan Agreement (hereinafter defined) to loan to the Obligor amounts totaling as much as $1,875,000. For information on the Liquidity Support Agreement, see the description under the caption LIQUIDITY SUPPORT AGREEMENT in the front part of this Official Statement. If, pursuant to the terms of the Liquidity Support Agreement, less than $2,000,000 is released to SQLC LSA, the Obligor has repayment obligations with respect to the shortfall. SQLC has agreed to loan $200,000 to the Obligor to fund project costs. For information about the repayment terms of such loan and the SQLC Loan Agreement, see GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans herein. The Obligor has retained Greystone Development Company II, LP ( GDC or Greystone ), as development consultant and Greystone Management Services Company, LLC ( GMS ) as manager. See DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY herein. Together with Greystone, the project team consists of AG Architecture, Inc. (the Architect ), and LECESSE Construction Services, LLC (the General Contractor ). Local Affiliation St. Vincent Health, Inc. Mayflower entered into an affiliation agreement with St. Vincent Health, Inc. ( St. Vincent ) in March of 2011 in order to establish a comprehensive program for the delivery of professional services to the residents of The Barrington with medical needs. The affiliation is expected to enhance the resident s continuity of care through the optimization of utilizing primary, tertiary, and aftercare resources as needed. Prior to opening The Barrington, Mayflower and St. Vincent will explore the development of new joint programs for medical care to The Barrington residents, including an on-site clinic, Medical Director, and medical staff services. St. Vincent is a member of Ascension Health, the nation s largest not-for-profit Catholic Healthcare System. The hospital system is the State of Indiana s largest healthcare employer, with 20 health ministries serving 46 counties in central Indiana. St. Vincent operates a number of hospitals in the Indianapolis area, providing inpatient, ambulatory and other health care services. Board of Directors The Obligor GOVERNANCE AND MANAGEMENT The business affairs of the Obligor are governed by a board of directors (the Board ). The Board currently consists of five directors (the Directors ). Directors are elected by SQLC, and each Director serves for a term of two years and until a successor has been elected and qualified. Directors may serve for any number of consecutive terms. The following summaries identify each Director of the Obligor and provide a brief description of his relevant background, experience and present and past affiliations: A-2

135 Charles B. Brewer, Chairman, President and Director Mr. Brewer serves as President of the Obligor and Chairman of the Obligor s Board. He also serves as a Board member and President and Chairman of the Board of Directors of NSHC, BSLC, BCSLC, TCSLC and SQLC-Corpus and President and CEO and a Board member of SQLC. He holds both undergraduate and juris doctor degrees from Southern Methodist University and is a former infantry officer and Judge Advocate in the United States Marine Corps. Raymond J. Goodman, Jr., Ph.D., Vice Chairman and Director Dr. Goodman is a Professor Emeritus of Hospitality Management in the Department of Hospitality Management at the Whittemore School of Business at the University of New Hampshire. Dr. Goodman holds a Ph.D. and Master s Degree in Hotel Administration from Cornell University. He has published several books and articles on topics related to retirement facilities planning, restaurant management, and the hospitality industry. Dr. Goodman served for seventeen (17) years, including ten (10) years as Chairman, on the Board of the RiverWoods Company in Exeter, New Hampshire, a lifecare community serving approximately five hundred (500) senior residents. He served on the Board of Directors for the National Association for Senior Living Industry Executives ( NASLIE ) for thirteen (13) years. As a board member of NASLIE, he served as the Northeast Region Vice President from and continued to serve on the NASLIE Board as Chair of the Hospitality Industry and Tourism Committee until its merger with the Assisted Living Federation of America. John Roberts, Secretary and Director Mr. Roberts is the Principal of Cornerstone Development Partners, LLC, and Exxcel Project Management, LLC. Cornerstone/Exxcel provides a variety of services, including corporate relocations, office and warehouse development and construction. Mr. Roberts has also served in an executive position in a prominent national development and construction firm. He holds a bachelor s degree in Civil Engineering from Purdue University. Mr. Roberts currently resides in Carmel, Indiana. Bernie C. Francis, Director Mr. Francis serves as a board member, Secretary and Treasurer of NSHC, BCSLC, TCSLC, SQLC-Corpus and SQLC. Mr. Francis is a graduate of University of Texas at Dallas, a Vietnam veteran and has resided in North Texas for the past 30 years. He is the owner and CEO of Business Control Systems, LP, a technical and professional staffing firm and First Class Caregivers, a non-medical caregiving business. In addition, Mr. Francis was elected to the Carrollton City Council for three terms, was appointed by former Governor George W. Bush to chair the Board of Regents for the Texas State Technical College and served Governor Rick Perry as chair of the Texas State University System. He is a long time board member of the 14-county regional arm of the Texas Workforce Commission and past member of the Dallas Citizens Council. He is one of a group of 100 business owners who serves on the Texas Business Leadership Council. Everett Winters, Director Mr. Winters is a retired Executive Assistant to the President and Director of the Office of Access and Equity at Southern Methodist University in Dallas, Texas. Mr. Winters has over thirty-five (35) years experience in administration of public and private educational institutions in Texas and California. He served as the Planning Commission Chair and member of the Santa Anna City Planning Commission for eight and one half years. Compensation to Directors of the Obligor. Dr. Goodman and Misters Roberts and Winters, as Directors of the Obligor, will receive compensation of $3,000 per quarter, paid quarterly, plus reimbursement for out of pocket expenses related to Board service. At the time of the delivery of the Series 2012 Bonds, Dr. Goodman will be paid $153,000 for his services as President of the Obligor from the creation of the Obligor in 2008 through April 30, Misters Winters and Roberts will be paid $25,500 each for their Board service from creation of the Obligor in 2008 through April 30, A-3

136 The Board of the Obligor, through the Obligor s bylaws, has adopted a conflict of interest policy. Board of Directors SQLC SQLC s board of directors consists of three members (the SQLC Board ), a majority of which also serve on the NSHC Board, the BSLC Board, the BCSLC Board, the TCSLC Board, the SQLC Corpus Board, and the Obligor s Board. The following summaries identify each member of the SQLC Board and provide a brief description of his relevant background, experience and present and past affiliations: C. Scott Sykes, Jr., Chairman Mr. Sykes serves as Chairman of the SQLC Board. He also serves as a Board member of NSHC, TCSLC, BSLC, and SQLC - Corpus. Mr. Sykes is a graduate of the University of Virginia School of Law and is a former United States Army captain and a Vietnam veteran. He practiced law in New York City, New York and was a Partner with Willkie Farr & Gallagher LLP. Mr. Sykes was formerly General Counsel and Senior Vice President of Voluntary Hospitals of America, Inc. in Irving, Texas and formerly Chairman and President of SureQuest Systems, Inc. in Dallas, Texas. Charles B. Brewer, President and CEO Mr. Brewer has served as President of SQLC since its inception in He has served on the board of NSHC since its inception in 1997 and also serves as a Board member and President and Chairman of the Board of Directors of NSHC, BSLC, BCSLC, TCSLC and SQLC-Corpus, as well as Chairman, President and a Director of the Obligor. He holds both undergraduate and juris doctor degrees from Southern Methodist University and is a former infantry officer and Judge Advocate in the United States Marine Corps. Bernie C. Francis, Secretary Mr. Francis serves as a board member, Secretary and Treasurer of NSHC, BCSLC, TCSLC, SQLC-Corpus, and SQLC. Mr. Francis is a graduate of University of Texas at Dallas, a Vietnam veteran and has resided in North Texas for the past 30 years. He is the owner and CEO of Business Control Systems, LP, a technical and professional staffing firm and First Class Caregivers, a non-medical caregiving business. In addition, Mr. Francis was elected to the Carrollton City Council for three terms, was appointed by former Governor George W. Bush to chair the Board of Regents for the Texas State Technical College and served Governor Rick Perry as chair of the Texas State University System. He is a long time board member of the 14-county regional arm of the Texas Workforce Commission and past member of the Dallas Citizens Council. He is one of a group of 100 business owners who serves on the Texas Business Leadership Council. Potential Changes in SQLC Board. Within the next year, SQLC will expand its Board to include at least two (2) additional members. Compensation to Directors of SQLC. Each director of SQLC, other than Mr. Brewer who is President and CEO of SQLC, receives compensation of $3,000 per quarter, paid quarterly, plus reimbursement for out of pocket expenses related to SQLC Board service. Management Team SQLC Beginning in 2008, SQLC assembled a management team to provide oversight and support to existing operations of the SQLC Communities and assist in the development and marketing of new communities. The following summaries identify each member of the management team that will provide oversight of the Obligor, and provide a brief description of his or her relevant background, experience and affiliations: A-4

137 Charles B. Brewer, President and CEO Mr. Brewer has served as President of SQLC since its inception in He has served on the board of NSHC since its inception in 1997 and also serves as a Board member and President and Chairman of the Board of Directors of NSHC, BSLC, BCSLC, TCSLC and SQLC-Corpus, as well as Chairman, President and a Director of the Obligor. He holds both undergraduate and juris doctor degrees from Southern Methodist University and is a former infantry officer and Judge Advocate in the United States Marine Corps. Kristen M. McCaig, VP Corporate Sales and Marketing Ms. McCaig joined SQLC in November 2008 from Sunrise Senior Living, Inc. where she served nine years working in all aspects of sales and marketing for communities across Texas. She is responsible for the marketing efforts of the SQLC Communities. She is a Dallas native and holds a Master s of Science degree from the Leonard Davis School of Gerontology, University of Southern California. Janine C. Cohen, Controller Ms. Cohen assists in the planning, organization and coordination of the fiscal operations and financial accounting activities of SQLC and the SQLC Communities. Ms. Cohen brings more than 20 years of accounting experience to her position including 10 years of department supervisory responsibilities and management of accounting for multiple properties throughout Texas. Ms. Cohen has been with SQLC since Ms. Cohen holds a Bachelors of Business Administration degree from Sul Ross State University located in Alpine, Texas. Prior to her holding of this position, Ms. Cohen was accounting manager at Querencia. Teresa Bates, Executive Director Health Services & Wellness Ms. Bates is responsible for providing support and oversight to the management team of the health services area of the SQLC Communities. Ms. Bates has been part of the SQLC family since 2002 and has previously served as Associate Executive Director at The Stayton as well as Associate Executive Director for Edgemere. Ms. Bates has 17 years of management experience in senior living. She holds a M.S. degree in operations management from the University of Arkansas and a B.B.A. degree in finance from Southern Arkansas University. Pam Martinez, Regional Health Services Director Ms. Martinez is responsible for providing support and oversight to the management staff of the nursing and assisted living areas of the SQLC Communities. She has been with the SQLC family since 2005 and previously served as the Director of Nursing at Edgemere. She has been a registered nurse for over 30 years with experience in both hospital and long-term care. Over the course of her career, Ms. Martinez has held various management positions including Director of Nursing, Corporate Nurse Consultant, Director of Surgical Services and Women s Services. She has worked for organizations such as Brentwood Health Care, Villa at Mountain View, Dallas/Fort Worth Medical Center and Euless Nursing Center. Ms. Martinez holds a degree in nursing from Sauk Valley College in Illinois. Relationship of Parties SQLC became a limited partner in GCI Carmel, L.P. (hereinafter defined) as part of its affiliation with the Obligor. SQLC will not receive any payments with respect to the return on its partnership interest until the requirements under the Liquidity Support Agreement for release of the Liquidity Support Funds are achieved. See LIQUIDITY SUPPORT AGREEMENT in the front section of this Official Statement. Since 2009, Mr. Brewer has been a limited partner in Greystone Senior Living Investments, L.P. which owns an interest in GCI Carmel, L.P. As a result of his investment in Greystone Senior Living Investments, L. P., Mr. Brewer s indirect interest in GCI Carmel, L.P. predated SQLC s affiliation with the Obligor. In connection with SQLC s affiliation with the Obligor, Mr. Brewer divested the indirect interest he had in GCI Carmel, L.P. while retaining his limited partnership interest in Greystone Senior Living Investments, L.P. See DEVELOPMENT AND MANAGEMENT OF THE A-5

138 COMMUNITY GCI Carmel, L.P. for more information about GCI Carmel, L.P. and other parties that are limited partners, including various Ziegler entities and SQLC. Pursuant to existing policies of the Board of Directors of SQLC, transactions and affiliations of the nature described above are permitted only after full disclosure of the potential conflicts of interest are made to the Board of Directors and approval by a majority of the disinterested members of the Board of Directors. Interested Board members are not permitted to vote or use personal influence in any such matter and such Board member is not counted in determining the quorum for a meeting when Board action is taken on such matter. The minutes of the meeting must reflect that a disclosure was made, the abstention from voting and the quorum satisfaction. All such transactions or affiliations to date have occurred in the ordinary course of SQLC s business and their management believes such transactions have been conducted at rates and/or a quality of products and service that are at or better than that available to the relevant entity in a comparable arm s-length transaction. Administration and Operational Oversight Agreement The Obligor will enter into an Administration and Operational Oversight Agreement (the SQLC Oversight Agreement ) with SQLC to be effective September 1, Pursuant to the SQLC Oversight Agreement, SQLC will provide certain administrative support, direction, governance support and operational oversight to the Obligor. The initial term of the SQLC Oversight Agreement is for five years and automatically renews annually thereafter unless the SQLC Oversight Agreement is otherwise terminated in accordance with its terms. Pursuant to the SQLC Oversight Agreement, SQLC will employ the Executive Director and may employ an Associate Executive Director for the Obligor and the Obligor will reimburse SQLC for their salaries, benefits and reimbursable expenses. In addition, SQLC may specifically allocate a portion of the salary, benefits and reimbursable expenses of SQLC s VP Corporate Sales and Marketing and VP of Development to the Obligor as an expense of the Obligor as part of the Obligor s project budget during the development and fill-up phases of the Community. Also under the SQLC Oversight Agreement, the Obligor will reimburse SQLC for allocated overhead based on the Obligor s allocable share (the Obligor s Allocated Overhead ) of the expenses and costs incurred by SQLC in the provision of administrative oversight, governance support and operational oversight to SQLC Communities other than the salaries, benefits and reimbursable expenses of employees of SQLC which are directly allocated to one or more SQLC Communities ( SQLC s Allocable Overhead ). The Obligor s Allocated Overhead will be its proportional share of SQLC s Allocated Overhead based on the proportion the total number of residential units (i.e., independent living units, catered living units, assisted living units, memory-support assisted living units, and skilled nursing beds) in the Community bears to the aggregate residential units of the SQLC Communities. The Obligor s Allocated Overhead will be payable on a monthly basis beginning in the month following the Satisfaction Date (hereinafter defined). Payment of fees incurred prior to the Satisfaction Date will be deferred (the Deferred Fees ). Beginning in the month after all Advance Repayment Requirements (hereinafter defined) are first satisfied but in no event earlier than the issuance of the audit for the first full fiscal year following the fiscal year in which Stable Occupancy occurs, the Deferred Fees will be paid pro-rata on a monthly basis over three years. If there is an Event of Default under the Master Indenture or the Obligor reasonably believes that by reason of payment of Obligor s Allocated Overhead or Deferred Fees then due and owing an Event of Default is likely to occur, then the payment of Obligor s Allocated Overhead or Deferred Fees shall be suspended until such time as the waiver or cure of such Event of Default or the Obligor reasonably believes that such potential Event of Default is no longer likely occur. A-6

139 Under the SQLC Oversight Agreement, the Satisfaction Date occurs when all of the following conditions are satisfied: (i) the Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer Outstanding; (ii) for the most recent six-month period, the average overall occupancy of the Independent Living Units, the Catered Living Units, the Assisted Living Units, the Memory Support Units and the Health Center was, in the aggregate, at least 90% and the average occupancy for the Independent Living Units was at least 88% occupied; (iii) the Historical Debt Service Coverage Ratio for the most recent fiscal year for which audited financial statements are available was not less than 1.20; (iv) the Cash to Indebtedness Ratio as of the most recent June 30 or December 31 was no less than the Cash to Indebtedness Ratio then required under the Master Indenture; (v) at least 12 months have elapsed since the first reduction in the Support Obligation (as defined in the Liquidity Support Agreement) has occurred; and (vi) no Event of Default has occurred and is continuing and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an Event of Default to occur. The Advance Repayment Requirements are that (a) the Community has achieved Stable Occupancy; (b) the Historical Debt Service Coverage Ratio is at least 1.20:1; and (c) the Cash to Indebtedness Ratio is at least SQLC Subordinated Loans The Obligor entered into a Pre-Permanent Finance Funding Agreement (the SQLC Funding Agreement ) with SQLC and NSHC to be effective as of the closing of the Series 2012 Bonds. Pursuant to the SQLC Funding Agreement, NSHC will advance to SQLC and SQLC will advance to the Obligor up to $1,000,000 for use by the Obligor with respect to the project (the SQLC Loan ). Upon the closing of the Series 2012 Bonds, any amount outstanding under the SQLC Loan in excess of $200,000 will be reimbursed to SQLC and the remaining obligations under the SQLC Loan will be secured by a note (the Subordinated Note ), which is subordinate in all respects to the Series 2012 Bonds. The Subordinated Note will initially bear interest at the Prime Rate as listed in the Eastern print edition of the Wall Street Journal (the Prime Rate ) as of the effective date of the SQLC Funding Agreement which will be adjusted on each January 1, April 1, July 1, and September 1 (each a Reset Date ) to the Prime Rate then in effect on such Reset Date. The Subordinated Note may not be transferred or assigned to any third party without the consent of the Obligor. Repayment of the Subordinated Note by the Obligor will begin on the 30th day of the month following the date on which all Advance Repayment Requirements are first satisfied, but in no event earlier than the date on which the audit is issued for Owner s first full fiscal year following the fiscal year in which Stable Occupancy occurs (the First Repayment Date ). Beginning on the First Repayment Date, and each month thereafter, so long as no Event of Default under the Master Indenture exists, the Obligor will pay all Excess Project Cash (hereinafter defined) to SQLC as repayment of the Subordinated Note and accrued interest thereon until the Subordinated Note is paid in full. If at any time after the First Repayment Date such payments of Excess Project Cash to SQLC are not made due to the existence of an Event of Default under the Master Indenture, then upon waiver or cure of such Event of Default, repayments of the Subordinated Note in accordance with the foregoing shall commence or resume, as applicable. Excess Project Cash means as much of Project Cash (hereinafter defined) as can be paid (not to exceed the balance of the Subordinated Note) such that after such payment the Obligor still reasonably expects to meet its Bond Covenants (hereinafter defined). Project Cash as of the applicable calendar month shall be calculated as to include the total aggregate amount of Income Available for Debt Service for the Community for the prior 12 months minus the aggregate amounts of any payments of the Debt Service Requirements and payments of Excess Project Cash during such 12 month period. Bond Covenants means the Historical Debt Service Coverage Ratio requirement, Liquidity Requirement, and Cumulative Cash Operating Loss requirement set forth in the Master Indenture. A-7

140 The Obligor and SQLC LSA will enter into a Subordinated Promissory Note in the amount of $2,000,000 (the SQLC LSA Subordinated Note ) effective as of the delivery of the Series 2012 Bonds. Upon satisfaction of the conditions for the reduction of the Liquidity Support Fund Obligation specified in the Liquidity Support Agreement, the Obligor will remit all the funds it receives from the Liquidity Support Fund for the reduction of such Support Obligation as repayment of principal and interest on the SQLC LSA Subordinated Note. If upon final distribution of all funds in the Liquidity Support Fund there exists any deficiency in the principal amount of the SQLC LSA Subordinated Note, the Obligor shall immediately pay to SQLC LSA the lesser of (a) the amount of such deficiency or (b) thirty-two percent (32%) of the amount which would create a Cash to Indebtedness Ratio that is equal to, but not less than, the minimum Cash to Indebtedness Ratio required by the Master Indenture on the applicable succeeding June 30 or December 31 (each, a SQLC LSA Subordinated Note Liquidity Testing Date ). Thereafter, within 60 days after each succeeding SQLC LSA Subordinated Note Liquidity Testing Date, the Obligor shall immediately pay to SQLC LSA, in cash, the lesser of (a) the total amount of principal and interest due on the SQLC LSA Subordinated Note or (b) thirty-two percent (32%) of the amount which would create a Cash to Indebtedness Ratio that is equal to, but not less than, the minimum Cash to Indebtedness Ratio required by the Master Indenture on the applicable SQLC LSA Subordinated Note Liquidity Testing Date. If there is an Event of Default under the Master Indenture or the Obligor reasonably believes that by reason of the payments described above an Event of Default would likely occur under the Master Indenture, then the payment of such amounts shall be suspended until such time as the waiver or cure of such Event of Default or the Obligor reasonably believes that such potential Event of Default is no longer likely occur. During the term of the Liquidity Support Agreement interest on the unpaid principal of the SQLC LSA Subordinated Note shall be equal to the positive net earnings on Permitted Investments deposited in the Liquidity Support Fund from time to time pursuant to the provisions of the Liquidity Support Agreement. Upon termination of the Liquidity Support Agreement the SQLC LSA Subordinated Note shall bear interest at the Prime Rate which shall be adjusted on each Reset Date. Interest on the SQLC LSA Subordinated Note which has accrued but has not been paid as of a Reset Date shall be added to the principal amount of the SQLC LSA Subordinated Note. The SQLC LSA Subordinated Note may not be transferred or assigned to any third party without the consent of the Obligor. The Obligor will enter into a Loan Agreement (the SQLC Loan Agreement ) with SQLC to be effective as of the closing of the Series 2012 Bonds. Pursuant to the SQLC Loan Agreement, SQLC will loan to the Obligor up to $1,875,000 as the same is released from the Special Project Liquidity Support Fund in accordance with the Liquidity Support Agreement. Furthermore, each draw made on the Special Project Liquidity Support Fund in accordance with the Liquidity Support Agreement shall be deemed an advance by SQLC to the Obligor for purposes of the SQLC Loan Agreement at the time such draw is paid out of the Special Liquidity Support Fund to the Obligor and in the amount of such draw. In order to secure the Obligor s obligations under the SQLC Loan Agreement, the Obligor and SQLC will enter into a Subordinated Promissory Note in the amount of $1,875,000 (the SQLC Subordinated Note ), or such lesser amount as may have been advanced pursuant to the SQLC Loan Agreement. No interest shall accrue on the SQLC Subordinated Note, and the SQLC Subordinated Note may not be transferred or assigned to any third party without the consent of the Obligor. Repayment of the SQLC Subordinated Note by the Obligor will begin on the 30th day of the month following the later of (i) the date on which all Advance Repayment Requirements are first satisfied or (ii) the date on which the Subordinated Note is paid in full, but in no event earlier than the date on which the audit is issued for Owner s first full fiscal year following the fiscal year in which Stable Occupancy occurs (the SQLC Loan First Repayment Date ). Beginning on the SQLC Loan First Repayment Date, and each month thereafter, so long as no Event of Default under the Master Indenture exists, the Obligor will pay all Excess Project Cash to SQLC as repayment of the SQLC Subordinated Note until the SQLC Subordinated Note is paid in full. If at any time after the SQLC Loan First Repayment Date such payments of Excess Project Cash to SQLC are not made due to the existence of an A-8

141 Event of Default under the Master Indenture, then upon waiver or cure of such Event of Default, repayments of the SQLC Subordinated Note in accordance with the foregoing shall commence or resume, as applicable. The chart on the following page summarizes the terms of the Subordinated Note, the SQLC LSA Subordinated Note and the SQLC Subordinated Note: A-9

142 Summary of Subordinated Loans from SQLC and SQLC LSA SQLC LSA SQLC SQLC (through GCI Carmel, L.P. interest) $2,000,000 $200,000 $1,875,000 Liquidity Support Fund The Obligor Special Project Liquidity Support Fund Interest Interest on the outstanding principal is equal to the net positive investment earnings on the Liquidity Support Fund during the term of the Liquidity Support Agreement ( LSA ). Interest on the outstanding principal accrues at the Prime Rate, adjusted at each Reset Date. No interest accrues on the outstanding principal. After termination of the LSA, interest on the outstanding principal, if any, accrues at the Prime Rate, adjusted at each Reset Date. Dates of Repayment During the term of the LSA, repayment is made as funds are released to SQLC LSA from the Liquidity Support Fund. After termination of the LSA, repayment of the outstanding principal and accrued interest, if any, is made semiannually, after each SQLC LSA Subordinated Note Liquidity Testing Date. Repayment will begin on the 30th day of the month following the date on which all Advance Repayment Requirements are first satisfied, but in no event earlier than the date on which the audit is issued for Obligor s first full fiscal year following the fiscal year in which Stable Occupancy occurs; repayments will continue monthly thereafter. Repayment will begin on the 30th day of the month following the date on which all Advance Repayment Requirements are first satisfied and the $200,000 Subordinated Note to SQLC is paid in full, but in no event earlier than the date on which the audit is issued for Obligor s first full fiscal year following the fiscal year in which Stable Occupancy occurs; repayments will continue monthly thereafter. Repayment Amounts During the term of the LSA, repayment is made in the amounts released to SQLC LSA from the Liquidity Support Fund. After repayment begins, all Excess Project Cash will be paid to SQLC as repayment of the principal and accrued interest until paid in full. After repayment begins, all Excess Project Cash will be paid to SQLC as repayment of the principal until paid in full. If after termination of the LSA, the $2,000,000 original principal is not paid in full, 32% of the cash in excess of that needed to maintain the minimum required Cash to Indebtedness Ratio on each SQLC LSA Subordinated Note Liquidity Testing Date is used to repay the outstanding principal balance and accrued interest until paid in full. Excess Project Cash means as much of Project Cash as can be paid such that after such payment the Obligor still reasonably expects to meet its Bond Covenants. Excess Project Cash means as much of Project Cash as can be paid such that after such payment the Obligor still reasonably expects to meet its Bond Covenants. A-10

143 THE COMMUNITY General Description The Obligor initiated planning activities in 2007 to define a development plan for a new community in Carmel, Indiana. The Community will be located on approximately 19 acres of land at 1335 S. Guilford Road in Carmel, Indiana (the Project Site ). The Community is expected to consist of 134 independent living apartment-style residences (the Independent Living Units ), in one- and two-bedroom configurations housed in a three-story building. The Community will also consist of 7 catered living apartments (the Catered Living Units ), 56 residential-style assisted living apartments (the Assisted Living Units ), 26 memory support assisted living suites (the Memory Support Units ), and a skilled nursing facility including 48 nursing beds, (the Health Center ). Each level of care has its own common and support areas; however, all residents of the Community are served by a main kitchen. Approximately 141 underground parking spaces and 252 open surface parking spaces supporting the Community will be constructed. The Community will contain approximately 372,000 square feet. Independent Living Units The 134 Independent Living Units will be located in a three-story residential building. The common areas include a multi-purpose room, living room, main dining room, café/bistro, private dining room, wellness/fitness center, business center/library, beauty salon/barber shop, club room, creative arts center, residential storage, mail alcove and administrative areas. Surface parking will be provided at no charge. Reserved underground parking spaces will be available to residents for an additional fee, as available. Each Independent Living Unit will be furnished with floor coverings, window blinds, self-defrosting refrigerator and freezer with ice maker, range/oven, dishwasher, microwave oven, garbage disposal, stacked washer/dryer units, an emergency call system, fire sprinkler system and a telephone/data communications port. All utilities, except telephone, internet services and expanded cable television services, are included in the Monthly Service Fee (as hereinafter defined). The Independent Living Unit types and square footages planned for the Community are detailed in the table that follows RESIDENCY AGREEMENT Resident Fee Structure herein. By entering into a Residency Agreement (as hereinafter defined), a resident (the Life Care Resident ) will be entitled to life care services provided by the Obligor at the Community (the Life Care Benefit ). See RESIDENCY AGREEMENT Services to Life Care Residents herein for a further description of the services provided to Life Care Residents of the Community and RESIDENCY AGREEMENT Resident Fee Structure for a description of the types of fees paid by Life Care Residents. Catered Living Units The Catered Living Units will be located on the first floor of the northeast corner of the building. The Catered Living Units will target seniors who wish to live independently and desire priority admission to health care services, but prefer a rental program and no Life Care Benefit at The Barrington (the Catered Living Residents ). Catered Living Residents will receive additional services including extra meals, additional commons spaces, and more frequent housekeeping. The Catered Living Units will be offered as annual rental contracts and no entrance fee will be charged. Monthly first person fees will A-11

144 average approximately $5,380 in 2013 dollars. The Catered Living Units will be marketed just prior to initial occupancy of the Community. Catered Living Residents are not Life Care Residents and are not entitled to the Life Care Benefit that Life Care Residents receive. The following table summarizes the planned various types, number and approximate square footage of the Catered Living Units at the Community Monthly Catered Living Unit Type Units Square Feet Service Fee (2013 $) (1) 1 Bedroom Dunreith $4,795 1 Bedroom Hynsdale ,095 2 Bedroom Hartmoor 1 1,158 5,695 2 Bedroom Kentshire 1 1,198 5,895 2 Bedroom Laurelwood 1 1,384 6,295 Total / Wtd. Average 7 1,053 $5,381 (1) Catered Living second person fees are $1,795 in 2013 dollars. Assisted Living and Memory Support Units The Community will include 56 Assisted Living Units and 26 Memory Support Units in a secured environment (together the Assisted Living Center ). There is a separate entrance, shared with the Health Center, from a parking area to the Assisted Living Center as well as internal access from the Independent Living Units. The Assisted Living Units have been designed to foster the continued independence of persons who require varying amounts of assistance with activities of daily living. The Assisted Living Units will be private apartments with kitchenettes and full baths and will be furnished with amenities similar to the Independent Living Units, but will not include the kitchen range, dishwasher, or washer and dryer. The common areas will include a lobby, living room, multipurpose room, card room, mailroom, beauty salon/barber shop, dining room and administrative and support areas. The Memory Support Units will be private suites with full baths that will be furnished with amenities similar to the Assisted Living Units, but without kitchenettes. The Memory Support Units will have secured access and separate common areas which include similar amenities to the common areas for the Assisted Living Units. Admission to the Assisted Living Units and Memory Support Units will be provided for Life Care Residents of the Community in accordance with the terms of the Residency Agreement. The Assisted Living Units and Memory Support Units will be available for occupancy by persons other than Life Care Residents of the Community ( Direct Admit Residents ). Direct Admit Residents will be admitted, pursuant to the terms of a separate admissions agreement, on an as-available basis to the extent the Assisted Living Units and Memory Support Units are not required to accommodate Life Care Residents. Direct Admit Residents will pay a monthly service fee (the Direct Admit Monthly Service Fee ) but no entrance fee and have access to the Health Center only by paying the per diem market rate as further described below. Summarized below are the Direct Admit Monthly Service Fees Management anticipates will be effective through December 31, 2013, for Direct Admit Residents, the types of Assisted Living Units and Memory Support Units and the approximate square footage of each unit type. A-12

145 Health Center Assisted Living/Memory Support Unit Type Units Square Feet Direct Admit Monthly Service Fee (2013$) One Bedroom Standard $4,895 (1) One Bedroom Traditional ,495 (1) Two Bedroom Deluxe ,595 (1) Memory Support Suite ,295 Total/Wtd. Average $5,663 (1) There are three additional level of care fees for Direct Admit Residents applied in assisted living based on specific needs of the resident: Level 1 is an additional $450 per month, Level 2 is $900 per month and Level 3 is an additional $1,351 per month, in 2013 dollars. The Health Center will contain a total of 48 nursing beds, consisting of 28 private rooms and 10 shared-private rooms (20 beds). The shared-private rooms have separate bedrooms but a shared entryway and a shared bathroom with shower. Each shared-private room will total approximately 500 square feet, with approximately 250 square feet allocable to each bed, and private accommodations will approximate 311 square feet. Health Center common areas will include administrative, service and support areas, and resident dining, activity, lounge, common therapy suite and bathing areas. There will be a separate entrance, shared with the Assisted Living Center, as well as internal access from the Independent Living Units. The Health Center will be available for occupancy by Life Care Residents of the Community when their physical condition so requires as described under RESIDENCY AGREEMENT Services to Life Care Residents herein. The Health Center will also be available for occupancy by Direct Admit Residents of the Community. Direct Admit Residents will be admitted on a per-diem basis directly to the Health Center to the extent that the nursing beds are not required to accommodate Life Care Residents. Summarized below are the Direct Admit Private Pay Per Diem Fees planned to be effective through December 31, 2013, for Direct Admit Residents and the types of Health Center beds and approximate square footage of each unit type. Health Center Unit Type (1) Beds Square Feet per Bed Direct Admit Monthly Service Fee (2013$) Direct Admit Per Diem Rate (2013$) Private $10,025 $330 Shared-Private , Total/Wtd. Average $9,242 $304 (1) The Community intends to obtain Medicare certification for all the beds in the Health Center. Three of the ten shared-private rooms (6 beds) are planned to be utilized for Medicare. Land Purchase Agreement Carmel Land Holding, LLC ( Carmel Land Holding ), an affiliate of Greystone, currently owns the 19 acre Project Site upon which the Community will be built. Pursuant to the Land Purchase Agreement dated January 1, 2008, as amended on August 31, 2009, Carmel Land Holding will transfer the Project Site to the Obligor at the time of the closing of the Series 2012 Bonds. Carmel Land Holding purchased the Project Site in December The original land purchase by Carmel Land Holding was financed with a bank loan, which is required to be repaid upon the earlier of the closing of the Series 2012 Bonds or December 31, The mortgage lien securing this bank loan will be released upon repayment of such bank loan. In addition to the purchase price, the Obligor will pay Carmel Land Holding for acquisition and carrying costs, including (i) any legal fees and costs related to due diligence, A-13

146 (ii) legal fees and other closing costs related to the acquisition of the land to the extent paid by Carmel Land Holding, (iii) ongoing costs related to the financing and capitalization of the original land purchase, (iv) taxes, (v) insurance costs and (vi) legal fees related to the processing of entitlements to the extent paid by Carmel Land Holdings. Regulatory Permits and Approvals The various approvals and permits necessary in order for the Obligor to begin construction and commence operations are outlined below. Zoning. The Project Site is zoned to allow development of the Community as planned. Healthcare Licensure. The Obligor will be required to obtain licensure of the Assisted Living and Memory Support Units and Health Center from the State of Indiana upon completion of construction. No Certificate of Need is required to construct the Assisted Living Units, Memory Support Units, or Health Center as planned. Building Permits. Building Permits will be required from the City of Carmel. All required permits will be granted conditional upon the issuance of the Series 2012 Bonds and subsequent payment of any and all related fees. Wetlands Permits. As part of the wetland mitigation process required by the State of Indiana, the Obligor is required to improve wetlands away from the actual site, using a land pool exchange. The Army Corps of Engineer has granted a permit for the work to be performed prior to completion of the Community. Registration. The Obligor is registered with the Indiana Securities Commission and is authorized to enter into Residency Agreements with Life Care Residents. Future Plans. Depending on future demand and financial feasibility, there remains potential for further development of the Community. RESERVATION AGREEMENT In order to reserve an Independent Living Unit, a prospective Life Care Resident must execute a Reservation Agreement, provide self-disclosure of health and finances, and place a deposit of at least 7% of the Entrance Fee on the selected Independent Living Unit. See MARKETING Reservation of Independent Living Units herein. The Reservation Agreement reserves the right of the prospective Life Care Resident to choose the selected Independent Living Unit and indicates his or her intent to execute a Residency Agreement. The Reservation Agreement also provides Life Care Residents guaranteed direct admission, upon payment of the full Entrance Fee due, to the Assisted Living Center or Health Center under the Life Care Benefit, should their health needs change prior to the opening of the Community. See RESIDENCY AGREEMENT Life Care Benefit herein. Reservation Agreements will be used by the Obligor until the Community is opened. RESIDENCY AGREEMENT A Residency Agreement ( Residency Agreement ) is a contract under which the Obligor is obligated, if a prospective Life Care Resident establishes occupancy, to provide certain services to that Life Care Resident. See Services to Life Care Residents below. A-14

147 The Obligor considers applications for residence in the Independent Living Units at the Community based upon the guidelines for the acceptance of Life Care Residents described below and maintains sole discretion on the decision to accept a Life Care Resident. An application for residence at the Community will be accepted only if the applicant demonstrates the ability to live independently and to meet the financial obligations as a Life Care Resident of the selected Independent Living Unit. No dependent children may reside in the Community unless otherwise agreed by the Obligor. Persons who have not paid an Entrance Fee may be admitted to the Health Center and/or Assisted Living and Memory Support Units as Direct Admit Residents if beds are available in excess of those needed to satisfy the needs of Life Care Residents. Life Care Residents requiring care in the Health Center and/or Assisted Living and Memory Support Units will have priority utilization of the Health Center and Assisted Living Center over Direct Admit Residents. Resident Fee Structure There are two types of residency fees required of all Life Care Residents executing Residency Agreements, a one time up front fee (an Entrance Fee ) and an ongoing monthly fee for services (a Monthly Service Fee ). The Entrance Fee is a lump sum, one-time payment based on the type of Independent Living Unit to be occupied by the Life Care Resident and the type of residency plan selected. To reserve an Independent Living Unit, a prospective Life Care Resident must make an initial payment equal to at least 7% of the Entrance Fee ( Entrance Fee Deposit ) prior to or upon execution of the Reservation Agreement or Residency Agreement, and pay the remaining portion of the Entrance Fee on or before the date of occupancy. There is no additional Entrance Fee required for a second Life Care Resident living in an Independent Living Unit. The Monthly Service Fee is based on the type of Independent Living Unit selected by the Life Care Resident and the type of contract selected by the Life Care Resident. In addition to the first resident s Monthly Service Fee, an additional fee is payable for a second Life Care Resident living in an Independent Living Unit (a Second Person Fee ). The Second Person Fee is waived for Charter Residents for the duration of the Residency Agreement. Life Care Residents executing Residency Agreements during construction of the Community and subsequent to the Community s opening are anticipated to pay a Second Person Fee of $695 per month and $895 per month (in 2013 dollars), respectively. During the pre-sale period, the Obligor has offered five residency plan options to Life Care Residents of the Community. Plan A is a highly refundable contract ( Plan A ), which provides for 90% of the total Entrance Fee to be refunded for single occupancy and 80% of the total Entrance Fee to be refunded for double occupancy upon termination and re-occupancy of the departing Life Care Resident s Independent Living Unit. Plan B is a 70% refundable contract ( Plan B ), Plan C is a fully amortizing refundable contract ( Plan C ), Plan D is a 50% refundable contract ( Plan D ), and Plan E is a 100% refundable contract ( Plan E ). See the information under the caption Termination and Refunds for a detailed description of the provisions in the Residency Agreement related to termination of the Residency Agreement, refunding of Entrance Fee Deposits and amortization of Entrance Fees. It is anticipated that Plan A will continue to be offered after opening of the Community. Plans C and D may be available after opening on a limited basis. Plan B will be discontinued after opening and Plan E is no longer being offered to prospective residents. See the information under the caption Life Care Benefit for a detailed description of the Life Care Benefit. Plan A is the base pricing plan for the Community. Plan B, C, D and E are adjusted from Plan A pricing to reflect the different refund options. The Obligor has offered a limited number of Plan B, C, D and E to initial Life Care Residents. The following table illustrates the planned Monthly Service Fees and Entrance Fees under Plan A (expressed in 2013 dollars): A-15

148 Plan A Life Care Resident Pricing Monthly Service Fees (2013 $) Entrance Fees (2013 $) Independent Living Unit Type Units Square Feet Charter Pricing (1) Construction/ Standard Pricing (2)(3) Charter Pricing (1) Construction Pricing (2) Standard Pricing (3) Ladder Benefit Pricing (4) 1 Bedroom Shipton $2,057 $2,395 $208,441 $249,900 $263,783 $250,594 1 Bedroom Dunreith ,648 2, , , , ,678 1 Bedroom Hynsdale ,964 2, , , , ,816 1 Bedroom Amhurst 18 1,072 3,217 3, , , , ,955 2 Bedroom Hartmoor 14 1,212 3,595 3, , , , ,011 2 Bedroom Kentshire 14 1,198 3,595 3, , , , ,066 2 Bedroom Noblewood 9 1,277 3,773 3, , , , ,261 2 Bedroom Laurelwood 17 1,384 3,995 3, , , , ,372 Total / Wtd. Average 134 1,069 $3,187 $3,245 $357,650 $375,348 $396,200 $376,390 Charter Second Person Fees $0 Construction Second Person Fees $695 Ladder Benefit Standard Second Person Fee $895 (1) Charter Pricing refers to pricing offered to prospective residents prior to initiation of construction of the Community. See Charter Resident Benefits herein for additional information. (2) Construction Pricing refers to pricing anticipated to be offered to prospective residents during construction of the Community. (3) Standard Pricing refers to pricing anticipated to be offered to prospective residents after opening of the Community. (4) Following implementation of Standard Pricing and opening of the Community, it is anticipated that a program offering graduated Entrance Fee discounts ( Ladder Benefit Pricing ) will be offered to prospective residents to encourage timely move-ins. Source: Obligor A-16

149 The following table highlights the key differences between Plan A and the other plans and the maximum number of Life Care Residents that are initially expected to execute Residency Agreements for each type of plan. (1) Planned Number To Move - In (1) Plan B, C, D and E Life Care Resident Pricing Entrance Fee Discount off Plan A Pricing Monthly Service Fee Discount off Plan A Pricing Entrance Amortization Plan Type Fee Refund Period (2) Plan B 10 0% 20% 70% 6 months Plan C 5 30% 0% 0% 46 months Plan D 15 0% 20% 50% 11 months Plan E 3 0% 0% 100% N/A Of the prospective Life Care Residents that have signed Reservation Agreements as of August 16, 2012, 48 have selected Plan A, 15 have selected Plan B, 5 have selected Plan C, 19 have selected Plan D and 3 have selected Plan E. Plan E is no longer offered to prospective residents. For Plans B, C and D, the Obligor anticipates cancellations will occur prior to move-in resulting in the planned number of move-ins under each plan type indicated above. (2) See Termination and Refunds herein for a detailed description of the amortization periods. Source: Obligor Additional services may be available on a fee-for-service basis including, but not limited to, additional housekeeping, laundry services for personal items, catering for special occasions, tray service, additional Life Care Resident and guest meals, barber and beauty services, and underground parking. Charter Resident Benefits To encourage early commitments to residency at the Community, the Obligor offers prospective residents a package of benefits ( Charter Resident Benefits ). Charter Resident Benefits include the following: (i) approximately a 5% discount on the Entrance Fee from anticipated pricing during construction ( Charter Entrance Fee ); (ii) no second person Monthly Service Fee is charged; (iii) no increase in Monthly Service Fees through June 1, 2014; (iv) simple interest accrues at a rate of 3% on the Entrance Fee Deposit until the date the Independent Living Unit is ready for occupancy and will be paid as a credit against the Life Care Resident s initial Monthly Service Fee; (v) first two months complimentary Monthly Service Fees; (vi) discounted Life Care Benefit (hereinafter defined) equalized rate charged based on the Amhurst Monthly Service Fee, rather than the Laurelwood Monthly Service Fees charged to non-charter residents; (vii) $1,000 Independent Living Unit personalization allowance; (viii) two-year paid membership to the nearby Monon Community Center, a municipally owned and operated community and fitness center with an indoor/outdoor pool; and (ix) one complimentary underground parking space. To qualify for receipt of Charter Resident Benefits, the applicant must have submitted an Entrance Fee Deposit, executed a Reservation Agreement and qualified financially prior to the commencement of construction of the Community. Approximately 90 prospective Life Care Residents, reserving 95 Independent Living Units, qualify as Charter Residents as of August 16, As of this date five (5) Life Care Residents have each reserved two Independent Living Units. A-17

150 Financial Assistance If a Life Care Resident of the Community can no longer pay the Monthly Service Fee in full due to lack of funds for reasons beyond the control of the Life Care Resident, the Obligor may subsidize, in whole or in part, the Monthly Service Fees and other charges, provided the ability of the Obligor to operate on a sound financial basis for all Life Care Residents is not materially impaired. In the event that financial assistance is provided by the Obligor, such amounts, plus interest, may be charged against the refund of the Entrance Fee owed to a Life Care Resident upon termination of the Residency Agreement. The Obligor may also require a Life Care Resident receiving financial assistance to move to a smaller or less expensive Independent Living Unit, Assisted Living Unit, Memory Support Unit, or bed in the Health Center. Services to Life Care Residents Upon payment in full of the Entrance Fee and ongoing payment of the Monthly Service Fee, each Life Care Resident will be provided an Independent Living Unit and receive certain basic services. Services provided include: (i) meal credit system with $300 per month in Barrington Dollars to be used towards meal purchases at the various dining venues; (ii) all utilities, except telephone, internet services and premium cable television services; (iii) twice monthly housekeeping of the Independent Living Unit; (iv) twice monthly cleaning and changing of bed linens; (v) maintenance of all common areas and equipment; (vi) regularly scheduled local transportation; (vii) 24-hour monitoring of the emergency alert system; (viii) a variety of social, recreational, educational, cultural, and health wellness programs; (ix) one surface parking spot per unit; (x) one mailbox per residence; (xi) one assigned storage unit per residence; and (xii) use of dining rooms, lounges, surface parking, storage lockers, social and recreational rooms and other common activity facilities. Life Care Benefit The Obligor will provide Life Care Residents with the Life Care Benefit. The Life Care Benefit includes nursing services that are available in the Health Center or assisted living/memory support services that are available in the Assisted Living Center when a determination is made by the Life Care Resident s physician, in consultation with the Life Care Resident s family, and approved by the Community s medical director, that the Life Care Resident needs nursing care or assisted living care. The Obligor will pay for routine assisted living, memory support, and nursing care to the extent that it is not covered by the Life Care Resident s insurance, Medicare, or other governmental benefits or entitlements that Life Care Residents are required to possess and maintain under the Residency Agreement. Assisted living services will be provided in a One Bedroom Standard Assisted Living Unit and are designed to assist Life Care Residents with the activities of daily living, such as dressing, eating, bathing, medication administration, and ambulating, which are approved by the Community s medical director and delivered in accordance with the routine care included in the applicable Monthly Service Fee then in effect. Assisted living memory support services will be provided in a traditional private room located within the Memory Support Unit and are designed to assist Life Care Residents experiencing memory impairment combined with needing assistance with the activities of daily living, such as dressing, eating, bathing, toileting, medication administration, and ambulating, which are approved by the Community s medical director and delivered in accordance with the routine care included in the applicable Monthly Service Fee then in effect for the Memory Support Unit. Health Center services will be provided in a traditional private nursing room and delivered in accordance with the routine care included in the traditional nursing room rate then in effect. Residents transferred to the Assisted Living Center or the Health Center will be billed for non-routine care and ancillary services at the then-current rates for such items. A-18

151 Upon permanent transfer to the Health Center or Assisted Living Center, Life Care Residents (both first and second persons) are charged an equalized rate (the Equalized Rate ), which is equal to the then-current Monthly Service Fee for the Amhurst Independent Living Unit or the Laurelwood Independent Living Unit, for Charter or Non-Charter Residents, respectively. For single occupancy, upon permanent transfer to the Health Center or Assisted Living Center and release of the Independent Living Unit, the Life Care Resident s Monthly Service Fee will be adjusted to the Equalized Rate plus the cost of sixteen (16) additional meals per week. In the case of double occupancy of an Independent Living Unit and in the event of a permanent transfer of both Life Care Residents and release of the Independent Living Unit, the Monthly Service Fee will be adjusted to the Equalized Rate per person, plus the cost of sixteen (16) additional meals per week per person. In the case of double occupancy of an Independent Living Unit and in the event of a permanent transfer of one Life Care Resident to the Health Center or Assisted Living Center, the Monthly Service Fee will remain the same, and the transferred Resident will pay the Equalized Rate plus the cost of sixteen (16) additional meals per week. If space is not available in the Health Center or Assisted Living Center, until such space becomes available, the Obligor will arrange and pay for the Life Care Resident s temporary care in another facility of comparable quality to the same extent as if it were provided by the Obligor. Termination and Refunds Termination Prior to Occupancy. Prior to occupancy, prospective Life Care Residents with Charter Resident Benefits may terminate the Reservation Agreement and withdraw their Entrance Fee Deposits in full with actual interest earned on the escrow account by providing written notice of termination prior to occupancy. Prospective Life Care Residents who do not have the Charter Resident Benefit and terminate the Residency Agreement prior to occupancy for reasons (other than the death or serious illness of the prospective Life Care Resident, the failure of the Obligor to meet its obligations under the Reservation or Residency Agreement, or other circumstances beyond the control of the prospective Life Care Resident that equitably entitle the prospective Life Care Resident to a refund of their deposit) will receive, within 30 days of such termination, a refund of any Entrance Fee Deposit without interest. Termination of the Residency Agreement prior to occupancy due to the death or serious illness of the prospective Life Care Resident, the failure of the Obligor to meet its obligations under the Reservation or Residency Agreement, or other circumstances beyond the control of the prospective Life Care Resident that equitably entitle the prospective Life Care Resident to a refund of the their deposit results in a full refund of the Entrance Fee Deposit with interest in accordance with the Reservation or Residency Agreement. Termination After Occupancy. After occupancy, the Residency Agreement may be voluntarily terminated by the Life Care Resident at any time by providing 60 days written notice of termination to the Obligor. Upon termination of the Residency Agreement and release of the Independent Living Unit, the Obligor will refund the Entrance Fee paid by the departing Life Care Resident in accordance with the Entrance Fee plan selected, as set forth below. The Obligor may terminate the Residency Agreement of a Life Care Resident for good cause by giving at least 60 days written notice (except if Obligor terminates because there has been a good faith determination that there is a danger to the Life Care Resident or others). Good cause for Obligor to terminate the Residency Agreement includes (but is not limited to): (i) the Life Care Resident made a misrepresentation or omission in the Confidential Data Profile or related materials which, if such information had been accurately provided, would have been material to the decision whether or not to accept such person for residency; (ii) the Life Care Resident fails to comply with the policies and procedures of the Community or creates a situation detrimental to the health, safety, property or quiet enjoyment of the Community by other Life Care Residents or the staff; (iii) the Life Care Resident fails to pay the Monthly Service Fee or other amounts due; (iv) the Life Care Resident materially breaches the A-19

152 Residency Agreement; (v) the Independent Living Unit is no longer fit for occupancy and Obligor elects not to restore the Independent Living Unit to habitable condition; (vi) it is determined by a court of competent jurisdiction that the Life Care Resident is legally incapacitated or incompetent; or (vii) it is determined by the medical director that the Life Care Resident: (1) is in need of drug or alcoholic rehabilitation or any other condition for which the Obligor is not licensed or for which care cannot be provided by the Obligor without a significant and unique expenditure; or (2) is or has become mentally or emotionally disturbed to such a degree that the Life Care Resident s continued presence in the Community is determined to be detrimental to the health, safety, property or welfare of other Life Care Residents or staff. With respect to terminations and refunds under Plan A, in the case of such terminations after occupancy, the Obligor will refund the Life Care Resident an amount equal to the Entrance Fee (without interest) paid for admittance to the Community minus ten percent (10%) for single occupancy, resulting in a refund equal to 90% of the Entrance Fee, or twenty percent (20%) for double occupancy, resulting in a refund equal to 80% of the Entrance Fee. The Entrance Fee refund will be paid within ten (10) days from the later of (i) the effective date of termination of the Residency Agreement; or (ii) the date the Obligor receives Entrance Fee proceeds and an executed contract from a new Life Care Resident for occupancy of the Independent Living Unit for which an Entrance Fee refund is being generated. With respect to terminations and refunds under Plan B, in the case of such terminations after occupancy, the Obligor will refund the Life Care Resident an amount equal to the Entrance Fee (without interest) paid for admittance to the Community minus an amount equal to the sum of (a) ten percent (10%) for the first month following the occupancy date, plus (b) four percent (4%) per month for five (5) months, beginning in the second month of occupancy. If the Residency Agreement is terminated less than six (6) full months after the occupancy date, then the four percent (4%) refund reduction for the last month of occupancy shall be prorated based on the number of days of that month preceding the termination of the Residency Agreement. This refund formula results in a declining refund during the first six (6) months after the occupancy date and a refund equal to 70% of the Entrance Fee after six (6) full months. The Entrance Fee refund will be paid within ten (10) days from the later of (i) the effective date of termination of the Residency Agreement; or (ii) the date the Obligor receives Entrance Fee proceeds and an executed contract from a new Life Care Resident for occupancy of the Independent Living Unit for which an Entrance Fee refund is being generated. With respect to terminations and refunds under Plan C, in the case of such terminations after occupancy, the Obligor will refund the Life Care Resident an amount equal to the Entrance Fee (without interest) paid for admittance to the Community minus an amount equal to the sum of (a) ten percent (10%) for the first month following the occupancy date, plus (b) two percent (2%) per month for each of the 45 months following the month after the occupancy date beginning in the second month of occupancy. If the Residency Agreement is terminated less than 46 full months after the occupancy date, then the two percent (2%) refund reduction for the last month of occupancy shall be prorated based on the number of days of that month preceding the termination of the Residency Agreement. This refund formula results in a declining refund during the first 46 months after the occupancy date and a refund equal to 0% of the Entrance Fee after 46 full months. The Entrance Fee refund will be paid within 10 days from the later of (i) the effective date of termination of the Residency Agreement; or (ii) the date the Obligor receives Entrance Fee proceeds and an executed Residency Agreement from a new Life Care Resident for occupancy of the Independent Living Unit for which an Entrance Fee refund is being generated. With respect to terminations and refunds under Plan D, in the case of such terminations after occupancy, the Obligor will refund the Life Care Resident an amount equal to the Entrance Fee (without interest) paid for admittance to the Community minus an amount equal to the sum of A-20

153 (a) ten percent (10%) for the first month following the occupancy date, plus (b) four percent (4%) per month for each of the 10 months following the month after the occupancy date. If the Residency Agreement is terminated less than 11 full months after the occupancy date, then the four percent (4%) refund reduction for the last month of occupancy shall be prorated based on the number of days of that month preceding the termination of the Residency Agreement. This refund formula results in a declining refund during the first 11 months after the occupancy date and a refund equal to 50% of the Entrance Fee after 11 full months. The Entrance Fee refund will be paid within 10 days from the later of (i) the effective date of termination of the Residency Agreement; or (ii) the date the Obligor receives Entrance Fee proceeds and an executed contract from a new Life Care Resident for occupancy of the Independent Living Unit for which an Entrance Fee refund is being generated. With respect to terminations and refunds under Plan E, in the case of such terminations after occupancy, the Obligor will refund the Life Care Resident an amount equal to the Entrance Fee (without interest) paid for admittance to the Community. The Entrance Fee refund will be paid within 10 days from the later of (i) the effective date of termination of the Residency Agreement; or (ii) the date the Obligor receives Entrance Fee proceeds and an executed contract from a new Life Care Resident for occupancy of the Independent Living Unit for which an Entrance Fee refund is being generated. Refunds will be paid within 10 days from the later of (i) the effective date of termination of the Residency Agreement; or (ii) the date the Obligor receives Entrance Fee proceeds and an executed contract from a new Life Care Resident for occupancy of the Independent Living Unit for which such Entrance Fee refund is being generated. If two Life Care Residents occupy an Independent Living Unit, and one of the Life Care Residents terminates the Residency Agreement and the other Life Care Resident determines to remain in the Independent Living Unit, the Monthly Service Fee will be adjusted for single occupancy. In such cases, the Life Care Residents are not eligible for refund of the Entrance Fee until termination of the Residency Agreement by both Life Care Residents. Life Care Residents may elect to move to another Independent Living Unit, at their own expense, subject to availability and approval by the Obligor. In such event, the Residency Agreement in force will be amended to reflect the changes in Residence status. The Life Care Resident will pay the then-current Entrance Fee and Monthly Service Fees for the new Independent Living Unit. If the new residence is a less expensive residence, a refund will be generated for the refundable portion of the Entrance Fee paid for the vacated residence in excess of the refundable portion of the Entrance Fee then in effect for the new residence, and will be paid consistent with the Entrance Fee refund provisions of such resident s contract s plan. Marketing Program MARKETING Marketing efforts for the Community began in November 2008 with a Priority Program. Greystone conducted a direct mail campaign, on behalf of the Obligor, including a business reply card, to age and income qualified persons in the greater Carmel and Indianapolis, Indiana areas. Prospective Life Care Residents were placed on a priority list and given a priority number and were not required to place a monetary deposit in order to do so ( Priority Members ). Approximately 435 Priority Members signed up prior to the start of conversions to Entrance Fee Deposits in November The Community initiated conversions during the beginning of the recession and got a slower than anticipated response from Priority Members to the conversion program. As a result, the Obligor proactively chose to suspend the conversion program from approximately December 2008 through September During this time, A-21

154 the Obligor adjusted the project scope, resident pricing, resident programs and design of the Community to better respond to the market and economic climate, resulting in the Community described herein. Community adjustments included a reduction in the number of Independent Living Units, a reduction in the Entrance Fee pricing to better match home values, an increase in the number of alternate Entrance Fee contracts to broaden the market appeal, and the elimination of the second person Monthly Service Fee for second person Charter Residents to increase interest. Reservation of Independent Living Units A prospective Life Care Resident may reserve an Independent Living Unit at the Community by submitting a Confidential Data Profile, including health and financial disclosure, executing a Reservation Agreement (or a Residency Agreement after opening of the Community) and submitting an Entrance Fee Deposit. The execution of a Reservation Agreement or Residency Agreement does not constitute a binding commitment to establish occupancy at the Community on the part of any prospective Life Care Resident. Prior to occupancy, prospective Life Care Residents may terminate their Reservation Agreement or Residency Agreement from time to time and receive refunds of all amounts paid to the Obligor. See RESIDENCY AGREEMENT Termination and Refunds herein. Priority Members were offered the opportunity to enter into a Reservation Agreement beginning initially in November 2008 and then again in September As required by the Indiana Securities Division, as part of the reservation process, a prospective Life Care Resident is provided a disclosure statement that includes a complete Residency Agreement. Through August 16, 2012, 95 of the 134 available Independent Living Units (representing approximately 70.9% of the total available Independent Living Units of the Community) are reserved by prospective Life Care Residents who have paid an Entrance Fee Deposit and executed a Reservation Agreement. As of this date five (5) Life Care Residents have each reserved two Independent Living Units. Number of Units Reserved Number of Cancellations/ Refunds Net Reservations for Month Cumulative Units Reserved Cumulative % of Total Units Year/Month November 2008 August % September % October % November % December % January % February % March % April % May % June % July % August % September % October % November % December % January % February % March % April % A-22

155 Number of Units Reserved Number of Cancellations/ Refunds Net Reservations for Month Cumulative Units Reserved Cumulative % of Total Units Year/Month May % June 2011 (1) % July 2011 (2) % August % September % October % November % December % January % February % March % April % May % June % July % August 2012 (3) % Total/Average Source: Obligor (1) St. Vincent Affiliation kick-off event and public announcement occurred on June 14, (2) First announcement that Charter Resident Benefits are ending was sent in July (3) As of August 16, The data submitted by prospective Life Care Residents is evaluated and reviewed by the Obligor to determine the suitability of accepting applicants for residency at the Community as Life Care Residents. A description of the criteria used to evaluate prospective Life Care Residents applications is set forth in RESIDENCY AGREEMENT herein. Prospective Life Care Residents are subsequently notified of the decision to accept or reject their applications. In the case of prospective Life Care Residents accepted for residency, Reservation Agreements (or Residency Agreements after opening of the Community) are executed by the prospective Life Care Residents and the Obligor. In the case of applicants rejected for residency, their Entrance Fee Deposit is refunded within thirty days. The Obligor has not yet initiated marketing for services contemplated for the Assisted Living Units, Memory Support Units, or the Health Center, but will initiate a health care oriented training of marketing personnel, direct marketing and presentations to the network of senior care givers in the Carmel, Fishers and Indianapolis area and establish personal contact with hospital discharge planners and physicians shortly before completion of construction of the Community. Management anticipates that the affiliation with St. Vincent will be instrumental in this marketing effort. PRE-FINANCE DEVELOPMENT COSTS It is anticipated that pre-finance development costs will total approximately $11,200,000. Of this amount, $10,200,000 was funded by GCI Carmel, L.P. (see DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY Greystone Development Consulting Services herein). The remaining $1,000,000 of pre-finance development costs is being funded directly by SQLC for use by the Obligor in the pre-finance development activities of the Community pursuant to the SQLC Funding Agreement. Upon the closing of the Series 2012 Bonds, the amount of pre-finance development costs funded by A-23

156 SQLC in excess of $200,000 will be reimbursed to SQLC, which reimbursement is estimated to be approximately $800,000. SQLC LSA has agreed to provide $2,000,000 of liquidity support to the Obligor pursuant to the Liquidity Support Agreement. Also, as funds are released from the Special Project Liquidity Support Fund, SQLC has agreed in the SQLC Loan Agreement to make loans to the Obligor in amounts totaling as much as $1,875,000. The subordinated notes relating to these amounts are described in more detail under GOVERNANCE AND MANAGEMENT SQLC Subordinated Loans herein. For information on the Liquidity Support Agreement, see the description under the caption LIQUIDITY SUPPORT AGREEMENT in the front part of this Official Statement. DEVELOPMENT AND MANAGEMENT OF THE COMMUNITY Greystone Development Consulting Services Greystone performs consulting services for the development of the Community under the direction of the Obligor. Greystone Development Services XIX, LLC ( GDS ) is a Delaware joint venture comprised of GCI Carmel, L.P. (the Limited Partnership ) and GDC. Pursuant to the joint venture agreement, the Limited Partnership s role is to fund the pre-finance development costs (the Prefinance Capital ). GDC s role is to manage the joint venture and to provide all services, on behalf of Greystone, which are required to be performed pursuant to the Development Consulting Agreement. See Development Consulting Agreement and Management and Marketing Services Agreement below. Neither the Limited Partnership nor GDC is obligated to make payments on the Series 2012 Bonds. All risk for advances of pre-finance development costs associated with the failure to achieve closing on the financing will be borne by the Limited Partnership. GCI Carmel, L.P. The Limited Partnership was formed to initially fund up to $7,500,000 of the Pre-finance Capital. The Limited Partnership also funded subsequent Pre-finance Capital contributions of $600,000, $800,000, $800,000, and $500,000. The General Partner of the Limited Partnership is GDC Carmel, LLC, a Delaware limited liability company. The General Partner is a wholly-owned subsidiary of Greystone Partners, Ltd. which is controlled by principals of Greystone. Limited partners in the Limited Partnership currently include The Ziegler Companies, Inc., Ziegler Equity Funding IV, LLC, Ziegler Equity Funding V, LLC, Greystone Senior Living Investments, L.P. and SQLC. Since 2009, Charles B. Brewer has been a limited partner of Greystone Senior Living Investments, L.P. which owns an interest in GCI Carmel. As a result of his investment in Greystone Senior Living Investments, L. P., Mr. Brewer s indirect interest in GCI Carmel, L.P. predated SQLC s affiliation with the Obligor. In connection with SQLC s affiliation with the Obligor, Mr. Brewer divested the indirect interest he had in GCI Carmel, L.P. while retaining his limited partnership interest in Greystone Senior Living Investments, L.P. Greystone Senior Living Investments L.P. is also controlled by principals of Greystone. The Pre-finance Capital funded by the Limited Partnership, along with a Fixed Base Fee (hereinafter defined) in the amount of $4,916,670, will be repaid to the Limited Partnership upon delivery of the Series 2012 Bonds. The remaining $3,750,000 of the Fixed Base Fee will be paid from the proceeds of the Series 2012 Bonds or from funds of the Obligor, as such funds are released from the Liquidity Support Funds pursuant to the Liquidity Support Agreement subject to a subordinated note. Approximately $1,875,000 of the $3,750,000 Fixed Base Fee that will be paid over time is attributable to SQLC s participation in the Limited Partnership. Upon receipt of these funds, SQLC has agreed under the SQLC Loan Agreement to loan such funds to the Obligor. The $1,875,000 loan will be secured pursuant to a subordinated note the terms of which are described under GOVERNANCE AND MANAGEMENT SQLC Subordinate Loans herein. See also LIQUIDITY SUPPORT AGREEMENT in the front part of this Official Statement and PRE- FINANCE DEVELOPMENT COSTS, Development Consulting Agreement and Management and Marketing Services Agreement herein. See also GOVERNANCE AND MANAGEMENT A-24

157 Relationship of Parties for information about Mr. Brewer s and SQLC s investment in the Limited Partnership. The Development Consultant GDC and GDS The Obligor entered into a Development Consulting Agreement (hereinafter defined) effective December 7, 2007 with GDC, as amended, and as assigned to GDS. GDC, a Delaware limited partnership, has been engaged to provide development consulting services during the planning and development of the Community. GDC and its affiliates are owned by Greystone Partners II, LP, a privately held partnership including employees of GDC. Many of the senior corporate officers of GDC have been with Greystone since the formation of its operating predecessors dating back to GDC specializes in providing planning, development, marketing, management and strategic consulting services related to all areas of the senior housing and services business. GDC currently has a staff of approximately 125 persons. Greystone Development Experience GDC is currently, or has been, responsible for more than 100 senior living community development and expansion projects. Senior living communities, both completed and in-process, for which Greystone has provided development services within the past five years include: Sponsor Project Status Clear Springs League City, Texas (Methodist Retirement Communities, Inc.) Field Home Cortlandt Manor, New York (Field Home Holy Comforter) East Ridge Retirement Village Cutler Bay, Florida (East Ridge Retirement Village, Inc., an affiliate of SantaFe Senior Living, Inc.) El Castillo Retirement Residences Santa Fe, New Mexico (El Castillo Retirement Residences, Inc.) 100 Independent Living Apartments 8 Catered Living Apartments 34 Assisted Living Apartments 24 Memory Support Apartments 48 Nursing Home Beds 102 Independent Living Apartments 40 Existing Assisted Living Apartments 40 Existing Memory Support Apartments 96 Replacement Nursing Home Beds Existing Units 220 Existing Independent Living Cottages Expansion 60 Assisted Living Apartments 23 Memory Support Apartments 60 Nursing Home Beds Existing Units 122 Existing Independent Living Apartments 16 Existing Assisted Living Apartments 13 Existing Nursing Home Beds Expansion 7 Assisted Living Apartments 11 Memory Support Apartments 19 Nursing Home Beds 2014 estimated construction start 2013 estimated construction start 2013 estimated construction start 2012 estimated construction start A-25

158 Sponsor Project Status The Terraces at Los Altos Los Altos, California (American Baptist Homes of the West, an affiliate of Cornerstone Affiliates) The Terraces at Harris Ranch Boise, Idaho (Boise Retirement Community, an affiliate of Cornerstone Affiliates) Edgewood Summit Charleston, West Virginia (Edgewood Summit, Inc.) Concordia Life Care Community Oklahoma City, Oklahoma (Lutheran Senior Citizens, Inc.) Redstone Village Huntsville, Alabama (Redstone Military Residence Association) The Terraces at San Joaquin Gardens Fresno, California (American Baptist Homes of the West, an affiliate of Cornerstone Affiliates) The Terraces at Bonita Springs Bonita Springs, Florida (Bonita Springs Retirement Village, an affiliate of SantaFe Senior Living, Inc.) Arbor Oaks at Crestview Bryan, Texas (Methodist Retirement Communities, Inc.) Redstone Village Huntsville, Alabama (Redstone Military Residence Association) Miralea Louisville, Kentucky (Masonic Homes of Kentucky) Existing Units 24 Existing Independent Living Apartments Expansion 81 Independent Living Apartments 30 Assisted Living Apartments 16 Memory Support Apartments 30 Nursing Home Beds 138 Independent Living Apartments 12 Independent Living Cottages 40 Assisted Living Apartments 24 Memory Support Apartments 48 Nursing Home Beds Phase III 18 Memory Support Apartments 20 Nursing Home Beds Phase II 18 Independent Living Apartments 6 Memory Support Apartments Phase V 16 Nursing Home Beds Phase II 86 Independent Living Apartments 20 Assisted Living Apartments 24 Memory Support Apartments 54 Nursing Home Beds 144 Independent Living Apartments 49 Assisted Living Apartments 18 Memory Support Apartments 40 Nursing Home Beds Phase II 92 Independent Living Apartments Phase IV 36 Independent Living Apartments 90 Independent Living Apartments 12 Independent Living Cottages 2012 estimated construction start 2012 estimated construction start 2012 estimated construction start 2012 estimated construction start 2012 estimated construction start 2012 estimated construction start To Open 2013 To Open 2013 To Open 2012 To Open 2012 A-26

159 Sponsor Project Status The Admiral at the Lake Chicago, Illinois (The Admiral at the Lake) Park Place of Elmhurst Elmhurst, Illinois (Providence Life Services) GreenFields of Geneva Geneva, Illinois (Friendship Village of Mill Creek, NFP, an affiliate of Friendship Senior Options, Inc.) Crestview Retirement Community Bryan, Texas (Methodist Retirement Communities, Inc.) The Stayton at Museum Way Fort Worth, Texas (Tarrant County Senior Living Center, Inc., an affiliate of Senior Quality Lifestyles Corp.) Aberdeen Heights Kirkwood, Missouri (Ashfield Active Living and Wellness Communities, Inc., an affiliate of Presbyterian Manors of Mid-America Corp.) Mirador Corpus Christi, Texas (SQLC Senior Living Center at Corpus Christi, an affiliate of Senior Quality Lifestyles Corp.) The Amsterdam at Harborside Port Washington, New York (Amsterdam House CCRC, Inc.) The Boulders at RiverWoods Exeter, New Hampshire (The RiverWoods Company, at Exeter, New Hampshire, Inc.) 200 Independent Living Apartments 39 Assisted Living Apartments 17 Memory Support Apartments 36 Nursing Home Beds 173 Independent Living Apartments 10 Catered Living Apartments 46 Assisted Living Apartments 20 Memory Support Apartments 37 Nursing Home Beds 147 Independent Living Apartments 51 Assisted Living Apartments 26 Memory Support Apartments 43 Nursing Home Beds Phase I 48 Assisted Living Apartments 18 Memory Support Apartments 48 Nursing Home Beds 181 Independent Living Apartments 7 Catered Living Apartments 42 Assisted Living Apartments 20 Memory Support Apartments 46 Nursing Home Beds 243 Independent Living Apartments 30 Catered Living Apartments 15 Memory Support Apartments 38 Nursing Home Beds 125 Independent Living Apartments 44 Assisted Living Apartments 18 Memory Support Apartments 41 Nursing Home Beds 229 Independent Living Apartments 26 Assisted Living Apartments 18 Memory Support Apartments 56 Nursing Home Beds 76 Independent Living Apartments 24 Independent Living Cottages 24 Assisted Living Apartments 16 Nursing Home Beds To Open 2012 Opened 2/12 Opened 1/12 Opened 11/11 Opened 10/11 Opened 9/11 Opened 6/11 Opened 8/10 Opened 3/10 A-27

160 Sponsor Project Status Skyline at First Hill Seattle, Washington (Presbyterian Retirement Communities Northwest) Edgewater West Des Moines, Iowa (Wesley Retirement Services, Inc.) The Terraces at San Joaquin Gardens Fresno, California (American Baptist Homes of the West, an affiliate of Cornerstone Affiliates) The Village Gainesville, Florida (North Florida Retirement Village, Inc., an affiliate of SantaFe HealthCare, Inc.) Redstone Village Huntsville, Alabama (Redstone Military Residence Association) Newcastle Place Mequon, Wisconsin (Newcastle Place, Inc., an affiliate of Milwaukee Protestant Home, Inc.) The Woodlands at Furman Greenville, South Carolina (Upstate Senior Living, Inc.) Brethren Village Lancaster, Pennsylvania (Brethren Village Retirement Community) The Clare at Water Tower Chicago, Illinois (The Clare at Water Tower, Inc., an affiliate of Franciscan Sisters of Chicago Service Corporation) 199 Independent Living Apartments 60 Assisted Living Apartments 16 Memory Support Apartments 34 Nursing 137 Independent Living Apartments 14 Independent Living Cottages 32 Assisted Living Apartments 16 Memory Support Apartments 40 Nursing Home Beds Phase I 47 Independent Living Apartments Existing Units 289 Independent Living Apartments 45 Independent Living Cottages 46 Assisted Living Apartments 20 Memory Support Apartments Expansion 170 Independent Living Apartments 60 Assisted Living Apartments Phase III 32 Memory Support Apartments Phase II 50 Independent Living Apartments 19 Independent Living Cottages 132 Independent Living Apartments 32 Assisted Living Apartments 16 Memory Support Apartments 30 Nursing Home Beds Phase I 135 Independent Living Apartments 36 Assisted Living Apartments 25 Memory Support Apartments 120 Nursing Home Beds 248 Independent Living Apartments 39 Assisted Living Apartments 15 Memory Support Apartments 32 Nursing Home Beds Opened 10/09 Opened 8/09 Opened 7/09 Opened 7/09 Opened 7/09 Opened 06/09 Opened 4/09 Opened 1/09 Opened 12/08 A-28

161 Sponsor Project Status Redstone Village Huntsville, Alabama (Redstone Military Residence Association) The Village at Gleannloch Farms Spring, Texas (The Village at Gleannloch Farms, Inc., an affiliate of Lutheran Social Services of the South) The Legacy at Willow Bend Plano, Texas (The Legacy Senior Communities, Inc., an affiliate of Dallas Home for Jewish Aged, Inc.) The Terraces of Phoenix Phoenix, Arizona (American Baptist Estates, an affiliate of Cornerstone Affiliates) Santa Marta Olathe, Kansas (The Archdiocese of Kansas City in Kansas) The Landing at Plymouth Place La Grange Park, Illinois (Plymouth Place, Inc.) Holy Cross Village at Notre Dame Notre Dame, Indiana (Holy Cross Village at Notre Dame, Inc., an affiliate of Brothers of Holy Cross) Edgemere Dallas, Texas (Northwest Senior Housing Corporation, an affiliate of Senior Quality Lifestyles Corp.) Luther Oaks Bloomington, Illinois (Luther Oaks, Inc., an affiliate of Lutheran Life Communities) Hartsfield Village Munster, Indiana (Community Hospital) Phase II 3 Independent Living Apartments 5 Independent Cottages 10 Assisted Living Apartments 103 Independent Living Apartments 20 Independent Living Cottages 30 Assisted Living Apartments 18 Memory Support Apartments 35 Nursing Home Beds 103 Independent Living Apartments 12 Independent Living Villas 40 Assisted Living Apartments 18 Memory Support Apartments 60 Nursing Home Beds Phase II and III 50 Independent Living Apartments 138 Independent Living Apartments 24 Independent Living Cottages 32 Assisted Living Apartments 16 Memory Support Apartments 32 Nursing Home Beds 182 Independent Living Apartments 55 Existing Independent Living Cottages 52 Assisted Living Apartments 26 Memory Support Apartments 86 Nursing Home Beds 96 Independent Living Apartments 30 Assisted Living Apartments 12 Nursing Home Beds Phase II 48 Independent Living Apartments 90 Independent Living Apartments 40 Assisted Living Apartments 18 Memory Support Apartments Phase II 24 Assisted Living Apartments 24 Memory Support Apartments Opened 8/08 Opened 6/08 Opened 4/08 Opened 2/08 Opened 11/07 Opened 10/07 Opened 10/07 Opened 9/07 Opened 8/07 Opened 07/07 A-29

162 Sponsor Project Status Querencia at Barton Creek Austin, Texas (Barton Creek Senior Living Center, Inc., an affiliate of Senior Quality Lifestyles Corp.) The Chelsea Columbus, Ohio (First Community Village) 158 Independent Living Apartments 10 Independent Living Cottages 40 Assisted Living Apartments 20 Memory Support Apartments 42 Nursing Home Beds 88 Independent Living Apartments 12 Independent Living Cottages 38 Assisted Living Apartments 36 Memory Support Apartments Opened 6/07 Opened 6/07 Greystone Corporate Officers The senior corporate officers of Greystone include the following individuals: Michael B. Lanahan, Chairman. Mr. Lanahan founded Greystone in Formerly, he was Senior Vice President at Blyth Eastman Paine Webber Health Care Funding, Inc., where in addition to financing hospitals, he initiated the firm s activities financing senior living communities and long-term care facilities using conventional debt, tax-exempt and taxable revenue bonds and FHA programs. Before joining Blyth, Mr. Lanahan was in the commercial real estate division of Citibank in New York. He has authored numerous articles on senior housing and is a frequent speaker at national conferences. Mr. Lanahan received a B.A. from Syracuse University and an M.B.A. from the University of Virginia. Paul F. Steinhoff, Jr., Vice Chairman and Chief Executive Officer. Mr. Steinhoff joined Greystone in He has responsibility for overseeing the planning, finance, marketing, development and management divisions of Greystone. Prior to joining Greystone, Mr. Steinhoff was a Partner at Touche Ross & Co., (now Deloitte & Touche) where he specialized in financial consulting to a wide range of industries including health care, senior housing and real estate. Mr. Steinhoff was National Director of Touche Ross Life Care Consulting Practice and conducted the Feasibility Study for the first life care community financed with tax-exempt debt in Mr. Steinhoff is a frequent speaker at national conferences. Mr. Steinhoff received his B.B.A. in Business Statistics and his M.B.A. in Accounting and Finance from the University of Texas. Mr. Steinhoff is a Certified Public Accountant. Mark P. Andrews, President and Chief Operating Officer. Mr. Andrews joined Greystone in Mr. Andrews is responsible for overseeing the delivery of development services, including planning, finance, development and marketing to Greystone clients; and establishing new business opportunities, and client and lender relationship management. He also provides direction to Greystone s consulting practice, including strategic planning, financial advisory, mergers and acquisitions and management consulting. He has been involved with the planning, development and financing of more than $3 billion of senior living projects. Prior to joining Greystone Mr. Andrews was with Deloitte & Touche in the management consulting practice. Mr. Andrews received an M.B.A. in finance from the A.B. Freeman School of Business at Tulane University. John C. Spooner, Executive Vice President. Mr. Spooner joined Greystone in He has responsibility for the occupancy development of senior living communities developed and managed by Greystone, as well as third-party marketing engagements. Mr. Spooner s experience includes 25 years in marketing a variety of housing options to seniors involving more than 30,000 units. Mr. Spooner s responsibilities included sales, marketing, recruitment, advertising and market evaluation. Mr. Spooner received a B.A. in Public Administration/Economics from Drake University, an Advanced Fellowship in A-30

163 Economics from University of London, and completed graduate work in marketing at the University of Pittsburgh. Bruce C. Byers, Senior Vice President. Mr. Byers is responsible for the overall marketing efforts of senior living communities developed by Greystone. He coordinates and assists marketing efforts between regional sales team members and clients. He has worked in the senior living industry for twenty years and has been involved with the marketing of over seventy senior living communities from California to Maine. Prior to joining Greystone, Mr. Byers was the Senior Vice President of Sales for a senior living development company. Mr. Byers is a graduate of Indiana University of Pennsylvania. Richard W. Cumberland, Senior Vice President. Mr. Cumberland has direct responsibility for supervising Greystone s Management Operations and Financial Services teams. These teams include approximately thirty professionals providing corporate support to Executive Directors who oversee Greystone managed communities. Prior to joining Greystone in 1999, Mr. Cumberland was Regional Executive Director for a Florida CCRC corporation for over twelve years, including oversight of two large CCRCs of approximately 2,000 residents and staff of 1,400. Mr. Cumberland majored in Theology and Music at Nyack College in Nyack, NY. James D. Knox, Senior Vice President. Mr. Knox is responsible for Greystone Financial Support Services, including oversight of community accounting functions, preparation of monthly financial and operational reports and coordination of the annual budget process. He is also responsible for analysis of operating results, projection of future performance and compliance with regulatory reporting requirements. Prior to his current position, Mr. Knox was part of Greystone s Planning and Financial Services Department. Prior to joining the company in 1994, Mr. Knox was a Senior Associate with Coopers & Lybrand in Dallas, Texas, where he provided accounting and financial services to clients in several industries. Mr. Knox received a B.S. from Iowa State University and a Masters of Professional Accounting from The University of Texas at Austin. Mr. Knox is a Certified Public Accountant. David C. McDowell, AIA, Senior Vice President. Mr. McDowell is responsible for overseeing and managing the development activities at Greystone. In addition, he is responsible for reviewing the design efforts of outside consultants to insure consistency of product design with Greystone s senior living philosophy. Prior to joining Greystone in 1994, Mr. McDowell was a Partner in the architectural firm of Fusch Serold and Partners, Inc. and was the principal architect for the firm s senior living work. Mr. McDowell is a registered architect with over 25 years of senior living experience. Mr. McDowell received a Bachelor of Architecture from Texas Tech University. Brian G. Schiff, Senior Vice President. Mr. Schiff is responsible for the planning and financing of new project developments and acquisitions. He has responsibility for leading Greystone s consulting services including strategic planning, financial advisory, mergers and acquisitions and troubled-project advisory services. Prior to joining Greystone, Mr. Schiff served as a partner and practice leader in two national consulting practices as well as serving as an officer for the post-acute services of a regional hospital system and a national long term care organization. He has over 25 years of experience in the health care industry. Mr. Schiff received a B.A. from Colgate University with a triple major in History, German and International Relations and an M.B.A. from the University of Virginia. Janelle E. Wood, First Vice President and Chief Financial Officer. Ms. Wood s primary responsibilities include financial planning and management functions. She has responsibility for all corporate finance and accounting activities, such as customer billing, financial reporting, budgeting and cash management. Prior to joining Greystone in 2000, Ms. Wood was the Controller for a company in Richardson, Texas, and a consultant with Price Waterhouse where she provided accounting and financial A-31

164 services to clients in several industries. Ms. Wood received a B.B.A. from Baylor University. Ms. Wood is a Certified Public Accountant. Development Consulting Agreement The Obligor entered into a Development Consulting Agreement effective December 7, 2007 (the Development Consulting Agreement ), as amended. Under the Development Consulting Agreement, GDS will be responsible for development consulting services for the Community. The Development Consulting Agreement calls for GDS to provide the following services: (a) all necessary planning to implement the business plan for the Community, approved by the Obligor, including any revisions thereto; (b) preparation of detailed budgets for each phase of development activity, which are to be submitted for approval by Obligor; (c) assistance in obtaining all necessary governmental approvals required for the development and construction of the Community; (d) assist the Obligor with selection of design consultants and a pre-construction consultant, and coordinate submission of plans and specifications to the Obligor for the Obligor s approval; (e) review of architectural plans and specifications; (f) development of a Resident services program; (g) development and supervision of the marketing plan for the Community to prospective Residents; (h) assistance in securing permanent financing for the Community; (i) assistance in negotiating and awarding a construction contract for the Community, and thereafter monitoring the progress of construction; (j) preparation of monthly cost reports; (k) assistance with filing and disclosure requirements; (l) assistance with preparation of operating budget and other pre-opening management services; (m) funding of $10.2 million of Pre-finance Capital (provided by the Limited Partnership); (n) assistance with site acquisition; and (o) assistance with land due diligence and entitlement processing. The Obligor will exercise final authority on the following matters: selection of the site and final approval and execution of the land contract and acquisition of land; approval of architect, other design professionals, engineering professionals, and pre-construction consultants; approval of final working drawings; selection and engagement of a source of permanent financing, as defined in the Development Consulting Agreement, and the execution of all commitments with respect to financing; selection and engagement of a feasibility consultant and actuarial consultant; selection and engagement of a general contractor for construction; negotiation and execution of a construction contract; final approval of all budgets for planning, development, construction and marketing prepared by GDS; approval of all regulatory filings or public disclosure for the Community; selection and engagement of the media and promotion firm for the Community and approval of marketing materials for the Community; approval of the form of Reservation Agreement and Residency Agreement and approval of all actual Reservation Agreements and Residency Agreements; and final approval of the business plan prepared by GDS. As compensation for consulting services rendered pursuant to the Development Consulting Agreement, the Obligor will pay GDS a fee (the Consulting Fee ) consisting of a fixed base fee, a variable base fee, an initial fill-up fee and an incentive occupancy fee. The fixed base fee is equal to $8,666,670 (the Fixed Base Fee ). The variable base fee is equal to $4,838,375 (the Variable Base Fee ). The initial fill-up fee will equal the lesser of $1,200,000 or 2.675% of the initial Entrance Fees collected through 90% occupancy of the Independent Living Units (the Initial Fill-Up Fee ). The Initial Fill-Up Fee will only be due for units which have not been previously occupied. The incentive occupancy fee (the Incentive Occupancy Fee ) will range from $125,000 to $1,000,000 and will be paid only if certain Independent Living Unit occupancy milestones are achieved. Based on the current Community fill-up projections of the Obligor included in the Feasibility Study, an Incentive Occupancy Fee of $125,000 is anticipated to be earned. The Variable Base Fee, Initial Fill-Up Fee and the Incentive Occupancy Fee represent a fee for consulting services rendered. A-32

165 The Fixed Base Fee of $8,666,670 will be paid as follows: $4,916,670 upon the issuance of the Series 2012 Bonds; the remaining $3,750,000 of the Fixed Base Fee will be paid over time either from the proceeds of the Series 2012 Bonds or from funds of the Obligor. Upon satisfaction of the release conditions as described in LIQUIDITY SUPPORT AGREEMENT Reductions of the Liquidity Support Obligations Anticipated Reductions Initial Regular Reduction, up to $1,875,000 of the Fixed Base Fee, plus any interest earnings thereon also distributed under the Liquidity Support Agreement with respect to such payment, shall be paid. Unless all of the remaining amount of Fixed Base Fee has been previously paid, upon satisfaction of the release conditions as described in 'LIQUIDITY SUPPORT AGREEMENT Reductions of the Liquidity Support Obligations Anticipated Reductions Final Regular Reduction, or High Performance Reduction up to $3,750,000 of the Fixed Base Fee, plus any earnings also distributed under the Liquidity Support Agreement with respect to such payment, shall be paid. If upon final distribution of all funds in the Supplemental Liquidity Support Fund the Fixed Base Fee is not paid in full, the Obligor shall immediately pay to GDS the lesser of (a) the amount of the Fixed Base Fee still due or (b) sixty percent (60%) of the amount which would create a Cash to Indebtedness Ratio that is equal to, but not less than, the minimum Cash to Indebtedness Ratio required by the Master Indenture on the applicable succeeding June 30 or December 31 (each, a Development Fee Liquidity Testing Date ). Thereafter, within 60 days after each succeeding Development Fee Liquidity Testing Date, Obligor shall immediately pay to GDS in cash, the lesser of (a) the amount of the Fixed Base Fee still due or (b) sixty (60%) of the amount which would create a Cash to Indebtedness Ratio that is equal to, but not less than, the minimum Cash to Indebtedness Ratio required by the Master Indenture on the applicable Development Fee Liquidity Testing Date. To the extent that the Fixed Base Fee is paid from funds of the Obligor, no payment will be made which will result in the Obligor, on the date of payment, falling below the Cash to Indebtedness Ratio required by the Master Indenture as described in APPENDIX C DEFINITIONS AND SUMMARIES OF PRINCIPAL FINANCING DOCUMENTS Summary of the Master Indenture Liquidity Covenant, herein. The Variable Base Fee has been/will be paid as follows: (i) $599,350 upon commencement of development consulting services, (ii) $599,350 paid pro-rata over 12 months after commencement of development consulting services, (iii) $299,675 paid upon the presale of twenty-five percent (25%) of the Independent Living Units, (iv) $1,875,000 upon issuance of the Series 2012 Bonds, (v) $515,000 paid in equal installments during the construction period of the Community, (vi) $225,000 upon initial occupancy by the first Life Care Resident of the Community, (vii) $225,000 paid upon obtaining all licenses required for all occupancy of the Assisted Living Center and Health Center components of the Community and related common areas, (viii) upon satisfaction of the initial release conditions with respect to the Supplemental Liquidity Support Fund, $250,000 plus any interest earnings thereon also distributed under the Liquidity Support Agreement with respect to such payment, and (ix) upon satisfaction of the final release conditions with respect to the Supplemental Liquidity Support Fund, $500,000 plus any interest earnings thereon also distributed under the Liquidity Support Agreement with respect to such payment, less the amount described in (viii) above. If upon final distribution of all funds in the Supplemental Liquidity Support Fund the Variable Base Fee is not paid in full, the Obligor shall immediately pay to GDS the lesser of (a) the amount of the Variable Base Fee still due or (b) eight percent (8%) of the amount which would create a Cash to Indebtedness Ratio that is equal to, but not less than, the minimum Cash to Indebtedness Ratio required by the Master Indenture on the applicable Development Fee Liquidity Testing Date. Thereafter, within 60 days after each succeeding Development Fee Liquidity Testing Date, Obligor shall immediately pay to GDS in cash, the lesser of (a) the amount of the Variable Base Fee still due or (b) eight (8%) of the amount which would create a Cash to Indebtedness Ratio that is equal to, but not less than, the minimum Cash to Indebtedness Ratio required by the Master Indenture on the applicable Development Fee Liquidity Testing Date. To the extent that the Variable Base Fee is paid from funds of the Obligor, no payment will be made which will result in the Obligor, on the date of payment, falling below the Cash to Indebtedness Ratio required by the Master Indenture. A-33

166 The Initial Fill-Up Fee will be paid upon achieving key milestones relating to occupancy of the Independent Living Units. The Initial Fill-Up Fee will be paid as follows: (i) an amount equal 43.75% of the Initial Fill-Up Fee shall be paid on a pro-rata basis upon the occupancy of each Independent Living Unit, up to 90% occupancy (approximately $525,000 in total), (ii) an amount equal to 18.75% of the Initial Fill-Up Fee (approximately $225,000) shall be paid upon the Community having achieved 65% occupancy of the Independent Living Units, (iii) an amount equal to 18.75% of the Initial Fill-Up Fee (approximately $225,000) shall be paid upon the Community having achieved 80% occupancy of the Independent Living Units, and (iv) an amount equal to the remainder of the Initial Fill-Up Fee shall be paid (approximately $1,200,000 minus the cumulative amounts in (i), (ii) and (iii) above) upon the Community having achieved 90% occupancy of the Independent Living Units. In addition, upon achieving an accelerated fill-up, GDS would be eligible to receive additional compensation of $1,000,000 if 90% aggregate occupancy of all Independent Living Units is achieved within 15 months of obtaining a certificate of occupancy, $900,000 if 90% occupancy of all Independent Living Units is achieved within 18 months, $700,000 if 90% occupancy of all Independent Living Units is achieved within 21 months, $250,000 if 90% occupancy of all Independent Living Units is achieved within 24 months, $175,000 if 90% occupancy of all Independent Living Units is achieved within 30 months or $125,000 if 90% occupancy of all Independent Living Units is achieved within 36 months as an Incentive Occupancy Fee. Based on the current Community fill-up expectations of an aggregate 90% occupancy of the Independent Living Units within 36 months, $125,000 is assumed to be earned. A-34

167 Fixed Base Fee $8,666,670 Variable Base Fee, Initial Fill-Up Fee and Incentive Occupancy Fee Fees Paid Prior To Issuance of the Series 2012 Bonds Upon commencement of Development Consulting Services $599,350 During 12 months following commencement of services 599,350 Upon 25% pre-sales 299,675 Subtotal fees paid prior to issuance of the Series 2012 Bonds $1,498,375 Fees Paid After Issuance of the Series 2012 Bonds Upon Closing of the Series 2012 Bonds $1,875,000 During construction period 515,000 Subtotal fees paid after issuance of the Series 2012 Bonds $2,390,000 Fees Paid After Opening of the Community Upon initial Life Care Resident occupancy $225,000 Upon obtaining licenses for the Assisted Living Center and Health Center 225,000 Pro-rata over fill-up for each Independent Living Unit through 90% 525,000 occupancy Upon 65% occupancy of the Independent Living Units 225,000 Upon 80% occupancy of the Independent Living Units 225,000 Upon 90% occupancy of the Independent Living Units 225,000 Upon 90% occupancy of the Independent Living Units in 36 months 125,000 Upon initial release of Liquidity Support Funds from the Liquidity Support Agreement 250,000 Upon final release of Liquidity Support Funds from the Liquidity Support Agreement 250,000 Subtotal fees paid after opening of the Community $2,275,000 Total Variable Base Fee, Initial Fill-Up Fee & Incentive Occupancy Fee $6,163,375 Source: Obligor and Greystone. Pursuant to the terms of the Development Consulting Agreement, the Obligor will also reimburse GDS for all reasonable out-of-pocket travel expenses for personnel employed by GDS and a 3.5% administrative fee on the Variable Base Fee, Initial Fill-Up Fee and Incentive Occupancy Fee to cover miscellaneous office expenses. Management and Marketing Services Agreement The Obligor entered into a Management and Marketing Services Agreement (the Management Agreement ), as amended with GMS on December 7, 2007 under which GMS will serve as manager of the Community (the Manager ) and manage day-to-day operations of the Community. Pursuant to the terms of the Management Agreement, the Manager is required to provide all management services necessary to operate the Community, including but not limited to, financial management, purchasing, public relations, recruitment of personnel, and supervision of the day-to-day operations and programs of the Community. The duties of GMS under the Management Agreement include, among other things, preparing annual budgets; contracting for utilities and other operation and maintenance services; purchasing A-35

168 necessary furniture, fixtures, equipment and supplies; preparing monthly statements of operations; obtaining and maintaining all licenses, permits and approvals; recruiting, hiring, and if necessary, discharging personnel to maintain and operate the Community and with the Obligor, providing training and instruction to personnel with respect to the policies and procedures of the Community adopted by the Obligor; assisting with the identification, hiring and training of a qualified and experienced Executive Director for the Community; overseeing the computer equipment and accounting software provided by the Obligor; collecting the revenues of the Community; maintaining proper books of account and records; assisting Obligor in obtaining necessary technical and professional assistance to meet local, state and federal regulatory requirements; preparing ongoing marketing programs after reaching 90% occupancy; at the direction and expense of the Obligor, overseeing certified public accountants selected by the Obligor to prepare annual audits of the books, records and accounting procedures of the Community; at the direction and expense of the Obligor, assisting the Obligor in engaging counsel and causing such legal proceedings to be instituted as may be necessary to enforce payment of charges or compliance with other terms of Reservation Agreements and Residency Agreements; procuring and maintaining insurance coverages approved by Obligor; in consultation with the Obligor, preparing an Annual Budget, operating strategies and forecasts for the Community and recommending adjustments and/or revisions; and, in general, operating the Community in accordance with the comparable senior living communities in the greater Indianapolis area in compliance with the Obligor s direction, budget, and applicable statutes, ordinances, rules and regulations. The Management Agreement will commence on a date determined by the Manager and agreed upon by the Obligor, which is anticipated to be approximately twelve months prior to the first day of scheduled occupancy by the first Life Care Resident of the Community (the Commencement Date ). The Management Agreement is for a term of 120 months, subject to termination by Obligor with or without cause by providing 120 days written notice. As compensation for services rendered pursuant to the Management Agreement, the Obligor will pay the Manager a management fee (the Management Fee ) and a new occupant fee (the New Occupant Fee and, together with the Management Fee, the Management and Marketing Fee ). The Obligor will pay the Manager an initial Management Fee of $18,750 per month from the Commencement Date through the month of scheduled initial occupancy by a Life Care Resident. Thereafter, the Obligor will pay the Manager a Management Fee subsequent to initial occupancy that will be adjusted periodically to be: Occupancy Months Management Fees Total Monthly Fee Months 1-12 $18,750 Months $26,250 Months 25 and thereafter $35,625 After the Community has achieved 90% occupancy, the Obligor will pay the Manager a New Occupant Fee equal to 1.5% of the gross Entrance Fees collected from time to time from the re-occupancy of the Independent Living Units. The New Occupant Fee will be earned and paid on a monthly basis, but in no event shall exceed the lesser of $50,000 annually or 20% of the Management and Marketing Fee. In performance of its obligations under the Management Agreement, GMS is an independent contractor and, except as described above, is not subject to any right of control of the Obligor over the methods by which GMS carries out its delegated duties. In addition to the Management and Marketing A-36

169 Fee, the Obligor will pay the Manager three and one-half percent (3.5%) of the Management and Marketing Fee on a monthly basis as a reimbursement for Manager s overhead expenses related to the Community, including, without limitation, long distance phone calls, copying, express delivery service, and postage. Construction Contract OTHER PROFESSIONAL SERVICES The Obligor has executed the Construction Contract with the General Contractor for construction of the Community based on cost of the work plus a fee with a guaranteed maximum price of $49,662,964. The Construction Contract requires the General Contractor to substantially complete construction of the Community within 18 months from the Commencement Date with the first delivery of Independent Living Units complete within 14 months of the Commencement Date. In the event the General Contractor does not substantially complete each construction component within the specified construction period, the General Contractor will be liable for liquidated damages for each day of delay past the required date of substantial completion for each stage of the project. The General Contractor acknowledges that delivery of the commons and support areas for the Independent Living Units a minimum of 15 days prior to initial occupancy is critical. Liquidated damages are outlined in the following chart based on assumed daily debt service equal to $21,000. Delivery Phase Area Phase 1 Independent and partial Assisted Living Commons Phase 2 Independent Living Wing C and partial Wing D (39 Units) Phase 3 Assisted Living and Memory Support Units and remaining Commons (82 units) Phase 4 Skilled Nursing (38 units) Phase 5 Independent Living Wing B (30 units) Phase 6 Independent Living Wing A, including Catered Living Units (18 units) Phase 7 Independent Living Wing D and Wing E (54 units) % of Project Liquidated Damages Per Day days days days 30% 55% 100% 15% (1) $941 $1,726 $3,138 15% (1) $941 $1,726 $3,138 31% $1,979 $3,629 $6,598 15% $917 $1,682 $3,057 11% $724 $1,328 $2,414 7% $434 $797 $1,448 21% $1,303 $2,390 $4,345 Total (1) 100% $6,300 $11,550 $21,000 (1) The combined daily total for Phase 1 and Phase 2 liquidated damages may not exceed 15%. A-37

170 Based on early start work which was initiated on July 27, 2012 and an August 30, 2012 full notice to proceed, contractually required delivery dates are as follows: Area Phase 1 Independent Living and partial Assisted Living Commons Phase 2 Independent Living Wing C and partial Wing D (39 Units) Phase 3 Assisted Living and Memory Support Units and remaining Commons (82 units) Phase 4 Skilled Nursing (38 units) Phase 5 Independent Living Wing B (30 units) Phase 6 Independent Living Wing A, including Catered Living Units (18 units) Phase 7 Independent Living Wing D and Wing E (54 units) Delivery in Days Contract Delivery Date (1) 410 October 14, October 30, November 21, November 30, December 14, January 13, March 5, 2014 (1) The Contract Delivery Date indicates substantial completion. Operational licensure will be required for Assisted Living, Memory Support and Skilled Nursing prior to occupancy. The General Contractor is required under the Construction Contract to furnish the Obligor with a performance bond and a labor and materials payment bond, each in the amount of 100% of the guaranteed maximum price under the Construction Contract. The General Contractor The Obligor has selected LECESSE Construction Services, LLC as the General Contractor for The Barrington. The General Contractor is a large construction management firm with offices in New York and Florida, whose work is concentrated in New York, New England, the Mid-Atlantic, Mid- Western and Southeastern states. The General Contractor has constructed or renovated multiple public and private buildings specializing in senior housing and healthcare facilities, large multi-family housing campuses, higher education campuses and cultural centers. In addition to providing professional construction management, the General Contractor also offers conceptual estimating services, value engineering services, design-build, design-build plus services and real estate development expertise. A-38

171 Recent senior housing projects of the General Contractor include the following: Project Location Sponsor/Owner Year Complete Camphill Elder Chatham, NY Camphill Ghent, Inc. In Process 78 Initiative CDS Monarch Webster, NY Continuing Development In Process 45 Services Coburg Village Rexford, NY Lutheran Care Network In Process 78 Expansion Fairport Apartments Fairport, NY Fairport Apartments, LLC In Process 104 Highlands at Pittsford: Pittsford, NY Highlands at Pittsford In Process New Life Hillhaven Pittsford, NY Rochester General Hospital In Process Jewish Home, QLIP Rochester, NY Jewish Home of Rochester In Process 362 Renovations Shaker Pointe Latham, NY Sisters of St. Joseph In Process 10 St. Ann s Home Webster Webster, NY St. Ann Community In Process St. Ann s Home Portland Rochester, NY St. Ann Community In Process Lodge at Avila Albany, NY Teresian House Housing Council The Friendly Home Rochester, NY The Friendly Home of Rochester Wilcox Lane Canandaigua, Wilcox Lane Senior Citizens NY Housing Boulders at Riverwoods Exeter, NH Riverwood Corporation Glenmere Expansion Pittsford, NY Cloverwood Senior Living, Project Inc. Arbor Ridge Rhinebeck, Anchor Ridge at Brookmeade NY Good Shepherd Endwell, NY Good Shepherd Cherry Ridge Webster, NY St. Ann s Community Hawthorne Ridge E. Greenbush, Hawthorne Ridge, Inc NY Windham Willows Windham, NY Catskill Senior Housing Senior Apartments Cottages at the Highlands Rochester, NY Highland Community Development Corp. St. Johnland Nursing Kins Park, NY St. Johnland Nursing Center Facility The Ridge at Riverwoods Exeter, NH The Riverwoods Corporation Units A-39

172 The Architect AG Architecture, Inc. has been involved with the design of, and focused particular attention on, senior living communities throughout the United States since Design responsibilities have ranged from master planning to complete design of new communities, subsidized housing, renovations and additions to existing facilities. Ongoing and recently completed continuing care retirement community projects include: Facility Location Year Construction Completed The Terraces at Bonita Springs Bonita Springs, FL Under Construction Miralea Louisville, KY Under Construction Aberdeen Heights Kirkwood, MO 2011 The Waterford Juno Beach, FL 1978/2006 Stoneridge Mystic, CT 2005 Luther Oaks Bloomington, IL 2005 Edgewater Des Moines, IA 2005 New Castle Place Mequon, WI 2005 Three Crowns Park Evanston, IL 2003 Milwaukee Protestant Home Milwaukee, WI 2003 Santa Marta Olathe, KS 1998/2002 Washington and Jane Smith Community Chicago, IL 2002 Smith Crossing Orland Park, IL 2002 St. Mary of the Woods Avon, OH 2002 Blakeford at Green Hills Nashville, TN 1994 Oakbrook Commons Dearborn, MI 1990 Construction Consultant The construction consulting firm of zumbrunnen, Inc. ( zumbrunnen ), a full-service national construction consulting company founded in 1989 that specializes in the senior living industry, has been selected to review construction progress, quality, and contractor application for payment requests on a monthly basis for the Community during the construction period. In addition, zumbrunnen has provided the pre-construction consulting services described in the next paragraph. zumbrunnen has developed unique, industry-specific due-diligence, construction consulting and facility assessment services to fulfill financial institutions requirements for start-up, expansion and renovation projects. Prior to construction, zumbrunnen s responsibilities included conducting a review of the Community s scope, including engineering designs, project budgets, drawings, specifications, permits, construction contracts and fees. In its report, zumbrunnen concluded, among other things, that (i) the design for the Community is suitable for this type of project and geographic area; (ii) the geotechnical report was prepared in accordance with industry standards and adequate construction contingency funds will be available to fund potential additional costs that may be encountered during earthwork operations and road and foundation construction due to unsuitable soils, wet weather and ground water; (iii) the Phase I Environmental Site Assessment was prepared in accordance with industry standards and no additional testing or reporting was required except as described in the Official Statement under RISK FACTORS - Environmental Matters and updates based on the actual date of the financial closing; (iv) required design documents and permits will be achieved as required without interruption of the critical path of the Community; (v) the ALTA/ASCM Land Title Survey of the Project Site indicated that no designated rights-of-way, easements or portions of the site are within a flood-prone area; (vi) the required utilities will be available to the Project site and meet the capacity requirements of the Community; (vii) A-40

173 the projected total substantial completion schedule consists of 18 months; and (viii) in view of the project budgets for construction, permits, fees, architectural and engineering, furnishings and contingency, adequate funds will be available to complete construction and obtain the required Certificates of Occupancy for operations. zumbrunnen stated in its report that it was in general agreement with the terms of, and recommended the execution of, the construction contract with the General Contractor. During the construction process, zumbrunnen will be responsible for: (i) reviewing and certifying all disbursement requests for the payment of expenses incurred by the Obligor for work, labor, materials and equipment furnished in connection with the construction of the Community that are included in the construction contract with the General Contractor; (ii) monitoring such items as change orders, budget amendments, updates to the construction schedule, releases of liens, governmental approvals and the final as-built survey; and (iii) reporting to the holders of the Series 2012 Bonds, no less than monthly, the status of the Community including (a) whether the total project account balance (including estimated investment income) is sufficient to pay the expected remaining costs of completing the Community in accordance with the project budget and that there is no project deficit; (b) the current timing of the construction of the Community; and (c) the amount of remaining contingency funds. A-41

174 [THIS PAGE INTENTIONALLY LEFT BLANK]

175 APPENDIX B FINANCIAL FEASIBILITY STUDY

176 [THIS PAGE INTENTIONALLY LEFT BLANK]

177 MAYFLOWER COMMUNITIES, INC. FINANCIAL FEASIBILITY STUDY FOR THE YEARS ENDING DECEMBER 31, 2012 THROUGH 2017

178 TABLE OF CONTENTS Independent Accountants Report... B-1 Forecasted Statements of Operations and Changes in Unrestricted Net Assets For the Years Ending December 31, 2012 through B-6 Forecasted Statements of Cash Flows For the Years Ending December 31, 2012 through B-7 Forecasted Statements of Financial Position December 31, 2012 through B-8 Forecasted Schedule of Financial Ratios For the Year Ending December 31, B-9 Summary of Significant Forecast Assumptions and Accounting Policies: Background and Information... B-10 Plan of Finance... B-26 Market Assessment... B-36 Summary of Significant Accounting Policies... B-80 Management s Basis for Forecast of Revenue and Entrance Fees... B-82 Management s Basis for Forecast of Expenses... B-93 Management s Basis for Forecast of Other Items... B-96 Sensitivity Analyses... B-101

179 INDEPENDENT ACCOUNTANTS REPORT Board of Directors Mayflower Communities, Inc. Carmel, Indiana We have prepared a financial feasibility study (the Study ) of the plans of Mayflower Communities, Inc. (the Corporation ) a Delaware non-profit, non-stock corporation, qualified to do business in Indiana, to develop, own and operate a continuing care retirement community in Carmel, Indiana, to be known as The Barrington of Carmel ( The Barrington or the Community ). The Community is planned to consist of 271 total units which will include 134 independent living units, 7 catered living units, an assisted living center containing 56 assisted living units and 26 memory support assisted living units, and a 48-bed nursing facility, as well as related common areas. Proceeds from the issuance of the Series 2012 Bonds (as defined subsequently herein) and other available funds, are planned to be used by the Corporation to construct and equip the Community and pay for other related costs (the Project ). Senior Quality Lifestyles Corporation ( SQLC ), a Texas not-for-profit corporation, is the Corporation s sole member. SQLC is anticipated to provide liquidity support to the Corporation by funding $200,000 of Project costs through the issuance of a subordinated note. An affiliate of SQLC, SQLC LSA, LLC, is anticipated to provide liquidity support to the Corporation through the deposit of $2,000,000 into a special trust fund (the Liquidity Support Fund ) held in the custody of The Bank of New York Mellon Trust Company, N.A. (as the bond trustee and master trustee the Trustee ), in the name of the Corporation under a liquidity support agreement (the Liquidity Support Agreement ) which deposit will be evidenced through the issuance of a subordinated note. In addition, the Corporation is anticipated to provide additional liquidity support through the deposit of $4,250,000 of proceeds from the Series 2012 Bonds into two special trust funds ($2,375,000 will be deposited into the Supplemental Liquidity Support Fund and $1,875,000 will be deposited into the Special Project Liquidity Support Fund ) held in the custody of the Trustee in the name of the Corporation under the Liquidity Support Agreement. Greystone Development Services XIX, LLC ( GDS ) is responsible for providing development consulting services for the Community pursuant to a development consulting agreement between the Corporation and Greystone Development Company II, LP ( GDC ) and its permitted assignee, GDS (the Development Consulting Agreement ). Greystone Management Services Company, LLC ( GMS ) has been engaged as manager of the Community. GDS, GDC and GMS are collectively referred to as Greystone. Management of the Community refers to management of the Corporation, SQLC, and GMS (collectively Management ). SQLC and its affiliates (other than the Corporation) and Greystone will not be obligated to pay debt service on the Series 2012 Bonds or other financial obligations of the Corporation. Accordingly, the forecasted financial statements include only the forecasted financial results of the Corporation, and do not include the financial results of SQLC or its affiliates, or Greystone. B-1

180 Board of Directors Mayflower Communities, Inc. Carmel, Indiana The Study was undertaken to evaluate the ability of the Corporation to generate sufficient funds to meet its operating expenses, working capital needs, and other financial requirements, including the debt service requirements associated with the proposed issuance of the $119,020,000 Revenue Bonds (The Barrington of Carmel Project) Series 2012 (the Series 2012 Bonds ). The Corporation s underwriter B. C. Ziegler and Company (the Underwriter ) has indicated the following structure and terms of the Series 2012 Bonds: $94,575,000 of tax-exempt fixed rate bonds (the Series 2012A Bonds ), net of an original issue discount of approximately $1,045,000, consisting of term maturities to November 15, 2047 with annual principal sinking fund payments assumed to begin on November 15, 2017, with assumed average annual interest rates ranging from 6.00 percent to percent and average annual yields ranging from 6.25 percent to 7.30 percent. $3,000,000 of tax-exempt Accelerated Redemption Reset Option Securities (ARROS SM ) (the Series 2012B Bonds ) with a stated maturity date of November 15, 2047, with quarterly principal payments assumed to begin on August 15, 2015 and full redemption assumed to occur on November 15, The Series 2012B Bonds are assumed to initially bear interest at an average annual interest rate of 6.00 percent until November 15, 2019 (the Initial Rate Change Date ) at which time the Series 2012B Bonds will bear interest at a rate and for a period determined in accordance with the bond indenture. $14,445,000 of fixed rate Tax Exempt Mandatory Paydown Securities (TEMPS SM ) (The Series 2012C Bonds ) consisting of: $3,515,000 of Series 2012C-1 Tax Exempt Mandatory Paydown Securities (TEMPS-75 SM ) with a stated maturity date of November 15, 2019, anticipated to be redeemed in full by approximately August 15, 2015, with quarterly principal payments assumed to begin on August 15, 2015, and bearing interest at an assumed average interest rate of 5.75 percent. $7,905,000 of Series 2012C-2 Tax Exempt Mandatory Paydown Securities (TEMPS-65 SM ) with a stated maturity date of November 15, 2018, anticipated to be redeemed in full by approximately August 15, 2015 with quarterly principal payments assumed to begin on February 15, 2015, and bearing interest at an assumed average interest rate of 5.25 percent. $3,025,000 of Series 2012C-3 Tax Exempt Mandatory Paydown Securities (TEMPS-50 SM ) with a stated maturity date of November 15, 2018, anticipated to be redeemed in full by February 15, 2015 with quarterly principal payments assumed to begin on November 15, 2014, and bearing interest at an assumed average interest rate of 4.50 percent. $7,000,000 of fixed rate Taxable Mandatory Paydown Securities (Taxable MPS) (the Series 2012D Bonds ), with a stated maturity date of November 15, 2017, anticipated to be redeemed in full by November 15, 2014 with quarterly principal payments assumed to begin on August 15, 2014, and bearing interest at an assumed average interest rate of 6.25 percent. Principal on the Series 2012B Bonds, Series 2012C Bonds and the Series 2012D Bonds is anticipated to be paid from a portion of the anticipated entrance fee receipts from initial residents of the Community s independent living units. B-2

181 Board of Directors Mayflower Communities, Inc. Carmel, Indiana The proceeds from the Series 2012 Bonds, together with anticipated entrance fee receipts from the initial occupancy of the Community s independent living units, a subordinated note from SQLC, a subordinated note from SQLC LSA, LLC, and investment earnings on trustee-held funds relating to the Series 2012 Bonds will be used, among other things, to fund: All Project-related costs for the Community including development consulting, marketing, construction, architectural, pre-opening costs and a portion of post-opening marketing costs; Debt service reserve funds for the Series 2012 Bonds; Interest for the Series 2012 Bonds for a period of approximately 20 months; Costs of issuance related to the Series 2012 Bonds; A working capital fund; An operating reserve fund; and A Liquidity Support Fund, a Supplemental Liquidity Support Fund, and a Special Project Liquidity Support Fund. Our procedures included analysis of: The Corporation s objectives, timing, and financing; Management s assessment of the current and future demand for the Corporation s services, including consideration of: Economic and demographic characteristics of Management s defined primary market area for the Community; Locations, capacities, and comparable market information pertaining to other existing and planned senior care facilities in the Community s primary market area; and Forecasted occupancy and utilization levels of the Community; Project-related costs; Debt service requirements and estimated financing costs of the Series 2012 Bonds; Staffing requirements, salaries and wages, related fringe benefits and other operating expenses of the Community; Anticipated entrance fees, monthly service fees, and per diem charges for the Community's residents; Sources of other Community operating and non-operating revenues; and Community revenue, expense, and volume/utilization relationships. Management has set forth its significant forecast assumptions upon which the accompanying forecasted financial statements are based in the Study in the section entitled, Summary of Significant Forecast Assumptions and Accounting Policies. These assumptions are integral and essential to an understanding of Management s forecasted financial statements. The accompanying financial forecast as of December 31, 2012, 2013, 2014, 2015, 2016, and 2017, and for each of the six years then ending (the Forecast Period ), is based upon assumptions provided by, or reviewed with, and approved by Management. The financial forecast includes the following forecasted financial statements of the Corporation: Forecasted Statements of Operations and Changes in Unrestricted Net Assets; Forecasted Statements of Cash Flows; and Forecasted Statements of Financial Position. In addition, Management has summarized and included a Forecasted Schedule of Financial Ratios. B-3

182 Board of Directors Mayflower Communities, Inc. Carmel, Indiana We have examined the accompanying financial forecast. Management is responsible for its financial forecast. Our responsibility is to express an opinion on the forecast based on our examination. Our examination was conducted in accordance with attestation standards for an examination of a financial forecast established by the American Institute of Certified Public Accountants and, accordingly, included such procedures as we considered necessary to evaluate both the assumptions used by Management and the preparation and presentation of the forecast. We believe that our examination provides a reasonable basis for our opinion. Management s financial forecast has been prepared for the specific purpose of presenting the forecasted financial statements of financial position, results of operations, changes in unrestricted net assets, and cash flows of the Corporation. As discussed on page B-10, this financial forecast takes into account circumstances that were not anticipated at July 9, 2012, the date a previous forecast was issued for the same Forecast Period, and that forecast should no longer be relied upon. We previously examined and, on July 9, 2012, reported on the previous forecast. Our report on that forecast is withdrawn and should no longer be relied upon for any purpose. Legislation and regulations at all levels of government have affected and may continue to affect the operations of continuing care retirement communities, including revenues and expenses of facilities, such as the Corporation s. The financial forecast is based upon legislation and regulations currently in effect. If future legislation or regulations related to the Corporation s operations are subsequently enacted, such legislation or regulations could have a material effect on future operations. A substantial number of prospective residents of the Community s independent living units are assumed to sell their current homes to pay the entrance fee prior to occupancy or to meet other financial obligations for entry into the Community. If prospective residents encounter difficulties in selling their current home due to local or national economic conditions affecting the sale of residential real estate, there could be a delay in the forecasted fill-up of the Community and/or the remarketing of vacated units, which could have an adverse impact on the liquidity and revenues of the Corporation and the ability to provide for payment of the debt service associated with the Series 2012 Bonds. Management s financial forecast is based on the achievement of occupancy levels as determined by Management. We have not been engaged to evaluate the effectiveness of Management and we are not responsible for future marketing efforts and other Management actions upon which actual results will depend. The interest rates, principal payments, and other financing assumptions are described in the section entitled Summary of Significant Forecast Assumptions and Accounting Policies. If actual interest rates, principal payments, or funding requirements are different from those assumed, the amount of the Series 2012 Bonds and associated debt service requirements would need to be adjusted, accordingly, from those indicated in the forecast. If such interest rates, principal payments, and funding requirements are lower than those assumed, such adjustments would not adversely affect the forecast. Sensitivity analyses of certain of Management s forecast assumptions and the potential impact on the Corporation s forecasted annual debt service coverage and certain liquidity ratios are presented beginning on page B-101 of the Summary of Significant Forecast Assumptions and Accounting Policies. Management has conducted these sensitivity analyses on its financial forecast. We have not examined these sensitivity analyses. Our conclusions are presented below: The accompanying financial forecast indicates that sufficient funds could be generated to meet the Corporation s operating expenses, working capital needs, and other financial requirements, including the debt service requirements associated with the Series 2012 Bonds during the Forecast Period. However, the achievement of any financial forecast is dependent upon future events, the occurrence of which cannot be assured. B-4

183 Board of Directors Mayflower Communities, Inc. Carmel, Indiana In our opinion, the accompanying financial forecast is presented in conformity with guidelines for presentation of a forecast established by the American Institute of Certified Public Accountants, and the underlying assumptions provide a reasonable basis for Management s financial forecast. However, usually there will be differences between the forecasted and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. We have no responsibility to update this Study for events and circumstances occurring after the date of this Study. Minneapolis, Minnesota August 16, 2012 CliftonLarsonAllen LLP B-5

184 MAYFLOWER COMMUNITIES, INC. FORECASTED STATEMENTS OF OPERATIONS AND CHANGES IN UNRESTRICTED NET ASSETS FOR THE YEARS ENDING DECEMBER 31, (000s Omitted) OPERATING REVENUES Net Resident Service Revenue: Independent and Catered Living Units $ - $ 1 $ 2,050 $ 4,387 $ 5,630 $ 6,084 Assisted Living Center ,664 5,655 5,962 6,051 Health Center - - 1,712 5,381 5,718 5,650 Amortization of Entrance Fees Interest Income Other Revenue Total Operating Revenues ,289 16,723 19,009 19,849 OPERATING EXPENSES Assisted Living and Memory Support Services ,481 1,525 1,571 Health Center Services ,398 2,057 2,310 2,375 Dietary Services ,071 1,919 2,172 2,244 Housekeeping and Laundry Services Resident Activities and Transportation Services Plant Operations and Maintenance ,080 1,313 1,465 1,509 Property and Related Administrative Services ,476 1,662 1,697 1,666 Marketing , Depreciation and Amortization ,135 3,171 3,196 3,226 Interest Expense - 1,038 7,873 7,104 6,683 6,676 Total Operating Expenses 293 3,430 18,407 20,890 21,138 21,038 CHANGE IN UNRESTRICTED NET ASSETS (293) (3,339) (11,118) (4,167) (2,129) (1,189) UNRESTRICTED NET ASSETS, BEGINNING (542) (835) (4,174) (15,292) (19,459) (21,588) UNRESTRICTED NET ASSETS, ENDING $ (835) $ (4,174) $ (15,292) $ (19,459) $ (21,588) $ (22,777) See Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Report B-6

185 MAYFLOWER COMMUNITIES, INC. FORECASTED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDING DECEMBER 31, (000s Omitted) CASH FLOWS FROM OPERATING ACTIVITIES Change in Unrestricted Net Assets $ (293) $ (3,339) $ (11,118) $ (4,167) $ (2,129) $ (1,189) Non-Cash Items and Other Adjustments to Operations: Depreciation and Amortization ,135 3,171 3,196 3,226 Amortization of Bond Discount Amortization of Entrance Fees - (18) (539) (777) (875) (912) Interest Expense Accrued - Subordinated Note Funded Pre-opening Costs Funded Marketing Costs Expensed Deferral of Corporation's Allocated Overhead (Increase) Decrease in Operating Assets: Accounts Receivable, Residents - (2) (125) (176) (38) (9) Prepaid Expenses - (73) (66) (58) (4) 22 Increase (Decrease) in Operating Liabilities: Accounts Payable (44) Accrued Expenses 1, (38) Net Cash Provided (Used) by Operating Activities 1,002 (1,671) (7,639) (1,103) 474 1,406 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Property, Plant and Equipment - (17) (150) (200) (250) (300) Payment of Project Costs (Including Capitalized Interest) (24,830) (50,781) (12,710) (403) (384) - (Increase) Decrease in Project Fund (59,664) 45,926 13, Increase in Investments (19,191) (3,872) (Increase) Decrease in Liquidity Support Fund (2,000) ,000 (Increase) Decrease in Supplemental Liquidity Support Fund (2,375) ,188 (Increase) Decrease in Special Project Liquidity Support Fund (1,875) (Increase) Decrease in Operating Reserve Fund - - (3,000) - 3,000 - (Increase) Decrease in Working Capital Fund - (3,495) (2,601) 559 5,537 - (Increase) Decrease in Entrance Fee Fund and Deposits (3,657) 1,480 4,363 - (Increase) Decrease in Debt Service Reserve Funds (8,913) (Increase) Decrease in Funded Interest Fund (11,307) 7,692 3, (Increase) Decrease in Bond Funds - - (629) 75 (75) 1 Net Cash Provided (Used) by Investing Activities (110,964) (447) (5,495) 2,983 (7,000) (1,046) CASH FLOWS FROM FINANCING ACTIVITIES Payment of Financing Costs (3,303) Proceeds from Issuance of Series 2012 Bonds 117, Increase (Decrease) in Subordinated Note 2, (63) Increase (Decrease) in Deferred Fixed Base Fee 3, (1,875) Increase (Decrease) in Deferred Development Consulting Fees (250) Repay Investor Capital, Net of 2012 Advances (9,596) Principal Payments on Series 2012 Bonds - - (7,820) (16,625) - (895) Payment of Funded Pre-opening Expenses (39) (711) Payment of Funded Marketing Costs (1,527) (1,158) (1,084) (539) - - Receipt of Independent Living Units Initial Entrance Fees - 4,064 22,247 14,212 4,484 - Independent Living Units Turnover Entrance Fees, Net ,075 2,042 2,723 Net Cash Provided (Used) by Financing Activities 109,962 2,205 13,544 (1,877) 6,526 (360) INCREASE IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning CASH AND CASH EQUIVALENTS - ENDING $ - $ 87 $ 497 $ 500 $ 500 $ 500 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid for Interest $ 1,670 $ 8,021 $ 8,001 $ 7,209 $ 6,676 $ 6,676 See Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Report B-7

186 MAYFLOWER COMMUNITIES, INC. FORECASTED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, (000s Omitted) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ - $ 87 $ 497 $ 500 $ 500 $ 500 Accounts Receivable, Residents Prepaid Expenses Current Portion of Assets Limited as to Use 3,416 3,188 1, Total Current Assets 3,416 3,350 2,364 1,786 1,671 1,657 ASSETS LIMITED AS TO USE Liquidity Support Fund 2,000 2,000 2,000 2,000 2,000 1,000 Supplemental Liquidity Support Fund 2,375 2,375 2,375 2,375 2,375 1,187 Special Project Liquidity Support Fund 1,875 1,875 1,875 1,875 1, Operating Reserve Fund - - 3,000 3, Working Capital Fund - 3,495 6,096 5, Entrance Fee Fund - - 4,871 4, Debt Service Reserve Funds 8,913 8,913 8,475 7,542 7,542 7,542 Project Fund 59,664 13, Funded Interest Fund 11,307 3, Bond Funds Resident Deposits 2,414 2, Total Assets Limited as to Use 88,548 38,197 30,832 27,246 14,421 11,295 Less: Current Portion of Assets Limited as to Use 3,416 3,188 1, Noncurrent Assets Limited as to Use 85,132 35,009 29,231 26,460 13,792 10,667 PROPERTY, PLANT AND EQUIPMENT At Cost - 80,355 93,215 93,818 94,452 94,752 Less: Accumulated Depreciation ,636 4,995 7,379 9,793 Total Property, Plant and Equipment (Net) - 80,042 90,579 88,823 87,073 84,959 OTHER ASSETS Construction in Progress, Project Costs 29, Deferred Financing Costs 3,303 3,288 3,195 3,102 3,009 2,916 Deferred Marketing Costs 5,702 6,575 6,360 5,641 4,922 4,203 Investments ,191 23,063 Total Other Assets 38,562 9,863 9,555 8,743 27,122 30,182 Total Assets $ 127,110 $ 128,264 $ 131,729 $ 125,812 $ 129,658 $ 127,465 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current Maturities of Long-Term Debt Entrance Fee Deposits 2,414 2, Accounts Payable Accrued Salaries, Benefits, and Payroll Taxes Accrued Interest 1,002 1, Total Current Liabilities 3,416 3,382 2,359 1,697 2,390 2,406 LONG-TERM LIABILITIES Long-Term Debt 117, , ,189 93,594 92,729 91,814 Corporation's Allocated Overhead ,113 1,378 Subordinated Notes 2,202 2,209 2,216 2,223 2,230 2,174 Deferred Fixed Base Fee 3,750 3,750 3,750 3,750 3,750 1,875 Deferred Development Consulting Fees Refundable Entrance Fees - 3,222 22,578 36,221 41,995 44,347 Deferred Revenue from Entrance Fees - 1,056 4,823 6,430 6,539 5,998 Total Long-Term Liabilities 124, , , , , ,836 Total Liabilities 127, , , , , ,242 NET ASSETS Unrestricted Net Assets (835) (4,174) (15,292) (19,459) (21,588) (22,777) Total Net Assets (835) (4,174) (15,292) (19,459) (21,588) (22,777) Total Liabilities and Net Assets $ 127,110 $ 128,264 $ 131,729 $ 125,812 $ 129,658 $ 127,465 See Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Report B-8

187 MAYFLOWER COMMUNITIES, INC. FORECASTED SCHEDULE OF FINANCIAL RATIOS FOR THE YEAR ENDING DECEMBER 31, (000s Omitted, Except Ratios) DEBT SERVICE COVERAGE RATIO 2017 CHANGE IN UNRESTRICTED NET ASSETS $ (1,189) NON-CASH ITEMS AND ADD-BACKS: Amortization of Entrance Fees (912) Depreciation and Amortization 3,226 Interest Expense 6,676 Net Cash Received from Turnover Entrance Fees 2,723 Deferral of Corporation's Allocated Overhead 265 INCOME AVAILABLE FOR DEBT SERVICE $ 10,789 ACTUAL ANNUAL DEBT SERVICE (1) $ 7,541 ACTUAL ANNUAL DEBT SERVICE COVERAGE RATIO (2) 1.43 MAXIMUM ANNUAL DEBT SERVICE (3) $ 7,542 MAXIMUM ANNUAL DEBT SERVICE COVERAGE RATIO (4) 1.43 CASH TO LONG-TERM DEBT (2) CASH AND CASH EQUIVALENTS $ 500 INVESTMENTS 23,063 SPECIAL PROJECT LIQUIDITY SUPPORT FUND (5) 938 DEBT SERVICE RESERVE FUND 7,542 TOTAL $ 32,043 TOTAL LONG-TERM DEBT OUTSTANDING (6) $ 91,814 CASH TO LONG-TERM DEBT 35% DAYS CASH ON HAND (2) CASH AND CASH EQUIVALENTS $ 500 INVESTMENTS 23,063 SPECIAL PROJECT LIQUIDITY SUPPORT FUND (5) 938 TOTAL $ 24,501 OPERATING EXPENSES (7) $ 17,540 DAILY CASH OPERATING EXPENSES $ 48 NUMBER OF DAYS OF CASH ON HAND 510 Notes: (1) Actual annual debt service is equal to the forecasted annual debt service on the Series 2012 Bonds. (2) Calculations as described in the Master Trust Indenture. (3) Maximum annual debt service is equal to the forecasted maximum annual debt service on the Series 2012 Bonds. (4) This ratio was requested by the Underwriter and is not required by the Master Trust Indenture. (5) The Special Project Liquidity Support Fund is forecasted to be included in the calculation pursuant to the Master Trust Indenture. (6) Total Long-Term Debt Outstanding excludes the forecasted current maturities of the Series 2012 Bonds, the original issue discount related to the Series 2012 Bonds, the Subordinated Notes, and the Corporation s Allocated Overhead. (7) Operating expenses are equal to total operating expenses less depreciation and amortization expense, deferred interest on the Subordinated Notes, and the deferral of the Corporation s Allocated Overhead. See Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Report B-9

188 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES BACKGROUND AND INFORMATION Basis of Presentation The purpose of the financial feasibility study (the Study ) is to evaluate Management (as subsequently defined hereinafter) of Mayflower Communities, Inc. s (the Corporation ) ability to meet the operating requirements, working capital needs, and other financial requirements, including the debt service requirements associated with the proposed issuance of the $119,020,000 Revenue Bonds (The Barrington of Carmel Project) Series 2012 (the Series 2012 Bonds ). The accompanying financial forecast for the years ending December 31, 2012, 2013, 2014, 2015, 2016, and 2017, and for each of the six years then ending (the Forecast Period ), contained herein is estimated by Management. The financial forecast presents, to the best of Management s knowledge and belief, Management s expected financial position, results of operations, changes in net assets, and cash flows for the Forecast Period. Accordingly, the financial forecast reflects Management s judgment as of August 16, 2012, the date of this financial forecast, of its expected conditions and its expected course of action. The assumptions disclosed herein, while not all-inclusive, are those that Management believes are significant to its financial forecast. Furthermore, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. The accompanying financial forecast takes into account events and circumstances that were not anticipated at July 9, 2012, the date a previous forecast was issued for the same Forecast Period, and that forecast should no longer be relied upon. Management is updating the previous forecast to reflect the following: Changes to the plan of finance based on the executed Bond Purchase Agreements for the Series 2012 Bonds; Changes to the sources and uses of funds related to the Series 2012 Bonds and including changes in the direct construction and marketing costs; Changes in the investment earnings rate on the trustee held funds related to the Series 2012 Bonds; The addition of one full time equivalent administrative services employee; and Changes in the accounting for refundable entrance fees. Fundamental to the Study is the assumption that the operations of the Corporation will be competently and efficiently managed and its services professionally and consistently marketed. In addition, the validity of the financial forecast will decrease substantially in proportion to the time elapsed since its preparation. Management s financial forecast has been prepared in connection with the proposed issuance of the Series 2012 Bonds. Management does not intend to update its financial forecast of the Corporation subsequent to the issuance of this financial forecast, and, accordingly, there are risks inherent to referring to or using, this financial forecast in the future as it may, and most likely will, become outdated. The assumed interest rates, principal payments, financing assumptions, and assumptions pertaining to the forecasted revenue, expenses, and cash flows are described in the section entitled, Summary of Significant Forecast Assumptions and Accounting Policies. If the actual interest rates, principal payments, funding requirements, or other financing assumptions related to the Series 2012 Bonds are different from those assumed, the principal amount of the Series 2012 Bonds, and associated debt service requirements would need to be adjusted, accordingly, from those indicated in the forecast. If interest rates, principal payments, and funding requirements are lower than those assumed, then such adjustments would not adversely affect the forecast. The Corporation The Corporation is a Delaware non-profit, non-stock corporation, qualified to do business in Indiana, that was established in November 2007, to develop, own, and operate a continuing care retirement community in Carmel, B-10

189 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Indiana, to be known as The Barrington of Carmel ( The Barrington or the Community ). Proceeds from the proposed issuance of the Series 2012 Bonds and other available funds, are planned be used by the Corporation to construct and equip the Community and pay for other related costs (the Project ). The Corporation received a determination letter from the Internal Revenue Service ( IRS ) in December of 2011 that it is a Corporation exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986 (the Code ) as a Corporation described in Section 501(c)(3) of the Code. Pursuant to a term sheet dated May 7, 2012, the Corporation agreed to affiliate with Senior Quality Lifestyles Corporation ( SQLC ). In accordance with the provisions of the term sheet, on June 15, 2012, SQLC became the sole corporate member of the Corporation. The governance of the Corporation is vested in its board of directors (the Board of Directors ). The Board of Directors currently consists of five directors (the Directors ). Directors are elected by SQLC and each director serves for a term of two years and until a successor has been elected and qualified. Directors may serve for any number of consecutive terms. SQLC and Affiliates SQLC is a Texas not-for-profit corporation formed in July 2002 that is a supporting charitable organization described in Section 501(c)(3) of the Code. SQLC is also the sole corporate member of the following organizations (the SQLC Affiliates ): Northwest Senior Housing Corporation ( NSHC ) which owns and operates a senior living community known as Edgemere ( Edgemere ) in Dallas, Texas the first phase of which opened in December 2001 and the second phase of which opened in September 2007; Buckingham Senior Living Community, Inc. ( BSLC ) which owns and operates a senior living community known as The Buckingham ( The Buckingham ) in Houston, Texas which opened in May 2005; Barton Creek Senior Living Center, Inc. ( BCSLC ) which owns and operates a senior living community known as Querencia at Barton Creek ( Querencia ) in Austin, Texas which opened in June 2007; SQLC Senior Living Center at Corpus Christi, Inc. ( SQLC-Corpus ) which owns and operates a senior living community known as Mirador ( Mirador ) in Corpus Christi, Texas which opened in June 2011; Tarrant County Senior Living Center, Inc. ( TCSLC ) which owns and operates a senior living community known as The Stayton at Museum Way ( The Stayton ) in Fort Worth, Texas which opened in October 2011; and SQLC LSA, LLC ( SQLC LSA ), a limited liability company that was established to participate in certain transactions in conjunction with certain financings of SQLC Affiliates. SQLC LSA is treated as a disregarded entity for federal tax purposes. The Corporation, SQLC, and the SQLC Affiliates are all separate corporate entities, and no guarantees or other conditions of support exist between the Corporation, SQLC and the SQLC Affiliates. Accordingly SQLC and the SQLC Affiliates are not obligated in any way to pay debt service on the Series 2012 Bonds. Affiliation Agreement - St. Vincent Health, Inc. The Corporation has entered into an affiliation agreement (the Affiliation Agreement ) with St. Vincent Health, Inc. ( St. Vincent ), an Indiana non-profit corporation. St. Vincent is a member of Ascension Health, a not-forprofit Catholic Healthcare System. St. Vincent operates a number of hospitals in the Indianapolis area, providing inpatient, ambulatory and other health care services. B-11

190 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The Affiliation Agreement s stated purpose is to establish a comprehensive program for the delivery of professional services to the residents of the Community with medical needs. Management anticipates the Affiliation Agreement will enhance the continuity of care for the Community s residents through the optimization of utilizing primary, tertiary, and aftercare resources as needed. Prior to the opening of the Community, the Corporation and St. Vincent plan to explore the development of new joint programs for medical care to the Community s residents including an on-site clinic, medical director and medical staff services and/or any other services agreed upon by both parties. Management has not reflected these services in its forecast since plans are still under development; however, Management has indicated that additional services would not negatively impact the forecast. The Community The Community is planned to be located on approximately 19 acres of land at 1335 South Guilford Road in Carmel, Indiana. The Community is planned to include the following components: 134 independent living apartments (the Independent Living Units ); 7 catered living apartments (the Catered Living Units ); An 82 unit assisted living center (the Assisted Living Center ) consisting of 56 residential style assisted living apartments (the Assisted Living Units ) and 26 memory support assisted living suites (the Memory Support Units ); A 48-bed nursing facility (the Health Center ); and Separate common and support areas for each level of care, 141 underground parking spaces, and 252 open surface parking spaces (the Common Areas ). The Community is planned to total approximately 372,000 square feet. All residents of the Community are planned to be served by a main kitchen. Independent Living Units and Catered Living Units The 134 Independent Living Units and the 7 Catered Living Units are planned to be located in a three-story residential building with the Catered Living Units planned to be located on the first floor of the northeast corner of the building. The Catered Living Units are planned to be designed for seniors who wish to live independently and desire priority admission to healthcare services but prefer a rental program and no life care benefit. The following table presents a summary of the number of units and square footage by type planned for the Independent Living Units and the Catered Living Units. B-12

191 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 1 Independent Living Units and Catered Living Units Unit Configuration Number of Unit Size Unit Type Units (Square Feet) Independent Living Units One-Bedroom, 1 Bath One-Bedroom, 1.5 Bath with Den Two-Bedroom, 2 Bath 72 1,072-1,384 Total/Weighted Average 134 1,069 Catered Living Units One-Bedroom, 1 Bath One-Bedroom, 1.5 Bath with Den Two-Bedroom, 2 Bath 3 1,158-1,384 Total/Weighted Average 7 1,053 Total/Weighted Average 141 1,068 Source: Management Each of the Independent Living Units and Catered Living Units is planned to be furnished with floor coverings, window blinds, a full kitchen with refrigerator and freezer with ice maker, range with oven, dishwasher, microwave oven, garbage disposal, stacked washer/dryer units, emergency call system, fire sprinkler system, and a telephone/data communications port. The Common Areas are planned to include a multi-purpose room, living room, main dining room, café/bistro, private dining room, wellness/fitness center, business center/library, beauty salon/barber shop, club room, creative arts center, residential storage, mail alcove and administrative areas. Surface parking is planned to be provided at no charge. A limited number of reserved underground parking is planned to be available to residents for an additional fee. The Catered Living Units are planned to be designed for seniors who wish to live independently and desire priority admission to health care services, but prefer a rental program and no life care benefit at the Community ( Catered Living Residents ). Catered Living Residents are planned to receive additional services compared to residents of the Independent Living Units including extra meals, additional common spaces, and more frequent housekeeping. The Catered Living Units are planned to be offered as rental contracts with no entrance fee and will be marketed just prior to the initial occupancy of the Community. Assisted Living Center The Assisted Living Center is planned to consist of 56 Assisted Living Units for residents who require varying amounts of assistance with activities of daily living, and 26 Memory Support Units for residents in need of memory support assisted living in a secured environment. The Assisted Living Center is planned to have a shared entrance with the Health Center and connect internally to the Independent Living Unit s common areas on the main level. The following table presents a summary of the Assisted Living Center s planned unit configuration: B-13

192 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 2 Assisted Living Center Unit Configuration Number Unit Size Unit Type of Units (Square Feet) Assisted Living Units One Bedroom - Standard One Bedroom - Traditional Two Bedroom - Deluxe Total/Weighted Average Memory Support Units Suite Total/Weighted Average Source: Management The Assisted Living Units are planned to be private apartments with kitchenettes and full baths and furnished with amenities similar to the Independent Living Units, but will not include a range, dishwasher or washer/dryer. The common areas are planned to include a lobby, living room, arts and crafts area, multipurpose room, card room, mail room, beauty salon/barber shop, dining room, and support areas. The Memory Support Units are planned to be private suites with full baths that will be furnished with amenities similar to the Assisted Living Units, but without a kitchenette. The Memory Support Units are planned to have secured access and separate common areas which are planned to include similar amenities as the common areas for the Assisted Living Units. Admission to the Assisted Living Units and the Memory Support Units is planned to be provided for residents of the Community and by direct admissions from persons other than residents of the Community, to the extent units are available. Health Center The Health Center is planned to consist of 48 nursing beds in 28 private rooms and 10 shared-private rooms (20 beds). The shared-private rooms are planned to have separate bedrooms and a shared entryway and a shared bathroom with shower. The Health Center is planned to share its primary access area with the Assisted Living Center as well as internal access to the Independent Living Units and Catered Living Units. The following table presents a summary of the Health Center s planned unit configuration: Table 3 Health Center Bed Configuration Unit Size Number Number per Bed Unit Type of Units of Beds (Square Feet) Shared-Private Room Private Room Total/Weighted Average Source: Management B-14

193 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Management of the Corporation plans to obtain Medicare certification for all beds in the Health Center. Three of the ten shared-private rooms (6 beds) are planned to be utilized for Medicare. Health Center common areas are planned to include administrative, service and support areas, and resident dining, activity, lounge, common therapy suite and bathing areas. Admission to the Health Center is planned to be provided for residents of the Community and by direct admissions from persons other than residents of the Community, to the extent available. Development and Management of the Community The Corporation initiated development activities for the Community in December 2007 with the engagement of a development team led by Greystone Development Company II, LP ( GDC ) and its permitted assignee, Greystone Development Services XIX, LLC ( GDS ). The Corporation also engaged Greystone Management Services Company, LLC ( GMS ) to provide management and marketing services for the Community. GDC, GDS, and GMS are collectively referred to herein as Greystone. GCI Carmel, L.P. GDS is a Delaware joint venture comprised of GCI Carmel, L.P. (the Limited Partnership ) and GDC. Pursuant to the joint venture agreement, the Limited Partnership s role is to fund the pre-finance development costs for the Community (the Pre-finance Capital ) and GDC s role is to provide the development consulting services to the Corporation under the Development Consulting Agreement as hereinafter defined. The general partner of the Limited Partnership is GDC Carmel, LLC (the General Partner ), a Delaware limited liability company. The General Partner is a wholly-owned subsidiary of Greystone Partners, Ltd. which is controlled by principals of GDC. The Limited Partnership s limited partners currently include The Ziegler Companies, Inc., Ziegler Equity Funding IV, LLC, Ziegler Equity Funding V, LLC, Greystone Senior Living Investments, L.P., and SQLC. Since 2009 the Corporation s Chairman of the Board has been a limited partner in Greystone Senior Living Investments L.P. which owns an interest in the Limited Partnership. In connection with SQLC s affiliation with the Corporation, the Corporation s Chairman of the Board divested the indirect interest he had in the Limited Partnership while retaining his limited partnership interest in Greystone Senior Living Investments, L.P. Greystone Senior Living Investments, L.P. is also controlled by principals of GDC and a wholly-owned subsidiary of GDC whose limited partners include the Underwriter, affiliates of the Underwriter, and affiliates of GDC. Development Consulting Agreement The development of the Community is planned to be overseen and managed by the Corporation, with the assistance of GDS, pursuant to a development consulting agreement between the Corporation and GDC, and its permitted assignee, GDS, dated December 2007, as subsequently amended (the Development Consulting Agreement ). Under the Development Consulting Agreement, GDS has agreed to provide certain professional and consulting services (as described below) related to the planning, development, and marketing of the Community. Development consulting services specified to be provided by GDS under the Development Consulting Agreement include the following: (a) Provide all necessary planning to implement the business plan for the Community approved by the Corporation, including any revisions to the business plan, or budgets, schedules, or strategies contained therein; (b) Assist in obtaining all necessary governmental approvals required for development of the Community; (c) Advise and assist with the selection and engagement of architects, engineers, other design professionals and a pre-construction consultant; (d) Coordinate preparation of all design and construction plans, specifications and construction budget by the Community s architect and other design consultants for review by the Corporation; (e) Develop a program for resident services and activities; B-15

194 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES (f) Assist in the implementation of the resident marketing plan and marketing budget approved by the Corporation; (g) Provide consulting services in connection with the marketing and initial leasing of the Community including; (h) Assist in securing permanent financing for the Community; (i) Assist in negotiating, evaluating, and awarding a construction contract for the Community, and thereafter monitoring the progress of construction; (j) Prepare monthly project cost reports and prepare construction requisitions for the Corporation s review and submission; (k) Provide the Corporation with all information and records with respect to Greystone to comply with filing and disclosure requirements; (l) Prior to commencement of construction, GMS will i) assist in the preparation of operating cash flow projections and provide input to the design consultants regarding the space plan, and ii) provide other preopening and operational management services for the Community in coordination with, but separate from the services described in the previous subsection, pursuant to a separate Management and Marketing Services Agreement (as described more fully subsequently herein); (m) Funding $10,200,000 of Pre-finance Capital (provided by GDS through the Limited Partnership); (n) Assistance with site acquisition; and (o) Assistance with land due diligence and entitlement processing. The Development Consulting Agreement is effective until the Community achieves 90 percent occupancy of the aggregate total of the Independent Living Units, the Catered Living Units, the Assisted Living Center and the Health Center. Pursuant to the Development Consulting Agreement, the Corporation has exercised and will exercise final authority on the following, among other matters related to the development of the Community: (a) Selection, engagement, and supervision of design professionals, engineering professionals, and preconstruction consultants; (b) Approval of working drawings and final plans and specifications for the Community; (c) Execution of all commitments with respect to financing; (d) Selection and engagement of a feasibility consultant and actuarial consultant; (e) Selection, engagement, and supervision of a general contractor for construction of the Community; (f) Negotiation, approval, and execution of a construction contract and other related contracts; (g) Approval for regulatory filings for the Community; (h) Selection and engagement of media and promotional firm and approval of marketing materials; (i) Approval of the final project budget; (j) Approval of the business plan and revisions thereto; (k) Approval of all funding requisitions associated with the Project; (l) Approval of the form of all resident agreements; and (m) Approval of the schedule for resident fees and any changes thereto. As compensation for services rendered pursuant to the Development Consulting Agreement, Greystone has been and will be paid a fee (the Consulting Fee ) consisting of a fixed base fee (the Fixed Base Fee ), a variable base fee (the Variable Base Fee ), an initial fill-up fee (the Initial Fill-Up Fee ), an incentive occupancy fee (the Incentive Occupancy Fee ), and reimbursable expenses. Collectively the Variable Base Fee, Initial Fill-up Fee and Incentive Occupancy Fee are referred to as the Development Consulting Fees. Pursuant to the terms of the Development Consulting Agreement, the Fixed Base Fee is forecasted at approximately $8,667,000 and represents the return on Pre-finance Capital funded by GDS through the Limited Partnership. Pursuant to the Development Consulting Agreement the Fixed Base Fee is to be paid as follows: Approximately $4,917,000 of the Fixed Base Fee shall be paid upon obtaining permanent funding for the Community (the Funding Event ). Upon satisfaction of the Initial LSA Release Conditions (as defined subsequently herein) (the Initial Fixed Base Fee Payment Date), up to $1,875,000 of the Fixed Base Fee plus all B-16

195 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES accrued net earnings as of such date, shall be payable, unless all of the remaining amount of the Fixed Base Fee has been previously paid. Upon satisfaction of the Final LSA Release Conditions (as defined subsequently herein) (the Final Fixed Base Fee Payment Date ), up to $3,750,000 of the of the Fixed Base Fee plus all accrued net earnings as of such date, less any amounts previously paid, shall be payable, unless all of the remaining amount of the Fixed Base Fee has been previously paid. Pursuant to the Development Consulting Agreement, the Initial LSA Release Conditions are defined as follows: (i) The Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer outstanding; (ii) For the most recent six month period, the average overall occupancy of the Independent Living Units, the Catered Living Units, the Assisted Living Units, the Memory Support Units and the Health Center included in the Community was, in the aggregate, at least 90 percent and the average occupancy for the Independent Living Units was at least 88 percent occupied; (iii) The Historical Debt Service Coverage Ratio of the Obligated Group (as defined in the Master Trust Indenture) for the most recent fiscal year for which audited financial statements are available was not less than 1.10; (iv) The Cash to Indebtedness Ratio of the Obligated Group (as defined in the Master Trust Indenture) as of the most recent June 30 or December 31 was no less than 0.20; and (v) No event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture. Pursuant to the Development Consulting Agreement, the Final LSA Release Conditions are defined as follows: (i) At least twelve months have elapsed since the initial release of the Supplemental Liquidity Support Fund (as defined subsequently hereinafter); (ii) For the most recent six-month period, the average overall occupancy of Independent Living Units, the Catered Living Units, the Assisted Living Units, the Memory Support Units and the Health Center included in the Community was, in the aggregate, at least 90 percent and the average occupancy for the Independent Living Units was at least 88 percent occupied; (iii) The Historical Debt Service Coverage Ratio of the Obligated Group for the most recent fiscal year for which audited financial statements are available was not less than 1.20; (iv) The Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than required under the Master Trust Indenture; (v) The Historical Debt Service Coverage Ratio of the Obligated Group for the last fiscal year prior to the year for which audited financial statements are available was not less than 1.10; and (vi) No event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture. Notwithstanding the Fixed Base Fee payment provisions outlined above, the remainder of the Fixed Base Fee not then previously paid to date pursuant to the provisions outlined above will be due and payable upon satisfaction of the following conditions (the High Performance LSA Release Conditions ), to the extent such payment would not cause the Corporation to fall below the minimum Liquidity Covenant (as defined in the Master Trust Indenture): (i) The Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer outstanding; (ii) For the most recent six month period, the average overall occupancy of the Independent Living Units, the Catered Living Units, the Assisted Living Units, the Memory Support Units and the Health Center included in the Community was, in the aggregate, at least 90 percent and the average occupancy for the Independent Living Units was at least 88 percent occupied; (iii) The Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than 0.35; B-17

196 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES (iv) The Historical Debt Service Coverage Ratio of the Obligated Group for the most recent fiscal year for which audited financial statements are available was not less than 1.40; (v) The Historical Debt Service Coverage Ratio of the Obligated Group for the most recent fiscal year from operations only was not less than 1.00; and (vi) No event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture. The Initial LSA Release Conditions, the Final LSA Release Conditions, and the High Performance LSA Release Conditions are consistent with the support obligation reduction provisions of the Liquidity Support Agreement (as defined subsequently herein). Pursuant to the Development Consulting Agreement, Management has forecasted the Initial Fixed Base Fee Payment Date will occur during the fiscal year ending December 31, 2017 and the Final Fixed Base Fee Payment Date will not occur during the Forecast Period. Pursuant to the Development Consulting Agreement, the Variable Base Fee shall be earned and paid as follows: (a) Approximately $599,000 upon commencement of the development consulting services; (b) Approximately $599,000 to be paid in twelve equal monthly installments, commencing the first day of the month following the commencement of the development consulting services; (c) Approximately $300,000 upon achievement of presales equal to 25 percent of the Independent Living Units; (d) $1,875,000 upon obtaining the Funding Event, as defined in the Development Consulting Agreement; (e) $515,000, to be paid in 14 equal monthly installments, beginning upon commencement of construction; (f) $225,000 upon initial occupancy by the first resident of the Community; (g) $225,000 upon obtaining all licenses required for all occupancy of the health care component of the Community and related common areas; (h) Upon satisfaction of the Initial LSA Release Conditions (the Initial Variable Base Fee Payment Date ), an amount up to $250,000 of the Variable Base Fee, plus all accrued net earnings as of such date, shall be payable, unless all of the remaining amount of the Variable Base Fee has been previously paid; and (i) Upon satisfaction of the Final LSA Release Conditions (the Final Variable Base Fee Payment Date ), up to $500,000 of the of the Variable Base Fee plus all accrued net earnings as of such date, less the amount paid related to the Initial Variable Base Fee Payment Date, shall be payable, unless all of the remaining amount of the Variable Base Fee has been previously paid. Notwithstanding the Variable Base Fee payment provisions outlined in items (h) and (i) above, the remainder of the Variable Base Fee not then previously paid to date pursuant to the provisions outlined above will be due and payable upon satisfaction of the High Performance LSA Release Conditions to the extent such payment would not cause the Corporation to fall below the minimum Liquidity Covenant as defined in the Master Trust Indenture. Pursuant to the Development Consulting Agreement, Management has forecasted the Initial Variable Base Fee Payment Date will occur during the fiscal year ending December 31, 2017 and the Final Variable Base Fee Payment Date will not occur during the Forecast Period. As outlined in the Development Consulting Agreement, the Initial Fill-Up Fee shall be the lesser of $1,200,000 or 2.675% of the gross entrance fees collected up to and including 90 percent occupancy of the Independent Living Units. Pursuant to the Development Consulting Agreement, Management has forecasted the Initial Fill-Up Fee at approximately $1,200,000. The Initial Fill-up Fee is only applicable to those Independent Living Units that have not been previously occupied. The Initial Fill-up Fee is payable in installments as follows: B-18

197 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES (a) Upon occupancy of each of the Independent Living Units (up to 90 percent occupancy), percent of the Initial Fill-Up Fee on a pro rata basis. (b) Upon the Community reaching 65 percent occupancy of the Independent Living Units, the Corporation will pay an amount equal to percent of the Projected Initial Fill-up Fee; (c) Upon the Community reaching 80 percent occupancy of the Independent Living Units, the Corporation will pay an amount equal to percent of the Projected Initial Fill-up Fee; and (d) Upon the Community reaching 90 percent occupancy of the Independent Living Units, the Corporation will pay an amount equal to the Initial Fill-up Fee minus the cumulative amounts in (a), (b) and (c) above. The Incentive Occupancy Fee will be paid only if the Community achieves an aggregate of 90 percent occupancy of the Independent Living Units within the following timeframes: $1,000,000 if 90 percent aggregate occupancy is achieved within 15 months; $900,000 if 90 percent aggregate occupancy is achieved within 18 months; $700,000 if 90 percent aggregate occupancy is achieved within 21 months; $250,000 if 90 percent aggregate occupancy is achieved within 24 months; $175,000 if 90 percent aggregate occupancy is achieved within 30 months; and $125,000 if 90 percent aggregate occupancy is achieved within 36 months. Based upon the forecasted fill-up assumptions of the Independent Living Units, the Corporation is forecasted to pay an Incentive Occupancy Fee of $125,000. The following table summarizes the forecasted payment of the Fixed Base Fee and Development Consulting Fees: B-19

198 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 4 Forecasted Consulting Fees Fixed Base Fee (1) $ 8,667,000 Variable Base Fee (2) Upon Commencement of Development Consulting Services $ 599,000 During 12 Months Following Commencement of Services 599,000 Upon Achievement of Pre-Sales Equal to 25% of the Independent Living Units 300,000 At the Closing of the Series 2012 Bonds 1,875,000 During the Construction Period 515,000 Upon Initial Occupancy of the Community 225,000 Upon Obtaining All Licenses for Occupancy of the Community 225,000 The Initial Variable Base Fee Payment Date (3) 250,000 The Final Variable Base Fee Payment Date (4) 250,000 Total Variable Base Fee $ 4,838,000 Initial Fill-Up Fee Pro-rata Upon Occupancy of Each Independent Living Unit through 90% Occupancy $ 525,000 Upon Reaching 65% Occupancy of the Independent Living Units 225,000 Upon Reaching 80% Occupancy of the Independent Living Units 225,000 Upon Reaching 90% Occupancy of the Independent Living Units 225,000 Total Initial Fill-Up Fee $ 1,200,000 Incentive Occupancy Fee (5) $ 125,000 Total Development Consulting Fees $ 6,163,000 Source: Management Notes: (1) Based upon the Development Consulting Agreement, approximately $4,917,000 of the Fixed Base Fee is forecasted to be paid at closing of the Series 2012 Bonds. $1,875,000 of the Fixed Base Fee is forecasted to be paid during the year ended December 31, 2017 upon the forecasted satisfaction of the Initial LSA Release Conditions which is consistent with the support obligation reduction provisions of the Liquidity Support Agreement. The remaining $1,875,000 is forecasted to be paid after the Forecast Period, upon satisfaction of the Final LSA Release Conditions. (2) Approximately $4,338,000 of the Variable Base Fee is forecasted to be funded at closing of the Series 2012 Bonds and earned and paid as outlined in the table. The remaining $500,000 of the Variable Base Fee is forecasted to be paid as outlined in notes (3) and (4) below. (3) Management has forecasted $250,000 of the Variable Base Fee will be paid during the year ending December 31, 2017, upon the forecasted satisfaction of the Initial LSA Release Conditions which is consistent with the support obligation reduction provisions of the Liquidity Support Agreement. (4) Management has forecasted the remaining $250,000 will be paid after the Forecast Period upon satisfaction of the Final LSA Release Conditions. (5) Based upon the forecasted fill-up assumptions of the Independent Living Units, the Corporation is forecasted to pay an Incentive Occupancy Fee of $125,000 however, the Incentive Occupancy Fee could be up to $1,000,000 if 90 percent occupancy of the Independent Living Units is achieved within 15 months. In addition, pursuant to the terms of the Development Consulting Agreement, the Corporation is to reimburse Greystone for all out-of-pocket expenses, including but not limited to travel expenses, for personnel employed by Greystone, pay a 3.5 percent administrative fee on the Development Consulting Fees to cover miscellaneous office expenses, all personnel costs related to sales and marketing staff of the Community paid by Greystone, all leasing costs related to the information center and a 3.5 percent administrative fee of all payroll costs for the marketing staff of the Community paid by Greystone. B-20

199 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Management and Marketing Services Agreement The Corporation entered into a management and marketing services agreement with GMS on December 7, 2007, as subsequently amended (the Management and Marketing Services Agreement ), pursuant to which GMS will serve as manager of the Community and manage the day-to-day operations of the Community. Pursuant to the terms of the Management and Marketing Services Agreement, GMS is to provide all management services necessary to operate the Community, including but not limited to financial management, purchasing, public relations, recruitment of personnel, and supervision of the day-to-day operations and programs of the Community. The Management and Marketing Services Agreement will commence on a date mutually agreed upon by the Corporation and GMS, which is anticipated to be approximately twelve months prior to the first day of scheduled occupancy by the first resident of the Community (the Commencement Date ). The Management and Marketing Services Agreement is for a term of 120 months, subject to cancellation without cause after the 60 th month following the Commencement Date with the provision of 120 days written notice. As compensation for services rendered pursuant to the Management and Marketing Services Agreement, the Corporation will pay GMS a management fee (the Management Fee ) and a new occupant fee (the New Occupant Fee ), collectively referred to herein as the Management and Marketing Fees. Pursuant to the Management and Marketing Services Agreement, the initial Management Fee is equal to $18,750 per month from the Commencement Date until the month of scheduled initial occupancy by a resident. Beginning with the month of initial occupancy by a resident, the Corporation will pay GMS Management Fees as follows: Occupancy Months B-21 Management Fee Months 1-12 $18,750 Months $26,250 Months 25 and thereafter $35,625 The Management Fee is forecasted to increase by 3.0 percent annually beginning in 2016 pursuant to the terms of the Management and Marketing Services Agreement. Pursuant to the terms of the Management and Marketing Services Agreement, the New Occupant Fee is forecasted to equal to 1.5 percent of the difference between the gross entrance fees collected from re-occupancy of the Independent Living Units minus the gross entrance fee paid by the prior occupant of that unit (the Entrance Fee Differential ). Pursuant to the agreement, the New Occupant Fee shall not exceed $50,000 in any calendar year or 20 percent of Management and Marketing Fees. In addition, Management has forecasted the Corporation will pay an additional 3.5 percent of the Management and Marketing Fees on a monthly basis as a reimbursement for GMS s overhead expenses related to the Community, including, without limitation, long distance phone calls, copying, express delivery service, and postage. SQLC Administration and Operational Oversight Agreement The Corporation entered into an administration and operational oversight agreement (the SQLC Oversight Agreement ) with SQLC to be effective as of September 1, Pursuant to the SQLC Oversight Agreement, SQLC will provide certain administrative oversight, direction, governance support and operational oversight to the Corporation. The initial term of the SQLC Oversight Agreement is for five years and automatically renews annually thereafter unless the SQLC Oversight Agreement is otherwise terminated in accordance with its terms. Pursuant to the SQLC Oversight Agreement, SQLC will employ certain employees of the Corporation and the Corporation will reimburse SQLC for the salaries, benefits and reimbursable expenses of these employees of the

200 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Corporation. In addition, SQLC may specifically allocate a portion of the salaries, benefits and reimbursable expenses of SQLC s VP Corporate Sales and Marketing and VP of Development to the Corporation as an expense of the Corporation as part of the Corporation s project budget during the development and fill-up phases of the Community. Also under the SQLC Oversight Agreement, the Corporation will reimburse SQLC for allocated overhead based on the Corporation s allocable share (the Corporation s Allocated Overhead ) of the expenses and costs incurred by SQLC in the provision of administrative oversight, governance support and operational oversight to SQLC Communities other than the salaries, benefits and reimbursable expenses of employees of SQLC which are directly allocated to one or more SQLC Communities ( SQLC s Allocable Overhead ). The Corporation s Allocated Overhead will be its proportional share of SQLC s Allocated Overhead based on the proportion the total number of residential units in the Community to the aggregate residential units of the SQLC Communities. The Corporation s Allocated Overhead will be payable on a monthly basis beginning in the month following the date on which all of the following conditions are satisfied (the SQLC Oversight Agreement Satisfaction Date ): (i) The Series 2012B Bonds, Series 2012C Bonds, and Series 2012D Bonds are no longer outstanding; (ii) Certain occupancy levels and financial ratios of the Corporation have been achieved; (iii) No event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture; and (iv) At least 12 months have elapsed since the initial reduction in the Support Obligations (as defined subsequently hereinafter) pursuant to the Liquidity Support Agreement. Payment of fees incurred prior to the SQLC Oversight Agreement Satisfaction Date will be deferred. Beginning in the month after all Advance Repayment Requirements (hereinafter defined) are first satisfied but in no event earlier than the date on which the audit is issued for the first full fiscal year following the fiscal year in which Stable Occupancy (as defined in the Master Trust Indenture) occurs, the deferred fees will be paid pro-rata on a monthly basis over three years. The Advance Repayment Requirements are that (a) the Community has achieved Stable Occupancy; (b) the historical debt service coverage ratio is at least 1.20; and (c) the cash to indebtedness ratio is at least For purposes of Management s forecast, Management has assumed the Corporation s Allocated Overhead will equal approximately $102,000 in 2012, $238,000 in 2013, $266,000 in 2014, $250,000 in 2015 and adjusted annually thereafter during the Forecast Period for inflation. Management has forecasted that the Corporation s Allocated Overhead is assumed to be deferred and not paid during the Forecast Period pursuant to the SQLC Oversight Agreement. Management As used above and hereafter, management of the Community refers to management of the Corporation, SQLC, and GMS, collectively Management. Subordinated Notes Subordinated Note - SQLC LSA The Corporation is planning to enter into a subordinated promissory note agreement with SQLC LSA (the Subordinated Note - SQLC LSA ) concurrently with the closing of the Series 2012 Bonds. Pursuant to the agreement, SQLC LSA will advance $2,000,000 to the Corporation at closing of the Series 2012 Bonds for use by the Corporation with respect to the Project. Principal repayment of the Subordinated Note SQLC LSA will be made to the extent SQLC LSA receives funds from the Master Trustee from the Liquidity Support Fund (as defined subsequently hereinafter) for the reduction of the Support Obligation pursuant to the Liquidity Support Agreement. Management has forecasted a $1,000,000 B-22

201 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES repayment of the Subordinated Note SQLC LSA during the year ending December 31, 2017 consistent with the forecasted reduction in the Liquidity Support Fund. Interest on the unpaid principal shall be equal to the positive net earnings on Permitted Investments (as defined in the Liquidity Support Agreement) deposited in the Liquidity Support Fund from time to time pursuant to the provisions of the Liquidity Support Agreement. Upon termination of the Liquidity Support Agreement, interest on any unpaid principal shall accrue at a rate equal to the United States Prime Rate as listed in the Eastern print edition of the Wall Street Journal (the Prime Rate ) in effect on the termination date of the Liquidity Support Agreement. On each January 1, April 1, July 1, and September 1 thereafter, the interest rate shall be adjusted to be the Prime Rate then in effect on the applicable date. Interest which has accrued but has not been paid shall be added to the principal balance outstanding. Management has not forecasted any interest earnings on the Liquidity Support Fund or accrued interest on the Subordinated Note SQLC LSA during the Forecast Period. The Subordinated Note SQLC LSA is forecasted to be subordinate in all respects to the Series 2012 Bonds. Subordinated Notes SQLC The Corporation is planning to enter into two subordinated promissory note agreements with SQLC (the Subordinated Notes SQLC ) concurrently with the closing of the Series 2012 Bonds as outlined below: Subordinated Note A SQLC The Corporation is planning to enter into a subordinated promissory note agreement with SQLC (the Subordinated Note A - SQLC ) concurrently with the closing of the Series 2012 Bonds pursuant to which SQLC will advance $200,000 to the Corporation at closing of the Series 2012 Bonds for use with respect to the Project. The Subordinated Note A SQLC is forecasted to bear interest at the Prime Rate in effect as of the effective date of the agreement and will be adjusted on each January 1, April 1, July 1, and September 1 thereafter to the Prime Rate then in effect on such date. Management has forecasted the interest rate on the Subordinated Note A SQLC will equal 3.25 percent during the Forecast Period. The Subordinated Note A SQLC is forecasted to be subordinate in all respects to the Series 2012 Bonds. Pursuant to the Subordinated Note A SQLC, payment of principal and accrued interest on the Subordinated Note A SQLC will be deferred until the 30 th day of the month following the Satisfaction Date (as defined in the Subordinated Note A - SQLC) which is not forecasted to occur during the Forecast Period. Subordinated Note B SQLC The Corporation is planning to enter into a second subordinated promissory note agreement with SQLC (the Subordinated Note B - SQLC ) concurrently with the closing of the Series 2012 Bonds. Pursuant to the Subordinated Note B SQLC Agreement, SQLC agrees to advance up to $1,875,000 to the Corporation. Advances on the loan are to be made in amounts equal to the funds received by SQLC related to the reduction in the Special Project Liquidity Support Fund (as defined subsequently hereinafter) pursuant to the Liquidity Support Agreement, within five business days of receipt of such funds by SQLC from GDS or its affiliate. The Subordinated Note B SQLC is non-interest bearing and is forecasted to be subordinate in all respects to the Series 2012 Bonds. Payment of principal on the Subordinated Note B SQLC will be deferred until the 30 th day of the month following the Satisfaction Date (as defined in the Subordinated Note B - SQLC) which is not forecasted to occur during the Forecast Period. Collectively, the Subordinated Note SQLC LSA and the Subordinated Notes SQLC are referred to herein as the Subordinated Notes. B-23

202 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Land Purchase Agreement Carmel Land Holding, LLC ( Carmel Land Holding ), an affiliate of Greystone, currently owns the land upon which the Community is planned to be built. Pursuant to a purchase agreement (the Land Purchase Agreement ) dated January 1, 2008, Carmel Land Holding will transfer the land to the Corporation at the time of the closing of the Series 2012 Bonds. Carmel Land Holding purchased the land in December In addition to the purchase price, the Corporation will pay Carmel Land Holding for acquisition and carrying costs, including any legal fees and costs related to due diligence or to the acquisition of the land to the extent paid by Carmel Land Holding, as well as ongoing costs related to the financing and capitalization of the original land purchase, taxes, insurance costs and legal fees related to the processing of entitlements to the extent paid by the seller. Management has forecasted the cost of the land, including reimbursement of costs incurred for the benefit of the Corporation, pursuant to the Land Purchase Agreement will approximate $5,207,000. Liquidity Support Agreement The Corporation, SQLC LSA, and The Bank of New York Mellon Trust Company, N.A. (as the bond trustee and the master trustee (the Bond Trustee and the Master Trustee )) plan to enter into a liquidity support agreement (the Liquidity Support Agreement ), expected to be executed upon closing of the Series 2012 Bonds. Liquidity Support Fund Pursuant to the Liquidity Support Agreement, SQLC LSA is planned to pay an aggregate amount of $2,000,000 (the Support Obligation ), as such amount shall be reduced from time to time in accordance with the Liquidity Support Agreement, to the Master Trustee for deposit in a special trust account (the Liquidity Support Fund ) to be created and established in the name of the Corporation and held in custody of the Master Trustee. The Support Obligation shall be paid to the Master Trustee upon execution of the Liquidity Support Agreement which is forecasted to occur concurrently with the issuance of the Series 2012 Bonds. Supplemental Liquidity Support Fund Pursuant to the Liquidity Support Agreement, the Corporation is planned to pay an aggregate amount of $2,375,000 (the Supplemental Support Obligation ), as such amount shall be reduced from time to time in accordance with the Liquidity Support Agreement, to the Master Trustee for deposit in a special trust account (the Supplemental Liquidity Support Fund ) to be created and established in the name of the Corporation and held in custody of the Master Trustee. The Support Obligation shall be paid to the Master Trustee upon execution of the Liquidity Support Agreement which is forecasted to occur concurrently with the issuance of the Series 2012 Bonds. The Supplemental Liquidity Support Fund is forecasted to be funded from proceeds of the Series 2012D Bonds. Special Project Liquidity Support Fund Pursuant to the Liquidity Support Agreement, the Corporation is planned to pay an aggregate amount of $1,875,000 (the Special Project Support Obligation ) as such amount shall be reduced from time to time in accordance with the Liquidity Support Agreement, to the Master Trustee for deposit in a special trust account (the Special Project Liquidity Support Fund ) to be created and established in the name of the Corporation and held in custody of the Master Trustee. The Support Obligation shall be paid to the Master Trustee upon execution of the Liquidity Support Agreement which is forecasted to occur concurrently with the issuance of the Series 2012 Bonds. The Special Project Liquidity Support Fund is forecasted to be funded from proceeds of the Series 2012D Bonds. Collectively the Support Obligation, the Supplemental Support Obligation and the Special Project Support Obligation are referred to as the Support Obligations or individually a Support Obligation. B-24

203 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Draws on the Support Obligations The moneys deposited in the Liquidity Support Fund, Supplemental Liquidity Support Fund and Special Project Liquidity Support Fund may be paid out, pro rata, by the Master Trustee for certain costs as more fully described in the Liquidity Support Agreement. The Liquidity Support Fund, Supplemental Liquidity Support Fund and Special Project Liquidity Support Fund may be replenished pro rata from initial entrance fees of the Corporation, pursuant to certain provisions in the Master Trust Indenture. Reductions in the Support Obligations Pursuant to the Liquidity Support Agreement, the Support Obligation, the Supplemental Support Obligation and the Special Project Support Obligation shall be reduced to the lesser of the amount currently available under the related Support Obligation or $1,000,000, $1,187,500, and $937,500, respectively, when: (i) The Series 2012B Bonds, Series 2012C Bonds, and Series 2012D Bonds are no longer outstanding; and (ii) The Corporation delivers to the Master Trustee and the Bond Trustee an officer s certificate certifying that certain occupancy levels and financial ratios of the Obligated Group (as defined in the Master Trust Indenture) have been achieved and no event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture. Pursuant to the Liquidity Support Agreement, the Support Obligation, the Supplemental Support Obligation and the Special Project Support Obligation shall each be reduced to zero and the Liquidity Support Agreement shall terminate and cease to be of any further force and effect, when one of the following requirements are met: 1) (i) The Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer outstanding; (ii) at least 12 months have lapsed since the reduction in the Support Obligation, Supplemental Support Obligation, and Special Project Support Obligation as described in the preceding paragraph; and (iii) the Corporation delivers to the Master Trustee and the Bond Trustee an officer s certificate certifying that certain occupancy levels and financial ratios of the Obligated Group have been achieved (as outlined in the Liquidity Support Agreement), and no event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture. 2) (i) The Series 2012B Bonds, the Series 2012C Bonds and the Series 2012D Bonds are no longer outstanding; and (ii) the Corporation delivers to the Master Trustee and the Bond Trustee an officer s certificate certifying that certain occupancy levels and a higher level of financial ratios (as outlined in the Liquidity Support Agreement) than those required under the initial reduction described in the preceding paragraph have been achieved, and no event of default has occurred and is continuing under the Master Trust Indenture and no event has occurred or is continuing which, with the passage of time or giving of notice, would cause an event of default to occur under the Master Trust Indenture. 3) The Series 2012 Bonds are no longer outstanding (note however that in the event of a refinancing or advance refunding of the Series 2012 Bonds, certain other provisions must be met as outlined in the Liquidity Support Agreement). Also pursuant to the Liquidity Support Agreement, SQLC is required to transfer any amounts received from GDS or its Affiliates related to the release of funds from the Special Project Liquidity Support Fund to the Corporation. Management has forecasted that the Support Obligation, the Supplemental Support Obligation, and the Special Project Support Obligation will be reduced to $1,000,000, $1,187,500, and $937,500, respectively during the year ending December 31, 2017 pursuant to the Liquidity Support Agreement. Management has forecasted that the B-25

204 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES balance of the Support Obligation, the Supplemental Support Obligation, and the Special Project Support Obligation will be released and the Liquidity Support Agreement terminated after the Forecast Period. Pursuant to the Liquidity Support Agreement, reductions in the Support Obligations shall be transferred from the Liquidity Support Fund to SQLC LSA, from the Supplemental Liquidity Support Fund to GDS and from the Special Project Liquidity Support Fund to GDS. Project Timeline A proposed timeline for the Project, as provided by Management, is summarized in the following table: Table 5 Project Timeline Date Item August 2012 Series 2012 Bonds are Issued August 2012 Construction Begins on the Project October 2013 Construction is Complete on the first Independent Living Units November 2013 Move-Ins Begin in the Independent Living Units November 2013 Construction is Complete on the Assisted Living Center and the Health Center December 2013 Move-Ins Begin in the Assisted Living Center January 2014 Construction is Complete on the Catered Living Units January 2014 Move-Ins Begin in the Catered Living Units February 2014 Construction is Complete on all of the Independent Living Units February 2014 Move-Ins Begin in the Health Center July 2014 Catered Living Units Reach Stabilized Occupancy (95%) May 2015 Assisted Living Center Reaches Stabilized Occupancy (95%) July 2015 Health Center Reaches Stabilized Occupancy (95%) October 2016 Independent Living Units Reach Stabilized Occupancy (95%) Source: Management PLAN OF FINANCE Pre-finance Capital It is anticipated that the pre-finance development costs, including the cost associated with obtaining regulatory approvals, design costs and marketing activities, will approximate $11,200,000. Of this amount, approximately $10,200,000 of these costs were funded by GDS through its joint venture partner, the Limited Partner. The remaining $1,000,000 of pre-finance development costs are being funded by SQLC. It is anticipated that SQLC and the Limited Partner will be reimbursed for these costs at closing of the Series 2012 Bonds. Permanent Financing The total financial requirements of the Community are estimated to be approximately $137,513,000. The Corporation expects to fund this requirement primarily through the issuance of the Series 2012 Bonds together with anticipated entrance fee receipts from the initial occupancy of the Community s Independent Living Units, the Subordinated Notes, and investment earnings on trustee-held funds relating to the Series 2012 Bonds. A summary of the forecasted sources and uses of funds for the Corporation s financing is provided in the following table. B-26

205 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 6 Series 2012 Bonds Forecasted Sources and Uses of Funds (000s Omitted) Sources of Funds: Gross Proceeds Series 2012 Bonds Series 2012A Bonds $ 94,575 Less: Net Original Issue Discount (1,045) $ 93,530 Series 2012B Bonds 3,000 Series 2012C-1 Bonds 3,515 Series 2012C-2 Bonds 7,905 Series 2012C-3 Bonds 3,025 Series 2012D Bonds 7,000 $ 117,975 (1) Interest Income on Trustee Held Funds 483 (2) Subordinated Notes 2,200 (3) Initial Entrance Fees 15,500 (4) Total Sources of Funds $ 136,158 Uses of Funds: Land and Related $ 5,207 (5) Design and Engineering 3,688 (6) Direct Construction 51,752 (7) Indirect Construction 4,261 (8) Project Contingency 2,425 (9) Miscellaneous Costs 3,065 (10) Marketing Costs 9,177 (11) Fixed Base Fee 4,917 (12) Development Consulting Fees 5,663 (13) Total Project Related Costs $ 90,155 Liquidity Support Fund 2,000 (14) Supplemental Liquidity Support Fund 2,375 (15) Special Project Liquidity Support Fund 1,875 (16) Funded Interest 13,362 (17) Debt Service Reserve Funds 8,913 (18) Working Capital 11,175 (19) Operating Reserve Fund 3,000 (20) Cost of Issuance and Other Finance Costs 3,303 (21) Total Other Costs $ 46,003 Total Uses of Funds $ 136,158 Source: Management and Underwriter Certain summaries, assumptions, rationale, and descriptions included in Management s financial forecast are more fully described in the Official Statement pertaining to the Series 2012 Bonds. For more detailed information regarding the proposed terms, conditions, debt service requirements, and any other requirements of the Series 2012 Bonds, all of the Series 2012 Bonds financing-related documents should be read in their entirety. Notes to Table 6: 1) The Corporation s underwriter, B.C. Ziegler and Company (the Underwriter ) has indicated that net bond proceeds in the amount of approximately $117,975,000 are estimated to be generated from the proposed issuance of the Series 2012 Bonds (gross bond proceeds in the amount of $119,020,000 less a B-27

206 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES net original issue discount of approximately $1,045,000). The responsibility for payment of the debt service on the Series 2012 Bonds is solely that of the Corporation. The Underwriter has indicated the following structure and terms of the Series 2012 Bonds: $94,575,000 of tax-exempt fixed rate bonds (the Series 2012A Bonds ), less a net original issue discount of approximately $1,045,000, consisting of term maturities to November 15, 2047 with annual principal sinking fund payments assumed to begin on November 15, 2017, with assumed average annual interest rates ranging from 6.00 percent to percent and average annual yields ranging from 6.25 percent to 7.30 percent. $3,000,000 of tax-exempt Accelerated Redemption Reset Option Securities (ARROS SM ) (the Series 2012B Bonds ) with a stated maturity date of November 15, 2047, with quarterly principal payments assumed to begin on August 15, 2015 and full redemption assumed to occur on November 15, The Series 2012B Bonds are assumed to initially bear interest at an average annual interest rate of 6.00 percent until November 15, 2019 (the Initial Rate Change Date ) at which time the Series 2012B Bonds will bear interest at a rate and for a period determined in accordance with the bond indenture. $14,445,000 of fixed rate Tax Exempt Mandatory Paydown Securities (TEMPS SM ) (The Series 2012C Bonds ) consisting of: $3,515,000 of Series 2012C-1 Tax Exempt Mandatory Paydown Securities (TEMPS-75 SM ) with a stated maturity date of November 15, 2019, anticipated to be redeemed in full by approximately August 15, 2015, with quarterly principal payments assumed to begin on August 15, 2015, and bearing interest at an assumed average interest rate of 5.75 percent. $7,905,000 of Series 2012C-2 Tax Exempt Mandatory Paydown Securities (TEMPS-65 SM ) with a stated maturity date of November 15, 2018, anticipated to be redeemed in full by approximately August 15, 2015 with quarterly principal payments assumed to begin on February 15, 2015, and bearing interest at an assumed average interest rate of 5.25 percent. $3,025,000 of Series 2012C-3 Tax Exempt Mandatory Paydown Securities (TEMPS-50 SM ) with a stated maturity date of November 15, 2018, anticipated to be redeemed in full by February 15, 2015 with quarterly principal payments assumed to begin on November 15, 2014, and bearing interest at an assumed average interest rate of 4.50 percent. $7,000,000 of fixed rate Taxable Mandatory Paydown Securities (Taxable MPS) (the Series 2012D Bonds ), with a stated maturity date of November 15, 2017, anticipated to be redeemed in full by November 15, 2014 with quarterly principal payments assumed to begin on August 15, 2014, and bearing interest at an assumed average interest rate of 6.25 percent. Principal on the Series 2012B Bonds, Series 2012C Bonds and the Series 2012D Bonds is anticipated to be paid from a portion of the anticipated availability of entrance fee receipts from initial residents of the Community s Independent Living Units. 2) Management has estimated interest earnings on trustee-held funds associated with the Series 2012 Bonds during the first 20 months subsequent to issuance, as provided by Management. Management has assumed the following interest rates on trustee-held funds based upon information provided by the Underwriter and Ziegler Lotsoff Capital Management LLC, an affiliate of the Underwriter: 0.53 percent on the Project Fund; 0.61 percent on the Funded Interest Fund; 0.67 percent on the Series 2012A Bonds Debt Service Reserve Fund; 0.29 percent on the Series 2012B Bonds Debt Service Reserve Fund; B-28

207 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES 0.25 percent on the Series 2012C-1 Bonds Debt Service Reserve Fund; 0.25 percent on the Series 2012C-2 Bonds Debt Service Reserve Fund; 0.16 percent on the Series 2012C-3 Bonds Debt Service Reserve Fund; and 0.14 percent on the Series 2012D Bonds Debt Service Reserve Fund. 3) Pursuant to the Subordinated Notes, SQLC LSA and SQLC are forecasted to advance $2,000,000 and $200,000, respectively, to the Corporation for use by the Corporation for the Project. $2,000,000 of the Subordinated Notes is forecasted to be used to fund the Liquidity Support Fund and the remaining $200,000 is forecasted to be used to pay costs of the Project. 4) Management has forecasted that approximately $15,500,000 of entrance fees from initial residents of the Independent Living Units will be used to fund start-up losses, operating reserves, and a portion of the development fees related to the Community. 5) Management has estimated that the cost of land and land related costs will total approximately $5,207,000 and include costs for purchasing the land (as described more fully previously herein), engineering reports, zoning, permitting, legal fees and other land related costs. 6) Design and engineering costs of approximately $3,688,000 are based primarily on the Corporation s contract with the architect, AG Architecture, Inc., and include architect, engineering, and design fees, as well as construction administration, interior design fees, and other such costs. 7) Management has forecasted construction, site work, and other costs related to the construction of the Community will approximate $51,752,000, based upon a guaranteed maximum price ( GMP ) contract provided by the general contractor, LECESSE Construction Services, LLC in the amount of $49,662,964 which includes a contractor s construction contingency of approximately $734,000. An owner held construction contingency equal to approximately $1,650,000 and owner held builder s risk insurance equal to approximately $440,000 are also included in the construction costs. It should be noted that although Management has entered into a GMP contract, adjustments for allowances, change orders or other circumstances not addressed in the contract could result in the total construction costs exceeding the maximum price that was established by the GMP contract. 8) Management has assumed that indirect construction costs for the Project would approximate $4,261,000 in the aggregate, and consist of the cost of preconstruction contractor services, furniture fixtures and equipment costs, offsite road improvements, an owner s representative fee, and other items, such as zoning, permit, and tap fees. 9) Management has included a project contingency of $2,425,000 in the overall project related costs of the Community. 10) Miscellaneous costs related to the Community are estimated to approximate $3,065,000 and include expenses related to travel, legal and other professional fees, property taxes during construction, preopening expenditures, and other administrative costs as provided by Management. 11) Marketing costs related to the initial occupancy of the Community s Independent Living Units, funded with proceeds of the Series 2012 Bonds, are assumed to approximate $9,177,000 and will include direct marketing costs, salaries and commissions, promotional materials, and other items as provided by Management based on their experience with other projects. Marketing costs are assumed to be funded through approximately June ) The Fixed Base Fee is forecasted to total $8,667,000 based upon the Development Consulting Agreement with Greystone (as more fully described previously herein). Management has forecasted that $4,917,000 of the Fixed Base Fee is due and payable at closing of the Series 2012 Bonds and the B-29

208 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES remaining $3,750,000 is forecasted to be paid at a future date, consistent with the support obligation reduction provisions of the Liquidity Support Agreement, as more fully described previously herein. 13) Development Consulting Fees are forecasted to total approximately $6,163,000 based upon the Development Consulting Agreement with Greystone (as more fully described previously herein). Management has forecasted that approximately $5,663,000 of the Development Consulting Fees will be funded as follows: a) $4,338,000 from the Series 2012 Bonds and b) $1,325,000 (the Initial Fill-Up Fee and the Incentive Occupancy Fee) from first generation entrance fees from the Independent Living Units through the working capital fund. The remaining Development Consulting Fees equal to $500,000 are forecasted to be paid at a future date, consistent with the support obligation reduction provisions of the Liquidity Support Agreement as more fully described previously herein. 14) The deposit to the Liquidity Support Fund is assumed to approximate $2,000,000 and is forecasted to be funded from proceeds of the Subordinated Note SQLC LSA as more fully described previously herein. 15) The deposit to the Supplemental Liquidity Support Fund is assumed to approximate $2,375,000 as more fully described previously herein. 16) The deposit to the Special Project Liquidity Support Fund is assumed to approximate $1,875,000 as more fully described previously herein. 17) Management and the Underwriter have estimated funded interest of approximately $13,362,000 which represents the Project related debt service through April 2014, which is approximately 20 months from the assumed issuance date of the Series 2012 Bonds. 18) Represents the estimated amount that will be deposited to the debt service reserve funds related to the Series 2012 Bonds as provided by Management and the Underwriter. 19) Subsequent to the issuance of the Series 2012 Bonds and after completion of the Community, initial entrance fees related to the Independent Living Units are forecasted to be used to fund working capital in the amount of $11,175, ) Subsequent to the issuance of the Series 2012 Bonds and after completion of the Community, initial entrance fees related to the Independent Living Units are forecasted to be used to fund an operating reserve fund in the amount of $3,000,000, prior to any replenishment. 21) Management and the Underwriter s estimate of costs related to the Underwriter s discount, legal fees, accounting fees, and other costs associated with the proposed issuance of the Series 2012 Bonds. Resident Admission Criteria-Independent Living Units A prospective resident will be accepted for Life Care Benefits, hereinafter defined, in the Independent Living Units only if the applicant is age 62 and older at the time of occupancy, demonstrates the ability to live independently or with some assistance with activities of daily living as determined by the Corporation, and is able to meet the financial obligations as a resident of the selected apartment within the Independent Living Units. The Community will be open to individuals regardless of race, color, religion, sex, national origin, ancestry, disability or any other unlawful reason. In order to reserve one of the Independent Living Units at the Community, the prospective resident must complete a reservation agreement (the Reservation Agreement ), complete a Confidential Data Profile which provides self disclosure of his or her health and finances, and submit payment of a reservation deposit of at least 7 percent of the entrance fee for the respective apartment selected within the Independent Living Units (the Entrance Fee Deposit ). Upon the Corporation s receipt of the Reservation Agreement, Confidential Data Profile, and the Entrance Fee Deposit, Management typically notifies the prospective resident of their acceptance and executes the B-30

209 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Reservation Agreement within 7 days. Upon acceptance and execution of the Reservation Agreement, the prospective resident is referred to as a Resident. For purposes of the Study, Residents are also referred to herein as Depositors. The executed Reservation Agreement reserves the right of the Depositor to choose the selected apartment within the Independent Living Units and indicates their intent to execute a life care contract (referred to herein as the Life Care Agreement ). Termination of the Reservation Agreement Termination by the Depositor Prior to occupancy and execution of a Life Care Agreement, Depositors may terminate their Reservation Agreement and be entitled to full reimbursement of their Entrance Fee Deposit, with interest at such rate as is earned on the escrow account, within 30 days of termination under the following circumstances: (i) the failure of the Corporation to meet its obligations under the Reservation Agreement or (ii) death, incapacity, or serious illness of the Resident prior to occupancy. If the resident terminates the Reservation Agreement other than for those reasons listed in the preceding paragraph, the Corporation shall refund the entire Entrance Fee Deposit within 30 days of termination. Residents with Charter Benefits (as described subsequently hereinafter)will receive interest on their Entrance Fee Deposit at such rate as is earned on the escrow account. Residents without Charter Benefits will not receive interest on their Entrance Fee Deposit. Termination by the Corporation The Corporation may terminate the Reservation Agreement and refund the entire Entrance Fee Deposit, plus interest, within 30 days of termination. Life Care Agreements - Independent Living Units Execution of the Life Care Agreement and payment of the monthly service fee and the entrance fee entitles the resident to occupy their selected unit within the Independent Living Units. Entrance Fee Plan Options The Corporation offers five Life Care Agreement options to prospective residents of the Independent Living Units as summarized in the following table: B-31

210 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 7 Independent Living Units Entrance Fee Plans, Refund Percentage, and Availability Life Care Agreement Options Entrance Fee Refund Percentage (1) Plan A: Life Care with Full Services - 80% Refundable for Couples and 90% Refundable for Singles ("Plan A") Plan B: Life Care with Full Services - 70% Refundable ("Plan B") Plan C: Life Care with Full Services - 0% Refundable ("Plan C") Plan D: Life Care with Full Services - 50% Refundable ("Plan D") Plan E: Life Care with Full Services - 100% Refundable ("Plan E") Source: Management Notes: (1) Refunds will be paid within 10 days after the later of the effective date of the termination of the Life Care Agreement or the date a new entrance fee and executed Life Care Agreement have been received from a new resident and the new resident has taken occupancy of the vacated unit. (2) The entrance fee for single person occupants with Charter Benefits (as described subsequently hereinafter) will be 95% refundable. See Tables 42 and 43 hereinafter for a summary of the forecasted monthly service fee and entrance fee pricing for each plan option. Termination of the Life Care Agreement B-32 80% of the entrance fee paid by couples will be refunded or 90% of the entrance fee paid by single residents will be refunded to the Resident upon reoccupancy of their residence, based upon either a 20% reduction (for couples) or a 10% reduction (for singles) at occupancy. (2) The entrance fee paid will be refunded based upon the following amortization schedule: a 10% reduction at occupancy and 4% reduction (prorated) for up to 5 months thereafter, but in no case less than 70% refundable. The entrance fee paid will be refunded based upon the following amortization schedule: a 10% reduction at occupancy and 2% reduction (prorated) for up to 45 months, at which point the entrance fee is no longer refundable. The entrance fee paid will be refunded based upon the following amortization schedule: a 10% reduction at occupancy and 4% reduction (prorated) for up to 10 months thereafter, but in no case less than 50% will be refundable. 100% of the entrance fee paid will be refunded. If the Life Care Agreement is terminated prior to assuming occupancy at the Community, the Resident will receive a full refund of all monies paid to the Corporation, including interest as is earned on the escrow account, within 30 days under the following circumstances: (i) written notice of termination is received by the Corporation prior to occupancy; (ii) failure of the Corporation to meet its obligation under the Life Care Agreement; or (iii) written notice that the Resident is incapable of occupying the selected unit due to illness, injury, death, or other circumstance beyond the Resident s control that equitably entitles the Resident to a refund. If the Life Care Agreement is terminated prior to assuming occupancy at the Community for reasons other than those stated in the previous paragraph, the Resident will receive a full refund of all monies paid to the Corporation. Residents with Charter Benefits who terminate the Life Care Agreement prior to occupancy for reasons other than stated in the previous paragraph will also receive interest on their Entrance Fee Deposit, while Residents without Charter Benefits will not receive interest on their Entrance Fee Deposit. If the Life Care Agreement is terminated after occupancy, the Corporation will refund the refundable portion of the entrance fees paid (without interest) as summarized in Table 7, within 10 days after the later of (i) the effective date of termination of the Life Care Agreement or (ii) the date a new entrance fee and executed Life

211 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Care Agreement have been received from a new resident and that new resident has taken occupancy of the vacated unit. If two residents occupy one unit within the Independent Living Units, and one of the residents terminates the Life Care Agreement and the other resident remains in the unit, the monthly service fee will be adjusted for single occupancy. In such cases, no refund of the entrance fee will occur until termination of the Life Care Agreement by both residents. Services and Amenities Under the Life Care Agreement, residents that pay an entrance fee and a monthly service fee are entitled to certain services and amenities at no additional cost. The following table outlines the services included in the Life Care Agreement for each of the entrance fee plan types. Table 8 Services Included in the Life Care Agreement Service Type Description of Services Included "Barrington Dollars", a dollar credit system in the amount of Dining $300 per month per person. Twice a month vacuuming, cleaning, mopping, and Housekeeping sweeping. Linen Twice a month laundering and changing of bed linens. Sewer, water, waste disposal, electricity, heat and airconditioning, Utilities and basic cable television. Security Smoke detectors and fire-sprinkler system. Emergency Alert System 24-hour emergency alert system. Maintenance of buildings, grounds and common areas. Repair, maintenance and replacement of certain unit Maintenance fixtures. Mail Mailboxes will be provided in a central location. Transportation Scheduled local transportation. Activities Social, education and wellness programs. Maintain property and casualty insurance coverage on Insurance buildings and grounds. Storage Area One individual storage area per residence. Medical Director Services of a qualified licensed physician will be retained. Lifetime priority access to Assisted Living Units, Memory Life Care Benefit Support Units and Health Center at pre-determined rates. (1) Source: Management Notes: (1) See "Life Care Benefit" section that follows for further description and terms. Management anticipates that certain services will be available for an extra fee including, but not limited to: meals and food items over and above those outlined in the table above, catering for special occasions, guest meals and overnight accommodations, delivered meal service and take-out, additional maintenance services, additional parking (subject to availability), additional housekeeping services, personal laundry services, personalized transportation services, beauty and barber services, additional storage and programs, personal fitness trainer, home care and personal assistance service. B-33

212 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Life Care Benefit The Corporation will provide Residents of the Independent Living Units with priority access to nursing services that are available in the Health Center or assisted living/memory support services in the Assisted Living Center when a determination is made that the Resident needs such care (the Life Care Benefit ). The Corporation will pay for the routine assisted living, memory support, or nursing care required by the Residents to the extent that it is not covered by the Resident s insurance, Medicare, or other governmental benefits or entitlements that the Residents are required to posses and maintain under the Life Care Agreement. Assisted living services will be provided in a one bedroom standard Assisted Living suite, memory care services will be provided in a Memory Support suite and nursing services will be provided in a private Health Center room. Effect on Monthly Service Fee - Temporary Transfer For single occupants, a Resident is assumed to continue to pay the then current monthly service fee in effect for his/her unit in the Independent Living Units and the applicable fee at the Assisted Living Center or the Health Center. For double occupancy Residents, should one or both Residents have a temporary need for care in the Assisted Living Center or Health Center, the Residents are assumed to continue to pay their current monthly service fee for their unit in the Independent Living Units, plus the applicable fee at the Assisted Living Center or the Health Center. Effect on Monthly Service Fee - Permanent Transfer Upon permanent transfer, a Resident must release his/her unit in the Independent Living Units. For single occupants who are Charter Residents, defined below, the monthly service fee will be adjusted to the then-current monthly service fee for a two bedroom Amhurst independent living apartment in the Independent Living Units plus the cost of sixteen additional meals per week in the Assisted Living Center or the Health Center. For single occupants who are non-charter Residents, the monthly service fee will be adjusted to the thencurrent monthly service fee for a two bedroom Laurelwood independent living apartment within the Independent Living Units, plus the cost of sixteen additional meals per week in the Assisted Living Center or the Health Center. In the case of double occupancy, in the event of a permanent transfer of both Residents, the monthly service fee will be adjusted so that both Residents will pay the then-current monthly service fee for a two bedroom Amhurst independent living apartment in the Independent Living Units (for Charter Residents) or the then-current monthly service fee for a two bedroom Laurelwood independent living apartment within the Independent Living Units (for non-charter Residents), plus the cost of sixteen additional meals per person per week. In the case of double occupancy, in the event of a permanent transfer of only one of the Residents, the monthly service fee will be adjusted to the then current monthly service fee for the residence plus the then current monthly service fee for a two bedroom Amhurst independent living apartment within the Independent Living Units (for Charter Residents) or the then-current monthly service fee for a two bedroom Laurelwood independent living apartment within the Independent Living Units (for non-charter Residents), and the relocated Resident will pay for the then-current cost of sixteen additional meals per week. In all cases, Residents will also be billed for non-routine care, Level I, Level II, Level III assisted living services and/or ancillary services at the then-current rates for such items. If space is not available in the Assisted Living Center or the Health Center, until such space becomes available, the Corporation will arrange and pay for the Resident s care by a home health care agency if reasonably possible, or if not medically appropriate, in another facility that can provide similar care that would have been provided by the Community. B-34

213 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Charter Benefits and Other Incentives Charter Benefits The Corporation is offering Residents who are members of the Priority Program (as defined subsequently hereinafter), the Charter Residents, a package of additional benefits ( Charter Benefits ) that include the following: An approximate 5 percent discount on the refundable entrance fee pricing (the Charter Entrance Fee ); No second person monthly service fee for the duration of the Life Care Agreement; Two complimentary months of service fees from the available occupancy date; Guaranteed occupancy should the Resident s health care needs change between the date of the Entrance Fee Deposit and the date of occupancy; Guaranteed monthly fee until June 1, 2014; Paid membership to Monon Community Center for 2 years beginning with occupancy date; Complimentary underground parking space; Discounted Life Care equalized rate charge based on the Amhurst monthly service fee, rather than the Laurelwood monthly service fee charged to non-charter Residents; Opportunity to customize Independent Living Units; and Payment of 3 percent interest on the Entrance Fee Deposit from the date of deposit through the date the unit is available for occupancy upon move-in to the Community. Other Marketing Incentives Management of the Corporation anticipates offering a variety of incentive programs to encourage Depositors to move into the Community. These programs include: deferred entrance fees and ladder benefits. Forecasted Utilization of Entrance Fee Plans The following table summarizes Management s forecasted utilization of the entrance fee plans by first generation Residents in comparison to the number of Depositors who have selected each plan as of July 6, 2012: Table 9 Forecasted Utilization of Entrance Fee Plans Forecasted First Generation Attrition Initial Deposits (1)(2) Residents Residents Life Care Agreement Number Percent Percent Percent Plan A % 74.1% 100.0% Plan B % 7.9% 0.0% Plan C 6 6.3% 3.9% 0.0% Plan D % 11.8% 0.0% Plan E 3 3.2% 2.3% 0.0% % 100.0% 100.0% Source: Management Notes: (1) Based upon Depositors as of July 6, (2) Six Depositors have each reserved two units resulting in a total of 101 units reserved at July 6, Although residents select their refund plans initially, they can change their selection upon move-in so long as alternative plan contracts are available. Management has planned to offer only Plan A contracts to post-first generation residents of the Independent Living Units. B-35

214 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Combination Units According to Management, as of July 6, 2012, six Depositors have each reserved two Independent Living Units (the Combination Units ). Upon vacancy, the Combination Units could be separated and remarketed as their original floor plans; therefore Management has forecasted the number of Independent Living Units according to the original floor plans. MARKET ASSESSMENT General Management s assumptions for the future utilization of the Community were developed based on analysis of the following factors, which may affect the demand for the services: Site description and general area analysis; Defined primary market area ( PMA ) for the Community; Demographic and economic characteristics of Management s defined PMA; Estimated age and income qualified households within Management s defined PMA; Description and utilization of existing and proposed comparable retirement communities within Management s defined PMA; Penetration rates for retirement community services within Management s defined PMA; and Management s ability to market the Independent Living Units of the Community. Site Analysis Site Description and Surrounding Land Use The Community is located on approximately 19 acres at 1335 South Guilford Road in Carmel, Indiana (the Site ) approximately 2 miles west of downtown Carmel, Indiana, and approximately 15 miles north of Indianapolis in Hamilton County. Topography around the Site is flat with mature trees and low laying vegetation. Adjacent to the Site to the east and south there are commercial office and retail properties, and to the north and west there are three small developments of multi-family townhomes. Further south across East 116 th Street is a development of single-family homes. Access and Visibility Access to the Community will be from Guilford Road. Guilford Road is a north-south residential street which starts at the intersection of East 116 th Street less than 200 yards south of the Site, and ends at Old Meridian Street approximately 1.5 miles north of the Site. East 116 th Street runs east-west which connects to Meridian Street (Highway 31) approximately one mile west of the Site; Meridian Street is a major north-south thoroughfare connecting to Interstate 465 to the south which can be used to access Indianapolis and the surrounding areas. The maps on the following page show the location of the Site within the Indianapolis metropolitan area and the state of Indiana. B-36

215 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Site Site Source: Microsoft MapPoint 2011 Proximity to Retail, Health Care, and Community Services The major concentration of retail development in the area is within the Carmel City Center which is approximately two miles east of the Site on Range Line Road and features the Arts & Design District which boasts unique shops, restaurants and a regional performing arts center. In addition to a variety of unique shops, stores important to seniors including a pharmacy and grocery stores are also located along Range Line Road. There are several clinics located in Carmel, Indiana near the Site including family practice and specialty services. In addition, there are three hospitals in the area according to the American Hospital Directory. These three hospitals are listed below along with a map showing their location in proximity to the Site: 1. Indiana University Health Hospital - North, a 161-bed hospital, located on North Meridian Street, approximately one mile from the Site. 2. Saint Vincent Carmel Hospital, a 107-bed hospital, located on Meridian Corners Boulevard, approximately 1.5 miles from the Site. 3. Saint Vincent Heart Center of Indiana, a 107-bed hospital located on North Meridian Street, approximately 1.75 miles from the Site. The following map shows the location of the hospitals near the Site: B-37

216 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Site Source: MapPoint 2011 In addition, there are a variety of community services available to seniors in the area. PrimeLife Enrichment, a membership senior center, is located roughly one mile east of the Site offering a variety of daily activities, educational programs, transportation and meals for a small donation. Primary Market Area Management defines the PMA for the Community s Independent Living Units as the geographic area from which the majority of the prospective Residents are assumed to originate prior to occupancy. Based upon an analysis of reserved Independent Living Units at the Community, Management has defined the PMA to be a 12 ZIP Code area around the planned Community which extends from the Site approximately 11 miles to the north, 8 miles to the south, 10 miles to the east, and 5 miles to the west. Management has assumed that the prospective resident origin of the Catered Living Units, the Assisted Living Center and the Health Center at the Community will be similar to the origin of the Independent Living Units Depositors, based upon Management s experience managing senior communities. Therefore, the PMA for the Catered Living Units, the Assisted Living Center and the Health Center at the Community has been defined by Management to be the same as that defined for the Independent Living Units. The following table summarizes the ZIP Codes and corresponding cities that make up the PMA. Table 10 PMA ZIP Codes and Cities/Localities ZIP Code City/Locality ZIP Code City/Locality Carmel Carmel Fishers Noblesville Westfield Indianapolis Indianapolis Indianapolis Indianapolis Indianapolis Indianapolis Indianapolis Source: Management B-38

217 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES As of July 6, 2012, there were 101 Independent Living Units reserved by 95 Depositors (6 Depositors reserved 2 Independent Living Units) representing a 75.4 percent pre-sale level of the 134 available Independent Living Units. The following table summarizes the resident origin information for the 95 Depositors as of July 6, Area of Origin Table 11 Depositor Origin - Independent Living Units Number of Depositors Percentage of Depositors PMA ZIP Codes: % % % % % % % % % % % % Sub-Total PMA % Other Areas In Indiana % Outside of Indiana 3 3.2% Total % Source: Management The following map depicts the PMA and the location of the proposed Community. B-39

218 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Site Source: Microsoft MapPoint 2011 The age distribution of the population in a geographic area is considered by Management to be a key factor in the determination of the area s retirement housing needs. Population data regarding numbers of elderly is presented in the following tables. The 2012 and 2017 data in the following tables are estimates and projections, respectively, based on the 2000 census, which were provided by Claritas, Inc., a recognized provider of census demographic information. Based on an analysis conducted of the Independent Living Units Depositors (including second person occupants) as of July 6, 2012, approximately 10 percent of the Depositors will be under age 75 upon opening of the Community and 90 percent will be age 75 and over upon opening of the Community. Table 12 Elderly Population Change for the PMA 2000 (Actual) 2012 (Estimated) 2017 (Projected) Average Compounded Percentage Change Population Population Population 2000 to to 2017 Total Population 251, , , % 1.6% Under Age , , , % 1.3% Age 65 to 74 Population 12,911 16,618 22, % 6.3% Age 75 to 84 Population 9,724 10,455 10, % 1.0% Age 85 & Over Population 3,902 4,832 5, % 2.6% Total 65 & Over 26,537 31,905 39, % 4.1% Total 75 & Over 13,626 15,287 16, % 1.5% Source: Claritas, Inc. The following table presents the percentage of total population by age group for the elderly population in the PMA, the State of Indiana and the United States. B-40

219 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 13 Percentage of Total Population by Age Cohort 2012 (Estimated) PMA Indiana U.S. Age Cohort 65 & Over 10.1% 12.8% 12.9% 75 & Over 4.9% 6.0% 6.1% 85 & Over 1.5% 1.8% 1.8% 2017 (Projected) PMA Indiana U.S. Age Cohort 65 & Over 11.5% 14.2% 14.3% 75 & Over 4.8% 6.2% 6.2% 85 & Over 1.6% 2.0% 2.0% Source: Claritas, Inc. Real Estate Trends Management has assumed that the majority of Residents moving into the Community s Independent Living Units will sell their current homes prior to relocating to the Community. The ability of potential Residents to sell their homes in a timely fashion may have an impact on the fill-up period of the Community and may affect the ability of Residents to pay the entrance fees, in some cases. The following table summarizes the number of homes sold, average sales price, and average days on the market for single-family homes sold for the ZIP codes included in the PMA for 2009 through May 18, B-41

220 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 14 Single-Family Home Sales Trends in the PMA (1) 2009 through May 18, 2012 ANNUAL REAL ESTATE DATA Number Average Average Number Average Average Number Average Average Homes Sales Days on Homes Sales Days on Homes Sales Days on ZIP Code Sold Price Market Sold Price Market Sold Price Market (2) 520 $ 332, $ 390, $ 362, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total/Wtd. Avg. 4,022 $ 224, ,014 $ 235, ,706 $ 247, YEAR-TO-DATE REAL ESTATE DATA January - May 18, 2011 January - May 18, 2012 Number Average Average Number Average Average Homes Sales Days on Homes Sales Days on ZIP Code Sold Price Market Sold Price Market (2) 140 $ 320, $ 328, , , , , , , , , , , , , , , , , , , , , , , Total/Wtd. Avg. 1,130 $ 230, ,336 $ 233, Source: Multiple Listing Service, Carpenter Realtors and Kucic Associates, May Notes: (1) Data includes single-family home sales only. (2) The Community is located within ZIP Code B-42

221 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The following table summarizes the number of single-family homes sold from January 1, 2012 through May 18, 2012 within five price ranges for the ZIP Codes in the PMA. Table 15 Single-Family Home Sales, by Price, in the PMA January 1, 2012 through May 18, 2012 Number of Homes Sold by ZIP Code (1) TOTAL (2) Number % Closed Price: $0-199, % $200, , % $250, , % $400, , % $500,000 and over % Total , % Source: Multiple Listing Service, Carpenter Realtors and Kucic Associates, May Notes: (1) Data includes single-family home sales only. (2) The Community is located within ZIP Code Economy and Employment Information The following table summarizes the top 20 largest private employers in 2012 in Hamilton County, Indiana where the Community is planned to be located. B-43

222 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 16 Top 20 Largest Private Employers in Hamilton County, IN By Number of Employees Number of Major Employers Industry Employees Sallie Mae Financial Services/Student Loans 2,500 CNO Financial Group, Inc. (1) Financial Services/Insurance Services 1,750 Liberty Mutual Group Insurance Services 1,200 The Capital Group Financial Services 1,000 Resort Condo International Time Share Management 900 Firestone (1) Diversified Products 825 SMC Corporate Pneumatic Automation Equipment 800 Midwest ISO (1) Electric Grid Management 700 Roche Diagnostics Medical Equipment 600 Indiana Mills & Manufacturing Seat Belts, Straps & Tie Downs 500 Duke Realty Corp. (1) Real Estate 475 ADT Customer Service Center 450 Ingersoll Rand (1) Security Technology 400 Technicolor USA (1) Entertainment 350 Delta Faucet Co. (1) Plumbing Products 325 First Advantage Talent Acquisition 325 J Wiley and Sons Publishing 325 King Systems Plastic Medical Products 325 Community Home Health Home Health Care 300 U.S. Foodservice Food Distribution 300 Source: Hamilton County Alliance, 2012; May Note: (1) Located in the City of Carmel, Indiana. The following table summarizes employment by industry sector for the Carmel - Indianapolis Metropolitan Statistical Area ( MSA ) and the State of Indiana as of May B-44

223 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 17 Employment by Industry Sector Carmel - Indianapolis MSA (1) State of Indiana Occupation Title Employment (2) % Employment (2) % Office and Administrative Support 139, % 409, % Sales and Related 95, % 286, % Transportation and Material Moving 80, % 240, % Food Preparation and Serving Related 76, % 254, % Healthcare Practitioner and Technical 59, % 175, % Production 56, % 323, % Business and Financial Operations 44, % 95, % Education, Training and Library 42, % 160, % Management 42, % 110, % Installation, Maintenance and Repair 33, % 116, % Construction and Extraction 31, % 107, % Healthcare Support 25, % 86, % Building and Grounds Cleaning, Maintenance 25, % 83, % Computer and Mathematical Science 23, % 47, % Protective Service 18, % 55, % Personal Care and Service 18, % 63, % Architecture and Engineering 14, % 44, % Arts, Design, Entertainment, Sports and Media 11, % 30, % Life, Physical and Social Science 9, % 20, % Community and Social Service 8, % 29, % Legal 6, % 14, % Farming, Fishing and Forestry % 2, % All Occupations 865, % 2,758, % Source: United States Department of Labor, Bureau of Labor Statistics, May 2011 Occupational Employment and Wage Estimates, May Notes: (1) The Carmel Indianapolis MSA includes the following Indiana counties: Boone, Brown, Hamilton (where the Community is located), Hancock, Hendricks, Johnson, Marion, Morgan, Putnam and Shelby. (2) The sum of the employment for each category may not foot to the total for all occupations due to rounding. B-45

224 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The following table summarizes unemployment rate trends for Hamilton County, Indiana and the United States for 2008 through March 2012 (the latest data available at the time of research). Table 18 Unemployment Rate Trends Period Hamilton County State of Indiana United States 2012 April 5.2% 7.7% 7.7% March 5.8% 8.6% 8.4% Feburary 5.9% 8.8% 8.7% January 6.1% 9.2% 8.8% 2011 Annual Average 6.3% 9.0% 8.9% December 6.0% 8.6% 8.3% November 6.0% 8.6% 8.2% October 6.2% 8.8% 8.5% September 6.4% 8.9% 8.8% August 6.8% 9.3% 9.1% July 6.5% 9.2% 9.3% June 6.5% 9.1% 9.3% May 6.1% 8.7% 8.7% April 5.8% 8.5% 8.7% March 5.8% 9.1% 9.2% Feburary 6.3% 9.5% 9.5% January 6.5% 9.8% 9.8% 2010 (Annual Average) 7.0% 10.1% 9.6% 2009 (Annual Average) 6.6% 10.4% 9.3% 2008 (Annual Average) 3.8% 5.8% 5.8% Source: U.S. Bureau of Labor Statistics, June Note: Data reflects rates not seasonally adjusted. Independent Living Units and Catered Living Units Market Assessment Comparable Retirement Communities Comparable retirement communities may include several types of facilities. Continuing care retirement communities ( CCRC ) may offer life care, modified life care, fee-for-service, or rental contracts. Independent living residents generally have access to common area amenities, which often include a central dining room, a library, lounge areas, and other community areas. Various monthly service fee options often cover laundering the resident s flat linens, housekeeping services, maintenance, scheduled transportation, and one (or more) meals per day. The life care concept offers independent living housing and various levels of service and healthcare that provides for a resident s changing needs as he/she ages and begins to require a higher level of care. Life care arrangements typically include an entrance fee and a monthly service fee. In a life care facility, a resident may receive assisted living or nursing care at little or no extra charge beyond the monthly service fee paid in his/her independent living unit ( extensive contract or Type A contract). A modified life care facility typically offers a limited benefit for assisted living and nursing care services ( modified contract or Type B contract). B-46

225 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The fee-for-service community ( fee-for service contract or Type C contract) offers a variation of the typical life care concept. The general concept of continuing care is offered at a fee-for-service facility in various forms. For example, at some facilities, residents pay reduced entrance fees and must pay per-diem rates for assisted living and nursing care, while other facilities may offer priority, but not guaranteed admission to assisted living and nursing care services, limited allotments of free healthcare days, and/or low or no entrance fees with higher monthly service fees. While healthcare is often provided in the service package for a fee-for-service senior care community, it is funded by the resident on an as-needed basis at current per diem rates. A rental retirement community offers independent living housing and may offer healthcare services, such as assisted living or nursing care. A resident is not required to pay an entrance fee. The resident generally signs a lease for the independent living unit selected and pays for various additional services utilized on a per diem basis. The resident may enter the community at various levels of care in a rental retirement community. Retirement communities offering an equity option involve the actual purchase of real estate or membership by the resident. This includes independent living condominiums and cooperatives. Healthcare services may be accessible in this type of senior housing on an optional basis. Management has defined comparable retirement facilities as certain retirement facilities that include independent living services, offer assisted living and nursing levels of care, offer similar services and amenities, compete for similar age and income qualified residents, and are located within the PMA of the Community. Table 19 Comparable Retirement Communities Number of IL Units Occupancy The Community: Independent Living Units and Catered Living Units 141 N/A Comparable Retirement Communities: Hoosier Village % Marquette Manor % Robin Run Village 168 (1) 75.0% The Forum at the Crossings % The Stratford % (2) Total Comparable Units - Excluding the Community % Total Comparable Units - Including the Community 1,030 Source: Management, telephone interviews and other research conducted in May Notes: (1) The cottage units at this facility were not considered comparable with the Community for purposes of the Study and are not included in the number of units summarized in the table; the occupancy data on the table reflects the overall occupancy of the facility including the cottage units as break-out data was not able to be obtained from the facility. (2) Occupancy data for this facility is from September 2011 as they would not provide updated data at the time of research. This facility is still in its initial lease-up phase; if this facility was excluded from the occupancy calculation, overall occupancy of the comparable units would be 89.9%. There are also eleven other existing market-rate independent living communities located in the PMA that Management does not consider to be comparable with the Community s Independent Living Units and Catered Living Units as they did not meet one or more of the criteria noted previously. These other retirement communities are as follows: B-47

226 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES American Village Berkshire of Castleton Crestwood Village North Clearwater Commons ManorCare at SummerTrace Morningside of College Park Rosewalk Village of Indianapolis Robin Run (cottage units only; apartment units are included as comparable as shown on Table 19) Sanders Glen Spring Mill Meadows Sunrise at Old Meridian The following map depicts the location of the comparable retirement communities within the PMA. Source: Microsoft MapPoint 2011 The following tables provide a detailed profile of the comparable retirement communities within the PMA. B-48

227 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 20 Comparable Retirement Communities in the PMA The Community Hoosier Village Marquette Manor Street Address Guilford Road 9875 Cherryleaf Drive 8140 Township Line Road City/State/ZIP Code Camel, IN Indianapolis, IN Indianapolis, IN Miles from the Project Type of Contract Type A Type B (1) or Rental Type Cor Rental Owner/Sponsor Mayflower Communities, BHI Retirement Retirement Living, Inc. Inc. / SQLC Communities Profit/Non-Profit Non-Profit Non-Profit Non-Profit Year Opened November 2013 (1) /2010 (1) IL Units: Studio apartments One-bedroom apartments One-bedroom/den apartments Two-bedroom apartments Two-bedroom/den or three-bedroom apts Villas/Townhomes/Cottages 0 68 (2) 44 Catered Living 7 (2) 0 0 Total IL Units AL/MS Units SNF Beds IL Square Footage: Studio apartments N/A N/A N/A One-bedroom apartments ,030 One-bedroom/den apartments 964 N/A 1,260 Two-bedroom apartments 1,072-1, ,044 1,344-1,390 Two-bedroom/den or Three-bedroom N/A 1,208-1,406 1,410-2,237 Villas/Townhomes/Cottages N/A 1,533-2,400 1,050-1,406 Catered Living 852-1,384 N/A N/A IL Monthly Service Fees: Studio apartments N/A N/A N/A One-bedroom apartments $1,937 - $2,617 (3)(4) $1,410 - $1,595 (3) $1,744 - $2,179 (2) One-bedroom/den apartments $2,617 - $3,583 (3)(4) N/A $2,666 (2) Two-bedroom apartments $3,199 - $3,879 (3)(4) $1,505 - $1,685 (3) $1,946 - $2,991 (2) Two-bedroom/den or Three-bedroom N/A $1,655 - $1,890 (3) $2,857 - $4,867 (2) Villas/Townhomes/Cottages N/A $1,055 - $1,275 $1,053 - $1,349 (2) Catered Living $4,655 - $6,112 (5) N/A N/A IL second person fee $0 - $1,743 (6) $0 $894 (3) IL Entrance Fees: Studio apartments N/A N/A N/A One-bedroom apartments $194,078 - $262,039 (3)(7) $104,000 - $114,000 $159,930 - $446,550 (2) One-bedroom/den apartments $276,602 - $368,835 (3)(7) N/A $541,290 (2) Two-bedroom apartments $339,709 - $485,340 (3)(7) $120,000 - $139,000 $262,240 - $594,840 (2) Two-bedroom/den or Three-bedroom N/A $149,000 - $165,000 $578,360 - $1,016,120 (2) Villas/Townhomes/Cottages N/A $180,000 - $233,450 $436,860 - $514,180 (2) IL second person fee $0 $0 $0 Catered Living $0 N/A N/A Included in the Monthly Fee: Meals $300/month (8) Optional (4) $300/mo. meal credit (4) Housekeeping and linen service Weekly Bi-Weekly Housekping; Weekly linen Bi-weekly Laundry service No (8) No Bi-weekly (4) Scheduled transportation Yes Yes Yes Utilities All utilities except telephone All utilities except telephone All utilities except telephone IL Reported Occupancy Rate N/A 91.6% 94.4% (5) B-49

228 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 20 (continued) Comparable Retirement Communities in the PMA The Forum Robin Run Village at the Crossings The Stratford Street Address 5354 W. 62nd St Woodfield Crossing Blvd Glebe Street City/State/ZIP Code Indianapolis, IN Indianapolis, IN Carmel, IN Miles from the Project Type of Contract Type B (1) Rental Type C or Rental Owner/Sponsor Brookdale Senior Communities FiveStar Senior Living Senior Living Communities, LLC Profit/Non-Profit Profit Profit Profit Year Opened Oct IL Units: Studio apartments * 0 0 One-bedroom apartments * One-bedroom/den apartments * 0 0 Two-bedroom apartments * Two-bedroom/den or three-bedroom apts. * 0 42 Villas/Townhomes/Cottages 0 (2) 0 38 Catered Living Total IL Units AL/MS Units SNF Beds IL Square Footage: Studio apartments 384 N/A N/A One-bedroom apartments ,242 One-bedroom/den apartments 968 N/A N/A Two-bedroom apartments 801-1, , ,052 Two-bedroom/den or Three-bedroom 1,000 N/A 1,175-3,234 Villas/Townhomes/Cottages 1,210-1,681 N/A 1,192-2,269 Catered Living N/A N/A IL Monthly Service Fees: Studio apartments $1,115 N/A N/A One-bedroom apartments $1,382 - $1,648 $2,369 - $3,811 $2,080 - $3,375 (1) One-bedroom/den apartments $2,645 N/A N/A Two-bedroom apartments $2,215 - $3,237 $4,404 - $6,077 $2,655 - $5,400 (1) Two-bedroom/den or Three-bedroom $2,724 N/A $3,290 - $6,225 (1) Villas/Townhomes/Cottages $2,060 - $2,810 N/A $3,230 - $5,095 (1) Catered Living N/A $0 N/A IL second person fee $560 * $695 IL Entrance Fees: Studio apartments $121,720 (3) N/A N/A One-bedroom apartments $143,400 - $160,080 (3) N/A $153,800 - $332,100 (1) One-bedroom/den apartments $213,440 (2) N/A N/A Two-bedroom apartments $188,420 - $259,295 (3) N/A $198,000 - $582,000 (1) Two-bedroom/den or Three-bedroom $220,100 (3) N/A $237,000 - $960,700 (1) Villas/Townhomes/Cottages $120,340 - $144,880 N/A $167,000 - $607,200 (1) IL second person fee $5,000 N/A $0 Catered Living N/A N/A N/A Included in the Monthly Fee: Meals 2 Meals/day 2 Meals/day 1 Meal/day Housekeeping and linen service Weekly Weekly Weekly Laundry service Weekly No No Scheduled transportation Yes Yes Yes Utilities All utilities except telephone All utilities except telephone All utilities except telephone IL Reported Occupancy Rate 75.0% (4) 97.5% 47.6% (2) Source: Management, telephone interviews, and other research conducted in May and June B-50

229 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Notes to Table 20: * = Unable to obtain information from the facility. IL = Independent Living AL = Assisted Living MS = Memory Support N/A = Not applicable to this facility. The Community (1) Planned opening in November (2) There are 4 one- and 3 two-bedroom Catered Living Units planned for the Community as shown on Table 1. (3) There are 5 different residency agreement contracts planned to be available to prospective residents as described previously herein. The monthly fees and entrance fees shown on the table are those under Plan A. (4) Stated monthly service fees in the table are deflated by 3 percent per annum from the published price listings to reflect pricing in 2012 dollars. The monthly service fees shown on the table are those under Plan A. Monthly service fees for Plan C and Plan E are the same as under Plan A; Monthly service fees are 20 percent lower for residents who select Plan B or Plan D residency agreement contracts. (5) Stated monthly service fees in the table are deflated by 3 percent per annum from the published price listings to reflect pricing in 2012 dollars. (6) The second person fee is waived for residents with Charter Benefits. The second person fee for residents during the construction period is planned to be $695 per month, in 2013 dollars, and $895 per month at opening of the Community, in 2013 dollars. Second person occupants in the Catered Living Units are planned to be charged $1,795 per month, in 2013 dollars. (7) The table reflects entrance fees for prospective residents with Charter Benefits under Plan A. Entrance fees under Plan B, Plan D, and Plan E are the same as under Plan A. Entrance fees under Plan C are approximately 30 percent lower than under Plan A. (8) Catered living units include 3 meals per day and weekly laundry service in the base monthly service fee compared to the services noted in the table. Hoosier Village (1) Residents with continuing care agreements are given priority access to the health center and a total of sixty pre-paid days of health care after which a resident would pay a reduced daily rate. (2) Hoosier Village currently has 3 free standing homes which will be razed once they are unoccupied. These have been subtracted from the 68 units shown on the table. In addition, Hoosier Village is planning to build an additional 36 homes; a detailed explanation can be found subsequently herein in the section titled Proposed Independent Living Developments. (3) Monthly service fees are stated for the Traditional Declining Refund entrance fee plan which is nonrefundable. A monthly rental plan is also available, which ranges from $2,970 for a studio unit, $2,840 to $4,595 for a one-bedroom unit, $3,060 to $3,365 for a two-bedroom unit and $3,315 to $3,645 for a twobedroom plus den unit. The rental plan is not offered for the cottages. (4) Optional meal plans are available for the following monthly per person cost: 1 meal per day is $175, 2 meals per day is $350, and 3 meals per day is $440. Marquette Manor (1) The 48 new Terrace Apartments were completed in 2010, which consists of 1 one-bedroom unit, 1 onebedroom plus-den unit, 5 two-bedroom units, and 41 two-bedroom plus-den units. (2) Data in the table represents an 80 percent refundable entrance fee plan. Two additional plans are available: a 50 percent refundable entrance fee plan, and a 0 percent refundable plan; Entrance fees under these plans are approximately 35 percent less and 55 percent less, respectively, than the 80 percent refundable entrance fee plan. The monthly service fee is the same for all plan types. (3) The second person fee shown on the table is for apartments only. There is no second person fee for cottages. (4) Terrace and Manor Apartments only. (5) It should be noted that both the Cottages and the Terrace Apartments are 100% occupied. At the time of research there were 16 vacancies at the older Manor Apartments. Robin Run Village (1) Under the 90% refundable plan, the health care benefit is a lifetime maximum of 360 health care days per person. The health care benefit can be used up to 22.5 free days per person per calendar quarter. B-51

230 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES (2) This community also has 228 cottage units which are not considered comparable with the Community's Independent Living Units and Catered Living Units and therefore are not included on the table. (3) The entrance fees in the table represent a 90% refundable plan. The following are the additional entrance fee plans available (all monthly fees are the same under each of these plans as reflected on the table): (a) 0% refundable plan with entrance fees ranging from $73,000 for a studio to $132,000 for a three-bedroom. This plan s health care benefit is the same as for the 90% plan reflected in the table. (b) 0% refundable plan with entrance fees ranging from $82,580 for a studio to $141,580 for a three-bedroom unit. Under this plan the resident has a 120 day health care benefit; after this benefit is exhausted the resident would pay a monthly fee equal to $2,075 plus the cost of two meals per day (c) 50% refundable plan with entrance fees ranging from $103,250 for a studio unit to $177,020 for a three-bedroom unit. Under this plan the resident has a 120 day health care benefit; after this benefit is exhausted the resident would pay a monthly fee equal to $2,075 plus the cost of two meals per day. (d) 100% refundable plan with entrance fees ranging from $79,125 for a studio to $208,160 for a three-bedroom unit. Under this plan, after the resident has lived in their apartment for one-year, the resident will earn 10 free health care days per year up to a lifetime maximum of 60 days. Only 10 of these days can be used per year and the benefit is per apartment, if a resident shares the apartment the earned days are shared. (4) Occupancy is for all of the independent living units in the community including the cottage units. The Stratford (1) The entrance fees and monthly service fees in the table show the range of pricing for the units at the Stratford. The price is based on location of the unit within the building and view, and whether a 60 percent or 90 percent refundable plan was chosen. In addition, a monthly rental fee option is available with monthly fees ranging from $3,525 to $5,905 for a one-bedroom unit, $4,515 to $9,760 for a two-bedroom unit, $5,515 to $11,955 for a three-bedroom/penthouse unit, and $4,709 to $10,185 for a cottage unit. (2) At the time of research, representatives from The Stratford would not release current occupancy information, therefore the occupancy data on the table is from September Proposed Independent Living Developments According to local planning agencies and interviews with management at existing retirement communities, there is one new independent living/assisted living retirement community and an expansion to an existing campus that is expected to be developed in the PMA other than the Community. These planned projects are as follows: Hoosier Village is planning to expand their existing campus in Indianapolis, Indiana. Plans are to replace their existing assisted living facility with a new 100-unit building (this will be a net increase of 26 units from their existing assisted living facility), construct a new 36 unit memory support center, a new community center and 36 new duplex homes. The memory support center and community center are planned to open in July 2012, followed by the assisted living facility opening in April During construction, additional sites will be prepared for the duplex home expansion. Construction of the new duplex homes is planned to occur as they are reserved. These planned units have been reflected in the independent living and assisted living estimated penetration rates that follow. The Justus Company is planning to develop Woodland Terrace at 136th Street between Range Line Road and Old Meridian Road, approximately 1.5 miles north of the Site in Carmel, Indiana. Plans for Woodland Terrace indicate residents would be allowed to age in place and would not have to move from their apartment to receive nursing services. This community is planned to offer 126 independent living apartments and 59 assisted living units, however is not planned to be licensed to operate as either a Residential Care Facility or a nursing facility, rather, it is planning to offer nursing services by bringing in homecare staffing. This project is not planned to be licensed by the State of Indiana as a CCRC. This project has been fully approved by the City of Carmel. According to local planning staff, this project is planned to break ground in summer This planned project is not considered comparable with the Independent Living Units and Catered Living Units for purposes of this Study. B-52

231 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The Residences at the Crossing is a planned senior apartment development in Fishers, Indiana. The project will be located on 146 th Street and Allisonville Road, approximately 7 miles northeast of the Community. This development is planned to consist of 124 market-rate senior apartments. At the time of research, this project had been fully approved. Construction is estimated to start in the summer of This project has been excluded from the penetration rates because it is not considered to be comparable with the Community for purposes of this study. Summary of Independent Living Units There are 889 comparable independent living units in the PMA, excluding the Community. Management has reflected these units and the 36 planned units at Hoosier Village as comparable with the Community for purposes of calculating independent living penetration rates presented subsequently hereinafter Estimated Eligible Households for Independent Living Services In order to qualify for residency at the Community s Independent Living Units, a prospective Resident generally must be at least 62 years of age and demonstrate sufficient financial resources to pay the initial entrance fee, required monthly fees, and other expenses related to independent living services not provided in the Reservation Agreement. Additionally, a prospective Resident must be able to live independently. Management has established certain criteria to identify potential Residents who would be eligible to reside in one of the Independent Living Units at the Community. Management reported that an evaluation of the financial profile of a prospective Resident is completed by estimating his/her future income and expenditures based on reported assets and pre-tax income in order to assess the prospective Resident s ability to afford the entrance fee and monthly service fee at the Community. Furthermore, Management s analysis considers, on a case-by-case basis, the available assets of a prospective Resident and the ability of a Resident to liquidate and use these assets in order to supplement income sources. In addition to the services planned to be included in the monthly service fee, Management assumes that a Resident would incur certain other basic living expenses. Management evaluates the financial profile of each Resident individually, however for purposes of its presentation of the market, Management estimates that a prospective Resident of the Independent Living Units should have an annual pre-tax income of at least 1.6 times the annualized monthly service fee and an asset level approximately 2.0 times the entrance fee to become a Resident of the Community. The following two annual household income scenarios are presented for purposes of estimating the number of income qualified households in the PMA: Annual household income of approximately $39,900 or more (in 2013) based upon the monthly service fee of a Shipton one bedroom apartment, which is the smallest of the Independent Living Units at the Community; and Annual household income of approximately $65,900 or more (in 2013) based upon the weighted average monthly service fee of the Independent Living Units at the Community and assuming approximately 50 percent of the units will be occupied as double occupancy units. The average age of the Independent Living Units Depositors as of July 6, 2012, is estimated at approximately 83 years upon the planned opening of the Community in Therefore, Management assumes the majority of prospective Residents would be at least 75 years of age at the time they move into the Community. According to Management s analysis approximately 10.0 percent of the Depositors will be under age 75 upon the planned opening of the Community. Therefore, Management has assumed that households with the following characteristics would be the most likely to consider residing at the Independent Living Units based upon demographic age cohorts available as of the date of this Study: Householders age 75 or older are assumed to fill approximately 90.0 percent of the units based upon the age of the current depositors; and B-53

232 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Householders with annual household income of $39,900 or more (in 2013), assuming the minimum monthly service fee, or householders with annual household income of $65,900 or more (in 2013) assuming the weighted average monthly service fee and 50.0 percent double occupancy. The following table presents the household income distribution data in the PMA as well as the calculated income eligible households for the Independent Living Units. The 2012 and 2017 data in the table are estimates and projections, based on the 2000 census, as provided by Claritas, Inc. The following table also presents data for 2013 that has been interpolated from information provided by Claritas, Inc. B-54

233 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 21 Income Eligible Households in the PMA 2012 (Estimated) Age Range: & Over Total Total Households 10,449 6,957 2,706 20,112 Median Household Income $ 44,424 $ 32,918 $ 27,727 $ 38,197 Household Income: Less than $25,000 2,702 2,446 1,215 6,363 $25,000-34,999 1,396 1, ,206 $35,000-49,999 1, ,022 $50,000-74,999 1,618 1, ,108 $75,000-99,999 1, ,582 $100,000 to $149, ,499 $150,000 to $199, $200,000 or More Households with $38,700 or more of income 5,909 2, ,798 Households with $63,900 or more of income 3,658 1, , (Interpolated) (1) Age Range: & Over Total Total Households 11,210 7,027 2,793 21,030 Median Household Income (1) $ 44,572 $ 33,099 $ 27,914 $ 38,526 Household Income: Less than $25,000 2,870 2,449 1,243 6,562 $25,000-34,999 1,502 1, ,338 $35,000-49,999 1, ,177 $50,000-74,999 1,744 1, ,273 $75,000-99,999 1, ,667 $100,000 to $149,999 1, ,603 $150,000 to $199, $200,000 or More Households with $39,900 or more of income 6,209 2, ,092 Households with $65,900 or more of income 3,805 1, , (Projected) Age Range: & Over Total Total Households 14,254 7,307 3,141 24,702 Median Household Income $ 45,165 $ 33,825 $ 28,662 $ 39,712 Household Income: Less than $25,000 3,543 2,463 1,353 7,359 $25,000-34,999 1,925 1, ,868 $35,000-49,999 2, ,797 $50,000-74,999 2,250 1, ,933 $75,000-99,999 1, ,005 $100,000 to $149,999 1, ,020 $150,000 to $199, $200,000 or More ,000 Households with $44,700 or more of income 7,203 2, ,019 Households with $73,800 or more of income 4,196 1, ,934 Source: Claritas, Inc. and Management Notes: (1) Interpolated data based upon the 2012 and 2017 data provided by Claritas, Inc. B-55

234 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Independent Living Units and Catered Living Units Penetration Analysis Penetration rates are one measure of the degree to which the PMA might be either under-served or saturated. As penetration rates increase, units may become more difficult to fill. However, higher penetration rates may not necessarily be an indication of the difficulty in achieving expected occupancy levels. Some markets may have a higher acceptance level for independent living housing options and may support higher penetration rates. These penetration rates should be considered in conjunction with each other and other market factors such as occupancy levels at existing comparable communities within and near the PMA, the number of proposed facilities in the PMA, the design of the units and community spaces at the Community, alternatives for potential residents, presale experience, and marketing plans and efforts of Management. Management has presented three penetration rate calculations as follows: The Gross Market Penetration rate is calculated by adding the total number of Independent Living Units and Catered Living Units of the Community to those of the comparable existing and proposed retirement communities within, and directly adjacent to, Management s defined PMA and dividing by the total number of age and income qualified households (households headed by individuals 75 years of age or older). The Net Market Penetration rate is calculated by adding the total number of Independent Living Units and Catered Living Units of the Community becoming vacant due to resident attrition as well as the number of units needed to be filled to achieve a 95 percent occupancy of the comparable existing and proposed retirement communities within, and directly adjacent to, Management s defined PMA and dividing by the total number of age and income qualified households (households headed by individuals 75 years of age or older). The Project Penetration rate is that calculated proportion of eligible households in a PMA that will need to move to the Independent Living Units and Catered Living Units at the Community to maintain its full occupancy (defined as the point where the occupancy stabilizes, typically, at 95 percent for independent living units). The following table presents a summary of these penetration rate calculations: B-56

235 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 22 Independent Living Units and Catered Living Units Estimated Penetration Analysis 2013 Age 75 and over with income of $39,900 and above Age 75 and over with income of $65,900 and above Gross Market Penetration Rate Market Inventory of Independent Senior Living Facilities: The Community (1) Comparable Existing Independent Senior Living Units (2) Comparable Planned Independent Senior Living Units (3) Total Units 1,052 1,052 Number of units to be filled assuming 80% of the residents of the Community originate from within the PMA and 75% of the resident at comparable independent living units originate from within the PMA at 95% occupancy (4) [a] Total Number of Age and Income Qualified Households (5) [b] 3,882 2,066 Gross Market Penetration Rate [a/b] 19.5% 36.6% Net Market Penetration Rate Total unoccupied units within the PMA: The Community (6) Comparable Existing Independent Senior Living Units (7) Comparable Planned Independent Senior Living Units (8) Total Existing Units Becoming Available from Resident Attrition (9) Subtotal Units to be occupied by PMA households Number of units to be occupied assuming 80% of the Community's residents and 75% of the Comparable independent livng units originate from within the PMA[c] Number of Age and Income eligible households (5) [b] 3,882 2,066 Less: Inventory of Occupied Competitive Units (10) (727) (727) Net Number of Age and Income Eligible Households [d] 3,155 1,339 Net Market Penetration Rate [c/d] 9.1% 21.6% Project Penetration Rate The Project (11) [e] Net Number of Age and Income Eligible Households [f] 3,155 1,339 Project Penetration Rate [e/f] 3.0% 7.2% Notes to Table 22: (1) There are 141 units planned at the Community including the 7 Catered Living Units. It is assumed that 90% of occupied units will be filled by persons age 75 and over based upon the age of the Depositors. (2) As shown on Table 19, there are 889 comparable independent living units in the PMA. (3) As noted previously herein, there are 36 planned independent senior living units in the PMA comparable with the Community. (4) Management has assumed that approximately 80% of the Community s units will be filled by qualified residents originating from within the PMA and 75% of the comparable units will be filled by qualified residents originating from within the PMA, and that stabilized occupancy is achieved at 95%. (5) Qualified residents are householders age 75 or over with incomes of $39,900 (minimum monthly service fee) or $65,900 (weighted average monthly service fee, assuming 50% of units will be double occupancy), from Table 21. (6) Represents the number of units at the Community assuming a 95% occupancy level and that approximately 90% of the units will be filled by persons age 75 and over based upon the age of the current Depositors. (7) Represents the number of vacant units in comparable facilities that need to be filled to achieve a 95% occupancy rate. B-57

236 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES (8) Represents 36 planned independent senior living units in the PMA assuming a 95% occupancy level and that approximately 90% of the units will be filled by persons age 75 and over. (9) Represents the number of units becoming available (based on occupied comparable units in the PMA) annually from resident attrition (assuming a 12.2% attrition rate for entrance fee communities and a 29.0% attrition rate for rental communities from "State of Seniors Housing 2011" report by the American Association of Homes and Services for the Aging, American Seniors Housing Association, Assisted Living Federation of America, National Center for Assisted Living and National Investment Center). (10) Represents the number of occupied independent living units in the PMA assuming that 100% of the units at the facility are occupied by residents age 75 and over. (11) Represents the number of Independent Living Units and Catered Living Units at the Community assuming a 95% occupancy level is achieved, 80% originate from the PMA, and 90% of the units will be filled by residents age 75 and over. Marketing the Independent Living Units The success of the Community is dependent, in part, on Management s ability to market and achieve specified presales, fill-up rates, and turnover rates for the Independent Living Units. Marketing efforts for the Independent Living Units began in November 2008 with a Priority Program. Greystone conducted a direct mail campaign, on behalf of the Corporation, including a business reply card, to age and income qualified persons in the greater Carmel and Indianapolis, Indiana areas. Prospective Life Care residents were placed on a priority list and given a priority number and were not required to place a monetary deposit in order to do so ( Priority Members ). Approximately 435 Priority Members signed up prior to the start of conversions to Entrance Fee Deposits in November The Corporation initiated conversions during the start of the recession and got a slower than anticipated response from Priority Members to the conversion program. As a result, the Corporation chose to suspend the conversion program from approximately December 2008 through September During this time, the Corporation adjusted the Community to better respond to the market and economic climate, resulting in the Community described herein. Community adjustments included a reduction in the number of Independent Living Units, a reduction in the entrance fee pricing to better match home values, an increase in the number of alternative entrance fee contracts to broaden the market appeal, and the elimination of the second person monthly service fee for second person Charter Residents to increase initial interest. As part of the process to reserve the Independent Living Units at the Community, a prospective resident must sign a Reservation Agreement and pay a deposit equal to 7.0 percent of the entrance fee for their selected unit. As of July 6, 2012 approximately 75.4 percent of the Independent Living Units have been reserved. The Reservation Agreement requires a determination that the Depositor is able to live independently, and must be able to afford living in the selected unit based upon Management s financial analysis. The information in the following table reflects the history of unit reservations based on those Depositors who have paid an initial deposit, signed a Reservation Agreement and have been approved in accordance with residency requirements as of July 6, B-58

237 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 23 Marketing of the Independent Living Units New Deposits Source: Management Note: (1) Current through July 6, Number of Cancellations B-59 Net Reservations for Month Cumulative Units Reserved Cumulative Percentage of Total Units 2008: November % December % 2009: January % February % March % April % May 0 1 (1) 3 2.2% June % July % August % September % October % November % December % 2010: January % February % March % April % May % June % July % August % September % October % November 0 1 (1) % December % 2011: January % February % March % April % May % June % July % August % September 2 3 (1) % October % November % December 0 3 (3) % 2012: January % February % March 1 4 (3) % April 0 3 (3) % May % June % July (1) % %

238 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The following table depicts the inventory of the Community s reserved Independent Living Units as of July 6, Table 24 Inventory of Independent Living Units Reserved Number of Number of Percentage of Units Units Units Type of Independent Living Units Available Reserved Reserved One-Bedroom Apartments Dunreith % Shipton % One-Bedroom Plus Den Apartments Hynsdale % Two-Bedroom Apartments Amhurst % Hartmoor % Kentshire % Noblewood % Laurelwood % Total - Independent Living Units % Source: Management Note: (1) As of July 6, 2012, 95 Depositors have reserved 101 units (6 Depositors have reserved combination units). Independent Depositor Confirmation An independent confirmation process was performed by CliftonLarsonAllen LLP through a mailed questionnaire or telephone survey of 95 of the 95 Depositors as of July 6, As of July 6, 2012, 95 Depositors (100.0 percent) had responded to the mailed questionnaire or telephone survey. The following information was assembled for those 95 completed responses. 95 (100.0 percent) of the respondents indicated they had paid a deposit to reserve their selected unit at the Community. Respondents were asked if they intend to reside at the Community upon the availability of their residence. Responses to this question were as follows: 81 (85.3 percent) indicated Yes ; 5 (5.3 percent) indicated No ; and 9 (9.5 percent) indicated they were undecided, uncertain, or had some other response. CliftonLarsonAllen LLP conducted a telephone survey of these 9 Depositors to determine the primary reason they indicated they were not certain about whether or not they would reside at the Community upon the availability of their residence. CliftonLarsonAllen LLP obtained responses from all 9 of these Depositors. The following summarizes the responses from these 9 Depositors: - 3 indicated they are considering moving to another city; - 2 indicated they are in good health/too early to move to a retirement facility; - 1 indicated due to concerns regarding the real estate market/difficulty in selling their home; - 1 indicated due to health concerns; B-60

239 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES - 1 indicated due to their uncertainty of when the Community will open; and - 1 indicated some other reason. Note that the 5 respondents who indicated No to the survey question summarized in the previous paragraph are excluded from the summary results presented below. The following information was assembled from the 90 remaining completed responses. 28 (31.1 percent) indicated that they would reside alone, and 62 (68.9 percent) indicated that they would reside with a spouse, relative or friend. 84 (93.3 percent) indicated they owned their home. 51 (60.7 percent) of the 84 respondents who indicated that they own their own home indicated that it would be necessary for them to use the proceeds from the sale of their home to pay the entrance fee at the Community. Respondents indicated the following as to how soon they intended to move into their Independent Living Unit after it becomes available: Table 25 Move-ins After Independent Living Units are Available Number of Percentage Respondents of Respondents 1 to 30 days % 31 to 60 days % 61 to 90 days 7 7.8% Greater than 90 days 2 2.2% After the Sale of My Home % No Answer / Other 6 6.7% Total % Source: Depositor Survey 7 (7.8 percent) of the respondents indicated they had reserved an independent living unit or were on a waiting list at another retirement community as follows: B-61

240 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 26 Reserved or on a Waitlist of Another Community Number of Amount of Community Name Location Responses Deposit Marquette Manor Indianapolis 2 $ 1,000 Stratford Carmel 1 $ 40,000 Hoosier Village Zionsville 1 $ 250 Morningside of College Park Carmel 1 * Did not Indicate n/a 2 n/a Total 7 Source: Depositor Survey Notes: * = Did not indicate an amount. n/a = Not applicable. Respondents indicated their primary reasons for selecting the Community as follows: Table 27 Reason for Selecting the Community Number of Responses (1) Access to health care (Life Care) 70 Geographic location 61 Proximity to family/friends 48 Physical security 33 Social activities/fellowship 33 Partnership with St.Vincent Hosptial 27 Other 11 Total 283 Source: Depositor Survey Note (1): Respondents were given the option of indicating more than one reason for selecting the Community. The following table presents information regarding the reported net worth (including home values before payment of the entrance fee) and estimated annual income of the Depositors based on financial questionnaires that Depositors were required to fill out and that Management subsequently utilized to financially qualify Depositors for residency at the Community. B-62

241 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 28 Reported Annual Income and Net Worth of the Project Depositors (1) Net Worth Less $500,000 $1,000,000 $1,500,000 $2,000,000 Greater than to to to to than % of Annual Income: $500,000 $999,999 $1,499,999 $1,999,999 $2,999,999 $3,000,000 Total Total Less than $45, % $45,000 to $49, % $50,000 to $59, % $60,000 to $74, % $75,000 to $99, % $100,000 to $150, % Greater than $150, % Total % Percent of Total 1.1% 23.2% 33.7% 10.5% 14.7% 16.8% 100.0% Source: Management Note: (1) Data is current through July 6, The median reported annual income of the Depositors is approximately $90,648 and the median reported net asset value of the Depositors is approximately $1,343,000. Management completes an evaluation of the financial profile of prospective residents which includes an analysis of the prospective resident s available assets and their ability to liquidate and use those assets to supplement income sources. Description and Utilization of Assisted Living Services In general, assisted living is a term used by the public to refer to either a licensed or an unlicensed facility. In general, if an assisted living facility provides medical care in Indiana, it must be licensed as a residential care facility. If the facility does not meet the definition of health facility as found in Indiana law it is not licensed or regulated by the Indiana State Department of Health. In order to use the term "assisted living'' to describe itself, a provider must file certain disclosure information with the Family and Social Services Administration and its contact with residents must meet certain statutory requirements. For the purposes of this study both assisted living facilities and residential care facilities ( assisted living ) have been included as comparable with the planned Assisted Living Center. Existing Comparable Assisted Living Facilities in the PMA The following table presents a summary of the assisted living units in the PMA; detailed information on these facilities is presented on Table 30. B-63

242 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 29 Comparable Assisted Living Facilities Number of AL Units Occupancy The Community: Assisted Living Units and Memory Support Units 82 N/A Comparable Assisted Living Facilities: American Village % (1) Berkshire of Castleton % Brookdale Place at Fall Creek % Brookdale Place at Willow Lake % Clare Bridge of Carmel % Clearwater Commons 49 (2) 100.0% CrownPointe of Carmel % Hoosier Village % ManorCare at Summer Trace % Marquette Manor % Morningside of College Park 83 (3) 96.9% Rittenhouse Senior Living % Robin Run Village % Sanders Glen % Sunrise at Old Meridian % (1) The Forum at the Crossing % The Stratford % Total Comparable Units - Excluding the Community 1, % Total Comparable Units - Including the Community 1,254 Source: Management, telephone interviews, and other research conducted in May and June Notes: (1) Occupancy data for these facilities is from September 2011 as they would not provide updated data at the time of research. (2) Approximately 60% of independent and assisted living residents at this facility take assisted living services, which equates to approximately 49 units. These 49 units are reflected in the table and the assisted living penetration estimate that follows. (3) Approximately 65% of independent and assisted living residents at this facility take assisted living services which equates to approximately 83 units. These 83 units are reflected in the table and the assisted living penetration estimate that follows. The following map depicts the locations of existing comparable assisted living facilities in the PMA. B-64

243 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Source: Microsoft MapPoint 2011 The following tables summarize the Community and comparable existing assisted living facilities in the PMA based on telephone interviews, and other research completed during May B-65

244 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 30 Comparable Assisted Living Facilities in the PMA American Berkshire of Brookdale The Community Village (1) Castleton Place at Fall Creek Street Address Guilford Road 2026 E. 54th St Craig St Kessler Blvd. City/State/ZIP Code Camel, IN Indianapolis, IN Indianapolis, IN Indianapolis, IN Miles from the Project Owner/Sponsor Mayflower Communities, Inc. / SQLC American Senior Communities Brookdale Senior Communities Brookdale Senior Communities Profit/Non-Profit Non-Profit Non-Profit Profit Profit Year Opened Dec AL/MS Units: AL private studio apartments AL one-bedroom apartments 46 0 * 4 AL two-bedroom apartments 10 0 * 0 MS studio apartments Total AL/MS Units IL Units SNF Beds AL/MS Square Footage: AL private studio apartments N/A AL one-bedroom apartments N/A AL two-bedroom apartments 850 N/A 645 N/A MS studio apartments N/A 275 AL/MS Monthly Service Fees: AL private studio apartments N/A $2,930 (2) $2,495 $2,700 AL one-bedroom apartments $4,752 - $5,335 (1) N/A $2,650 $3,000 AL two-bedroom apartments $6,403 (1) N/A $2,850 - $3,295 N/A MS studio apartments $6,112 (1) $4,035 N/A $4,995 AL second person fee $2,325 (1) $600 $575 $575 Reported Occupancy Rate: N/A 96.2% 97.9% 91.8% Included in the Monthly Service Fee: Meals 3 meals/day 3 meals/day 2 meals/day 3 meals/day Housekeeping Weekly Weekly Weekly Weekly Linen service Weekly Weekly Weekly Weekly Laundry service Weekly Weekly Weekly Weekly Scheduled transportation Yes Yes Yes Yes Personal Care Levels of Care Levels of Care (2) Ala carte AL: Ala carte MS: all-inclusive Utilities All utilities except telephone All utilities except telephone All utilities except telephone All utilities except telephone B-66

245 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 30 (continued) Comparable Assisted Living Facilities in the PMA Brookdale Clare Bridge Clearwater CrownPointe Place at Willow Lake of Carmel (MS) Commons of Carmel Street Address 2725 Lake Circle Drive 301 Executive Drive 4519 E. 82nd Street Technology Drive City/State/ZIP Code Indianapolis, IN Carmel, IN Indianapolis, IN Carmel, IN Miles from the Project Owner/Sponsor Brookdale Senior Living Brookdale Senior Living FiveStar Senior Living CrownPointe Communities Profit/Non-Profit Profit Profit Profit Profit Year Opened AL/MS Units: AL private studio apartments AL one-bedroom apartments AL two-bedroom apartments MS studio apartments Total AL/MS Units (1) 50 IL Units SNF Beds AL/MS Square Footage: AL studio apartments N/A 400 * AL one-bedroom apartments N/A * AL two-bedroom apartments N/A N/A 1,100 N/A MS studio apartments N/A N/A AL/MS Monthly Service Fees: AL studio apartments $2,795 N/A $3,151 (2) $2,650 (1) AL one-bedroom apartments $3,175 N/A $4,144 (2) $3,050 (1) AL two-bedroom apartments N/A N/A $4,555 (2) N/A MS studio apartments $4,495 $3,770 - $5,320 (1) N/A N/A AL second person fee $575 N/A $0 N/A Reported Occupancy Rate 93.4% 96.9% 100.0% 80.0% Included in the Monthly Service Fee: Meals 3 meals/day 3 meals/day 3 meals/day 3 meals/day Housekeeping Weekly Weekly Weekly Weekly Linen service Weekly Weekly Weekly Weekly Laundry service Weekly Weekly Weekly Weekly Scheduled transportation Yes Yes Yes Yes Personal Care Ala carte Ala carte Levels of Care (2) Levels of Care (1) Utilities All utilities included except cable TV All utilities included except phone/cable TV All utilities included except for electricity and phone All utilities except telephone B-67

246 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 30 (continued) Comparable Assisted Living Facilities in the PMA Manor Care Morningside of Hoosier Village at Summer Trace Marquette Manor College Park Street Address 9875 Cherryleaf Drive N Pennsylvania St Cherryleaf Drive 8810 Colby Blvd. City/State/ZIP Code Indianapolis, IN Carmel, IN Indianapolis, IN Indianapolis, IN Miles from the Project Owner/Sponsor BHI Retirement Comunities ManorCare Health Services Retirement Living, Inc. Regency Senior Living Profit/Non-Profit Non-Profit Profit Non-Profit Profit Year Opened AL/MS Units: AL private studio apartments 9 * 0 17 AL one-bedroom apartments 40 * AL two-bedroom apartments 25 * 0 28 MS studio apartments Total AL/MS Units (1) IL Units SNF Beds AL/MS Square Footage: AL studio apartments N/A 443 AL one-bedroom apartments AL two-bedroom apartments N/A 942-1,160 MS studio apartments N/A N/A 350 N/A AL/MS Monthly Service Fees: AL studio apartments $3,060 (1) $3,725 - $3,825 (1) N/A $3,095 (2) AL one-bedroom apartments $3,750 - $4,685 (1) $4,330 - $4,430 (1) $4,020 - $5,790 $3,573 - $3,961 (2) AL two-bedroom apartments $4,245 - $5,130 (1) $5,355 - $5,505 (1) N/A $4,528 - $5,221 (2) MS studio apartments N/A N/A $5,190 - $5,820 N/A AL second person fee * $500 $930 $650 Reported Occupancy Rate 98.6% 90.0% 100.0% 96.9% Included in the Monthly Service Fee: Meals 1 meal/day (2) 3 meals/day 3 meals/day 3 meals/day Housekeeping Weekly Weekly Weekly Bi - Weekly Linen service Weekly Weekly Weekly Bi - Weekly Laundry service Weekly Weekly Weekly Bi - Weekly Scheduled transportation Yes Yes Yes Yes Personal Care Ala Carte Levels of Care (1) All inclusive Levels of Care (2) Utilities All utilities included All utilities included All utilities except telephone All utilities except telephone B-68

247 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 30 (continued) Comparable Assisted Living Facilities in the PMA Rittenhouse Robin Run Senor Living Village Sanders Glen Street Address 1251 W. 96th St 5354 W. 62nd St. 334 South Cherry Street City/State/ZIP Code Indianapolis, IN Indianapolis, IN Westfield, IN Miles from the Project Owner/Sponsor Rittenhouse Senior Living Brookdale Senior Living Exceptional Living Centers Profit/Non-Profit Profit Profit Non-Profit Year Opened AL/MS Units: AL private studio apartments AL one-bedroom apartments AL two-bedroom apartments MS studio apartments Total AL/MS Units IL Units SNF Beds AL/MS Square Footage: AL studio apartments AL one-bedroom apartments AL two-bedroom apartments N/A N/A 789 MS studio apartments N/A N/A AL/MS Monthly Service Fees: AL studio apartments $3,225 - $3,750 (1) $2,606 $1,755 (1) AL one-bedroom apartments $4,320 $3,018 - $3,319 $2,005 (1) AL two-bedroom apartments N/A N/A $2,405 (1) MS studio apartments $4,115 - $5,460 (1) N/A N/A AL second person fee $750 AL; $1,000 MC N/A $500 Reported Occupancy Rate 94.6% 100.0% 100.0% Included in the Monthly Service Fee: Meals 3 meals/day 3 meals/day 3 meals/day Housekeeping Weekly Weekly Weekly Linen service Weekly Weekly Weekly Laundry service Weekly Weekly Weekly Scheduled transportation Yes Yes Yes Personal Care All Inclusive Levels of Care (1) Levels of Care (1) Utilities All utilities except telephone All utilities except telephone All utilities except telephone B-69

248 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 30 (continued) Comparable Assisted Living Facilities in the PMA Sunrise at The Forum Old Meridian (1) at the Crossing The Stratford Street Address Old Meridian St Woodfield Crossing Blvd Glebe Street City/State/ZIP Code Carmel, IN Indianapolis, IN Carmel, IN Miles from the Project Owner/Sponsor Sunrise Senior Living FiveStar Senior Living Senior Living Communities, LLC Profit/Non-Profit Profit Profit Profit Year Opened Oct AL/MS Units: AL private studio apartments AL one-bedroom apartments 0 0 * AL two-bedroom apartments 0 0 * MS studio apartments Total AL/MS Units IL Units SNF Beds AL/MS Square Footage: AL studio apartments * N/A N/A AL one-bedroom apartments * N/A * AL two-bedroom apartments * N/A * MS studio apartments * * * AL/MS Monthly Service Fees: AL studio apartments * N/A N/A AL one-bedroom apartments * N/A $3,850 - $4,250 (1) AL two-bedroom apartments * N/A $5,250 MS studio apartments * $6,540 $4,600 - $6,500 AL second person fee * N/A $0 Reported Occupancy Rate 100% (1) 96.7% 86.1% Included in the Monthly Service Fee: Meals 3 meals/day 3 meals/day 3 meals/day Housekeeping Weekly Weekly Weekly Linen service Weekly Weekly Weekly Laundry service Weekly Weekly Weekly Scheduled transportation * Yes Yes Personal Care Levels of Care All Inclusive Levels of Care (1) Utilities All Included All utilities except telephone All utilities except telephone Source: Management, telephone interviews, and other research conducted in May and June 2012 Notes to Table: * = Unable to obtain information from the facility. N/A = Not applicable to this facility. AL = Assisted Living IL = Independent Living MS = Memory Support SNF = Skilled Nursing Facility The Community (1) Stated monthly service fees in the table are deflated by 3 percent per annum to reflect pricing in 2012 dollars. B-70

249 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES American Village (1) At the time of research, representatives from this facility would not release current occupancy information. Data is from September (2) Level one care is included in the monthly service fee presented in the table; an additional level of care is available for $400 per month. Clare Bridge of Carmel (1) The pricing in the table represents the range for 42 semi-private and 14 private studios, including a required $340 per month charge for medication management. Clearwater Commons (1) This facility has a total of 81 units. Approximately 60% of independent and assisted living residents take assisted living services; this equates to roughly 49 units, which is reflected in the table and the assisted living penetration estimate. (2) 6 levels of care are available ranging from $530 to $2,600 per month. The first level of care is included in the monthly service fee shown in the table. CrownPointe of Carmel (1) There are two additional levels of care ranging from $350 and $700 per month, the first level of care is included in the monthly service fee in the table. Additional services are available through a home health agency. Hoosier Village (1) Pricing in the table reflects the monthly rental fee, an entrance fee option is also available: studio is $59,000 with a monthly fee of $1,885, one-bedroom is $67,000 to $100,000 with a monthly fee of $2,075 to $2,585, twobedroom is $101,000 to $108,000 with a monthly fee of $2,380 to $2,740. (2) Additional meals options are available for $175 for 2 meals per day and $265 for 3 meals per day. Manor Care at Summer Trace (1) 4 levels of care are available from $1,145 to $2,045 per month; the first level of care is included in the monthly service fee presented in the table. Morningside of College Park (1) This facility has a total of 128 units. Approximately 65% of independent and assisted living residents take assisted living services; this equates to approximately 83 units, which is reflected in the table and the assisted living penetration estimate. (2) 5 levels of care are available ranging from $680 to $1,830. The first level of care is included in the monthly service fee shown in the table. Rittenhouse Senior Living (1) A shared studio option is available for assisted living and memory support, with monthly fees ranging from $2,260 to $2,625 and $3,300 to $3,400, respectively. Robin Run Village (1) 3 levels of care are available ranging from $372 to $1,118 per month; the first level of care is included in the monthly service fee presented in the table. Sanders Glen (1) Six levels of care are available ranging from $105 (required and is included in the table) to $1,440 per month. Sunrise at Old Meridian (1) At the time of research, representatives from Sunrise at Old Meridian would not release current occupancy information. Data is from September The Stratford (1) 4 levels of care are available ranging from $525 to $1,500 per month; the first level of care is included in the monthly service in the table. Planned Assisted Living Developments in the PMA According to local planning agencies and interviews with management at existing retirement communities, there are four comparable assisted living facilities that are expected to be developed in the PMA other than the Community. Two of these (Hoosier Village and Woodland Terrace) were described more fully previously herein (see Planned Independent Living Developments in the PMA previously herein for more details). Two additional facilities are planning locations in Fishers, Indiana as follows: B-71

250 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES American Senior Communities is planning to build an assisted living facility on their existing Allisonville Meadows skilled nursing facility campus. According to the local city planner they are in the preliminary stages of the project, and are starting to research variances which may require rezoning through the city. The building is planned to be approximately 100,000 square feet, with an exact number of units not determined at the time of research. An assisted living facility that is in the preliminary stages of development is being planned at Village Square Lane and Easy Street in Fishers, Indiana. At the time of research no formal plans had been submitted to the city. Summary of Assisted Living Units There are a total of 1,172 assisted living units (including memory care) in the PMA, excluding the planned 82 assisted living units at the Community. Management has reflected these units plus the 59 planned units at Woodland Terrace and 62 planned units at Hoosier Village as comparable with the Community for purposes of calculating assisted living penetration rates presented subsequently hereinafter. Assisted Living Estimated Penetration Analysis The increased size of the private paying frail elderly market has attracted providers to develop new and creative options for caring for this population. Methodologies for projecting bed need or demand for assisted living vary. Research studies have identified impairment levels in activities of daily living ( ADL ) such as dressing, bathing, eating, toileting, mobility, and taking medications, as well as instrumental activities of daily living ( IADL ), such as meal preparation, home maintenance, shopping, and personal finance; all of which generally are often used to measure levels of functioning and estimate the care needs of a specific population. The decision by elderly persons to enter an assisted living facility to meet their needs for assistance often depends on alternatives available and is somewhat more discretionary than the decision to enter a nursing care facility. Population data and income statistics may be utilized to some extent to estimate the number of qualified households (age 75 and over) for assisted living services, yet should not be relied upon entirely as a measure of success for a facility. The amount of cross subsidization that occurs between adult care givers (assumed to be those households aged 45-to-64 earning in excess of $100,000 annually) and their parents may also provide for additional financial assistance as a means for non-income qualified seniors to afford this level of care. Additionally, non-income qualified seniors may have additional assets which could provide the financial means to afford this level of care. Thus, assisted living calculated estimated penetration rates, where relevant, and estimated market penetration rates are presented as a range between age-qualified households and age-and income-qualified households. Management anticipates that the prospective residents of its Assisted Living Center will generally meet the following profile prior to occupancy: 75 years of age or older; Living alone; and Requiring some assistance with ADLs and/or IADLs. Additionally, pre-tax income characteristics have been applied to estimate a range of market penetration rates for age and income qualified households. Management assumes that a prospective direct-admit resident of the Assisted Living Center will have an annual pre-tax income of at least $65,300 or an annual income of $25,000 or more if they own their own home. This assumption allows those owning a home to be included as qualified households in light of the additional potential financial resources from the sales proceeds. The following table presents the household income distribution data in the PMA as well as the calculated income eligible households for the Assisted Living Center. The 2012 and 2017 data in the table are estimates and B-72

251 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES projections, based on the 2000 census, as provided by Claritas, Inc. The following table also presents data for 2013 that has been interpolated from information provided by Claritas, Inc. Table 31 Income Eligible Households in PMA 2012 (Estimated) Age Range: & Over Total Total Households 10,449 6,957 2,706 20,112 Median Household Income $ 44,424 $ 32,918 $ 27,727 $ 38,197 Household Income: Less than $25,000 2,702 2,446 1,215 6,363 $25,000-34,999 1,396 1, ,206 $35,000-49,999 1, ,022 $50,000-74,999 1,618 1, ,108 $75,000-99,999 1, ,582 $100,000 to $149, ,499 $150,000 to $199, $200,000 or More Households with $24,300 or more of income 7,823 4,579 1,525 13,927 Households with $63,300 or more of income 3,697 1, , (Interpolated) (1) Age Range: & Over Total Total Households 11,210 7,027 2,793 21,030 Median Household Income (1) $ 44,572 $ 33,099 $ 27,914 $ 38,526 Household Income: Less than $25,000 2,870 2,449 1,243 6,562 $25,000-34,999 1,502 1, ,338 $35,000-49,999 1, ,177 $50,000-74,999 1,744 1, ,273 $75,000-99,999 1, ,667 $100,000 to $149,999 1, ,603 $150,000 to $199, $200,000 or More Households with $25,000 or more of income 8,340 4,578 1,550 14,468 Households with $65,300 or more of income 3,846 1, , (Projected) Age Range: & Over Total Total Households 14,254 7,307 3,141 24,702 Median Household Income $ 45,165 $ 33,825 $ 28,662 $ 39,712 Household Income: Less than $25,000 3,543 2,463 1,353 7,359 $25,000-34,999 1,925 1, ,868 $35,000-49,999 2, ,797 $50,000-74,999 2,250 1, ,933 $75,000-99,999 1, ,005 $100,000 to $149,999 1, ,020 $150,000 to $199, $200,000 or More ,000 Households with $28,000 or more of income 10,133 4,439 1,610 16,182 Households with $73,100 or more of income 4,259 1, ,044 Source: Claritas, Inc. and Management Notes: (1) Interpolated data based upon the 2012 and 2017 data provided by Claritas, Inc. B-73

252 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES The following table estimates the number of age and income qualified households that are living alone and estimated to require assistance with ADLs or IADLs within the PMA. The information is presented in 2013, the proposed year of completion of the Assisted Living Center. Table 32 Estimated Number of Qualified Individuals in the PMA 2013 Estimated Estimated Age, Estimated Number of Estimated Age Income and Asset Percentage Number of Age Age, Income Qualified Qualified Requiring Percentage Qualified Asset Qualified Households (1) Households (2) Assistance (3) Living Alone (4) Individuals Individuals 9,820 N/A 36.5% 56.6% 2,028 N/A N/A 4, % 56.6% N/A 974 Source: Management Notes to Table: (1) Households with householders aged 75 years of age and older, from Table 31. (2) Households with householders aged 75 years of age and over with reported incomes of $25,000 and over if they own their homes (based on tenure data from the 2010 U.S. Census) plus all householders aged 75 years and older with reported incomes of $65,300 or more (interpolated from the income data on Table 31). (3) Percentage of persons aged 75 years of age and older estimated to need assistance with ADLs. Percentage is the weighted average based upon the number of qualified households age 75 to 84 and age 85 and over. From the National Center for Health Statistics, "Functional Limitations of Medicare Beneficiaries by Age, Residence, Sex, Race and Ethnicity from the Medicare Current Beneficiary Survey, ", Average, February (4) Percentage of persons aged 75 years of age and older estimated to be living alone. Percentage is from for the PMA from the 2010 U.S. Census. The market penetration rate is presented as the percentage of the age-qualified individuals and age-and-incomequalified individuals that Management assumes that the total market has absorbed (or must absorb) for the entire market to achieve stabilized occupancy. The market penetration rate is calculated by dividing the number of comparable assisted living units within the PMA, by the number of age-qualified individuals and the age-and income-qualified individuals within the PMA. The project penetration rate is presented as a range between the percentages of the age-qualified individuals and the percentage of age-and income-qualified individuals that Management assumes that the Community s Assisted Living and Memory Support Units would need to attract in order to achieve stabilized occupancy. Project penetration is calculated by dividing the number of Assisted Living and Memory Support Units at the Community, by the total number of age-qualified individuals and age-and income-qualified individuals in the PMA. B-74

253 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Table 33 Assisted Living Estimated Penetration Rate Analysis 2013 Age Qualified Individuals Age and Income Qualified Individuals Number of Qualified Individuals (1) [a] 2, Number of qualified individuals currently residing in the Community and exisiting comparable assisted living and memory care units in the PMA (2) [b] 1,124 1,124 Total qualified individuals [a + b] [c] 3,152 2,098 Market Inventory of assisted living and memory facilities: The Community (3) Comparable existing assisted living and memory care facilities (4) 1,172 1,172 Total Units 1,254 1,254 Number of units to be occupied assuming 75% originate from within the PMA at 93% occupancy (5) [d] Number of planned comparable units (6) [e] Total existing and planned units to be occupied assuming 75% originate within the PMA at 93% occupancy [d+e] [f] MARKET PENETRATION RATE-EXISTING COMPARABLE UNITS [d/c] 27.8% 41.7% MARKET PENETRATION RATE-EXISTING & PENDING COMPARABLE UNITS [f/c] 30.4% 45.7% Total assisted living units at the Community to be filled from the PMA (7) [g] PROJECT PENETRATION RATE [g/c] 1.8% 2.7% Source: Management Notes to Table: (1) Number of qualified individuals from Table 32. (2) Reflects 1,124 total occupied units and Age and Income Qualified units currently occupied at comparable assisted living and memory care facilities in the PMA excluding the Project. (3) There are 82 Assisted Living Units and Memory Support Units planned for the Project. (4) As shown on Table 30, there are 1,172 Age Qualified units and Age and Income Qualified units at comparable assisted living and memory care facilities in the PMA excluding the Project. (5) Management has assumed that approximately 75 percent of the units will be filled by qualified residents originating from within the PMA and that stabilized occupancy in the PMA is achieved at 93 percent. (6) Represents 121 planned assisted living units in the PMA assuming a 93 percent occupancy level and that approximately 75 percent of the units will be filled by persons originating from within the PMA. (7) There are a total of 82 Assisted Living Center for the Project. This number has been adjusted to reflect the assumption that 75 percent of the units will be filled by qualified residents originating from the PMA and that stabilized occupancy is achieved at 93 percent for the Project. B-75

254 SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES Description and Profile of Nursing Facilities in the PMA The Indiana Department of Health is responsible for licensure and certification of nursing facilities in Indiana. The Community is planned to include 48 nursing beds after completion of the Project. The following table profiles the existing nursing care facilities in the PMA based upon information obtained from telephone interviews and research related to these facilities conducted in May and June The following map presents the location of the nursing care facilities in the PMA. Source: Microsoft MapPoint 2011 B-76