$12,000,000 Series 2013B-1 (Mandatory Paydown Securities (TEMPS-85SM)) $50,000,000 Series 2013B-2 (Mandatory Paydown Securities (TEMPS-70SM))

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1 NEW ISSUE/BOOK-ENTRY RATING: NOT RATED See No Rating herein In the opinion of Nabors, Giblin & Nickerson, P.A., Bond Counsel, assuming continuing compliance with certain tax covenants, the interest on the Series 2013 Bonds is excluded from gross income for federal income tax purposes and is not subject to the federal alternative minimum tax on individuals under existing statutes, regulations, rulings and court decisions. However, see TAX MATTERS herein for a description of the alternative minimum tax imposed on corporations and certain other federal tax consequences of ownership of the Series 2013 Bonds. Bond Counsel is of the opinion that the Series 2013 Bonds and the interest thereon are exempt from taxation under the laws of the State of Florida, except as to estate taxes and taxes imposed by Chapter 220, Florida Statutes, on interest, income or profits on debt obligations owned by corporations, as defined therein. See TAX MATTERS herein for a more complete discussion. $190,295,000 COLLIER COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY CONTINUING CARE COMMUNITY REVENUE BONDS (THE ARLINGTON OF NAPLES PROJECT) consisting of $128,295,000 Series 2013A $12,000,000 Series 2013B-1 (Mandatory Paydown Securities (TEMPS-85SM)) Dated: Date of Delivery $50,000,000 Series 2013B-2 (Mandatory Paydown Securities (TEMPS-70SM)) Due: May 15, as shown below Interest is due and payable semiannually on May 15 and November 15 of each year, commencing May 15, Principal of, redemption premium, if any, and interest on the Series 2013 Bonds shall be paid by the Bond Trustee to the owners of the Series 2013 Bonds at their addresses as they appear on the registry books of the Bond Trustee as of the close of the Bond Trustee s business on each Record Date. The Collier County Industrial Development Authority (the Authority ) is issuing its $128,295,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013A (the Series 2013A Bonds ), $12,000,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013B-1 (Mandatory Paydown Securities (TEMPS-85SM)) (the Series 2013B-1 Bonds ), $50,000,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013B-2 (Mandatory Paydown Securities (TEMPS-70SM)) (the Series 2013B-2 Bonds and, together with the Series 2013B-1 Bonds, the Series 2013B Bonds and, together with the Series 2013A Bonds and the Series 2013B-1 Bonds, the Series 2013 Bonds ). The Series 2013 Bonds will be issued and secured under an Indenture of Trust (the Bond Indenture ) between the Authority and Wells Fargo Bank, National Association, Chicago, Illinois, as bond trustee (the Bond Trustee ). The proceeds of the Series 2013 Bonds will be loaned to The Arlington of Naples, an Illinois not for profit corporation qualified to do business in the State of Florida as The Arlington of Naples, Inc. (the Corporation ) and will be used primarily to (i) currently refund the Authority s outstanding $10,900,000 Continuing Care Community Revenue Bond Anticipation Notes (The Arlington of Naples Project), Series 2011 (the Series 2011 Notes ); (ii) pay off the Corporation s $19,490,000 Lutheran Church Extension Fund - Missouri Synod Promissory Note (the LCEF Promissory Note and, together with the Series 2011 Notes, the Prior Debt ); and (iii) finance and refinance the cost of (or reimburse itself and/or one or more of its affiliated corporations for prior expenditures for) all or a portion of: (a) the acquisition, construction, equipping and installation (and related development costs) of the capital expenditures related to a campus consisting of an estimated 163 independent living units (of which an estimated 31 will be villas), an estimated 79 assisted living units (of which an estimated 37 will be memory support units), and an estimated 44 skilled nursing beds along with associated common areas (collectively, the Project ), (b) capitalized interest during the construction period, (c) fund a debt service reserve fund with respect to each series of the Series 2013 Bonds, and (d) costs of issuance related to the Series 2013 Bonds. The sources of payment of, and security for, the Series 2013 Bonds are more fully described in this Limited Offering Statement. The Series 2013 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 ). See BOOK-ENTRY SYSTEM. An investment in the Series 2013 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 2013 Bondholder is advised to read SECURITY FOR THE SERIES 2013 BONDS, SECURITY FOR THE SERIES 2013 NOTES and RISK FACTORS herein for a description of the security for the Series 2013 Bonds and for a discussion of certain risk factors which should be considered in connection with an investment in the Series 2013 Bonds. Purchasers of the Series 2013 Bonds must be either qualified institutional buyers as defined in Rule 144A or accredited investors as defined under Rule 501 of Regulation D of the Securities Act of 1933 until the Corporation applies for and receives a rating on the Series 2013 Bonds of at least BBB/Baa3 or equivalent from any Rating Agency, if ever. See THE SERIES 2013 BONDS Limitations on Investors and Restrictions on Transfer herein. THE SERIES 2013 BONDS WILL BE SUBJECT TO OPTIONAL, MANDATORY AND EXTRAORDINARY REDEMPTION AND PURCHASE IN LIEU OF REDEMPTION, ALL AS MORE FULLY DESCRIBED HEREIN. THE SERIES 2013 BONDS AND THE INTEREST THEREON ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY SECURED BY THE LOAN AGREEMENT AND SHALL ALWAYS BE PAYABLE SOLELY FROM THE REVENUES AND INCOME DERIVED FROM THE LOAN AGREEMENT (EXCEPT TO THE EXTENT PAID OUT OF MONEYS ATTRIBUTABLE TO PROCEEDS OF THE SERIES 2013 BONDS OR THE INCOME FROM THE TEMPORARY INVESTMENT THEREOF) AND SHALL ALWAYS BE A VALID CLAIM OF THE OWNER THEREOF ONLY AGAINST THE REVENUES AND INCOME DERIVED FROM THE LOAN AGREEMENT, WHICH REVENUES AND INCOME SHALL BE USED FOR NO OTHER PURPOSE THAN TO PAY THE PRINCIPAL OF AND INTEREST ON THE SERIES 2013 BONDS, EXCEPT AS MAY BE EXPRESSLY AUTHORIZED OTHERWISE IN THE BOND INDENTURE AND IN THE LOAN AGREEMENT. THE SERIES 2013 BONDS AND THE OBLIGATION TO PAY THE PRINCIPAL OF AND INTEREST THEREON DO NOT NOW AND SHALL NEVER CONSTITUTE AN INDEBTEDNESS OR AN OBLIGATION OF THE AUTHORITY, THE STATE, COLLIER COUNTY, FLORIDA OR ANY OTHER POLITICAL SUBDIVISION THEREOF, WITHIN THE PURVIEW OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR PROVISION, OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS, IF ANY, OF ANY OF THEM, BUT SHALL BE SECURED AS AFORESAID, AND SHALL BE PAYABLE SOLELY FROM THE REVENUES AND INCOME DERIVED FROM THE LOAN AGREEMENT (EXCEPT AS STATED AFORESAID). NO OWNER OF THE SERIES 2013 BONDS SHALL HAVE THE RIGHT TO COMPEL THE EXERCISE OF THE TAXING POWER, IF ANY, OF THE AUTHORITY, THE STATE, COLLIER COUNTY, FLORIDA OR ANY OTHER POLITICAL SUBDIVISION THEREOF TO PAY THE PRINCIPAL OF OR INTEREST ON THE SERIES 2013 BONDS. THE AUTHORITY HAS NO TAXING POWER. The Series 2013 Bonds are being offered when, as and if issued and accepted by the Underwriter, subject to prior sale, withdrawal or modification of the offer without notice, and subject to the approving opinion of Nabors, Giblin & Nickerson, P.A., Tampa, Florida, Bond Counsel. Certain legal matters will be passed upon for the Authority by its counsel, Donald A. Pickworth, P.A., Naples, Florida, for the Corporation by its counsel, Chuhak & Tecson, P.C., Chicago, Illinois and Holland & Knight LLP, special Florida counsel to the Corporation and for the Underwriter by its counsel, Katten Muchin Rosenman LLP, Chicago, Illinois. It is expected that the Series 2013 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 January 8, This cover page contains certain information for ease of reference only. It does not constitute a summary of the Series 2013 Bonds or the security therefor. Potential investors must read this entire Limited Offering Statement, including the APPENDICES, to obtain information essential to the making of an informed investment decision. Limited Offering Statement dated December 13, 2013 SM TEMPS-70 and TEMPS-85 are each a Service Mark of B.C. Ziegler and Company.

2 THE SERIES 2013A BONDS Dated: Date of Delivery Due: May 15, as shown below The Series 2013A Bonds will be issuable in fully registered form without coupons in denominations of $100,000 or any integral multiple of $5,000 in excess thereof. Interest on the Series 2013A Bonds will be payable on each May 15 and November 15, commencing on May 15, $6,360, % Term Bonds due May 15, 2024, Priced: % to yield 7.000%, CUSIP AC6 $3,215, % Term Bonds due May 15, 2026, Priced: % to yield 7.250%, CUSIP AG7 $22,040, % Term Bonds due May 15, 2035, Priced: % to yield 8.00%, CUSIP AE2 $5,000, % Term Bonds due May 15, 2037, Priced: % to yield 8.125%, CUSIP AF9 $38,760, % Term Bonds due May 15, 2044, Priced: % to yield 8.250%, CUSIP AD4 $52,920, % Term Bonds due May 15, 2049, Priced: % to yield 8.375%, CUSIP AB8 THE SERIES 2013B-1 BONDS Dated: Date of Delivery Due: May 15, 2021 The Series 2013B-1 Bonds will be issuable in fully registered form without coupons in denominations of $100,000 or any integral multiple of $5,000 in excess thereof. Interest on the Series 2013B-1 Bonds will be payable on each May 15 and November 15, commencing on May 15, $12,000, % Term Bonds due May 15, 2021, Priced: 100% to yield 6.875%, CUSIP AH5 THE SERIES 2013B-2 BONDS Dated: Date of Delivery Due: May 15, 2020 The Series 2013B-2 Bonds will be issuable in fully registered form without coupons in denominations of $100,000 or any integral multiple of $5,000 in excess thereof. Interest on the Series 2013B-2 Bonds will be payable on each May 15 and November 15, commencing on May 15, $50,000, % Term Bonds due May 15, 2020, Priced: 100% to yield 6.500%, CUSIP AJ1 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 The Arlington of Naples Site Location

4 Lely Resort

5 The Arlington of Naples Site Plan

6 The Promenade at The Arlington of Naples

7 The Arlington of Naples: Renderings Top: Independent Living Apartments Middle: Main Entrance Bottom: Health Center (3D)

8 The Arlington of Naples: Renderings Top: Independent Living Apartment Middle: Grand Hall Bottom: Bistro Marketplace Top: Independent Living Villa Middle: Terrace Lounge Bottom: Pub Entrance

9 REGARDING USE OF THIS LIMITED OFFERING STATEMENT The information contained herein relating to the Authority under the heading THE AUTHORITY and LITIGATION The Authority has been obtained from the Authority. The information under the heading BOOK-ENTRY SYSTEM has been obtained from The Depository Trust Company. All other information contained herein has been obtained from The Arlington of Naples (the Corporation ) and other sources (other than the Authority) deemed by B.C. Ziegler and Company (the Underwriter ) to be reliable. Such other information is not guaranteed as to accuracy or completeness by, and is not to be relied upon as or construed as a promise or representation by, the Authority or the Underwriter. The Underwriter has provided the following sentence for inclusion in the Limited Offering Statement. The Underwriter has reviewed the information in this Limited Offering Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information herein is subject to change without notice, and neither the delivery of this Limited Offering Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Authority or the Corporation since the date hereof. No dealer, broker, salesperson or other person has been authorized by the Authority, the Corporation or its affiliated organizations or the Underwriter to give any information or to make any representations other than those contained in this Limited Offering Statement and, if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Limited Offering Statement shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be a sale of Series 2013 Bonds by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Limited Offering Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Authority or its affiliated organizations since the date hereof. The Authority has not reviewed or approved any information in this Limited Offering Statement and does not assume any responsibility for the accuracy or completeness of any information contained in this Limited Offering Statement, except such information relating specifically to the Authority under the captions, THE AUTHORITY and LITIGATION The Authority. In making an investment decision, investors must rely upon their own examination of the terms of the offering, including the merits and risks involved. IN CONNECTION WITH THE OFFERING OF THE SERIES 2013 BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2013 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SERIES 2013 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAVE THE BOND INDENTURE OR THE MASTER INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2013 BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE SERIES 2013 BONDS HAVE BEEN REGISTERED OR QUALIFIED, IF ANY, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS RECOMMENDATIONS THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE SERIES 2013 BONDS OR THE ACCURACY OR COMPLETENESS OF THE

10 LIMITED OFFERING STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS LIMITED OFFERING STATEMENT Certain statements included or incorporated by reference in this Limited Offering Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or similar words. The Community (as defined herein) is in the development stage. As a result, the description of the Community, and the services expected to be offered by the Community that are described herein and in APPENDIX A and APPENDIX B hereto are based on existing plans and existing contracts. Such plans and contracts are subject to modification and, as a result, upon completion of construction, the actual Community could differ materially from the description of the Community and the services described therein. The description of the Community and the services to be offered is a description of what is currently planned to be developed in accordance with the existing plans and contracts, and should be construed as forward looking statements. 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 THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.

11 TABLE OF CONTENTS SUMMARY STATEMENT... i INTRODUCTION... 1 Purpose of this Limited Offering Statement... 1 The Authority... 1 The Corporation... 1 Purpose of the Series 2013 Bonds... 3 Security for the Series 2013 Bonds... 3 Limitations on Investors and Restrictions on Transfer... 4 PLAN OF FINANCE... 4 The Refunding... 5 The Project... 5 ESTIMATED SOURCES AND USES OF FUNDS... 6 ANNUAL DEBT SERVICE REQUIREMENTS... 7 THE SERIES 2013 BONDS... 8 General Description... 8 Optional and Mandatory Redemption of the Series 2013A Bonds... 9 Optional and Mandatory Redemption of the Series 2013B Bonds Additional Redemption Provisions Exchange and Transfer Limitations on Investors and Restrictions on Transfer Advance Refunding of the Series 2013 Bonds SECURITY FOR THE SERIES 2013 BONDS BOOK-ENTRY SYSTEM SECURITY FOR THE SERIES 2013 NOTES General Additional Indebtedness Amendments to the Master Indenture Certain Master Indenture Covenants of the Obligated Group LIQUIDITY SUPPORT AGREEMENT Liquidity Support Fund Reductions of the Liquidity Support Obligation Draws on the Liquidity Support Fund General Investment Liquidity Covenant Subordination Provisions Amendments and Waivers PRIORITY OF DRAWINGS FROM VARIOUS FUNDS THE AUTHORITY RISK FACTORS General Impact of Market Turmoil Additions to the Obligated Group Development of the Community Management of the Community Sale, Lease or Other Disposition of Property, Transfers to Affiliates Page (i)

12 Construction Risks Construction Consultant Approval of Construction Draws Redemption of the Series 2013B Bonds from Initial Entrance Fees Adequacy of Remedies Uncertainty of Revenues Failure to Achieve and Maintain Occupancy Sale of Homes Utilization Demand Competition Nature of Facilities Rights of Residents Present and Prospective Federal and State Regulation Proposed Regulation Health Care Reform Medicare and Medicaid Programs Regulation of Health Care and Long Term Care Industries Privacy and Security Regulations Increases in Medical Costs Malpractice Claims Potential Employee Shortage Taxpayer Relief Act of 1997 and Unrelated Business Taxation Imputed Interest on Certain Refundable Entrance Fees Passive Income Received from Health System Subsidiary Intermediate Sanctions Possible Changes in Tax Status Amendments to the Documents Additional Debt Bankruptcy Certain Matters Relating to Enforceability of the Master Indenture Interest Rate Swap and Other Hedge Risk Uncertainty of Investment Income Environmental Matters Flooding and Other Natural Disasters Other Possible Risk Factors Lack of Marketability for the Series 2013 Bonds Absence of a Bond Rating FLORIDA REGULATION OF CONTINUING CARE FACILITIES Certificate of Authority; Initial Entrance Fees Required Reserves Continuing Care Agreements and Residents Rights Examinations and Delinquency Proceedings FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting Continuing Disclosure LITIGATION The Authority The Corporation (ii)

13 LEGAL MATTERS DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS TAX MATTERS Bonds FEASIBILITY STUDY NO RATING UNDERWRITING MISCELLANEOUS APPENDICES APPENDIX A APPENDIX B APPENDIX C APPENDIX D THE ARLINGTON OF NAPLES FINANCIAL FEASIBILITY STUDY DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS FORM OF OPINION OF BOND COUNSEL (iii)

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15 SUMMARY STATEMENT The information set forth in this Summary Statement is subject in all respects to more complete information set forth elsewhere in this Limited Offering Statement, which should be read in its entirety. The offering of the Series 2013 Bonds to potential investors is made only by means of this entire Limited Offering Statement. No person is authorized to detach this Summary Statement from this Limited Offering Statement or otherwise to use it without this entire Limited Offering Statement. The Series 2013 Bonds The Collier County Industrial Development Authority (the Authority ), a body politic and corporate created and existing under the Collier County Industrial Development Authority Act, as amended (the Act ), proposes to issue $128,295,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013A (the Series 2013A Bonds ), $12,000,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013B-1 (Mandatory Paydown Securities (TEMPS-85 SM )) (the Series 2013B-1 Bonds ) and $50,000,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013B-2 (Mandatory Paydown Securities (TEMPS-70 SM )) (the Series 2013B-2 Bonds and, together with the Series 2013B-1 Bonds, the Series 2013B Bonds and, together with the Series 2013A Bonds, the Series 2013 Bonds ). The Series 2013 Bonds will be subject to optional, mandatory and extraordinary redemption and purchase in lieu of redemption, as described in this Limited Offering Statement. A description of the Series 2013 Bonds is contained in this Limited Offering Statement under the caption THE SERIES 2013 BONDS. The Series 2013 Bonds will be issued pursuant to an Indenture of Trust, dated as of December 1, 2013 (the Bond Indenture ), by and between the Authority and Wells Fargo Bank, National Association, Chicago, Illinois, as bond trustee (the Bond Trustee ). The proceeds of the Series 2013 Bonds will be loaned to The Arlington of Naples registered in the State of Florida as The Arlington of Naples, Inc. (the Corporation ) pursuant to a Loan Agreement dated as of December 1, 2013 (the Loan Agreement ), by and between the Corporation and the Authority. The Corporation will use the proceeds from the sale of the Series 2013 Bonds, together with other available funds, to (i) currently refund the Authority s outstanding $10,900,000 Continuing Care Community Revenue Bond Anticipation Notes (The Arlington of Naples Project), Series 2011 (the Series 2011 Notes ); (ii) pay off the Corporation s $19,490,000 Lutheran Church Extension Fund - Missouri Synod Promissory Note (the LCEF Promissory Note and, together with the Series 2011 Notes, the Prior Debt ); and (iii) finance and refinance the cost of (or reimburse itself and/or one or more of its affiliated corporations for prior expenditures for) all or a portion of: (a) the acquisition, construction, equipping and installation (and related development costs) of the capital expenditures related to a campus consisting of an estimated 163 independent living units (of which an estimated 31 will be villas), an estimated 79 assisted living units (of which an estimated 37 will be memory support units), and an estimated 44 skilled nursing beds along with associated common areas (collectively, the Project ), (b) capitalized interest during the construction period, (c) fund a debt service reserve fund with respect to each Series of the Series 2013 Bonds, and (d) costs of issuance related to the Series 2013 Bonds. See PLAN OF FINANCE and ESTIMATED SOURCES AND USES OF FUNDS. The purchase of the Series 2013 Bonds involves a significant degree of risk. The eligibility to purchase, and the ability to subsequently sell or transfer, the Series 2013 Bonds is limited to qualified institutional buyers as defined under Rule 144A or accredited investors as defined under Rule 501 of Regulation D of the Securities Act of 1933 until the Corporation applies for and receives a rating on the Series 2013 Bonds of at least BBB/Baa3 or equivalent from any (i)

16 Rating Agency, if ever. See THE SERIES 2013 BONDS Limitations on Investors and Restrictions on Transfer herein. The Corporation The Corporation is an Illinois not for profit corporation, qualified to do business in Florida as The Arlington of Naples, Inc., and exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the Code ), as an organization described in Section 501(c)(3) of the Code under the group exemption of The Evangelical Lutheran Church in America. The Corporation was created in 2008 with Lutheran Life Ministries, f/k/a Lutheran Life Communities ( LLM ) as its sole member. LLM was organized in 2005 as an Illinois not for profit corporation, building on the 113 year history of the Lutheran Home in Arlington Heights which was incorporated in LLM has received a determination letter from the Internal Revenue Service that it is exempt from federal income tax under Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code. LLM is the parent corporation of a system which is now comprised of five continuing care communities for senior living (including the Lutheran Home) and provides vibrant grace-filled living across all generations through residential and community services. LLM has provided considerable prefinance development and economic support to the Corporation, discussed in more detail below. LLM AND ITS AFFILIATES ARE NOT MEMBERS OF THE OBLIGATED GROUP AND ARE NOT OBLIGATED TO MAKE ANY PAYMENTS WITH RESPECT TO THE LOAN AGREEMENT OR THE SERIES 2013 NOTES OR WITH RESPECT TO THE SERIES 2013 BONDS. HOWEVER, LLM HAS AGREED UNDER THE HEREINAFTER DESCRIBED LIQUIDITY SUPPORT AGREEMENT TO PROVIDE CERTAIN LIMITED SUPPORT TO THE CORPORATION. The Corporation has entered into Development Consulting Agreements with CRSA/LCS Management, LLC ( CRSA/LCS ) and Lutheran Life Communities f/k/a VeriSpring, an Illinois not for profit corporation ( LLC ) which has LLM as its sole corporate member (CRSA/LCS and LLC are collectively referred to herein as the Developer ) (collectively, the Development Agreements ) pursuant to which the Developer has agreed to carry out development and marketing responsibilities with respect to the Project. For more information please see DEVELOPMENT OF THE COMMUNITY CRSA and Development Agreement with Lutheran Life Communities in APPENDIX A. The Corporation has entered into a Consulting Services Agreement with LLC (the Consulting Services Agreement ) pursuant to which LLC will provide certain professional administrative, management and support services including: corporate management, accounting and payroll, human resources, information technology, marketing and risk management. For more information please see MANAGEMENT in APPENDIX A. LLC s fees under the Consulting Services Agreement are subject to certain subordination provisions more fully described in MANAGEMENT Consulting Services Agreement in APPENDIX A. As of December 13, 2013, the Corporation had received Entrance Fee deposits for 125 Entrance Fee Units, representing approximately 82.8% of the 151 total planned Entrance Fee Units at the Community. Further information regarding the Corporation, its history, organization and future plans is included in APPENDICES A and B hereto. Pre-finance Capital Lutheran Church Extension Fund Promissory Note. In July 2008, the Lutheran Church Extension Fund Missouri Synod ( LCEF ), a Missouri non-profit organization, provided the LCEF Promissory Note, a five year, interest bearing promissory note of $19,490,000. The LCEF (ii)

17 Promissory Note was used to purchase the land on which the project will be situated. The LCEF Promissory Note will be repaid with a portion of the Series 2013 Bond proceeds. Series 2011 Notes. In June 2011, the Authority issued the Series 2011 Notes, consisting of $10,900,000 of non-rated, tax-exempt Continuing Care Community Revenue Bond Anticipation Notes. The Series 2011 Notes are going to be repaid with a portion of the Series 2013 Bonds. Deferred Note Payable. LLM has and continues to provide funds to aid in preconstruction development cost of the Project in amounts anticipated to reach $17.8 Million by the closing of the Series 2013 Bonds. Of these amounts, it is anticipated that $2,424,000 will be treated as an investment of LLM, $6,509,000 will be treated as a loan from LLM to the Corporation and secured by a note (the Deferred Note Payable ) subject to the repayment limitations described herein under the heading SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness, and the balance will be repaid to LLM from proceeds of the Series 2013 Bonds. Security for the Series 2013 Bonds The Master Indenture and the Series 2013 Notes. The Series 2013A Bonds will be limited obligations of the Authority and will be secured by the Corporation s Note, Series 2013A (the Series 2013A Note ) in the aggregate principal amount of the Series 2013A Bonds and the Series 2013B Bonds will be limited obligations of the Authority and will be secured by the Corporation s Note, Series 2013B (the Series 2013B Note and, together with the Series 2013A Note the Series 2013 Notes ) in the aggregate principal amount of the Series 2013B Bonds. The Series 2013 Notes will be issued pursuant to the Master Trust Indenture dated as of December 1, 2013 (the Master Indenture ) between the Corporation, as the initial Member of an obligated group (the Obligated Group ), and Wells Fargo Bank, National Association, as master trustee (the Master Trustee ). Upon the issuance of the Series 2013 Bonds, the Series 2013 Notes will be the only Notes outstanding under the Master Indenture. The Authority will pledge and assign the Series 2013 Notes and certain of its rights under the Loan Agreement to the Bond Trustee as security for the Series 2013 Bonds. The terms of the Series 2013 Notes will require payments by the Corporation and any future members of the Obligated Group which, together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of and interest on the Series 2013 Bonds. The Series 2013 Notes will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Corporation and any future members of the Obligated Group by the Master Indenture. The Master Indenture permits the Obligated Group to issue Additional Notes that will be secured under the Master Indenture. Each member of the Obligated Group will be jointly and severally obligated on all Notes, including the Series 2013 Notes, which are issued pursuant to the Master Indenture. All Notes issued by the Members of the Obligated Group will be equally and ratably secured by (i) a mortgage on the hereinafter described Mortgaged Property 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 2013 NOTES. Any Additional Notes issued by the Obligated Group under the Master Indenture: (i) may be equally and ratably secured with the Notes, including the Series 2013 Notes, outstanding under the Master Indenture or (ii) may be entitled to the benefit of security in addition to that securing the Notes outstanding under the Master Indenture, which security need not be extended to any other Notes. See SECURITY FOR THE SERIES 2013 NOTES Additional Indebtedness. (iii)

18 Debt Service Reserve Fund. Payment of the principal of and interest on each series of the Series 2013 Bonds will be additionally secured by moneys deposited to the credit of a Debt Service Reserve Fund, as established under the Bond Indenture. See SECURITY FOR THE SERIES 2013 BONDS herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Bond Indenture Section 3.10 Use of Moneys in the Reserve Fund in APPENDIX C herein. The Mortgage. Pursuant to a Mortgage and Security Agreement from the Corporation, as mortgagor, to the Master Trustee, as mortgagee, dated as of December 1, 2013 (the Mortgage ), the Corporation will grant the Master Trustee: (i) a first mortgage lien on certain real and personal property of the Corporation, (ii) a security interest in the fixtures located thereon and (iii) 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 ), in each case subject to Permitted Encumbrances, as security for the payment of the Series 2013 Notes and all other Notes hereafter issued under the Master Indenture. The Mortgaged Property does not include personal property of the Corporation other than materials incorporated into or to be incorporated into the building and fixtures comprising the Project. Security Interest in Gross Revenues. Pursuant to the Master Indenture, each Member of the Obligated Group has granted a security interest in its Gross Revenues (subject to Permitted Encumbrances) as security for the payment of the Series 2013 Notes and all other Notes hereafter issued under the Master Indenture. See SECURITY FOR THE SERIES 2013 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, Federal Subsidy Payments 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, (b) proceeds received from (i) accounts, (ii) securities and other investments, (iii) inventory and other tangible and intangible property, and (iv) accounts receivable, general intangibles, contract rights, chattel paper, instruments and other rights and assets now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (c) 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) all such items, whether now owned or hereafter acquired by the Obligated Group Members, which by their terms or by reason of applicable law cannot be granted, assigned or pledged under the Master Indenture or which would become void or voidable if granted, assigned or pledged under the Master Indenture by the Obligated Group Members, or which cannot be granted, pledged or assigned under the Master Indenture without the consent of other parties whose consent is not secured, or without subjecting the Master Trustee to a liability not otherwise contemplated by the provisions of the Master Indenture, or which otherwise may not be, or are not, hereby lawfully and effectively granted, pledged and assigned by the Obligated Group Members, (ii) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (iii) 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 of payments (iv)

19 required under the Master Trust Indenture, (iv) 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, (v) all deposits made pursuant to Residency Agreements to be held in escrow pursuant to Chapter 651, Florida Statutes, until construction of the Facilities is completed, a certificate of occupancy has been issued and appropriate licenses, if required, have been issued, and (vi) all deposits and/or advance payments made in connection with any leases of the Independent Living Units and received prior to receipt of such certificate and licenses. Liquidity Support Agreement. The Corporation, LLM, the Master Trustee and the Bond Trustee will enter into a liquidity support agreement (the Liquidity Support Agreement ) upon closing of the Series 2013 Bonds. At closing LLM will transfer to the Master Trustee $7,000,000 for deposit into the Liquidity Support Fund (the Liquidity Support Fund ). Additionally, upon the occurrence of a Funding Event, as defined in the Liquidity Support Agreement, LLM is obligated to deposit up to an additional $3,000,000 therein. The Liquidity Support Fund may be drawn by the Bond Trustee, the Master Trustee or the Corporation for certain purposes including paying Project construction costs, principal of, premium, if any, and interest on the Series 2013 Bonds, or any operating expenses in conjunction with the Project, 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 the 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 approval of the Construction Consultant. See LIQUIDITY SUPPORT AGREEMENT herein. Repayment of draws under the Liquidity Support Agreement shall constitute Affiliate Subordinated Indebtedness as defined in the Master Indenture and are subject to certain repayment restrictions described herein. No payment of Affiliate Subordinated Indebtedness may be made except as described in SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness herein. Certain Master Indenture Covenants of the Obligated Group For the definitions of certain words and terms used in this section, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Definitions of Certain Terms in APPENDIX C. Rate Covenant. The Corporation and each future Member of the Obligated Group covenant and agree in the Master Indenture to operate all of their Facilities on a revenue-producing basis and to charge such fees and rates for their Facilities and services and to exercise such skill and diligence, including obtaining payment for services provided, as to provide income from its Property together with other available funds sufficient to pay promptly all payments of principal and interest on its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it under the Master Indenture to the extent permitted by law. Each Member further covenants and agrees that they will from time to time as often as necessary and to the extent permitted by law, revise their rates, fees and charges in such manner as may be necessary or proper to comply with the covenant described under this heading. In accordance with the Master Indenture, the Obligated Group Representative will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year commencing with the earlier of (a) Stable Occupancy or (b) the Fiscal Year ending June 30, 2020 (the Initial Testing Period ) and will deliver a copy of such calculation to the persons to whom such report is required to be delivered under the Master Indenture. If the Historical Debt Service Coverage Ratio of the Obligated Group is less than (i) for the Initial Testing Period, a Historical Debt Service Coverage Ratio of (v)

20 1.10:1 or (ii) for each Fiscal Year thereafter, a Historical Debt Service Coverage Ratio of 1.20:1 (the Annual Debt Service Coverage Requirement ), the Master Trustee shall require the Obligated Group Representative, at the Obligated Group s expense, to select a Consultant within 30 days following such calculation 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 foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the Annual Debt Service Coverage Requirement for such Fiscal Year, the Master Trustee shall not be obligated to require the Obligated Group to select 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 containing 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 such requirement, and, such report is accompanied by a concurring opinion of Independent Counsel 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 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 a Historical Debt Service Coverage Ratio equal to the Annual Debt Service Coverage Requirement for any Fiscal Year, such failure 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 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 Representative) and permitted by law. Commencing with the Initial Testing Period, if the Obligated Group fails to achieve a 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. The Consultants selected as described in this heading shall be approved and selected as summarized below and in APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.27 Approval of Consultants. A copy of the Consultant s report and recommendations, if any, shall be filed with each Member and each Required Information Recipient within 60 days of the actual engagement of any such 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 the Obligated Group Representative) and permitted by law. This covenant 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 summarized in this section. (vi)

21 See SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Rate Covenant herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.11 Rates and Charges in APPENDIX C for more detail. Liquidity Covenant. The Obligated Group covenants that it will calculate the Days Cash on Hand and/or Cash to Indebtedness Ratio of the Obligated Group as of June 30 and December 31 of each Fiscal Year, commencing June 30 of the Initial Testing Period (each such date being a Testing Date ). The Obligated Group shall deliver an Officer s Certificate setting forth such calculation as of December 31 to the Master Trustee no later than 45 days after such December 31 and include such calculation as of June 30 in the Officer s Certificate delivered pursuant to the Master Indenture and described under the heading FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting herein. The Corporation and each future Member of the Obligated Group are required to conduct their business so that on each Testing Date the Obligated Group shall have (a) a Cash to Indebtedness Ratio of (i) no less than 0.25:1 on each of the first two Testing Dates, (ii) no less than 0.275:1 for the next two following Testing Dates, and (iii) no less than 0.30:1 on each Testing Date thereafter; and (b) 180 Days Cash on Hand on each Testing Date (collectively, the Liquidity Requirement ). At the option of the Obligated Group Representative, the Liquidity Requirement can be changed to eliminate the Cash to Indebtedness Ratio if for three consecutive Fiscal Years the Obligated Group has reported (a) a Historical Debt Service Coverage Ratio of 1.40:1 or more, and (b) a Cash to Indebtedness Ratio of 0.30:1 or more on each Testing Date by making an election to do so in an Officer s Certificate. If the Cash to Indebtedness Ratio and/or the amount of the Days Cash on Hand, as applicable, as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Representative shall, within 30 days after delivery of the Officer s Certificate disclosing such deficiency, deliver an Officer s Certificate to the Master Trustee setting forth in reasonable 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 and/or Days Cash on Hand, as applicable, 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 next Testing Date immediately subsequent to the delivery of the Officer s Certificate required in the preceding paragraph, the Obligated Group Representative 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 and/or the number of 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 and each Required Information Recipient within 60 days of actual engagement of any such Consultant. 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 such Obligated Group 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 in the (vii)

22 reasonable judgment of the Governing Body of such Obligated Group Member) and permitted by law; provided, that failure to maintain at least 30 Days Cash on Hand for two consecutive Testing Dates shall constitute an Event of Default under the Master Trust Indenture. See SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Liquidity Covenant herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.20 Liquidity Covenant in APPENDIX C for more detail. Marketing Covenant. Beginning with the fiscal quarter ending December 31, 2013 and ending with the first full fiscal quarter following the fiscal quarter in which the Stabilization Date occurs, the Obligated Group will use its best efforts to maintain the percentage of Entrance Fee Units which are Reserved (the Percentage of Reserved Entrance Fee Units ) at or above the applicable levels set forth in the tables below, which determinations shall be measured as of the last day of the applicable quarter (the Marketing Requirements ). The 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 below have not been satisfied or (ii) the Adjusted Level I Marketing Requirements if the Adjusted Level I Occupancy Requirements set forth under Occupancy Covenant below have been satisfied. Quarter Ending Percentage of Reserved Entrance Fee Units (%) Level I December 31, % March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, (viii)

23 Occupancy Quarter Percentage of Reserved Entrance Fee Units (%) Adjusted Level I % For information regarding the marketing covenant and remedies, see SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Marketing Covenant and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.21 Marketing Covenant in APPENDIX C. Occupancy Covenant. The Obligated Group covenants that for each fiscal quarter (a) commencing with the first fiscal quarter which ends not less than 60 days following the issuance of the first certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), and (b) ending with the first full fiscal quarter following the fiscal quarter in which the Stabilization Date occurs (each an Occupancy Quarter ), the Obligated Group will use its best efforts to have Occupied the percentage of the total number of all Entrance Fee Units (the Percentage of Units Occupied ) at or above the Level I Occupancy Requirements set forth below which levels shall be measured as of the last day of the applicable Occupancy Quarter (the Occupancy Requirements ): Adjusted Level I Occupancy Quarter Level I Occupancy Requirements (%) Occupancy Requirements (%) % 29.8% and thereafter 90.0 For information regarding the occupancy covenant and remedies, see SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Occupancy Covenant herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF (ix)

24 CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.22 Occupancy Covenant in APPENDIX C. Cumulative Cash Operating Loss Covenant. The Obligated Group covenants that during the period (a) commencing with (i) the first fiscal quarter ending after the Initial Occupancy Date if such date is more than 30 days prior to the end of such fiscal quarter or (ii) the first full fiscal quarter ending after the Initial Occupancy Date if such date is less than 30 days prior to the end of a fiscal quarter and (b) ending with the fiscal quarter immediately preceding the Initial Testing Period (Cumulative Cash Operating Loss is not required to be calculated for the Initial Testing Period), 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 ($4,000,000) ($3,200,000) 2 (6,000,000) (4,500,000) 3 (7,000,000) (4,900,000) 4 (7,500,000) (5,000,000) 5 (9,000,000) (6,100,000) 6 (10,000,000) (7,000,000) 7 (11,000,000) (7,800,000) 8 and thereafter (12,250,000) (8,200,000) (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 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Cumulative Cash Operating Loss Covenant and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.23 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 2013 NOTES Additional Indebtedness herein and APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.16 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 2013 Notes. Disposition of Property. The Corporation and each future Member of the Obligated Group agrees in the Master Indenture and in the Mortgage to restrictions on the disposition of its Property, as more fully described under the captions SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Disposition of Property herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF (x)

25 CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.18 Sale or Lease of Property in APPENDIX C hereto. Application for Rating. The Master Indenture provides that not later than 150 days after receipt by the Obligated Group Representative of the audited financial report of the Obligated Group for the first full Fiscal Year following the achievement of Stable Occupancy and each Fiscal Year thereafter, the Obligated Group will approach any Rating Agency to obtain a credit rating until the Obligated Group obtains an investment grade credit rating from any Rating Agency (an Investment Grade Credit Rating ). Notwithstanding the foregoing, (a) the requirement to annually approach a Rating Agency shall be suspended for such time as the Obligated Group maintains an Investment Grade Credit Rating; and (b) the Obligated Group shall not be required to approach a Rating Agency to obtain a credit rating if the Obligated Group Representative reasonably believes that the Obligated Group will not meet the criteria of any Rating Agency for an Investment Grade Credit Rating based on the then-existing published rating criteria of the Rating Agencies. Also see SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Application for Rating herein and APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.26 Rating Application. Payments on Affiliate Subordinated Indebtedness. Except with respect to the reimbursement of costs related to the Project advanced by LLM paid from proceeds of the Series 2013 Bonds, a Member of the Obligated Group will not make payments on Affiliate Subordinated Indebtedness (except for repayment to the Liquidity Support Fund pursuant to the Master Indenture), unless the Obligated Group Representative delivers an Officer s Certificate to the Master Trustee prior to any payment on such Affiliate Subordinated Indebtedness certifying that the following conditions are satisfied: (a) at any point prior to such date, there have been two full consecutive fiscal quarters in which the total percentage occupancy of all units and beds in the Project is equal to or greater than 90%; (b) if the proposed payment on the Affiliate Subordinated Indebtedness had occurred as of the last day of the most recent Testing Date, the Obligated Group would have met the Liquidity Requirement after making such payment; (c) if the proposed payment on the Affiliate Subordinated Indebtedness 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 1.30:1; (d) no Series 2013B Bonds are 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 Trust Indenture. Payments on Affiliate Management Fees and Deferred Affiliate Development Fees. (a) For each Fiscal Year commencing with Stable Occupancy, any Affiliate Management Fees, Deferred Affiliate Development Fees plus any Deferred Affiliate Management Fees then payable, may be paid by the Obligated Group Representative if the conditions set forth under the heading Payments on Affiliate Subordinated Indebtedness above have been satisfied. (b) Amounts due to an Affiliate with respect to any portion of Affiliate Management Fees not paid under clause (a) under this heading because certain other conditions under the Master Indenture (xi)

26 cannot be satisfied shall be deferred in accordance with the provisions of the Master Indenture and the Consulting Services Agreement. (c) Amounts due with respect to any Deferred Affiliate Development Fee not paid under clause (a) of this subheading because of the conditions set forth therein cannot be satisfied shall continue to accrue in accordance with the Master Indenture. (d) All Affiliate Management Fees and Deferred Affiliate Development Fees payable shall be subordinated to all payments due on any Notes Outstanding and shall constitute Affiliate Subordinated Indebtedness under the Master Indenture. Approval of Consultants. Pursuant to the Master Indenture, the Bondholders have certain approval rights as to Consultants selected by the Corporation. See SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Approval of Consultants, and APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.27 Approval of Consultants. Entrance Fees Fund. The members of the Obligated Group have agreed that each portion of an Initial Entrance Fee received by the Members of the Obligated Group will be transferred to the Master Trustee within five Business Days of the receipt thereof as follows: (i) prior to the release described in (b) below, each transfer shall also be accompanied by a copy of the related entrance fee receipt (an Entrance Fee Receipt ) forwarded to the escrow agent, initially SunTrust Bank, for the Entrance Fee Escrow Account required to be maintained pursuant to Chapter 651, Florida Statutes (the Chapter 651 Escrow Agent ) and written directions from the Obligated Group Representative to the Master Trustee indicating the amount of such Initial Entrance Fee that is to be deposited to the Entrance Fee Fund (the Discretionary Amount ) and the amount of such Initial Entrance Fee that is to be transferred to the Chapter 651 Escrow Agent for deposit to the Entrance Fee Escrow Account (the Escrowed Amount ), such Discretionary Amount shall be deposited and applied by the Master Trustee in accordance with paragraph (a) below; (ii) upon the release described in paragraph (b) below, the Initial Entrance Fees so released and received by the Master Trustee shall be deposited and applied in accordance with paragraph (b) below; and (iii) after the release described in paragraph (b) below, the Initial Entrance Fees received by the Master Trustee shall be deposited and applied in accordance with paragraph (c) below. (a) Application of Discretionary Amount. The Discretionary Amount shall be deposited to the Entrance Fee Fund and will be applied by the Master Trustee within two Business Days of receipt, as follows: FIRST, to the Corporation to pay refunds required by Residency Agreements for which the Corporation has not received a corresponding replacement Entrance Fee with respect to the applicable Entrance Fee Unit. Such disbursements will be made upon receipt by the Master Trustee and Chapter 651 Escrow Agent of an Officer s Certificate of the Corporation certifying that the Corporation is required by a Residency Agreement to pay refunds within the next 30 days, and the amount of such refunds to be funded from the Entrance Fee Fund and Entrance Fee Escrow Account. SECOND, to the Working Capital Fund established by the Master Indenture, until the total Discretionary Amount of Entrance Fees deposited into the Working Capital Fund equals $10,250,000. The Master Trustee will not replenish funds withdrawn from the Working Capital Fund or transfer moneys from the Entrance Fee Fund once a total Discretionary Amount of $10,250,000 from Entrance Fees has been deposited. (xii)

27 THIRD, to the Operating Reserve Fund established by the Master Indenture, until the total Discretionary Amount deposited in the Operating Reserve Fund equals $5,000,000. After the transfers described above have been made, thereafter the Master Trustee will retain any Discretionary Amount in the Entrance Fee fund to engage in the periodic review and application of funds described in subsection (c) below. (b) Application upon Release of Escrowed Amount. Once the Escrowed Amount, together with any other amount on deposit in the Entrance Fee Escrow Account, is released pursuant to the terms of the Entrance Fee Escrow Agreement, the Obligated Group Representative shall direct the Chapter 651 Escrow Agent to use such released moneys to fund the Minimum Liquid Reserve Accounts to their required level and then direct the Chapter 651 Escrow Agent to transfer the remaining amount to the Master Trustee for deposit to the Entrance Fee Fund (such direction to be provided in writing to the Chapter 651 Escrow Agent with a copy to the Master Trustee) and shall be applied by the Master Trustee within two Business Days of receipt, as follows: FIRST, to the Corporation to pay refunds required by Residency Agreements for which the Corporation has not received a corresponding replacement Entrance Fee with respect to the applicable Entrance Fee Unit. Such disbursements shall be made upon receipt by the Master Trustee of an Officer s Certificate of the Corporation certifying that the Corporation is required by a Residency Agreement to pay refunds within the next 30 days, and the amount of such refunds to be funded from the Entrance Fee Fund. Such Officer s Certificate shall be furnished to the Master Trustee at least one Business Day before the Master Trustee is required to apply the funds. SECOND, to the Operating Reserve Fund established by the Master Indenture until the initial amount on deposit in the Operating Reserve Fund equals $5,000,000. THIRD, to the Liquidity Support Fund, any amount necessary to reimburse any amounts advanced for Costs of the Project (but not for operating expenses) under the Liquidity Support Agreement. After the transfers described above have been made, thereafter the Master Trustee will review the amount on deposit in the Entrance Fee Fund in accordance with paragraph (c) below. (c) Periodic Review. After the release described in paragraph (b) above, all Initial Entrance Fees received by the Master Trustee will be deposited to the Entrance Fee Fund and on the first Business Day of each month thereafter (each, a Review Date ) the Master Trustee shall review the amount on deposit in the Entrance Fee Fund and shall apply moneys on deposit therein as follows: FIRST, to the Corporation to pay refunds required by Residency Agreements for which the Corporation has not received a corresponding replacement Entrance Fee with respect to the applicable Entrance Fee Unit. Such disbursements shall be made upon receipt by the Master Trustee of an Officer s Certificate of the Corporation certifying that the Corporation is required by a Residency Agreement to pay refunds within the next 30 days, and the amount of such refunds to be funded from the Entrance Fee Fund. Such Officer s Certificate shall be furnished to the Master Trustee at least one Business Day before the Master Trustee is required to apply the funds. SECOND, to the Operating Reserve Fund the following: (i) $5,000,000; and until the initial amount deposited into the Operating Reserve Fund equals (xiii)

28 (ii) thereafter, the amount needed, if any, to replenish any funds withdrawn from the Operating Reserve Fund until the amount on deposit in the Operating Reserve Fund equals $5,000,000, provided that the aggregate amount transferred from the Entrance Fee Fund to the Operating Reserve Fund shall not exceed $10,000,000; and (iii) if a transfer of moneys from the Liquidity Support Fund to the Operating Reserve Fund (as described under LIQUIDITY SUPPORT AGREEMENT Draws on the Liquidity Support Fund herein) has occurred, the amount needed, if any, to increase the amount on deposit in the Operating Reserve Fund to $2,000,000 (without regard to the replenishment limit described in clause (ii) above). Indenture. THIRD, into the Entrance Fee Redemption Account established pursuant to the Bond (d) Closure of Entrance Fee Fund. After all of the Series 2013B Bonds have been redeemed or otherwise paid in full (as established by an Officer s Certificate of the Corporation delivered to the Master Trustee) and no Event of Default has occurred and is continuing, the Members of the Obligated Group need not deposit any Initial Entrance Fees into the Entrance Fee Fund. Upon the satisfaction of such conditions, any amounts on deposit in the Entrance Fee Fund will be remitted to the Corporation and the Entrance Fee Fund will be closed. For information regarding the Entrance Fees Fund, see SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Entrance Fees Fund and APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 3.01 Entrance Fees Fund. Working Capital Fund. The Master Trustee shall establish and maintain a separate account to be known as the Working Capital Fund (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 Notes 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 seven days after receipt by the Master Trustee of an Officer s Certificate of the Corporation to the effect that such moneys will be used to pay (A) costs of the Project, (B) lease up and operating expenses of the Project, including any development and marketing fees, (C) the costs of needed repairs to the Project, (D) the costs of capital improvements to the Project, (E) judgments against any Member of the Obligated Group, (F) refunds of Entrance Fees as required by Residency Agreements pursuant to which such Entrance Fees were received, (G) amounts required to restore funds on deposit in any Related Bonds Debt Service Reserve Fund if such amount is less than the applicable requirement due to a valuation deficiency on any valuation date, or (H) amounts due on any Indebtedness of any Member of the Obligated Group, but not to reimburse amounts advanced under the Liquidity Support Agreement or otherwise advanced by any Affiliate. All amounts on deposit in the Working Capital Fund may be released to the Corporation and the Working Capital Fund will be closed upon receipt by the Master Trustee of an Officer s Certificate of the Corporation requesting such release which Officer s Certificate shall state that (i) all Series 2013B Bonds have been redeemed or otherwise paid in full and (ii) no Event of Default has occurred and is continuing under the Master Indenture. (xiv)

29 Operating Reserve Fund. The Master Trustee shall establish and maintain a separate account to be known as the Operating Reserve Fund (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 Notes outstanding thereunder (except as otherwise provided in the Master Indenture) 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 seven Business Days of receipt by the Master Trustee of an Officer s Certificate of the Corporation to the effect that (A) such moneys will be used to pay (i) costs of the Project, (ii) lease up and operating expenses of the Project, including any development and marketing fees, (iii) the costs of needed repairs to the Project, (iv) the costs of capital improvements to the Facilities, (v) judgments against any Member of the Obligated Group, (vi) refunds of Entrance Fees as required by Residency Agreements pursuant to which such Entrance Fees were received, (vii) amounts required to restore funds on deposit in any Related Bonds Debt Service Reserve Fund if such amount is less than the applicable requirement due to a valuation deficiency on any valuation date, or (viii) amounts due on any Indebtedness any Member of the Obligated Group, but not to reimburse amounts advanced under the Liquidity Support Agreement or otherwise advanced by any Affiliate, (B) such moneys are 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, (C) no moneys are on deposit in the Working Capital Fund or are otherwise available to the Corporation for such purpose, and (D) if such moneys are to be used to pay costs of the Project, the aggregate amount on deposit in the Operating Reserve Fund immediately after such draw will be at least $2,000,000. 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 Corporation requesting such release which Officer s Certificate shall state that (i) all Series 2013B Bonds have been redeemed or otherwise paid in full and (ii) 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 under the Master Indenture shall be invested or reinvested by the Master Trustee in Permitted Investments upon the receipt of an Obligated Group Representative Request (upon which the Master Trustee is entitled to rely). Any such investments shall be held by or under the control of the Master Trustee and shall mature, or be redeemable at the option of the Master Trustee at such times as it is anticipated by the Obligated Group Representative that moneys from the particular fund will be required for the purposes of the Master Indenture. For the purpose of any such investment or reinvestment, investments shall be deemed to mature at the earliest date on which the obligor under such investment is, on demand, obligated to pay a fixed sum in discharge of the whole of such obligation. Any Permitted Investments may be purchased from or sold to the Master Trustee or any of its respective affiliates. For more information, see SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Entrance Fees Fund, Working Capital Fund, Operating Reserve Fund, and Investment of Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund as well as DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 3.01 Entrance Fees Fund, Section 3.02 Working Capital (xv)

30 Fund, Section 3.04 Operating Reserve Fund and Section 3.06 Investment of Funds in APPENDIX C. Feasibility Study Dixon Hughes Goodman LLP, independent certified public accountants, have prepared a financial feasibility study dated December 13, 2013 (the Feasibility Study ), which is included as APPENDIX B hereto. The Feasibility Study was originally prepared on October 18, 2013 and has been updated to reflect changes in the financial structure and terms of the Series 2013 Bonds and other items discussed therein. The Feasibility Study includes management s financial forecast of the Corporation for the six years ending June 30, 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 the fiscal year ending June 30, 2019 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 Dixon Hughes Goodman LLP the following assumptions: The Series 2013A Bonds are assumed to consist of $128,295,000 non-rated tax-exempt fixed rate bonds, to be issued at a discount, consisting of term maturities to May 15, 2049 with average interest rates ranges from 7.00 to 8.25 percent per annum and average yields ranging from 7.00 to percent per annum. The Series 2013B-1 Bonds consist of $12,000,000 non-rated tax-exempt fixed rate bonds with an assumed interest rates of 6.875% and are anticipated to be redeemed in full by approximately 82% initial occupancy of the Independent Living Units by approximately August The Series 2013B-2 Bonds consist of $50,000,000 non-rated tax-exempt fixed rate bonds with an assumed interest rate of 6.50% per annum and are anticipated to be redeemed in full by 70% initial occupancy of the Independent Living Units by approximately February (xvi)

31 Long-Term Debt Service Coverage Ratio 2019 Increase in net assets (deficit) $ 401 Deduct: Entrance fee amortization (2,661) Add: Depreciation 3,668 Amortization 988 Interest expense 10,428 Accrued LLC Consulting Fees (a) 420 Entrance fees received - attrition (non-refundable) 1,456 Entrance fees received - attrition (refundable) 3,191 Entrance fees refunded (2,167) Income Available for Debt Service $ 15,724 Maximum Annual Debt Service $ 11,410 Maximum Annual Debt Service Coverage Ratio (b) 1.38x Annual Debt Service $ 10,302 Annual Debt Service Coverage Ratio 1.53x Days Cash on Hand 2019 Cash and cash equivalents $ 1,207 Investments 25,779 Statutory Debt Service Reserve Fund 916 Statutory Operating Reserve Fund 1,788 Statutory Renewal and Replacement Fund 1,788 Cash and Investments $ 31,478 Total expenses 29,772 Less: Accrued LLC Consulting Fees (a) $ (420) Depreciation (3,668) Amortization (988) Total expenses less depreciation and amortization 24,696 Daily operating expenses (c) 68 Days Cash on Hand 463 Cash to Debt Ratio 2019 Cash and cash equivalents $ 1,207 Investments 25,779 Statutory Debt Service Reserve Fund 916 Statutory Operating Reserve Fund 1,788 Statutory Renewal and Replacement Fund 1,788 Series 2013A Reserve Account 11,410 Funds Available for Debt Service $ 42,888 Long-Term Indebtedness Outstanding $ 127,506 Cash to Debt Ratio 0.34x (a) Consulting fees payable to Lutheran Life Communities are to be deferred during the forecast period as further described in the "Management of the Community" section of the Summary of Significant Forecast Assumptions and Accounting Policies. (b) Ratio was requested by the Underwriter and is not required by the Master Trust Indenture. (c) Daily operating expenses are equal to total operating expenses less depreciation, amortization and accrued LLC Consulting Fees divided by 365 days. (xvii)

32 The prior table should be considered in conjunction with the entire Feasibility Study to understand management s assumptions upon which the Feasibility Study is based. 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. Financial Reporting and Disclosure Financial Reporting. The Obligated Group Representative will furnish or cause to be furnished to the Master Trustee and the Required Information Recipients, the following: (i) Until the achievement of Stable Occupancy, as soon as practicable after the information is available but in no event more than 45 days after the completion of each month, a monthly statement including (A) prior to the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), (1) a calculation of the marketing levels for the Project as of the end of such month, including the number of Entrance Fee Units that have been sold or cancelled during that month and on an aggregate basis; (2) a summary statement as to the status of construction including the report of any construction monitor; (3) unaudited financial reports on the development costs of the Project incurred during that month and on an aggregate basis; and (4) statements of the balances for each fund and account required to be established pursuant to the Master Indenture or the Liquidity Support Agreement or under any Related Bond Indenture as of the end of such month (obtained from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Representative, and (B) after the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), (1) a calculation of the marketing levels for the Project as of the end of such month, including the number of Entrance Fee Units that have been sold or cancelled during that month and on an aggregate basis; (2) occupancy levels of the Project as of the end of such month including the number of Entrance Fee Units that were Occupied and vacated during that month and on an aggregate basis; (3) a summary statement on the status of construction until the issuance of the last certificate of occupancy for the Project; (4) unaudited financial reports on the development costs incurred during that month and on an aggregate basis until the issuance of the last certificate of occupancy for the Project; (5) an unaudited statement of revenues and expenses and statement of cash flows of the Obligated Group for such month compared to the approved budget for that month and an unaudited balance sheet of the Obligated Group as of the end of such month; and (6) statements of the balances for each fund and account required to be established pursuant to the Master Indenture or under the Liquidity Support Agreement or under any Related Bond Indenture as of the end of such month (obtained from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Representative. (ii) Beginning with the first full fiscal quarter following the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), quarterly unaudited financial statements of the Obligated Group as soon as practicable after they are available but in no event more than 45 days after the completion of such fiscal quarter, including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, and a calculation of the marketing, occupancy, Cumulative Cash Operating Loss, Cash to Indebtedness Ratio or Days Cash on Hand, and Historical Debt Service Coverage Ratio, for such fiscal quarter if required to be calculated by the Master Indenture, all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Representative. Such financial statements and calculations shall be accompanied by a comparison to the annual budget provided pursuant to subsection (iv) below, together with a report describing the refund liabilities coming due resulting from residents vacating Independent Living Units and move through levels of care, refunds coming due for Independent (xviii)

33 Living Units not yet reoccupied, refunds now due after units are reoccupied and the age of the refunds now due. If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 and the Cash to Indebtedness Ratio and/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 the above paragraph on a monthly basis 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 and/or the Days Cash on Hand, as applicable, of the Obligated Group is at least equal to the applicable Liquidity Requirement. (iii) Within 150 days of the end of each Fiscal Year, an annual audited financial report of the Obligated Group prepared by a firm of 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 cash flows 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 preparing such report (or another firm of certified public accountants) containing calculations of the Obligated Group s Historical Debt Service Coverage Ratio for said Fiscal Year (beginning with the Fiscal Year following the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas)) and a statement that such Accountants have no knowledge of any default under the Master Indenture insofar as it relates to accounting matters or to the Obligated Group s financial covenants, or if such Accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof. (iv) On or before the date of delivery of the financial reports referred to in subsection (iii) above, an Officer s Certificate of the Obligated Group Representative (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture, any Related Loan Agreement, and any Related Bond Indenture or, if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the marketing, occupancy, Cumulative Cash Operating Loss, Cash to Indebtedness Ratio or Days Cash on Hand, and the Historical Debt Service Coverage Ratio, if required to be calculated for such Fiscal Year by the Master Indenture, as of the end of such month or Fiscal Year, as appropriate, (C) attaching a summary of the Obligated Group s annual operating and capital budget for the coming Fiscal Year, (D) showing a comparison of the audited financial reports with the operating budget for the preceding Fiscal Year and (E) including an executive summary of any actuarial reports received by the Obligated Group during the preceding Fiscal Year, if any. (v) On or before the date of delivery of the financial reports referred to in subsections (ii) and (iii) above, a management s discussion and analysis of results for the applicable fiscal period. (vi) Copies of (A) any board approved revisions to the summary of the annual budget, or (B) any correspondence to or from the Internal Revenue Service questioning or contesting the status of any Member of the Obligated Group as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of the 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. (vii) Within 30 days of (a) receipt of any Occupancy Certificate for any portion of the Project, (b) completing the Project or (c) achieving Stable Occupancy, the Obligated Group Representative will notify the Master Trustee of such event. (xix)

34 (viii) Such additional information as the Master Trustee or any Related Bond Trustee may reasonably request concerning any Member in order to enable the Master Trustee or such Related Bond Trustee to determine whether the covenants, terms and provisions of the Master Indenture have been complied with by the Members and for that purpose all pertinent books, documents and vouchers relating to the business, affairs and Property (other than patient, donor and personnel records) of the Members shall, to the extent permitted by law, at all times during regular business hours be open to the inspection of such Accountant or other agent (who may make copies of all or any part thereof) as shall from time to time be designated by the Master Trustee or such Related Bond Trustee. The Obligated Group has also covenanted that, within 10 days after its receipt thereof, the Obligated Group Representative shall file with the Required Information Recipients a copy of each Consultant s report or Opinion of Counsel required to be prepared under the terms of the Master Indenture. For more information see FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.15 Financial Statements, Etc. in APPENDIX C hereto. Continuing Disclosure. Given the sources of repayment for the Series 2013 Bonds and the Authority s limited obligation in respect thereof, the Authority has determined that its financial and operating data is not material to a decision to purchase, hold or sell the Series 2013 Bonds. Consequently, the Authority 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 available to holders of the Series 2013 Bonds through EMMA ( the information repository of the Municipal Securities Rulemaking Board, to comply with the Rule 15c2-12 of the Securities and Exchange Commission (as amended from time to time, the Rule ). The Corporation is solely responsible for providing such continuing disclosure, and the Authority 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. Risk Factors See FINANCIAL REPORTING AND CONTINUING DISCLOSURE herein. AN INVESTMENT IN THE SERIES 2013 BONDS INVOLVES A CERTAIN DEGREE OF RISK INCLUDING THOSE SET FORTH UNDER THE HEADING RISK FACTORS HEREIN. A PROSPECTIVE SERIES 2013 BONDHOLDER IS ADVISED TO READ SECURITY FOR THE SERIES 2013 BONDS, SECURITY FOR THE SERIES 2013 NOTES and RISK FACTORS FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES 2013 BONDS. CAREFUL CONSIDERATION SHOULD BE GIVEN TO THESE RISKS AND OTHER RISKS DESCRIBED ELSEWHERE IN THIS LIMITED OFFERING STATEMENT. The Principal Documents The descriptions and summaries of various documents set forth in this Limited Offering 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 Series 2013 Bonds, the Bond Indenture, the Loan Agreement, the Series 2013 Notes, the (xx)

35 Master Indenture, the Mortgage and the Continuing Disclosure Agreement are available from the Underwriter, and following delivery of the Series 2013 Bonds, copies of the executed originals thereof may be examined at the principal corporate trust office of the Bond Trustee. (xxi)

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37 LIMITED OFFERING STATEMENT $190,295,000 COLLIER COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY CONTINUING CARE COMMUNITY REVENUE BONDS (THE ARLINGTON OF NAPLES PROJECT) $128,295,000 Series 2013A consisting of $12,000,000 Series 2013B-1 (Mandatory Paydown Securities (TEMPS-85 SM )) CUSIP: See front cover $50,000,000 Series 2013B-2 (Mandatory Paydown Securities (TEMPS-70 SM )) Purpose of this Limited Offering Statement INTRODUCTION The purpose of this Limited Offering Statement, including the cover page, the summary statement and the appendices, is to set forth certain information in connection with the offering by the Collier County Industrial Development Authority (the Authority ) of $128,295,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013A (the Series 2013A Bonds ), $12,000,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013B-1 (Mandatory Paydown Securities (TEMPS-85 SM )) (the Series 2013B-1 Bonds ) and $50,000,000 Continuing Care Community Revenue Bonds (The Arlington of Naples Project), Series 2013B-2 (Mandatory Paydown Securities (TEMPS-70 SM )) (the Series 2013B-2 Bonds and, together with the Series 2013B-1 Bonds, the Series 2013B Bonds and, together with the Series 2013A Bonds, the Series 2013 Bonds ). Certain capitalized terms used in this Limited Offering Statement and not otherwise defined herein are defined in APPENDIX C. The Limited Offering Statement speaks only as of its date, and the information contained herein is subject to change. The Authority The Authority is a body politic and corporate of the State of Florida. The Authority was created pursuant to and is operating under Parts II and III of Chapter 159, Florida Statutes, and other applicable provisions of law (the Act ). For further information concerning the Authority, see the information under the caption THE AUTHORITY. The Corporation The Arlington of Naples, an Illinois not for profit corporation, qualified to do business in Florida as The Arlington of Naples, Inc. (the Corporation ), is exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the Code ), as an organization described in Section 501(c)(3) of the Code under the group exemption of The Evangelical Lutheran Church in America. The Corporation was created in 2008 with Lutheran Life Ministries, f/k/a Lutheran Life Communities ( LLM ) as its sole member. LLM was organized in 2005 as an Illinois not for profit corporation, building on the 113 year history of the Lutheran Home in Arlington Heights which was incorporated in LLM has received a determination letter from the Internal Revenue Service that it is exempt from federal income tax under Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code. LLM is the parent corporation of a system which is now comprised of five SM TEMPS-70 and TEMPS-85 are each a Service Mark of B.C. Ziegler and Company. 1

38 continuing care communities for senior living (including the Lutheran Home) and provides vibrant gracefilled living across all generations through residential and community services. LLM has provided considerable pre-finance development and economic support to the Corporation, discussed in more detail below. LLM AND ITS AFFILIATES ARE NOT MEMBERS OF THE OBLIGATED GROUP AND ARE NOT OBLIGATED TO MAKE ANY PAYMENTS WITH RESPECT TO THE LOAN AGREEMENT OR THE SERIES 2013 NOTES OR WITH RESPECT TO THE SERIES 2013 BONDS. HOWEVER, LLM HAS AGREED UNDER THE HEREINAFTER DESCRIBED LIQUIDITY SUPPORT AGREEMENT TO PROVIDE CERTAIN LIMITED SUPPORT TO THE CORPORATION. The Corporation has entered into Development Consulting Agreements with CRSA/LCS Management, LLC ( CRSA/LCS ) and Lutheran Life Communities f/k/a VeriSpring, an Illinois not for profit corporation ( LLC ) which has LLM as its sole corporate member (CRSA/LCS and LLC are collectively referred to herein as the Developer ) (collectively, the Development Agreements ) pursuant to which the Developer has agreed to carry out development and marketing responsibilities with respect to the Project. For more information please see DEVELOPMENT OF THE COMMUNITY CRSA and Development Agreement with Lutheran Life Communities in APPENDIX A. The Corporation has entered into a Consulting Services Agreement with LLC (the Consulting Services Agreement ) pursuant to which LLC will provide certain professional administrative, management and support services including: corporate management, accounting and payroll, human resources, information technology, marketing and risk management. For more information please see MANAGEMENT in APPENDIX A. LLC s fees under the Consulting Services Agreement are subject to certain subordination provisions more fully described in MANAGEMENT Consulting Services Agreement in APPENDIX A. As of December 13, 2013, the Corporation had received Entrance Fee deposits for 125 Entrance Fee Units, representing approximately 82.8% of the 151 total planned Entrance Fee Units at the Community. See APPENDIX A and B for a more detailed description of the Corporation, its history, organization, operations, future plans and financial performance. Also see PLAN OF FINANCE herein. Pre-finance Capital Lutheran Church Extension Fund Promissory Note. In July 2008, the Lutheran Church Extension Fund Missouri Synod ( LCEF ), a Missouri non-profit organization, provided the LCEF Promissory Note, a five year, interest bearing promissory note of $19,490,000. The LCEF Promissory Note was used to purchase the land on which the project will be situated. The LCEF Promissory Note will be repaid with a portion of the Series 2013 Bond proceeds. Series 2011 Notes. In June 2011, the Authority issued the Series 2011 Notes, consisting of $10,900,000 of non-rated, tax-exempt Continuing Care Community Revenue Bond Anticipation Notes. The Series 2011 Notes are going to be repaid with a portion of the Series 2013 Bonds. Deferred Note Payable. LLM has and continues to provide funds to aid in preconstruction development cost of the Project in amounts anticipated to reach $17.8 Million by the closing of the Series 2013 Bonds. Of these amounts, it is anticipated that $2,424,000 will be treated as an investment of LLM, $6,509,000 will be treated as a loan from LLM to the Corporation and secured by a note (the Deferred Note Payable ) subject to the repayment limitations described herein under the heading SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness, and the balance will be repaid to LLM from proceeds of the Series 2013 Bonds. -2-

39 Purpose of the Series 2013 Bonds The Corporation will use the proceeds from the sale of the Series 2013 Bonds, together with other available funds, to (i) currently refund the Authority s outstanding $10,900,000 Continuing Care Community Revenue Bond Anticipation Notes (The Arlington of Naples Project), Series 2011 (the Series 2011 Notes ); (ii) pay off the Corporation s $19,490,000 Lutheran Church Extension Fund - Missouri Synod Promissory Note (the LCEF Promissory Note and, together with the Series 2011 Notes, the Prior Debt ); and (iii) finance and refinance the cost of (or reimburse itself and/or one or more of its affiliated corporations for prior expenditures for) all or a portion of: (a) the acquisition, construction, equipping and installation (and related development costs) of the capital expenditures related to a campus consisting of an estimated 163 independent living units (of which an estimated 31 will be villas), an estimated 79 assisted living units (of which an estimated 37 will be memory support units), and an estimated 44 skilled nursing beds along with associated common areas (collectively, the Project ), (b) capitalized interest during the construction period, (c) fund a debt service reserve fund with respect to each Series of the Series 2013 Bonds, and (d) costs of issuance related to the Series 2013 Bonds, all as permitted by the Act. See PLAN OF FINANCE and ESTIMATED SOURCES AND USES OF FUNDS. Security for the Series 2013 Bonds The Series 2013 Bonds will be issued pursuant to a resolution adopted on August 26, 2013 (the Resolution ) and pursuant to an Indenture of Trust dated as December 1, 2013 (the Bond Indenture ), by and between the Authority and Wells Fargo Bank, National Association, Chicago, Illinois, as bond trustee (the Bond Trustee ). The proceeds of the Series 2013 Bonds will be loaned to the Corporation pursuant to a Loan Agreement dated as of December 1, 2013 (the Loan Agreement ), by and between the Corporation and the Authority. The Series 2013A Bonds will be limited obligations of the Authority and will be secured by the Corporation s Note, Series 2013A (the Series 2013A Note ) in the aggregate principal amount of the Series 2013A Bonds and the Series 2013B Bonds will be limited obligations of the Authority and will be secured by the Corporation s Note, Series 2013B (the Series 2013B Note and, together with the Series 2013A Note the Series 2013 Notes ) in the aggregate principal amount of the Series 2013B Bonds. The Series 2013 Notes will be issued pursuant to the Master Trust Indenture dated as of December 1, 2013 (the Master Indenture ) between the Corporation, as the initial Member of an obligated group (the Obligated Group ), and Wells Fargo Bank, National Association, as master trustee (the Master Trustee ). Upon the issuance of the Series 2013 Bonds, the Series 2013 Notes will be the only Notes outstanding under the Master Indenture. Payment of the principal of and interest on the Series 2013 Bonds will be additionally secured by moneys deposited to the credit of the Debt Service Reserve Fund created under the Bond Indenture. See SECURITY FOR THE SERIES 2013 BONDS herein and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Bond Indenture Section 3.10 Use of Moneys in the Reserve Fund in APPENDIX C. Security for the Notes. Pursuant to a Mortgage and Security Agreement from the Corporation, as mortgagor, to the Master Trustee, as mortgagee, dated as of December 1, 2013 (the Mortgage ), the Corporation will grant the Master Trustee: (i) a first mortgage lien on certain real and personal property of the Corporation, (ii) a security interest in the fixtures located thereon and (iii) 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 ), in each case subject to Permitted Encumbrances, as security for the payment of the Series 2013 Notes and all -3-

40 other Notes hereafter issued under the Master Indenture. The Mortgaged Property does not include personal property of the Corporation other than materials incorporated into or to be incorporated into the building and fixtures comprising the Project. The Authority will pledge and assign the Series 2013 Notes and certain of its rights under the Loan Agreement to the Bond Trustee as security for the Series 2013 Bonds. The terms of the Series 2013 Notes will require payments by the Corporation and any future Member of the Obligated Group which will be sufficient to provide for the payment of the principal of and interest on the Series 2013 Bonds. The Series 2013 Notes will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Corporation and any future Member of the Obligated Group by the Master Indenture. The Master Indenture permits the Obligated Group to issue Additional Notes that will be secured under the Master Indenture. Each member of the Obligated Group will be jointly and severally obligated on all Notes (as defined below), including the Series 2013 Notes, which are issued pursuant to the Master Indenture. All Notes issued by the Members of the Obligated Group will be equally and ratably secured by (i) the Mortgage 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 2013 NOTES. Additional Notes and Additional Indebtedness. As of the date of issuance the Series 2013 Notes will be the only Notes Outstanding under the Master Indenture. The Master Indenture permits the Obligated Group to issue Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Note issued under the Master Indenture. In certain circumstances, the Obligated Group may issue Additional Notes under the Master Indenture to the Authority or to persons other than the Authority that will not be pledged under the Bond Indenture but will be equally and ratably (except as described therein) secured with the Series 2013 Notes. Under the terms of the Master Indenture, Additional Notes may also be entitled to the benefit of security in addition to that securing the Notes outstanding under the Master Indenture (including the Series 2013 Notes). See SECURITY FOR THE SERIES 2013 NOTES Additional Indebtedness. The Series 2013 Notes and any Additional Notes to be issued by the Obligated Group under the Master Indenture (whether or not pledged under the Bond Indenture or any Related Bond Indenture) are collectively referred to herein as the Notes. Limitations on Investors and Restrictions on Transfer The purchase of the Series 2013 Bonds involves a significant degree of risk. The eligibility to purchase, and the ability to subsequently sell or transfer, the Series 2013 Bonds is limited to qualified institutional buyers as defined under Rule 144A or accredited investors as defined under Rule 501 of Regulation D of the Securities Act of 1933 until the Corporation applies for and receives a rating on the Series 2013 Bonds of at least BBB/Baa3 or equivalent from any Rating Agency, if ever. See THE SERIES 2013 BONDS Limitations on Investors and Restrictions on Transfer herein. PLAN OF FINANCE The Corporation will use the proceeds from the sale of the Series 2013 Bonds, together with other available funds, to (i) currently refund the Series 2011 Notes; (ii) pay off the LCEF Promissory Note; and (iii) finance and refinance the cost of (or reimburse itself and/or one or more of its affiliated corporations for prior expenditures for) all or a portion of: (a) the acquisition, construction, equipping and installation (and related development costs) of the capital expenditures related to the Project, (b) -4-

41 capitalized interest during the construction period, (c) fund a debt service reserve fund with respect to each series of the Series 2013 Bonds, and (d) costs of issuance related to the Series 2013 Bonds, all as permitted by the Act. See ESTIMATED SOURCES AND USES OF FUNDS. The Refunding The Series 2011 Notes were issued and remain outstanding in an aggregate principal amount of $10,900,000 pursuant to a Trust Indenture dated as of June 1, 2011 between the Authority and Wells Fargo Bank, National Association, as bond trustee. The proceeds of the Series 2011 Notes were loaned to the Corporation to finance a portion of the pre-construction development costs of the Project. The Series 2011 Notes will be repaid upon the closing of the Series 2013 Bonds, in an amount equal to the accreted value thereof as of such date. The LCEF Promissory Note is outstanding in the amount of $19,490,000. The LCEF Promissory Note secures a loan made to the Corporation by the Lutheran Church Extension Fund - Missouri Synod, the proceeds of which were used to purchase and develop the land on which the Project will be located. LLM has and continues to provide funds to aid in pre-construction development cost of the Project in amounts anticipated to reach $17.8 Million by the closing of the Series 2013 Bonds. Of these amounts, it is anticipated that $2,424,000 will be treated as an investment of LLM, $6,509,000 will be treated as a loan from LLM to the Corporation and secured by a note (the Deferred Note Payable ) subject to the repayment limitations described herein under the heading SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness, and the balance will be repaid to LLM from proceeds of the Series 2013 Bonds. At closing, a portion of the proceeds of the Series 2013 Bonds will be used to currently repay all of the Prior Debt outstanding at a redemption price of par plus accrued interest. The Project The Project is a senior living continuing care retirement community (the Community ) planned to be developed on 39 acres in the Lely Resort Community in Naples, Florida. Management of the Corporation anticipates that the Project, once constructed, will consist of approximately 132 independent living apartments, 31 independent living villas (the Villas ), 42 assisted living units, 37 memory support units, and 44 skilled nursing beds. The Project will include a number of common areas including a small theater, a game room, a fitness center, an aquatic center, a woodworking shop, and multiple dining facilities. The Project s main structure is anticipated to be a one and three story commons and healthcare facility and a six story independent living apartment building. The commons and independent living apartment facilities are built above structured parking. The construction is anticipated to be concrete slab, metal frame and stud construction with stucco, stone/brick, and composite siding exterior finishes. For a more complete description of the Project see THE PROJECT in APPENDIX A. The Authority 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. -5-

42 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds are as follows: SOURCES OF FUNDS Series 2013A Bonds $128,295,000 Series 2013B-1 Bonds 12,000,000 Series 2013B-2 Bonds 50,000,000 Deferred Note Payable 6,509,000 Equity Contribution 2,424,000 Sales Office Property Mortgage 970,000 Entrance Fees (1) 19,750,000 Original Issue Discount (1,928,255) Total Sources of Funds $218,019,745 USES OF FUNDS Project Fund Deposit $111,962,664 Pay off LCEF Promissory Note 21,137,749 Redeem Series 2011 Notes 15,394,347 Funded Interest (2) 27,698,866 Debt Service Reserve Fund - Series 2013A 11,409,525 Debt Service Reserve Fund - Series 2013B-1 825,000 Debt Service Reserve Fund - Series 2013B-2 3,250,000 Working Capital Fund (3) 12,250,000 Operating Reserve Fund 5,000,000 Statutory Reserve Account (4) 4,500,000 Costs of Issuance (5) 4,591,594 Total Uses of Funds $218,019,745 Totals may not foot due to rounding (1) To be received after the completion of the Project throughout the fill-up period as residents move into the community. These entrance fees will be deposited into the Working Capital Fund, Operating Reserve Fund, and Statutory Reserve Accounts. See PRIORITY OF DRAWINGS FROM VARIOUS FUNDS Expected Priority of Draws Upon Various Reserves and Funds (In the Event of a Funding Shortfall) herein. (2) Represents interest on the portion of the Series 2013 Bonds related to the Project for approximately 24 months. (3) Upon the issuance of the Series 2013 Bonds, funded with $2,000,000 from funds provided by LLM. Subsequently will be funded from Entrance Fees to be received after the completion of the Project. (4) The Statutory Reserve Requirements are estimated to be met by the following of: $920,000 in the Debt Reserve Escrow Account, $1,790,000 in the Operating Reserve Escrow Account, and $1,790,000 in the Renewal and Replacement Escrow Account. (5) Includes Underwriter's discount, legal, accounting, administrative, and miscellaneous fees and expenses. No more than 2% of the proceeds of the Series 2013 Bonds will be used to pay costs of issuance. -6-

43 ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth the amounts required for the payment of principal of the Series 2013 Bonds. Upon issuance, the debt related to the Series 2013 Bonds constitute the Obligated Group s only Outstanding Notes. Bond Year Ending May 15 The Series 2013A Bonds The Series 2013B-1 Bonds (1) The Series 2013B-2 Bonds (1) Principal Interest Principal Interest Principal Interest Total Long-Term Debt Service 2014 $3,634,154 $291,042 $1,146,528 $5,071, ,301, ,000 3,250,000 14,376, ,301, ,000 3,250,000 14,376, ,301,538 $9,375, ,523 $50,000,000 2,437,500 72,887, ,301,538 2,625,000 45,117 12,971, ,301,538 10,301, $1,105,000 10,301,538 11,406, ,185,000 10,224,188 11,409, ,265,000 10,141,238 11,406, ,355,000 10,052,688 11,407, ,450,000 9,957,838 11,407, ,550,000 9,856,338 11,406, ,665,000 9,743,963 11,408, ,785,000 9,623,250 11,408, ,920,000 9,484,913 11,404, ,070,000 9,336,113 11,406, ,230,000 9,175,688 11,405, ,405,000 9,002,863 11,407, ,590,000 8,816,475 11,406, ,790,000 8,615,750 11,405, ,010,000 8,399,525 11,409, ,240,000 8,166,250 11,406, ,490,000 7,915,150 11,405, ,770,000 7,634,700 11,404, ,075,000 7,331,525 11,406, ,405,000 7,000,431 11,405, ,765,000 6,642,525 11,407, ,150,000 6,255,369 11,405, ,570,000 5,836,931 11,406, ,025,000 5,384,369 11,409, ,510,000 4,894,838 11,404, ,040,000 4,365,900 11,405, ,620,000 3,785,100 11,405, ,250,000 3,156,450 11,406, ,930,000 2,475,825 11,405, ,080,000 1,739,100 22,819,100 Total $128,295,000 $280,458,666 $12,000,000 $2,759,682 $50,000,000 $10,084,028 $483,597,376 Totals may not foot due to rounding. (1) The Series 2013B-2 and Series 2013B-1 Bonds mature on May 15, 2020 and May 15, 2021, respectively, and are not subject to mandatory bond sinking fund redemption. The Corporation anticipates redeeming the Series 2013B-2 and Series 2013B-1 Bonds in full from entrance fees by February 15, 2017 and August 15, 2017, respectively. See THE SERIES 2013 BONDS Mandatory Redemption of the Series 2013B Bonds from Entrance Fees. The actual timing of the prepayment of the Series 2013B Bonds may differ from the assumed timing because of timing differences in the receipt of entrance fees. For further information about expected presales and fill-up of the Project, see APPENDIX A MARKETING Reservation of Independent Living Units and APPENDIX B FINANCIAL FEASIBILITY STUDY Summary of Revenue and Entrance Fee Assumptions Table 39. Also see SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Entrance Fees Fund below. -7-

44 THE SERIES 2013 BONDS The Series 2013 Bonds will be issued pursuant to the Bond Indenture and the proceeds of the Series 2013 Bonds will be loaned to the Corporation pursuant to the Loan Agreement. Contemporaneously with the issuance of the Series 2013 Bonds and to secure repayment of the loan made by the Authority to the Corporation under the Loan Agreement, the Corporation will issue and deliver to the Authority the Series 2013 Notes. General Description The Series 2013 Bonds will be issued only in fully registered form in denominations of $100,000 or any integral multiple of $5,000 in excess thereof ( Authorized Denominations ). The Series 2013 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 cover page of this Limited Offering Statement. The Series 2013 Bonds will bear interest from their dated date, payable on May 15 and November 15 (the Series 2013 Interest Payment Dates ) of each year, commencing May 15, The Series 2013 Bonds, as initially issued, will be dated their date of issuance. Except as described in the next sentence, subsequently issued Series 2013 Bonds will be dated as of the later of their date of issuance or the most recent preceding Series 2013 Interest Payment Date to which interest has been paid thereon. Series 2013 Bonds issued on a Series 2013 Interest Payment Date to which interest has been paid will be dated as of such date. The Series 2013 Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). DTC will act as securities depository (the Securities Depository ) for the Series 2013 Bonds. So long as Cede & Co. is the registered owner, the Bond Trustee will pay such principal of and redemption price, if any, and interest on the Series 2013 Bonds to DTC, which will remit such principal, redemption price, if any, and interest to the Beneficial Owners (as hereinafter defined) of the Series 2013 Bonds, as described under the heading BOOK-ENTRY SYSTEM herein. Individual purchases of interests in the Series 2013 Bonds will be made in book-entry form only, in Authorized Denominations. Purchasers of such interests will not receive certificates representing their interest in the Series 2013 Bonds. For a description of the method of payment of principal, premium, if any, redemption price, if any, and interest on the Series 2013 Bonds and matters pertaining to transfers and exchanges while in the book-entry only system, see the information herein under the heading BOOK-ENTRY SYSTEM. In the event the book-entry only system is discontinued, the following provisions would apply. The principal of, premium, if any, and interest on the Series 2013 Bonds shall be payable in any currency of the United States of America which, at the respective dates of payment thereof, is legal tender for the payment of public and private debts. The principal and premium, if any, and interest on the Series 2013 Bonds at maturity or upon redemption shall be payable upon surrender of such Series 2013 Bonds (i) at the designated corporate trust office of the Bond Trustee, initially in Chicago, Illinois, or its agent or successor as Bond Trustee, or at the office of any alternate Paying Agent, if any, named in any such Series 2013 Bond or (ii) as to any registered owner of $1,000,000 or more in aggregate principal amount of Series 2013 Bonds who so elects by wire transfer of funds to such wire transfer address within the continental United States as such registered owner shall have furnished to the Bond Trustee in writing on or prior to the Record Date and upon compliance with the reasonable requirements of the Bond Trustee. Except as provided below with respect to Defaulted Interest, payment of the interest on the Series 2013 Bonds shall be made to the person appearing on the Bond Register as the registered owner at the close of business of the Bond Trustee on the Record Date for such interest payment and shall be paid (i) by check or draft mailed to such registered owner on the applicable Interest Payment Date at such owner s address as it appears on the Bond Register or at such other address as is furnished to the Bond Trustee in writing 8

45 by the applicable Record Date by such owner, or (ii) as to any registered owner of $1,000,000 or more in aggregate principal amount of Series 2013 Bonds who so elects, by wire transfer of funds to such wire transfer address within the continental United States as such registered owner shall have furnished to the Bond Trustee in writing by the Record Date and upon compliance with the reasonable requirements of the Bond Trustee. The Record Date means the May 1 or November 1 (whether or not a Business Day) next preceding an Interest Payment Date. In the event of default in the payment of interest due on such Interest Payment Date, defaulted interest will be payable to the person in whose name such Series 2013 Bond is registered at the close of business on a special record date established by the Bond Trustee which special record date must not be more than 15 days nor less than 10 days preceding the date of the proposed payment and not less than 10 days after the receipt by the Bond Trustee of the notice of the proposed payment (the Special Record Date ). The Bond Trustee is required to cause notice of the proposed payment to be delivered to each registered owner of Series 2013 Bonds, as of the Special Record Date, not less than 10 days prior to such Special Record Date. Optional and Mandatory Redemption of the Series 2013A Bonds The Series 2013A Bonds will be subject to optional and mandatory redemption, all as described below. Optional Redemption. The Series 2013A Bonds maturing on May 15, 2026, 2035, 2037, 2044 and 2049 are subject to optional redemption prior to maturity on or after May 15, Each such redemption shall be at the option of the Authority upon direction of the Corporation out of amounts prepaid on the Series 2013A Obligation and deposited in the Optional Redemption Fund established under the Bond Indenture, in whole or in part at any time, and if in part by maturities or portions thereof designated by the Corporation (less than all of a maturity to be randomly selected utilizing such method as may be designated by the Bond Trustee), at a redemption price equal to 100% of the principal amount thereof plus accrued interest thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Series 2013A Bonds maturing on May 15, 2024 are subject to mandatory bond sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date, without premium, as follows: Series 2013 Bonds Maturing on May 15, 2024 Redemption Date (May 15 of the year) Principal Amount 2020 $1,105, ,185, ,265, ,355, ,450,000 Maturity. The Series 2013A Bonds maturing on May 15, 2026 are subject to mandatory bond sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date, without premium, as follows: -9-

46 Series 2013 Bonds Maturing on May 15, 2026 Redemption Date (May 15 of the year) Principal Amount 2025 $1,550, ,665,000 Maturity. The Series 2013A Bonds maturing on May 15, 2035 are subject to mandatory bond sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date, without premium, as follows: Series 2013 Bonds Maturing on May 15, 2035 Redemption Date (May 15 of the year) Principal Amount 2027 $1,785, ,920, ,070, ,230, ,405, ,590, ,790, ,010, ,240,000 Maturity. The Series 2013A Bonds maturing on May 15, 2037 are subject to mandatory bond sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date, without premium, as follows: Series 2013 Bonds Maturing on May 15, 2037 Redemption Date (May 15 of the year) Principal Amount 2036 $2,490, ,510,000 Maturity. The Series 2013A Bonds maturing on May 15, 2044 are subject to mandatory bond sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date, without premium, as follows: -10-

47 Series 2013 Bonds Maturing on May 15, 2044 Redemption Date (May 15 of the year) Principal Amount 2036 $1,000, ,260, ,075, ,405, ,765, ,150, ,570, ,025, ,510,000 Maturity. The Series 2013A Bonds maturing on May 15, 2049 are subject to mandatory bond sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date, without premium, as follows: Series 2013 Bonds Maturing on May 15, 2049 Redemption Date (May 15 of the year) Principal Amount 2045 $7,040, ,620, ,250, ,930, ,080,000 Maturity. At the option of the Corporation to be exercised by delivery of a written certificate to the Bond Trustee on or before the forty-fifth day next preceding any sinking fund redemption date, it may (i) deliver to the Bond Trustee for cancellation Series 2013A Bonds or portions thereof of the same maturity, in an aggregate principal amount desired by the Corporation, or (ii) specify a principal amount of Series 2013A Bonds or portions thereof of the same maturity, which prior to said date have been redeemed (otherwise than through the operation of the sinking fund) and canceled by the Bond Trustee at the request of the Corporation and not theretofore applied as a credit against any sinking fund redemption obligation. Optional and Mandatory Redemption of the Series 2013B Bonds Optional Redemption. The Series 2013B-1 Bonds are subject to optional redemption prior to maturity by the Issuer at the direction of the Corporation in whole or in part on November 15, 2015 or on any date thereafter, at the redemption price equal to the principal amount of such Series 2013B-1 Bonds to be redeemed, together with accrued interest to the redemption date. The Series 2013B- 2 Bonds are subject to optional redemption prior to maturity by the Issuer at the direction of the Corporation in whole or in part on May 15, 2015 or on any date thereafter, at the redemption price equal -11-

48 to the principal amount of such Series 2013B-2 Bonds to be redeemed, together with accrued interest to the redemption date. Mandatory Redemption of the Series 2013B Bonds from Entrance Fees. On or after May 15, 2015, and to the extent that moneys are on deposit in the Entrance Fee Redemption Account on the day following any Entrance Fee Transfer Date, the Series 2013B Bonds are subject to mandatory redemption on the next following Entrance Fee Redemption Date at a redemption price equal to the principal amount thereof plus accrued interest to such redemption date. The principal amount of the Series 2013B-2 Bonds and the Series 2013B-1 Bonds to be redeemed on an Entrance Fee Redemption Date shall be equal to the largest Authorized Denomination of Bonds of the applicable series for which the redemption price thereof is on deposit in the Entrance Fee Redemption Account on the day following the immediately preceding Entrance Fee Transfer Date. As soon as practicable after each Entrance Fee Redemption Date, the Bond Trustee shall give notice to the Master Trustee of the principal amount of the Series 2013B-2 Bonds and the 2013B-1 Bonds redeemed on such date, together with the principal amount of the Series 2013B-2 Bonds and the Series 2013B-1 Bonds that remains Outstanding after such redemption. Notwithstanding the foregoing, the Series 2013B-2 Bonds shall be redeemed first and then the Series 2013B-1 Bonds shall be redeemed. Additional Redemption Provisions Extraordinary Optional Redemption. The Series 2013 Bonds are subject to optional redemption by the Authority at the written direction of the Corporation prior to their scheduled maturities in whole or in part (proportionally among each series) at a redemption price equal to the principal amount thereof plus accrued interest thereon to the redemption date (i) in case of damage or destruction to, or condemnation of, any property, plant, and equipment of any Obligated Group Member, to the extent that the net proceeds of insurance or condemnation award exceed the Threshold Amount and the Corporation has determined not to use such net proceeds or award to repair, rebuild or replace such property, plant, and equipment, or (ii) as a result of any changes in the Constitution or laws of the State of Florida or of the United States of America or of any legislative, executive, or administrative action (whether state or federal) or of any final decree, judgment, or order of any court or administrative body (whether state or federal), the obligations of the Corporation under the Loan Agreement have become, as established by an Opinion of Counsel, void or unenforceable in each case in any material respect in accordance with the intent and purpose of the parties as expressed in the Loan Agreement. Selection for Redemption. In the event that less than all of the Outstanding Series 2013 Bonds or portions thereof are to be optionally redeemed, the Series 2013 Bonds to be redeemed shall be selected first, from any Outstanding Series 2013B-2 Bonds, then from any Outstanding Series 2013B-1 Bonds and then from any Outstanding Series 2013A Bonds. In the event that less than all of the Outstanding Series 2013 Bonds or portions thereof of a particular series are to be optionally redeemed, the Corporation may select the particular maturities of such series to be redeemed. If less than all Series 2013 Bonds or portions thereof of a single maturity are to be redeemed, they shall be selected by the Securities Depository or by lot in such manner as the Bond Trustee may determine. If a Series 2013 Bond is of a denomination larger than the minimum Authorized Denomination, a portion of such Series 2013 Bond may be redeemed, but Series 2013 Bonds shall be redeemed only in the principal amount of an Authorized Denomination and no Series 2013 Bond may be redeemed in part if the principal amount to be Outstanding following such partial redemption is not an Authorized Denomination. -12-

49 Notice of Redemption; Effect. In case of every redemption, the Bond Trustee will cause notice of such redemption to be given by mailing by first class mail, postage prepaid, a copy of the redemption notice to the owners of the Series 2013 Bonds designated for redemption in whole or in part, at their addresses as the same will last appear upon the registration books, in each case not more than 60 nor less than 30 days prior to the redemption date. In addition, notice of redemption will be sent by first class or registered mail, return receipt requested, or by overnight delivery service (1) contemporaneously with such mailing: (A) to any owner of $1,000,000 or more in principal amount of the Series 2013 Bonds, and (B) to at least two or more information services of national recognition that disseminate redemption information with respect to municipal bonds; and (2) to any securities depository registered as such pursuant to the Securities Exchange Act of 1934, as amended, that is an owner of the Series 2013 Bonds to be redeemed so that such notice is received at least two days prior to such mailing date. An additional notice of redemption will be given by certified mail, postage prepaid, mailed not less than 60 nor more than 90 days after the redemption date to any owner of the Series 2013 Bonds selected for redemption that has not surrendered the Series 2013 Bonds called for redemption, at the address as the same will last appear upon the registration books. Failure to give any such notice, or any defect therein, will not affect the validity of any proceedings for the redemption of such Series 2013 Bonds. Purchase In Lieu of Redemption. In lieu of an optional redemption and cancellation of Series 2013 Bonds, Series 2013 Bonds may be purchased by the Bond Trustee on behalf of the Authority at the written direction of the Corporation and cancelled. The written direction of the Corporation shall be accompanied by an Opinion of Bond Counsel to the effect that such purchase will not adversely affect the exclusion from gross income for federal income tax purposes of interest on such Series 2013 Bonds or any other Outstanding Series 2013 Bonds. Selection of the Series 2013 Bonds being purchased shall be by lot in such manner as the Bond Trustee may determine. Notice of Series 2013 Bonds being purchased shall be given in the same manner as the notice of Series 2013 Bonds called for optional redemption; provided, that the notice shall be modified as necessary to reflect a purchase in lieu of redemption. Exchange and Transfer The Authority shall cause books for the registration and for the transfer of the Series 2013 Bonds as provided in the Bond Indenture to be kept by the Bond Trustee which was appointed as bond registrar of the Authority for the Series 2013 Bonds. Upon surrender for transfer of any fully registered Series 2013 Bond at the Payment Office of the Bond Trustee, duly endorsed for transfer or accomplished by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, the Authority shall execute and the Bond Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Series 2013 Bond or Bonds of a like Aggregate Principal Amount for a like principal amount and maturity. The Authority shall execute and the Bond Trustee shall authenticate and deliver Series 2013 Bonds which the Bondholder making the exchange is entitled to receive, bearing numbers not contemporaneously Outstanding. The execution by the Authority of any fully registered Series 2013 Bond of any denomination shall constitute full and due authorization of such denomination and the Bond Trustee shall thereby be authorized to authenticate and deliver such Series 2013 Bond. The Bond Trustee shall not be required to transfer or exchange any Series 2013 Bond after the mailing of notice calling such Series 2013 Bond or any portion thereof for redemption has been given as provided in the Bond Indenture, nor during the period beginning at the opening of business fifteen days before the day of mailing by the Bond Trustee of a notice of prior redemption and ending at -13-

50 the close of business on the day of such mailing except for Bondholders of $1,000,000 or more in aggregate principal amount of the Series 2013 Bonds. As to any Series 2013 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 principal of or interest on any Series 2013 Bond shall be made only to or upon the written order of the Registered Owner thereof or his legal representative, but such registration may be changed as hereinabove provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Series 2013 Bond to the extent of the sum or sums paid. The Bond Trustee shall require the payment by any Bondholder requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. Limitations on Investors and Restrictions on Transfer Although the Series 2013 Bonds are not being issued under, and shall not be deemed to be issued under, Rule 144A of the Securities Act of 1933, as amended, the Authority requires that the initial investors in the Series 2013 Bonds, and any subsequent purchasers be either qualified institutional buyers as defined in Rule 144A or accredited investors as defined under Rule 501 of Regulation D of the Securities Act of 1933 until the Corporation applies for and receives a rating on the Series 2013 Bonds of at least BBB/Baa3 or equivalent from any Rating Agency, if ever. The Authority may remove such limitation without prior notice to or consent of any owner of a Series 2013 Bond. Advance Refunding of the Series 2013 Bonds All or any portion of the Series 2013 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 2013 Bonds. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Bond Indenture Defeasance in APPENDIX C. SECURITY FOR THE SERIES 2013 BONDS The Series 2013 Bonds will be limited obligations of the Authority and will be payable solely from (i) payments or prepayments on the Series 2013 Notes, as applicable; (ii) payments or prepayments made under the Loan Agreement (other than payments with respect to Unassigned Rights); (iii) monies held by the Bond Trustee under, and to the extent provided in, the Bond Indenture; (iv) in certain circumstances, proceeds from insurance and condemnation awards or proceeds of sales made under the threat of condemnation; and (v) income from the temporary investment of any of the foregoing. Certain investment earnings on monies held by the Bond Trustee may be transferred to a Rebate Fund established pursuant to a Tax Exemption Agreement. Amounts held in such Rebate Fund will not be part of the trust estate pledged to secure the Series 2013 Bonds, and consequently will not be available to make payments on the Series 2013 Bonds. The Loan Agreement will provide that the Corporation shall make designated payments to the Bond Trustee in amounts sufficient to pay the principal of, premium, if any, and interest on the Series 2013 Bonds when due. The Corporation s obligation to make payments on the Series 2013 Notes 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 Authority and the owners of the Series 2013 Bonds. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Loan Agreement in APPENDIX C. -14-

51 The rights of the Authority in and to the Series 2013 Notes and the amounts payable thereon and the amounts payable to the Authority under the Loan Agreement (other than payments with respect to Unassigned Rights) will be assigned to the Bond Trustee under the Bond Indenture to provide for and to secure the payment of principal of, premium, if any, and interest on the Series 2013 Bonds. The Corporation agrees under the Loan Agreement to make payments on the Series 2013 Notes pledged under the Bond Indenture directly to the Bond Trustee. See SECURITY FOR THE SERIES 2013 NOTES General below. Pursuant to the Bond Indenture, a Debt Service Reserve Fund (the Debt Service Reserve Fund ) will be established and held by the Bond Trustee with subaccounts for the benefit of each series of the Series 2013 Bonds (each, a Reserve Account ). At the time of issuance of the Series 2013 Bonds, $11,409,525 will be deposited into the Reserve Account for the Series 2013A Bonds and $4,075,000 will be deposited into the Reserve Account for the Series 2013B Bonds. Monies in each Reserve Account will be maintained in an amount equal to the related Reserve Fund Requirement, as defined in DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Definitions of Certain Terms in APPENDIX C hereto. Monies on deposit in the Debt Service Reserve Fund will be used by the Bond Trustee whenever, and to the extent that, monies on deposit in the Funded Interest Account and the Bond Fund are insufficient for the purpose of paying interest on or principal of the related Series 2013 Bonds as the same becomes due whether on an interest payment date, redemption date, maturity date, acceleration date or otherwise. Money on deposit in the Debt Service Reserve Fund shall be invested in Permitted Investments. Permitted Investments deposited in the Debt Service Reserve Fund shall be valued on April 30 (the Valuation Date ) of each year on the basis of fair market value. If on any Valuation Date, the amount on deposit in any Reserve Account of the Debt Service Reserve Fund is less than 90% of the related Reserve Fund Requirement as a result of a decline in the market value of investments on deposit in the Reserve Account, the Corporation shall deposit with the Bond Trustee an amount necessary to restore such Reserve Account to the related Reserve Fund Requirement within 120 days following the date on which the Corporation receives notice of such deficiency. If at any time, the amount on deposit in any Reserve Account is less than 100% of the related Reserve Fund Requirement as a result of a draw on such Reserve Account, the Corporation shall deposit with the Bond Trustee an amount necessary to restore such Reserve Account to the related Reserve Fund Requirement in not more than 12 substantially equal monthly installments beginning on the first day of the seventh month after the month in which such draw occurred. For more information concerning the Debt Service Reserve Fund, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Bond Indenture Section 3.10 Use of Moneys in the Reserve Fund in APPENDIX C. THE SERIES 2013 BONDS AND THE OBLIGATION TO PAY THE PRINCIPAL THEREOF AND INTEREST THEREON DO NOT NOW AND SHALL NEVER CONSTITUTE AN INDEBTEDNESS OR AN OBLIGATION OF THE AUTHORITY, THE STATE, COLLIER COUNTY, FLORIDA OR ANY OTHER POLITICAL SUBDIVISION THEREOF, WITHIN THE PURVIEW OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR PROVISION, OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS, IF ANY, OF ANY OF THEM, BUT SHALL BE SECURED AS AFORESAID, AND SHALL BE PAYABLE SOLELY FROM THE REVENUES AND INCOME DERIVED FROM THE LOAN AGREEMENT (EXCEPT AS STATED AFORESAID). NO OWNER OF THE SERIES 2013 BONDS SHALL HAVE THE RIGHT TO -15-

52 COMPEL THE EXERCISE OF THE TAXING POWER, IF ANY, OF THE AUTHORITY, THE STATE, COLLIER COUNTY, FLORIDA OR ANY OTHER POLITICAL SUBDIVISION THEREOF TO PAY THE PRINCIPAL OF OR INTEREST ON THE SERIES 2013 BONDS. THE AUTHORITY HAS NO TAXING POWER. See also SECURITY FOR THE SERIES 2013 NOTES for information about additional security for the Series 2013 Bonds. BOOK-ENTRY SYSTEM The Depository Trust Company ( DTC ), New York, New York, will act as the depository for the Series 2013 Bonds. The Series 2013 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 2013 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 2.2 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. 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 2013 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2013 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2013 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are 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 2013 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 -16-

53 not receive certificates representing their ownership interests in the Series 2013 Bonds, except in the event that use of the book-entry system for the Series 2013 Bonds is discontinued. To facilitate subsequent transfers, all Series 2013 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 2013 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 2013 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2013 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2013 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2013 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2013 bond documents. For example, Beneficial Owners of Series 2013 Bonds may wish to ascertain that the nominee holding the Series 2013 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2013 Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2013 Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the Record Date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those DTC Participants to whose accounts the Series 2013 Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy ). Principal and interest payments on the Series 2013 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 the Authority, on payable date in accordance with their respective holdings shown on DTC s records. Payments by DTC 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 the Authority, 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 the Authority. 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. THE INFORMATION PROVIDED ABOVE HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE AUTHORITY, THE CORPORATION OR THE UNDERWRITER AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION -17-

54 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 2013 Bonds are registered in the name of DTC or its nominee, Cede & Co., the Authority and the Bond Trustee will recognize only DTC or its nominee, Cede & Co., as the registered owner of the Series 2013 Bonds for all purposes, including payments, notices and voting. Under the Bond Indenture, payments made by the Bond Trustee to DTC or its nominee will satisfy the Authority s obligations under the Bond Indenture and the Corporation s obligations under the Loan Agreement and on the Series 2013 Notes, to the extent of the payments so made. None of the Authority, 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 DTC Participant or Indirect Participant with respect to any beneficial ownership interest in any Series 2013 Bond, (ii) the delivery to any DTC Participant or Indirect Participant or any other Person, other than an owner, as shown in the Bond Register, of any notice with respect to any Series 2013 Bond 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 2013 Bond, (iii) the payment of any DTC Participant or Indirect Participant or any other Person, other than an owner, as shown in the Bond Register, of any amount with respect to the principal of, premium, if any, or interest on, or the purchase price of, any Series 2013 Bond or (iv) any consent given by DTC as registered owner. Prior to any discontinuation of the book-entry only system described above, the Authority and the Bond Trustee may treat DTC as, and deem DTC to be, the absolute owner of the Series 2013 Bonds for all purposes whatsoever, including, without limitation, (i) the payment of principal of, premium, if any, and interest on the Series 2013 Bonds, (ii) giving notices of redemption and other matters with respect to the Series 2013 Bonds, (iii) registering transfers with respect to the Series 2013 Bonds and (iv) the selection of Series 2013 Bonds for redemption. General SECURITY FOR THE SERIES 2013 NOTES The Corporation s obligations under the Loan Agreement will be secured by the Series 2013 Notes which will be issued and secured under the Master Indenture. The Series 2013 Notes will entitle the Bond Trustee, as the holder of the Series 2013 Notes, to the protection and benefit of the covenants, restrictions and other obligations imposed on the Obligated Group by the Master Indenture. The Master Indenture provides that payments on the Series 2013 Notes and any Additional Notes issued under the Master Indenture will be the joint and several obligations of the Corporation and any future Members of the Obligated Group. The accounts of the Corporation and any future Members 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. All Notes issued under the Master Indenture, including the Series 2013 Notes, will be secured by the Mortgage. The Mortgage grants a security interest in the Mortgaged Property, subject only to Permitted Encumbrances. The Mortgaged Property includes all of the Facilities in which the principal operations of the Corporation are located, including the Community. See DEFINITIONS OF -18-

55 CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Mortgage in APPENDIX C. The Corporation has previously delivered or will deliver a mortgagee title insurance policy or policies for the Mortgaged Property, with the Master Trustee being the named insured. The title policies will provide title insurance in an aggregate amount at least equal to the initial aggregate principal amount of the Series 2013 Bonds. The Notes, including the Series 2013 Notes, will also be secured by a security interest in the Gross Revenues of the Corporation, subject only to Permitted Encumbrances. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Definitions of Certain Terms Gross Revenues in APPENDIX C. 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, Federal Subsidy Payments 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, (b) proceeds received from (i) accounts, (ii) securities and other investments, (iii) inventory and other tangible and intangible property, and (iv) accounts receivable, general intangibles, contract rights, chattel paper, instruments and other rights and assets now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (c) 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) all such items, whether now owned or hereafter acquired by the Obligated Group Members, which by their terms or by reason of applicable law cannot be granted, assigned or pledged under the Master Indenture or which would become void or voidable if granted, assigned or pledged under the Master Indenture by the Obligated Group Members, or which cannot be granted, pledged or assigned under the Master Indenture without the consent of other parties whose consent is not secured, or without subjecting the Master Trustee to a liability not otherwise contemplated by the provisions of the Master Indenture, or which otherwise may not be, or are not, hereby lawfully and effectively granted, pledged and assigned by the Obligated Group Members, (ii) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (iii) 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 of payments required under the Master Trust Indenture, (iv) 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, (v) all deposits made pursuant to Residency Agreements to be held in escrow pursuant to Chapter 651, Florida Statutes, until construction of the Facilities is completed, a certificate of occupancy has been issued and appropriate licenses, if required, have been issued, and (vi) all deposits and/or advance payments made in connection with any leases of the Independent Living Units and received prior to receipt of such certificate and licenses. -19-

56 Additional Indebtedness As of the date of issuance of the Series 2013 Bonds, the Series 2013 Notes will be the only Notes Outstanding under the Master Indenture. The Master Indenture permits the Obligated Group to issue Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Note issued under the Master Indenture. 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 Note issued under the Master Indenture. Under certain conditions specified therein, the Master Indenture will permit the Members of the Obligated Group to issue Additional Notes that will not be pledged under the Bond Indenture, but will be equally and ratably secured by the Master Indenture with the Series 2013 Notes. In addition, the Master Indenture will permit such Additional Notes to be secured by security (including Liens on the Property, including life care facilities, of the Members 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 Notes (including the Series 2013 Notes). See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.19 Liens on Property and Section 4.16 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 term longer than the actual term of such Indebtedness 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 DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.17 Calculation of Debt Service and Debt Service Coverage in APPENDIX C. Amendments to the Master Indenture The Master Indenture provides that certain amendments may be made to the Master Indenture with the consent of the holders of not less than a majority in aggregate principal amount of the Notes which are Outstanding under the Master Indenture. Such amendments may be material and the Note holders providing the requisite consents to such amendments may be comprised entirely of the owners of Additional Notes. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 9.02 Supplements with Consent of Holders of Obligations in APPENDIX C. Certain Master Indenture Covenants of the Obligated Group For the definitions of certain words and terms used in this section, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Definitions of Certain Terms in APPENDIX C. Rate Covenant. The Corporation and each future Member of the Obligated Group covenant and agree in the Master Indenture to operate all of their Facilities on a revenue-producing basis and to charge such fees and rates for their Facilities and services and to exercise such skill and diligence, including obtaining payment for services provided, as to provide income from its Property together with other available funds sufficient to pay promptly all payments of principal and interest on its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be -20-

57 made by it under the Master Indenture to the extent permitted by law. Each Member further covenants and agrees that they will from time to time as often as necessary and to the extent permitted by law, revise their rates, fees and charges in such manner as may be necessary or proper to comply with the covenant described under this heading. In accordance with the Master Indenture, the Obligated Group Representative will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year commencing with the earlier of (a) Stable Occupancy or (b) the Fiscal Year ending June 30, 2020 (the Initial Testing Period ) and will deliver a copy of such calculation to the persons to whom such report is required to be delivered under the Master Indenture. If the Historical Debt Service Coverage Ratio of the Obligated Group is less than (i) for the Initial Testing Period, a Historical Debt Service Coverage Ratio of 1.10:1 or (ii) for each Fiscal Year thereafter, a Historical Debt Service Coverage Ratio of 1.20:1 (the Annual Debt Service Coverage Requirement ), the Master Trustee shall require the Obligated Group Representative, at the Obligated Group s expense, to select a Consultant within 30 days following such calculation 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 foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the Annual Debt Service Coverage Requirement for such Fiscal Year, the Master Trustee shall not be obligated to require the Obligated Group to select 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 containing 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 such requirement, and, such report is accompanied by a concurring opinion of Independent Counsel 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 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 a Historical Debt Service Coverage Ratio equal to the Annual Debt Service Coverage Requirement for any Fiscal Year, such failure 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 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 Representative) and permitted by law. Commencing with the Initial Testing Period, if the Obligated Group fails to achieve a 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. The Consultants selected as described in this heading shall be approved and selected as summarized below and in APPENDIX C DEFINITIONS OF CERTAIN TERMS AND -21-

58 EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.27 Approval of Consultants. A copy of the Consultant s report and recommendations, if any, shall be filed with each Member and each Required Information Recipient within 60 days of actual engagement of any such 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 the Obligated Group Representative) and permitted by law. This covenant 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 summarized in this section. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.11 Rates and Charges in APPENDIX C for more detail. Liquidity Covenant. The Obligated Group covenants that it will calculate the Days Cash on Hand and/or Cash to Indebtedness Ratio of the Obligated Group as of June 30 and December 31 of each Fiscal Year, commencing June 30 of the Initial Testing Period (each such date being a Testing Date ). The Obligated Group shall deliver an Officer s Certificate setting forth such calculation as of December 31 to the Master Trustee no later than 45 days after such December 31 and include such calculation as of June 30 in the Officer s Certificate delivered pursuant to the Master Indenture and described under the heading FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting herein. The Corporation and each future Member of the Obligated Group are required to conduct their business so that on each Testing Date the Obligated Group shall have (a) a Cash to Indebtedness Ratio of (i) no less than 0.25:1 on each of the first two Testing Dates, (ii) no less than 0.275:1 for the next two following Testing Dates, and (iii) no less than 0.30:1 on each Testing Date thereafter; and (b) 180 Days Cash on Hand on each Testing Date (collectively, the Liquidity Requirement ). At the option of the Obligated Group Representative, the Liquidity Requirement can be changed to eliminate the Cash to Indebtedness Ratio if for three consecutive Fiscal Years the Obligated Group has reported (a) a Historical Debt Service Coverage Ratio of 1.40:1 or more, and (b) a Cash to Indebtedness Ratio of 0.30:1 or more on each Testing Date by making an election to do so in an Officer s Certificate. If the Cash to Indebtedness Ratio and/or the amount of the Days Cash on Hand, as applicable, as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Representative shall, within 30 days after delivery of the Officer s Certificate disclosing such deficiency, deliver an Officer s Certificate to the Master Trustee setting forth in reasonable 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 and/or Days Cash on Hand, as applicable, 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 next Testing Date immediately subsequent to the delivery of the Officer s Certificate required in the preceding paragraph, the Obligated Group Representative 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 and/or the number of Days Cash on Hand, as applicable, to the Liquidity Requirement for future periods. A copy of the Consultant s report and -22-

59 recommendations, if any, shall be filed with each Member and each Required Information Recipient within 60 days of actual engagement of any such Consultant. 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 such Obligated Group 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 in the reasonable judgment of the Governing Body of such Obligated Group Member) and permitted by law; provided, that failure to maintain at least 30 Days Cash on Hand for two consecutive Testing Dates shall constitute an Event of Default under the Master Trust Indenture. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.20 Liquidity Covenant in APPENDIX C for more detail. Marketing Covenant. Beginning with the fiscal quarter ending December 31, 2013 and ending with the first full fiscal quarter following the fiscal quarter in which the Stabilization Date occurs, the Obligated Group will use its best efforts to maintain the percentage of Entrance Fee Units which are Reserved (the Percentage of Reserved Entrance Fee Units ) at or above the applicable levels set forth in the tables below, which determinations shall be measured as of the last day of the applicable quarter (the Marketing Requirements ). The 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 below have not been satisfied or (ii) the Adjusted Level I Marketing Requirements if the Adjusted Level I Occupancy Requirements set forth under Occupancy Covenant below have been satisfied. -23-

60 Quarter Ending Percentage of Reserved Entrance Fee Units (%) Level I December 31, % March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, Occupancy Quarter Percentage of Reserved Entrance Fee Units (%) Adjusted Level I % If the Percentage of Reserved Entrance Fee Units for any fiscal quarter is less than the applicable Marketing Requirement set forth above for that fiscal quarter the Obligated Group Representative shall submit to the Master Trustee, within 30 days of the end of such fiscal quarter, a marketing report (a Management Marketing Report ) which includes the following information: (a) the Percentage of Reserved Entrance Fee Units, including the number of reservations and cancellations of Entrance Fee Units during the immediately preceding fiscal quarter and on an aggregate basis; (b) a forecast, prepared by management of the Obligated Group Representative, of the number of reservations of Entrance Fee Units expected in the fiscal quarter immediately succeeding the fiscal quarter with respect to which the Management Marketing Report is being prepared; and (c) a description of the sales and marketing plan of the Obligated Group Representative. If the Obligated Group fails to meet the Marketing Requirement for any two consecutive fiscal quarters, the Obligated Group Representative shall select a Consultant within 30 days thereafter to prepare a report which addresses the information identified in the Management Marketing Report described above and to make recommendations regarding the actions to be taken to increase the Percentage of Reserved Entrance Fee Units to at least the Marketing Requirements set forth herein for -24-

61 future periods. Within 60 days of actual engagement of any such Consultant, the Obligated Group Representative shall cause a copy of the Consultant s report and recommendations, if any, to be filed with each Member 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 for failing to meet a Marketing Requirement if such failure occurs within three (3) fiscal quarters of the failure that triggered the delivery of a prior Consultant s report addressing the information identified in the Management Marketing Report described above. 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 Management Marketing Report or obtaining a Consultant s report and adopting a plan and follows each recommendation contained in such Management Marketing Report or Consultant s report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Representative) and permitted by law. For information regarding the marketing covenant and remedies, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Marketing Covenants Section 4.21 Marketing Covenant in APPENDIX C. Occupancy Covenant. The Obligated Group covenants that for each fiscal quarter (a) commencing with the first fiscal quarter which ends not less than 60 days following the issuance of the first certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), and (b) ending with the first full fiscal quarter following the fiscal quarter in which the Stabilization Date occurs (each an Occupancy Quarter ), the Obligated Group will use its best efforts to have Occupied the percentage of the total number of all Entrance Fee Units (the Percentage of Units Occupied ) at or above the Level I Occupancy Requirements set forth below which levels shall be measured as of the last day of the applicable Occupancy Quarter (the Occupancy Requirements ): -25-

62 Adjusted Level I Occupancy Quarter Level I Occupancy Requirements (%) Occupancy Requirements (%) % 29.8% and thereafter 90.0 If 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 Representative shall within 30 days thereafter submit an Officer s Certificate 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 for future periods (a Corrective Occupancy Action Plan ). If the Percentage of Units Occupied for any two consecutive fiscal quarters is less than the Level I Occupancy Requirement set forth above for those fiscal quarters, the Obligated Group Representative shall select a Consultant within 30 days thereafter to prepare a report which addresses the information identified in the Corrective Occupancy Action Plan described above and 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 for future periods. Within 60 days of actual engagement of any such Consultant, the Obligated Group Representative shall cause a copy of the Consultant s report and recommendations, if any, to be filed with each Member 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 for failing to meet an Occupancy Requirement if such failure occurs within three (3) fiscal quarters of the failure that triggered the delivery of a prior Consultant s report addressing the information identified in the Corrective Occupancy Action Plan described above. 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 and for obtaining a Consultant s report and adopting a plan and follows each recommendation contained in such Corrective Occupancy Action Plan or Consultant s report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Representative) and permitted by law. -26-

63 For information regarding the occupancy covenant and remedies, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.22 Occupancy Covenant in APPENDIX C. Cumulative Cash Operating Loss Covenant. The Obligated Group covenants that during the period (a) commencing with (i) the first fiscal quarter ending after the Initial Occupancy Date if such date is more than 30 days prior to the end of such fiscal quarter or (ii) the first full fiscal quarter ending after the Initial Occupancy Date if such date is less than 30 days prior to the end of a fiscal quarter and (b) ending with the fiscal quarter immediately preceding the Initial Testing Period (Cumulative Cash Operating Loss is not required to be calculated for the Initial Testing Period), 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 ($4,000,000) ($3,200,000) 2 (6,000,000) (4,500,000) 3 (7,000,000) (4,900,000) 4 (7,500,000) (5,000,000) 5 (9,000,000) (6,100,000) 6 (10,000,000) (7,000,000) 7 (11,000,000) (7,800,000) 8 and thereafter (12,250,000) (8,200,000) (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. If, as of any testing date, the Cumulative Cash Operating Loss of the Obligated Group is greater than the amounts required above, the Obligated Group Representative shall, within 30 days after receipt of the Officer s Certificate disclosing such deficiency, deliver an Officer s Certificate to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to achieve compliance for future periods. If, as of any two consecutive testing dates, the Cumulative Cash Operating Loss is greater than the levels set forth above required, the Obligated Group Representative shall, within 30 days after receipt 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 decrease Cumulative Cash Operating Loss to the required level for future periods. A copy of the Consultant s report and recommendations, if any, shall be filed with each Member and each Required Information Recipient within 60 days of actual engagement of any such Consultant. 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. The Obligated Group shall not be required to obtain a Consultant s report for exceeding the permitted Cumulative Cash Operating Loss if such failure occurs within three (3) fiscal quarters of the failure that triggered the delivery of a prior Consultant s report addressing the information described above -27-

64 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 by the Governing Body of the Obligated Group Representative) and permitted by law. For more information regarding the cumulative cash operating loss covenant, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.23 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 2013 NOTES Additional Indebtedness herein and APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.16 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 2013 Notes. Disposition of Property. The Corporation and each future Member of the Obligated Group agree in the Master Indenture and in the Mortgage to restrictions on the disposition of its Property, as more fully described under the caption DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.18 Sale or Lease of Property in APPENDIX C hereto. Actuarial Study. During the Fiscal Year following the first full Fiscal Year of operations and at least once every three Fiscal Years thereafter, the Obligated Group Representative, at the Obligated Group s expense, shall provide the actuarial study described below to each Member and each Required Information Recipient. The actuarial study shall be prepared by a Consultant and include (i) the amount, if any, of the Obligated Group s obligations to provide services under the Residency Agreements anticipated to be in excess of those that could be satisfied using the rates, fees and charges for the Project then in effect, and (ii) recommendations, if any, 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 enable the Obligated Group to satisfy such obligations. 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 the Obligated Group Representative) and permitted by law. Application for Rating. The Master Indenture provides that not later than 150 days after receipt by the Obligated Group Representative of the audited financial report of the Obligated Group for the first full Fiscal Year following the achievement of Stable Occupancy and each Fiscal Year thereafter, the Obligated Group will approach any Rating Agency to obtain a credit rating until the Obligated Group obtains an investment grade credit rating (an Investment Grade Credit Rating ). Notwithstanding the foregoing, (a) the requirement to annually approach a Rating Agency shall be suspended for such time as the Obligated Group maintains an Investment Grade Credit Rating; and (b) the Obligated Group shall not be required to approach a Rating Agency to obtain a credit rating if the Obligated Group Representative reasonably believes that the Obligated Group will not meet the criteria of any Rating Agency for an Investment Grade Credit Rating based on the then-existing published rating criteria of the Rating Agencies. Also see APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF -28-

65 CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.26 Rating Application. Payments on Affiliate Subordinated Indebtedness. Except with respect to the reimbursement of costs related to the Project advanced by LLM paid from proceeds of the Series 2013 Bonds, a Member of the Obligated Group will not make payments on Affiliate Subordinated Indebtedness (except for repayment to the Liquidity Support Fund pursuant to the Master Indenture), unless the Obligated Group Representative delivers an Officer s Certificate to the Master Trustee prior to any payment on such Affiliate Subordinated Indebtedness certifying that the following conditions are satisfied: (a) at any point prior to such date, there have been two full consecutive fiscal quarters in which the total percentage occupancy of all units and beds in the Project is equal to or greater than 90%; (b) if the proposed payment on the Affiliate Subordinated Indebtedness had occurred as of the last day of the most recent Testing Date, the Obligated Group would have met the Liquidity Requirement after making such payment; (c) if the proposed payment on the Affiliate Subordinated Indebtedness 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 1.30:1; (d) no Series 2013B Bonds are 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 Trust Indenture. Payments on Affiliate Management Fees and Deferred Affiliate Development Fees. (a) For each Fiscal Year commencing with Stable Occupancy, any Affiliate Management Fees, Deferred Affiliate Development Fees plus any Deferred Affiliate Management Fees then payable, may be paid by the Obligated Group Representative if the conditions set forth under the heading Payments on Affiliate Subordinated Indebtedness above have been satisfied. (b) Amounts due to an Affiliate with respect to any portion of Affiliate Management Fees not paid under clause (a) under this heading because certain other conditions under the Master Indenture cannot be satisfied shall be deferred in accordance with the provisions of the Master Indenture and the Consulting Services Agreement. (c) Amounts due with respect to any Deferred Affiliate Development Fee not paid under clause (a) of this subheading because of the conditions set forth therein cannot be satisfied shall continue to accrue in accordance with the Master Indenture. (d) All Affiliate Management Fees and Deferred Affiliate Development Fees payable shall be subordinated to all payments due on any Notes Outstanding and shall constitute Affiliate Subordinated Indebtedness under the Master Indenture. Approval of Consultants. Upon selecting a Consultant as required under the provisions of the Master Indenture summarized herein, the Obligated Group Representative 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 Notes Outstanding under the Master Indenture of such selection. Such notice (which shall be provided by the Obligated Group -29-

66 Representative) 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 Notes will be deemed to have consented to the selection of the Consultant named in such notice unless such 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 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 66.6% or more in aggregate principal amount of the Holders of the Outstanding Notes have been deemed to have consented to the selection of the Consultant or have not responded to the request for consent, the Obligated Group Representative shall engage the Consultant within three Business Days. If 33.4% or more in aggregate principal amount of the Holders of the Notes Outstanding have objected to the Consultant selected, the Obligated Group Representative shall select another Consultant which may be engaged upon compliance with the procedures described above. When the Master Trustee notifies the Holders of Notes of such selection, the Master Trustee will also request any Related Bond Trustee to send a notice containing the information required by the paragraph above to the owners of all of the Related Bonds outstanding. Such Related Bond Trustee shall, as the owner of a Note 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. 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. See APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.27 Approval of Consultants. Transfer of Assets. The Master Indenture allows certain transfers of assets by the Corporation including transfers to affiliated corporations. For more information, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.18 Sale or Lease of Property in APPENDIX C. Entrance Fees Fund. The Members of the Obligated Group have agreed that each portion of an Initial Entrance Fee received by the members of the Obligated Group will be transferred to the Master Trustee within five Business Days of the receipt thereof as follows: (i) prior to the release described in (b) below, each transfer shall also be accompanied by a copy of the related entrance fee receipt (an Entrance Fee Receipt ) forwarded to the escrow agent, initially SunTrust Bank, for the Entrance Fee Escrow Account required to be maintained pursuant to Chapter 651, Florida Statutes (the Chapter 651 Escrow Agent ) and written directions from the Obligated Group Representative to the Master Trustee indicating the amount of such Initial Entrance Fee that is to be deposited to the Entrance Fee Fund (the Discretionary Amount ) and the amount of such Initial Entrance Fee that is to be transferred to the Chapter 651 Escrow Agent for deposit to the Entrance Fee Escrow Account (the Escrowed Amount ), such Discretionary Amount shall be deposited and applied by the Master Trustee in accordance with paragraph (a) below; (ii) upon the release described in paragraph (b) below, the Initial Entrance Fees so released and received by the Master Trustee shall be deposited and applied in accordance with paragraph (b) below; and (iii) after the release described in paragraph (b) below, the Initial Entrance Fees received by the Master Trustee shall be deposited and applied in accordance with paragraph (c) below. -30-

67 (a) Application of Discretionary Amount. The Discretionary Amount shall be deposited to the Entrance Fee Fund and will be applied by the Master Trustee within two Business Days of receipt, as follows: FIRST, to the Corporation to pay refunds required by Residency Agreements for which the Corporation has not received a corresponding replacement Entrance Fee with respect to the applicable Entrance Fee Unit. Such disbursements will be made upon receipt by the Master Trustee and Chapter 651 Escrow Agent of an Officer s Certificate of the Corporation certifying that the Corporation is required by a Residency Agreement to pay refunds within the next 30 days, and the amount of such refunds to be funded from the Entrance Fee Fund and Entrance Fee Escrow Account. SECOND, to the Working Capital Fund established by the Master Indenture, until the total Discretionary Amount of Entrance Fees deposited into the Working Capital Fund equals $10,250,000. The Master Trustee will not replenish funds withdrawn from the Working Capital Fund or transfer moneys from the Entrance Fee Fund once a total Discretionary Amount of $10,250,000 from Entrance Fees has been deposited. THIRD, to the Operating Reserve Fund established by the Master Indenture, until the total Discretionary Amount deposited in the Operating Reserve Fund equals $5,000,000. After the transfers described above have been made, thereafter the Master Trustee will retain any Discretionary Amount in the Entrance Fee fund to engage in the periodic review and application of funds described in subsection (c) below. (b) Application upon Release of Escrowed Amount. Once the Escrowed Amount, together with any other amount on deposit in the Entrance Fee Escrow Account, is released pursuant to the terms of the Entrance Fee Escrow Agreement, the Obligated Group Representative shall direct the Chapter 651 Escrow Agent to use such released moneys to fund the Minimum Liquid Reserve Accounts to their required level and then direct the Chapter 651 Escrow Agent to transfer the remaining amount to the Master Trustee for deposit to the Entrance Fee Fund (such direction to be provided in writing to the Chapter 651 Escrow Agent with a copy to the Master Trustee) and shall be applied by the Master Trustee within two Business Days of receipt, as follows: FIRST, to the Corporation to pay refunds required by Residency Agreements for which the Corporation has not received a corresponding replacement Entrance Fee with respect to the applicable Entrance Fee Unit. Such disbursements shall be made upon receipt by the Master Trustee of an Officer s Certificate of the Corporation certifying that the Corporation is required by a Residency Agreement to pay refunds within the next 30 days, and the amount of such refunds to be funded from the Entrance Fee Fund. Such Officer s Certificate shall be furnished to the Master Trustee at least one Business Day before the Master Trustee is required to apply the funds. SECOND, to the Operating Reserve Fund established by the Master Indenture until the initial amount on deposit in the Operating Reserve Fund equals $5,000,000. THIRD, to the Liquidity Support Fund, any amount necessary to reimburse any amounts advanced for Costs of the Project (but not for operating expenses) under the Liquidity Support Agreement. After the transfers described above have been made, thereafter the Master Trustee will review the amount on deposit in the Entrance Fee Fund in accordance with paragraph (c) below. -31-

68 (c) Periodic Review. After the release described in paragraph (b) above, all Initial Entrance Fees received by the Master Trustee will be deposited to the Entrance Fee Fund and on the first Business Day of each month thereafter (each, a Review Date ) the Master Trustee shall review the amount on deposit in the Entrance Fee Fund and shall apply moneys on deposit therein as follows: FIRST, to the Corporation to pay refunds required by Residency Agreements for which the Corporation has not received a corresponding replacement Entrance Fee with respect to the applicable Entrance Fee Unit. Such disbursements shall be made upon receipt by the Master Trustee of an Officer s Certificate of the Corporation certifying that the Corporation is required by a Residency Agreement to pay refunds within the next 30 days, and the amount of such refunds to be funded from the Entrance Fee Fund. Such Officer s Certificate shall be furnished to the Master Trustee at least one Business Day before the Master Trustee is required to apply the funds. SECOND, to the Operating Reserve Fund the following: (i) $5,000,000; and until the initial amount deposited into the Operating Reserve Fund equals (ii) thereafter, the amount needed, if any, to replenish any funds withdrawn from the Operating Reserve Fund until the amount on deposit in the Operating Reserve Fund equals $5,000,000, provided that the aggregate amount transferred from the Entrance Fee Fund to the Operating Reserve Fund shall not exceed $10,000,000; and (iii) if a transfer of moneys from the Liquidity Support Fund to the Operating Reserve Fund (as described under LIQUIDITY SUPPORT AGREEMENT Draws on the Liquidity Support Fund herein) has occurred, the amount needed, if any, to increase the amount on deposit in the Operating Reserve Fund to $2,000,000 (without regard to the replenishment limit described in clause (ii) above). Indenture. THIRD, into the Entrance Fee Redemption Account established pursuant to the Bond (d) Closure of Entrance Fee Fund. After all of the Series 2013B Bonds have been redeemed or otherwise paid in full (as established by an Officer s Certificate of the Corporation delivered to the Master Trustee) and no Event of Default has occurred and is continuing, the Members of the Obligated Group need not deposit any Initial Entrance Fees into the Entrance Fee Fund. Upon the satisfaction of such conditions, any amounts on deposit in the Entrance Fee Fund will be remitted to the Corporation and the Entrance Fee Fund will be closed. For information regarding the Entrance Fees Fund, see APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 3.01 Entrance Fees Fund. Working Capital Fund. The Master Trustee shall establish and maintain a separate account to be known as the Working Capital Fund (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 Notes 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. -32-

69 Moneys in the Working Capital Fund shall be disbursed by the Master Trustee to or for the account of the Corporation within seven days after receipt by the Master Trustee of an Officer s Certificate of the Corporation to the effect that such moneys will be used to pay (A) costs of the Project, (B) lease up and operating expenses of the Project, including any development and marketing fees, (C) the costs of needed repairs to the Project, (D) the costs of capital improvements to the Project, (E) judgments against any Member of the Obligated Group, (F) refunds of Entrance Fees as required by Residency Agreements pursuant to which such Entrance Fees were received, (G) amounts required to restore funds on deposit in any Related Bonds Debt Service Reserve Fund if such amount is less than the applicable requirement due to a valuation deficiency on any valuation date, or (H) amounts due on any Indebtedness of any Member of the Obligated Group, but not to reimburse amounts advanced under the Liquidity Support Agreement or otherwise advanced by any Affiliate. All amounts on deposit in the Working Capital Fund may be released to the Corporation and the Working Capital Fund will be closed upon receipt by the Master Trustee of an Officer s Certificate of the Corporation requesting such release which Officer s Certificate shall state that (i) all Series 2013B Bonds have been redeemed or otherwise paid in full and (ii) 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 (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 Notes outstanding thereunder (except as otherwise provided in the Master Indenture) 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 seven Business Days of receipt by the Master Trustee of an Officer s Certificate of the Corporation to the effect that (A) such moneys will be used to pay (i) costs of the Project, (ii) lease up and operating expenses of the Project, including any development and marketing fees, (iii) the costs of needed repairs to the Project, (iv) the costs of capital improvements to the Facilities, (v) judgments against any Member of the Obligated Group, (vi) refunds of Entrance Fees as required by Residency Agreements pursuant to which such Entrance Fees were received, (vii) amounts required to restore funds on deposit in any Related Bonds Debt Service Reserve Fund if such amount is less than the applicable requirement due to a valuation deficiency on any valuation date, or (viii) amounts due on any Indebtedness any Member of the Obligated Group, but not to reimburse amounts advanced under the Liquidity Support Agreement or otherwise advanced by any Affiliate, (B) such moneys are 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, (C) no moneys are on deposit in the Working Capital Fund or are otherwise available to the Corporation for such purpose, and (D) if such moneys are to be used to pay costs of the Project, the aggregate amount on deposit in the Operating Reserve Fund immediately after such draw will be at least $2,000,000. 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 Corporation requesting such release which Officer s Certificate shall state that (i) all Series 2013B Bonds have been redeemed or otherwise paid in full and (ii) no Event of Default has occurred and is continuing under the Master Indenture. -33-

70 Investment of Entrance Fees Fund, Working Capital Fund and Operating Reserve Fund. Any moneys held by the Master Trustee under the Master Indenture shall be invested or reinvested by the Master Trustee in Permitted Investments upon the receipt of an Obligated Group Representative Request (upon which the Master Trustee is entitled to rely). Any such investments shall be held by or under the control of the Master Trustee and shall mature, or be redeemable at the option of the Master Trustee at such times as it is anticipated by the Obligated Group Representative that moneys from the particular fund will be required for the purposes of the Master Indenture. For the purpose of any such investment or reinvestment, investments shall be deemed to mature at the earliest date on which the obligor under such investment is, on demand, obligated to pay a fixed sum in discharge of the whole of such obligation. Any Permitted Investments may be purchased from or sold to the Master Trustee or any of its respective affiliates. For more information, see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 3.01 Entrance Fees Fund, Section 3.02 Working Capital Fund, Section 3.04 Operating Reserve Fund and Section 3.06 Investment of Funds in APPENDIX C. -34-

71 -35-

72 LIQUIDITY SUPPORT AGREEMENT Liquidity Support Fund Liquidity Support Fund. Under the Liquidity Support Agreement, LLM has agreed to deposit with the Master Trustee $7,000,000 (the Funded Portion ) upon the issuance of the Series 2013 Bonds and, up to an additional $3,000,000 (the Unfunded Portion ) upon the occurrence of a Funding Event (collectively, the Liquidity Support Obligation ). The Corporation will establish the Liquidity Support Fund with the Master Trustee pursuant to the Liquidity Support Agreement and LLM will provide such funds concurrently with the delivery of the Series 2013 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. "Funding Event" means either: (i) the amount on deposit in the Liquidity Support Fund is less than $4,000,000 as a result of one or more draws upon such Fund, or (ii) the Foundation is in violation of the Liquidity Covenant established by the Liquidity Support Agreement. Reductions of the Liquidity Support Obligation The aggregate amount available for payment under the Liquidity Support Obligation shall be reduced by the amount of each payment made pursuant to the Liquidity Support Agreement and to each of the amounts described below in the next three paragraphs if the conditions described therein have been met. Anticipated Reductions. (A) Unfunded Portion Reduction. The Unfunded Portion shall be reduced to $1,500,000 when the Corporation delivers to the Master Trustee, the Bond Trustee and LLM an Officer's Certificate certifying that (i) the Series 2013B-2 Bonds are no longer Outstanding, (ii) no event of default has occurred and is continuing under the Master Indenture or the Loan Agreement 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 or the Loan Agreement, and (iii) the Corporation is in compliance with the applicable Marketing Requirements, Occupancy Requirements, Cumulative Cash Operating Loss requirements summarized under the sub-headings SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Marketing Covenant, Occupancy Covenant and Cumulative Cash Operating Loss Covenant above. (B) Initial Regular Reduction. The Support Obligation shall be reduced to either (A) if no Funding Event shall have occurred, $3,500,000 plus 50% of the then current Unfunded Portion, which shall remain subject to deposit pursuant to the Liquidity Support Agreement upon the occurrence of a Funding Event, or (B) if a Funding Event as described in clause (ii) of the definition thereof has occurred, to either (i) $4,250,000 if the reduction described in (A) above has occurred, or (ii) $5,000,000 if such reduction shall not have occurred, in each case, when the Corporation delivers to the Master Trustee, the Bond Trustee and LLM an Officer's Certificate certifying that: (i) the Series 2013B Bonds are no longer Outstanding; (ii) for the most recent six-month period, the average overall occupancy of the independent living units, the assisted living units, the memory support units and the skilled nursing beds included in the Project in the aggregate, had reached at least 90% and the average overall occupancy of the Independent units included in the Project had reached 88%; (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 the higher -36-

73 of: (A) 1.10:1; or (B) the then applicable Historical Debt Service Coverage Ratio required under the Master Indenture; (iv) the Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than the higher of: (A) 0.20:1; or (B) the then applicable Liquidity Requirement required under the Master Indenture; and (v) no event of default has occurred and is continuing under the Master Indenture or the Loan Agreement 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 or the Loan Agreement. Notwithstanding the above, the Support Obligation shall not be reduced as described above if there shall have occurred an event described in clause (i) of the definition of Funding Event. After any such reduction, the Master Trustee shall transfer the funds released for disbursement from the Liquidity Support Fund to LLM. See APPENDIX A THE PROJECT Liquidity Support Agreement hereto. (C) Final Regular Reduction. The Liquidity Support Obligation shall be reduced to zero and the Liquidity Support Agreement shall cease to be of any further force and effect, when the Corporation delivers to the Master Trustee, the Bond Trustee and LLM an Officer s Certificate certifying that: (i) at least 12 months have lapsed since the last day of the fiscal year of the audited financial statements described in (A)(iii) above; (ii) has been met; the then applicable Liquidity Requirement required under the Master Indenture (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 1.20:1 and the Historical Debt Service Coverage Ratio of the Obligated Group for the prior fiscal year which audited financial statements are available was not less than 1:10:1; (iv) for the most recent six-month period, (A) the average overall occupancy of the independent living units, the assisted living units, the memory support units and the skilled nursing beds included in the Project in the aggregate, had reached at least 90%, and (B) the average overall occupancy of the independent living units included in the Project has reached at least 88%; and (v) no event of default has occurred and is continuing under the Master Indenture or the Loan Agreement 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 or the Loan Agreement. After any such reduction, the Master Trustee shall transfer the funds released for disbursement from the Liquidity Support Fund to LLM. See APPENDIX A THE PROJECT Liquidity Support Agreement hereto. -37-

74 (D) High Performance Reduction. The Liquidity Support Obligation shall be reduced to zero and the Liquidity Support Agreement shall cease to be of any further force and effect, when the Corporation delivers to the Master Trustee, the Bond Trustee and LLM an Officer s Certificate certifying that: (i) the Series 2013B Bonds are no longer Outstanding; (ii) for the most recent six month period, (A) the average overall occupancy of the independent living units, the assisted living units, the memory support units and the skilled nursing beds included in the Project, in the aggregate, had reached at least 90%, and (B) the average overall occupancy of the independent living units included in the Project has reached at least 88%; (iii) the Cash to Indebtedness Ratio of the Obligated Group as of the most recent June 30 or December 31 was no less than 0.35:1; (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 1.40:1; (v) the Historical Debt Service Coverage Ratio of the Obligated Group (calculated by excluding Entrance Fees from the definition of "Revenues" utilized in such calculation) for the last fiscal year was not less than 1.00:1; and (vi) no event of default has occurred and is continuing under the Master Indenture or the Loan Agreement 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 or the Loan Agreement. After any such reduction, the Master Trustee shall transfer the funds released for disbursement from the Liquidity Support Fund to LLM. See APPENDIX A THE PROJECT Liquidity Support Agreement hereto. Draws on the Liquidity Support Fund Moneys deposited in the Liquidity Support Fund shall be paid out from time to time by the Master Trustee as follows: (a) Costs of the Project. If moneys on deposit in the Project Account of the Construction Fund under the Bond Indenture and all other available funds (including project contingency funds and immediately available insurance proceeds, if any) are insufficient to pay Costs of the Project, which can include an Approved Change in Services or Facilities or additional construction costs and expenses arising from unanticipated events or problems including without limitation changes required pursuant to applicable law or requirements of governmental authorities (and not arising from a Discretionary Change), 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, to the Bond Trustee for deposit in the Project Account of the Construction Fund under the Bond Indenture but only if they are to pay for items described in the above paragraph. Notwithstanding the foregoing, no moneys in the Liquidity Support Fund shall be used to pay interest on the Series 2013 Bonds until all moneys in the Funded Interest Account of the Construction Fund under the Bond Indenture are exhausted. -38-

75 (b) Operating Expenses. If at any time: (i) The Corporation needs money for payment of any expenses that: (A) otherwise could be paid from the Working Capital Fund or the Operating Reserve Fund under the Master Indenture; and (B) are either: (I) consistent with the level of services described in the form of Residency Agreement as of the date of issuance of the Series 2013 Bonds; (II) the result of an Approved Change in Services or Facilities; or (III) required pursuant to applicable law or requirements of governmental authorities (which expenses may include, without limitation, interest payments on the Series 2013 Notes); 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 Master Indenture, then the Corporation will deliver a Written Request to the Master Trustee to transfer moneys to the Corporation for the payment of any such expenses (other than Affiliate Management Fees) to the extent of any funds therein. Upon receipt of any such Written Request and subject to the immediately following subsection (c)(i), the Master Trustee shall make such transfer. Notwithstanding the foregoing, no moneys in the Liquidity Support Fund shall be used to pay interest on the Series 2013 Notes until all moneys in the Funded Interest Account of the Construction Fund under the Bond Indenture are exhausted. (c) Transfer to Operating Reserve Fund. If at any time: (i) the total amount in the Liquidity Support Fund drops to or 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 Fund 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 such transfer shall be made). (d) Payment of Principal and Interest on Series 2013 Bonds. If funds held in the Bond Fund under the Bond Indenture are insufficient to pay the principal of or interest on a related series of Series 2013 Bonds as the same come due, then moneys in the Working Capital Fund, the Operating Reserve Fund and the Liquidity Support Fund (in that order) shall be used for that purpose before any moneys in the related account of the Reserve Fund held under the Bond Indenture 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. (e) Transfer to Debt Service Reserve Fund. If moneys held in either Reserve Account of the Debt Service Reserve Fund under the Bond Indenture are less than the applicable Reserve Account Requirement due to a valuation deficiency on any valuation date, the Corporation will deliver to the Master Trustee a Written Request for replenishment of the Reserve Account of the Debt Service Reserve Fund to the applicable Reserve Account Requirement. Upon receipt of the Written Request, the Master Trustee shall transfer moneys requested thereby, to the Bond Trustee for deposit into the applicable Reserve Account of the Debt Service Reserve Fund under the Bond Indenture. -39-

76 General If there is an initial withdrawal from the Liquidity Support Fund, (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 Representative shall submit an Officer s Certificate to each Required Information Recipient containing a management report setting forth (A) the expected amount of working capital needed to be sufficient, along with revenues and other available moneys, to pay expenses and debt service until management expects to achieve an Historical Debt Service Coverage Ratio of 1.0:1, (B) whether management expects that the Liquidity Support Fund, 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 2013B Bonds. If funds in the Liquidity Support Fund 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 Representative shall engage a Consultant to make recommendations regarding (A) an overall corrective action plan, (B) the projected amount of working capital needed to be sufficient, along with revenues and other available moneys, to pay expenses and debt service until the Obligated Group is projected to achieve an Historical Debt Service Coverage Ratio of 1.0:1, (C) a revised fill-up schedule for the Project, (D) a plan for the payment of the Series 2013B 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 Representative 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 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Approval of Consultants. Investment Moneys held in the Liquidity Support Fund shall, pursuant to written direction of LLM, be invested and reinvested by the Master Trustee in Permitted Investments (as defined in the Master Indenture) other than Permitted Investments listed in paragraphs (g) and (h) of such definition, in each case which mature or are subject to redemption by the owner thereof prior to the date such funds are expected to be needed. If the Master Trustee fails to receive written directions of LLM regarding investment of funds pursuant to this paragraph, moneys held in the Liquidity Support Fund shall be invested or reinvested in Permitted Investments described in paragraph (a) of the definition of Permitted Investments in the Master Indenture and in making such investment the Master Trustee is entitled to hold funds on deposit therein uninvested. The Master Trustee may make such investments through its own bond department or short-term investment department and may pool moneys for investment purposes. Any such Permitted Investments shall be held by or under the control of the Master Trustee and shall be deemed at all times a part of the Liquidity Support Fund. The interest earned on and any profit realized from Permitted Investments held in the Liquidity Support Fund shall be deposited into the Liquidity Support Fund. Any loss resulting from such Permitted Investments shall be charged to such account. The Master Trustee shall sell and reduce to cash a sufficient amount of such Permitted Investments whenever the cash balance in such account is insufficient for the purposes of such account. Liquidity Covenant Until such time as a Funding Event shall occur and the Unfunded Portion shall be deposited with the Master Trustee, on each June 30 and December 31, LLM will cause Lutheran Life Communities Foundation (the Foundation ) to maintain an amount equal to $3,500,000 in unrestricted cash and marketable securities, net of any unfunded guarantees and support agreements to which the -40-

77 Foundation is a party, in accordance with Foundation s investment policy (the Foundation Liquidity Covenant ). LLM shall deliver to the Corporation, the Master Trustee and the Bond Trustee a certificate signed by the chief financial officers of LLM and the Foundation not later than 45 days after each June 30 and December 31 (based on unaudited financial statements) stating that LLM and the Foundation are compliance with such requirements. The Corporation may submit a copy of any such certification received from LLM to the Municipal Securities Rulemaking Board, via the Electronic Municipal Market Access system, or to any Required Information Recipient. If on any June 30 (based on unaudited financial statements) or December 31 (based on unaudited or audited financial statements) the Foundation Liquidity Covenant is not met, a Funding Event shall occur and LLM shall pay or otherwise direct the transfer of moneys in accordance with the Liquidity Support Agreement. EXCEPT AS OTHERWISE DESCRIBED HEREIN UNDER THIS CAPTION AND UNDER SECURITY FOR THE SERIES 2013 NOTES CERTAIN MASTER INDENTURE COVENANTS OF THE OBLIGATED GROUP ENTRANCE FEES FUND AND UPON THE OCCURRENCE OF A VALUATION DEFICIENCY AS DESCRIBED THERIN, THERE IS NO REPLENISHMENT REQUIREMENT FOR THE LIQUIDITY SUPPORT OBLIGATION. Subordination Provisions The Corporation s obligation to repay certain payments made under and in accordance with the Liquidity Support Agreement constitute Affiliate Subordinated Indebtedness and are restricted as defined in SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness herein. Amendments and Waivers (a) Except as described subparagraph (b) below, the Master Trustee, the Bond Trustee, LLM 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 Holders of the Series 2013 Notes and the Series 2013 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 Liquidity Support Agreement, or any part thereof, in any manner specifically required or permitted by the terms thereof, 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 Series 2013 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, LLM 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 Indenture or a successor Master Trustee as provided in the Master Indenture; and (vi) to make any other change which, in an opinion of the Bond Trustee, does not have a material adverse effect upon the interests of the Holders of the Series 2013 Bonds. In addition, subject to the terms and provisions contained in the Liquidity Support Agreement, the Master Trustee and Bond Trustee may grant such waivers of compliance by LLM with the provisions of the Liquidity Support Agreement as to which the Master Trustee and Bond Trustee may deem necessary or desirable to effectuate the purposes of the intent of the Liquidity Support Agreement if: (A) that waiver, in the judgment of the Master Trustee and the Bond Trustee, does not have a material adverse effect upon the interests of the Holders of the Series 2013 Notes or the owners of the Series 2013 Bonds; or (B) the holders of two-thirds or more of the aggregate principal amount of the Series 2013 Bonds Outstanding have consented or are deemed to have consented to that waiver (as described below). -41-

78 (b) Other than the amendments described in subparagraph (a) above, LLM shall submit a copy of any proposed amendment to the Corporation, the Development Consultant, the Construction Consultant, 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 and the owners of all of the Series 2013 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 2013 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 2013 Bonds. No later than two Business Days after the end of the 15-day objection period, the Bond Trustee shall notify LLM, the Development Consultant, the Construction Consultant, the Master Trustee and the Corporation of the number of the bondholders objecting as well as the aggregate principal amount represented by such objections. If the owners of two-thirds or more in aggregate principal amount of the Series 2013 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 2013 Bonds have objected to the proposed amendment, the amendment shall not become effective. -42-

79 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. 1st 2nd Expected Priority of Draws Upon Various Reserves and Funds (In the Event of a Funding Shortfall) Priority of Draws on These Funds: Working Capital Fund Draw down until the balance is fully depleted, no replenishment permitted Operating Reserve Fund Draw down the initial $5 million, plus $5 million replenishment, if necessary. Additional replenishment will begin only when the balance of the Liquidity Support Funds reaches $1 million (see below) Comments 3rd Liquidity Support Fund Once the balance in the Liquidity Support Draw down funds in the Liquidity Support Fund Fund 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 Fund 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, funds in the Liquidity Support Fund are available but only after all other funding sources have been depleted, including the Project Fund and all contingency funds (but not the Debt Service Reserve Fund). If the Liquidity Support Fund is drawn upon prior to opening of the Project for construction costs, Entrance Fees can be used to replenish the Liquidity Support Fund after opening, as shown in the diagram on page 31 hereof. 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 2013B Bonds. THE AUTHORITY The Authority is a public body corporate and politic organized, existing and operating under the powers granted through and by the provisions of the Florida Industrial Development Act, Parts II and III of Chapter 159, Florida Statutes, as amended (the Act ), with the powers set forth in the Act. Pursuant to the Act, the Authority has the power to issue its -43-

80 revenue bonds and revenue refunding bonds to finance and refinance the acquisition, construction, renovation and equipping of projects, within the meaning of the Act, within Collier County. At the time of delivery of the Series 2013 Bonds, the Authority will, among other things, assign all of its rights (except for certain rights of the Authority relating to indemnity, the right to receive notices and the right to be reimbursed by the Corporation for certain of the Authority s costs and expenses) under the Loan Agreement to the Bond Trustee which, on behalf of the holders of the Series 2013 Bonds, may exercise all of the Authority s rights so assigned. THE SERIES 2013 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY. THE AUTHORITY IS NOT OBLIGATED TO PAY THE SERIES 2013 BONDS OR THE PREMIUM, IF ANY, OR THE INTEREST THEREON EXCEPT FROM THE REVENUES AND FUNDS ASSIGNED TO THE BOND TRUSTEE OR OTHERWISE PLEDGED THEREFOR, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF FLORIDA OR OF ANY MUNICIPALITY, PUBLIC AGENCY, OR POLITICAL SUBDIVISION OF THE STATE OF FLORIDA IS PLEDGED AS SECURITY FOR THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST OR PREMIUM, IF ANY, ON THE SERIES 2013 BONDS. NEITHER THE MEMBERS OR OFFICERS OF THE AUTHORITY, NOR ANY PERSON EXECUTING THE SERIES 2013 BONDS, IS LIABLE PERSONALLY THEREON OR SUBJECT TO ANY PERSONAL LIABILITY OR ACCOUNTABILITY BY REASON OF THE ISSUANCE THEREOF. THE AUTHORITY HAS NO TAXING POWER. ACCORDINGLY, NO FINANCIAL INFORMATION WITH RESPECT TO THE AUTHORITY OR ITS MEMBERS OR OFFICERS HAS BEEN INCLUDED IN THIS LIMITED OFFERING STATEMENT. NO RECOURSE WILL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON, ANY OF THE SERIES 2013 BONDS OR FOR ANY CLAIM BASED THEREON OR UPON ANY OBLIGATION, PROVISION, COVENANT OR AGREEMENT CONTAINED IN THE BOND INDENTURE OR ANY OTHER AUTHORITY DOCUMENT, AGAINST ANY PAST, PRESENT OR FUTURE OFFICER, OFFICIAL, EMPLOYEE OR AGENT OF THE AUTHORITY, OR ANY OFFICER, OFFICIAL, EMPLOYEE OR AGENT OF ANY SUCCESSOR TO THE AUTHORITY, AS SUCH, EITHER DIRECTLY OR THROUGH THE AUTHORITY OR ANY SUCCESSOR TO THE AUTHORITY, UNDER ANY RULE OF LAW OR EQUITY, STATUTE OR CONSTITUTION OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY OR OTHERWISE, AND ALL SUCH LIABILITY OF ANY SUCH OFFICER, OFFICIAL, EMPLOYEE OR AGENT AS SUCH IS EXPRESSLY WAIVED AND RELEASED AS A CONDITION OF AND IN CONSIDERATION FOR THE EXECUTION OF THE BOND INDENTURE AND THE ISSUANCE OF ANY OF THE SERIES 2013 BONDS. THE AUTHORITY HAS NOT PREPARED OR ASSISTED IN THE PREPARATION OF THIS LIMITED OFFERING STATEMENT, EXCEPT THE STATEMENTS UNDER THIS HEADING AND UNDER THE HEADING LITIGATION THE AUTHORITY IN RESPECT OF THE AUTHORITY, AND EXCEPT AS AFORESAID, THE AUTHORITY IS NOT RESPONSIBLE FOR ANY STATEMENTS MADE HEREIN. ACCORDINGLY, -44-

81 EXCEPT AS AFORESAID, THE AUTHORITY DISCLAIMS RESPONSIBILITY FOR THE DISCLOSURE SET FORTH HEREIN MADE IN CONNECTION WITH THE OFFER, SALE, AND DISTRIBUTION OF THE SERIES 2013 BONDS. RISK FACTORS Set forth below are certain risk factors which should be considered before any investment in the Series 2013 Bonds is made. Certain risks are inherent in the successful operation of facilities such as the Community. This section discusses some of these risks but is not intended to be a comprehensive listing of all risks associated with the operation of the Community or the payment of the Series 2013 Bonds. General As described herein under the caption, INTRODUCTION Security for the Series 2013 Bonds, the principal of, premium, if any, purchase price of, and interest on the Series 2013 Bonds, except to the extent that the Series 2013 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 Obligated Group Members under the Loan Agreement or the Master Indenture. No representation or assurance is given or can be made that revenues will be realized by the Obligated Group Members in amounts sufficient to pay debt service on the Series 2013 Bonds when due and other payments necessary to meet the obligations of the Obligated Group Members. The bondholders risks discussed below should be considered in evaluating the ability of the Corporation and any future Member of the Obligated Group, to make payments in amounts sufficient to provide for the payment of the principal of, the premium and purchase price, if any, and interest on the Series 2013 Bonds. The receipt of future revenues by 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. 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 2013 Bonds in addition to adversely affecting the value of any investments of the Corporation or any future Member of the Obligated Group. Additions to the Obligated Group The Corporation is currently the sole Member of the Obligated Group. Upon satisfaction of certain conditions in the Master Indenture, other entities can become members of the Obligated Group. See APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN -45-

82 PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 6.01 Admission of the Obligated Group Members. Management 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 condition and operations will likely be altered from that of the Corporation alone. Development of the Community The Corporation and LLC have entered into a development agreement whereby LLC serves as marketing consultant and co-development consultant for the Community along with CRSA/LCS Management LLC ( CRSA/LCS ), a wholly owned subsidiary of Life Care Companies, LLC ( LCS ). The successful development of the Community will be heavily dependent upon the efforts of CRSA/LCS and LLC. On March 2, 2009, the Corporation entered into a Development Consulting Agreement (the CRSA/LCS Development Agreement ) with CRSA Management, LLC ( CRSA ) for the development of the Community. Subsequently, in 2010, CRSA affiliated with LCS and they formed CRSA/LCS, which assumed CRSA s responsibilities under the CRSA/LCS Development Agreement. Prior to such affiliation, LCS undertook efforts to develop a continuing care retirement community less than fifteen miles from the site of the Project for which no application for a Provisional Certificate of Authority from the Florida Department of Financial Services, Office of Insurance Regulation has yet been submitted. The Development Agreement contains a restrictive covenant which prohibits CRSA/LCS from engaging in certain development activities with respect to any senior housing, continuing care retirement community or other similar project located or proposed to be located within fifteen miles of the Project during the term of the Development Agreement and for a period ending twelve months after the termination of such agreement under certain circumstances in accordance with the terms thereof. For more information regarding the Development Agreements see APPENDIX A DEVELOPMENT OF THE COMMUNITY CRSA Development Consulting Agreement. Management of the Community The successful operation of the Community is heavily dependent upon the efforts of LLC. Key management of LLC provide services for all of its affiliated entities, including the Corporation and, in addition, the Corporation entered into a management agreement with LLC effective July 1, 2015 pursuant to which LLC will provide certain professional administrative, management and support services including: corporate management, accounting and payroll, human resources, information technology, marketing and risk management. For more information, see APPENDIX A MANAGEMENT. Sale, Lease or Other Disposition of Property, Transfers to Affiliates The Master Indenture affords the Obligated Group Members the option to sell, lease or otherwise dispose of their property so long as they comply with certain requirements or meet certain financial tests. For more information on the Obligated Group Members restrictions on the sale, lease or disposition of property see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.18 Sale or Lease of Property in APPENDIX C. 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 2013 Bonds. For example, the plan of finance assumes that Entrance Fees payable -46-

83 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 the Series 2013B 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 REGULATIONS, PERMITS AND APPROVALS. It is anticipated that the proceeds from the sale of the Series 2013 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 2013 Bonds. Construction Consultant Approval of Construction Draws The ability of the Corporation to receive disbursements from the Project Funds held under the Bond Indenture is subject to compliance by the Corporation with various requirements of the 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 Indenture may not be sufficient to pay the principal of the Series 2013 Bonds upon acceleration. Redemption of the Series 2013B Bonds from Initial Entrance Fees Management s financial forecast contained in the Financial Feasibility Study included in APPENDIX B hereto anticipates that the Series 2013B-2 Bonds and the Series 2013B-1 Bonds will be subject to mandatory redemption from funds held in the Entrance Fee Redemption Account established -47-

84 under the Bond Indenture upon achieving occupancy of 70% and 85%, respectively, of the Entrance Fee Units in the Community. There can be no guarantee, however, that there will be sufficient funds in the Entrance Fee Redemption Account in order to so redeem any such Series 2013B Bonds. In the event that the Corporation is required to use moneys held under the Operating Reserve Fund or Liquidity Support Agreement, the Corporation will be required to use Entrance Fees to replenish such moneys. See SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Entrance Fees Fund herein. Such replenishment may delay the Corporation s ability to redeem the Series 2013B Bonds in accordance with its anticipated schedule. The Entrance Fee Redemption Account will be funded from the Initial Entrance Fees in accordance with the Master Indenture, as described herein. Adequacy of Remedies The Bond Trustee and the Authority must look solely to the Project, the Gross Revenues and any funds held under the Bond Indenture and the Master Indenture to pay and satisfy the Series 2013 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 2013 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 2013 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 2013 Bonds. Uncertainty of Revenues The Corporation is a development stage company and has not previously built or operated a project. Facilities of the nature of those of the Obligated Group are subject to variability in demand and, in the event that there is insufficient demand for the services of the Obligated Group at the existing pricing structure, the Obligated Group may need to discount the pricing structure for its services which could negatively impact revenues. 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 2013 Bonds will be payable from the proceeds thereof or investment income thereon or, under certain circumstances, proceeds of insurance, sale or condemnation awards, the Series 2013 Bonds will be payable solely from payments or prepayments to be made by the Obligated Group Members under the Loan Agreement and on the Series 2013 Notes. The ability of the Obligated Group Members to make payments under the Loan Agreement and the Series 2013 Notes is dependent upon the generation by the Corporation and any future Members of the Obligated Group of revenues in the amounts necessary for the Obligated Group Members to pay the principal, premium or purchase price, if any, and interest on the Series 2013 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 Obligated Group Members, government regulation -48-

85 and future economic and other conditions that are unpredictable and that may affect revenues and payment of principal of and interest on the Series 2013 Bonds. No representation or assurance can be made that revenues will be realized by the Obligated Group Members in amounts sufficient to make the required payments with respect to debt service on the Series 2013 Bonds. Failure to Achieve and Maintain 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 2013 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 2013 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. Sale of Homes It is anticipated that many future residents of the Obligated Group Facilities will come from a personal residence. Many of these individuals may sell their current homes prior to occupancy to meet financial obligations under their residency agreement. If prospective residents encounter difficulties in selling their 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 fees or other obligations, thereby causing a delay in marketing vacated units. Any such delay could have an adverse impact of the revenues of the Obligated Group. 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 longterm care facilities now or hereafter located in the service area of the Community. See Comparable Retirement Communities, Comparable Assisted Living Facilities and Description of Nursing Care 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 -49-

86 competition from other continuing care facilities, some of which may offer similar facilities, but not necessarily similar services, at lower prices. See APPENDIX B. Nature of Facilities The Community is not 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 2013 Bonds or any other Additional Indebtedness outstanding from the sale or lease of such facilities if it were necessary to proceed against such facilities, whether pursuant to a judgment, if any, against the Corporation including in the event of foreclosure under the Mortgage. Rights of Residents The Corporation enters into residency agreements with its residents. For more information about the residency agreements, see APPENDIX A RESIDENT CONTRACT. 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 2013 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 Authority or the holders of the Series 2013 Bonds and a resident of the Community who has fully complied with all the terms and conditions of his or her residency agreement. Present and Prospective Federal and State Regulation 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 and assisted living facilities, including the Community, 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. 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 in renewing or continuing currently held licenses, certifications and accreditations. Proposed Regulation Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2013 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 -50-

87 example, on September 12, 2011, the Obama Administration announced a legislative proposal entitled the American Jobs Act of 2011 which would have limited the exclusion from gross income of interest on obligations like the Series 2013 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 Series 2013 Bonds. Prospective purchasers of the Series 2013 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation. 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-for-performance 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. Although there remains uncertainty surrounding the effects of this decision, Florida has not opted in to the Medicaid expansion. 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 hospital services and certain other services, and Medicare Part B covers outpatient services, 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 administered by 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. The Corporation anticipates that it will participate in the Medicare and Medicaid programs in the future. Under such programs the Corporation would be subject to various regulatory requirements relating thereto, including, without limitation, limits on reimbursement, antifraud and abuse provisions, restrictions on referrals, and various reporting requirements. The participation in any such programs could affect the Corporation s operation and performance. Medicare. Medicare Audits. The Corporation and any future Members of the Obligated Group may receive payments for various services provided to Medicare beneficiaries based upon charges or other reimbursement methodologies, including prospective payment systems, which would then be reconciled annually based upon the annual cost reports prepared by the Corporation and any future Members 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. -51-

88 These estimates are adjusted periodically based upon correspondence received from the Medicare fiscal intermediary. Medicare regulations also provide for withholding Medicare payments 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, potentially subjecting the Corporation or any future Members 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 skilled nursing facility market basket index, or the cost of providing SNF services. 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 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 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. 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. 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 -52-

89 Medicaid program and private health plans and insurers. In addition or alternative to the provisions relating to Medicare and Medicaid described above, 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 and may even be able to restrict or refuse participation by the Corporation. 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 or that such payment programs will even be available. 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 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. Regulation of Health Care and Long Term Care Industries 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 2013 Notes. 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. The Corporation is and will continue to be subject to certain governmental regulation. Florida has enacted comprehensive legislation which regulates the Corporation. State Licensure. The health care components of the Corporation s facilities are licensed by the State of Florida Agency for Health Care Administration ( AHCA ). The health facilities are required to undergo at least one annual unannounced inspection by AHCA to determine compliance with applicable statutes and rules promulgated thereunder which govern minimum standards of construction, quality, adequacy of care and rights of residents. In addition, AHCA will at least annually evaluate the health facilities to determine compliance with applicable licensure requirements and standards as a basis for assigning a rating to such facilities. The Corporation is also required to submit an annual financial statement and statement of ownership to AHCA, as well as maintain a license from AHCA. AHCA may revoke or suspend an assisted living facility s or skilled nursing facility s license for a number of reasons, including: (a) an intentional or negligent act seriously affecting a facility resident s health, safety or welfare; (b) misappropriation or conversion of resident property; (c) a determination by AHCA that the facility owner lacks the financial ability to provide continuing adequate care to residents; or (d) a licensee s failure during relicensure to meet minimum licensing standards or applicable rules. Furthermore, AHCA may seek an injunction in various circumstances, including to enforce applicable requirements against an assisted living facility or skilled nursing facility when a violation has not been corrected by the imposition of administrative fines or when the violation materially affects resident health, safety or welfare. Any delay in the licensing and full operation of the Health Center, memory support units or assisted living units would result in losses in excess of those projected in the Financial Feasibility Study in APPENDIX B. The Financial Feasibility Study should be read in its entirety, including management s notes and assumptions set forth therein. 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 -53-

90 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. Regulation of Residency Agreements. As described herein under FLORIDA REGULATION OF CONTINUING CARE FACILITIES, Chapter 651, Florida Statutes, as amended ( Chapter 651 ) requires every continuing care facility to maintain a certificate of authority from the Office of Insurance Regulation (the OIR ) in order to operate. The Corporation has received a provisional certificate of authority for the Community, and anticipates the receipt of the final certificate of authority following the closing of the Bonds. If the Corporation fails to comply with the requirements of Chapter 651, it would be subject to sanctions including the possible revocation of the certificate of authority for the Community. The certificate of authority may be revoked if certain grounds exist including, among others, failure by the provider to continue to meet the requirements for the certificate of authority as originally granted, on account of deficiency of assets, failure of the provider to maintain escrow accounts or funds required by Chapter 651 and failure by the provider to honor its Residency Agreements with residents. Under certain circumstances the OIR may petition for an appropriate court order for rehabilitation, liquidation, conservation, reorganization, seizure or summary proceedings. If the OIR has been appointed a receiver of a continuing care facility, it may petition a court to enjoin a secured creditor of a facility from seeking to dispose of the collateral securing its debt for a period of up to 12 months. Certain State Regulations. On August 1, 2010, Florida s nursing home staffing requirements changed, the new provisions require 1.0 hours per resident per day for nurses and 2.7 hours per day for certified nursing assistants ( CNAs ), with a weekly combined nurse and CNA average of 3.9 hours per day. In addition, effective August 1, 2011, an assisted living facility ( ALF ) with 17 or more beds is required to have a functioning automated defibrillator ( AED ) on its premises. Further, effective August 1, 2010, Florida s CCRC Bill HB 1253 became law. HB 1253 clarifies and updates several provisions in Chapter 651, Florida Statutes, many of which are consistent with current practices in Florida retirement communities. Chapter 651, Florida Statutes, Chapters 4 through 194 of the Florida Administrative Code, and all rules and regulations promulgated thereunder are hereinafter referred to as the CCRC Law. Most of the changes to the CCRC Law address issues of financial transparency and the disclosure of information as monitored by the OIR. Among the key provisions of the HB 1253 relating to the CCRC Law are: (a) the addition of new content requirements for annual reports; (b) the clarification that a provider may assess a non-refundable application processing fee; (c) the imposition of new requirements for a residents council regarding providing notice to residents; (d) the change of OIR inspection from at least once every 3 years to at least every 5 years to conform to requirements for other entities regulated by the OIR; and (e) effective August 1, 2010, imposes new background screening and hiring requirements for health care providers licensed under Chapter 400, Part II, Florida Statutes. Medicare and Medicaid Anti-Fraud and Abuse Provisions. The Medicare and Medicaid anti-fraud 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 -54-

91 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 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 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 exclusions from the Medicare and Medicaid programs. Management of the Corporation believes that they are currently in material compliance with the Stark provisions. However, in light of the scarcity of case law interpreting the Stark provisions, there can be no assurances that the Corporation will not be found to have violated the Stark provisions, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the Corporation. 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 -55-

92 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. 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. -56-

93 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. 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 -57-

94 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. Increases in Medical Costs Because the Corporation is obligated to provide a majority of their 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 their 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 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. Malpractice Claims The operations of the Community may also be affected by increases in the incidence of malpractice lawsuits against physicians, nursing homes and life care facilities in general and increases in the dollar amount of patient damage recoveries, resulting in increased insurance premiums and an increased difficulty in obtaining or maintaining 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. The Corporation is not aware of any potential or threatened malpractice suit. Potential Employee Shortage Recently, 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. The Corporation s ability to find qualified personnel within normal compensations levels could have a material impact on the Corporation s operations or financial condition. Taxpayer Relief Act of 1997 and Unrelated Business Taxation The Taxpayer Relief Act of 1997 that includes the following provision which could have an impact on the Corporation. Passive Income Received from Health System Subsidiary. This tax law tightens the ownership rules for determining whether certain types of income received from subsidiaries are subject to the unrelated business income tax ( UBIT ). Under prior law, tax-exempt organizations were required to pay tax on rents, royalties, annuities, and interest income only if such income was received from a taxable or tax-exempt subsidiary that was at least 80 percent controlled by the tax-exempt organization. Nevertheless, UBIT did not apply if the income came from a second-tier subsidiary (i.e., a subsidiary owned by a subsidiary). -58-

95 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). The new 50 percent control test is effective for taxable years beginning after December 31, This provision may force some multi-member health care systems to choose between maintaining control and incurring UBIT liability where business considerations dictate the use of intra-system loans, leases, and licensing arrangements. Changes in tax laws regarding not for profit organizations could adversely affect certain of the Corporation s revenues. Recently Congress and the Internal Revenue Service have focused more closely on issues of tax-exemption, such as the scope of activities constituting unrelated business income. Management of the Corporation believes the effect on the Corporation is likely to be de minimis because management believes their activities that may give rise to such income are insignificant. 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. 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 choose 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. -59-

96 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 tax-exempt 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 taxexempt 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. 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 as an organization described in Section 501 (c)(3). Revenue Ruling holds that an organization providing residential services to the elderly qualified for exemption under Section 501(c)(3) where the organization: (1) was dedicated to providing care and housing to aged individuals who otherwise would be unable to provide for themselves without hardship; (2) rendered, to the extent of its financial ability, services to all or a reasonable proportion of its residents at substantially below actual cost; and (3) rendered services that ministered to the needs and the relief of hardship or distress among the elderly. Revenue Ruling holds that an organization will qualify for exemption under Section 501(c)(3) if it meets the elderly s special needs for housing, healthcare, and financial security. The need for housing will be met if the facility is specifically designed to meet some combination of the physical, emotional, social, religious, and recreational needs of the elderly. The need for healthcare will be met if the organization provides or arranges for some form of healthcare. The need for financial security will be met if the organization is committed to an established policy of maintaining in residence any persons who become unable to pay their charges, and the organization provides its services at the lowest feasible cost. Revenue Ruling holds 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 and that the organization maintains in residence those tenants who become unable to pay their monthly charges. 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 tax-exempt status. Given these audit guidelines and other related pronouncements by the IRS, it may be more difficult for health care providers to maintain their tax-exempt 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 tax-exempt status or to avoid other sanctions. -60-

97 Possible Changes in Tax Status 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 the Corporation. Failure of the Corporation or the Authority to comply with certain requirements of the Code, or adoption of amendments to the Code to restrict the use of tax-exempt bonds for facilities such as those being financed with Series 2013 Bond proceeds, could cause interest on the Series 2013 Bonds to be included in the gross income of Bondholders or former Bondholders for federal income tax purposes. In such event, the Bond Indenture does not contain any specific provision for acceleration of the Series 2013 Bonds nor provide that any additional interest will be paid to the owners of the Series 2013 Bonds. See APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Bond Indenture Section 8.02 Remedies on Events of Default. The Corporation is a not for profit corporation, exempt from federal income taxation as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (referred to as the Code). As not for profit tax-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. At the same time, the Corporation conducts large-scale complex business transactions and will be a major employer in its geographic area. 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 healthcare organization. Over the past several years, an increasing number of the operations or practices of healthcare providers have been challenged or questioned to determine if they are consistent with the regulatory requirements for nonprofit tax-exempt organizations. 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 healthcare 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 tax-exempt organizations, including a proposal for a five-year review of tax-exempt status by the IRS. The House Committee on Ways and Means has held several hearings to examine the tax-exempt 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 tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. The IRS announced that it would contact nearly 2,000 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 tax-exempt organizations. The IRS Final Report indicates that the IRS (i) will continue to heavily scrutinize executive compensation arrangements, -61-

98 practices and procedures and (ii) in certain circumstances, may conduct further investigations or impose fines on tax-exempt 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 Continuing Care Retirement Communities (CCRCs). The GAO has not yet delivered its report and it is uncertain whether 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 Tax-Exempt Organization. The IRS Form 990 is used by most 501(c)(3) not-for-profit organizations exempt from federal income taxation 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 tax-exempt 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. Factors Affecting Taxes on Real Property. The Corporation is pursuing exemption from State of Florida taxes on real property for certain portions of the Community. There is no guarantee that such exemption will be achieved or, if achieved, that such exemption will remain in place. In recent years various State of Florida and local legislative, regulatory and judicial bodies have reviewed the exemption of non-profit corporations from taxes on real property. Various State of Florida and local government bodies have challenged with increasing frequency and success the tax-exempt status of such institutions and have sought to remove the exemption of certain real property from the taxes of various non-profit institutions on the grounds that a portion of such property was not being used to further the charitable purposes of the institution. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements. Amendments to the Documents Certain amendments to the Bond Indenture and Loan Agreement may be made with the consent of the owners of a majority of the principal amount of the outstanding Series 2013 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 Notes. 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 Notes. See DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Supplements Without Consent of Holders of Obligation, and Section 9.02 Supplements With Consent of Holders of Obligation in APPENDIX C and DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Bond Indenture Section 4.03 Supplemental Indentures; Recordation of Bond Indenture and Supplemental Indentures, and Excerpts From The Loan Agreement Supplements and Amendments to the Loan Agreement in APPENDIX C. -62-

99 Additional Debt The Master Indenture permits the Corporation and any future Member of the Obligated Group to incur Additional Indebtedness which may be equally and ratably secured with the Series 2013 Notes. Any such additional parity indebtedness would be entitled to share ratably in security interest with the owners of the Series 2013 Notes. Any moneys realized from the exercise of remedies in the event of a default by the Obligated Group could reduce the Historical 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 DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.11 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 2013 Notes may not be materially, adversely affected upon the incurrence of Additional Indebtedness. Bankruptcy If the Corporation was 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 their 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. 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 Matters Relating to Enforceability of the Master Indenture The obligations of the Corporation and any future members of the Obligated Group under the Series 2013 Notes 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 Corporation and any future members 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 Notes, including the Series 2013 Notes pledged under the Bond Indenture as security for the Series 2013 Bonds. The obligations described herein of the -63-

100 Obligated Group to make payments of debt service on Notes 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 Notes 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 Tax-Exempt 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 2013 Notes 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 Note, 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 2013 Notes 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 Florida fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under Florida 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 Florida 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 a Note 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 the Member of the Obligated Group s guaranty was not received and that the incurrence of such Note 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 exercise of its equitable jurisdiction; (vii) federal bankruptcy laws which may affect the -64-

101 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 Florida 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 a Note 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 Florida statutes pursuant to which the Florida 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 Florida 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. -65-

102 Uncertainty of Investment Income The investment earnings of, and accumulations in, certain funds established pursuant to the Bond Indenture 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 Indenture, 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 Indenture. See ESTIMATED SOURCES AND USES OF FUNDS above. Environmental Matters Health care facilities, such as the Community, are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations that address, among other things, operations of facilities and properties owned or operated by such facilities. Among the types of regulatory requirements faced by such facilities are: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos; polychlorinated biphenyls, and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the such facility or hospital; requirements for training employees in the proper handling and management of hazardous materials and wastes; and other requirements. In their role as owners and operators of properties or facilities, such facilities may be subject to liability for investigating and remedying any hazardous substances that have come to be located on the property, including any such substances that may have migrated off of the property. Typical operations of such facilities, include to some extent 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. For this reason, operations of such facilities are susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations or increase their cost or both; may result in legal liability, damages, injunctions or fines, or may trigger investigations, administrative proceedings, penalties or other government agency actions. There can be no assurance that the Corporation 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. The Master Trustee may decline to enforce the Mortgage if the Master Trustee has not been indemnified to its satisfaction in accordance with the Master Indenture for all liabilities it may incur as a consequence thereof. Such liabilities may include costs associated with complying with environmental laws and regulations. Flooding and Other Natural Disasters The Project is located in a flood zone. The Project has been designed to account for that risk and the Corporation is required to purchase and maintain customary insurance for similarly situated corporations pursuant to the terms of the Master Indenture as described more fully in DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture SECTION Insurance in APPENDIX C hereto. Management of the Corporation intends to purchase flood insurance for the Project when it is completed. There can be no assurance that the Project or other facilities of the Obligated Group will not be damaged by floods or other natural disasters in the future or that any such damage would be fully within the applicable limits of the insurance policies maintained by the Obligated Group, if any. The occurrence of any such natural disaster may damage and interrupt the operation of the facilities of the Corporation and any future members of the Obligated Group, interrupt utility services, or -66-

103 otherwise impair the operation and generation of revenues from said facilities which could have a material financial impact on the Obligated Group. Other Possible Risk Factors The occurrence of any of the following events, or other unanticipated events, could adversely affect the operations of the Corporation and any future member 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; (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 and any future member 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 Community s market area; (5) The cost and availability of energy; (6) Increased unemployment or other adverse economic conditions in the service areas 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 and any future member of the Obligated Group; (8) Inflation or other adverse economic conditions; (9) Reinstatement or establishment of mandatory governmental wage, rent or price controls; (10) Changes in tax, pension, social security or other laws and regulations affecting the provisions of health care and other services to the elderly; (11) Changes in the tax laws and regulations eliminating or adversely impairing the value of the tax exemption afforded the Series 2013 Bonds; (12) 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; (13) Scientific and technological advances that could reduce demand for services offered by the Corporation and any future members of the Obligated Group; or -67-

104 (14) Cost and availability of any insurance, such as malpractice, fire, automobile and general comprehensive liability, that organizations such as the Corporation and any future members of the Obligated Group generally carry. Lack of Marketability for the Series 2013 Bonds Although the Underwriter intends, but is not obligated, to make a market for the Series 2013 Bonds, there can be no assurance that there will be a secondary market for the Series 2013 Bonds, and the absence of such a market for such bonds could result in investors not being able to resell the Series 2013 Bonds should they need to or wish to do so. Additionally, the ability to sell or transfer the Series 2013 Bonds is limited to qualified institutional buyers as defined under Rule 144A or accredited investors as defined under Rule 501 of Regulation D of the Securities Act of 1933 until such time as the Corporation applies for and receives a rating on the Series 2013 Bonds of at least BBB/Baa3 or equivalent from any Rating Agency, a restriction on the ability of investors to resell the Series 2013 Bonds. See THE SERIES 2013 BONDS Limitations on Investors and Restrictions on Transfer herein. Absence of a Bond Rating The Series 2013 Bonds are unrated. When any Bondholder attempts to sell his or her Series 2013 Bonds, this absence of a rating could adversely affect the market price and marketability thereof. FLORIDA REGULATION OF CONTINUING CARE FACILITIES Continuing care facilities in Florida are regulated by the Department of Financial Services, Office of Insurance Regulation ( OIR ) under the provisions of Chapter 651, Florida Statutes, as amended ( Chapter 651 ). Under Chapter 651, continuing care means furnishing pursuant to an agreement shelter, food and either nursing care or certain personal services, whether such nursing care or personal services are provided in the facility or in another setting designated by the agreement for continuing care, to an individual not related by consanguinity or affinity to the provider furnishing such care, upon payment of an entrance fee. Agreements to provide continuing care include agreements to provide care for any duration, including agreements that are terminable by either party. Personal services include, but are not limited to, such services as individual assistance with or supervision of essential activities of daily living. Entrance fee means an initial or deferred payment of a sum of money or property made as full or partial payment to assure the resident a place in a facility. An accommodation fee, admission fee or other fee of similar form and application is considered to be an entrance fee. Initial entrance fee means the total entrance fee charged by a facility to the first occupant of a unit. Certificate of Authority; Initial Entrance Fees Chapter 651 provides that no person may engage in the business of providing continuing care or enter into continuing care agreements or construct a facility for the purpose of providing continuing care without a certificate of authority issued by the OIR. A final certificate of authority may be issued after the applicant has provided the OIR with the information and documents required by Chapter 651. The Corporation received a provisional certificate of authority for the Community, which remains in full force and effect and anticipates receipt of the final certificate of authority following the closing of the Series 2013 Bonds. -68-

105 Prior to the release of initial entrance fees held in escrow as described herein, Chapter 651 requires that a minimum of 75 percent of the moneys paid for all or any part of an initial entrance fee collected be placed in an escrow account or on deposit with the OIR. Initial entrance fees held in escrow or on deposit with OIR in accordance with the requirements of Chapter 651 may not be released to the Corporation until (i) a certificate of occupancy has been issued, (ii) the Corporation has received payment in full for no less than 70 percent of the total Independent Living Units of the Project, (iii) Dixon Hughes Goodman LLP, or a substitute feasibility consultant approved by OIR, has certified that there has been no material adverse change in status with regard to the Financial Feasibility Study, which certificate shall be dated not more than 12 months from the date of filing for OIR approval, or if a material adverse change should exist at the time of submission, then sufficient information acceptable to OIR and the feasibility consultant shall be submitted which remedies the adverse condition, (iv) proof that the Corporation has sufficient funds to fund the required minimum liquid reserve requirements, as set forth in Section , Florida Statutes, which may be include funds deposited in the initial entrance fee escrow account, and (v) the other conditions set forth in Section (4), Florida Statutes have been satisfied. Chapter 651 allows both the moneys paid for all or any part of an initial entrance fee collected which are not required to be placed in escrow or on deposit with OIR and the moneys that are released to the Corporation from escrow or from deposit with the OIR as described in the preceding paragraph, to be used by the Corporation for working capital or other purposes. Once issued, a certificate of authority is renewable annually as of each September 30 upon a determination by the OIR that the provider continues to meet the requirements of Chapter 651. Annual reports containing financial and other information about the provider and the facility are required to be filed with the OIR annually on or before each June 1. If a provider fails to correct deficiencies within 20 days of notice from the OIR, and if the time for correction is not extended, the OIR may institute delinquency proceedings against the provider, as described below. See Examinations and Delinquency Proceedings. Required Reserves Chapter 651 requires that each continuing care provider maintain: (a) a debt service reserve in an amount equal to the principal and interest payments becoming due during the current fiscal year (18 months interest on the financing if no principal payments are currently due) on any mortgage loan or other long term financing, including taxes and insurance; (b) an operating reserve in an amount equal to 15% of the facility s average total annual operating expenses set forth in the annual reports filed pursuant to Chapter 651 for the immediate preceding 3-year period, subject to adjustment in the event there is a change in the number of facilities owned; and (c) a renewal and replacement reserve in an amount equal to 15% of the total accumulated depreciation based on the audited financial statements included in the facility s annual report filed pursuant to Chapter 651, not to exceed 15% of the facility s average operating expenses for the past 3 fiscal years based on the audited financial statements for each of such years. These reserves are required to be held in a segregated escrow account maintained with a Florida bank, savings and loan association or trust company acceptable to the OIR and, in the case of the operating reserve, must be in an unencumbered account held in escrow for the benefit of the residents. The Reserve Accounts within the Debt Service Reserve Fund, each established with the Bond Trustee pursuant to the Bond Indenture, and the escrow accounts (the Minimum Liquid Reserve Accounts ) established with the Chapter 651 Escrow Agent, currently SunTrust Bank, as escrow agent under the Agreement for The Arlington of Naples Debt Service Reserve Escrow Account, Operating Reserve Escrow Account and Renewal and Replacement Reserve Escrow Account dated as of November 30, 2009, are intended to meet the requirements of Chapter 651 for those reserves (the Required Reserves ). -69-

106 Chapter 651 requires the escrow agent holding the Required Reserves to deliver to the OIR quarterly reports on the status of the escrow funds, including balances, deposits and disbursements. Chapter 651 provides that withdrawals can be made from the Required Reserves only after ten days prior written notice to the OIR, except that in an emergency the provider may petition for a waiver of such tenday notice requirement (a waiver being deemed granted if not denied by the OIR within three working days). Fines may be imposed for failure to deliver the quarterly reports or notices of withdrawal within the required time periods. The Obligated Group shall not draw upon the Minimum Liquid Reserve Accounts until the Liquidity Support Fund, Working Capital Fund and Operating Reserve Fund are depleted. Continuing Care Agreements and Residents Rights Chapter 651 prescribes certain requirements for continuing care agreements and requires OIR approval of the form of an agreement before it is used and of any changes to the terms of an agreement once it has been approved. In addition to requiring that the agreement state the amounts payable by the resident, the services to be provided and the health and financial conditions for acceptance of a resident, Chapter 651 requires that the agreement may be canceled by either party upon at least 30 days notice. A provider that does not give its residents a transferable membership right or ownership interest in the facility may retain 2% of the entrance fee per month of occupancy prior to cancellation, plus a processing fee not exceeding 5% of the entrance fee, and must pay the refund within 120 days of notice of cancellation. The Resident Agreements for the Community meet the requirements of this provision. Chapter 651 requires that a prospective resident have the right to cancel, without penalty, a continuing care agreement within seven days of signing the continuing care agreement. During this seven-day period, any entrance fee or deposit must be held in escrow or, at the request of the prospective resident, held by the provider. If the prospective resident rescinds the continuing care contract during the seven-day rescission period, the entrance fee or deposit must be refunded to the prospective resident without deduction. If cancellation occurs after seven days, but prior to occupancy, the entire entrance fee must be refunded, less a processing fee not exceeding 5%, within 60 days of notice of cancellation. However, if cancellation occurs prior to occupancy due to death, illness, injury or incapacity of the prospective resident, the entire entrance fee must be refunded, less any costs specifically incurred by the provider at the written request of the resident. Chapter 651 further requires that a resident may not be dismissed or discharged without just cause. Failure to pay monthly maintenance fees will not be considered just cause until such time as the amounts paid by the resident, plus any benefits under Medicare or third party insurance, exceed the cost of caring for the resident, based on the per capita cost to the facility (which cost may be adjusted proportionately for amounts paid above the minimum charge for above-standard accommodations). Chapter 651 also contains provisions giving residents the right: to form residents organizations and choose representatives; to attend quarterly meetings with the provider; and to inspect the provider s annual reports to the OIR and any examination reports prepared by the OIR or any other governmental agencies (except those which are required by law to be kept confidential). Prior to the implementation of any increase in the monthly maintenance fee, the provider must provide, at a quarterly meeting of the residents, the reasons, by department cost centers, for any increase in the fee that exceeds the most recently published Consumer Price Index for all Urban Consumers, all items, Class A Areas of the Southern Region. Residents must also be notified of any plans filed with the OIR relating to expansion of the facility or any additional financing or refinancing. -70-

107 Examinations and Delinquency Proceedings The OIR is required to examine the business of each continuing care provider at least once every three years, in the same manner as provided under Florida law for examination of insurance companies. Inspections may also be requested by any interested party. The OIR is required to notify the provider of any discrepancies and to set a reasonable time for corrective action and compliance by the provider. The OIR may deny, suspend, revoke or refuse to renew a certificate of authority for various grounds relating to: the insolvent condition of the provider or the provider s being in a condition which renders its conduct of further business hazardous or injurious to the public; lack of one or more of the qualifications for a certificate of authority; material misstatements, misrepresentation, fraud, misappropriation of moneys or demonstrated lack of fitness or untrustworthiness; violations of Chapter 651 or any regulation or order of the OIR; or refusal to permit examination or to furnish required information. Suspension of a certificate of authority may not exceed one year, during which period the provider may continue to operate and must file annual reports, but may not issue new continuing care agreements. At the end of the suspension period, the certificate of authority is to be reinstated, unless the OIR finds that the causes for suspension have not been removed or that the provider is otherwise not in compliance with Chapter 651 (in which event the certificate of authority is deemed to have been revoked as of the end of the suspension period). In lieu of suspension, administrative fines may be levied, not exceeding $1,000 per violation, or $10,000 for knowing and willful violations. If the OIR finds that sufficient grounds exist as to a continuing care provider for the rehabilitation (i.e., receivership), liquidation, conservation, reorganization, seizure or summary proceedings of an insurer as provided under Florida law pertaining to insurance companies, the OIR may petition for an appropriate court order or pursue such other relief as is afforded under Part I of Chapter 631, Florida Statutes, as amended (the Insurers Rehabilitation and Liquidation Act ), for insurance companies generally. Such grounds include, but are not limited to, insolvency or failure or refusal to comply with Insurance Department requirements. Chapter 651 provides that the rights of the OIR are subordinate to the rights of a trustee or lender pursuant to an indenture, loan agreement or mortgage securing bonds issued to finance or refinance the facility. However, if the OIR has been appointed as receiver of the facility, the court having jurisdiction over the receivership proceeding is authorized to enjoin a secured creditor from seeking to dispose of the collateral securing its mortgage for up to 12 months, upon a showing of good cause, such as a showing that the collateral should be retained in order to protect the life, health, safety or welfare of the residents or to provide sufficient time for relocation of the residents. If a trustee or lender becomes the mortgagee under the Mortgage pursuant to a foreclosure sale or otherwise through the exercise of remedies upon the default of the mortgagor, the rights of a resident of any portion of the applicable Mortgaged Property governed by Chapter 651, Florida Statutes, under a continuing care agreement, shall be honored and shall not be disturbed or affected (except as described below) as long as the resident continues to comply with all provisions of the continuing care agreement and has asserted no claim inconsistent with the rights of the trustee or lender. In such event, the OIR shall not exercise its remedial rights provided under Chapter 651 with respect to the facility, including its right to enjoin disposal of the facility as described in the preceding paragraph. Upon acquisition of a facility by a trustee or lender pursuant to remedies under the Mortgage, the OIR shall issue a 90-day temporary certificate of authority to operate the facility, provided that the trustee or lender will not be required to continue to engage in the marketing or resale of new continuing care agreements, pay any refunds of entrance fees otherwise required to be paid under a resident s continuing -71-

108 care agreement until expiration of such 90-day period, be responsible for acts or omissions of the operator of the facility arising prior to the acquisition of the facility by the trustee or lender, or provide services to the residents to the extent that the trustee or lender would be required to advance funds that have not been designated or set aside for such purposes. Financial Reporting FINANCIAL REPORTING AND CONTINUING DISCLOSURE The Master Indenture requires that the Obligated Group Representative furnish or cause to be furnished to the Master Trustee, the Initial Purchaser, all nationally recognized municipal securities information repositories identified by the Securities and Exchange Commission, and all Bondholders owning $500,000 or more of any Related Bonds who request in writing (the Required Information Recipients ): (i) Until the achievement of Stable Occupancy, as soon as practicable after the information is available but in no event more than 45 days after the completion of each month, a monthly statement including (A) prior to the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), (1) a calculation of the marketing levels for the Project as of the end of such month, including the number of Entrance Fee Units that have been sold or cancelled during that month and on an aggregate basis; (2) a summary statement as to the status of construction including the report of any construction monitor; (3) unaudited financial reports on the development costs of the Project incurred during that month and on an aggregate basis; and (4) statements of the balances for each fund and account required to be established pursuant to the Master Indenture or the Liquidity Support Agreement or under any Related Bond Indenture as of the end of such month (obtained from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Representative, and (B) after the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), (1) a calculation of the marketing levels for the Project as of the end of such month, including the number of Entrance Fee Units that have been sold or cancelled during that month and on an aggregate basis; (2) occupancy levels of the Project as of the end of such month including the number of Entrance Fee Units that were Occupied and vacated during that month and on an aggregate basis; (3) a summary statement on the status of construction until the issuance of the last certificate of occupancy for the Project; (4) unaudited financial reports on the development costs incurred during that month and on an aggregate basis until the issuance of the last certificate of occupancy for the Project; (5) an unaudited statement of revenues and expenses and statement of cash flows of the Obligated Group for such month compared to the approved budget for that month and an unaudited balance sheet of the Obligated Group as of the end of such month; and (6) statements of the balances for each fund and account required to be established pursuant to the Master Indenture or under the Liquidity Support Agreement or under any Related Bond Indenture as of the end of such month (obtained from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Representative. (ii) Beginning with the first full fiscal quarter following the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), quarterly unaudited financial statements of the Obligated Group as soon as practicable after they are available but in no event more than 45 days after the completion of such fiscal quarter, including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, and a calculation of the marketing, occupancy, Cumulative Cash Operating Loss, Cash to Indebtedness Ratio or Days Cash on Hand, and Historical Debt Service Coverage Ratio, for such fiscal quarter if required to -72-

109 be calculated by the Master Indenture, all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Representative. Such financial statements and calculations shall be accompanied by a comparison to the annual budget provided pursuant to subsection (iv) below, together with a report describing the refund liabilities coming due resulting from residents vacating Independent Living Units and move through levels of care, refunds coming due for Independent Living Units not yet reoccupied, refunds now due after units are reoccupied and the age of the refunds now due. If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 and the Cash to Indebtedness Ratio and/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 the above paragraph on a monthly basis 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 and/or the Days Cash on Hand, as applicable, of the Obligated Group is at least equal to the applicable Liquidity Requirement. (iii) Within 150 days of the end of each Fiscal Year, an annual audited financial report of the Obligated Group prepared by a firm of 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 cash flows 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 preparing such report (or another firm of certified public accountants) containing calculations of the Obligated Group s Historical Debt Service Coverage Ratio for said Fiscal Year (beginning with the Fiscal Year following the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas)) and a statement that such Accountants have no knowledge of any default under the Master Indenture insofar as it relates to accounting matters or to the Obligated Group s financial covenants, or if such Accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof. (iv) On or before the date of delivery of the financial reports referred to in subsection (iii) above, an Officer s Certificate of the Obligated Group Representative (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture, any Related Loan Agreement, and any Related Bond Indenture or, if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the marketing, occupancy, Cumulative Cash Operating Loss, Cash to Indebtedness Ratio or Days Cash on Hand, and the Historical Debt Service Coverage Ratio, if required to be calculated for such Fiscal Year by the Master Indenture, as of the end of such month or Fiscal Year, as appropriate, (C) attaching a summary of the Obligated Group s annual operating and capital budget for the coming Fiscal Year, (D) showing a comparison of the audited financial reports with the operating budget for the preceding Fiscal Year and (E) including an executive summary of any actuarial reports received by the Obligated Group during the preceding Fiscal Year, if any. (v) On or before the date of delivery of the financial reports referred to in subsections (ii) and (iii) above, a management s discussion and analysis of results for the applicable fiscal period. (vi) Copies of (A) any board approved revisions to the summary of the annual budget, or (B) any correspondence to or from the Internal Revenue Service questioning or contesting the status of any Member of the Obligated Group as an organization described in Section 501(c)(3) of the Code or -73-

110 with respect to the tax-exempt status of the 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. (vii) Within 30 days of (a) receipt of any Occupancy Certificate for any portion of the Project, (b) completing the Project or (c) achieving Stable Occupancy, the Obligated Group Representative will notify the Master Trustee of such event. (viii) Such additional information as the Master Trustee or any Related Bond Trustee may reasonably request concerning any Member in order to enable the Master Trustee or such Related Bond Trustee to determine whether the covenants, terms and provisions of the Master Indenture have been complied with by the Members and for that purpose all pertinent books, documents and vouchers relating to the business, affairs and Property (other than patient, donor and personnel records) of the Members shall, to the extent permitted by law, at all times during regular business hours be open to the inspection of such Accountant or other agent (who may make copies of all or any part thereof) as shall from time to time be designated by the Master Trustee or such Related Bond Trustee. The Obligated Group has also covenanted that, within 10 days after its receipt thereof, the Obligated Group Representative shall file with the Required Information Recipients a copy of each Consultant s report or Opinion of Counsel required to be prepared under the terms of the Master Indenture. For more information see DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.15 Financial Statements, Etc. in APPENDIX C hereto. Continuing Disclosure Offerings of municipal securities must comply with the provisions of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended from time to time (the Rule ). Inasmuch as the Series 2013 Bonds are limited obligations of the Authority, the Authority has determined that no financial or operating data concerning it is material to any decision to purchase, hold or sell the Series 2013 Bonds, and the Authority will not provide any such information. The Corporation has undertaken all responsibilities for any continuing disclosure to holders of the Series 2013 Bonds as described below, and the Authority shall have no liability to the holders or any other person with respect to such disclosures. General. The Corporation has covenanted for the benefit of the Series 2013 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 Corporation, to provide or cause to be provided (i) until the achievement of Stable Occupancy, on a monthly basis, certain financial information of the Corporation described above under the heading Financial Reporting in paragraph (i) and, if required, (ii) above as well as under the heading Monthly Reports below (the Monthly Report ) by not later than 45 days after the completion of such month; (ii) on a quarterly basis, certain financial information for the Corporation described in paragraph (ii) of Financial Reporting above as well as under the heading Quarterly Reports below (the Quarterly Report ) by not later than the date 45 days after the last day of such fiscal quarter of the Corporation, commencing with the Quarterly Report for the first full fiscal quarter following the issuance of a certificate of occupancy for the first building (excluding the Entrance Fee Units considered to be Villas) containing Entrance Fee Units; (iii) each year, certain financial information for the Corporation and operating data relating to the Corporation described in paragraphs (iii) and (iv) under the heading Financial Reporting above as well as under the heading Annual Report below (the Annual Report ) by not later than the date 150 days after the last day of the fiscal year of the Corporation, commencing with the Annual Report for the fiscal year ended June 30, 2014; provided, however, that if the audited financial statements of the -74-

111 Corporation are not available by such date, unaudited financial statements will be included in the Annual Report 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 Corporation commences on July 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 2013 Bonds (including persons holding Series 2013 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Series 2013 Bonds for federal income tax purposes. If not otherwise provided previously, the Obligated Group will also provide, as soon as practicable after the information described in APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Section 4.15 Financial Statements is requested by and actually provided to the Required Information Recipients, but in any case not later than 45 days after such information is provided to Required Information Recipients and to EMMA (as defined below), the information described in APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS Excerpts From The Master Indenture Financial Statements, Etc. The information will be made available to holders of the Series 2013 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 Corporation with EMMA or with 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 Listed Events will be filed with EMMA within 10 days of the occurrence thereof: (1) Any delinquency in payment when due of any principal of, or interest on the Series 2013 Bonds. (2) Occurrence of any Event of Default under and defined in the Bond Indenture (other than as described in clause 1 above), if material. (3) Any unscheduled draw on debt service reserves reflecting financial difficulties. (4) Any unscheduled draw on credit enhancements, if any, reflecting financial difficulties. (5) Substitution of credit or liquidity providers, if any, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Series 2013 Bonds. (7) Modification to rights of Bondholders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasance of the Series 2013 Bonds or any portion thereof. (10) Release, substitution, or sale of property securing repayment of the Series 2013 Bonds, if material. -75-

112 (11) Any change in the rating on the Series 2013 Bonds. (12) Any other material events that are added to the Rule after the date of the Disclosure Agreement. (13) Bankruptcy, insolvency, receivership or similar event of an Obligated Person. (14) The consummation of a merger, consolidation, acquisition or sale of all or substantially all of the assets of an Obligated Person, 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 action, other than pursuant to its terms, if material. (15) Appointment of a successor or additional Bond Trustee or the change of name of the Bond Trustee, if material. Annual Report. The Annual Report shall be submitted in no event more than 150 days after the end of the Fiscal Year and shall contain or incorporate by reference at least the following items: (a) An annual audited financial report of the Obligated Group prepared 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 cash flows 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 preparing such report (or another firm of certified public accountants) containing calculations of the Obligated Group s Historical Debt Service Coverage Ratio for said Fiscal Year (beginning with the Fiscal Year following the issuance of a certificate of occupancy for the first building containing Entrance Fee Units) and a statement that such accountants have no knowledge of any default under the Master Indenture insofar as it relates to accounting matters or to the Obligated Group s financial covenants, or if such accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof. (b) an Officer s Certificate of the Obligated Group Representative (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture, any Related Loan Agreement, and any Related Bond Indenture or, if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the marketing, occupancy, Cumulative Cash Operating Loss, Cash to Indebtedness Ratio or Days Cash on Hand, and the Historical Debt Service Coverage Ratio, if required to be calculated for such Fiscal Year by the Master Indenture, as of the end of such month or Fiscal Year, as appropriate, (C) attaching a summary of the Obligated Group s annual operating and capital budget for the coming Fiscal Year, (D) showing a comparison of the audited Financial Statements with the operating budget for the preceding Fiscal Year, (E) including an executive summary of any actuarial reports received by the Obligated Group during the preceding Fiscal Year, if any, and (F) including a management s discussion and analysis of results. Quarterly Reports. The Quarterly Reports will be submitted in no event more than 45 days after the end of each quarterly fiscal period of each Fiscal Year, beginning with the first full fiscal quarter following the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), and will contain quarterly unaudited financial statements of the Obligated Group as soon as practicable after they are available but in no event more than 45 days after the completion of such fiscal quarter, including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining balance -76-

113 sheet as of the end of each such fiscal quarter, and a calculation of the marketing, occupancy, Cumulative Cash Operating Loss, Cash to Indebtedness Ratio or Days Cash on Hand, as applicable, and Historical Debt Service Coverage Ratio, for such fiscal quarter if required to be calculated by the Master Indenture, all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Representative. Such financial statements and calculations shall be accompanied by a comparison to the annual budget and shall include a management s discussion and analysis of results together with a report describing the refund liabilities coming due resulting from residents vacating Independent Living Units and move through levels of care, refunds coming due for Independent Living Units not yet reoccupied, refunds now due after units are reoccupied and the age of the refunds now due. Monthly Reports. Until the achievement of Stable Occupancy, Monthly Reports will be submitted in no event more than 45 days after the end of each month, and will contain, in reasonable detail, certified by an officer of the Obligated Group Representative: (A) prior to the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), (1) a calculation of the marketing levels for the Project as of the end of such month, including the number of Entrance Fee Units that have been sold or cancelled during that month and on an aggregate basis; (2) a summary statement as to the status of construction including the report of any construction monitor; (3) unaudited financial reports on the development costs of the Project incurred during that month and on an aggregate basis; and (4) statements of the balances for each fund and account required to be established under the Disclosure Agreement or the Liquidity Support Agreement or under any Related Bond Indenture as of the end of such month (obtained from the applicable trustee), all in reasonable detail and certified by an officer of the Obligated Group Representative, or (B) after the issuance of a certificate of occupancy for the first building containing Entrance Fee Units (excluding the Villas), (1) a calculation of the marketing levels for the Project as of the end of such month, including the number of Entrance Fee Units that have been sold or cancelled during that month and on an aggregate basis; (2) occupancy levels of the Project as of the end of such month including the number of Entrance Fee Units that were occupied and vacated during that month and on an aggregate basis; (3) a summary statement on the status of construction until the issuance of the last certificate of occupancy for the Project; (4) unaudited financial reports on the development costs incurred during that month and on an aggregate basis until the issuance of the last certificate of occupancy for the Project; (5) an unaudited statement of revenues and expenses and statement of cash flows of the Obligated Group for such month compared to the approved budget for that month and an unaudited balance sheet of the Obligated Group as of the end of such month; and (6) statements of the balances for each fund and account required to be established under the Disclosure Agreement or under the Liquidity Support Agreement or under any Related Bond Indenture as of the end of such month (obtained from the applicable trustee). Additionally, If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than the Annual Debt Service Coverage Requirement and/or the Cash to Indebtedness Ratio or 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 under the subheading Quarterly Reports 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 equal to the Annual Debt Service Coverage Requirement and the Cash to Indebtedness Ratio and/or Days Cash on Hand, as applicable, of the Obligated Group is at least equal to the Liquidity Requirement. -77-

114 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 Limited Offering 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 Corporation to comply with any provision of the Disclosure Agreement, any Series 2013 Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Corporation 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 Indenture, the Mortgage, the Master Indenture or Loan Agreement. The sole remedy under the Disclosure Agreement in the event of any failure of the Corporation to comply with the Disclosure Agreement shall be an action to compel specific performance, and no person or entity shall be entitled to recover monetary damage thereunder under any circumstances. Amendment of the Disclosure Agreement. The provisions of the Disclosure Agreement, including but not limited to the provisions relating to the accounting principles pursuant to which the financial statements are prepared, may be amended as deemed appropriate by an authorized officer of the Corporation but any such amendment must be adopted procedurally and substantively in a manner consistent with the Rule, including any interpretation thereof made from time to time by the SEC. Such interpretations currently include the requirements that (a) the amendment may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Corporation or the type of activities conducted thereby, (b) the undertaking, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the Series 2013 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (c) the amendment does not materially impair the interests of Series 2013 Bondholders, as determined by parties unaffiliated with the Corporation (such as independent legal counsel). The foregoing interpretations may be changed in the future. The Authority LITIGATION There is not now pending (as to which the Authority has received service of process) or, to the actual knowledge of the Authority, threatened any litigation against the Authority restraining or enjoining the issuance or delivery of the Series 2013 Bonds or questioning or affecting the validity of the Series 2013 Bonds or the proceedings or authority under which the Series 2013 Bonds are to be issued. Neither the creation, organization or existence of the Authority nor the title of any of the present members or other officials of the Authority to their respective offices is being contested. There is no litigation against the Authority pending (as to which the Authority has received service of process) or, to the Authority s actual knowledge, threatened, which in any manner questions the right of the Authority to enter into the Bond Indenture, the Bond Purchase Contract or the Loan Agreement or to secure the Series 2013 Bonds in the manner provided in the Bond Indenture, the Resolution 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 -78-

115 management, will be entirely within the applicable insurance policy limits (subject to applicable deductibles) or are not in 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 Series 2013 Bonds by the Authority are subject to the approval of Nabors, Giblin & Nickerson, P.A., Tampa, Florida, Bond Counsel. Certain legal matters will be passed upon for the Authority by its counsel, Donald A. Pickworth, P.A., Naples, Florida, for the Corporation by its counsel, Chuhak & Tecson, P.C., Chicago, Illinois and Holland & Knight LLP, special Florida counsel to the Corporation and for the Underwriter by its counsel, Katten Muchin Rosenman LLP, Chicago, Illinois. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Section Florida Statutes and Rule 69W , Florida Administrative Code, provide for the exemption from registration of certain governmental securities and require that, if an Authority or guarantor of governmental securities has been in default at any time after December 31, 1975 as to principal and interest on any obligation issued or guaranteed by it, its securities may not be offered or sold in Florida except by means of an offering circular containing full and fair disclosure, as prescribed by rules of the Florida Department of Financial Services (the Department of Financial Services ). Under the rules of the Department of Financial Services, the prescribed disclosure is not required if the information is not an appropriate disclosure in that the information would not be considered material by a reasonable investor. As described above, the Authority has the power to issue bonds for the purpose of financing projects for other borrowers, which bonds are payable from the revenues of the particular project or borrower. Revenue bonds issued by the Authority for other projects may be in default as to principal and interest. The source of payment, however, for any such defaulted bond is separate and distinct from the source of payment for the Series 2013 Bonds and, therefore, any default on such bonds would not, in the judgment of the Authority, be considered material by a potential purchaser of the Series 2013 Bonds. 31, The Corporation has not defaulted in any payment of principal or interest after December TAX MATTERS Bonds Opinion. On the date of initial delivery of the Series 2013 Bonds, Nabors, Giblin & Nickerson, P.A., Tampa, Florida, Bond Counsel, will render its opinion in the form attached hereto as APPENDIX D to the effect that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ( Existing Law ), (1) interest on the Series 2013 Bonds for federal income tax purposes will be excludable from the gross income of the holders thereof, and (2) such -79-

116 interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that such interest is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax imposed on corporations as defined in the Code. Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchases, ownership or disposition of the Series 2013 Bonds. See FORM OF OPINION OF BOND COUNSEL in APPENDIX D hereto. In rendering its opinion, Bond Counsel will rely upon (a) the opinion of Chuhak & Tecson, P.C., counsel to the Corporation, relating to the qualification of the Corporation as an organization described in Section 501(c)(3) of the Code, (b) information furnished by the Corporation, and particularly written representations of officers and agents of the Corporation with respect to certain material facts that are solely within their knowledge relating to the use of the proceeds of the Series 2013 Bonds, and (c) covenants of the Authority and the Corporation with respect to arbitrage, the application of the proceeds to be received from the issuance and sale of the Series 2013 Bonds and certain other matters. Failure of the Authority or the Corporation to comply with these representations or covenants could cause the interest on the Series 2013 Bonds to become includable in gross income retroactively to the date of issuance of the Series 2013 Bonds. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Series 2013 Bonds in order for interest on the Series 2013 Bonds to be, and to remain, excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Series 2013 Bonds to be included in gross income retroactively to the date of issuance of the Series 2013 Bonds. The opinion of Bond Counsel is conditioned on compliance by the Authority and the Corporation with such requirements, and Bond Counsel has not been retained to monitor compliance with these requirements subsequent to the issuance of the Series 2013 Bonds. Bond Counsel s opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel s opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Series 2013 Bonds. A ruling was not sought from the Internal Revenue Service by the either the Corporation or the Authority with respect to the Series 2013 Bonds or the property financed or refinanced with proceeds of the Series 2013 Bonds. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Series 2013 Bonds, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the Authority as the taxpayer and the Bondholders may have no right to participate in such procedure. Other Tax Matters. During recent years, legislative proposals have been introduced in Congress, and in some cases enacted, that altered certain federal tax consequences resulting from the ownership of obligations that are similar to the Series 2013 Bonds. In some cases these proposals have contained provisions that altered these consequences on a retroactive basis. Such alteration of federal tax consequences may have affected the market value of obligations similar to the Series 2013 Bonds. From time to time, legislative proposals are pending which could have an effect on both the federal tax consequences resulting from ownership of the Series 2013 Bonds and their market value. No assurance -80-

117 can be given that legislative proposals will not be enacted that would apply to, or have an adverse effect upon, the Series 2013 Bonds. Tax Treatment of Original Issue Discount. Bond Counsel is further of the opinion that the difference between the principal amount of the Series 2013 Bonds maturing in the years 2035, 2037, 2044 and 2049 (the Discount Bonds ) and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such Discount Bonds of the same maturity was sold constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on the Series 2013 Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning the Discount Bonds, even though there will not be a corresponding cash payment. Owners of the Discount Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Discount Bonds. Collateral Federal Income Tax Consequences. The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Series 2013 Bonds. This discussion is based on Existing Law, which is subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with accumulated earnings and profits and excess passive investment income, foreign corporations subject to the branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE SERIES 2013 BONDS. Interest on the Series 2013 Bonds may be subject to state or local income taxation under applicable state or local laws. Purchasers of the Series 2013 Bonds should consult their tax advisors as to the income tax status of interest on the Series 2013 Bonds in their particular state or local jurisdictions. FEASIBILITY STUDY Management s financial forecast, included as part of the Feasibility Study included in APPENDIX B hereto, has been examined by Dixon Hughes Goodman 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. -81-

118 NO RATING THE SERIES 2013 BONDS ARE NOT RATED; NEITHER THE AUTHORITY NOR THE CORPORATION HAS APPLIED TO ANY RATING SERVICE FOR A RATING OF THE SERIES 2013 BONDS. UNDERWRITING Pursuant to a purchase contract by and between the Authority, the Corporation, and the Underwriter, the Underwriter will purchase (i) the Series 2013A Bonds at a purchase price of $124,231, which purchase price reflects $2,135, of underwriter s discount and $1,928, of original issue discount, (ii) the Series 2013B-1 Bonds at a purchase price of $11,775,950 which purchase price reflects $224,050 of underwriter s discount, and (ii) the Series 2013B- 2 Bonds at a purchase price of $48,995,050 which purchase price reflects $1,004,950 of underwriter s discount. The purchase contract will provide that the Underwriter will purchase all of the Series 2013 Bonds if any are purchased. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2013 Bonds to the public. The purchase contract will provide for the Corporation to indemnify the Underwriter and the Authority against certain liabilities. The obligation of the Underwriter to accept delivery of the Series 2013 Bonds will be subject to various conditions of the purchase contract. MISCELLANEOUS The references herein to the Act, the Master Indenture, the Series 2013 Notes, the Bond Indenture, 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 2013 Notes, the Bond Indenture, the Loan Agreement, the Mortgage and the Disclosure Agreement. Copies of such documents are on file at the office of the Authority and following the delivery of the Series 2013 Bonds will be on file at the office of the Bond Trustee. All estimates and other statements in this Limited Offering 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 2013 Bonds, but neither the failure to print such numbers on any Series 2013 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 2013 Bonds. The attached APPENDICES are integral parts of this Limited Offering Statement and must be read together with all of the foregoing statements. The Corporation has reviewed the information contained herein which relates to the Corporation, its property and operations, and has approved all such information for use within this Limited Offering Statement. -82-

119 Authority. The delivery of this Limited Offering Statement has been duly authorized by the This Limited Offering Statement is approved on behalf of: THE ARLINGTON OF NAPLES By: /s/ Roger W. Paulsberg Chairman

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121 APPENDIX A THE ARLINGTON OF NAPLES The information in this Appendix has been provided by The Arlington of Naples and Lutheran Life Ministries

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123 TABLE OF CONTENTS Page THE CORPORATION...A-1 History and Background...A-1 LLM and Related Entities...A-1 Directors and Officers...A-3 Board Composition...A-4 Conflict of Interest Policy...A-4 MANAGEMENT...A-4 LLM...A-4 The Corporation...A-6 Consulting Services Agreement...A-6 THE PROJECT...A-7 General Description...A-7 Land Acquisition...A-8 Development History...A-8 Support of LLM...A-8 Bond Anticipation Notes...A-8 Liquidity Support Agreement...A-9 Subordinated Note to LLM...A-9 Independent Living Units...A-9 Assisted Living Center and Memory Support Units...A-10 Health Center...A-12 Project Timeline...A-12 Future Plans...A-12 REGULATIONS, PERMITS AND APPROVALS...A-13 Zoning...A-13 Certificate of Authority Requirement...A-13 Certificate of Need...A-14 Healthcare Licensure...A-14 Permits...A-14 Environmental Study/Geotechnical Testing...A-15 COMPETITION AND SERVICE AREA...A-15 RESERVATION AGREEMENT...A-15 Rental Agreement...A-16 RESIDENT CONTRACT...A-16 Entrance Fee Independent Living Unit Resident Fee Structure...A-17 Founder s Program Benefits...A-18 Financial Assistance...A-19 Nondiscrimination...A-19 Services to Residents...A-19 Health Care Benefit...A-20 Fees for Additional Services...A-20 Termination and Refunds...A-20 MARKETING...A-22 Marketing Program...A-22 Reservation of Independent Living Units...A-22 SB&A...A-24 DEVELOPMENT OF THE COMMUNITY...A-27 CRSA....A-27 CRSA Professional Staff...A-28 (i)

124 CRSA Development Consulting Agreement...A-29 Development Agreement with Lutheran Life Communities...A-30 CONSTRUCTION OF THE PROJECT...A-30 Community Construction...A-30 General Contractor s Agreement Community Construction...A-35 Villa Construction...A-36 Villa Contractor s Agreement Villa Construction...A-37 OTHER PROFESSIONAL SERVICES...A-38 The Architect...A-38 The Construction Consultant for Pre-Construction Services...A-40 The Construction Monitor...A-40 (ii)

125 THE CORPORATION History and Background The Arlington of Naples, an Illinois not-for-profit corporation, registered to do business in the State of Florida as The Arlington of Naples, Inc. (the Corporation ), was incorporated in The Corporation is exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the Code ) as an organization described in Section 501(c)(3) of the Code under the group exemption of The Evangelical Lutheran Church in America. Lutheran Life Ministries, f/k/a Lutheran Life Communities ( LLM ) was formed in 2005 as an Illinois not-for-profit corporation and is the sole corporate member of the Corporation. LLM is also exempt from federal income tax under Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code. The mission of both LLM and the Corporation is to provide vibrant, grace-filled living across all generations. LLM and the Corporation welcome and serve people of all faiths, beliefs and traditions. The Corporation was formed for the purpose of developing, owning and operating a senior living continuing care community ( CCRC ) known as the Arlington of Naples (the Community ) to be developed on thirty-nine (39) acres in the Lely Resort Community in Naples, Florida. The Community, once constructed, will consist of one hundred thirty-two (132) independent living apartments (the Independent Living Apartments ), thirty-one (31) independent living villas (the Villas and collectively with the Independent Living Apartments, the Independent Living Units ), forty-two (42) assisted living units (the Assisted Living Units ), thirty-seven (37) memory support units (the Memory Support Units ), and forty-four (44) private skilled nursing beds (the Health Center ) and will include a number of common areas, including a small theater, a game room, a fitness center, an aquatic center, a woodworking shop, and multiple dining facilities. The Assisted Living Units and the Memory Support Units may be referred to herein collectively as the Assisted Living Center. The CCRC, which includes the Independent Living Units, the Assisted Living Units, the Memory Support Units, the Health Center and the common areas, is sometimes referred to herein as the Project. See THE PROJECT herein for a more detailed description of the proposed CCRC development. See PLAN OF FINANCE in the front part of this Limited Offering Statement for more information about uses of the proceeds of the Series 2013 Bonds, in addition to financing the costs of acquisition, development, construction and equipping the Project. LLM began to develop the Community after being approached by three (3) local Lutheran Churches in Naples and Marco Island. The church membership expressed that there was a need to develop a faith based senior living community in the Naples area to serve its growing senior population. The two largest Lutheran churches, Emmanuel Lutheran Church in Naples and Marco Lutheran Church in Marco Island, were strong supporters along with Grace Lutheran Church and Shepherd of the Glades Lutheran Church in Naples. Each of the pastors of these churches has held events and other informational sessions to introduce their parishioners and residents of the area in general to the Community and to educate them about CCRCs. These pastors continue to work with LLM and the Corporation to encourage the senior community to take part in learning about the array of services and arrangements that are being planned. LLM and Related Entities LLM is the sole corporate member of the Corporation and a number of other entities, including the Lutheran Home, located in Arlington Heights, Illinois. The senior living system consisting of LLM, the Corporation and their affiliated entities shall be referred to herein as Lutheran Life. The Lutheran A-1

126 Home dates back to the 1890s when it was founded by a Lutheran pastor who wanted to create a homelike setting to care for older adults. The Lutheran Home operates a full service long-term care facility currently licensed for three hundred ninety-two (392) nursing beds and a 100 unit assisting living facility. The Lutheran Home is currently undergoing a major modernization project. Over the years, the Lutheran Life organization has grown to include the following other organizations in addition to the Lutheran Home: Wittenberg Lutheran Village, Inc., an Indiana nonprofit corporation, which operates a one hundred fifty-fifty (155) bed skilled nursing facility in Crown Point, Indiana; Wittenberg Lutheran Village Endowment Corporation, an Indiana nonprofit corporation, which operates a thirty-two (32) unit assisted living facility, fifty-two (52) independent living villas, and fifty-seven (57) independent living apartments and common spaces in Crown Point, Indiana; Luther Oaks, Inc., an Illinois not-for-profit corporation, that operates a senior living community consisting of ninety (90) independent living units and fifty-eight (58) assisted living units in Bloomington, Illinois; St. Pauls House and Health Care Center, an Illinois not-for-profit corporation, that operates a senior care facility consisting of sixtyeight (68) assisted living beds and one hundred ten (110) skilled care beds located in Chicago, Illinois; Lutheran Life Communities Foundation, an Illinois not-for-profit corporation; Lutheran Foundation for the Aged, Inc., an Illinois not-for-profit corporation; Lutheran Community Services for the Aged, Inc., an Illinois not-for-profit corporation, which offers community services, information referrals and family support services to older adults and their families in the community, Lutheran Life Communities f/k/a Verispring, an Illinois not-for-profit corporation, which provides consulting services to the affiliates of LLM, and Pleasant View Luther Home, Inc., an Illinois not-for-profit corporation, which operates a ninety (90) bed skilled nursing facility, twenty-four (24) assisting living units and thirty-four (34) independent living villas. The following map depicts the locations of Lutheran Life s various senior living campuses: Each of the Lutheran Life entities is a not-for-profit corporation exempt from federal income tax under Section 501(a) of the Code as an organization as described in Section 501(c)(3) of the Code and are collectively referred to herein as the Affiliated Entities. Certain of the Affiliated Entities derive their A-2

127 federal tax-exempt status from the group exemption of The Evangelical Lutheran Church in America and others have received a determination letter from the Internal Revenue Service recognizing that status. Each of these entities is governed by a separate Board of Directors. The Corporation is the newest community to be developed by LLM. An affiliate of LLM, Lutheran Life Communities, provides consulting services to the Corporation under a consulting services agreement described in more detail below under MANAGEMENT Consulting Services Agreement. The following diagram depicts the current organizational structure: Neither LLM nor any of its Affiliated Entities (other than the Corporation) has any obligation or liability with respect to the Master Indenture, the Series 2013 Bonds or the Series 2013 Obligations. LLM s sole obligation with respect to the Project is pursuant to the terms of a Liquidity Support Agreement executed connection with the Series 2013 Bond issuance. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Limited Offering Statement. Directors and Officers The business affairs of the Corporation are governed by its board of directors and the officers of the board of directors. The Corporation does not provide compensation to its directors or board officers for their service in such capacity. The Bylaws provide that the board shall number between three (3) to five (5) directors. The directors of the Corporation are appointed by LLM for a three-year term of office; provided that the initial terms are established such that terms of office are staggered. Any director may resign at any time with written notice and may be removed with or without cause by LLM. Any vacancy on the board may be filled by LLM for the remainder of the unexpired term. Officers of the Corporation are elected annually by the board of directors and hold office for a term of one (1) year and until a successor is elected, unless the officer resigns sooner or is removed by LLM. The Bylaws of the Corporation provide that LLM has the right to approve the following: (a) adopt and amend statements of mission, philosophy or purpose; (b) adopt, amend and repeal the Articles of Incorporation, the Bylaws and any plan of merger, consolidation or dissolution; (c) the annual budget of the Corporation; (d) any unbudgeted expenditure in excess of $100,000; (e) any sale, lease or mortgage of the Corporation s real property or substantially all of its personal property, except as such actions relate to A-3

128 assets transferred from residents or donors, including without limitation, residential real estate; (f) any formal affiliation with another entity; and (g) any borrowing of money. Pursuant to the Bylaws, the following actions require approval of the Chief Executive Officer of LLM and the Chair of LLM, or the Chief Executive Officer of LLM and the Vice Chair of LLM, evidenced by a signed certificate: (a) any major change in programs and services, including any creation of new programs or the discontinuation of existing programs; (b) the acceptance of any charitable contribution which imposes a material obligation; and (c) any sale, lease or mortgage of assets transferred from residents or donors, including without limitation, residential real estate. Board Composition The following table identifies each director of the Corporation and provides a brief description of title, occupation and the year the individual s term expires: Name Age Title Occupation Term Expires Roger W. Paulsberg 60 Chair, President and CEO, Lutheran 2014 Director Life Communities James A. Holbrook 54 Vice-Chair, Secretary, Director Carl W. Moellenkamp 47 Treasurer, Director Conflict of Interest Policy Senior Vice President, Corporate Operations, Lutheran Life Communities Senior Vice President, Corporate Finance and CFO, Lutheran Life Communities In the event that the Corporation conducts business transactions with companies with which a member of the Board may be affiliated, the Corporation has a conflict of interest policy that requires that any duality of interest or possible conflict of interest be disclosed in writing and be made a matter of record. In addition to disclosure, the policy requires that additional specified steps be taken, as appropriate, to assure that the transaction is fair, reasonable and in the best interest of the Corporation. MANAGEMENT Both LLM and the Corporation are managed by professionals with significant expertise in the healthcare and the senior living industry, as illustrated below. LLM Reverend David G. Abrahamson, Chairman of the Board. Reverend Abrahamson is Pastor of Saint Luke Church in Chicago, having served first as Associate Pastor (beginning in 1974) and as Pastor (since 1982). He also serves as President of Saint Luke Ministries, which includes a church, school, cemetery and senior housing. His outside activities include serving on the Board of Directors for the LakeView Chamber of Commerce, the LakeView YMCA and Ravenswood/LakeView Historical Society. Pastor Abrahamson is also a member of the LakeView Lions Club, the LakeView Citizen s Council, LakeView Action Coalition, and chairs both the 44th Ward Community Directed Development Council for A-4

129 Alderman Thomas Tunney, and the 19th Police District Advisory Council. He has served as chair of the Advocate Illinois Masonic Hospital Governing Council, its Local Oversight Committee and Charity Care Committee, and is on the board of Central Federal Savings. He is president of the Alumni Board of the Lutheran School of Theology at Chicago and is president of Renaissance Social Services of Illinois. Pastor Abrahamson was also appointed by Mayor Richard Daley of Chicago to serve as a commissioner for Special Service Area #27 in LakeView. He also coordinates the LakeView Clergy Association. Past service includes: the Board Strategic Planning Committee, Catholic Health Partners, the Luther High School North Board of Trustees and seventeen (17) years as President of the Chicago Bible Society. He received a Bachelor of Arts from Valparaiso University, Valparaiso, Indiana. He attended Concordia Seminary, St. Louis, Missouri and received his M.Div. from Christ Seminary Seminex. Roger W. Paulsberg, President and CEO. Mr. Paulsberg has worked in executive positions in the senior healthcare field since He began his career with Beverly Enterprises, Inc., formerly one of the largest for profit senior healthcare organizations, holding several Administrator and Executive positions throughout North Dakota, Minnesota and Wisconsin. He became Administrator of the Lutheran Home in Arlington Heights, Illinois in In 1991, he became President and CEO of Lutheran Home & Services. During the period between 1991 and 2000, under Mr. Paulsberg s leadership, (i) Luther Village, a 684-unit senior independent living cooperative and unrelated entity was constructed on fiftytwo (52) leased acres of previously undeveloped land on the Lutheran Home campus, (ii) a one hundred (100) unit congregate assisted living building was constructed and connected to Lutheran Home, and (iii) approximately one hundred twenty (120) skilled nursing units were fully renovated and were converted to a neighborhood care concept model. Since 2000, four (4) more residential and care communities have been adopted into the Lutheran Life system of which Lutheran Life Ministries became the parent corporation in The Lutheran Life system includes over one thousand (1,000) units of Independent Living and Healthcare as well as a green field project, Luther Oaks, in Bloomington, Illinois, which was the first new senior living development in that community in many years. Awarded LeadingAge s Excellence in Leadership Award in 2007 and Wheat Ridge Ministries Seeds of Hope Award in 2008, Mr. Paulsberg s dedication to serving seniors in ministries of health, hope and healing is nationally recognized. Mr. Paulsberg has a Bachelor of Arts in Counseling and Social Services from North Dakota State University and has done post-graduate work in Public Health Administration and Finances at the University of Minnesota and Concordia College. He is a licensed Nursing Home Administrator in the State of Illinois. Mr. Paulsberg is a member of both LeadingAge and the Life Services Network. James A. Holbrook, Senior Vice President, Corporate Operations. Mr. Holbrook oversees all aspects of operations and clinical and residential service delivery. He served as the Administrator of Lutheran Home from 2002 to Prior to this, he served as Administrator of Community Services since Prior to joining Community Services, Mr. Holbrook served as Statewide Director of Family Services for Lutheran Child and Family Services, Lutheran Social Services of Illinois, and as a program supervisor with Proviso Family Services. His responsibilities have included program supervision and administration, budget management, and strategic planning. Mr. Holbrook received his Bachelor of Arts in Social Services and Master of Arts in Human Services from Concordia University, River Forest, Illinois. He holds a membership in the National Board of Certified Counselors. He is also a licensed Nursing Home Administrator and a licensed clinical professional counselor in the State of Illinois. Mr. Holbrook is a member of both LeadingAge and the Life Services Network. Carl W. Moellenkamp, Chief Financial Officer and Senior Vice President of Corporate Finance. Mr. Moellenkamp oversees all financial aspects of the Lutheran Life system, consisting of fourteen Affiliated Entities, including treasury management, financial reporting and analysis, insurance, budgeting, and future development planning. He joined Lutheran Life in 2005 as Chief Financial Officer and currently serves as a board member/treasurer on several of the Affiliated Entities. He has managed the financing of over $250 million of tax-exempt bonds and other loans at Lutheran Life over his tenure. A-5

130 Prior to joining Lutheran Life, he was the controller at Lutheran Social Services of Illinois for 3 years and a senior manager at Arthur Andersen for fifteen (15) years. Mr. Moellenkamp began his career at Andersen as an auditor and went on to help develop the Business Process Outsourcing division in Chicago. He has served many clients for over twenty-five (25) years in both the non-profit and for-profit sectors where he gained experience in all aspects of financial management, financial planning and business process improvement. In 2013, Mr. Moellenkamp was honored as a CFO of the Year in the Chicago-land area by the Daily Herald Business Ledger. Mr. Moellenkamp currently serves on the Finance Committee of Life Services Network and is an officer of the Arlington Heights Noon Rotary Club, among several other volunteer and philanthropic endeavors for which he serves. Mr. Moellenkamp holds a Bachelor of Science Degree in Accountancy from the University of Illinois at Urbana-Champaign and is a Registered CPA and Licensed Nursing Home Administrator in the state of Illinois. Mr. Moellenkamp is a member of both LeadingAge and the Life Services Network. Marie Carlson, Senior Vice President, Corporate Strategic Development. Ms. Carlson oversees strategic development of new facilities and programs for the Lutheran Life system and oversees the fundraising efforts of the Lutheran Life Communities Foundation. Prior to joining the Lutheran Life in 2007, she served clients in the senior living industry for more than twenty (20) years, most recently in new project development and as financial advisor, assisting clients across the country in obtaining approximately $600 million in capital for new construction and expansion projects, primarily through the tax-exempt bond market. She was corporate controller for a multi-facility long-term care provider for five (5) years and worked at KPMG for eight (8) years, exclusively in its senior living practice, performing financial feasibility studies, market demand analyses, financial projections, and troubled debt restructurings. Ms. Carlson has been a surveyor for the Commission on Accreditation of Rehabilitation Facilities/Continuing Care Accreditation Commission. She holds a Bachelor of Science Degree in Accountancy from the University of Illinois-Chicago and is a registered CPA. Ms. Carlson is a member of both LeadingAge and the Life Services Network. The Corporation Roger W. Paulsberg, President and CEO. Please see biography described above. James A. Holbrook, Senior Vice President, Corporate Operations. Please see biography described above. Carl W. Moellenkamp, Chief Financial Officer and Senior Vice President of Corporate Finance. Please see biography described above. Marie Carlson, Senior Vice President, Corporate Strategic Development. Please see biography described above. Consulting Services Agreement The Corporation and Lutheran Life Communities, an affiliate of LLM, have entered into a Consulting Services Agreement effective as of July 1, 2015 ( Consulting Services Agreement ), pursuant to which the Corporation appointed Lutheran Life Communities to provide consulting services for the Community. Under the terms of the Consulting Services Agreement, Lutheran Life Communities will provide the Corporation with services related to professional administrative, management and support services including: corporate management, accounting and payroll, human resources, information technology, marketing and risk management. As compensation for such services, the Corporation shall pay Lutheran Life Communities an annual base management fee of the lower of two percent (2%) of revenue or $420,000. Once the management fee has reached the annual rate of $420,000, it will be increased by A-6

131 multiplying the base management fee for the month immediately preceding the applicable anniversary date by a fraction, the numerator of which is the index figure for all items as shown in the United States Consumer Price Index for All Urban Consumers ( CPI-U ) published by the U.S. Bureau of Labor Statistics for the month immediately preceding the applicable anniversary date and the denominator of which is the CPI-U for the month one year prior to the month immediately preceding the applicable anniversary date. Notwithstanding anything to the contrary contained herein, there will be no downward adjustments in the base management fee. Late fees apply at an annual interest rate up to 18%, but no late fees will accrue during the period of time that management fees are being deferred pursuant to the terms of the Master Indenture. Such compensation is subordinated to all and any existing debt of the Corporation in accordance with the terms of the Consulting Services Agreement and repayable pursuant to the terms of the Master Indenture. For more information, see SECURITY FOR THE SERIES 2013 OBLIGATIONS Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness contained in the Limited Offering Statement. Neither LLM nor any of its Affiliated Entities (other than the Corporation) has any obligation or liability with respect to the Master Indenture, the Series 2013 Bonds or the Series 2013 Obligations. LLM s sole obligation with respect to the Project is pursuant to the terms of a Liquidity Support Agreement executed connection with the Series 2013 Bonds. General Description THE PROJECT The Community is a planned senior living CCRC to be developed on thirty-nine (39) acres in the Lely Resort Community in Naples, Florida. The Lely Resort is a luxury real estate community with eight (8) unique neighborhoods and three (3) championship golf courses. Management of the Corporation anticipates that the Community, once constructed, will consist of one hundred thirty-two (132) Independent Living Apartments, thirty-one (31) Villas, forty-two (42) Assisted Living Units, thirty-seven (37) Memory Support Units, and forty-four (44) private skilled nursing beds. The Community is currently planned to include a number of common areas, including a small movie theater, a game room, a fitness center, an aquatic center, a woodworking shop, a business center and multiple dining venues. See the inside front cover of this Limited Offering Statement for a location map and site plan of the Community. The Community s main structure is anticipated to be a one (1) and three (3) story commons and healthcare facility and a six (6) story independent living apartment building. The commons and independent living apartment facilities are built above a parking structure. The construction is anticipated to be concrete slab, metal frame and stud construction with stucco, stone/brick, and composite siding exterior finishes. The Community will include sloped and flat roofs with composite concrete tile and membrane roofing. Exterior accents include vinyl clad windows and metal clad doors with prefinished metal railed balconies. The thirty-one (31) Villas are residential construction typical for the Florida area utilizing concrete slabs, wood framing, and plywood roof decking with composite concrete tile roofs. The exterior finishes include stucco with stone/brick and composite siding accents. Windows are vinyl or aluminum clad and entry doors are wood. The Villa designs include three (3) floor plans, each with a second story option. Each villa floor plan also includes three (3) elevation/exterior material choices for up to eighteen (18) A-7

132 distinct choices. The site plan provides for two separate villa neighborhoods that can accommodate up to forty-seven (47) villas. However, only thirty-one (31) villas will be constructed at this time. The Community will be attractively landscaped featuring hardscape and water feature amenities supported by an underground irrigation system. Land Acquisition In late 2007, LLM s management was introduced to Brian Stock of Stock Development, LLC by a member of Emmanuel Lutheran Church. Mr. Stock and LLM discussed a parcel of land totaling approximately thirty-nine (39) acres in the Lely Resort Community (the Project Site ), being developed by Mr. Stock, which is zoned for senior living development and is in close proximity to the new Physicians Regional Medical Center and the new local library, as well as numerous golf courses and shopping areas. LLM worked with the Lutheran Church Extension Fund-Missouri Synod (the Lutheran Extension Fund ) to purchase the land for the Community from Stock Development, LLC in 2008 for a total cost of $17,450,000, borrowing the purchase price plus $2,050,000 of additional funds to be used for site development (the Extension Fund Loan ). The Extension Fund Loan is secured by a first mortgage lien on the Project Site. The Extension Fund Loan will be repaid with the proceeds of the Series 2013 Bonds and the related mortgage lien will be released. Development History On March 2, 2009, the Corporation entered into a Development Consulting Agreement (the Development Agreement ) with CRSA Management, LLC ( CRSA ) for the development of the Community. In 2010, CRSA affiliated with Life Care Services, LLC and they formed an affiliate, CRSA/LCS Management LLC ( CRSA/LCS ). CRSA s responsibilities under the Development Agreement have been assigned to CRSA/LCS. The Corporation and Lutheran Life Communities, an affiliate of LLM, have entered into a development agreement whereby Lutheran Life Communities serves as co-development consultant and co-marketing consultant for the Community along with CRSA/LCS. See DEVELOPMENT OF THE COMMUNITY herein for more information including a description of each of these agreements. Support of LLM LLM has provided continuous support to the Corporation since the initial stages of development of the Community. As of September 30, 2013, LLM has contributed $16,918,000 to the pre-construction development cost of the Community. LLM continues to provide funds to aid in pre-construction development cost of the Project in amounts anticipated to reach $17.8 Million by the closing of the Series 2013 Bonds. Of these amounts, it is anticipated that $2,424,000 will be treated as an investment of LLM, $6,509,000 will be treated as a loan from LLM to the Corporation and secured by a note (the Deferred Note Payable ) subject to the repayment limitations described herein under the heading SECURITY FOR THE SERIES 2013 NOTES Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness, and the balance will be repaid to LLM from proceeds of the Series 2013 Bonds. In addition, LLM is supporting the Project by entering in the Liquidity Support Agreement, as described below. Bond Anticipation Notes In June 2011, the Authority issued $10,900,000 of Continuing Care Community Revenue Bond Anticipation Notes (The Arlington of Naples Project), Series 2011 (the Notes ), the proceeds of which were loaned to the Corporation pursuant to a Loan Agreement dated June 1, 2011 by and among the A-8

133 Authority, the Corporation and LLM. The proceeds of the Notes were used by the Corporation for the following: (i) to pay preconstruction development costs of the Project; and (ii) to pay a portion of the costs of issuing the Notes. As security for the Notes, the Corporation granted a second mortgage lien on the Project Site pursuant to a Second Mortgage and Security Agreement dated June 1, The Notes will be paid with the proceeds of the Series 2013 Bonds and the mortgage lien will be released. Liquidity Support Agreement The Corporation, LLM, the Master Trustee and the Bond Trustee will enter into a liquidity support agreement (the Liquidity Support Agreement ) upon closing of the Series 2013 Bonds. At closing, LLM will transfer to the Master Trustee $7,000,000 for deposit into the liquidity support fund (the Liquidity Support Fund ). The Liquidity Support Fund may be drawn upon if moneys on deposit in the Project Account of the Construction Fund under the Bond Indenture 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 or additional construction costs and expenses arising from unanticipated events or problems including without limitation changes required pursuant to applicable law or requirements of governmental authorities (and not arising from a Discretionary Change). Upon the occurrence of a Funding Event, LLM is required to deposit up to an additional $3,000,000 in the Liquidity Support Fund. Capitalized terms used in this section shall have the meaning ascribed to such terms in the Liquidity Support Agreement. For more information, see LIQUIDITY SUPPORT AGREEMENT contained in the Limited Offering Statement. Subordinated Note to LLM The Corporation has executed a subordinated promissory note in favor of LLM ( Subordinated Note ) in the amount of $6,509,000. The terms of the Subordinated Note provide that there will be no interest accrued or paid under the Subordinated Note. To the extent permitted by the Master Indenture, all principal which is outstanding under the Subordinated Note shall be paid on July 1, The terms of the Master Indenture with respect to the repayment of the subordinated Affiliated Indebtedness are described in more detail in the Limited Offering Statement, contained in SUMMARY STATEMENT Security for the Series 2013 Bonds The Master Indenture and the Series 2013 Obligations and SECURITY FOR THE SERIES 2013 OBLIGATIONS Certain Master Indenture Covenants of the Obligated Group Payments on Affiliated Subordinated Indebtedness. Independent Living Units The one hundred thirty-two (132) Independent Living Apartments in the Community will be available in one, two, and three bedroom configurations. The common areas, located on the first floor over the grade level parking garage, will include a small movie theater, a game room, a fitness center, an aquatic center, a woodworking shop, a business center, multiple dining venues and administrative offices. The thirty-one (31) Villas will feature two bedroom and three bedroom single family residences with two-car garages and a golf cart garage. The following table summarizes the unit types and approximate square footage of the Independent Living Units: A-9

134 Independent Living Unit Style Number of Units Approximate Square Footage One Bedroom Units Goldcrest Brambling Two Bedroom Units Linnet 18 1,366 Vireo - Penthouse 1 1,509 Flamingo - Penthouse 2 1,807 Two Bedroom Units w/study Sandpiper 25 1,466 Nighthawk - Penthouse 2 1,877 Kingfisher - Penthouse 1 2,082 Cormorant 3 1,555 Three Bedroom Units Osprey 10 1,888 Heron 10 2,015 Villas Redwing 13 1,806 Fieldfare 13 2,445 Stonechat 5 3,031 Overall Total 163 Each of the Independent Living Apartments will be furnished with ceramic tile flooring in the foyer, living room, dining room, kitchen, den (if applicable) and all bathrooms, a full kitchen with selfdefrosting refrigerator and freezer with icemaker, range with oven, microwave oven, dishwasher, garbage disposal, washer/dryer, fire and smoke alarms, fire sprinkler system, emergency call system and individually controlled heating and air conditioning units. All Independent Living Apartments will also include a balcony. Telephone and cable television jacks will also be installed. All utilities (including telephone, internet service and premium cable television services) and one (1) parking space in the garage are included in the monthly service fee (the Monthly Service Fee ). The Villas will have the same amenities and finishes, but will also have a two-car garage and golf cart garage. By entering into a Resident Contract (as hereinafter defined), a resident (the Resident ) is entitled to discounted healthcare services provided by the Corporation at the Community based on the residency plan selected by such Resident. See RESIDENT CONTRACT Services to Residents herein for a further description of the services provided to Residents of the Community and RESIDENT CONTRACT Resident Fee Structure for a description of the types of fees paid by Residents. Assisted Living Center and Memory Support Units The Assisted Living Center will consist of forty-two (42) Assisted Living Units and thirty-seven (37) secured Memory Support Units. There is a common entrance to the Assisted Living Center, with a A-10

135 separate entrance to the Assisted Living Units, as well as access from the Independent Living Units and commons areas through building connections. There is also a separate entrance to the Memory Support Units. The Assisted Living Units have been designed to foster the continued independence of Residents who require varying amounts of assistance with activities of daily living, including three (3) meals each day. 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 kitchen ranges with oven, dishwashers, or washers and dryers. The Assisted Living Units common areas will include a lobby, lounge, multi-purpose room, library, 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 will not include the kitchenettes. The Memory Support Units will have secured access and separate common areas which include amenities similar to those of the Assisted Living Units. Admission to the Assisted Living Center will be provided for Residents of the Community in accordance with the terms of the Resident Contract. The Assisted Living Center will also be available for occupancy by persons other than 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 or Memory Support Units are not required to accommodate Residents of the Community. Direct Admit Residents will pay a monthly service fee (the Direct Admit Monthly Service Fee ) to have access to the Assisted Living Center. Summarized below are the Direct Admit Monthly Service Fees planned to be effective upon opening, for Direct Admit Residents and the types of Assisted Living Units and Memory Support Units for the Assisted Living Center and approximate square footage of each unit type. Assisted Living Number of Units, Square Feet and Fees Number of Units Number of Beds Monthly Service Fee (1) Unit Type Square Feet One Bedroom Standard $6,995 One Bedroom Deluxe $7,295 Two Bedroom $8,950 Total/Average $7, The Monthly Service Fees shown reflect anticipated rates effective July 1, 2015 (fiscal year 2016). Unit Type Memory Support Number of Units, Square Feet and Fees Number of Units Square Feet Monthly Service Fee (1) Memory Support $10, The Monthly Service Fees shown reflect anticipated rates effective July 1, 2015 (fiscal year 2016). A-11

136 Health Center The Health Center will consist of forty-four (44) private skilled nursing beds. The Health Center common areas will include administrative, service and support areas, resident dining, activity, lounge, therapy and bathing areas. There will be a separate entrance as well as access to and from the Independent Living Apartments and commons areas through building connections. The Health Center will be available for occupancy by Residents who transfer from another level of care when their physical condition so requires. Direct admissions into the Health Center will be restricted under the Certificate of Need rules and regulations of the state of Florida ( Skilled Nursing Direct Admit Residents ). Florida law allows access by individuals from the general community for a period of five (5) years from opening (as hereinafter described). See below under REGULATIONS, PERMITS AND APPROVALS Certificate of Need for a discussion of limitations on direct admission to the Health Center. The private room private pay per diem rate for Skilled Nursing Direct Admit Residents ( Direct Admit Per Diem Fee ) is summarized in the chart below. Management of the Community intends to obtain Medicare certification for the Health Center. Summarized below are the Direct Admit Per Diem Fees planned to be effective upon opening, for the Skilled Nursing Direct Admit Residents and the types of Health Center beds and approximate square footage of each unit type. Unit Type Skilled Nursing Number of Units, Square Feet and Per Diem Charge Number of Units Square Feet Daily Service Fee (1) Private Room $ The Daily Service Fees shown reflect anticipated rates effective July 1, 2015 (fiscal year 2016). Project Timeline The following table illustrates the anticipated timeline for the Community: Permanent financing January 2014 Construction commences on the Community January 2014 Construction of Independent Living Apartments Memory Support Units, Assisted Living Units and Health Center complete June 2015 Construction of Villas complete June 2015 The Community is available for occupancy July 2015 Future Plans The master plan for the Community includes a second phase development of independent living villas. Development of the expansion will depend, in part, on the market demand for additional independent living villas as well as the financial success of the first phase of the Project and the general financial climate of the Community s service area at the time. There is no assurance that any of the additional improvements will be built. A-12

137 REGULATIONS, PERMITS AND APPROVALS The various approvals and permits necessary for the Corporation to begin construction and commence operations are outlined below. Zoning The site is zoned to permit development of the Community as planned. Certificate of Authority Requirement Under Chapter 651, Florida Statutes (the Act ), a continuing care provider is required to obtain a Certificate of Authority ( COA ) from the Florida Office of Insurance Regulation ( OIR ). Continuing care is defined, generally, as the furnishing of shelter and either nursing care or personal services to an individual pursuant to a contract, upon payment of an entrance fee. Prior to entering into Reservation Agreements with prospective Residents and collecting entrance fees or deposits, the Corporation was required to apply for and receive a Provisional Certificate of Authority ( PCOA ). The Corporation received its PCOA in March The Act allows the Corporation to apply for a COA once Reservation Agreements are executed, Entrance Fee deposits are deposited into an escrow fund with respect to at least thirty percent (30%) of the Independent Living Units of the Community and certain other information is provided to the OIR. Entrance Fee deposits are defined as an amount equal to at least ten percent (10%) of the final Entrance Fee to be collected and must be deposited into an escrow account at a Florida bank, savings and loan association, or trust company. The Corporation entered into an escrow agreement for this purpose with SunTrust in December OIR will not issue a COA for a continuing care provider until Reservation Agreements are executed and Entrance Fee deposits are collected for at least fifty percent (50%) of the Independent Living Units of the Community, all of such deposits are deposited in an escrow account satisfying the thirty percent (30%) requirement described above. The Corporation is in the process of applying for its COA and anticipates that it will be received in due course. The Act requires that each continuing care contract and addendum be approved by OIR prior to being offered to a prospective Resident. The Act also requires that a prospective Resident must have the right to rescind his or her continuing care contract without penalty or forfeiture within seven (7) days after signing the continuing care contract. Once a continuing care community is open, the Act requires a number of actions from the continuing care provider, including the maintenance in escrow of a minimum liquid reserve consisting of an operating reserve, a debt service reserve and a renewal and replacement reserve. The Act requires that the provider initially maintain an operating reserve in the amount of thirty percent (30%) of the provider s operating expenses for the first twelve (12) months of operation, as projected in the feasibility study submitted with the provider s application for its COA. Thereafter, the Act requires the provider to maintain an operating reserve generally equal to fifteen percent (15%) of the total operating expenses reported in the provider s annual reports filed pursuant to the Act. Once permanent financing for the construction of the buildings of the provider is obtained, the Act requires the provider to maintain a debt service reserve equal to the aggregate amount of all principal and interest payments (including property taxes) due during the current fiscal year on any mortgage loan or other long-term financing of the community. The Act requires the provider to maintain a renewal and replacement reserve in an amount equal to fifteen percent (15%) of the total accumulated depreciation reported in the provider s audited financial statements. The Act requires a continuing care provider to file annual reports with OIR, containing audited financial statements and other information required by the Act, and under certain circumstances OIR may require quarterly reports. A-13

138 OIR may conduct an examination or inspection of the Corporation and the Community as often as is deemed necessary and at least once every three (3) years. OIR shall have access to the books, records, financial data and other documents maintained by the Corporation. The Act imposes a variety of other requirements on the Corporation, including providing an annual disclosure statement to each Resident. Certificate of Need The Corporation must obtain a Certificate of Need ( CON ) from the Florida Agency for Health Care Administration ( AHCA ) and a COA from OIR prior to the commencement of construction of the Health Center. The Health Facilities and Services Development Act provides that AHCA shall issue a CON to any holder of a PCOA to construct nursing home beds for the exclusive use of the prospective residents of the proposed CCRC if the holder of the PCOA meets the applicable review criteria. Such nursing home beds located within a CCRC are known as sheltered nursing home beds. The Act permits a CCRC to obtain up to one (1) sheltered nursing home bed for every four (4) residential units constructed, including independent living units and assisted living units. The Act permits a continuing care provider to use sheltered nursing home beds for persons who are not residents of the CCRC and who are not parties to a continuing care contract for up to five (5) years after the date of issuance of the initial nursing home license. A provider whose five (5) year period has expired or is expiring may request AHCA for an extension, not to exceed thirty percent (30%) of the total sheltered nursing home beds, if the utilization by residents of the nursing home facility in the sheltered beds will not generate sufficient income to cover nursing home facility expenses. The Corporation submitted its CON application for approval of the Health Center to AHCA on January 23, On February 13, 2013, AHCA approved the application. Healthcare Licensure The Corporation will be required to obtain licensure of the Assisted Living Center and the Health Center from AHCA upon completion of construction. Standard licenses are subject to renewal every two (2) years. AHCA has the right to enter and inspect nursing homes and assisted living facilities to determine compliance by the license holder with statutes and rules governing minimum standards of construction quality, adequacy of care, and rights of residents. For purposes of licensure, the Memory Support Unit is considered assisted living. Management of the Corporation anticipates that all of the nursing beds in the Health Center will be certified for Medicare. Permits The Corporation received its Site Development Permit from Collier County on November 22, This permit allows for commencement of all site development including roads, bridges and site infrastructure. A water management and natural resource permit has also been issued by the Southwest Florida Water Management District on April 7, The Corporation will apply for a building permit from Collier County when construction is ready to begin. At this time, nothing has come to the attention of the Corporation which would lead it to believe that the permits will not be received in due course. As with all major construction projects, the Corporation must obtain numerous licenses, permits, or approvals from various governmental agencies, both for construction work and to operate various portions A-14

139 of the Community after completion. Applications for certain approvals may not be made until certain site work and detailed plans have been prepared or construction is completed. In some cases, approvals may only involve an administrative review to ensure compliance with approvals already obtained or payment of a fee and in other cases approvals may involve the exercise of discretion by governmental authorities. Environmental Study/Geotechnical Testing An Environmental Site Assessment was completed on June 9, 2008, and revealed no adverse environmental conditions requiring any further investigation or mitigation. A comprehensive geotechnical investigation revealed no unexpected site conditions which would adversely affect the development of the Community. No further investigations were recommended at that time. In February 2010, YPC Consulting Group PL prepared a Geotechnical Exploration and Engineering Services Report for the Property Site. The report was based on field investigation and laboratory examination of twelve (12) soil borings that were taken across the Project site based on the anticipated location of the building footprint and paved areas. The findings indicate that there is a mix of soil types across the site and the structural and foundation systems for the Project have been designed to accommodate the findings. COMPETITION AND SERVICE AREA Information with respect to the service area and competition of the Community can be found under the caption Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment in the Feasibility Study, which is attached as APPENDIX B to this Limited Offering Statement. THE FEASIBILITY STUDY SHOULD BE READ IN ITS ENTIRETY, INCLUDING MANAGEMENT S NOTES AND ASSUMPTIONS SET FORTH THEREIN. RESERVATION AGREEMENT Management of the Corporation plans to make twelve (12) Brambling Independent Living Apartments available under a non-entrance fee option ( Rental Apartments ) upon signing a non-entrance fee residence and care agreement ( Rental Agreement ). The remaining one hundred fifty-one (151) Independent Living Units are available under an entrance fee option ( Entrance Fee Independent Living Units ). In order to reserve an Entrance Fee Independent Living Unit at the Community, a prospective resident must execute a Reservation Agreement ( Reservation Agreement ), provide a self-disclosure of his or her health and finances and place a deposit equal to at least ten percent (10%) of the Entrance Fee for the selected Entrance Fee Independent Living Unit. To qualify for residency at the Community, one of the prospective Residents in Entrance Fee Independent Living Unit must be at least sixty-two (62) years old and all Residents must meet the health and financial parameters as established by the Corporation. To qualify based on health parameters a prospective Resident must be free of dangerous or contagious diseases and physically and mentally capable of safely vacating the Resident s Entrance Fee Independent Living Unit and the building in which it is located, without assistance from the Community s staff, in the event of an emergency. See MARKETING Reservations of Independent Living Units. The Reservation Agreement reserves the right of the prospective Resident to choose his or her specific Entrance Fee Independent Living Unit and to indicate his or her intent to execute a Resident Contract. The Reservation Agreement also provides each prospective Resident guaranteed direct admission, upon payment of the full Entrance Fee due, to an Assisted Living Unit, Memory Support Unit or the Health Center under the Health Care Benefit should his or her health needs change prior to the opening of the Community. A-15

140 Rental Agreement Twelve (12) of the Independent Living Apartments are available pursuant to a Rental Agreement. Under the Rental Agreement, a Resident does not pay an Entrance Fee and instead pays a higher Monthly Service Fee. Under the Rental Agreements, an additional $1,500 per month is added to the corresponding Monthly Service Fees under the Entrance Fee plan. Residents under the Rental Agreement do not receive a Health Care Benefit. Upon ongoing payment of the Monthly Service Fee, each Resident under the Rental Agreement will be provided a Rental Apartment and will receive certain basic services. The Corporation anticipates that the services provided will include: (i) a $400 dollar per month dining allowance, which may be applied for the Resident and the Resident s guests for breakfast, lunch, dinner and beverages in the Community s dining venues; (ii) all utilities, including telephone, internet services and premium cable television services; (iii) weekly housekeeping of the Rental Apartment; (iv) weekly cleaning and changing of personal bed linens; (v) maintenance of all common areas and equipment; (vi) repair, maintenance or replacement of furnishings provided in the Rental Apartment; (vii) mailboxes for U.S. mail and internal mail; (viii) regularly scheduled local transportation; (ix) 24-hour monitoring of the emergency alert system; (x) a variety of social, recreational, educational, cultural, and health wellness programs; (xi) an individual storage area; (xii) property and casualty insurance coverage on the buildings and grounds obtained by the Corporation; and (xiii) use of dining rooms, lounges, surface parking, social and recreational rooms and other common activity facilities. RESIDENT CONTRACT The Residence and Care Contract ( Resident Contract ) is a contract under which the Corporation is obligated, if a prospective Resident establishes occupancy in an Entrance Fee Independent Living Unit, to provide certain services to that prospective Resident. See Services to Residents below. The Corporation considers applications for residence at the Community based upon the guidelines for the acceptance of Residents described below and maintains sole discretion on the decision to accept a Resident. An application for residence at the Community will be accepted only if the applicant demonstrates the ability to live independently (based on the criteria described below) and meets the financial obligations as a Resident of the selected Entrance Fee Independent Living Unit. In the event of single occupancy, a Resident must be sixty-two (62) years of age or older at the time of establishing occupancy. In the event of two (2) Residents, only one (1) must be sixty-two (62) years of age or older. No dependent children may reside in the Community unless otherwise agreed by the Corporation. To demonstrate the ability to live independently, a prospective Resident: must be free of dangerous or contagious diseases; must be physically and mentally capable of safely vacating the Resident s Entrance Fee Independent Living Unit and the building in which it is located, without assistance from the Community s staff, in the event of an emergency; must not require a level of treatment, care, or supervision exceeding that which the Corporation is licensed to provide at the Community or that which the Corporation provides at the Community in the ordinary course of its business; and must not present a threat to the Resident s health or safety or to the health, safety, or well-being of other residents or staff of the Community. Persons who have not executed a Resident Contract or a Rental Agreement may be admitted to the Assisted Living Center as Direct Admit Residents if beds are available in excess of those needed to satisfy the needs of Residents. Residents requiring care in the Health Center or Assisted Living Center will have priority utilization of the Health Center and Assisted Living Center over Direct Admit Residents and Skilled Nursing Direct Admit Residents. A-16

141 Entrance Fee Independent Living Unit Resident Fee Structure There are two types of residency fees required of all residents in an Entrance Fee Independent Living Unit: an entrance fee ( Entrance Fee ) and ongoing monthly service fees ( Monthly Service Fees ). The Entrance Fee is a lump sum, one-time payment based on the type of Entrance Fee Independent Living Unit to be occupied by the Resident and the type of Entrance Fee plan selected. To reserve an Entrance Fee Independent Living Unit, a prospective Resident must make an initial payment equal to at least ten percent (10%) of the Entrance Fee ( Reservation Deposit ) prior to or upon execution of the Resident Contract and pay the remaining balance of the Entrance Fee on or before the date of occupancy. There is an additional Entrance Fee of $15,000 required for a second Resident living in an Entrance Fee Independent Living Unit. The Monthly Service Fees are based on the type of Entrance Fee Independent Living Unit selected by the Resident. In addition to the first Resident Monthly Service Fee, an additional Monthly Service Fee of $1,040 is payable for a second Resident living in an Entrance Fee Independent Living Unit. The Corporation is required to give at least sixty (60) days advance notice of any increase in the Monthly Service Fee or any change in the services that the fee covers. The Corporation offers three (3) residency plans to Residents of the Community for the Entrance Fee Independent Living Units: a ninety-five percent (95%) refundable Entrance Fee contract; a fifty percent (50%) refundable Entrance Fee contract; and a zero percent (0%) refundable Entrance Fee contract, also known as a traditional contract. The Corporation has capped the combined total of fifty percent (50%) refundable Entrance Fee contracts and zero percent (0%) refundable Entrance Fee contracts at fifty (50) total contracts. Currently, all fifty (50) of such contracts have been accounted for, so the Corporation is currently only offering the ninety-five percent (95%) refundable Entrance Fee contract. However, if a Resident cancels or terminates their fifty percent (50%) refundable Entrance Fee contract or zero percent (0%) refundable Entrance Fee contract, then such contract would be available for a future resident. The following table illustrates the planned Monthly Service Fees (expressed in 2015 dollars) and Entrance Fees (expressed in 2013 dollars) under each contract type, including the Rental Agreements: A-17

142 Unit Pricing (1) Reflects the Entrance Fees, effective May 1, 2013, for the three entrance fees plans ( Entrance Fee Plans ) available for the Entrance Fee Independent Living Units. Management has limited the number of 50% Refund and Traditional Refund Entrance Fee Plans to a combined total of 50 contracts. (2) Monthly Service Fees shown are to be effective through December 31, (3) Entrance Fees refunds under the Traditional Entrance Fee Plan decrease over time until the refund is zero. (4) Twelve Independent Living Units are to be available under the Rental Agreements. Under the Rental Agreements, an additional $1,500 per month is added to the corresponding Monthly Service Fees under the Entrance Fee plan. (5) Depositors have the option to purchase two adjacent Brambling units. The combined unit is to known as an Egret unit, which is to contain 1,985 total square feet. Entrance Fees for an Egret unit are as follows: $993,000 for the 95% Refund Plan, $912,500 for the 50% Refund Plan and $755,000 for the Traditional Entrance Fee Plan. Monthly Service Fees associated with an Egret unit is $6,807 per month under an Entrance Fee plan and $8,045 per month under a Rental Plan. As of July 31, 2013, two Depositors (hereinafter defined) have selected an Egret unit. (6) Villas are not available under a 50% or Traditional Entrance Fee Plan. Founders Program Benefits To encourage early commitments to residency at the Community, the Corporation has offered various incentives to prospective Residents of the Independent Living Units. All prospective Residents that have reserved an Independent Living Unit prior to October 15, 2013 are referred to as Founders. These various incentives, collectively defined as the Founders Program (the Founders Program ), have included among the following benefits at certain points in the presales process: (i) 100% Refund Entrance Fee Plan; (ii) 5% discount on Entrance Fees, the benefit of which approximates savings that range from A-18

143 $14,000 to $65,000; (iii) discounts on Entrance Fees which range from $10,000 to $20,000; (iv) $5,000 moving expense credit with a third party senior move management company. In addition, the second person Entrance Fee of $15,000 was waived for Residents reserving an Independent Living Unit through October 31, All prospective Residents that reserved an Independent Living Unit prior to May 1, 2013 received the Health Care Benefit for the term of their Resident Contract. In addition, all Founders are eligible to receive interest paid on the Reservation Deposit equal to four percent (4%) annually until the occupancy date (if the Resident occupies the unit), issued as a credit against the Entrance Fee due. Financial Assistance If a Resident of an Entrance Fee Independent Living Unit can no longer pay the Monthly Service Fee in full due to lack of funds for reasons beyond the control of the Resident, the Corporation may subsidize, in whole or in part, the Monthly Service Fees and other charges, provided the ability of the Community to operate on a sound financial basis for all Residents is not materially impaired. In the event that financial assistance is provided by the Corporation, such amounts, plus interest, may be charged against the refund of the Entrance Fee owed to a Resident upon termination of the Resident Contract. The Corporation may also require a Resident receiving financial assistance to move to a smaller or less expensive Independent Living Unit. Generally, the Act prohibits a continuing care provider from discharging or dismissing a resident from a CCRC based on nonpayment of the resident s monthly service fees until the portion of the resident s entrance fee that is otherwise refundable to the resident upon termination of the resident s continuing care contract (plus, if applicable, any available Medicare benefits and third party insurance benefits) has been applied toward the payment of the resident s unpaid monthly service fees. Also, a provider may not require a resident to leave the CCRC before ninety (90) days from the date of the resident s failure to pay. If a Resident of a Rental Apartment ( Rental Apartment Resident ) can no longer pay the Monthly Service Fee in full due to lack of funds for reasons beyond the control of the Rental Apartment Resident, then under certain circumstances and at the Corporation s sole discretion, the Corporation may subsidize, in whole or in part, the Monthly Service Fees. Under no circumstance is the Corporation obligated to offer financial assistance to Rental Apartment Residents. Nondiscrimination The Community will be operated on a non-discriminatory basis, and will provide the facilities and services described in the Resident Contract and Rental Agreement to individuals without unlawful discrimination due to race, color, religion, national origin, ancestry, sex, marital status, handicap, disability, unfavorable discharge from military service, sexual orientation or any other unlawful reason. Services to Residents Upon payment in full of the Entrance Fee and ongoing payment of the Monthly Service Fee, each Resident will be provided an Entrance Fee Independent Living Unit and receive certain basic services. Services provided include: (i) a $400 dollar per month dining allowance, which may be applied for the Resident and the Resident s guests for breakfast, lunch, dinner and beverages in the Community s dining venues; (ii) all utilities, including telephone, internet services and premium cable television services; (iii) weekly housekeeping of the Entrance Fee Independent Living Unit; (iv) weekly cleaning and changing of personal bed linens; (v) maintenance of all common areas and equipment; (vi) repair, maintenance or replacement of furnishings provided in the Entrance Fee Independent Living Units; (vii) mailboxes for U.S. mail and internal mail; (viii) regularly scheduled local transportation; (ix) 24-hour monitoring of the emergency alert system; (x) a variety of social, recreational, educational, cultural, and health wellness A-19

144 programs; (xi) an individual storage area; (xii) property and casualty insurance coverage on the buildings and grounds obtained by the Corporation; and (xiii) use of dining rooms, lounges, surface parking, social and recreational rooms and other common activity facilities. Health Care Benefit The Corporation will provide Residents of Entrance Fee Independent Living Units with 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 Resident s physician, in consultation with the Resident s family, and approved by the Community s medical director, that the Resident needs nursing care or assisted living care (the Health Care Benefit ). Upon transfer to the Assisted Living Center or the Health Center, the Resident will receive a fifty percent (50%) discount off of the direct admit daily rates for the specific bed or unit that the Resident will occupy, for a total of one thousand four hundred sixty (1,460) days of care (four (4) years), except for certain Founders, who will receive the Founder s Benefits described above. Assisted living services will be provided in an Assisted Living Unit or Memory Support Unit and are designed to assist Residents with the activities of daily living, such as dressing, eating, bathing, toileting, 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. Nursing services will be provided in a private nursing room and delivered in accordance with the routine care included in the traditional nursing room rate then in effect. For single occupancy, upon permanent transfer to the Health Center or Assisted Living Center and release of the Independent Living Unit, the Resident s Monthly Service Fee applicable to the Independent Living Unit will be eliminated. In the case of double occupancy of an Independent Living Unit, in the event of a permanent transfer of both Residents and release of the Independent Living Unit, the Monthly Service Fee for the Independent Living Unit will be eliminated. If space is not available in the Health Center or Assisted Living Center, the Corporation will arrange for a Resident s temporary care, by a home health care agency of the Corporation s choice. If home health care is not medically appropriate or available at a reasonable cost, the Corporation will arrange for the Resident s care in another facility of comparable quality to the same extent as if it were provided by the Corporation. The Health Care Benefit will apply in these cases, until a space is available in the Health Care or Assisted Living Center, at which time the Resident must transfer back to the Community or forfeit the Health Care Benefit payment. Residents transferred to the Assisted Living Center or Health Center will be billed for non-routine care and ancillary services at the then-current rates for such items. Fees for Additional Services Additional services may be available to all Residents of the Community on a fee-for-service basis including, but not limited to, additional housekeeping, additional laundry services for personal items, catering for special occasions, delivered meal service and take-out, additional Resident and guest meals, additional parking, personalized transportation services, special events and programs, personal fitness trainer, barber and beauty services and guest overnight accommodations. Termination and Refunds Termination Prior to Occupancy. Prior to occupancy, prospective Residents will be entitled to reimbursement of their Reservation Deposit in full with interest at the prevailing rate on the escrow account within thirty (30) days after notice of termination of the Reservation Agreement under any one of the following conditions: (i) if a Resident dies, or if, because of illness, injury or incapacity, the Resident would be precluded from occupying the Entrance Fee Independent Living Unit; (ii) if a Resident A-20

145 terminates the Resident Contract within seven (7) days after the Resident Contract was signed; or (iii) if the Corporation terminates its intention to fully construct the Community. If the prospective Resident terminates the Resident Contract prior to occupancy for any other reason, they will be entitled to reimbursement of their Reservation Deposit, including any interest earned (at the prevailing investment rate) to the date of termination less an amount equal to two percent (2%) of the total Entrance Fee required for the Entrance Fee Independent Living Unit and Resident Contract selected. This amount will be paid within sixty (60) days after notice of termination of the Resident Contract. Termination After Occupancy. After occupancy, the Resident Contract may be terminated: (i) upon the death of the Resident; (ii) by the Resident at any time by providing thirty (30) days written notice of termination to the Corporation; or (iii) by the Corporation for just cause, based on certain medical and non-medical reasons as described below. The refund of the Entrance Fee is dependent on the residency plan selected by the Resident. For Residents that selected the fifty percent (50%) refundable Entrance Fee contract or the zero percent (0%) refundable Entrance Fee contract, upon termination of the Resident Contract and release of the Entrance Fee Independent Living Unit, the Corporation will refund the appropriate percentage of the Entrance Fee to the departing Resident without interest within one hundred twenty (120) days. For Residents that selected the ninety-five percent (95%) refundable Entrance Fee contract, upon termination of the Resident Contract and release of the Entrance Fee Independent Living Unit, the Corporation will refund the appropriate percentage of the Entrance Fee from the proceeds of the next Entrance Fees that the Corporation receives for which there are no prior claims by another individual until paid in full; provided that if the Corporation has discontinued marketing continuing care contracts, the refund shall be paid within two hundred (200) days after the notice of termination; provided that the Resident is only entitled to a refund once they are no longer receiving any level of care at the Community and they have vacated the Community. The Corporation may terminate the Resident Contract for just cause, based on medical reasons: (i) if the Resident has developed a condition the treatment for which the Community is not licensed for or for which care cannot be provided for by the Corporation without a significant and unique expenditure; (ii) the Resident is in need of drug or alcohol rehabilitation, or has a condition the treatment for which the Community is not licensed or for which care cannot be provided by the Corporation without a significant and unique expenditure; or (iii) the Resident has become mentally or emotionally disturbed to a degree that the Resident s continued presence at the Community is considered by the Corporation to be detrimental to the health, safety, or welfare of other residents or individuals or staff of the Community or to the property of other residents or individuals or staff of the Community. The Corporation may terminate the Resident Contract for just cause, based on non-medical reasons: (i) if a misrepresentation or omission in the confidential data profile, confidential medical profile, or related materials submitted as part of the Residents process of application for residency, which, if such information had been accurately provided, would have been material to the Corporation s decision to accept the Resident for residency; (ii) there is a failure to comply with the policies, or a creation of a situation detrimental to the health, safety, or the quiet enjoyment of a Resident, any other Resident or individual, or any staff member of the Community or the property of other residents or individuals or staff of the Community; (iii) subject to the limitations described above under Financial Assistance, failure to pay the Monthly Service Fee, fees for additional services, or other amounts owed when due; or (iv) a material breach by the Resident of any of the terms or conditions of the Resident Contract. If the Corporation seeks to terminate the Resident Contract and occupancy for non-medical reasons, not including any emergency situations, the Corporation shall give thirty (30) days prior written notice of termination. A-21

146 If two (2) Residents occupy an Entrance Fee Independent Living Unit and one (1) dies, the Resident Contract will continue in full force and effect for the surviving Resident, except the Monthly Service Fee will be reduced by the then current charge for a second Resident for the residence occupied by the surviving Resident. No refund of the Entrance Fee will occur until the surviving Resident vacates the Community. Marketing Program MARKETING Marketing efforts for the Community began in April 2009 with a priority sign up program. CRSA conducted a direct mail campaign, on behalf of the Corporation, including a business reply card, to age and income qualified seniors in the Naples area. Prospective Residents (the Priority Members ) were placed on a priority list and given a priority number. Approximately one hundred ten (110) Priority Members signed up under a $1,000 refundable deposit program prior to the start of conversions in January Reservation of Entrance Fee Independent Living Units A prospective Resident may reserve an Entrance Fee Independent Living Unit at the Community by submitting a confidential data profile, including health and financial disclosure, executing a Reservation Agreement and submitting a Reservation Deposit for the Entrance Fee Independent Living Unit selected. The execution of a Reservation Agreement does not constitute a binding commitment to establish occupancy at the Community on the part of any prospective Resident. Prospective Residents may terminate their Reservation Agreements and receive refunds of all amounts paid to the Corporation, less a processing fee under certain circumstances. See RESIDENT CONTRACT Termination and Refunds herein. Priority Members were offered the opportunity to enter into a Reservation Agreement beginning in January As part of the reservation process, a prospective Resident is provided a financial disclosure statement and a draft Resident Contract. Through October 18, 2013, one hundred twenty-one (121) of the one hundred fifty-one (151) Entrance Fee Independent Living Units (representing approximately 80.1%) of the total available Entrance Fee Independent Living Units of the Community) are reserved by prospective Residents who have paid a Reservation Deposit and executed a Reservation Agreement. The following table depicts the net and cumulative deposits: A-22

147 Marketing of the Community Calendar Year Number of Units Reserved by Depositors Number of Cancellations/ Refunds Net Reservations Cumulative Units Reserved Cumulative Percentage of Total Units (1) 2010 (2) % % 2012 January % February % March % April % May % June % July % August % September % October % November % December % 2013 January % February % March % April % May % June % July % August % September % October (3) % Total % (1) (2) (3) Cumulative percentage is based on the 151 Independent Living Units available on an Entrance Fee basis. Conversion of priority deposits to Depositors began in January Information through October 18, The data submitted by applicants for residency is evaluated and reviewed by the Corporation to determine the suitability of such applicant for residency at the Community. A description of the criteria used to evaluate prospective Residents applications is described under the caption RESIDENT CONTRACTS herein. Each applicant is subsequently notified of the Corporation s decision to accept or reject his or her application. In the case of applicants accepted for residency, a Reservation Agreement is executed by the prospective Resident and the Corporation. In the case of applicants rejected for residency, their initial ten percent (10%) Entrance Fee deposit is refunded within thirty (30) days. The Corporation has not yet initiated marketing for services contemplated for the Health Center or the Assisted Living Center. Management of the Corporation anticipates that it will initiate a comprehensive health care oriented training of marketing personnel, direct marketing and presentations to the network of A-23

148 senior caregivers in the greater Naples area and personal contact with hospital discharge planners and physicians shortly before completion of construction and licensing of those portions of the Community. SB&A Sharon Brooks & Associates, Incorporated, a Virginia Corporation d/b/a SB&A Integrated Marketing ( SB&A ), began working with the Corporation in November of 2011 and has been responsible for marketing strategy, branding, advertising and sales oversight. SB&A is being compensated for services provided on a monthly basis. Additionally, since the spring of 2013, SB&A has provided the Corporation with a consulting sales manager. The Corporation pays a $9,600 monthly flat fee for such consulting sales manager, half of which has been deferred pending the close of the financing. Founded in 1981 and privately held, SB&A has been in business for over 30 years during which time SB&A has worked with hundreds of continuing care retirement communities ( CCRCs ) nationwide. Projects have included blue-sky developments, expansions, repositionings and turnarounds. SB&A has conducted more than 40 marketing audits for operators and investors. The firm has many established, long-term client relationships in which its services have supported the ongoing growth and success of client organizations. SB&A s core services span the sales, consulting, marketing, brand development, advertising, public relations, and web-based/interactive disciplines. Its affiliate, Brooks Adams Research ( BAR ) offers market and consumer research services. SB&A maintains memberships in senior living associations and attends and presents at national and international conferences. Each year BAR independently conducts research on senior values, attitudes and preferences to better understand the changing senior consumer and to better market to seniors throughout the United States. BAR has developed an online research panel of more than 130,000 seniors, enabling it to conduct rapid-response surveys with a national scope. This study continually adds to its database of information on senior consumers. During 2012, SB&A and BAR served 72 clients with work ranging from single projects to turnkey marketing relationships. At this time about 80 percent of SB&A s work is in the field of senior living. Other clients include planned communities, active adult real estate, toll roads, health care and economic development entities. SB&A s staff of 48 is headquartered in Richmond, Virginia with team members located in Aspen, Colorado; Boise, Idaho; St. Louis, Missouri; Chicago, Illinois; Scarborough, Maine; Ocala, Florida and Charlottesville, Virginia. SB&A s headquarters in historic downtown Richmond is near the rapidly developing Virginia Commonwealth University ( VCU ) campus and steps away from the VCU Brand Center, recently ranked as the number one advertising program in the united States. Officers: Sharon A. Brooks, CEO, SB&A, Partner, BAR. Ms. Brooks graduated from the University of Virginia with a double major in Communications and Psychology. She was awarded an assistantship from ABC Television to do graduate study in Advertising and Public Relations at the Grady School of Journalism at the University of Georgia. In 1981, Ms. Brooks founded Sharon Brooks & Associates Inc. Today, as it celebrates more than 30 years in business, SB&A is a 48-person, full-service integrated marketing, advertising and public relations company handling a variety of accounts nationwide. Categories include retirement housing and senior products, consumer and commercial products, business-to-business, economic development, commercial and residential real estate, travel and tourism, and hospitals. A-24

149 Robert T. Adams, Vice President, SB&A, Partner, BAR. Mr. Adams combines his extensive knowledge of the senior living industry with an expertise in the very latest consumer research techniques. He has overseen the completion of hundreds of projects, not only for senior housing communities, but also for clients in residential real estate, economic development and financial sectors. Mr. Adams graduated magna cum laude from VCU in Richmond after serving in the United States Air Force. Fay Marston Brodell, CFO, SB&A. Ms. Brodell began with SB&A as a freelance consultant in 1997 and became Director of Finance in Ms. Brodell graduated from Lynchburg College with Bachelor of Science Degrees in Education and, later, Accounting. In addition to teaching for 10 years in the Lynchburg Public School system, she was Senior Accountant at Cherry, Bekaert & Holland in Lynchburg, Virginia prior to owning her own small-business consulting firm in Richmond. In November of 2005 Ms. Brodell was promoted to the position of CFO. Wayne Hicks, Vice President, SB&A. Mr. Hicks specialties include marketing strategy, branding, account planning and benchmarking. Mr. Hicks has nearly 20 years of experience in marketing, sales and advertising, with an emphasis in real estate, active adult, business to business, economic development and transportation. Prior to joining SB&A, Mr. Hicks worked on several national consumer and packaged goods accounts for McCabe & Company in New York City. His education includes a Master of Business Administration Degree from the E. Claiborne Robins School of Business, University of Richmond, Virginia, and a Bachelor of Science Degree in Business Management from Binghamton University, State University of New York. Beth Simos, Vice President, SB&A. Having served as Director of Marketing and Communications for the Virginia Health Quality Center and the Richmond Chamber of Commerce, and Director of Marketing and Public Relations with Columbia/HCACJW, as well as Account Director at Response Marketing Group and The Martin Agency, Ms. Simos offers expertise in a wide variety of disciplines, including advertising, branding, communications, direct marketing, strategic market planning and public relations. In addition to her more than 16 years of experience in both agency and client corporate environments, Ms. Simos is a Certified Direct Marketer and holds both Bachelor of Business Administration and an Associate of Applied Science Degrees from Marshall University. Connie Mattox, CEO, BAR. Ms. Mattox has more than 10 years of experience as a market researcher, with an expertise in consumer behavior research. Ms. Mattox s research experience and training includes the employment of qualitative techniques aimed at uncovering emotional tensions, nontraditional focus group design, consumer profiling, observational research, concept testing, product testing, shopping studies, pricing studies, Net Promoter testing and satisfaction studies, as well as an array of other quantitative analysis methods. Along with a wealth of experience creating and managing virtual consumer research communities and brand advocate groups, as well as employing social media platforms to conduct consumer research, Ms. Mattox has conducted regional, national and international studies in the 50+ shopper and senior living industry, as well as the hygiene, household care, beauty care and food/food service industries. Ms. Mattox is a graduate of the University of Richmond and also a graduate of the E. Claiborne Robins School of Business Master of Business Administration program at the University of Richmond. SB&A has served on numerous project teams adding marketing insight to the expertise of architects, contractors, financial consultants and developers in the successful development of senior living communities. A-25

150 Recent start-up and expansion projects accomplished by SB&A have included: Covenant Woods Richmond, Virginia Sponsor Project Status Phase III Financed IL Residences Under construction Renovation of existing amenities and construction of The Lodge town center. SB&A marketed the Phase I start-up which opened in 2000 Poydras Home New Orleans, Louisiana Whitney Center New Haven, Connecticut The Willows at Brooking Park St. Louis, Missouri St. Andrews Resources for Seniors Newbridge on The Charles Hebrew Senior Life Dedham, Massachusetts Jenner s Pond West Grove, Pennsylvania Simpson Senior Living Westminster Canterbury Blue Ridge Charlottesville, Virginia Montgomery Place Hyde Park, Illinois Friendship Village of Schaumburg Schaumburg, Illinois Expansion of Assisted Living and Memory Care and addition of new dining and community amenities 84 IL Residences Addition of new amenities including café, library, spa, gallery and renovated kitchen, lobby, pub, dining Phase II and III Expansions IL Apartments, Centerstage Amenities, Villa residences 256 IL Cottage Homes, Villas, Apartments. Start-Up. Planning Priorities and Presales Launch Three IL Expansions since 2000 Blue Ridge Expansion 2000 Albemarle Cottage Expansion 2009 Transition from rental to entry fee and major amenities and assisted living expansion 170 Cottages and Apartments Bridgewater Place Expansion Opened September 2013 Financed 2009 Opened 2011 Phase II Opened 2008 Villas Opened 2012 At Target Occupancy Phase IV Planned Financed 2007 Opened 2009 Sustaining occupancy At sustaining occupancy At sustaining occupancy Transition completed 2008 Opened 2008 Additionally, SB&A and BAR are working with over 40 CCRCs that are building and maintaining occupancy, planning future expansions and expanding their array of programs and services to include specialized health care and home and community based services. These clients include Beth Sholom Village, Bethesda Health Group, BHI Senior Living, Christian Care Communities, Christian Health Care Center, Erickson Living, Goodwin House, HH Hunt, Immanuel Communities, Isakson Living, Kendal at Hanover, Lutheran Life Communities (Pleasant View, St. Pauls House, Luther Oaks, Wittenberg Village, Lutheran Home), Miami Jewish Health System, Mount Sinai Medical Center, National Lutheran Communities And Services, North Oaks, Oakwood Lutheran Senior Ministries (Oakwood Village Prairie Ridge, Oakwood Village University Woods) Pacific Retirement Services, Inc. (Rogue Valley Manor, University Retirement Community Davis, Trinity Terrace, Holladay Park Plaza, Mirabella Portland, Mirabella Seattle, Cascade Manor, Capitol Lakes, The Meadows of Napa, Saratoga), Senior Living A-26

151 Residences, Schonberg & Associates, Simpson Meadows, Smith Senior Living, The Glebe, The Hill At Whitemarsh, The Village At Woods Edge, Virginia Baptist Homes, Inc., and Woods Edge Blacksburg. CRSA DEVELOPMENT OF THE COMMUNITY CRSA/LCS Management, LLC and its affiliates, headquartered in Memphis, Tennessee, and its predecessor company CRSA Management, LLC, serve as co-development consultant for the Community along with LLM. In April 2010, CRSA Management, LLC, which was established in 1989, and its affiliates sold certain of their assets to CRSA/LCS Management LLC, a wholly-owned subsidiary of CRSA Acquisition LLC, which is a wholly owned subsidiary of Life Care Companies LLC ( LCS ). In connection with that transaction, the development agreement between the Corporation and CRSA Management, LLC was assigned to CRSA/LCS Management LLC. CRSA/LCS Management LLC, CRSA Management, LLC and their applicable affiliates are hereinafter referred to as CRSA. See CRSA Development Consulting Agreement for information regarding the development consulting agreement between the Corporation and CRSA. CRSA and LCS specialize in developing and operating multi-level CCRCs similar to the Community. Together, CRSA and LCS currently provide services to more than one hundred (100) senior living communities in twenty-nine (29) states and serve more than thirty thousand (30,000) residents across the country. Sample communities served by CRSA include the following: Community Location Residential Units Assisted Living or Personal Care Units Nursing Beds CRSA Services BayWoods of Annapolis Danberry at Inverness Annapolis, MS Marketing and management Vestavia, AL Management and marketing Galloway Ridge Pittsboro, NC Development, marketing and management Longhorn Village Austin, TX Development, marketing and management Mercy Ridge Towson, MD Development, marketing and management Mary s Woods Lake Oswego, OR Management consulting A-27

152 Pennybyrn at Maryfield Highpoint, NC Development and marketing Riddle Village Media, PA Consulting Rolling Meadows Wichita Falls, Management TX Spring Harbor Columbus, GA Management and Marketing Westminster Village West Lafayette, IN Management CRSA Professional Staff The CRSA Senior Staff providing primary services to the Community under their respective agreements include the following: Earl Wade, Chief Operating Officer. Mr. Wade serves as Chief Operating Officer. In this role Mr. Wade is responsible for overseeing and coordinating all CRSA s various services. Mr. Wade previously served as President and Chief Executive Officer of CRSA s predecessor company as well as served as a member of the predecessor Company s Board of Directors. Mr. Wade has more than thirty-five (35) years of retirement living and senior housing experience. Mr. Wade has been involved in the preparation of numerous financial feasibility studies and planning analysis for senior living communities, including entrance fee, rental, assisted living, skilled nursing and healthcare related facilities. In this capacity, he has been involved with the issuance of more than $2 billion of retirement living and long-term care financings. Prior to forming CRSA in 1989, Mr. Wade served as a Partner with the accounting firm of Ernst & Whinney (now Ernst & Young) where he directed the firm s senior living consulting practice. He has served as a member of the Advisory Committee to the National Continuing Care Data Base developed by the American Association of Homes and Services for the Aging and as a member of the NIC Owner Operator Advisory Council. Mr. Wade is a graduate of The University of Alabama with a degree in Accounting. Mr. Wade is a member of the American Institute of Certified Public Accountants and the American Association of Homes and Services for the Aging. He is a former member of the Board of Directors of Trezevant Manor, a continuing care retirement community located in Memphis, Tennessee and BayWoods, a cooperative retirement community located in Annapolis, Maryland. Bruce Cannon, Vice President, Director of Finance and Consulting. Mr. Cannon is responsible for overseeing all of CRSA s financial consulting responsibilities, including those related to new project developments. He previously served as Executive Vice President and Chief Financial Officer of the predecessor company to CRSA, as well as served as a member of the predecessor Company s Board of Directors. Mr. Cannon has more than twenty-five (25) years of retirement living and senior housing experience and has been involved in the preparation of numerous financial feasibility studies and planning analysis for retirement communities involved with entrance fee, rental, assisted living, skilled nursing and healthcare related facilities. In this capacity, he has been involved with the issuance of more than $1.5 billion of retirement living and long-term care financings. Prior to joining CRSA in 1989, Mr. Cannon served as a member of Ernst & Whinney s (now Ernst & Young) National Retirement Center Consulting Group, where he was responsible for the preparation of financial and economic feasibilities studies for senior housing projects. In addition, Mr. Cannon has also served as a member of the Advisory Committee to the National Continuing Care Data Base developed by Leading Age and has served as a faculty instructor of Leading Age s Retirement Housing Professionals certification program as well as has A-28

153 given numerous speeches and presentations on retirement community financings and overall trends in senior housing. Lee Lyles, Vice President, Director of Project Development. Mr. Lyles is responsible for overseeing all of CRSA s project design and development responsibilities, including those related to new project developments. He previously served as Executive Vice President and Chief Development Officer of CRSA s predecessor company. Prior to joining CRSA in 2007, Mr. Lyles was a Partner with Webb + Partners, a full service Project/Construction Management firm. He brings over thirty (30) years of experience in development and construction management. His forte is in the development and construction of senior housing, commercial, hospitality, medical office buildings, retail and mixed-use projects. Mr. Lyles also previously co-founded and served as the Executive Vice President of Resources for Senior Living, LLC. The company specialized in the development and management of senior housing. CRSA Development Consulting Agreement Development of the Community began with CRSA on September 10, The Corporation entered into a Development Consulting Agreement on March 2, 2009, as amended, (the Development Consulting Agreement ) with CRSA, to provide development consulting services for the Community through the earlier of the date on which ninety-five (95%) of the Independent Living Units of the Community are occupied or December 31, The Development Consulting Agreement calls for CRSA to provide the following services: (a) all necessary planning to implement the business plan approved by the Corporation, including any revisions thereto; (b) assistance in obtaining all necessary governmental approvals required for the development and construction of the Community; (c) assist Corporation with selection of design consultants and a preconstruction consultant, and coordinate submission of plans and specifications to the Corporation for the Corporation s approval; (d) development of a Resident services program; (e) development and implementation of the marketing plan for the Community to initial Residents; (f) assistance in securing permanent financing for the Community; (g) assistance in negotiating and awarding a construction contract for the Community, and thereafter monitoring the progress of construction; (h) preparation of monthly cost reports; (i) providing filing and disclosure requirements imposed by applicable law in connection with the offering of interests in the Community; and (j) assistance related to entitlement processing. The Corporation entered into Amendment #1 to the Development Consulting Agreement on June 13, 2011 ( Amendment #1 ). Amendment #1 engages CRSA to provide sales and marketing consulting services and requires CRSA to appoint a sales and marketing professional to serve as a member of the Corporation s development team. Amendment #1 provides the Corporation with the opportunity to disengage CRSA from its sales and marketing duties and responsibilities in the event that CRSA fails to meet any of the marketing goals. The Corporation entered into Amendment #2 to the Development Consulting Agreement effective as of January 1, 2013 ( Amendment #2 ). Amendment #2 disengages CRSA from its sales and marketing duties and responsibilities. In addition, Amendment #2 fixes the Development Consulting Fee payable to CRSA at $3,500,000 to be paid in accordance with the terms of Amendment #2. Any portion of the Development Consulting Fee earned between January 1, 2013 and the closing date of financing is deferred until the date upon which financing is closed. At the close of financing, sixty percent (60%) of the balance of the Development Consulting Fee, less any amounts paid prior to the close of financing, will be paid to CRSA. Twenty percent (20%) of the A-29

154 Development Consulting Fee ($700,000) will be payable to CRSA in eighteen (18) equally monthly installments of $38, beginning on the date construction commences. The final twenty percent (20%) of the Development Consulting Fee ($700,000) will be payable to CRSA upon achievement of ninety percent (90%) occupancy of the Independent Living Units. The Corporation is to pay CRSA the final twenty percent (20%) of the Development Consulting Fee in installment amounts of $4,762 for each Independent Living Unit that is occupied in the month immediately following the date of occupancy for such unit. Prior to the affiliation between LCS and CRSA Management, LLC, LCS undertook efforts to develop a continuing care retirement community less than fifteen miles from the site of the Project for which no application for a Provisional Certificate of Authority from the Florida Department of Financial Services, Office of Insurance Regulation has yet been submitted. The Development Consulting Agreement contains a restrictive covenant which prohibits CRSA from engaging in certain development activities with respect to any senior housing, continuing care retirement community or other similar project located or proposed to be located within fifteen miles of the Project during the term of the Development Consulting Agreement and for a period ending twelve months after the termination of such agreement under certain circumstances in accordance with the terms thereof. Development Agreement with Lutheran Life Communities The Corporation and Lutheran Life Communities, an affiliate of LLM, have entered into a development agreement whereby Lutheran Life Communities serves as co-development consultant and co-marketing consultant for the Community along with CRSA/LCS. As compensation for services rendered pursuant to the development agreement with Lutheran Life Communities, the Corporation will pay Lutheran Life Communities a fee of one percent (1%) of Project costs, which will be paid on July 1 st of the second full fiscal year after the Project reaches stabilized occupancy. This fee will be subordinated to all of the Corporation s existing debt obligations, including the Master Indenture and will be deferred in accordance with the terms of the Master Indenture. For more information, please see the Limited Offering Statement, SECURITY FOR THE SERIES 2013 OBLIGATIONS Certain Master Indenture Covenants of the Obligated Group Payments on Affiliate Subordinated Indebtedness. CONSTRUCTION OF THE PROJECT The construction of the Community has been divided into two (2) components, each of which will be performed by a different construction contractor: construction of the thirty-one (31) Villas ( Villa Construction ) and construction of other all other elements of the Community, including the Assisted Living Center and Health Center ( Community Construction ). The Corporation has engaged Stock Construction, LLC as the contractor to construct the Villas. The Corporation has engaged AWC/DD JV to perform the Community Construction ( General Contractor ). Community Construction The General Contractor is a joint venture consisting of Archer Western Construction, LLC, an Illinois limited liability company, and DeAngelis Diamond Construction, Inc., a Florida corporation. The joint venture has been memorialized pursuant to a Joint Venture Agreement dated June 30, Archer Western Construction, LLC was established in 1983 and is headquartered in Atlanta, Georgia. Archer Western Construction, LLC is a subsidiary of The Walsh Group, a general contracting, construction management, and design-build firm. With annual revenues in excess of $3.5 billion, The Walsh Group is ranked by Engineering New-Record as the fifteenth (15 th ) largest contractor in the United States. A-30

155 A sample list of senior living communities and other relevant projects, both completed and in-process, for which the Walsh companies have provided similar services, are set forth below: Organization Olson Pavilion at Lutheran Home Arlington Heights, Illinois Springfield Short Stay Rehab Facility Springfield, Illinois Summit Housing Summit, Illinois Senior Suites of Norwood Park Chicago, Illinois Blue Island SLF at Fay s Point Blue Island, Illinois Senior Suites of Blue Island Blue Island, Illinois Senior Suites of Kelvyn Chicago, Illinois Providence Point Pittsburgh, Pennsylvania Project Renovation and New Construction. Project will be a mix of renovation and new construction of the existing Lutheran Life CCRC. Approximately 126,000 square feet of complete gut and renovation of the existing Olson Pavilion and 101,000 square feet of a new 3-story facility. A new 94 stall on-site parking lot will be created to support the new facility. New Construction. VA type construction with wood trusses and wall panels, masonry, asphalt shingle roof, 1-2 occupancy for 64 units, kitchen, cafeteria, rehab and administration. New Construction. New Construction of a 4-story, 60 unit building and a 1- story, 9 unit building. Construction is precast hollow core planks on load bearing Cold-Formed framing, steel and CMU for the 4-story building and wood framed construction for the 1-story building. Both buildings have a masonry exterior. Renovation. Renovation of historic 3-story building and new 3-story addition totaling 85 independent living senior apartments and associated site development. New Construction. 4-story, 120 unit supportive living facility (SLF). New Construction. 6- story cast-in-place concrete structure Senior Housing Facility. Independent living with 90 dwelling units utilizing a geothermal heat pump HVAC. New Construction. 6-story cast-in-place concrete Senior Housing Facility. Independent Living. 85 dwelling units, City of Chicago Senior Center. New Construction. This project includes 222 new apartment residences, as well as 35 single family residences. The new community center will include: Wellness Center, Indoor swimming pool and whirlpool, Exercise facilities and Multi-purpose community room. The apartments will Status To be completed April 2016 Completed January 2013 Completed October 2010 To be completed October 2014 To be completed July 2014 Completed January 2010 Completed July 2009 Completed April 2009 A-31

156 Holmstad Batavia Batavia, Illinois Wilson Yard - Senior Building Chicago, Illinois Chicago Housing Authority - Group Senior Housing Chicago, Illinois Chicago Housing Authority - Group Senior Housing Chicago, Illinois Senior Housing Rehabilitation Chicago, Illinois The Meadows of Glen Ellyn Glen Ellyn, Illinois Brookdale Living Communities Southfield, Michigan be two 7-story mid-rise buildings. The apartments will range in size from 761 to 2106 square feet. The 35 single family homes will range in size from 1,589 to 2,000 square feet. New Construction. 141,000 gross square feet, 3-story wood frame senior living apartment building with 1 level of underground parking, 48 apartment units and first floor town center functions for larger senior living campus including full service kitchen. New Construction. 7-story senior building with a cast-in-place concrete frame, brick veneer and commercial retail on the first floor on the City of Chicago s north side. Above grade parking is also included on the 2nd floor. Renovation. This contract calls for the renovation of Senior Housing Locations at 2640 N. Sheffield, 2720 N. Sheffield, and 2140 N. Clark. Renovation. This contract involves the renovation of three Senior Housing community locations: 344 W. 28th Place, 1531 N. Clybourn, and 655 W.65th Street. Rehabilitation. This contract calls for the interior and exterior rehabilitation of 7 senior housing buildings with 900 dwelling units; the project calls for a total of 750,000 square feet of new construction. New Construction. The new construction of a 248,800 square foot, 237 unit assisted living senior housing facility for Brookdale Homes featured a cast-in-place concrete framed building with a library, reception area, office space, a commercial kitchen, and a swimming pool facility. New Construction. 220 unit, 5-story living facility for the elderly which covers 220,000 square feet. Completed September 2008 Completed January 2009 Completed May 2003 Completed June 2003 Completed September 2002 Completed January 2000 Completed August 1999 DeAngelis Diamond Construction, Inc. was founded in 1996 and is located in Naples, Florida. DeAngelis Diamond Construction, Inc. s mission is based on the following seven (7) core values: Faith in God, Honor to Build, Lasting Relationships, Excellence & Quality, Leadership, Healthy Environment & Culture and Integrity. A-32

157 A sample list of health care industry projects, both completed and in-process, for which DeAngelis Diamond Construction, Inc. has provided similar services, are set forth below: Organization Project Status HMA Spring Hill Regional Medical Center Spring Hill, Florida Design/Build project. Demolition and renovation of existing CT Scan Room. Completed June 2011 Naples Community Hospital Naples, Florida Naples Community Hospital Naples, Florida Naples Community Hospital Naples, Florida Naples Community Hospital Naples, Florida Highlands Regional Medical Center Sebring, Florida Health Management Associates, Inc. Naples, Florida HCA Largo Medical Center Largo, Florida UHS Sandy Pines Tequesta, Florida Renovation of the downtown Heart Institute, consisting of 22,500 square feet. Renovation of the Briggs Wellness Center, which includes state of the art comprehensive diagnostic outpatient center, with 28 exam rooms, nuclear testing, and ECHO cardiography. The center included high end millwork, stone tile, acrylic glazing and specialty interior storefront. 45,700 square foot infill of two floors of existing patient tower shell space to add 64 medical-surgical private patient rooms and support spaces. Included were 16 rooms with ceiling mounted patient lifts, telemetry capabilities on both floors, Cerner Smart Room infrastructure construction with high-end finishes and casework details. NCH Brookdale Rehab. 22,180 square foot renovation of 31 medical-surgical patient rooms and support space. Work included 90% removal of existing construction with new layout providing larger, more modern patient rooms and required support space. Included were 4 rooms with ceiling mounted patient lifts, telemetry and Cerner Smart Room infrastructure. Hospice gazebo. First floor renovation and expansion adding one (1) MRI and all required support space. Renovation to Largo Medical Center administration and class rooms. Addition of 40,000 square foot children s behavioral health center consisting of two buildings containing a patient/sleep wing and an education wing. Completed October 2011 Completed November 2011 Completed October 2011 Completed January 2012 Completed December 2011 Completed March 2012 Completed January 2012 To be completed December 2013 A-33

158 Naples Community Hospital Naples, Florida Health Management Associates, Inc. Naples, Florida Naples Community Hospital Naples, Florida Lafayette Regional Rehab Hospital Lafayette, Indiana HCA Medical Center of Trinity New Port Richey, Florida Naples Community Hospital Naples, Florida Narayana University Medical Center Grand Cayman, Cayman Islands Ten Broeck Wesley Chapel Psych Tampa, Florida HCA Central Florida Regional Sanford, Florida HMA Venice Regional Medical Center Venice, Florida HMA Wuesthoff Medical Center Rockledge, Florida Renovation of the Telford Building. Improvements to an airplane hangar at Naples Airport. Demolition and construction of a 26,000 square foot 32-bed medical-surgical patient wing. Construction of free standing 40-bed post-acute healthcare facility that provides rehabilitation services for patients with functional deficits as a result of debilitating illness or injuries. Construction of new Class III 36-bed psychiatric hospital. 9,000 square foot renovation of main hospital lobby in multiple phases. Constructed new café, gift shop, terrazzo floors, wall paneling, storefront glass, and auto entrances. Phase 1 of the facility includes a new ground-up 140- bed acute care hospital. This is an international project located in the Cayman Islands and consists of an ICU ward, semi-private and private patient rooms, 3 operating rooms, 1 hybrid operating room, MRI, gamma camera, nuclear medicine, full kitchen, CT room, central energy plant and all required support space. This project was designed in accordance with the International Building Code and Joint Commission International Standards. Project was fast track and completed in 15 months. New construction of a brand new 45,000 square foot behavioral health facility consisting of 26 psychiatric patient rooms for a 50-bed facility with support space, gymnasium, outdoor basketball court, and full kitchen. Complete demolition and renovation of second floor rehab space. Multi-phase project. Changing out the entire nurse call system throughout the hospital 4 patient rooms at a time. Renovation and refurbishment of fourth acute care patient wing. Completed March 2013 Completed December 2011 Completed December 2012 Completed January 2013 To be completed October 2013 Completed October 2012 Completed February 2013 Completed August 2013 Completed May 2013 To be completed December 2013 Completed June 2013 A-34

159 HMA Shands Lakes Medical Center Lake City, Florida HMA Highlands Regional Medical Center Sebring, Florida Design/Build project, class IV ICRA, multi-phase construction. Project consists of a 9,000 square foot interior renovation, replacing 2 air handling units along with all new controls. New bathrooms constructed in patient rooms and new nurse stations and corridor upgrades. Cath-lab equipment. To be completed October 2013 Completed January 2013 Lee Memorial Health System Fort Myers, Florida HMA Highlands Regional Medical Center Sebring, Florida Discovery Village ALF Fort Myers, Florida Addition of a Women s and Children s Medical Plaza. Facility is 13,450 square feet and includes 24 exam rooms, 6 vitals rooms, an audiology booth, 18 offices, and several other support staff spaces. Facility is a single-story building with structural steel columns and wood truss construction. Renovation of medical office building. Construction of 126-bed, 115,000 square foot, multistory assisted living facility located in the Forum Community in Fort Myers. Project includes 3 buildings for Memory Care Units, Assisted Living Units, and Independent Living Units and was constructed on a 6.5 acre site. To be completed October 2013 Completed April 2013 Completed August 2013 General Contractor s Agreement Community Construction The Corporation has entered into a construction contract with the General Contractor for the Community Construction ( General Contractor Agreement ). Due to a delay in the General Contractor being issued a Florida general contractor s license, the General Contractor Agreement was assigned to Archer Western Construction, LLC, one of the joint venture partners of the General Contractor, which already holds a Florida general contractor s license. At such time as the General Contractor receives its Florida general contractor s license, the General Contractor Agreement will be assigned back to the General Contractor. Pursuant to the General Contractor Agreement, the General Contractor will complete the Community Construction for a stipulated sum of $69,550,000, which will be paid in monthly progress payments based on the amount of work completed in such month, less retainage of ten percent (10%). The General Contractor is required under the General Contractor Agreement to furnish the Corporation with a payment and performance bond in the amount of the stipulated sum. A-35

160 General Contractor Construction Schedule The General Contractor Agreement requires the General Contractor to substantially complete the Community Construction within five hundred forty-eight (548) days (approximately eighteen (18) months) of the commencement date. In the event the General Contractor does not substantially complete the Community Construction within the specified time period, the General Contractor will be liable for damages for each day of delay past the required date of substantial completion in accordance with the following schedule of liquidated damages: As part of the Community Construction, the General Contractor is responsible for performing certain site preparation work which relates to the Villas and which must be completed before the Villa Contractor can begin the Villa Construction ( Villa Site Prep Work ). Such Villa Site Prep Work includes installation of utility facilities and rough grading. The General Contractor Agreement requires the General Contractor to complete the Villa Site Prep Work within two hundred and seventy (270) days of the commencement date. In the event the General Contractor does not complete the Villa Site Prep Work within the specified time period, the General Contractor will be liable for damages for each day of delay past the required date of substantial completion in accordance with the following schedule of liquidated damages: The Corporation is currently in discussion with the General Contractor to amend the General Contractor Agreement to modify the completion date of the Villa Site Prep Work. Delivery of the Villa Site Prep Work in the Lakeside Villa Neighborhood, which consists of twenty-five (25) Villas, would be on or before July 1, 2014 and delivery of the Villa Site Prep Work in the Woodland Villa Neighborhood, which consists of twenty-two (22) Villas would be on or before August 1, Under the terms of the proposed amendment, the stipulated sum payable to the General Contractor would be increased by $137,000. Discussions are ongoing and there is no guarantee that such an amendment will be executed. Villa Construction Stock Construction, LLC (the Villa Contractor ) is a homebuilder in Southwest Florida and has built more than three thousand (3,000) new homes throughout Southwest Florida and currently has more than three hundred thirty (330) homes under construction. The Villa Contractor was named by Builder 100 as one of the top builders nationwide. The Villa Contractor s CEO, Brian Stock, was named Entrepreneur of A-36

161 the Year by the Tampa-based Business Observer. In the past eight (8) years, communities built by the Villa Contractor have won fourteen Community of the Year honors. A sample list of communities and other relevant projects for which the Villa Contractor has provided similar services, are set forth below: Community Phase I of Lakoya Lely Resort, Naples, Florida Black Bear Ridge Naples, Florida Project Description Consists of 149 homes across 4 series of floor plans ranging from 2,273 to more than 3,400 square feet. Consists of 61 homes with 12 floor plans ranging from 2,062 to 3,172 square feet. Paseo Ft. Meyers, Florida A private, gated 444 acre community offering 14 floor plans ranging from 1,227 to 2,084 square feet. Villa Contractor s Agreement Villa Construction The Corporation has entered into a construction contract with the Villa Contractor for the Villa Construction ( Villa Contractor Agreement ). Pursuant to the Villa Contractor Agreement, the Villa Contractor is responsible for constructing the thirty-one (31) Villas based on three (3) different model villas as described in the Project specifications. The Corporation has the right to change by change order the mix of the models of Villas to be built by the Villa Contractor. The Villa Contractor will construct the Villas for a stipulated sum of $9,993,944 which shall be adjusted based on any changes made to the mix of the models of Villas to be built by the Villa Contractor and finalization of the architectural drawings. The stipulated sum shall be paid in monthly progress payments based on the amount of work completed in such month. If the sites where the Villas will be built are not delivered to the Villa Contractor by July 1, 2014, then the Villa Contractor has the option to rebid the project and the contract sum shall be increased by an amount equal to the increase in subcontractor costs, subject to a maximum increase of $275,000. In the event Owner does not deliver the sites where the Villas will be built by October 1, 2014, then Contractor shall have the option to rebid the project, which shall include obtaining three (3) competitive bids for each major cost item. After receipt of notice of such competitive bids, Contractor shall provide a revised contract sum and the Corporation shall have ten (10) days to review the new contract sum and either accept the same or terminate the Villa Contractor Agreement. The Villa Contractor is required under the Villa Contractor Agreement to furnish the Corporation with a payment and performance bond in the amount of the stipulated sum. Villa Contractor Construction Schedule The Villa Contractor is required to start construction within seven (7) days of the date the Corporation provides the Villa Contractor with notice to start construction. The Villa Contractor must complete the Villa Construction within two hundred and seventy (270) days of the date Villa Contractor commences construction. In the event the Villa Contractor does not substantially complete the Villa Construction within the specified time period, the Villa Contractor will be liable for damages for each day of delay past A-37

162 the required date of substantial completion in accordance with the following schedule of liquidated damages calculated based on the actual number of Villas that have not received a Certificate of Occupancy: The amount of liquidated damages payable by the Villa Contractor to the Corporation shall be capped at $300,000. The Corporation is currently in discussion with the Villa Contractor to amend the Villa Contractor Agreement to permit the Villa Contractor to commence the Villa Construction at such time as the Villa Site Prep Work for the Lakeside Villa Neighborhood, which consists of twenty-five (25) Villas, is complete. Discussions are ongoing and there is no guarantee that such an amendment will be executed. The Architect OTHER PROFESSIONAL SERVICES SFCS, Inc. (the Architect ) has been engaged to provide architectural, engineering and related design services to the Corporation. The Architect is a full-service architecture and planning firm which has earned a national reputation in senior living for creating quality projects demanding creative site analysis, master planning and design excellence. The firm was founded in 1920 and maintains offices in Roanoke, Virginia, and Charlotte, North Carolina. A representative list of the Architect s projects includes the following: Sponsor Project Size in Square Feet Construction Cost Completion Date Nursing Renovation: 64,075 square $58M Overall Project Cost feet Maryfield, Inc Greensboro Road High Point, NC CCRC Reposition: 68, 220 square feet (new); 23,478 square feet (upfit) $8.4M Nursing Renovation Completed January 2009 California Veterans Home New CCRC (with Household Nursing): 163,280 square feet $43M Completed January 2012 A-38

163 Presbyterian Homes 6351 West Lake Road Erie, PA New Nursing: 62,000 square feet Assisted Living: 60,000 square feet Rehabilitation Household Unit: 9,000 square feet Phase I: $8M Phase II: $8M Phase I: 2012 Phase II: 2013 ACTS Retirement Life Communities, Inc. 375 Morris Road West Point, PA St. Andrew Estates North, Boca Raton, Florida: 79, 602 square feet $10.9M (estimated) Estimated August 2013 ACTS Retirement Life Communities, Inc. 375 Morris Road West Point, PA Indian River Estates, Vero Beach, Florida Culture Change Nursing: 95,000 square feet $24M Completed March 2012 Armed Forces Retirement Home 1800 Beach Drive Gulfport, MS Liberty Lutheran 250 N. Bethlehem Pike Ambler, PA New CCRC: 842,514 square feet $204.9M Completed July 2010 Nursing Renovation (Culture Change): 28,070 square feet 15 Resident Memory Support Household: 9,702 square feet $7.5M Estimated 2012 Assisted Living: 27,600 square feet Rehabilitation Household: 28,109 square feet Rockhill Mennonite Community 3250 State Road Sellersville, PA Assisted Living: 29,631 square feet Wellness: 2,623 square feet Assisted Living: $6M Wellness: $250,000 Completed June 2012 The Deupree Community 3939 Erie Avenue Cincinnati, Ohio Cottages: 104,544 square feet New Independent Living Community Center: 483,952 square feet Cottages: $5M New Independent Living Community Center: $23.3M Cottages: March 2009 New Independent Living Community Center: March 2008 A-39

164 The Kendal Corporation 1107 E. Baltimore Pike Kennett Square, PA Riverside Health System 1010 Old Denbign Blvd. Newport News, VA Nursing Renovation: 3,350 square feet Assisted Living Renovation: 35,400 square feet Wellness: 29,200 square feet Nursing Renovation: 25,700 square feet $14.4M Completed December 2012 $6M Completed May 2012 The Construction Consultant for Pre-Construction Services A preliminary joint venture was arranged between W.G. Yates and Sons Construction Company and Gates Construction Company to act as the construction consultant ( Construction Consultant ) for preconstruction services. The Construction Consultant provided pre-construction services for the Community including, but not limited to, coordination with the Architect and the other design consultants, construction sequencing and scheduling, value engineering and estimating the cost of work and general conditions. The joint venture also provided the services related to clearing, grading, and back filling of the land in Naples on which the Community will be constructed (completed in December 2010.) The Construction Monitor 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. 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. During the construction process, zumbrunnen will be responsible for: (i) reviewing and certifying all disbursement requests for the payment of expenses incurred by the Corporation for work, labor, materials and equipment furnished in connection with the construction of the Community; (ii) monitoring such items as change orders, budget amendments and updates to the construction schedule; and (iii) reporting to the holders of the Series 2013 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-40

165 APPENDIX B FINANCIAL FEASIBILITY STUDY

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167 The Arlington of Naples Financial Feasibility Study Six Years Ending June 30, 2019

168 The Arlington of Naples Financial Feasibility Study Six Years Ending June 30, 2019 TABLE OF CONTENTS Independent Accountants Examination Report... B-1 Forecasted Financial Statements: Forecasted Statements of Operations and Changes in Net Assets (Deficit)... B-5 Forecasted Statements of Cash Flows... B-6 Forecasted Balance Sheets... B-7 Forecasted Balance Sheets (continued)... B-8 Forecasted Financial Ratios... B-9 Summary of Significant Forecast Assumptions and Accounting Policies Basis of Presentation... B-10 Background... B-10 Development of the Community... B-14 Management of the Community... B-16 Summary of Financing... B-17 Reservation Agreement and the Residence and Care Contract... B-20 Characteristics of the Market Area... B-25 Primary Market Area of the Independent Living Units... B-27 Independent Living Penetration Analysis... B-48 Marketing of the Community... B-52 Description of Assisted Living... B-58 Assisted Living Penetration Analysis... B-63 Description of Nursing Care... B-68 Summary of Significant Accounting Policies... B-71 Summary of Revenue and Entrance Fee Assumptions... B-73 Summary of Expense Assumptions... B-78 Assets Limited as to Use... B-79 Property and Equipment and Depreciation Expense... B-81 Long-Term Debt and Interest Expense... B-81 Current Assets and Current Liabilities... B-84 Independent Accountants Report on Supplemental Information... B-85

169 Board of Directors The Arlington of Naples Naples, Florida INDEPENDENT ACCOUNTANTS EXAMINATION REPORT We have prepared a financial feasibility study of the plans of The Arlington of Naples, an Illinois not-for-profit corporation, registered to do business in Florida as the Arlington of Naples, Inc. (the Corporation ) to develop, construct and own a continuing care retirement community to be known as The Arlington of Naples (the Community ) in Naples, Florida. The Community is planned to consist of 132 independent living apartment units and 31 independent living villa units, totaling 163 independent living units which are collectively defined as the Independent Living Units ; 42 assisted living units; 37 memory support units; 44 skilled nursing beds and related common areas. Lutheran Life Ministries ( LLM ), an Illinois not-for-profit corporation, is the parent of both the Corporation and Lutheran Life Communities ( LLC ). LLM is an Illinois not-for-profit corporation formed in 2005 for the purpose of developing services for seniors, establishing a senior living system, and providing supervision and management of senior living facilities. LLC is providing certain development services and is to provide management consulting services for the Community. Management of the Corporation, LLM, and LLC are collectively referred to as Management. This financial feasibility study was undertaken to evaluate the Corporation s ability 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 $190,295,000 Collier County Industrial Development Authority Continuing Care Community Revenue Bonds, Series 2013 (The Arlington of Naples Project) (the Series 2013 Bonds ). The Corporation s underwriter, B.C. Ziegler and Company (the Underwriter ), has provided the assumed structure and terms of the Series 2013 Bonds as follows: $128,295,000 of non-rated tax-exempt fixed rate bonds (the Series 2013A Bonds ), to be issued at a discount, consisting of term maturities to May 15, 2049, with average interest rates ranges from 7.00 to 8.25 percent per annum and average yields ranging from 7.00 to percent per annum; and $62,000,000 of non-rated fixed rate Tax Exempt Mandatory Paydown Securities (TEMPS SM ) (the Series 2013B Bonds ) with assumed interest rates ranging from 6.50 to percent per annum. The Series 2013B Bonds consist of $12,000,000 of Series 2013B-1 Bonds (TEMPS-85 SM ) anticipated to be redeemed in full by approximately 82 percent initial occupancy of the Independent Living Units by approximately August 2017; and $50,000,000 of Series 2013B-2 Bonds (TEMPS-70 SM ) anticipated to be redeemed in full by approximately 70 percent initial occupancy of the Independent Living Units by approximately February B-1

170 Principal on the Series 2013B Bonds is anticipated to be repaid from a portion of the entrance fees assumed to be available from initial residents moving into the Independent Living Units. The Corporation is solely responsible for the payment of debt service on the Series 2013 Bonds. Neither LLC, LLM, nor any of LLM affiliated organizations other than the Corporation, is liable for payment of interest, principal and premium, if any, on the Series 2013 Bonds. LLM is only obligated with respect to its commitment provided for under a Liquidity Support Agreement. The proceeds from the sale of the Series 2013 Bonds, entrance fees, a contribution from LLM, a subordinate note from LLM, and interest earnings on trustee-held funds are to be used as follows: To pay all costs for the Community, including reimbursement of a portion of pre-finance costs, development, construction, land acquisition and architectural costs; To fund debt service reserve accounts for the Series 2013 Bonds; To fund a Working Capital Fund and an Operating Reserve Fund; To fund statutory required reserves; To fund interest for the portion of the Series 2013 Bonds related to the Community for a period of 24 months; and To pay costs associated with the issuance of the Series 2013 Bonds. Our procedures included analysis of: The Corporation s history, objectives, timing and financing; Future demand for the Corporation s services, including consideration of: Socioeconomic and demographic characteristics of the two defined primary market areas ( PMAs ) for the Community; Locations, capacities and competitive information pertaining to other existing and planned facilities in the PMAs; and Forecasted occupancy and utilization levels; Project-related costs, debt service requirements and estimated financing costs; Staffing requirements, salaries and wages, related fringe benefits, and other operating expenses; Anticipated entrance fees, monthly fees, and per diem charges for the Community s residents; Sources of other operating and non-operating revenues; Revenue/expense/volume relationships; and, Depositor files. Management has set forth its significant forecast assumptions upon which the accompanying forecasted financial statements are based in the feasibility 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. B-2

171 The accompanying financial forecast for each of the years in the six year period ending June 30, 2019, is based on assumptions that were provided by Management. The financial forecast includes the following financial statements and the related summary of significant forecast assumptions and accounting policies: Forecasted Statements of Operations and Changes in Net Assets (Deficit); Forecasted Statements of Cash Flows; Forecasted Balance Sheets; and, Forecasted Financial Ratios. We have examined the financial forecast. Management is responsible for the forecast. Our responsibility is to express an opinion on the forecast based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants ( AICPA ) 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. Legislation and regulations at all levels of government have affected and may continue to affect the operations of retirement communities. 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. 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 assumed 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 in this study, the amount of the Series 2013 Bonds, and associated debt service requirements will 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 will not adversely affect Management s forecast. B-3

172 Management s forecast was originally prepared October 18, Management s forecast and this feasibility study report were updated on December 13, 2013 to reflect changes in the financing structure for the Series 2013 Bonds, including the amount of and interest rates on the Series 2013 Bonds. Our conclusions are presented below: In our opinion, the accompanying financial forecast is presented in conformity with guidelines for presentation of a financial forecast established by the AICPA. In our opinion, the underlying assumptions provide a reasonable basis for Management s forecast. However, 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 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 proposed Series 2013 Bonds, during the forecast period. However, the achievement of any financial forecast is dependent upon future events, the occurrence of which cannot be assured. We have no responsibility to update this report for events and circumstances occurring after the date of this report. Atlanta, Georgia December 13, 2013 B-4

173 The Arlington of Naples Forecasted Statements of Operations and Changes in Net Assets (Deficit) For the Years Ending June 30, (In thousands) Revenue: Independent living service fees $ - $ - $ 3,602 $ 8,202 $ 10,495 $ 11,325 Assisted living service fees - - 4,406 7,726 8,192 8,331 Nursing service fees - - 3,116 5,911 6,099 6,179 Other revenue Entrance fee amortization ,875 2,436 2,661 Investment income ,232 1,007 1,390 Total revenue ,876 25,188 28,504 30,173 Expenses: Administrative ,960 4,243 4,283 4,388 Activities Assisted living & memory care ,093 1,624 1,723 1,792 Nursing ,503 1,938 2,015 2,096 Facility Costs ,531 1,928 2,069 2,165 Dining services ,389 2,220 2,428 2,538 Housekeeping and laundry services Interest expense ,515 13,160 10,455 10,428 Depreciation - - 3,661 3,667 3,668 3,668 Amortization - - 1,396 1,396 1, Total expenses ,244 31,705 29,673 29,772 Gain (loss) from operations - (685) (17,368) (6,517) (1,169) 401 Contribution 2, Loss on extinguishment of debt (484) Increase (decrease) in net assets (deficit) 1,940 (685) (17,368) (6,517) (1,169) 401 Net assets (deficit), beginning of year - 1,940 1,255 (16,113) (22,630) (23,799) Net assets (deficit), ending of year $ 1,940 $ 1,255 $ (16,113) $ (22,630) $ (23,799) $ (23,398) See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Examination Report B-5

174 The Arlington of Naples Forecasted Statements of Cash Flows For the Years Ending June 30, (In thousands) Cash flows from operating activities: Change in net assets (deficit) $ 1,940 $ (685) $ (17,368) $ (6,517) $ (1,169) $ 401 Adjustments to reconcile change in net assets (deficit) to net cash provided by (used in) operating activities: Depreciation - - 3,661 3,667 3,668 3,668 Amortization - - 1,396 1,396 1, Amortization of earned entrance fees - - (737) (1,875) (2,436) (2,661) Loss on extinguishment of debt (Decrease) increase in accrued interest (6,765) 93 - (487) (23) - Net change in other current assets and liabilities - - (1,192) (221) (70) (2) Entrance fees received - attrition (non-refundable) ,131 1,456 Net cash provided by (used in) operating activities (4,341) (592) (13,997) (3,377) 2,497 3,850 Cash flows from investing activities: Purchase of property and equipment (25,456) (63,137) (6,555) (474) (363) (400) Interest cost capitalized during construction period (6,644) (13,878) (Increase) decrease in assets limited as to use (112,493) 79,255 (27,592) 44,778 7,812 (275) (Increase) decrease in assets limited as to use, current - - (845) (448) 5 (691) (Increase) decrease in investments (6,215) (15,748) (3,816) Deferred marketing costs (6,104) (1,980) (165) Net cash provided by (used in) investing activities (150,697) 260 (35,157) 37,641 (8,294) (5,182) Cash flows from financing activities: Initial entrance fees received ,318 27,749 8,474 - Entrance fees received - attrition (refundable) ,444 2,478 3,191 Entrance fees refunded - - (624) (1,455) (1,990) (2,167) Issuance of long-term debt 190, Deferred financing costs (4,591) Original issue discount (1,928) Principal payments on the Series 2013 Bonds (59,375) (2,625) - Principal payments on the Mortgage Loan (50) (53) (56) (60) (64) (68) Increase in Pre-Finance Note Payable 4, Repayment of Pre-Finance Note Payable (11,340) Increase in LLM Note Payable 6, Repayment of Pre-Finance Capital (30,390) (Decrease) increase in Accrued LLC Development Fee (Decrease) increase in Accrued LLC Consulting Fees (Decrease) increase in resident deposits (5,011) (2,756) (841) - Net cash provided by (used in) financing activities 155, ,383 (34,033) 5,852 1,376 Net increase in cash and cash equivalents $ 2 $ (1) $ 229 $ 231 $ 55 $ 44 Beginning balance of cash and cash equivalents ,108 1,163 Ending balance of cash and cash equivalents $ 649 $ 648 $ 877 $ 1,108 $ 1,163 $ 1,207 See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Examination Report B-6

175 The Arlington of Naples Forecasted Balance Sheets As of June 30, (In thousands) Assets Current assets: Cash and cash equivalents $ 649 $ 648 $ 877 $ 1,108 $ 1,163 $ 1,207 Principal Account and Interest Account ,293 1,288 1,979 Accounts receivable, net ,030 1,074 Prepaid expenses and other assets Total current assets ,623 3,862 4,063 4,864 Investments ,215 21,963 25,779 Assets limited as to use: Project Account 71,275 6, Funded Interest Account 22,896 9, Series 2013A Reserve Account 11,410 11,410 11,410 11,410 11,410 11,410 Series 2013B-1 Reserve Account Series 2013B-2 Reserve Account 3,250 3,250 3, Entrance Fee Fund , Operating Reserve Fund - - 5,000 5, Working Capital Fund 2,000 1,315 3, Statutory Entrance Fee Escrow Fund , Statutory Debt Service Reserve Fund Statutory Operating Reserve Fund ,687 1,687 1,788 Statutory Renewal and Replacement Fund ,099 1,649 1,788 Resident deposits 8,224 8,608 3, Total assets limited as to use 119,880 40,625 68,217 23,439 15,627 15,902 Property and equipment 72, , , , , ,770 less accumulated depreciation - - (3,661) (7,328) (10,996) (14,664) Net property and equipment 72, , , , , ,106 Other assets Deferred marketing costs, net 11,897 13,877 13,337 12,632 11,927 11,222 Deferred financing costs, net 4,591 4,591 4,000 3,409 2,818 2,635 Total assets $ 209,980 $ 209,719 $ 241,049 $ 199,236 $ 202,772 $ 203,508 See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Examination Report B-7

176 The Arlington of Naples Forecasted Balance Sheets (continued) As of June 30, (In thousands) Liabilities and Net Assets (Deficit) Current liabilities: Accounts payable $ 1,490 $ 1,490 $ 877 $ 1,108 $ 1,163 $ 1,207 Accrued expenses Accrued interest 1,678 1,771 1,771 1,284 1,261 1,261 Current maturities of long-term debt ,177 Resident deposits 8,224 8,608 3, Total current liabilities 11,532 12,012 6,714 3,814 3,035 4,208 Long-term debt, less current maturities 190, , , , , ,506 Original issue discount (1,928) (1,928) (1,828) (1,728) (1,628) (1,528) Accrued LLC Consulting Fees ,065 1,485 LLM Note Payable 6,509 6,509 6,509 6,509 6,509 6,509 Accrued LLC Development Fees Refundable entrance fees ,205 56,249 62,556 63,580 Deferred revenue from entrance fees, net of amortization ,526 24,005 25,355 24,150 Total liabilities 208, , , , , ,906 Net assets (deficit) 1,940 1,255 (16,113) (22,630) (23,799) (23,398) Total liabilities and net assets (deficit) $ 209,980 $ 209,719 $ 241,049 $ 199,236 $ 202,772 $ 203,508 See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Examination Report B-8

177 The Arlington of Naples Forecasted Financial Ratios For the Year Ending June 30, (In Thousands, Except for Ratios) Long-Term Debt Service Coverage Ratio 2019 Increase in net assets (deficit) $ 401 Deduct: Entrance fee amortization (2,661) Add: Depreciation 3,668 Amortization 988 Interest expense 10,428 Accrued LLC Consulting Fees (a) 420 Entrance fees received - attrition (non-refundable) 1,456 Entrance fees received - attrition (refundable) 3,191 Entrance fees refunded (2,167) Income Available for Debt Service $ 15,724 Maximum Annual Debt Service $ 11,410 Maximum Annual Debt Service Coverage Ratio (b) 1.38x Annual Debt Service $ 10,302 Annual Debt Service Coverage Ratio 1.53x Days Cash on Hand 2019 Cash and cash equivalents $ 1,207 Investments 25,779 Statutory Debt Service Reserve Fund 916 Statutory Operating Reserve Fund 1,788 Statutory Renewal and Replacement Fund 1,788 Cash and Investments $ 31,478 Total expenses 29,772 Less: Accrued LLC Consulting Fees (a) $ (420) Depreciation (3,668) Amortization (988) Total expenses less depreciation and amortization 24,696 Daily operating expenses (c) 68 Days Cash on Hand 463 Cash to Debt Ratio 2019 Cash and cash equivalents $ 1,207 Investments 25,779 Statutory Debt Service Reserve Fund 916 Statutory Operating Reserve Fund 1,788 Statutory Renewal and Replacement Fund 1,788 Series 2013A Reserve Account 11,410 Funds Available for Debt Service $ 42,888 Long-Term Indebtedness Outstanding $ 127,506 Cash to Debt Ratio 0.34x (a) Consulting fees payable to Lutheran Life Communities are to be deferred during the forecast period as further described in the "Management of the Community" section of the Summary of Significant Forecast Assumptions and Accounting Policies. (b) Ratio was requested by the Underwriter and is not required by the Master Trust Indenture. (c) Daily operating expenses are equal to total operating expenses less depreciation, amortization and accrued LLC Consulting Fees divided by 365 days. See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants Examination Report B-9

178 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies Basis of Presentation The accompanying financial forecast presents, to the best knowledge and belief of management of The Arlington of Naples, an Illinois not-for-profit corporation, registered to do business in Florida as the Arlington of Naples, Inc. (the Corporation ), Lutheran Life Ministries, and Lutheran Life Communities (collectively referred to as Management ), the expected financial position, results of operations and cash flows of the Corporation as of and for each of the six years ending June 30, Accordingly, the accompanying financial forecast reflects Management s judgment as of December 13, 2013, the date of this forecast, based on present circumstances and the expected course of action during the forecast period. The assumptions disclosed herein are those that Management believes are significant to the forecast. There will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Management s forecast was originally prepared October 18, Management s forecast and this feasibility study report were updated on December 13, 2013 to reflect changes in the financing structure for the Series 2013 Bonds, including the amount of and interest rates on the Series 2013 Bonds. Background The Corporation The Corporation is a not-for-profit corporation organized under the laws of the state of Illinois and registered to do business in Florida. The Corporation was formed in 2008 for the purpose of developing, owning and operating a continuing care retirement community in Naples, Florida to be known as The Arlington of Naples (the Community ). The Corporation is affiliated with The Evangelical Lutheran Church of America ( ELCA ) and is exempt from federal income tax under Section 501(a) of the Internal Revenue of 1986 (the Code ) as an organization described in Section 501(c)(3) under the ELCA group exemption. The business affairs of the Corporation are governed by its officers and directors (the Board ). The Corporation does not provide compensation to the Board in such capacity. Members of the Board are appointed by Lutheran Life Ministries for a three-year term of office, provided that the initial terms are established such that terms of office are staggered. Officers of the Board are elected annually by the Board and hold office for a term of three years. Lutheran Life Ministries and Lutheran Life Communities Lutheran Life Ministries ( LLM ), an Illinois not-for-profit corporation, is the sole corporate member of the Corporation and Lutheran Life Communities ( LLC ). LLM is also exempt from federal income tax under Section 501(a) of the Code. See Independent Accountants Examination Report B-10

179 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued LLM, formed in 2005, is the parent corporation of a system of senior living communities which provides community services, residential options and care to the senior population. Beginning with its inception in 1892, the Lutheran Home in Arlington Heights, Illinois served residents from one location. LLM currently provides senior care and residential options through five continuing care retirement communities located in Arlington Heights, Illinois; Chicago, Illinois; Ottawa, Illinois; Bloomington, Illinois; and Crown Point, Indiana. LLC, an affiliate of LLM, is the co-developer and is to provide management consulting services to the Corporation. LLC is exempt from federal income tax under Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code. CRSA/LCS Management, LLC CRSA/LCS Management, LLC ( CRSA/LCS ), headquartered in Memphis, Tennessee, specializes in operating multi-level and continuing care retirement communities similar to the Community. CRSA/LCS is a wholly-owned subsidiary of Life Care Services LLC ( LCS ). CRSA/LCS is providing certain development consulting services for the Community. The Community The Community is to be a continuing care retirement community ( CCRC ) located on approximately 39 acres of land in the master-planned community of the Lely Resort Community in Naples, Collier County, Florida. The Community is proposed to consist of the following: 163 independent living units consisting of 120 entrance fee apartments (the Entrance Fee Independent Living Apartments ), 12 rental apartments (the Rental Independent Living Apartments ) and 31 entrance fee villas (the Villa Units ). The Entrance Fee Independent Living Apartments, Rental Independent Living Apartments and the 31 Villa Units are collectively as the Independent Living Units ; 42 assisted living units (the Assisted Living Units ) and 37 memory support assisted living units (the Memory Support Units ); 44 skilled nursing beds (the Skilled Nursing Beds ); and, Associated common areas. The Community s commons area is assumed to include a central lobby, private dining room and bistro-style café and general store, a small theater, salon/spa, billiards and game room, multipurpose assembly hall, arts and crafts studio, library and business center, media room/auditorium, pub and lounge areas, aquatic center, a woodworking shop and a fitness and wellness center. The gross square footage of the Community upon completion is anticipated to approximate 582,000 square feet, including the common areas and structured parking. See Independent Accountants Examination Report B-11

180 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table summarizes the types of Independent Living Units, approximate square footage, monthly service fees ( Monthly Service Fee ) and entrance fees ( Entrance Fee ) at the Community. Table 1 Proposed Independent Living Unit Configuration Number of Units Square Footage 95% Refund Entrance Fee Entrance Fees (1) 50% Refund Entrance Fee Traditional Entrance Fee Monthly Service Fee (2) Independent Living Unit Type Apartments Units: One Bedroom Goldcrest $410,000 $388,000 $315,000 $3,084 Brambling (3) $478,000 $444,000 $366,000 $3,535 Brambling - Rental (3)(4) N/A N/A N/A $5,035 Two Bedroom Linnet 18 1,366 $684,000 $630,000 $521,000 $4,862 Sandpiper 25 1,466 $733,000 $673,000 $558,000 $5,200 Vireo 1 1,509 $760,000 $661,000 $548,000 $5,555 Cormorant 3 1,555 $783,000 $721,000 $598,000 $6,184 Flamingo 2 1,807 $910,000 $865,000 $717,000 $6,937 Nighthawk 2 1,877 $975,000 $898,000 $744,000 $5,493 Kingfisher 1 2,082 $1,042,000 $957,000 $794,000 $6,578 Three Bedroom Osprey 10 1,888 $921,000 $842,000 $698,000 $6,830 Heron 10 2,015 $1,028,000 $944,000 $782,000 $7,140 Villa Units (5) Two Bedroom Redwing 13 1,806 $918,000 N/A N/A $6,223 Fieldfare 13 2,445 $1,098,000 N/A N/A $7,191 Three Bedroom Stonechat 5 3,031 $1,427,000 N/A N/A $7,344 Total / Weighted Averages (6) 163 1,490 $750,430 $615,033 $508,242 $5,198 Second Person Fees $15,000 $15,000 $15,000 $1,040 Source: Management N/A = Not applicable (1) Reflects the Entrance Fees, effective May 1, 2013, for the three entrance fees plans ( Entrance Fee Plans ) available for the Independent Living Units. Management has limited the number of 50% Refund and Traditional Refund Entrance Fee Plans to a combined total of 50 contracts. Entrance Fees refunds under the Traditional Entrance Fee Plan decrease over time until the refund is zero. (2) Monthly Service Fees shown are to be effective July 1, 2015 (fiscal year 2016). (3) Twelve Brambling Independent Living Units are to be available under a rental residency agreement (the Rental Plan ). Under a Rental Plan, an additional $1,500 per month is added to the corresponding Monthly Service Fees under the Entrance Fee Plan. (4) Depositors have the option to purchase two adjacent Brambling units. The combined unit is to known as an Egret unit, which is to contain 1,985 total square feet. Entrance Fees for an Egret unit are as follows: $993,000 for the 95% Refund Plan, $912,500 for the 50% Refund Plan and $755,000 for the Traditional Entrance Fee Plan. Monthly Service Fees associated with an Egret unit is $6,807 per month under an Entrance Fee plan and $8,045 per month under a Rental Plan. As of July 31, 2013, two Depositors (hereinafter defined) have selected an Egret unit. (5) Villa Units are not available under a 50% or Traditional Entrance Fee Plans. (6) Weighted average Entrance Fees do not include the twelve Brambling units available under the Rental Plan. Weighted average Entrance Fees for the 50% Entrance Fee Plan and Traditional Entrance Fee Plan do not include the Villa units. See Independent Accountants Examination Report B-12

181 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table summarizes the unit types, approximate square footages, Monthly Service Fees, and daily service fees ( Daily Service Fees ) for the Assisted Living Units, Memory Support Units, and the Skilled Nursing Beds (collectively, the Health Center ), respectively. Health Center Assisted Living: Table 2 Health Center Configuration Number of Units Square Footage Monthly Service Fee (1)(2)(3) Daily Service Fee (1)(3) One Bedroom Standard $6,995 N/A One Bedroom Deluxe $7,295 N/A Two Bedroom (4) $8,950 N/A Total/Weighted Average Assisted Living $7,263 N/A Memory Support: Memory Support Units $10,184 $335 Total/Weighted Average - Memory Support $10,184 $335 Skilled Nursing: Private Room (Traditional) N/A $383 Private Room (Bariatric Room) N/A $383 Total/Weighted Average Skilled Nursing $383 Total 123 Source: Management N/A Not applicable (1) The Monthly Service Fees and Daily Service Fees shown reflect anticipated rates effective July 1, 2015 (fiscal year 2016). (2) The Monthly Service Fees shown for assisted living services are all-inclusive. (3) Monthly Service Fee and Daily Service Fee reflect pricing for direct admissions into the Health Center. Under the Entrance Fee Plans, residents who transfer from an Independent Living Unit to the Health Center pay a discounted rate equal to 50 percent of the direct admission rate. The discount is effective for the first four years of occupancy within the Health Center for Residents (hereinafter defined) who signed a Reservation Agreement (hereinafter defined) on or after May 1, The discount for Residents who signed a Reservation Agreement prior to May 1, 2013 is effective for the term of the Resident and Care Agreement ((hereinafter defined) (4) Two bedroom Assisted Living Units are also available for double occupancy for a rate of $4,475 per person effective July 1, 2015 (fiscal year 2016). See Independent Accountants Examination Report B-13

182 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Project Timeline The following table illustrates the anticipated timeline for the Community is shown below: Table 3 Development Timeline Permanent financing January 2014 Construction commences on the Community January 2014 The Community is available for occupancy July 2015 Memory Support Units achieves stabilized occupancy of 92% August 2016 Nursing Beds achieve stabilized occupancy of 94% September 2016 Assisted Living Units achieves stabilized occupancy of 93% February 2017 Independent Living Units achieve stabilized occupancy of 95% June 2018 Source: Management Development of the Community CRSA/LCS Development Consulting Agreement The Corporation and CRSA/LCS entered into a Development Consulting Agreement in March 2009, as amended (the Development Consulting Agreement ) to provide development services related to the Community. The term of the Development Consulting Agreement is from September 10, 2008, and continues until the earlier of the date when the proposed Independent Living Units are 95 percent occupied or December 31, As compensation for services rendered, the Corporation will pay a CRSA/LCS Development Consulting Fee equal to $3,500,000 and to be paid as follows: (i) a Development Retainer equal to $25,000 per month from the period beginning September 10, 2008 until December 2012; (ii) upon the closing of permanent financing, $2,100,000 of the CRSA/LCS Development Consulting Fee, less the total Development Retainer fees paid to date; (iii) $700,000 to be payable on a pro-rata basis during the construction period in equal monthly payments; and (iii) $700,000 to be payable on a pro-rata basis as the Independent Living Units achieve initial occupancy levels up to and including 90 percent (147 units). See Independent Accountants Examination Report B-14

183 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table summarizes the assumed payment schedule related to CRSA/LCS Development Consulting Fee. Table 4 Schedule of CRSA/LCS Development Consulting Fees The Development Retainer and upon closing of permanent financing $2,100,000 Monthly over the construction period 700,000 Total Fees Paid from the Series 2013 Bonds $2,800,000 Pro-rata over fill-up to 90% occupancy of the Independent Living Units 700,000 (1) Total Fees Paid Based on Achieving Occupancy $700,000 Total CRSA/LCS Development Consulting Fees $3,500,000 Source: Management (1) Paid from the Working Capital Fund, as defined hereinafter, from initial Entrance Fees received. In addition, upon closing of the Series 2013 Bonds, the Corporation is to pay CRSA/LCS a sales and marketing consulting fee of $354,712 for services previously rendered. The Corporation is also expected to reimburse CRSA/LCS for all reasonable out-of-pocket expenses for personnel employed by CRSA/LCS to such extent such expenses are included in the Community s project -related budget. Out-of-pocket expenses could include, but not limited to, travel, lodging, rental car, meals, telephone, postage, and overnight courier expenses, etc. but not including any overhead or administrative expense. LLC Development Agreement The Corporation and LLC entered into a development agreement on March 28, 2011 (the LLC Development Agreement ) whereby LLC is to provide co-development consulting and marketing services associated with the Community. The term of the LLC Development Agreement is from September 1, 2008, and continues until the earlier of (i) such time as the Independent Living Units are 95 percent occupied or (ii) June 30, As compensation for services rendered, the Corporation is to pay a development fee (the LLC Development Fee ) equal to 1.0 percent of the Community s project-related costs, including the total cost of all site improvements, direct construction costs, renovation costs, architectural and engineering costs, cost of furnishings and equipment, all costs and fees for permits and approvals, and construction contingency reserves incurred by the Corporation, estimated to be approximately $995,500, earned upon the closing of the Series 2013 Bonds. The LLC Development Fees shall be deferred on the same terms as the LLC Consulting Fees (hereinafter defined) and for purposes of the forecast, the LLC Development Fee is assumed to be paid after the forecast period. See Independent Accountants Examination Report B-15

184 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Management of the Community The Corporation and LLC entered into a consulting services agreement (the Consulting Services Agreement ), effective July 1, 2015, whereby LLC is required to provide the Corporation with services related to professional administrative and support services including: corporate management, future development, accounting and payroll, human resources, information technology, marketing and risk management services. As compensation for services rendered, the Corporation is to pay LLC a monthly consulting fee (the Consulting Fee ), in amounts as follows: for the fiscal years ending June 30, 2016 through June 30, 2020, a monthly fee equal to the lower of two percent of operating revenue, defined as resident service fee revenue and other revenue, or $35,000 per month. The term of the Consulting Services Agreement shall commence on July 1, 2015 (the Commencement Date ) and will terminate sixty months after the Commencement Date. The Consulting Services Agreement will automatically renew for an additional 60 months after the initial term unless (a) either party provides written notice of the intent to terminate the Consulting Services Agreement or (b) the Consulting Services Agreement has been terminated in accordance to the terms and conditions contained within the Consulting Services Agreement. Based on provisions in the Consulting Services Agreement and the Master Indenture, payment of Consulting Fees is deferred until the following conditions are met with respect to the proposed payments: (a) two full consecutive fiscal quarters in which total occupancy of the Community is equal or greater than 90%; (b) after giving effect to the proposed payment, the Debt Service Coverage Ratio and Cash to Indebtedness Ratio would not have been less than 1.30x and 0.30x respectively, (c) no Series 2013B Bonds are outstanding and (d) no events of default have occurred. For purposes of the forecast, payment of the Consulting Fee is deferred and are assumed to be paid after the forecast period. Liquidity Support Agreement LLM, the Corporation, and Wells Fargo Bank. N.A. (the Trustee ) will enter into a liquidity support agreement (the Liquidity Support Agreement ), expected to be executed upon closing of the Series 2013 Bonds, to provide liquidity support to the Corporation. Under the Liquidity Support Agreement, LLM will agree to provide liquidity support for the Corporation in an amount not less than $7,000,000. Under certain circumstances, LLM may be required to deposit up to an additional $3,000,000 in the Liquid Support Fund. The moneys available under the Liquidity Support Agreement may be drawn upon by the Trustee or the Corporation to pay for certain project costs, interest on the Series 2013 Bonds, or certain operating expenses in conjunction with the Community, if no other funds are available for those purposes in any trustee-held fund (other than the Debt Service Reserve Fund) subject to provisions in the Liquidity Support Agreement. The Liquidity Support Agreement will also contain provisions which reduce the obligation once certain conditions and covenants have been met by the Corporation for a specified time period. For purposes of the forecast, Management has not forecasted draws on the Liquidity Support Agreement. See Independent Accountants Examination Report B-16

185 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Summary of Financing Pre-Finance Loans Pre-finance development capital costs and expenses, including the cost of the Community site, is assumed to approximate $42,566,000. These costs have been and are anticipated to continue to be funded until permanent financing occurs by the following sources. Lutheran Church Extension Fund Promissory Note - In July 2008, the Lutheran Church Extension Fund Missouri Synod ( LCEF ), a Missouri non-profit organization, provided a five year, interest bearing promissory note of up to $19,490,000 (the LCEF Land Loan ), at a current interest rate of 4.25 percent per annum. LCEF has the right to review and adjust the interest rate monthly and over the life of the LCEF Land Loan, the interest rate has fluctuated from 4.25 percent to percent. Principal and interest on the LCEF Land Loan is payable in a single payment including (i) the full balance of the LCEF Loan and (ii) all accrued and unpaid interest, and (iii) any penalties payable under the terms of the LCEF Loan. The LCEF Land Loan is assumed to be repaid with a portion of the Series 2013 Bond proceeds. The Series 2011 Notes In June 2011, the Collier County Industrial Development Authority Florida issued $10,900,000 of non-rated, tax-exempt Collier County Industrial Development Authority Continuing Care Community Revenue Bond Anticipation Notes (The Arlington of Naples Project), Series 2011A, and the Collier County Industrial Development Authority Continuing Care Community Revenue Bond Anticipation Notes (The Arlington of Naples Project), Series 2011B, collectively, the Series 2011 Notes. The Series 2011 Notes were issued with an interest rate of percent per annum. Interest payments on the Series 2011 Notes are assumed to accrue and compound semi-annually and are to be payable at the time the Series 2011 Notes are repaid. Principal and accrued interest on the Series 2011 Notes is assumed to be repaid upon permanent financing of the Series 2013 Bonds. Pre-Finance Deferred Note Payable - LLM has and is anticipated to continue to provide approximately $11,340,000 to the pre-construction development cost of the Community as part of the Pre-Finance Capital ( Pre-Finance Deferred Note Payable ). The Pre-Finance Deferred Note Payable is assumed to be repaid with a portion of the Series 2013 Bonds. Upon permanent financing of the Series 2013 Bonds, LLM anticipates providing an additional deferred note payable (the Deferred Note Payable ). The Pre-Finance LLM Deferred Note Payable, the Series 2011 Notes and the LCEF Land Loan are collectively defined as the Pre-Finance Loans. Summary of Financing Total financial requirements for the Community are assumed to approximate $219,074,000. The Corporation proposes to fund these financial requirements primarily through the issuance of Collier County Industrial Development Authority Continuing Care Community Revenue Bonds, Series 2013 (The Arlington of Naples Project) (the Series 2013 Bonds ) in the amount of $188,367,000, net of an original issue discount. See Independent Accountants Examination Report B-17

186 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Management has assumed the following sources and uses of funds in preparing the financial forecast based upon information provided by the Corporation s underwriter, B.C. Ziegler and Company (the Underwriter ). Table 5 Sources and Uses of Funds (In Thousands) Sources of Funds: Series 2013A Bonds (1) $128,295 Series 2013B Bonds (1) 62,000 Total Series 2013 Bonds (1) $190,295 Original Issue Discount - Series 2013 A Bonds (1) (1,928) Total Series 2013 Bonds, net proceeds (1) 188,367 Deferred Note Payable (2) 6,509 Property mortgage (3) 970 Cash contribution (4) 2,424 Initial entrance fees (5) 19,750 Interest earning on trustee held funds (6) 1,054 Total Sources of Funds $219,074 Uses of Funds: Project costs Construction costs (7) $79,545 Land costs (8) 17,838 Site development (9) 950 Marketing costs (10) 14,042 Design and engineering fees (11) 5,990 Development fees and expenses (12) 4,432 Furniture and equipment (13) 4,723 Contingency (14) 3,736 Other costs (15) 3,030 Zoning, permit fees and regulatory filings (16) 2,441 Property taxes (17) 617 Interest and costs of issuance on Pre-finance Loans (18) 11,151 Total project related costs $148,495 Funded Interest (19) 28,753 Debt Service Reserve Accounts (20) 15,485 Working Capital Fund (21) 12,250 Operating Reserve Fund (22) 5,000 Statutory Reserve Requirements (22) 4,500 Cost of issuance and other costs (23) 4,591 Total Uses of Funds $219,074 Sources: Management, CRSA/LCS and Underwriter See Independent Accountants Examination Report B-18

187 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued (1) According to the Underwriter, the following series of bonds are assumed to be issued: $128,295,000 of non-rated tax-exempt fixed rate term bonds (the Series 2013A Bonds ); $62,000,000 of non-rated fixed rate Tax Exempt Mandatory Paydown Securities (TEMPS SM ) (the Series 2013B Bonds ). The Series 2013A Bonds are assumed to be issued at a discount of approximately $1,928,000. (2) A Deferred Note Payable of approximately $6,509,000 is assumed to be provided by LLM to pay for a portion of the costs of issuance, construction costs and other Project related costs. (3) A mortgage loan on the marketing office property, of approximately $970,000, has been incurred by the Corporation. (4) A cash contribution of approximately $2,424,000 is assumed to be provided by LLM. (5) Management assumes that approximately $19,750,000 of Entrance Fees are to be used to fund start-up losses, operating and statutory minimum liquid reserves. (6) Interest in the amount of approximately $1,054,000 is assumed to be earned as follows: on the Project Account at 0.50 percent, on the Funded Interest Account at 0.41 percent, on the Series 2013A Bonds Debt Service Reserve Account at 1.66 percent, on the Series 2013B-1 Bonds Debt Service Reserve Account at 0.82 percent, and on the Series 2013B-2 Bonds Debt Service Reserve Account at 0.56 percent. (7) Construction costs related to the construction of the Community are estimated to approximate $79,545,000, based on two fixed price contracts provided by the Corporation s general contractors: Archer Western Construction, LLC and Stock Construction LLC of $69,550,000 and $9,993,944 respectively, totaling $79,543,944. (8) Land costs, including the purchase price of the land, approximate $17,838,000. (9) Site development costs approximate $950,000. (10) Marketing costs related to the Community are estimated to approximate $14,042,000 and include direct marketing and advertising costs, salaries and benefits, CRSA/LCS marketing fees and other promotional material. (11) Design and engineering costs approximate $5,990,000, based upon contractual agreements with the Corporation s architects, Kipp Flores Architects LLC, and SFCS, Inc. (12) Development fees and reimbursable expenses paid from the Series 2013 Bonds approximate $4,432,000 and include $2,800,000 of CRSA/LCS Development Consulting Fees, $768,000 for owner s representative fees to Hoffman Development and approximately $864,000 of development related expenses. Additional development fees of $1,695,500 are incurred after issuance of the Series 2013 Bonds as described in the Development of the Community section of this report. (13) Interior design fees, furniture and equipment costs are estimated to approximate $4,723,000 based on the Management s estimates and comparable projects. (14) Management has included a project contingency of $3,736,000 as part of overall Project related costs. (15) Other project costs include expenses related to legal, construction management, accounting and other professional fees, bank construction review, marketing office building purchase, surveying, insurance, signage, and administrative and other costs of approximately $3,030,000. (16) Costs associated with zoning, permit fees and regulatory filings approximates $2,441,000. (17) Property taxes are assumed to approximate $617,000. (18) Interest and cost of issuance costs related to the Pre-Finance Loans are assumed to approximate $11,151,000. (19) The Underwriter has estimated $28,753,000 to be used to fund interest for approximately 24 months from the date of issuance of the Series 2013 Bonds. (20) Deposits into the Debt Service Reserve Accounts for the Series 2013 Bonds are assumed to approximate $15,485,000. (21) Working Capital Funds of $12,250,000 are to be funded as follows: $2,000,000 upon closing of the Series 2013 Bonds and $10,250,000 from initial Entrance Fees after completion of the Community. (22) Subsequent to the issuance of the Series 2013 Bonds and after completion of the Community, initial Entrance Fees of $9,500,000 are assumed to be available to fund approximately $5,000,000 into the Operating Reserve Fund (prior to any replenishment), and $4,500,000 for statutory minimum liquid reserves. (23) Costs of issuance related to the issuance of the Series 2013 Bonds are assumed to approximate $4,591,000 including the Underwriter s discount, accounting fees, legal fees, the feasibility consulting fee, the bond issuance fees, the cost for the printing of the preliminary official statement and official statement and other miscellaneous financing costs. See Independent Accountants Examination Report B-19

188 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Reservation Agreement and Residence and Care Contract To be accepted for residency at the Community, a person must be at least 62 years of age prior to the occupancy date and exhibit an ability to live independently and meet their financial obligation as residents of the selected Independent Living Unit. Reservation Agreement To reserve an Independent Living Unit, a prospective resident must execute a reservation agreement (the Reservation Agreement ), provide a self-disclosure of his or her health and finances ( Confidential Data Profile ) and place a deposit equal to 10 percent of the Entrance Fee (the Reservation Deposit ) on the selected Independent Living Unit (the Depositor ). The remaining 90 percent of the Entrance Fee is due on or before the occupancy date (the Occupancy Date ) of the Independent Living Unit. The Reservation Agreement reserves the right of the prospective resident to choose the selected Independent Living Unit and indicate his or her intent to execute a residence and care contract (the Residence and Care Contract ). The Reservation Deposit is placed and maintained in an escrow account with SunTrust Bank. The Reservation Deposit will accrue interest from the date of deposit until the Occupancy Date and such interest will be credited to the Depositor in the form of a discount on the Monthly Service Fees or Entrance Fee payable after the Occupancy Date. Residence and Care Contract Pursuant to the Residence and Care Contract, the resident ( Resident ) may reside in the Independent Living Unit for as long as he or she is capable of meeting the requirements of occupancy in the opinion of the Corporation after consultation with the Resident, the Resident s attending physician and/or the Corporation s appointed Medical Director. If the Resident is no longer able to meet the requirements of residing in the Independent Living Unit, the Residence and Care Contract also provides for higher levels of health care in the Assisted Living Units, Memory Support Units or Nursing Beds. In addition, prior to the Occupancy Date the Depositor must submit an update of the Confidential Data Profile and their personal financial information to be approved by Management. Payment of the Entrance Fee and a Monthly Service Fee entitles the Resident to occupy the selected Independent Living Unit and to receive the following services and amenities: A $400 monthly dining allowance; Tray service to the residence if Resident or spouse is receiving care for a minor illness or if tray service is ordered by the Resident s personal physician or the Wellness Center Nurse; Weekly housekeeping service; Weekly flat linen service; Sewer, water, waste disposal, electricity, heat/air conditioning and basic cable television service; Security and emergency alert system; General maintenance of the Community s building and common grounds; See Independent Accountants Examination Report B-20

189 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Repair, maintenance and replacement of furnishings provided by the Corporation in the Resident s Independent Living Unit; Scheduled local transportation; Individual storage area; Coordinated wellness programming and services; Planned social, cultural and recreation activities; Emergency call system with 24-hour monitoring; and Priority access to assisted living, memory support services and skilled nursing care services. In addition to the items included in the Monthly Service Fee, certain services are available to Residents at an additional cost. These services may include, but not limited to, additional housekeeping, personal laundry service, catering for special occasions, delivered meals service and take-out, additional meals, additional parking, personalized transportation services, special events and programs, personal fitness trainer, beauty/barber shop, and guest overnight accommodations. Health Care Benefit The Residence and Care Contract provides Residents with priority access to the Health Center at a discount of 50 percent off the then current market monthly or per diem rate (the Health Care Benefit ). For Residents who signed a Reservation Agreement prior to May 1, 2013, the Health Care Benefit is effective for the term of the Resident and Care Agreement. For Residents who sign a Reservation Agreement on or after May 1, 2013, the Health Care Benefit is for a period up to four years. Services Provided for the Assisted Living Units and the Memory Care Units Residents of the Assisted Living Units and the Memory Care Units receive three meals per day and between-meal snacks and nourishment; assisted living and extended congregate care services in accordance with the Resident s written plan of care; laundering of linens and bedding, housekeeping and maintenance, utilities, emergency call service, daily observation of Resident s general health, safety, physical and emotional well-being; scheduled transportation; social services; and planned recreational activities. The Resident is required to pay any additional charges for additional services and supplies that are not covered in the applicable base fees. Services Provided for the Nursing Beds Residents of the Nursing Beds receive room and board; nursing care, personal care or custodial care services in accordance with the Resident s written plan of care; laundered linens and bedding; housekeeping and maintenance; social services; and planned recreational activities. The Resident is required to pay any additional charges for services that are not covered in the applicable base fees for the Nursing Beds. See Independent Accountants Examination Report B-21

190 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Entrance Fee Options The Corporation has offered four Entrance Fee plans for the first generation Depositors of the Independent Living Units. The Entrance Fee options, related amortization schedules and refunds upon termination of the Residence and Care Contract are as follows: Entrance Fee Option Amortization Schedule 100% Refundable Plan (1) Upon termination of the Residence and Care Contract, 100 percent of the total Entrance Fee paid is to be refunded to the Resident. 95% Refundable Plan Upon termination of the Residence and Care Contract, 95 percent of the total Entrance Fee paid is to be refunded to the Resident. The 50 percent Refundable Plan, which after a four percent 50% Refundable Plan (2) administrative fee, amortizes at two percent per month for each month of occupancy for the first 23 months. After the 23rd month, the refund is fixed at 50 percent. Traditional Refundable Plan (2) The Traditional Amortizing Plan decreases four percent upon occupancy and two percent per month, thereafter, until the refund is zero. (1) The 100% Refundable Plan was offered to prospective residents only through March 2011 and is no longer available for prospective residents. (2) Management has limited the number of 50% Refund and Traditional Refund Entrance Fee Plans to a combined total of 50 contracts. Termination by the Resident Prior to Occupancy Date If a Depositor terminates the Residence and Care Contract prior to establishing occupancy (i) within 7 days after execution (the Rescission Period ) or (ii) due to inability to occupy the residence due to death, illness, injury or other incapacity, the Depositor is to receive a 100 percent refund of all monies paid, including any interest earned (at the prevailing investment rate) to the date of termination. If a Depositor terminates the Residency and Care Contract prior to occupancy for any other reason, the Depositor is to receive a 100 percent refund of all monies paid, including any interest earned (at the prevailing investment rate) to the date of termination less a processing fee of two percent of the entire Entrance Fee. In no event shall the processing fee exceed the amount of the Reservation Deposit paid by the Resident. Termination by the Resident after Occupancy Date If the Residence and Care Contract is terminated after occupancy for any reason, other than the Resident s death, within 12 months of occupancy, a refund of a 100 percent of the Entrance Fee, without interest, is refunded by the Corporation based on a 100 percent satisfaction guarantee. If the Residence and Care Contract after 12 months of occupancy, a portion of the Entrance Fee is refunded by the Corporation as determined by the Entrance Fee plan selected by the Resident. In cases of double occupancy, if one Resident dies or terminates the agreement, the Residence and Care Contract would continue in effect for the surviving or the remaining Resident and no refund of any portion of the Entrance Fee is to be due at that time. The Monthly Service Fee would be adjusted to reflect the then applicable single occupancy Monthly Service Fee. See Independent Accountants Examination Report B-22

191 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Rental Agreement The Corporation is also planned to have a residency agreement for residents seeking to live in the 12 Brambling Independent Living Units under a rental agreement (the Rental Agreement ). Under the Rental Agreement, for the payment of a rental monthly service fee, Residents would receive the same services as Residents under the Entrance Fee Plans. However, Rental Agreement Residents would not receive the Health Care Benefit. Founders Program The Corporation has offered various incentives to prospective Residents of the Independent Living Units. All prospective Residents that have reserved an Independent Living Unit prior to October 18, 2013 are referred to as Founders. These various incentives, collectively defined as the Founders Program (the Founders Program ), have included among the following benefits at certain points in the presales process: 100% Refund Entrance Fee Plan 5% discount on entrance fees, the benefit of which approximates savings that range from $14,000 to $65,000 Discounts on entrance fees which range from $10,000 to $20,000 $5,000 moving expense credit with a third party senior move management company The second person entrance fee of $15,000 was waived through October 31, In total, the second person entrance fee was waived for 67 Founders. All prospective Residents that reserved an Independent Living Unit prior to May 1, 2013 received the Health Care Benefit for the term of the Resident and Care Agreement. In addition, all Founders are eligible to receive interest paid on the Reservation Deposit equal to four percent annually until the Occupancy Date (if the Resident occupies the unit), issued as a credit against the Entrance Fee due upon move-in. In total, incentives offered in the Founders Program approximate $3,292,000. See Independent Accountants Examination Report B-23

192 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table summarizes the number of Depositors on each Entrance Fee Plan as of October 18, 2013 and Management s assumed number of Entrance Plans for the first generation of Residents. Entrance Fee Plan Table 6 The Community Utilization of Resident Agreement Types Number of Residents Depositors (1) Percentage of Depositors Number of Residents Residents Percentage of Residents 100% Refundable Plan (2) % % 95% Refundable Plan % % 50% Refundable Plan (3) % % Non-Refundable Plan (3) % % Rental Plan - 0.0% % Total % % Source: Management (1) Represents the total number of Depositors (121 Independent Living Units) as of October 18, (2) The 100% Refundable Plan is no longer offered. (3) Management has limited the number of 50% Refund and Traditional Refund Entrance Fee Plans to a combined total of 50 contracts. See Independent Accountants Examination Report B-24

193 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Characteristics of the Market Area Assumptions for the future utilization of the Community were developed by Management based on analysis of the following factors that may affect the demand for the Community s accommodations and services: Site description and general area analysis; Defined market areas for the Community; Demographic and socioeconomic characteristics of the defined primary market areas; Estimated age- and income-qualified households within the defined primary market areas; Description and utilization of existing and proposed comparable retirement communities, assisted living and nursing care facilities within and near the defined primary market areas; Management s ability to market the Independent Living Units and Health Center; and Penetration rates for independent living and assisted living services. Each of the above factors and the resulting assumed utilization of the Community are described in the following sections. Site Description The Community is planned to be situated on a 39-acre plot of land in the Lely Resort Community development ( Lely Resort ) on the western coast of South Florida in Naples (the Site ). The Site, located in Collier County, is approximately eight miles southwest of downtown Naples and approximately 10 miles north of Marco Island. Lely Resort is a master planned community that once was the location of a large equestrian center. Lely Resort houses upscale neighborhoods of private, freestanding residences, condominium and apartment housing along with country club amenities featuring a variety of recreation including championship golf, resort-style pools, tennis courts, and spa and fitness center. Residents are anticipated to have access to many of the amenities found within the Lely Resort including a public golf course, shopping, restaurants and the local library. General Area Analysis Highways The Site is located in the South Naples section of the Lely Resort just west of the southwest corner of Lely Cultural Parkway and County Road 951 (Collier Boulevard), which provides access to Interstate 75 ( I-75 ). I-75 is less than four miles north of the Site, which provides access to Fort Myers, Sarasota and Tampa to the north and Fort Lauderdale to the east. The Site is approximately three miles north of U.S. Highway 41, which provides access north through Bradenton and Sarasota and southeast to Miami. Public Transportation The Collier Area Transit System ( CAT ) offers 10 bus routes throughout Collier County to the cities of Naples, Immokalee and Marco Island. The Site is served by the Green Route 4 bus route, with bus stops located at the Physicians Regional Medical Center on Collier Boulevard See Independent Accountants Examination Report B-25

194 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued less than one mile east of the Site and at Edison State College Collier campus, less than one mile west of the Site. Airports Southwest Florida International Airport ( RSW ) is located approximately 37 miles north of the Site in Fort Myers. There are 18 airlines that serve RSW and provide nonstop domestic and international flights to most major airports. Hospitals The following table shows the hospitals and medical centers located near the Community. Table 7 Hospitals and Medical Centers Near the Community Hospital Name (1) Driving Miles from the Number of Location Community Type Beds Physicians Regional Medical Center Naples Collier Boulevard and Pine Ridge 34114/ /10.5 Short Term Acute Care 201 North Collier Hospital Downtown Naples Naples and North Naples 34102/ /17.7 Short Term Acute Care 684 Source: American Hospital Directory, August 2013 (1) Data for hospitals that belong to the same medical system are currently reported in an aggregate fashion. Shopping/Cultural Prime Outlets of Naples is located approximately five miles south of the Site and has approximately 30 stores. Coastland Center Mall is located approximately 14 miles northwest of the Site and includes four department stores, over 150 specialty shops, and 14 restaurants. Waterside Shops at Pelican Bay is located approximately 15 miles northwest of the Community and is an upscale, open-air shopping district with over 60 stores. The City of Naples has over 80 championship golf courses including three championship golf courses at Lely Resort and Country Club; the Naples Lakes Country Club, within two miles of the Site; Fala Bella Resort and Golf Club, approximately four miles south of the Site; and Royal Wood Golf and Country Club, approximately four miles west of the Site. The City of Naples is also home to several land reserves and wildlife parks including the Florida Panther National Wildlife Refuge. Other area attractions include the Naples Botanical Gardens, the Naples Players at Sugden Community Theatre, the Naples Zoo at Caribbean Gardens, and the Philharmonic Center for the Arts. Colleges and universities near the Site include Edison State College Collier Campus (formerly Edison Community College), Florida Gulf Coast University, Hodges University (formerly International College) and Ave Maria University. See Independent Accountants Examination Report B-26

195 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Primary Market Area of the Independent Living Units The primary market area for providers of senior living services is typically defined as the geographic area from which a majority of prospective residents reside prior to assuming occupancy at the Community. Twelve of the Independent Living Units are to be available under a rental agreement. Of the remaining 151 Independent Living Units available, 121 Independent Living Units were reserved by 119 Depositors as of October 18, 2013, representing approximately 80 percent of the Independent Living Units available for an Entrance Fee Plan at the Community. Based on the zip code origin of the Depositors, discussions with existing senior living providers in the area and experience with similar communities, the primary market area has been defined as a 14-zip code area surrounding the Community which spans approximately 34 miles from north (just south of Bonita Springs) to south (Marco Island) and eight miles from east (Collier Boulevard) to west (coastal areas along the Gulf of Mexico). Based on the zip codes of origin, 82 percent of the 119 Depositors originate from the primary market area (the IL PMA ). The IL PMA includes the cities of Naples, Lely and Marco Island in Collier County. The following table illustrates the zip code origin of Depositors as of October 18, 2013 in the defined IL PMA. Table 8 Independent Living Depositor Origin Data Number of IL PMA Zip Codes: City Depositors (1) Percentage of Total (2) Naples % Marco Island % Naples % Naples 9 7.6% Bonita Springs 7 5.9% Everglades 6 5.0% Naples 6 5.0% Naples 4 3.4% Naples 4 3.4% Naples 3 2.5% Naples 3 2.5% Marco Island 1 0.8% (3) Naples 0 0.0% (3) Naples 0 0.0% Total from IL PMA Zip Codes % Other areas in Florida % Out of state % Total % Source: Management (1) Depositor information as of October 18, According to Management, two Depositors have reserved two Independent Living Units at the Community, for a total of 121 Independent Living Units reserved. (2) The Community is located in zip code (3) Included for purposes of contiguity. See Independent Accountants Examination Report B-27

196 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following map depicts the location of the Community, the IL PMA and the comparable existing and planned retirement communities within and near the IL PMA. 15-Mile Radius Legend Florida The Community The IL PMA Existing Entrance Fee/Equity Communities within the IL PMA 1 Moorings Park 2 Glenview at Pelican Bay 3 The Marbella at Pelican Bay 4 Vi at Bentley Village 5 Arbor Trace Existing Rental Communities with the IL PMA 6 Lely Palms 7 Terracina Grand 8 The Carlisle 9 Ashton Gardens at Pelican Marsh IL PMA Planned Entrance Fee Communities within the IL PMA 10 Siena Lakes Existing Entrance Fee Communities near the IL PMA 11 Terraces at Bonita Springs See Independent Accountants Examination Report B-28

197 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Population The age distribution of the population in a geographic area is a key factor in the determination of an area s retirement housing needs. The U.S. Census Bureau has compiled demographic data based on the 2010 census figures. Nielsen Claritas has extrapolated the 2010 census information to derive the estimated 2013 figures and projected statistics for The following table presents population data by age cohort and the anticipated average annual percentage change between 2000 and 2013 and 2013 and 2018 in the IL PMA, the State of Florida ( Florida ) and the United States. Table 9 Historical, Estimated and Projected Populations 2000 (Census) Population 2013 (Estimated) Population 2018 (Projected) Population Compounded Annual Percentage Change Compounded Annual Percentage Change IL PMA Total Population 204, , , % 1.1% Age 65 to 74 Population 32,849 46,464 54, % 3.1% Age 75 to 84 Population 20,195 28,555 31, % 1.9% Age 85 plus Population 5,105 9,856 10, % 1.8% Total 65 plus 58,149 84,875 96, % 2.5% Total 75 plus 25,300 38,411 42, % 1.9% Florida Total Population 15,982,377 19,356,053 20,322, % 1.0% Age 65 to 74 Population 1,452,079 1,939,068 2,316, % 3.6% Age 75 to 84 Population 1,024,140 1,134,497 1,260, % 2.1% Age 85 Plus Population 331, , , % 1.9% Total 65 Plus 2,807,576 3,544,045 4,093, % 2.9% Total 75 Plus 1,355,497 1,604,977 1,777, % 2.1% United States Total Population 281,421, ,861, ,322, % 0.7% Age 65 to 74 Population 18,390,870 24,703,850 30,124, % 4.0% Age 75 to 84 Population 12,361,442 13,281,401 14,594, % 1.9% Age 85 Plus Population 4,239,540 5,876,669 6,278, % 1.3% Total 65 Plus 34,991,852 43,861,920 50,997, % 3.1% Total 75 Plus 16,600,982 19,158,070 20,873, % 1.7% Source: Nielsen Claritas See Independent Accountants Examination Report B-29

198 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents the percentage of total population by age group for the targeted age population in the IL PMA, Florida and the United States. Table 10 Percentage of Total Population by Age Cohort 2000 (Census) IL PMA Florida United States Age Cohort 65 plus 28.5% 17.6% 12.4% 75 plus 12.4% 8.5% 5.9% 85 plus 2.5% 2.1% 1.5% 2013 (Estimated) IL PMA Florida United States Age Cohort 65 plus 32.4% 18.3% 13.9% 75 plus 14.7% 8.3% 6.1% 85 plus 3.8% 2.4% 1.9% 2018 (Projected) IL PMA Florida United States Age Cohort 65 plus 34.7% 20.1% 15.7% 75 plus 15.2% 8.7% 6.4% 85 plus 3.9% 2.5% 1.9% Source: Nielsen Claritas See Independent Accountants Examination Report B-30

199 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Estimated Eligible Households within the IL PMA In order to qualify for residency at the Community, a prospective resident must be at least 62 years of age and demonstrate sufficient financial resources to pay the initial Entrance Fee, required Monthly Service Fee and other expenses related to independent living services not provided for in the Residence and Care Contract. Accordingly, Management has established certain criteria to identify potential Residents who would be eligible to reside in an Independent Living Unit. Management estimates that prospective independent living residents should have a minimum monthly income of approximately 1.5 times the Monthly Service Fee (including second person fees when applicable) and an asset level of approximately 2.0 times the Entrance Fee (prior to payment of the Entrance Fee). As of October 18, 2013, the average age of the independent living Depositors was 79 years. For purposes of quantifying the number of income-qualified households in the PMA, households age 75 or older are considered to be the most likely to establish residency in an Independent Living Unit at the Community. The age composition of Depositors as estimated upon opening of the Community in 2015 is described in the table below. Table 11 Depositor Composition Age Group of Primary Depostiors Number of Depositors (1) Percentage of Total Under % 75 and older % Total 118 (2) 100.0% Source: Management (1) Represents the age of primary Depositors upon entry into the Community in (2) Age data was not available for one Depositor. Management has considered the following two income qualification scenarios for estimating the number of income eligible households in the IL PMA: Annual household income approximately $50,000 or more based on the Monthly Service Fee of the Goldcrest one bedroom apartment, which is the smallest and least expensive one bedroom Independent Living Unit ($3,084 per month in 2015 dollars); and Annual household income approximately $75,000 or more based on the weighted average Monthly Service Fee of all of the Independent Living Units ($5,087 per month in 2015 dollars). Of the Depositors, the median annual income is approximately $142,300 and the median net worth is approximately $3,035,000, based on self-reported Depositor information provided by Management as of October 18, The average age of Depositors (first persons) upon entry to the Community approximates 81 years of age when the Community opens in See Independent Accountants Examination Report B-31

200 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table illustrates the 2013 estimated and the 2018 projected household income distribution for householders age 75 or older in the IL PMA. Table 12 Income Qualified Households for Independent Living Services IL PMA 2013 (Estimated) Total Total Households: 27,522 26,090 53,612 Household Income Under $50,000 11,647 16,434 28,081 $50,000 and over $50,000 74,999 5,127 3,560 8,687 $75,000 99,999 3,318 2,298 5,616 $100, ,999 3,391 1,893 5,284 $150,000 plus 4,039 1,905 5,944 Total $50,000 and over 15,875 9,656 25,531 Percentage of Total Households - $50, % 37.0% 47.6% Total $75,000 and over 10,748 6,096 16,844 Percentage of Total Households - $75, % 23.4% 31.4% 2018 (Projected) Total Total Households: 32,225 28,860 61,085 Household Income Under $50,000 14,899 19,089 33,988 $50,000 and over $50,000 74,999 5,838 3,812 9,650 $75,000 99,999 3,763 2,322 6,085 $100, ,999 3,462 1,793 5,255 $150,000 plus 4,263 1,844 6,107 Total $50,000 and over 17,326 9,771 27,097 Percentage of Total Households - $50, % 33.9% 44.4% Total $75,000 and over 11,488 5,959 17,447 Percentage of Total Households - $75, % 20.6% 28.6% Source: Nielsen Claritas See Independent Accountants Examination Report B-32

201 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table compares the percentage of age- and income-qualified households to total households for the $50,000 and $75,000 income qualification levels for age 75 and above households within the IL PMA, Florida and the United States. Percentage of Income-Qualified Households to Total Households $50,000 Table 13 Comparison of Income-Qualified Households 2018 Age 75 and Above IL PMA Florida United States 33.9% 21.1% 25.2% Percentage of Income-Qualified Households to Total Households $75, % 10.9% 13.7% Source: Nielsen Claritas The following table estimates the number of age- and income-qualified households in the IL PMA as estimated in 2013, interpolated in 2015, the year the Community is assumed to open, and projected in 2018, based on the 2010 Census. Table 14 Age- and Income-Qualified Households for Independent Living Services in the IL PMA Years 2013, 2015 and 2018 Age 75 and Above Total $50,000 and over 9,656 9,702 9,771 Percentage of Income-Qualified Households to Total Households - $50,000 and over 37.0% 35.7% 33.9% Total $75,000 and over 6,096 6,041 5,959 Percentage of Income-Qualified Households to Total Households - $75,000 and over 23.4% 22.2% 20.6% Source: Nielsen Claritas See Independent Accountants Examination Report B-33

202 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Market Area Real Estate The ability of potential residents to sell their home prior to assuming occupancy at the Community may have an impact on the ability of residents to pay the required Entrance Fee. Often, Entrance Fees are paid with funds received through the sale of a prospective resident s home. Thus, average entrance fees at the Community should be generally consistent with the home values in the market area. Home values fluctuate over time and vary regionally based upon economic conditions. The following table depicts the number of homes sold, average and median sales prices of homes by zip code for the IL PMA. Number of Homes Sold Table 15 Market Area Real Estate Trends for PMA Zip Codes (1) (2) Average Average Number Average Average Number Average Sales Days on of Homes Sales Days on of Homes Sales Price Market Sold Price Market Sold Price Average Days on Market Zip Code (3) Naples (4) 131 $391, $391, $435, Naples 177 $173, $208, $226, Naples 206 $553, $488, $743, Naples 248 $341, $311, $427, Naples 52 $1,095, $1,257, $1,385, Naples 81 $1,250, $1,580, $1,977, Naples 177 $332, $387, $517, Naples 75 $1,197, $1,210, $1,822, Naples 202 $136, $156, $207, Naples 22 $130, $161, $201, Naples 304 $259, $242, $263, Naples 275 $650, $673, $823, Total/Weighted Avg. 1,950 $448, ,777 $458, $597, Source: Sunshine MLS, June (1) Information includes single-family homes and condominiums sold through the MLS. (2) Reflects data through June 30, (3) Real estate data was not available for the Marco Island zip codes (34140 and 34145). (4) The Community is to be located in zip code See Independent Accountants Examination Report B-34

203 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table summarizes the number of homes sold and the respective percentages over the past three years for the IL PMA zip codes categorized by the following price ranges: $300,000 $499,999, based on the approximate weighted average entrance fee of the one bedroom Independent Living Units at the Community; $500,000 $799,999, based on the approximate weighted average entrance fee of the two bedroom Independent Living Units at the Community; and $800,000 and above, to capture the highest entrance fees at the Community. Table 16 Homes Sold Within Selected IL PMA Zip Codes (1) Sale Price (2) $300,000 - $499,999 $500,000 - $799,999 $800,000 and Above Total Zip Code / Town (3) Naples (4) Naples Naples Naples Naples Naples Naples Naples Naples Naples Naples Naples Total Percent of Total Home Sales in PMA Zip Codes 43.6% 41.9% 51.0% 25.1% 25.2% 22.4% 31.3% 32.9% 26.6% 100.0% 100.0% 100.0% Source: Sunshine MLS, June (1) Information includes single-family homes and condominiums sold through the MLS. (2) Reflects data through June 30, 2013 (3) Real estate data was not available for the Marco Island zip codes (34140 and 34145). (4) The Community is to be located in zip code See Independent Accountants Examination Report B-35

204 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Unemployment Trends The unemployment trends for the Naples Metropolitan Statistical Area ( MSA ), Collier County, Florida and the United States are shown in the following table. Table 17 Unemployment Trends (1) Naples MSA 11.6% 10.2% 8.5% 6.6% Collier County 11.6% 10.2% 8.5% 6.6% Florida 11.3% 10.3% 8.6% 7.3% United States 9.6% 9.0% 8.1% 7.7% Source: U.S. Department of Labor, Bureau of Labor Statistics Data (1) Unemployment data for the Naples MSA and Collier County is through May Unemployment data for Florida and the United States is through June Collier County is supported by major employers including Naples Community Hospital, Inc., Wal-Mart, Marriott, Publix Supermarkets, and the Naples Grande Resort. Continuing Care Regulatory Requirements In Florida, continuing care retirement communities are licensed and regulated by the Florida Department of Financial Services, Office of Insurance Regulation (the Department ) under Title XXXVII, Chapter 651 of the Florida Statutes. The Florida Statutes define continuing care as: furnishing pursuant to a contract shelter and either nursing care or personal services as defined in Section , whether such nursing care or personal services are provided in the facility or in another setting designated by the contract for continuing care, to an individual not related by consanguinity or affinity to the provider furnishing such care upon payment of an entrance fee. A CCRC must be licensed with the Department prior to entering into continuing care contracts. Licensing must include providing audited financial statements and other information required by the Department. Annually, audited financial statements and an annual report are required subsequent to initial licensure. The provider is also required to issue a disclosure statement to prospective residents prior to closure of their continuing care contract. See Independent Accountants Examination Report B-36

205 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Comparable Retirement Communities Comparable retirement communities typically include independent living providers with similar services and amenities offering health care services, such as assisted living and/or nursing care, in a multi-level setting for age restricted seniors. Independent living units may be apartments, cottages, and/or free-standing homes where residents have access to on-site amenities, which typically include a choice of dining venues, library, lounge areas, fitness facilities, banking, game room, multi-purpose room, arts and crafts area, hair salon, a chapel, and more. Services typically include a dining program or allowance, housekeeping services, most utilities except telephone, scheduled transportation, activities program, emergency call system in each residence, 24-hour security, interior and exterior maintenance, maintenance of grounds, and discounted health care services in on-site assisted living and nursing care facilities. Management has defined comparable facilities as those facilities that: (i) include independent living services; (ii) provide one or more other levels of care such as assisted living, memory support care and/or nursing care services; (iii) offer similar services and amenities; and/or (iv) compete for similar age-and income-qualified residents. CCRCs may provide a variety of contracts to residents. Generally, the major distinction in contract types relates to the health care benefit. The most common contract types are as follows: Extensive or Life Care Contract ( Type A ) - Under a Type A contract, a resident typically pays an upfront entrance fee and an ongoing monthly service fee in exchange for the right to lifetime occupancy of an independent living unit with certain services and amenities. Residents of independent living who require assisted living or nursing care may transfer to the appropriate level of care and continue to pay essentially the same monthly service fee they had been paying for their residence, or upon permanent transfer, the fee may be adjusted to the weighted average of all monthly service fees. Modified Contract ( Type B ) - Under a Type B contract, the resident also generally pays an upfront entrance fee and an ongoing monthly service fee for the right to lifetime occupancy of an independent living unit with certain services and amenities. However, under a Type B contract, the CCRC typically provides assisted living or skilled nursing care to residents either (a) at a discounted rate on the per diem, e.g., 20 percent discount; (b) a certain number of days per year or per lifetime, e.g., 60 to 90 days; or, (c) a combination of the two. The Community is offering a Type B contract. Fee-for-Service Contract ( Type C ) - A Type C contract also generally requires an upfront entrance fee and an ongoing monthly service fee for the right to lifetime occupancy of an independent living unit with certain services and amenities. However, under the Type C contract, residents who require assisted living or nursing care do not receive any discount on assisted living or skilled nursing services. See Independent Accountants Examination Report B-37

206 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued In addition to the three contract types described above, comparable retirement communities may also include rental communities that offer independent living housing and may also include health care services, such as assisted living or nursing care. The resident is not required to pay an entrance fee, but rather signs a lease for the independent living unit selected and pays for various additional services utilized on a monthly or per diem basis at prevailing market rates. The following tables profile the Community, five existing comparable entrance fee/equity retirement communities in the IL PMA, four existing comparable rental retirement communities in the IL PMA and one comparable retirement community near the IL PMA. See Independent Accountants Examination Report B-38

207 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Table 18 Comparable Entrance Fee/Equity Retirement Communities within the IL PMA The Community Moorings Park The Glenview at Pelican Bay Location Naples Naples Naples Driving Miles from the Community Sponsor/Developer Lutheran Life Communities The Moorings, Inc. Brookdale Senior Living Year Opened Type of Contract Modified Lifecare Lifecare Fee-For-Service Not-For-Profit/For-Profit Not-For-Profit Not-For-Profit Equity Ownership Unit Configuration Independent Living Units (ILUs:) One-bedroom apartments Two-bedroom apartments Three-bedroom apartments Condos/Villas Total ILUs Assisted Living/Memory Support Units 42 AL/37 MS 73 AL Nursing Care Beds Independent Living Square Footage One-bedroom apartments , Two-bedroom apartments 1,366 2,082 1,304 5,050 1,178 1,779 Three-bedroom apartments 1,888 2,015 1,720 6,950 2,060 3,189 Homes/Cottages/Villas 1,806 3,031 1,345 4,240 Entrance Fees/Purchase Prices One-bedroom apartments $379, ,938 $453,872 2,524,589 $420, ,000 Two-bedroom apartments $632, ,388 $663,456 4,192,458 $590, ,000 Three-bedroom apartments $851, ,444 $942,004 4,301,826 $940,000 1,500,000 Homes/Cottages/Villas $848,743 1,319,342 $1,149,348 3,310,127 2 nd Person Entrance Fee $13,868 $17,012 Monthly Fees One-bedroom apartments $2,851 3,268 $3,103 4,086 $2,285 Two-bedroom apartments $4,495 6,082 $3,664 6,827 $2,844 4,086 Three-bedroom apartments $6,315 6,601 $4,900 7,318 $4,919 4,889 Homes/Cottages/Villas $5,754 6,790 $4,170 7,711 2 nd Person Monthly Fee $1,040 $1,438 $1,000 Refund Options 0%, 50%, 95% (shown) 0%, 50%, 90% (shown) Re-sale value Assisted Living Entrance Fee Monthly Fee $6,467 8,275 $5,140 6,854 Nursing Care Daily Rate $354 $ $338 Occupancy Rate Independent Living 96% 95% Assisted Living 99% Nursing Care 95% 100% Source: Management, surveys and site visits conducted by Dixon Hughes Goodman LLP through August See Independent Accountants Examination Report B-39

208 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Table 18 (continued) Comparable Entrance Fee/Equity Retirement Communities Within the IL PMA The Marbella at Pelican Bay Vi at Bentley Village Arbor Trace Location Naples Naples Naples Miles from the Community Sponsor/Developer The Pelican Bay Foundation Classic Residence by Hyatt Arbor Trace Year Opened /2001 Type of Contract Fee-For-Service Lifecare Fee-For-Service For Profit/Not-for-profit Equity Ownership For-profit Equity Ownership Unit Configuration Independent Living Units (ILUs) One-bedroom apartments Two-bedroom apartments Three-bedroom apartments Homes/Cottages/Villas Total ILUs Assisted Living/Memory Support Units 12 AL 74 AL/15 MS 32 AL Nursing Care Beds 100 Independent Living Square Footage One-bedroom apartments 1,725 2, , ,004 Two-bedroom apartments 1,366 1,923 1,350 1,790 Three-bedroom apartments 1,908 2,525 1,804 2,030 Homes/Cottages/Villas _ 3,625 1,250 1,952 Entrance Fees One-bedroom apartments $345,000 $70, ,000 Two-bedroom apartments $549,000 1,699,000 $526, ,600 $335, ,000 Three-bedroom apartments $872,900 $335, ,000 Homes/Cottages/Villas $1,107,900 $200, ,000 2 nd Person Entrance Fee $18,300 Monthly Fees One-bedroom apartments $2,360 $1,749 1,889 Two-bedroom apartments $2,833 $3,320 4,360 $1,796 2,105 Three-bedroom apartments $5,360 $2,010 2,282 Homes/Cottages/Villas $4,700 $2,037 2,429 2 nd Person Monthly Fee $1,120 $417 Refund Options Re-sale value 0%, 50%, 90% (shown) Re-sale value Assisted Living Entrance Fee Monthly Fee $6,083 $3,600 7,200 Nursing Care Daily Rate $ Occupancy Rate Independent Living 97% 90% 90% Assisted Living 100% 99% 90% Nursing Care 100% Source: Management, surveys and site visits conducted by Dixon Hughes Goodman LLP through August See Independent Accountants Examination Report B-40

209 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Notes to the Table: The Community (a) The independent living Entrance Fees Monthly Service Fees have been deflated four percent per year from the published rates (which are effective July 1, 2015 (fiscal year 2016)) to reflect 2013 dollars. (b) The Community also offers a 50 percent refund and a traditional refund entrance fee plan in which entrance fees are approximately eight percent and 23 percent lower, respectively, than the 95 percent refund entrance fees shown. Monthly Service Fees are the same under all three plans. (c) The rates shown for the Assisted Living Units, Memory Support Units and Skilled Nursing Beds have been deflated four percent per year from the published rates (which are effective July 1, 2015 (fiscal year 2016)) to reflect 2013 dollars. (d) The Monthly Service Fees presented in the table are for traditional assisted living services. The Monthly Service Fee for the Memory Support Units is $9,599 in 2013 dollars. Moorings Park (a) Twenty-nine new independent living apartments called the Waterside Apartments opened at Moorings Park in October A majority of these apartments are two-bedroom units. The Waterside Apartments range from 1,800 to 5,050 square feet with 90 percent refundable entrance fees ranging between $1,330,649 and $4,192,458. Premium entrance fees on the Waterside Apartments are charged due to water views. (b) In addition to the 90 percent refund plan shown, Moorings Park also offers entrance fees under a 50 percent refundable plan and a non-refundable plan that are 24 percent lower and 43 percent lower, respectively, than the 90 percent refund plan entrance fees shown. (c) Thirty-four of the 106 nursing beds at Moorings Park are in a secured area designated for memory care. (d) Assisted living rates are all-inclusive and reflect private pay rates for direct admissions. (e) The nursing rates shown reflect private pay rates for direct admissions for semi-private and private rooms at Moorings Park. The Glenview at Pelican Bay ( The Glenview ) (a) The Glenview is a co-op owned by the residents. Brookdale Senior Living manages the community. (b) The monthly service fee includes 365 meals annually per resident. Six alternative meal plans are offered as follows: 330 meals $20 monthly credit per person; 300 meals - $40 monthly credit per person; 270 meals - $60 monthly credit per person; 240 meals - $80 monthly credit per person; 210 meals - $100 monthly credit per person; and 180 meals - $120 monthly credit per person. (c) When a unit is sold at The Glenview, the community keeps the greater of 50 percent of the appreciation or 15 percent of the sale price. (d) Daily nursing rate reflects the non-resident rate. Residents transferring from independent living for nursing care are charged $111 per day. The Marbella (a) Square footage and purchase prices for the independent living units at The Marbella reflect the sizes and prices of the four currently available apartments, which reflect the full range of units offered at The Marbella. The condominiums offered at The Marbella are all two-bedroom or two-bedroom with den units. (b) Monthly fees for residents of The Marbella reflect property assessment and association fees based on size of the condominium, which is estimated to average $34,000 annually. All other services are available on a feefor-service basis and therefore, there is no monthly service fee. Residents of The Marbella receive meals at a 60 percent discount. (c) Assisted living rate reflects the monthly fee for direct admissions from outside The Marbella. At this time, The Marbella is restricting outside assisted living admission stays to two weeks with a daily rate of $240. Residents of The Marbella receive a 20 percent discount or pay $4,866 per month for assisted living services. See Independent Accountants Examination Report B-41

210 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Notes to the Table (continued): Vi at Bentley Village ( Bentley Village ) (1) Included with the 39 three-bedroom apartments shown are 3 four-bedroom apartments. The entrance fee and monthly fee for the four-bedroom apartment are $1,587,200 and $8,450, respectively. (2) Entrance fees reflect base fees and may have premiums applied according to floor level in building, views, glassed-in lanais, etc. (3) Bentley Village does not accept direct admits into assisted living and memory support, and therefore does not have published rates for assisted living or memory support. (4) The nursing beds at Bentley Village are held primarily for life care residents transferring through the continuum of care at the community. Nursing rates shown reflect the semi-private rate of $250 per day and the private daily rate of $310 for direct admit temporary stays. Arbor Trace (1) The mid-rise apartment building and villa units at Arbor Trace opened in The Tower Pointe condominiums opened in (2) Square footages, entrance fees and monthly fees reflect the ranges of units available as of July The monthly fees represent the condominium monthly assessment plus the monthly club membership rates. Club membership includes 120 meals per person annually, one hour of housekeeping per month, emergency call system, scheduled transportation and access to the clubhouse amenities. Additional dining, maintenance, housekeeping and condominium fees are assessed quarterly, but are shown monthly for comparison purposes. (3) The second person monthly fee at Arbor Trace reflects the second person monthly club membership rate which includes 120 meals per person annually. (4) When a unit is sold at Arbor Trace, residents have the option of listing with Arbor Trace Realty (on-site), the realtor of their choice, or they may sell by owner. The seller would pay a six percent commission to Arbor Trace Realty or a negotiated commission with a real estate agent. Management of Arbor Trace indicated that the units typically sell at about 80 to 90 percent of the asking price. Once the unit is vacated, the resident/owner must continue to pay the condominium assessment and monthly club membership fees until closing, at which point the new owner assumes those payments. (5) In addition to the base rates shown, three higher levels of care are offered in assisted living offered for monthly fees of $400, $800 and $1,200, respectively. (6) The second person monthly fee in assisted living is $1,000 plus additional levels of care (if applicable). See Independent Accountants Examination Report B-42

211 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Table 19 Comparable Rental Retirement Communities within the IL PMA Lely Palms Terracina Grand The Carlisle Aston Gardens at Pelican Marsh Location Naples Naples Naples Naples Driving Miles from the Community Sponsor/Developer HCR ManorCare The Goodman Group Senior Resource Discovery Group, LLC Management Group Year Opened Not-For-Profit/For-Profit For-Profit For-Profit For-Profit For-Profit Unit Configuration Independent Living Units (ILUs:) Studios One-bedroom apartments Two-bedroom apartments Homes/Cottages/Villas Total ILUs Assisted Living/Memory Support Units 12 AL/56 MS 33 AL 100 AL 63 AL/21 MS Nursing Care Beds 117 Independent Living Square Footage Studios One-bedroom apartments Two-bedroom apartments , ,221 1,010 1,546 Homes/Cottages/Villas ,207 2,632 Monthly Fees Studios $1,950 2,350 $2,795 2,995 One-bedroom apartments $2,600 2,750 $3,400 4,295 $2,835 3,280 $2,420 2,860 Two-bedroom apartments $3,050 3,200 $4,395 4,955 $3,485 4,320 $2,50 3,220 Homes/Cottages/Villas $3,150 3,300 $2,970-3,320 2 nd Person Monthly Fee $300 $750 $750 $750 Assisted Living Monthly Fee $2,850 3,450 $4,070 5,570 $4,040 $3,095 3,725 Nursing Care Daily Rate $255 (b) Occupancy Rate Independent Living 88% 97% 100% 94% Assisted Living 90% 97% 100% 98% Nursing Care 97% Source: Management, surveys and site visits conducted by Dixon Hughes Goodman LLP through August See Independent Accountants Examination Report B-43

212 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Notes to Table: Lely Palms (a) The 68 assisted living units at Lely Palms include 12 traditional assisted living units at Lely Palms and 56 assisted living-based memory care units available to residents at HCR ManorCare s Arden Courts Alzheimer s care facility offered at $4,500 per month for semi-private accommodations and $5,400 per month for private accommodations. The 56 Alzheimer s care units at Arden Courts are 90 percent occupied with a small waiting list. (b) Nursing care and rehabilitative services are located on the campus at ManorCare Health Services. The 117 nursing care beds include 30 beds designated for memory care offered at daily rates of $265 for a semi-private room and $275 for a private room. (c) Independent living monthly fees reflect the full service plan which includes two meals per day, weekly housekeeping and linen service and other standard services. Lely Palms also offers a general plan in the one- and two-bedroom apartments and villas for approximately $550 to $650 less that does not include meals or services. The second person fee of $300 applies to the full service plan residents only. There is a one-time, non-refundable community fee of $1,500 for the independent living units at Lely Palms. Terracina Grand (a) Terracina Grand offers 154 apartments which are all licensed as assisted living in order to provide assistance to residents in their home. Thirty-three of the apartments are designated assisted living units in a separate area of the building called The Palazzo for residents requiring more than one hour of assisted care per day. For purposes of this analysis, 33 units are considered assisted living while the remaining 121 units are considered independent living. (b) Independent living monthly fees include two meals per day and reflects the base rate for the unit type selected and do not include any services. Assisted living monthly fees shown include the first level of assistance ($1,275 in addition to the base rate for the apartment). Terracina Grand also offers three higher levels of assisted care for additional monthly fees of $1,550, $1,775 and $2,050, respectively. The second person fee in assisted living is $750. (c) Terracina Grand requires a one-time non-refundable community fee of $2,000. The Carlisle (a) A one-time, non-refundable community fee of $1,750 is required for the independent living and assisted living units at The Carlisle. (b) The Carlisle offers two additional levels of care in addition to the basic assisted living rate shown with monthly fees of $600 and $900, respectively. The second person monthly fee in assisted living is $750 plus additional levels of care (if applicable). Aston Gardens at Pelican Marsh ( Aston Gardens ) (a) Aston Gardens was purchased by Discovery Management Group in 2009 from Sunrise Senior Living. (b) The 16 villas at Aston Gardens are available for 100 percent equity purchase. One 2,632 square foot villa is currently on the market with a sales price of $469,000. Residents fully realize the appreciation or depreciation of the villa upon re-sale. (c) The range of rates for basic assisted living services shown reflects all inclusive rates. Memory care is offered for all-inclusive monthly fees of $3,195 (semi-private) and $4,195 (private). (d) Independent living residents (including villa residents) pay the monthly fees shown for amenities and services at the community including continental breakfast plus the lunch or dinner meal. Monthly fees shown for the apartments reflect the base rates and may increase up to an additional $300 based on apartment view and location. See Independent Accountants Examination Report B-44

213 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Table 20 Comparable Retirement Communities near the IL PMA Terraces at Bonita Springs Location Bonita Springs Miles from the Community 24.0 Sponsor/Developer Bonita Springs Retirement Village, Inc. Year Opened July 2013 Type of Contract Type A For Profit/Not-for-profit Not-for-profit Unit Configuration Independent Living Units (ILUs) One-bedroom apartments 88 Two-bedroom apartments 49 Three-bedroom apartments 7 Homes/Cottages/Villas Total ILUs 144 Assisted Living/Memory Support Units 49 AL/18 MS Nursing Care Beds 40 Independent Living Square Footage One-bedroom apartments 850 1,207 Two-bedroom apartments 1,207 1,816 Three-bedroom apartments 1,656 1,890 Entrance Fees One-bedroom apartments $427, ,195 Two-bedroom apartments $710,695 1,048,595 Three-bedroom apartments $1,235,995 1,414,535 2 nd Person Entrance Fee Monthly Fees One-bedroom apartments $2,995 3,895 Two-bedroom apartments $3,895 4,945 Three-bedroom apartments $4,795 4,995 2 nd Person Monthly Fee $795 Refund Options 0% & 92% (shown) Assisted Living Entrance Fee Monthly Fee $4,425 Nursing Care Daily Rate $328 Occupancy Rate Independent Living 35% Assisted Living Nursing Care Source: Management, surveys and site visits conducted by Dixon Hughes Goodman LLP through August Notes to the Table: (a) Entrance fees shown are for the 92 percent refundable plan. The Terraces at Bonita Springs also offers a tradition entrance fee plan as follows: one bedroom apartments range from $299,597 to $521,637, two bedroom apartments range from $497,487 to $734,017 and three bedroom apartments range from $865,197 to $990,175. (b) Rates shown are for direct admits to assisted living, memory care and nursing care. Three levels of care will be offered in the traditional assisted living as follows: Level I is $459 per month, Level II is $860 per month and Level III is $1,376 per month. The second person fee for traditional assisted living is $2,060 per month. (c) Rates shown for assisted living reflect the monthly fee for traditional assisted living care. Memory support assisted living is $5,462 per month. (d) The health care center at the Terraces at Bonita Springs is scheduled to open on August 15, See Independent Accountants Examination Report B-45

214 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Retirement Communities Planned or Under Development in the IL PMA Based on discussions with representatives of the local planning and permitting agencies and interviews with management at existing and planned retirement communities, in addition to the Community, there is one existing CCRC planning an additional campus within the IL PMA. Additionally, there is one proposed CCRC in the planning process within the IL PMA. Moorings Park, which is located 13 driving miles northwest of the Site, is planning to develop another campus approximately three miles southeast of its current campus at the intersection of Airport Pulling Road and Golden Gate Parkway. This satellite campus, known as Moorings Park at Grey Oaks, is expected to consist of 96 garden homes upon completion. The project will be constructed in three phases (32 garden homes per phase) and is expected to include a clubhouse and two swimming pools. Upon completion of the 96 garden homes, management of Moorings Park will consider adding an assisted living facility with 16 traditional assisted living units and 48 memory care units. Residents of Moorings Park at Grey Oaks will receive priority access to the skilled nursing facility on the Moorings Park main campus. Moorings Park at Grey Oaks will be funded by CC Devo, a Coral Gable-based real estate investment and development firm, with Moorings Park assuming the cost of marketing the garden homes. After each phase is completed, Moorings Park will assume ownership of the garden homes with no associated debt. Once 80 percent of the garden homes in phase I are sold (26 units), construction will begin. The marketing and construction of the three phases is expected to take approximately three years. Siena Lakes is a planned CCRC within the IL PMA to be developed by Life Care Services ( LCS ) headquartered in Des Moines, Iowa. Siena Lakes is proposed to be located on a 29-acre parcel of land on Orange Blossom Drive in Naples, approximately 14 driving miles northwest of the Site. The first phase of Siena Lakes is expected to include 221 independent living residences, 10 assisted living units, 30 private-room skilled nursing beds and 15 skilled nursing-based memory care beds. Siena Lakes proposes to offer a life care contract with an 80 percent refundable entrance fee plan. Siena Lakes has not yet submitted an application for a Provisional Certificate of Authority ( PCOA ) to the Department. Due to the preliminary status of the project, Siena Lakes is not included in the penetration rate analysis that follows and is mentioned for informational purposes only. See Independent Accountants Examination Report B-46

215 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Summary of Independent Living Units The following table summarizes the independent living units at the comparable and planned retirement communities within the IL PMA. These communities are considered comparable to the Community in that they compete for similar age- and income-qualified households earning annual incomes of $50,000 and over. Including the 163 planned units at the Community, the total number of existing and planned independent living units within the IL PMA is 2,520. Table 21 Summary of Existing and Planned Comparable Independent Living Units Comparable Retirement Communities Existing Planned Total Entrance Fee Communities Moorings Park (1) The Glenview The Marbella Aston Gardens Bentley Village Arbor Trace Total Entrance Fee Units 1, ,510 Rental Communities Lely Palms Terracina Grand Aston Garden s The Carlisle Total Rental Units The Community Total Existing and Planned Comparable Independent Living Units 2, ,520 Source: Management and competitor surveys conducted through August (1) Moorings Park is planning to build 96 independent living apartments on a satellite campus to be known as Moorings Park at Grey Oaks approximately three miles from Moorings Park. See Independent Accountants Examination Report B-47

216 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Independent Living Penetration Analysis Penetration rates are one measure of the degree to which the IL PMA is 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 senior living housing options and may support higher penetration rates. Three penetration rate calculations are shown in the following tables: Project Penetration Rate The Project Penetration Rate is the percentage of age- and incomequalified households in the IL PMA that the Community is expected to capture in order to achieve stabilized occupancy in the year of opening. The Project Penetration Rate is calculated by dividing the number of independent living units at the Project by the number of age- and income-qualified households in the IL PMA. Seniors currently living in comparable independent living units in the IL PMA are subtracted from the pool of age- and income-qualified households. Calculations are based on demographics projected/interpolated for the year the Community is expected to be available for occupancy (2015). Net Market Penetration Rate (Absorption Rate) The Net Market Penetration Rate is the percentage of age- and income-qualified households the available units in the market are expected to capture in order for the entire market to achieve stabilized occupancy in the year of opening. The Net Market Penetration Rate is calculated by dividing the number of available independent living units in the IL PMA by the number of age- and income-qualified households in the IL PMA, respectively. Available units would include planned units of the Community, proposed units at other communities and units becoming available due to attrition. This calculation is of particular significance when more than one project is entering the market during the same timeframe. Calculations are based on demographics interpolated for the year the Community is expected to be available for occupancy (2015). Gross Market Penetration Rate The Gross Market Penetration Rate is the percentage of ageand income-qualified households that the total market must absorb for the entire market to achieve stabilized occupancy. Market penetration is calculated by dividing the total number of existing and planned independent living units in the IL PMA by the number of age- and incomequalified households in the IL PMA. Calculations are based on demographics for the current year (2013) and projected year (2018). In all three calculations, the total independent living units are adjusted to reflect assumptions about the percentage of units expected to be filled from qualified households in the IL PMA and expected occupancy. These rates should be considered in conjunction with one another and with other market factors, such as occupancy levels at existing comparable communities within and near the IL PMA, the number of proposed facilities in the IL PMA, the design of the units and community spaces at the Community, alternatives for potential residents, and the marketing plans and efforts of Management. See Independent Accountants Examination Report B-48

217 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents the Project Penetration Rates which represent the percentage of ageand income-qualified households in the IL PMA the Community is expected to capture in the year of opening in order to achieve stabilized occupancy, assuming annual household incomes of $50,000 and over and $75,000 and over, based on demographic projections for Table 22 Project Penetration Rates 2015 Age 75 and Above Income $50,000 and above Income $75,000 and above Planned units at the Community Percentage of units to be occupied from the IL PMA (1) 80% 80% Planned units to be occupied from the IL PMA Percentage of units to be occupied from the PMA by age 75 and older (2) 85% 85% Planned units to be occupied from the PMA by age 75 and older Total units at the Community to be occupied at 95% (a) Number of age- and income-qualified households (3) 9,702 6,041 Less: Existing inventory of available comparable units (4) 2,103 2,103 Net number of age and income qualified households (b) 7,599 3,938 Project Penetration Rates (a/b) 1.4% 2.7% Source: Management and Nielson Claritas (1) Based on the origin data of Depositors as of October 18, (2) Based on the age of Depositors as of October 18, (3) Interpolated using 2013 estimated and 2018 projected population statistics as provided by Nielsen Claritas. (4) Reflects the 2,261 existing comparable units in the IL PMA, based on a 93 percent occupancy assumption (2,103 units). See Independent Accountants Examination Report B-49

218 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents the Net Market Penetration Rates for the year the Community is expected to open (2015) and indicates the percentage of the age- and income-qualified households in the IL PMA that must be absorbed in order to fill the available units during that year, based upon demographic projections for Age 75 and Above Table 23 Net Market Penetration Rates 2015 Income $50,000 and above Income $75,000 and above Planned units in the IL PMA: The Community Other planned units (1) Total planned units Percent of units to be occupied by age 75 and older (2) 85% 85% Total planned units to be occupied by age 75 and older Total planned units to be occupied at 95% occupancy Total existing units available due to attrition (3) Unoccupied existing units to be filled from the IL PMA (4) Total units to be occupied Percent of units to be occupied from the IL PMA (2) 80% 80% Total units to be occupied from the IL PMA (a) Estimated number of age- and income-qualified households (5) 9,702 6,041 Less: Existing inventory of available comparable units (6) 2,103 2,103 Estimated number of age- and income-qualified households (b) 7,599 3,938 Net Market Penetration Rates (a/b) 5.8% 11.1% Source: Management and Nielsen Claritas (1) Reflects the 32 planned comparable units at Moorings Park at Grey Oaks that are expected to open in (2) Based upon Depositor information provided by Management as of October 18, (3) Reflects the 1,414 existing entrance fee units in the PMA at 95 percent occupancy, assuming 13.1 percent attrition (176 units) and the 847 existing rental units in the IL PMA at 95 percent occupancy, assuming 22.9 percent attrition (184 units) for a total of 360 units available due to attrition. (Source: AAHSA State of Seniors Housing, 2011) (4) Based on the weighted average occupancy of approximately 93 percent in the IL PMA, approximately 30 additional existing units would need to be filled to achieve 95 percent occupancy at comparable existing communities in the IL PMA. (5) Interpolated using 2013 estimated and 2018 projected population statistics as provided by Nielsen Claritas. (6) Reflects the 2,261 existing comparable units in the IL PMA, based on a 93 percent occupancy assumption (2,103 units). See Independent Accountants Examination Report B-50

219 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents the Gross Market Penetration Rates for independent living services, which represents the percentage of age- and income-qualified households in the IL PMA that the entire market is anticipated to have captured when the entire market has reached stabilized occupancy, based upon demographic projections for 2013 and Age 75 and Above Table 24 Independent Living Gross Market Penetration Rates Income $50,000 and Above Income $75,000 and Above Market inventory of retirement communities: The Community Comparable retirement communities Existing units within the IL PMA 2,261 2,261 2,261 2,261 Proposed units (1) Total units in the IL PMA 2,261 2,520 2,261 2,520 Percent to be filled from the IL PMA (2) 80% 80% 80% 80% Total units to be occupied from the IL PMA 1,809 2,016 1,809 2,016 Total units to be filled at 95% occupancy (a) 1,719 1,915 1,719 1,915 Number of age- and income-qualified households (b) 9,656 9,771 6,096 5,959 Gross Market Penetration Rates (a/b) 17.8% 19.6% 28.2% 32.1% Source: Management and Nielsen Claritas (1) Reflects the 96 planned comparable units at Moorings Park at Grey Oaks that are expected to be completed by (2) Based on the origin of Depositors as of October 18, See Independent Accountants Examination Report B-51

220 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Marketing the Community The success of the Community is dependent, in part, on the ability of Management to achieve specified pre-sales, fill-up rates and turnover rates for the Independent Living Units. Management began accepting non-binding priority deposit agreements for the Independent Living Units in April 2009 and began converting priority deposits to Reservation Deposits in January To assist in the marketing of the Community and to encourage early commitments to residency, the Corporation has offered a Founders Program to offer certain benefits to prospective Residents for the Independent Living Units. Twelve of the Independent Living Units are to be available under a rental agreement. Of the remaining 151 Independent Living Units available, 121 Independent Living Units were reserved by 119 Depositors (net of cancellations) as of October 18, 2013, representing approximately 80 percent of the Independent Living Units available for an Entrance Fee Plan at the Community. All Reservation Deposits are being held in an interest-bearing escrow account. The following table presents, by month and/or year, the number of Independent Living Units reserved by Depositors, as reported by Management as of October 18, See Independent Accountants Examination Report B-52

221 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Calendar Year Number of Units Reserved by Depositors Table 25 Marketing of the Community Number of Cancellations/ Refunds Net Reservations Cumulative Units Reserved Cumulative Percentage of Total Units (1) 2010 (2) % % 2012 January % February % March % April % May % June % July % August % September % October % November % December % 2013 January % February % March % April % May % June % July % August % September % October (3) % Total % Source: Management (1) Cumulative percentage is based on the 151 Independent Living Units available on an Entrance Fee basis. (2) Conversion of priority deposits to Depositors began in January (3) Information through October 18, See Independent Accountants Examination Report B-53

222 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents the total number and type of Independent Living Units available in relation to Independent Living Units reserved with a 10 percent deposit as of October 18, Independent Living Units Table 26 Inventory of the Project Independent Living Units Total Number of Units Number of Units Reserved Percentage of Available Units Reserved Apartments: One-bedrooms Goldcrest % Brambling % Two-bedrooms Linnet % Sandpiper % Vireo % Cormorant % Flamingo % Nighthawk % Kingfisher % Three-bedrooms Osprey % Heron % Total Apartments (Entrance Fee Units) % Villas: Redwing % Fieldfare % Stonechat % Total Villas % Total Independent Living Units (Entrance Fee Units) % Brambling Rental (one-bedroom apt) % Total Independent Living Units % Source: Management See Independent Accountants Examination Report B-54

223 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Independent Depositor Confirmation Arlington of Naples An independent confirmation process was performed by Dixon Hughes Goodman LLP through the mailing of a questionnaire to the 119 Depositors (121 Independent Living Units) as of October 18, As of October 18, 2013, 114 of the 119 Depositors (96 percent) had completed the questionnaire. The following information was compiled for the 114 completed questionnaires. 114 (100 percent) of the respondents indicated that they had paid a deposit for their Independent Living Unit. 109 (96 percent) indicated that they intend to reside at the Community, four (three percent) indicated they were uncertain as to whether they would reside in their chosen unit, and one (one percent) did not respond to the question. 26 (23 percent) indicated that they expect to reside alone, and 87 (76 percent) indicated that they expect to reside with a spouse, relative or friend, and one (one percent) did not respond to the question. 109 (96 percent) indicated that they currently own their home. 74 of the 109 respondents who own their home (68 percent) indicated that they expect to use the proceeds from the sale of their home to pay the balance of their entrance fee upon moving into the Community. Three (three percent) of the respondents indicated they had reserved an independent living unit or were on a waiting list of a competitive community; two of these respondents indicated that they intend to reside in an Independent Living Unit at the Community, and the remaining respondent indicated that they were unsure where they would reside. The following table illustrates which communities the respondents have placed a deposit as well as the amount of the deposit: Community Number of Respondents Table 27 Deposits at Other Communities Less than $5,000 $5,000 to $25,000 Amount of Deposit $25,000 to $50,000 Greater than $50,000 Amount not specified Moorings Park 2 2 The Moorings of Arlington Heights (1) 1 1 Total 3 3 Source: Questionnaire responses (1) The Moorings of Arlington Heights is located in Chicagoland, Illinois See Independent Accountants Examination Report B-55

224 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Respondents indicated the following as to how soon they intended to move into their Independent Living Unit after it becomes available: Table 28 Move-ins After Unit Becomes Available Number of Respondents Percentage of Respondents 1 30 days % days % days 5 4.4% Upon the sale of home % Other % Did not respond 5 4.4% Total % Source: Questionnaire responses Respondents indicated their primary reason(s) for choosing the Community were as follows: Table 29 Community Suitability Number of Respondents (1) Percentage of Respondents Access to health care % Geographic location % Reputation of Lutheran Life Communities % Social activities and fellowship % Proximity to friends and relatives % Other % Source: Questionnaire responses (1) Respondents were given the option of choosing more than one reason for choosing the Community. (2) One respondent did not answer this question. See Independent Accountants Examination Report B-56

225 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Depositor File Vouching Dixon Hughes Goodman LLP read Management s policies and procedures for accepting Depositors and confirmed that each Depositor met Management s criteria. Dixon Hughes Goodman performed the following procedures regarding the 119 Depositors (121 Independent Living Units) for the Community: Confirmed 100 percent to have a Reservation Agreement executed by both the Depositor(s) and the Corporation; Confirmed 100 percent to include copies of a deposit check equal to the Entrance Fee Deposit for the selected Independent Living Unit and plan; Confirmed 100 percent that the amount of the Entrance Fee and the Monthly Service Fee matched the Independent Living Unit and plan selected; and Based on reported income and asset levels, confirmed that 100 percent of the Depositors either met Management s asset and income qualification test, or displayed sufficient financial resources as approved by Management. In addition to the above, Dixon Hughes Goodman reconciled the Entrance Fee Deposits to an escrow account statement through August 31, The following table presents information regarding the self-reported net worth (including home values before payment of the Entrance Fee) and estimated annual income of the Depositors who have reserved an Independent Living Unit at the Community. Annual Income Table 30 Reported Annual Income and Net Worth of Depositors Net Worth No Net Worth Noted Less than $1,000,000 $1,000,000 to $1,999,999 $2,000,000 to $3,99,999 $4,000,000 and greater Total Percent of Total No Income Noted % Less than $49, % $50,000 to $74, % $75,000 to $99, % $100,000 to $149, % $150,000 or Greater % Total (1) Percent of Total 7.7% 9.4% 22.2% 23.9% 36.8% 100.0% Source: Depositor confidential data profiles (1) Of the 119 Depositors, 113 (95 percent) have provided financial information to Management. Four (three percent) of the Depositors have not provided self-disclosure of his or her finances. Two of the Depositors (two percent) provided letters from their financial advisors indicating that they have adequate income and assets to qualify for the unit they have selected at the Project. (2) The median net asset amount of the 113 Depositors who reported their financial information is approximately $3,035,000 and the median annual income amount is approximately $142,300. See Independent Accountants Examination Report B-57

226 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Description of Assisted Living Assisted Living Facilities are licensed under Chapter 429 of the Florida Statutes and Florida Administrative Code Chapter 58A 5, Department of Elder Affairs. The Florida Agency for Health Care Administration (the Agency ) regulates assisted living facilities and a facility must have a minimum of four beds to be eligible for licensure. A Certificate of Need is not required to in order to license and operate assisted living facilities in Florida. Assisted living facility licenses are not transferable. The Agency must be notified 60 days prior to an ownership change and follow the established procedures during the transition period in order to be eligible for a new license. Assisted living facilities must be initially licensed as a standard Assisted Living Facility and may further obtain a specialty license to provide Limited Nursing Services ( LNS ) or Extended Congregate Care ( ECC ). The Agency licenses and regulates facilities which provide assisted living services. LNS providers are able to provide routine nursing services, such as the care of dressings, casts, braces and splints, as long as such services are not complex enough to require 24-hour nursing supervision. Facilities licensed as ECC providers can provide residents with personal care, administration of medications, assistance with activities of daily living and limited nursing care. ECC providers may provide total assistance with up to three activities of daily living. ECC providers enable residents to age in place in a residential environment despite mental or physical limitations, which creates a higher level of care, and therefore, requires an additional license for these services. For the purposes of this report, the general industry term assisted living includes Assisted Living Facilities, LNS and ECC providers. The Corporation will be required to obtain licensure of the Assisted Living Units and the Memory Support Units from the Agency upon completion of construction. For purposes of licensure, the Memory Support Units are considered assisted living. The Assisted Living Facilities with a majority of residents receiving subsidies and facilities with a capacity of less than 20 units are not considered to be comparable with the Community due to the small size of these facilities and their typically low fee structure. See Independent Accountants Examination Report B-58

227 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Primary Market Area for Health Care Services Seniors requiring health care such as assisted living and nursing care services generally originate from within a smaller geographic area because of the more immediate, need-driven nature of the services. Therefore, a 10-zip code area surrounding the Site has been defined as the primary area of origin for health care, including both assisted living and nursing care services (the HC PMA ). Table 31 The Health Care Primary Market Area Zip Code City Zip Code City Naples (1) Naples Naples Naples Naples Naples Naples Goodland Naples Marco Island (1) The Community is located in zip code See Independent Accountants Examination Report B-59

228 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following map depicts the Community and the existing and planned assisted living facilities located within the HC PMA. Legend The HC PMA Florida The Community Existing Assisted Living Communities within the HC PMA 1 Tuscany Villa of Naples 2 Barrington Terrace of Naples 3 Arden Courts of Lely Palms and ManorCare at Lely Palms 4 Homewood Residence of Naples 5 Terracina Grand 6 Windsor Place 7 Orchid Terrace at Moorings Park HC PMA Source: Microsoft MapPoint Planned Assisted Living Communities within the HC PMA 8 Discovery Village at Naples See Independent Accountants Examination Report B-60

229 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Assisted Living Competitive Analysis The following table identifies the eight comparable existing assisted living facilities located within the HC PMA and summarizes the number of units, occupancy rates and current monthly fees of the comparable facilities based on surveys conducted through August Facility Name Driving Miles Year Opened Table 32 Comparable Assisted Living Facilities Number of Beds Assisted Living Memory Care Square Footage Current Occupancy Monthly Fees for Basic Care Assisted Living Memory Support Assisted Living Levels of Care The Community (1) $6,530 8,355 $9,599 Tuscany Villa of Naples (2) ,130 95% $2,205 3,500 $250 1,250 Barrington Terrace of Naples (3) % $2,875 $3,975 $4,375 5,375 $450 1,600 Arden Courts of Lely Palms* (4) % $4,500 5,400 ManorCare at Lely Palms* (5) % $2,850 3,450 Homewood Residence of Naples (6) ,251 86% $2,880 4,730 $3,650 5,385 Terracina Grand (7) % $4,070 5,570 $1,275 2,050 Windsor Place (8) % $4,500 Orchid Terrace at Moorings Park* (9) % $5,140 6,854 Total Number of Units (excluding the Community)/Weighted Average % Source: Site visits and surveys conducted through August 2013 * Denotes an association with a retirement community. Notes to the Table (1) The Community (a) The Monthly Service Fees shown for the Community have been deflated four percent annually from 2015 rates to reflect 2013 dollars for purposes of comparison. (2) Tuscany Villa of Naples (a) Tuscany Villa of Naples requires a one-time non-refundable community fee of $1,000. (b) The second person fee at Tuscany Villa is $500 per month. (3) Barrington Terrace of Naples (a) Barrington Terrace of Naples requires a one-time non-refundable community fee of $1,500. (b) The monthly fees shown for the memory support units are all-inclusive. (c) The second person fee at Barrington Terrace of Naples is $800 per month. (d) Companion suites are available in traditional assisted living for $2,475 per month. (4) Arden Courts of Lely Palms (a) Arden Courts at Lely Palms consists of 52 private rooms and 4 semi-private rooms that are in a locked unit (b) Arden Courts at Lely Palms requires a one-time non-refundable community fee of $2,500. (c) The rates at Arden Courts are all-inclusive and include resident checks every 15 minutes. (5) ManorCare at Lely Palms (a) ManorCare at Lely Palms is the assisted living component at Lely Palms that provides basic assisted living care. See Independent Accountants Examination Report B-61

230 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Notes to the Table (continued) (6) Homewood Residences of Naples (a) Homewood Residences of Naples requires a one-time non-refundable community fee of $2,500. (b) The second person monthly fee at Homewood Residences is $650 per month. (c) The rates at Homewood Residences for traditional assisted living and memory care are all-inclusive and are based on the floor plan selected. (7) Terracina Grand (a) Terracina Grand offers 154 apartments which are all licensed as assisted living in order to provide assistance to residents in their home. Thirty-three of the apartments are designated assisted living units in a separate area of the building called The Palazzo for residents requiring more than one hour of assisted care per day. For purposes of this analysis, 33 units are considered assisted living while the remaining 121 units are considered independent living. (b) Terracina Grand requires a one-time non-refundable community fee of $2,000. (c) The second person fee at Terracina Grand is $750 per month plus level of care fees (if applicable). (8) Windsor Place (a) Windsor Place has an extended care license allowing them to provide skilled nursing care in an assisted living environment. (b) Windsor Place does not require a community fee or second person fee. (9) Orchid Terrace at Moorings Park (a) Assisted living rates are all-inclusive and reflect the private pay rates for direct admissions. Planned Assisted Living Development Based on discussions with representatives from local planning and permitting agencies and interviews with management at existing retirement communities, in addition to the Community, there is one planned assisted living community under development in the HC PMA. Discovery Village at Naples Discovery Village at Naples ( Discovery Village ), which is located approximately one mile northeast of the Community, is a planned assisted living community that is expected to consist of 30 supervised living units, 60 assisted living units and 30 memory care units. For the purposes of this analysis, the 30 supervised living units would be considered comparable to a traditional assisted living service level. The Discovery Village site is located on Sierra Meadows Boulevard near the intersection of Collier Boulevard and Rattlesnake Hammock Road. Discovery Village is owned and will be operated by Discovery Village Investors, LLC which is based in Bonita Springs. All residents of Discovery Village are to receive the following services: three meals daily, housekeeping, transportation, 24-hour security, on-site therapy and social and recreational activities. Construction of Discovery Village began in October 2013 and is expected to be complete by March Pricing for Discovery Village has not yet been determined. See Independent Accountants Examination Report B-62

231 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Assisted Living Penetration Analysis The increased size of the private paying, frail, elderly market has in recent years attracted providers to develop new and creative options for caring for this population. There have been few barriers to entering this market, since existing regulations generally do not restrict or limit supply. Methodologies for projecting bed need or demand for assisted living vary. The Agency does not have a methodology for determining the need for assisted living units. Research studies have identified impairment levels in activities of daily living ( ADL ) such as dressing, bathing, eating, toileting, mobility and taking medications, and instrumental activities of daily living ( IADL ) such as meal preparation, home maintenance, shopping and personal finance, all of which generally are 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 need for assistance often depends on alternatives available and is somewhat more discretionary than the decision to enter a nursing care facility, according to industry research studies. Population data and income statistics may be utilized to some extent to estimate the number of qualified households (75+) 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 caregivers (assumed to be those households aged 45 to 64 earning in excess of $75,000 annually) and their relatives may provide the financial means for a non-income-qualified senior to afford this level of care. Additionally, non-income-qualified seniors may have an asset base that would provide the financial means to afford this level of care. Management anticipates that the prospective residents of the Assisted Living Units and Memory Support Units are expected to generally meet the following profile prior to occupancy: 75 years of age or older; Living alone; and Requiring some assistance with activities of daily living. Income characteristics have been applied to determine a range of market penetration rates for age qualified and age and income qualified individuals. The income assumption is that a prospective assisted living resident is to have either (i) annual income of at least $35,000 or (ii) have an annual income between $25,000 and $34,999 and own their home. See Independent Accountants Examination Report B-63

232 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents the income eligible households for assisted living services within the HC PMA. Table 33 Income Eligible Households for Assisted Living Services within the HC PMA (Estimated) 2018 (Projected) Total Households: 16,244 17,790 Household Income Under $25,000 5,749 6,976 Renters $25,000 $34, Homeowners $25,000 $34,999 1,541 1,723 Total Under $35,000 7,909 9,396 $35,000 $49,999 2,517 2,604 $50,000 $74,999 2,300 2,411 $75,000 $99,999 1,397 1,375 $100,000+ 2,121 2,004 Total $35,000+ 8,335 8,394 Total Assisted Living Income Eligible Households (1) 9,876 10,117 Percentage of Assisted Living Income Eligible Households 60.8% 56.9% Source: Nielsen Claritas (1) Age and income eligible households include households (age 75 and over) with income over $35,000 and homeowners (age 75 and over) with income between $25,000 and $34,999 annually. See Independent Accountants Examination Report B-64

233 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table estimates the number of age- and income-qualified individuals living alone and requiring assistance with activities of daily living in the HC PMA as estimated in 2013, interpolated in 2015 and projected in Estimates of the percentage of households requiring assistance and the percentage living alone are based on the 2010 Census. Table 34 Estimated Number of Assisted Living Qualified Individuals in the HC PMA Years 2013, 2015 and 2018 Estimated Households (1) Percentage Requiring Assistance (2) Percentage Living Alone (3) Estimated Number of Individuals 2013 Age-Qualified (4) 16, % 34.0% 1,055 Age- and Income-Qualified (5) 9, % 34.0% Age-Qualified (4) 16, % 34.0% 1,095 Age- and Income-Qualified (5) 9, % 34.0% Age-Qualified (4) 17, % 34.0% 1,155 Age- and Income-Qualified (5) 10, % 34.0% 657 Source: Nielsen Claritas (1) Based on 2013 estimated and 2018 projected population statistics as provided by Nielsen Claritas. (2) Percentage requiring assistance is a weighted average of the percentage of the population requiring assistance with activities of daily living as determined by the U.S. Census Bureau (Source: U.S. Census Bureau, Americans with Disabilities: p.5, Washington, DC, July 2012) and the age- and income-qualified households within the HC PMA. (3) Based on Nielsen Claritas demographic estimates. (4) Age-qualified households are those households with residents age 75 and over. (5) Age- and income-qualified households include households with residents age 75 and over with annual incomes of at least $35,000 and homeowners age 75 and over with income between $25,000 and $34,999. See Independent Accountants Examination Report B-65

234 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Assisted Living Project Penetration Rate The Project Penetration Rate is the percentage of estimated age- and income-qualified households within the HC PMA that need to move into an Assisted Living Unit in order for the Community to achieve expected occupancy levels. The following table presents Project Penetration Rates for assisted living services in 2015, the year the Assisted Living Units and Memory Support Units are expected to open for occupancy. Table 35 Assisted Living Project Penetration Rate 2015 Age-Qualified Individuals Age- and Income- Qualified Individuals Number of Qualified Individuals 1, Number of Individuals in Existing Comparable Units (1) Total Qualified Individuals (b) 1,577 1,130 Number of Planned Units at the Community (2) (a) Project Penetration Rate for the HC PMA (a/b) 3.9% 5.5% Source: Management and Nielsen Claritas (1) Reflects the 609 existing assisted living units within the HC PMA assuming that approximately 85 percent (518 units) have originated from the HC PMA and a stabilized occupancy rate of 93 percent (482 units). (2) Reflects the 42 Assisted Living Units and 37 Memory Support Units at the Community, assuming 85 percent (67 units) originate from the HC PMA and assuming a stabilized occupancy rate of 93 percent (62 units). Assisted Living Market Penetration Rate The assisted living market penetration rate is presented as the percentage of age- and incomequalified individuals that the total market has absorbed (in current year 2013) or must absorb (over a five-year period to 2018) for the entire market to achieve stabilized occupancy. The assisted living market penetration rate is calculated by dividing the total number of assisted living units within the HC PMA by the total number of age- and income-qualified individuals residing within the HC PMA. Calculations are based on the demographics projected for the current year and the final year of the forecast to demonstrate the change in the market penetration rate based on market absorption. See Independent Accountants Examination Report B-66

235 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following table presents market penetration rates for assisted living services. Table 36 Assisted Living Market Penetration Rates Age-Qualified Individuals Age- and Income- Qualified Individuals Number of Qualified Individuals 1,055 1, Number of Individuals in Existing Comparable Units (1) Total Qualified Individuals (b) 1,537 1,637 1,123 1,139 Number of Individuals in Existing Comparable Units (1) Number of Planned Units at the Project (2) Number of Planned/Construction Units in the HC PMA (3) Total Units, Including the Community (a) Market Penetration Rate for the HC PMA (a/b) 31.4% 39.0% 42.9% 56.1% Source: Management and Nielsen Claritas (1) Reflects the 609 existing assisted living units within the HC PMA assuming approximately 85 percent (518 units) have originated from the HC PMA and a stabilized occupancy rate of 93 percent (482 units). (2) Reflects the 42 Assisted Living Units and 37 Memory Support Units at the Community, assuming 85 percent (67 units) originate from the HC PMA and a stabilized occupancy rate of 93 percent (62 units). (3) Reflects the 120 planned units (90 assisted living units and 30 memory support units) at Discovery Village assuming 85 percent (102 units) have originated from the HC PMA and a stabilized occupancy rate of 93 percent (95 units). See Independent Accountants Examination Report B-67

236 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued Description of Nursing Care The Agency administers the certificate of need ( CON ) process for community nursing home beds, which was established to regulate the construction of new community nursing homes, the addition of new community nursing beds and the conversion of other health care facility bed types to community nursing home beds. For the purposes of determining bed need projections, Florida is divided into 11 districts statewide. Each area district is then divided into sub districts, which represent the individual counties or groups of counties within each area district. The Agency determines the nursing bed need for each district within the state twice a year by using a methodology based on a planning horizon of three years, current and projected population estimates, a sub district need determination, and a need formula. In 2001, the Florida legislature placed a moratorium on the issuance of CONs for additional community nursing home beds until July 1, In 2006, the legislature extended the moratorium until July 1, As of July 2011, the moratorium was extended to July 1, Nursing beds affiliated with new CCRCs under the sheltered bed waiver regulations also require a CON for closed beds or limited to residents of the CCRC. Closed skilled nursing beds obtained under the sheltered bed waiver regulations may admit residents from outside the CCRC for the first five years after opening. In January 2013, the Corporation submitted to the Agency its CON application for approval. The Corporation received the CON approval in February See Independent Accountants Examination Report B-68

237 The Arlington of Naples Summary of Significant Forecast Assumptions and Accounting Policies, Continued The following map depicts the Community and the five existing skilled nursing facilities located within the HC PMA. Legend Florida The HC PMA The Community Existing Skilled Nursing Facilities within the HC PMA 1 Manorcare at Lely Palms 2 Manorcare Nursing and Rehabilitation Center 3 Heritage Healthcare and Rehabilitation Center 4 Lakeside Pavilion 5 The Chateau at Moorings Park HC PMA Source: Microsoft MapPoint See Independent Accountants Examination Report B-69