Public Finance Authority

This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction. June __, 2018. Bernstein & LLP, Raleigh, North Carolina. Adams upon It is expected that Poe the Bonds will be available passed Parker for delivery through the facilities by of DTC on or about be Underwriters the will for and matters Carolina, North legal Charlotte, P.A., Certain Hinson, & Bradshaw Robinson, Counsel. by Corporation Bond the for Carolina, North Raleigh, LLP, (US) Dickinson Bond Womble of approval the tothe essential obtain information to the Appendices, including Statement, making ofaninformedinvestmentdecision. Official entire this read must investors Potential therefor. should beconsideredinconnectionwithaninvestmenttheBonds. SOURCES OFPAYMENTFORTHEBONDS”and“BONDHOLDERS’RISKS” hereinforadiscussionofcertainriskfactorswhich the regulatoryenvironment,andprovisionsofprincipaldocuments. Aprospectivebondholderisadvisedtoread“SECURITYAND INVESTOR LETTERINTHEFORMATTACHEDTOTHISOFFICIAL STATEMENT. AN DELIVER TO REQUIRED IS INVESTOR ACCREDITED AN IS THAT PURCHASER INITIAL EACH ACT.) SECURITIES THE UNDER SECURITIES ACT OF 1933, AS AMENDED, THE “SECURITIES ACT”) OR TO “ACCREDITED INVESTORS” (AS DEFINED IN RULE 501(a) herein. Bonds shallmeanCede&Co.andnotthebeneficialownersofBonds. multiple thereof.SolongasCede&Co.istheregisteredownerofBonds,referenceshereintoHoldersorowners ofthe whole any or $5,000 of amount principal the in made be will Bonds the of purchases Individual 2018. October 1, beginning October 1, and for subsequent disbursement to the beneficial owners of the Bonds, all as described herein. Interest on the Bonds is payable on each April 1 Bonds, principalandinterestpaymentsontheBondswillbemadetoCede&Co.,whichinturnremitsuchitsparticipants & Co.,asnomineeofTheDepositoryTrustCompany,NewYork,York(“DTC”).SolongCedeCo.istheregisteredowner individual purchasers will not receive physical delivery of Bond certificates. When issued, the Bonds will be registered in the name of Cede IF ANY,ORINTERESTON,THEBONDSANYCOSTSINCIDENTALTHERETO.AUTHORITYHASNOTAXINGPOWER.. PREMIUM, OF, PRINCIPAL THE OF PAYMENT THE TO PLEDGED BE SHALL PERSON INDEMNIFIED AUTHORITY ANY OR SPONSOR OR ANY THEREOF POLITICAL SUBDIVISION APPROVING THE AGENCY ISSUANCE OF TAXING THE OR BONDS NOR THE FAITH SUBDIVISION THE AND CREDIT OF THE POLITICAL AUTHORITY, ANY NOR ANY OR CREDIT WISCONSIN AND OF STATE FAITH THE MEMBER, THE AUTHORITY NEITHER ANY OF POWER THERETO. INCIDENTAL COSTS ANY OR BONDS THE OF PAYMENT FOR OR THEREOF APPROPRIATION ANY MAKE AGENCY TO OR TAX ANY OR LEVY TO BONDS THE SUBDIVISION OF ISSUANCE THE APPROVING SUBDIVISION POLITICAL POLITICAL ANY ANY ANY OR WISCONSIN IN OF OBLIGATE, STATE CONTINGENTLY, THE OR MEMBER, INDIRECTLY AUTHORITY DIRECTLY, ANY MANNER, NOT, DO AND MEMBER AUTHORITY ANY OR WISCONSIN OF OF, PRINCIPAL THE PAY TO OBLIGATED BE PREMIUM, IF ANY, OR INTEREST THEREON OR ANY COSTS INCIDENTAL THERETO. THE SHALL BONDS ARE NOT A DEBT OF THE STATE BONDS THE OF ISSUANCE THE APPROVING SUBDIVISION POLITICAL ANY OR THEREOF AGENCY OR SUBDIVISION POLITICAL ANY OR WISCONSIN, OF STATE THE AGREEMENT), TRUST THE IN DEFINED (AS PARTY INDEMNIFIED AUTHORITY ANY HEREIN), DEFINED (AS MEMBER AUTHORITY ANY HEREIN), DEFINED (AS SPONSOR ANY AUTHORITY, THE OF NONE SOURCE, SUCH FROM EXCEPT AND AGREEMENT) TRUST THE IN DEFINED (AS ESTATE TRUST BONDS” herein.TheBondsaresecuredbyReserveFundNo. 1asdiscussed with connection in incurred expenses certain and pay hereto A (iii) Appendix and in the issuanceofBonds.See“THEPROJECT” herein) defined (as No. 1 Fund Reserve fund (ii) herein), defined (as Project of providingfundstoSouthminster,Inc.(the“Corporation”),beused,togetherwithotheravailablefunds,(i)paythecosts Agreement between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Bond of WisconsinorStateNorthCarolinaincometaxes.See“TAXTREATMENT.” preference itemforpurposesofthealternativeminimumtaximposedbyCode.InterestonBondswillnotbeexemptfromState specific a be not will Bonds the on interest that opinion the of also is Counsel Bond taxation. income federal of purposes for thereof of 1986,asamended(the“Code”),describedherein,interestontheBondswillnotbeincludableingrossincomeowners by the Authority and theCorporationwiththeir respective covenantstocomplywiththerequirements of the InternalRevenueCode Dated: DateofDelivery BOOK-ENTRY ONLY NEW ISSUE * Preliminary; subjecttochange. The Bonds are offered subject to prior sale, when, as and if issued by the Authority and accepted by the Underwriters, subject to subject Underwriters, the by accepted and Authority the by issued if and as when, sale, prior to subject offered are Bonds The This coverpagecontainscertaininformationforeaseofreference only.ItdoesnotconstituteasummaryoftheBondsorsecurity An investment in the Bonds involves a certain degree of risk related to, among other things, the nature of the Corporation’s business, THE OF 144A RULE IN DEFINED (AS BUYERS” INSTITUTIONAL “QUALIFIED TO LIMITED IS BONDS THE OF SALE AND OFFER described as maturity to prior redemption fund sinking mandatory and optional extraordinary optional, to subject are Bonds The The Bonds areissuableas fully registered bonds without coupons. Purchases of the Bondswill be made in book-entry form only,and THE BY SECURED AND FROM SOLELY PAYABLE AUTHORITY THE OF OBLIGATIONS LIMITED SPECIAL ARE BONDS THE The Bondsofferedhereby(the“”)arebeingissuedbythePublicFinanceAuthoritypursuanttoaTrust In theopinionofWombleBondDickinson(US)LLP,Counsel,underexistinglawandassumingcontinuingcompliance

RETIREMENT FACILITIESFIRSTMORTGAGEREVENUEBONDS PRELIMINARY OFFICIAL STATEMENT DATED MAY 31, 2018 PUBLIC FINANCE AUTHORITY Official Statement Dated:June __,2018 (SOUTHMINSTER) $91,460,000* SERIES 2018 “SECURITY ANDSOURCESOFPAYMENTFORTHE Davenport &CompanyLLC Due: Asshownoninsidefrontcover Trustee”), forthepurpose RATING: Fitch:BB MATURITY SCHEDULE*

$3,795,000 ___% Term Bonds due October 1, 2038 Yield ___% CUSIP©: ______

$22,155,000 ___% Term Bonds due October 1, 2043 Yield ___% CUSIP©: ______

$28,575,000 ___% Term Bonds due October 1, 2048 Yield ___% CUSIP©: ______

$36,935,000 ___% Term Bonds due October 1, 2053 Yield ___% CUSIP©: ______

* Preliminary; subject to change. © CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Global Marketing Intelligence. Copyright©2018 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by S&P Global Marketing Intelligence, a division of McGraw-Hill Financial, Inc. CUSIP data herein is provided for convenience of reference only. None of the Authority, the Corporation, the Underwriters or their agents take responsibility for the accuracy of such data. Site Plan

Terraces 1 Rendering of Terraces 2

Rendering of the Replacement Health Center

REGARDING USE OF THIS OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING OF THE BONDS, B.C. ZIEGLER AND COMPANY AND DAVENPORT & COMPANY LLC (THE “UNDERWRITERS”) MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

No dealer, broker, sales representative or other person has been authorized by the Authority, the Corporation or the Underwriters to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

The information contained in this Official Statement has been furnished by the Corporation, the Authority, DTC and other sources that are believed to be reliable. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof.

The Bank of New York Mellon Trust Company, N.A., as Bond Trustee and Master Trustee, has not provided, or undertaken to determine the accuracy of, any of the information contained in this Official Statement, and The Bank of New York Mellon Trust Company, N.A., as Bond Trustee and Master Trustee, makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information, (ii) the validity of the Bonds and Obligation No. 16; or (iii) the tax- exempt status of the interest on the Bonds.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE TRUST AGREEMENT AND THE MASTER INDENTURE HAVE NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAWS OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

Forward-Looking Statements

This Official Statement contains disclosures which contain “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current fact, and can be identified by use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” or “continue.” These forward-looking statements are based on the current plans and expectations of the Corporation and are subject to a number of known and unknown uncertainties and risks, many of which are beyond its control, which could significantly affect current plans and expectations and the future financial position and results of operations of the Corporation. These factors include, but are not limited to, (i) the highly competitive nature of the continuing care retirement community (“CCRC”) business, (ii) the efforts of insurers, health care providers and others to contain health care costs, (iii) enactment of or changes in federal, state or local legislation or regulations affecting the CCRC industry, (iv) the ability to attract and retain qualified management and other personnel, including nurses and medical support personnel, (v) liabilities and other claims asserted against the Corporation, (vi) changes in accounting standards and practices, (vii) changes in general economic conditions, (viii) changes in revenue mix, (ix) the availability and terms of capital to fund future expansion plans of the Corporation and to provide for ongoing capital expenditure needs, (x) changes in business strategy or development plans, (xi) the outcome of any future litigation, (xii) the continuing efforts of the Corporation to monitor, maintain and comply with appropriate laws, regulations, policies and procedures relating to its status as a tax-exempt organization, (xiii) the ability to achieve expected levels of resident volumes and control the costs of providing services, (xiv) results of reviews of its cost reports, and (xv) the ability of the Corporation to comply with state and federal laws and regulations, such as the Affordable Care Act or HIPAA (as defined herein). As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of the Corporation. Investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Official Statement, including APPENDIX A. [THIS PAGE INTENTIONALLY LEFT BLANK]

TABLE OF CONTENTS

Page INTRODUCTION ...... 1 THE AUTHORITY ...... 4 Formation and Governance ...... 4 Powers ...... 4 Board of Directors...... 4 Approval ...... 5 Special Limited Obligations ...... 5 Other Obligations ...... 6 Limited Involvement of the Authority ...... 6 THE CORPORATION ...... 6 FINANCIAL FEASIBILITY STUDY ...... 6 ESTIMATED SOURCES AND USES OF FUNDS ...... 8 ANNUAL DEBT SERVICE REQUIREMENTS ...... 9 THE BONDS ...... 10 General ...... 10 Book-Entry-Only System ...... 10 Redemption Provisions ...... 10 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ...... 13 General ...... 13 Security for Obligations ...... 14 Debt Service Reserve Fund ...... 15 Covenants; Additional Indebtedness ...... 16 Operating Reserves ...... 16 Additional Members of the Obligated Group ...... 17 Amendment of Master Indenture ...... 17 FINANCING COVENANTS ...... 17 Rate Covenant ...... 17 Liquidity Covenant ...... 18 Rating Solicitation Covenant ...... 19 Marketing Covenant...... 20 Occupancy Covenant ...... 21 Engagement of Management Consultants ...... 22 BONDHOLDERS’ RISKS ...... 22 General ...... 22 Management’s Forecast ...... 23 Limited Assets of the Corporation ...... 23 Construction Risks ...... 23 Uncertainty of Full Occupancy and Fee Collection ...... 23 Issues Related to the Market of the Corporation ...... 24 Rights of Residents; State Regulation ...... 25 State Delinquency Proceedings ...... 26 Tax Consequences to Residents ...... 26 Taxable Bank Loan ...... 27 Risks Associated with Bank Loans ...... 27

i Page

Organized Resident Activity ...... 27 Tax-Exempt Status ...... 28 Property Taxation ...... 28 State of North Carolina Tax Reform ...... 28 Legislation Affecting Tax-Exempt Organizations ...... 29 Bankruptcy ...... 29 Enforcement of Remedies ...... 29 Environmental Risks ...... 30 National Legislation and Regulations ...... 30 Certificate of Need ...... 31 Licensure ...... 31 Insurance ...... 31 Limited Value at Foreclosure ...... 31 Amendments to Documents ...... 32 Other Possible Risk Factors ...... 32 RATING ...... 33 UNDERWRITING ...... 33 CONTINUING DISCLOSURE REQUIRED PURSUANT TO RULE 15c2-12 ...... 34 ADDITIONAL CONTINUING DISCLOSURE ...... 36 LITIGATION ...... 37 The Authority ...... 37 The Corporation ...... 37 LEGAL MATTERS ...... 38 TAX TREATMENT ...... 38 Opinion of Bond Counsel ...... 38 Original Issue Discount ...... 38 Original Issue Premium ...... 39 Other Tax Consequences ...... 39 FINANCIAL STATEMENTS ...... 40 RELATIONSHIP OF PARTIES ...... 40 MISCELLANEOUS ...... 40

APPENDIX A - Certain Information Concerning The Corporation...... A-1 APPENDIX B - Combined Financial Statements of Southminster, Inc. and Southminster Foundation, Inc...... B-1 APPENDIX C - Financial Feasibility Study ...... C-1 APPENDIX D - Definition of Certain Terms and Summary of Principal Legal Documents ...... D-1 APPENDIX E - Proposed Form of Bond Counsel Opinion ...... E-1 APPENDIX F - DTC Book Entry System ...... F-1 APPENDIX G - Form of Investor Letter ...... G-1

SUMMARY STATEMENT

The information set forth in this Summary Statement is subject in all respects to more complete information set forth elsewhere in this Official Statement, which should be read in its entirety. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or otherwise to use it without this entire Official Statement. For the definitions of certain words and terms used in this Summary Statement, see the front part of this Official Statement or “DEFINITIONS OF CERTAIN TERMS” in APPENDIX D hereto.

The Bonds

The Authority proposes to issue the Bonds pursuant to the Act and a Trust Agreement, dated as of June 1, 2018 (the “Trust Agreement”), between the Authority and The Bank of New York Mellon Trust Company, N.A. as trustee (the “Bond Trustee”). See “THE BONDS.”

Limited Obligations

The Corporation is a North Carolina nonprofit corporation organized in 1984. The Corporation owns and operates a continuing care retirement community known as “Southminster,” located in Charlotte, North Carolina. The Corporation is affiliated with its original sponsors, Christ Episcopal Church and Myers Park Baptist Church, both of which are located in Charlotte, North Carolina. Neither Christ Episcopal Church nor Myers Park Baptist Church is obligated to make any payment on the Bonds.

References herein to the “Obligated Group” and “Members of the Obligated Group” shall be deemed to refer to the Corporation, currently the only member of such group, and, thereafter, any person which shall join the Obligated Group pursuant to the Master Indenture (as defined herein) and excluding any person which shall have withdrawn from the Obligated Group pursuant to the Master Indenture.

Further information regarding the Corporation and Southminster is included in APPENDIX A hereto.

Use of Proceeds

The proceeds of the sale of the Bonds will, together with other available funds, be used to (i) pay the costs of the Project (as defined herein), (ii) fund Reserve Fund No. 1 (as defined herein) and (iii) pay certain expenses incurred in connection with the issuance of the Bonds. See “THE PROJECT” in APPENDIX A hereto and “ESTIMATED SOURCES AND USES OF FUNDS” herein.

Security and Sources of Payment for the Bonds

THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED BY THE TRUST ESTATE (AS DEFINED IN THE TRUST AGREEMENT) AND EXCEPT FROM SUCH SOURCE, NONE OF THE AUTHORITY, ANY SPONSOR (AS DEFINED HEREIN), ANY AUTHORITY MEMBER, ANY AUTHORITY INDEMNIFIED PARTY (AS DEFINED IN THE TRUST AGREEMENT), THE STATE OF WISCONSIN, OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST THEREON OR ANY COSTS INCIDENTAL THERETO. THE BONDS ARE NOT A DEBT OF THE STATE OF WISCONSIN OR ANY AUTHORITY MEMBER AND DO NOT, DIRECTLY, INDIRECTLY OR CONTINGENTLY, OBLIGATE, IN ANY MANNER, ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS TO LEVY ANY TAX OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE BONDS OR ANY COSTS INCIDENTAL THERETO. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS NOR THE FAITH AND CREDIT OF THE AUTHORITY, ANY SPONSOR OR ANY AUTHORITY INDEMNIFIED PERSON SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE AUTHORITY HAS NO TAXING POWER. The Bonds will be limited obligations of the Authority and will be secured in part by the Corporation’s Obligation No. 16 in the aggregate principal amount of $______(“Obligation No. 16”). Obligation No. 16 will be issued pursuant to a Second Amended and Restated Master Trust Indenture, dated as of November 1, 2007 (as supplemented from time to time in accordance with its terms, the “Master Indenture”), between the Corporation and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A.), as master trustee (the “Master Trustee”), and a Supplemental Indenture for Obligation No. 16, dated as of June 1, 2018 (the “Supplemental Indenture”) between the Corporation and the Master Trustee. The Authority will pledge and assign Obligation No. 16 and certain of its rights under the Loan Agreement, dated as of June 1, 2018 (the “Loan Agreement”), between the Corporation and the Authority, to the Bond Trustee as security for the Bonds. The terms of Obligation No. 16 will require payments by the Corporation that, 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 Bonds.

The Supplemental Indenture sets forth certain amendments to the Master Indenture (such amendments are reflected herein and in Appendix D hereto and referred to herein as the “MTI Amendments”). By their purchase of the Bonds, the original purchasers thereof (1) will consent to the MTI Amendments and (2) will appoint the representative of the Underwriters for the Bonds as their attorney-in- fact for the purpose of executing a consent to the MTI Amendments. The MTI Amendments will take effect upon the earlier of (i) approval of the MTI Amendments by the North Carolina Medical Care Commission or (ii) payment in full or defeasance of both the Series 1996 Bonds and the Series 2016 Bonds (as defined herein).

Obligation No. 16 will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Corporation by the Master Indenture. All Obligations issued under the Master Indenture, including Obligation No. 16, will be joint and several general obligations of the Corporation and any future Members of the Obligated Group under the Master Indenture. All Obligations issued under the Master Indenture also will be equally and ratably secured by (i) a Second Amended and Restated Deed of Trust dated as of November 1, 2007 (as amended from time to time pursuant to its terms, the “Corporation Deed of Trust”) among the Corporation, a deed of trust trustee named therein, and the Master Trustee, as beneficiary, pursuant to which the Corporation has granted a lien on the Mortgaged Property (as defined herein) and (ii) a security interest in the Pledged Assets of the Corporation and any future Members of the Obligated Group, subject in each case only to Permitted Liens. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – General.”

In certain circumstances, the Corporation and any future Members of the Obligated Group may issue additional Obligations under the Master Indenture that may be equally and ratably secured with all Obligations then outstanding under the Master Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Covenants; Additional Indebtedness.”

A Debt Service Reserve Fund (particularly, Reserve Fund No. 1) has been established pursuant to the Master Indenture. Upon the issuance of the Bonds, Reserve Fund No. 1 will secure Obligation No. 16 on an equal and ratable basis with Obligation No. 14. The Debt Service Reserve Fund Requirement will be $______after the issuance of the Bonds, and the amount in such Reserve Fund No. 1 will equal such amount, less $106,125 on deposit in the debt service reserve fund for the 1996 Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS –Debt Service Reserve Fund.”

Certain Covenants of the Obligated Group

Rate Covenant. The Obligated Group covenants and agrees that the Corporation will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year.

If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year for which such ratio must be calculated is less than 1.20:1, the Obligated Group, at the Obligated Group’s expense, must retain a Management Consultant within 30 days (or such later date as results from following any required process for the hiring of a Management Consultant such as the process required by the Loan Agreement described below under “Engagement of Management Consultants”)* following the calculation described in the Master Indenture, to make recommendations with respect to the rates, fees and charges for the Obligated Group’s Facilities and services, 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.

Each Member of the Obligated Group must follow each recommendation of the Management Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of its Governing Body) and permitted by law. The provisions of the Master Indenture summarized under this heading do not prohibit any Member of the Obligated Group from serving indigent patients to the extent required for such Member of the Obligated Group to continue its qualification as a Tax Exempt Organization or from serving any other class or classes of patients without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of the Master Indenture.

The foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required above, the Master Trustee will not be obligated to require the Obligated Group to retain a Management Consultant to make such recommendations if: (i) there is filed with the Master Trustee a written report of a Management Consultant (which Management Consultant and report, including without limitation the scope, form, substance, and other aspects of such report, are acceptable to the Master Trustee) that contains an opinion of such Management Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year sufficient to meet the requirements described under this heading, and, if requested by the Master Trustee, such report is accompanied by a concurring Opinion of Counsel (which counsel and opinion, including without limitation the scope, form, substance, and other aspects thereof, are acceptable to the Master Trustee) as to any conclusions of law supporting the opinion of such Management Consultant; (ii) the report of such Management Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Management Consultant, the Obligated Group has generated the maximum amount of revenues reasonably practicable given such laws or regulations; and (iii) 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 Management 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 Counsel (which counsel and opinion, including without limitation the scope, form, substance, and other aspects thereof, are acceptable to the Master Trustee) to the effect that the applicable laws and regulations underlying the Management Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.

Failure of the Obligated Group to achieve the required Historical Debt Service Coverage Ratio for any Fiscal Year shall not constitute an Event of Default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures described above 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 Corporation) and permitted by law; provided however, the failure of the Obligated Group to achieve a

* Sentence in parenthetical is due to the MTI Amendments. See APPENDIX D hereto.

iii

Historical Debt Service Coverage Ratio of at least 1:00:1 for two consecutive Fiscal Years shall constitute an Event of Default under the Master Indenture.

If a Member of the Obligated Group incurs any Additional Indebtedness to finance any acquisition, construction, renovation or replacement project, the debt service requirements with respect to such Additional Indebtedness and the revenues and expenses relating to the project or projects financed with the proceeds of such Additional Indebtedness will be excluded from the calculation of the Historical Debt Service Coverage Ratio of the Obligated Group as described under this caption if certain conditions set forth in the Master Indenture are satisfied.

The Loan Agreement contains certain provisions relating to the engagement of Management Consultants. See “SUMMARY OF LOAN AGREEMENT – Engagement of Management Consultants” in APPENDIX D.

Liquidity Covenant. The Obligated Group covenants that it will calculate the Days’ Cash on Hand of the Obligated Group as of March 31 and September 30 of each Fiscal Year (each a “Liquidity Testing Date”). The Obligated Group shall deliver an Officer’s Certificate to the Master Trustee setting forth such calculation not less than 45 days after each Liquidity Testing Date.

Each Member has agreed that it will conduct its business so that on each Liquidity Testing Date the Obligated Group will have no less than 180 Days’ Cash on Hand.

If the Days’ Cash on Hand on any Liquidity Testing Date is less than 180, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, the Obligated Group must deliver an Officer’s Certificate approved by a resolution of the Governing Body of each Member of the Obligated Group 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 the required liquidity for future periods.

If the Obligated Group has not achieved 180 Days’ Cash on Hand by the next Liquidity Testing Date following delivery of the Officer’s Certificate required in the preceding paragraph, the Members of the Obligated Group shall, within 30 days (or such later date as results from following any required process for the hiring of a Management Consultant such as the process required by the Loan Agreement described below under “Engagement of Management Consultants”)* after delivery of the Officer’s Certificate disclosing such deficiency, retain a Management Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group, the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Obligated Group’s liquidity to the required level for future periods. Each Member of the Obligated Group shall follow each recommendation of the Management Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member of the Obligated Group) and permitted by law.

Failure of the Obligated Group to achieve the liquidity covenant for any Fiscal Year will 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 plan or Consultant’s report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Corporation) and permitted by law.

The Loan Agreement contains certain provisions relating to the engagement of Management Consultants. See “SUMMARY OF LOAN AGREEMENT – Engagement of Management Consultants” in APPENDIX D.

Rating Solicitation Covenant. Not later than 150 days after receipt by the Corporation of the Financial Statements each fiscal year, beginning with the fiscal year ending September 30, 2018, the Corporation will approach Fitch or any other Rating Agency to obtain a credit rating until the Obligated Group obtains a credit rating of “BBB-” or better from Fitch or an equivalent rating from any other Rating Agency (an “Investment Grade Credit Rating”). The requirement to annually approach a Rating Agency shall terminate when the Obligated Group obtains an Investment Grade Credit Rating. In addition, the Corporation shall not be required to approach a Rating Agency to obtain a credit rating if the Corporation 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. Notwithstanding the foregoing, the Corporation shall not be required to approach Fitch or any

* Sentence in parenthetical is due to the MTI Amendments. See APPENDIX D hereto.

other Rating Agency at the time and in the manner described in the first sentence of this paragraph if the Obligated Group maintains any level of rating from Fitch or any other Rating Agency.

Marketing Covenant. Beginning with the fiscal quarter ending September 30, 2018 and ending with the Stabilization Date, the Corporation will use its best efforts to have Presold Project Independent Living Units at or above the levels set forth below (measured as of the last day of the applicable quarter):

Number of Project Independent Quarter Ending Living Units Presold September 30, 2018 31 December 31, 2018 37 March 31, 2019 43 June 30, 2019 49 September 30, 2019 55 December 31, 2019 and thereafter 60

If the number of Project Independent Living Units Presold for any fiscal quarter is less than the number set forth above for that date, the Obligated Group Representative shall within 30 days thereafter submit an Officer’s Certificate to the Bond Trustee and the MSRB (as defined herein) setting forth in detail the reasons therefor and the plan to increase the number of Project Independent Living Units Presold to at least the levels set forth above for future periods.

If the number of Project Independent Living Units Presold for any two consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative shall retain a Management Consultant to make recommendations, within 30 days thereafter (or such later date as results from following the process required by the Loan Agreement described below under “Engagement of Management Consultants”), regarding the actions to be taken to increase the number of Independent Living Units Presold to at least the levels set forth above for future periods. Within 60 days of retaining any such Management Consultant, the Obligated Group Representative shall cause a copy of the Management Consultant’s report and recommendations, if any, to be filed with the Bond Trustee and a copy or a summary thereof with the MSRB. The Corporation shall follow each recommendation of the Management Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Corporation) and permitted by law.

Notwithstanding any other provision of the Loan Agreement, failure of the Corporation to achieve the required marketing covenant shall not constitute an Event of Default under the Loan Agreement if the Corporation 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 by the Governing Body of the Corporation) and permitted by law. Notwithstanding the foregoing, in the event that the number of Project Independent Living Units Presold for any four consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative shall retain a different Management Consultant following the fourth consecutive fiscal quarter than the Management Consultant(s) used for the prior fiscal quarters.

Occupancy Covenant. The Corporation covenants in the Loan Agreement that for each fiscal quarter commencing with the fiscal quarter which ends not less than 60 days following the issuance of the initial occupancy certificate for the Project Independent Living Units (but no earlier than the quarter ended June 30, 2019) and ending with the Stabilization Date (each an “Occupancy Quarter”), the Corporation will use its best efforts to have Occupied Project Independent Living Units at or above the levels set forth below (measured as of the last day of the applicable quarter):

Number of Project Independent Occupancy Quarter Living Units Occupied 1 10 2 25 3 28 4 28 5 28 6 28

Number of Project Independent Occupancy Quarter Living Units Occupied 7 38 8 46 9 54 10 and thereafter 60

If the number of Project Independent Living Units Occupied for any fiscal quarter is less than the number set forth above for that date, the Obligated Group Representative shall within 30 days thereafter submit an Officer’s Certificate to the Bond Trustee and the MSRB setting forth in detail the reasons therefor and the plan to increase the number of Project Independent Living Units Occupied to at least the levels set forth above for future periods.

If the number of Project Independent Living Units Occupied for any two consecutive fiscal quarters is less than the number set forth above for that date, the Obligated Group Representative shall retain a Management Consultant to make recommendations, within 30 days thereafter (or such later date as results from following the process required by the Loan Agreement described below under “Engagement of Management Consultants”), regarding the actions to be taken to increase the number of Project Independent Living Units Occupied to at least the levels set forth above for future periods. Within 60 days of retaining any such Management Consultant, the Obligated Group Representative shall cause a copy of the Management Consultant’s report and recommendations, if any, to be filed with the Bond Trustee and a copy or a summary thereof with the MSRB. The Corporation shall follow each recommendation of the Management Consultant to the extent feasible (as been determined in the reasonable judgment of the Governing Board of the Corporation) and permitted by law.

Notwithstanding any other provision of the Loan Agreement, failure of the Corporation to achieve the required occupancy covenant shall not constitute an Event of Default under the Loan Agreement if the Corporation 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 by the Governing Body of the Corporation) and permitted by law. Notwithstanding the foregoing, in the event that the number of Project Independent Living Units Occupied for any four consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative shall retain a different Management Consultant following the fourth consecutive fiscal quarter than the Management Consultant(s) used for the prior fiscal quarters.

Engagement of Management Consultants. If the Obligated Group is required to engage a Management Consultant in connection with these occupancy and marketing covenants or the covenants under “Rate Covenant” and “Liquidity Covenant” in this section, such Management Consultant shall be engaged in the following manner:

The Obligated Group shall give notice of the selection of a Management Consultant to the Bond Trustee within fifteen (15) days after the Obligated Group becomes obligated to engage a Management Consultant. The Bond Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the owners of all the Bonds Outstanding of such selection and the Obligated Group Representative will post a copy of such notice (or cause a copy of such notice to be posted) with the MSRB through its Electronic Municipal Market Access system. Such notice shall (i) include the name of the Management Consultant and a brief description of the Management Consultant, (ii) state the reason that the Management Consultant is being engaged including a description of the covenant of the Master Indenture that requires the Management Consultant to be engaged, and (iii) state that the owner of a Bond will be deemed to have consented to the selection of the Management Consultant named in such notice unless such owner submits an objection to the selected Management Consultant in writing (in a manner acceptable to the Bond Trustee) to the Bond Trustee within 15 days of the date that the notice is sent to the owner. No later than two Business Days after the end of the 15-day objection period, the Bond Trustee shall notify the Obligated Group of the number of objections. If the owners of more than one-third (33.3%) in aggregate principal amount of the Bonds Outstanding have objected to the Management Consultant selected, the Obligated Group Representative shall select another Management Consultant within 14 days after receiving notice of such objection, who may be engaged upon compliance with the procedures of this paragraph. If the Obligated Group is required to engage a Management Consultant in connection with the rate, liquidity, occupancy and marketing covenants described above, the requirements relating to Management Consultants may (but need not) be satisfied through the engagement of a single Management Consultant under a single engagement in lieu of multiple engagements.

Additional Indebtedness

The Master Indenture permits the Members of the Obligated Group to incur additional Indebtedness (including Guaranties) which may, but need not be evidenced or secured by an additional Obligation issued under the Master Indenture. Under certain conditions specified therein, the Master Indenture will permit the Members of the Obligated Group to issue additional Obligations that will not be pledged under the Trust Agreement, but will be equally and ratably secured by the Master Indenture with Obligation No. 16. In addition, the Master Indenture will permit such additional Obligations to be secured by security, which additional security need not be extended to secure any other Obligations (including Obligation No. 16). See “SUMMARY OF MASTER INDENTURE— Limitations on Incurrence of Indebtedness” in APPENDIX D.

Continuing Disclosure

Given the sources of repayment for the Bonds and the Authority’s limited obligation in respect thereof, the Authority has determined that its financial and operating data are not material to a decision to purchase, hold or sell the Bonds. Consequently, the Authority will not provide any such information. The Corporation, however, has agreed to make certain financial information and operating data available to holders of the Bonds as described in the following paragraph. Additionally, the Corporation has agreed to provide certain annual financial information and operating data and other material events to the MSRB. The Corporation is solely responsible for providing such disclosure, and the Authority will have no responsibility or liability to the holders of the Bonds or any other person for the making, monitoring or content of such disclosures. See “CONTINUING DISCLOSURE REQUIRED PURSUANT TO RULE 15c2-12.”

Within forty-five (45) days following the end of each fiscal quarter of each Fiscal Year of the Obligated Group, the Corporation will provide to the MSRB: (i) quarterly unaudited financial statements of the Obligated Group, including a combined or combining statement of revenues and expenses (including a comparison to budget) and statement of cash flows of the Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, and management discussion and analysis, (ii) a calculation of the Historical Debt Service Coverage Ratio and Days’ Cash on Hand as of the end of such fiscal quarter, (iii) occupancy statistics for the Facilities for such fiscal quarter (such statistics shall include the number of units available and occupied as of the end of such fiscal quarter and the occupancy percentage as of the end of such fiscal quarter), (iv) an Officer’s Certificate stating whether, to the best of the knowledge of the signer of such Officer’s Certificate, the Corporation is not in compliance with any covenant contained in the Master Indenture, the Trust Agreement or in Loan Agreement (including any covenant in the tax certificate incorporated into the Loan Agreement by reference) and, if so, specifying each failure to comply of which the signer may have knowledge and the steps that are being taken to cure such non-compliance, (v) the amount of and the anticipated debt service schedule for any additional Long-Term Indebtedness incurred by the Obligated Group during such quarter, (vi) with respect to any capital project (other than the Project) of the Obligated Group financed with Long-Term Indebtedness undertaken in such quarter, notice of commencement of such capital project, and, beginning with the quarter in which such capital project is commenced and ending with the quarter in which such capital project is completed, a summary of construction progress and activities; (vii) until the Stabilization Date, the number and percentage of the Project Independent Living Units that have been Presold as of the last day of such fiscal quarter and as of the last day of the preceding fiscal quarter, and the number of any refunds of Entrance Fees made during such period with respect to the Project Independent Living Units; and (viii) until the Stabilization Date, the number and percentage of Occupied Project Independent Living Units as of the last day of such fiscal quarter and as of the last day of the preceding fiscal quarter.

In addition, as soon as practicable after the information is available, but in no event more than forty-five (45) days after the end of each calendar month, the Corporation shall provide to the MSRB, with respect to the Project, beginning with the month ending June 30, 2018 and ending with the month during which the Project is completed, a summary of construction progress and activities, including construction disbursements against budget and estimated costs to complete, and including notice of any material change orders relating to the Project and a report of change orders affecting the Project’s contingency budget.

See “ADDITIONAL CONTINUING DISCLOSURE.”

vii

Risk Factors

AN INVESTMENT IN THE BONDS INVOLVES A CERTAIN DEGREE OF RISK INCLUDING THOSE SET FORTH UNDER THE HEADING “BONDHOLDERS’ RISKS” HEREIN. A PROSPECTIVE BONDHOLDER IS ADVISED TO READ “THE BONDS,” “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” AND “BONDHOLDERS’ RISKS” FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE BONDS. Careful consideration should be given to these risks and other risks described elsewhere in this Official Statement. Among other things, careful evaluation should be made of certain factors that may adversely affect the ability of the Corporation or any future Member of the Obligated Group to generate sufficient revenues to pay expenses of operation, including the principal of, premium, if any, and interest on the Bonds.

Financial Feasibility Study

A financial feasibility study of the plans of the Corporation, including a report from CliftonLarsonAllen LLP on the financial forecast of the Obligated Group prepared by management of the Obligated Group contained in such study, dated May 31, 2018 (the “Financial Feasibility Study”) is attached as APPENDIX C to this Official Statement. Set forth below are the forecasted Long-Term Debt Service Coverage Requirement and Days’ Cash on Hand for the fiscal years ending September 30, 2018 to 2022, which have been extracted from the Financial Feasibility Study. The Financial Feasibility Study should be read in its entirety, including the Summary of Significant Forecast Assumptions and Accounting Policies set forth therein. See “FINANCIAL FEASIBILITY STUDY” herein for further information related to the Financial Feasibility Study.

Debt Service Coverage Ratio 2018 2019 2020 2021 2022

Change in Net Assets Without Donor Restrictions (163,198) 1,484,998 2,473,733 (2,605,381) (996,658) Deduct: Entrance Fee Amortization (5,731,644) (6,206,735) (7,366,223) (7,572,339) (8,385,386)

Add: Depreciation 6,643,925 6,417,381 6,820,206 9,922,402 10,035,705 Amortization 80,172 85,170 87,121 22,000 22,000 Interest Expense 2,447,127 3,001,822 3,797,237 7,529,667 7,100,252 Entrance Fees Received, Net of Refunds (1) 6,011,000 7,229,000 7,615,000 8,349,000 9,318,000 Income Available for Debt Service 9,287,382 12,011,636 13,427,074 15,645,349 17,093,913 Maximum Annual Debt Service (2) 4,746,688 4,746,688 4,746,688 4,746,688 9,593,495 Debt Service Coverage Ratio 1.96 2.53 2.83 3.30 1.78

Days Cash on Hand 2018 2019 2020 2021 2022 Cash and Cash Equivalents $ 2,500,000 $ 2,557,000 $ 2,568,000 $ 2,672,000 $ 2,682,000 Operating Reserve 5,220,058 5,793,985 6,236,880 6,367,940 6,580,872 Long -Term Investments 24,585,685 21,849,683 17,463,039 18,262,916 20,383,128 Total $ 32,305,743 $ 30,200,668 $ 26,267,919 $ 27,302,856 $ 29,646,000

Notes to the Forecast Schedule of Financial Ratios: (1) Excludes first generation entrance fee receipts. (2) Pursuant to the Master Indenture, the maximum annual debt service excludes (a) the debt service on the Bonds until 2022, the first year after the Project achieves stabilized occupancy, and (b) the Taxable Bank Loan because it is Qualifying Intermediate Term Indebtedness. (3) Daily operating expenses are equal to operating expenses less depreciation and amortization divided by 365 days.

viii

OFFICIAL STATEMENT

$91,460,000* PUBLIC FINANCE AUTHORITY RETIREMENT FACILITIES FIRST MORTGAGE REVENUE BONDS (SOUTHMINSTER) SERIES 2018

INTRODUCTION

This Official Statement, including the cover page and the appendices, is provided to furnish information regarding the offering by the Public Finance Authority (the “Authority”) of its $91,460,000* Retirement Facilities First Mortgage Revenue Bonds (Southminster) Series 2018 (the “Bonds”). The Bonds are being issued pursuant to Sections 66.0301, 66.0303 and 66.0304 of the Wisconsin Statutes, as amended (the “Act”), and a Trust Agreement, dated as of June 1, 2018 (the “Trust Agreement”), between the Authority and The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida, as trustee (the “Bond Trustee”).

Concurrently with the issuance of the Bonds, the Authority will enter into (1) a Loan Agreement, dated as of June 1, 2018 (the “Loan Agreement”), with Southminster, Inc., a North Carolina nonprofit corporation (the “Corporation”). Pursuant to the Loan Agreement, the Authority will lend the proceeds of the Bonds to the Corporation for the purpose of providing funds, together with other available funds, to (i) pay the costs of the Project (as defined in APPENDIX A hereto), (ii) fund Reserve Fund No. 1 (as defined herein) and (iii) pay certain expenses incurred in connection with the issuance of the Bonds. “THE PROJECT” in APPENDIX A hereto.

The Bonds are limited obligations of the Authority, payable solely from money to be received from the Corporation pursuant to the terms of the Loan Agreement and Obligation No. 16, dated the date of delivery of the Bonds (“Obligation No. 16”). The Corporation will execute and deliver Obligation No. 16 to the Authority pursuant to a Second Amended and Restated Master Trust Indenture, dated as of November 1, 2007 (as amended and supplemented, the “Master Indenture”), between the Corporation and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A.), as master trustee (the “Master Trustee”), and a Supplemental Indenture for Obligation No. 16, dated as of June 1, 2018 (the “Supplemental Indenture”), between the Corporation and the Master Trustee. Payments on Obligation No. 16 will be required to be sufficient to pay the principal of, premium, if any, and interest on the Bonds as they become due and payable. Obligation No. 16 will be a joint and several general obligation of the Members of the Obligated Group (hereinafter described). As of the date hereof, the Corporation is the sole Member of the Obligated Group.

The Supplemental Indenture sets forth certain amendments to the Master Indenture (such amendments are reflected herein and in Appendix D hereto and referred to herein as the “MTI Amendments”). By their purchase of the Bonds, the original purchasers thereof (1) will consent to the MTI Amendments and (2) will appoint the representative of the Underwriters for the Bonds as their attorney-in-fact for the purpose of executing a consent to the MTI Amendments. The MTI Amendments will take effect upon the earlier of (i) approval of the MTI Amendments by the North Carolina Medical Care Commission or (ii) payment in full or defeasance of both the Series 1996 Bonds and the Series 2016 Bonds (as defined herein).

* Preliminary; subject to change.

The following table sets forth the indebtedness incurred by the Obligated Group that is currently secured by the Master Indenture and the Obligation No. related to such indebtedness upon the issuance of the Bonds.

Original Estimated Related Principal Outstanding Obligation Indebtedness Amount Principal Amount No. North Carolina Medical Care Commission Health $5,055,000 $100,000 3 Care Facilities First Mortgage Revenue Bonds (Southminster), Series 1996 (the “Series 1996 Bonds”) North Carolina Medical Care Commission $58,765,000 $58,660,000 14 Retirement Facilities First Mortgage Revenue Refunding Bonds (Southminster Project), Series 2016 (the “Series 2016 Bonds”) Compass Bank Taxable Loan (the “Taxable Bank $39,000,000 $36,500,000* 15 Loan”) The Bonds $91,460,000+ $91,460,000+ 16 Total $186,720,000+ ______*Although the Taxable Bank Loan is a “draw-down” loan and the entire amount has not yet been drawn, for purposes of this table, it is assumed that $36,500,000 is drawn from the Taxable Bank Loan as expected and contemplated in the Financial Feasibility Study.

The Obligations set forth in the above table are referred to herein as the “Current Obligations.”

References herein to the “Obligated Group” shall be deemed to refer to the Corporation, currently the only member of such group, and, thereafter, any Person which shall join the Obligated Group pursuant to the Master Indenture and excluding any Person which shall have withdrawn from the Obligated Group pursuant to the Master Indenture.

Obligation No. 16 will be a parity Obligation under the Master Indenture with the other Current Obligations and any other future Obligations issued thereunder. As security for repayment of all Obligations issued under the Master Indenture, including the Current Obligations, the Corporation has executed and delivered a Second Amended and Restated Deed of Trust, dated as of November 1, 2007, as amended by a First Amendment thereto dated as of December 10, 2014, a Second Amendment thereto dated as of November 1, 2016, a Third Amendment thereto dated as of August 31, 2017, a Fourth Amendment thereto dated as of September 27, 2017, a Fifth Amendment thereto dated as of the date of delivery thereof, and a Sixth Amendment thereto dated as of June 1, 2018 (collectively, the “Corporation Deed of Trust”), granting to the Master Trustee a first lien of record on the property described therein, together with all buildings, improvements and fixtures thereon, subject to Permitted Liens. All of the property described in the Corporation Deed of Trust constitutes the Mortgaged Property. In addition, pursuant to the Master Indenture, the Corporation has granted to the Master Trustee a first priority security interest in its Pledged Assets, subject to Permitted Liens. Pledged Assets consist of all Gross Receipts, Accounts, Equipment, general intangibles, inventory, documents, instruments and chattel paper of each Member of the Obligated Group now owned or hereafter acquired, and all proceeds thereof; provided, however, that Pledged Assets does not include contract rights consisting of charitable pledges.

+ Preliminary, subject to change.

SOURCES OF PAYMENT FOR THE BONDS—Security for Obligation No. 16” herein. The lien on the Mortgaged Property and the security interest in the Pledged Assets are also subject to the right of the Corporation to transfer Property, Plant and Equipment free of such lien and security interest under certain circumstances (see “SUMMARY OF MASTER INDENTURE—Limitations on Creation of Liens” and “—Transfers of Property, Plant, and Equipment; Transfers of Cash and Investments” and “SUMMARY OF CORPORATION DEED OF TRUST—Release of Land” in APPENDIX D). All Obligations issued under the Master Indenture, including the Current Obligations, will be secured pari passu by the lien on the Mortgaged Property created by the Corporation Deed of Trust and the security interest in the Pledged Assets created by the Master Indenture. The Corporation is subject to certain covenants under the Master Indenture restricting, among other things, incurrence of Indebtedness, existence of Liens, consolidation or merger and disposition of assets. See “SUMMARY OF MASTER INDENTURE” in APPENDIX D.

To secure payment of the Bonds, the Authority will assign to the Bond Trustee (a) all right, title and interest in and to Obligation No. 16, (b) all rights under the Master Indenture and the Corporation Deed of Trust as owner of Obligation No. 16 and (c) substantially all right, title and interest in and to the Loan Agreement, to secure the payment of the Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.

The Master Indenture permits any Persons which are not Members of the Obligated Group and other corporations which are successor corporations to any Member of the Obligated Group through merger or consolidation (as permitted by the Master Indenture) to become Members of the Obligated Group upon compliance with certain financial and other requirements. The Master Indenture also permits, upon compliance with certain requirements, any Member of the Obligated Group to withdraw from the Obligated Group. The Loan Agreement, however, prohibits the withdrawal of the Corporation from the Obligated Group for so long as the Bonds are outstanding. See “SUMMARY OF MASTER INDENTURE-Parties Becoming Members of the Obligated Group” and “-Withdrawal from the Obligated Group” in APPENDIX D.

Certain information concerning the Corporation and the Facilities (as defined in APPENDIX D) is contained in APPENDIX A. The audited combined financial statements of the Corporation and Southminster Foundation, Inc. for the Fiscal Years ended September 30, 2017 and 2016 are contained in APPENDIX B. See “FINANCIAL STATEMENTS” herein and APPENDIX B.

This introduction is merely a summary and is qualified by reference to the entire Official Statement. Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust (see “DEFINITIONS OF CERTAIN TERMS” in APPENDIX D). Brief descriptions and summaries of the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust are included in APPENDIX D. Such descriptions and summaries do not purport to be comprehensive or definitive, and all references in this Official Statement to the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust are qualified in their entirety by reference to such documents, and all references to the Bonds are qualified by reference to the definitive form of the Bonds contained in the Trust Agreement. Copies of such documents may be obtained from the Corporation at 8919 Park Road, Charlotte, North Carolina 28210-7610, Attention: Chief Financial Officer, prior to the delivery of the Bonds and thereafter will be on file at the designated corporate trust office of the Bond Trustee and the Master Trustee at 10161 Centurion Parkway, N. Jacksonville, Florida 32256, Attention: Corporate Trust Division.

The offer and sale of the Bonds is limited to “Qualified Institutional Buyers” (as defined in Rule 144A of the Securities Act of 1933, as amended, the “Securities Act”) or to “Accredited Investors” (as defined in Rule 501(a) under the Securities Act). Qualified Institutional Buyers and

Accredited Investors are defined herein as “Eligible Purchasers”. Each initial purchaser of the Bonds that is an Accredited Investor is required to deliver an investor letter in the form attached to this Official Statement as APPENDIX G. Sales to Accredited Investors are required to be in an amount not less than $25,000 in aggregate principal amount of Bonds.

THE AUTHORITY

Formation and Governance

In early 2010, both houses of the Wisconsin Legislature passed 2009 Wisconsin Act 205 (“Act 205”), which was signed into law by the Governor of the State of Wisconsin on April 21, 2010. Act 205 added Section 66.0304 to the Wisconsin Statutes (the “Statute”) providing the authority for two or more political subdivisions to create a commission to issue bonds under the Statute. Before an agreement for the creation of such a commission could take effect, Act 205 required that such agreement be submitted to the Attorney General of the State of Wisconsin to determine whether the agreement is in proper form and compatible with the laws of the State of Wisconsin. The Authority was formed upon execution of the Joint Exercise of Powers Agreement Relating to the Public Finance Authority dated June 30, 2010, as amended by an Amended and Restated Joint Exercise of Powers Agreement Relating to the Public Finance Authority, dated September 28, 2010 (as so amended and as may be further amended from time to time, the “PFA Joint Powers Agreement”) among Adams County, Wisconsin, Bayfield County, Wisconsin, Marathon County, Wisconsin, Waupaca County, Wisconsin and the City of Lancaster, Wisconsin (each an “Authority Member” and, collectively, the “Authority Members,” which term shall include any political subdivision designated in the future as a “Member” of the Authority pursuant to the PFA Joint Powers Agreement). The PFA Joint Powers Agreement was approved by the Attorney General of the State of Wisconsin on September 30, 2010. The Statute also provides that only one commission may be formed thereunder.

Pursuant to the Statute, the Authority is a unit of government and a body corporate and politic separate and distinct from, and independent of, the State of Wisconsin and the Authority Members. The Authority was established by local governments, primarily for local governments, for the public purpose of providing local governments a means to efficiently, and reliably finance projects that benefit local governments, nonprofit organizations and other eligible private borrowers in the State of Wisconsin and throughout the country.

Powers

Under the Statute, the Authority has all of the powers necessary or convenient to any of the purposes of Act 205, including the power to issue bonds, notes or other obligations or refunding obligations to finance or refinance a project, make loans to, lease property from or to, and enter into agreements with a participant or other entity in connection with financing a project. The proceeds of bonds issued by the Authority may be used for a project in the State of Wisconsin or any other state or territory of the United States, or outside the United States if a participating borrower is incorporated and maintains its principal place of business in, the United States or its territories. The Statute defines “project” as any capital improvement, purchase of receivables, property, assets, commodities, bonds or other revenue streams or related assets, working capital program, or liability or other insurance program, located within or outside of the State of Wisconsin.

Board of Directors

The PFA Joint Powers Agreement provides for a Board of Directors of the Authority (the “Board”) consisting of seven directors (each a “Director” and collectively, the “Directors”), a majority of whom are required to be public officials or current or former employees of a political subdivision located

in the State of Wisconsin. The Directors serve staggered three-year terms. The Directors are selected by majority vote of the Board based upon nominations from the organization that nominated the predecessor Director. Four Directors are nominated by the Wisconsin Counties Association, and one Director is nominated from each of the National League of Cities, the National Association of Counties and the League of Wisconsin Municipalities (collectively, the “Sponsors” and each a “Sponsor”). Each of the nominating organizations may also nominate an alternate Director for each Director it nominates to serve on the Board in the place of and in the absence or disability of a Director. Directors and alternate Directors may be removed and replaced at any time by the Board upon recommendation of the Sponsor that nominated such Director.

As of the date of this Official Statement, the Directors are identified in the table below and there is currently one vacant Board seat (representing the nominee of the National League of Cities) and one Alternate Director (nominated by the Wisconsin Counties Association):

Name Title Position

William Kacvinsky Chair Former Board Chair-Bayfield County, Wisconsin Jerome Wehrle Vice Chair Former Mayor-City of Lancaster, Wisconsin Heidi Dombrowski Treasurer Finance Director-Waupaca County, Wisconsin Allen Buechel Secretary County Executive–Fond du Lac County, Wisconsin Del Twidt Director Former Board Chair-Buffalo County, Wisconsin Michael Gillespie Director Former Chair-Madison County, Alabama Board of Commissioners John West Alternate Director* Board Chair-Adams County, Wisconsin ______* Mr. West is an alternative for Directors Buechel, Dombrowski and Twidt.

The Authority has no employees and contracts with a full-service program management firm, GPM Municipal Advisors, LLC, to manage the day-to-day operations of the Authority including but not limited to staff and administrative support and ongoing compliance matters. All of the services provided by GPM Municipal Advisors, LLC are subject to review and approval by the Board.

Approval

The Board adopted the Bond Resolution approving the issuance of the Bonds on May 23, 2018.

Special Limited Obligations

THERETO. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ANY AUTHORITY MEMBER, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OR ANY POLITICAL SUBDIVISION APPROVING THE ISSUANCE OF THE BONDS NOR THE FAITH AND CREDIT OF THE AUTHORITY, ANY SPONSOR OR ANY AUTHORITY INDEMNIFIED PERSON SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON, THE BONDS OR ANY COSTS INCIDENTAL THERETO. THE AUTHORITY HAS NO TAXING POWER.

Other Obligations

The Authority has issued, sold and delivered in the past, and expects in the future, to issue, sell and deliver obligations other than the Bonds, which other obligations are and will be secured by instruments separate and apart from the Trust Agreement and the Bonds. The holders of such other obligations of the Authority will have no claim on the security for the Bonds, and the owners of the Bonds will have no claim on the security for such other obligations issued by the Authority.

Limited Involvement of the Authority

The Authority has not participated in the preparation of or reviewed any feasibility study or other financial analysis related to the issuance of the Bonds and has not undertaken to review or approve expenditures related to the issuance of the Bonds, or to review the financial statements of the Obligated Group or any other entity.

EXCEPT FOR INFORMATION RELATING TO THE AUTHORITY UNDER THE SUBHEADINGS “THE AUTHORITY” AND “LITIGATION-THE AUTHORITY” HEREIN, THE AUTHORITY IS NOT RESPONSIBLE FOR ANY INFORMATION CONTAINED HEREIN AND HAS NOT UNDERTAKEN TO VERIFY OR CONFIRM THE ACCURACY OR SUFFICIENCY OF ANY OF THE STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. THE AUTHORITY EXPRESSLY DISCLAIMS ANY LIABILITY RESULTING FROM THE OFFERING AND SALE OF THE BONDS.

THE CORPORATION

FINANCIAL FEASIBILITY STUDY

A financial feasibility study of the plans of the Corporation, including a report from CliftonLarsonAllen LLP (the “Feasibility Consultant”) on the financial forecast of the Obligated Group prepared by management of the Obligated Group contained in such study, dated May 31, 2018 (the “Financial Feasibility Study”) is attached as APPENDIX C to this Official Statement. The Financial Feasibility Study was undertaken by the Feasibility Consultant at the request of the Corporation, and the Authority assumes no responsibility therefor.

The financial forecast contained in the Financial Feasibility Study is based on assumptions made by management of the Obligated Group. As more fully described in APPENDIX C to this Official Statement, management’s financial forecast included in the Financial Feasibility Study assumes that the

Bonds and the Taxable Bank Loan are issued and incurred in an aggregate principal amount of $127,960,000 and bear interest at an average rate of 5.256%. Purchasers of the Bonds should carefully review APPENDIX C to this Official Statement in light of the actual interest rates of the Bonds, which are likely to be different from those assumed in the Financial Feasibility Study. As stated in the Financial Feasibility Study, there will 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 achievement of any financial forecast is dependent upon future events, the occurrence of which cannot be assured. Moreover, the further into the future the forecast extends, the more difficult it is for management to predict future events. In addition, the financial forecast is only for the five fiscal years ending September 30, 2022, and consequently, does not cover the whole period during which the Bonds may be outstanding. The Financial Feasibility Study included herein as APPENDIX C should be read in its entirety.

Because there is no assurance that actual events will correspond with the assumptions made by management, no guarantee can be made that management’s financial forecast in the Financial Feasibility Study will correspond with the results actually achieved in the future. Actual operating results may be affected by many uncontrollable factors, including but not limited to, failure by management to execute its plans, increased costs, lower than anticipated revenues, employee relations, taxes, governmental controls, changes in applicable governmental regulations, changes in demographic trends, changes in the retirement living and health care industries and general economic conditions.

Management’s financial forecast contained in the Financial Feasibility Study is a forward looking statement based on the best information currently available to the Obligated Group, but a number of factors, including those discussed in the Financial Feasibility Study, could cause actual financial performance of the Corporation to be materially different from management’s financial forecast.

Set forth on the following page are the forecasted Long-Term Debt Service Coverage Requirement and Days’ Cash on Hand for the fiscal years ending September 30, 2018 to 2022, which have been extracted from the Financial Feasibility Study. The Financial Feasibility Study should be read in its entirety, including the Summary of Significant Forecast Assumptions and Accounting Policies set forth therein.

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Debt Service Coverage Ratio 2018 2019 2020 2021 2022

Change in Net Assets Without Donor Restrictions (163,198) 1,484,998 2,473,733 (2,605,381) (996,658) Deduct: Entrance Fee Amortization (5,731,644) (6,206,735) (7,366,223) (7,572,339) (8,385,386)

Operating Expenses $ 29,160,734 $ 29,921,156 $ 32,093,840 $ 40,471,206 $ 40,926,999 Less: Amortization of Bond Issuance Costs (79,017) (147,285) (147,285) (137,285) (131,285) Depreciation and Amortization (6,724,097) (6,502,551) (6,907,327) (9,944,402) (10,057,705) Total $ 22,357,620 $ 23,271,320 $ 25,039,228 $ 30,389,519 $ 30,738,009 Daily Operating Expenses (3) $ 61,254 $ 63,757 $ 68,601 $ 83,259 $ 84,214 Days Cash on Hand 527 474 383 328 352 Notes to the Forecast Schedule of Financial Ratios: (1) Excludes first generation entrance fee receipts. (2) Pursuant to the Master Indenture, the maximum annual debt service excludes (a) the debt service on the Bonds until 2022, the first year after the Project achieves stabilized occupancy, and (b) the Taxable Bank Loan because it is Qualifying Intermediate Term Indebtedness. (3) Daily operating expenses are equal to operating expenses less depreciation and amortization divided by 365 days.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds in connection with the issuance of the Bonds are set forth in the following table.

SOURCES Par Amount of the Bonds Net Original Issue Premium Total USES Deposit to Construction Account Deposit to Reserve Fund No. 1(1) Costs of Issuance(2) Total ______(1) This amount plus the amount on deposit in Reserve Fund No. 1 will equal the Debt Service Reserve Fund Requirement less $106,125 on deposit in the debt service reserve fund for the Series 1996 Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS –Debt Service Reserve Fund” herein. (2) Includes Underwriters’ discount, legal fees, accounting fees, feasibility consultant fees, printing costs, fees and expenses of the Bond Trustee and the Master Trustee and other miscellaneous fees and expenses.

ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each Fiscal Year ending September 30, the amounts required to be paid by the Corporation to the Bond Trustee in such Fiscal Year for the payment of principal of (whether at maturity or pursuant to mandatory redemption) and interest on the Bonds and the Indebtedness secured by the other Current Obligations. Totals may not foot due to rounding.

Fiscal Year Debt Service on Ending other Indebtedness September 30 Bonds secured pursuant to the Master Principal Interest Indenture* Total 2018 $ 3,279,803 2019 3,373,131 2020 4,746,688 2021 4,740,644 2022 4,736,125 2023 4,732,875 2024 4,729,375 2025 4,728,250 2026 4,721,375 2027 4,715,500 2028 4,713,125 2029 4,708,875 2030 4,702,500 2031 4,698,625 2032 4,691,875 2033 4,686,875 2034 4,678,250 2035 4,670,625 2036 4,668,375 2037 4,656,125 2038 4,651,250 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 TOTAL $96,030,266 ______* The Taxable Bank Loan is not included because $36,500,000 is Qualifying Intermediate-Term Indebtedness and the Corporation does not expect to draw the remaining $2.5 million.

THE BONDS

General

The Bonds shall be dated the date of delivery thereof. Interest on the Bonds will be payable on each April 1 and October 1, beginning on October 1, 2018, at the rates set forth on the inside cover page hereof (based on a 360-day year consisting of twelve 30-day months). The Bonds will mature, subject to the redemption provisions set forth below, on October 1, in the years and amounts set forth inside the cover page hereof.

The Bonds will be issued as fully registered bonds in denominations of $5,000 and whole multiples thereof. Sales to Accredited Investors, however, must be in an amount not less than $25,000 in aggregate principal amount of Bonds. Purchases of the Bonds will be made in book entry form only, and individual purchasers will not receive physical delivery of bond certificates.

Interest on any Bond which is payable, and is punctually paid or duly provided for, on any interest payment date will be paid by the Bond Trustee to the person in whose name that Bond is registered at the close of business on the 15th day (whether or not a business day) of the month preceding any interest payment date (the “Regular Record Date”).

Book-Entry-Only System

The Depository Trust Company (“DTC”), will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co., DTC’s partnership nominee. One fully-registered Bond certificate will be issued for each maturity of the Bonds, as set forth on the inside front cover hereof, each in the aggregate principal amount of such maturity, and will be deposited with DTC. So long as Cede & Co. is the registered owner of the Bonds, as DTC’s partnership nominee, reference herein to the holders or registered owners of the Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. See APPENDIX E for more information regarding the book entry-only system.

Redemption Provisions

The Bonds may not be called for redemption by the Authority except as provided below.

Optional Redemption. The Bonds maturing on and after October 1, 20__ are required to be redeemed by the Authority, upon the direction of the Obligated Group Representative, in whole or in part (by lot) on any date on or after October 1, 20__ at the following Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus interest accrued to the redemption date:

REDEMPTION DATE REDEMPTION PRICE October 1, 20__ through September 30, 20__ October 1, 20__ through September 30, 20__ October 1, 20__ and thereafter

Mandatory Redemption for Bonds. The Bonds that are stated to mature on October 1, 20__ will be subject to mandatory redemption in part by lot on October 1 in the years and amounts set forth below at a Redemption Price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, all in the manner provided in the Trust Agreement:

YEAR AMOUNT YEAR AMOUNT

______* Maturity.

The Bonds that are stated to mature on October 1, 20__ will be subject to mandatory redemption in part by lot on October 1 in the years and amounts set forth below at a Redemption Price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, all in the manner provided in the Trust Agreement:

YEAR AMOUNT YEAR AMOUNT

______* Maturity.

YEAR AMOUNT YEAR AMOUNT

______* Maturity.

YEAR AMOUNT YEAR AMOUNT

______* Maturity.

On or before the 45th day next preceding any October 1 on which the Bonds are to be retired pursuant to the Sinking Fund Requirement therefor, the Authority or the Corporation may deliver to the

Bond Trustee for cancellation the Bonds required to be redeemed on such October 1 in any aggregate principal amount desired and receive a credit against amounts required to be transferred from the Sinking Fund Account on account of such Bonds in the amount of 100% of the principal amount of any such Bonds so purchased. Any principal amount of Bonds purchased by the Bond Trustee and canceled in excess of the principal amount required to be redeemed on such October 1, shall be credited against and reduce the principal amount of future Sinking Fund Requirements for the Bonds in such manner as shall be specified in an Officer’s Certificate of the Obligated Group Representative.

Extraordinary Redemption. The Bonds are subject to redemption by the Authority, upon the direction of the Obligated Group Representative, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date (a) in whole or in part on any date, from amounts received by any Member of the Obligated Group as insurance proceeds with respect to any casualty loss or failure of title or as condemnation awards, provided that such prepayment shall not be less than $100,000, upon the occurrence of the following events: damage or destruction of all or any part (if such damage or destruction causes the Facilities as a whole to be impracticable to operate, as evidenced by an Officer’s Certificate filed with the Authority and the Bond Trustee) of the Facilities by fire or casualty, or loss of title to or use of all or any part (if such loss of title causes the Facilities as a whole to be impracticable to operate, as evidenced by an Officer’s Certificate filed with the Authority and the Bond Trustee) of the Facilities as a result of the failure of title or as a result of Eminent Domain proceedings or proceedings in lieu thereof; (b) in whole on any date if there are changes in the Constitution of the United States of America or of the State or legislation or administrative action or failure of administrative action by the United States of America or the State or any agency or political subdivision of either, or any judicial decision, to the extent that, in the opinion of the Board of Directors of the Corporation (expressed in a resolution) and in the opinion of a Management Consultant, both filed with the Authority and the Bond Trustee, (i) the Loan Agreement is impossible to perform without unreasonable delay or (ii) unreasonable burdens or excessive liabilities not being imposed on the date of the Loan Agreement are imposed on the Corporation.

General Redemption Provisions. The Bonds shall be redeemed only in amounts of $5,000 or any whole multiple thereof. If less than all of the Bonds of any maturity are to be called for redemption, the Bond Trustee shall select by lot the Bonds (or portions thereof) to be redeemed, each $5,000 portion of principal being counted as one Bond for this purpose; provided that for so long as the Holder is a Securities Depository Nominee, such selection shall be made by the Securities Depository.

Not less than thirty (30) days but not more than sixty (60) days before the redemption date of any Bonds, whether such redemption be in whole or in part, the Bond Trustee shall cause a notice of any such redemption to be mailed, first-class, postage prepaid (or sent by Electronic Means if so required or requested by a Holder), to all Holders of Bonds to be redeemed in whole or in part. In the case of an optional redemption or extraordinary redemption as described above, the redemption notice may state that (a) it is conditioned upon the deposit of moneys or Defeasance Obligations, or a combination of both, in an amount equal to the amount necessary to effect the redemption, with the Bond Trustee no later than the scheduled redemption date or (b) the Corporation retains the right to rescind such notice on or prior to the scheduled redemption date (in either case, a “Conditional Redemption”), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded. In the case of a Conditional Redemption subject to the deposit of moneys or Defeasance Obligations, the failure of the Corporation or any other Person to make such moneys or obligations available in part or in whole on or before the scheduled redemption date shall not constitute an Event of Default and any Bonds subject to such Conditional Redemption shall remain Outstanding. Any Conditional Redemption subject to rescission may be rescinded in whole or in part at any time on or prior to the scheduled redemption date if the Obligated Group Representative instructs the Bond Trustee in writing to rescind the redemption notice. Any Bonds subject to Conditional Redemption where redemption has been rescinded shall remain Outstanding, and the rescission shall not constitute an Event of Default. If a Conditional Redemption for

which notice has been sent to Holders will not occur, either because moneys or obligations to effect such redemption are not available on or before the scheduled redemption date or the Corporation has rescinded such notice, the Bond Trustee shall immediately give notice by Electronic Means to the Securities Depository if all of the Bonds are Book Entry Bonds or the affected Holders of any Bonds that are not Book Entry Bonds that the redemption did not occur and that the Bonds called for redemption and not so paid remain Outstanding. Failure of the Bond Trustee to give notice to a Holder or any defect in such notice shall not affect the validity of the proceedings for redemption of the Bonds of any Holder to whom notice shall have been properly given.

Not less than thirty (30) days prior to the date of redemption, the Bond Trustee shall use commercially reasonable efforts to file notice of such redemption with the Municipal Securities Rulemaking Board (the “MSRB”) using the MSRB’s Electronic Municipal Market Access system or such other means permitted by the rules of the MSRB. Failure by the Bond Trustee to give such notice to the MSRB shall not affect the sufficiency of the proceedings for redemption. Failure of the Bond Trustee to give notice to a Holder or any defect in such notice shall not affect the validity of the proceedings for redemption of the Bonds of any Holder to whom notice shall have been properly given.

On the date fixed for redemption, notice having been given in the manner and under the conditions hereinabove described, the Bonds or portions thereof called for redemption shall be due and payable at the Redemption Price provided therefor, plus accrued interest to such date. If, on the date fixed for redemption, money, Defeasance Obligations or a combination of both, sufficient to pay the Redemption Price of the Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Bond Trustee in trust for the Holders of Bonds to be redeemed, interest on the Bonds called for redemption shall cease to accrue; such Bonds shall cease to be entitled to any benefits or security under the Trust Agreement or to be deemed Outstanding; and the Holders of such Bonds shall have no rights in respect thereof except to receive payment of the Redemption Price thereof, plus accrued interest to the date fixed for redemption.

Purchase in Lieu of Redemption. When Bonds are subject to optional redemption or extraordinary redemption as described above, Bonds to be redeemed may be purchased by the Corporation in lieu of redemption on the applicable redemption date at a purchase price equal to the Redemption Price thereof if the Bond Trustee has received a written request on or before said purchase date from the Corporation specifying that the moneys provided or to be provided by the Corporation shall be used to purchase Bonds in lieu of redemption. No purchase of Bonds by the Corporation pursuant to the Trust Agreement or advance or use of any moneys to effectuate any such purchase shall be deemed to be a payment or redemption of the Bonds or any portion thereof, and such purchase shall not operate to extinguish or discharge the indebtedness evidenced by such Bonds.

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

General

The principal of, premium, if any, and interest on the Bonds will be payable from moneys paid by the Corporation and any other Members of the Obligated Group pursuant to the Loan Agreement and Obligation No. 16. Obligation No. 16 is a joint and several general obligation of each Member of the Obligated Group. Upon the issuance of the Bonds, the Corporation will be the sole Member of the Obligated Group. The Authority will assign to the Bond Trustee (1) its right, title and interest in and to Obligation No. 16, (2) its rights under the Master Indenture and the Corporation Deed of Trust as owner of Obligation No. 16 and (3) its right, title and interest in and to the Loan Agreement, including the right to receive loan payments thereunder (except for certain reserved rights, including its rights to indemnification and the payment of certain expenses, its rights to give certain approvals and consents and its rights to receive certain documents, information and notices), as security for the payment of the

principal of, redemption premium, if any, and interest on the Bonds. The Bonds will be secured by the moneys and securities held by the Bond Trustee in certain funds and accounts created under the Trust Agreement and by the Master Trustee in Reserve Fund No. 1, as described below.

Security for Obligations

Pursuant to the Master Indenture, each Member of the Obligated Group has granted to the Master Trustee a security interest in its Pledged Assets as security for the payment of amounts due on any Obligations issued thereunder, including the Current Obligations. Pledged Assets consist of all Gross Receipts, Accounts, Equipment, general intangibles, inventory, documents, instruments and chattel paper of each Member of the Obligated Group now owned or hereafter acquired, and all proceeds thereof; provided, however, that Pledged Assets does not include contract rights consisting of charitable pledges.

The security interest in the Pledged Assets will be perfected to the extent, and only to the extent, that such security interest may be perfected by filing financing statements under the UCC. Continuation statements with respect to such filings must be filed as required by law to continue the perfection of such security interest. The security interest in the Pledged Assets is subject to Permitted Liens that exist prior to or that may be created subsequent to the time the security interest in the Pledged Assets attaches and is subject to the right of the Members of the Obligated Group to transfer Property, Plant and Equipment free of the security interest created in the Pledged Assets under certain circumstances. See in APPENDIX D “SUMMARY OF THE MASTER INDENTURE – Limitation on Creation of Liens” and “ Transfers of Property, Plant and Equipment; Transfers of Cash and Investments”.

If an Event of Default under the Master Indenture shall have occurred and be continuing, the Master Trustee may require that each Member of the Obligated Group deliver all Gross Receipts to it. Each Member of the Obligated Group will covenant in the Master Indenture that, if an Event of Default under the Master Indenture shall have occurred and be continuing, it will, immediately upon receipt of a written request from the Master Trustee, deliver to or direct to be delivered to the Master Trustee all Gross Receipts thereafter received until such Event of Default has been cured, such Gross Receipts to be applied in accordance with the Master Indenture. If the Master Trustee requires that all Gross Receipts be

delivered to it pursuant to the Master Indenture and thereafter the State Commissioner of Insurance obtains an order pursuant to Section 58-64-45 of the General Statutes of North Carolina, as amended, or any successor statute or provision, directing or authorizing the Commissioner to rehabilitate or liquidate the Facilities, the Master Trustee will, if required by such order, deliver and direct the Members of the Obligated Group to deliver all Gross Receipts to the Commissioner or any other Person specified in such order. See “State Delinquency Proceedings” below.

Pursuant to the Corporation Deed of Trust, as security for the payment of amounts due on any Obligations issued under the Master Indenture, including the Current Obligations, the Corporation has granted a first lien on the Mortgaged Property described therein to the Master Trustee, subject to Permitted Liens and the right of the Members of the Obligated Group to transfer Property, Plant and Equipment free of the lien on the Mortgaged Property under certain circumstances (see in APPENDIX D “SUMMARY OF MASTER INDENTURE – Limitation on Creation of Liens” and “Transfers of Property, Plant and Equipment; Transfers of Cash and Investments” and “SUMMARY OF CORPORATION DEED OF TRUST – Release of Land”). Simultaneously with the delivery of the Bonds, the Corporation will deliver an endorsement to a mortgagee title insurance policy issued to the Master Trustee by Chicago Title Insurance Company insuring that the Corporation Deed of Trust constitutes a first priority lien of record, subject to Permitted Liens, on the Mortgaged Property described therein. The stated amount of such policy will be at least the aggregate outstanding principal amount of the Current Obligations less the amount on deposit in Reserve Fund No. 1.

In the event that any Member of the Obligated Group acquires or constructs in Mecklenburg County, North Carolina, real property, building, improvements or fixtures as an addition to or in replacement of or substitution for the Existing Facilities, such Member of the Obligated Group is required to follow the proper procedure under North Carolina law to subject such property to the lien of a deed of trust securing all Obligations on a pari passu basis. Real property, buildings, improvements or fixtures are deemed to be an addition to the Existing Facilities if they comprise facilities that are functionally related to, and operated on an integrated basis with, the Existing Facilities. In the event that any Obligation is issued pursuant to the Master Indenture to acquire or finance real property or improvements to real property, the Member of the Obligated Group acquiring or financing such real property or improvements is required to take all action required by law to subject such property to the lien of a deed of trust or mortgage securing all Obligations on a pari passu basis.

Assignment of Contracts

Pursuant to an Assignment of Contracts, dated as of June 1, 2018 (the “Assignment”), from the Corporation to the Master Trustee, the Corporation will assign to the Master Trustee all of its respective rights, title and interests in certain contracts relating to the Project, including an Architect’s Agreement, a Construction Contract and a Construction Monitoring Agreement, as security for (1) the payment of the principal of, if any, and interest on all Obligations issued under the Master Indenture and (2) all costs and expenses incurred by the Master Trustee in connection with the administration or enforcement of the Master Indenture or the Assignment.

Debt Service Reserve Fund

A Debt Service Reserve Fund (particularly, Reserve Fund No. 1) has been established pursuant to the Master Indenture. Upon the issuance of the Bonds, Reserve Fund No. 1 will secure Obligation No. 16 on an equal and ratable basis with Obligation No. 14. The Debt Service Reserve Fund Requirement will be $______after the issuance of the Bonds, and the amount in such Reserve Fund No. 1 will equal such amount, less $106,125 on deposit in the debt service reserve fund for the 1996 Bonds. Initially, the amount of Reserve Fund No. 1 will be less than the Debt Service Reserve Fund Requirement for the Bonds and the outstanding Series 2016 Bonds. The Bonds are not secured by the debt service reserve

fund for the 1996 Bonds. Upon payment in full of the 1996 Bonds, the Corporation will transfer, or cause to be transferred, $106,125 or, if less, an amount of funds that will cause the amount in Reserve Fund No. 1 to equal the Debt Service Reserve Fund Requirement (determined pursuant to clause (i) of that definition).

The Master Indenture requires the Master Trustee to use amounts in Reserve Fund No. 1 to make transfers to the Bond Trustee for deposit in the Interest Account, the Principal Account and the Sinking Fund Account to the extent necessary to pay interest on and principal of (whether at maturity, by acceleration or in satisfaction of the Sinking Fund Requirement therefor) the Bonds, whenever and to the extent that the money on deposit in the Interest Account, the Principal Account and the Sinking Fund Account is insufficient for such purposes.

The Master Trustee may establish one or more Debt Service Reserve Funds as security for one or more Obligations issued under the Master Indenture. Each Debt Service Reserve Fund, including Reserve Fund No. 1, may serve as security for more than one Obligation under the Master Indenture, in which case all Obligations secured under such Debt Service Reserve Fund will be secured equally and ratably by amounts on deposit in such Debt Service Reserve Fund. Each Debt Service Reserve Fund will be required to be funded in an amount equal to the Debt Service Reserve Fund Requirement. See in APPENDIX D “DEFINITIONS OF CERTAIN TERMS” and “SUMMARY OF THE MASTER INDENTURE - Debt Service Reserve Funds.”

Covenants; Additional Indebtedness

The Members of the Obligated Group are subject to covenants under the Master Indenture relating to maintenance of a Long-Term Debt Service Coverage Ratio and a minimum number of Days’ Cash on Hand and restricting, among other things, incurrence of Indebtedness, existence of Liens on Property, consolidation and merger, transfers of assets, addition of Members to the Obligated Group and withdrawal of Members from the Obligated Group (see “SUMMARY OF THE MASTER INDENTURE” in APPENDIX D).

The Master Indenture permits each Member of the Obligated Group to issue or incur additional Indebtedness evidenced by Obligations that will share the security for Obligation No. 16 on a parity with the other Current Obligations. Such additional Obligations will not be secured by the money or investments in any fund or account held by the Bond Trustee under the Trust Agreement as security for the Bonds. See “SUMMARY OF MASTER INDENTURE—Limitations on Incurrence of Indebtedness” in APPENDIX D.

Operating Reserves

Section 58-64-44 of the General Statutes of North Carolina, as amended, requires that all continuing care facilities maintain operating reserves equal to 50% of the total operating costs (as defined in Section 58-64-44) (or 25% of the total operating costs if such facilities maintain an occupancy level in excess of 90% and the North Carolina Commissioner of Insurance so approves) projected for the twelve month period following the period covered by the most recent annual statement filed with the North Carolina Department of Insurance. Such operating reserves may only be released upon approval of the North Carolina Commissioner of Insurance. As such, the ability of the Master Trustee to enforce its security interest in any funds constituting Pledged Assets held as operating reserves pursuant to Section 58-64-44 may be limited. Furthermore, even though the amount held as operating reserves is permitted to be included in computing Days’ Cash on Hand, such funds may not be available to pay operating expenses or debt service on the Bonds if the release of such funds is delayed or denied by the North Carolina Commissioner of Insurance.

Additional Members of the Obligated Group

The Master Indenture provides that under certain conditions Persons that are not Members of the Obligated Group may, with the prior written consent of the then current Members of the Obligated Group, become Members of the Obligated Group. See in APPENDIX D “SUMMARY OF THE MASTER INDENTURE – Parties Becoming Members of the Obligated Group.”

Amendment of Master Indenture

The Holders of a majority in aggregate principal amount of Obligations outstanding under the Master Indenture (including Obligations issued in the future) may approve amendments to the Master Indenture. Such amendments may result in elimination of, or a reduction or alteration in, the covenants and other provisions provided to secure payments of the Bonds. See “BONDHOLDERS’ RISKS— Amendments to Documents” below.

FINANCING COVENANTS

Rate Covenant

The Obligated Group covenants and agrees that the Corporation will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year.

* Sentence in parenthetical is due to the MTI Amendments. See APPENDIX D hereto.

accompanied by a concurring Opinion of Counsel (which counsel and opinion, including without limitation the scope, form, substance, and other aspects thereof, are acceptable to the Master Trustee) as to any conclusions of law supporting the opinion of such Management Consultant; (ii) the report of such Management Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Management Consultant, the Obligated Group has generated the maximum amount of revenues reasonably practicable given such laws or regulations; and (iii) 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 Management 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 Counsel (which counsel and opinion, including without limitation the scope, form, substance, and other aspects thereof, are acceptable to the Master Trustee) to the effect that the applicable laws and regulations underlying the Management Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.

The Loan Agreement contains certain provisions relating to the engagement of Management Consultants. See “SUMMARY OF LOAN AGREEMENT – Engagement of Management Consultants” in APPENDIX D.

Liquidity Covenant

The Obligated Group covenants that it will calculate the Days’ Cash on Hand of the Obligated Group as of March 31 and September 30 of each Fiscal Year (each a “Liquidity Testing Date”). The Obligated Group shall deliver an Officer’s Certificate to the Master Trustee setting forth such calculation not less than 45 days after each Liquidity Testing Date.

Each Member has agreed that it will conduct its business so that on each Liquidity Testing Date the Obligated Group will have no less than 180 Days’ Cash on Hand.

the Obligated Group shall, within 30 days (or such later date as results from following any required process for the hiring of a Management Consultant such as the process required by the Loan Agreement described below under “Engagement of Management Consultants”)* after delivery of the Officer’s Certificate disclosing such deficiency, retain a Management Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group, the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Obligated Group’s liquidity to the required level for future periods. Each Member of the Obligated Group shall follow each recommendation of the Management Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member of the Obligated Group) and permitted by law.

The Loan Agreement contains certain provisions relating to the engagement of Management Consultants. See “SUMMARY OF LOAN AGREEMENT – Engagement of Management Consultants” in APPENDIX C.

Rating Solicitation Covenant

Not later than 150 days after receipt by the Corporation of the Financial Statements each fiscal year of the Obligated Group, beginning with the fiscal year ending September 30, 2018, the Corporation will approach Fitch or any other Rating Agency to obtain a credit rating until the Obligated Group obtains a credit rating of “BBB-” or better from Fitch or an equivalent rating from any other Rating Agency (an “Investment Grade Credit Rating”). The requirement to annually approach a Rating Agency shall terminate when the Obligated Group obtains an Investment Grade Credit Rating. In addition, the Corporation shall not be required to approach a Rating Agency to obtain a credit rating if the Corporation 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.

Notwithstanding the foregoing, the Corporation shall not be required to approach Fitch or any other Rating Agency at the time and in the manner described in the first sentence of the preceding paragraph if the Obligated Group maintains any level of rating from Fitch or any other Rating Agency.

* Sentence in parenthetical is due to the MTI Amendments. See APPENDIX D hereto.

Marketing Covenant

Beginning with the fiscal quarter ending September 30, 2018 and ending with the Stabilization Date, the Corporation will use its best efforts to have Presold Project Independent Living Units at or above the levels set forth below (measured as of the last day of the applicable quarter):

Number of Project Independent Living Units Quarter Ending Presold September 30, 2018 31 December 31, 2018 37 March 31, 2019 43 June 30, 2019 49 September 30, 2019 55 December 31, 2019 and thereafter 60

If the number of Project Independent Living Units Presold for any fiscal quarter is less than the number set forth above for that date, the Obligated Group Representative shall within 30 days thereafter submit an Officer’s Certificate to the Bond Trustee and the MSRB setting forth in detail the reasons therefor and the plan to increase the number of Project Independent Living Units Presold to at least the levels set forth above for future periods.

If the number of Project Independent Living Units Presold for any two consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative shall retain a Management Consultant to make recommendations, within 30 days thereafter (or such later date as results from following the process required by the Loan Agreement described below under “Engagement of Management Consultants”), regarding the actions to be taken to increase the number of Independent Living Units Presold to at least the levels set forth above for future periods. Within 60 days of retaining any such Management Consultant, the Obligated Group Representative shall cause a copy of the Management Consultant’s report and recommendations, if any, to be filed with the Bond Trustee and a copy of the summary thereof and the MSRB. The Corporation shall follow each recommendation of the Management Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Corporation) and permitted by law.

Occupancy Covenant

The Corporation covenants that for each fiscal quarter commencing with the fiscal quarter which ends not less than 60 days following the issuance of the initial occupancy certificate for the Project Independent Living Units (but no earlier than the quarter ended June 30, 2019) and ending with the Stabilization Date (each an “Occupancy Quarter”), the Corporation will use its best efforts to have Occupied Project Independent Living Units at or above the levels set forth below (measured as of the last day of the applicable quarter):

Number of Project Independent Living Units Occupancy Quarter Occupied 1 10 2 25 3 28 4 28 5 28 6 28 7 38 8 46 9 54 10 and thereafter 60

Engagement of Management Consultants

If the Obligated Group is required to engage a Management Consultant in connection with these occupancy and marketing covenants or the covenants under “Rate Covenant” and “Liquidity Covenant” in this section, such Management Consultant shall be engaged in the following manner:

The Obligated Group shall give notice of the selection of a Management Consultant to the Bond Trustee within fifteen (15) days after the Obligated Group becomes obligated to engage a Management Consultant. The Bond Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the owners of all the Bonds Outstanding of such selection and the Obligated Group Representative will post a copy of such notice (or cause a copy of such notice to be posted) with the MSRB through its Electronic Municipal Market Access system. Such notice shall (i) include the name of the Management Consultant and a brief description of the Management Consultant, (ii) state the reason that the Management Consultant is being engaged including a description of the covenant of the Master Indenture that requires the Management Consultant to be engaged, and (iii) state that the owner of a Bond will be deemed to have consented to the selection of the Management Consultant named in such notice unless such owner submits an objection to the selected Management Consultant in writing (in a manner acceptable to the Bond Trustee) to the Bond Trustee within 15 days of the date that the notice is sent to the owner. No later than two Business Days after the end of the 15-day objection period, the Bond Trustee shall notify the Obligated Group of the number of objections. If the owners of more than one- third (33.3%) in aggregate principal amount of the Bonds Outstanding have objected to the Management Consultant selected, the Obligated Group Representative shall select another Management Consultant within 14 days after receiving notice of such objection, who may be engaged upon compliance with the procedures of this paragraph. If the Obligated Group is required to engage a Management Consultant in connection with the rate, liquidity, occupancy and marketing covenants described above, the requirements relating to Management Consultants may (but need not) be satisfied through the engagement of a single Management Consultant under a single engagement in lieu of multiple engagements.

BONDHOLDERS’ RISKS

General

Payment of the Bonds ultimately will depend upon the ability of the Corporation to generate revenues sufficient to provide for payment of the Bonds and other outstanding indebtedness while paying operating and other expenses. The ability to generate revenues and the Corporation’s overall financial condition may be adversely affected by a wide variety of future events and conditions, including changes in demand for facilities similar to those provided by the Corporation affecting the Corporation’s ability to maintain full occupancy, fluctuations in public confidence both in the Corporation and in and the services it provides, changes in government licensing procedures and regulations, and competition.

Certain risks are inherent in the successful operation of facilities such as the Facilities. Such risks should be considered in evaluating the Corporation’s ability to generate sufficient revenues from the operations of the Facilities to pay principal of, premium, if any, and interest on the Bonds when due. 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 Facilities or the payment of the Bonds.

The offer and sale of the Bonds is limited to Eligible Purchasers which is defined as Qualified Institutional Buyers as defined in Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”) or Accredited Investors as defined in Rule 501(a) under the Securities Act.

Management’s Forecast

Management’s financial forecast contained in the Feasibility Study included in APPENDIX C hereto is based upon assumptions made by the management of the Obligated Group. As stated in such financial forecast, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. In addition, the financial forecast is only for the five years ending September 30, 2022 and consequently does not cover the whole period during which the Bonds may be outstanding. See the Feasibility Study included herein as APPENDIX C, which should be read in its entirety.

BECAUSE THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH THE ASSUMPTIONS MADE, NO GUARANTEE CAN BE MADE THAT MANAGEMENT’S FINANCIAL FORECAST IN THE FEASIBILITY STUDY WILL CORRESPOND WITH THE RESULTS ACTUALLY ACHIEVED IN THE FUTURE. ACTUAL OPERATING RESULTS MAY BE AFFECTED BY MANY UNCONTROLLABLE FACTORS, INCLUDING BUT NOT LIMITED TO INCREASED COSTS, LOWER THAN ANTICIPATED REVENUES, EMPLOYEE RELATIONS, TAXES, GOVERNMENTAL CONTROLS, CHANGES IN APPLICABLE GOVERNMENTAL REGULATION, CHANGES IN DEMOGRAPHIC TRENDS, CHANGES IN THE RETIREMENT LIVING AND HEALTH CARE INDUSTRIES, AND GENERAL ECONOMIC CONDITIONS.

Limited Assets of the Corporation

The Corporation’s business is expected to consist of the ownership, management and operation of the Facilities and the operation of home care services. Although it may seek donations from groups and individuals, the Corporation has no other sources of funds if revenues from such operations are not sufficient to cover its expenses, including debt service on Obligation No. 16. Neither Christ Episcopal Church nor Myers Park Baptist Church is obligated to make any payment on the Bonds.

Construction Risks

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 revenue flow therefrom. Management of the Obligated Group anticipates that the utility permits not obtained to date will be obtained in due course. It is anticipated that the proceeds from the sale of the Bonds, together with anticipated investment earnings thereon will be sufficient to complete the construction and equipping of the Project based upon the guaranteed maximum price obtained from the contractor 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 Obligated Group, delays due to acts or neglect of the Obligated Group or by independent contractors employed by the Obligated Group 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 Obligated Group not having sufficient moneys to complete construction of the Project, thereby materially affecting the receipt of revenues needed to pay the Bonds.

Uncertainty of Full Occupancy and Fee Collection

The economic feasibility of the Facilities depends in large part upon the ability of the Corporation to attract sufficient numbers of residents to the Facilities and to achieve and maintain substantial occupancy throughout the term of the 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. Under certain conditions, portions of Entrance Fees must be refunded by the Corporation to residents or prospective residents upon termination of a Residency Agreement (see “RESIDENCY AGREEMENTS” in APPENDIX A). If the Facilities fail to maintain adequate occupancy levels, there may be insufficient funds to pay the debt service on the Bonds.

The ability of residents to pay their monthly service fees may be affected by increasing costs due primarily to inflation. There can be no assurance that such increases can or will be made. In addition, since many of the residents will be living on fixed incomes, there can be no assurance that any such fee increases can be paid by residents or that such increases will not adversely affect the utilization of the Facilities. Additionally, the Corporation could possibly be required to accept additional residents unable to pay all fees in the future in order to maintain its tax exempt status.

The current fee structure for the Facilities is described in APPENDIX A. The Corporation sets such fees based on, among other things, forecasts and actuarial tables. If the number of deaths and permanent transfers to the health care facility is less than assumed, the revenues of the Corporation could be adversely affected.

Issues Related to the Market of the Corporation

Sale of Personal Residences. It is anticipated that a number of prospective residents of the Facilities (including the Project) will be required to sell their current homes to pay the Entrance Fee prior to occupancy or to meet other financial obligations under their Residency Agreements. Should prospective residents encounter difficulties in selling their current homes due to local or national economic conditions affecting the sale of residential real estate, such prospective residents may not have sufficient funds to pay the Entrance Fee or to meet other obligations under their Residency Agreements, thereby causing a delay in the remarketing of vacated units, either of which could have an adverse effect on the revenues of the Corporation.

Dependence on Attracting Residents with Sufficient Resources to Pay. The Corporation is not eligible to participate in or accept payment from the Medicare or Medicaid programs; therefore, all of the Corporation’s net revenue from its health care center units is attributable to private pay sources. Inflation or other circumstances that adversely affect the ability of residents to pay for the Corporation’s services could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

Geographic Concentration. All of the Facilities are located in Charlotte, North Carolina. Accordingly, the occupancy rates in the Facilities may be adversely affected by regional and local economic conditions, competitive conditions, applicable local laws and regulations, and general real estate market conditions, including the supply and proximity of senior living communities in such area.

Existing Operations and Possible Increased Competition. The health care industry is highly competitive. The Corporation competes with a variety of other communities, many of which have greater financial and other resources and may be more established. Such competition may inhibit the extent to which the Corporation will be able to raise charges and maintain or increase admissions. Competing communities may offer newer or different centers or services and may thereby attract residents who are presently or potential residents of the Corporation’s Facilities. The Corporation expects that it will face increasing levels of competition with respect to its operations and the services it provides. The Corporation also competes with health care and other businesses with respect to attracting and retaining nurses, technicians, aides, and other high quality professional and non-professional employees and managers. The Facilities are located in an area where other competitive facilities exist (see “Market Assessment” in APPENDIX C for a description of the Corporation’s competition contained therein) and it may face additional competition in the future as a result of the construction of new housing for the

elderly or continuing care facilities or assisted living, skilled nursing or memory care facilities in their primary market area. There may also arise in the future competition from other forms of housing for the elderly or nursing care facilities or from home health providers, some of which may be designed to offer similar services at lower prices.

Affiliation, Merger, Acquisition and Divestiture. Significant numbers of affiliations, mergers, acquisitions and divestitures have occurred in the health care industry recently. As part of its ongoing planning process, the Corporation may consider potential affiliations and acquisition of operations or properties which may become affiliated with or become part of the Obligated Group in the future. As a result, it is possible that the organizations and assets that currently comprise the Obligated Group may change from time to time. See “SUMMARY OF MASTER INDENTURE—Parties Becoming Members of the Obligated Group” and “—Withdrawal from the Obligated Group” in APPENDIX D.

Utilization Demand. Several factors could, if implemented, affect demand for services of the Facilities including: (i) efforts by insurers and governmental agencies to reduce utilization of skilled 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 Facilities; and (iv) increased or more effective competition from retirement communities and long-term care facilities now or hereafter located in the service area of the Facilities.

Labor Relations. At the present time, none of the Corporation’s employees are members of unions or receive union wages and benefits. Unionization of employees or a shortage of qualified professional personnel could cause an increase in payroll costs beyond those projected. The Corporation cannot control the prevailing wage rates in its respective service area and any increase in such rates will directly affect the costs of its operations.

Nursing and Technical Staff Shortage. In past years, the health care industry has suffered from a shortage of skilled nursing and other technical personnel. The industry-wide shortage has created increased costs of operating health care facilities by creating upward pressure on nursing wage scales. Factors underlying this industry trend include an increase in the proportion of the elderly population, an increase in the tendency to institutionalize senior citizens as opposed to providing nursing care in the home, a decrease in the number of persons entering the nursing profession and an increase in the number of nurses specializing in home health care. These factors may intensify in years to come, aggravating the shortage of skilled personnel. As competition for skilled nursing and technical personnel intensifies, staffing shortages could have the effect of significantly increasing the Corporation’s personnel costs and could have a material adverse effect on the financial results of the Corporation and on the Corporation’s ability to sustain minimum staffing levels necessary to maintain licensure and certification.

Rights of Residents; State Regulation

Although under the Corporation’s current Residency Agreements residents have no special lien or claim against any property of the Corporation, there can be no certainty that residents could not successfully claim or otherwise restrict the use of the Corporation’s property in a bankruptcy proceeding or other dispute.

Legislation regulating continuing care facilities in North Carolina, codified as Section 58-64-1 et seq. of the General Statutes of North Carolina, creates specific requirements for disclosure statements and contracts for continuing care, restricts the use of entrance fees, and provides for civil liability for violations of the disclosure requirements and criminal penalties for willful violations of the legislation. Section 58-64-45 of the General Statues of North Carolina grants the State Commissioner of Insurance

broad discretionary powers to supervise and, upon court order, to rehabilitate or liquidate any continuing care facility that becomes bankrupt or insolvent or otherwise fails to satisfy certain statutory standards. In addition, in the event of liquidation of the Corporation, under Section 58-64-60, residents’ Residency Agreements are deemed preferred claims against all assets owned by the Corporation, respectively, except secured claims.

Residents occupying skilled nursing beds and assisted living beds are protected by the Nursing Home Patients’ Bill of Rights, pursuant to Section 131E-115 et seq. of the General Statutes of North Carolina and the Adult Care Home Residents’ Bill of Rights, pursuant to Section 131D-19 et seq. of the General Statutes of North Carolina, respectively. The Nursing Home Patients’ Bill of Rights provides that beneficiaries shall have the right, among other things, to receive reasonable responses to their requests, to present grievances, to be transferred or discharged only for limited reasons and to receive statements of any account of personal funds of the resident managed by the Corporation, respectively. Similarly, the Adult Care Home Residents’ Bill of Rights provides that beneficiaries shall have the right, among other things, to receive a copy of the section of the statute containing their list of rights upon admission, to receive reasonable responses to their requests and to examine any account of personal funds managed by the Corporation at any time. Injunctive remedies and administrative monetary penalties can be imposed for violation of either the Nursing Home Patients’ or the Adult Care Home Residents’ Bill of Rights, and such a violation could result in the revocation of the Corporation’s licenses to operate the nursing home and assisted living components of its continuing care retirement facility.

The North Carolina General Assembly periodically studies the regulation of continuing care facilities. Although management of the Corporation is not aware of the introduction of any specific legislative proposals, legislation affecting continuing care facilities could be enacted in the future. Such legislation might limit the enforceability of and remedies provided under the Trust Agreement, the Loan Agreement, the Master Indenture or the Corporation Deed of Trust, thereby affecting the security for the Bonds.

State Delinquency Proceedings

Section 58-64-45 of the General Statutes of North Carolina, as amended, grants the North Carolina Commissioner of Insurance broad discretionary powers to supervise and, upon court order, to rehabilitate or liquidate any continuing care facility that becomes bankrupt or insolvent or otherwise fails to satisfy certain statutory standards. In the event that the North Carolina Commissioner of Insurance commences a delinquency proceeding against the Corporation pursuant to the provisions of Section 58- 30-1 et seq. of the General Statutes of North Carolina, as amended, the North Carolina Commissioner of Insurance may be authorized by court order to take possession and control of all or a part of the property of the Corporation, including, without limitation, the Pledged Assets, and the Master Trustee may be delayed, limited or precluded in the enforcement of remedies otherwise available to the Master Trustee under the terms of the Master Indenture and the Corporation Deed of Trust.

Tax Consequences to Residents

Section 7872 of the Internal Revenue Code of 1986, as amended (the “Code”) provides that, in each year of a “below market loan,” the lender will be treated as receiving taxable interest income calculated at the “applicable federal rate” in each year of the loan, even if the obligation to pay the loan does not provide for payment of any interest. The payment to the Corporation of the Entrance Fee, which must be refunded to such resident in certain circumstances in diminishing amounts for a period of time (see APPENDIX A), may be deemed to be a below market loan. If, however, the Corporation and the residents satisfy the conditions of Section 7872(h) of the Code dealing with certain payments to a “qualified continuing care facility” pursuant to a “continuing care contract,” an Entrance Fee will not be

treated as a “below market loan.” No Treasury Regulations interpreting Section 7872(h) or the committee reports have been issued.

If a resident’s payment of an Entrance Fee does not satisfy the conditions of Section 7872(h), then the prospect of a resident having to pay taxes on amounts not actually received will increase the resident’s costs and may increase the time necessary to fill vacancies in the Facilities. This, in turn, could adversely affect revenues of the Corporation. Section 7872 of the Code could have an adverse effect on the Corporation’s ability to maintain current reservations or to market additional units of the Facilities.

Taxable Bank Loan

Obligation No. 15 will be outstanding in the principal amount of up to $39,000,000 as of the date of delivery of the Bonds and secures the Taxable Bank Loan. More information concerning the Taxable Bank Loan is set forth in APPENDIX A. Since the Taxable Bank Loan bears interest at rates that are determined based on a LIBOR index, the interest rate is subject to market rate fluctuation and the maximum interest rate is not capped. Compass Bank, as the lender of the Taxable Bank Loan, is the Holder of Obligation No. 15. Upon the occurrence of an Event of Default under the Master Indenture, (i) Compass Bank may require Obligation No. 15, and therefore all Obligations, to be accelerated in accordance with of the Master Indenture and (ii) the Master Trustee may not accelerate Obligation No. 15 unless Compass Bank consents to such acceleration.

Risks Associated with Bank Loans

The Obligated Group may incur debt in the future through private placements with one or more financial institutions (each a “Bank Loan”). The terms of each Bank Loan will likely be negotiated separately and could create certain risks that could negatively affect the Obligated Group’s ability to make the payments on the Bonds. The risks associated with a Bank Loan, including the Taxable Bank Loan, include, but are not limited to the following:

(1) being variable rate (which would subject the Obligated Group to interest rate risk, if interest rates were to increase),

(2) having a balloon payment at maturity or call date (which would subject the Obligated Group to either a large payment of cash at maturity or require the Obligated Group to obtain alternate financing, and there could be no guarantee that the Obligated Group could accomplish either),

(3) having financial covenants that are more restrictive than those in the Master Indenture and the Loan Agreement (which could result in a situation where the Obligated Group is in default of its obligations under a Bank Loan but not the Bonds and thus result in an acceleration of the Bonds), and

(4) having the holder of the Bank Loan exercise certain remedies if the Obligated Group defaults on its obligations under the Master Indenture (specifically, if the holder of one or more Bank Loans controls a significant proportion of the Obligations outstanding under the Master Indenture, that holder could exercise certain remedies in a default scenario.

Organized Resident Activity

The Corporation may, from time to time, be subject to pressure from organized groups of residents seeking, among other things, to raise the level of services or to maintain the level of monthly fees with respect to the Facilities or other charges without increase. Moreover, the Corporation may be

subject to conflicting pressures from different groups of residents, some of whom may seek an increase in the level of services while others wish to hold down monthly fees and other charges. No assurance can be given that the Corporation will be able satisfactorily to meet the needs of such resident groups.

Tax-Exempt Status

The Corporation has received a letter from the Internal Revenue Service (“IRS”) recognizing such organization as a tax-exempt organization described in Section 501(c)(3) of the Code based on the representations it made to the IRS. In order to maintain such status, the Corporation is required to conduct its operations in a manner consistent with representations previously made to the IRS and with current and future IRS regulations and rulings governing tax-exempt continuing care retirement facilities. Loss of tax-exempt status would likely have a significant adverse effect on the Corporation and its operations and could result in the includability of interest on the Bonds in gross income for federal income tax purposes for owners of the Bonds retroactively to their date of issue.

The Corporation is generally exempt from North Carolina income tax, but a contrary determination could be made or the relevant laws could change to cause such exemption to be lost.

Property Taxation

Under North Carolina law, there are two statutes that provide exemptions for continuing care retirement facilities from ad valorem property taxation.

Pursuant to Section 105-278.6A of the General Statutes of North Carolina, as amended, the Corporation’s buildings, the land they actually occupy, additional adjacent land reasonably necessary for the convenient use of the buildings and the personal property used in the operation of its continuing care retirement facility are designated to be a special class of property and will be excluded from taxation to the extent provided in such statute. The amount of the assessed value of the Corporation’s continuing care retirement facility property excluded depends on the amount of charity care and community benefits (as defined in the statute) provided by the Corporation. For the fiscal year ended September 30, 2017, the Corporation provided $494,284 in unreimbursed health care and unreimbursed housing and services; $291,697 in charitable donations; and $637,899 in donated services and volunteer hours, and unreimbursed use of space. This resulted in total community benefits and charity care of $1,423,880 (or 5.13% of net resident revenue).

Pursuant to Section 131A-21 of the General Statutes of North Carolina, as amended, facilities financed through the issuance of bonds or notes by the North Carolina Medical Care Commission (such as the Series 1996 Bonds) are exempt from property taxes to the extent provided in that section until the notes or bonds are retired. Under certain circumstances, the amount of this exemption is limited to the lesser of the assessed value of such facilities and the original principal amount of the related bonds or notes.

Based on the provisions of these statutes, the Corporation believes that all of its property relating to its continuing care retirement facilities is excluded from ad valorem property taxation. The Corporation’s property could be subject to ad valorem property taxation in the future. Loss of such property tax exemption would likely have an adverse effect on the Corporation.

State of North Carolina Tax Reform

The North Carolina General Assembly has in the past five years implemented various changes to the State’s income and sales tax laws. Currently, charitable nonprofit entities such as the Corporation receive refunds for State and local sales taxes paid by such nonprofit entities; provided, however, that

such refunds are limited to $31,700,000 for State sales taxes and $13,300,000 for local sales taxes per year. Although not adopted, several proposals were introduced in the North Carolina General Assembly to decrease these sales tax refund limits. The Corporation can make no assurance that such refunds will not be decreased in the future. During the calendar year 2017, the Corporation received approximately $184,861 in such tax refunds. In addition, other proposals, although not adopted, would have limited the amount of charitable contributions individuals could deduct for North Carolina state income tax purposes, which could have led to the Corporation receiving fewer charitable contributions. These and other tax reforms in the future may adversely affect the financial condition of the Corporation.

Legislation Affecting Tax-Exempt Organizations

In recent years, the IRS and members of Congress have expressed concern about the need for more restrictive rules governing the tax-exempt status of 501(c)(3) organizations generally and of retirement communities in particular. Legislation has been previously introduced restricting the ability of such organizations to utilize tax-exempt bonds unless they maintain a required percentage of low to moderate-income residents. Although the Corporation has covenanted in the Loan Agreement to take all appropriate measures to maintain its tax-exempt status, compliance with current and future regulations and rulings of the IRS could adversely affect the ability of the Corporation to charge and collect revenues at the desired level, finance or refinance indebtedness on a tax-exempt basis or otherwise generate revenues necessary to provide for payment of the Bonds.

Bankruptcy

Title 11 of the United States Code (the “Bankruptcy Code”) permits a bankruptcy court to modify the rights of a creditor holding a secured claim under certain circumstances. In the event of a bankruptcy proceeding involving the Corporation or any other Member of the Obligated Group, by virtue of the Master Indenture, the Master Trustee should be treated under the Bankruptcy Code as one holding a secured claim to the extent provided in the Master Indenture; and by virtue of the Corporation Deed of Trust, the Master Trustee should be similarly treated to the extent provided in the Corporation Deed of Trust (as suggested by the legislative history of the Bankruptcy Code, although there is no direct authority on the point). The potential effects of bankruptcy of the Corporation or any other Member of the Obligated Group could be, among other things, (a) to delay enforcement of remedies otherwise available to the Master Trustee and allow the bankruptcy court, under certain circumstances, to substitute other assets of the Corporation or any other Member of the Obligated Group for collateral under the Master Indenture or the Corporation Deed of Trust, (b) to sell all or part of the collateral under the Master Indenture or the Corporation Deed of Trust without application of the proceeds to the payment of the Obligations, including Obligation No. 16, (c) to subordinate the rights and liens created by the Master Indenture and the Deed of Trust to liens securing borrowing approved by the bankruptcy court, (d) to permit the Corporation or any other Member of the Obligated Group to cure defaults and reinstate the Master Indenture and the Deed of Trust, (e) to compel release of the Corporation Deed of Trust or termination of the Master Indenture by payment of an amount determined by the bankruptcy court to be the value of the collateral thereunder (even though less than the total of the Obligations thereunder) or (f) to modify the terms of or payments due under the Obligations, including Obligation No. 16. For additional detail, reference is made to the Bankruptcy Code, 11 U.S.C. 101 et seq.

Enforcement of Remedies

The security interest in the Pledged Assets may not be enforceable against third parties unless the Pledged Assets are transferred to the Master Trustee (which transfer Members of the Obligated Group are required to make only if requested by the Master Trustee upon the occurrence and continuation of an Event of Default under the Master Indenture) and is subject to certain exceptions under the UCC. In such event, the Master Trustee may not be able to compel certain third-party payors to make payment directly

to the Master Trustee. The enforcement of the security interest in the Pledged Assets may further be limited by the following: (a) statutory liens, (b) rights arising in favor of the United States of America or any agency thereof, (c) current or future prohibitions against assignment contained in any federal or State statutes or regulations, (d) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction and (e) federal bankruptcy laws, rights of the North Carolina Commissioner of Insurance to supervise, rehabilitate or liquidate certain continuing care facilities pursuant to the provisions of §58-64-45 of the General Statues of North Carolina, State of North Carolina receivership or fraudulent conveyance laws or similar laws affecting creditors’ rights that may affect the enforceability of the Master Indenture or the security interest in the Pledged Assets.

The remedies specified in the Loan Agreement, the Trust Agreement, the Master Indenture and the Corporation Deed of Trust may, in many respects, require judicial action of a nature that is often subject to discretion and delay. Under existing law, the remedies specified in the Loan Agreement, the Trust Agreement, the Master Indenture and the Corporation Deed of Trust may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in those documents. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies and by bankruptcy, fraudulent conveyance, reorganization and other laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

Environmental Risks

The Corporation obtained a Phase I environmental site assessment report of the Existing Facilities in December 2006. The report revealed no evidence of on-site recognized environmental conditions and the consultant recommended no further assessment of the Corporation’s property at that time. In addition, in connection with the Project, the Corporation purchased an adjacent parcel of real estate and added the same to the Mortgaged Property. In connection with such purchase, the Corporation obtained a Phase I environmental site assessment report on such real estate. The report revealed no evidence of on-site recognized environmental conditions and the consultant recommended no further assessment of such real estate.

Furthermore, the Corporation is unaware of any environmental contamination of the Mortgaged Property since the date the environmental assessment was performed. However, if the Mortgaged Property is determined to be environmentally contaminated, the federal or State government may require a clean-up of the Mortgaged Property and, as owner of the Mortgaged Property, the Corporation could be required to pay all or a part of such clean-up costs. If the Corporation were unable to continue operations because of contamination at the Mortgaged Property, the value of the site of the Mortgaged Property at foreclosure may be reduced by the estimated cost of any required clean-up.

National Legislation and Regulations

The Corporation is subject to federal and state regulatory actions and legislative and policy changes by, among others, the National Labor Relations Board and other federal, state and local governments and private agencies. A wide variety of bills and regulations intended to regulate, control or alter the health care industry and the method of financing health care costs are often proposed and introduced in Congress, state legislatures and regulatory agencies. Because of the many possible financial effects that could result from enactment of any bills or regulatory actions proposing to regulate the health care industry, it is not possible at this time to predict with assurance the effect on the business of the Corporation, if any, of such laws, bills or regulatory actions.

Certificate of Need

Under the North Carolina Certificate of Need Law (the “CON Law”), the Corporation cannot, without obtaining a certificate of need (“CON”) or an exemption from the requirement to so obtain a CON, among other things, make capital expenditures relating to health care exceeding $2,000,000, increase the number of, or relocate, health care beds, including assisted living beds, effect a change of more than 15% of approved capital expenditures during development or within a year of completion of a project for which a CON has already been issued, change its nursing care or assisted living bed capacity or materially deviate from the proposed scope of an approved project or violate conditions imposed in the CON for such a project. The Corporation is contractually obligated to provide health care to its residents. To the extent it may need additional nursing care or assisted living beds, the ability to obtain such beds may be restricted by the CON law. Any failure to obtain a CON for needed beds could require the Corporation to contract with outside providers for the required services.

Under the terms of the CON dated October 9, 1984 obtained by the Corporation for its 60-bed skilled nursing facility, the Corporation is not eligible to participate in or accept payment from the Medicare or Medicaid programs.

Recently, some states have amended their certificate of need laws to reduce or remove the restrictions imposed with respect to undertaking covered activities or expenditures related to health care facilities. In each of these states, there were substantial increases in the number of health care facilities providing services in major urban areas. There have been increasing efforts in the North Carolina General Assembly to amend the CON Law in a similar manner. If the CON Law is so amended in the future, the Obligated Group could experience increased competition for certain health care services it currently provides, or their revenues from such services could decline, or both.

In addition, the CON Law may be amended in the future to increase or decrease the regulatory restrictions and resulting costs. For all of these reasons, the CON Law could adversely affect the revenues of the Corporation and may be changed in the future in ways that are adverse to the Corporation.

Licensure

The Corporation and its facilities are subject to various State and local licensing laws and regulations. The Corporation has all licenses needed to operate its existing facilities. However, the licensing laws and regulations may be changed in the future in ways that are adverse to the Corporation.

Insurance

The Corporation is obligated to carry insurance as described in the Master Indenture. Claims and increases in insurance premiums could, to the extent not covered by increased revenues, adversely affect the Corporation’s financial condition.

Limited Value at Foreclosure

The Facilities have been specifically constructed for continuing care purposes. The number of entities that could be expected to purchase such facilities at a foreclosure sale is limited, and thus the ability of the Master Trustee to realize funds from the sale of these facilities, except as a continuing care facility upon an event of default may be limited. Under North Carolina law, licenses to operate continuing care facilities are not transferable. Accordingly, an entity purchasing the Facilities at a foreclosure sale would need to obtain its own license to operate such facilities as a continuing care facility. The Mortgaged Property is subject to various utility and other easements and certain other use restrictions which may affect its value at foreclosure.

Amendments to Documents

Certain amendments to the Master Indenture, the Trust Agreement and the Loan Agreement may be made without notice to or the consent of all of the Holders of, with respect to the Master Indenture, the Obligations or, with respect to the Trust Agreement and Loan Agreement, the Bonds, and other amendments may be made with the consent of the Holders of a majority in aggregate principal amount of all outstanding Obligations or the Bonds, as applicable. Such amendments could affect the security for the Obligations or the Bonds, as applicable. Certain amendments under the Master Indenture, however, are not permitted, including, (a) changing the times, amounts or currency of payment of the principal of, redemption premium, if any, interest or any other payment on any Obligation or a reduction in the principal amount or redemption price of any Obligation or the rate of interest thereon, without the consent of the Holder of such Obligation, (b) permitting preference or priority of any Obligation over any other Obligation, without the consent of the Holders of all outstanding Obligations and (c) reducing the aggregate principal amount of Obligations required for consent to a supplement to the Master Indenture without the consent of the Holders of all outstanding Obligations. Additionally, certain amendments under the Trust Agreement, however, are not permitted, including (a) an extension of the maturity of the principal of or the interest on any Bonds without the consent of the Holders of such Bonds, (b) a reduction in the principal amount of any Bonds or the redemption premium or the rate of interest thereon without the consent of the Holders of such Bonds, (c) the creation of a pledge of receipts and revenues to be received by the Authority under the Loan Agreement superior to the pledge created by the Trust Agreement without the consent of the Holders of all Bonds Outstanding, (d) a preference or priority of any Bond over any other Bond without the consent of the Holders of all Bonds outstanding, or (e) a reduction in the aggregate principal amount of Bonds required for consent to such supplemental trust agreement without the consent of the Holders of all Bonds outstanding. See “SUMMARY OF MASTER INDENTURE – Supplements Not Requiring Consent of Holders” and “– Supplements Requiring Consent of Holders” and “SUMMARY OF TRUST AGREEMENT - Modification of Trust Agreement” in APPENDIX D.

In addition, the Master Indenture specifically permits, that, in connection with the initial offering and sale of any Related Bonds, the underwriters (or their representative) of such Related Bonds will be deemed to be the initial Holders thereof or, if such Related Bonds so provide, may be appointed as attorney-in-fact by the initial purchasers of such Related Bonds for the purpose of consenting to any request, direction, consent or other instrument to be signed and executed by the Holders (irrespective of the materiality to current bondholders). In connection with any future changes implemented with the issuance of future Related Bonds, Holders of the Bonds being issued hereby may not get notice or a chance to vote with respect to any such changes. See “SUMMARY OF MASTER INDENTURE – Evidence of Acts of Holders” in APPENDIX D.

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 Members of the Obligated Group:

(1) Reinstatement or establishment of mandatory governmental wage, rent or price controls;

(2) 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;

(3) Unionization, employee strikes and other adverse labor actions which could result in a substantial increase in expenditures without a corresponding increase in revenues;

(4) Adoption of other federal, state or local legislation or regulations having an adverse effect on the future operating or financial performance of the Members of the Obligated Group;

(5) The cost and availability of energy;

(6) Increased unemployment or other adverse economic conditions in the service areas of the Members of the Obligated Group which would increase the proportion of residents who are unable to pay fully for the cost of their unit or assisted living services;

(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 Members of the Obligated Group;

(8) Inflation or other adverse economic conditions;

(9) Changes in tax, pension, social security or other laws and regulations affecting the provisions of health care and other services to the elderly;

(10) Inability to control the diminution of residents’ assets or insurance coverage which could affect their ability to pay for their unit or assisted living services;

(11) The occurrence of natural disasters, including floods and earthquakes, which may damage the facilities of the Corporation, interrupt utility service to the facilities, or otherwise impair the operation and generation of revenues from said facilities; or

(12) Cost and availability of any insurance, such as malpractice, fire, automobile and general comprehensive liability, that organizations such as the Corporation generally carry.

RATING

Fitch Ratings, Inc. (“Fitch”) has assigned a rating of “BB” to the Bonds. This rating reflects only the view of such rating agency, and an explanation of the significance of such rating may be obtained from Fitch. Certain information and materials not included in this Official Statement were furnished to Fitch. There is no assurance that such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely if, in the judgment of Fitch, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds.

UNDERWRITING

Pursuant to a contract of purchase by and among the Authority, B.C. Ziegler and Company, on its own behalf and as representative of the underwriters shown on the front cover hereof (the “Underwriters”), and the Corporation (the “Bond Purchase Agreement”), the Underwriters will purchase the Bonds at an aggregate purchase price of $______, which reflects $______of net original issue premium and $______of underwriters’ discount. The Bond Purchase Agreement will provide that the Underwriters will purchase all of the Bonds if any are purchased. The obligation of the Underwriters to pay for the Bonds is subject to certain terms and conditions set forth in the Bond Purchase Agreement. The Corporation has agreed to indemnify the Underwriters and the Authority as to certain matters in connection with the Bonds.

The Underwriters may offer and sell Bonds to certain dealers, including dealer banks and dealers depositing Bonds into investment trusts and others, at prices lower than the public offering prices stated

on the inside front cover of this Official Statement. The initial public offering prices may be changed from time to time by the Underwriters.

CONTINUING DISCLOSURE REQUIRED PURSUANT TO RULE 15c2-12

In the Loan Agreement, the Corporation will undertake, for the benefit of the beneficial owners of the Bonds, to provide to the MSRB pursuant to the requirements of Rule 15c2-12 issued under the Securities Exchange Act of 1934 (“Rule 15c2-12”):

(a) by not later than 120 days after the end of each Fiscal Year of the Obligated Group, beginning with the fiscal year ending September 30, 2018, the Financial Statements for such fiscal year, if available, or, if such Financial Statements are not available by 120 days after the end of such fiscal year, the Unaudited Financial Statements (as defined below) for such fiscal year to be replaced subsequently by the Financial Statements to be delivered within 15 days after such Financial Statements become available for distribution;

(b) by not later than 120 days after the end of each fiscal year of the Obligated Group, beginning with the fiscal year ending September 30, 2018, the financial and statistical data as of a date not earlier than the end of the preceding fiscal year for the type of information described in the tables set forth under the following table headings in APPENDIX A to this Official Statement: “Independent Living Units Occupancy,” “Health Center Occupancy,” “Wait List for Future Occupancy,” “Independent Living Units Becoming Available Due to Resident Attrition,” “Entrance Fees (Current)” (provided information regarding the Project Independent Living Units shall also be included) and “Schedule of Average Service Fees in Effect for the Most Recent Five Fiscal Years,” to the extent such items are not included in the Financial Statements provided pursuant to clause (a) above;

(c) by not later than 120 days after the end of each fiscal year of the Obligated Group, beginning with the fiscal year ending September 30, 2018, the Historical Debt Service Coverage Ratio and the number of Days’ Cash on Hand as of the end of such fiscal year and, to the extent such items are not included in the Financial Statements referred to in clause (a) above;

(d) in a timely manner not in excess of ten business days after the occurrence of the event, notice of any of the following events with respect to the Bonds:

(1) principal and interest payment delinquencies;

(2) non-payment related defaults, if material;

(3) unscheduled draws on any debt service reserves reflecting financial difficulties;

(4) unscheduled draws on credit enhancements reflecting financial difficulties;

(5) substitution of credit or liquidity providers, or their failure to perform;

(6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax-exempt status of the Bonds;

(7) modifications to the rights of the beneficial owners of the Bonds, if material;

(8) bond calls (other than pursuant to mandatory sinking fund redemption), if material, and tender offers;

(9) defeasances;

(10) release, substitution or sale of any property securing repayment of the Bonds, if material;

(11) rating changes;

(12) bankruptcy, insolvency, receivership or similar event of any Member of the Obligated Group which shall be considered to occur when any of the following occur; the appointment of a receiver, fiscal agent or similar officer for any Member of the Obligated Group in a proceeding under the United States Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of any Member of the Obligated Group, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of any Member of the Obligated Group;

(13) the consummation of a merger, consolidation, or acquisition involving the any Member of the Obligated Group or the sale of all or substantially all of the assets of any Member of the Obligated Group, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(14) appointment of a successor or additional Bond Trustee or the change of name of the Bond Trustee, if material

(e) in a timely manner, notice of a failure of the Corporations to provide required annual financial information described in (a), (b) or (c) above on or before the date specified.

The Corporation shall provide the documents referred to above to the MSRB in an electronic format as prescribed by the MSRB and accompanied by identifying information as prescribed by the MSRB. The Corporation may also discharge its undertaking described above by transmitting such information in any other manner subsequently authorized or required by the United States Securities and Exchange Commission.

See “DEFINITIONS OF CERTAIN TERMS” in APPENDIX D for a definition of “Financial Statements.” “Unaudited Financial Statements” has the same meaning as Financial Statements, except that such financial statements have not been audited and reported upon by independent certified public accountants (or, in the case of any Member of the Obligated Group which is not an Affiliate, the accounts of such Member of the Obligated Group which is not an Affiliate to be added to the unaudited combining financial statements described above are not extracted from audited financial statements of such Member of the Obligated Group and its Affiliates, if any).

The Loan Agreement provides that if the Corporation fails to comply with the undertaking described above, the Bond Trustee or any beneficial owner of the Bonds then Outstanding may take action to protect and enforce the rights of beneficial owners with respect to such undertaking, including an action for specific performance; provided, however, that failure to comply with such undertaking shall not be an Event of Default and shall not result in an acceleration of the Bonds. All actions shall be instituted, had and maintained in the manner provided in this paragraph for the benefit of all beneficial owners of the Bonds.

Pursuant to the Loan Agreement, the Corporation reserves the right to modify from time to time the information to be provided to the extent necessary or appropriate in the judgment of the Corporation, provided that:

(a) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Obligated Group;

(b) the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 as of the date of the Official Statement, after taking into account any amendments or interpretations of Rule 15c2-12, as well as any changes in circumstances; and

(c) any such modification does not materially impair the interests of the beneficial owners of the Bonds, as determined either by parties unaffiliated with the Corporation (such as the Bond Trustee or bond counsel) or by approving vote of the registered owners of not less than a majority in principal amount of the Bonds then Outstanding pursuant to the terms of the Trust Agreement, as it may be amended from time to time.

The Corporation agrees that any annual financial information containing modified operating data or financial information will explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

The undertaking described in this section will terminate upon payment, or provision having been made for payment in a manner consistent with Rule 15c2-12, in full of the principal of and interest on all of the Bonds.

The Corporation has complied, in all material respects, with the terms of its prior undertakings relating to continuing disclosure of information under Rule 15c2-12 during the five years preceding the date of this Official Statement.

ADDITIONAL CONTINUING DISCLOSURE

Loan Agreement by reference) and, if so, specifying each failure to comply of which the signer may have knowledge and the steps that are being taken to cure such non-compliance, (v) the amount of and the anticipated debt service schedule for any additional Long-Term Indebtedness incurred by the Obligated Group during such quarter, (vi) with respect to any capital project (other than the Project) of the Obligated Group financed with Long-Term Indebtedness undertaken in such quarter, notice of commencement of such capital project, and, beginning with the quarter in which such capital project is commenced and ending with the quarter in which such capital project is completed, a summary of construction progress and activities; (vii) until the Stabilization Date, the number and percentage of the Project Independent Living Units that have been Presold as of the last day of such fiscal quarter and as of the last day of the preceding fiscal quarter, and the number of any refunds of Entrance Fees made during such period with respect to the Project Independent Living Units; and (viii) until the Stabilization Date, the number and percentage of Occupied Project Independent Living Units as of the last day of such fiscal quarter and as of the last day of the preceding fiscal quarter.

Failure of the Corporation to provide the information required to be delivered to the MSRB as described under this “ADDITIONAL CONTINUING DISCLOSURE” shall not constitute a failure to provide information undertaken for the benefit of the beneficial owners of the Bonds pursuant to Rule 15c2-12.

LITIGATION

The Authority

To the Authority’s knowledge, as of the date of this Official Statement, there is not pending or threatened, any litigation restraining or enjoining the issuance or delivery of the Bonds or questioning or affecting the validity of the Bonds or the proceedings or authority under which they are to be issued or which in any manner questions the right of the Authority to enter into the Trust Agreement or the Loan Agreement or to secure the Bonds in the manner provided therein. From time to time the Authority receives inquiries and requests for documents and information pertaining to unrelated bond issues from various regulatory agencies, including the Securities and Exchange Commission, and in connection with audits by the IRS.

The Corporation

There is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body pending, or, to the best knowledge of the Corporation, threatened against or affecting the Members of the Obligated Group wherein an unfavorable decision, ruling or finding would have a material adverse effect on the financial condition of the Obligated Group or would adversely affect (i) the transactions contemplated by, or the validity or enforceability of, the Bonds, the Trust Agreement, the Loan Agreement, the Master Indenture, Supplement No. 16, Obligation No. 16, the Corporation Deed of Trust or the Bond Purchase Agreement or described in the Official Statement, or (ii) the tax-exempt status of interest on the Bonds.

LEGAL MATTERS

Legal matters incident to the authorization and validity of the Bonds are subject to the approving opinion of Womble Bond Dickinson (US) LLP, Raleigh, North Carolina, Bond Counsel. The proposed form of such opinion is contained in APPENDIX E.

Certain legal matters will be passed on for the Corporation by Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, and for the Underwriters by Parker Poe Adams & Bernstein LLP, Raleigh, North Carolina.

TAX TREATMENT

Opinion of Bond Counsel

In the opinion of Bond Counsel, under existing law and assuming continuing compliance by the Authority and the Corporation with their respective covenants to comply with, and to cause any future Members of the Obligated Group to comply with, the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), regarding, among other matters, the use, expenditure and investment of Bond proceeds and the timely payment of certain investment earnings to the United States Treasury, interest on the Bonds will not be includable in the gross income of the owners thereof for purposes of federal income taxation. Bond Counsel is also of the opinion that interest on the Bonds will not be a specific preference item for purposes of the alternative minimum tax imposed by the Code.

In rendering its opinion as to the exclusion from gross income of the interest on the Bonds for federal income tax purposes, Bond Counsel will rely upon, among other things, representations of the Corporation with respect to certain material facts within the knowledge of the Corporation which Bond Counsel has not independently verified, and the opinion of counsel for the Corporation with respect to the status of the Corporation as an organization described in Section 501(c)(3) of the Code.

The Code and other laws of taxation, including the laws of states and local jurisdictions, may contain other provisions that could result in tax consequences, upon which Bond Counsel renders no opinion, as a result of the ownership or transfer of the Bonds or the inclusion in certain computations of interest that is excluded from gross income for purposes of federal income taxation.

Original Issue Discount

The initial public offering prices of the Bonds maturing on October 1, 20__ (collectively, the “Discount Bonds”), are less than the respective amounts payable at maturity. An amount not less than the difference between the initial offering prices to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents, wholesalers or other intermediaries) of the Discount Bonds and the amounts payable at maturity constitutes original issue discount. Under existing federal income tax law and regulations, the original issue discount on a Discount Bond is interest not includable in the gross income of an owner who purchases such Discount Bond in the original offering at the initial public offering price thereof and holds it to maturity, and such owner will not realize taxable gain upon payment of such Discount Bond at maturity. Owners who purchase Discount Bonds at a price other than the initial offering price or who do not purchase Discount Bonds in the initial public offering should consult their tax advisors with respect to the consequences of the ownership of such Discount Bonds. An owner who purchases a Discount Bond in the initial offering at the initial offering price and holds such Discount Bond to maturity is deemed under existing federal tax laws and regulations to accrue original issue discount on a constant yield basis under Section 1288 of the Code from the date of original issue. An owner's adjusted basis in a Discount Bond is increased by accrued original issue discount for purposes of determining gain or loss on sale, exchange or other

disposition of such Discount Bond. Accrued original issue discount may be taken into account as an increase in the amount of tax-exempt interest received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Bond, including in the calculation of adjusted current earnings of corporations for purposes of computing the alternative minimum tax imposed by the Code on corporations, even though there will not be a corresponding cash payment.

Owners and prospective purchasers of Discount Bonds should consult their own tax advisors regarding the calculation of accrued original issue discount for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the ownership or disposition of Discount Bonds.

Original Issue Premium

The initial public offering prices of the Bonds maturing on October 1, 20__ (collectively, the “Premium Bonds”) are greater than the amounts payable at maturity. The difference between (a) the initial offering prices to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents, wholesalers or other intermediaries) at which a substantial amount of each maturity of the Premium Bonds is sold and (b) the principal amount payable at maturity of such Premium Bonds constitutes original issue premium. In general, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond based on the owner's yield over the remaining term of the Premium Bond, determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium Bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner's regular method of accounting against the bond premium allocable to that period and subtract such bond premium from the owner's basis in such Premium Bond. If the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner's original acquisition cost.

Owners and prospective purchasers of Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences in connection with the ownership and disposition of Premium Bonds.

Other Tax Consequences

Interest on the Bonds will not be exempt from State of Wisconsin or State of North Carolina income taxes.

Ownership or transfer of, or the accrual or receipt of interest on, the Bonds may result in collateral federal, state or local tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess passive income, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers who may be eligible for the federal earned income tax credit, and taxpayers subject to franchise, estate, inheritance, gift or capital gains taxes. Prospective purchasers of the Bonds should consult their tax advisors as to any such possible tax consequences. Except to the extent covered in its legal opinion, Bond Counsel expresses no opinion regarding any such collateral tax consequences.

No assurance can be given that future legislation, including amendments to the Code or interpretations thereof, if enacted into law, or certain litigation or judicial decisions, if upheld, will not contain provisions or produce results which could, directly or indirectly, reduce the benefit of the excludability of interest on the Bonds from gross income for federal income tax purposes.

The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether or not the Service will commence an audit of the Bonds.

Interest paid on tax-exempt obligations, such as the Bonds, will be subject to information reporting in a manner similar to interest paid on taxable obligations. Although such reporting requirement does not, in and of itself, affect the excludability of interest with respect to the Bonds from gross income for federal income tax purposes, such reporting requirement causes the payment of interest with respect to the Bonds to be subject to backup withholding if such interest is paid to beneficial owners who (a) are not “exempt recipients,” and (b) either fail to provide certain identifying information (such as the beneficial owner's taxpayer identification number) in the required manner or have been identified by the Service as having failed to report all interest and dividends required to be shown on their income tax returns. Generally, individuals are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. Amounts withheld under the backup withholding rules from a payment to a beneficial owner would be allowed as a refund or credit against such beneficial owner's federal income tax liability provided the required information is furnished to the Service.

FINANCIAL STATEMENTS

The combined financial statements of the Corporation and Southminster Foundation, Inc. as of and for the years ended September 30, 2017 and 2016 included in APPENDIX B have been audited by CliftonLarsonAllen LLP, independent auditors, as stated in their reports appearing therein.

RELATIONSHIP OF PARTIES

Parker Poe Adams & Bernstein LLP, counsel to the Underwriters, and Robinson Bradshaw & Hinson, P.A., counsel to the Corporation, have represented, continue to represent or expect to represent the Authority and the Underwriters in unrelated matters.

MISCELLANEOUS

The Corporation has furnished all information herein relating to the Corporation. Any statements involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The Authority and its staff assume no responsibility for the accuracy or completeness of any representation or statement in this Official Statement except for material with respect to them included under the sections entitled “THE AUTHORITY” and “LITIGATION-The Authority.” Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as a contract with the owner of any of the Bonds.

APPENDIX A

CERTAIN INFORMATION CONCERNING THE CORPORATION

TABLE OF CONTENTS

Page

INTRODUCTION ...... A-1 GOVERNANCE AND MANAGEMENT ...... A-3 THE EXISTING FACILITIES ...... A-7 THE PROJECT ...... A-11 SERVICE AREA AND COMPETITION ...... A-17 ADMISSIONS POLICIES ...... A-17 RESIDENCY AGREEMENTS ...... A-18 TERMINATION AND REFUND POLICIES ...... A-19 SERVICES ...... A-20 FEE STRUCTURE ...... A-22 FINANCIAL INFORMATION ...... A-25 EMPLOYEES AND EMPLOYEE BENEFITS ...... A-31 INSURANCE AND LITIGATION ...... A-32 FUTURE CAPITAL PLANS ...... A-32

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INTRODUCTION

The Corporation. Southminster, Inc. (the “Corporation”) is a North Carolina nonprofit corporation that was organized in 1984. The Corporation owns and operates a continuing care retirement community known as “Southminster,” which is located at 8919 Park Road, Charlotte, Mecklenburg County, North Carolina. The Corporation has been determined by the Internal Revenue Service to be exempt from federal income taxation as an organization described in Section 501(c)(3) of the Internal Revenue Code. Southminster’s Residency Agreements are considered a “modified” or “Type B” continuing care contract. As of March 31, 2018, the Corporation operates 327 units at Southminster, including independent living, assisted living and skilled nursing as follows:

Summary of Unit Mix as of March 31, 2018 Number Unit Type of Units Independent Living Apartments 2141 Independent Living Cottages 282 Total ILU 242 Assisted Living Units 25 Skilled Nursing Beds 60 Total Units 327 ______1 Excludes two units currently being used as guest rooms. 2 One cottage is temporarily offline due to construction.

The Obligated Group. The Second Amended and Restated Master Trust Indenture dated as of November 1, 2007 (as amended and supplemented, the “Master Indenture”) between the Corporation and The Bank of New York Mellon Trust Company, N.A., as master trustee (the “Master Trustee”), establishes an Obligated Group that is jointly and severally liable for all Obligations issued under the Master Indenture, including Obligation No. 16. Currently, the Corporation is the only member of the Obligated Group.

History. Southminster became home to its first residents in 1987. Upon opening, the 25-acre Southminster campus consisted of: (i) a main building containing 173 independent living apartments and common and dining facilities, and a licensed health care facility that included 60 nursing beds and 20 assisted living units, and (ii) 22 duplex cottage units, with the number of cottage units expanding to 47 over the next eight years. Under the terms of the certificate of need dated October 9, 1984 obtained by the Corporation for the 60 nursing beds, the Corporation is not eligible to participate in or accept payment from the Medicare or Medicaid programs.

In 1996, a major renovation of the common and dining facilities was completed, and in 1998, a new wing containing a 20-bed assisted living memory-impaired unit and 8 additional independent living apartments was added to the main building. In January 2010, the 20-bed assisted living memory-impaired unit was closed and its licensed beds were taken offline. That space is now being leased to a nonprofit hospice provider. As part of the current expansion plans, that wing of the building will be demolished, temporarily ending the hospice lease and removing those 8 independent living homes from service (four of which were vacated as of March 31, 2018).

The last expansion project was started in 2007, with the initial phase of 18 independent living apartments in what is known as the East Wing Extension being completed in June 2008. Another 71 independent living apartments, administrative offices, resident common space, and an adjoining wellness center in what is known as the North Wing was completed in November 2008. The remainder of the

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project, consisting of renovations and enhancements to resident dining, hall corridors and the health center, was completed in 2009. The sale of the 89 new independent living apartments was completed in fiscal year 2013, and 100% occupancy (including reserved units) of all independent living apartments and cottages was attained in fiscal year 2014. During that expansion, the 47 cottage units were reduced to 39, and have subsequently been reduced to 28 as part of current expansion plans. Over the years, independent living apartments in the main building have been combined to create larger units, reducing the overall independent living count. With units also being taken offline in preparation for the current expansion, the total number of independent living apartments had been reduced to 214 (excluding two units that are being used as guest rooms).

In October 2014, the Corporation brought five licensed assisted living beds back online, bringing its health center bed count to 25 licensed assisted living beds (all private) and 60 licensed nursing beds (56 private and 4 semi-private, and of which 24 have shared bathrooms).

Relationship with Christ Episcopal Church and Myers Park Baptist Church. The Corporation was founded by and continues to have a relationship with Christ Episcopal Church and Myers Park Baptist Church, both of which are located in Charlotte, North Carolina.

Southminster is the direct product of the interest of these two churches and their concern for providing a retirement alternative for members of their congregations and other seniors in the Charlotte area. The initial funds used for start-up costs were raised primarily from the membership of these two churches.

A minister of each of these sponsoring churches serves on the Corporation’s Board of Directors as ex officio members, with full voting rights. Although the Directors need not be members of one of the sponsoring churches, the Board’s intention is to have not more than three non-members serving on the board, and the governing bodies of the two churches must ratify those individuals nominated by the Board of Directors to serve as Directors.

Neither Christ Episcopal Church nor Myers Park Baptist Church is obligated to make any payment on Obligation No. 16.

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GOVERNANCE AND MANAGEMENT

Board of Directors. The business and other affairs of the Corporation are governed by a 17- member Board of Directors (the “Board”), comprised of 13 voting members, 1 non-voting Founding Director, and 3 non-voting Chairs Emeritus. The 13 voting Directors consist of 11 members who are elected by the majority vote of the Directors then in office and serve up to two consecutive terms of three years, or until their successors are duly elected and qualified, and 2 ex-officio members (by virtue of their leadership positions as Clergy of Myers Park Baptist Church and Christ Episcopal Church). The Board created the position of Founding Director to show its respect and sincere appreciation for the leadership given by this individual at the inception and during the critical early years of Southminster’s existence. The Chairs Emeritus continue to serve on the Board as non-voting members in recognition of their years of service as members of the Board of Directors. Currently, four Board members are also residents of Southminster: two voting members and two non-voting members.

No member of the Board is an employee of the Corporation. Members of the Board serve on several Board committees, including the Executive Committee, the Finance & Audit Committee, Nominating & Board Development Committee, Health & Wellness Committee, Development & Charity Outreach Committee and the Foundation Board.

Current members of the Board and the officers of the Corporation, the expiration of their terms, and their principal business affiliations are as follows:

Board Members Term Expires Principal Business Affiliation

Mrs. Hope Parrott, Chair 2019 Community Volunteer Mr. Joseph Kluttz, 2018 Retired Partner, K&L Gates, LLP Vice Chair – Treasurer Mrs. Tere Ey, 2020 Community Volunteer Vice Chair – Secretary Mr. Jay Rivers, Vice Chair 2020 President, Capital Management of the Carolinas Mr. John Clinton Wyatt, 2019 Retired Executive Vice Chair Mrs. Bonnie Banks 2018 Retired Executive, Bell South Rev. Joseph Aldrich Ex Officio Associate Minister, Myers Park Baptist Church Mr. H. Tate Bowers Chair Emeritus Chief Executive Officer, Bowers Fibers, Inc. Mr. Richard N. Brigden Chair Emeritus Retired Chief Financial Officer, Ruddick Corporation Mr. Richard C. Welch 2019 Retired Executive, IBM Corporation Mr. R. Stuart Dickson Founding Director Former Chairman of the Board, Ruddick Corporation The Rev. Lisa Saunders Ex-Officio Associate Rector, Christ Episcopal Church The Honorable Regan Miller 2019 Chief District Court Judge, Mecklenburg County Mr. Gene King 2020 Retired Executive Dr. William C. Sugg, Jr. 2018 Retired Physician, Carolinas Healthcare System Mr. Robert D. Thomason Chair Emeritus Owner/Pilot, Advantage Aviation, Inc. Dr. Paul Tolmie 2018 Periodontist

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Management Team. The following is a list of certain members of Southminster’s management staff and a synopsis of their relevant background and experience:

David F. Lacy (69) – President, Chief Executive Officer, and Executive Director. Mr. Lacy earned an undergraduate degree from Bucknell University and a master’s degree from the University of North Carolina at Chapel Hill. He spent the first 11 years of his career working in the area of city planning, both in government and consulting. Since 1982, Mr. Lacy has focused on management of continuing care retirement communities. He served as Associate Director for Finance and Planning at Carol Woods Retirement Community in Chapel Hill, North Carolina for 13 years, and Executive Director at Trinity Terrace in Fort Worth, Texas for 3 years before becoming President and Executive Director of Southminster in 1999. From 1994 to 2003, Mr. Lacy also held various positions on the Board of the Armed Forces Retirement Homes in Washington, DC, serving as Chairman of the Board and COO for his last six years. Mr. Lacy currently serves as Chair of the Board of the LeadingAge North Carolina Foundation. He has previously served as the Chair of the Board of the North Carolina Association of Non-Profit Homes for the Aging (now LeadingAge North Carolina). He served as a member of the House of Delegates of the American Association of Homes and Services for the Aging (now LeadingAge), and served on a number of committees of that organization, including the Continuing Care Community Advisory Committee. Mr. Lacy also served a number of terms as a member of the Continuing Care Advisory Committee of the North Carolina Department of Insurance. Mr. Lacy served as a member of the Financial Advisory Panel of the Continuing Care Accreditation Commission (now “CARF/CCAC”) and served as an evaluator and team leader for numerous site visits. His professional awards include LeadingAge North Carolina’s 2018 Career Excellence Award for Lifetime Achievement; LeadingAge North Carolina’s Distinguished Service Award in 2003 and the U.S. Department of Defense Medal for Distinguished Public Service in 2002. Mr. Lacy is licensed as a nursing home administrator in North Carolina.

Mr. Lacy has communicated to the Board of Directors his plans to retire, although a formal date has not been set. Discussions and planning for Mr. Lacy’s retirement are ongoing with the Board’s Executive Committee. A Board committee dedicated to succession planning has been formed and proposals are being reviewed for an executive search firm to be selected. Mr. Lacy will be available to advise the committee throughout the search process. Mr. Lacy has agreed to continue in his role as President and CEO until the search process is complete and a candidate is found. Mr. Lacy has also offered his ongoing assistance through the new CEO’s transition and on an “as needed” basis if requested by the new CEO and the Board of Directors.

Kenda Laughey, CPA (39) - Chief Financial Officer and Assistant Treasurer. Mrs. Laughey came to Southminster in her current position in 2011. Previously, Mrs. Laughey was employed by public accounting firm Deloitte & Touche LLP for nine years, focusing primarily on large healthcare systems. Mrs. Laughey has served the senior living industry as a member of the LeadingAge North Carolina Education Committee and has served on several industry educational and professional development panels. Mrs. Laughey currently serves as a member of the LeadingAge North Carolina Finance Committee. Mrs. Laughey is a graduate of The University of South Carolina with a bachelor of science degree in business, with an emphasis in accounting, and a Masters of Accountancy and holds CPA licenses in North Carolina and South Carolina. Mrs. Laughey also serves as the Finance Committee Chair of the University of South Carolina Educational Foundation Board of Directors.

Mary C. Cooper (62) - Director of Health and Wellness and Assistant Secretary. Ms. Cooper came to Southminster as a Registered Nurse in 1996 and shortly thereafter was promoted to Director of Nursing. In 2000, Ms. Cooper was promoted to her present position. In addition, she was appointed Administrator of Record for Southminster’s health center. She is currently serving as a Preceptor for Administrators in Training (AIT) program in NC State Board of Examiners for Nursing Home Administrators. Ms. Cooper has over 30 years of nursing experience and is certified in geriatric nursing.

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Her prior experience in eldercare includes nursing care management positions with ACTS Retirement Communities and Meadowwood Retirement Community in Pennsylvania. Ms. Cooper also has worked as a Nurse Evaluator, Case Management for Provident Life Insurance Company. Ms. Cooper received her nurse training from The Pennsylvania State University and the Community College of Philadelphia. She holds a license to practice nursing in North Carolina, Pennsylvania and Texas, and she is licensed as a nursing home administrator in North Carolina.

James Dixson (45) - Director of Environmental Services. Mr. Dixson earned his Master of Planning and Bachelor of Science in soil science from the University of Tennessee. Mr. Dixson acted as a Planner in the Office of Economic and Community Development for the City of Chattanooga for 3 years before transitioning to construction management. He worked in construction for 10 years. Mr. Dixson came to Southminster in 2013 as the Director of Environmental Services. As the administrator leading environmental services, he oversees maintenance, housekeeping, security, laundry, transportation, and construction. He is the Safety Officer of record for Southminster. His professional awards and training include The Audrey Nelson Community Development Achievement Award for the Frederick Street Development and the American Society for Healthcare Engineering Construction Certificate. He is also a graduate of the Association of Building Contractors Leadership Development program.

Lisa McClellan (49) - Director of Human Resources. Ms. McClellan has over 20 years’ experience in associate relations, training/development, recruiting, benefits and compensation management. Prior to coming to Southminster, Ms. McClellan was in human resource management with Arbor Acres, a continuing care retirement community located in Winston-Salem, North Carolina. Earlier experience includes human resource positions with Honda of America, Visa USA, and Sunrise Medical. A graduate of Longwood College, with a Bachelor of Science in Sociology and Business, Ms. McClellan has earned additional certifications in Human Resources Management and Career Architect Training and Development and is a member of the Society for Human Resources Management (SHRM). She has also graduated from the Disney school’s course on leadership and management.

Tracy McGinnis (42) - Director of Philanthropy. Ms. McGinnis earned a Bachelor of Arts in Communications/Journalism from the University of Buffalo, Buffalo, New York and completed her graduate work in the field of Gerontology at the University of North Carolina at Charlotte. Ms. McGinnis is currently participating in LeadingAge’s Leadership Academy, a nationally recognized leadership development program. She is spearheading efforts at Southminster to expand its philanthropic mission by building community partnerships that focus on education, cultural arts and healthy community initiatives. Recent projects include an award-winning multi-generational playground and a partnership with Mecklenburg County and the University of North Carolina at Charlotte on a Community Needs Assessment for area seniors. Prior to coming to Southminster, Ms. McGinnis led business development efforts in North Carolina and South Carolina for a national senior living provider. She serves on the board of directors for the Shepherd’s Center, Council on Aging, Volunteer Transportation Services and is a certified Dementia specialist through the Arnold School of Public Health at the University of South Carolina.

Salem Suber (50) - Director of Culinary Services. A native of Charlotte, North Carolina, Mr. Suber attended the University of North Carolina at Chapel Hill, where he majored in English and served on the Undergraduate Honor Court as Vice-Chairman. After joining Southminster, he received his Certified Dietary Manager Certificate at Central Piedmont Community College. Mr. Suber’s experience includes managing independent and national chain restaurants, as well as three years with U.S. Foodservice, to develop food purchasing negotiation skills. Mr. Suber purchased the 300 seat Jasper Family Steakhouse, which he operated for 10 years, as well as a catering company, and partnership, concept development role in the Sharp Mountain Grill. In Georgia, Mr. Suber served in the following capacities: board of directors for the Pickens County Chamber of Commerce, Advisory Board Member for C.A.S.A. Appalachian Judicial Circuit, President of Prevent Child Abuse Pickens, and board of

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directors for Prevent Child Abuse Georgia, in Atlanta. Mr. Suber joined Southminster as Director of Culinary Services in 2010, after moving back to Charlotte. He currently serves on the Board of Directors for the Piedmont Culinary Guild in Charlotte.

Stewart Wiley (58) - Director of Sales and Marketing. Mr. Wiley is a graduate of the Terry College of Business at the University of Georgia. His marketing and sales responsibility in the senior housing industry began in 2005: first as a vice-president of marketing for a multi-site developer of senior living communities and then as a consultant to non-profit continuing care retirement communities in the Carolinas. Since Mr. Wiley joined Southminster in 2012, the community has experienced near 100% occupancy of its independent living units and has a growing list of future residents. Mr. Wiley brings over 30 years of experience in both the corporate and non-profit sectors including work with private K-12 schools, a physician’s practice and a medical information software developer.

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THE EXISTING FACILITIES

General Description. Southminster is a single-site continuing care retirement community, which opened in 1987 at 8919 Park Road in Charlotte, North Carolina. The main building includes dining rooms, the main kitchen, common rooms for activities and social interactions, a library, wellness and aquatic center, administrative offices, underground parking, and all the necessary support service areas for the normal functioning of the community (e.g., maintenance, housekeeping and resident storage spaces). The Corporation has combined some residences in Southminster’s original building to make larger residences and continues to look for opportunities to do so. In September 2017, the Corporation purchased a parcel of adjacent land to be used for expansion purposes bringing the total property to approximately 27 acres. By March 31, 2018, fifteen homes had been taken offline for expansion purposes, bringing Southminster’s independent living count to 242 residences, made up of 28 one-story duplex/triplex cottages (excluding one cottage temporarily offline due to construction) and a main building housing 214 independent living apartments (excluding two apartments which are used as guest rooms and so are not included in the current unit mix).

Southminster’s Health Center is also included in its main building. During October 2014, the Corporation brought five additional licensed assisted living beds online, bringing the bed count to 25 licensed assisted living beds (all private) (the “Assisted Living Units”) and 60 licensed nursing beds (56 private and 4 semi-private, of which 24 have shared bathrooms) (the “Nursing Care Units”).

Independent Living Units. The floor plans for the independent living units vary in design and include studio, one-bedroom and two-bedroom apartments, and cottage units in configurations ranging from 292 to 3,190 square feet. Each independent living unit features a living room, one or two bathrooms, storage areas, a patio/balcony, carpeting and a fully-equipped kitchen. All independent units have individually controlled heating and air conditioning, cable television and telephone hook-ups, and a 24-hour fire, safety, and medical emergency call system. Most of the units are equipped with microwave ovens, and some have washer/dryers.

As of March 31, 2018, the breakdown of independent living units was as follows:

Type of Independent Living Unit Number of Units Square Footage Apartments: Studio 21 292 One-bedroom 512 598-800 One-bedroom with den 12 955-1,137 One-bedroom with den – expansion 24 1,080-1,390 Two-bedroom 462 955-1,345 Two-bedroom– expansion 29 1,280-2,260 Two-bedroom with den 14 1,256-1,995 Two-bedroom with den – expansion 36 1,465-3,190 Subtotal 214 Cottages: Small sunroom 42 1,500 Large sunroom 242 1,800-1,900 Subtotal 28

Total 242 ______1 Number excludes two units currently being used for guest accommodations. 2 Numbers exclude units taken offline for future expansion; one cottage of which is temporarily offline during construction.

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The Health Center. Persons residing at Southminster (“Residents”) requiring physical assistance or certain other health care services may be admitted to the Health Center. The Health Center also contains an outpatient clinic to meet certain routine primary care services for all Residents. In addition, a member of the nursing staff is available for consultation and assistance during scheduled office hours for independent living Residents and for emergency nursing response on a 24-hour basis. Health and personal support services which support the Resident’s ability to remain in the independent living environment can be provided by the Corporation through its licensed home care services or through a preferred provider. Such services, if appropriate, are handled independently by the Resident or responsible party.

The following services are provided for Health Center Residents: diet planning by a licensed dietician, assisted bathing, goal-oriented treatment planning, social services, planned activities, nursing services, assistance in activities of daily living, and health-oriented care. The Corporation makes available to or makes arrangements for the Resident to obtain other health care services, including physical therapy, occupational therapy, rehabilitative treatments and equipment, ambulance services, limited pharmacy services, laboratory tests and other health care related services as may be determined by the Corporation.

Charges for these health care services are in addition to the Service Fee (as defined below) charged for the Health Center. See “FEE STRUCTURE -- Charges for Occupancy in the Health Center” below. Under the terms of the certificate of need dated October 9, 1984 obtained by the Corporation for its 60-bed skilled nursing facility, the Corporation is not eligible to participate in or accept payment from the Medicare or Medicaid programs.

The Corporation employs a licensed physician as a consultant (the “Medical Director”) to consult on the medical aspects of the licensed levels of care of the Health Center, to assist in establishing and implementing policies and practices of the Health Center and to perform such other duties prescribed by the Corporation. The Medical Director is not an on-site physician, although the current Medical Director serves as the primary physician for some residents and operates an on-site clinical practice on a limited basis. Residents utilize the services of their own physicians at their own expense.

Licensing; Affiliations. The Corporation is licensed to operate Southminster as a continuing care retirement community by the North Carolina Department of Insurance. The Corporation is licensed to operate the Assisted Living Units, the Nursing Care Units, and home care services by the Division of Health Service Regulation of the North Carolina Department of Health and Human Services. The Corporation is an active member of LeadingAge North Carolina and LeadingAge.

Marketing. The Corporation’s marketing staff consists of two full-time sales employees and a move-in coordinator. Ongoing marketing programs include maintenance of computerized data bases for tracking prospects and developing potential referrals. Periodic mailings of marketing and other descriptive materials along with electronic media and special programs have proven successful in enlarging the base of prospective residents. Ongoing contact with clergy, trust officers and area lawyers, accountants and financial advisors assists in increasing the number of referrals and prospective residents. Other marketing tools employed include periodic advertising in regional newspapers, magazines and public broadcast radio, and a website.

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Reservations and Occupancy of Independent Living Units. The following table summarizes the utilization of the independent living units:

Independent Living Units Occupancy

Reserved but Units Total Occupied Unoccupied Available Number Percentage Date Units1 Units2 for Sale of Units3 Occupied 03/31/18 237 5 0 242 97.9% 09/30/17 239 7 0 246 97.2% 09/30/16 247 4 0 251 98.4% 09/30/15 253 4 0 257 98.4% 09/30/14 251 5 1 257 97.7% 09/30/13 238 14 4 256 93.0% ______1 Includes independent living units occupied by Residents who are temporarily residing in the Health Center. Excludes one occupied residence at September 30, 2016 for which a full entrance fee was not received until subsequent to September 30, 2016; that occupant is included in Reserved units at September 30, 2016.

2 The September 30, 2013 Reserved but Unoccupied Units excludes one 10% deposit related to apartment combinations under construction. That unit had been taken offline while under construction, per the request of the North Carolina Department of Insurance, and is excluded from the Total Number of Units discussed below.

3 The number of units increased from September 30, 2013 to September 30, 2014 as units that had previously been taken offline for combinations to create larger apartments were brought back online once construction was completed (noting that the “absorbed” unit would not be brought back online). The Total Number of Units excludes two units used for guest accommodations. The number of units decreased from September 30, 2015 to September 30, 2016 due to six cottages being taken offline and again at September 30, 2017 due to three cottages and two apartments being taken offline for future expansion. For expansion purposes, two additional apartments and two more cottages were taken offline (three permanently, one temporarily) during the period ended March 31, 2018.

As of March 31, 2018, a total of 299 persons were living in 237 occupied independent living units. There also were 65 permanent Residents in the Health Center, resulting in a total combined population of 364 Residents as of March 31, 2018.

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Health Center Occupancy. The following table summarizes the utilization of the Health Center:

Health Center Occupancy Assisted Living Units (20/25 Beds) 1 Nursing Care Units (60 Beds) Combined % Occupied Transfers from Assisted Living Transfers Independent Units and Nursing from Living Units Care Units Number Direct Independent Number Direct and Assisted Combined Date Occupied1 Admissions2 Living Units3 Occupied Admissions2 Living Units3 (80/85 Beds)1 03/31/18 21 3 18 44 14 30 76% 09/30/17 25 8 17 41 10 31 78% 09/30/16 23 11 12 43 13 30 78% 09/30/15 24 12 12 41 9 32 76% 09/30/14 19 6 13 39 8 31 73% 09/30/13 20 6 14 46 16 30 83% ______1 Southminster has 25 licensed assisted living beds. Five of the licensed assisted living beds were taken offline during fiscal year 2010 but were brought back online in October 2014. 2 Residents who are admitted directly to the Health Center without first occupying an independent living unit at Southminster. 3 Residents who originally occupied an independent living unit, but who have transferred permanently to the Health Center.

Wait List. The following table summarizes Southminster’s wait list status for independent living units on the dates indicated. Individuals on the wait list have each made a refundable $1,000 deposit. A substantial number of current and former Residents have come from the wait list. Wait List for Future Occupancy Date Number on List 03/31/18 590 09/30/17 549 09/30/16 498 09/30/15 470 09/30/14 381 09/30/13 297

Independent Living Units Becoming Available Due to Attrition. The following table summarizes Resident attrition in the independent living units: Independent Living Units Becoming Available Due to Resident Attrition

Permanent Transfer to Voluntary Period Death Health Center Withdrawal Total 10/01/17 – 03/31/18 5 6 1 12 10/01/16 - 09/30/17 12 23 1 36 10/01/15 - 09/30/16 11 10 3 24 10/01/14 - 09/30/15 6 10 3 19 10/01/13 - 09/30/14 8 16 2 26 10/01/12 - 09/30/13 11 11 2 24

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THE PROJECT

General. The Corporation’s existing health center has aged and, after implementing minor renovations and studying newer models of care delivery, the Board and management of the Corporation determined the health center should be replaced. Due to recent years of consistently high occupancy and a strong wait list in independent living, the Corporation has also elected to pursue the addition of 66 independent living apartments, housed in two smaller so-called “hybrid” apartment buildings that are similar to both apartment and cottage living, resulting in the “hybrid” label. Space is limited on Southminster’s urban campus, so significant consideration was given to design and land use strategies to make room for additional independent living units, including taking 18 existing independent living units offline. It is anticipated that additional independent living units will be added in the space to be vacated once the new health center opens, however due to uncertainties around timing, cost, and financing, those additional units are not incorporated into the proposed financing or financial feasibility study.

Specifically, the expansion of the existing facilities includes (i) construction of a 30 independent living unit hybrid apartment building (“Terraces 1”) that is being constructed on a footprint resulting from the demolition of eight independent living cottage units, (ii) construction of a replacement health center (the “Replacement Health Center”) that requires the demolition of two cottages units and the wing of the main building housing a third-party hospice provider and eight independent living homes, (iii) construction of another 36 independent living unit hybrid apartment building (“Terraces 2,” and together with Terraces 1, the “Terraces”) on land recently acquired from an adjacent church, and (iv) the subsequent renovation of the existing health center space expected to house approximately 23 independent living homes.

For purposes of this Official Statement, items (i), (ii) and (iii) above are considered to be the “Project,” which is defined as Terraces 1, Terraces 2, the Replacement Health Center, additional common areas, kitchen expansion, office spaces for environmental services operations (housekeeping, maintenance, transportation), and a reconfigured loading dock.

Independent Living Units. The design of the Terraces is sometimes referred to as a “hybrid” since each building captures the socialization and community sometimes found in larger buildings along with some of the independent experience often times associated with cottages. Each of the Terraces will have two elevators and access to underground parking. Furthermore, most units are planned to have at least two sides with windows and outside patios, greatly enhancing lighting and visual access to the outdoors.

In order to finance a portion of the cost of constructing the Terraces, the Corporation obtained a bank term loan in August 2017 in a principal amount of up to $34,000,000 (the “Original Taxable Bank Loan”). In May 2018, the original loan documents were amended to provide for an additional term loan in a principal amount of up to $5,000,000 (the “Additional Taxable Bank Loan” and collectively with the Original Taxable Bank Loan, the “Taxable Bank Loan”). The Taxable Bank Loan is secured by Obligation No. 15 on parity with all other Obligations outstanding under the Master Indenture, including Obligation No. 16. See “FINANCIAL INFORMATION—Other Bonds/Debt” below for more information about the Taxable Bank Loan.

In December 2017, the Corporation signed a construction contract with Samet Corporation and construction began on the building and furnishing of Terraces 1. See “Construction Contracts” below for more information regarding the construction contract for Terraces 1. This 30-unit project is currently 100% reserved, with 10% deposits received for each unit, as summarized in the Terraces 1 Reservation History table below. The Corporation has assumed the construction of the last unit will be completed by January 2019 and that Terraces 1 will become available for occupancy in February 2019 and be filled by July 2019. The entire cost of Terraces 1 is approximately $19.9 million, including FF&E, etc.

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The reservation history and current status of reservations for the 30 Terraces 1 units is as follows as of March 31, 2018:

Number of Net Cumulative units Number of reservations Cumulative percentage of total Date reserved cancellations for the month units reserved units reserved 2017 October 21 (1) 20 20 66.7% November 8 (2) 6 26 86.7% December 2 - 2 28 93.3% 2018 January 2 - 2 30 100% February - - - 30 100% March 1 (1) 0 30 100%

Zoning has been approved and design is currently underway for Terraces 2, with construction expected to begin in the fall of 2018. Pre-sales for Terraces 2 are expected to begin in the summer of 2018; however, the Corporation has identified indications of interest that it believes, based on conversion rates for Terraces 1, will result in an estimated 18 rapid pre-sales of Terraces 2. Like Terraces 1, Terraces 2 is expected to be constructed by Samet Construction and a GMP contract is expected to be executed in September 2018. The Corporation estimates, aided by having the same contractor build Terraces 1, that the cost of building Terraces 2 will be approximately $34.5 million. The Corporation expects that Terraces 2 will be completed and available for occupancy by August 2020 and is assuming Terraces 2 will be filled by March 2021. Upon completion of the Terraces, Southminster’s independent living unit configuration will be as set forth in the table below: Independent Living Units Upon Completion of the Terraces Type of Independent Living Unit Number of Units1 Square Footage Apartments: Studio 2 292 One-bedroom 49 598-782 One-bedroom with den 12 955-1,137 One-bedroom with den – 2007 expansion 24 1,080-1,390 Two-bedroom 44 955-1,345 Two-bedroom– 2007 expansion 29 1,280-2,260 Two-bedroom– Terraces 12 1,383-1,563 Two-bedroom with den 14 1,276-1,995 Two-bedroom with den – 2007 expansion 36 1,465-3,190 Two-bedroom with den – Terraces 54 1,593-2,156 Subtotal 276 Cottages: Small sunroom 4 1,500 Large sunroom 25 1,800-1,900 Subtotal 29

Total 305 ______1 Number excludes two units currently being used as guest accommodations. An additional four apartments will be taken offline due to the construction of the Project. One cottage being used during construction of the Project will be added back into inventory after completion of the Project.

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Replacement Health Center. The Replacement Health Center will be constructed by Rodgers Builders, Inc. Early site work and demolition started in April 2018.

The Replacement Health Center will house 60 skilled nursing beds and 25 assisted living units. All of the 60 skilled nursing beds will be private rooms with private baths, and all 25 assisted living units will be one-bedroom apartments rather than studios. The Replacement Health Center will also include up to 12 hospice beds to replace the 10 hospice beds currently operated on Southminster’s campus by a third party non-profit provider. The Replacement Health Center will include common spaces that link the Replacement Health Center to existing independent living areas of campus and will also include a new event and dining venue, lounge and library stack room. As part of the health center construction work, Southminster’s current kitchen operation is expected to be expanded in order to meet the demands of a growing independent living population. The Replacement Health Center is also designed for new offices, storage, and staging areas for environmental services operations, such as housekeeping, maintenance, and transportation. As part of the construction of the Replacement Health Center, Southminster’s loading dock, which receives daily delivery of food and medical supplies, will be reconfigured.

Renovation of the space left vacant by Southminster’s existing health center location is in the very early phases of design. The Corporation currently expects a portion of that renovation to be financed by a future bank loan, incurred once Terraces 1 is occupied, Terraces 2 is presold and under construction, and the Taxable Bank Loan is being repaid. No permits or approvals or a GMP construction contract has been received on those proposed renovations, and the revenues, expenses and future impact of such additional independent living units is not included in the financial forecast given the uncertainty around timing, cost, and financing terms.

The Architect. The architect for all elements of the Project is Perkins Eastman Architect, D.P.C. (“Perkins Eastman”). Perkins Eastman is an international planning, design, and consulting firm founded in 1981. The firm has eleven offices across the United States and four offices overseas, with a professional staff of more than 1,000. The firm has completed projects in 46 states and 40 countries.

Perkins Eastman has extensive experience in working with senior living organizations to reinvent their communities for the future consumer. The firm has been instrumental in changing the culture of long-term care beginning with a small-scale memory support residence for individuals with Alzheimer’s disease to the creation of a new national prototype for The Green House project. Perkins Eastman senior living continuum experience includes continuing care retirement communities, independent living apartments and cottages, assisted living, long term care environments, memory support and geriatric healthcare facilities.

Perkins Eastman has 20 principals committed to senior living, 30 AIA Design for Aging awards, 100+ industry citations for excellence, 500+ master plans for senior living communities, 35,000+ skilled nursing rooms, and 600+ completed projects, 90% of which integrate architecture and interior design services.

The Contractors. The Corporation has engaged Rodgers Builders, Inc. (“Rodgers”) as General Contractor for the Replacement Health Center. Founded in 1963, Rodgers is a privately held and locally owned construction manager headquartered in Charlotte, North Carolina. Rodgers offers full service preconstruction and construction management services, with focused expertise in markets including senior living, healthcare, education, commercial/mixed use, cultural and community, and concrete services. Since the mid-80s, Rodgers teams have helped deliver many of the region’s most recognized senior living projects. This work includes over $500 million on 16 senior living campuses.

In 2008, Rodgers completed comprehensive preconstruction and construction services for the expansion and renovation program at Southminster described under “INTRODUCTION-History” on the

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first page of this Appendix A. The project scope included the addition of 89 new independent living apartments to the campus. Renovation work included upgrades to the central energy plant, dining room, healthcare center and multi-purpose areas of the community.

Samet Construction (“Samet”) is engaged as the contractor for the Terraces, although there is not yet an executed construction contract for Terraces 2. Samet is a regional general contracting corporation founded in 1961. Samet is a family owned business, currently under the leadership of Arthur Samet, son of founder Norman Samet. The corporation has offices in Greensboro, Raleigh, and Charlotte, North Carolina, and Charleston, South Carolina, with a staff of approximately 180. Samet performs a variety of project types, including health care, senior living, multi-family, educational and industrial/commercial. Samet’s annual volume is approximately $300 million. Samet’s senior living experience includes continuing care retirement communities, independent living apartments, and assisted living facilities, ranging from ground-up construction to extensive renovation projects.

The Owner’s Representative. The Corporation has engaged John R. Nicolay, LLC to serve as its owner’s representative in connection with the Project, consulting on planning, design, construction and occupancy phases. Mr. Nicolay has a mechanical engineering degree from Union College in Schenectady, New York. Beginning in 1978, Mr. Nicolay worked with McDevitt and Street Company, which was subsequently acquired by Bovis Construction, and ultimately merged with Lend Lease. In 1999 he established the Senior Living Group within Lend Lease. This division’s work included 67 continuing care retirement community projects for 39 clients, bringing $1.8 billion in revenue to the company. He has extensive experience in sales, marketing and operations leadership in the building industry. Since retiring as executive vice president from Lend Lease in 2015, Mr. Nicolay has been providing consulting services in the areas of strategic business planning and sales strategy/implementation to design and construction firms as well as project management services to senior housing providers.

The Construction Contracts.

Terraces 1: The Terraces 1 construction project is being performed by Samet, as general contractor, pursuant to a GMP Contract (AIA ® Document A102™ - 2007 Standard Form of Agreement Between Owner and Contractor) between the Corporation and Samet dated December 7, 2017 (as the same may be amended, the “Terraces 1 Contract”). Construction began in December 2017 and is approximately 16% complete as of April 30, 2018.

Under the Terraces 1 Contract, the guaranteed maximum price is $18,414,239, subject to additions and deductions by change order in accordance with the Terraces 1 Contract. The contractor’s fee will be 4.85% of the Cost of the Work (as defined in the Terraces 1 Contract). The Terraces 1 Contract requires Samet to substantially complete construction of Terraces 1 not later than 407 days from the date of commencement. In the event Samet does not substantially complete Terraces 1 within such time period, Samet will be liable for liquidated damages commencing on the fifteenth day following expiration of the time for substantial completion at daily rates specified in the Terraces 1 Contract. The Corporation must pay Samet an early completion bonus at daily rates specified in the Terraces 1 Contract if Samet substantially completes Terraces 1 more than 15 days early, subject to a maximum payment of $103,000. Such bonus is only available to Samet if it provides at least 90 days written notice to the Corporation of intent to achieve early completion and executes a change order modifying the duration to achieve substantial completion.

Samet is required under the Terraces 1 Contract to furnish the Corporation with a performance bond and a labor and materials payment bond in the amount of 100% of the Cost of the Work (as defined in the Terraces 1 Contract).

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Replacement Health Center: The Replacement Health Center construction project is being performed by Rodgers, as general contractor, pursuant to a GMP Contract (AIA ® Document A102™ - 2007 Standard Form of Agreement Between Owner and Contractor) between the Corporation and Rodgers dated May 7, 2018 (as the same may be amended, the “Replacement Health Center Contract”).

Under the Replacement Health Center Contract, the guaranteed maximum price is $57,165,009, subject to additions and deductions by change order in accordance with the Replacement Health Center Contract. The contractor’s fee will be 2.3% of the Cost of the Work (as defined in the Replacement Health Center Contract), except that additional work pursuant to change orders or directives will require a contractor’s fee of 4.6% of the Cost of the Work. The Replacement Health Center Contract requires Rodgers to substantially complete construction of the Replacement Health Center not later than 856 days from the date of commencement. In the event Rodgers does not substantially complete the Replacement Health Center within such time period, Rodgers will be liable for liquidated damages commencing on the 31st day following expiration of the time for substantial completion at daily rates specified in the Replacement Health Center Contract.

Rodgers is required under the Replacement Health Center Contract to furnish the Corporation with a performance bond and a labor and materials payment bond in the amount of the guaranteed maximum price of the Replacement Health Center Contract.

Terraces 2: The Terraces 2 construction project will also be performed by Samet, as general contractor. It is expected that the GMP contract for Terraces 2 will be substantially similar to the Terraces 1 Contract, with similar terms for liquidated damages and payment and performance bonds.

A number of steps are being taken to mitigate any cost escalation of Terraces 2. First, the design of Terraces 2 is very similar to Terraces 1, except that Terraces 2 include underground parking and six more units, and the work is being performed by the same architect and contractor. Second, at the completion of schematic design for Terraces 2, Samet provided an estimate of $33,927,000 for the GMP of Terraces 2, which also includes a 6% project contingency, a 3% builders contingency and 5% inflation of pricing totaling about $4.19 million in builder-estimated contingencies within the construction cost estimate. The schematic design estimate was reviewed by zumBrunnen, Inc., which agreed with the reasonableness of the estimate. In addition to those contingencies, management also secured $2.5 million of financing capacity greater than is expected to be needed as a part of the Taxable Bank Loan (see “THE PROJECT—Independent Living Units” above and “FINANCIAL INFORMATION—Other Bonds/Debt” below for more information about the Taxable Bank Loan). The Corporation also has a total of approximately $4.86 million in project contingency that is available to be applied to any element of the Project, including Terraces 2.

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 and retained by the Corporation to review pre-closing documentation, construction progress, quality, and contractor requisition requests on a monthly basis for the Project during the construction period.

A representative list of zumBrunnen’s senior living projects includes the following:

Sponsor Project Project Cost

The Groves at Lincoln 100 Congregate Care Units $76 million Deaconess Abundant Life Communities 66 Cottages, Lincoln, MA 30 Rental Apartments

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Sponsor Project Project Cost

Aberdeen Heights 234 Independent Living Units $87 million Ashfield Active Living & Wellness 3 Guest Apartments Communities 30 Assisted Living Units Kirkwood, MO 15 Memory Support AL Units 38 Skilled Nursing Beds

Park Place of Elmhurst 173 Independent Living Units $87 million Providence Life Services 10 Catered Living Units Elmhurst, IL 46 Assisted Living Units 20 Memory Support AL Units 37 Skilled Nursing Beds

Saint John’s on the Lake 88 Independent Living Units $60 million Saint John’s Communities Milwaukee, WI

Mirador 125 Independent Living Units $70 million Senior Quality Lifestyles Corporation 44 Assisted Living Units Corpus Christi, TX 18 Memory Support AL Units 41 Skilled Nursing Beds

15 Craigside Place at Nu’uanu 170 Independent Living Units $90 million Arcadia Retirement Residence (also licensed as Assisted Living Honolulu, HI Units) 41 Skilled Nursing Beds

Stayton at Museum Way 181 Independent Living Units $165 million Senior Quality Lifestyles Corporation 7 Catered Living Units Fort Worth, TX 42 Assisted Living Units 20 Memory Support ALUs 46 Skilled Nursing Beds

Longwood at Oakmont 89 Independent Living Units $67 million Presbyterian Senior Care 20 Assisted Living Units Oakmont, PA 40 Skilled Nursing Beds

Mirabella at South Waterfront 224 Independent Living Units $225 million Pacific Retirement Services 16 Residential Living Apartments Portland, OR 21 Memory Support AL Units 20 Skilled Nursing Beds

SearStone CCRC 131 Independent Living Units $157 million Samaritan Housing Foundation 38 Independent Living Estate Cary, NC Homes 16 Skilled Nursing Beds 8 Assisted Living Units

The Lutheran Home at Miller's Grant 205 Independent Living Units $74.1 million Ellicot City, MD 36 Independent Living villas 20 Assisted Living Units 13 Skilled Nursing Beds

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Sponsor Project Project Cost

The Barrington 56 Assisted Living Units $135.5 million Carmel, IN 26 Memory Support 48 Skilled Nursing Beds

The Summit at Rockwood South Hill 65 Independent Living Units $110 million Spokane, WA

Permits and Zoning. The Corporation has received all approvals and permits necessary for the construction of Terraces 1. The Corporation expects to receive all approvals and permits necessary for the construction of the Replacement Health Center prior to the issuance of the Bonds. No new Certificate of Need is required for the Replacement Health Center since it is a replacement facility. Zoning approval has been obtained for the construction of Terraces 2; however, a GMP construction contract and final building permit are not expected to be received until September 2018.

SERVICE AREA AND COMPETITION

The Corporation’s independent living primary market area (“PMA”) from which the majority of residents would originate before assuming occupancy at Southminster has been defined as a seven zip code area extending approximately two to three miles west, seven to eight miles south and east, and six to seven miles north of Southminster.

There are five existing comparable retirement communities within the PMA, including Southminster, and two comparable retirement communities near the PMA. For more complete information regarding the PMA and the comparable retirement communities within and near the PMA, see “Summary of Significant Forecast Assumptions and Accounting Policies – Market Assessment” in the Financial Feasibility Study attached as Appendix C to this Official Statement. The Financial Feasibility Study should be read in its entirety, including all notes and assumptions set forth therein.

ADMISSIONS POLICIES

Admission Requirements. Admission to a Southminster independent living residence is open to both married and single persons of all races, religions and residence locations who are at least 62 years of age.

The prospective Resident must submit a completed application for admission, a personal health history, and a confidential financial statement or other evidence of sufficient financial means for review and approval. To occupy an independent living unit, the prospective Resident must pay an entrance fee (the “Entrance Fee”). A deposit equal to ten percent of the Entrance Fee for the type of accommodation and refund plan selected is required to initiate the admissions process.

Health Criteria. As a continuing care retirement community, the Corporation reserves the right to require the prospective Resident to have a physical examination by the Medical Director or another physician selected by the Corporation. The Corporation’s primary objective is to determine that the applicant is able to live independently at Southminster and is able to attend to activities of normal living.

Financial and Insurance Criteria. Because the Corporation is not certified as a Medicare and Medicaid provider, the Corporation must feel comfortable with the prospective Resident’s ability to handle current and future financial demands that may be placed on the Resident while at Southminster. For that reason, disclosure of assets, sources of income and personal expenses is generally required as part

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of the application process. In cases where the family may be providing support, financial disclosure by the family members also may be required.

As additional protection against future health care costs and as a condition for consideration for admission, the prospective Resident is required to have applied for, carry, and maintain Medicare Parts A and B and one supplemental health insurance policy or equivalent insurance coverage acceptable to the Corporation.

RESIDENCY AGREEMENTS

Residency Agreement. The services to be provided by the Corporation and the respective rights and duties of the Corporation and a Resident are set forth in a Residence and Services Agreement entered into by the Corporation and each Resident at the time the prospective Resident’s 10-percent deposit is accepted (the “Residency Agreement”). Prospective Residents applying for direct admission to the Health Center are subject to the same terms and conditions as those applying for independent living units. Southminster’s Residency Agreements are considered a “modified” or “Type B” continuing care contract.

Transfers to Other Independent Living Units. Transfers between independent living units are generally allowed subject to the Corporation’s approval, availability of the desired accommodation, and the priority of the request as determined by the Corporation. Restrictions may apply, as well as additional charges.

When moving to a higher-priced accommodation, an additional Entrance Fee will be required. The Corporation’s current transfer policy states that the amount of this extra Entrance Fee will be the difference between the then (the time of move-in) Entrance Fee for the unit being vacated and the current Entrance Fee of the new unit being moved into. A change in type of Entrance Fee plan is generally not available, because of differences in the amortization and refund provisions of the two plans. The additional Entrance Fee paid will be added to the original Entrance Fee and amortized for refund purposes from the same date as the original Entrance Fee.

Permanent Transfers to the Health Center. If a determination is made by the Director of Health and Wellness, in consultation with the Executive Director, other healthcare professionals and the Resident’s family that a Resident’s transfer to the Health Center or to a hospital likely will be permanent in nature, the Resident will surrender his or her rights and use of the independent living unit or Health Center accommodations, as the case may be, previously occupied by the Resident. If, however, the Director of Health & Wellness subsequently determines that the Resident can resume occupancy in accommodations equivalent to those previously occupied by the Resident, the Resident shall have priority to such accommodations as soon as they become available with no additional Entrance Fee.

Marriages/New Second Occupant. If a Resident marries someone other than another Resident, the Corporation will admit the spouse for residence so long as he/she meets the requirements for entry, enters into a Residency Agreement, and pays the second person entrance fee as specified in the Agreement. The Corporation charges a service fee (the “Service Fee”) based on the size of the unit and the number of occupants, which will change to reflect the second person rate and the size of independent living unit occupied. Should the new spouse not meet the requirements for residency, the original resident may terminate the Residency Agreement in accordance with the terms outlined in the Residency Agreement, or admission may be granted under special circumstances and with the negotiated fees as mutually agreed to in writing by all parties to the Agreement.

If one Resident marries another Resident, each of their contracts shall remain in place (including treatment of refunds). If the Residents choose to live together in one residence, the only change to the

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contract will be that the monthly fees for the Resident vacating their residence will be reduced to a “Second Occupant” monthly fee.

Financial Assistance. Although most Residents at Southminster qualify financially to handle their full expenses for services, there are some Residents who are receiving financial assistance from the Corporation. The Corporation does not waive its right to collect any of the fees due from a Resident who receives financial assistance from the Corporation.

Southminster Foundation, Inc. (the “Foundation”) is a nonprofit, tax-exempt corporation that was established by the Corporation to serve primarily as the vehicle to receive and disburse funds for the financial support of Residents at Southminster. The Foundation’s objective was to step in and provide assistance for those Residents at Southminster who may run out of funds due to no fault of the Resident. The Foundation’s funds also had been used to assist individuals with all or a portion of their entrance fee if they are unable to pay. On October 1, 2013, the operations of the Foundation were moved into the Corporation, and the Corporation now directly collects contributions and provides assistance to Residents who have outlived their resources through no fault of their own. Although the Foundation remains a separate legal entity, it is currently inactive. On a limited basis, the Corporation also provides financial assistance to incoming residents who would otherwise not have met the financial qualifications for admission.

TERMINATION AND REFUND POLICIES

Rescission. The Resident may rescind the Residency Agreement within thirty (30) days of the later of the execution of the Residency Agreement or receipt of the disclosure statement required by N.C.G.S. 58-64-20, and the Resident to whom the Residency Agreement pertains will not be required to move to Southminster before the expiration of the 30-day period. The Resident will receive a full refund of the Entrance Fee paid by the Resident within thirty (30) days of notice of rescission less any nonstandard charges and cancellation fees as set forth in the executed Residency Agreement.

Cancellation. Prior to occupancy of a residence, the Residency Agreement may be cancelled if the Corporation denies admission to the Resident; if the Resident dies; if, on account of illness, injury, or incapacity the Resident is precluded from occupying a residence; or if the Corporation notifies the Resident that the residence he or she reserved will not be available for occupancy. The Resident will receive a full refund of the Entrance Fee paid by the Resident within thirty (30) days of date of cancellation less any nonstandard charges as set forth in the executed Residency Agreement.

Termination Prior to Occupancy. In addition to the rights for rescission and cancellation as described above, the Resident or the Corporation may terminate the Residency Agreement prior to occupancy of a residence. The Resident may terminate with thirty (30) days’ notice for any reason other than those described for rescission or cancellation. The Corporation may terminate with thirty (30) days’ notice for just cause as described in the Residency Agreement. The Corporation may decide not to give thirty (30) days’ notice if the Resident is determined to be a danger to him or herself or to others. In the case of a termination by the Resident or the Corporation before occupancy that is not a rescission or cancellation, the Resident will receive a full refund of the Entrance Fee paid by the Resident within thirty (30) days of notice of termination, less a non-refundable fee (currently $10,500), and less any nonstandard charges as set forth in the executed Residency Agreement.

Termination After Occupancy. The Residency Agreement will terminate upon the death of the last surviving Resident that was a party to the Residency Agreement. The Resident may also terminate with thirty (30) days’ notice for any reason. The Corporation may terminate with thirty (30) days’ notice for just cause as described in the Residency Agreement. The Corporation may decide not to give thirty (30) days’ notice if the Resident is determined to be a danger to him or herself or to others.

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The refund of the Entrance Fee will be an amount equal to (a) 50% of the full Entrance Fee if the Resident elected the Fifty Percent Refund Plan; or (b) 90% of the full Entrance Fee if the Resident elected the Ninety Percent Refund Plan; or (c) the full Entrance Fee less 5% of the Entrance Fee for each full calendar month or portion thereof that has elapsed from the date of occupancy to the effective date of termination if the Resident elected the Standard Plan. After twenty (20) full or partial months of occupancy, no refund of the Entrance Fee will be available to the Resident who elected the Standard Plan. Under the Ninety Percent and Fifty Percent Refund Plans, the refund will amortize at the rate of 5% monthly until either the 90% or 50% level is reached, after which the 90% or 50% refund will be allowed.

Refunds are made only upon the total withdrawal or move-out by the Resident from Southminster, whether voluntarily, forced, or by death. There is no refund upon the permanent transfer of the Resident to the Health Center. Similarly, there is no partial refund upon the move or transfer to a Residence with a lesser Entrance Fee. The refund in the case of couples will only be triggered by the death or withdrawal of the surviving spouse.

Any refund due the Resident will be made only after the Resident’s accommodation becomes reserved by a substitute Resident and the substitute Resident has made the full Entrance Fee payment to the Corporation.

Any refund due the Resident shall be offset by the amount of any accrued but unpaid Service Fees or other charges, including accrued interest thereon, due from the Resident.

SERVICES

In the Residency Agreement, the Corporation agrees to provide Residents with the following standard services:

Common Areas. The Corporation will provide common areas and amenities for Resident use and benefit. Common areas include at a minimum, dining rooms, multi-purpose rooms, spaces and facilities for activities, lounges, a chapel, a library, a wellness center that includes a pool and exercise facilities, and facilities for beautician services. The Corporation may also provide facilities for limited banking services, facilities for the sale of sundry items, and other amenity areas dependent on the Corporation’s determination of demand or the availability of providers.

Utilities, Communications, and Alarm Systems. The Service Fee includes water, sewer, one telephone line (including local telephone service as provided through Southminster), trash removal, basic cable television service (or equivalent), access to premium cable television service (or equivalent), an urgent call system, a fire alarm system, and a carbon monoxide detector (where required). Electricity is included in the fee except for in cottages where it is an additional cost. Gas is available in all cottages and is an additional cost. Gas may be available in some other residences but may be an additional cost. Residents are responsible for the cost of long-distance telephone calls, premium cable television service, and internet access. Additional telephone lines may be available for additional cost. Internet services are available for an additional cost.

Meals. The Independent Living Service Fee includes access to Southminster’s dining facilities. The dining plan provides a monthly allowance equivalent to one (1) dinner for each day in the month, usable anytime within the month in a Southminster dining room. The amount of allowance, as well as policies related to the plan, may be changed at any time by the Corporation. The Health Center Service Fee includes three (3) meals per day.

Housekeeping Services. Service Fees include housekeeping services on at least a weekly basis. Housekeeping includes at a minimum vacuuming, dusting, cleaning of baths and kitchens, changing of

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bed linens, and trash removal. Other housekeeping services may be available at an additional cost. The independent living Service Fee includes weekly laundering of personal linens as defined in Southminster policy. The Health Center daily fee includes bed and bath linen provided by Southminster. Some Residences are equipped with a washer and dryer. The Corporation provides washers and dryers in common areas at no additional cost. Should the Corporation determine that safety, sanitation, or health issues arising in individual residences are the result of actions or inactions on the part of the Resident, the Corporation will provide, at the Resident’s expense, whatever additional housekeeping or laundry services the Corporation determines are necessary to mitigate the issues.

Maintenance and Repairs. The Corporation is responsible for maintenance, repair, and replacement of property, furnishings, and equipment owned or leased by the Corporation. Other maintenance services may be available to Residents at an additional cost.

Groundskeeping. The Corporation is responsible for basic groundskeeping services including lawn, tree, and shrubbery care for those items that are provided by the Corporation. The Corporation, at its sole discretion, may make changes to lawns, trees, shrubs, or any other landscaping on its property. Residents may plant items approved by the Corporation in areas determined by the Corporation, but are responsible for maintenance of those areas and plants.

Life Enrichment. Various social, recreational, spiritual, educational and cultural programs and activities are provided at Southminster for the Resident to enjoy. However, some activities may involve additional charges.

Parking. The Service Fee includes one (1) assigned parking space for each Residence provided that at least one party to the Residency Agreement owns a licensed personal vehicle and has a valid driver’s license. Covered or enclosed parking spaces may be subject to additional charges. Southminster policy governs registration requirements, space assignment and use, allowed vehicles, and other terms for parking.

Staffing. The Corporation will have staff present at Southminster twenty-four hours per day, every day of the year.

Transportation. The Service Fee includes scheduled local transportation for shopping trips, medical appointments, and occasional activities and events. Transportation for special, personal or group trips may be available and may be at an additional cost.

Health Services. Included in the Health Center Service Fee are facilities, equipment, staff, and services that are required to maintain current licenses and services permitted and typically provided for each licensed level of health care. At a minimum, the following services are included:

• a licensed physician is retained as Medical Director to consult on the medical aspects of the licensed levels of care, and

• licensed or registered nurses staff the licensed assisted living and nursing center and can respond to medical emergencies in independent living units twenty-four (24) hours per day.

Other Services. Other services for residents of the Health Center include diet planning by a registered and licensed dietitian, assisted bathing facilities, goal-oriented care planning, social services, and planned activities.

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Other Health Services Not Included in the Service Fee. Additional health services not included in the Health Center daily fee may include, but are not limited to: physician services; dental work; physical, occupational, and speech therapy; rehabilitative treatments and equipment; ambulance services; outpatient nursing services; pharmacy services and medicines; laboratory services; durable medical equipment; food supplements; personal care and incontinence supplies or other health related items; and nursing, care planning, case management, or personal care services for Residents in Independent Living or above what is required for each licensed level of health care in the Health Center. Some services may be available only for Residents in the Health Center or only for Residents in Independent Living. These additional services are subject to additional charges by the Corporation or by third-parties that provide the services on the Resident’s or on the Corporation’s behalf. In some cases Southminster policy may require that a third-party provider be approved by the Corporation prior to providing services on Southminster property.

FEE STRUCTURE

Entrance Fees. The Entrance Fee gives the Resident the right to have a residence or health care accommodation at Southminster for life, while the Corporation maintains and insures the property. Payment of the Entrance Fee does not provide any deeded ownership rights. It also provides the Resident with the use of all public and common areas, as well as guaranteeing priority access to the Health Center.

Refundable/Non-refundable Entrance Fees. Entrance Fees are based on the size and type of Residence selected. The Corporation currently offers three types of Entrance Fee plans. The Standard Plan provides for a declining refund which reaches zero after a defined period. Approximately 80% of Residents at Southminster have Residency Agreements under the Standard Plan. The Corporation also offers two types of Refundable Plans: a 50% Refundable Plan and a 90% Refundable Plan. Residents selecting either of the Refundable Plans must pay the Standard Plan Entrance Fee plus the applicable surcharge factor determined at least annually by the Corporation. Residents selecting a refundable plan will be entitled to a refund of at least 50% or 90% (based on the Plan originally selected) of the originally paid full Entrance Fee when the Residency Agreement is terminated. Actual payment of the refund is dependent on re-occupancy of the Residence. See “TERMINATION AND REFUND POLICIES” above.

Payment of Entrance Fees. Ten percent (10%) of the Entrance Fee is due and payable upon execution of a Residency Agreement. The balance will be due and payable on the date of occupancy.

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Entrance Fee Schedules. As of March 31, 2018, the Entrance Fee schedules are as follows:

Entrance Fees (Current) Number Square Type of Unit of Units1 Footage Standard

Apartments: Studio 2 292 $45,000 One Bedroom 51 598-800 $107,400-$144,400 One Bedroom with den 12 955-1,137 $189,400-$257,400 One Bedroom with den – 24 1,080-1,390 $254,600-$324,600 2007 expansion Two Bedroom 46 955-1,345 $197,400-$314,400 Two Bedroom with den 14 1,256-1,995 $275,000-$475,000 Two Bedroom – 2007 29 1,280-2,260 $325,600-$560,600 expansion Two Bedroom with den – 36 1,465-3,190 $371,600-$795,600 2007 expansion Second Occupant $25,000

Cottages: Small Sunroom 4 1,500 $295,000 Large Sunroom 24 1,800-1,900 $337,000-375,000 Second Occupant $25,000 Health Center: Assisted Living 25 256-308 $25,000 Nursing Care Units 60 150-200 $10,000-12,500 ______1 As of March 31, 2018, prior to construction and completion of the Terraces. Excluding two units being used as guest rooms.

Health Center Entrance Fees apply only to direct admissions. The 50% and the 90% Refundable Plan fee options are not available for direct admissions to the Health Center.

As referenced above, the Entrance Fees for the 50% Refundable Plan and the 90% Refundable Plan are based on the Entrance Fees for the Standard Plan multiplied by a factor. The current multiple for the 90% Refundable Plan is 2.0, and the current multiple for the 50% Refundable Plan is 1.4. The Corporation may modify the multiples at any time and may also limit the number of a particular type of refund plan available to prospective residents.

Service Fees. The Service Fee is based on the size and type of the unit and the number of occupants, which may be monthly (while in independent living) or daily (while in the Health Center) as shown in the chart below. Service Fees are subject to change upon thirty (30) days’ prior written notice; however, fees are generally adjusted on or about October 1 of each year.

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Schedule of Average Service Fees in Effect for the Most Recent Five Fiscal Years

For Fiscal Years Beginning October 1, Type of Unit 2013 2014 2015 2016 2017 Independent Living Service Fees (per month)

Extended Studio $2,437 $2,516 $2,591 $2,669 $2,749 One Bedroom $2,915 $3,011 $3,102 $3,196 $3,283 One Bedroom with den $3,137 $3,239 $3,336 $3,436 $3,539 One Bedroom with den–2007 Expansion $3,357 $3,466 $3,570 $3,677 $3,787 Two Bedroom $3,165 $3,276 $3,374 $3,521 $3,609 Two Bedroom with den $3,518 $3,632 $3,741 $3,859 $3,975 Two Bedroom–2007 Expansion $3,654 $3,772 $3,886 $4,009 $4,134 Two Bedroom with den–2007 Expansion $4,020 $4,150 $4,275 $4,403 $4,535 Cottage w/standard sunroom $3,129 $3,231 $3,328 $3,428 $3,531 Cottage w/large sunroom $3,240 $3,345 $3,445 $3,548 $3,654 Second Occupant Rate $1,700 $1,755 $1,808 $1,862 $1,900 Health Center Service Fees (per day)1 Assisted Living $199 $205 $211 $217 $224 Assisted Living with memory support $262 $271 $279 $287 $296

Nursing Care: Semi-private $226 $233 $240 $247 $254 Private $299 $309 $318 $328 $338 ______1 Rates shown are for current Residents subsequently admitted to the Health Center. Rates for Residents admitted directly to the Health Center are higher than the rates shown.

Charges for Occupancy in the Health Center. The Service Fee during a Resident’s occupancy of the Health Center is on a per diem basis. Upon entering independent living, each Resident is granted a credit of fourteen (14) days’ worth of the Service Fee for accommodation in the Health Center (each such day a “Health Center Credit Day”). On each subsequent anniversary of their date of occupancy, unused Health Center Credit Days for each Resident may be carried forward and, for each Resident residing in independent living, up to fourteen (14) new Health Center Credit Days are granted, provided that the total accumulated for each Resident never exceeds forty-four (44) days. Health Center Credit Days are non- transferable, must be used only as defined in the Residency Agreement and in the Corporation’s policy and have no value if not used. No new Health Center Credit Days are granted after a permanent move to the Health Center. Unless otherwise specified by the Corporation’s policy, for each day a Resident occupies or holds an accommodation in the Health Center, whether or not that accommodation is their residence, the Resident must use a Health Center Credit Day until all such accumulated days are used. When a Resident uses a Health Center Credit Day, one day’s worth of the Service Fee for an accommodation in the Health Center is waived, but the Resident will be charged for other items, such as medical supplies, that are not included in the Resident’s independent living Service Fee. A Health Center daily dining charge of $20 will also be applied to the resident’s declining balance meal plan while they are staying in the Health Center. While a Resident uses Health Center Credit Days, their Service Fees continue based on the independent living unit from which they moved or transferred. For each day a Resident occupies an accommodation in the Health Center without the use of a Health Center Credit Day, whether or not the accommodation is their residence, the Resident will be charged the Service Fee for the Health Center accommodation. Health Center Credit Days are not available for residents who were direct admissions to the Health Center.

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FINANCIAL INFORMATION

Summary Statement of Operations. Summary statements of operations and changes in net assets (deficit) of the Corporation for the three fiscal years ended September 30, 2015 through 2017 and the six months ended March 31, 2017 and 2018 follow. The financial statements for fiscal years 2015 through 2017 were derived from the combined financial statements of the Corporation and the Foundation audited by CliftonLarsonAllen LLP, independent auditors. Copies of the combined financial statements of the Corporation and the Foundation for the fiscal years ended September 30, 2016 and 2017 are included in Appendix B. The summary statements of operations and changes in net assets (deficit) of the Corporation for the six months ended March 31, 2017 and 2018, are derived from the unaudited financial statements of the Corporation. The unaudited financial statements include all adjustments, consisting of normal recurring accruals that management of the Corporation considers necessary for a fair presentation of the financial position and results of operations for the periods covered by such unaudited financial statements. The operating results of the Corporation for the six months ended March 31, 2018 are not necessarily indicative of results that may be expected by the Corporation for its entire fiscal year ending September 30, 2018. The data set forth in the table on the following page should be read in conjunction with the combined financial statements and related notes included in Appendix B.

[The remainder of this page is left blank intentionally.]

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Six Months Ended March 31, Years Ended September 30, (unaudited) 2015 2016 2017 2017 2018 REVENUES, GAINS, AND OTHER SUPPORT Net Resident Service Revenue $19,884,679 $21,289,360 $21,999,766 $11,037,966 $11,252,178 Earned Entrance Fees 5,628,910 5,510,166 5,775,668 2,949,572 3,087,262 Investment Income 886,230 227,368 1,468,671 974,088 385,929 Contributions 267,904 357,344 285,435 123,551 101,479 Net Assets Released From Restrictions 44 787 2,106 - 48,375 Other Income 354,520 346,312 411,879 175,252 198,019 Total Revenues, Gains, and Other Support 27,022,287 27,731,337 29,943,525 15,260,429 15,073,242

OPERATING EXPENSES Salaries, Wages, and Employee Benefits 10,545,560 11,476,369 12,907,908 6,324,260 6,741,990 Maintenance, Housekeeping, and Utilities 1,916,084 2,137,941 2,072,799 1,058,109 1,224,557 Food and Related Supplies 1,296,517 1,308,198 1,385,183 670,783 691,215 Insurance 206,041 190,803 185,504 96,156 93,044 Consulting and Professional Fees 135,837 116,562 156,249 71,284 115,914 Other Operating Expenses 1,295,112 1,494,948 1,799,456 728,681 856,928 Depreciation 6,372,869 7,190,471 7,770,471 3,640,667 3,046,475 Amortization of Deferred Marketing Costs 80,170 80,170 80,170 40,085 40,085 Interest Expense 3,749,150 3,646,793 2,480,444 1,249,460 1,218,681 Loss on Disposal of Assets 40,009 61,911 29,888 17,988 7,235 Total Operating Expenses 25,637,349 27,704,166 28,868,072 13,897,473 14,036,124

OPERATING INCOME 1,384,938 27,171 1,075,453 1,362,956 1,037,118

Mark-to-Market Adjustment of Derivative Contracts 15,137 983 - - -

Loss on Refunding of Debt - - (4,063,993) (4,063,993) -

EXCESS (DEFICIT) OF REVENUES OVER (UNDER) EXPENSES 1,400,075 28,154 (2,988,540) (2,701,037) 1,037,118

Change in Net Unrealized Gains (Losses) on Investments (1,412,893) 1,703,872 1,007,399 (13,355) 402,002

(INCREASE) DECREASE IN UNRESTRICTED NET DEFICIT (12,818) 1,732,026 (1,981,141) (2,714,392) 1,439,120

INCREASE (DECREASE) IN TEMPORARILY RESTRICTED NET ASSETS 481 1,466 48,289 - (48,375)

CHANGE IN NET ASSETS (DEFICIT) (12,337) 1,733,492 (1,932,852) (2,714,392) 1,390,745

NET DEFICIT - BEGINNING OF YEAR (14,153,345) (14,165,682) (12,432,190) (12,432,190) (14,365,042)

NET DEFICIT - END OF YEAR $(14,165,682) $(12,432,190) $(14,365,042) $(15,146,582) $(12,974,297)

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Management’s Discussion and Analysis.

From fiscal year 2015 through the six months ended March 31, 2018, the Corporation maintained high occupancy resulting in positive financial results. The Corporation has continued to strengthen its financial position during the period with debt service coverage ratios ranging from 1.46 to 2.39 and Days’ Cash on Hand from 437 to 496.

Six months ended March 31, 2018 compared to six months ended March 31, 2017.

For the six months ended March 31, 2018, the Corporation had positive operating income of $1,037,118, which when combined with positive market performance of $402,002 and temporarily restricted net assets of $48,375 being released from restrictions, resulted in a reduction in net deficit of $1,390,745, compared to ($2,714,392) due to a Loss on Refunding of Debt of $4,063,993 being recognized for the comparable period ended March 31, 2017. Revenues decreased due to $600,000 in realized gains resulting from changes in investment managers during the period ended March 31, 2017. Operating expenses increased $138,651, or 1%, over the six months ended March 31, 2017, due to increases in employment costs, maintenance costs, and other operating expenses, offset by a reduction in depreciation expense. The increase in employment costs resulted from normal merit increases and wage adjustments, higher benefit costs and filling of vacant positions. Maintenance costs were higher due primarily to water leak repairs made during the period ended March 31, 2018. Other operating expenses increased due to an additional $149,000 in community benefit spending during the period ended March 31, 2018 related to the timing of community benefit initiatives. During the period ended March 31, 2018, the Corporation paid out entrance fee refunds totaling $1,413,499 compared to $438,745 paid out during the period ended March 31, 2017.

Fiscal year ended September 30, 2017 compared to fiscal year ended September 30, 2016.

For the fiscal year ended September 30, 2017, the Corporation had operating income of $1,075,453, an increase of $1,048,282 over the prior year due primarily to almost $900,000 in realized gains recognized during the fiscal year ended September 30, 2017 compared to realized losses of $285,000 recognized during the fiscal year ended September 30, 2016. Operating income was decreased by a $4,063,993 Loss on Refunding of Debt related to a refinancing transaction in the first quarter of fiscal year 2017. Amounts were then increased by over $1,000,000 in unrealized gains on the Corporation’s long-term investment portfolio. These changes resulted in an increase in the Corporation’s net deficit of $1,932,852 for the 2017 fiscal year. Revenues increased $2,212,188 over the prior year, or 8%, due to realized gains mentioned previously plus additional earnings (dividends & interest) related to market performance. The Corporation had a 3% fee increase effective October 1, 2016 which was offset by additional units taken offline for expansion purposes. Health Center and Independent Living occupancy remained high throughout the fiscal year, but independent living turnover was also high during the 2017 fiscal year resulting in higher Earned Entrance Fee revenues. Resident support provided during the fiscal year 2017 was at a historic low due to a loss in caseload at the beginning of the fiscal year. The Corporation’s Home Care operations continued to increase caseload during the 2017 fiscal year. Operating expenses for fiscal year 2017 totaled $28,868,072 compared to $27,704,166 for the previous year, an increase of $1,163,906, or 4%. The increase is due primarily to merit and market adjustments necessary to maintain a healthy workforce at Southminster as well as additional variable staffing needed to meet Home Care caseload demands, plus additional community benefit spending to make up for low resident support demands during the 2017 fiscal year. Depreciation continues to increase for acceleration in areas of the campus impacted by the expansion. These increases were offset by a reduction in interest expense related to the debt transaction mentioned previously where a larger amount of higher interest debt was replaced by a smaller amount (plus a premium) of lower interest debt.

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Fiscal year ended September 30, 2016 compared to fiscal year ended September 30, 2015.

For the fiscal year ended September 30, 2016, the Corporation had a decrease in net deficit of $1,733,492 compared to an increase in net deficit of $12,337 for the previous year, an improvement of $1,745,829. Revenues for the fiscal year totaled $27,731,337 over $27,022,287 in prior year, an increase of $709,050, or 3%. Independent living revenues were higher due to fee increases and occupancy remaining high (over 99%, occupied plus reserved units) throughout the fiscal year, despite homes beginning to be taken offline, in preparation for expansion. Healthcare revenues increased due to higher health center occupancy and lower financial assistance needed throughout the fiscal year. Contribution revenue was higher during fiscal year 2016 due primarily to an estate gift received. These increases were offset by lower investment income due to realized losses recognized during the 2016 fiscal year, related to making a change in one investment manager. Operating expenses for fiscal year 2016 totaled $27,704,166, an increase of 8% over $25,637,349 in the prior year. Employment costs increased related to hiring and retaining adequate staff to effectively meet resident needs. There were also significant increases in maintenance and repair, contract labor and landscaping related to upkeep of the community and repairs performed on significant building systems. Other expenses increased due to higher community benefit and professional development spending as well as increases in consulting and professional fees from increased technology initiatives. Recurring depreciation was lower during most of the 2016 fiscal year, offset by $742,000 in accelerated depreciation related to areas of the campus impacted by expansion. Interest expense continued to decrease due to accelerated paydowns of outstanding variable rate debt.

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Historical Debt Service Coverage Ratios. The following table presents the Historical Debt Service Coverage Ratio (as defined in the Master Indenture) for the fiscal years ended September 30, 2015, 2016 and 2017, as derived from the Corporation’s audited combined financial statements, and the Historical Debt Service Coverage Ratio for the six months ended March 31, 2018, as derived from the unaudited financial statements of the Corporation. The Historical Debt Service Coverage Ratio presented below measures how many times Income Available for Debt Service (as defined in the Master Indenture) would have covered Maximum Annual Debt Service (as defined in the Master Indenture).

Six Months Ended March Fiscal Year Ended September 30, 31, 2015 2016 2017 2018 Change in Unrestricted Net Assets ($12,818) $1,732,026 ($1,981,141) $1,439,120 Add: Interest Expense 3,749,150 3,646,793 2,480,444 1,218,681 Depreciation and Amortization 6,453,039 7,270,641 7,850,641 3,086,560 Loss on Disposal of Assets 40,009 61,911 29,888 7,235 Loss on Refunding of Debt - - 4,063,993 - Net Entrance Fees: Turnover Entrance Fees 5,185,937 5,614,655 7,547,890 2,617,404 Refunds (740,652) (1,225,444) (1,883,569) (1,413,499) 4,445,285 4,389,211 5,664,321 1,203,905 Less: Entrance Fees Amortization (5,628,910) (5,510,166) (5,775,668) (3,087,262) Unrealized (Gains)/Losses 1,412,893 (1,703,872) (1,007,399) (402,002) Unrealized Gains - Swap (15,137) (983) - - Total Income Available for Debt Service $10,443,511 $9,885,561 $11,325,079 $3,466,237

Maximum Annual Debt Service $5,363,548 $5,363,548 $4,746,688 $2,373,3441

Historical Debt Service Coverage Ratio 1.95 1.84 2.39 1.46 ______1 Annualized for the six month period ended March 31, 2018.

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Days’ Cash on Hand. The following table presents the number of Days’ Cash on Hand (as defined in the Master Indenture) for the fiscal years ended September 30, 2015, 2016 and 2017 and for the six months ended March 31, 2018.

Six Months ended Fiscal Year Ended September 30, March 31, 2015 2016 2017 2018

Cash and Cash Equivalents $2,933,686 $2,657,328 $1,271,877 $1,338,496 Statutory Operating Reserve 4,288,837 4,652,109 4,995,361 4,995,361 Southminster Community Fund 50,000 50,000 50,000 50,000 Investment Securities 15,510,431 18,538,800 22,155,440 23,032,104 Less: Temporarily Restricted Net Assets (1,106) (2,572) (50,861) (2,486) Unrestricted Cash and Investments $22,781,848 $25,895,665 $28,421,817 $29,413,475

Operating Expenses $25,637,349 $27,704,166 $28,868,072 $14,036,124 Less: Loss on Disposal of Assets (40,009) (61,911) (29,888) (7,235) Amortization of Bond Issuance Costs (94,462) (65,727) (84,590) (32,670) Depreciation and Amortization (6,453,039) (7,270,641) (7,850,641) (3,086,560) $19,049,839 $20,305,887 $20,902,953 $10,909,659

Average Daily Expenses $52,191 $55,633 $57,268 $59,943 Days’ Cash on Hand 437 465 496 491

Investment Policies. Investment decisions are made in accordance with the Corporation’s investment policy, with oversight provided by the Corporation’s Board of Directors. The investment policy outlines long-term investment objectives, asset mix, and permitted investments. The Corporation utilizes an independent investment advisor to assist with investment policy development and the selection of investment portfolio managers.

Other Bonds/Debt.

General

As of March 31, 2018, the Corporation had outstanding long-term indebtedness related to bonds issued by the North Carolina Medical Care Commission and a taxable bank loan equal to the principal amounts shown in the table below.

North Carolina Medical Care Commission Bonds, Series 1996 $100,000 North Carolina Medical Care Commission Bonds, Series 2016 $58,660,000 Taxable Bank Loan1 $1,313,473 TOTAL $60,073,473 ______1 Total amount available to be drawn is $39,000,000 after the amendments to the Taxable Bank Loan in May 2018.

There is $106,125 on deposit in the debt service reserve fund for the Series 1996 Bonds available for the payment of the Series 1996 Bonds when they mature on October 1, 2018. See Note 5 of the

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financial statements included as Appendix B to this Official Statement for more information regarding the long-term indebtedness of the Corporation.

Taxable Bank Loan relating to the Terraces

The Corporation is able to make draws on the Taxable Bank Loan up to a principal amount of $39,000,000 through February 28, 2021, with interest only payments due monthly. The Corporation expects, however, to draw only $36,500,000. The Original Taxable Bank Loan amount bears interest at one-month LIBOR plus 1.35% and the Additional Taxable Bank Loan amount bears interest at one-month LIBOR plus 1.50%. For the period March 1, 2021 through August 31, 2024, principal and interest payments are to be made on a monthly basis. Principal payments are required to be made monthly in an amount equal to 1/240 of the outstanding principal balance on February 28, 2021. Additionally, there will be an unused fee on amounts not drawn under the Additional Taxable Bank Loan. $36,500,000 of the Taxable Bank Loan is Qualifying Intermediate-Term Indebtedness under the Master Indenture, and Entrance Fees received from the initial residents of the Terraces are expected to be sufficient to repay such portion of the Taxable Bank Loan before the August 31, 2024 maturity date.

The Taxable Bank Loan is secured by Obligation No. 15 issued by the Corporation under the Master Indenture on parity with all other Obligations outstanding under the Master Indenture, including Obligation No. 16. The Taxable Bank Loan documents do not contain any material covenants that are significantly different from the covenants contained in the Master Indenture.

Budgeting Process. The Chief Financial Officer of the Corporation is responsible for preparing the operating and capital budgets. Each department head and upper management personnel provide input into the budgets, which are reviewed and approved by the President of the Corporation and the Board of Directors. The approved budgets are effective October 1. Each department is responsible for monitoring its actual versus budgeted performance on a monthly basis. A variance report is printed for each department; significant variances are noted and corrective measures, if any, are then implemented to correct the variance.

The Chief Financial Officer presents financial information to the Board of Directors four times a year. The information presented includes performance of the Corporation against budget, describes the causes of any significant variances and corrective actions taken by management.

Capital budgets are considered and adopted which both maintain the facility infrastructure and identify opportunities for improvement.

EMPLOYEES AND EMPLOYEE BENEFITS

Employees. As of March 31, 2018, the Corporation employed approximately 388 employees representing approximately 269 full-time equivalents. None of its employees is represented by a union, and the Corporation has not had any significant problems hiring or retaining qualified employees.

Employee Benefits. The Corporation provides a defined contribution savings retirement plan that is available to all employees. The Corporation contributes to the plan at its discretion and, since January 1, 2016, by matching 100% of an employee’s contributions up to 4%. See Note 6 in the financial statements attached as Appendix B to this Official Statement.

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INSURANCE AND LITIGATION

Insurance. Insurance for the Corporation includes, but is not limited to, the following policies with appropriate coverage levels: Property, General & Medical Professional Liability (which includes Electronic Data Processing), Umbrella Liability, Management Liability (which includes Directors and Officers and Fiduciary), Environment Liability (Pollution), Crime, Liquor Liability, Auto, Workers Compensation and Cyber Liability.

Litigation. Management of the Corporation is of the opinion that there is no litigation or any proceedings of any nature pending or, to its knowledge, threatened against the Corporation, which if decided adversely to the Corporation, is reasonably expected to have a material adverse effect on the financial position of the Corporation.

FUTURE CAPITAL PLANS

As referenced above under “THE PROJECT,” the Corporation intends to renovate the existing health center space after the completion of the Replacement Health Center in order to create approximately 23 independent living homes. As of the date of this Official Statement, the timing and costs of those additional improvements are unknown. It is likely the Corporation will use short-term bank financing in connection with the renovations and repay such debt with the initial entrance fees from the additional independent living units.

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APPENDIX B

COMBINED FINANCIAL STATEMENTS OF SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.

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SOUTHMINSTER, INC.

COMBINED FINANCIAL STATEMENTS OF SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.

YEARS ENDED SEPTEMBER 30, 2017 AND 2016

SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) TABLE OF CONTENTS YEARS ENDED SEPTEMBER 30, 2017 AND 2016

INDEPENDENT AUDITORS’ REPORT 1

COMBINED FINANCIAL STATEMENTS

COMBINED BALANCE SHEETS 3

COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (DEFICIT) 5

COMBINED STATEMENTS OF CASH FLOWS 7

NOTES TO COMBINED FINANCIAL STATEMENTS 9

SUPPLEMENTAL INFORMATION

COMBINING BALANCE SHEET 25

COMBINING STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (DEFICIT) 27

COMBINING STATEMENT OF CASH FLOWS 29

CliftonLarsonAllen LLP CLAconnect.com

INDEPENDENT AUDITORS’ REPORT

Board of Directors Southminster, Inc. and Southminster Foundation, Inc. Charlotte, North Carolina

Report on the Combined Financial Statements We have audited the accompanying combined financial statements of Southminster, Inc. and Southminster Foundation, Inc. (the Organization) which comprise the combined balance sheets as of September 30, 2017 and 2016 and the related combined statements of operations and changes in net assets (deficit), and cash flows for the years then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Combined Financial Statements Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

(1) Board of Directors Southminster, Inc. and Southminster Foundation, Inc.

Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Southminster, Inc. and Southminster Foundation, Inc. as of September 30, 2017 and 2016, and the results of their operations, changes in net assets (deficit), and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the combined financial statements as a whole. The Supplemental Information for the combining financial statements is presented for purposes of additional analysis and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the combined financial statements as a whole.

CliftonLarsonAllen LLP

Charlotte, North Carolina January 19, 2018

(2) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINED BALANCE SHEETS SEPTEMBER 30, 2017 AND 2016

2017 2016 ASSETS

CURRENT ASSETS Cash and Cash Equivalents $ 1,271,877 $ 2,701,228 Assets Limited as to Use - Current Portion 1,867,259 2,087,881 Accounts Receivable, Net 249,502 442,907 Other Current Assets 777,318 715,514 Total Current Assets 4,165,956 5,947,530

ASSETS LIMITED AS TO USE Held by Trustee Under Bond Indenture Agreements 4,762,586 5,480,092 Southminster Community Fund 50,000 50,000 Operating Reserve - Required by the North Carolina Department of Insurance 4,995,361 4,652,109 Total Assets Limited as to Use, Net of Current Portion 9,807,947 10,182,201

PROPERTY AND EQUIPMENT, NET 68,098,383 70,294,609

LONG-TERM INVESTMENTS, AT MARKET 22,155,440 18,538,800

DEFERRED MARKETING AND OTHER COSTS 477,931 602,771

Total Assets $ 104,705,657 $ 105,565,911

See accompanying Notes to Combined Financial Statements (3)

2017 2016 LIABILITIES AND NET ASSETS (DEFICIT)

CURRENT LIABILITIES Accounts Payable $ 1,569,694 $ 904,603 Accrued Payroll and Employee Benefits 884,644 749,510 Accrued Bond Interest Expense 1,422,259 1,765,123 Current Portion of Long-Term Debt 445,000 325,000 Total Current Liabilities 4,321,597 3,744,236

LONG-TERM DEBT, NET OF CURRENT PORTION 63,239,707 62,093,884

ADVANCE ENTRANCE FEE DEPOSITS 706,699 574,899

DEFERRED ENTRANCE FEE REVENUE 33,256,232 33,574,686

REFUNDABLE ENTRANCE FEES 17,546,464 17,966,496 Total Liabilities 119,070,699 117,954,201

NET ASSETS (DEFICIT) Unrestricted (14,415,903) (12,434,762) Temporarily Restricted 50,861 2,572 Permanently Restricted - 43,900 Total Net Assets (Deficit) (14,365,042) (12,388,290)

Total Liabilities and Net Assets (Deficit) $ 104,705,657 $ 105,565,911

(4) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (DEFICIT) YEARS ENDED SEPTEMBER 30, 2017 AND 2016

2017 2016 REVENUES, GAINS, AND OTHER SUPPORT Independent Living Revenue $ 12,277,724 $ 12,421,405 Health Care Revenue 7,390,284 7,307,446 Home Care Revenue 2,546,488 2,141,087 Less: Resident Assistance (258,630) (580,578) Net Resident Service Revenue 21,955,866 21,289,360

Earned Entrance Fees 5,775,668 5,510,166 Investment Income 1,468,671 227,368 Contributions 285,435 357,344 Net Assets Released from Restrictions 2,106 787 Other Income 411,879 346,312 Total Revenues, Gains, and Other Support 29,899,625 27,731,337

OPERATING EXPENSES Salaries, Wages, and Employee Benefits 12,907,908 11,476,369 Maintenance, Housekeeping, and Utilities 2,072,799 2,137,941 Food and Related Supplies 1,385,183 1,308,198 Insurance 185,504 190,803 Consulting and Professional Fees 156,249 116,562 Other Operating Expenses 1,799,456 1,494,948 Depreciation 7,770,471 7,190,471 Amortization of Deferred Marketing Costs 80,170 80,170 Interest Expense 2,480,444 3,646,793 Loss on Disposal of Assets 29,888 61,911 Total Operating Expenses 28,868,072 27,704,166

OPERATING INCOME 1,031,553 27,171

OTHER (LOSS) INCOME Mark-to-Market Adjustment of Derivative Contracts - 983 Loss on Refunding of Debt (4,063,993) - Total Other (Loss) Income (4,063,993) 983

(DEFICIT) EXCESS OF REVENUES OVER EXPENSES (3,032,440) 28,154

OTHER CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) Reclassification from Permanently Restricted Net Assets 43,900 - Change in Unrealized Gains on Investments 1,007,399 1,703,872

(INCREASE) DECREASE IN UNRESTRICTED NET DEFICIT (1,981,141) 1,732,026

See accompanying Notes to Combined Financial Statements. (5) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (DEFICIT) (CONTINUED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016

2017 2016 TEMPORARILY RESTRICTED NET ASSETS Contributions $ 50,395 $ 2,253 Released from Restrictions (2,106) (787)

INCREASE IN TEMPORARILY RESTRICTED NET ASSETS 48,289 1,466

DECREASE IN PERMANENTLY RESTRICTED NET ASSETS Reclassification to Unrestricted Net Assets (43,900) -

CHANGE IN NET ASSETS (DEFICIT) (1,976,752) 1,733,492

NET ASSETS (DEFICIT) - BEGINNING OF YEAR (12,388,290) (14,121,782)

NET ASSETS (DEFICIT) - END OF YEAR $ (14,365,042) $ (12,388,290)

See accompanying Notes to Combined Financial Statements. (6) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2017 AND 2016

2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets (Deficit) $ (1,976,752) $ 1,733,492 Adjustments to Reconcile Change in Net Assets (Deficit) to Net Cash Provided by Operating Activities: Earned Entrance Fees (5,775,668) (5,510,166) Depreciation 7,770,471 7,190,471 Amortization of Bond Issuance Costs 84,590 65,727 Amortization of Deferred Marketing Costs 80,170 80,170 Amortization of Bond Premium (453,876) - Loss on Disposal of Assets 29,888 61,911 Loss on Refunding of Debt 4,063,993 - Change in Net Unrealized Gains on Investments (1,007,399) (1,703,872) Realized (Gains) Losses on Investments (891,110) 285,147 Mark-to-Market Adjustment of Derivative Contracts - (983) (Increase) Decrease in: Accounts Receivable 8,905 (11,564) Other Current Assets (17,134) (64,907) Increase (Decrease) in: Accounts Payable, Excluding Amounts in Property and Equipment (168,090) (38,996) Accrued Payroll and Employee Benefits 135,134 5,000 Accrued Bond Interest Expense, Net of Amounts Capitalized (342,864) (9,244) Net Cash Provided by Operating Activities 1,540,258 2,082,186

CASH FLOWS FROM INVESTING ACTIVITIES Sales (Purchases) of Assets Limited as to Use, Net 1,282,864 (380,452) Purchases of Long-Term Investments, Net (1,718,131) (1,609,644) Purchases of Property for Routine Additions (2,339,650) (2,493,483) Purchases of Property for Expansion Projects (3,175,783) (543,937) Net Cash Used in Investing Activities (5,950,700) (5,027,516)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Entrance Fees 7,849,305 5,744,516 Deposits Received, Net of Refunds and Conversions to Entrance Fees 131,800 (35,298) Entrance Fees Refunded (1,883,569) (1,225,444) Repayments of Long-Term Debt (1,766,833) (1,805,802) Prepaid Interest Payment (3,489,658) - Early Repayment of Long-Term Debt (61,515,000) - Proceeds of Long-Term Debt 58,793,020 - Proceeds from Bond Issue Premium on Long-Term Debt 6,036,252 - Payments of Financing Costs (1,174,226) (9,000) Net Cash Provided by Financing Activities 2,981,091 2,668,972

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,429,351) (276,358)

Cash and Cash Equivalents - Beginning of Year 2,701,228 2,977,586

CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,271,877 $ 2,701,228

See accompanying Notes to Combined Financial Statements. (7) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016

2017 2016 SUPPLEMENTAL CASH FLOW INFORMATION Cash Paid for Interest $ 3,192,594 $ 3,575,302

SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION Property & Equipment Included in Accounts Payable $ 570,596 $ 481,896

See accompanying Notes to Combined Financial Statements. (8) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization Southminster, Inc. (the Corporation) is a nonstock, nonprofit corporation organized under the laws of the state of North Carolina. The Corporation was established to construct and operate a multilevel residential and health care center (the Center). The Center's purpose is to operate a continuing care community providing a residential environment in which older people may live independently for as long as they are able to do so. The Center opened for operations on May 16, 1987 and has 259 residential apartments (two of which are used as guest rooms, eight of which will be replaced with a new independent living project, and three of which are offline for a planned replacement health center), 60 licensed nursing care beds, and 25 licensed assisted living beds.

Southminster Foundation, Inc. (the Foundation) is a nonstock, nonprofit corporation organized under the laws of the state of North Carolina on December 2, 1985. The Foundation was established to operate exclusively for the benefit of the Corporation, primarily through financial support to residents of the Center who are unable to meet their financial obligations. During fiscal year 2014, the operations of the Foundation were moved into the Corporation. There were no contributions for resident financial support to the Foundation for the years ended September 30, 2017 and 2016 as contributions are now recorded by the Corporation. Neither the Corporation nor the Foundation would be liable or responsible in any matter for the debts or liabilities of the other.

Principles of Combination The combined financial statements include the accounts of the Corporation and the Foundation (collectively referred to herein as the Organization). All significant intercompany accounts and transactions have been eliminated in combination.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents All liquid investments with a maturity of three months or less at the time of purchase and not limited as to their use or designated as long-term investments are considered to be cash equivalents.

Accounts Receivable Resident accounts receivable consist of resident monthly service fees and other resident charges. When deemed necessary, the Organization provides an allowance for uncollectible accounts using management’s estimate about the collectability of any past due accounts. Accounts past due are individually analyzed for collectability. Accounts receivable that management determines will be uncollectible are written off upon such determination.

(9) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable (Continued) The allowance for uncollectible accounts as of September 30, 2017 and 2016 was approximately $12,000 and $14,000, respectively.

Assets Limited as to Use Assets Limited as to Use includes funds held by the Trustee under a bond indenture agreement, the Southminster Community Fund, and the operating reserve required by the North Carolina Department of Insurance.

Property and Equipment Property and equipment is stated at cost. Assets contributed to the Organization are recorded at fair market value as of the date of receipt. Routine maintenance, repairs, renewals, and replacement costs are charged to expense. Expenditures which materially increase the value, change the capacities or extend the useful lives of existing assets are capitalized. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, which range from 3 to 30 years. Apartment refurbishment costs which, in aggregate, total $2,500 or more per unit, are capitalized and depreciated over an average seven-year period. Interest costs incurred during the construction period of significant construction projects are capitalized as a cost of the constructed asset and amortized over the useful life of the asset.

Long-Term Investments Investments in equity and debt securities are measured at fair value in the accompanying combined financial statements. Investment income (including realized gains and losses on investments, interest and dividends) is included in excess of revenues over expenses unless the income is restricted by donor or law. Unrealized gains and losses on investments, if any, are excluded from excess of revenues over expenses.

Bond Issuance Costs Bond issuance costs, which are amortized over the life of the bonds, which approximates the effective interest method, include underwriters’ discounts, legal and consulting fees, and printing costs incurred in issuing the Corporation’s revenue bonds. Accumulated amortization at September 30, 2017 and 2016 was $253,238 and $1,377,664, respectively, following the write off of issuance costs related to the Series 2007 debt for the year ended September 30, 2017. See Note 5 for further discussion of the advance refunding of the Series 2007 debt.

(10) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred Marketing Costs Third-party sales commissions and certain other costs (deferred marketing costs) associated with acquiring initial expansion residential contracts were deferred until construction was complete and units were available for occupancy. Deferred marketing costs are amortized over the estimated lives of expansion residents. Accumulated amortization at September 30, 2017 and 2016 was $694,808 and $614,638, respectively.

Entrance Fees The Residence and Services Agreement (the “Agreement”), which is entered into at the time a prospective resident pays a deposit equal to ten percent of the published entrance fee, specifies the services to be provided by the Corporation and the respective rights and duties of the Corporation and resident. The liability associated with these advance deposits is reported as advance entrance fee deposits in the accompanying combined balance sheets. Prospective residents applying for direct admission to the Health Center are subject to the same Agreement as those applying for independent living units.

The Corporation offers a standard contract in which entrance fees may be refunded on a pro-rata basis to residents vacating a unit in the first 20 months of occupancy. Once a unit is occupied, entrance fees are recorded as deferred entrance fee revenue. The deferred revenue on the standard contracts is recognized as income over the actuarially determined life of the resident.

The Corporation offers two refundable entrance fee plans. Under these plans, a new resident can elect to pay a higher entrance fee, a portion of which is refundable only after the unit is vacated and subsequently occupied by a new resident. The refundable fees under this option are classified in the accompanying combined balance sheets as a refundable entrance fees liability.

At September 30, 2017 and 2016, the portion of entrance fees subject to refund provisions amounted to approximately $21,585,600 and $20,481,300, respectively.

Obligation to Provide Future Services The Corporation annually calculates the present value of the net cost of future services and the use of facilities to be provided to current residents and compares that amount with the balance of deferred entrance fee revenue. If the present value of the estimated cost of future services and use of facilities to be provided to current residents exceeds the deferred revenue from entrance fees and the present value of periodic fees, a liability is recorded (obligation to provide future services) with the corresponding change to income.

The present values of revenues and future service costs are calculated using a discount rate of six percent. This calculation did not require the recording of a liability at either September 30, 2017 or 2016.

(11) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Assets (Deficit) The Organization classifies its funds for accounting and reporting purposes as unrestricted, temporarily restricted, or permanently restricted. Unrestricted net assets (deficit) include resources of the Organization that are not restricted by donors or grantors as to use or purpose, and amounts generated from operations. Temporarily restricted net assets are those whose use has been limited by a donor to a specific time period or purpose. Temporarily restricted net assets are transferred to unrestricted net assets when donor restrictions as to time and purpose have been met. Permanently restricted net assets have been restricted by donors to be maintained by the Organization in perpetuity. During 2017, after review of the Foundation’s records with respect to the remaining permanently restricted net assets held by the Foundation, the Organization reclassified these amounts as unrestricted to be used to provide resident support. As of September 30, 2017, the Organization does not hold any permanently restricted net assets.

Resident Service Revenue Resident service revenue consists of resident fees and charges and is recorded when earned.

Charity Care and Community Benefit The Organization has a resident assistance policy to identify residents who are unable to meet their financial obligations. Such residents are identified based on financial information obtained from the resident and subsequent review, analysis and approval by the Organization’s management and reported to the Organization’s Board of Directors. Once approved, monthly service fees are recorded by the Organization and a corresponding amount is recorded in the contra-revenue account, resident assistance. The cost of providing resident support was $248,285 and $557,355 for the years ended September 30, 2017 and 2016, respectively, estimated by applying a 4% operating margin to the charges foregone. Contributions to the Organization of $285,435 and $357,344 subsidized the costs of providing resident support for the years ended September 30, 2017 and 2016, respectively. From time to time, the Organization may choose to waive all or a portion of a new resident’s entrance fees. During the year ended September 30, 2017, the Organization waived entrance fees totaling $246,000.

The Organization is actively involved in the community through participation in various educational, charitable and volunteer service programs sponsored on campus or throughout the community at large. The Organization also allows various groups in the community at large to use its facility space at no charge or at a reduced charge. The costs of providing this community benefit is included in operating expense amounts on the combined statements of operations and changes in net assets (deficit).

(12) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Excess (Deficit) of Revenues over Expenses The combined statements of operations and changes in net assets (deficit) include excess (deficit) of revenues over expenses. Changes in unrestricted net assets which are excluded from excess (deficit) of revenues over expenses consistent with industry practice, include unrealized gains and losses on investments, permanent transfers of assets to and from affiliates for other than goods and services, and contributions of long-lived assets (including assets acquired using contributions which by donor restriction were to be used for the purposes of acquiring such assets).

Fair Value of Financial Instruments Fair value measurement applies to reported balances that are required or permitted to be measured at fair value under an existing accounting standard. The Organization emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability and establishes a fair value hierarchy. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows:

Level 1 – Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Organization has the ability to access. Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 3 – Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Securities valued using Level 1 inputs include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency mortgage backed securities that are traded by dealers or brokers in active over-the-counter markets. The Organization does not have any assets or liabilities that are valued using Level 2 or Level 3 inputs at September 30, 2017 and 2016.

(13) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments (Continued) The Organization follows the accounting standard that allows reporting certain financial instruments at fair value. This standard allows entities the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on an instrument-by-instrument basis. The Organization has not elected to measure any existing financial instruments at fair value. However, it may elect to measure newly acquired financial instruments at fair value in the future.

Income Taxes The Corporation and the Foundation have been recognized by the Internal Revenue Service as exempt from income taxes under Internal Revenue Code Section 501(c)(3). The Corporation and the Foundation are classified as public charities under Sections 509a(1) and 509a(3), respectively, of the Internal Revenue Code.

The Corporation and Foundation file as tax-exempt organizations. The Corporation and the Foundation are not aware of any activities that would jeopardize their tax-exempt status. The Corporation and the Foundation are not aware of any activities that are subject to tax on unrelated business income or excise or other taxes.

The Corporation and the Foundation follow guidance in the income tax standard regarding recognition and measurement of uncertain tax positions. The application of the standard has had no impact on the Corporation and the Foundation’s combined financial statements.

Reclassifications Certain prior year revenue amounts have been reclassified for consistency with the current year presentation. This reclassification had no effect on the reported results of operations or changes in net assets for the Organization.

Subsequent Events Subsequent to year end, in December 2017, construction began on a new 30-unit independent living “Terrace” project that will replace eight cottages on Southminster’s existing campus. See Note 5 for further discussion of the bank loan used to finance this construction.

In preparing these combined financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through January 19, 2018, the date the combined financial statements were available to be issued.

(14) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 2 ASSETS LIMITED AS TO USE

Assets limited as to use, reported at fair value, are comprised of the following at September 30: 2017 2016

Cash and Cash Equivalents $ 2,339,538 $ 2,624,232 Fixed Income 2,243,835 3,383,587 Fixed Income Securities Funds 987,797 1,705,046 U.S. Government Securities 2,156,869 1,695,573 Equity Securities Funds 2,667,566 1,422,215 Equity Securities 1,279,601 1,439,429

11,675,206 12,270,082

Less: Amounts Required to Meet Current Obligations (1,867,259) (2,087,881)

$ 9,807,947 $ 10,182,201

Amounts restricted under debt agreements are comprised of the following at September 30:

2017 2016 Series 1996 Debt Service Reserve $ 106,418 $ 106,144 Series 1996 Interest Account 3,067 3,063 Series 2007A Debt Service Reserve (see Note 5) 13,715 5,370,619 Series 2007AB Interest Account (see Note 5) 349,362 2,088,147 Series 2016 Interest Account (see Note 5) 1,410,313 - Series 2016 Principal Account (see Note 5) 105,000 - Series 2016 Debt Service Reserve (see Note 5) 4,641,970 -

6,629,845 7,567,973

Less: Amounts Required to Meet Current Obligations (1,867,259) (2,087,881)

$ 4,762,586 $ 5,480,092

(15) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 3 PROPERTY AND EQUIPMENT

The Corporation’s property and equipment consists of the following at September 30:

2017 2016

Land and Land Improvements $ 3,537,358 $ 2,365,936 Building and Improvements 124,082,039 122,472,646 Furniture and Equipment 6,571,764 6,453,319 134,191,161 131,291,901 Less: Accumulated Depreciation (69,469,565) (62,155,727) 64,721,596 69,136,174 Construction in Progress 3,376,787 1,158,435

Property and Equipment, Net $ 68,098,383 $ 70,294,609

There was $64 and $0 of interest capitalized during the years ended September 30, 2017, and 2016, respectively.

During the fiscal year ended September 30, 2017, Southminster purchased a parcel of adjacent land totaling approximately $1 million to be used for future expansion purposes. Construction in progress at September 30, 2017 and 2016 related primarily to planning and design costs incurred related to the Terrace and health center replacement projects.

NOTE 4 LONG-TERM INVESTMENTS

Long-term investments, reported at fair value, are comprised of the following at September 30: 2017 2016

Cash and Cash Equivalents $ 484,785 $ 533,914 Fixed Income Securities Funds 4,337,661 6,722,409 Equity Securities Funds 11,713,949 5,607,304 Equity Securities 5,619,045 5,675,173

$ 22,155,440 $ 18,538,800

Investment income is comprised of the following for the years ended September 30:

2017 2016 Investment Income: Interest and Dividend Income $ 577,561 $ 512,515 Net Realized Gains (Losses) on Sales of Investments 891,110 (285,147)

$ 1,468,671 $ 227,368

(16) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 4 LONG-TERM INVESTMENTS (CONTINUED)

Board-managed investments, which include long-term investments, investments designated to fund the North Carolina Department of Insurance Operating Reserve, and the Southminster Community Fund, are guided by an investment policy adopted by the Board of Directors. The long-term objective of the policy is to provide growth of capital and income, using diversification to manage risk.

NOTE 5 LONG-TERM DEBT

The Corporation’s long-term debt consists of the following at September 30:

2017 2016 Series 1996 (Maturing on October 1, 2015 through 2018 with an Interest Rate of 6.125%) $ 100,000 $ 100,000 Series 2007A (Maturing on October 1, 2016 through 2037 with an Interest Rate of 5.10% - 5.75%) 340,000 62,180,000 2014 Bank Loan due October 1, 2018 with a Variable Interest Rate of 1.35% plus one-month LIBOR - 1,441,833 Series 2016 (Maturing on November 10, 2016 through 2037 with an interest rate of 5.25% - 5.75%) 58,765,000 - 2017 Bank Loan due August 31, 2024 with a Variable Interest Rate of 1.35% plus one-month LIBOR 28,020 - 59,233,020 63,721,833 Add: Unamortized Bond Premium 5,582,376 - Less: Unamortized Bond Discount - (260,581) Less: Unamortized Bond Issuance Costs (1,130,689) (1,042,368) 63,684,707 62,418,884 Less: Current Portion (445,000) (325,000) $ 63,239,707 $ 62,093,884

The following schedule presents future principal payments due on all the Corporation’s outstanding long-term debt:

Year Ending September 30, 2018 $ 445,000 2019 555,000 2020 1,970,234 2021 2,036,401 2022 2,116,401 Thereafter 52,109,984 $ 59,233,020

(17) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 5 LONG-TERM DEBT (CONTINUED)

Long-Term Debt Expansion and Renovation Project In 2007, the Corporation undertook a $73 million expansion and renovation project which resulted in the addition of 89 new independent living apartments, a new wellness/aquatic center, expansion of and enhancements to administrative and common areas, and a modest renovation to the health center. The Corporation began accepting reservation deposits in 2006; construction began in January 2007 and was completed during fiscal year 2010.

Initial Project Financing Preliminary project expenditures as well as initial construction costs were financed with the proceeds from a bank line of credit and construction loan. Amounts outstanding under both the line of credit and the construction loan were repaid as part of the November 2007 permanent financing.

Permanent Financing – Series 2007 Bonds On November 15, 2007, the Corporation entered into a loan agreement with the North Carolina Medical Care Commission (the “Medical Care Commission”), and concurrently, the Medical Care Commission issued $62,180,000 and $2,000,000 Fixed Rate Retirement Facilities First Mortgage Revenue Bonds (Southminster Project) Series 2007A and 2007B Bonds (“Series 2007A Bonds and Series 2007B Bonds”), respectively, and $25,500,000 Variable Rate Retirement Facilities First Mortgage Revenue Bonds (Southminster Project) Series 2007C (“Series 2007C Bonds”). In addition to repaying the outstanding construction loan and line of credit, the proceeds from Series 2007 Bonds were deposited with the Trustee to cover the remaining construction, capitalized interest, and other project-related costs; to pay for costs of issuance; and to fund various debt service reserves.

The Series 2007B Bonds had a stated maturity of October 1, 2037 and on date of issuance, carried a three-year fixed interest rate of 4.75 percent. At the end of the three-year period, the interest rate was subject to reset at current market rates. On October 1, 2010, the interest rate on the remarketed bonds was increased to 6.375 percent, effective for an additional three-year period. The Series 2007B Bonds could be repaid in full or in part at any time after October 1, 2011, and on October 1, 2013, the remaining outstanding portion of the Series 2007B Bonds were repaid in full.

The Series 2007C Bonds had a stated maturity of October 1, 2014 and were expected to be repaid from the proceeds of entrance fees received from the expansion apartments. The bonds were backed by a letter-of-credit issued by a commercial bank. The letter of credit fee was 1.25 percent of the amount outstanding plus interest expense for 45 days at 12 percent, payable quarterly, plus remarketing fees of .1 percent of the amount outstanding. The Series 2007C Bonds were repaid in full in March 2011, at which time the letter of credit was terminated. In connection with the Series 2007C Bonds, the Corporation entered into a floating-to-fixed interest rate swap agreement with a $25,500,000 notional value. The agreement associated with the Series 2007C Bonds expired on May 15, 2009 and was not renewed.

On October 1, 2016, the Corporation made its first scheduled principal payment of $325,000 on the Series 2007A Bonds repaid out of the Series 2007AB Interest Account.

(18) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 5 LONG-TERM DEBT (CONTINUED)

Long-Term Debt Expansion and Renovation Project (Continued) Subsequently, on November 10, 2016, the Corporation entered into a loan agreement with the North Carolina Medical Care Commission (the “Medical Care Commission”), and concurrently, the Medical Care Commission issued $58,765,000 Retirement Facilities First Mortgage Revenue Refunding Bonds Series 2016 in order to advance refund $61,515,000 of the remaining $61,855,000 in Series 2007A Bonds, pay for costs of issuance, and fund debt reserves. The Series 2016 Bonds mature on October 1, 2017 through 2037 with interest rates ranging from 1.5% to 5%. The remaining $340,000 of Series 2007A Bonds, bearing interest at 5.2%, was paid off subsequent to year end, on its maturity date of October 1, 2017.

On August 31, 2017, the Corporation entered into a term loan agreement (the “2017 Bank Loan”) with a financial institution to provide up to $34,000,000 to finance the construction, equipping and furnishing of up to two independent living projects referred to as Terraces (with the first Terrace project construction beginning in December 2017). The Corporation is able to make draws on this facility through August 31, 2020, with interest only payments, based on one-month LIBOR plus 1.35%, due monthly. For the period September 1, 2020 through August 31, 2024 principal and interest payments are to be made on a monthly basis. Principal payments are required to be made monthly in an amount equal to 1/240 of the outstanding principal balance on August 31, 2020. As of September 30, 2017, the outstanding principal amount was $28,020.

Under the terms of the Second Amended and Restated Master Trust Indenture, the Trust Agreement, and the Loan Agreement, all dated November 1, 2007 (the “Agreements”), the Corporation is subject to certain restrictive covenants and reporting requirements, among which are 1) a Historical Debt Service Coverage Ratio of 1.2:1, effective for the fiscal year ended September 30, 2011, 2) a minimum Days’ Cash on Hand of 180 days, commencing with the first full six-month period ended March 31, 2011, 3) a percentage of 2007 Project Units Reserved of 90%, 4) a percentage of 2007 Project Units Occupied of 90%, and 5) a percentage of Existing Independent Living Units Occupied of 85%. Stable occupancy, as defined in the bond documents, was reached during the quarter ended December 31, 2012, and at that time all occupancy covenants ceased to exist.

Management believes that the Corporation is in compliance with the covenants contained in the Master Trust Indenture, the Trust Agreement and the Loan Agreement. To the extent that investment earnings are credited to the bond funds, future deposits to such accounts are reduced. Substantially all property and equipment is pledged as security.

Other Long-Term Debt Series 1996 Bonds In December 1996, the Corporation entered into a loan agreement with the North Carolina Medical Care Commission (the “Medical Care Commission”) and concurrently the Medical Care Commission issued $5,055,000 of fixed-rate, tax-exempt bonds (the “Series 1996 Bonds”) to finance a renovation and expansion of the Health Center facilities and 8 new independent living apartments.

(19) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 5 LONG-TERM DEBT (CONTINUED)

Other Long-Term Debt (Continued) Series 1996 Bonds (Continued) The terms of the Series 1996 Bonds, which are covered by a Master Trust Indenture, require, among other provisions, the establishment of various Trustee-held funds, including: 1) principal and interest accounts in which monthly payments are made in amounts sufficient to meet annual principal and semi-annual interest payments (included within the debt service reserve – current portion in the accompanying combined balance sheets); and 2) a debt service fund equal to the maximum annual debt service. On October 1, 2014, the Corporation accelerated one year of principal payments totaling $1,015,000 repaid out of the Series 1996 Interest Account. In December 2014, the Corporation entered into a bank term loan in the principal amount of $3,940,000 to redeem $3,940,000 of the remaining $4,040,000 of the Series 1996 Bonds. The bank term loan bears an interest rate of one- month LIBOR plus 1.35% and is due and payable in full on October 1, 2018 with required monthly principal payments beginning November 2015. The bank term loan was paid off during the year ended September 30, 2017.

NOTE 6 BENEFIT PLAN

The Corporation maintains a defined contribution savings retirement plan (the “Plan”) and adopted a new plan document effective January 1, 2015 that makes the Plan eligible to all employees. Under the previous plan document, the Corporation made quarterly discretionary contributions of 3% through the first quarter of fiscal year 2015. Beginning January 1, 2015, a match feature was added to the Plan where the Corporation matched 50% of an employee’s contribution to the Plan up to 4%. In addition, the Corporation made a discretionary contribution of 1% each quarter of calendar year 2015 and made a 1.5% annual contribution at the end of calendar year 2015. Effective January 1, 2016, the quarterly and annual discretionary contributions were replaced with a 1.5% discretionary contribution that is made every pay period. The match was increased to 100% of an employee’s contribution to the Plan up to 4%. The Corporation’s contributions to the Plan for the years ended September 30, 2017 and 2016 were $364,423 and $289,966, respectively.

NOTE 7 CONTINUING CARE LICENSE

In November 1992, the North Carolina Department of Insurance (the “Department’”) issued a continuing care facility license to the Corporation, effective September 1, 1992. The license is restricted and may require the Corporation to provide quarterly interim financial and occupancy statements to the Department. Additionally, all prospective residents are required to sign an acknowledgement of receipt of the current disclosure statement.

(20) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 8 OPERATING RESERVE

The General Statutes of the state of North Carolina require that continuing care retirement communities such as the Corporation maintain an Operating Reserve equal to 50 percent of the subsequent year’s projected operating expenses. As provided in the statutes, the Commissioner of the North Carolina Department of Insurance may reduce the Operating Reserve requirement to 25 percent if the occupancy level of the facility is in excess of 90 percent, or such other reasons as deemed appropriate by the department.

On September 30, 2017 and 2016, the Corporation’s occupancy was above 90 percent, mandating the lower Operating Reserve requirement.

The Operating Reserve is funded with a portion of the Corporation’s long-term investments, as permitted by state statute and the Corporation’s investment policy.

NOTE 9 PERMANENTLY RESTRICTED NET ASSETS

Permanently restricted net assets were comprised of endowment funds in which the original contribution amounts were to be maintained in perpetuity.

In 2009, the state of North Carolina adopted the North Carolina Prudent Management of Institutional Funds Act (“UPMIFA”). The adoption of the UPMIFA has had little impact on the Organization due to the small dollar amount of the endowment funds. Management of the Foundation has implemented specific policies to comply with the provisions of UPMIFA.

In 2017, the Organization conducted an analysis of the remaining permanently restricted funds and determined that these funds should be reclassified to unrestricted net assets. As of September 30, 2017, the Organization does not hold any permanently restricted net assets.

NOTE 10 FAIR VALUE MEASUREMENTS

The Organization uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. For additional information on how the Organization measures fair value refer to Note 1 – Organization and Summary of Significant Accounting Policies. The following tables present the fair value hierarchy for the balances of the assets and liabilities of the Organization measured at fair value on a recurring basis as of September 30, 2017 and 2016:

(21) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 10 FAIR VALUE MEASUREMENTS (CONTINUED)

2017 Level 1 Level 2 Level 3 Total Assets Assets Limited as to Use: Fixed Income $ 2,243,835 $ - $ - $ 2,243,835 Fixed Income Securities Funds 987,797 - - 987,797 U.S. Government Securities 2,156,869 - - 2,156,869 Equity Securities Funds 2,667,566 - - 2,667,566 Equity Securities 1,279,601 - - 1,279,601 Subtotal 9,335,668 - - 9,335,668

Investments: Fixed Income Securities Funds 4,337,661 - - 4,337,661 Equity Securities Funds 11,713,949 - - 11,713,949 Equity Securities 5,619,045 - - 5,619,045 Subtotal 21,670,655 - - 21,670,655 Total Assets Measured at Fair Value $ 31,006,323 $ - $ - $ 31,006,323

2016 Level 1 Level 2 Level 3 Total Assets Assets Limited as to Use: Fixed Income $ 3,383,587 $ - $ - $ 3,383,587 Fixed Income Securities Funds 1,705,046 - - 1,705,046 U.S. Government Securities 1,695,573 - - 1,695,573 Equity Securities Funds 1,422,215 - - 1,422,215 Equity Securities 1,439,429 - - 1,439,429 Subtotal 9,645,850 - - 9,645,850

Investments: Fixed Income Securities Funds 6,722,409 - - 6,722,409 Equity Securities Funds 5,607,304 - - 5,607,304 Equity Securities 5,675,173 - - 5,675,173 Subtotal 18,004,886 - - 18,004,886

Total Assets Measured at Fair Value $ 27,650,736 $ - $ - $ 27,650,736

NOTE 11 FUNCTIONAL EXPENSES

Functional expenses for the Corporation, including salaries and related benefits; maintenance and utilities; food and related supplies; insurance and other operating expenses, were as follows for the years ended September 30:

(22) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 11 FUNCTIONAL EXPENSES (CONTINUED)

2017 2016 Program Activities: Health Services $ 3,973,621 $ 3,729,995 Food Service 3,969,294 3,708,375 Housekeeping 1,295,968 1,152,920 Maintenance 2,838,140 2,758,795 Other Resident Services 2,713,768 2,175,967 14,790,791 13,526,052 General & Administration: Administration 2,569,767 2,187,624 Human Resources 519,003 459,163 Fundraising 94,820 73,654 Marketing 532,718 478,328 Total Functional Expenses $ 18,507,099 $ 16,724,821

Non-operating expenses such as depreciation, amortization, interest expense, loss on disposal of assets are excluded from the table above but are considered program activities by the Corporation.

NOTE 12 RELATED PARTY TRANSACTIONS

The Organization made payments of $99,140 and $77,496 for the years ended September 30, 2017 and 2016, respectively, to a vendor whose President was a member of the Board of Directors and whose term ended in February 2017. Related party transactions are conducted at arms’ length and in accordance with the Board of Directors’ Conflict of Interest Policy.

NOTE 13 COMMITMENTS AND CONTINGENCIES

Health Care Industry The Organization is subject to legal proceedings and claims which arise in the ordinary course of business. The Organization maintains liability insurance coverage for claims occurring during the policy year. Occurrence-based policies need only to be in effect on the date that an accident causing damage occurs in order to trigger coverage. In management’s opinion, adequate provision has been made for amounts expected to be paid under the policy’s deductible limits for claims not covered by the policy and any other uninsured liability.

(23) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016

NOTE 13 COMMITMENTS AND CONTINGENCIES (CONTINUED)

Self-Insured Health Plan Effective April 1, 2017, the Organization changed from a fully insured health insurance plan for its employees to a self-insured employee health plan. The Organization has purchased specific stop-loss protection for all claims over $90,000 and aggregate stop-loss protection for total claims which exceed $1,000,000. An accrual for the self-insurance program was established to provide for estimated claims incurred through September 30, 2017 but not reported. This accrual totaled approximately $47,000 at September 30, 2017 and is included in Accrued Payroll and Employee Benefits on the combined balance sheet.

Terrace Project In December 2017, the Organization signed a construction contract to begin work on the building and furnishing of independent living units. The contract stipulates that the cost of the project is to be capped at $18,414,239 as originally designed. Funds from the 2017 Bank loan will be used to pay for the costs of the project (see Note 5).

NOTE 14 FUTURE ACCOUNTING AND REPORTING REQUIREMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers” which was further codified under Accounting Standards Codification (ASC) 606-10. The standard attempts to create a global, consistent revenue recognition model to be applied to all industries, including health care. The amendments in the ASU are currently effective for the Organization for the year ending September 30, 2019. Management continues to evaluate the impact of the adoption of this standard but based on the latest industry guidance, management believes this standard will not have a material impact on the financial statements.

In August 2016, the FASB issued ASU 2016-14, “Presentation of Financial Statements of Not-for-Profit Entities.” The FASB standard attempts to improve the current net asset classification requirements and the information presented in combined financial statements and notes about a not-for-profit entity’s (NFP’s) liquidity, financial performance, and cash flows. The ASU is currently effective for the Organization for the year ending September 30, 2019. Based on the latest industry guidance, management does not believe this standard will have a material impact on the combined financial statements.

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases” which adds ASC 842 and updates various other sections throughout the ASC. The standard attempts to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet while disclosing relevant information regarding leasing arrangements. The ASU is currently effective for the Organization for the year ending September 30, 2020. Management has not yet determined the impact this standard could have on the combined financial statements.

(24) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINING BALANCE SHEET SEPTEMBER 30, 2017

Southminster Southminster, Foundation, Eliminations Inc. Inc. Debit Credit Combined ASSETS

CURRENT ASSETS Cash and Cash Equivalents $ 1,271,877 $ - $ - $ - $ 1,271,877 Assets Limited as to Use - Current Portion 1,867,259 - - - 1,867,259 Accounts Receivable, Net 249,502 - - - 249,502 Other Current Assets 777,318 - - - 777,318 Total Current Assets 4,165,956 - - - 4,165,956

ASSETS LIMITED AS TO USE Held by Trustee Under Bond Indenture Agreements 4,762,586 - - - 4,762,586 Southminster Community Fund 50,000 - - - 50,000 Operating Reserve - Required by the North Carolina Department of Insurance 4,995,361 - - - 4,995,361 Total Assets Limited as to Use, Net of Current Portion 9,807,947 - - - 9,807,947

PROPERTY AND EQUIPMENT, NET 68,098,383 - - - 68,098,383

LONG-TERM INVESTMENTS, AT MARKET 22,155,440 - - - 22,155,440

DEFERRED MARKETING AND OTHER COSTS 477,931 - - - 477,931

Total Assets $ 104,705,657 $ - $ - $ - $ 104,705,657

(25) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINING BALANCE SHEET (CONTINUED) SEPTEMBER 30, 2017

Southminster Southminster, Foundation, Eliminations Inc. Inc. Debit Credit Combined LIABILITIES AND NET ASSETS (DEFICIT)

CURRENT LIABILITIES Accounts Payable $ 1,569,694 $ - $ - $ - $ 1,569,694 Accrued Payroll and Employee Benefits 884,644 - - - 884,644 Accrued Bond Interest Expense 1,422,259 - - - 1,422,259 Current Portion of Long-Term Debt 445,000 - - - 445,000 Total Current Liabilities 4,321,597 - - - 4,321,597

LONG-TERM DEBT, NET OF CURRENT PORTION 63,239,707 - - - 63,239,707

ADVANCE ENTRANCE FEE DEPOSITS 706,699 - - - 706,699

DEFERRED ENTRANCE FEE REVENUE 33,256,232 - - - 33,256,232

REFUNDABLE ENTRANCE FEES 17,546,464 - - - 17,546,464 Total Liabilities 119,070,699 - - - 119,070,699

NET ASSETS (DEFICIT) Unrestricted (14,415,903) - - - (14,415,903) Temporarily Restricted 50,861 - - - 50,861 Permanently Restricted - - - - - Total Net Assets (Deficit) (14,365,042) - - - (14,365,042)

Total Liabilities and Net Assets (Deficit) $ 104,705,657 $ - $ - $ - $ 104,705,657

(26) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINING STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (DEFICIT) YEAR ENDED SEPTEMBER 30, 2017

Southminster Southminster, Foundation, Eliminations Inc. Inc. Debit Credit Combined REVENUES, GAINS, AND OTHER SUPPORT Independent Living Revenue $ 12,277,724 $ - $ 9,318 $ - $ 12,268,406 Health Care Revenue 7,390,284 - 34,582 - 7,355,702 Home Care Revenue 2,546,488 - - - 2,546,488 Less: Resident Assistance (214,730) - - - (214,730) Earned Entrance Fees 5,775,668 - - - 5,775,668 Investment Income 1,468,671 - - - 1,468,671 Contributions 285,435 - - - 285,435 Net Assets Released from Restrictions 2,106 - - - 2,106 Other Income 411,879 - - - 411,879 Total Revenues, Gains, and Other Support 29,943,525 - 43,900 - 29,899,625

OPERATING EXPENSES Salaries, Wages, and Employee Benefits 12,907,908 - - - 12,907,908 Maintenance, Housekeeping, and Utilities 2,072,799 - - - 2,072,799 Food and Related Supplies 1,385,183 - - - 1,385,183 Insurance 185,504 - - - 185,504 Consulting and Professional Fees 156,249 - - - 156,249 Other Operating Expenses 1,799,456 43,900 - 43,900 1,799,456 Depreciation 7,770,471 - - - 7,770,471 Amortization of Deferred Marketing Costs 80,170 - - - 80,170 Interest Expense 2,480,444 - - - 2,480,444 Loss on Disposal of Assets 29,888 - - - 29,888 Total Operating Expenses 28,868,072 43,900 - 43,900 28,868,072

OPERATING INCOME (LOSS) 1,075,453 (43,900) 43,900 (43,900) 1,031,553

OTHER (LOSS) INCOME Loss on Refunding of Debt (4,063,993) - - - (4,063,993)

(DEFICIT) EXCESS OF REVENUES OVER EXPENSES (2,988,540) (43,900) 43,900 (43,900) (3,032,440)

OTHER CHANGES IN UNRESTRICTED NET ASSETS (DEFICIT) Reclassification from Permanently Restricted Net Assets - 43,900 - - 43,900 Change in Unrealized Gains on Investments 1,007,399 - - - 1,007,399

(INCREASE) DECREASE IN UNRESTRICTED NET DEFICIT (1,981,141) - 43,900 (43,900) (1,981,141)

(27) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINING STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (DEFICIT) (CONTINUED) YEAR ENDED SEPTEMBER 30, 2017

Southminster Southminster, Foundation, Eliminations Inc. Inc. Debit Credit Combined TEMPORARILY RESTRICTED NET ASSETS Contributions $ 50,395 $ - $ - $ - $ 50,395 Released from Restrictions (2,106) - - - (2,106)

INCREASE IN TEMPORARILY RESTRICTED NET ASSETS 48,289 - - - 48,289

DECREASE IN PERMANENTLY RESTRICTED NET ASSETS Reclassification to Unrestricted Net Assets - (43,900) - - (43,900)

CHANGE IN NET ASSETS (DEFICIT) (1,932,852) (43,900) 43,900 (43,900) (1,976,752)

NET ASSETS (DEFICIT) - BEGINNING OF YEAR (12,432,190) 43,900 - - (12,388,290) NET ASSETS (DEFICIT) - END OF YEAR $ (14,365,042) $ - $ 43,900 $ (43,900) $ (14,365,042)

(28) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2017

Southminster Southminster, Foundation, Eliminations Inc. Inc. Debit Credit Combined CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets (Deficit) $ (1,932,852) $ (43,900) $ 43,900 $ (43,900) $ (1,976,752) Adjustments to Reconcile Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities: Earned Entrance Fees (5,775,668) - - - (5,775,668) Depreciation 7,770,471 - - - 7,770,471 Amortization of Bond Issuance Costs 84,590 - - - 84,590 Amortization of Deferred Marketing Costs 80,170 - - - 80,170 Amortization of Bond Premium (453,876) - - - (453,876) Loss on Disposal of Assets 29,888 - - - 29,888 Loss on Refunding of Debt 4,063,993 - - - 4,063,993 Change in Net Unrealized Gains on Investments (1,007,399) - - - (1,007,399) Realized Gains on Investments (891,110) - - - (891,110) (Increase) Decrease in: Accounts Receivable 8,905 - - - 8,905 Other Current Assets (17,134) - - - (17,134) Increase (Decrease) in: Accounts Payable, Excluding Amounts in Property and Equipment (168,090) - - - (168,090) Accrued Payroll and Employee Benefits 135,134 - - - 135,134 Accrued Bond Interest Expense, Net of Amounts Capitalized (342,864) - - - (342,864)

Net Cash Provided by (Used in) Operating Activities 1,584,158 (43,900) 43,900 (43,900) 1,540,258

CASH FLOWS FROM INVESTING ACTIVITIES Sales of Assets Limited as to Use, Net 1,282,864 - - - 1,282,864 Purchases of Long-Term Investments, Net (1,718,131) - - - (1,718,131) Purchases of Property for Routine Additions (2,339,650) - - - (2,339,650) Purchases of Property for Expansion Projects (3,175,783) - - - (3,175,783)

Net Cash Used in Investing Activities (5,950,700) - - - (5,950,700)

(29) SOUTHMINSTER, INC. (SOUTHMINSTER, INC. AND SOUTHMINSTER FOUNDATION, INC.) COMBINING STATEMENT OF CASH FLOWS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2017

Southminster Southminster, Foundation, Eliminations Inc. Inc. Debit Credit Combined CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Entrance Fees $ 7,849,305 $ - $ - $ - $ 7,849,305 Deposits Received, Net of Refunds and Conversions to Entrance Fees 131,800 - - - 131,800 Entrance Fees Refunded (1,883,569) - - - (1,883,569) Repayments of Long-Term Debt (1,766,833) - - - (1,766,833) Prepaid Interest Payment (3,489,658) - - - (3,489,658) Early Repayment of Long-Term Debt (61,515,000) - - - (61,515,000) Proceeds of Long-Term Debt 58,793,020 - - - 58,793,020 Proceeds from Bond Issue Premium on Long-Term Debt 6,036,252 - - - 6,036,252 Payments of Financing Costs (1,174,226) - - - (1,174,226)

Net Cash Provided by Financing Activities 2,981,091 - - - 2,981,091

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,385,451) (43,900) - - (1,429,351)

Cash and Cash Equivalents - Beginning of Year 2,657,328 43,900 - - 2,701,228

CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,271,877 $ - $ - $ - $ 1,271,877

(30)

APPENDIX C

FINANCIAL FEASIBILITY STUDY

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FINANCIAL FEASIBILITY STUDY

SOUTHMINSTER, INC.

FORECASTED FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS’ REPORT

FOR THE FIVE YEARS ENDING SEPTEMBER 30, 2018 THROUGH SEPTEMBER 30, 2022

TABLE OF CONTENTS

Independent Accountants’ Report ...... C-1

Forecasted Statements of Operations and Changes in Net Deficit For the Years Ending September 30, 2018 through 2022 ...... C-5

Forecasted Statements of Cash Flows For the Years Ending September 30, 2018 through 2022 ...... C-6

Forecasted Balance Sheets At September 30, 2018, 2019, 2020, 2021, and 2022 ...... C-7

Forecasted Schedule of Financial Ratios For the Years Ending September 30, 2018 through 2022 ...... C-8

Summary of Significant Forecast Assumptions and Accounting Policies:

Background Information ...... C-9

Source and Uses of Funds ...... C-18

Market Assessment ...... C-21

Summary of Significant Accounting Policies ...... C-49

Management’s Basis for Forecast of Revenue ...... C-52

Management’s Basis for Forecast of Expenses ...... C-60

Management’s Basis for Forecast of Other Items ...... C-62

Sensitivity Factors and Analyses ...... C-67

CliftonLarsonAllen LLP CLAconnect.com

INDEPENDENT ACCOUNTANTS’ REPORT

Board of Directors Southminster, Inc. Charlotte, North Carolina

We have prepared a financial feasibility study (the “Study”) of the plans of Southminster, Inc., a North Carolina nonprofit corporation (the '"Corporation"), to expand its Life Plan Community (previously continuing care retirement community) known as Southminster (“Southminster” or the “Community”) through the addition of new independent living units and the replacement of the existing healthcare facility. Management of Southminster (“Management”) has indicated that the project will add 66 independent living units (30 in the “Terraces 1 Project” and 36 in the “Terraces 2 Project”) and replace the existing healthcare facility (the “HC Replacement Project”). The Terraces 1 Project, the Terraces 2 Project and the HC Replacement Project are collectively referred to as the “Project.” The Corporation currently operates 239 independent living units, 25 assisted living and memory support units, and 60 skilled nursing units.

The Study was undertaken to evaluate the ability of the Corporation to generate sufficient funds to meet its operating expenses, working capital needs, and other financial requirements, including the debt service requirements associated with the proposed $91,460,000 Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 (the "Series 2018 Bonds").

The Corporation’s senior managing underwriter, B.C. Ziegler and Company (the “Underwriter”), has indicated the following planned structure and terms of the Series 2018 Bonds. The responsibility for payment of the debt service on the Series 2018 Bonds is solely that of the Corporation. Series 2018 Bonds: The Underwriter has indicated that the bond proceeds of $91,460,000 are estimated to be generated from the proposed issuance of the Series 2018 Bonds, consisting of: $3,795,000 tax-exempt fixed rate term bonds (the “2038 Term Bonds”) assumed to be issued with a fixed interest rate of 5.15%, maturing October 1, 2038. Interest on the 2038 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018 and principal is payable on October 1, 2038. $22,155,000 tax-exempt fixed rate term bonds (the “2043 Term Bonds”) assumed to be issued with a fixed interest rate of 5.20%, maturing October 1, 2043, subject to annual sinking fund redemption from October 1, 2039 through October 1, 2043. Interest on the 2043 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018. $28,575,000 tax-exempt fixed rate term bonds (the “2048 Term Bonds”) assumed to be issued with a fixed interest rate of 5.25%, maturing October 1, 2048, subject to annual sinking fund redemption from October 1, 2044 through October 1, 2048. Interest on the 2048 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018. $36,935,000 tax-exempt fixed rate term bonds (the “2053 Term Bonds”) assumed to be issued with a fixed interest rate of 5.30%, maturing October 1, 2053, subject to annual sinking fund redemption from October 1, 2049 through October 1, 2053. Interest on the 2053 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018.

C-1

Board of Directors Southminster, Inc.

The proceeds from the Series 2018 Bonds and proceeds from an existing bank loan (the “2017 Bank Loan”) are planned to be used to, among other things:

Pay for Project-related costs and reimburse the Corporation for costs that have been incurred prior to issuance of the Series 2018 Bonds; Fund a debt service reserve fund; and Pay issuance and legal costs associated with the Series 2018 Bonds.

Project costs are presented in Management’s “Summary of Significant Forecast Assumptions and Accounting Policies.”

Our procedures included analysis of:

The Corporation’s objectives, timing and financing; Future demand for the Corporation’s services including consideration of: o Economic and demographic characteristics of the defined market areas of the Corporation’s facilities, o Locations, capacities and competitive information pertaining to other existing and planned facilities in the Corporation’s market area, o Forecasted occupancy and utilization levels of the Corporation’s facilities; Project related costs; Debt service requirements and estimated financing costs of the Series 2018 Bonds, 2017 Bank Loan and existing indebtedness; Staffing requirements, salaries and wages, related fringe benefits and other operating expenses of the Corporation; Anticipated entrance fees, monthly service fees, and per diem charges for the Corporation’s residents; Sources of other Corporation operating and non-operating revenues; and Corporation revenue, expense and volume/utilization relationships.

Management’s “Summary of Significant Forecast Assumptions and Accounting Policies” sets forth significant assumptions on which the accompanying forecasted financial statements are based. These assumptions are integral and essential to an understanding of the forecasted financial statements.

The accompanying financial forecast of the Corporation as of and for each of the years in the five-year period ending September 30, 2022 is based upon assumptions provided by or reviewed with and approved by Management. The financial forecast includes the following financial statements:

Forecasted Statements of Operations and Changes in Net Deficit; Forecasted Statements of Cash Flows; and Forecasted Balance Sheets.

In addition, Management has presented a Forecasted Schedule of Financial Ratios.

We have examined the accompanying forecast of the Corporation, which comprises the forecasted balance sheets as of September 30, 2018, 2019, 2020, 2021 and 2022 and the related forecasted statements of operations and changes in net deficit and cash flows for the years then ending, based on the guidelines for the presentation of a forecast established by the American Institute of Certified Public Accountants. Management is responsible for preparing and presenting the forecast in accordance with the guidelines for the presentation of a forecast established by the American

C-2

Board of Directors Southminster, Inc.

Institute of Certified Public Accountants (“AICPA”). 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 AICPA. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether the forecast is presented in accordance with the guidelines for the presentation of a forecast established by the AICPA, in all material respects. An examination involves performing procedures to obtain evidence about the forecast. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatement of the forecast, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.

Legislation and regulations at all levels of government have affected and may continue to affect the operations of long-term care facilities and Life Plan Communities, including revenues and expenses of facilities such as the Corporation’s. The financial forecast is based upon legislation and regulations currently in effect. If future legislation or regulations related to the Corporation’s operations are subsequently enacted, such legislation or regulations could have a material effect on future operations.

Management’s financial forecast is based on the achievement of occupancy levels as determined by Management. We have not been engaged to evaluate the effectiveness of Management and we are not responsible for future marketing efforts and other Management actions upon which actual results will depend.

The interest rates, principal payments, and other financing assumptions are described in the section entitled “Summary of Significant Forecast Assumptions and Accounting Policies.” If actual interest rates, principal payments, or funding requirements are different from those assumed, the amount of the Series 2018 Bonds and associated debt service requirements would need to be adjusted accordingly from those indicated in the forecast. If such interest rates, principal payments, and funding requirements are lower than those assumed, such adjustments would not adversely affect the forecast.

We have no responsibility to update this report for events and circumstances occurring after the date of this report.

C-3

Board of Directors Southminster, Inc.

In our opinion, the accompanying forecast is presented in all material respects with the guidelines for the presentation of a forecast established by the AICPA, and the underlying assumptions are suitably supported and provide a reasonable basis for Management’s forecast.

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.

Management has conducted sensitivity analyses on selected significant assumptions which it believes are particularly subject to variation. The sensitivity analyses are presented beginning on page C-67 of Management’s “Summary of Significant Forecast Assumptions and Accounting Policies” and estimate the impact on the Corporation’s forecasted maximum annual debt-service coverage and liquidity ratios as a result of the various sensitivity analyses. Management has conducted these sensitivity analyses on its financial forecast which are presented for purposes of additional analysis and are not a required part of the financial forecast. These sensitivity analyses have not been subjected to procedures applied in the examination of the financial forecast and, accordingly, we express no opinion or any other form of assurance on them.

CliftonLarsonAllen LLP

Charlotte, North Carolina May 31, 2018

C-4

SOUTHMINSTER, INC. FORECASTED STATEMENTS OF OPERATIONS AND CHANGES IN NET DEFICIT FOR THE YEARS ENDING SEPTEMBER 30,

2018 2019 2020 2021 2022 REVENUES, GAINS, AND OTHER SUPPORT Independent Living Revenue $ 12,221,065 $ 13,667,761 $ 15,146,805 $ 17,563,905 $ 18,277,224 Healthcare Revenue 9,838,465 10,180,141 10,539,756 11,278,655 11,676,988 Earned Entrance Fees 5,731,644 6,206,735 7,366,223 7,572,339 8,385,386 Investment Income 601,195 866,457 769,729 795,801 837,243 Contributions 360,000 370,000 380,000 390,000 400,000 Net Assets Released from Restrictions 50,861 - - - - Other Income 194,306 115,060 115,060 265,125 353,500 Total Revenues, Gains, and Other Support 28,997,536 31,406,154 34,317,573 37,865,825 39,930,341 OPERATING EXPENSES: Healthcare Expenses 4,251,437 4,382,743 4,548,138 4,843,752 4,993,721 Administrative Expenses 4,193,950 3,988,547 4,206,975 4,452,884 4,631,448 Maintenance Expenses 3,100,039 3,271,041 3,474,830 3,911,495 4,035,118 Laundry Expenses 159,499 169,284 176,213 182,288 187,518 Housekeeping Expenses 1,202,942 1,257,029 1,309,197 1,378,483 1,419,916 Dietary Expenses 4,071,779 4,236,539 4,457,075 4,902,504 5,062,948 Other Expenses 3,009,864 3,111,600 3,216,848 3,325,731 3,438,373 Depreciation 6,643,925 6,417,381 6,820,206 9,922,402 10,035,705 Amortization 80,172 85,170 87,121 22,000 22,000 Interest Expense 2,447,127 3,001,822 3,797,237 7,529,667 7,100,252 Total Operating Expenses 29,160,734 29,921,156 32,093,840 40,471,206 40,926,999 OPERATING INCOME (LOSS) (163,198) 1,484,998 2,223,733 (2,605,381) (996,658) Net Assets released from restrictions for purchases of property and equipment - - 250,000 - - INCREASE IN NET ASSETS (DEFICIT) WITHOUT DONOR RESTRICTION (163,198) 1,484,998 2,473,733 (2,605,381) (996,658) NET ASSETS (DEFICIT) WITHOUT DONOR RESTRICTIONS, BEGINNING OF YEAR (14,415,904) (14,579,102) (13,094,104) (10,620,371) (13,225,752) NET ASSETS (DEFICIT) WITHOUT DONOR RESRICTIONS, END OF YEAR (14,579,102) (13,094,104) (10,620,371) (13,225,752) (14,222,410) NET ASSETS RELEASED FROM RESTRICTIONS (50,861) - (250,000) - - DONOR RESTRICTED CONTRIBUTIONS 250,000 - - - - NET ASSETS WITH DONOR RESTRICTIONS, BEGINNING OF YEAR 50,861 250,000 250,000 - - NET ASSETS WITH DONOR RESTRICTIONS, END OF YEAR 250,000 250,000 - - - CHANGE IN NET DEFICIT 35,941 1,484,998 2,223,733 (2,605,381) (996,658) NET DEFICIT, BEGINNING OF YEAR (14,365,043) (14,329,102) (12,844,104) (10,620,371) (13,225,752) NET DEFICIT, END OF YEAR $ (14,329,102) $ (12,844,104) $ (10,620,371) $ (13,225,752) $ (14,222,410)

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Report

C-5 SOUTHMINSTER, INC. FORECASTED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDING SEPTEMBER 30,

2018 2019 2020 2021 2022 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Deficit $ 35,941 $ 1,484,998 $ 2,223,733 $ (2,605,381) $ (996,658) Adjustments to Reconcile Change in Net Deficit to Net Cash Provided by Operating Activities: Depreciation and Amortization 6,724,097 6,502,551 6,907,327 9,944,402 10,057,705 Amortization of Debt Issuance Cost 79,017 147,285 147,285 137,285 131,285 Change in Other Assets 149,991 7,428 6,468 4,512 2,292 Increase in Prepaids and Receivables (30,805) (64,729) (69,681) (87,661) (53,671) Increase in Current Liabilities 1,811,064 915,634 37,278 104,093 38,985 Earned Entrance Fees (5,731,644) (6,206,735) (7,366,223) (7,572,339) (8,385,386) Amortization of Premium (453,066) (449,551) (434,336) (418,618) (402,283) Net Cash Provided (Used) by Operating Activities 2,584,595 2,336,881 1,451,851 (493,707) 392,269

CASH FLOWS FROM INVESTING ACTIVITIES Sales (Purchases) of Investments (2,430,265) 2,736,002 4,386,644 (799,877) (2,120,212) Fixed Asset Additions (28,192,000) (59,194,000) (45,745,000) (5,100,000) (5,200,000) Interest Cost Capitalized during Construction, Net of Interest Earnings (2,071,000) (4,755,000) (4,052,000) - - Payment of Marketing Costs (222,000) (29,000) (10,000) - - (Increase) Decrease in Assets Limited as to Use (78,031,208) 34,825,117 25,958,505 7,085,584 (265,057) Net Cash Provided (Used) BY Investing Activities (110,946,473) (26,416,881) (19,461,851) 1,185,707 (7,585,269) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Entrance Fees and Deposits, Net 9,283,000 22,274,000 13,110,000 21,947,000 9,318,000 Proceeds from Bank Loan 11,201,000 16,218,000 9,081,000 - - Proceeds from Issuance of Series 2018 Bonds 91,460,000 - - - - Debt Issuance Costs (1,909,000) - - - - Repayments of Long-Term Debt (445,000) (14,355,000) (4,170,000) (22,535,000) (2,115,000) Net Cash Provided (Used) by Financing Activities 109,590,000 24,137,000 18,021,000 (588,000) 7,203,000

NET INCREASE IN CASH AND CASH EQUIVALENTS 1,228,122 57,000 11,000 104,000 10,000 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,271,878 2,500,000 2,557,000 2,568,000 2,672,000 CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,500,000 $ 2,557,000 $ 2,568,000 $ 2,672,000 $ 2,682,000

Supplementary Disclosure: Interest Paid during Year $ 3,289,963 $ 8,559,131 $ 8,635,688 $ 7,943,644 $ 7,429,125

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Report

C-6 SOUTHMINSTER, INC. FORECASTED BALANCE SHEETS AT SEPTEMBER 30,

2018 2019 2020 2021 2022 ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 2,500,000 $ 2,557,000 $ 2,568,000 $ 2,672,000 $ 2,682,000 Accounts Receivable, Net 256,988 284,698 328,639 371,818 397,243 Other Current Assets 800,639 837,658 863,398 907,880 936,126 Assets Limited As To Use - Current 1,967,588 3,375,544 5,304,144 5,852,500 5,904,625 Total Current Assets 5,525,215 7,054,900 9,064,181 9,804,198 9,919,994

ASSETS LIMITED AS TO USE Expansion Entrance Fees and Deposits 3,272,000 4,470,000 7,765,000 - - Bond Fund 1,967,588 3,375,544 5,304,144 5,852,500 5,904,625 Debt Service Reserve Funds 9,566,767 9,566,767 9,566,767 9,566,767 9,566,767 Project Fund 69,630,000 31,625,000 - - - Southminster Community Fund 50,000 50,000 50,000 50,000 50,000 Operating Reserve Fund Required Under North Carolina Statutes 5,220,058 5,793,985 6,236,880 6,367,940 6,580,872 Total Assets Limited As To Use 89,706,413 54,881,296 28,922,791 21,837,207 22,102,264 Less: Current Portion (1,967,588) (3,375,544) (5,304,144) (5,852,500) (5,904,625) Assets Limited As To Use, Net of Current Portion 87,738,825 51,505,752 23,618,647 15,984,707 16,197,639

PROPERTY AND EQUIPMENT 167,527,781 231,476,781 281,273,781 286,373,781 291,573,781 Less: Accumulated Depreciation (76,106,832) (82,524,213) (89,344,419) (99,266,821) (109,302,526) Net Property and Equipment 91,420,949 148,952,568 191,929,362 187,106,960 182,271,255

LONG-TERM INVESTMENTS 24,585,685 21,849,683 17,463,039 18,262,916 20,383,128 DEFERRED MARKETING AND OTHER COSTS 469,769 406,171 322,582 296,070 271,778 TOTAL ASSETS $ 209,740,443 $ 229,769,074 $ 242,397,811 $ 231,454,851 $ 229,043,794

2018 2019 2020 2021 2022

LIABILITIES AND NET ASSETS (DEFICIT) CURRENT LIABILITIES Accounts Payable $ 1,311,384 $ 1,407,726 $ 1,454,248 $ 1,573,985 $ 1,623,975 Accrued Expenses 911,184 995,520 1,029,676 1,136,676 1,173,546 Accrued Interest 3,168,588 3,903,544 3,860,144 3,737,500 3,689,625 Current Portion of Long-Term Debt 555,000 1,970,000 2,035,000 2,115,000 2,215,000 Total Current Liabilities 5,946,156 8,276,790 8,379,068 8,563,161 8,702,146

LONG-TERM DEBT, NET OF CURRENT PORTION 166,023,310 166,021,759 170,433,423 147,399,805 144,782,522 Less: Bond Issue Cost (2,960,672) (2,813,387) (2,666,102) (2,528,817) (2,397,532) Long Term Debt, Net 163,062,638 163,208,372 167,767,321 144,870,988 142,384,990 ADVANCE ENTRANCE FEE DEPOSITS 3,978,699 2,976,699 2,318,699 706,699 706,699 DEFERRED REVENUE - NONREFUNDABLE ENTRANCE FEES 29,798,092 41,718,518 45,789,712 56,136,537 56,020,216 DEFERRED REVENUE - REFUNDABLE ENTRANCE FEES 3,641,011 3,791,234 5,929,917 11,282,709 12,045,247 REFUNDABLE ENTRANCE FEES 17,642,949 22,641,565 22,833,465 23,120,509 23,406,906

Total Liabilities 224,069,545 242,613,178 253,018,182 244,680,603 243,266,204

NET ASSETS (DEFICIT): Without Donor Restrictions (14,579,102) (13,094,104) (10,620,371) (13,225,752) (14,222,410) With Donor Restrictions 250,000 250,000 - - - Total Net Assets (Deficit): (14,329,102) (12,844,104) (10,620,371) (13,225,752) (14,222,410) TOTAL LIABILITIES AND NET ASSETS (DEFICIT) $ 209,740,443 $ 229,769,074 $ 242,397,811 $ 231,454,851 $ 229,043,794

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Report

C-7

SOUTHMINSTER, INC. FORECASTED SCHEDULE OF FINANCIAL RATIOS FOR THE YEARS ENDING SEPTEMBER 30,

Debt Service Coverage Ratio 2018 2019 2020 2021 2022

Change in Net Assets Without Donor Restrictions (163,198) 1,484,998 2,473,733 (2,605,381) (996,658) Deduct: Entrance Fee Amortization (5,731,644) (6,206,735) (7,366,223) (7,572,339) (8,385,386)

Operating Expenses $ 29,160,734 $ 29,921,156 $ 32,093,840 $ 40,471,206 $ 40,926,999 Less: Amortization of Bond Issuance Costs (79,017) (147,285) (147,285) (137,285) (131,285) Depreciation and Amortization (6,724,097) (6,502,551) (6,907,327) (9,944,402) (10,057,705) Total $ 22,357,620 $ 23,271,320 $ 25,039,228 $ 30,389,519 $ 30,738,009 Daily Operating Expenses (3) $ 61,254 $ 63,757 $ 68,601 $ 83,259 $ 84,214 Days Cash on Hand 527 474 383 328 352 Notes to the Forecast Schedule of Financial Ratios: (1) Excludes first generation entrance fee receipts. (2) Pursuant to the Amended and Restated Master Trust Indenture, the maximum annual debt service excludes (a) the debt service on the Series 2018 Bonds until 2022, the first year after the Project achieves stabilized occupancy, and (b) the 2017 Bank Loan because it is Qualifying Intermediate Term Indebtedness. (3) Daily operating expenses are equal to operating expenses less depreciation and amortization divided by 365 days.

See accompanying Summary of Significant Forecast Assumptions and Accounting Policies and Independent Accountants’ Report C-8 Summary of Significant Forecast Assumptions and Accounting Policies Background Information

Basis of Presentation The purpose of the financial feasibility study (the “Study”) is to evaluate the ability of Southminster, Inc. (the “Corporation”) to meet the operating requirements, working capital requirements and other financial requirements associated with its plans to expand the Corporation’s Life Plan Community (the “Community” or “Southminster”) located in Charlotte, North Carolina through the addition of 30 independent living units (the “Terraces 1 Project”), the addition of 36 independent living units (the “Terraces 2 Project”) and to replace the existing healthcare facility (the “HC Replacement Project”). The Terraces 1 Project, the Terraces 2 Project and the HC Replacement Project are collectively referred to as the “Project.” The Project is forecasted to be funded from the proposed $91,460,000 Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 Bonds (the "Series 2018 Bonds"), as well as through draws on an existing bank loan (the “2017 Bank Loan”). Management of the Corporation is referred to as “Management.”

Management’s accompanying financial forecast for the years ending September 30, 2018, 2019, 2020, 2021 and 2022 and each of the years then ending (the “Forecast Period”) included in the Study is forecasted by Management. The financial forecast presents, to the best of the knowledge and belief of Management, the Corporation’s expected financial position, results of activities, and cash flows of the Corporation for the Forecast Period.

Accordingly, the financial forecast reflects Management’s judgment as of May 31, 2018, the date of this financial forecast, of the expected conditions and its expected course of action during the Forecast Period. The assumptions disclosed herein, while not all-inclusive, are those that Management believes are significant to its financial 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.

Fundamental to the financial forecast is the assumption that the operations of the Corporation will be competently and efficiently managed and its services professionally and consistently marketed. In addition, the validity of the financial forecast will decrease substantially in proportion to the time elapsed since its preparation. Management’s financial forecast has been prepared in connection with the proposed issuance of the Series 2018 Bonds. Management does not intend to update its financial forecast of the Corporation subsequent to the issuance of this forecast and accordingly there are risks inherent to referring to or using this forecast in the future as it may, and most likely will, become outdated.

The assumed interest rates, principal payments, Project-related costs, other financing assumptions, and assumptions pertaining to the forecasted revenue, expenses, and cash flows are described herein. If the actual interest rates, principal payments, Project-related costs, or other financing assumptions related to the Series 2018 Bonds are different from those assumed, the principal amount of the Series 2018 Bonds, and associated debt service requirements would need to be adjusted, accordingly, from those indicated in the forecast. If interest rates, principal payments, and funding requirements are lower than those assumed, then such adjustments would not adversely affect the forecast.

See accompanying Independent Accountants’ Report C-9 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Background of the Corporation

The Corporation owns and operates a Life Plan Community (also known as continuing care retirement community) known as “Southminster” located in Charlotte, North Carolina. Southminster offers its residents use of independent living units and care in its health center in accordance with the terms of a Residence and Services Agreement (as defined subsequently hereinafter) entered into by the Corporation with each resident.

The Corporation is a North Carolina nonprofit corporation organized in 1984 to construct and operate Southminster. The Corporation has received a determination that it is exempt from federal income taxation 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. Southminster opened for operations in May 1987.

Southminster is not a legal entity separate from the Corporation. Southminster is the name under which the Corporation operates its Life Plan Community. The management and staff of the Corporation, under the direction of the board of directors of the Corporation, manage Southminster.

Southminster Foundation, Inc. (the "Foundation") is a North Carolina nonprofit corporation that was established to operate exclusively for the benefit of the Corporation, primarily through financial support to residents of Southminster who are unable to meet their financial obligations. Effective October 1, 2013, the operations of the Foundation were moved into the operations of Southminster. As such, the financial forecasts included herein contain contribution income and resident support previously recorded on the books and records of the Foundation.

The business and other affairs of the Corporation are governed by a 17-member board of directors, comprised of 13 voting members, 1 non-voting founding director and 3 non-voting Chairs Emeritus. The Corporation is affiliated with Christ Episcopal Church and Myers Park Baptist Church, both of which are located in Charlotte, North Carolina. Although not all of the directors are associated with the sponsoring churches, the governing bodies of the two churches ratify those persons nominated to serve as directors.

Southminster is an entrance fee community located on approximately 27 acres of land at 8919 Park Road, Charlotte, North Carolina, consisting of 29 one-story duplex/triplex cottage units (with one unit being temporarily offline during construction of the Project) and a main building that includes 210 independent living apartments, dining rooms, the main kitchen, common rooms for activities and social interactions, a library, administrative offices, and all the necessary support service areas for the normal functioning of the community (e.g., maintenance, housekeeping, resident storage spaces, etc.). The main building also houses the existing health care center (the “Health Center” or the “Existing Health Center”) with 25 licensed assisted living and memory support beds (all private) and 60 licensed nursing beds (56 private and 4 semi-private).

Existing Independent Living Units The existing independent living units of Southminster (the “Existing Independent Living Units”) consist of apartments and duplex/triplex cottage units. The apartments are contained within three- and eight-story main buildings and are connected to common areas and healthcare service facilities via enclosed walkways and elevators. Floor plans vary depending on location and include studio, one, and two-bedroom units, with either one or two bathrooms. Most units include either a patio or balcony, storage facilities, monitored emergency fire and safety systems, and central heating and air conditioning with individual thermostatic controls. Some units also include washer/dryer units. The cottage floor plans also vary in design and size, but include two bedrooms and a den. Southminster has combined some units in its original building to make larger units and continues to look for further opportunities to do so.

See accompanying Independent Accountants’ Report C-10 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Terraces 1 Project The Corporation has commenced construction for the addition of 30 independent living units (the “Terraces 1 Independent Living Units,” the “Terraces 1 Project,” or “Terraces 1”). The Terraces 1 Independent Living Units are to be located on the existing campus. The design of Terraces 1 are sometimes referred to as “hybrids” since each building captures the socialization and community sometimes found in larger buildings along with some of the independent experience often times associated with cottages. All residents are planned to have access to underground parking, and elevators to each building floor. Furthermore, most units are planned to have at least two sides with windows, greatly enhancing lighting and visual access to the outdoors. Construction of Terraces 1 began December 2017.

Terraces 2 Project Management plans to develop 36 new independent living units (the “Terraces 2 Independent Living Units,” the “Terraces 2 Project,” “Terraces 2” or “Future Project IL Units”). The Terraces 2 Independent Living Units are to be located on the existing campus on land that was recently acquired, and will be similar in design to the Terraces 1 Project currently being constructed and most units are planned to have at least two sides with windows. Management has planned to build a two-level underground parking deck to add additional parking for the campus. Buildings will have elevators to each building floor.

HC Replacement Project The Corporation proposes to replace the existing nursing, assisted living and memory support units with a new replacement building that would greatly enhance the resident experience by creating programming and living space more aligned with person centered care (the “HC Replacement Project”). The HC Replacement Project will not add any additional healthcare units to the campus and is a complete replacement of the Existing Health Center. In addition to the replacement of the Existing Health Center, a number of common area improvements are proposed, along with a significant addition to structured parking on the campus.

Upon completion of the HC Replacement Project, Management is planning to renovate vacated space and to add additional independent living units in the space that was previously occupied. Management does not currently have concrete plans for this independent living unit addition, and has not included such addition as part of its financial forecast due to the planning uncertainty associated with this use of vacant space, including formulation of design plans and marketing efforts.

As noted above, the HC Replacement Project will replace the Existing Health Center although the complement of total units will remain the same. For purposes of the Study, the generic use of the term “Health Center” describes in aggregate the complement of assisted living units and nursing units, whether before or after completion of the HC Replacement Project.

Assisted Living The Health Center includes 25 licensed assisted living units (all private) with additional memory support care, where needed. Each unit is equipped with individually controlled heating and air-conditioning, cable hook-ups, a phone jack and an emergency call system. Assisted living residents receive nursing staff attention daily. Residents also receive assistance with medication, bathing, dressing and grooming; linen and housekeeping service; activities and social service programs; and meals three times per day. Residents may be directly admitted into this level of care from the outside community under a Residence and Services Agreement.

Nursing Care The Health Center also includes 60 licensed nursing care beds (56 private and 4 semi-private). The Health Center provides nursing care residents 24-hour supervision and assistance in activities of daily living and health-related care. Bathing facilities, a dining room, and common rooms are also included in this area. Residents may be directly admitted into this level of care from the outside community under a Residence and Services Agreement.

See accompanying Independent Accountants’ Report C-11 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Upon completion of the HC Replacement Project, all nursing units will be private rooms with their own baths.

Common Areas The common areas are located throughout the main building. They serve as gathering places for residents and include a wellness aquatic center, theater, dining rooms, multi-purpose rooms, lounges, central kitchen, library, administration areas, common rooms for activities and social interactions, resident storage spaces, exercise room, and facilities for beautician services. Southminster may also provide facilities for limited banking services, facilities for the sale of sundry items, and other amenity areas dependent on Southminster’s determination of demand or the availability of providers.

Table 1 Unit Configuration Before and After Completion of the Project by Type, Number and Weighted Average Square Footage HC Terraces 1 Terraces 2 Replacement Existing Project Project Project HC Weighted Weighted Weighted Weighted Existing Number of Terraces 1 Terraces 2 Replacement Average Average Average Average Facility Existing Project Project Project Square Square Square Square Number of Units Number of Number of Number of Footage by Footage by Footage by Footage by Unit Type Units (1) Eliminated Units Units Units Total Unit Type Unit Type Unit Type Unit Type Independent Living Units Apartments: Studio 2- - - - 2 292 One-bedroom 49 - - - - 49 598 - 782 One-bedroom/den 12 - - - - 12 955 - 1,137 One-bedroom with den-expansion 24 - - - - 24 1,080 - 1,390 Two-bedrooms 44 - 6 6 - 56 955 - 1,345 1,395 - 1,495 1,468 Two-bedrooms-expansion 29 - - - - 29 1,280 - 2,260 Two-bedrooms/den or great room 14 - 24 30 - 68 1,276 - 1,995 1,618 - 2,115 1,593 - 2,156 Two-bedrooms with den-expansion 36 - - - - 36 1,465 - 3,190 Cottages: Small sunroom 4- - - - 4 1,500 Large sunroom 25 - - - - 25 1,800 - 1,900

Total Independent Living Units 239 - 30 36 - 305 Assisted Living Assisted Living 25 (25) - - 25 25 300 - - 600 Skilled Nursing Private 56 (56) - - 60 60 215 - - 300 Semi-private 4 (4) - - 0 0 270

Total Health Care Units and Beds 85 (85) - - 85 85 Total Campus Units and Beds 324 (85) 30 36 85 390 Source: Management Notes: (1) 18 units are currently offline, which are reflected in the existing unit count above, and are planned to be razed.

See accompanying Independent Accountants’ Report C-12 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Table 2 Project Timeline

HC Event Replacement Terraces 1 Terraces 2 Obtained 2017 Bank Loan Financing (1) N/A August 2017 August 2017 Obtain 2018 Bond Financing June 2018 June 2018 June 2018 Begin construction April 2018 December 2017 October 2018 Construction completed August 2020 January 2019 July 2020 Resident transfer and relocation completed August 2020 N/A N/A Fill-up begins (2) February 2019 August 2020 Stablized Occupancy Achieved (2) July 2019 March 2021

Notes: (1) On May 23, 2018, Southminster signed an amendment to increase the total loan commitment under the 2017 Bank Loan. See notes to Table 3 for more information. (2) Existing Health Center residents are forecasted to transfer to the replacement units upon opening of the replacement units.

See accompanying Independent Accountants’ Report C-13 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Admissions Criteria

Southminster is open to persons 62 years of age or older. Southminster accepts individuals, subject to the aforementioned age constraints, regardless of race, nationality, gender, sexual orientation, or religion, who are able to live with little or no assistance and demonstrate an ability to meet their financial obligations as residents.

Prospective residents, in consultation with the staff and a responsible party, as appropriate, select a living accommodation suitable for the level of care needed at the time of admission. Residents may be admitted directly to the Health Center if space is available. All prospective residents enter into a Residence and Services Agreement.

In addition to signing a Residence and Services Agreement and paying the deposit, the applicant is required to interview with a representative from the Corporation prior to being approved for admission. The applicant must also submit the following information:

An application for admission containing general background information A personal health history recounting relevant medical history and insurance data A confidential financial statement which summarizes the prospective resident's net worth and annual income A physical examination form completed by a physician

Upon review of the information outlined above, Southminster may request additional personal interviews and/or documentation on items not satisfactorily covered in the application forms or on prior interviews. Rejected applicants receive a full refund of their entrance fee deposits.

Residence and Services Agreement

NOTE: The following is a summary of the Residence and Services Agreement and is not intended to be all-inclusive or a substitute for the actual Residence and Services Agreement.

All residents who apply for admission to Southminster are required to sign a Residence and Services Agreement (the "Agreement" or the “Residence and Services Agreement”). At the time the resident signs the Agreement, the resident is required to pay 10% of the entrance fee for the particular unit in which the resident will reside. The balance of the entrance fee is due no later than the specified resident's occupancy date. Pursuant to the Agreement, the resident is entitled to rescind the Agreement within 30 days following the execution of the Agreement or receipt of the Corporation's disclosure statement meeting the requirements of North Carolina law (the "Rescission Period"). Upon such rescission, the resident is entitled to a refund of the full 10% deposit less applicable non-standard costs in accordance with the refund provisions of the Agreement.

Southminster offers a standard refundable plan (the "Standard Refund Plan"), a 50-percent refundable plan (the "50% Refundable Plan"), and a 90-percent refundable plan (the "90% Refundable Plan").

Standard Refund Plan-This plan amortizes the entrance fee paid at five percent per month for 20 months after which time the entrance fee would be fully amortized and offers no refund. If a resident leaves the community prior to 20 months of occupancy for any reason, including death, the full entrance fee would be refunded less five percent of the entrance fee for each full or partial calendar month that has elapsed from the date of occupancy to the effective date of termination. If the resident is due a refund for the termination of the

See accompanying Independent Accountants’ Report C-14 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Agreement, such refund is payable only when the unit becomes reoccupied by a subsequent resident and the full entrance fee is paid.

50% Refundable Plan-This plan amortizes the entrance fee paid at five percent per month for the first 10 months of occupancy after which time the resident may be due a 50% refund after termination of the Agreement. If the resident is due a refund, such refund would be paid when the unit becomes reoccupied by a subsequent resident and the full entrance fee is paid.

90% Refundable Plan-This plan amortizes the entrance fee paid at five percent per month for two months after which time a 90% refund is due upon termination of the Agreement. If the resident is due a refund, such refund would be paid when the unit becomes reoccupied by a subsequent resident and the full entrance fee is paid.

As of September 30, 2017, the number of contracts by contract type for residents of the Existing Facility are as follows: Standard Refund Plan: 288 contracts 50% Refundable Plan: 20 contracts 90% Refundable Plan: 42 contracts

Of Project units that have been presold, as of April 24, 2018, approximately 73% have chosen the Standard Refund Plan, 8% have chosen the 50% Refundable Plan and 19% have chosen the 90% Refundable Plan.

Based on Southminster's historical experience, Management has forecasted future contract selections to be as follows: Standard Refund Plan: 75% of contracts 50% Refundable Plan: 5% of contracts 90% Refundable Plan: 20% of contracts

Cancellation and Refund Provisions

Rescission-During the Rescission Period, the resident may rescind the Agreement for any reason by giving written notice to the Corporation. The resident is entitled to receive a full refund of the entrance fee, less applicable non-standard costs described in the Agreement, within 30 days of the end of the Rescission Period.

Cancellation-Prior to occupancy of a residence, the Agreement may be cancelled if the Corporation denies admission to the resident; if the resident dies; or if, on account of illness, injury, or incapacity the resident is precluded from occupying a residence. If the Corporation notifies the resident that the residence he or she reserved will not be available for occupancy, the resident has the option to cancel the Agreement or reserve another residence. The resident will receive a full refund of the entrance fee, less applicable non-standard costs described in the Agreement, within 30 days after the date of cancellation.

Termination Prior to Occupancy-In addition to the rights of rescission and cancellation described above, the resident or the Corporation may terminate the Agreement prior to occupancy of a residence as follows: (1) the resident may terminate with 30 days' notice for any reason other than those described for cancellation, and (2) the Corporation may terminate with 30 days' notice for just cause as described in the Agreement. The Corporation is not required to give such notice if the resident is determined to be a danger to himself or herself

See accompanying Independent Accountants’ Report C-15 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

or to others. The resident will receive a full refund of the entrance fee, less a termination charge (currently $10,500) and applicable non-standard costs and any other amounts owed under the Agreement, within 30 days after the date of termination.

Termination After Occupancy-After occupancy, the resident may terminate the Agreement with 30 days' notice for any reason and the Corporation may terminate with 30 days' notice for just cause. The Corporation is not required to give such notice if the resident is determined to be a danger to himself or herself or to others. Additionally, the Agreement immediately terminates upon the death of the last surviving resident party to it.

In such circumstances, the refund of the entrance fee will be calculated based on the selected entrance fee plan as stated in the Agreement, and more fully described previously herein. After occupancy, any refund due to the resident will be made only after the resident's accommodation becomes reoccupied by a subsequent resident and the subsequent resident has paid the full entrance fee to the Corporation.

Other Refund Conditions-Refunds are made only upon the total withdrawal or move-out by the resident from the Corporation, whether voluntarily, forced, or by death. There is no refund upon the permanent transfer of the resident to the Health Center. Similarly, there is no partial refund upon the move or transfer to an accommodation with a lesser entrance fee. The refund in the case of couples will only be triggered by the death or withdrawal of the surviving spouse.

Under the Agreement, independent living residents must pay an entrance fee and a monthly service fee and are entitled to the fo11owing services and amenities at no additional charge: One dinner (or the equivalent) of the resident’s choice, the monthly total of which equals the number of days in such month Basic utilities for apartment residents, with the exception of long distance charges (cottage residents are responsible for basic utilities) Trash Service Routine maintenance and grounds keeping Use of common areas and amenities Emergency response equipment Planned social and recreational activities Scheduled local transportation Weekly housekeeping Weekly laundry for flat linens One reserved outdoor parking space for each residence Use of grounds and common facilities Fourteen Health Center credit days upon independent living occupancy and on each anniversary of occupancy date up to a maximum of 44 days Other services and programs are available for residents at their expense, including, but not limited to, additional meals beyond one meal per day, guest meals, nursing and healthcare services, physical therapy services, covered parking, beauticians’ services, additional housekeeping services, and other special services provided to the resident beyond the normal scope of services offered by the Corporation.

See accompanying Independent Accountants’ Report C-16 Summary of Significant Forecast Assumptions and Accounting Policies Background Information (continued)

Healthcare Services

Southminster offers assisted living, memory support, and nursing services to its residents. Licensed and/or registered nurses are available to residents of the Health Center on a 24-hour-a-day basis. The Corporation retains the services of a Medical Director ("MD"), who provides consulting services on the medical aspects of the licensed levels of care.

Registered nurses, together with licensed practical nurses and certified nursing assistants, offer residents professional care and emergency consultations on a 24-hour-per-day basis. When a resident's medical condition requires assisted living, memory support or nursing services, the resident moves from an independent living unit to either an assisted living or nursing unit on a permanent or temporary basis. The Corporation determines if a resident should be transferred into a different level of care, but only after consulting with the resident and the resident's physician and any appropriate family member or responsible party.

In addition to services similar to those received when in the independent living units, residents of the assisted living or nursing units also receive facilities, equipment, staff and other services that are required by current licenses; three meals per day; diet planning by a licensed dietician; assisted bathing facilities; goal-oriented care planning; social services; and planned activities. Certain additional ancillary healthcare services are not included in the per diem fees and will be charged to the resident. Examples of additional ancillary healthcare charges include, but are not limited to, the pharmacy services and medicines, dental work, physician services, 1aboratory services, physical therapy, occupational therapy, speech therapy, rehabilitative treatments and equipment, durable medical equipment, food supplements, personal care and incontinence supplies or other health related items, and nursing, care planning, case management, or personal care services for residents in independent living or above what is required for each licensed level of healthcare in the Health Center. Also, additional professional services (medical or otherwise) contracted by the resident or on the resident's behalf will be charged to the resident.

See accompanying Independent Accountants’ Report C-17 Summary of Significant Forecast Assumptions and Accounting Policies Sources and Uses of Funds

Management has assumed the following sources and uses of funds relating to the Project in preparing its financial forecast based in part on information provided by B.C. Ziegler and Company (the “Underwriter”). A summary of the forecasted sources and uses of funds for the Corporation’s financing is provided in the following table:

Table 3 Forecasted Sources and Uses of Funds (in $000s)

Sources of Funds Series 2018 Bonds (1) $ 91,460 2017 Bank Loan (2) 36,500 Total Sources of Funds $ 127,960

Uses of Funds Construction - HC Replacement (3) $ 57,165 Construction - Terraces 1 (3) 18,025 Construction - Terraces 2 (3) 33,927 Project Contingency (4) 4,858 Architectual Fees & Expenses - HC Replacement Project (5) 2,503 Architectual Fees & Expenses - Terraces 1 (5) 702 Architectual Fees & Expenses - Terraces 2 (5) 712 Development and Other Consulting Costs - HC Replacement Project (6) 997 Development and Other Consulting Costs - Terraces 1 (6) 340 Development and Other Consulting Costs - Terraces 2 (6) 428 Furniture & Equipment - HC Replacement Project (7) 1,051 Furniture & Equipment - Terraces 1 (7) 87 Furniture & Equipment - Terraces 2 (7) 110 Marketing Costs - Terraces 1 (8) 150 Marketing Costs - Terraces 2 (8) 150 Series 2018 - Cost of Issuance (9) 1,781 2017 Bank Loan - Costs of Issuance (10) 128 Series 2018 - Debt Service Reserve Fund (11) 4,846 Total Uses of Funds $ 127,960 Source: Management Certain summaries, assumptions, rationale, and descriptions included in Management’s financial forecast are more fully described in the financing related documents pertaining to the Series 2018 Bonds. For more detailed information regarding the proposed terms, conditions, debt service requirements, and any other requirements of the Series 2018 Bonds, all of the Series 2018 Bonds financing-related documents should be read in their entirety.

See accompanying Independent Accountants’ Report C-18 Summary of Significant Forecast Assumptions and Accounting Policies Sources and Uses of Funds (continued)

Notes to Table 3: (1) Series 2018 Bonds: The Underwriter has indicated that the bond proceeds of $91,460,000 are estimated to be generated from the proposed issuance of the Series 2018 Bonds, consisting of: $3,795,000 tax-exempt fixed rate term bonds (the “2038 Term Bonds”) assumed to be issued with a fixed interest rate of 5.15%, maturing October 1, 2038. Interest on the 2038 Term Bond is payable April 1 and October 1 of each year beginning on October 1, 2018 and principal is payable October 1, 2038. $22,155,000 tax-exempt fixed rate term bonds (the “2043 Term Bonds”) assumed to be issued with a fixed interest rate of 5.20%, maturing October 1, 2043, subject to annual sinking fund redemption from October 1, 2039 through October 1, 2043. Interest on the 2043 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018. $28,575,000 tax-exempt fixed rate term bonds (the “2048 Term Bonds”) assumed to be issued with a fixed interest rate of 5.25%, maturing October 1, 2048, subject to annual sinking fund redemption from October 1, 2044 through October 1, 2048. Interest on the 2048 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018. $36,935,000 tax-exempt fixed rate term bonds (the “2053 Term Bonds”) assumed to be issued with a fixed interest rate of 5.30%, maturing October 1, 2053, subject to annual sinking fund redemption from October 1, 2049 through October 1, 2053. Interest on the 2053 Term Bonds is payable April 1 and October 1 of each year beginning on October 1, 2018. (2) On August 31, 2017, the Corporation entered into a term loan agreement with a financial institution to provide up to $34,000,000 in order to finance the majority of the Terraces 1 and Terraces 2 Projects. On May 23, 2018, the Corporation signed an amendment to increase the 2017 Bank Loan up to $39,000,000. The Corporation is able to make draws on the 2017 Bank Loan through February 28, 2021, with interest only payments, based on one-month LIBOR plus 1.35% (1.50% on any portion drawn relating to the $5,000,000 increase), payable on a monthly basis. Management has forecasted the average interest rate for the 2017 Bank Loan would be 5.00% during the Forecast Period. Beginning on March 1, 2021, principal payments are required to be made monthly in an amount equal to 1/240 of the outstanding principal balance on February 28, 2021. Management has forecasted initial entrance fees from Terraces 1 and Terraces 2 will be utilized to repay the 2017 Bank Loan during the Forecast Period. Although $39,000,000 is available to be drawn, Management expects to only draw $36,500,000. (3) Management has forecasted the construction costs for the HC Replacement Project, site work, and other ancillary costs relating to the construction, will approximate $57,165,000 based on an executed guaranteed maximum price (“GMP”) contract from the general contractor, Rodgers Builders, Inc. It should be noted that although Management has entered into a GMP contract, adjustment for allowances, change orders or other circumstances not addressed in the GMP contract could result in the total construction costs exceeding the maximum price that was established by the GMP contract. Management has forecasted the construction costs for the Terraces 1 Project, site work, and other ancillary cost relating to the construction, will approximate $18,025,000 (net of sales taxes). This total is based on an executed guaranteed maximum price (“GMP”) contract from the general contractor, Samet, Inc. It should be noted that although Management has entered into a GMP contract, adjustment for allowances, change orders or other circumstances not addressed in the GMP contract could result in the total construction costs exceeding the maximum price that was established by the GMP contract. Management has forecasted the construction costs for the Terraces 2 Project, site work, and other ancillary cost relating to construction, will approximate $33,927,000. This total is based on a schematic

See accompanying Independent Accountants’ Report C-19 Summary of Significant Forecast Assumptions and Accounting Policies Sources and Uses of Funds (continued)

price estimate from the general contractor, Samet, Inc., which has been reviewed by zumBrunnen, Inc, a firm specializing in construction oversight and budgeting. Included in the schematic estimate is a construction contingency of approximately six percent, a three percent contractor contingency and an inflation contingency of five percent. It should be noted that adjustment for allowances, change orders or other circumstances not addressed in the schematic estimate could result in the total construction increasing from forecasted amounts. (4) Management has estimated an owner contingency of approximately $4,858,000 for the Project. It should be noted that the owner contingencies noted above are available for use for the entirety of the Project and can be reallocated by Management depending on actual circumstances. (5) Design and engineering costs are forecasted based primarily on the contract with the architect and civil engineers, Perkins Eastman Architect, D.P.C, and include architect, engineering, and design fees as well as construction administration, interior design fees, and other such costs: $2,503,000 are forecasted for the HC Replacement Project; $702,000 are forecasted for Terraces 1; and $712,000 are forecasted for Terraces 2. (6) Management has forecasted other costs including project management fees, consultant fees, owners’ representation fees, and other legal and professional expenses for the Project as follows: $997,000 related to the HC Replacement Project; $340,000 related to Terraces 1; and $428,000 related to Terraces 2. (7) Management has estimated that the costs of furniture, fixtures and equipment would approximate: $1,051,000 for the HC Replacement Project. $87,000 for Terraces 1; and $110,000 for Terraces 2. (8) Management has forecasted $150,000 of marketing costs for both Terraces 1 and Terraces 2 each. (9) Management and the Underwriter estimated financing-related costs to approximate $1,781,000, which includes the Underwriters’ discount, title insurance, legal, accounting, and other costs related to the Series 2018 Bonds. (10) Management incurred financing-related costs of approximately $128,000, which includes the title insurance, legal, accounting, and other costs associated with the issuance of the 2017 Bank Loan. (11) Represents the amount that will be deposited into Reserve Fund No.1, which secures the Series 2018 Bonds on a parity basis with the currently outstanding Series 2016 Bonds, as provided by Management and the Underwriter.

See accompanying Independent Accountants’ Report C-20 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment

Assumptions for the future utilization of the Corporation were developed by Management based on analysis of the following factors, which may affect the demand for the services:

Site description and general area analysis; Defined primary market area (“PMA”) for the Community’s independent living units (the “IL PMA”); Demographic and economic characteristics of Management’s defined PMA; Estimated age and income qualified households within Management’s defined PMA; Description and utilization of existing and proposed comparable communities within Management’s defined PMA; and Penetration rates for retirement community services within Management’s defined IL PMA; and Management’s ability to market the Community.

Community Description Southminster is a non-profit, entrance fee, modified life plan community designed to enable seniors to live their lives to the fullest, making available housing, residential services, and long-term health care services.

As of the date of this report, the existing facility consists of 239 total independent living units, dining rooms, the main kitchen, common rooms for activities and social interactions, a library, administrative offices, and all the necessary support service areas for the normal functioning of the community (e.g., maintenance, housekeeping, resident storage spaces, etc.). The main building houses the Health Care Center with 25 licensed assisted living beds (all private) and 60 licensed nursing beds (56 private and 4 semi-private).

C-21

Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Site Analysis

Site Description and Surrounding Land Use

Southminster is located on approximately 27 acres at 8919 Park Road, Charlotte, North Carolina (the “Site” or the “Community”). The Community is located approximately nine miles south of center city Charlotte, the largest city in North Carolina. The surrounding area includes single-family residential homes, public schools, and commercial buildings.

Access

The Site can be accessed locally via Park Road and Smithfield Church Road. The Site is also easily accessible to Interstates 485, 77, and 85 and other major area roads such as United States Highway 74 and North Carolina Highways 51, 49 and 16. Interstate 485 is an approximate 68-mile Interstate Highway loop encircling Charlotte and is located approximately two miles south and west of the Site. Interstate 77 runs north to south from Ohio to South Carolina and is located approximately six miles west of the Site. In addition, approximately 15 miles north of the Site is Interstate 85, running northeast to southwest from Petersburg, Virginia to Montgomery, Alabama.

Proximity to Health Care

There are several medical clinics located near the Community, including family practice and specialty services. The following table summarizes the hospitals near the Community.

Table 4 Hospitals Near the Community(1) Approximate Miles Location from the Number of Hospital Name (City/ZIP Code) Community Type Beds Carolinas Healthcare System Pineville (2) Charlotte / 28210 2 Short Term Acute Care * Carolinas ContinueCARE Hospital at Pineville Charlotte / 28210 2 Long Term 28 Carolinas Medical Center Charlotte / 28203 7 Short Term Acute Care 1,185 Carolinas Rehabilitation - Main Charlotte / 28203 7 Rehabilitation 150 Carolinas Medical Center - Mercy (2) Charlotte / 28207 8 Short Term Acute Care 235 Novant Health Charlotte Orthopaedic Hospital Charlotte / 28207 8 Short Term Acute Care 80 Novant Health Presbyterian Medical Center Charlotte / 28204 8 Short Term Acute Care 653 Novant Health Matthews Medical Center Matthews / 28105 11 Short Term Acute Care 136

Source: American Hospital Directory, January 2018. Notes: (1) Table excludes psychiatric, alcohol and drug treatment, veterans, and children's hospitals. (2) The hospital report for Carolinas Medical Center – Mercy includes information for both Carolinas Medical Center – Mercy and Carolinas Healthcare System Pineville.

See accompanying Independent Accountants’ Report C-22 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following map depicts the location of the Community:

Site Location

Legend:

The Community

Source: Maptitude

See accompanying Independent Accountants’ Report C-23 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Independent Living Primary Market Area

The PMA for providers of senior living services is typically defined as the geographic area from which the majority of residents are assumed to originate prior to assuming occupancy. Management has defined the IL PMA for the Community based upon analysis of the origin of its Existing Independent Living Units’ residents, depositors for Terraces 1, as well as prospects on the current wait list. The IL PMA for the Community encompasses a seven ZIP Code area extending approximately 2 to 3 miles west, 7 to 8 miles south, 7 to 8 miles east, and 6 to 7 miles north of the Community. The following table summarizes the ZIP Codes that make up the IL PMA.

Table 5 IL PMA ZIP Codes and Cities/Localities ZIP Code City/Locality 28207 Charlotte 28209 Charlotte 28210 Charlotte 28211 Charlotte 28226 Charlotte 28270 Charlotte 28277 Charlotte

Source: Management

The following table summarizes resident origin by locale based on current residents, residents that entered the Community over the previous four years (FYE 2015, 2016, 2017, and YTD 2018), prospective residents on the current wait list, as well as Terraces 1 depositors (“Depositors”), as provided by Management.

Table 6 Origin Percentages by Locale – Current Residents, Resident Entrants of the Previous Four Years, Current Wait List and Terraces 1 Depositors Current Past 4 Years Wait List Terraces 1 IL Residents IL Entrants Depositors Depositors IL PMA 68% 60% 81% 80% Other Areas in North Carolina 10% 7% 10% 3% Outside of North Carolina 22% 33% 9% 17% Total 100% 100% 100% 100%

Source: Management, January 2018

See accompanying Independent Accountants’ Report C-24 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following map depicts the IL PMA and the location of the Community:

IL PMA

Legend:

The Community

See accompanying Independent Accountants’ Report C-25 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Population – IL PMA

The age distribution of the population in a geographic area is considered by Management to be a key factor in the determination of the area’s retirement housing needs. Population data regarding numbers of elderly is presented in the following tables. The 2000 and 2010 data in the following table is provided by the U.S. Census Bureau and the 2018 and 2023 data in the following tables are estimates and projections, respectively, provided by Environics Analytics, a recognized provider of census demographic information.

Table 7 Elderly Population Change for the IL PMA

Average Compounded 2000 2010 2018 2023 Percentage Change (Actual) (Actual) (Estimated) (Projected) 2000 to 2010 to 2018 to Population Population Population Population 2010 2018 2023

Total Population 192,221 228,858 257,677 274,752 1.8% 1.5% 1.3%

Under Age 65 171,257 202,085 220,333 228,734 1.7% 1.1% 0.8% Age 65 to 74 Population 10,793 13,882 22,044 27,516 2.5% 6.0% 4.5% Age 75 to 84 Population 7,644 8,583 10,127 13,162 1.2% 2.1% 5.4% Age 85 & Over Population 2,527 4,308 5,173 5,340 5.5% 2.3% 0.6%

Total 65 & Over 20,964 26,773 37,344 46,018 2.5% 4.2% 4.3% Total 75 & Over 10,171 12,891 15,300 18,502 2.4% 2.2% 3.9% Sources: Environics Analytics and U.S. Census Bureau

The following table presents the percentage of total population by age group for the elderly population in the IL PMA, the state of North Carolina, and the United States.

Table 8 Percentage of Total Population by Age Cohort 2018 (Estimated) IL PMA North Carolina U.S. Age Cohort 65 & Over 14.5% 16.1% 15.9% 75 & Over 5.9% 6.3% 6.5% 85 & Over 2.0% 1.8% 2.0%

2023 (Projected) IL PMA North Carolina U.S. Age Cohort 65 & Over 16.7% 18.3% 17.9% 75 & Over 6.7% 6.9% 7.0% 85 & Over 1.9% 1.9% 2.0% Sources: Environics Analytics

See accompanying Independent Accountants’ Report C-26 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Real Estate Trends

The following table summarizes historical data on the number of homes sold, average sales price, and average days on the market for single-family homes sold for the ZIP codes included in the IL PMA.

Table 9 Single-Family Home Sales Trends in the IL PMA 2014 through 2017

ANNUAL DATA 2014 2015 2016 2017 Number of Average Average Number of Average Average Number of Average Average Number of Average Average Homes Sales Days on Homes Sales Days on Homes Sales Days on Homes Sales Days on ZIP Code Location Sold Price Market Sold Price Market Sold Price Market Sold Price Market 28207 Charlotte 114 $1,099,051 132 108 $1,123,909 123 111 $1,143,324 121 114 $1,175,780 105 28209 Charlotte 304 $409,167 92 311 $442,644 86 318 $494,422 95 299 $543,473 70 28210 (1) Charlotte 521 $331,933 100 627 $351,460 93 574 $398,770 83 552 $410,819 74 28211 Charlotte 445 $512,627 106 454 $549,562 105 432 $633,491 103 512 $609,651 96 28226 Charlotte 521 $408,530 107 545 $411,189 99 578 $455,418 96 562 $484,697 86 28270 Charlotte 564 $341,353 101 590 $371,879 96 601 $395,336 88 561 $416,627 84 28277 Charlotte 955 $377,299 97 1074 $399,048 93 1081 $419,067 84 1062 $436,633 83 Total/ Wtd. Average 3,424 $413,675 102 3,709 $431,652 96 3,695 $471,052 91 3,662 $492,977 84

Source: Moving Station, February 2018. Notes: (1) Represents the ZIP code in which the Community is located.

See accompanying Independent Accountants’ Report C-27 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Economy and Employment Information

The following table summarizes some of the major employers in Mecklenburg County for the fourth quarter of 2017.

Table 10 Major Employers in Mecklenburg County – Q4 2017

Major Employer Industry Atrium Health (1) Medical Wells Fargo Bank Financial Charlotte-Mecklenburg Schools Education Bank Of America Financial American Airlines Transportation City Of Charlotte Public Administration Local Government Public Administration Wal-Mart Transportation Harris Teeter Transportation Novant Medical Group Education Source: North Carolina Department of Commerce, https://www.nccommerce.com/lead/data-tools/industry/top-employers, retrieved May 2018. Note: (1) Atrium Health is formerly known as Carolinas Healthcare System.

See accompanying Independent Accountants’ Report C-28 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following table summarizes non-agricultural employment by industry sector for the Charlotte-Concord- Gastonia, NC-SC Metropolitan Statistical Area (“MSA”), which represents the Counties of Cabarrus, Gaston, Iredell, Lincoln, Mecklenburg, Rowan, and Union in North Carolina as well as the Counties of Chester, Lancaster, and York in South Carolina, as of May 2017.

Table 11 Employment by Industry Sector – May 2017 By Number of Employees Charlotte-Concord- Gastonia, NC-SC MSA North Carolina Major Occupational Group Number Percentage Number Percentage Office and Administrative Support Occupations 182,520 15.4% 631,920 14.7% Sales and Related Occupations 134,290 11.3% 461,060 10.7% Food Preparation and Serving Related Occupations 108,400 9.1% 421,170 9.8% Transportation and Material Moving Occupations 99,450 8.4% 320,050 7.4% Business and Financial Operations Occupations 80,420 6.8% 213,810 5.0% Production Occupations 78,970 6.7% 340,210 7.9% Management Occupations 62,550 5.3% 183,580 4.3% Education, Training, and Library Occupations 58,640 4.9% 277,250 6.5% Healthcare Practitioners and Technical Occupations 58,420 4.9% 264,860 6.2% Installation, Maintenance, and Repair Occupations 50,900 4.3% 182,490 4.2% Computer and Mathematical Occupations 47,600 4.0% 129,080 3.0% Construction and Extraction Occupations 47,290 4.0% 157,810 3.7% Personal Care and Service Occupations 32,230 2.7% 113,420 2.6% Building and Grounds Cleaning and Maintenance Occupations 31,230 2.6% 131,100 3.0% Healthcare Support Occupations 29,970 2.5% 147,990 3.4% Protective Service Occupations 26,240 2.2% 99,920 2.3% Architecture and Engineering Occupations 17,740 1.5% 64,360 1.5% Arts, Design, Entertainment, Sports, and Media Occupations 13,710 1.2% 42,060 1.0% Community and Social Service Occupations 11,750 1.0% 51,520 1.2% Legal Occupations 7,600 0.6% 21,570 0.5% Life, Physical, and Social Science Occupations 5,810 0.5% 34,940 0.8% Farming, Fishing, and Forestry Occupations 1,110 0.1% 8,220 0.3% All Occupations (1) 1,186,840 100.0% 4,298,390 100.0%

Source: United States Department of Labor, Bureau of Labor Statistics, May 2017 Occupational Employment and Wage Estimates, www.bls.gov/oes/current, retrieved May 2018.

See accompanying Independent Accountants’ Report C-29 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following table summarizes unemployment rate trends in the Charlotte-Concord-Gastonia, NC-SC MSA, the State of North Carolina, and the United States for 2014 through March 2018.

Table 12 Unemployment Rate Trends (1)

Charlotte-Concord-Gastonia NC-SC MSA North Carolina United States 2018 March 4.0% (P) 4.3% 4.1% February 4.3% 4.6% 4.4% January 4.4% 4.7% 4.5% 2017 Annual Average 4.3% 4.6% 4.4% December 4.1% 4.3% 3.9% November 4.2% 4.5% 3.9% October 4.1% 4.3% 3.9% September 4.1% 4.2% 4.1% August 4.6% 4.8% 4.5% July 4.5% 4.8% 4.6% June 4.3% 4.6% 4.5% May 4.1% 4.3% 4.1% April 3.9% 4.1% 4.1% March 4.2% 4.5% 4.6% February 4.7% 5.0% 4.9% January 4.9% 5.2% 5.1% 2016 Annual Average 4.8% 5.1% 4.9% December 4.6% 4.8% 4.5% November 4.6% 4.9% 4.4% October 4.7% 5.1% 4.7% September 4.8% 5.0% 4.8% August 5.1% 5.3% 5.0% July 5.1% 5.3% 5.1% June 5.0% 5.2% 5.1% May 4.5% 4.8% 4.5% April 4.5% 4.8% 4.7% March 4.8% 5.1% 5.1% February 5.0% 5.3% 5.2% January 5.1% 5.5% 5.3% 2015 Annual Average 5.5% 5.7% 5.3% 2014 Annual Average 6.2% 6.3% 6.2%

Source: U.S. Bureau of Labor Statistics, www.bls.gov, retrieved May 2018. Notes: (1) Data reflects rates not seasonally adjusted. (P) Preliminary.

See accompanying Independent Accountants’ Report C-30 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Independent Living Units Market Assessment

Comparable Retirement Communities

Comparable retirement communities may include several types of facilities. Life Plan Communities, formerly known as continuing care retirement communities, may offer life care, modified life care, fee-for-service, or rental contracts. Independent living residents generally have access to common area amenities, which often include a central dining room, a library, lounge areas, and other community areas. Various monthly service fee options often cover laundering the resident’s flat linen, housekeeping services, maintenance, scheduled transportation, and one (or more) meals per day.

The life care concept offers independent living housing and various levels of service and health care that provides for a resident’s changing needs as he/she ages and begins to require a higher level of care. Life care arrangements typically include an entrance fee and a monthly service fee. In a life care facility, a resident may receive assisted living or nursing care at little or no extra charge beyond the monthly service fee paid in his/her independent living unit (“Extensive” contract or “Type A” contract). A modified life care facility typically offers a limited benefit for assisted living and nursing care services (“Modified” contract or “Type B” contract). Under Type B contracts, the community is obligated to provide residents with assisted living or nursing care services for a specified number of days at no extra charge and/or at rates that are discounted from those charged to those admitted from outside the Life Plan Community.

The fee-for-service community (“Fee-for-Service” contract or “Type C” contract) offers a variation of the typical life plan concept. The general concept of a life plan is offered at a fee-for-service facility in various forms. For example, at some facilities, residents pay reduced entrance fees and must pay per-diem rates for assisted living and nursing care, while other facilities may offer priority, but not guaranteed admission to assisted living and nursing care services, and/or low or no entrance fees with higher monthly service fees. Healthcare is often provided in the service package for a fee-for-service senior care community, and is paid by the resident on an “as-needed” basis at current per diem rates.

A rental retirement community (“Rental” or “Type D” contract) offers independent living housing and may offer health care services, such as assisted living or nursing care. A resident is not required to pay an entrance fee. The resident generally signs a lease for the independent living unit selected and pays for various additional services utilized on a per diem basis. The resident may enter the community at various levels of care in a rental retirement community.

Retirement communities offering an equity option (“Equity”) involve the actual purchase of real estate or membership by the resident. This includes independent living condominiums and cooperatives. Health care services may be accessible in this type of senior housing on an optional basis.

Management has defined comparable independent living communities to include certain retirement communities that include independent living services, offer at least two additional levels of care, offer similar services and amenities, compete for similar age and income qualified residents, and are located within the IL PMA (the “Comparable IL Community” or “Comparable IL Communities”).

In addition, Management has identified two Life Plan Communities located near the IL PMA that are also considered comparable to the Community (the “Comparable IL Communities Near the IL PMA”). Information on these facilities is included in Table 14-C for informational purposes only. These facilities are not included in the penetration rates provided in Table 16.

See accompanying Independent Accountants’ Report C-31 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following table presents a summary of the Comparable IL Communities in the IL PMA, as well as other independent living communities that were not defined as comparable by Management (“Non-Comparable IL Communities”). Table 13 Comparable IL Communities and Non-Comparable IL Communities in the IL PMA Other Number of Type Levels of Care IL Units Occupancy The Community - Existing Facility (1)(2) Type B AL,SNF 269 97.9% Comparable IL Communities in the IL PMA - Existing: Brightmore of South Charlotte Rental AL,SNF 148 100.0% Carriage Club Providence Type C / Rental AL,MS,SNF 275 98.0% Sharon Towers (3) Type B AL,SNF 222 100.0% The Cypress of Charlotte Equity SNF (4) 310 100.0% Sub-Total / Weighted Average 955 99.4% (5)

Total Comparable - Existing, including the Community 1,224 99.1% (5) Comparable IL Communities in the IL PMA - Planned: The Community - Terraces 2 Project (6) 36 Sharon Towers (7) 46 The Barclay of SouthPark (8) 161 Sub-Total 243

Total Comparable - Existing and Planned, including the Community 1,467

Non-Comparable IL Communities in the IL PMA - Existing: Atria Merrywood Rental AL 150 94.0% Waltonwood Providence Rental AL,MS 91 94.0% Sub-Total / Weighted Average 241 94.0% (5) Total Comparable and Non-Comparable - (5) (9) Existing and Planned, including the Community 1,708 98.2% Source: Management, telephone interviews, personal visits and/or other research conducted through January 2018. Notes: IL = Independent Living AL = Assisted Living MS = Memory Support SNF = Skilled Nursing Facility (1) There are 18 units currently offline which are planned to be razed. These units have been excluded in the unit count in the table above. (2) Management is currently constructing Terraces 1. Two buildings with a total of 30 IL two-bedroom units will comprise the new Terraces 1 build phase and have a planned completion in January 2019. As such, for reporting purposes, information for Terraces 1 has been presented with the existing 239 available IL units, for a total of 269 IL units, with Occupancy reflecting only those units that are available for occupancy. (3) Sharon Towers is in the process of completing a one-bedroom apartment conversion, planned for completion in May 2018. As such, for reporting purposes, information for this additional IL unit has been presented with the existing available units, with the Occupancy Rate reflecting only those units that were available for occupancy at the time of research. (4) The Cypress of Charlotte's nursing beds are utilized for assisted living, dementia, and nursing care for residents. (5) Weighted average excludes planned units and units not available for occupancy. (6) Terraces 2 is planned to consist of 36 two-bedroom units. Terraces 2 build has a planned completion in July 2020. (7) Sharon Towers is currently planning an expansion to include up to an additional 46 IL units, for a planned future total of 268 IL units. The planned completion date is mid-2020. (8) Liberty Healthcare Management has started site work for construction of a new Life Plan Community, The Barclay of SouthPark, containing a planned 161 elderly residential rental units for Phase I. Construction is anticipated to last two and a half years, or through mid-2020. In addition, 126 healthcare units are currently planned, to include 82 assisted living units, 22 memory support units, and 22 skilled nursing units. An additional 200 IL rental units are in the planning stages but plans were not concrete at the time of research and these units have not been included in the table above or penetration rates. (9) No planned non-comparable projects were noted at the time of research. See accompanying Independent Accountants’ Report C-32 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following map depicts the location of the Community, Comparable IL Communities, and the Non-Comparable Communities in the IL PMA, as summarized in Table 13.

Comparable IL Communities and Non-Comparable IL Communities in the IL PMA

Legend:

The Community 1. Atria MerryWood 5. The Cypress of Charlotte 2. Brightmore of South Charlotte 6. Waltonwood Providence 3. Carriage Club Providence 7. The Barclay of SouthPark(P) 4. Sharon Towers Source: Maptitude Note: (P): Planned project.

Table 14-A profiles the Community and the Comparable IL Communities in the IL PMA, Table 14-B profiles the Non-Comparable IL Communities in the IL PMA, and Table 14-C profiles the Comparable IL Communities Near the IL PMA.

See accompanying Independent Accountants’ Report C-33 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Table 14-A Comparable IL Communities in the IL PMA

Brightmore of South The Community Charlotte Carriage Club Providence Street Address 8919 Park Road 10225 Old Ardrey Kell Road 5800 Old Providence Road City/State/ZIP Code Charlotte, NC 28210 Charlotte NC, 28277 Charlotte, NC 28226 Miles from the Community N/A 6 7 Type of Contract Type B Rental Type C / Rental Owner/Sponsor Southminster, Inc. Liberty Senior Living Brookdale Senior Solutions For-Profit/Non-Profit Non-Profit For-Profit For-Profit Year Opened 1987 * 1988 IL Units : Studio apartments 2 06 One-bedroom apartments 85 74 164 Two-bedroom apartments 153 74 77 Three-bedroom apartments 0 00 Villas/Townhomes/Cottages 29 0 28 Total IL Units 269 (1)(2) 148 275 AL/MS Beds 25 / 0 (2) 30 / 0 56 / 34 SNF Beds 60 (2) 120 34 IL Square Footage: Studio apartments 292 N/A 527 One-bedroom apartments 598 - 1,390 679 - 1,045 690 - 807 Two-bedroom apartments 955 - 3,190 1,100 - 1,227 1,025 - 1,140 Three-bedroom apartments N/A N/A N/A Villas/Townhomes/Cottages 1,500 - 1,900 N/A 1,346 - 1,372 IL Monthly Service Fees: Studio apartments $2,749 (3) N/A $2,870 (1) One-bedroom apartments $3,269 - $3,959 (3) $3,585 - $4,430 $3,350 - $3,640 (1) Two-bedroom apartments $3,539 - $5,000 (3) $4,535 - $4,935 $3,955 - $4,230 (1) Three-bedroom apartments N/A N/A N/A Villas/Townhomes/Cottages $3,531 - $3,654 (3)(4) N/A $4,830 - $4,870 (1) IL second person fee $1,900 (3) $575 $875 (1) IL Entrance Fees: Studio apartments $45,000 (3) N/A N/A One-bedroom apartments $107,400 - $324,600 (3) N/A N/A Two-bedroom apartments $197,400 - $795,600 (3) N/A N/A Three-bedroom apartments N/A N/A N/A Villas/Townhomes/Cottages $295,000 - $375,000 (3) N/A N/A IL second person fee $25,000 (3) N/A N/A IL Reported Occupancy Rate 97.9% (1)(2) 100.0% 98.0% Included in the Monthly Fee: Meals Meal allowance (5) Meal credit (1) Meal credits (2) Housekeeping service Weekly Weekly Weekly Laundry service In unit In unit Free common laundry Scheduled transportation Yes Yes Yes Utilities All except internet (4) All except telephone All except telephone and cable television

See accompanying Independent Accountants’ Report C-34 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Table 14-A Comparable IL Communities in the IL PMA

Sharon Towers The Cypress of Charlotte Street Address 5100 Sharon Road 3442 Cypress Club Drive City/State/ZIP Code Charlotte, NC 28210 Charlotte, NC 28210 Miles from the Community 32 Type of Contract Type B Equity Owner/Sponsor The Presbyterian Home at The Cypress of Charlotte, LLC Charlotte, Inc. For-Profit/Non-Profit Non-Profit Non-Profit Year Opened 1969 1999 IL Units: Studio apartments 13 0 One-bedroom apartments 73 0 Two-bedroom apartments 68 0 Three-bedroom apartments 00 Villas/Townhomes/Cottages 68 (1) 310 Total IL Units 222 (1)(2) 310 AL/MS Beds 38 / 0 0 / 0 (1) SNF Beds 96 (2) 60 (1) IL Square Footage: Studio apartments 247 - 300 N/A One-bedroom apartments 480 - 1,280 N/A Two-bedroom apartments 523 - 1,796 N/A Three-bedroom apartments N/A N/A Villas/Townhomes/Cottages 960 - 2,499 (1) 810 - 3,900 IL Monthly Service Fees: Studio apartments $2,429 - $2,538 N/A One-bedroom apartments $2,996 - $3,392 N/A Two-bedroom apartments $3,289 - $4,107 N/A Three-bedroom apartments N/A N/A Villas/Townhomes/Cottages $3,314 - $4,780 (1) $2,452 - $4,406 (2) IL second person fee $1,259 - $1,701 $1,330 (2) IL Entrance Fees: Studio apartments $35,000 - $45,000 (3) N/A One-bedroom apartments $78,200 - $282,000 (3) N/A Two-bedroom apartments $92,000 - $422,060 (3) N/A Three-bedroom apartments N/A N/A Villas/Townhomes/Cottages $267,150 - $562,275 (1)(3) $335,000 - $1,200,000 IL second person fee $15,000 (3) N/A IL Reported Occupancy Rate 100.0% (1) 100.0% Included in the Monthly Fee: Meals Meal allowance (4) Meal credits (3) Housekeeping service Weekly Weekly Laundry service In unit/Free common laundry In unit Scheduled transportation Yes Yes Utilities All-inclusive All-inclusive

See accompanying Independent Accountants’ Report C-35 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Table 14-B Non-Comparable IL Communities in the IL PMA

Atria Merrywood Waltonwood Providence Street Address 3600 Park Road 11945 Providence Road City/State/ZIP Code Charlotte, NC 28209 Charlotte, NC 28277 Miles from the Community 410 Type of Contract Rental Rental Owner/Sponsor Atria Senior Living Singh Senior Living For-Profit/Non-Profit For-Profit For-Profit Year Opened 1989 * IL Units: Studio apartments *0 One-bedroom apartments ** Two-bedroom apartments * * Three-bedroom apartments 0 0 Villas/Townhomes/Cottages 0 0 Total IL Units 150 91 AL/MS Beds 20 / 0 53 / 20 SNF Beds 0 0 IL Square Footage: Studio apartments 566 N/A One-bedroom apartments 621 - 796 743 - 893 Two-bedroom apartments 1,011 979 - 1,279 Three-bedroom apartments N/A N/A Villas/Townhomes/Cottages N/A N/A IL Monthly Service Fees: Studio apartments $2,713 N/A One-bedroom apartments $3,028 - $3,315 $4,395 - $4,695 Two-bedroom apartments $3,582 $4,895 - $5,795 Three-bedroom apartments N/A N/A Villas/Townhomes/Cottages N/A N/A IL second person fee $775 $695 - $795 IL Entrance Fees: Studio apartments N/A N/A One-bedroom apartments N/A N/A Two-bedroom apartments N/A N/A Three-bedroom apartments N/A N/A Villas/Townhomes/Cottages N/A N/A IL second person fee N/A N/A IL Reported Occupancy Rate 94.0% 94.0% Included in the Monthly Fee: Meals 3 meals/day 2 meals/day (1) Housekeeping service Weekly Bi-weekly Laundry service In unit In unit Scheduled transportation Yes Yes Utilities All except telephone and cable All except telephone and cable television television

See accompanying Independent Accountants’ Report C-36 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Table 14-C Comparable IL Communities Near the IL PMA

Aldersgate Plantation Estates Street Address 3800 Shamrock Drive 733 Plantation Estates Drive City/State/ZIP Code Charlotte, NC 28215 Matthews, NC 28105 Miles from the Community 12 9 Type of Contract Type A Type A Owner/Sponsor Aldersgate United Methodist ACTS Retirement - Life Retirement Community, Inc. Communities, Inc. For-Profit/Non-Profit Non-Profit Non-Profit Year Opened 1948 1988 IL Units: Studio apartments 0* One-bedroom apartments 71 108 Two-bedroom apartments 84 * Three-bedroom apartments 0* Villas/Townhomes/Cottages 93 20 Total IL Units 248 (1) 504 AL/MS Beds 53 / 61 60 / * (1) SNF Beds 125 80 IL Square Footage: Studio apartments N/A 600 One-bedroom apartments 585 - 955 715 - 971 Two-bedroom apartments 782 - 1,660 1,030 - 2,100 Three-bedroom apartments N/A 1,380 - 1,693 Villas/Townhomes/Cottages 900 - 2,900 N/A IL Monthly Service Fees: Studio apartments N/A $2,254 (2) One-bedroom apartments $2,431 - $3,264 (2) $2,387 - $2,568 (2) Two-bedroom apartments $2,601 - $5,131 (2) $2,792 - $4,150 (2) Three-bedroom apartments N/A $3,107 - $3,287 (2) Villas/Townhomes/Cottages $3,437 - $4,922 (2) N/A IL second person fee $1,106 (2) $1,684 (2) IL Entrance Fees: Studio apartments N/A $139,900 - $154,900 (2) One-bedroom apartments $131,334 - $272,582 (2) $200,900 - $271,900 (2) Two-bedroom apartments $197,948 - $434,940 (2) $273,900 - $491,900 (2) Three-bedroom apartments N/A $320,900 - $392,900 (2) Villas/Townhomes/Cottages $180,600 - $533,906 (2) n/a IL second person fee $25,000 (2) $25,000 (2) IL Reported Occupancy Rate 100.0% 100.0% Included in the Monthly Fee: Meals 1 meal/day (3) 1 meal/day (3) Housekeeping service Weekly No Laundry service In unit / free common laundry Free common laundry Scheduled transportation Yes Yes Utilities All except telephone, internet, and All except telephone cable television

See accompanying Independent Accountants’ Report C-37 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Notes to Table 14-A, Table 14-B, and Table 14-C: Source: Management, phone interviews, and/or other research conducted through January 2018. * = Unable to obtain information from this facility. N/A = Not applicable to this facility.

The Community (1) There are 18 units currently offline which are planned to be razed. These units have been excluded in the unit count in the table above. (2) Management is currently constructing Terraces 1. Terraces 1 includes two buildings with a total of 30 two-bedroom villa units and have a planned completion in January 2019. Information for Terraces 1 has been presented with the existing 239 available IL units, for a total of 269 IL units, with occupancy reflecting only those units that are available for occupancy. (3) Monthly and entrance fees are reported for the community’s standard 0% refundable contract, where entrance fees are partially refundable over the first 20 months of occupancy and no refund is offered after the 20-month period expires. The community also offers a 50% and 90% refundable contract whereby entrance fees are 40% and 100% higher than the standard entrance fee, respectively. Additionally, higher entrance fees apply for those aged 86-89 at move-in under the 50% and 90% refundable contracts. The 50% and 90% refundable contracts are not options for those aged 90 and above at move-in. (4) Cottage residents pay gas and electric in addition to their monthly fee. (5) A monthly meal allowance is provided to each IL resident and is equivalent to one dinner for each day in the month, usable anytime within the month. Additional meals are available at an additional cost. Brightmore of South Charlotte (1) Residents receive a $375 meal credit per month. Carriage Club Providence (1) Monthly rental fees are adjusted based upon the location and view of the unit. (2) Each resident receives free breakfast and 23-26 meal credits each month. Additional meals are available at an additional cost. Sharon Towers (1) Sharon Towers is in the process of completing a one-bedroom apartment conversion, planned for completion in May 2018. As such, for reporting purposes, information for this additional IL unit has been presented with the existing available units, with the Occupancy Rate reflecting only those units that were available for occupancy at the time of research. (2) Sharon Towers is currently planning a project to both expand its community through the proposed addition of up to 46 IL units, for a planned future total of 268 IL units, as well as reposition its health care center by combining smaller units into larger units, resulting in a net decrease of 10 nursing beds, for a planned total of 86 nursing beds. The planned completion date for the project is mid-2020. (3) Entrance fees are reported under the Standard Refund Plan, where entrance fees are partially refundable over a 12-month period and no refund is offered after the 12-month period expires. These rates do not reflect any additional premium or discount associated with balconies or unit location/view. Sharon Towers also offers 50% and 90% Refund Plans where pricing is determined utilizing an actuarial-based pricing schedule. (4) Residents receive a meal allowance of $217 per month per resident, which carries over from month-to-month within a quarter. Residents can purchase items such as meals, guest meals, and grocery items with the meal allowance. The Cypress of Charlotte (1) The facility's nursing beds are utilized for assisted living, dementia, and nursing care for residents. (2) The monthly fee includes 90 days in the facility's healthcare center at no additional cost. After 90 days, assisted living, dementia, and skilled nursing care are available to members at a significantly reduced cost for as long as the member requires healthcare. (3) Each resident receives free breakfast and 30 meal credits each month. Additional meals are available at an additional cost. Waltonwood Providence (1) Continental breakfast and dinner provided in monthly fee. Aldersgate (1) Aldersgate is currently constructing an additional 62 total IL units including 38 one-bedroom and two-bedroom apartments and 24 villas, to be open in October 2018, for a total of 310 IL units at completion. They will range in size from 851 to 1,475 square feet with monthly service fees ranging from $3,283 - $4,971 and entrance fees ranging from $294,474 - $488,187. The second person monthly service fee and entrance fees are planned to be $1,106 and $25,000, respectively. Fees noted here are reported at the 90% refundable price point in 2018 dollars. (2) Existing unit monthly service fees and entrance fees are reported at the 90% refundable price point in 2018 dollars. (3) Additional meals are available at an additional cost. Plantation Estates (1) There is a total of 60 combined AL and MS beds. A breakout could not be obtained at the time of research. (2) Pricing is reported for the community’s Life Care Premier 0% refundable plan. The community also offers a 50% refundable contract and a modified health care contract. (3) Additional meals provided at extra cost to the resident.

See accompanying Independent Accountants’ Report C-38 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Planned Independent Living Developments in the IL PMA

Based upon telephone interviews with local planning agencies, interviews with management at existing retirement communities, and other research, there appear to be three planned independent living projects in the IL PMA. The following presents a summary of the additional planned projects:

The Corporation is adding 36 additional units as part of Terraces 2; Sharon Towers plans to add up to an additional 46 independent living units. The planned completion date for the project is mid-2020. For purposes of this assessment, all 46 independent living units have been presented and included in the penetration calculation. Liberty Healthcare Management is planning a mixed-use development, which is planned to include multi- family residential apartments and a Life Plan Community, to be known as The Barclay of SouthPark. In Phase I, the Life Plan Community is currently planned to include 161 independent living rental units. Phase I construction is anticipated to last two and a half years, or through mid-2020. In addition, 126 healthcare units are currently planned, to include 82 assisted living units, 22 memory support units, and 22 skilled nursing units. Site plans for the Life Plan Community project have been approved for construction by Mecklenburg County. In addition, a future phase is in the early planning stages, to include up to 200 additional independent living units; however, no concrete plans for this future phase were known at the time of research. For purposes of this study, only the Phase I 161 independent living units have been presented and included in the penetration calculation.

Summary of Independent Living Units in the IL PMA

Comparable IL Communities in the IL PMA

There are four existing Comparable IL Communities within the IL PMA that have a total of 955 independent living units. Including 269 independent living units at the Community (existing plus Terraces 1), there are a total of 1,224 comparable existing independent living units at Comparable IL Communities in the IL PMA. Including the planned 36 Future Project IL Units, the 46 planned units at Sharon Towers, and the 161 planned units at The Barclay of SouthPark, there would be a total of 1,467 comparable independent living units at the Comparable IL Communities in the IL PMA after completion of the planned units.

Comparable IL Communities and Non-Comparable IL Communities in the IL PMA

There are two existing Non-Comparable IL Communities in the IL PMA that have a total of 241 independent living units. Combined with the 955 existing independent living units at Comparable IL Communities, there are a total of 1,196 independent living units in the IL PMA. Including the 269 existing independent living units at the Community, there are a total of 1,465 existing independent living units at Comparable IL Communities and Non- Comparable IL Communities in the IL PMA. There are no known planned independent living units for Non- Comparable IL Communities in the IL PMA. Including the 243 planned units at Comparable IL Communities noted above, there would be a total of 1,708 independent living units at Comparable IL Communities and Non- Comparable IL Communities in the IL PMA after completion of the planned units.

See accompanying Independent Accountants’ Report C-39 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Estimated Eligible Households for Independent Living Services

In order to qualify for residency in the Community’s Future Project IL Units, a prospective resident generally must be at least 62 years of age and demonstrate sufficient financial resources to pay the initial entrance fee, required monthly fees, and other expenses related to independent living services not provided in the resident’s agreement. Additionally, Management anticipates the prospective resident must be able to live independently.

Management reported that an evaluation of the financial profile of a prospective resident is completed by estimating his/her future income and expenditures based on reported assets and pre-tax income in order to assess the prospective resident’s ability to afford the entrance fee and monthly service fee at the Community. Furthermore, Management’s analysis considers, on a case-by-case basis, the available assets of a prospective resident and the ability of a prospective resident to liquidate and use these assets in order to supplement income sources.

In addition to the services planned to be included in the monthly service fee, Management assumes that a prospective resident would incur certain other basic living expenses. Management evaluates the financial profile of each prospective resident individually; however, for purposes of its presentation of the market, Management estimates that a prospective resident of the independent living units should have an annual pre-tax income of at least 1.5 times the annualized monthly service fee and an asset level approximately 4.0 times the entrance fee to become a resident of the Community. The following two annual household income scenarios are presented for purposes of estimating the number of income qualified households in the IL PMA for Comparable IL Communities and Non-Comparable IL Communities:

Annual household income of approximately $52,500 or more (in 2019) based upon the monthly fee of the smallest one bedroom apartment of the independent living units at the Community; Annual household income of approximately $84,600 or more (in 2019) based upon the weighted average monthly fee of the independent living units at the Community and assuming approximately 30% of the units will be occupied as double occupancy units.

Management has assumed that households with the following characteristics would be the most likely to consider residing at the Community:

The householder is age 75 or older; Annual household income is $52,500 or more for a single occupant in 2019; and Annual household income is $84,600 or more for couples in 2019.

It should be noted that the definition of households includes not only homeowners, but also individuals and families who rent. According to information provided by Environics Analytics, a census-based data source, 71% of the 75 and over households within the IL PMA own their own homes. In general, entrance fees are often paid with funds received through the sale of a homeowner’s primary residence.

Table 15 presents the income eligible households, based on the criteria noted above, for independent living services in the IL PMA for both Comparable IL Communities and Non-Comparable IL Communities. The 2018 and 2023 data in the following table are estimates and projections, respectively, based on the 2010 census, as provided by Environics Analytics. The following table also presents data for 2019, the planned opening year of the Terraces 1 Project, that has been interpolated from the information provided by Environics Analytics.

See accompanying Independent Accountants’ Report C-40 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Table 15 Income Eligible Households for Comparable IL Communities and Non-Comparable IL Communities in the IL PMA 2018 (Estimated) Age Range: 65-74 75-84 85 & Over Total Total Households 13,798 6,764 3,466 24,028 Median Household Income $ 74,627 $ 50,140 $ 35,884 $ 62,145 Household Income: Less than $25,000 1,724 1,463 1,168 4,355 $25,000 - 34,999 1,098 879 528 2,505 $35,000 - 49,999 1,621 1,031 495 3,147 $50,000 - 74,999 2,487 1,339 526 4,352 $75,000 - 99,999 1,504 613 261 2,378 $100,000 - 149,999 2,724 774 259 3,757 $150,000 - 199,999 1,122 260 115 1,497 $200,000 or More 1,518 405 114 2,037 Households with $51,000 or more of income 9,256 3,337 1,254 13,847 Households with $82,100 or more of income 6,441 1,878 675 8,994 2019 (Interpolated) (1) Age Range: 65-74 75-84 85 & Over Total Total Households 14,458 7,155 3,487 25,100 Median Household Income(1) $ 76,090 $ 50,772 $ 36,345 $ 63,352 Household Income: Less than $25,000 1,756 1,517 1,165 4,438 $25,000 - 34,999 1,115 910 523 2,548 $35,000 - 49,999 1,677 1,089 499 3,265 $50,000 - 74,999 2,587 1,416 534 4,537 $75,000 - 99,999 1,582 660 264 2,506 $100,000 - 149,999 2,879 830 263 3,972 $150,000 - 199,999 1,202 284 118 1,604 $200,000 or More 1,660 449 121 2,230 Households with $52,500 or more of income 9,651 3,497 1,247 14,395 Households with $84,600 or more of income 6,715 1,970 665 9,350 2023 (Projected) Age Range: 65-74 75-84 85 & Over Total Total Households 17,102 8,723 3,572 29,397 Median Household Income $ 81,944 $ 53,301 $ 38,188 $ 68,128 Household Income: Less than $25,000 1,886 1,735 1,152 4,773 $25,000 - 34,999 1,182 1,036 505 2,723 $35,000 - 49,999 1,902 1,323 516 3,741 $50,000 - 74,999 2,988 1,725 566 5,279 $75,000 - 99,999 1,893 850 275 3,018 $100,000 - 149,999 3,499 1,052 281 4,832 $150,000 - 199,999 1,522 378 129 2,029 $200,000 or More 2,230 624 148 3,002 Households with $59,100 or more of income 11,044 4,001 1,193 16,238 Households with $95,200 or more of income 7,614 2,217 611 10,442

Source: Environics Analytics and Management Notes: (1) Interpolated data is based upon the 2018 and 2023 data provided by Environics Analytics.

See accompanying Independent Accountants’ Report C-41 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Penetration Analysis – Independent Living Units

Management has presented three different measures to analyze the demand for senior living services.

The Gross Market Penetration Rate is calculated by adding the total number of independent living units of the existing facility and any projects to those of the comparable existing and proposed retirement communities within the defined primary market area and dividing by the total number of age and income qualified households (likely households headed by individuals 75 years of age or older).

The Net Market Penetration Rate is calculated by adding the total number of independent living units of the existing facility becoming vacant due to resident attrition, as well as the number of units needed to be filled to achieve a 95% occupancy of a project and comparable existing and proposed retirement communities within the defined primary market area and dividing by the total number of age and income qualified households (likely households headed by individuals 75 years of age or older).

The Project Penetration Rate is that calculated portion of eligible households in the IL PMA that will need to move to the Community’s Future Project IL Units to maintain its full occupancy (defined as the point where the occupancy stabilizes, typically, at 95% for independent living units).

The following table presents a summary of these penetration rates within the IL PMA for 2019, the planned opening year of the Terraces 1 Project, which was interpolated based on demographic data provided by Environics Analytics, for the Comparable IL Communities alone as well as for the combination of both Comparable IL Communities and Non-Comparable IL Communities.

See accompanying Independent Accountants’ Report C-42 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Table 16 Independent Living Units Estimated Penetration Analysis - 2019

Comparable IL Communities and Comparable IL Communities Non-Comparable IL Communities Age 75-and-over Age 75-and-over Age 75-and-over Age 75-and-over with Incomes of with Incomes of with Incomes of with Incomes of $52,500 and $84,600 and $52,500 and $84,600 and Estimated Penetration Rates above above above above Gross Market Penetration Rate Analysis: Market Inventory of Independent Living Units in the IL PMA (1): The Community 269 269 269 269 Existing comparable units 955 955 1,196 1,196 The Terraces 2 Project 36 36 36 36 Planned comparable units 207 207 207 207 Total units 1,467 1,467 1,708 1,708 Number of units assuming 70% of the residents of the Community and the Terraces 2 Project originate from within the IL PMA at 95% occupancy, and assuming 70% of the residents at existing and planned comparable facilities originate from the IL PMA at 95% occupancy [a] 976 976 1,136 1,136 Number of age and income qualified households (2) [b] 4,744 2,635 4,744 2,635 Gross Market Penetration Rate [a/b] 20.6% 37.0% 23.9% 43.1% Net Market Penetration Rate Analysis Total Unoccupied Independent Living Units within the IL PMA: Number of units at the Terraces 2 Project assuming that 100% of the units will be filled by persons age 75 and over and that stabilized occupancy is achieved at 95.0% 34 34 34 34 Number of units at planned comparable projects assuming 95% stabilized occupancy (3) 197 197 197 197 Number of existing units that need to be filled to achieve a 95% occupancy rate 29 29 31 31 Number of existing units becoming available from resident attrition (4) 193 193 225 225 Subtotal of units to be occupied assuming 70% of the Terraces 2 Project units and 70.0% of existing and planned comparable units originate from the IL PMA [c] 317 317 341 341 Number of age and income qualified households (2) 4,744 2,635 4,744 2,635 Less the number of occupied comparable independent living units -1,165 -1,165 -1,306 -1,306 Net number of age and income qualified households [d] 3,579 1,470 3,438 1,329 Net Market Penetration Rate [c/d] 8.9% 21.6% 9.9% 25.7% Terraces 2 Project Penetration Rate Analysis: Number of units at the Terraces 2 Project assuming that 100% of the units will be filled by persons age 75 and over, stabilized occupancy is achieved at 95%, and assuming 70% of the residents originate from the IL PMA [e] 24 24 24 24 Terraces 2 Project Penetration Rate [e/d] 0.7% 1.6% 0.7% 1.8%

Source: Management and Environics Analytics Notes: (1) Number of units and classification as presented in Table 13. (2) Age and income qualified households from Table 15. (3) Planned units as summarized in Table 13. (4) Represents the number of units becoming available (based on occupied comparable units in the IL PMA) annually from resident attrition (assuming a 13.1% turnover rate for entrance fee units and 22.9% for rental units).

See accompanying Independent Accountants’ Report C-43 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Marketing Terraces 1

Marketing efforts for Terraces 1 began in October 2017.

As part of the process to reserve Terraces 1 (and subsequently Terraces 2) at Southminster, a prospective resident must sign a Residence and Services Agreement and pay an entrance fee deposit for their selected unit.

The information in the following table reflects the history of Terraces 1 reservations based on those prospective residents (“Depositors”) who have paid an entrance fee deposit, signed a Residence and Services Agreement and have been approved in accordance with residency requirements as of May 15, 2018.

Table 17 Marketing of the Terraces 1 Independent Living Units

Cumulative Number of Cumulative Number Percentage of Total Terraces 1 of Terraces 1 Terraces 1 Independent Living Number Net Independent Living Independent Living Apartments of Reservations Apartments Apartments Reserved Cancellations In Month Reserved Reserved 2017: October 21 (1) 20 20 66.7% November 8 (2) 6 26 86.7% December 2 - 2 28 93.3% January 2 - 2 30 100.0% February - - - 30 100.0% March 1 (1) - 30 100.0% April - (2) (2) 28 93.3% Total 34 (6) 28 28 93.3%

Source: Management Note: (1) Current through May 15, 2018.

See accompanying Independent Accountants’ Report C-44 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following table depicts the inventory of Southminster’s reserved Terraces 1 units as of May 15, 2018.

Table 18 Inventory of Terraces 1 Independent Living Units Reserved (1)

Percent of Reserved Te rrace s 1 Te rrace s 1 Te rrace s 1 Independent Independent Independent Living Living Living Apartments Floor Plan Square Feet Apartments Apartments Reserved Kenilworth 2,115 3 3 100.00% Selwyn 2,110 3 3 100.00% Fairview 1,715 6 6 100.00% Wendover 1,700 3 3 100.00% Hempstead 1,690 3 2 66.67% Randolph 1,618 6 6 100.00% Morehead 1,495 3 2 66.67% Scotland 1,395 3 3 100.00%

Total 30 28 93.33% Source: Management Note: (1) Current through May 15, 2018.

Management plans to begin its sales effort for Terraces 2 in June 2018. In addition, Management has received expressions of interest from 36 households for Terraces 2 and another 12 additional households have been identified as interested in Terraces 2.

See accompanying Independent Accountants’ Report C-45 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Independent Depositor Confirmation

An independent confirmation process was performed by CliftonLarsonAllen LLP through a survey questionnaire of the 28 Depositors as of May 15, 2018. As of the date of this Study, 28 Depositors (100%) had responded to the questionnaire.

The following information was assembled for those 28 completed responses:

28 (100%) of the respondents indicated they had paid a deposit to reserve their selected unit at Southminster.

Respondents were asked if they intend to reside at Terraces 1 upon the availability of their residence. Responses to this question were as follows: o 27 (96.4%) indicated "Yes"; and o 1 (3.6%) indicated "Maybe", "Probably", or had some other response.

14 (50%) indicated that they would reside alone, and 14 (50%) indicated that they would reside with a spouse, or some other person.

26 (89.7%) indicated they owned their home.

5 (18.5%) of the 28 respondents who indicated that they own their own home indicated that it would be necessary for them to use the proceeds from the sale of their home to pay the entrance fee at Southminster.

Respondents indicated the following as to how soon they intended to move into their Independent Living Unit after it becomes available:

Table 19 Move-ins After Terraces 1 Independent Living Units are Available Precentage of Responses Respondents 1 - 30 days 10 35.7% 31 - 60 days 10 35.6% 61 - 90 days 310.7% Greater than 90 days 00.0% After the sale of my house 310.7% No Answer 27.1% Total 28 100.00% Source: Questionnaire responses

See accompanying Independent Accountants’ Report C-46 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

Seven (25%) of the respondents indicated they had reserved an independent living unit or were on a waiting list at another retirement community. Two of the seven individuals listed more than one community. Respondents who reserved or are on a wait list of another community are as follows:

Table 20 Terraces 1 Depositors Indication Deposit or Reservation at Another Community Community Name Location Number of Responses Amount of Deposit Aldersgate Charlotte 1 $0 Cypress (1) Charlotte 2 $1,000 Plantation Estates Matthews 2 $1,000 The Pines at Davidson Davidson 1 $1,000 Sharon Towers (1) Charlotte 2 $1,000 Windsor Run Matthews 1 $1,000 9

Source: Questionnaire responses Note: (1) Only one resident indicated a deposit was given at these communities.

Respondents indicated their primary reasons for selecting Terraces 1 as follows:

Table 21 Reason for Selecting Southminster Number (1) Percentage of Responses Responses Geographic Location 12 12.2% Proximity to family/friends 18 18.4% Physical security 11 11.2% Access to health care (LifeCare) 21 21.4% Social activities/fellowship 12 12.2% Reputation of Southminster 16 16.3% Other 6 6.1%

Source: Questionnaire responses Note: (1) Respondents were given the option of indicating more than one reason for selecting Southminster.

See accompanying Independent Accountants’ Report C-47 Summary of Significant Forecast Assumptions and Accounting Policies Market Assessment (continued)

The following table presents information regarding the reported net worth (including home values before payment of the entrance fee) and estimated annual income of the Depositors based on financial questionnaires that Depositors were required to fill out and that Management subsequently utilized to financially qualify Depositors for residency at Southminster.

Table 22 Reported Annual Income and Net Worth of the Depositors $500,000 to $1,500,000 to More than Less than $500,000 $1,499,999 $2,999,999 $3,000,000 Total Annual Income $35,000 - $49,000 01113 $50,000 - $99,000 00314 $100,000 - $199,999 013812 Greater than $200,000 00279 Total 0291728 Source: Management

See accompanying Independent Accountants’ Report C-48 Summary of Significant Forecast Assumptions and Accounting Policies Summary of Significant Accounting Policies

Basis of Accounting

The Corporation maintains its accounting and financial records using the accrual method of accounting.

Cash and Cash Equivalents

All liquid investments with a maturity of three months or less at the time of purchase and not limited as to their use or designated as long-term investments are considered to be cash equivalents.

Assets Limited as to Use

Assets limited as to use include funds held by the trustee under bond indenture agreements, the Southminster Community Fund, and the operating reserve required by the North Carolina Department of Insurance.

Property and Equipment

Property and equipment is stated at cost. Assets contributed to the Corporation are recorded at their fair market value at the date of receipt. Routine maintenance, repairs, renewals, and replacement costs are charged to expense. Expenditures which materially increase the value, change the capacities or extend the useful lives of existing assets are capitalized. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, which range from 3 to 30 years. Interest costs incurred during the construction period of significant construction projects are capitalized as a cost of the constructed asset and amortized over the useful life of the asset.

Long-Term Investments

Investments in equity and debt securities are measured at fair value in the accompanying forecasted financial statements. Investment income (including realized gains and losses on investments, interest and dividends) is included in operating income unless the income is restricted by donor or law. Unrealized gains and losses on investments, if any, are excluded from operating income.

Deferred Marketing and Other Costs

Sales commissions and certain other costs (deferred marketing costs) associated with acquiring expansion residential contracts are deferred until construction is complete and units are available for occupancy. Management amortizes such costs over the estimated average life expectancy of the residents.

See accompanying Independent Accountants’ Report C-49 Summary of Significant Forecast Assumptions and Accounting Policies

Summary of Significant Accounting Policies (continued)

Bond Issuance Costs

Issuance discounts are deferred and amortized over the terms of the related bond issue. Debt issuance costs consist of costs incurred from the issuance of revenue bonds benefiting the Corporation and include underwriter’s discounts, legal and consulting fees, and printing costs.

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related liability, rather than as a deferred charge asset. In addition, amortization expense associated with the debt issuance costs is shown as a component of interest expense as opposed to depreciation/amortization expense. The effects of this standard have been taken into consideration in management’s forecast.

Entrance Fees

The Residence and Services Agreement, which is entered into at the time a prospective resident pays a deposit equal to 10% of the published entrance fee, specifies the services to be provided by the Corporation and the respective rights and duties of the Corporation and resident. The liability associated with these advance deposits is reported as advance entrance fee deposits in the accompanying forecasted balance sheets. Prospective residents applying for direct admission to the Health Center are subject to the same terms and conditions as those applying for independent living units.

The Corporation offers a standard contract in which entrance fees may be refunded on a pro rata basis to residents vacating a unit in the first 20 months of occupancy. Once a unit is occupied, entrance fees are recorded as deferred entrance fee revenue. The deferred revenue on standard contracts is recognized as income over the actuarially determined life of the resident.

The Corporation offers two refundable entrance fee plans. Under these plans, a new resident can elect to pay a higher entrance fee, a portion of which is refundable when the unit is vacated and subsequently occupied by a new resident. The refundable fees under this option are classified in the accompanying forecasted balance sheets as refundable entrance fees.

Net Assets (Deficit)

Net assets with donor restrictions are those whose use by the Corporation has been limited by donors to a specific time period or purpose. The Corporation reports contributions of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), net assets with donor restrictions are reclassified to net assets without donor restrictions and reported in the forecasted statements of operations and changes in net assets as net assets released from restrictions. Donor-restricted contributions whose restrictions are met in the same reporting period as received are reflected as unrestricted contributions in the accompanying forecasted financial statements. The Corporation’s net assets with donor restrictions are comprised of net assets that are temporarily restricted in nature either due to a time or purpose restriction. The Corporation does not forecast any donor restricted net assets that are permanent in nature. In 2018 and 2020, the Corporation has forecasted that approximately $50,681 and $250,000, respectively, of donor restricted net assets will meet its purpose or time restriction as noted on the forecasted consolidated statements of operations and changes in net assets. Management has not forecasted any other receipt of or release of donor restricted net assets during the Forecast Period.

The Corporation reports contributions of property and equipment (or other long-lived assets) as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Contributions of long-lived assets with explicit restrictions that specify how the assets are to be used and contributions of cash or other assets that must be used See accompanying Independent Accountants’ Report C-50 Summary of Significant Forecast Assumptions and Accounting Policies

Summary of Significant Accounting Policies (continued) to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long these assets must be maintained, the Corporation reports expirations of donor restrictions when the donated or acquired long- lived assets are placed in service.

Estimated Obligation to Provide Future Services to Continuing Care Residents

The Corporation annually calculates the present value (using a six percent discount factor) of the net cost of future services and the use of facilities to be provided to current residents and compares that amount with the balance of deferred entrance fee revenue. If the present value of the estimated cost of future services and use of facilities to be provided to current residents exceeds the deferred revenue from entrance fees and the present value of periodic fees, a liability is recorded (obligation to provide future services) with the corresponding change to income. Management does not forecast a liability for the Forecast Period.

Independent Living Revenue and Healthcare Revenue

Independent living revenue and healthcare revenue consists of monthly resident Independent Living Unit and Health Center per diem charges and other revenues associated with resident services and are recorded when earned.

Income and Property Taxes

The Corporation is a nonprofit organization as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. The Corporation is also exempt from state income taxes and files for, and receives, reimbursement for paid sales taxes.

The Corporation is also currently exempt from property taxes. Management has forecasted that they will continue to be exempt from property taxes during the Forecast Period.

The Corporation adopted guidance in the income tax standard regarding recognition and measurement of uncertain tax positions. The implementation has had no impact on the Corporation’s forecasted financial statements.

Use of Estimates

The preparation of forecasted financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the forecasted financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Risks and Uncertainties

The Corporation holds investments in a variety of investment funds. In general, investments are exposed to various risks, such as interest rate, credit and overall market volatility risk. While no changes in investments have been forecasted, due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of the investments will continue to occur in the near term and that such changes could materially affect the Corporation’s investment balances and the amounts reported in the forecasted balance sheets of the Corporation.

See accompanying Independent Accountants’ Report C-51 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue

Revenue for the Corporation is generated primarily as follows: Independent Living Revenue- Reflects revenue from monthly service fees for the Existing Independent Living Units, Terraces 1 and Terraces 2. Healthcare Revenue- Reflects revenue from per diem charges from the assisted living and nursing residents as well as home care fees. Earned Entrance Fees- Reflects revenue (non-cash) associated with the amortization of deferred revenue from entrance fees.

Revenue for the Existing Independent Living Units, Terraces 1 and Terraces 2 is based on the monthly service fees assumed by Management to be charged to the residents and the assumed utilization of the Existing Independent Living Units, Terraces 1 and Terraces 2. Healthcare revenues consist of funds generated from services provided to residents transferring from the independent living units, and those services provided to residents directly admitted into either assisted living or nursing. Healthcare revenue also includes home care revenue.

Forecasted Occupancy Levels

Forecasted occupancy for the Corporation’s Existing Independent Living Units, Terraces 1 and Terraces 2 is based upon the historical experience of Management and the actuarial report, giving consideration to current economic conditions and expectations of ongoing success in its marketing activities.

Occupancy of the assisted living units and nursing beds is forecasted to be from Existing Independent Living Units, Terraces 1 and Terraces 2 transfers as well as a limited number of direct admissions. Nursing bed occupancy is based primarily on internal transfers from Existing Independent Living Units, Terraces 1 and Terraces 2 and assisted living units. Forecasted resident transfers from independent living to assisted living or nursing have been provided by Management.

The following tables present the forecasted occupancy for Independent Living Units, as forecasted by Management. In the table that follows, the overall occupancy and available units is based on the units being open for a partial year.

Table 23 Forecasted Utilization of the Existing Independent Living Units, Terraces 1 and Terraces 2

Average Number of Average Number of Independent Living Units Independent Living Units Average Occupancy Year Ending September 30, Occupied Available Percentage Forecasted:

2018 234 239 97.9% 2019 248 259 95.6% 2020 264 275 96.1% 2021 293 305 96.1% 2022 297 305 97.4%

Source: Management Note For purposes of the table above, Terraces 1 independent living units (30) are assumed to be operational for 8 months in 2019, and 12 months thereafter and Terraces 2 independent living units (36) are assumed to be operational for 2 months in 2020 and 12 months thereafter.

See accompanying Independent Accountants’ Report C-52 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Revenue (continued)

The forecasted double occupancy percentages in the independent living units are based upon assumptions provided by the Corporation’s actuary and are as follows:

Table 24 Forecasted Second Person Occupancy of the Existing Independent Living Units, Terraces 1 and Terraces 2

Average Number of Average Number of Existing Occupied Existing Independent Living Units Double Occupancy Year Ending September 30, Independent Living Units with Double Occupants Percentage Forecasted:

2018 234 53 22.6% 2019 248 67 27.2% 2020 264 72 27.2% 2021 293 81 27.6% 2022 297 79 26.5%

Source: Management Note For purposes of the table above, Terraces 1 independent living units (30) are assumed to be operational for eight months in 2019, and 12 months thereafter and Terraces 2 independent living units (36) are assumed to be operational for two months in 2020 and 12 months thereafter.

Table 25 Forecasted Fill Schedule for Terraces 1 Cummulative Occupancy Move-ins Occupancy Percent Fiscal Year 2019 October - - 0.0% November - - 0.0% December - - 0.0% January - - 0.0% February 5.00 5.00 16.7% March 5.00 10.00 33.3% April 5.00 15.00 50.0% May 5.00 20.00 66.7% June 5.00 25.00 83.3% July 4.00 29.00 96.7% August - 29.00 96.7% September - 29.00 96.7% Thereafter 29.00 96.7% Source: Management

See accompanying Independent Accountants’ Report C-53 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue (continued)

Table 26 Forecasted Fill Schedule for Terraces 2 Cummulative Occupancy Move-ins Occupancy Percent Fiscal Year 2020 August 5.00 5.00 13.9% September 5.00 10.00 27.8% Fiscal Year 2021 October 5.00 15.00 41.7% November 5.00 20.00 55.6% December 5.00 25.00 69.4% January 5.00 30.00 83.3% February 3.00 33.00 91.7% March 1.00 34.00 94.4% April - 34.00 94.4% May - 34.00 94.4% June - 34.00 94.4% July - 34.00 94.4% Thereafter 34.00 94.4% Source: Management

The combined 85 Health Center beds are all located on the third floor of the Existing Facility. For reasons of operating efficiency and regulatory requirements, assisted living residents may be placed in a skilled nursing unit (but not vice versa). Daily rates are based on level of care, not the physical location of the resident’s room.

Table 27 Forecasted Utilization of the Assisted Living and Memory Support Units

Average Number of Total Average Percent Year Ending September 30, Available Units Permanant Transfers Temporary Transfers Direct Entrants Residents Occupancy 2018 25 17.3 0.4 5.3 23.0 92% 2019 25 17.8 0.4 4.8 23.0 92% 2020 25 17.7 0.4 4.9 23.0 92% 2021 25 17.4 0.4 6.2 24.0 96% 2022 25 17.7 0.4 5.9 24.0 96% Source: Management and the Actuary

See accompanying Independent Accountants’ Report C-54 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue (continued)

Table 28 Forecasted Utilization of the Skilled Nursing Units

Average Number of Total Average Percent Year Ending September 30, Available Units Permanant Transfers Temporary Transfers Direct Entrants Residents Occupancy 2018 60 34.1 4.2 5.7 44.0 73% 2019 60 39.3 4.3 1.4 45.0 75% 2020 60 42.5 3.5 0.0 46.0 77% 2021 60 44.9 2.9 0.2 48.0 80% 2022 60 46.9 2.1 0.0 49.0 82% Source: Management and the Actuary

Forecasted Entrance and Monthly Service Fees

The following tables summarize the entrance fees, monthly service fees and daily rates for the facility. Note that the fees shown in Tables 29 and 30 are effective through September 30, 2018 and the fees shown in Table 31 are effective through September 30, 2019.

From time to time, Management may implement special incentives and move-in incentives with the effect of reducing the entrance fees or reducing net cash flow depending on the incentive. These are currently not being offered nor are they contemplated during the Forecast Period.

See accompanying Independent Accountants’ Report C-55 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue (continued)

Table 29 Monthly Service and Entrance Fees through September 30, 2018 Existing Facility Uni t Type Available Units Monthly Service Fee (1) Entrance Fee (2)

Independent Living Units Apartments: Studio 2 $2,749 $45,000 One-bedroom 49 $3,269 - $3,461 $107,400 - $144,400 One-bedroom/den 12 $3,539 - $3,712 $189,400 - $257,400 One-bedroom with den-expansion 24 $3,712 - $3,959 $254,600 - $324,600 Two-bedrooms 44 $3,539 - $3,960 $197,400 - $314,400 Two-bedrooms-expansion 29 $3,816 - $4,510 $325,600 - $560,600 Two-bedrooms/den or great room 14 $3,960 - $4,719 $275,000 - $475,000 Two-bedrooms with den-expansion 36 $4,164 - $5,000 $371,600 - $795,600 Cottages: Small sunroom 4 $3,531 $295,000 Large sunroom 25 $3,654 $337,000 - $375,000 Second Person Fees $1,900 $25,000

Total Independent Living Units 239

Assisted Living Assisted Living 25 $239 $25,000 (3) Assisted Living Memory Support (Pricing) $308 $25,000 (3)

Total Assisted Living Units 25

Skilled Nursing Private 56 $374 $10,000 - $12,500 (3) Semi-private 4 $285 $10,000 (3)

Total Nursing Units 60 Total Units/Beds 324 Source: Management Notes: (1) Residents admitted directly to health care units/beds are charged daily rates, as shown. (2) Entrance fees listed above are for the Standard Plan (0%) refundable. Management also offers a 90% Refundable Plan and 50% Refundable Plan priced higher than the pricing shown in this table. (3) Entrance fees required for direct admission residents only.

See accompanying Independent Accountants’ Report C-56 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue (continued)

Table 30 Terraces 1 Monthly Service and Entrance Fees through September 30, 2018 Pricing for Initial Depositors Pricing for Subsequent Depositors 50 Percent Estimated 50 Percent 90 Percent Standard Refundable 90 Percent Square Monthly Standard Refundable Refundable Entrance Entrance Refundable Unit Type Number Footage Service Fee Entrance Fee Entrance Fee Entrance Fee Fee Fee Entrance Fee Independent Living Units: Kenilworth 3 2,115 $ 4,790 $ 543,000 $ 705,900 $ 1,004,600 $ 543,000 $ 760,200 $ 1,086,000 Selwyn 3 2,000 $ 4,790 $ 541,700 $ 704,200 $ 1,002,100 $ 541,700 $ 758,380 $ 1,083,400 Fairview 6 1,715 $ 4,340 $ 440,300 $ 572,400 $ 814,600 $ 440,300 $ 616,420 $ 880,600 Wendover 3 1,700 $ 4,340 $ 436,500 $ 567,500 $ 807,500 $ 436,500 $ 611,100 $ 873,000 Hempstead 3 1,690 $ 4,340 $ 433,900 $ 564,100 $ 802,700 $ 433,900 $ 607,460 $ 867,800 Randolph 6 1,618 $ 4,305 $ 415,400 $ 540,000 $ 768,500 $ 415,400 $ 581,560 $ 830,800 Morehead 3 1,560 $ 4,234 $ 383,800 $ 498,900 $ 710,000 $ 383,800 $ 537,320 $ 767,600 Scotland 3 1,395 $ 4,164 $ 358,200 $ 465,700 $ 662,700 $ 358,200 $ 501,480 $ 716,400 Total (or Weighted Average) 30 1,713 $ 4,395 $ 440,850 $ 573,110 $ 815,580 $ 440,850 $ 617,190 $ 881,700

Second Person Fee $ 1,900 $ 25,000 $ 32,500 $ 46,300 25,000$ $ 35,000 $ 50,000

Source: Management

The entrance fees above reflect the pricing offered to the initial depositors of Terraces 1. For any additional sales, the pricing for the 50-percent refund plan and 90-percent refund plan would be increased from pricing noted above and that pricing is also reflected in the table above.

Table 31 Terraces 2 Monthly Service and Entrance Fees through September 30, 2019

Weighted Average Square 50 Percent 90 Percent Estimated Footage by Monthly Standard Refundable Refundable Unit Type Number Unit Type Service Fee Entrance Fee Entrance Fee Entrance Fee Independent Living Units: Kenilworth 6 2,156 $ 4,934 $ 571,300 $ 799,800 $ 1,142,600 Selwyn 6 2,001 $ 4,934 $ 544,300 $ 762,000 $ 1,088,600 Hampton 6 1,940 $ 4,470 $ 514,100 $ 719,700 $ 1,028,200 Randolph 12 1,593 $ 4,434 $ 422,100 $ 590,900 $ 844,200 Beverly 6 1,468 $ 4,470 $ 389,000 $ 544,600 $ 778,000

Total (or Weighted Average) 36 1,792 $ 4,613 $ 477,150 $ 667,983 $ 954,300

Second Person Fee $ 1,957 $ 25,000 $ 35,000 $ 50,000

Source: Management

The following table reflects forecasted rate increases. Increases in fees are generally anticipated to approximate increases in operating expenses during the Forecast Period. However, fee increases may be adjusted to reflect actual changes in expenses which could be higher than forecasted. Entrance fees are continuously reviewed and adjusted as necessary to align with market demands.

See accompanying Independent Accountants’ Report C-57 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue (continued)

Table 32 Forecasted Rate Increases (1) Unit Type 2019 2020 2021 2022

Independent Living Monthly Fee Increases 3.00% 3.00% 3.00% 3.00% Assisted Living Rate Increases 3.00% 3.00% 3.00% 3.00% Nursing Rate Increases 3.00% 3.00% 3.00% 3.00% Entrance Fee Increases 3.00% 3.00% 3.00% 3.00% Source: Management Note: (1) Annual pricing increases are effective on October 1 of the fiscal year.

Entrance Fee Receipts

Entrance fee receipts and refunds are based on information provided by Management based on historical experience, as well as Management’s assumptions relating to occupancy during the Forecast Period. The following table reflects entrance fees received and refunds paid during the Forecast Period for the Corporation, as forecasted by Management based on information it has received from its actuary.

Table 33 Forecasted Entrance Fee and Deposit Receipts, Net of Refunds

2018 2019 2020 2021 2022

Entrance fees received from unit turnover $ 8,472,000 $ 9,216,000 $ 10,010,000 $ 11,561,000 $ 12,693,000 Initial Entrance Fees and Deposits- Terraces 1 1,360,000 14,687,000 - - - Initial Entrance Fees and Deposits- Terraces 2 1,912,000 358,000 5,495,000 13,598,000 - Entrance fees refunded from unit turnover (2,461,000) (1,987,000) (2,395,000) (3,212,000) (3,375,000) Total entrance fees received, net of refunds $ 9,283,000 $ 22,274,000 $ 13,110,000 $ 21,947,000 $ 9,318,000 Source: Management and the Actuary

For purposes of forecasting entrance fee receipts, Management has assumed the following average entrant distribution during the Forecast Period:

Table 34 Southminster Forecasted Entrance Fee Receipt Contract Distribution Mix

Entrance Fee Option Standard Refund Plan 75% 50% Refundable Plan 5% 90% Refundable Plan 20% Total 100% Source: Management

See accompanying Independent Accountants’ Report C-58 Summary of Significant Forecast Assumptions and Accounting Policies

Management’s Basis for Forecast of Revenue (continued)

Investment Income

Investment income consists of interest earnings on cash, cash equivalents, investments, and assets limited as to use, as provided by Management. Management has assumed that its cash, cash equivalents, investments, and assets limited as to use would earn investment income of approximately three percent annually throughout the Forecast Period.

The following table reflects Management’s assumed realized investment earning rates during the Forecast Period.

Table 35 Obligated Group Members Investment Income Earnings Rates

2018 2019 2020 2021 2022 Cash and Cash Equivalents 0.00% 0.00% 0.00% 0.00% 0.00% Debt Service Reserve Fund 1.75% 1.75% 1.75% 1.75% 1.75% Other Restricted Funds 1.00% 1.00% 1.00% 1.00% 1.00% Investments 2.00% 3.00% 3.00% 3.00% 3.00% Source: Management

Other Revenue Items

Other income is comprised primarily of rent, with the most significant lessee being a Hospice provider renting space previously used as a memory care center. Rent from this provider is expected to temporarily cease for a portion of the Forecast Period, with rental income being fully restored by the end of the Forecast Period.

Management has also forecasted contributions of approximately $360,000 to $400,000 throughout the Forecast Period based on historical experience.

See accompanying Independent Accountants’ Report C-59 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Expenses

Operating Expenses Management has forecasted operating expenses based upon Management’s experience and its operating plans for the Project and the Existing Facility. Operating expenses are forecasted to increase approximately three percent annually for inflation throughout the Forecast Period, as well as for increases in costs relating to the addition of Terraces 1 and Terraces 2.

The specific basis for major expense items were formulated by Management and are discussed below.

Salaries, Wages and Employee Benefits Salaries and wages are forecasted to increase at a rate of three to four percent per annum for years 2018 through 2022 depending on the type of position, to account for forecasted increases in home care caseload, and to give effect to the forecasted impact of the Project.

Benefit costs include payroll taxes and employee benefits including FICA, unemployment taxes, workers’ compensation, health insurance, 403(b) profit sharing plan, incentives and other miscellaneous benefits for the entire facility. These benefit costs are assumed to approximate 29% of wages during the Forecast Period, based on Management’s historical experience.

Table 36 Full-Time Equivalent Staffing and Average Hourly Wage by Department

2018 2019 2020 2021 2022 Avg. Hourly Avg. Hourly Avg. Hourly Avg. Hourly Avg. Hourly FTEs Wage FTEs Wage FTEs Wage FTEs Wage FTEs Wage Healthcare 138.57$ 17.87 138.57$ 18.46 139.07$ 19.08 141.57$ 19.77 141.57$ 20.41 Administrative 18.85$ 44.73 18.85$ 46.52 18.85$ 48.38 18.85$ 50.31 18.85$ 52.33 Maintenance 19.90$ 20.65 19.90$ 21.27 20.07$ 21.89 20.90$ 22.43 20.90$ 23.11 Laundry 4.60$ 10.97 4.60$ 11.30 4.60$ 11.64 4.60$ 11.99 4.60$ 12.35 Housekeeping 27.60$ 12.85 28.27$ 13.22 28.77$ 13.61 29.60$ 14.00 29.60$ 14.42 Dietary 66.27$ 14.49 66.27$ 14.92 67.44$ 15.35 73.27$ 15.70 73.27$ 16.18 Other 3.35$ 16.25 3.35$ 16.74 5.02$ 17.06 13.35$ 17.30 13.35$ 17.90

Total/Weighted Average 279.14$ 18.45 279.81$ 19.04 283.82$ 19.62 302.14$ 20.08 302.14$ 20.74

Source: Management

Healthcare Expenses Costs include those for providing care in the Health Center and home care. Costs, other than those related to labor, are forecasted to increase approximately three percent annually throughout the Forecast Period for inflation.

See accompanying Independent Accountants’ Report C-60 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Expenses (continued)

Administrative Expenses Costs include insurance, professional service fees, and other administrative costs including community benefit. Higher amounts have been forecast for community benefit expenses in fiscal year 2018, to offset a recent decrease in the demand for resident support. However, resident support amounts are forecast to increase and community benefit amounts will have a corresponding 30% decrease in fiscal year 2019 and remain unchanged thereafter. Management has forecasted additional community benefit costs of approximately five percent of revenue related to Terraces 1 or Terraces 2.

Other costs, excluding those related to labor, are forecasted to increase at a rate of three percent annually throughout the Forecast Period for inflation.

Maintenance Expenses Costs include electricity, water and sewer, gas, and cable television and all activities of maintenance for the campus. Costs, other than those related to labor, would increase approximately three percent annually throughout the Forecast Period for inflation. Costs are also forecasted to increase as a result of the addition of the Project.

Laundry Expenses Costs include laundry costs for the Corporation. Costs, other than those related to labor, would increase approximately three percent annually throughout the Forecast Period for inflation.

Housekeeping Expenses Costs include housekeeping costs for the Corporation. Costs, other than those related to labor, would increase approximately three percent annually throughout the Forecast Period for inflation. Costs are also forecasted to increase as a result of the addition of the Project.

Dietary Expenses Costs include raw food and dietary supplies. Costs, other than those related to labor, would increase approximately three percent annually in years 2019 through 2022 for inflation. Costs are also forecasted to increase as a result of the addition of the Project.

Other Expenses Costs include all other costs incurred with operation of the campus, exclusive of the costs noted above. Costs, other than those related to labor, would increase approximately three percent annually throughout the Forecast Period for inflation.

See accompanying Independent Accountants’ Report C-61 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Other Items

Assets Limited as to Use

Held by the Trustees:

The trustees are assumed, by Management, to maintain the following funds for the Series 1996 Bonds (as defined subsequently hereinafter) and the Series 2016 Bonds (as defined subsequently hereinafter), as well as the proposed Series 2018 Bonds (collectively referred as the “Bonds”) under the terms of the related trust agreements for each series of Bonds and the Master Trust Indenture:

Bond Funds – The Bond Funds combine the Interest, Principal, and Sinking Fund Accounts required to be funded for the Bonds. Management assumes that the Corporation would make monthly deposits into the Interest Accounts equal to 1/6th of the next semi-annual interest payments due on the Bonds and monthly deposits into the Principal Accounts equal to 1/12th of the next scheduled principal payments for the Bonds.

Debt Service Reserve Funds – The Debt Service Reserve Funds include reserves, as required by the Master Trust Indenture for the various Bonds that require debt service reserve funds. After the Series 1996 Bonds are paid in full on October 1, 2018, Reserve Fund No.1 will be the only Debt Service Reserve Fund.

Project Fund – The project fund represents amounts that will be utilized to pay costs of construction and development related to the Project that have been funded by Series 2018 Bond proceeds.

Board Designated:

Southminster Community Fund – Board Designated amount supporting Southminster’s fundraising and community benefit efforts.

Expansion Entrance Fees and Deposits – Amounts on deposit in the Entrance Fee Fund are assumed to be used to pay the principal balance on the 2017 Bank Loan. The Entrance Fee Fund is a board designated fund. There is no contractual requirement for any initial entrance fees from Terraces 1 or Terraces 2 to be kept in an Entrance Fee Fund held by an outside party, but they must be on deposit in a depository account at BBVA Compass. Such entrance fees are earmarked for payment of the 2017 Bank Loan.

North Carolina Statutory Operating Reserve Requirement – Section 58-64-33 of the General Statutes of North Carolina, as amended, requires that all continuing care facilities maintain operating reserves equal to 50% of the total operating costs (as defined in Section 58-64-33) (or 25% of the total operating costs if such facilities maintain an occupancy level in excess of 90% and the North Carolina Commissioner of Insurance so approves) forecasted for the twelve-month period following the period covered by the most recent annual statement filed with the North Carolina Department of Insurance. Such operating reserves may only be released upon approval of the North Carolina Commissioner of Insurance. Management has forecasted, based on its forecasted occupancies, meeting the 25% operating reserve requirement.

The following table sets forth the forecasted calculation of the operating reserve.

See accompanying Independent Accountants’ Report C-62 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Other Items (continued)

Table 37 Forecasted Operating Reserve Calculation

Estimated 2018 2019 2020 2021 2022 2023

Forecasted Total Operating Expenses $ 29,921,156 $ 32,093,840 $ 40,471,206 $ 40,926,999 $ 41,850,221

Include: Principal Payment 14,355,000 4,170,000 22,535,000 2,115,000 2,215,000 Exclude: Amortization on Bond Issue Cost (147,285) (147,285) (137,285) (131,285) (131,285) Depreciation (6,417,381) (6,820,206) (9,922,402) (10,035,705) (10,317,948) Amortization of Deferred Marketing Cost (85,170) (87,121) (22,000) (22,000) (22,000) Interest Expense on Bonds with Debt Service Reserves: Series 2016 Bonds (2,811,088) (2,742,288) (2,669,000) (2,573,250) (2,462,500) Series 2018 Bonds (135,000) (1,091,000) (4,808,000) (4,808,000) (4,808,000) Principal Repaid from Entrance Fees (13,800,000) (2,200,000) (20,500,000) - - Total Adjusted Costs for Reserve Calculation $ 20,880,232 $ 23,175,940 $ 24,947,519 $ 25,471,759 $ 26,323,488

Applicable Operating Costs (Next Year) $ 20,880,232 $ 23,175,940 $ 24,947,519 $ 25,471,759 $ 26,323,488

Required Operating Reserve Percentage 25% 25% 25% 25% 25%

Operating Reserve $ 5,220,058 $ 5,793,985 $ 6,236,880 $ 6,367,940 $ 6,580,872 Source: Management

Property and Equipment Property and equipment balances, net of accumulated depreciation, were forecasted based on costs of routine property and equipment additions during the Forecast Period, reduced by estimated annual depreciation. Amounts for fiscal year 2018 also include acceleration of depreciation in areas of the campus expected to be impacted by future expansion. The following table presents capital expenditures during the Forecast Period:

Table 38 Capital Expenditures (in $000s) 2018 2019 2020 2021 2022 Routine Capital Additions $ 5,000 $ 5,000 $ 5,050 $ 5,100 $ 5,200 Terraces 1: Project Costs 12,289 6,753 - - - Capitalized Interest, Net of Interest Earnings 326 303 - - - Terraces 2: Project Costs 697 20,298 17,025 - - Capitalized Interest, Net of Interest Earnings 656 1,754 1,410 - - HC Replacement: Project Costs 10,206 27,143 23,670 - - Capitalized Interest, Net of Interest Earnings 1,089 2,698 2,642 - - Total Property and Equipment Additions $ 30,263 63,949$ $ 49,797 5,100$ $ 5,200

Source: Management

See accompanying Independent Accountants’ Report C-63 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Other Items (continued)

Long-Term Debt and Interest Expense

Forecasted interest expense and long-term debt during the Forecast Period was based on the Series 1996 Bonds, Series 2007A Bonds, Series 2016 Bonds, the 2017 Bank Loan, and the proposed Series 2018 Bonds as described below.

As provided by Management, the North Carolina Medical Care Commission Health Care Facilities First Mortgage Revenue Bonds (Southminster) Series 1996 Bonds (the “Series 1996 Bonds”) bear interest at an annual rate of 6.125% paid semi-annually. Annual principal payments related to the Series 1996 Bonds are payable beginning October 2015 through October 2018. On October 1, 2014, the Corporation accelerated one year of principal payments totaling $1,015,000. In December 2014, the Corporation entered into a bank term loan in the principal amount of $3,940,000 to redeem $3,940,000 of the remaining $4,040,000 in Series 1996 Bonds. The remaining $100,000 in principal of the Series 1996 Bonds bears a fixed interest rate of 6.125% and is due and payable in full October 1, 2018. The bank term loan was paid off during the year ended September 30, 2017.

On November 10, 2016, the Corporation entered into a loan agreement with the Medical Care Commission, and concurrently, the Medical Care Commission issued its $58,765,000 Retirement Facilities First Mortgage Revenue Refunding Bonds (Southminster) Series 2016 (the “Series 2016 Bonds”) in order to advance refund $61,515,000 of the remaining $61,855,000 in Series 2007A Bonds and pay for costs of issuance. The Series 2016 Bonds mature on October 1, 2017 through 2037 with interest rates ranging from 1.5% to 5%. The remaining $340,000 of Series 2007A Bonds, bearing interest at 5.2%, was paid off on the maturity date of October 1, 2017.

On August 31, 2017, the Corporation entered into a term loan agreement with a financial institution to provide up to $34,000,000 to finance the construction, equipping and furnishing of a portion of Terraces 1 and Terraces 2. On May 23, 2018, Southminster signed an amendment to increase the 2017 Bank Loan up to $39,000,000. The Corporation is able to make draws on this facility through February 28, 2021, with interest only payments, based on one-month LIBOR plus 1.35% (1.5% on any portion drawn relating to the additional $5,000,000), due monthly. For the period March 1, 2021 through August 31, 2024 principal and interest payments are to be made on a monthly basis. Principal payments are required to be made monthly in an amount equal to 1/240 of the outstanding principal balance on February 28, 2021. The 2017 Bank Loan has been sized to approximate the anticipated entrance fee receipts from Terraces 1 and Terraces 2, and as such, Management forecasts that there would not be any remaining balance associated with the 2017 Bank Loan based on the anticipated receipts of entrance fees. Although there is $39,000,000 available under the 2017 Bank Loan, the Corporation expects to draw only $36,500,000. The additional $2,500,000 is for contingency purposes relating to Terraces 2.

See Table 3 for a summary of the principal payments expected to be made on Series 2018 Bonds and 2017 Bank Loan.

See accompanying Independent Accountants’ Report C-64 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Other Items (continued)

Forecasted principal payments on the Corporation’s debt are as follows.

Table 39 Forecasted Principal Payments

Series 1996 Series 2007A Series 2016 2017 Bank Series 2018 Total Principal Fiscal Year Ending September 30, Bonds Bonds Bonds Loan Bonds Payments 2018 $ - $ 340,000 $ 105,000 $ - $ - $ 445,000 2019 100,000 - 455,000 13,800,000 - 14,355,000 2020 - - 1,970,000 2,200,000 - 4,170,000 2021 - - 2,035,000 20,500,000 - 22,535,000 2022 - - 2,115,000 - - 2,115,000 2023 - - 2,215,000 - - 2,215,000 2024 - - 2,325,000 - - 2,325,000 2025 - - 2,440,000 - - 2,440,000 Thereafter - - 45,105,000 - 91,460,000 136,565,000 Total (1) $ 100,000 $ 340,000 $ 58,765,000 $ 36,500,000 $ 91,460,000 $ 187,165,000

Source: Management Notes: (1) The schedule above does not include any bond premiums, discounts or issuance costs that have been netted with debt in Management’s forecasted balance sheets.

Current Assets and Current Liabilities

Cash Cash balances for the Forecast Period are based on the results of the forecasted Statements of Cash Flows. For purposes of presentation, cash balances are forecasted based on historical levels. Over the Forecast Period, the cash balances are estimated at approximately 41 to 46 days of operating expenses, excluding depreciation and amortization of deferred marketing costs and bond issuance costs, with excess cash being transferred to long-term investments.

Net Accounts Receivable Net accounts receivable are forecasted to remain at historical levels throughout the Forecast Period. Over the Forecast Period, the net accounts receivable are estimated at approximately 3 to 4 days of operating revenues, excluding investment income, contributions and net assets released from restrictions.

Other Current Assets Other current assets include prepaid expenses and dietary inventories which have been forecasted based on historical levels. Over the Forecast Period, the other current assets are estimated at approximately 9 to 10 days of operating revenues, excluding investment income, contributions and net assets released from restrictions.

Accounts Payable Accounts payable have been forecasted based on historical levels throughout the Forecast Period. Over the Forecast Period, the cash balances are estimated at approximately 24 to 25 days of operating expenses, excluding depreciation and amortization of deferred marketing costs and bond issuance costs.

See accompanying Independent Accountants’ Report C-65 Summary of Significant Forecast Assumptions and Accounting Policies Management’s Basis for Forecast of Other Items (continued)

Accrued Expenses Accrued expenses have been forecasted based on historical levels throughout the Forecast Period. Over the Forecast Period, the cash balances are estimated at approximately 17 to 18 days of operating expenses, excluding depreciation and amortization of deferred marketing costs and bond issuance costs.

Accrued Interest Accrued interest has been calculated based on forecasted interest rates and repayment terms on the outstanding debt of the Corporation.

See accompanying Independent Accountants’ Report C-66 Summary of Significant Forecast Assumptions and Accounting Policies Sensitivity Factors and Analyses

The financial forecast was prepared based on assumptions made by Management concerning future operations of the Corporation. Various factors and conditions may occur which could adversely affect the forecast of the financial condition of the Corporation and its ability to meet its debt service requirements. These factors may include, but may not be limited to, legislation and regulatory actions, changes in assumptions concerning occupancy, real estate market, rental rates, financing, construction costs, operating costs, occupancy variations due to increased competition from other senior housing facilities, and Management’s failure to implement its marketing and/or operational plans.

The analyses that follow should not be construed as reflecting the only significant assumptions presented in the forecast. The sensitivity analyses represent Management’s analyses and have not been examined. The sensitivity analyses are not intended to be all-inclusive, and are presented for the purpose of demonstrating the significance of:

Operating expenses increasing at one percent greater than forecasted (Sensitivity One); A reduction in occupancy sized to achieve either a Debt Service Coverage Ratio (1.20) in year 2022 or a Days Cash on Hand of 180 (Sensitivity Two); Terraces 2 beginning construction six months later than forecasted (Sensitivity Three); and The addition of independent living units in space vacated as part of the HC Replacement Project (Sensitivity Four).

See accompanying Independent Accountants’ Report

C-67 Summary of Significant Forecast Assumptions and Accounting Policies Sensitivity Factors and Analyses (continued)

Sensitivity One

Sensitivity One has been prepared to reflect the estimated impact of operating expenses (excluding depreciation, amortization, and interest expense) increasing at one percent greater than what Management has forecasted without a corresponding increase in monthly service fees and other charge rates. This one percent increase was applied each year beginning 2019, thereby creating a cumulative increase in operating expenses.

Table 40 Sensitivity One

2018 2019 2020 2021 2022 As Forecasted:

Debt Service Coverage Ratio (1) 1.96 2.53 2.83 3.30 1.78 Days Cash on Hand (2) 527 474 383 328 352

Operating Expenses as Forecasted (Excludes Depreciation and Amortization) $ 22,357,620 $ 23,271,320 $ 25,039,228 $ 30,389,519 $ 30,738,009

Sensitivity One:

Debt Service Coverage Ratio (1) 1.96 2.49 2.74 3.15 1.68 Days Cash on Hand (2) 527 466 367 306 316

Operating Expenses Under Sensitivity 1 (Excludes Depreciation and Amortization) $ 22,357,620 $ 23,475,488 $ 25,459,330 $ 31,043,794 $ 31,636,517 Source: Management Notes: (1) Pursuant to the Amended and Restated Master Trust Indenture, the maximum annual debt service excludes (a) the debt service on the Series 2018 Bonds until 2022, the first year after the Project achieves stabilized occupancy, and (b) the 2017 Bank Loan because it is Qualifying Intermediate Term Indebtedness. (2) Daily operating expenses are equal to operating expenses less depreciation and amortization divided by 365 days.

See accompanying Independent Accountants’ Report

C-68 Summary of Significant Forecast Assumptions and Accounting Policies Sensitivity Factors and Analyses (continued)

Sensitivity Two

Sensitivity Two has been prepared to present the estimated impact of lower average occupancy for Southminster than what has been forecasted by Management.

For purposes of this sensitivity, occupancy has been reduced across all levels of care, to achieve either a Debt Service Coverage Ratio (1.20) in year 2022 or a Days Cash on Hand of 180. In order to conduct this sensitivity, the independent living occupancy is assumed to decline in 2021 so that year 2022 reflects the operations at the lower occupancy level while year 2021 reflects an overall reduction in entrance fees, due to the vacant units not being filled (essentially a one-time reduction in entrance fees).

Management has forecasted the following stabilized occupancies in 2022:

Independent Living 97.4%, Assisted Living 96.0%, Nursing 81.7% Under Sensitivity Two, occupancy was reduced approximately seven percent to the following levels:

Independent Living 90.4%, Assisted Living 89.0%, Nursing 74.7%

Under this sensitivity, Management has assumed a pro-rata reduction in occupancy across each level of care (independent living, assisted living and nursing). Management has not assumed that it would modify its operating expense as a result of lower occupancy.

Table 41 Sensitivity Two

2018 2019 2020 2021 2022 As Forecasted:

Debt Service Coverage Ratio (1) 1.96 2.53 2.83 3.30 1.78 Days Cash on Hand (2) 527 474 383 328 352

Sensitivity Two:

Debt Service Coverage Ratio (1) 1.96 2.53 2.83 0.99 1.41 Days Cash on Hand (2) 527 474 383 197 180

Source: Management Notes: (1) Pursuant to the Amended and Restated Master Trust Indenture, the maximum annual debt service excludes (a) the debt service on the Series 2018 Bonds until 2022, the first year after the Project achieves stabilized occupancy, and (b) the 2017 Bank Loan because it is Qualifying Intermediate Term Indebtedness. (2) Daily operating expenses are equal to operating expenses less depreciation and amortization divided by 365 days.

See accompanying Independent Accountants’ Report

C-69 Summary of Significant Forecast Assumptions and Accounting Policies Sensitivity Factors and Analyses (continued)

Sensitivity Three

Sensitivity Three has been prepared to present the estimated impact of a six-month delay in the start of Terraces 2 construction from what has been forecasted by Management.

Table 42 Sensitivity Three

2018 2019 2020 2021 2022 As Forecasted:

Debt Service Coverage Ratio (1) 1.96 2.53 2.83 3.30 1.78 Days Cash on Hand (2) 527 474 383 328 352

Sensitivity Three:

Debt Service Coverage Ratio (1) 1.96 2.53 2.82 3.06 1.77 Days Cash on Hand (2) 527 474 384 294 333

See accompanying Independent Accountants’ Report

C-70 Summary of Significant Forecast Assumptions and Accounting Policies Sensitivity Factors and Analyses (continued)

Sensitivity Four

As part of the Project, existing space will be available once health care residents have moved to the Replacement HC Project. Management has prepared Sensitivity Four to estimate the impact of converting the vacated space into 23 independent living units (the “Retrofit Project”). For purposes of Sensitivity Four, the following assumptions have been utilized: The Retrofit Project begins renovation work on April 1, 2021; The Retrofit Project renovation work lasts 10 months with a proposed fill date of February 1, 2022; Total costs related to the Retrofit Project are estimated to be $11,687,000; The Retrofit Project is financed via a bank loan and the bank loan is repaid from initial entrance fee receipts from the associated independent living units; Weighted average monthly fees for the Retrofit Project are assumed to be $4,163 in 2018 dollar pricing; Weighted average entrance fees for the Retrofit Project are assumed to be $476,584 in 2018 dollar pricing; Operating expenses are based on increased utilization of housekeeping, meals and other incremental costs; Occupancy is assumed at 95.7%, and fill-up lasts five months from opening.

Table 43 Sensitivity Four

2018 2019 2020 2021 2022 As Forecasted:

Debt Service Coverage Ratio (1) 1.96 2.53 2.83 3.29 1.78 Days Cash on Hand (2) 527 474 383 320 344

Sensitivity Four:

Debt Service Coverage Ratio (1) 1.96 2.53 2.83 3.29 1.84 Days Cash on Hand (2) 526 469 375 318 344

See accompanying Independent Accountants’ Report

C-71 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX D

DEFINITION OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D

Brief descriptions of the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust are included in this Appendix D. Such descriptions do not purport to be comprehensive or definitive; all references herein to the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust are qualified in their entirety by reference to each such document.

DEFINITIONS OF CERTAIN TERMS

The following is a summary of the definitions of certain terms contained in the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust and used in this Official Statement. Terms which are used herein and not otherwise defined herein have the definitions specified in the Master Indenture, the Loan Agreement, the Trust Agreement and the Corporation Deed of Trust.

“1996 Commission Loan Agreement” means the Loan Agreement, dated as of November 1, 1996, by and between the Commission and the Corporation, including any amendments or supplements thereto as therein permitted, pertaining to the Commission’s Health Care Facilities First Mortgage Revenue Bonds (Southminster), Series 1996.

“Accountant” means an independent certified public accountant or a firm of independent certified public accountants that is a member of the American Institute of Certified Public Accountants (or its successor organization) and is licensed to practice in the State of North Carolina.

“Accounts” means any right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of, (ii) for services rendered or to be rendered, or (iii) for a secondary obligation incurred or to be incurred. The term “Accounts” will include healthcare insurance receivables. The term “Accounts” will not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold. Any term used in this definition (other than the term “Accounts”) will have the meanings given such terms, if any, in the UCC.

“Act” means Sections 66.0301, 66.0303 and 66.0304 of the Wisconsin Statutes, as amended.

“Additional Indebtedness” means Indebtedness incurred by any Member of the Obligated Group subsequent to the issuance and delivery of the Obligations issued on November 15, 2007.

“Affiliate” means a corporation, limited liability company, partnership, joint venture, association, business trust or similar entity organized under the laws of the United States of America or any state thereof which (i) is directly or indirectly controlled by any Member of the Obligated Group, or by any Person which directly or indirectly controls any Member of the Obligated Group or (ii) controls, directly or indirectly, any Member of the Obligated Group. For purposes of this definition, control means the power to direct the management and policies of a Person through the ownership of not less than a majority of its voting securities or the right to designate or elect not less than a majority of the members of its board of directors or other governing board or body by contract or otherwise. “Affiliate” includes each Person who is an “affiliate” of a Member of the Obligated Group under accounting principles generally accepted in the United States of America.

D-1 “Assignment of Contracts” means the Assignment of Contracts, dated as of June 1, 2018, between the Corporation and the Master Trustee, including all amendments and supplements thereto.

“Authority” means the Public Finance Authority, its successors and assigns.

“Authority Authorized Signatory” means any officer, director or other person designated by resolution of the Authority’s Board of Directors (whether such resolution is adopted in connection with the issuance of the Bonds or otherwise) or by the Authority’s bylaws as an “Authorized Signatory” empowered to, among other things, execute and deliver on behalf of the Authority the Trust Agreement, the Authority Documents and the Bonds.

“Authority Documents” means the Loan Agreement, the Trust Agreement and any other agreement, certificate, contract, or instrument to be executed by the Authority in connection with the issuance of the Bonds or the financing of the expenses associated with the related Project.

“Authority Indemnified Party” or “Authority Indemnified Parties” means, collectively, (i) the Sponsors, (ii) the Authority Members and (iii) each and all of the Authority’s, Authority Members’ and the Sponsors’ respective past, present, and future directors, board members, governing members, trustees, commissioners, officers, elected or appointed officials, employees, Authority Authorized Signatories, attorneys, contractors, subcontractors, agents and advisors (including counsel and financial advisors) and each of their respective heirs, successors and assigns.

“Authority Member” means each party to the Joint Exercise Agreement and any political subdivision that has been designated in the past, or is designated from time to time in the future, as a member of the Authority pursuant to the Joint Exercise Agreement.

“Balloon Long-Term Indebtedness” means Long-Term Indebtedness (other than Qualifying Intermediate-Term Indebtedness) 25% or more of the principal payments of which are due in a single year, which portion of the principal is not required by the documents pursuant to which such Indebtedness is incurred to be amortized by payment or redemption prior to such year.

“Beneficial Owner” means the Person in whose name a Bond is recorded as beneficial owner of such Bond by the Securities Depository or a Participant or an Indirect Participant on the records of such Securities Depository, Participant or Indirect Participant, as the case may be, or such Person’s subrogee.

“Bond Counsel” means a firm of attorneys knowledgeable and experienced in the law relating to municipal securities and the law relating to federal and State taxation of interest thereon and approved by the Authority.

“Bond Fund” means the Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 Bond Fund created and so designated by the Trust Agreement and consisting of the Interest Account, the Principal Account and the Sinking Fund Account.

“Bond Trustee” means the bank or trust company serving as Bond Trustee under the Trust Agreement, whether the original or a successor trustee, which will initially be The Bank of New York Mellon Trust Company, N.A., and its successors in the trusts created under the Trust Agreement.

“Bonds” means the Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 authorized and issued under the Trust Agreement.

D-2 “Bond Year” means the period commencing on October 1 of any year and ending on September 30 of the following year.

“Book Entry Bonds” means the Bonds for which a Securities Depository or its nominee is the Holder.

“Book Entry System” means a book entry system established and operated for the recordation of Beneficial Owners of the Bonds pursuant to the Trust Agreement.

“Business Day” means, with respect to the Master Indenture, any day on which banks in the city in which the Corporate Trust Office of the Master Trustee is located and New York, New York are not authorized to be closed for commercial banking purposes. “Business Day” means, with respect to the Bonds and the Trust Agreement, any day on which banks in the city in which the designated corporate trust office of the Bond Trustee is located and New York, New York are not authorized to be closed for commercial banking purposes.

“Cash and Investments” means, as of the date of calculation, the sum of cash, cash equivalents, marketable securities, including without limitation board-designated assets, and amounts, if any, on deposit in any operating reserve fund required to be maintained by the laws of the State of North Carolina, but excluding (i) trustee-held funds other than those otherwise described in this definition, (ii) donor-restricted funds, and (iii) any funds pledged or otherwise subject to a security interest for Indebtedness other than Obligations, as shown on the Financial Statements or the unaudited financial statements of the Obligated Group as of such date. Any amounts on deposit in a Debt Service Reserve Fund created under the Master Indenture and any other debt service reserve fund created under a Related Bond Indenture will be excluded from the calculation of Cash and Investments for the purposes of determining the number of Days’ Cash on Hand of the Obligated Group. For purposes of calculations under the Master Indenture, an Unrestricted Contribution from any Affiliate of any Member of the Obligated Group will be treated as being made and received as of the date of calculation if such Unrestricted Contribution is made and received prior to the date the applicable Officer’s Certificate is required to be delivered with respect to such calculation.

“Closing” means the date on which the Loan Agreement becomes legally effective, the same being the date on which the Bonds are delivered against payment therefor.

“Code” means the Internal Revenue Code of 1986, as amended, and all regulations promulgated thereunder.

“Collateral Assignments” means any assignment of construction documents, management agreements or Residency Agreements or any other assignment or agreement executed by any Member of the Obligated Group as security for all Obligations issued under the Master Indenture, each as amended from time to time in accordance with its terms.

“Commission” means the North Carolina Medical Care Commission of the Department of Health and Human Services of the State of North Carolina, and any successor thereto.

“Commission Bonds” means any Related Bonds issued by the Commission or the issuance of which was subject to the approval of the Local Government Commission.

“Completion Indebtedness” means any Indebtedness for borrowed money: (i) incurred for the purpose of financing the completion of the acquisition, construction, remodeling, renovation, or equipping of Facilities with respect to which Indebtedness for borrowed money has been incurred in

D-3 accordance with the provisions of the Master Indenture; and (ii) with a principal amount not in excess of the amount that is required to provide a completed and equipped Facility of substantially the same type and scope contemplated at the time such prior Indebtedness was originally incurred, to provide for capitalized interest during the period of construction, to provide any reserve fund relating to such Completion Indebtedness, and to pay the costs and expenses of issuing such Completion Indebtedness.

“Conditional Redemption” means a redemption that (a) is conditioned upon the deposit of moneys or Defeasance Obligations, or a combination of both, in an amount equal to the amount necessary to effect the redemption, with the Bond Trustee no later than the scheduled redemption date or (b) the Corporation retains the right to rescind such notice on or prior to the scheduled redemption date.

“Contributions” means the aggregate amount of all contributions, grants, gifts, bequests and devises actually received in cash or marketable securities by any Member of the Obligated Group during any Fiscal Year and any such contributions, grants, gifts, bequests and devises originally received in a form other than cash or marketable securities by such Member of the Obligated Group that are converted in such Fiscal Year to cash or marketable securities. Contributions will include payments received by any Member of the Obligated Group from any Affiliate of such Member of the Obligated Group.

“Construction Account” means the account in the Construction Fund created and so designated by the Trust Agreement.

“Construction Fund” means the Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 Construction Fund created and so designated by the Trust Agreement and consisting of the Construction Account, the Revolving Fund Account and the Issuance Account.

“Construction Monitor” means zumBrunnen, Inc.

“Construction Monitoring Agreement” means the Construction Disbursement and Monitoring Agreement, dated as of June 1, 2018, among the Corporation, the Construction Monitor and the Bond Trustee.

“Corporate Charter” means, with respect to any corporation, the articles of incorporation, certificate of incorporation, corporate charter or other organic document pursuant to which such corporation is organized and existing under the laws of the United States of America or any state thereof.

“Corporate Trust Office” means the principal or a designated office of the Master Trustee at which its corporate trust business is conducted.

“Corporation” means Southminster, Inc., a nonprofit corporation duly incorporated and validly existing under and by virtue of the laws of the State of North Carolina, and any successor or successors thereof.

“Corporation Deed of Trust” means the Second Amended and Restated Deed of Trust, dated as of November 1, 2007, as amended, from the Corporation to the deed of trust trustee named therein for the benefit of the Master Trustee.

“Days’ Cash on Hand” means, as of the date of calculation, the amount determined by dividing (a) the amount of Cash and Investments on such date by (b) the quotient obtained by dividing total operating expenses of the Obligated Group (including interest on Indebtedness but excluding provisions

D-4 for bad debt, amortization, depreciation or any other non-cash expenses) as shown on the Financial Statements for the most recent Fiscal Year for which Financial Statements are available, by 365.

“Debt Service Reserve Fund” means Reserve Fund No. 1 and any other Debt Service Reserve Fund established and maintained pursuant to the Master Indenture and a Supplement.

“Debt Service Reserve Fund Requirement” means, with respect to each Debt Service Reserve Fund, (i) if such Debt Service Reserve Fund secures more than one Obligation that secures Tax-Exempt Related Bonds, the least of (A) one hundred percent (100%) of Maximum Annual Debt Service on the Obligation or Obligations secured by such Debt Service Reserve Fund, (B) one hundred twenty-five percent (125%) of average annual Long-Term Debt Service Requirement on the Obligation or Obligations secured by such Debt Service Reserve Fund and (C) ten percent (10%) of the stated original principal amount of the Related Bonds secured or Indebtedness evidenced by the Obligation or Obligations secured by such Debt Service Reserve Fund or, if the Related Bonds have original issue discount or premium that exceeds two percent (2%) of the stated redemption price at maturity plus any original issue premium attributable exclusively to underwriters’ compensation, ten percent (10%) of the initial offering prices to the public of the Related Bonds, or (ii) if such Debt Service Reserve Fund secures only one Obligation that secures Tax-Exempt Related Bonds or secures one or more Obligations that evidence and secure only taxable Indebtedness or Related Bonds, the amount specified in the Master Indenture or any Supplement directing that such Debt Service Reserve Fund be established or maintained. Notwithstanding any provision of this definition to the contrary, until the Commission’s Health Care Facilities First Mortgage Revenue Bonds (Southminster), Series 1996 are paid in full or defeased, the Debt Service Reserve Fund Requirement for Reserve Fund No. 1 shall be the amount determined pursuant to clause (i) of this definition minus $106,125.00.

“Deed of Trust Trustee” means each trustee serving under a Deed of Trust.

“Deeds of Trust” means (i) the Corporation Deed of Trust, and (ii) any other deed of trust or mortgage substantially similar to the Corporation Deed of Trust in form and substance or otherwise satisfactory to the Master Trustee executed by any Member of the Obligated Group as security for all Obligations issued under the Master Indenture, each as amended from time to time in accordance with its terms.

“Defaulted Interest” means any interest on any Bond which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date.

“Defeasance Obligations” means (i) noncallable Government Obligations, (ii) evidences of ownership of a proportionate interest in specified noncallable Government Obligations, which Government Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian, (iii) Defeased Municipal Obligations and (iv) evidences of ownership of a proportionate interest in specified Defeased Municipal Obligations, which Defeased Municipal Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian.

“Defeased Municipal Obligations” means obligations of state or local government municipal bond issuers which are rated in the highest rating category by S&P and Moody’s, respectively, provision for the payment of the principal of and interest on which will have been made by deposit with a trustee or escrow agent of (i) noncallable Government Obligations, (ii) evidences of ownership of a proportionate interest in specified noncallable Government Obligations, (iii) cash or (iv) any combination of such noncallable Government Obligations, evidences of ownership and cash, which Government Obligations or evidences of ownership, together with any cash, are held by a bank or trust company organized and

D-5 existing under the laws of the United States of America or any state thereof in the capacity of custodian, the maturing principal of and interest on such Government Obligations or evidences of ownership, when due and payable, being sufficient, together with any cash, to provide money to pay the principal of, premium, if any, and interest on such obligations of such state or local government municipal bond issuers.

“Defeased Obligations” means Obligations issued under a Supplement that has been discharged, or provision for the discharge of which has been made, pursuant to its terms.

“Derivative Agreement” means, without limitation, (i) any contract known as or referred to or which performs the function of an interest rate swap agreement, currency swap agreement, forward payment conversion agreement or futures contract; (ii) any contract providing for payments based on levels of, or changes or differences in, interest rates, currency exchange rates, or stock or other indices; (iii) any contract to exchange cash flows or payments or series of payments; (iv) any type of contract called, or designed to perform the function of, interest rate floors or caps, options, puts or calls, to hedge or minimize any type of financial risk, including, without limitation, payment, currency, rate or other financial risk; and (v) any other type of contract or arrangement that the Member of the Obligated Group entering into such contract or arrangement determines is to be used, or is intended to be used, to manage or reduce the cost of Indebtedness, to convert any element of Indebtedness from one form to another, to maximize or increase investment return, to minimize investment return risk or to protect against any type of financial risk or uncertainty.

“Derivative Indebtedness” means Indebtedness (or that portion of Indebtedness) for which a Member of the Obligated Group will have entered into a Derivative Agreement.

“Derivative Obligations” means the payment obligations of a Member of the Obligated Group under a Derivative Agreement that hedges Indebtedness, including but not limited to regularly scheduled payments and termination payments.

“Derivative Period” means the period during which a Derivative Agreement is in effect.

“Designated Office” means the office where payments and delivery of Bonds will be made, initially, the corporate trust office of the Bond Trustee located at 111 Sanders Creek Parkway, East Syracuse, New York 13057 and thereafter any office designated in writing by the Bond Trustee by notice to the Authority and the Corporation.

“Electronic Means” means facsimile transmission, email transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Bond Trustee, or other similar electronic means of communication providing evidence of transmission and specified by the Bond Trustee as available for use in connection with its services hereunder, including a telephone communication confirmed by any other method set forth in this definition.

“Eminent Domain” means the eminent domain or condemnation power by which all or any part of the Property, Plant and Equipment may be taken for public use or any agreement that is reached in lieu of proceedings to exercise such power.

“Entrance Fees” means (a) all admission fees received by any Member of the Obligated Group pursuant to any agreement with respect to the granting of rights to the initial and exclusive use of any Independent Living Unit in the Facilities not subject to refund under the laws of the State; provided, however, that deposits for admission to the Facilities will not be “Entrance Fees” until the prospective resident has a right to take possession of such Independent Living Unit pursuant to such agreement, (b) all

D-6 admission fees received by any Member of the Obligated Group pursuant to any agreement with respect to the granting of rights to exclusive use of any Independent Living Unit that had been previously occupied by another resident and which comprised a part of the Facilities, not subject to refund under the laws of the State and net of any refunds paid to (i) the prior resident upon regranting of exclusive rights to use such Independent Living Unit or (ii) the resident succeeding to the exclusive rights to use such Independent Living Unit and (c) all fees received pursuant to any agreement with respect to customized changes to any Independent Living Unit in the Facilities.

“Equipment” means those items constituting equipment as defined in the UCC used in connection with the Mortgaged Property, whether such equipment is now owned or hereafter acquired by any Member of the Obligated Group.

“Event of Default” means, with respect to the Master Indenture, any one or more of those events set forth in the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – Events of Default” below.

“Event of Default” means, with respect to the Loan Agreement, each of those events set forth in “SUMMARY OF LOAN AGREEMENT – Defaults and Remedies” below.

“Event of Default” means, with respect to the Trust Agreement each of those events set forth in “SUMMARY OF TRUST AGREEMENT – Events of Default” below.

“Excess Funds” means, as of the date of calculation, the amount of Cash and Investments in excess of 205 Days’ Cash on Hand as of the date of calculation.

“Existing Facilities” means the continuing care retirement facilities and facilities ancillary thereto owned and operated by the Corporation on the date of execution and delivery of the Master Indenture.

“Existing Obligations” means the Obligations issued and Outstanding as of the effective date of the Master Indenture.

“Facilities” means the Existing Facilities and any other continuing care retirement facilities or health care delivery or residential facilities designed to provide services to the elderly hereafter owned by any Member of the Obligated Group and operated by or on behalf of any Member of the Obligated Group.

“Financial Statements” means combined financial statements of the Corporation and its Affiliates, if any, for a Fiscal Year, or for such other period for which an audit has been performed, required to be prepared under, and prepared in accordance with, accounting principles generally accepted in the United States of America consistently applied, including a statement of changes in cash flows as of the end of such period, which have been audited and reported upon by an Accountant. If any Member of the Obligated Group is not an Affiliate of the Corporation, “Financial Statements” will also mean combined financial statements of such Member of the Obligated Group and its Affiliates, if any, for the same Fiscal Year (or other period) as the Financial Statements of the Corporation, prepared in accordance with accounting principles generally accepted in the United States of America consistently applied, which have been audited and reported upon by an Accountant. Financial Statements of the Corporation will also include, in an additional information section, unaudited combining financial statements for the same Fiscal Year (or other period) from which the accounts of any Affiliate which is not a Member of the Obligated Group have been eliminated and to which the accounts of any Member of the Obligated Group which is not an Affiliate have been added by extracting the balances of such accounts from audited combined financial statements of such Member of the Obligated Group and its Affiliates, if any.

D-7 “Fiscal Year” means the fiscal year of each of the Members of the Obligated Group, which period commences on October 1 of each year and ends on September 30 of the following year, unless the Master Trustee, the Commission and each Related Bond Trustee is notified in writing by the Obligated Group Representative of a change in such period for all of the Members of the Obligated Group, in which case the Fiscal Year will be the period set forth in such notice.

“Fitch” means Fitch Ratings, a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, Fitch will be deemed to refer to any other nationally recognized securities rating agency designated by the Commission with the approval of the Corporation by notice to the Master Trustee and any Related Bond Trustee.

“Governing Body” means, when used with respect to any Member of the Obligated Group, its board of directors, board of trustees or other board or group of individuals in which the powers of such Member of the Obligated Group are vested.

“Government Obligations” means direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America.

“Gross Receipts” means all revenues, income, receipts and money (other than proceeds of borrowing and moneys received from residents that are held in escrow) received in any period by or on behalf of any Member of the Obligated Group, including, but without limiting the generality of the foregoing, (a) revenues derived from its operations, (b) gifts, grants, bequests, donations and contributions and the income therefrom, exclusive of any gifts, grants, bequests, donations and contributions to the extent specifically restricted by the donor to a particular purpose inconsistent with their use for the payment of Obligations, (c) proceeds derived from (i) insurance, except to the extent otherwise required by the Master Indenture to be used for a particular purpose inconsistent with their use for the payment of Obligations, (ii) Accounts, (iii) securities and other investments, (iv) inventory and other tangible and intangible Property, (v) medical or health care insurance, indemnity or reimbursement programs or agreements and (vi) contract rights and other rights and assets now or hereafter owned, held or possessed by each Member of the Obligated Group, (d) rentals received from the leasing of real or tangible personal property and (e) any licensing fees or royalties from any intellectual property owned by any Member of the Obligated Group.

“Guaranty” means any obligation of any Member of the Obligated Group guaranteeing in any manner, directly or indirectly, any obligation of any Person that is not a Member of the Obligated Group which obligation of such other Person would, if such obligation were the obligation of a Member of the Obligated Group, constitute Indebtedness under the Master Indenture.

“Historical Debt Service Coverage Ratio” means, for any period of time, the ratio of Income Available for Debt Service for that period to Maximum Annual Debt Service; provided, however, that in calculating the Debt Service Requirements for such period, the principal amount of any Indebtedness included in such calculation which is paid during such period will be excluded to the extent such principal amount is paid from the proceeds of other Indebtedness incurred in accordance with the provisions of the Master Indenture.

“Historical Pro Forma Debt Service Coverage Ratio” means, for any period of time, the ratio of Income Available for Debt Service for that period to Maximum Annual Debt Service (excluding any Indebtedness being refunded with the Indebtedness then proposed to be issued) and the Indebtedness then proposed to be issued.

D-8 “Holder” means, with respect to the Master Indenture, the owner of any Obligation issued under the Master Indenture. “Holder” means, with respect to the Trust Agreement, the Person in whose name a Bond is registered in the registration books provided for in the Trust Agreement.

“Income Available for Debt Service” means, with respect to the Obligated Group, as to any Fiscal Year or such other twelve month period for which such calculation is made, the increase (decrease) in unrestricted net assets, to which will be added depreciation, amortization and interest and other non-cash expenses deducted from total revenues, all as determined in accordance with accounting principles generally accepted in the United States of America consistently applied, and all Entrance Fees received in cash during such Fiscal Year (less any refunds actually paid in such Fiscal Year), and from which will be deducted all Entrance Fees amortized during such Fiscal Year; provided, however, that for the purposes of determining compliance with any of the provisions of the Master Indenture described in “SUMMARY OF MASTER INDENTURE – Limitations on Incurrence of Indebtedness”, Entrance Fees received from the initial resident of a unit in the Facilities or pursuant to any agreement with respect to customized changes to a unit in the Facilities will be excluded and for the purposes of determining compliance with any of the provisions of the Master Indenture described in “SUMMARY OF MASTER INDENTURE – Rates and Charges”, Entrance Fees received from the initial resident of any unit financed with Qualifying Intermediate-Term Indebtedness will be excluded; and provided further that no determination thereof will take into account:

(a) any gain or loss resulting from either the extinguishment of Indebtedness or the sale, exchange or other disposition of capital assets not made in the ordinary course of business;

(b) any nonrecurring items of an extraordinary nature which do not involve the receipt, expenditure or transfer of assets;

(c) any unrealized gains or losses, including any unrealized gains or losses on investments or the value of any Derivative Agreement, or any “other-than-temporary” impairment losses; provided, however, that realized gains and losses on assets that suffer an other-than- temporary impairment loss will be determined using the basis for such asset without giving effect to any reductions in basis resulting from such other-than-temporary impairment loss;

(d) any increase or decrease in obligations to provide future services; and

(e) any losses incurred from development of additional facilities that the Governing Board of any Member of the Obligated Group later determines not to pursue; and provided further that total revenues will not include investment income from (A) any investment of funds held in a Qualified Escrow or (B) any fund or account that is set aside and used for the purpose of paying Qualifying Intermediate-Term Indebtedness.

“Indebtedness” means (i) all indebtedness of Members of the Obligated Group for borrowed money, (ii) all installment sales, conditional sales and capital lease obligations, incurred or assumed by any Member of the Obligated Group, and (iii) all Guaranties, whether constituting Long-Term Indebtedness or Short-Term Indebtedness. Indebtedness will not include obligations of any Member of the Obligated Group to another Member of the Obligated Group.1

[“Indebtedness” means (i) all indebtedness of Members of the Obligated Group for borrowed money, (ii) all installment sales, conditional sales and capital or finance lease obligations, incurred or

1 Summarizes current provision in the Master Indenture.

D-9 assumed by any Member of the Obligated Group, and (iii) all Guaranties, whether constituting Long- Term Indebtedness or Short-Term Indebtedness. Indebtedness will not include obligations of any Member of the Obligated Group to another Member of the Obligated Group.] 1

“Independent Architect” means an architect, engineer, or firm of architects or engineers selected by the Obligated Group, acceptable to the Master Trustee and licensed by, or permitted to practice in, the state where the construction involved is located, which architect, engineer, or firm of architects or engineers will have no interest, direct or indirect, in any Member of the Obligated Group or any Affiliate thereof and, in the case of an individual, will not be a partner, member, director, officer, controlling shareholder, or employee of any Member of the Obligated Group or any Affiliate thereof and, in the case of a firm, will not have a partner, member, director, officer, or employee who is a partner, member, director, officer, controlling shareholder, or employee of any Member of the Obligated Group or any Affiliate thereof; it being understood that an arm’s-length contract with a Member of the Obligated Group for the performance of architectural or engineering services will not in and of itself be regarded as creating an interest in or an employee relationship with such entity and that the term Independent Architect may include an architect or engineer or a firm of architects or engineers who otherwise meet the requirements of this definition and who also are under contract to construct the facility that they have designed.

“Independent Living Unit” means any apartment, cottage or similar unit located at the Facilities and in which the resident thereof is living independently pursuant to the Residency Agreement for such resident.

“Indirect Participant” means a broker-dealer, bank or other financial institution for which the Securities Depository holds Bonds as a securities Depository through a Participant.

“Insurance Consultant” means a Person which is not, and no member, stockholder, director, officer or employee of which is, a director, officer or employee of any Member of the Obligated Group or an Affiliate, which is qualified to survey risks and to recommend insurance coverage for continuing care facilities and services and organizations engaged in such operations.

“Interest Account” means the account in the Bond Fund created and so designated by the Trust Agreement.

“Interest Payment Date” means October 1, 2018 and each April 1 and October 1 thereafter, to and including October 1, 20__.

“Investment Grade Credit Rating” means a rating by Standard & Poor’s or Fitch of “BBB-” or higher, or by Moody’s of “Baa3” or higher.

“Investment Obligations” means, with respect to the Master Indenture, (i) with respect to any Debt Service Reserve Fund that secures one or more Obligations that secure Commission Bonds, an investment permitted by the North Carolina Health Care Facilities Finance Act, Chapter 131A of the General Statutes of North Carolina, or any successor statute, which as of the date of the Master Indenture is limited to Section 159-30 of the General Statutes of North Carolina, as amended, or any successor statute, and (ii) with respect to any other Debt Service Reserve Fund, the investments specified in any

1 Summarizes provision of the Master Indenture as amended by Supplement No. 16. By their purchase of the Bonds, the original purchasers consent to such amendment; provided, however, that such amendment will not become effective until the earlier of (i) consent to such amendments by the Commission is received or (ii) no Commission Bonds are outstanding. Amended language is reflected in italics.

D-10 Supplement directing that such Debt Service Reserve Fund be established or maintained, which may be specified by reference to investments of proceeds of Related Bonds permitted under the Related Bond Indenture.

“Investment Obligations” means, with respect to the Trust Agreement, dollar denominated investments, to the extent permitted by law, in any of the following:

(a) Government Obligations;

(b) debt obligations which are (i) issued by any state or political subdivision thereof or any agency or instrumentality of such state or political subdivision, and (ii) at the time of purchase, rated by any Rating Agency in one of the two highest categories assigned by such Rating Agency (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);

(c) any bond, debenture, note, participation certificate or other similar obligation which is either (i) issued or guaranteed by the Federal National Mortgage Association, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal Farm Credit Bank Association, or (ii) backed by the full faith and credit of the United States of America;

(d) U.S. denominated deposit account, certificates of deposit and banker’s acceptances with domestic commercial banks, including the Bond Trustee or its affiliates, which have a rating on their short-term certificates of deposit on the date of purchase of “A-1” by Standard & Poor’s, “F-1” by Fitch or “P-1” by Moody’s, and which matures not more than 360 days after the date of purchase;

(e) commercial paper which is rated at the time of purchase within the classification or higher, “A-1” by Standard & Poor’s, “F-1” by Fitch or “P-1” by Moody’s, and which matures not more than 270 days after the date of purchase;

(f) bonds, notes, debentures or other evidences of indebtedness issued or guaranteed by a corporation which are, at the time of purchase, rated by any Rating Agency in any of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);

(g) investment agreements with banks that at the time such agreement is executed are rated by any Rating Agency in one of the two highest rating categories assigned by such Rating Agency (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) or investment agreements with non-bank financial institutions which, (1) all of the unsecured, direct long- term debt of either the non-banking financial institution or the related guarantor of such non-bank financial institution is rated by any Rating Agency at the time such agreement is executed in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) for obligations of that nature; or (2) if such non-bank financial institutions have no outstanding long-term debt that is rated, all of the short-term debt of either the non- banking financial institution or the related guarantor of such non-bank financial institution is rated by any Rating Agency in the highest rating category (without regard to any refinement or gradation of the rating category by numerical modifier or otherwise) assigned to short term indebtedness by such Rating Agency; provided that if at any time after purchase the provider of the investment agreement drops below the two highest rating categories assigned by such Rating Agency, the investment agreement must, within 30 days, either (1) be assigned to a provider rated in one of the two highest rating categories or (2) be secured by the provider with collateral securities the fair market value of which, in relation to the amount of the investment agreement including principal and interest, is equal to at least 102%; investment agreements with banks or non-bank financial institutions shall not be permitted if no rating is available with respect to debt of the investment agreement provider or the related guarantor of such provider;

D-11 (h) shares of a money market mutual fund or other collective investment fund registered under the federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, having assets of at least $100,000,000 and having a rating AAm or AAm-G by a Rating Agency, including money market mutual funds from which the Bond Trustee or its affiliates derive a fee for investment advisory or other services to the fund; and

(i) any other investment approved in writing by the Holders of not less than a majority in aggregate principal amount of Bonds Outstanding.

“Issuance Account” means the account in the Construction Fund created and so designated by the Trust Agreement.

“Issuance Costs” means all issuance costs within the meaning of Section 147(g) if the Code, including, but not limited to, the following, if any: (a) counsel fees (including Bond Counsel, underwriters’ counsel, issuer’s counsel, Corporation counsel, counsel to the Bond Trustee and Master Trustee as well as any other specialized counsel fees incurred in connection with the borrowing); (b) underwriters’ compensation and financial advisor fees incurred in connection with the borrowing; (c) rating agency fees; (d) depositary fees incurred in connection with the borrowing; (e) paying agent and certifying and authenticating agent fees related to issuance of the Bonds; (f) accountant’s fees related to issuance of the Bonds; (g) printing costs (for the Bonds and of preliminary and final offering materials); (h) costs incurred in connection with the required public approval process (e.g., publication costs for public notices generally and costs of the public hearing or voter referendum); (i) costs of engineering and feasibility studies necessary to the issuance of the Bonds (as opposed to such studies related to completion of the Project, but not to the financing); and (j) the Authority’s closing expenses as provided for in the Loan Agreement.

“Joint Exercise Agreement” means the Amended and Restated Joint Exercise of Power Agreement Relating to the Public Finance Authority, dated as of September 28, 2010 by and among Adams County, Wisconsin, Bayfield County, Wisconsin, Marathon County, Wisconsin, Waupaca County, Wisconsin, and the City of Lancaster, Wisconsin, as such agreement may be amended from time to time.

“Letter of Representations” means, when all the Bonds are Book Entry Bonds, the Blanket Letter of Representations dated October 21, 2010, executed by the Authority and delivered to DTC and any amendments thereto or successor blanket agreements between the Authority and any successor Securities Depository, relating to a system of Book Entry Bonds to be maintained by such Securities Depository with respect to any bonds, notes or other obligations issued by the Authority.

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of such Property, whether such interest arises by contract, statute or common law, including but not limited to any mortgage, deed of trust or pledge of, security interest in or encumbrance on any Property which secures any Indebtedness or any other obligation of any Member of the Obligated Group or which secures any obligation of any Person. The term “Lien” will include any easements, covenants, restrictions, conditions, encroachments, reservations, rights-of-way, leases and other title exceptions and encumbrances affecting real property.

“Liquidity Testing Date” means the Days’ Cash on Hand of the Obligated Group as of March 31 and September 30 of each Fiscal Year.

“Loan” means the loan of the proceeds of the Bonds made by the Authority to the Corporation pursuant to the Loan Agreement.

D-12 “Loan Agreement” or “Agreement” means the Loan Agreement, dated as of June 1, 2018, by and between the Authority and the Corporation, including any supplements or amendments thereto as therein permitted.

“Loan Repayments” means those payments designated by and set forth in the Loan Agreement as described in “SUMMARY OF LOAN AGREEMENT – Loan Repayments; Required Payments Under the Loan Agreement” below.

“Local Government Commission” or “LGC” means the Local Government Commission of North Carolina, a division of the Department of the State Treasurer, and any successor or successors thereto.

“Long-Term Debt Service Requirement” means, for each Fiscal Year, the aggregate of the payments to be made in respect of the principal of and interest on Outstanding Long-Term Indebtedness of the Obligated Group during such Fiscal Year, taking into account:

(i) with respect to Balloon Long-Term Indebtedness, the amount of principal which would be payable in such Fiscal Year if the principal of such Balloon Long-Term Indebtedness to be amortized in succeeding Fiscal Years were amortized from the date of incurrence of such Balloon Long-Term Indebtedness over a period of fifteen (15) years (or, if the term thereof exceeds 15 years, over a period equal to such term, but in no event for a period more than thirty (30) years from the date of calculation) on a level debt service basis at an interest rate set forth in an opinion of a banking institution or an investment banking institution knowledgeable in such matters of finance delivered to the Master Trustee as the interest rate at which the Obligated Group could reasonably expect to borrow the same by issuing an obligation with the same term and a fixed rate of interest as assumed above; provided, however, that if the date of calculation is within twelve (12) months of the stated maturity of such Balloon Long-Term Indebtedness, the full amount of principal payable at maturity will be included in such calculation unless a binding commitment to refinance such Balloon Long-Term Indebtedness will be in effect, in which case the amortization schedule established by such commitment will apply;1

[(i) with respect to Balloon Long-Term Indebtedness, the amount of principal which would be payable in such Fiscal Year if the principal of such Balloon Long-Term Indebtedness to be amortized in succeeding Fiscal Years were amortized from the date of incurrence of such Balloon Long-Term Indebtedness over a period of thirty (30) years (or such shorter period as the Obligated Group may choose) on a level debt service basis at an interest rate set forth in an opinion of a banking institution or an investment banking institution knowledgeable in such matters of finance delivered to the Master Trustee as the interest rate at which the Obligated Group could reasonably expect to borrow the same by issuing an obligation with the same term and a fixed rate of interest as assumed above; provided, however, that if the date of calculation is within twelve (12) months of the stated maturity of such Balloon Long-Term Indebtedness, the full amount of principal payable at maturity shall be included in such calculation unless (A) a binding commitment to refinance such Balloon Long-Term Indebtedness shall be in effect, in which case the amortization schedule established by such commitment shall apply or (B) the Members of the Obligated Group have received a letter from a reputable financial institution or investment banking firm to the effect that such firm has evaluated the creditworthiness of the Obligated Group and concluded that it is reasonable to assume that the Obligated Group will have access to the debt markets at reasonable interest rates and setting forth the projected

D-13 interest rate and assumed maximum amortization schedule for such debt, in which case the amortization schedule and projected interest rate established by such letter shall apply;]1

(ii) with respect to Variable Rate Indebtedness that is Long-Term Indebtedness, the interest on such Indebtedness will be calculated at (A) in the case of Outstanding Variable Rate Indebtedness, the rate which is equal to the average of the actual interest rates which were in effect (weighted according to the length of the period during which each such interest rate was in effect) for the most recent 12-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a 12-month period) and (B) in the case of Variable Rate Indebtedness proposed to be incurred, the rate which is equal to the Revenue Bond Index most recently published by The Bond Buyer;2

[(ii) with respect to Variable Rate Indebtedness that is Long-Term Indebtedness, the interest on such Indebtedness will be calculated at (A) in the case of Outstanding Variable Rate Indebtedness, the rate which is equal to the average of the actual interest rates which were in effect (weighted according to the length of the period during which each such interest rate was in effect) for the most recent 12-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a 12-month period) and (B) in the case of Variable Rate Indebtedness proposed to be incurred, the rate which is equal to the average of the SIFMA Municipal Swap Index (or any other specified index or reference rate for such Variable Rate Indebtedness) for the most recent 12-month period immediately preceding the date of calculation (or, if the SIFMA Municipal Swap Index or such other index or reference rate is not available for such 12-month period, the Revenue Bond Index most recently published by The Bond Buyer), plus or minus any specified fixed spread;]1

(iii) (A) with respect to any Guaranty by any Member of the Obligated Group of any obligation of any Person, which obligation would, if it were a direct obligation of such Member of the Obligated Group, constitute Short-Term Indebtedness, such Guaranty will be excluded and (B) with respect to any Guaranty by any Member of the Obligated Group of any obligation of any Person, which obligation would, if it were a direct obligation of such Member of the Obligated Group, constitute Long-Term Indebtedness, it will be assumed that the indebtedness that is the subject of the Guaranty will be repaid in accordance with its scheduled maturities, that the Guaranty will have identical repayment terms and that such Guaranty will be deemed Long-Term Indebtedness of the Obligated Group in accordance with the following schedule:

Historical Debt Service Coverage Ratio of the Person whose indebtedness is subject to a Guaranty (calculated Percentage of the principal amount as set forth herein for the most recent fiscal year of such of the guaranteed indebtedness Person for which audited financial statements are deemed to be Long-Term available) Indebtedness of the Obligated Group

Greater than 2.0 0% 1.5 to and including 2.0 20 1.25 to and including 1.49 50 1.10 to and including 1.24 75 Less than 1.10 (or no available audited financial 100 statements)

D-14 Notwithstanding the foregoing, if any Member of the Obligated Group is required to make a payment on such indebtedness pursuant to any Guaranty, 100% of the principal amount of the guaranteed indebtedness will be deemed Long-Term Indebtedness of the Obligated Group for a period of two Fiscal Years following the Fiscal Year in which the most recent payment was made under such Guaranty; and

(iv) with respect to Derivative Indebtedness, for so long as the provider of the Derivative Agreement has a long-term credit rating of at least “A” (without regard to any rating refinement or gradation by numerical modifier or otherwise) assigned to it by Moody’s and S&P and has not defaulted on its payment obligations thereunder, the interest on such Indebtedness during any Derivative Period will be calculated by adding (x) the amount of interest payable by a Member of the Obligated Group on such Derivative Indebtedness pursuant to its terms and (y) the amount of interest payable by such Member of the Obligated Group under the Derivative Agreement and subtracting (z) the amount of interest payable by the provider of the Derivative Agreement at the rate specified in the Derivative Agreement; provided, however, that to the extent that the provider of any Derivative Agreement does not have a long-term rating of at least “A” (without regard to any rating refinement or gradation by numerical modifier or otherwise) assigned to it by Moody’s and S&P or is in default thereunder, the amount of interest payable by the Member of the Obligated Group will be the interest calculated as if such Derivative Agreement had not been executed; provided further, however, that interest will be excluded from the determination of Long-Term Debt Service Requirement to the extent the same is provided from the proceeds of the Long-Term Indebtedness; and provided further, however, that notwithstanding the foregoing, the aggregate of payments to be made with respect to principal of and interest on Outstanding Long-Term Indebtedness will not include principal and interest payable from funds available (without reinvestment) in a Qualified Escrow (other than principal and interest so payable solely by reason of the Obligated Group’s failure to make payments from other sources).

“Long-Term Indebtedness” means all obligations for borrowed money incurred or assumed by any Member of the Obligated Group, including (a) Guaranties, (b) Short-Term Indebtedness if there exists a commitment by an institutional lender whose long-term, unsecured debt obligations are rated not less than “A” (without regard to any rating refinement or gradation by numerical modifier or otherwise) by both Moody’s and S&P to provide financing to retire such Short-Term Indebtedness and such commitment provides (i) terms and conditions that can be reasonably met by such Member of the Obligated Group to incur such Indebtedness, as certified in an Officer’s Certificate filed with the Master Trustee and (ii) for the repayment of principal on terms which would, if such commitment were implemented, constitute Long-Term Indebtedness, and (c) the current portion of Long-Term Indebtedness (this will not be read to exclude any portion of Long-Term Indebtedness not constituting the current portion), for any of the following:

(i) money borrowed for an original term, or renewable at the option of the borrower for a period from the date originally incurred, longer than one (1) year;

(ii) leases which are required to be capitalized in accordance with accounting principles generally accepted in the United States of America having an original term, or renewable at the option of the lessee for a period from the date originally incurred, longer than one (1) year; and1

1 Summarizes current provision in the Master Indenture.

D-15 [(ii) leases which are classified as capital leases or finance leases in accordance with accounting principles generally accepted in the United States of America having an original term, or renewable at the option of the lessee for a period from the date originally incurred, longer than one (1) year; and]1

(iii) installment sale or conditional sale contracts having an original term in excess of one (1) year; provided, however, that any Guaranty by any Member of the Obligated Group of any obligation of any Person which obligation would, if it were a direct obligation of such Member of the Obligated Group, constitute Short Term Indebtedness or Non-Recourse Indebtedness will be excluded.

“Management Consultant” means, when used in the Master Indenture, an independent management consulting firm of favorable repute for skill and experience in performing the duties imposed upon it by the Master Indenture and which is acceptable to the Master Trustee.

“Management Consultant” means, when used in the Loan Agreement, any nationally or regionally recognized firm of public accountants or specialists possessing significant management consulting experience which is approved and selected in accordance with the Master Indenture.

“Master Indenture” means the Second Amended and Restated Master Trust Indenture, dated as of November 1, 2007, between the Corporation and the Master Trustee, including all amendments or supplements thereto.

“Master Trustee” means The Bank of New York Mellon Trust Company, N.A. (formerly The Bank of New York Trust Company, N.A.), and its successors in the trusts created under the Master Indenture.

“Maximum Annual Debt Service” means the highest Long-Term Debt Service Requirement, excluding the Long-Term Debt Service Requirement with respect to Qualifying Intermediate-Term Indebtedness.

“Member of the Obligated Group” means, initially, the Corporation and, thereafter, any Person which will become a Member of the Obligated Group in accordance with the Master Indenture and not including any Person which will have withdrawn from the Obligated Group in accordance with the Master Indenture.

“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, Moody’s will be deemed to refer to any other nationally recognized securities rating agency designated by the Commission with the approval of the Corporation by notice to the Master Trustee and any Related Bond Trustee.

“Mortgaged Property” means the real property, fixtures and personal property described in the Deed of Trust.

D-16 “Net Book Value” means, (a) when used in connection with Property, Plant and Equipment or other Property of any Person (except cash, securities and other intangibles), the value of such Property, Plant and Equipment or other Property, net of accumulated depreciation, as it is carried on the books of such Person in conformity with accounting principles generally accepted in the United States of America consistently applied, (b) when used in connection with cash, securities and other intangibles of any Person, the fair market value of such cash, securities and other intangibles, and (c) when used in connection with Property, Plant and Equipment or other Property or cash, securities and other intangibles of the Obligated Group, means the aggregate of the values so determined with respect to such Property, Plant and Equipment or other Property or cash, securities and other intangibles of the Obligated Group determined in such a manner that no portion of such value of Property, Plant and Equipment or other Property or cash, securities and other intangibles is included more than once.

“Non-Recourse Indebtedness” means any Indebtedness to finance the purchase, acquisition or construction of Property, Plant and Equipment, the payment of which is limited to and secured by a Lien on such Property, Plant and Equipment with no recourse, directly or indirectly, to any other Property of any Member of the Obligated Group.

“Obligated Group” means, collectively, the Members of the Obligated Group.

“Obligated Group Representative” means the Person at the time designated to act on behalf of the Obligated Group in a written certificate furnished to the Master Trustee, which certificate will contain a specimen signature of such Person and will be signed on behalf of the Obligated Group by the President of the Corporation or by his designee.

“Obligation” means the evidence of particular Indebtedness issued under the Master Indenture, including the Existing Obligations.

“Obligation No. 14” means the obligation so designated and issued under the Master Indenture and Supplement No. 14 and delivered to the Commission pursuant to the Series 2016 Loan Agreement.

“Obligation No. 16” means Obligation No. 16 issued, authenticated and delivered under the Master Indenture and Supplement No. 16 delivered to the Commission pursuant to the Loan Agreement.

“Obligation Register” means the register of Obligations kept at the Corporate Trust Office of the Master Trustee in which the Master Trustee will provide for the registration of transfer and exchange of each Obligation as provided in the Supplement creating such Obligation.

“Occupied” means, with respect to any independent living unit, a unit for which the total Entrance Fee has been paid and the resident has begun paying the monthly service fee.

“Officer’s Certificate” means, with respect to the Master Indenture, a certificate signed by (i) the chairman of the Governing Body, or the president or chief executive officer, or the chief financial officer, or the chairman of the finance committee of the Governing Body of each Member of the Obligated Group or (ii) the Obligated Group Representative. Each Officer’s Certificate presented under the Master Indenture will state that it is being delivered pursuant to (and will identify the section or subsection of) the Master Indenture and will incorporate by reference and use in all appropriate instances all terms defined in the Master Indenture. Each Officer’s Certificate will state (i) that the terms thereof are in compliance with the requirements of the section or subsection pursuant to which such Officer’s Certificate is delivered, or will state in reasonable detail the nature of any non-compliance and the steps being taken to remedy such non-compliance, and (ii) that it is being delivered together with any opinions, schedules, statements or other documents required in connection therewith.

D-17 “Officer’s Certificate” means, with respect to the Loan Agreement, a certificate signed by an Authority Authorized Signatory or an Obligated Group Representative, as the case may be.

“Opinion of Bond Counsel” means an opinion in writing signed by an attorney or firm of attorneys acceptable to the Master Trustee and experienced in the field of municipal bonds whose opinions are generally accepted by purchasers of municipal bonds.

“Opinion of Counsel” means, with respect to the Master Indenture, an opinion in writing signed by an attorney or firm of attorneys acceptable to the Master Trustee, who may be counsel for any Member of the Obligated Group or other counsel acceptable to the Master Trustee.

“Opinion of Counsel” means, with respect to the Trust Agreement, an opinion in writing signed by an attorney or firm of attorneys acceptable to the Bond Trustee and the Authority who may be counsel for the Authority or the Corporation or other counsel.

“Outstanding,” when used with reference to Indebtedness, means, as of any date of determination, all Indebtedness theretofore issued or incurred and not paid and discharged other than (i) Obligations theretofore cancelled by the Master Trustee or delivered to the Master Trustee for cancellation, (ii) Indebtedness deemed paid and no longer Outstanding under the documents pursuant to which such Indebtedness was incurred, and (iii) Obligations in lieu of which other Obligations have been authenticated and delivered or have been paid pursuant to the provisions of the Supplement regarding mutilated, destroyed, lost or stolen Obligations unless proof satisfactory to the Master Trustee has been received that any such Obligation is held by a bona fide purchaser.

“Outstanding” means, when used with reference to Bonds, as of a particular date, all Bonds theretofore issued under the Trust Agreement, except:

(a) Bonds theretofore canceled by the Bond Trustee or delivered to the Bond Trustee for cancellation;

(b) Bonds for the payment of which money, Defeasance Obligations, or a combination of both, sufficient to pay, on the date when such Bonds are to be paid or redeemed, the principal amount of or the Redemption Price of, and the interest accruing to such date on, the Bonds to be paid or redeemed, has been deposited with the Bond Trustee in trust for the Holders of such Bonds; Defeasance Obligations will be deemed to be sufficient to pay or redeem Bonds on a specified date if the principal of and the interest on such Defeasance Obligations, when due, will be sufficient to pay on such date the Redemption Price of, and the interest accruing on, such Bonds to such date;

(d) Bonds deemed to have been paid in accordance with the Trust Agreement; provided, however, that Bonds owned or held by or for the account of the Corporation, any Member of the Obligated Group, any Affiliate or any subsidiary or controlled affiliate of the Corporation, any Member of the Obligated Group or any Affiliate will not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding provided for in the Trust Agreement or the Loan Agreement, and neither the Corporation, any Member of the Obligated Group, any Affiliate nor any subsidiary or controlled affiliate of the Corporation, any Member of the Obligated Group or any Affiliate as registered owners of such Bonds will be entitled to consent or take any other action provided for in the Trust Agreement or the Loan Agreement.

D-18 “Participant” means a broker-dealer, bank or other financial institution for which the Securities Depository holds Bonds as a securities depository.

“Permitted Liens” means those Liens described in the Master Indenture and summarized under the caption “SUMMARY OF MASTER INDENTURE – Limitations on Creation of Liens.”

“Person” means an individual, association, unincorporated organization, corporation, limited liability company, partnership, joint venture, business trust or a government or an agency or a political subdivision thereof, or any other entity.

“Pledged Assets” means all Gross Receipts, Accounts, Equipment, general intangibles, inventory, documents, instruments and chattel paper of each Member of the Obligated Group, now owned or hereafter acquired, and all proceeds thereof; provided, however, that Pledged Assets will not include contract rights consisting of charitable pledges.

“Predecessor Bonds” means, of any particular Bonds, every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond, and, for purposes of this definition, any Bond authenticated and delivered under the Trust Agreement in lieu of a lost, destroyed or stolen Bond will be deemed to evidence the same debt as the lost, destroyed or stolen Bond.

“Presold” means, with respect to the Project Independent Living Units, the execution of a Residency Agreement and the receipt by the Corporation of a deposit equal to at least 10% of the Entrance Fee for such unit.

“Principal Account” means, with respect to the Bonds, the account in the Bond Fund created and so designated by the Trust Agreement.

“Project” means the Project described in Exhibit A to the Loan Agreement, including any modifications thereof, substitutions therefor or additions thereto and excluding deletions therefrom.

“Project Independent Living Units” means the 66 new independent living units to be constructed as part of the Project.

“Projected Debt Service Coverage Ratio” means, for any future period, the ratio consisting of a numerator equal to the amount determined by dividing the projected Income Available for Debt Service for that period by Maximum Annual Debt Service for the Indebtedness expected to be outstanding during such period and a denominator of one.

“Property” means any and all rights, titles and interests in and to any and all property, whether real or personal, tangible (including cash) or intangible, wherever situated and whether now owned or hereafter acquired.

“Property, Plant and Equipment” means all Property of the Members of the Obligated Group which is property, plant and equipment under accounting principles generally accepted in the United States of America.

“Put Indebtedness” will mean Long-Term Indebtedness the principal of which is required, at the option of the owner thereof, to be purchased or redeemed on a date prior to its stated maturity, which portion of the principal is not required by the documents pursuant to which such Indebtedness is issued to be amortized by redemption prior to such date.

D-19 “Qualified Escrow” means a segregated escrow fund or other similar fund or account which (a) is irrevocably established as security for Long-Term Indebtedness previously incurred and then Outstanding (herein referred to as “Prior Indebtedness”) or for Long-Term Indebtedness, if any, then to be incurred to refund Outstanding Prior Indebtedness (herein referred to as “Refunding Indebtedness”), (b) is held by the holder of the Prior Indebtedness or Refunding Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and is subject to a perfected security interest in favor of such holder, trustee or agent, (c) is held in cash or invested in Defeasance Obligations, as defined in the Related Bond Indenture that secures such Prior Indebtedness or Refunding Indebtedness, and (d) is required by the documents establishing such fund or account to be applied toward the Obligated Group’s payment obligations in respect of the Prior Indebtedness, provided that, if the fund or account is funded in whole or in part with the proceeds of Refunding Indebtedness, the documents establishing the same may require specified payments of principal or interest (or both) in respect of the Refunding Indebtedness to be made from the fund or account prior to the date on which the Prior Indebtedness is repaid in full.

“Qualifying Intermediate-Term Indebtedness” means any Indebtedness that (i) matures on a single date not more than seven years from its date of issuance or incurrence and (ii) is issued or incurred to finance the expansion of the Existing Facilities or to finance additional Facilities which, in either case, is expected by the Obligated Group to generate initial Entrance Fees (pursuant to executed Residency Agreements under which deposits of not less than 10% of the Entrance Fees have been or are required to be received and which obligate the prospective resident or some other Person, which prospective resident or other Person will have met the financial criteria established by the Governing Body of any Member of the Obligated Group, to pay the balance) in an amount not less than 100% of the principal amount of such Qualifying Intermediate-Term Indebtedness, all as certified to the Master Trustee in an Officer’s Certificate.

“Rating Agency” or “Rating Agencies” means Fitch, Moody’s and S&P.

“Rebate Requirement” means Rebate Requirement as defined in the Tax Certificate.

“Redemption Fund” means the Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 Redemption Fund created and so designated by the Trust Agreement.

“Redemption Price” means, with respect to the Bonds or a portion thereof, the principal amount of such Bonds or portion thereof plus the applicable premium, if any, payable upon redemption thereof in the manner contemplated in accordance with its terms and the terms of the Trust Agreement.

“Regular Record Date” means, with respect to the Bonds, the 15th day (whether or not a Business Day) of the month preceding any Interest Payment Date.

“Related Bond Indenture” means any indenture, bond resolution or other comparable instrument pursuant to which a series of Related Bonds is issued.

“Related Bond Issuer” means the issuer of any issue of Related Bonds.

“Related Bond Trustee” means the trustee and its successors in the trusts created under any Related Bond Indenture.

“Related Bonds” means (a) revenue bonds or similar obligations issued by any state, territory or possession of the United States or any municipal corporation or political subdivision formed under the laws thereof or any constituted authority or agency or instrumentality of any of the foregoing empowered

D-20 to issue obligations on behalf thereof, and (b) any bonds issued by any other Person, in either case the proceeds of which are loaned or otherwise made available to a Member of the Obligated Group in consideration, whether in whole or part, of the execution, authentication and delivery of an Obligation to such governmental issuer or Person or in consideration of the execution and delivery of a Guaranty issued by a Member of the Obligated Group which Guaranty is represented by an Obligation.

“Required Payments under the Agreement” means the payments so designated by and set forth in the Loan Agreement as described in “SUMMARY OF LOAN AGREEMENT – Loan Repayments; Required Payments Under the Agreement” below.

“Reserve Fund No. 1” means the fund established pursuant to the Master Indenture and designated as security for Obligation No. 14 and Obligation No. 16.

“Residency Agreement” means an agreement entered into by a Member of the Obligated Group with respect to the granting of rights to the exclusive use of any unit in the Facilities, as the same may be amended from time to time.

“Revolving Fund Account” means the account in the Construction Fund created and so designated by the Trust Agreement.

“Securities Depository” means The Depository Trust Company, Jersey City, New Jersey or other recognized securities depository selected by the Authority, which maintains a book entry system in respect of the Bonds, and will include any substitute for or successor to the securities depository initially acting as Securities Depository.

“Securities Depository Nominee” means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there will be registered on the registration books maintained by the Bond Trustee the Bond certificates to be delivered to and immobilized at such Securities Depository during the continuation with such Securities Depository of participation in its book-entry system.

“Serial Bonds” means the Bonds that are stated to mature on October 1 in the years 20__ to 20__, inclusive.

“Series 2016 Loan Agreement” means the Loan Agreement, dated as of November 1, 2016, by and between the Commission and the Corporation, including any supplements or amendments thereto as therein permitted.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., its successors and their assigns, and if S&P will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, “S&P” will be deemed to refer to any other nationally recognized securities rating agency designated by the Commission with the approval of the Corporation by notice to the Master Trustee and any Related Bond Trustee.

“Short-Term Indebtedness” means all obligations, other than the current portion of Long-Term Indebtedness, incurred or assumed by one or more Members of the Obligated Group, for any of the following:

(i) payments of principal and interest with respect to money borrowed for an original term, or renewable at the option of the borrower for a period from the date originally incurred, of one (1) year or less;

D-21 (ii) payments under leases which are capitalized in accordance with accounting principles generally accepted in the United States of America having an original term, or renewable at the option of the lessee for a period from the date originally incurred, of one (1) year or less; and1

[(ii) payments under leases which are classified as capital lease or finance leases in accordance with accounting principles generally accepted in the United States of America having an original term, or renewable at the option of the lessee for a period from the date originally incurred, of one (1) year or less; and]2

(iii) payments under installment purchase or conditional sale contracts having an original term of one (1) year or less.

“Sinking Fund Account” means the account in the Bond Fund created and so designated by the Trust Agreement.

“Sinking Fund Requirement” means, with respect to the Term Bonds for any Bond Year, the principal amount fixed or computed as provided for the retirement of such Term Bonds by purchase or redemption on October 1 in the years set forth in the Trust Agreement. The redemption schedules for the Term Bonds are set forth in the front part of this Official Statement.

The aggregate amount of such Sinking Fund Requirements for the Term Bonds together with the amount due upon the final maturity of such Term Bonds, will be equal to the aggregate principal amount of the Term Bonds. The Sinking Fund Requirements for the Term Bonds will begin in the Bond Year determined as provided above and will end with the Bond Year immediately preceding the maturity of such Term Bonds (such final installment being payable at maturity and not redeemed). Any principal amount of Term Bonds retired by operation of the Sinking Fund Account by purchase in excess of the total amount of the Sinking Fund Requirement for such Term Bonds to and including such October 1, will be credited against and reduce the future Sinking Fund Requirements for such Term Bonds in such manner as will be specified in an Officer’s Certificate of the Obligated Group Representative filed with the Bond Trustee pursuant to the Trust Agreement.

On or before the 45th day next preceding any October 1 on which Term Bonds are to be retired pursuant to the Sinking Fund Requirement therefor, the Authority or the Corporation may deliver to the Bond Trustee for cancellation Term Bonds required to be redeemed on such October 1 in any aggregate principal amount desired and receive a credit against amounts required to be transferred from the Sinking Fund Account on account of such Term Bonds in the amount of 100% of the principal amount of any such Term Bonds so purchased. Any principal amount of Term Bonds purchased by the Bond Trustee and canceled in excess of the principal amount required to be redeemed on such October 1, will be credited against and reduce the principal amount of future Sinking Fund Requirements for such Term Bonds in such manner as will be specified in an Officer’s Certificate of the Obligated Group Representative in substantially the form of the Officer’s Certificate filed with the Bond Trustee and the Authority pursuant to the Trust Agreement.

1 Summarizes current provision in the Master Indenture. 2 Summarizes provision of the Master Indenture as amended by Supplement No. 16. By their purchase of the Bonds, the original purchasers consent to such amendment; provided, however, that such amendment will not become effective until the earlier of (i) consent to such amendments by the Commission is received or (ii) no Commission Bonds are outstanding. Amended language is reflected in italics.

D-22 It will be the duty of the Bond Trustee, on or before the 15th day of October in each Bond Year, to recompute, if necessary, the Sinking Fund Requirement for such Bond Year and all subsequent Bond Years for the Term Bonds Outstanding. The Sinking Fund Requirement for such Bond Year as so recomputed will continue to be applicable during the balance of such Bond Year and no adjustment will be made therein by reason of Term Bonds purchased or redeemed or called for redemption during such Bond Year.

If any Term Bonds are paid or redeemed by operation of the Redemption Fund, the Bond Trustee will reduce future Sinking Fund Requirements therefor in such manner as will be specified in an Officer’s Certificate of the Obligated Group Representative in substantially the form of the Officer’s Certificate filed with the Bond Trustee and the Authority pursuant to the Trust Agreement.

“Special Record Date” means, for the payment of any Defaulted Interest on Bonds, a date fixed by the Bond Trustee pursuant to the Trust Agreement.

“Sponsor” means the National League of Cities, the National Association of Counties, the Wisconsin Counties Association, the League of Wisconsin Municipalities, and any other person that holds itself out, or is identified by the Authority, as an organization sponsoring the Authority.

“Stable Occupancy” means with respect to any Facilities financed with Indebtedness for which the Master Trustee was furnished a Management Consultant’s report pursuant to the Master Indenture (or, if no Management Consultant’s report was required by the Master Indenture, an Officer’s Certificate), occupancy of those Facilities at the level reflected as stabilized occupancy for those Facilities in such Management Consultant’s report or Officer’s Certificate.

“Stabilization Date" means the first day on which all of the following have occurred: (a) the Project is completed, (b) the Long-Term Debt Service Coverage Ratio for the most recently completed Fiscal Year for which Financial Statements are available was at least 1.20 and (c) Occupied Project Independent Living Units during the two most recently completed fiscal quarters averaged occupancy of 60 or more of the Project Independent Living Units.

“State” means the State of North Carolina.

“Supplement” means an indenture supplemental to, and authorized and executed pursuant to the terms of, the Master Indenture.

“Supplement No. 14” means Supplemental Indenture for Obligation No. 14, dated as of November 1, 2016, by and between the Corporation and the Master Trustee, including all amendments or supplements thereto.

“Supplement No. 16” means Supplemental Indenture for Obligation No. 16, dated as of June 1, 2018, by and between the Corporation and the Master Trustee, including all amendments or supplements thereto.

“Tax Certificate” means the Tax Certificate and Agreement executed by the Authority and the Corporation in connection with the issuance of the Bonds.

“Tax-Exempt Organization” means a Person organized under the laws of the United States of America or any state thereof which is exempt from federal income taxes under Section 501(a) of the Code by virtue of being an organization described in Section 501(c)(3) of the Code, or corresponding provisions of federal income tax laws from time to time in effect.

D-23 “Tax-Exempt Related Bonds” means Related Bonds for which an Opinion of Bond Counsel that interest thereon is excludable from gross income for federal income tax purposes was delivered upon initial issuance and delivery of such Related Bonds.

“Term Bonds” means the Bonds that are stated to mature on October 1, 20__.

“Total Required Payments” means the sum of Loan Repayments and Required Payments under the Loan Agreement.

“Total Revenue” means, as to any period of time, total revenue of the Obligated Group, as determined in accordance with accounting principles generally accepted in the United States of America consistently applied, less investment income.

“Transfer” means any act or occurrence the result of which is to dispossess any Person of any asset or interest therein, including specifically, but without limitation, the forgiveness of any debt.

“Trust Agreement” means the Trust Agreement, dated as of June 1, 2018, by and between the Authority the Bond Trustee, including any supplements or amendments thereto as therein permitted, pursuant to which the Bonds are being issued.

“Trust Estate” means the property, revenues and funds pledged, assigned and mortgaged to the Bond Trustee pursuant to the Trust Agreement.

“UCC” means the North Carolina version of the Uniform Commercial Code, Chapter 25 of the General Statutes of North Carolina, as amended, or any successor statutes.

“Unrestricted Contributions” means Contributions, including any payment received from an Affiliate of any Member of the Obligated Group, which are not restricted in any way that would prevent their application to the payment of debt service on Indebtedness of such Member of the Obligated Group receiving such Contributions.

“Variable Rate Indebtedness” means any portion of Indebtedness the interest rate on which is not established at the time of incurrence at a fixed or constant rate.

D-24 SUMMARY OF MASTER INDENTURE

The following is a summary of certain provisions of the Master Indenture to which reference is made for a full and complete statement of its provisions.

Authorization, Issuance and Terms of Obligations

Each Member of the Obligated Group may issue Obligations under the Master Indenture to evidence and secure Indebtedness or Derivative Obligations incurred or to be incurred by such Member of the Obligated Group. The number and principal amount of Obligations that may be created under the Master Indenture are not limited, except as limited by the provisions thereof, including those provisions described in “SUMMARY OF MASTER INDENTURE – Limitations on Incurrence of Indebtedness” below, or of any Supplement. Except for the Existing Obligations, any Member of the Obligated Group proposing to incur Indebtedness or Derivative Obligations to be evidenced and secured by an Obligation issued under the Master Indenture will, at least seven (7) days prior to the date of the incurrence of such Indebtedness or Derivative Obligations, give written notice of its intention to incur such Indebtedness or Derivative Obligations and issue such Obligation, including in such notice the amount of Indebtedness or Derivative Obligations to be incurred, to the other Members of the Obligated Group and to the Master Trustee. The Master Trustee will be under no obligation to verify that any such notice has been given to such other Members of the Obligated Group. Pursuant to the Master Indenture, each Member of the Obligated Group is jointly and severally liable for each and every Obligation.

Nature of Obligations; Payment of Principal and Interest; Security; Further Assurances; Deposit of Gross Proceeds

Each Obligation issued pursuant to the Master Indenture will be a general, joint and several obligation of each Member of the Obligated Group and will be equally and ratably secured by the Master Indenture, except as provided to the contrary in the Master Indenture or a Supplement with respect to a Debt Service Reserve Fund. Each Member of the Obligated Group covenants promptly to pay or cause to be paid the principal of, redemption premium, if any, and interest on each Obligation issued under the Master Indenture, and any other payments, including the purchase or redemption price of Put Indebtedness, required to be made under the Supplement creating such Obligation and under said Obligation, at the place, on the dates and in the manner provided herein, in the Supplement creating such Obligation and in such Obligation according to the terms thereof whether at maturity, upon proceedings for redemption, by acceleration or otherwise.

To secure (i) the prompt payment of the principal of, redemption premium, if any, and the interest on the Obligations and any other payments, including the purchase or redemption price of Put Indebtedness, required to be made under the Supplements creating the Obligations and under the Obligations, and (ii) the performance by each Member of the Obligated Group of its other obligations under the Master Indenture and under the Deeds of Trust and Collateral Assignments, each Member of the Obligated Group grants to the Master Trustee a security interest in its Pledged Assets, the Corporation has executed and delivered the Corporation Deeds of Trust, and each Member of the Obligated Group covenants to execute and deliver a Deed of Trust or notice of extension to the extent required under the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – After Acquired, Replacement or Substituted Real Property” below. The Master Trustee will, upon written request of a Member of the Obligated Group, execute any document, instrument or agreement necessary to cause its security interest in the Pledged Assets, Mortgaged Property or other Property of such Member of the Obligated Group to be subordinate to Liens permitted under the Master Indenture and to be pari passu with Liens permitted under the Master Indenture, provided that such document, instrument or agreement will contain provisions satisfactory in form and substance to the Master Trustee to the effect that any

D-25 holder of a pari passu Lien permitted under the Master Indenture will not be entitled to exercise any remedy with respect to the collateral encumbered by such Lien unless the Master Trustee is concurrently exercising such remedy. So long as no Event of Default has occurred and is continuing, any Member of the Obligated Group may Transfer all or any part of its Pledged Assets and all or any portion of its Mortgaged Property, free of such security interest and free of the Lien of the Deed of Trust encumbering such Mortgaged Property, respectively, subject to the provisions of the Master Indenture as described in “SUMMARY OF MASTER INDENTURE – Transfers of Property, Plant and Equipment; Transfers of Cash and Investments and – Consolidation, Merger, Sale or Conveyance” below and such Deed of Trust. If any Pledged Assets or Mortgaged Property is Transferred pursuant to the terms of the Master Indenture and the Deed of Trust encumbering such Mortgaged Property, the Master Trustee will, upon written request of a Member of the Obligated Group, execute a release of its security interest with respect to the Pledged Assets or Mortgaged Property so Transferred. Upon the request of any Member of the Obligated Group, the Master Trustee will provide to such Member of the Obligated Group a written certification as to whether the Master Trustee has knowledge of an Event of Default that has occurred and is continuing.

Each Member of the Obligated Group will also execute and deliver to the Master Trustee from time to time such Supplements as may be necessary or appropriate to include its Pledged Assets as security under the Master Indenture. In addition, each Member of the Obligated Group covenants that it will prepare and file such UCC financing statements or amendments to or terminations of existing financing statements which will, in the Opinion of Counsel, be necessary to comply with applicable law or as required due to the occurrence of an event contemplated under the Master Indenture as described in “SUMMARY OF MASTER INDENTURE – After Acquired, Replacement or Substituted Real Property” below or changes in the Obligated Group, including, without limitation, (i) any Person becoming a Member of the Obligated Group pursuant to the Master Indenture, or (ii) any Member of the Obligated Group ceasing to be a Member of the Obligated Group pursuant to the Master Indenture. In particular, each Member of the Obligated Group covenants that it will, at least thirty (30) days prior to the expiration of any financing statement, prepare and file such continuation statements of existing financing statements as will, in the Opinion of Counsel, be necessary to comply with applicable law and will provide to the Master Trustee written notice of such filing. If the Master Trustee will not have received such notice at least twenty-five (25) days prior to the expiration date of any such financing statement, the Master Trustee will prepare and file or cause each Member of the Obligated Group to prepare and file such continuation statements in a timely manner to assure that the security interests in Pledged Assets will remain perfected.

If an Event of Default will have occurred and be continuing, the Master Trustee may require that each Member of the Obligated Group deliver all Gross Receipts to it. Each Member of the Obligated Group covenants that, if an Event of Default will have occurred and be continuing, it will, immediately upon receipt of a written request from the Master Trustee, deliver or direct to be delivered to the Master Trustee all Gross Receipts thereafter received until such Event of Default has been cured, such Gross Receipts to be applied in accordance with of the Master Indenture. If the Master Trustee has required that all Gross Receipts be delivered to it pursuant to this paragraph and thereafter the State Commissioner of Insurance obtains an order pursuant to Section 58-64-45 of the General Statutes of North Carolina, as amended, or any successor statute or provision, directing or authorizing the Commissioner to rehabilitate or liquidate the Facilities, the Master Trustee will, if required by such order, deliver and direct the Members of the Obligated Group to deliver all Gross Receipts to said Commissioner or any other Person specified in such order.

Each Member of the Obligated Group covenants as follows:

(a) Except as otherwise expressly provided in the Master Indenture, to preserve its corporate or other legal existence, to procure and maintain all rights, licenses and permits necessary or desirable in

D-26 the operation of its business and affairs and to be qualified to do business in each jurisdiction where the ownership of its Property or the conduct of its business requires such qualification; provided, however, that nothing contained in the Master Indenture will be construed to obligate it to maintain any of its rights, licenses or permits no longer necessary or desirable, in its judgment, in the operation of its business and affairs, if the failure to maintain such right, license or permit will not be disadvantageous in any material respect to the Holders of Obligations.

(b) At all times to cause its Property, Plant and Equipment to be maintained, preserved and kept in good repair, working order and condition, ordinary wear and tear excepted, and all needed and proper repairs, renewals and replacements thereof to be made; provided, however, that nothing contained in this paragraph will be construed to (i) prevent it from ceasing to operate any portion of its Property, Plant and Equipment if in its judgment (evidenced, in the case of such cessation other than in the ordinary course of business, by an opinion of a Management Consultant) it is advisable not to operate the same, or if it intends to sell or otherwise Transfer the same in accordance with the Master Indenture and within a reasonable time endeavors to effect such sale or other Transfer, or (ii) to obligate it to retain, preserve, repair, renew or replace any Property, Plant and Equipment no longer used or, in its judgment, useful in the conduct of its business.

(c) To do all things reasonably necessary to conduct its affairs and carry on its business and operations in such manner as to comply with any and all applicable laws of the United States and the several states thereof and duly observe and conform to all valid orders, regulations or requirements of any governmental authority relative to the conduct of its business and the ownership of its Property; provided, nevertheless, that nothing herein contained will require it to comply with, observe and conform to any such law, order, regulation or requirement of any governmental authority so long as the validity thereof or the applicability thereof to it will be contested in good faith and the failure to comply will not have a material adverse effect on the financial condition of the Obligated Group.

(d) To pay promptly all lawful taxes, governmental charges and assessments at any time levied or assessed upon or against it or its Property; provided, however, that it will have the right to contest in good faith any such taxes, charges or assessments or the collection of any such sums and pending the resolution of such contest may delay or defer payment thereof if such delay or deferral will not have a material adverse effect on the financial condition of the Obligated Group.

(e) To pay promptly or otherwise satisfy and discharge all of its Indebtedness and all demands and claims against it as and when the same become due and payable or within any period of grace with respect thereto, other than any Indebtedness, demands or claims (exclusive of the Obligations created and Outstanding under the Master Indenture or any Related Bonds) whose validity, amount or collectability is being contested in good faith.

(f) To comply with all terms, covenants and provisions of any Liens upon any of its Property.

Tax-Exempt Status

So long as the Master Indenture will remain in force and effect, each Member of the Obligated Group which is a Tax-Exempt Organization at the time it becomes a Member of the Obligated Group agrees, so long as all amounts due or to become due on any Related Bond have not been fully paid to the holder thereof, that it will not take any action or fail to take any action which action or failure to act (including any action or failure to act which would result in the alteration or loss of its status as a Tax- Exempt Organization), or which would, in the Opinion of Bond Counsel, result in the interest on any

D-27 Related Bond which is not includable in the gross income of the holder thereof for federal income tax purposes becoming included in the gross income of the holder thereof for federal income tax purposes.

Limitations on Creation of Liens

Each Member of the Obligated Group agrees that it will not create or suffer to be created or permit the existence of any Lien upon Pledged Assets, Mortgaged Property or any other Property now owned or hereafter acquired by it other than Permitted Liens.

(b) Permitted Liens will consist of the following:

(i) Liens on Pledged Assets, Mortgaged Property or other Property created by the Master Indenture, the Deeds of Trust or the Collateral Assignments;

(ii) Any Lien on the Property of the Corporation which existed on the date of authentication and delivery of any of the Existing Obligations, was disclosed to the Master Trustee in the Corporation Deeds of Trust, the title insurance policy insuring the Corporation Deeds of Trust or in an Officer’s Certificate acceptable to the Master Trustee; provided, however, that no such Lien may be increased, extended, renewed or modified to apply to any Property of any Member of the Obligated Group not subject to such Lien on such date or to secure Indebtedness not Outstanding as of the date hereof, unless such Lien as so extended, renewed or modified otherwise qualifies as a Permitted Lien;

(iii) Any Lien on the Property of a Person in existence as of the date such Person becomes a Member of the Obligated Group that is disclosed to the Master Trustee in an Officer’s Certificate; provided, however, that no such Lien may be increased, extended, renewed or modified to apply to any Property of any Member of the Obligated Group not subject to such Lien on such date, unless such Lien as so extended, renewed or modified otherwise qualifies as a Permitted Lien;

(iv) Liens arising by reason of good faith deposits with any Member of the Obligated Group in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any Member of the Obligated Group to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges;

(v) Any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Member of the Obligated Group to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pension or profit sharing plans or other social security, or to share in the privileges or benefits required for companies participating in such arrangements;

(vi) Any judgment Lien against any Member of the Obligated Group so long as such judgment is being contested in good faith and execution thereon is stayed or the liability of such Member of the Obligated Group under such judgment is adequately covered by insurance;

(vii) (A) Rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any

D-28 Property; (B) any Liens on any Property for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any Liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with such Property, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to Liens of mechanics, materialmen, laborers, suppliers or vendors have been due for fewer than ninety (90) days; (C) easements, rights-of-way, servitudes, restrictions, oil, gas or other mineral reservations and other minor defects, encumbrances, and irregularities in the title to any Property which, if such Lien arises after a Member of the Obligated Group has acquired such Property, do not, in the Opinion of Counsel to the Obligated Group, materially impair the use of such Property or materially and adversely affect the value thereof; and (D) landlord’s liens;

(viii) (A) Liens on Mortgaged Property securing Indebtedness so long as such Lien is, by its terms, specifically junior to the Lien on such Mortgaged Property created by a Deed of Trust and (B) Liens on real property comprising a part of the Property, Plant and Equipment securing Indebtedness and not subject to the Lien of a Deed of Trust; provided, however that the aggregate principal amount of Indebtedness so secured will not exceed ten percent (10%) of Total Revenue for the most recent Fiscal Year for which Financial Statements are available at the time of the incurrence of such Indebtedness;

(ix) So long as no Event of Default exists under the Master Indenture at the time such Lien is created, (A) any Lien, including a security interest superior to the security interest in Equipment created pursuant to the Master Indenture, incurred for the purpose of financing Equipment; provided, however, that the aggregate principal amount of Indebtedness so secured will not exceed fifteen percent (15%) of Total Revenue for the most recent Fiscal Year for which Financial Statements are available at the time of the incurrence of such Indebtedness; and provided further that the total amount of Indebtedness secured by a Lien under this clause (ix) may not in the aggregate exceed at any time the greater of $500,000 or 15% of Total Revenue (calculated based on the most recent Fiscal Year for which Financial Statements are available) and that such Lien will attach only to the Equipment with respect to which such Indebtedness was incurred; or (B) any security interest, including a security interest superior to the security interest created pursuant to the Master Indenture in Pledged Assets (other than Equipment), securing Short-Term Indebtedness permitted under the Master Indenture and described in “SUMMARY OF MASTER INDENTURE- Limitations on Incurrence of Indebtedness” below.

(x) Any consensual Lien on the Pledged Assets (other than Equipment) now owned or hereafter acquired by any Member of the Obligated Group so long as such Lien is, by its terms, specifically junior to the security interest in such Pledged Assets created pursuant to the Master Indenture;

(xi) Any Lien securing all Obligations on a parity basis;

(xii) Any Lien in favor of a trustee on the proceeds of Indebtedness prior to the application of such proceeds;

(xiii) Liens on Property received by any Member of the Obligated Group through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests of Property or the income thereon;

(xiv) Any Lien on pledges, gifts or grants to be received in the future, including any income derived from the investment thereof;

D-29 (xv) Liens on moneys deposited by residents, patients or others with any Member of the Obligated Group as security for or as prepayment for the cost of care;

(xvi) Liens on Property due to rights of third party payors for recoupment of amounts paid to any Member of the Obligated Group;

(xvii) Any Lien securing Non-Recourse Indebtedness permitted by the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – Limitations on Incurrence of Indebtedness” below.

(xviii) Any lease of Property other than the Mortgaged Property or any lease of the Mortgaged Property that is by its terms subordinate to the Lien created by a Deed of Trust;

(xix) Any Lien on the Pledged Assets, Mortgaged Property or any other Property securing the Obligations created under the Master Indenture, the Deeds of Trust or the Collateral Assignments securing the obligations of a Member of the Obligated Group under a Derivative Agreement which, if required by the provider of such Derivative Agreement, may be pari passu with the Liens on the Pledged Assets, Mortgaged Property and any other Property securing the Obligations created under the Master Indenture, the Deeds of Trust and the Collateral Assignments, so long as the notional amount of all Derivative Agreements secured by such pari passu Liens does not at any time exceed the aggregate amount of Obligations then Outstanding; and

(xx) So long as no Event of Default exists under the Master Indenture at the time such Lien is created, any Lien on cash and investments (including, without limitation, Liens on deposit accounts of Members of the Obligated Group) if such cash and investments could be Transferred pursuant to the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – Transfers of Property, Plant and Equipment; Transfers of Case and Investments” below.

Limitations on Incurrence of Indebtedness

Each Member of the Obligated Group covenants and agrees that it will not incur any Additional Indebtedness if, after giving effect to all other Indebtedness incurred by the Obligated Group, such Indebtedness could not be incurred pursuant to subsections (a) to (h), inclusive, of this clause. Any Indebtedness may be incurred only in the manner and pursuant to the terms set forth as follows:

(a) Long-Term Indebtedness may be incurred if, prior to incurrence thereof, one of the following conditions is met:

(i) there is delivered to the Master Trustee an Officer’s Certificate certifying that the Historical Debt Service Coverage Ratio, taking into account all Outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred, for the most recent Fiscal Year preceding the date of delivery of the Officer’s Certificate for which the Financial Statements are available is not less than 1.20; or

(ii) there is delivered to the Master Trustee (A) an Officer’s Certificate certifying that the Historical Debt Service Coverage Ratio, taking into account all Outstanding Long-Term Indebtedness, but not the Long-Term Indebtedness then proposed to be incurred, for the most recent Fiscal Year preceding the date of delivery of the Officer’s Certificate for which the Financial Statements are available is not less than 1.20; and (B) a report of a Management Consultant stating that the Projected Debt Service Coverage Ratio, taking the proposed Long-

D-30 Term Indebtedness into account, for (1) in the case of Long-Term Indebtedness (other than a Guaranty) to finance capital improvements, the Fiscal Year immediately succeeding the year in which substantially all of such capital improvements are forecasted to be placed in service (except that with respect to capital improvements consisting, in whole or in part, of independent or assisted living units or health care beds, such forecast will be for the earlier to occur of (x) the first full Fiscal Year next succeeding the Fiscal Year in which the occupancy of such independent or assisted living units or health care beds is forecasted to reach Stable Occupancy or (y) the first full Fiscal Year following the Fiscal Year in which occurs that date which is 18 months from the date set forth in the forecast upon which substantially all of such independent or assisted living units or health care beds are forecasted to be placed in service), or (2) in the case of Long-Term Indebtedness not financing capital improvements or in the case of a Guaranty, the Fiscal Year immediately succeeding the year in which the Long-Term Indebtedness is incurred, is not less than 1.20, accompanied by a statement of the relevant assumptions upon which such forecast is based; or

(iii) there is delivered to the Master Trustee a report of a Management Consultant stating that the Projected Debt Service Coverage Ratio, taking the proposed Long-Term Indebtedness into account, for (1) in the case of Long-Term Indebtedness (other than a Guaranty) to finance capital improvements, the Fiscal Year immediately succeeding the year in which substantially all of such capital improvements are forecasted to be placed in service (except that with respect to capital improvements consisting, in whole or in part, of independent or assisted living units or health care beds, such forecast will be for the earlier to occur of (x) the first full Fiscal Year next succeeding the Fiscal Year in which the occupancy of such independent or assisted living units or health care beds is forecasted to reach Stable Occupancy or (y) the first full Fiscal Year following the Fiscal Year in which occurs that date which is 18 months from the date set forth in the forecast upon which substantially all of such independent or assisted living units or health care beds are forecasted to be placed in service), or (2) in the case of Long-Term Indebtedness not financing capital improvements or in the case of a Guaranty, the Fiscal Year immediately succeeding the year in which the Long-Term Indebtedness is incurred, is not less than 1.25, accompanied by a statement of the relevant assumptions upon which such forecast is based; or

(iv) the principal amount of additional Long-Term Indebtedness proposed to be incurred does not exceed 10% of Total Revenue for the most recent Fiscal Year for which Financial Statements are available; provided, however, that the total amount of the Long-Term Indebtedness incurred under this clause (iv) and Outstanding without compliance with one of the tests mentioned in clause (i), (ii) or (iii) above may not in the aggregate exceed at any time the amount calculated in accordance with the provisions of this clause (iv); provided, further, that no Event of Default has occurred and is continuing under the covenants described under the heading “Rates and Charges” below.

(b) Qualifying Intermediate-Term Indebtedness may be incurred if no Event of Default has occurred and is continuing under the covenants described under the heading “Rates and Charges” below.

(c) Long-Term Indebtedness may be incurred to refund any Outstanding Long-Term Indebtedness if, prior to the incurrence thereof, (i) either (A) the Master Trustee receives an Officer’s Certificate stating that, taking into account the Long-Term Indebtedness proposed to be incurred, the existing Long-Term Indebtedness to remain Outstanding after the refunding and the refunding of the existing Long-Term Indebtedness to be refunded, Maximum Annual Debt Service will not be increased by more than 10%, or, in the case of a refunding of Qualifying Intermediate-Term Indebtedness only, a report of a Management Consultant which forecasts a Projected Debt Service Coverage Ratio of 1.20 for

D-31 each of the two Fiscal Years next succeeding the Fiscal Year in which such refunding takes place or (B) one of the conditions described in paragraph (a) above is met with respect to such proposed Long-Term Indebtedness, and (ii) the Master Trustee receives an Opinion of Counsel stating that upon the incurrence of such proposed Long-Term Indebtedness and the application of the proceeds thereof, the Outstanding Long-Term Indebtedness to be refunded will no longer be Outstanding.

(d) Short-Term Indebtedness may be incurred if, immediately after the incurrence of such Short-Term Indebtedness, the aggregate principal amount of Outstanding Short-Term Indebtedness does not exceed 15% of Total Revenue for the most recent Fiscal Year for which the Financial Statements are available; provided, however, that for a period of at least thirty (30) consecutive calendar days in each Fiscal Year Short-Term Indebtedness will not exceed the greater of (i) $250,000 or (ii) 5% of Total Revenue.

(e) Non-Recourse Indebtedness may be incurred:

(i) up to but not in excess of an aggregate of 5% of Total Revenue for the most recent Fiscal Year for which Financial Statements are available; or

(ii) in excess of the aggregate limit mentioned in subparagraph (e) (i) above, if the Master Trustee will have first received the report of a Management Consultant to the effect that the Projected Debt Service Coverage Ratio with respect to the capital assets being financed with the proceeds of such Non-Recourse Indebtedness for the Fiscal Year immediately following the year that such capital assets are forecasted to be placed in service (if such capital assets are being constructed) or following the year the acquisition of such capital assets is completed (if such capital assets are being acquired) is not less than 1.20.

(f) Indebtedness may be incurred without limitation under a line of credit, letter of credit, standby bond purchase agreement or similar liquidity or credit enhancement facility established in connection with the incurrence of any Indebtedness; provided, however, that any liabilities resulting from the use of or drawing under such liquidity or credit enhancement facility will be included in Indebtedness for all purposes of the Master Indenture. If a liquidity facility is used or drawn upon to purchase, but not retire, Indebtedness, then the principal amount of such Indebtedness so purchased will be excluded from Indebtedness.

(g) Put Indebtedness may be incurred if, prior to the incurrence of such Put Indebtedness, (i) the conditions described in paragraphs (a) (i), (a) (ii) or (a) (iii) above are met and (ii) either (A) a binding commitment from a bank or other financial institution exists to provide financing sufficient to pay the purchase or redemption price of such Put Indebtedness on any date on which the owner of such Put Indebtedness may demand payment thereof pursuant to the terms of such Put Indebtedness or (B) the obligation to pay the purchase or redemption price of such Put Indebtedness on any date on which the owner of such Put Indebtedness may demand payment thereof pursuant to the terms of such Put Indebtedness are contingent upon the availability of Excess Funds.

(h) Completion Indebtedness may be incurred if there is delivered to the Master Trustee: (i) an Officer’s Certificate of the Member of the Obligated Group for whose benefit such Indebtedness is being incurred stating that at the time the original Indebtedness for the Facilities to be completed was incurred, such Member of the Obligated Group had reason to believe that the proceeds of such Indebtedness together with other moneys then expected to be available would provide sufficient moneys for the completion of such Facilities, (ii) a statement of an Independent Architect or another expert acceptable to the Master Trustee setting forth the amount estimated to be needed to complete the Facilities, and (iii) an Officer’s Certificate of such Member of the Obligated Group stating that the

D-32 proceeds of such Completion Indebtedness to be applied to the completion of the Facilities, together with a reasonable estimate of investment income to be earned on such proceeds and available to pay such costs, the amount of moneys, if any, committed to such completion from available cash or marketable securities and reasonably estimated earnings thereon, enumerated loans from Affiliates or bank loans (including letters or lines of credit) and federal or state grants reasonably expected to be available, will be in an amount not less than the amount set forth in the statement of an Independent Architect or other expert, as the case may be, referred to in (ii), which amount will be no more than 10% of Indebtedness originally incurred to finance the construction of such Facilities.

After-Acquired, Replacement or Substituted Real Property

In the event any Member of the Obligated Group will acquire or construct in Mecklenburg County, North Carolina, real property, buildings, improvements or fixtures as an addition to or in replacement of or substitution for the Existing Facilities, such Member of the Obligated Group covenants and agrees that it will, upon closing of such acquisition or prior to commencement of such construction, record in the office of the Register of Deeds of Mecklenburg County, North Carolina, as the case may be, either (a) a Deed of Trust containing a description of the property being acquired or constructed, if such Member of the Obligated Group has not previously executed and delivered a Deed of Trust to the Master Trustee that is recorded in the office of the Register of Deeds of such county, or (b) a notice of extension as specified in Section 47-20.5 of the General Statutes of North Carolina, as amended, containing a description of the property covered thereby relating to a Deed of Trust previously executed and delivered by such Member of the Obligated Group to the Master Trustee that is recorded in the office of the Register of Deeds of such county. For purposes of this clause, real property, buildings, improvements and fixtures will be deemed to be an addition to the Existing Facilities if they comprise facilities that are functionally related to, and operated on an integrated basis with, the Existing Facilities.

In the event any Obligation is issued pursuant to the Master Indenture to acquire or finance real property or improvements to real property, the Member of the Obligated Group acquiring or financing such real property or improvements covenants and agrees that it will cause to be recorded in the office of the register of deeds of the county in which such real property is located either a Deed of Trust containing a description of the real property or improvements being acquired or financed or a notice of extension as specified in Section 47-20.5 of the General Statutes of North Carolina, as amended, containing a description of the property covered thereby relating to a Deed of Trust previously executed and delivered by such Member of the Obligated Group to the Master Trustee that is recorded in the office of the register of deeds of such county.

Any Member of the Obligated Group executing and delivering such Deed of Trust or notice of extension pursuant to this clause will (a) in the case of a Deed of Trust, (i) cause a mortgagee title insurance policy, together with a tie-in endorsement to such policy and each other mortgagee title insurance policy previously issued to the Master Trustee under the terms of the Master Indenture, to be issued and delivered to the Master Trustee in an amount equal to the principal amount of any Obligation to be issued in connection with acquiring or financing the real property or improvements to the real property described in such Deed of Trust (less any amount required to be deposited initially into a debt service reserve fund for such Obligation or any Related Bonds related to such Obligation), insuring that such Deed of Trust is a first priority Lien, subject to Permitted Liens, on the Mortgaged Property described therein or (ii) cause an endorsement to a mortgagee title insurance policy previously issued to the Master Trustee under the terms of the Master Indenture to be issued to the Master Trustee, that (A) amends the effective date and time of such policy to be the date and time of the recording of such Deed of Trust, (B) amends the description of the land insured by such policy to include the real property described in such Deed of Trust, (C) increases the amount of such policy by an amount equal to the principal amount of any Obligation issued in connection with acquiring or financing the real property or

D-33 improvements to the real property described in such Deed of Trust (less any amount to be deposited into a debt service reserve fund for such Obligation or any Related Bonds related to such Obligation) and (D) continues to insure that the Deed(s) of Trust initially secured by such policy and the new Deed of Trust are first priority Liens on the Mortgaged Property described therein, subject to Permitted Liens, or (b) in the case of a notice of extension, cause an endorsement to the mortgagee title insurance policy previously issued to the Master Trustee insuring the priority of the Deed of Trust to which such notice of extension relates to be issued and delivered to the Master Trustee that (i) amends the effective date and time of such policy to be the date and time of the recording of the notice of extension, (ii) amends the description of the land insured by such policy to include the real property described in the notice of extension, (iii) increases the amount of such policy by an amount equal to the principal amount of any Obligation issued in connection with acquiring or financing the real property or improvements to the real property described in such Deed of Trust (less any amount to be deposited into a debt service reserve fund for such Obligation or any Related Bonds related to such Obligation) and (iv) continues to insure that such Deed of Trust, giving effect to the notice of extension, is a first priority Lien on the Mortgaged Property described therein, subject to Permitted Liens. Each title insurance policy or endorsement delivered to the Master Trustee described in this clause will be issued by a title insurance company and be in form and substance satisfactory to the Master Trustee.

Rates and Charges

Each Member of the Obligated Group covenants and agrees to operate all of its Facilities on a revenue-producing basis and to charge such fees and rates for its 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 of the Obligated Group further covenants and agrees that it will from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the provisions of this clause.

The Members of the Obligated Group have covenanted and agreed that the Corporation will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year.

If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year for which such Historical Debt Service Coverage Ratio must be calculated, is less than 1.20:1, the Master Trustee will require the Obligated Group, at the Obligated Group’s expense, to retain a Management Consultant within 30 days [(or such later date as results from following any process regarding the engagement of a Management Consultant required by any Supplement, Related Bond Indenture or other agreement relating to Related Bonds or Indebtedness incurred by the Obligated Group)]1 following the calculation described herein to make recommendations with respect to the rates, fees and charges for the Obligated Group’s Facilities and services, 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.

Each Member of the Obligated Group will follow each recommendation of the Management Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of its

D-34 Governing Body) and permitted by law. This clause will not be construed to prohibit any Member of the Obligated Group from serving indigent patients to the extent required for such Member of the Obligated Group to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of patients without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of this clause.

The foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required above, the Master Trustee will not be obligated to require the Obligated Group to retain a Management Consultant to make such recommendations if: (a) there is filed with the Master Trustee a written report addressed to it of a Management Consultant (which Management Consultant and report, including without limitation the scope, form, substance and other aspects of such report, are acceptable to the Master Trustee) which contains an opinion of such Management Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year sufficient to meet the requirements of this clause, and, if requested by the Master Trustee, such report is accompanied by a concurring Opinion of Counsel (which counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are acceptable to the Master Trustee) as to any conclusions of law supporting the opinion of such Management Consultant; (b) the report of such Management Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of such Management 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 will not be required to cause the Management 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 will provide a copy to each Related Bond Trustee) an Opinion of Counsel (which counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are acceptable to the Master Trustee) to the effect that the applicable laws and regulations underlying the Management Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.

Notwithstanding any other provisions of the Master Indenture, failure of the Obligated Group to achieve the required Historical Debt Service Coverage Ratio for any Fiscal Year will 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 by the Governing Body of the Corporation) and permitted by law; provided however, the failure of the Obligated Group to achieve a Historical Debt Service Coverage Ratio of at least 1.00:1 for two consecutive Fiscal Years will constitute an Event of Default under the Master Indenture.

Notwithstanding any other provisions of the Master Indenture, in the event that any Member of the Obligated Group incurs any Additional Indebtedness for any acquisition, construction, renovation or replacement project pursuant to any other provision of the Master Indenture, the debt service requirements on such Additional Indebtedness and the revenues and expenses relating to the project financed with the proceeds of such Additional Indebtedness will be excluded from the calculation of the Historical Debt Service Coverage Ratio of the Obligated Group for the purposes of complying with this clause, until the first full Fiscal Year following the later of (i) the estimated completion of the acquisition, construction, renovation or replacement project being financed with the proceeds of such Additional Indebtedness provided that such completion occurs no later than six months following the completion date for such project set forth in the Management Consultant’s report described in (A) below, or (ii) in the case of the acquisition, construction, renovation or replacement of new or existing Facilities financed with the proceeds of such Additional Indebtedness, the first full Fiscal Year in which Stable Occupancy is

D-35 achieved, which Stable Occupancy will be projected in the report of the Management Consultant referred to in paragraph (A) below to occur no later than during the fourth full Fiscal Year following the incurrence of such Additional Indebtedness, or (iii) the end of the fourth full Fiscal Year after the incurrence of such Additional Indebtedness, if the following conditions are met:

(i) there is delivered to the Master Trustee a report or opinion of a Management Consultant to the effect that after giving effect to the incurrence of such Additional Indebtedness and the application of the proceeds thereof, the Projected Debt Service Coverage Ratio will be not less than 1.20:1 for each of the first two full Fiscal Years following the later of (I) the estimated completion of the acquisition, construction, renovation or replacement project being financed with the proceeds of such Additional Indebtedness, or (II) in the case of the acquisition, construction, renovation or replacement of new or existing Facilities financed with the proceeds of such Additional Indebtedness, the first full Fiscal Year in which Stable Occupancy is achieved, which Stable Occupancy will be projected to occur no later than during the fourth full Fiscal Year following the incurrence of such Additional Indebtedness; provided, however, that in the event that a Management Consultant will deliver a report to the Master Trustee to the effect that state or Federal laws or regulations or administrative interpretations of such laws or regulations then in existence do not permit or by their application make it impracticable for the Obligated Group to produce the required ratio, then such ratio will be reduced to the highest practicable ratio then permitted by such laws or regulations but in no event less than 1.00:1; provided, further, that in the event a Management Consultant’s report is not required to incur such Additional Indebtedness, the Obligated Group may deliver an Officer’s Certificate to the Master Trustee in lieu of the Management Consultant’s report described in this paragraph (i); and

(ii) there is delivered to the Master Trustee an Officer’s Certificate on the date on which Financial Statements are required to be delivered to the Master Trustee pursuant to the Master Indenture until the first Fiscal Year in which the exclusion from the calculation of the Historical Debt Service Coverage Ratio no longer applies, calculating the Historical Debt Service Coverage Ratio of the Obligated Group at the end of each Fiscal Year, and demonstrating that such Historical Debt Service Coverage Ratio is not less than 1.00:1, such Historical Debt Service Coverage Ratio to be computed without taking into account (A) the Additional Indebtedness to be incurred if (I) the interest on such Additional Indebtedness during such period is funded from proceeds thereof or other funds of the Members of the Obligated Group then on hand and available therefor and (II) no principal of such Additional Indebtedness is payable during such period, and (B) the revenues to be derived from the project to be financed from the proceeds of such Additional Indebtedness.

Transfers of Property, Plant and Equipment; Transfers of Cash and Investments

(a) The Obligated Group agrees that it will not Transfer in any Fiscal Year Property, Plant and Equipment except for Transfers:

(i) to another Member of the Obligated Group, without limit;

(ii) so long as no Event of Default has occurred and is continuing, to any Person of Property, Plant and Equipment (excluding Mortgaged Property) if the Net Book Value of the Property, Plant and Equipment does not exceed three-quarters of one percent 3/4% of the Net Book Value of Property, Plant and Equipment, as shown on the Financial Statements for the most recent Fiscal Year for which Financial Statements are available;

D-36 If the Historical Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year for which Financial Statements are available is not less than 1.30:1, the foregoing percentage of the Property, Plant and Equipment may be increased as follows under the following conditions:

(1) to 5%, if Days’ Cash on Hand for the most recent Fiscal Year for which Financial Statements are available would not be less than 300 after the effect of such sale, lease or disposition of Property, Plant and Equipment; or

(2) to 7.5%, if Days’ Cash on Hand for the most recent Fiscal Year for which Financial Statements are available would not be less than 400 after the effect of such sale, lease or disposition of Property, Plant and Equipment; or

(3) to 10%, if Days’ Cash on Hand for the most recent Fiscal Year for which Financial Statements are available would not be less than 500 after the effect of such sale, lease or disposition of Property, Plant and Equipment;

(iii) to any Person of Equipment if, prior to the Transfer, the Master Trustee receives an Officer’s Certificate stating that, in the judgment of the signer, such Equipment has become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary, and the sale, lease, removal or other disposition thereof will not impair the structural soundness or materially impair the revenue producing capacity of the remaining Property, Plant and Equipment; provided, however, that no Officer’s Certificate will be required to be delivered to the Master Trustee with respect to any Equipment having a Net Book Value in the aggregate of less than $150,000 in any Fiscal Year;

(iv) in addition to the Transfers permitted by clauses (i) to (iii), inclusive, of this clause, and subject to the terms of a Deed of Trust which permit the release of a parcel or interest in land constituting part of the Mortgaged Property from the lien and security of such Deed of Trust, to any Person of real property or Equipment for the fair market value thereof, provided that (A) the proceeds of such Transfer are used to purchase additional real property which, if functionally related to, and operated on an integrated basis with, the Facilities, will be subjected to the Lien of a Deed of Trust, or to purchase Equipment which will become subject to the security interest granted pursuant to the Master Indenture, or to prepay, in whole or in part, pro rata, Outstanding Obligations and (B) in the case of real property, ingress to and egress from the Facilities is not materially impaired.

(b) The Obligated Group may in any Fiscal Year Transfer cash and investments:

(i) to any Member of the Obligated Group, without limit; and

(ii) so long as there are no deficiencies in a bond fund or a debt service reserve fund created with respect to Related Bonds, to any Person in an amount not exceeding two and one- half percent (2 1/2%) of Total Revenue for the most recent Fiscal Year for which Financial Statements are available.

(c) Notwithstanding the foregoing provisions of this clause, nothing described under this clause will be construed as limiting the ability of any Member of the Obligated Group to (i) pay its expenses of operation, including, without limitation, state and local taxes or payments in lieu of taxes, (ii) provide charity care and community benefits and make charitable donations and donations and voluntary payments to government agencies, (iii) purchase or sell Property (other than Property and Equipment used

D-37 in the operation of the Facilities) in the ordinary course of business, (iv) Transfer cash, securities and other investment properties in connection with ordinary investment transactions and payment for goods and services provided where such purchases, sales and Transfers are for substantially equivalent value or (v) lease any Property not being used in the operation of the Facilities, subject to the provisions of the Master Indenture as described in “SUMMARY OF MASTER INDENTURE – Limitations on Creations of Liens” above.

Consolidation, Merger, Sale or Conveyance

(a) Each Member of the Obligated Group covenants that it will not merge or consolidate with, or sell or convey all or substantially all of its assets to any Person that is not a Member of the Obligated Group unless:

(i) either a Member of the Obligated Group will be the successor corporation, or if the successor corporation is not a Member of the Obligated Group such successor corporation will execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee, containing the agreement of such successor corporation (A) to become a Member of the Obligated Group under the Master Indenture and thereby become subject to compliance with all provisions of the Master Indenture pertaining to a Member of the Obligated Group, including the security interest provided for in the Master Indenture and the performance and observance of all covenants and obligations of a Member of the Obligated Group thereunder, and (B) unconditionally and irrevocably guaranteeing to the Master Trustee and each other Member of the Obligated Group that all Obligations issued and then Outstanding or to be issued and Outstanding thereunder will be paid in accordance with the terms thereof and of the Master Indenture when due;

(ii) the successor corporation has met all licensing requirements necessary for the operation of any Facilities and will be qualified to do business in the State or will consent to service of process in the State;

(iii) the Obligated Group Representative has delivered to the Master Trustee a report of a Management Consultant, dated not more than 90 days prior to such consolidation, merger or transfer, to the effect that (i) the Projected Historical Debt Service Coverage Ratio for each of the two full Fiscal Years immediately following such merger, consolidation or transfer will be not less than 1.20 or will be greater than it would have been if such merger, consolidation or transfer had not taken place and (ii) upon completion of such consolidation, merger or transfer, the Obligated Group will not be in violation of any of the limitations on the incurrence of Indebtedness contained in the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – Limitations on Incurrence of Indebtedness” above; provided, however, that if capital improvements consisting, in whole or in part, of independent or assisted living units or health care beds are under construction or available for initial occupancy on the date of such merger, consolidation or transfer, such forecast will be for the earlier to occur of (x) the first full Fiscal Year next succeeding the Fiscal Year in which the occupancy of such independent or assisted living units or health care beds is forecasted to reach Stable Occupancy or (y) the first full Fiscal Year following the Fiscal Year in which occurs that date which is 18 months from the date set forth in the forecast upon which substantially all of such independent or assisted living units or health care beds are forecasted to be placed in service;

(iv) if all amounts due or to become due on any Related Bond, the interest on which is not includable in the gross income of the holder thereof for purposes of federal income taxation, have not been fully paid to the holder thereof, there will have been delivered to the

D-38 Master Trustee an Opinion of Bond Counsel, in form and substance satisfactory to the Master Trustee, to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance would not adversely affect the exclusion from gross income for purposes of federal income taxation of interest payable on such Related Bond; and

(v) the Obligated Group Representative has delivered to the Master Trustee an Officer’s Certificate and an Opinion of Counsel, each of which will state that such consolidation, merger, conveyance or transfer and such instrument comply with this clause and the other provisions of the Master Indenture, and that all conditions precedent provided in the Master Indenture relating to such transaction have been satisfied.

(b) In case of any such consolidation, merger, sale or conveyance and upon any such assumption by the successor corporation, such successor corporation will succeed to and be substituted for its predecessor, with the same effect as if it had been named herein as such predecessor or had become a Member of the Obligated Group pursuant to the Master Indenture as described in “SUMMARY OF MASTER INDENTURE – Parties Becoming Members of the Obligated Group” below, as the case may be. Such successor corporation thereupon may cause to be signed, and may issue Obligations under the Master Indenture in its own name; and upon the order of such successor corporation and subject to all the terms, conditions and limitations in the Master Indenture prescribed, the Master Trustee will authenticate and will deliver Obligations that such successor corporation will have caused to be signed and delivered to the Master Trustee. All Outstanding Obligations so issued by such successor corporation under the Master Indenture will in all respects have the same security position and benefit under the Master Indenture as Outstanding Obligations theretofore or thereafter issued in accordance with the terms of the Master Indenture as though all of such Obligations had been issued thereunder without any such consolidation, merger, sale or conveyance having occurred.

(c) In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in Obligations thereafter to be issued as may be appropriate.

(d) The Master Trustee may accept an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of this clause and that it is proper for the Master Trustee under the provisions of the Master Indenture and of this clause to join in the execution of any instrument required to be executed and delivered by the Master Indenture as described in this clause.

Insurance and Condemnation Proceeds

Proceeds received by any Member of the Obligated Group for casualty losses or condemnation awards may be used for such lawful corporate purposes as the recipient determines, including, but not limited to, the replacement or repair of the damaged or taken Property, Plant and Equipment and the application of such proceeds to the payment or repayment of any Indebtedness in accordance with the terms thereof; provided, however, if the amount received exceeds 5% of the Net Book Value of the Property, Plant and Equipment, the Obligated Group Representative will immediately notify the Master Trustee, deposit the amount received with the Master Trustee and, within 12 months after the casualty loss or taking and prior to expending such funds, deliver to the Master Trustee (a) an Officer’s Certificate certifying that the expected Historical Debt Service Coverage Ratio for each of the two full Fiscal Years following the expected date of application of such proceeds will be not less than 1.30 as shown by pro forma financial statements for each such period and a statement of relevant assumptions, including assumptions as to the use of such proceeds or awards, upon which such pro forma statements are based, and a written report of a Management Consultant confirming such certification; or (b) a written

D-39 Management Consultant’s report stating the Management Consultant’s recommendations, including recommendations as to the use of such proceeds or awards, to cause the Historical Debt Service Coverage Ratio for each of the periods described in clause (a) above to be not less than 1.20, or, if in the opinion of the Management Consultant the attainment of such level is impracticable, to the highest practicable level. Each Member of the Obligated Group agrees that it will use such proceeds or awards, to the extent permitted by law, only in accordance with the assumptions referred to in clause (a) above or the recommendations referred to in clause (b) above.

Filing of Financial Statements, Certificate of No Default and Other Information

The Obligated Group covenants that it will:

(a) As soon as possible but in no event later than one hundred twenty (120) days after the end of each Fiscal Year or other period for which an audit has been performed, file with the Master Trustee and with each Holder who may have so requested in writing or on whose behalf the Master Trustee may have so requested, a copy of the Financial Statements as of the end of such Fiscal Year or other period accompanied by the report of an Accountant.

(b) Simultaneously with filing the Financial Statements for a Fiscal Year or other period as required under subsection (a), file with the Master Trustee and with each Holder who may have so requested or on whose behalf the Master Trustee may have so requested, an Officer’s Certificate and a report of an Accountant stating the Historical Debt Service Coverage Ratio and the number of Day’s Cash on Hand as of the end of such Fiscal Year or such other period, and stating whether, to the best of the knowledge of the signers of such Officer’s Certificate and report, any Member of the Obligated Group is not in compliance with any covenant contained in the Master Indenture or any Related Loan Agreement and, if so, specifying each such failure to comply of which the signers may have knowledge and the steps that are being taken by the Obligated Group to cure such non-compliance.

(c) If an Event of Default will have occurred and be continuing, (i) file with the Master Trustee such other financial statements and information concerning its operations and financial affairs, including those of any Member of the Obligated Group, as the Master Trustee may from time to time reasonably request, excluding, specifically, donor records, patient records, personnel records and records subject to attorney-client privilege and (ii) provide access to the Facilities, the Pledged Assets and the Mortgaged Property for the purpose of inspection by the Master Trustee during regular business hours or at such other times as the Master Trustee may reasonably request.

(d) Unless required to be delivered at an earlier time, within thirty (30) days after its receipt thereof, file with the Master Trustee a copy of each report which any provision of the Master Indenture requires to be prepared by a Management Consultant or an Insurance Consultant.

(e) Notwithstanding any other provision of the Master Indenture to the contrary, if the Obligated Group fails to file the Financial Statements for any Fiscal Year with the Master Trustee within the time period specified in subsection (a), no Liens may be created pursuant to the Master Indenture as described in “SUMMARY OF MASTER INDENTURE – Limitations on Creations of Liens” above, no Indebtedness may be incurred pursuant to the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – Limitations on Incurrence of Indebtedness” above, and no Property may be transferred pursuant to the Master Indenture and described in “SUMMARY OF MASTER INDENTURE – Transfers of Property, Plant and Equipment; Transfers of Cash and Investments” above until the Obligated Group has cured such default by filing the Financial Statements for the most recently ended Fiscal Year with the Master Trustee.

D-40 Parties Becoming Members of the Obligated Group

Persons which are not Members of the Obligated Group may, with the prior written consent of the current Members of the Obligated Group, become Members of the Obligated Group, if:

(a) The Person which is becoming a Member of the Obligated Group will execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee containing the agreement of such Person (i) to become a Member of the Obligated Group under the Master Indenture and thereby become subject to compliance with all provisions of the Master Indenture pertaining to a Member of the Obligated Group, including the security interest provided for in the Master Indenture and the performance and observance of all covenants and obligations of a Member of the Obligated Group under the Master Indenture, and (ii) unconditionally and irrevocably guaranteeing to the Master Trustee and each other Member of the Obligated Group that all Obligations issued and then Outstanding or to be issued and Outstanding under the Master Indenture will be paid in accordance with the terms thereof and of the Master Indenture when due.

(b) The Obligated Group Representative will have delivered to the Master Trustee an Officer’s Certificate which will state that (i) such admission and such instrument comply with the provisions described in this clause and that all conditions precedent provided in the Master Indenture relating to such admission have been complied with and (ii) immediately after giving effect to such admission, no Event of Default thereunder will have occurred and be continuing.

(c) Each instrument executed and delivered to the Master Trustee in accordance with subsection (a) of this clause, will be accompanied by an Opinion of Counsel, addressed to and satisfactory to the Master Trustee, to the effect that such instrument has been duly authorized, executed and delivered by such Person and constitutes a valid and binding obligation of such Person enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy laws, insolvency laws, other laws affecting creditors’ rights generally, equity principles and laws dealing with fraudulent conveyances.

(d) There will be filed with the Master Trustee a report of a Management Consultant to the effect that the Projected Historical Debt Service Coverage Ratio for each of the two (2) Fiscal Years immediately succeeding the date of such action is greater than 1.20 or greater than it would have been if such action had not taken place and that such action will not reduce by more than twenty-five percent (25%) the Projected Historical Debt Service Coverage Ratio for each of such periods assuming that such action had not taken place; provided, however, that if capital improvements consisting, in whole or in part, of independent or assisted living units or health care beds are under construction or available for initial occupancy on the date of such action, such forecast will be for the earlier to occur of (x) the first full Fiscal Year next succeeding the Fiscal Year in which the occupancy of such independent or assisted living units or health care beds is forecasted to reach Stable Occupancy or (y) the first full Fiscal Year following the Fiscal Year in which occurs that date which is 18 months from the date set forth in the forecast upon which substantially all of such independent or assisted living units or health care beds are forecasted to be placed in service.

(e) If all amounts due or to become due on any Related Bond, the interest on which is not includable in the gross income of the holder thereof for purposes of federal income taxation, have not been fully paid to the holder thereof, there will be filed with the Master Trustee, an Opinion of Bond Counsel, in form and substance satisfactory to the Master Trustee, to the effect that the admission of such Person to the Obligated Group would not adversely affect the exclusion from gross income for purposes of federal income taxation of the interest on any such Related Bond.

D-41 Withdrawal from the Obligated Group

(a) No Member of the Obligated Group may withdraw from the Obligated Group unless, prior to the taking of such action, there is delivered to the Master Trustee:

(i) (A) An Officer’s Certificate demonstrating that (I) all Obligations issued by such Member are no longer Outstanding or (II) an amount of cash or Defeasance Obligations, which together with the interest earned thereon, will be sufficient to accomplish the requirement of clause (A) (I) above has been transferred by such Member to the Master Trustee or all Outstanding Obligations issued by such Member have been assumed by another Member of the Obligated Group, and (B), in either case, if all amounts due or to become due on any Related Bond, the interest on which is not includable in the gross income of the holder thereof for purposes of federal income taxation, have not been fully paid to the holder thereof, an Opinion of Bond Counsel, in form and substance satisfactory to the Master Trustee, to the effect that such Member’s withdrawal from the Obligated Group would not adversely affect the exclusion from gross income for purposes of federal income taxation of the interest on any such Related Bond;

(ii) The report of a Management Consultant to the effect that the Projected Historical Debt Service Coverage Ratio for each of the two (2) Fiscal Years immediately succeeding the date of such action is greater than 1.20 or greater than it would have been if such action had not taken place and that such action will not reduce by more than twenty-five percent (25%) the Projected Historical Debt Service Coverage Ratio for each of such periods assuming that such action had not taken place; and

(iii) An Officer’s Certificate which will state that (A) all conditions precedent provided in the Master Indenture relating to such withdrawal have been complied with and (B) immediately after giving effect to such withdrawal, no Event of Default under the Master Indenture will have occurred and be continuing.

(b) Upon the withdrawal of any Member from the Obligated Group pursuant to paragraph (a) of this clause, all liability of such Member of the Obligated Group with respect to all Obligations Outstanding under the Master Indenture will cease, any guaranty by such Member of the Obligated Group pursuant to the Master Indenture will be released and discharged in full, the Master Trustee and the Deed of Trust Trustee will execute and deliver to such Member of the Obligated Group a release of any Deed of Trust or Collateral Assignments given by such Member of the Obligated Group, and the Master Trustee will execute and deliver to such Member of the Obligated Group all UCC-3 termination statements necessary to terminate the security interest in the Pledged Assets of such Member of the Obligated Group.

Debt Service Reserve Funds

(a) The Master Trustee will establish and maintain one or more Debt Service Reserve Funds as security for one or more Obligations issued under the Master Indenture and described in this clause and any Supplement directing that a Debt Service Reserve Fund be established or maintained as security for the Obligation issued thereunder.

(b) Each Debt Service Reserve Fund may serve as security for only one Obligation issued under the Master Indenture or may serve as security for more than one Obligation issued thereunder, in which case all Obligations secured by such Debt Service Reserve Fund will be secured equally and ratably by the amounts on deposit in such Debt Service Reserve Fund; provided, however, that no Debt Service Reserve Fund will serve as security for one or more Obligations that secure Tax-Exempt Related Bonds and one or more Obligations that evidence or secure taxable Indebtedness or Related Bonds.

D-42 (c) Upon establishment of a Debt Service Reserve Fund, the Members of the Obligated Group will transfer, or cause to be transferred, money in an amount equal to the Debt Service Reserve Fund Requirement to the Master Trustee for deposit into such Debt Service Reserve Fund. After the establishment of a Debt Service Reserve Fund, if a Supplement provides that the Obligation issued thereunder will be secured by such Debt Service Reserve Fund, the Members of the Obligated Group will transfer, or cause to be transferred, to the Master Trustee for deposit into such Debt Service Reserve Fund money in an amount equal to the difference between the Debt Service Reserve Fund Requirement (after giving effect to the issuance of such Obligation) and the amount then on deposit in such Debt Service Reserve Fund.

(d) If a Debt Service Reserve Fund secures more than one Obligation, the Master Trustee will establish an account within such Debt Service Reserve Fund for each source of money deposited in such fund, such as proceeds of Related Bonds secured by, or Indebtedness evidenced by, an Obligation or other money of Members of the Obligated Group, and deposit the money obtained from each such source in the appropriate account. Such accounts will be established solely for the convenience of the Members of the Obligated Group in maintaining an accounting of the uses and applications of such funds under the provisions of applicable federal and state law, and will equally and ratably secure all Obligations for which such Debt Service Reserve Fund has been established.

(e) If the Holder of an Obligation secured by a Debt Service Reserve Fund delivers a written notice to the Master Trustee to the effect that the amount of principal or interest paid by the Obligated Group or the amount otherwise available to the Holder of such Obligation is less than the amount of principal or interest then due on such Obligation and specifying the amount of such deficiency of principal, interest or both, the Master Trustee, without further direction, will immediately withdraw moneys from such Debt Service Reserve Fund in the amount of such deficiency and transfer such moneys to such Holder. If such Debt Service Reserve Fund secures more than one Obligation, the Master Trustee will withdraw the amount of such deficiency from each account within such Debt Service Reserve Fund on a pro rata basis based on the amounts then on deposit in each such account. Amounts on deposit in any Debt Service Reserve Fund will not be applied to pay principal of or interest on any Obligation other than the Obligation or Obligations secured thereby. The Master Trustee will promptly provide written notice to the Members of the Obligated Group of any such withdrawal from any Debt Service Reserve Fund.

(f) Unless otherwise provided in the Supplement directing that a Debt Service Reserve Fund be established and maintained, beginning on the 25th day of the month following a month in which money is withdrawn from a Debt Service Reserve Fund, each Member of the Obligated Group covenants promptly to pay or cause to be paid to the Master Trustee for deposit into such Debt Service Reserve Fund, one-twelfth (1/12) of the amount or amounts so withdrawn until the amount then on deposit in such Debt Service Reserve Fund is equal to the Debt Service Reserve Fund Requirement. If an additional withdrawal is made from such Debt Service Reserve Fund prior to the restoration of the initial withdrawal, such additional withdrawal will be restored by the Members of the Obligated Group in equal monthly installments over the remainder of the restoration period for the initial withdrawal. If such Debt Service Reserve Fund secures more than one Obligation, the Master Trustee will deposit each amount paid to restore such Debt Service Reserve Fund into each account within such Debt Service Reserve Fund on a pro rata basis based on the amounts withdrawn from each such account.

(g) If on any date of valuation pursuant to subsection (m) below the money held in a Debt Service Reserve Fund exceeds the Debt Service Reserve Fund Requirement, including any excess created in whole or in part by the interest earnings on such Debt Service Reserve Fund, an amount equal to such excess will be transferred by the Master Trustee to the Holder of the Obligation secured by such Debt Service Reserve Fund or, if more than one Obligation is secured by such Debt Service Reserve Fund,

D-43 such excess will be withdrawn from each account within such Debt Service Reserve Fund on a pro rata basis based on the amounts then on deposit in each such account and the amount withdrawn from each account will be paid to the Holder of the Obligation that secures the Related Bonds or Indebtedness that were the source of the moneys deposited in such account or to the Members of the Obligated Group if they were the source of the moneys deposited in such account; provided, however, that any excess created by a refunding (or other payment or defeasance) of a portion of any Tax-Exempt Related Bonds may be applied in any manner which, in an Opinion of Bond Counsel, will not cause the interest on such Tax- Exempt Related Bonds to be includable in the gross income of the owners thereof under the Code. Any such excess transferred to a Holder will be credited against future amounts payable to such Holder by the Members of the Obligated Group, unless transferred to cure deficiencies therein.

(h) All money deposited with the Master Trustee under the Master Indenture in excess of the amount guaranteed by the Federal Deposit Insurance Corporation or other federal agency will be continuously secured, for the benefit of the Holders, either (a) by lodging with a bank or trust company chosen by the Master Trustee or custodian or, if then permitted by law, by setting aside under control of the trust department of the bank holding such deposit, as collateral security, Government Obligations or other marketable securities eligible as security for the deposit of trust funds under regulations of the Comptroller of the Currency of the United States or applicable State law or regulations, having a market value (exclusive of accrued interest) not less than the amount of such deposit, or (b) if the furnishing of security as provided in clause (a) above is not permitted by applicable law, then in such other manner as may then be required or permitted by applicable State or federal laws and regulations regarding the security for, or granting a preference in the case of, the deposit of trust funds; provided, however, that it will not be necessary for the Master Trustee to give security for any money that will be represented by obligations purchased under the provisions of this the Master Indenture as an investment of such money.

(i) Unless otherwise provided in the Supplement directing that a Debt Service Reserve Fund be established and maintained, money held for the credit of a Debt Service Reserve Fund will be continuously invested and reinvested by the Master Trustee in Investment Obligations to the extent practicable in accordance with the instructions of an Obligated Group Representative or, if no such instruction is given, in Government Obligations having a maturity not greater than 180 days from the date of such investment. If accounts have been established within a Debt Service Reserve Fund, the Master Trustee may invest the money within each account separately or may use money from each account to purchase a proportionate share of an investment based on the balance then on deposit in each such account. Unless otherwise provided in the Supplement directing that a Debt Service Reserve Fund be established and maintained, Investment Obligations deposited in a Debt Service Reserve Fund will mature not later than ten (10) years from the date on which such Investment Obligations were deposited therein. Notwithstanding the foregoing, no Investment Obligations in a Debt Service Reserve Fund may mature beyond the latest maturity date of any Related Bonds Outstanding that are secured by an Obligation that is secured by such Debt Service Reserve Fund at the time such Investment Obligations are deposited unless irrevocable instructions will have been given to redeem such Investment Obligations on a date or dates not later than the latest maturity date of any such Related Bonds Outstanding. For the purposes of described in this clause, the maturity date of repurchase agreements for Government Obligations or other obligations is the maturity date of such repurchase agreements and not the maturity date of the underlying Government Obligations or other obligations.

(j) An Obligated Group Representative will give to the Master Trustee written directions or telephonic instructions that are confirmed immediately in writing respecting the investment of any money required to be invested under this clause, subject, however, to the provisions of this clause, and the Master Trustee will then invest such money described in this clause as so directed by such Obligated Group Representative. The Master Trustee may request, in writing, direction or authorization of an Obligated Group Representative with respect to the proposed investment of money under the provisions of the

D-44 Master Indenture. Upon receipt of such request, accompanied by a memorandum setting forth the details of any proposed investment, an Obligated Group Representative will either approve such proposed investment or will give written directions to the Master Trustee respecting the investment of such money and, in the case of such directions, the Master Trustee will then, subject to the provisions described in this clause, invest such money in accordance with such directions.

(k) Investment Obligations credited to any Debt Service Reserve Fund established under the Master Indenture and described in this clause will be held by or under the control of the Master Trustee and while so held will be deemed at all times to be part of such fund or account in which such money was originally held, and the interest accruing thereon and any profit or loss realized upon the disposition or maturity of such investment will be credited to or charged against such fund or account. The Master Trustee will sell at the market price available or reduce to cash a sufficient amount of such Investment Obligations whenever it will be necessary so to do in order to provide moneys to make any payment or transfer of moneys from any such fund or account. The Master Trustee will not be liable or responsible for any loss resulting from any such investment.

(l) For the purpose of determining the amount on deposit in any Debt Service Reserve Fund or account therein, Investment Obligations in which money in such fund or account is invested will be valued (a) at face value if such Investment Obligations mature within six months from the date of valuation thereof, and (b) if such Investment Obligations mature more than six months after the date of valuation thereof at the price at which such Investment Obligations are redeemable by the holder at such holder’s option if so redeemable, or, if not so redeemable, at the lesser of (i) the cost of such Investment Obligations minus the amortization of any premium or plus the amortization of any discount thereon and (ii) the market value of such Investment Obligations.

(m) The Master Trustee will value the Investment Obligations in each Debt Service Reserve Fund and accounts therein established under the Master Indenture and described in this clause and held by the Master Trustee three (3) Business Days prior to each April 1 and October 1 and at such times as will be required in order for the Members of the Obligated Group to comply with federal income tax law applicable to any Related Bonds. In addition, the Investment Obligations will be valued by the Master Trustee at any time requested by an Obligated Group Representative on reasonable notice to the Master Trustee (which period of notice may be waived or reduced by the Master Trustee); provided, however, that the Master Trustee will not be required to value the Investment Obligations more than once in any calendar month other than as provided in the Master Indenture.

(n) If upon valuation of a Debt Service Reserve Fund, the balance in such fund, including accrued interest to the date of valuation, is less than 90% of the Debt Service Reserve Fund Requirement, the Master Trustee will compute the amount by which the Debt Service Reserve Fund Requirement exceeds such balance and will immediately give the Members of the Obligated Group notice of such deficiency and the amount necessary to cure the same.

(o) Unless otherwise provided in the Supplement directing that a Debt Service Reserve Fund be established and maintained, beginning on the 25th day of the month (and on the 25th day of each month thereafter) following a valuation made in accordance with the Master Indenture in which the amount on deposit in such Debt Service Reserve Fund is less than ninety percent (90%) of the Debt Service Reserve Fund Requirement due to a loss resulting from a decline in the value of Investment Obligations held for the credit of such Debt Service Reserve Fund, each Member of the Obligated Group covenants promptly to pay or cause to be paid to the Master Trustee for deposit into such Debt Service Reserve Fund, one-sixth (1/6) of the amount by which the Debt Service Reserve Fund Requirement exceeds such balance until the amount on deposit to the credit of such Debt Service Reserve Fund is equal to the Debt Service Reserve Fund Requirement.

D-45 (p) The Members of the Obligated Group covenant and agree that money on deposit in any Debt Service Reserve Fund, whether or not such money was derived from the proceeds of the sale of any Tax-Exempt Related Bonds or from any other sources, and whether or not any Tax-Exempt Related Bonds are Outstanding, (i) will not be used in a manner that would cause any Tax-Exempt Related Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code and (ii) will be used in a manner that will cause any Tax-Exempt Related Bonds not to be “arbitrage bonds” within the meaning of Section 148 of the Code; provided, however, that the Master Trustee will have no obligation to pay any amounts necessary to comply with this covenant other than from money received by the Master Trustee from the Members of the Obligated Group. The Master Trustee will observe and not violate the requirements of Section 148 of the Code. The Master Trustee will be fully protected in relying upon any written investment instruction given by an Obligated Group Representative. In the event the Obligated Group Representative is of the opinion that it is necessary to restrict or limit the yield on the investment of money held by the Master Trustee pursuant to the Master Indenture, or to use such money in certain manners, in order to avoid any Tax-Exempt Related Bonds being considered “arbitrage bonds” within the meaning of Section 148 of the Code as such may be applicable to such Tax-Exempt Related Bonds at such time, the Obligated Group Representative may issue to the Master Trustee a written certificate to such effect and appropriate instructions, in which event the Master Trustee will take such action as is set forth in such certificate and instructions, irrespective of whether the Master Trustee shares such opinion.

A Debt Service Reserve Fund known as Reserve Fund No. 1 has been established in accordance with the provisions of the Master Indenture. After the issuance of the Bonds, Reserve Fund No. 1 will secure Obligation No. 14 (relating to the North Carolina Medical Care Commission’s Retirement Facilities First Mortgage Revenue Refunding Bonds (Southminster), Series 2016 that will remain outstanding following the issuance of the Bonds) and Obligation No. 16 (relating to the Bonds) on an equal and ratable basis. Upon the issuance of Obligation No. 16, the amount on deposit in Reserve Fund No. 1 will equal the Debt Service Reserve Fund Requirement ($______), less $106,125 (the current debt service fund requirement for the Commission’s Health Care Facilities First Mortgage Revenue Bonds (Southminster), Series 1996). Reserve Fund No. 1 will also secure any other Obligation securing Tax-Exempt Related Bonds issued under the Master Indenture if so provided in the Supplement pursuant to which such Obligation is issued. Notwithstanding any provision of the Master Indenture to the contrary, the Members of the Obligated Group covenant and agree that, upon payment in full or defeasance of the Commission’s Health Care Facilities First Mortgage Revenue Bonds (Southminster), Series 1996, they will transfer, or cause to be transferred, funds in an amount equal to the lesser of (i) difference between the Debt Service Reserve Fund Requirement (determined pursuant to clause (i) of that definition) and the amount then on deposit in Reserve Fund No. 1, and (ii) $309,618.75.

Liquidity Covenant

The Obligated Group covenants that it will calculate the Days’ Cash on Hand of the Obligated Group as of March 31 and September 30 of each Fiscal Year (each, a “Liquidity Testing Date”). The Obligated Group will, not less than 45 days after each Liquidity Testing Date, deliver an Officer’s Certificate setting forth such calculation for such Liquidity Testing Date to the Master Trustee.

Each Member of the Obligated Group will conduct its business so that on each Liquidity Testing Date the Obligated Group will have no less than 180 Days’ Cash on Hand.

If the Days’ Cash on Hand on any Liquidity Testing Date will be less than the requirement of the preceding paragraph, the Obligated Group Representative will, within 30 days after delivering the Officer’s Certificate disclosing such deficiency, deliver an Officer’s Certificate approved by a resolution of the Governing Body of each Member of the Obligated Group to the Master Trustee setting forth in

D-46 reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to achieve the required liquidity for future periods.

If the Obligated Group has not achieved the required level of Days’ Cash on Hand by the next Liquidity Testing Date following delivery of the Officer’s Certificate required in the preceding paragraph, the Members of the Obligated Group will, within 30 days [(or such later date as results from following any process regarding the engagement of a Management Consultant required by any Supplement, Related Bond Indenture or other agreement relating to Related Bonds or Indebtedness incurred by the Obligated Group)]1 after delivery of the Officer’s Certificate disclosing such second consecutive deficiency, retain a Management Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group, the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Obligated Group’s liquidity to the required level for future periods. Each Member of the Obligated Group will follow each recommendation of the Management Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member of the Obligated Group) and permitted by law.

Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the required liquidity covenant for any Fiscal Year will 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 Corporation) and permitted by law.

Defaults and Remedies

Events of Default

Event of Default, as used herein, will mean any of the following events:

(a) The Members of the Obligated Group will fail to make any payment of the principal of, the redemption premium, if any, or interest on any Obligation issued and Outstanding under the Master Indenture, and any other payments, including the purchase or redemption price of Put Indebtedness, required to be made under the Supplements creating such Obligations and under such Obligations, when and as the same will become due and payable, whether at maturity, by proceedings for redemption, by acceleration or otherwise, in accordance with the terms thereof, of the Master Indenture or of any Supplement;

(b) Any Member of the Obligated Group will fail duly to perform, observe or comply with any covenant or agreement on its part under the Master Indenture, other than as described in the preceding paragraph, for a period of thirty (30) days after the date on which written notice of such failure, requiring the same to be remedied, will have been given to the Members of the Obligated Group by the Master Trustee, or to the Members of the Obligated Group and the Master Trustee by the Holders of at least twenty-five percent (25%) in aggregate principal amount of Obligations then Outstanding; provided, however, that if said failure be such that it cannot be corrected within thirty (30) days after the receipt of such notice, it will not constitute an Event of Default if corrective action is instituted within such thirty (30) day period and diligently pursued until the Event of Default is corrected;

D-47 (c) An event of default will occur under a Deed of Trust or a Related Bond Indenture or upon a Related Bond;

(d) Any Member of the Obligated Group will fail to pay promptly or otherwise satisfy and discharge any Outstanding Indebtedness (other than Obligations issued and Outstanding under the Master Indenture and Related Bonds), the principal amount of which as of the date of such default is in excess of one-half of one percent (1/2%) of Income Available for Debt Service for the most recent Fiscal Year for which Financial Statements are available, whether such Indebtedness now exists or will hereafter be created, as and when the same becomes due and payable and any period of grace with respect thereto will have expired, or another event of default as defined in any instrument, indenture or mortgage evidencing or securing such Indebtedness will occur, which event of default will not have been waived by the holder of such instrument, indenture or mortgage, and as a result of such failure to pay or other event of default such Indebtedness will have been accelerated; provided, however, that such default will not constitute an Event of Default if the validity, amount or collectability of such Indebtedness is being contested in good faith and such Member of the Obligated Group establishes and maintains reserves satisfactory to the Master Trustee for the payment of such Indebtedness pending the outcome of such contest;

(e) The entry of a decree or order by a court having jurisdiction in the premises for an order for relief against any Member of the Obligated Group, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of such Member under the United States Bankruptcy Code or any other applicable federal or state law, or appointing a receiver, liquidator, custodian, assignee, or sequestrator (or other similar official) of such Member or of any substantial part of its Property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of ninety (90) consecutive days; and

(f) The institution by any Member of the Obligated Group of proceedings for an order for relief, or the consent by it to an order for relief against it, or the filing by it of a petition or answer or consent seeking reorganization, arrangement, adjustment, composition or relief under the United States Bankruptcy Code or any other similar applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, custodian, assignee, trustee or sequestrator (or other similar official) of such Member of the Obligated Group or of any substantial part of its Property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by any Member of the Obligated Group in furtherance of any such action.

Acceleration; Annulment of Acceleration

(a) Upon the occurrence and during the continuation of an Event of Default under the Master Indenture, the Master Trustee may and, upon the written request of (i) the Holders of not less than twenty- five percent (25%) in aggregate principal amount of Obligations Outstanding or (ii) any Person properly exercising the right given to such Person under any Supplement to require acceleration of the Obligations issued pursuant to such Supplement, will, by notice to the Members of the Obligated Group, declare all Obligations Outstanding immediately due and payable, whereupon such Obligations will become and be immediately due and payable, anything in the Obligations or in any other section of the Master Indenture to the contrary notwithstanding; provided, however, that if the terms of any Supplement give a Person the right to consent to acceleration of the Obligations issued pursuant to said Supplement, the Obligations issued pursuant to such Supplement may not be accelerated by the Master Trustee unless such consent is properly obtained pursuant to the terms of such Supplement. In the event the Obligations are accelerated there will be due and payable on such Obligations an amount equal to the total principal amount of all such Obligations, plus all interest accrued on such principal amount to the date of payment of such principal.

D-48 (b) At any time after the Obligations will have been declared to be immediately due and payable and before the entry of final judgment or decree in any suit, action or proceeding instituted on account of such Event of Default, if (i) the Obligated Group has paid or caused to be paid or deposited with the Master Trustee moneys sufficient to pay all matured installments of interest or other payments and all principal or redemption prices then due (other than the principal then due only because of such declaration) of all Obligations Outstanding; (ii) the Obligated Group has paid or caused to be paid or deposited with the Master Trustee money sufficient to pay the charges, compensation, expenses, disbursements, advances, fees and liabilities of the Master Trustee; (iii) all other amounts then payable by the Obligated Group under the Master Indenture will have been paid or a sum sufficient to pay the same will have been deposited with the Master Trustee; and (iv) every Event of Default (other than a default in the payment of such Obligations then due only because of such declaration) will have been remedied, then the Master Trustee may, and upon the written request of Holders of not less than a majority in aggregate principal amount of the Obligations Outstanding will, annul such declaration and its consequences with respect to any Obligations or portions thereof not then due by their terms. No such annulment will extend to or affect any subsequent Event of Default or impair any right consequent thereon.

D-49 Additional Remedies and Enforcement of Remedies

(a) Upon the occurrence and continuance of any Event of Default, the Master Trustee may, and upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Obligations Outstanding, together with indemnification of the Master Trustee to its satisfaction therefor, will, proceed forthwith to protect and enforce its rights and the rights of the Holders under the Master Indenture by such suits, actions or proceedings as the Master Trustee, being advised by counsel, will deem expedient, including but not limited to:

(i) enforcement of the right of the Holders to collect and enforce the payment of amounts due or becoming due under the Obligations;

(ii) suit upon all or any part of the Obligations;

(iii) civil action to require any Person holding moneys, documents or other property pledged to secure payment of amounts due or to become due on the Obligations to account as if it were the trustee of an express trust for the Holders;

(iv) civil action to enjoin any acts or things, which may be unlawful or in violation of the rights of the Holders;

(v) enforcement of its rights as a secured party under the UCC;

(vi) enforcement of any other right of the Holders conferred by law or by the Master Indenture; and

(vii) enforcement of any of its rights as beneficiary under the Deeds of Trust.

(b) Regardless of the happening of an Event of Default, the Master Trustee, if requested in writing by the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Obligations then Outstanding, will, upon being indemnified to its satisfaction therefor, institute and maintain such suits and proceedings as it may be advised will be necessary or expedient (i) to prevent any impairment of the security under the Master Indenture by any acts which may be unlawful or in violation of the Master Indenture, or (ii) to preserve or protect the interests of the Holders, provided that such request and the action to be taken by the Master Trustee are not in conflict with any applicable law or the provisions hereof and, in the sole judgment of the Master Trustee, is not unduly prejudicial to the interest of the Holders not making such request.

Application of Gross Receipts and Other Moneys after Default

During the continuance of an Event of Default all Gross Receipts and other moneys received by the Master Trustee pursuant to any right given or action taken under the provisions of the Master Indenture, after payment of (i) the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses and advances incurred or made by the Master Trustee with respect thereto and all other fees and expenses of the Master Trustee under the Master Indenture and (ii) in the sole discretion of the Master Trustee, the payment of the expenses of operating any Member of the Obligated Group, will be applied as follows:

(a) Unless the principal of all Outstanding Obligations will have become or have been declared due and payable:

D-50 First: To the payment to the Persons entitled thereto of all installments of interest then due on Obligations in the order of the maturity of such installments, and, if the amount available will not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon to the persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the Persons entitled thereto of the unpaid principal installments of any Obligations which will have become due, whether at maturity or by call for redemption, in the order of their due dates, and if the amounts available will not be sufficient to pay in full all Obligations due on any date, then to the payment thereof ratably, according to the amounts of principal installments due on such date, to the Persons entitled thereto, without any discrimination or preference, except Derivative Obligations evidenced and secured by an Obligation that are subordinate to other Obligations; and

Third: To the payment to the Persons entitled thereto of any unpaid Derivative Obligations evidenced and secured by an Obligation that are subordinate to other Obligations which will have become due, in the order of their due dates, and if the amounts available will not be sufficient to pay in full all such unpaid Derivative Obligations due on any date, then to the payment thereof ratably, according to the amounts of unpaid Derivative Obligations due on such date, to the Persons entitled thereto, without any discrimination or preference.

(b) If the principal of all Outstanding Obligations will have become or have been declared due and payable:

First: To the payment of the principal and interest then due and unpaid upon Obligations without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Obligation over any other Obligation, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or preference, except Derivative Obligations evidenced and secured by an Obligation that are subordinate to other Obligations; and

Second: To the payment of Derivative Obligations evidenced and secured by an Obligation that are subordinate to other Obligations.

(c) If the principal of all Outstanding Obligations will have been declared due and payable, and if such declaration will thereafter have been rescinded and annulled under the provisions of the Master Indenture, then, subject to the provisions of paragraph (b) above in the event that the principal of all Outstanding Obligations will later become due or be declared due and payable, the moneys will be applied in accordance with the provisions of paragraph (a) above.

Whenever moneys are to be applied by the Master Trustee pursuant to the provisions of the Master Indenture, such moneys will be applied by it at such times, and from time to time, as the Master Trustee will determine, having due regard for the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Master Trustee will apply such moneys, it will fix the date upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates will cease to accrue. The Master Trustee will give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and will not be required to make payment to the Holder of any unpaid Obligation until such Obligation will be presented to the Master Trustee for appropriate endorsement of any partial payment or for cancellation if fully paid.

D-51 Whenever all Obligations and interest thereon have been paid under the provisions of the Master Indenture and all expenses and charges of the Master Trustee have been paid or provided for, any balance remaining will be paid to the Person entitled to receive the same; if no other Person will be entitled thereto, then the balance will be paid to the Members of the Obligated Group, their respective successors, or as a court of competent jurisdiction may direct.

Notwithstanding any provision of the Master Indenture to the contrary, for the purpose of determining the amount of unpaid principal of and interest on any Outstanding Obligation, the amount paid or available to be paid to the Holder of such Obligation from a Debt Service Reserve Fund securing such Obligation will be deducted.

Notwithstanding any provision of the Master Indenture to the contrary, for purposes described in this clause, “interest” on Obligations that evidence and secure Derivative Obligations will mean regularly scheduled payments under the applicable Derivative Agreement and “principal” of such Obligations will mean termination payments and any other payment except regularly scheduled payments under the applicable Derivative Agreement. Unless otherwise provided in the Supplement creating an Obligation that evidences and secures Derivative Obligations, payment of the portion of such Obligation that evidences and secures termination payments and any other payments except regularly scheduled payments under a Derivative Agreement will be subordinate to payment of other Obligations.

Holders’ Control of Proceedings

If an Event of Default will have occurred and be continuing, notwithstanding anything in the Master Indenture to the contrary, the Holders of not less than a majority in aggregate principal amount of Obligations then Outstanding will have the right, at any time, by an instrument in writing executed and delivered to the Master Trustee and accompanied by indemnity satisfactory to the Master Trustee, to direct the method and place of conducting any proceeding to be taken in connection with the enforcement of the terms and conditions hereof or for the appointment of a receiver or any other proceedings under the Master Indenture, provided that such direction is not in conflict with any applicable law or the provisions hereof, and provided further, that the Master Trustee will have the right to decline to follow any such direction if the Master Trustee in good faith will determine that the proceeding so directed would involve it in personal liability, and, in the sole judgment of the Master Trustee, is not unduly prejudicial to the interest of any Holders not joining in such direction and provided further that nothing in the Master Indenture will impair the right of the Master Trustee in its discretion to take any other action under the Master Indenture which it may deem proper and which is not inconsistent with such direction by Holders.

Termination of Proceeding

In case any proceeding taken by the Master Trustee on account of an Event of Default will have been discontinued or abandoned for any reason or will have been determined adversely to the Master Trustee or to the Holders, then the Members of the Obligated Group, the Master Trustee and the Holders will be restored to their former positions and rights under the Master Indenture, and all rights, remedies and powers of the Master Trustee, the Members of the Obligated Group and the Holders will continue as if no such proceeding had been taken.

Waiver of Event of Default

(a) No delay or omission of the Master Trustee or of any Holder to exercise any right or power accruing upon any Event of Default will impair any such right or power or will be construed to be a waiver of any such Event of Default or an acquiescence therein. Every power and remedy given by this

D-52 Article to the Master Trustee and the Holders, respectively, may be exercised from time to time and as often as may be deemed expedient by them.

(b) The Master Trustee may waive any Event of Default which in its opinion will have been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted by it under the provisions hereof, or before the completion of the enforcement of any other remedy under the Master Indenture.

(c) Notwithstanding anything contained in the Master Indenture to the contrary, the Master Trustee, upon the written request of the Holders of not less than a majority of the aggregate principal amount of Obligations then Outstanding, will waive any Event of Default under the Master Indenture and its consequences; provided, however, that, except under the circumstances described in paragraph (b) of “SUMMARY OF MASTER INDENTURE – Acceleration; Annulment of Acceleration” above, a default in the payment of the principal of, premium, if any, or interest on or other payment on any Obligation, when the same will become due and payable by the terms thereof or upon call for redemption, may not be waived without the written consent of the Holders of all the Obligations (with respect to which such payment default exists) at the time Outstanding.

(d) In case of any waiver by the Master Trustee of an Event of Default under the Master Indenture, the Members of the Obligated Group, the Master Trustee and the Holders will be restored to their former positions and rights thereunder, respectively, but no such waiver will extend to any subsequent or other Event of Default or impair any right consequent thereon.

Appointment of Receiver

Upon the occurrence of any Event of Default, unless the same will have been waived as provided in the Master Indenture, the Master Trustee will be entitled as a matter of right if it will so elect, (i) forthwith and without declaring the Obligations to be due and payable, (ii) after declaring the same to be due and payable, or (iii) upon the commencement of an action to enforce the specific performance hereof or in aid thereof or upon the commencement of any other judicial proceeding to enforce any right of the Master Trustee or the Holders, to the appointment of a receiver or receivers of any or all of the Property of the Obligated Group with such powers as the court making such appointment will confer. Upon the occurrence of an Event of Default, each Member of the Obligated Group, respectively, consents and agrees, and will if requested by the Master Trustee consent and agree at the time of application by the Master Trustee for appointment of a receiver of its Property, to the appointment of such receiver of its Property and that such receiver may be given the right, power and authority, to the extent the same may lawfully be given, to take possession of and operate and deal with such Property and the revenues, profits and proceeds therefrom, with like effect as such Member of the Obligated Group could do so, and to borrow money and issue evidences of indebtedness as such receiver.

Remedies Subject to Provisions of Law

All rights, remedies and powers provided by the Master Indenture may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of the Master Indenture are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this instrument or the provisions hereof invalid or unenforceable under the provisions of any applicable law.

D-53 Notice of Default

Promptly after obtaining knowledge of any Event of Default, each Member of the Obligated Group will deliver to the Master Trustee and, so long as any Commission Bonds are outstanding, the Commission and the Local Government Commission, a written notice specifying the nature and period of existence of such Event of Default and the action the Obligated Group is taking and proposes to take with respect thereto.

The Master Trustee will, within thirty (30) days after it has knowledge of the occurrence of an Event of Default, mail to all Holders as the names and addresses of such Holders appear upon the books of the Master Trustee, notice of such Event of Default known to the Master Trustee, unless such Event of Default will have been cured before the giving of such notice; provided that, except in the case of default in the payment of the principal of, redemption premium, if any, or interest or other payment on any of the Obligations and the Events of Default specified in paragraphs (e) and (f) of “SUMMARY OF MASTER INDENTURE – Events of Default” above, the Master Trustee will be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or any responsible officer of the Master Trustee in good faith determines that the withholding of such notice is in the interests of the Holders.

For purposes of the Master Indenture, the Master Trustee will not be deemed to have knowledge of an Event of Default thereunder unless an officer of the Master Trustee has actual knowledge thereof or unless written notice of any event which is an Event of Default is received by the Master Trustee and such notice references the Master Indenture.

Supplements Not Requiring Consent of Holders

Each Member of the Obligated Group, when authorized by resolution or other action of equal formality by its Governing Body, and the Master Trustee may, without the consent of or notice to any of the Holders, enter into one or more Supplements for one or more of the following purposes:

(a) To cure any ambiguity or formal defect or omission herein which will not materially and adversely affect the interests of the Holders.

(b) To correct or supplement any provision in the Master Indenture which may be inconsistent with any other provision therein, or to make any other provisions with respect to matters or questions arising thereunder and which will not materially and adversely affect the interests of the Holders.

(c) To grant or confer ratably upon all of the Holders any additional rights, remedies, powers or authority that may lawfully be granted or conferred upon them subject to the provisions of the Master Indenture.

(d) To qualify the Master Indenture under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect.

(e) To create and provide for the issuance of Obligations as permitted under the Master Indenture.

(f) To obligate a successor to any Member of the Obligated Group as described in “SUMMARY OF MASTER INDENTURE – Consolidation, Merger, Sale or Conveyance” above.

D-54 (g) To comply with the provisions of any federal or state securities law.

[(h) To modify any defined term in the Master Indenture to mitigate the effect of any changes in accounting rules and/or principles].1

Supplements Requiring Consent of Holders

(a) Other than Supplements referred to in “SUMMARY OF MASTER INDENTURE – Supplements Not Requiring Consent of Holders” above and subject to the terms and provisions and limitations described in this clause and, if any Commission Bonds are outstanding, to the consent of the Commission, and not otherwise, the Holders of not less than a majority in aggregate principal amount of Obligations then Outstanding will have the right, from time to time, anything contained herein to the contrary notwithstanding, to consent to and approve the execution by each Member of the Obligated Group, when authorized by resolution or other action of equal formality by its Governing Body, and the Master Trustee of such Supplements as will be deemed necessary and desirable for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained herein; provided, however, nothing in this clause will permit or be construed as permitting a Supplement which would:

(i) Effect a change in the times, amounts or currency of payment of the principal of, redemption premium, if any, and interest or other payment on any Obligation or a reduction in the principal amount or redemption price of any Obligation or the rate of interest thereon, without the consent of the Holder of such Obligation;

(ii) Permit the preference or priority of any Obligation over any other Obligation, without the consent of the Holders of all Obligations then Outstanding; or

(iii) Reduce the aggregate principal amount of Obligations then Outstanding the consent of the Holders of which is required to authorize such Supplement without the consent of the Holders of all Obligations then Outstanding.

(b) If at any time each Member of the Obligated Group will request the Master Trustee to enter into a Supplement pursuant to the Master Indenture and described in this clause, which request is accompanied by a copy of the resolution or other action of its Governing Body certified by its secretary or any assistant secretary or if it has no secretary or assistant secretary, its comparable officer, and the proposed Supplement, the Master Trustee will, at the expense of the Obligated Group, cause notice of the proposed execution of such Supplement to be mailed, postage prepaid, to all Holders. Such notice will briefly set forth the nature of the proposed Supplement and will state that copies thereof are on file at the principal corporate trust office of the Master Trustee for inspection by all Holders. The Master Trustee will not, however, be subject to any liability to any Holder by reason of its failure to mail the notice required by the Master Indenture, and any such failure will not affect the validity of such Supplement when approved and consented to as provided in the Master Indenture. If, following such notice, the Master Trustee will receive an instrument or instruments purporting to be executed by the Holders of not less than the aggregate principal amount or number of Obligations specified in paragraph (a) above for the Supplement in question which instrument or instruments will refer to the proposed Supplement and will specifically consent to and approve the execution thereof in substantially the form of the copy thereof as

D-55 on file with the Master Trustee, thereupon, but not otherwise, the Master Trustee may execute such Supplement in substantially such form, without liability or responsibility to any Holder, whether or not such Holder will have consented thereto.

(c) Any such consent will be binding upon the Holder giving such consent and upon any subsequent Holder of such Obligation and of any Obligation issued in exchange therefor (whether or not such subsequent Holder thereof has notice thereof), unless such consent is revoked in writing by the Holder of such Obligation giving such consent or by a subsequent Holder thereof by filing with the Master Trustee, prior to the execution by the Master Trustee of such Supplement, such revocation and, if such Obligation is transferable by delivery, proof that such Obligation is held by the signer of such revocation in the manner permitted by the Master Indenture. At any time after the Holders of the required principal amount or number of Obligations will have filed their consents to the Supplement, the Master Trustee will make and file with each Member of the Obligated Group a written statement to that effect. Such written statement will be conclusive that such consents have been so filed.

(d) If the Holders of the required principal amount of the Obligations Outstanding will have consented to and approved the execution of such Supplement as herein provided, no Holder will have any right to object to the execution thereof, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Master Trustee or any Member of the Obligated Group from executing the same or from taking any action pursuant to the provisions thereof.

Evidence of Acts of Holders

In the event that any request, direction or consent is requested or permitted under the Master Indenture of the Holders, the registered owners of Related Bonds then Outstanding will be deemed to be such Holders for the purpose of any such request, direction or consent in the proportion that the aggregate principal amount of Related Bonds then Outstanding held by each such owner of Related Bonds bears to the aggregate principal amount of all Related Bonds then outstanding; provided, however, if the Related Bond Indenture so provides, if at any time a letter of credit or bond insurance policy secures payment of the principal of and interest on such Related Bonds, then the provider of such letter of credit or bond insurance policy shall be deemed to be the Holders of such Related Bonds except during any period when such provider has failed to honor its obligations under such letter of credit or bond insurance policy.

In connection with the initial offering and sale of Related Bonds, the underwriters (or their representative) of such Related Bonds will be deemed to be the initial Holders thereof or, if such Related Bonds so provide, may be appointed as attorney-in-fact by the initial purchasers of such Related Bonds for the purpose of consenting to any request, direction, consent or other instrument to be signed and executed by the Holders.

SUMMARY OF LOAN AGREEMENT

The following is a summary of certain provisions of the Loan Agreement to which reference is made for a full and complete statement of its provisions.

Loan Repayments; Required Payments Under the Agreement

The Corporation is required to make the Total Required Payments under the Loan Agreement when due. Loan Repayments are required to be paid, when due and payable, directly to the Bond Trustee for deposit in the Bond Fund or the Redemption Fund and Required Payments under the Agreement are required to be paid to any Person entitled to such payments.

D-56 Loan Repayments are required to be sufficient in the aggregate to repay the Loan and interest thereon and to pay in full all Bonds issued under the Trust Agreement, together with the total interest and redemption premium, if any, thereon. The Corporation is required to repay the Loan in installments as provided in the Loan Agreement, each installment being deemed a Loan Repayment.

The Loan Repayments are due and payable as follows:

(i) to the credit of the Interest Account, beginning on July 25, 2018 and continuing on the 25th day of each month thereafter through September 25, 2018, an amount equal to one-third (1/3) of the interest payable on the Bonds on the October 1, 2018 Interest Payment Date and, beginning on October 25, 2018 and continuing on the 25th day of each month thereafter, an amount equal to one-sixth (1/6) of the interest payable on the Bonds on the next ensuing Interest Payment Date;

(ii) to the credit of the Principal Account, beginning on October 25, 20__ and continuing on the 25th day of each month thereafter, an amount equal to one-twelfth (1/12) of the principal of all Serial Bonds due on the next ensuing October 1;

(iii) to the credit of the Sinking Fund Account, beginning on October 25, 20__ and continuing on the 25th day of each month thereafter, an amount equal to one-twelfth (1/12) of the amount required to retire the Term Bonds to be called pursuant to mandatory sinking fund redemption or to be paid at maturity on the next ensuing October 1 in accordance with the Sinking Fund Requirement therefor; and

(iv) to the credit of the Interest Account or the Redemption Fund, as applicable, any amount that may from time to time be required to enable the Bond Trustee to pay the interest on and Redemption Price of Bonds as and when Bonds are called for redemption other than mandatory redemption in accordance with the Sinking Fund Requirement therefor.

The Corporation will pay, when due and payable, as Required Payments under the Agreement, certain fees and costs, exclusive of fees and costs payable from the proceeds of the Bonds, as provided in the Loan Agreement.

Absolute Obligation to Make Total Required Payments

The obligation of the Corporation to make the Loan Repayments, the Required Payments under the Agreement and all other payments due under the Loan Agreement and Obligation No. 16 and to perform and observe the other agreements contained in the Loan Agreement is absolute and unconditional and will not be abated, diminished or deducted, regardless of any cause or circumstances whatsoever including any defense, set-off, recoupment or counterclaim that the Corporation may have or assert against the Authority or the Bond Trustee or any other Person.

Other Covenants of the Corporation

The Loan Agreement provides that the Corporation will comply with each covenant, condition and agreement set forth in the Master Indenture and in the Loan Agreement. The Loan Agreement also sets forth certain other covenants of the Corporation with respect to: examination of books and records of the Obligated Group; the execution, acknowledgment and delivery of supplements, amendments and other corrective instruments as may reasonably be required with respect to the performance of the Loan Agreement; inspection of any Property, Plant and Equipment by the Authority, the Bond Trustee and the

D-57 Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds; the investment of funds; and use and operation of the Facilities.

Rating Solicitation Covenant

Not later than 150 days after receipt by the Corporation of the Financial Statements each Fiscal Year commencing with the Fiscal Year ended September 30, 2018, the Corporation will approach Fitch or any other Rating Agency to obtain a credit rating until the Obligated Group obtains an Investment Grade Credit Rating. The requirement to annually approach a Rating Agency will terminate when the Obligated Group obtains an Investment Grade Credit Rating. In addition, the Corporation will not be required to approach a Rating Agency to obtain a credit rating pursuant to the Loan Agreement if the Corporation 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.

Notwithstanding the foregoing, the Corporation will not be required to approach Fitch or any other Rating Agency at the time and in the manner described in the first sentence of the preceding paragraph if the Obligated Group maintains any level of rating from Fitch or any other Rating Agency.

Marketing Covenant

If the number of Project Independent Living Units Presold for any fiscal quarter is less than the number set forth above for that date, the Obligated Group Representative will within 30 days thereafter submit an Officer’s Certificate to the Bond Trustee and the MSRB setting forth in detail the reasons therefor and the plan to increase the number of Project Independent Living Units Presold to at least the levels set forth above for future periods.

If the number of Project Independent Living Units Presold for any two consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative will retain a Management Consultant to make recommendations, within 30 days thereafter (or such later date as results from following the process described under “SUMMARY OF LOAN AGREEMENT – Engagement of Management Consultants” herein), regarding the actions to be taken to increase the number of Independent Living Units Presold to at least the levels set forth above for future periods. Within 60 days of retaining any such Management Consultant, the Obligated Group Representative will cause a copy of the Management Consultant’s report and recommendations, if any, to be filed with the Bond Trustee and a copy or summary thereof with the MSRB. The Corporation will follow each recommendation of the

D-58 Management Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Corporation) and permitted by law.

Notwithstanding any other provision of the Loan Agreement, failure of the Corporation to achieve the required marketing covenant will not constitute an Event of Default under the Loan Agreement if the Corporation takes all action necessary to comply with the procedures described above 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 Corporation) and permitted by law. Notwithstanding the foregoing, in the event that the number of Project Independent Living Units Presold for any four consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative will retain a different Management Consultant following the fourth consecutive fiscal quarter than the Management Consultant(s) used for the prior fiscal quarters.

Occupancy Covenant

Pursuant to the Loan Agreement, the Corporation has covenanted that for each fiscal quarter commencing with the fiscal quarter which ends not less than 60 days following the issuance of the initial occupancy certificate for the Project Independent Living Units (but no earlier than the quarter ended June 30, 2019) and ending with the Stabilization Date (each an “Occupancy Quarter”), the Corporation will use its best efforts to have Occupied Project Independent Living Units at or above the levels set forth below (measured as of the last day of the applicable quarter):

Number of Project Independent Living Units Occupancy Quarter Occupied 1 10 2 25 3 28 4 28 5 28 6 28 7 38 8 46 9 54 10 and thereafter 60

If the number of Project Independent Living Units Occupied for any fiscal quarter is less than the number set forth above for that date, the Obligated Group Representative will within 30 days thereafter submit an Officer’s Certificate to the Bond Trustee and the MSRB setting forth in detail the reasons therefor and the plan to increase the number of Project Independent Living Units Occupied to at least the levels set forth above for future periods.

If the number of Project Independent Living Units Occupied for any two consecutive fiscal quarters is less than the number set forth above for that date, the Obligated Group Representative will retain a Management Consultant to make recommendations, within 30 days thereafter (or such later date as results from following the process described under “SUMMARY OF LOAN AGREEMENT – Engagement of Management Consultants” herein), regarding the actions to be taken to increase the number of Project Independent Living Units Occupied to at least the levels set forth above for future periods. Within 60 days of retaining any such Management Consultant, the Obligated Group Representative will cause a copy of the Management Consultant’s report and recommendations, if any, to

D-59 be filed with the Bond Trustee and a copy or summary thereof with the MSRB. The Corporation will follow each recommendation of the Management Consultant to the extent feasible (as been determined in the reasonable judgment of the Governing Board of the Corporation) and permitted by law.

Notwithstanding any other provision of the Loan Agreement, failure of the Corporation to achieve the required occupancy covenant will not constitute an Event of Default under the Loan Agreement if the Corporation takes all action necessary to comply with the procedures described above 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 Corporation) and permitted by law. Notwithstanding the foregoing, in the event that the number of Project Independent Living Units Occupied for any four consecutive fiscal quarters is less than the number set forth above for those dates, the Obligated Group Representative will retain a different Management Consultant following the fourth consecutive fiscal quarter than the Management Consultant(s) used for the prior fiscal quarters.

Engagement of Management Consultants

If the Obligated Group is required to engage a Management Consultant pursuant to the Master Indenture and described under “SUMMARY OF MASTER INDENTURE – Rates and Charges and – Liquidity Covenant” above or the Loan Agreement as described under “SUMMARY OF LOAN AGREEMENT – Marketing Covenant and – Occupancy Covenant” above, as the case may be, such Management Consultant will be engaged in the following manner:

(a) The Obligated Group will give notice of the selection of a Management Consultant to the Bond Trustee within fifteen (15) days after the Obligated Group becomes obligated to engage a Management Consultant. The Bond Trustee will, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the owners of all the Bonds Outstanding of such selection and the Obligated Group Representative will post a copy of such notice (or cause a copy of such notice to be posted) with the MSRB through its Electronic Municipal Market Access system. Such notice will (i) include the name of the Management Consultant and a brief description of the Management Consultant, (ii) state the reason that the Management Consultant is being engaged including a description of the covenant of the Master Indenture that requires the Management Consultant to be engaged, and (iii) state that the owner of a Bond will be deemed to have consented to the selection of the Management Consultant named in such notice unless such owner submits an objection to the selected Management Consultant in writing (in a manner acceptable to the Bond Trustee) to the Bond Trustee within 15 days of the date that the notice is sent to the owner. No later than two Business Days after the end of the 15-day objection period, the Bond Trustee will notify the Obligated Group of the number of objections. If the owners of more than one-third (33.3%) in aggregate principal amount of the Bonds Outstanding have objected to the Management Consultant selected, the Obligated Group Representative will select another Management Consultant within 14 days after receiving notice of such objection, who may be engaged upon compliance with the procedures described in this paragraph.

(b) If a Management Consultant is required to be engaged under more than one of the provisions of the Master Indenture and described under “SUMMARY OF MASTER INDENTURE – Rates and Charges and – Liquidity Covenant” above or the Loan Agreement as described under “SUMMARY OF LOAN AGREEMENT – Marketing Covenant and – Occupancy Covenant” above, the requirements of those provisions may (but need not) be satisfied through the engagement of a single Management Consultant under a single engagement in lieu of multiple engagements.

D-60 Defaults and Remedies

Events of Default are defined in the Loan Agreement to include: (a) failure of the Corporation to make any payment required under the Loan Agreement or Obligation No. 16 when due, whether at maturity, redemption, acceleration or otherwise, (b) failure of the Corporation to perform, observe or comply with any covenant, condition or agreement on its part under the Loan Agreement (other than a failure to make any payments under clause (a) of this paragraph), including any covenant, condition or agreement in the Master Indenture applicable to the Corporation and incorporated by reference in the Loan Agreement, and such failure continues for a period of thirty (30) days after the date on which written notice of such failure, requiring the same to be remedied, has been given to the Corporation by the Bond Trustee or to the Corporation and the Bond Trustee by the Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, provided, however, that if such performance, observation or compliance requires work to be done, action to be taken or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such 30-day period, no Event of Default will be deemed to have occurred or to exist if, and so long as, the Corporation will commence such performance, observation or compliance within such period and will diligently and continuously prosecute the same to completion, or (c) the Master Trustee has declared the aggregate principal amount of Obligation No. 16 and all interest due thereon immediately due and payable in accordance with the Master Indenture.

Upon the happening and continuance of an Event of Default under the Loan Agreement, the Bond Trustee, on behalf of the Authority, may take the following remedial steps: (i) in the case of an Event of Default described in clause (a) of the preceding paragraph, take whatever action at law or in equity is necessary or desirable to collect the payments then due; (ii) in the case of an Event of Default described in clause (b) of the preceding paragraph, take whatever action at law or in equity is necessary or desirable to enforce the performance, observance or compliance by the Corporation with any covenant, condition or agreement by the Corporation under the Loan Agreement or under the Master Indenture; and (iii) in the case of an Event of Default described in clause (c) of the preceding paragraph, take such action or cease such action as the Master Trustee will direct, but only to the extent such directions are consistent with the provisions of the Master Indenture.

Prepayment of the Loan

The Corporation has the option to prepay, together with accrued interest, all or any portion of the unpaid aggregate amount of the Loan in accordance with the Trust Agreement. Such prepayment will be made by the Corporation taking, or causing the Authority to take, the actions required (i) for payment of the Bonds, whether by redemption or purchase prior to maturity or by payment at maturity, or (ii) to effect the purchase, redemption or payment at maturity of less than all of the Outstanding Bonds according to their terms.

The Corporation has the option to prepay all or a portion of the unpaid aggregate amount of the Loan, together with accrued interest to the date of prepayment, from amounts received by any Member of the Obligated Group as insurance proceeds with respect to any casualty loss or failure of title or as condemnation awards pursuant to the Loan Agreement, provided that such prepayment will not be less than $100,000, and upon the occurrence of the following events: damage or destruction of all or any part (if such damage or destruction causes the Facilities as a whole to be impracticable to operate, as evidenced by an Officer’s Certificate filed with the Authority and the Bond Trustee) of the Facilities by fire or casualty, or loss of title to or use of all or any part (if such loss of title causes the Facilities as a whole to be impracticable to operate, as evidenced by an Officer’s Certificate filed with the Authority and the Bond Trustee) of the Facilities as a result of the failure of title or as a result of Eminent Domain proceedings or proceedings in lieu thereof.

D-61 The Corporation has the option to prepay all of the unpaid aggregate amount of the Loan, together with accrued interest to the date of prepayment, upon the occurrence of the following events: changes in the Constitution of the United States of America or of the State or legislation or administrative action or failure of administrative action by the United States of America or the State or any agency or political subdivision of either, or any judicial decision, to the extent that, in the opinion of the Board of Directors of the Corporation (expressed in a resolution) and in the opinion of a Management Consultant, both filed with the Authority and the Bond Trustee, (i) the Loan Agreement is impossible to perform without unreasonable delay or (ii) unreasonable burdens or excessive liabilities not being imposed on the date of the Loan Agreement are imposed on the Corporation.

The Corporation is required to prepay the Loan in whole, together with accrued interest, at the time and in an amount sufficient to redeem the Bonds in whole pursuant to the provisions of the Trust Agreement upon the occurrence of a Determination of Taxability.

Amendments to Loan Agreement

The Loan Agreement may be amended, without the consent of or notice to any of the Holders, as will be consistent with the terms of the Trust Agreement and the Loan Agreement and, in the opinion of the Bond Trustee, who may fully and conclusively rely upon a written Opinion of Counsel, will not materially and adversely affect the Holders, to cure any ambiguity or formal defect or omission therein or in any supplement thereto, to correct or supplement any provisions therein which may be inconsistent with any other provisions therein or make any other amendments with respect to matters or questions arising thereunder, to grant to or confer upon the Bond Trustee for the benefit of the Holders any additional rights, remedies, powers, authority or security that may lawfully be granted or conferred upon the Holders or the Bond Trustee, and to add conditions, limitations and restrictions on the Corporation to be observed thereafter. Any other amendments to the Loan Agreement require approval of the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding, except for certain amendments which would require consent of the Holders of all Bonds then Outstanding.

Authority Members, Officers and Employees of the Authority and the Corporation Not Liable

No Authority Indemnified Party shall be individually or personally liable for the payment of any principal of, premium, if any, or interest on the Bonds or any costs incidental thereto or any sum hereunder or under the Trust Agreement or be subject to any personal liability or accountability by reason of the execution and delivery of the Loan Agreement or the Trust Agreement. The members of the Board of Directors or the officers and employees of the Corporation shall not be personally liable for any costs, losses, damages or liabilities caused or subsequently incurred by the Corporation or any officer, director or agent thereof in connection with or as a result of the Loan Agreement.

Exclusion from Gross Income Covenant

The Corporation covenants that it will not take any action which will, or fail to take any action which failure will, cause interest on the Bonds to become includable in the gross income of the Holders for federal income tax purposes pursuant to the provisions of the Code; provided, however, that the Authority will have no obligation to pay any amounts necessary to comply with this covenant other than from money received by the Authority from the Corporation for such purposes.

D-62 SUMMARY OF THE TRUST AGREEMENT

The following is a summary of certain provisions of the Trust Agreement to which reference is made for a full and complete statement of its provisions.

Various Funds and Accounts Created by the Trust Agreement

The Trust Agreement creates the following funds and accounts: the Construction Fund, with three separate accounts therein designated as the Construction Account, the Issuance Account and the Revolving Fund Account; the Bond Fund, with three separate accounts therein designated as the Interest Account, the Principal Account and the Sinking Fund Account; and the Redemption Fund.

The money and securities in each of the aforementioned funds and accounts will be held in trust by the Bond Trustee and will be subject to a lien and charge in favor of the Holders of the Bonds until paid out or transferred as provided in the Trust Agreement.

In addition to the foregoing funds and accounts, Reserve Fund No. 1 has been established under the Master Indenture for the further benefit and security of the Holders. See “SUMMARY OF THE MASTER INDENTURE—Debt Service Reserve Funds” above.

Construction Fund

The Bond Trustee will make the deposits to the Construction Account and the Issuance Account required by the provisions of the Trust Agreement. All money received by the Authority from any source, including the Corporation, for the construction of the Project will be deposited immediately upon its receipt to the credit of the Construction Account.

The money in the Construction Fund will be held by the Bond Trustee in trust and, subject to the provisions of the Trust Agreement, will be applied to the payment of the Cost of the Project and, pending such application, will be subject to a lien and charge in favor of the Holders and for the further security of such Holders until paid out or transferred as provided in the Trust Agreement. Additionally, as to requisitions for obligations payable from the Construction Account and relating to the Project, the Construction Monitor must approve such requisitions.

In addition to such payments, upon receipt of a requisition of the Corporation signed by a Obligated Group Representative, the Bond Trustee will transfer from the Construction Account to the Revolving Fund Account at one time or from time to time, a sum or sums aggregating not more than One Million Dollars ($1,000,000), exclusive of reimbursement as hereinafter authorized in the Trust Agreement, to be used by the Corporation as a revolving fund for the payment of items of Cost, other than Issuance Costs, referred to in the Trust Agreement that cannot conveniently be paid as therein otherwise provided. The Revolving Fund Account will be reimbursed by the Bond Trustee from time to time for such items of Cost so paid by transferring from the Construction Account as described in the Trust Agreement.

When the Project will have been completed, which fact shall be evidenced to the Bond Trustee by an Officer’s Certificate of the Obligated Group Representative delivered to the Bond Trustee and the Authority pursuant to the Loan Agreement, the balance in the Construction Fund will be applied by the Bond Trustee, subject to the provisions of the Trust Agreement, as directed by the Corporation, together with an opinion of Bond Counsel that such purpose is permitted by the Act and will not cause interest on the Bonds to become includible in the gross income of the Holders thereof for federal income tax purposes pursuant to the provisions of the Code. In the event an opinion of Bond Counsel is not delivered

D-63 as required by the preceding sentence, the Bond Trustee will transfer any such balance in the Construction Fund to the Interest Account and use it to pay interest on the Bonds on the immediately succeeding Interest Payment Date.

Funds Received

The Bond Trustee will deposit all amounts received as Loan Repayments in the following order, subject to the credits as provided in the Trust Agreement:

(a) to the credit of the Interest Account, beginning on July 25, 2018 and continuing on the 25th day of each month thereafter through September 25, 2018, an amount equal to one-third (1/3) of the interest payable on the Bonds on the October 1, 2018 Interest Payment Date and, beginning on October 25, 2018 and continuing on the 25th day of each month thereafter, an amount equal to one-sixth (1/6) of the interest payable on the Bonds on the next ensuing Interest Payment Date;

(b) to the credit of the Principal Account, beginning on October 25, 20__ and continuing on the 25th day of each month thereafter, an amount equal to one-twelfth (1/12) of the principal of all Serial Bonds due on the next ensuing October 1;

(c) to the credit of the Sinking Fund Account, beginning on October 25, 20__ and continuing on the 25th day of each month thereafter, an amount equal to one-twelfth (1/12) of the amount required to retire the Term Bonds to be called pursuant to mandatory sinking fund redemption or to be paid at maturity on the next ensuing October 1 in accordance with the Sinking Fund Requirement therefor; and

(d) to the credit of the Interest Account or the Redemption Fund, as applicable, any amount that may from time to time be required to enable the Bond Trustee to pay the interest on and Redemption Price of Bonds as and when Bonds are called for redemption other than mandatory redemption in accordance with the Sinking Fund Requirement therefor.

If, after giving effect to the credits specified below, any installment of Total Required Payments should be insufficient to enable the Bond Trustee to make the deposits required above, the Bond Trustee will give the Corporation telephonic notice thereof, promptly confirmed in writing, and request that each future installment of the Total Required Payments be increased as may be necessary to make up any previous deficiency in any of the required payments and to make up any deficiency or loss in any of the above-mentioned accounts and funds.

To the extent that investment earnings are credited to the Interest Account or the Sinking Fund Account in accordance with the Trust Agreement or amounts are credited thereto as a result of the application of the proceeds of the Bonds or a transfer of investment earnings on any other fund or account held by the Bond Trustee, or otherwise, future deposits to such accounts will be reduced by the amount so credited, and the Loan Repayments due from the Corporation in the months following the date upon which such amounts are credited will be reduced by the amounts so credited.

All amounts received by the Bond Trustee as principal of or interest accruing on the Bonds to be redeemed as a result of a prepayment of Obligation No. 16 shall be deposited in the Redemption Fund and the Interest Account, respectively, when received. All amounts received by the Bond Trustee as redemption premiums shall be deposited in the Redemption Fund when received.

D-64 Bond Fund Accounts

If the Bonds are not in a Book Entry System, not later than 10:00 A.M. on each Interest Payment Date, or date for the payment of Defaulted Interest, or date upon which Bonds are to be redeemed, the Bond Trustee will withdraw from the Interest Account and remit by mail, or as permitted by the Trust Agreement by wire transfer the amount required for paying interest on such Bonds when due and payable.

If the Bonds are in a Book Entry System, at such time as to enable the Bond Trustee to make payments of interest on the Bonds in accordance with any existing agreement between the Bond Trustee and any Securities Depository, the Bond Trustee will withdraw from the Interest Account and remit by wire transfer, in Federal Reserve or other immediately available funds, the amounts required to pay to any Holder which is a Securities Depository Nominee interest on the Bonds on the next succeeding Interest Payment Date; provided, however, that in no event will the Bond Trustee be required to make such wire transfer prior to the Business Day next preceding each Interest Payment Date.

In the event the balance in the Interest Account on the 25th day of the month next preceding an Interest Payment Date or date upon which Bonds are to be redeemed is insufficient for the payment of interest becoming due on the Bonds on the next ensuing Interest Payment Date or date upon which Bonds are to be redeemed, the Bond Trustee will notify the Corporation of the amount of the deficiency. Upon notification, the Corporation will immediately deliver to the Trustee an amount sufficient to cure the same. If the amount so delivered is not sufficient to cure the deficiency in the Interest Account, the Bond Trustee will deliver a written notice to the Master Trustee to the effect that the amount available to the Bond Trustee to pay interest on the Bonds is less than the amount of interest becoming due and specifying the amount of such deficiency. The Bond Trustee will deposit into the Interest Account all amounts received from Reserve Fund No. 1 to cure such deficiency.

Not later than 10:00 A.M. on each October 1, the Bond Trustee will set aside the amount necessary to pay the principal of all Serial Bonds maturing on such October 1.

In the event that the balance in the Principal Account on any September 25 is insufficient for the payment of principal becoming due on the next ensuing October 1, the Bond Trustee will notify the Corporation of the amount of the deficiency. Upon notification, the Corporation will immediately deliver to the Bond Trustee an amount sufficient to cure the same. If the amount so delivered is not sufficient to cure the deficiency in the Principal Account, the Bond Trustee will, not later than the Business Day next preceding such October 1, deliver a written notice to the Master Trustee to the effect that the amount available to the Bond Trustee to pay principal on the Serial Bonds is less than the amount of principal becoming due and specifying the amount of such deficiency. The Bond Trustee will deposit into the Principal Account all amounts received from Reserve Fund No. 1 to cure such deficiency for the Serial Bonds.

Money held for the credit of the Sinking Fund Account will be applied during each Bond Year to the retirement of Term Bonds then Outstanding as provided in the Trust Agreement.

In the event the balance in the Sinking Fund Account on any September 25 is insufficient for the payment of the Sinking Fund Requirement on the Term Bonds on the next ensuing October 1, the Bond Trustee will notify the Corporation of the amount of such deficiency. Upon notification, the Corporation will immediately deliver to the Bond Trustee an amount sufficient to cure the same. If the amounts so delivered are not sufficient to cure the deficiency in the Sinking Fund Account, the Bond Trustee will, not later than the Business Day next preceding such October 1, deliver a written notice to the Master Trustee to the effect that the amount available to the Bond Trustee to pay the Sinking Fund Requirement is less than the amount of the Sinking Fund Requirement and specifying the amount of such deficiency. The

D-65 Bond Trustee will deposit into the Sinking Fund Account all amounts received from Reserve Fund No. 1 to cure such deficiency.

Redemption Fund

Money held for the credit of the Redemption Fund will be applied to the purchase or redemption of Bonds as provided in the Trust Agreement.

Reserve Fund No. 1

Whenever and to the extent that the money on deposit in the Interest Account, the Principal Account or the Sinking Fund Account is insufficient to pay interest on or principal of (whether at maturity, by acceleration or in satisfaction of the Sinking Fund Requirement therefor) the Bonds, the Bond Trustee will attempt to obtain funds from Reserve Fund No. 1 by delivering written notice to the Master Trustee to the effect that the amount available to the Bond Trustee to pay interest on or principal of the Bonds is less than the interest or principal coming due and specifying the amount of such deficiency. The Bond Trustee will deposit into the Interest Account, the Principal Account and the Sinking Fund Account, as the case may be, all amounts received from Reserve Fund No. 1 to cure such deficiency.

The Bond Trustee will deposit any amounts received from the Reserve Fund No. 1 pursuant to the Master Indenture as described above in paragraph (g) under the caption “SUMMARY OF THE MASTER INDENTURE—Debt Service Reserve Funds--General” that are not needed to cure a deficiency as described in the preceding paragraph, as directed by the Corporation, to the Interest Account, the Principal Account, the Sinking Fund Account or the Redemption Fund, as directed in writing by the Corporation. Any deposit of such amounts not needed to cure a deficiency will be credited by the Bond Trustee against future Loan Repayments or Required Payments under the Agreement to be made by the Corporation.

Investment of Money

Money held for the credit of all funds and accounts created under the Trust Agreement and held by the Bond Trustee will be continuously invested and reinvested by the Bond Trustee in Investment Obligations to the extent practicable in accordance with the written instructions of the Corporation. Any such Investment Obligations will mature not later than the respective dates when the money held for the credit of such funds or accounts will be required for the purposes intended.

No Investment Obligations in any fund or account may mature beyond the latest maturity date of any Bonds Outstanding at the time such Investment Obligations are deposited unless irrevocable instructions have been given to redeem such Investment Obligations on a date or dates not later than the latest maturity date of any Bonds Outstanding.

Investment Obligations credited to any fund or account established under the Trust Agreement (other than the Revolving Fund Account) will be held by or under the control of the Bond Trustee and will be deemed at all times to be part of such fund or account in which such money was originally held, and the interest accruing thereon and any profit or loss realized upon the disposition or maturity of such investment will be credited to or charged against such fund or account. The Bond Trustee will sell at the market price available or reduce to cash a sufficient amount of such Investment Obligations whenever it is necessary to provide money to make any payment or transfer of money from any such fund or account. The Bond Trustee will not be liable or responsible for any loss resulting from any investment made in accordance with the provisions of the Trust Agreement.

D-66 Valuation

For the purpose of determining the amount on deposit in any fund or account, Investment Obligations in which money in such fund or account is invested will be valued (a) at face value if such Investment Obligations mature within six months from the date of valuation, and (b) if such Investment Obligations mature more than six months after the date of valuation, at the price at which such Investment Obligations are redeemable by the holder at such holder’s option if so redeemable or, if not so redeemable, at the lesser of (i) the cost of such Investment Obligations minus the amortization of any premium or plus the amortization of any discount thereon and (ii) the market value of such Investment Obligations.

The Bond Trustee will value the Investment Obligations in the funds and accounts established under the Trust Agreement and held by the Bond Trustee three Business Days prior to each April 1 and October 1 and at such other times as shall be requested by the Corporation in order for the Corporation to comply with the Tax Certificate. In addition, the Investment Obligations will be valued by the Bond Trustee at any time requested by the Authority Authorized Signatory or the Obligated Group Representative on reasonable notice to the Bond Trustee, except that the Bond Trustee will not be required to value the Investment Obligations more than once in any calendar month other than as provided in the Trust Agreement.

Events of Default

Each of the following events is an Event of Default under the Trust Agreement:

(a) payment of any installment of interest on any Bond is not made when due and payable;

(b) payment of the principal or the redemption premium, if any, of any Bond is not made by the Authority when due and payable, whether at maturity or by proceedings for redemption or pursuant to a Sinking Fund Requirement or otherwise;

(c) default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Trust Agreement or any agreement supplemental thereto and such default continues for thirty (30) days (or such further time as the Bond Trustee in its sole discretion deems to be in the best interest of the Holder as may be granted in writing by the Bond Trustee) after receipt by the Authority, of a written notice from the Bond Trustee specifying such default and requiring the same to be remedied; provided, however, if prior to the expiration of such 30-day period the Authority institutes action reasonably designed to cure such default, no Event of Default will be deemed to have occurred upon the expiration of such 30-day period for so long as the Authority pursues such curative action with reasonable diligence and provided that such curative action can be completed within a reasonable time; or

(d) an Event of Default has occurred under the Loan Agreement, the Master Indenture or the Corporation Deed of Trust, and such Event of Default has not been remedied or waived.

Remedies on Default

Upon the happening and continuance of any Event of Default under the Trust Agreement, the Bond Trustee may, and upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding will, by notice in writing to the Authority and the Corporation, declare the principal of all Bonds then Outstanding to be due and payable. Such declaration may be rescinded under the circumstances specified in the Trust Agreement.

D-67 Upon the happening and continuance of any Event of Default specified above under the caption “Events of Default”, then and in every such case the Bond Trustee may, and upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding will, proceed, subject to the indemnification provisions of the Trust Agreement, to protect and enforce its rights and the rights of the Holders under the laws of the State, the laws of the State of Wisconsin or under the Trust Agreement by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for the specific performance of any covenant or agreement contained in the Trust Agreement or in aid or execution of any power granted in the Trust Agreement or for the enforcement of any proper legal or equitable remedy, as the Bond Trustee, being advised by counsel chosen by the Bond Trustee, will deem most effectual to protect and enforce such rights.

No Holder may institute any suit, action or proceeding on any Bond or for any remedy under the Trust Agreement unless such Holder previously has given to the Bond Trustee written notice of the Event of Default on account of which suit, action or proceeding is to be instituted, and unless the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding have made a written request of the Bond Trustee to act and have furnished indemnity to the Bond Trustee, as required in the Trust Agreement, and the Bond Trustee has refused or neglected to comply with such request within a reasonable time. Notwithstanding the foregoing, the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds Outstanding may institute any such suit, action or proceeding in their own names for the benefit of all Holders. Except as provided in the Trust Agreement, no Holder will have any right in any manner whatsoever to enforce any right thereunder, and any individual rights given to such Holders by law are restricted by the Trust Agreement to the rights and remedies therein provided. The Trust Agreement does not, however, impair the right of any Holder to enforce the payment of the principal of and interest on his Bond according to its terms.

Notice of Default

Except as described below, notice of any Event of Default will be given by first class mail, postage prepaid, to the Authority, the Corporation, and all Holders within thirty (30) days after the Bond Trustee receives notice of the same. The Bond Trustee will not be subject to any liability to any Holder by reason of its failure to send any such notice.

Except upon the happening of an Event of Default with respect to the payment of the principal of or interest or any premium on the Bonds, when due, or any payment due under the Loan Agreement or on Obligation No. 16, the Bond Trustee may withhold notice of such Event of Default to the Holders if in its opinion such withholding is in the interest of the Holders.

Payment of Bond Trustee’s Fees

If the Authority fails to cause required payments to be made to the Bond Trustee for compensation and expenses, the Bond Trustee may make such payment from any moneys in its possession and will be entitled to a preference therefor over any Bonds Outstanding under the Trust Agreement.

Removal and Resignation of Bond Trustee

The Bond Trustee may be removed (i) at any time, by an instrument or concurrent instruments in writing, executed by the Holders of not less than a majority in aggregate principal amount of Bonds then Outstanding and filed with the Authority or (ii) so long as no Event of Default has occurred and is continuing, by a written instrument executed by the Corporation, subject to the prior written consent of

D-68 the Authority, and filed with the Authority not less than sixty (60) days before such removal is to take effect as stated in such instrument or instruments.

The Bond Trustee may also be removed at any time for acting or proceeding in violation of, or for failing to act or proceed in accordance with, any provisions of the Trust Agreement with respect to the duties and obligations of the Trustee by any court of competent jurisdiction upon the application of the Authority or the Holders of not less than twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding, provided that the Holders deliver notice to the Authority prior to instituting any such action.

Subject to the acceptance of appointment by a successor Bond Trustee, the Bond Trustee may resign by giving written notice to the Authority, the Master Trustee and the Corporation, and mailing such notice, postage prepaid, at the Bond Trustee’s expense, to each Holder, not less than sixty (60) days before such resignation is to take effect, but such resignation will take effect immediately upon the appointment of a new Bond Trustee if such new Bond Trustee is appointed before the time limited by such notice and then accepts the trusts of the Trust Agreement.

Appointment of Successor Bond Trustee

If at any time the Bond Trustee resigns, is removed, dissolved or otherwise becomes incapable of acting, or the bank or trust company acting as Bond Trustee is taken over by any governmental official, agency, department or board, the position of Bond Trustee will thereupon become vacant. If the position of Bond Trustee becomes vacant for any reason, the Corporation will recommend and the Authority will appoint a Bond Trustee to fill such vacancy. A successor Bond Trustee will not be required if the Bond Trustee sells or assigns substantially all of its trust business and the vender or assignee continues in the trust business, or if a transfer of the trust department of the Bond Trustee is required by operation of law, provided that such vendee, assignee or transferee is (i) a bank or trust company having the powers of a trust company as to trusts, qualified to do and doing trust business in one or more states of the United States, (ii) of good standing, (iii) having a combined capital and surplus aggregating not less than One Hundred Million Dollars ($100,000,000) and (iv) approved by the Corporation.

At any time within one year after any such vacancy has occurred, the Holders of not less than twenty five percent (25%) in principal amount of Bonds then Outstanding, by an instrument or concurrent instruments in writing, executed by such Holders and filed with the Authority, may nominate a successor Bond Trustee, which the Authority will appoint and which will supersede any Bond Trustee theretofore appointed by the Authority.

If no appointment of a successor Bond Trustee is made pursuant to the provisions described above, any Holder or any retiring Bond Trustee (irrespective of whether the one-year period referred to in the preceding paragraph has elapsed in the case of a retiring Bond Trustee) may apply to any court of competent jurisdiction to appoint a successor Bond Trustee. Such court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Bond Trustee.

Any successor Bond Trustee appointed will be (i) a bank or trust company having the powers of a trust company as to trusts, qualified to do and doing trust business in one or more states of the United States, (ii) of good standing, (iii) having a combined capital and surplus aggregating not less than One Hundred Million Dollars ($100,000,000) and (iv) approved by the Corporation.

D-69 Holders of Bonds Deemed Holders of Obligation No. 16

In the event that any request, direction or consent is required or permitted by the Master Indenture to be given the registered owners of Obligations issued thereunder, including Obligation No. 16, the Holders of Bonds then Outstanding will be deemed to be registered owners of Obligation No. 16 for the purpose of any such request, direction or consent in the proportion that the aggregate principal amount of Bonds then Outstanding held by each such Holder of Bonds bears to the aggregate principal amount of all Bonds then Outstanding.

Modification of the Trust Agreement

The Authority and the Bond Trustee may, from time to time and at any time, enter into agreements supplemental to the Trust Agreement, without the consent of or notice to any Holder, to effect any one or more of the following: (a) cure any ambiguity or defect or omission, correct or supplement any provision in the Trust Agreement or any supplemental trust agreement to the Trust Agreement, (b) grant to or confer upon the Bond Trustee for the benefit of the Holders any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the Holders or the Bond Trustee which are not contrary to or inconsistent with the Trust Agreement as then in effect or to subject to the pledge and lien of the Trust Agreement additional revenues, properties or collateral, including Defeasance Obligations, (c) add other conditions, limitations and restrictions to the Trust Agreement which are not contrary to or inconsistent with the Trust Agreement as then in effect, (d) add other covenants and agreements to be observed by the Authority to the Trust Agreement or surrender any right or power reserved to or conferred upon the Authority under the Trust Agreement which are not contrary to or inconsistent with the Trust Agreement as then in effect, (e) comply with any federal or state securities law, (f) make any other change that is determined by the Bond Trustee, who may rely upon an Opinion of Counsel, to be not materially adverse to the interests of the Holders, (g) if all of the Bonds are Book Entry Bonds, amend, modify, alter or replace the Letter of Representations as provided in the Trust Agreement or other provisions relating to Book Entry Bonds, or (h) facilitate the issuance and delivery of certificated Bonds to Beneficial Owners if the book entry system for the Bonds is discontinued.

The Holders of not less than a majority in aggregate principal amount of the Bonds Outstanding have the right to consent to and approve the execution by the Authority and the Bond Trustee of supplemental trust agreements as will be deemed necessary or desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Trust Agreement, provided that nothing contained in the Trust Agreement will permit or be construed as permitting (a) an extension of the maturity of principal of or interest on any Bonds issued under the Trust Agreement without the consent of the Holders of such Bonds, (b) a reduction in the principal amount of or the redemption premium or the rate of interest on any Bonds without the consent of the Holders of such Bonds, (c) the creation of a pledge of receipts and revenues to be received by the Authority under the Loan Agreement superior to the pledge created under the Trust Agreement without the consent of the Holders of all Bonds Outstanding, (d) a preference or priority of any Bond over any other Bond without the consent of the Holders of all Bonds Outstanding, or (e) a reduction in the aggregate principal amount of Bonds required for consent to such supplemental trust agreement without the consent of the Holders of all Bonds Outstanding.

Execution of Instruments by Holders

Any request, direction, consent or other instrument in writing required or permitted by the Trust Agreement to be signed or executed by any Holder may be in any number of concurrent instruments of similar tenor and may be signed or executed by such Holders or their attorneys or legal representatives; provided, however, for so long as the Bonds are Book Entry Bonds, references to the Holder of Bonds in

D-70 this sentence means the Beneficial Owners of Bonds. In connection with the initial offering and sale of the Bonds, the underwriters (or their representative) of the Bonds, as the Bonds so provide, may be appointed as attorney-in-fact by the initial purchasers of the Bonds for the purpose of consenting to any request, direction, consent or other instrument (except for an Investor Letter in the form of Appendix G to this Official Statement) to be signed and executed by the Holders.

Defeasance

When, among other things, the principal, premium, if any, and interest due on all of the Bonds will be paid and, with respect to Bonds not yet due and payable, sufficient money or Defeasance Obligations or a combination thereof are held by the Bond Trustee for such payment, then the right, title and interest of the Bond Trustee in the funds and accounts created in the Trust Agreement will cease and the Bond Trustee will release the Trust Agreement.

No Recourse Against Authority Members, Officers or Employees of Authority

SUMMARY OF CORPORATION DEED OF TRUST

The following is a summary of certain provisions of the Corporation Deed of Trust to which reference is made for a full and complete statement of its provisions.

Grant of Liens on the Mortgaged Property

As security for the payment of Obligations and the performance of all other obligations under the Master Indenture, the Corporation (the “Grantor”) has granted to the Deed of Trust Trustee, for the benefit of the Master Trustee (the “Beneficiary”), a first lien on the Mortgaged Property owned by it, including all buildings and fixtures thereon, subject to Permitted Liens, including certain encumbrances and matters of title set forth in the respective Deeds of Trust.

Events of Default

Each of the following events will constitute an Event of Default under the Corporation Deed of Trust: (a) an Event of Default will occur under the Master Indenture and (b) the Grantor will fail duly to perform, observe or comply with any covenant or agreement on its part under the Deed of Trust for a period of thirty (30) days after the date on which written notice of such failure, requiring the same to be remedied, will have been given to the Grantor by the Beneficiary; provided, however, that if said failure be such that it cannot be corrected within thirty (30) days after the receipt of such notice, it will not constitute an Event of Default if corrective action is instituted within such thirty (30) day period and diligently pursued until the Event of Default is corrected.

Foreclosure

Upon the occurrence of an Event of Default, all Outstanding Obligations will immediately become due and payable, after notice to the Grantor as provided in the Master Indenture, at the option of the Beneficiary, and, upon application of the Beneficiary, it will be lawful for and the duty of the Deed of Trust Trustee to foreclose on and exercise the power of sale with respect to all or any part or parts of the

D-71 Mortgaged Property at public auction for cash after first having given such notice as to commencement of foreclosure proceedings and having obtained such findings and leave of court as may then be required by law and upon such sale and any resale to convey title to the purchaser in fee simple.

At such sale, the Beneficiary may bid for and acquire all or any part or parts of the Mortgaged Property and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the sums due and payable under and secured by the Corporation Deed of Trust, the net sales price, which will be the proceeds of sale after deducting therefrom the expenses, taxes and assessments referred to above. At any sale, the Deed of Trust Trustee may require the successful bidder immediately to deposit with the Deed of Trust Trustee cash or a certified check in an amount equal to five percent (5%) of the successful bid but in no case less than the first Seven Hundred Fifty Dollars ($750.00), and notice of such requirement will be included in the advertisement of the notice of such sale.

Additional Rights and Remedies of Beneficiary and Deed of Trust Trustee

Upon the occurrence of an Event of Default, the Beneficiary and the Deed of Trust Trustee will be entitled to exercise all the rights and remedies provided in the Master Indenture and the Deed of Trust, all of the rights and remedies of a secured party under the North Carolina Uniform Commercial Code and all other rights and remedies provided by law. No remedy of the Beneficiary under the Deed of Trust is intended to be exclusive of any other remedy now or hereafter existing at law or in equity, by statute, or under the Deed of Trust or the Master Indenture. No delay or omission of the Deed of Trust Trustee or the Beneficiary to exercise any right or power accruing upon any Event of Default will impair such right or power or will be construed to be a waiver of any such Event of Default or acquiescence therein. Every power or remedy given by the Corporation Deed of Trust to the Deed of Trust Trustee or the Beneficiary may be exercised from time to time as often as may be deemed expedient by the Deed of Trust Trustee or the Beneficiary. The Grantor waives any and all rights to require marshalling of assets in connection with the exercise of any remedies provided in the Corporation Deed of Trust or as permitted by law.

Release of Land

So long as any Obligations remain outstanding or sufficient funds for their payment in full are not held in trust by the Beneficiary or a Related Bond Trustee (as defined in the Master Indenture), a parcel of or interest in land constituting part of the Mortgaged Property (and the Improvements and Fixtures located thereon) will be released from the lien and security of the Corporation Deed of Trust upon request of the Grantor to the Deed of Trust Trustee when and if the following requirements have been fulfilled:

(a) The Grantor will have delivered to the Deed of Trust Trustee, the Beneficiary and each Holder of an Obligation, including any Related Bond Trustee, a certified survey of the land to be released, a certified survey of the land to remain as the Mortgaged Property and a revised legal description of the land to remain as the Mortgaged Property;

(b) The Grantor will have delivered to the Deed of Trust Trustee, the Beneficiary and each Holder of an Obligation, including any Related Bond Trustee, an architect’s or engineer’s certificate to the effect that the release of the land will not cause any damage to the structural soundness of the Mortgaged Property or impair ingress to or egress from the Mortgaged Property;

(c) The Grantor will have delivered to the Deed of Trust Trustee, the Beneficiary and each Holder of an Obligation, including any Related Bond Trustee, an opinion of counsel to the effect that such release does not violate any applicable land use restrictions;

D-72 (d) The Grantor will represent in writing to the Deed of Trust Trustee, the Beneficiary and each Holder of an Obligation, including any Related Bond Trustee, that it will make no use, and will permit no use by others, of the land to be released that would create a nuisance or diminish materially, in the opinion of a consultant knowledgeable in the operation of facilities similar to the Facilities, the attractiveness of the Facilities to potential residents; and

(e) The Grantor will either (i) acquire additional land or Equipment having a fair market value equal to the fair market value of the land to be released and grant the Beneficiary a first priority Lien (as defined in the Master Indenture), subject to Permitted Liens (as defined in the Master Indenture), thereon, or (ii) will pay to the Beneficiary or any Related Bond Trustee, for the redemption of the Obligations and any Related Bonds pro rata, the fair market value of the land to be released, which value in each case will be evidenced by an appraisal prepared by an appraiser acceptable to the Beneficiary; provided, however, if the fair market value of the Mortgaged Property remaining after such release, as evidenced by an appraisal prepared as of a date not earlier than sixty (60) days prior to the date of such proposed release by an appraiser acceptable to the Beneficiary, is not less than 120% of the principal amount of all Obligations then Outstanding, the release of such land will be permitted without restriction; provided, further, that if the cost of obtaining (i) a certified survey and a revised legal description of the land to remain as the Mortgaged Property as required by paragraph (a) above and (ii) an appraisal of the portion of the Mortgaged Property to be released as required by paragraph (e) above exceeds the amount the Grantor will receive from the sale or other disposition of the portion of the Mortgaged Property the Grantor has requested to be released from the lien of the Corporation Deed of Trust and if such release will not materially adversely affect the Grantor’s ability to operate the Facilities or the value of the remaining Mortgaged Property, as certified by the Grantor to the Deed of Trust Trustee and the Beneficiary, then such portion of the Mortgaged Property may be released without the Grantor’s delivery of the items referenced in clauses (i) and (ii) above.

Amendment of Corporation Deed of Trust

The Corporation Deed of Trust may be amended from time to time, without the consent of or notice to any of the Holders of the Obligations, (i) to describe additional Obligations to be secured by the Corporation Deed of Trust and to increase the amount of the present obligations secured thereby, and (ii) if, in the opinion of the Beneficiary, who may rely upon an Opinion of Counsel (as defined in the Master Indenture), such amendment will be consistent with the terms of the Master Indenture and the Corporation Deed of Trust and will not materially and adversely affect the Holders. The Holders of not less than a majority in aggregate principal amount of Obligations then Outstanding (as defined in the Master Indenture) will have the right, from time to time, to consent to and approve the execution of any other amendment to the Corporation Deed of Trust in the manner provided in the Master Indenture.

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APPENDIX E

PROPOSED FORM OF BOND COUNSEL OPINION

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APPENDIX E

[Form of Opinion of Bond Counsel]

June __, 2018

Public Finance Authority Madison, Wisconsin

We have examined a record of proceedings relating to the issuance of $______Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster), Series 2018 (the “Bonds”). The Bonds are being issued by the Public Finance Authority (the “Authority”) pursuant to Sections 66.0301, 66.0303 and 66.0304 of the Wisconsin Statutes, as amended (the “Act”), and a Trust Agreement, dated as of June 1, 2018 (the “Trust Agreement”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Bond Trustee”), for the purpose of providing funds, together with other available funds, to (a) pay the costs of the Project (as defined in the Trust Agreement), (b) fund a debt service reserve fund for the Bonds and (c) pay the fees and expenses incurred in connection with the sale and issuance of the Bonds.

The Authority is lending the proceeds of the Bonds to Southminster, Inc. (the “Corporation”) pursuant to a Loan Agreement, dated as of June 1, 2018 (the “Loan Agreement”), between the Authority and the Corporation. The Bonds are secured by, among other things, payments to be made by the Corporation on Obligation No. 16, dated as of the date hereof (“Obligation No. 16”), issued by the Corporation to the Authority pursuant to a Second Amended and Restated Master Trust Indenture, dated as of November 1, 2007 (the “Master Trust Indenture”), between the Corporation and The Bank of New York Mellon Trust Company, N.A. (formerly The Bank of New York Trust Company, N.A.), as trustee (the “Master Trustee”), as supplemented by a Supplemental Indenture for Obligation No. 16, dated as of June 1, 2018 (“Supplemental Indenture No. 16”), between the Corporation and the Master Trustee (the “Master Trust Indenture” and, as supplemented by Supplemental Indenture No. 16, being hereinafter referred to as the “Master Indenture”), as evidence of the obligation of the Corporation to repay the loan of the proceeds of the Bonds.

Obligation No. 16 has been assigned by the Authority to the Bond Trustee as security for the payment of the Bonds. Obligation No. 16 is a direct, general and unconditional obligation of the

Womble Bond Dickinson (US) LLP is a member of Womble Bond Dickinson (International) Limited, which consists of independent and autonomous law firms providing services in the US, the UK, and elsewhere around the world. Each Womble Bond Dickinson entity is a separate legal entity and is not responsible for the acts or omissions of, nor can bind or obligate, another Womble Bond Dickinson entity. Womble Bond Dickinson (International) Limited does not practice law. Please see for further details.

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Corporation. As provided in the Master Indenture, each Member of the Obligated Group (as defined in the Master Indenture) is jointly and severally liable for Obligation No. 16 and any other Obligations (as defined in the Master Indenture) heretofore or hereafter issued under the Master Indenture. As of the date hereof, the Corporation is the sole Member of the Obligated Group.

As security for Obligation No. 16 and any other Obligations heretofore or hereafter issued under the Master Indenture, the Corporation has granted to the Master Trustee, for the benefit of the Holders (as defined in the Master Indenture) of Obligation No. 16 and any additional Obligations, a security interest in the Pledged Assets, subject to Permitted Liens (all as defined in the Master Indenture). As additional security for Obligation No. 16 and any such additional Obligations heretofore or hereafter issued under the Master Indenture, the Corporation has executed and delivered for the benefit of the Master Trustee a Second Amended and Restated Deed of Trust, dated as of November 1, 2007 (as supplemented and amended, the “Deed of Trust”), granting a lien on the Mortgaged Property (as defined in the Deed of Trust), subject to certain permitted encumbrances. The Deed of Trust has been recorded and a financing statement with respect to the fixtures relating to the Mortgaged Property has been filed in the office of the Register of Deeds of Mecklenburg County, North Carolina, and a financing statement with respect to the security interest in the Pledged Assets has been filed in the office of the Secretary of State of the State of North Carolina.

We have not examined the title to the Mortgaged Property or any official records with respect to prior security interests in the Pledged Assets, and we express no opinion with regard to the title to, or the priority of the lien on or security interest in, the Mortgaged Property or the Pledged Assets.

As to matters of fact material to our opinion, we have relied upon the certified proceedings and other certificates of public officials and others furnished to us without undertaking to verify the same by independent investigation.

Based on such examination, we are of the opinion, as of the date hereof and under existing law, that:

1. The Bonds have been duly authorized, executed and issued by the Authority.

2. The Trust Agreement has been duly authorized, executed and delivered by the Authority and, assuming due authorization, execution and delivery by the Bond Trustee, is a valid and binding agreement of the Authority enforceable against the Authority in accordance with its terms. The Trust Agreement creates a valid lien on the property described in the granting clauses thereof.

3. The Loan Agreement has been duly authorized, executed and delivered by the Authority and the Corporation and is a valid and binding agreement enforceable against the Authority and the Corporation in accordance with its terms.

4. The Bonds are valid and binding limited obligations of the Authority payable in accordance with their terms from payments to be made by the Corporation or any other Member of the Obligated Group pursuant to Obligation No. 16 and the Loan Agreement, certain funds held by the Bond Trustee under the Trust Agreement and by the Master Trustee under the Master Indenture and the income from the investment thereof and, under certain circumstances, proceeds of insurance, condemnation awards and

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remedial action taken pursuant to the Master Indenture, the Loan Agreement, the Trust Agreement and the Deed of Trust.

5. Obligation No. 16 has been duly authorized, executed and delivered by the Corporation to the Authority and endorsed without recourse by the Authority to the Bond Trustee. Obligation No. 16 is a valid and binding obligation of the Corporation enforceable in accordance with its terms.

6. The Master Indenture has been duly authorized and executed by the Corporation and, assuming due authorization, execution and delivery by the Master Trustee, is a valid and binding agreement of the Corporation enforceable against the Corporation in accordance with its terms.

7. The Deed of Trust has been duly authorized, executed and delivered by the Corporation and and is a valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms. The Deed of Trust grants to the trustee thereunder for the benefit of the Master Trustee a lien on the Mortgaged Property, subject to certain permitted encumbrances.

8. The Master Indenture creates a valid security interest in the Pledged Assets, subject to Permitted Liens (as defined in the Master Indenture).

9. The Bonds are not secured by the faith and credit of the State of Wisconsin or any political subdivision thereof. The Bonds do not obligate the State of Wisconsin or any political subdivision thereof to levy any tax or make any appropriation for the Bonds. The Bonds are payable solely from the funds pledged for their payment in accordance with the Trust Agreement.

10. Assuming continuing compliance by the Authority and the Corporation with their respective covenants to comply with, and to cause any other Members of the Obligated Group to comply with, certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”), regarding, among other matters, the use, expenditure and investment of Bond proceeds and the timely payment of certain investment earnings to the United States Treasury, interest on the Bonds is not includable in the gross income of the owners thereof for purposes of federal income taxation. Interest on the Bonds is not a specific preference item for purposes of the alternative minimum tax imposed by the Code. In rendering the opinion set forth in this paragraph, we have relied upon representations made by the Corporation with respect to certain material facts within the knowledge of the Corporation which we have not independently verified and the opinion of Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, counsel to the Corporation, regarding the Corporation’s status as an organization described in Section 501(c)(3) of the Code.

Failure by the Authority or the Corporation to comply with, and to cause any other Members of the Obligated Group to comply with, their respective covenants to comply with certain requirements of the Code may cause the interest on the Bonds to become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Bonds. The covenant of the Authority described above does not require the Authority to make any financial contribution to the Corporation or the Bond Trustee under the Trust Agreement for which it does not receive funds from the Corporation.

The enforceability of the Master Indenture, the Trust Agreement, the Loan Agreement, Obligation No. 16 and the Deed of Trust and the obligations of the aforementioned parties with respect to such documents are subject to bankruptcy, insolvency, fraudulent conveyance, reorganization,

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moratorium and other similar laws affecting creditors’ rights generally. To the extent that remedies under the Master Indenture, the Trust Agreement, the Loan Agreement, Obligation No. 16 and the Deed of Trust require enforcement by a court of equity, the enforceability thereof may be limited by such principles of equity as the court having jurisdiction may impose.

In rendering this opinion, we have relied upon the opinion of Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, counsel to the Corporation, with respect to (a) the due organization and valid existence of the Corporation, (b) the due authorization, execution and delivery by the Corporation of the Master Indenture, the Loan Agreement, Obligation No. 16 and the Deed of Trust, (c) the recordation of the Deed of Trust and (d) the filing of the aforementioned financing statements. Furthermore, in rendering the opinions expressed in paragraphs 1 through 3 above, we have relied upon the opinion of von Briesen & Roper, s.c., counsel to the Authority, with respect to (a) the valid existence of the Authority as a unit of government and body corporate and politic under the laws of the State of Wisconsin, (b) the powers of the Authority to issue the Bonds for the purposes specified herein and to undertake and perform its obligations under the Trust Agreement and the Loan Agreement and (c) all matters relating to enforceability of the Trust Agreement and the Loan Agreement against the Authority under the laws of the State of Wisconsin.

We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Bonds.

This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

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APPENDIX F

DTC BOOK ENTRY SYSTEM

THE DEPOSITORY TRUST COMPANY A SUBSIDIARY OF THE DEPOSITORY TRUST & CLEARING CORPORATION

Beneficial ownership interests in the Bonds will be available only in a book-entry system. The actual purchasers of the Bonds (the “Beneficial Owners”) will not receive physical certificates representing their interests in the Bonds purchased. So long as The Depository Trust Company (“DTC”), New York, New York, or its nominee is the registered owner of the Bonds, references in this Official Statement to the Owners of the Bonds shall mean DTC or its nominee and shall not mean the Beneficial Owners. The Trust Agreement contains provisions applicable to periods when DTC or its nominee is not the registered owner.

THE FOLLOWING DESCRIPTION OF DTC, OF PROCEDURES AND RECORD KEEPING ON BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS, PAYMENT OF INTEREST AND OTHER PAYMENTS WITH RESPECT TO THE BONDS TO DTC PARTICIPANTS OR TO BENEFICIAL OWNERS, CONFIRMATION AND TRANSFER OF BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS AND OF OTHER TRANSACTIONS BY AND BETWEEN DTC, DTC PARTICIPANTS AND BENEFICIAL OWNERS IS BASED ON INFORMATION FURNISHED BY DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued in the aggregate principal amount of each maturity of the Bonds and will be deposited with DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE BONDS, AS DTC’S PARTNERSHIP NOMINEE, REFERENCE HEREIN TO THE OWNERS OR REGISTERED OWNERS OF THE BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS.

1. DTC, the world’s largest securities 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 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of the Bonds. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s rating of AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

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2. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of the Bonds (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests with respect to the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

3. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

4. 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

5. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

6. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Bond Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Because DTC is treated as the owner of the Bonds for substantially all purposes under the Trust Agreement, Beneficial Owners may have a restricted ability to influence in a timely fashion remedial action or the giving or withholding of requested consents or other directions. In addition, because the identity of Beneficial Owners is unknown to the Corporation, to the Authority, to DTC or to the Bond Trustee, it may be difficult to transmit information of potential interest to Beneficial Owners in an effective and timely manner. Beneficial Owners should make appropriate arrangements with their broker or dealer regarding distribution of information regarding the Bonds that may be transmitted by or through DTC.

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7. Redemption proceeds, distributions, and interest payments on the 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, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Bond Trustee, the Authority or the Corporation, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the Bond Trustee’s responsibility, 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. NEITHER THE AUTHORITY NOR THE CORPORATION CANNOT AND DOES NOT GIVE ASSURANCE THAT DIRECT AND INDIRECT PARTICIPANTS WILL PROMPTLY TRANSFER PAYMENTS TO BENEFICIAL OWNERS.

8. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority, the Corporation and the Bond Trustee. Under such circumstances, in the event that a successor depository is not obtained, the Bond certificates are required to be printed and delivered.

9. The Authority and the Corporation may decide to discontinue use of the system of book- entry only transfers through DTC (or a successor securities depository). In that event, the Bond certificates will be printed and delivered to DTC.

10. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources the Authority and the Corporation believe to be reliable, but neither the Authority nor the Corporation takes no responsibility for the accuracy thereof.

The Authority, the Corporation and the Bond Trustee have no responsibility or obligation to DTC, the Direct Participants, the Indirect Participants or the Beneficial Owners with respect to (1) the accuracy of any records maintained by DTC or any Participant, or the maintenance of any records; (2) the payment by DTC or any Participant of any amount due to any Beneficial Owner in respect of the Bonds, or the sending of any transaction statements; (3) the delivery or timeliness of delivery by DTC or any Participant of any notice to any Beneficial Owner which is required or permitted under the Trust Agreement to be given to Owners; (4) the selection of the Beneficial Owners to receive payments upon any partial prepayment of the Bonds; or (5) any consent given or other action taken by DTC or its nominee as the registered owner of the Bonds, including any action taken pursuant to an omnibus proxy.

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APPENDIX G

FORM OF INVESTOR LETTER

Public Finance Authority 22 E. Mifflin Street, Suite 900 Madison, Wisconsin 53703

The Bank of New York Mellon Trust Company, N.A. 10161 Centurion Parkway, N. Jacksonville, Florida 32256 Attention: Corporate Trust Division

Re: Public Finance Authority Retirement Facilities First Mortgage Revenue Bonds (Southminster) Series 2018

Ladies and Gentlemen:

The undersigned (“Investor”) is a purchaser of the above-captioned bonds (the “Bonds”) issued by the Public Finance Authority (the “Authority”) pursuant to that certain Trust Agreement dated as of June 1, 2018 (the “Trust Agreement”) between the Authority and The Bank of New York Mellon Trust Company, N.A., as bond trustee, and that certain Loan Agreement dated as of June 1, 2018 (the “Loan Agreement”) between the Authority and Southminster, Inc. (the “Corporation”).

Capitalized terms not defined herein shall be given the meaning ascribed thereto in the Trust Agreement or Loan Agreement.

Investor has been informed that the Authority will not sell or permit any Bonds to be sold to Investor unless Investor makes the representations, warranties and covenants herein and authorizes the Authority and the Bond Trustee to rely thereon and such representations, warranties and covenants are made by the Investor AS AN INDUCEMENT to the sale of the Bonds to Investor.

In connection with the sale of the Bonds to Investor, Investor hereby makes the following representations upon which you may rely:

1. Investor has received and read a copy of (i) the Loan Agreement; (ii) the Trust Agreement; (iii) the Master Indenture; (iv) Supplement No. 16; (v) the Corporation Deed of Trust and (vi) such other documents, agreements, certificates and instruments referenced therein or pertaining thereto or to the Bonds to which Investor is a party or deems necessary and appropriate in its evaluation of the Bonds.

2. Investor has sufficient knowledge and experience in financial and investment matters to be able to evaluate the risks and merits of an investment in the Bonds.

3. Investor understands that it may be required to bear the risks of this investment in the Bonds for an indefinite time, since any sale prior to maturity may not be possible.

4. The Bonds are a financially suitable investment for Investor consistent with Investor’s investment needs and objectives.

5. Investor is (i) an “accredited investor” within the meaning of Rule 501(a)(1) of Regulation D under the Securities Act of 1933, as amended (the “1933 Act”) or (ii) a “Qualified Institutional Buyer” as defined in Rule 144A under the 1933 Act. Investor

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understands that the Bonds are not registered under the 1933 Act and that such registration is not legally required as of the date hereof; and further understands that the Bonds (i) are not being registered or otherwise qualified for sale under the “Blue Sky” laws and regulations of any state, (ii) will not be listed in any stock or other securities exchange, (iii) will not carry an investment grade rating from any rating service and (iv) will be delivered in a form which may not be readily marketable.

6. Investor acknowledges that, prior to the receipt by the Authority of an Investment Grade Notice (as defined in the Trust Agreement), the Bonds are not transferable except to (i) another “accredited investor” or (ii) another “Qualified Institutional Buyer” as provided by the Trust Agreement, and Investor agrees to abide by such transfer restrictions set forth in the Trust Agreement; and that Investor shall be solely and exclusively responsible for compliance with such transfer restrictions including verifying that its transferee is an accredited investor or a Qualified Institutional Buyer, as the case may be.

7. Investor acknowledges that it has either been supplied with or been given access to information, including financial statements and other financial information, to which a reasonable investor would attach significance in making investment decisions, and Investor has had the opportunity to ask questions and receive answers from knowledgeable individuals concerning the Corporation and the Bonds and the security therefor. Investor acknowledges that it has not relied upon the Authority for any information in connection with the Investor’s purchase of the Bonds.

8. INVESTOR ACKNOWLEDGES THAT THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM THE TRUST ESTATE AND THE AUTHORITY SHALL NOT BE DIRECTLY OR INDIRECTLY OR CONTINGENTLY OR MORALLY OBLIGATED TO USE ANY OTHER MONEYS OR ASSETS OF THE AUTHORITY FOR ALL OR ANY PORTION OF THE PRINCIPAL OF AND INTEREST ON THE BONDS.

9. Investor has made its own inquiry and analysis with respect to the Bonds and the security therefor (including, without limitation, a credit evaluation of the Corporation and any guarantors, obligors or lessees of the Project, to the extent Investor deemed it necessary or appropriate), and other material factors affecting the security and payment of the Bonds. Investor is aware that the business of the Corporation involves certain economic variables and risks that could adversely affect the security for the Bonds.

10. Investor agrees to indemnify and hold harmless each Authority Indemnified Party (as defined in the Trust Agreement) with respect to any claim asserted against any such Authority Indemnified Party that is based upon Investor’s breach of representation, warranty or agreement herein.

______, as Investor

By:______Name: ______Title: ______

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PUBLIC FINANCE AUTHORITY • RETIREMENT FACILITIES FIRST MORTGAGE REVENUE BONDS (SOUTHMINSTER) SERIES 2018