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Resolution 13-12 Exhibit D. Official Statement v BOOK ENTRY ONLY Fitch Rating: BBB (See"RATING"herein) In the opinion of Foley & Lardner LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986(the "Code'). Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. See the heading "TAX MATTERS"herein for a more detailed discussion of some of the federal tax consequences of owning the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX D hereto. Prospective Bondholders should consult with their own financial advisors on the impact of federal and Florida law on their particular situations. $17,610,000 ..� CITY OF ATLANTIC BEACH, FLORIDA Health Care Facilities Revenue Bonds (Fleet Landing Project) «y�� Series 2013B ARE / 7 LW'of LJ0 Dates,Interest Rates,Prices or Yields,Maturities and Initial CUSIP Nos.Are Shown on the Inside of the Front Cover The City of Atlantic Beach, Florida(the "Issuer") is issuing its Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2013B(the"Bonds")under an Indenture of Trust,dated as of October 1,2013(the"Bond Indenture"),between the Issuer and U.S.Bank National Association,as Bond Trustee(the"Bond Trustee"). The proceeds of the Bonds will be loaned to Naval Continuing Care Retirement Foundation, Inc., a Florida nonprofit corporation (the "Obligor") pursuant to a Loan Agreement dated as of October 1,2013(the"Loan Agreement"),between the Issuer and the Obligor. The Obligor will use the proceeds of the Bonds,together with certain other moneys,to(i)pay or reimburse the Obligor for the cost of acquisition,construction,installation and equipping of certain capital improvements to the Obligor's existing campus known as Fleet Landing in the City of Atlantic Beach,Florida,(as more fully described herein,the"Project"),(ii)fund a debt service reserve fund for the Bonds,and(iii)pay costs associated with issuing the Bonds. See"PLAN OF FINANCE"herein. Except as described in this Official Statement,the Bonds and the interest payable thereon are limited obligations of the Issuer and are payable solely from and secured exclusively by the funds pledged thereto under the Bond Indenture,the payments to be made by the Obligor pursuant to the Loan Agreement,and the Series 2013B Note(as defined herein)issued by the Obligor under a Master Trust Indenture, dated as of April 1, 2013, as supplemented by Supplemental Indenture Number 2, dated as of October 1, 2013(as supplemented,the"Master Indenture"),and each between U.S.Bank National Association,as Master Trustee,and the Obligor. The sources of payment of,and security for,the Bonds are more fully described in this Official Statement. The Bonds are subject to acceleration of maturity and optional and mandatory redemption,in whole or in part,prior to maturity at the prices and under the circumstances described herein. The Bonds when issued will be registered only in the name of Cede&Co.,as registered owner and nominee of The Depository Trust Company,New York, New York("DTC"). DTC will act as securities depository for the Bonds. Purchasers of the Bonds will not receive certificates representing their interest in the Bonds purchased. Ownership by the beneficial owners of the Bonds will be evidenced by book-entry only. Principal of and interest on the Bonds will be paid by the Bond Trustee to DTC,which in turn will remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds. As long as Cede& Co.is the registered owner as nominee of DTC,payments on the Bonds will be made to such registered owner,and disbursement of such payments will be the responsibility of DTC and its participants. See APPENDIX E—Book-Entry Only System. An investment in the Bonds involves a certain degree of risk related to,among other things,the nature of the Obligor's business, the regulatory environment,and the provisions of the principal documents. A prospective Bondholder is advised to read"SECURITY FOR THE BONDS"and"RISK FACTORS"herein for a discussion of certain risk factors that should be considered in connection with an investment in the Bonds. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER. THE PRINCIPAL AND INTEREST ARE PAYABLE SOLELY OUT OF CERTAIN PAYMENTS UNDER THE LOAN AGREEMENT BETWEEN THE ISSUER AND THE OBLIGOR AND THE RELATED NOTE ISSUED UNDER THE MASTER INDENTURE AS DESCRIBED HEREIN,BY RECOURSE TO THE MORTGAGE AND FROM MONEYS PLEDGED UNDER THE BOND INDENTURE AS DESCRIBED HEREIN. THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE,AND DO NOT CONSTITUTE AN INDEBTEDNESS OF THE STATE OF FLORIDA,DUVAL COUNTY, FLORIDA ("DUVAL COUNTY"), THE ISSUER OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND DO NOT CONSTITUTE NOR GIVE RISE TO A PECUNIARY LIABILITY OF THE STATE,DUVAL COUNTY,THE ISSUER OR ANY POLITICAL SUBDIVISION THEREOF OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWER OF THE STATE,DUVAL COUNTY OR ANY POLITICAL SUBDIVISION THEREOF. The Bonds are being offered, subject to prior sale and withdrawal of such offer without notice, when, as and if issued by the Issuer and accepted by the Underwriter subject to the approving opinion of Foley&Lardner LLP,Jacksonville, Florida, Bond Counsel. Certain legal matters will be passed upon for the Issuer by its counsel,Alan C.Jensen,Attorney at Law,Jacksonville Beach, Florida;for the Obligor by its counsel,Foley&Lardner LLP,Jacksonville,Florida; and for the Underwriter by its counsel, Nabors, Giblin&Nickerson,P.A.,Tampa,Florida. It is expected that the Bonds will be available for delivery through the facilities of DTC, against payment therefor,on or about October 24,2013. Ziegler The date of this Official Statement is October 9,2013. $17,610,000 CITY OF ATLANTIC BEACH,FLORIDA Health Care Facilities Revenue Bonds (Fleet Landing Project) Series 2013B Dated Date of Delivery Due: As shown below The Bonds will be issuable in fully registered form without coupons in minimum denominations of$5,000 and any integral multiple of$5,000 in excess thereof. Interest on the Bonds will be payable on each May 15 and November 15, commencing May 15,2014. MATURITY SCHEDULE $17,610,000 5.625%Term Bonds Due November 15, 2043 Yield 5.875% Price 96.487; CUSIP No. 048251BR2(0 ") CUSIP is a registered trademark of the American Bankers Association. CUSIP data contained herein is provided by Standard&Poor's,CUSIP Service Bureau,a division of The McGraw Hill Companies,Inc. CUSIP numbers have been assigned by an independent company not affiliated with the Issuer,the Underwriter,or the Obligor,and are included solely for the convenience of the holders of the Bonds. Neither the Issuer nor the Underwriter nor the Obligor is responsible for the selection or uses of these CUSIP numbers,and no representation is made as to their correctness on the Bonds or as indicated above. 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Va: :::,,:,......:40.f� `:f • g � � : _ Ems: . _ .. .._:::.—:::._.::::__:12:::::::::::::::::::::::-:::::::. _ a • x� m S3 _ .i. :' e- .. _.- .. — _ is a C4. A..e i SA. • • "-v - — -- j:. • 1 �_ • • • • r is _ _ .. R � " a _ .._ - .::ate— .:: • F • _. - ..—_ .1. -=—• ...:::. :::::.:: _ • .. ":�:iii ... .. ..... .. _ ..:.:.: • ':_s F_:aF iii_ a: ::�i_?::: is is Al e c� : . ... _._ ':F- :°eeeeeeeeeeeeeiF ", u: — _.. ._ . ._. eieeeeeeee:::::::::::eee:.eeeie.:ee- :: 1111 New Memory Care Facility [THIS PAGE INTENTIONALLY LEFT BLANK] No dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by the Obligor, the Issuer, or the Underwriter. The information set forth herein concerning the Obligor has been furnished by the Obligor and is believed to be reliable, but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Issuer or the Underwriter. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any state to any person to whom it is unlawful to make such offer in such state. Except where otherwise indicated, this Official Statement speaks as of the date hereof. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder will under any circumstances create any implication that there has been no change in the affairs of the Obligor since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information contained in this Official Statement has been furnished by the Obligor, the Issuer, DTC and other sources that are believed to be reliable, but such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE BOND INDENTURE 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 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. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute "forward looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. Such forward looking statements include, but are not limited to, certain statements contained in the information in APPENDIX A to this Official Statement. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. THE OBLIGOR DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. • TABLE OF CONTENTS Page INTRODUCTION 1 Purpose of this Official Statement 1 Purpose of the Bonds 1 Security for the Bonds 2 THE ISSUER 3 THE OBLIGOR AND THE COMMUNITY 4 THE PROJECT 5 ESTIMATED SOURCES AND USES OF FUNDS 6 Sources of Funds 6 Uses of Funds 6 ESTIMATED COMBINED ANNUAL DEBT SERVICE REQUIREMENTS 7 THE BONDS 8 Optional Redemption 9 Mandatory Sinking Fund Redemption 10 Extraordinary Optional Redemption 10 Partial Redemption 11 Notice of Redemption 11 SECURITY FOR THE BONDS 12 General 12 Limited Obligations 12 Debt Service Reserve Fund for the Bonds 12 The Loan Agreement 14 The Master Indenture 14 Certain Covenants of the Obligor and any Future Members of the Obligated Group 15 Rating... 20 Approval of Consultants 20 Revenue Fund 21 Additional Indebtedness 22 RISK FACTORS 22 General Risk Factors 22 Impact of Market Turmoil 23 Additions to the Obligated Group 24 Limited Obligations 25 Uncertainty of Revenues 25 Failure to Maintain Occupancy 25 Competition 26 Regulation of Residency Agreements 26 Liquidation of Security May Not be Sufficient in the Event of a Default 26 The Nature of the Income of the Elderly 27 Sale of Homes 27 Utilization Demand 27 Factors Affecting Real Estate Taxes 28 Malpractice Claims and Losses 28 Healthcare Reform 28 Nursing Staff Shortage 29 Third-Party Payments and Managed Care 29 Fraud and Abuse Enforcement 30 Other Sources of Liability for Health Care Providers 37 Medicare and Medicaid Programs 38 Medicare Reimbursement 38 Possible Changes in Tax Status 40 Intermediate Sanctions 41 Rights of Residents 41 Other Tax Status Issues 41 Lack of Marketability for the Bonds 42 Bankruptcy 42 Additional Indebtedness 43 Certain Matters Relating to Enforceability of the Master Indenture 43 Environmental Matters 45 Taxation of Interest on the Bonds 47 Bond Examinations 47 Revision of IRS Service Form 990 for Nonprofit Corporations 47 Construction Risk 48 Property and Casualty Insurance 49 Amendments to Documents 49 Other Possible Risk Factors 49 FLORIDA REGULATION OF CONTINUING CARE FACILITIES 50 Certificate of Authority 51 Required Reserves 51 Continuing Care Agreements and Residents' Rights 52 Examinations and Delinquency Proceedings 53 DISCLOSURE OF POTENTIAL RELATIONSHIPS 54 FINANCIAL REPORTING AND CONTINUING DISCLOSURE 55 Financial Reporting 55 Continuing Disclosure 56 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS 59 LITIGATION 60 Issuer.. 60 Obligor . 60 LEGAL MATTERS 60 TAX MATTERS 61 Original Issue Discount 63 ii ADDITIONAL RISK FACTORS REGARDING FEDERAL INCOME TAX MATTERS 63 INDEPENDENT AUDITORS 65 RATING 65 UNDERWRITING 66 MISCELLANEOUS 66 APPENDIX A - THE OBLIGOR AND THE COMMUNITY APPENDIX B - AUDITED FINANCIALS APPENDIX C - DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS APPENDIX D - PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX E - BOOK-ENTRY ONLY SYSTEM iii [THIS PAGE INTENTIONALLY LEFT BLANK] OFFICIAL STATEMENT relating to the $17,610,000 CITY OF ATLANTIC BEACH, FLORIDA Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2013B INTRODUCTION Purpose of this Official Statement This Official Statement, including the cover page, inside cover page and Appendices hereto, is provided to furnish information with respect to the issuance, sale and delivery by City of Atlantic Beach, Florida (the "Issuer") of its Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2013B (the "Bonds"). The Bonds are being issued pursuant to Part II, Chapter 159, Florida Statutes, as amended (the "Act"), in conformity with the provisions, restrictions and limitations thereof and pursuant to the Indenture of Trust dated as of October 1, 2013 (the "Bond Indenture"), between the Issuer and U.S. Bank National Association, as bond trustee (the "Bond Trustee"). Certain capitalized terms used herein are defined in "DEFINITIONS OF CERTAIN TERMS" in APPENDIX C hereto. The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of its terms and conditions. All statements herein are qualified in their entirety by reference to each document. Purpose of the Bonds The proceeds of the Bonds will be loaned to Naval Continuing Care Retirement Foundation, Inc., a Florida nonprofit corporation (the "Obligor" or the "Obligated Group Representative") pursuant to a Loan Agreement dated as of October 1, 2013, between the Issuer and the Obligor (the "Loan Agreement") and will be used, together with other available moneys described herein, to (i) pay or reimburse the Obligor for the cost of acquisition, construction, installation and equipping of certain capital improvements to the Obligor's existing campus known as Fleet Landing in the City of Atlantic Beach, Florida (as more fully described herein, the "Project"); (ii) fund the debt service reserve fund to secure the Bonds; and (iii) pay costs associated with the issuance of the Bonds. See "THE OBLIGOR AND THE COMMUNITY," "THE PROJECT" and "ESTIMATED SOURCES AND USES OF FUNDS" herein. 1 Risk Factors. Certain risks are inherent in the successful operation of facilities such as the Community (defined below) on a basis such that sufficient cash will be available to pay interest on and to retire indebtedness. See "RISK FACTORS" below for a discussion of certain of these risks. Security for the Bonds General. The Bonds will be issued under and will be equally and ratably secured under the Bond Indenture, pursuant to which the Issuer will assign and pledge to the Bond Trustee, (1) the hereinafter described Series 2013B Note relating to the Bonds, (2) certain rights of the Issuer under the Loan Agreement, (3) the funds and accounts (excluding the Rebate Fund), including the money and investments in them, which the Bond Trustee holds under the terms of the Bond Indenture, and (4) such other property as may from time to time be pledged to the Bond Trustee as additional security for such Bonds or which may come into possession of the Bond Trustee pursuant to the terms of the Loan Agreement or the Series 2013B Note. Pursuant to the Loan Agreement, the Obligor has agreed to make loan payments sufficient, among other things, to pay in full when due all principal of, premium, if any, and interest on the Bonds and the administrative fees of the Bond Trustee, and, to make payments as required to restore any deficiencies in the debt service reserve fund. See "SECURITY FOR THE BONDS-The Loan Agreement." See also "EXCERPTS FROM LOAN AGREEMENT" in APPENDIX C hereto. The obligation of the Obligor to repay the loan from the Issuer will be evidenced by a promissory note of the Obligor (the "Series 2013B Note"), issued under and entitled to the benefit and security of a Master Trust Indenture, dated as of April 1, 2013, as supplemented by Supplemental Indenture Number 2, dated as of October 1, 2013, and each between U.S. Bank National Association, as master trustee (the "Master Trustee") and the Obligor (collectively, the "Master Indenture"). See "SECURITY FOR THE BONDS—The Master Indenture." See also "EXCERPTS FROM MASTER TRUST INDENTURE" in APPENDIX C hereto. The Series 2013B Note will constitute an unconditional promise by each Obligated Group Member (as defined in the Master Indenture) to pay amounts sufficient to pay principal of (whether at maturity, by acceleration or call for redemption) and premium, if any, and interest on the Bonds; and the Series 2013B Note will be secured on a parity basis with any other Obligations heretofore and hereafter issued and outstanding under the Master Indenture, by a lien on and security interest in the Mortgaged Property granted to the Master Trustee pursuant to a Mortgage and Security Agreement dated as of April 1, 2013, as supplemented by the Notice of Future Advance Relating to Mortgage and Security Agreement, dated as of October 1, 2013, each as executed by the Obligor and delivered to U.S. Bank National Association, in its capacity as Master Trustee under the Master Indenture (the "Mortgage") and a security interest in the Gross Revenues of the Obligated Group and the Funds established under the Master Indenture. Currently, only the Obligor and the Master Trustee are parties to the Master Indenture, and the Obligor is the only Obligated 2 Group Member. The Obligor and each Obligated Group Member admitted in the future will be jointly and severally liable for the payment for all obligations entitled to the benefits of the Master Indenture and will be subject to the financial and operating covenants thereunder. Pledge of Gross Revenues. In order to secure the payment of the principal of, premium, if any, and interest on the Series 2013B Note and all other Outstanding Obligations, the Obligated Group Members have pledged, assigned, confirmed and granted a security interest unto the Master Trustee in the Gross Revenues of the Obligated Group Members as well as all moneys and securities from time to time held by the Master Trustee under the terms of the Master Indenture. See "SECURITY FOR THE BONDS—Revenue Fund" herein. Outstanding Parity Obligation. On April 1, 2013 the Obligor issued a promissory note under the Master Indenture in the amount of$40,050,000 (the "Series 2013A Note"), all of which is currently outstanding, to secure its obligation to pay debt service on the Health Care Facilities Revenue and Refunding Bonds (Fleet Landing Project), Series 2013A (the "Series 2013A Bonds") issued by the Issuer for the benefit of the Obligor. The Series 2013A Note constitutes an Obligation under the Master Indenture payable on a parity basis under the Master Indenture and secured on a parity basis under the Mortgage with the Series 2013B Note. Debt Service Reserve Fund. As additional security for the Bonds, a debt service reserve fund (the "Reserve Fund") will be established pursuant to the Bond Indenture and will be funded from the proceeds of the Bonds. The Reserve Fund is required to be funded in an amount equal to the "Reserve Fund Requirement," which is defined in the Loan Agreement as "(i) for the period commencing on the date of issuance of the Bonds to but not including November 15, 2014, an amount equal to the interest due on the Bonds on November 15, 2014 ($1,048,345.31), (ii) for the period commencing on November 15, 2014, to but not including November 15, 2037, an amount equal to 12 months of interest due on the Bonds during such period ($990,562.50), and (iii) from November 15, 2037 until maturity of the Bonds, an amount equal to the Maximum Annual Debt Service on the Bonds ($3,540,812.50)." See "SECURITY FOR THE BONDS—Debt Service Reserve Fund for the Bonds." See also "EXCERPTS FROM INDENTURE OF TRUST" in APPENDIX C hereto. THE ISSUER The Issuer is a political subdivision of the State of Florida. The Issuer is authorized under the provisions of the Act to issue the Bonds for the purpose of financing and refinancing the costs of the Project, to enter into the Indenture and the Loan Agreement and to secure the Bonds by an assignment to Bond Trustee of the payments to be made by the Issuer under the Loan Agreement and a pledge of other moneys deposited with the Bond Trustee under the Indenture. 3 The Issuer has not undertaken to review this Official Statement nor has it assumed any responsibility for the matters contained herein except solely as to matters relating to the Issuer. All findings and determinations by the Issuer have been made for its own internal uses and purposes in performing its duties under the Act. Notwithstanding its approval of the Bonds for purposes of Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"), the Issuer does not endorse or in any manner, directly or indirectly, guarantee or promise to pay the Bonds from any source of funds or guarantee, warrant or endorse the creditworthiness or credit standing of the Obligor or in any manner guarantee, warrant or endorse the investment quality or value of the Bonds. The Bonds are payable solely as described in this Official Statement and are not in any manner payable wholly or partially from any funds or properties otherwise belonging to the Issuer. By its issuance of the Bonds, the Issuer does not in any manner, directly or indirectly, guarantee, warrant or endorse the creditworthiness of the Obligor or the investment quality or value of the Bonds. The Issuer has not participated in the preparation of this Official Statement and makes no representation with respect to the accuracy or completeness of any of the material contained in this Official Statement other than in this section and the section entitled "LITIGATION—Issuer." The Issuer is not responsible for providing any purchaser of the Bonds with any information relating to the Bonds or any of the parties or transactions referred to in this Official Statement or for the accuracy or completeness of any such information obtained by any purchaser. THE OBLIGOR AND THE COMMUNITY The Obligor is a Florida not for profit corporation formed in 1985 and has received a determination letter from the Internal Revenue Service that it is an organization exempt from federal income tax under Section 501(c)(3) (a "qualified 501(c)(3) organization") of the Internal Revenue Code of 1986, as amended (the "Code"). The Obligor owns and operates a continuing care retirement community known as "Fleet Landing" (the "Community") which opened in 1990 and is designed to meet the needs of former military officers, their spouses and others of retirement age. Located on an approximately 86-acre campus in the City of Atlantic Beach, Florida, the Community currently has available for occupancy 354 residential independent living units (including 164 congregate living units), 76 assisted living units and 80 skilled nursing beds, together with a variety of related common and support areas. The Community is managed by the Obligor. For more information regarding the Obligor and the Community, see APPENDIX A hereto. 4 THE PROJECT A portion of the proceeds of the Bonds will be deposited in the Project Fund and disbursed by the Bond Trustee to the Obligor to pay (or reimburse the Obligor for) the costs related to the acquisition, construction, installation and equipping of certain capital improvements to the Community including, without limitation, the relocation of an existing maintenance facility and construction of a new maintenance facility, the construction of 24 Assisted Living/Memory Support Units, an extensive renovation of the Health Center to provide for additional skilled nursing beds, various miscellaneous capital expenditures and the acquisition of approximately 0.5 acres of land immediately adjacent to the Community, as more particularly described in APPENDIX A hereto (the "Project"). [Remainder of page intentionally left blank] 5 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the issuance of the Bonds are as follows: Sources of Funds Bonds $17,610,000 Original Issue Discount ( 618,639) Total Bond Proceeds $16,991,361 Obligor Contribution(') 1,136,011 Total Sources of Funds $18,127,372 Uses of Funds Project Fund $16,603,188 Reserve Fund(2) 1,048,345 Costs of Issuance(3) 475,839 Total Uses of Funds $18,127,372 Represents funds of the Obligor to be used to pay a portion of the costs of issuance and the Project. (2) A Reserve Fund will be established at closing in an amount equal to the Reserve Fund Requirement, as described herein under the section entitled "SECURITY FOR THE BONDS— Debt Service Reserve Fund for the Bonds." Effectively, the Reserve Fund for the Bonds will be funded in an amount equal to the aggregate maximum annual debt service on the Series 2013A Bonds and the Bonds, less the reserve fund requirement on the outstanding Series 2013A Bonds. Notwithstanding the foregoing, the debt service reserve fund established for the Series 2013A Bonds secures solely the Series 2013A Bonds and does not secure the Bonds and the Reserve Fund for the Bonds secures solely the Bonds and does not secure the Series 2013A Bonds. (3) Includes legal fees, auditor fees, underwriter's fee, and other costs associated with the issuance of the Bonds. [Remainder of page intentionally left blank] 6 ESTIMATED COMBINED ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth the estimated amounts required for the payment of principal of the Series 2013A and the Bonds at maturity or by mandatory sinking fund redemption and for the payment of interest on the Series 2013A and the Bonds for each Bond Year ending November 15. Bond Year Ending Series 2013A Series 2013B November 15 Principal Interest Principal Interest Total 2013 $605,000 $1,158,609 $1,763,609 2014 975,000 1,855,395 $1,048,345 3,878,740 2015 995,000 1,835,895 990,563 3,821,458 2016 1,025,000 1,807,045 990,563 3,822,608 2017 1,055,000 1,778,495 990,563 3,824,058 2018 1,090,000 1,738,920 990,563 3,819,483 2019 1,135,000 1,697,120 990,563 3,822,683 2020 1,190,000 1,640,370 990,563 3,820,933 2021 1,245,000 1,584,070 990,563 3,819,633 2022 1,305,000 1,524,533 990,563 3,820,095 2023 1,365,000 1,464,163 990,563 3,819,725 2024 1,435,000 1,397,313 990,563 3,822,875 2025 1,505,000 1,326,175 990,563 3,821,738 2026 1,580,000 1,251,581 990,563 3,822,144 2027 1,660,000 1,173,281 990,563 3,823,844 2028 1,740,000 1,090,981 990,563 3,821,544 2029 1,825,000 1,004,813 990,563 3,820,375 2030 1,920,000 913,788 990,563 3,824,350 2031 2,015,000 818,013 990,563 3,823,575 2032 2,115,000 717,506 990,563 3,823,069 2033 2,220,000 612,000 990,563 3,822,563 2034 2,330,000 501,263 990,563 3,821,825 2035 2,445,000 385,044 990,563 3,820,606 2036 2,570,000 263,094 990,563 3,823,656 2037 2,705,000 134,894 990,563 3,830,456 2038 $2,550,000 990,563 3,540,563 2039 2,690,000 847,125 3,537,125 2040 2,845,000 695,813 3,540,813 2041 3,005,000 535,781 3,540,781 2042 3,170,000 366,750 3,536,750 2043 3,350,000 188,438 3,538,438 $40,050,000 $29,674,358 $17,610,000 $27,455,752 $114,790,109 7 THE BONDS Specific information about the Bonds is contained below. Information about security for the Bonds is contained in "SECURITY FOR THE BONDS." General; Book-Entry-Only System. The Bonds provide that no recourse under any obligation, covenant or agreement contained in the Bond Indenture, or in any Bond, or under any judgment obtained against the Issuer or by the enforcement of any assessment or by any legal or equitable proceeding by virtue of any constitution or statute or otherwise or under any circumstances, under or independent of the Bond Indenture, will be had against any past, present or future director, incorporator, agent, representative, member, officer or employee of the Issuer, as such, either directly or through the Issuer, for the payment for or to the Issuer or for or to the registered owner of any Bond, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability being by the acceptance of the Bonds and, as a material part of the consideration for the issue of the Bonds, expressly waived and released. So long as DTC acts as securities depository for the Bonds, as described in APPENDIX E hereto, all references herein to "Owner," "owner," "Holder" or "holder" of any Bonds or to Series 2013B "Bondowner," "Bondholder," "bondowner" or "bondholder" are deemed to refer to Cede & Co., as nominee for DTC, and not to Participants, Indirect Participants or Beneficial Owners (as defined herein). So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, principal of, premium, if any, and interest on the Bonds will be paid as described in APPENDIX E hereto. The following information is subject in its entirety to the provisions described in APPENDIX E hereto. The Bonds will be issued only in fully registered form without coupons in the denominations of$5,000 and any integral multiple thereof. The Bonds will be dated their date of issuance and will accrue interest from the date of delivery, except as otherwise provided in the Bond Indenture. The Bonds will bear interest (based on a 360-day year of twelve 30-day months) at the rate set forth on the inside cover hereof, payable semiannually on May 15 and November 15 each year, commencing May 15, 2014 (each, an "Interest Payment Date"), and mature on the dates set forth on the inside cover page hereof. Payment of Principal and Interest. The principal of and premium, if any, on the Bonds are required to be payable in lawful money of the United States of America at the Payment Office of the Bond Trustee, or at the designated corporate trust office of its successor, upon presentation and surrender of the Bonds. Payment of interest on each Bond will be made to the person in whose name such Bond is registered on the Bond Register at the close of business on the applicable Record Date and are required to be paid (i) by check or draft mailed to such registered owner on the applicable Interest 8 Payment Date at such owner's address as it appears on the bond register or at such other address as is furnished to the Bond Trustee in writing by the applicable Record Date by such owner or (ii) as to any registered owner of $1,000,000 or more in aggregate principal amount of Bonds who so elects, by wire transfer of funds to such wire transfer address within the continental United States of America as the registered owner shall have furnished to the Bond Trustee in writing on or prior to the Record Date and upon compliance with the reasonable requirements of the Bond Trustee. In the Event of Default in the payment of interest due on such Interest Payment Date, defaulted interest will be payable to the person in whose name such Bond is registered at the close of business on a Special Record Date for the payment of such defaulted interest established by notice mailed by the Bond Trustee to the registered owners of Bonds not less than ten days preceding such Special Record Date. Transfers and Exchanges; Persons Treated as Owners. The Bonds are exchangeable for an equal aggregate principal amount of fully registered Bonds of the same maturity of other authorized denominations at the St. Paul, Minnesota office of the Bond Trustee but only in the manner and subject to the limitations and on payment of the charges provided in the Bond Indenture. The Bonds are fully transferable by the registered owner in person or by his or her duly authorized attorney on the registration books kept at the principal office of the Bond Trustee upon surrender of the Bond together with a duly executed written instrument of transfer satisfactory to the Bond Trustee. Upon such transfer a new fully registered Bond of authorized denomination or denominations for the same aggregate principal amount and maturity will be issued to the transferee in exchange therefor, all upon payment of the charges and subject to the terms and conditions set forth in the Bond Indenture. The Bond Trustee will not be required to transfer or exchange any Bond after the mailing of notice calling such Bond or any portion thereof for redemption has been given as herein provided, nor during the period beginning at the opening of business 15 days before the day of mailing by the Bond Trustee of a notice of prior redemption and ending at the close of business on the day of such mailing except for Bondholders of$1,000,000 or more in aggregate principal amount of Bonds. The Issuer and the Bond Trustee may deem and treat the person in whose name the Bond is registered as the absolute owner thereof for the purpose of making payment (except to the extent otherwise provided in the Bond Indenture with respect to Regular and Special Record Dates for the payment of interest) and for all other purposes, and neither the Issuer nor the Bond Trustee will be affected by any notice to the contrary. Optional Redemption The Bonds maturing are subject to optional redemption prior to maturity by the Issuer at the written direction of the Obligor in whole or in part on November 15, 2023 or 9 on any date thereafter, at a redemption price equal to the principal amount of such Bonds to be redeemed, together with accrued interest to the date of redemption. Mandatory Sinking Fund Redemption The Bonds are subject to mandatory sinking fund redemption from amounts deposited to the Principal Account of the Bond Fund established pursuant to the Bond Indenture by the Obligor, at a redemption price equal to 100% of the principal amount to be redeemed, together with accrued interest to the date fixed for redemption, on November 15 in each of the years and amounts as follows: Year Principal Amount 2038 $2,550,000 2039 2,690,000 2040 2,845,000 2041 3,005,000 2042 3,170,000 2043* 3,350,000 *Stated Maturity The Obligor may reduce the principal amount of the Bonds of the maturity so required to be redeemed on any such date by the principal amount of the Bonds of such maturity either (i) purchased by or on behalf of the Obligor and surrendered to the Bond Trustee for cancellation not later than forty-five days prior to the redemption date; or (ii) redeemed other than through sinking fund redemption and cancelled by the Bond Trustee not later than forty-five days prior to the redemption date, which in either case have not been previously made the basis for a reduction of the principal amounts of the Bonds to be redeemed by operation of the sinking fund redemption. Any excess will be credited against the next sinking fund redemption obligation to redeem Bonds. Extraordinary Optional Redemption The Bonds will be subject to optional redemption by the Issuer at the written direction of the Obligor prior to their scheduled maturities, in whole or in part at a redemption price equal to the principal amount thereof plus accrued interest from the most recent interest payment date to the redemption date on any date following the occurrence of any of the following events: (a) in case of damage or destruction to, or condemnation of, any property, plant, and equipment of any Obligated Group Member, to the extent that the net proceeds of insurance or condemnation award exceed the Threshold Amount (as defined in the Master Indenture), and the Obligor has determined not to use such net proceeds or award to repair, rebuild or replace such property, plant, and equipment; or 10 (b) as a result of any changes in the Constitution or laws of the State of Florida or of the United States of America or of any legislative, executive, or administrative action (whether state or federal) or of any final decree,judgment, or order of any court or administrative body (whether state or federal), the obligations of the Obligor under the Agreement have become, as established by an Opinion of Counsel, void or unenforceable in each case in any material respect in accordance with the intent and purpose of the parties as expressed in the Loan Agreement. Partial Redemption In the event that less than all of the Bonds or portions thereof are to be redeemed, the Obligor may select the particular maturities to be redeemed. If less than all Bonds or portions thereof of a single maturity are to be redeemed, they will be selected by the securities depository or by lot in such manner as the Bond Trustee may determine. If a Bond is of a denomination larger than the minimum Authorized Denomination, a portion of such Bond may be redeemed, but Bonds will be redeemed only in the principal amount of an Authorized Denomination and no Bond may be redeemed in part if the principal amount to be outstanding following such partial redemption is not an Authorized Denomination. Notice of Redemption In case of every redemption, the Bond Trustee will cause notice of such redemption to be given by mailing by first-class mail, postage prepaid, a copy of the redemption notice to the owners of the Bonds designated for redemption in whole or in part, at their addresses as the same will last appear upon the registration books, in each case not more than 60 nor less than 30 days prior to the redemption date. In addition, notice of redemption will be sent by first class or registered mail, return receipt requested, or by overnight delivery service (1) contemporaneously with such mailing: (A) to any owner of$1,000,000 or more in principal amount of the Bonds, and (B) to at least two or more information services of national recognition that disseminate redemption information with respect to municipal bonds; and (2) to any securities depository registered as such pursuant to the Securities Exchange Act of 1934, as amended, that is an owner of the Bonds to be redeemed so that such notice is received at least two days prior to such mailing date. An additional notice of redemption will be given by certified mail, postage prepaid, mailed not less than 60 nor more than 90 days after the redemption date to any owner of the Fixed Bonds selected for redemption that has not surrendered the Bonds called for redemption, at the address as the same will last appear upon the registration books. Failure to give any such notice, or any defect therein, will not affect the validity of any proceedings for the redemption of such Bonds. 11 SECURITY FOR THE BONDS General The Bonds will be issued under and will be equally and ratably secured under the Bond Indenture, pursuant to which the Issuer will assign and pledge to the Bond Trustee (1) the Series 2013B Note, (2) certain rights of the Issuer under the Loan Agreement, (3) the funds and accounts (excluding the Rebate Fund), including the money and investments in such funds, which the Bond Trustee holds under the terms of the Bond Indenture, and (4) such other property as may from time to time be pledged to the Bond Trustee as additional security for such Bonds or which may come into possession of the Bond Trustee pursuant to the terms of the Loan Agreement or the Series 2013B Note. The proceeds of the Bonds will be loaned to the Obligor, and the obligation of the Obligor to repay that loan will be evidenced by a promissory note of the Obligor issued pursuant to, and entitled to the benefit and security of, the Master Indenture including, without limitation, a security interest in the Gross Revenues and the Mortgaged Property. Limited Obligations THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER. THE PRINCIPAL AND INTEREST ARE PAYABLE SOLELY OUT OF CERTAIN PAYMENTS UNDER THE LOAN AGREEMENT BETWEEN THE ISSUER AND THE OBLIGOR AND THE RELATED NOTE ISSUED UNDER THE MASTER INDENTURE AS DESCRIBED HEREIN, BY RECOURSE TO THE MORTGAGE AND FROM MONEYS PLEDGED UNDER THE BOND INDENTURE AS DESCRIBED HEREIN. THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE, AND DO NOT CONSTITUTE AN INDEBTEDNESS OF THE STATE OF FLORIDA, DUVAL COUNTY, OR THE ISSUER OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND DO NOT CONSTITUTE NOR GIVE RISE TO A PECUNIARY LIABILITY OF THE STATE, DUVAL COUNTY, THE ISSUER OR ANY POLITICAL SUBDIVISION THEREOF OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWER OF THE STATE, DUVAL COUNTY, OR ANY POLITICAL SUBDIVISION THEREOF. Debt Service Reserve Fund for the Bonds The Bond Indenture creates and establishes with the Bond Trustee a Debt Service Reserve Fund (the "Reserve Fund") with respect to the Bonds. Moneys on deposit in the Reserve Fund will be used to provide a reserve for the payment of the principal of and interest on the related series of Bonds. See "EXCERPTS FROM INDENTURE OF TRUST" in APPENDIX C hereto. 12 Payments into the Reserve Fund. Pursuant to the Bond Indenture, the Reserve Fund is required to be funded in an amount equal to the "Reserve Fund Requirement," which is defined in the Loan Agreement as "(i) for the period commencing on the date of issuance of the Bonds to but not including November 15, 2014, an amount equal to the interest due on the Bonds on November 15, 2014 ($1,048,345.31), (ii) for the period commencing on November 15, 2014, to but not including November 15, 2037, an amount equal to 12 months of interest due on the Bonds during such period ($990,562.50), and (iii) from November 15, 2037 until maturity of the Bonds, an amount equal to the Maximum Annual Debt Service on the Bonds ($3,540,812.50)." The terms of the Loan Agreement require the Obligor to fund any deficiencies in the Reserve Fund including, without limitation, any deficiencies existing on November 15, 2014 and November 15, 2037 as a result of the change in the calculation of the Reserve Fund Requirement on such dates as described in the preceding sentence. In addition to the deposits required by the Bond Indenture, there will be deposited into the Reserve Fund any Reserve Fund Obligations delivered by the Obligor to the Bond Trustee pursuant to the Loan Agreement. In addition, there will be deposited into the Reserve Fund all moneys required to be transferred thereto pursuant to the Bond Indenture, and all other moneys received by the Bond Trustee when accompanied by directions that such moneys are to be paid into the Reserve Fund. There will also be retained in the Reserve Fund all interest and other income received on investments of Reserve Fund moneys in the Reserve Fund to the extent provided in the Bond Indenture. Use of Moneys in the Reserve Fund. Except as provided in the Bond Indenture, moneys in the Reserve Fund will be used solely for the payment of the principal of and interest on the Bonds in the event moneys in the Bond Fund are insufficient to make such payments when due, whether on an interest payment date, redemption date, maturity date, acceleration date or otherwise. Effect of Event of Default. Upon the occurrence of an Event of Default of which the Bond Trustee is deemed to have notice under the Bond Indenture and the election by the Bond Trustee of the remedy specified in the Bond Indenture, any Reserve Fund Obligations in the Reserve Fund will, subject to the provisions of the Bond Indenture, be transferred by the Bond Trustee to the Principal Account and applied in accordance with the provisions of the Bond Indenture. In the event of the redemption of any series of Bonds, any Reserve Fund Obligations on deposit in the Reserve Fund in excess of the Reserve Fund Requirement on the Bonds to be Outstanding immediately after such redemption may, subject to the provisions of the Bond Indenture, be transferred to the Principal Account and applied to the payment of the principal of the Bonds to be redeemed. On June 1 and December 1 in each year, any earnings on the Reserve Fund Obligations on deposit in the Reserve Fund that are in excess of the Reserve Fund Requirement will be transferred into the Interest Account of the Bond Fund for the Bonds. 13 Remaining Funds. On the final maturity date or redemption date of the Bonds, any moneys in the Reserve Fund may be used to pay the principal of, premium, if any, and interest on the Bonds. The Loan Agreement Under the Loan Agreement, the Obligor is required to duly and punctually to pay the principal of, premium, if any, and interest on the Bonds, and to make payments to the Bond Trustee to maintain the Reserve Fund at the required amount and to make certain other payments. See "EXCERPTS FROM LOAN AGREEMENT" in APPENDIX C hereto. The Master Indenture General. The Master Indenture is intended to provide assurance for the repayment of obligations entitled to its benefits by imposing financial and operating covenants which restrict the Obligor and any other future Obligated Group Members and by the appointment of the Master Trustee to enforce such covenants for the benefit of the holders of such Obligations. The Series 2013B Note and the Series 2013A Note are the only obligations presently entitled to the benefits of the Master Indenture. The holders of all Obligations entitled to the benefit of the Master Indenture will be on a parity with respect to the benefits of the Master Indenture. Pursuant to the Master Indenture, the Obligor and any future Obligated Group Members have pledged and granted to the Master Trustee (a) a security interest in all personal property owned or hereafter acquired by the Obligated Group, (b) a security interest in all the Gross Revenues of the Obligated Group, with certain limited exceptions, (c) a security interest in the Funds established under the Master Indenture, and (d) a security interest in any other property from time to time subjected to the lien of the Master Indenture. Pursuant to the Mortgage,the Obligor has pledged and granted to the Master Trustee a lien on the Mortgaged Property and a security interest in all property owned or hereafter acquired by the Obligor. See "EXCERPTS FROM MASTER TRUST INDENTURE" in APPENDIX C. "Gross Revenues" means all receipts, revenues, rentals, income, insurance proceeds (including, without limitation, all Medicaid, Medicare and other third party payments), condemnation awards, Entrance Fees and other moneys received by or on behalf of any Obligated Group Member, including (without limitation) revenues derived from (a) the ownership, operation or leasing of any portion of the Facilities (including, without limitation, fees payable by or on behalf of residents of the Facilities) and all rights to receive the same (other than the right to receive Medicaid and Medicare payments), whether in the form of accounts, general intangibles or other rights, and the proceeds of such accounts, general intangibles and other rights, whether now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (b) gifts, grants, bequests, donations and contributions heretofore or hereafter made that are legally available to meet any of the obligations of the Obligated Group Member incurred in the financing, operation, maintenance or repair of any portion of the 14 Facilities; provided, however, that there shall be excluded from Gross Revenues (i) all such items, whether now owned or hereafter acquired by the Obligated Group Members, which by their terms or by reason of applicable law cannot be granted, assigned or pledged hereunder or which would become void or voidable if granted, assigned or pledged hereunder by the Obligated Group Members, or which cannot be granted, pledged or assigned hereunder without the consent of other parties whose consent is not secured, or without subjecting the Master Trustee to a liability not otherwise contemplated by the provisions hereof, or which otherwise may not be, or are not, hereby lawfully and effectively granted, pledged and assigned by the Obligated Group Members, (ii) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (iii) gifts, grants, bequests, donations and contributions to an Obligated Group Member heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use of payments required under this Master Trust Indenture, (iv) any moneys received by any Obligated Group Member from prospective residents or commercial tenants in order to pay for customized improvements to those Independent Living Units or other areas of the Facilities to be occupied or leased to such residents or tenants, (v) all deposits made pursuant to Residency Agreements to be held in escrow until construction of the Facilities is completed, a certificate of occupancy has been issued and appropriate licenses, if required, have been issued, and (vi) all deposits and/or advance payments made in connection with any leases of the Independent Living Units and received prior to receipt of such certificate and licenses. The Series 2013B Note will constitute a joint and several obligation of each Obligated Group Member, and the Series 2013B Note will be secured on a parity basis with the Series 2013A Note and with any other Obligations hereafter issued and outstanding under the Master Indenture by a lien on the trust estate pledged thereunder, which includes the Mortgaged Property and the Gross Revenues of the Obligated Group. Currently, only the Obligor and the Master Trustee are parties to the Master Indenture, and the Obligor is the only Obligated Group Member. The Obligor and each Obligated Group Member that may be admitted in the future will be jointly and severally liable for the payment for all Obligations entitled to the benefits of the Master Indenture and will be subject to the financial and operating covenants thereunder. See "EXCERPTS FROM MASTER TRUST INDENTURE—Section 6.01 Admission of Obligated Group Members" and "—Section 6.03—Withdrawal of Obligated Group Members" in APPENDIX C for a description of the limitations on admission and release of Obligated Group Members. Certain Covenants of the Obligor and any Future Members of the Obligated Group In addition to the covenants described below, the Master Indenture contains additional covenants relating to, among others, the maintenance of the Obligated Group's property, corporate existence, the maintenance of certain levels of insurance coverage, 15 the incurrence of additional debt, the sale or lease of certain property, and permitted liens. For a full description of these and other covenants, see "EXCERPTS FROM MASTER TRUST INDENTURE" in APPENDIX C hereto. Rate Covenant. Pursuant to the Master Indenture, the Obligated Group has covenanted 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 hereunder to the extent permitted by law. Each Obligated Group Member has agreed 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 the Master Indenture. The Members covenant and agree that the Obligated Group Representative will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the Fiscal Year ending December 31, 2012 in accordance with the Master Indenture. If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Obligated Group Representative, at the Obligated Group's expense, is required to select a Consultant and notify the Master Trustee of the selection within thirty (30) days following the calculation described above, and engage a Consultant in accordance with the Master Indenture to make recommendations with respect to the rates, fees and charges of the Members and the Obligated Group's methods of operation and other factors affecting its financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year; provided, however, the Obligated Group Representative shall not be required to engage a Consultant for a Fiscal Year in which the Historical Debt Service Coverage Ratio is less than 1.20:1 if: (i) the Historical Debt Service Coverage Ratio is equal to or greater than 1:00:1 and (ii) Days Cash on Hand exceeds two hundred fifty (250) days; but the Obligated Group Representative shall be required to engage a Consultant, regardless of Days Cash on Hand, if the Historical Debt Service Coverage Ratio is less than 1.20:1 for two (2) consecutive Fiscal Years. Within sixty (60) days of the actual engagement of any such Consultant, the Obligated Group Representative is required to cause a copy of the Consultant's report and recommendations, if any, to be filed with each Member of the Obligated Group and each Required Information Recipient (as defined in the Master Indenture). Each Member of the Obligated Group is required to follow each recommendation of the Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Representative) and permitted by law. This provision shall not be construed to prohibit any Member of the Obligated Group from serving indigent residents 16 to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of residents without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of the Master Indenture. If the Obligated Group fails to achieve a Historical Debt Service Coverage Ratio of 1.20:1 for a Fiscal Year, such failure shall not constitute an Event of Default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for preparing a report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined by the reasonable judgment of the Governing Body of the Obligated Group Representative) and permitted by law; provided, however, it shall be an Event of Default under the Master Indenture if (i) the Obligated Group fails to achieve a Historical Debt Service Coverage Ratio of at least 1.00:1 and the Days Cash on Hand of the Obligated Group as of the last day of the Fiscal Year is less than one hundred eighty (180) days or (ii) the Obligated Group fails to achieve a Historical Debt Service Coverage Ratio of at least 1.00:1 for two (2) consecutive Fiscal Years. Under certain circumstances, if 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 summarized above, the Obligated Group will be relieved of that requirement if the rates charged by the Obligated Group are such that the Obligated Group has generated the maximum amount of revenues reasonably practicable given such laws or regulations, and the Historical Maximum Annual Debt Service Coverage Ratio of the Obligated Group for such Fiscal Year was at least 1.00:1. See "EXCERPTS FROM MASTER TRUST INDENTURE—Section 4.11—Rates and Charges" in APPENDIX C hereto. In the event that any Member of the Obligated Group incurs any Additional Indebtedness for any acquisition, construction, renovation or replacement project, the Debt Service Requirements on such Additional Indebtedness and the Revenues and Expenses relating to the project or projects financed with the proceeds of such Additional Indebtedness shall be excluded from the calculation of the Historical Debt Service Coverage Ratio of the Obligated Group until the first full Fiscal Year following the later of(i) the estimated completion of the acquisition, construction, renovation or replacement project being paid for 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 Consultant's report described in (A) below, or (ii) the first full Fiscal Year after which Stable Occupancy is achieved in the case of construction, renovation or replacement of elderly housing facilities or nursing facilities financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected in the report of the Consultant referred to in paragraph (A) below to occur no later than during the fifth full Fiscal Year following the incurrence of such Additional 17 Indebtedness, or (iii) the end of the fifth full Fiscal Year after the incurrence of such Additional Indebtedness, if the following conditions are met: (A) there is delivered to the Master Trustee a report or opinion of a Consultant to the effect that the Projected Debt Service Coverage Ratio for each of the first two full Fiscal Years following the later of (1) the estimated completion of the acquisition, construction, renovation or replacement being paid for with the proceeds of such Additional Indebtedness, or (2) the first full Fiscal Year following the year in which Stable Occupancy is achieved in the case of construction, renovation or replacement of elderly housing facilities or nursing facilities being financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected to occur no later than during the fifth full Fiscal Year following the incurrence of such Additional Indebtedness, will be not less than 1.20:1 after giving effect to the incurrence of such Additional Indebtedness and the application of the proceeds thereof; provided, however, that in the event that a Consultant shall 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 Members to produce the required ratio, then such ratio shall be reduced to the highest practicable ratio then permitted by such laws or regulations but in no event less than 1.00:1: provided, however, that in the event a 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 Consultant's report described in this subparagraph (A); and (B) 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 (1) the Additional Indebtedness to be incurred if (x) the interest on such Additional Indebtedness during such period is funded from proceeds thereof or other funds of the Member then on hand and available therefor and (y) no principal of such Additional Indebtedness is payable during such period, and (2) the Revenues to be derived from the project to be financed from the proceeds of such Additional Indebtedness. See "EXCERPTS FROM MASTER INDENTURE—Section 4.11—Rates and Charges" in APPENDIX C hereto. For specific information regarding the process under the Master Indenture for selection of Consultants, see "SECURITY FOR THE BONDS—Approval of Consultants" and APPENDIX C—"THE MASTER INDENTURE—Approval of Consultants." 18 Liquidity Covenant. The Master Indenture requires that the Obligated Group calculate the Days Cash on Hand of the Obligated Group as of June 30 and December 31 of each Fiscal year, commencing on June 30, 2013 (each such date being a "Testing Date"). Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have no less than 180 Days Cash on Hand (the "Liquidity Requirement"). If the Days Cash on Hand on any Testing Date is less than the Liquidity Requirement, the Obligated Group Representative is required, within 30 days after delivery of the Officer's Certificate disclosing such deficiency, to deliver an Officer's Certificate approved by a resolution of the Governing Body of the Obligated Group Representative to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to raise the level of Days Cash on Hand to the Liquidity Requirement for future Testing Dates. If the Obligated Group has not raised the level of Days Cash on Hand to the Liquidity Requirement by the next Testing Date following delivery of the Officer's Certificate required in the preceding paragraph, the Obligated Group Representative is required, within 30 days after receipt of the Officer's Certificate disclosing such deficiency, to select a Consultant in accordance with the terms of the Master Indenture to make recommendations with respect to the rates, fees and charges of the Obligated Group and the Obligated Group's methods of operation and other factors affecting its financial condition in order to raise the level of Days Cash on Hand to the Liquidity Requirement for future Testing Dates. A copy of the Consultant's report and recommendations, if any, is required to be filed with each member and each Required Information Recipient within 60 days after the date such Consultant is actually engaged. Each member of the Obligated Group is required to follow each recommendation of the Consultant to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member) and permitted by law. Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the required liquidity level will not constitute an Event of Default under the Master Indenture if the Obligated Group takes all action necessary to comply with the required procedures set forth above for 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 such Member) and permitted by law. See "The Master Indenture—Liquidity Covenant" in APPENDIX D hereto. For specific information regarding the process under the Master Indenture for selection of Consultants, see "SECURITY FOR THE BONDS—Approval of Consultants" and APPENDIX C "THE MASTER INDENTURE—Approval of Consultants." 19 Actuarial Study. Within 150 days of the end of the Fiscal Year ending December 31, 2012, and within 150 days of the end of each third Fiscal Year thereafter, the Obligated Group will obtain an actuarial report, including a calculation of funded status, and the Obligated Group Agent shall deliver an executive summary of such report, including a calculation of the Obligated Group's funded status, to the Required Information Recipients (as defined in the Master Indenture). Should the Obligated Group engage an actuary to report on funding status more frequently than in the preceding sentence, an executive summary of such report shall be provided. Rating The Obligated Group has covenanted to use its best efforts to maintain an investment grade rating on the Bonds. In the event that the Bonds lose their investment grade rating, the Obligated Group has covenanted that it will seek a rating of the Bonds from any Rating Agency each year after a determination is made by the Obligated Group in consultation with the Underwriter or other such qualified entity that an investment grade rating for the Bonds is reasonably attainable, until achievement of an investment grade rating, provided that if during any such year the Obligated Group receives a preliminary indication from any Rating Agency that the Bonds will not be assigned an investment grade rating, the Obligated Group shall withdraw its rating request for such year. Approval of Consultants The Master Indenture provides that if at any time the Members of the Obligated Group are required to engage a Consultant under the provisions of the Master Indenture with respect to the Rate Covenant, Liquidity Covenant or occupancy covenants, such Consultant shall be engaged in the manner as set forth below. Upon selecting a Consultant as required under the provisions of the Master Indenture, the Obligated Group Representative will notify the Master Trustee of such selection. The Master Trustee is required to, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the holders of all Obligations outstanding under the Master Indenture of such selection. Such notice will (i) include the name of the Consultant and a brief description of the Consultant, (ii) state the reason that the Consultant is being engaged including a description of the covenant(s) of this Master Indenture that require the Consultant to be engaged, and (iii) state that the holder of the Obligation will be deemed to have consented to the selection of the Consultant named in such notice unless such Obligation holder submits an objection to the selected Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within 15 days of the date that the notice is sent to the Obligations holders. No later than two Business Days after the end of the 15-day objection period, the Master Trustee is required to notify the Obligated Group of the number of objections. If 66.6% or more in aggregate principal amount of the holders of the outstanding Obligations have been deemed to have 20 consented to the selection of the Consultant, the Obligated Group Representative is required to engage the Consultant within three Business Days. If 33.4% or more in aggregate principal amount of the owners of the Obligations outstanding have objected to the Consultant selected, the Obligated Group Representative shall select another Consultant which may be engaged upon compliance with the procedures described above and in accordance with the Master Indenture. For further information about the approval of Consultants, including the ability of owners to object to the selection of a Consultant, see APPENDIX C—"THE MASTER INDENTURE—Approval of Consultants." Revenue Fund If an Event of Default under the Master Indenture occurs due to failure to pay any debt service on any Obligations when due and continues for a period of five days, each Obligated Group Member is required to deposit with the Master Trustee for deposit into the Revenue Fund all Gross Revenues and Federal Subsidy Payments of such Obligated Group Member (except to the extent otherwise provided by or inconsistent with any instrument creating any mortgage, lien, charge, encumbrance, pledge or other security interest granted, created, assumed, incurred or existing in accordance with the provisions of the Master Indenture) during each succeeding month, beginning on the first day thereof and on each day thereafter, until no payment default under the Master Indenture then exists. On the fifth Business Day preceding the end of each month in which any Obligated Group Member has made payments to the Master Trustee for deposit into the Revenue Fund, the Master Trustee will withdraw and pay or deposit from the amounts on deposit in the Revenue Fund the following amounts in the order indicated: FIRST, to the payment of all amounts due the Master Trustee under the Master Indenture; SECOND, to the payment of the amounts then due and unpaid upon the Obligations, other than Obligations constituting Subordinated Indebtedness, for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Obligations for principal (and premium, if any) and interest, respectively; THIRD, to the payment of the amounts then due and unpaid upon the Obligations constituting Subordinated Indebtedness for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Obligations for principal (and premium, if any) and interest, respectively; and 21 FOURTH, to the Obligated Group Representative. Additional Indebtedness The Master Indenture permits the Obligated Group to incur Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an additional Obligation issued under the Master Indenture. Under certain conditions specified therein, the Master Indenture will permit the Obligated Group to issue additional Obligations that will not be pledged under the Bond Indenture, but will be equally and ratably secured by the Master Indenture with the Series 2013B Note, the Series 2013A Note and any Obligation hereafter issued and outstanding under the Master Indenture. In addition, the Master Indenture will permit such additional Obligations to be secured by security including Liens on the Property of the Obligated Group and letters and lines of credit and insurance, which additional security or Liens need not be extended to secure any other Obligations (including the Series 2013B Note). See APPENDIX C— "THE MASTER INDENTURE—Permitted Additional Indebtedness" and "—Liens on Property." The Master Indenture also contains a provision that permits the Obligated Group to incur up to $20,000,000 of additional Funded Indebtedness (as defined in the Master Indenture) issued no later than March 31, 2014 for the purpose of financing the costs of the Project. In determining compliance with a number of provisions of the Master Indenture, including the provisions governing the incurrence of Additional Indebtedness, the Obligated Group may assume that certain types of Indebtedness which bear interest at varying rates and which may not be payable over an extended term will bear interest over time at interest approximating current or recent long term fixed rates, will remain outstanding for a long term and will be amortized on a level debt service basis. The actual interest rates and payments on such Indebtedness may vary from such assumptions, and such variance may be material. See APPENDIX C—"THE MASTER INDENTURE—Calculation of Debt Service and Debt Service Coverage." RISK FACTORS General Risk Factors The Bonds are special and limited obligations of the Issuer, payable solely from and secured exclusively by the funds pledged thereto, including the payments to be made by the Obligated Group under the Master Indenture. A BONDOWNER IS ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING THE APPENDICES HERETO, AND SPECIAL REFERENCE IS MADE TO THE SECTION "SECURITY FOR THE BONDS" AND THIS SECTION FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH 22 SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE BONDS. As described herein under the caption "SECURITY FOR THE BONDS," except to the extent that the principal of, premium, if any, and interest on the Bonds may be payable from the proceeds thereof or investment income thereon or, under certain circumstances, proceeds of insurance, sale or condemnation awards or net amounts by recourse to the Mortgaged Property, such principal, premium and interest will be payable solely from amounts paid by the Obligor under the Loan Agreement or by the Obligated Group (currently consisting solely of the Obligor) under the Master Indenture. No representation or assurance is given or can be made that revenues will be realized by the Obligated Group (which in the context of this discussion of risk factors, should be understood to include the Obligor individually and together with future Members of the Obligated Group, if any) sufficient to ensure the payment of the principal and interest on the Bonds in the amounts and at the times required to pay debt service on each series of the Bonds when due. Neither the Underwriter nor the Issuer has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Obligated Group. The ability of the Obligated Group to generate sufficient revenues may be impacted by a number of factors. Some, but not necessarily all of these risk factors are discussed in this section below; these risk factors should be considered by investors considering any purchase of the Bonds. Neither the Underwriter nor the Issuer has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Obligated Group. Impact of Market Turmoil The disruption of the credit and financial markets in the last several years have resulted in volatility in the financial markets, fluctuations in interest rates, reduced economic activity, increased business failures and increased consumer and business bankruptcies, and is considered a major cause of the current economic downturn. In addition, as investor confidence has waned, investments previously recognized as stable, such as tax-exempt money market funds (which are one of the largest purchasers of tax- exempt bonds), have experienced significant withdrawals, This could affect the market demand for the Bonds. In addition, the general market disruption has affected and could continue to adversely affect the value of any investments the Obligor may have. In response to the disruption in the credit markets, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Financial Reform Act") was enacted in July 2010. The Financial Reform Act includes broad changes to the existing financial regulatory structure, including the creation of new federal agencies to identify and respond to risks to the financial stability of the United States. Additional legislation is pending or under active consideration by Congress and regulatory action is being considered by various federal agencies and the Federal Reserve Board and foreign governments, which are intended to increase the regulation of domestic and global credit 23 markets. The effects of these legislative, regulatory and other governmental actions, including the Dodd-Frank Act and the Budget Control Act (defined below), upon the Obligor and, in particular upon its access to capital markets and its investment portfolios, cannot be predicted. The senior housing sector has been adversely affected as a direct consequence of the disruption of the credit and financial markets. The consequences of these developments have generally included realized and unrealized investment portfolio losses, reduced investment income, limitations on access to the credit markets, difficulties in extending existing or obtaining new liquidity facilities, and increased borrowing costs. In addition, loss of residential property values has limited seniors' ability to sell their homes to help finance relocations to senior housing. In August 2011, President Obama signed the Budget Control Act of 2011 (the "Budget Control Act"). The Budget Control Act limits the federal government's discretionary spending caps to levels necessary to reduce expenditures by $917 billion from the current federal budget baseline for federal fiscal years 2011 and 2012. Medicare, Social Security, Medicaid and other entitlement programs will not be affected by the limit on discretionary spending caps. The Budget Control Act also created a bipartisan joint congressional committee to identify additional deficit reductions. Because the committee failed to propose a plan to cut the deficit by an additional $1.2 trillion by the November 23, 2011 deadline, the Budget Control Act requires automatic spending reductions of $1.2 trillion for fiscal years 2013 through 2021, minus any deficit reductions enacted by Congress and debt service costs. However, the percentage reduction for Medicare may not be more than 2% for a fiscal year, with a uniform percentage reduction across all Medicare programs. On September 14, 2012, the White House Office of Management and Budget released a report that provides information on how federal agencies would implement approximately $110 billion in spending reductions during fiscal year 2013. Collectively, for fiscal year 2013, such report provides that Medicare providers would see reductions of about $11 billion beginning in January, 2013, as part of a series of such automatic spending reductions absent further Congressional action. Additions to the Obligated Group Currently, the Obligor is the only Member of the Obligated Group. Upon satisfaction of certain conditions in the Master Indenture, other entities can become members of the Obligated Group. See "THE MASTER INDENTURE—Admission of Obligated Group Members" in APPENDIX C. Management of the Obligor currently has no plans to add additional members to the Obligated Group. However, if and when new members are added, the Obligated Group's financial situation and operations will likely be altered from that of the Obligor alone. 24 Limited Obligations THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER. THE PRINCIPAL AND INTEREST ARE PAYABLE SOLELY OUT OF CERTAIN PAYMENTS UNDER THE LOAN AGREEMENT BETWEEN THE ISSUER AND THE OBLIGOR AND THE RELATED NOTE ISSUED UNDER THE MASTER INDENTURE AS DESCRIBED HEREIN, BY RECOURSE TO THE MORTGAGE AND FROM MONEYS PLEDGED UNDER THE BOND INDENTURE AS DESCRIBED HEREIN. THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE, AND DO NOT CONSTITUTE AN INDEBTEDNESS OF THE STATE OF FLORIDA, DUVAL COUNTY OR THE ISSUER OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND DO NOT CONSTITUTE NOR GIVE RISE TO A PECUNIARY LIABILITY OF THE STATE, DUVAL COUNTY, THE ISSUER OR ANY POLITICAL SUBDIVISION THEREOF OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWER OF THE STATE, DUVAL COUNTY OR ANY POLITICAL SUBDIVISION THEREOF. Uncertainty of Revenues The Obligor has no assets other than the Mortgaged Property and is not expected to have any revenues except those derived from operations of the Community in the near term. As noted elsewhere, except to the extent that the holders receive under certain circumstances, proceeds of insurance, sale or condemnation awards, each series of the Bonds will be payable solely from payments or prepayments to be made by the Obligor under the Loan Agreement and by the Obligor and any other future Obligated Group Members on the Series 2013B Note. The ability of the Obligor to make payments under the Loan Agreement and the ability of the Obligor and any other future Obligated Group Members to make payments on the Series 2013B Note is dependent upon the generation by the Obligor of revenues in the amounts necessary for the Obligor to pay the principal, premium, if any, and interest on the Bonds, as well as other operating and capital expenses. The realization of future revenues and expenses are subject to, among other things, the capabilities of the management of the Obligor, government regulation and future economic and other conditions that are unpredictable and that may affect revenues and payment of principal of and interest on the Bonds. No representation or assurance can be made that revenues will be realized by the Obligor in amounts sufficient to make the required payments with respect to debt service on the Bonds. Failure to Maintain Occupancy The ability of the Obligated Group to generate sufficient revenues to pay the operating costs of their facilities and to pay debt service on the Bonds depends in part, on the ability of the Obligor to attract sufficient numbers of residents to the Community and to 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 25 terminate their Residency Agreements, subject to the conditions provided in the Residency Agreements. Competition The Community provides services in areas where other competitive facilities exist and may face additional competition in the future as a result of the construction or renovation of competitive facilities in the primary or secondary market area of the Community. There may also arise in the future competition from other continuing care facilities, some of which may offer similar facilities, but not necessarily similar services, at lower prices. Regulation of Residency Agreements As described herein under "FLORIDA REGULATION OF CONTINUING CARE FACILITIES," Chapter 651 requires every continuing care facility to maintain a certificate of authority from the Office of Insurance Regulation in order to operate. The Obligor has received a final certificate of authority for the Community. If the Obligor fails to comply with the requirements of Chapter 651, it would be subject to sanctions including the possible revocation of the certificate of authority for the Community. The certificate of authority may be revoked if certain grounds exist including, among others, failure by the provider to continue to meet the requirement for the authority originally granted, on account of deficiency of assets, failure of the provider to maintain escrow accounts or funds required by Chapter 651 and failure by the provider to honor its Residency Agreements with residents. Under certain circumstances the Office of Insurance Regulation may petition for an appropriate court order for rehabilitation, liquidation, conservation, reorganization, seizure or summary proceedings. If the Office of Insurance Regulations has been appointed a receiver of a continuing care facility, it may petition a court to enjoin a secured creditor of a facility from seeking to dispose of the collateral securing its debt for a period of up to 12 months. Liquidation of Security May Not be Sufficient in the Event of a Default The Bond Trustee and the Issuer must look solely to the Gross Revenues, the Mortgaged Property and any funds held under the Bond Indenture and the Master Indenture to pay and satisfy the Bonds in accordance with their terms. The Bondholders are dependent upon the success of the Community and the value of the assets of the Obligated Group for the payment of the principal of, redemption price, if any and interest on, the Bonds. In the event of a default, the value of the Mortgaged Property may be less than the amount of the outstanding Bonds, since the Community exists for the narrow use as a continuing care retirement community. In addition, even without consideration of the special purpose nature of the Community, the sale of property at a foreclosure sale may not result in the full value of such property being obtained. The special design features of a continuing care facility and the continuing rights of residents under continuing care and lease agreements may make it difficult to convert the facilities to 26 other uses, which may have the effect of reducing their attractiveness to potential purchasers. In the event of a default and subsequent foreclosure and sale of the Mortgaged Property, Bondholders have no assurance that the value of the Mortgaged Property would be sufficient to pay the outstanding principal and interest due under the terms of the Bonds. Accordingly, in the event of foreclosure and sale of the Mortgaged Property, Bondholders may not receive all principal and interest due under the terms of the Bonds. The Nature of the Income of the Elderly A percentage of the monthly income of certain residents of the Community may be fixed income derived from pensions and social security. In addition, some residents may have to liquidate assets in order to pay the fees and other charges for occupancy of the Community. If, due to inflation or otherwise, substantial increases in fees and other charges are required to cover increased operating costs, nursing care costs, wages, benefits and other expenses, residents may have difficulty paying or may be unable to pay such increased fees and other charges. Furthermore, investment income of the residents may be adversely affected by declines in market rates and stock prices, which may also result in payment difficulties. Sale of Homes It is anticipated that many future residents of the Community will come from a personal residence. Many of these individuals may have to sell their current homes prior to occupancy to meet the financial obligations under their Residency Agreement. If prospective residents encounter difficulties in selling their homes due to local or national economic conditions affecting the sale of residential real estate, such prospective residents may not have sufficient funds to pay fees or other obligations under their Residency Agreements, thereby causing a delay in occupying vacated units. Any such delay could have an adverse impact on the revenues of the Obligated Group and the ability of the Obligated Group to pay debt service requirements on the Bonds. Utilization Demand Several factors could, if implemented, affect demand for services provided at the Community 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 for the Community; 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 Community. 27 Factors Affecting Real Estate Taxes In recent years various State and local legislative, regulatory and judicial bodies have reviewed the exemption of non-profit corporations from real estate taxes. Various State and local government bodies have challenged with increasing frequency and success the tax-exempt status of such institutions and have sought to remove the exemption of property from real estate taxes of part or all of the property of various non- profit institutions on the grounds that a portion of such property was not being used to further the charitable purposes of the institution. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements. The Health Center and assisted living units (but not the independent living units) in the Community are currently exempt from the payment of property taxes. There can be no assurance that future changes in the laws and regulations of State or local governments will not materially and adversely affect the operation and revenues of the Obligated Group by requiring the Obligor to pay real estate taxes for such portions of the Community. Malpractice Claims and Losses The Obligated Group has covenanted in the Master Indenture to maintain professional liability insurance with commercial insurance carriers unless the Obligated Group Representative provides a certificate of an insurance consultant complying with the terms of the Master Indenture. The operations of the Obligated Group may be affected by increases in the incidence of malpractice lawsuits against elder care facilities and care providers in general and by increases in the dollar amount of client damage recoveries. These may result in increased insurance premiums and an increased difficulty in obtaining malpractice insurance. It is not possible at this time to determine either the extent to which malpractice coverage will continue to be available to the Obligated Group or the premiums at which such coverage can be obtained. Healthcare Reform In March, 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the "Health Care Reform Act") was enacted and approved by the President. Some of the provisions of the Health Care Reform Act took effect immediately, while others will take effect or will be phased in over time, ranging from a few months following approval to ten years. Because of the complexity of the Health Care Reform Act generally, additional legislation is likely to be considered and enacted over time. The Health Care Reform Act is also requiring the promulgation of substantial regulations with significant effects on the health care industry and third-party payors. In response, third- party payors and suppliers and vendors of goods and services to health care providers are expected to impose new and additional contractual terms and conditions. Thus, the 28 health care industry is being subjected to significant new statutory and regulatory requirements and contractual terms and conditions, and consequently subject to structural and operational changes and challenges, for a substantial period of time. The Health Care Reform Act is highly politicized. Initiatives to repeal it in whole or in part, to delay elements of implementation or funding, and to offer amendments or supplements to modify its provisions have been proposed. On June 28, 2012, after several challenges to the Health Care Reform Act's constitutionality, the United States Supreme Court announced its decision to uphold the constitutionality of the individual insurance mandate as well as the federal government's ability to expand Medicaid coverage, ruling, however, that the government could not withdraw existing Medicaid funding from states that declined to comply with the Medicaid expansion. However, other than those provisions that have already been enacted, the Obligor cannot predict with any reasonable degree of certainty or reliability further interim or ultimate effects of the legislation. In light of the Supreme Court's decision and the continued efforts to amend and/or repeal the Health Care Reform Act, it is unclear at this time what further action, if any, Congress may take with respect to the Health Care Reform Act. In this context, the Obligor cannot predict with any reasonable degree of certainty or reliability any interim or ultimate effects of future implementation of the Health Care Reform Act or its possible repeal, either in whole or in part, by Congress. Nursing Staff Shortage Recently the healthcare industry has experienced a shortage of nursing staff, which has resulted in increased costs for healthcare providers due to the need to hire agency nursing personnel at higher rates. Both the federal and state governments have implemented, or are considering implementing, legislative efforts to combat the health care industry's workforce shortages, including those in nursing. If the nursing shortage continues, it could adversely affect the Obligated Group's operations or financial condition. Third-Party Payments and Managed Care In the environment of increasing managed care, the Obligated Group can expect additional challenges in maintaining its resident population and attendant revenues. Third-party payors, such as health maintenance organizations, direct their subscribers to providers who have agreed to accept discounted rates or reduced per diem charges. Continuing care retirement communities are less sensitive to this directed utilization than stand-alone skilled nursing facilities; however, the risk may increase and the Obligated Group may be required to accept residents under such conditions should managed care cost reduction measures now pervasive in the health care industry continue to grow. 29 Fraud and Abuse Enforcement Health care fraud and abuse laws were enacted at the federal and state levels to regulate both the provision of services to government program beneficiaries and the submission of claims for services rendered to such beneficiaries. Under these laws, individuals and organizations, such as the Obligor, can be punished for submitting claims for services that were not provided, not medically necessary, incorrectly coded, provided by an improper person, accompanied by an illegal inducement to utilize or refrain from utilizing a service or product, billed in a manner that does not comply with applicable government requirements, furnished in a substandard manner, or other similar reasons. Federal and state governments have a range of criminal, civil and administrative sanctions available to penalize and remediate health care fraud and abuse, including recoveries of amounts paid to the provider, imprisonment, exclusion of the provider from participation in the Medicare and Medicaid programs, civil monetary penalties and suspension of payments. Fraud and abuse cases may be prosecuted by one or more government entities and/or private individuals, and more than one of the available penalties may be imposed for each violation. The federal government has made the investigation and prosecution of health care fraud and abuse a priority, and Congress has authorized significant funding of this effort. As a result, there have been a substantial number of investigations, prosecutions and civil enforcement proceedings of health care- related fraud and abuse in recent years. Laws governing fraud and abuse apply to virtually all individuals and entities with which a health care provider does business, including hospitals, home health agencies, long-term care entities, infusion providers, pharmaceutical providers, insurers, health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), third party administrators, physicians, physician groups, physician practice management companies, ambulatory care entities, laboratories, diagnostic testing facilities, suppliers of medical items and services and other potential referral sources. Fraud and abuse prosecutions can have a catastrophic effect on such entities and a material adverse impact on the financial condition of other entities in the health care delivery system of which that entity is a part. Federal Criminal Fraud and Abuse Liability of Health Care Providers. Both individuals and organizations may be subject to prosecution under several federal criminal fraud and abuse statutes. Criminal conviction for an offense related to a health care provider's participation in the Medicare program may result in substantial fines and/or the provider's suspension, exclusion or debarment from all government programs, including the Medicare program. Any such fines, exclusions or debarment could have a material adverse effect on the Obligor's financial condition. Even the assertion of a violation could have an effect. Criminal False Claims Act. The criminal False Claims Act ("Criminal FCA") prohibits anyone from knowingly and willfully making a false statement or 30 misrepresentation of a material fact in submitting a claim to a government health care program (defined as "any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government" other than the Federal Employees Health Benefit Program). There are numerous specific rules that a health care provider must follow with respect to the submission of claims. Violation of the Criminal FCA can result in imprisonment of five years and a fine of up to $25,000. Violation of the Criminal FCA also results in mandatory exclusion from participation in the government health care programs. Anti-Kickback Law. The federal anti-kickback law ("Anti-Kickback Law") is a criminal statute that prohibits the offering, payment, solicitation or receipt of remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, for (1) the referral of patients or arranging for the referral of patients to receive services for which payment may be made in whole or in part under a government health care program or any state health care program; or (2) the purchase, lease, order, or arranging for the purchase, lease or order of any good, facility, service or item for which payment may be made under a government health care program. Generally, courts have taken a broad interpretation of the scope of the Anti-Kickback Law. Courts have held that the Anti-Kickback Law may be violated if merely one purpose of a financial arrangement is to induce future referrals of federal or state health care program covered items or services. The criminal sanctions for a conviction under the Anti-Kickback Law are imprisonment for not more than five years, a fine of not more than $25,000 or both, for each incident or offense, although under 18 U.S.C. §3521, this fine may be increased to $250,000 for individuals and $500,000 for organizations. If a party is convicted of a criminal offense related to participation in the Medicare program or any state health care program, or is convicted of a felony relating to health care fraud, the secretary of the United States Department of Health and Human Services ("DHHS") is required to bar the party from participation in federal health care programs and to notify the appropriate state agencies to bar the individual from participation in state health care programs. Imposition of such penalties or exclusions would result in a significant loss of reimbursement and may have a material adverse effect on the Obligor's financial condition. Even the assertion of a violation could have a material adverse effect on the financial condition and results of operations of the Obligor. OIG Advisory Opinions. In the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), Congress provided for an advisory opinion process in conjunction with the Anti-Kickback Law. These advisory opinions are issued only to the requestors and cannot be relied on by any other individual or entity. The Obligor has not requested, and does not plan to request, an OIG Advisory Opinion with respect to issues or arrangements that the Obligor may have relating to Anti-Kickback Law, including compliance with the safe harbor provisions discussed below. 31 "Safe Harbor" Regulations. The Medicare and Medicaid Patient and Program Protection Act of 1987 required the OIG to promulgate regulations to clarify that certain investment and payment practices in the health care industry would not violate the Anti- Fraud and Abuse Statute. In response, the OIG has promulgated final "safe harbor" regulations that set forth requirements that, if met, will protect certain payment arrangements. The scope of these safe harbors is narrow, and the requirements are specific. To date, the safe harbor regulations include: (i) investment interests in certain publicly traded companies, certain small business entities and providers in medically underserved areas; (ii) space rental; (iii) equipment rental; (iv) personal services and management contracts; (v) sales of physician practices; (vi) referral services; (vii) warranties; (viii) discounts; (ix) employees; (x) group purchasing organizations; (xi) waiver of beneficiary coinsurance/deductible amounts; (xii) increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans; (xiii) price reductions offered to health plans; (xiv) practitioner recruitment; (xv) subsidies for obstetrical malpractice insurance; (xvi) investments in physician group practices; (xvii) payments to cooperative hospital services organizations; (xviii) investments in ambulatory surgery centers; (xix) specialty referral arrangements between providers; (xx) ambulance replenishing; and (xxi) e-prescribing and electronic health record arrangements. The OIG has also published two interim final safe harbors in regulations for shared-risk arrangements. The scope of the Anti-Kickback Law is not expanded by way of the safe harbor regulations; these regulations give those who comply with a safe harbor the assurance that they will not be prosecuted under the statute. As explained by the OIG in the preamble to the July 1991 safe harbor regulations, failure to comply with a safe harbor can mean one of three things: (1) the arrangement does not fall within the broad scope of the anti-kickback provisions so there is no risk of prosecution; (2) the arrangement clearly violates the statute and is subject to prosecution; or (3) the arrangement may violate the statute in a less serious manner, in which case there is no way to predict the degree of risk. Parties to a particular venture or contemplating entering into a specific arrangement may seek an Advisory Opinion from the OIG to ascertain whether the arrangement will meet the requirements of a safe harbor or otherwise will violate the Anti-Kickback Law. Health care providers have exposure under the Anti-Kickback Law. Because of the government's vigorous enforcement efforts, many health care providers may be subject to some type of government investigation for alleged Anti-Kickback Law violations involving relationships such as those between healthcare providers and physicians, as well as the operations of any nursing homes, home health agencies, hospices and ancillary service providers owned or operated by a healthcare provider. The outcome of any government efforts to enforce the Anti-Kickback Law against health care providers is difficult to predict and defense efforts can be costly. 32 Federal Civil Fraud and Abuse Liability of Health Care Providers. Unlike criminal statutes, which require the government to prove that the health care provider intended to violate, or recklessly disregarded, the law, civil statutes may be violated simply by the provider's participation in a prohibited financial arrangement or actual or assumed knowledge that its claims procedures are not in full compliance with the law. Civil False Claims Act. The civil False Claims Act ("Civil FCA"), which has become one of the federal government's primary weapons against health care fraud, allows the government to recover significant damages from persons or entities that submit false or fraudulent claims for payment to a federal agency. It also permits private individuals to initiate actions on behalf of the government in lawsuits called qui tam actions. These qui tam plaintiffs, or "whistleblowers," can recover significant amounts from the damages awarded to the government. Under the Civil FCA, health care providers may be liable if they: (1) knowingly present or cause to be presented a false or fraudulent claim for payment to the United States; (2) knowingly make, use, or cause to made or used a false record or statement to obtain payment on a false or fraudulent claim paid by the United States; or (3) engage in a conspiracy to defraud the United States by getting a false or fraudulent claim paid. The "knowing" standard under the Civil FCA requires that the person or entity have actual knowledge of the falsity of the claim or act in deliberate ignorance or reckless disregard of the truth or falsity of the claim. In several cases, Civil FCA violations have been alleged solely on the existence of violations of the Anti-Kickback Law, discussed above, or the Stark Law, discussed below, even in the absence of evidence that false claims had been submitted as a result of those arrangements. The U.S. Department of Justice has also begun using the Civil FCA in its prosecutions of nursing homes for providing substandard care. Most of these cases have not yet been resolved by the courts, so it is not possible to predict with certainty whether the federal government will be successful in prosecuting these anti-kickback, self-referral and quality of care violations as false claims, although at least one appellate court has accepted the theory that a false certification of compliance with Stark or the Anti-Kickback Law would be actionable under the Civil FCA. If the courts ultimately determine that the Civil FCA applies to these alleged violations, the sums necessary for even an innocent health care provider to fight or settle the matter could have a material adverse impact on that provider and, potentially, its affiliates. If a health care provider is found to have violated the Civil FCA, the potential liability is substantial. The violator can be held liable for up to triple the actual damages incurred by the government and a fine of$5,500 to $11,000 for each violation of the Civil FCA. A private party may file a qui tam suit on behalf of the government under the Civil False Claims Act. If the government takes over the suit and is successful, the private party may receive between 15 and 25 percent of any awarded damages. If the government does not take over the case and the private party continues the suit and prevails, the private party may receive between 25 and 30 percent of the damage award. 33 Qui tam lawsuits significantly increase the possibility that a health care provider may be challenged under the Civil FCA. In addition, the Deficit Reduction Act of 2005 (the "DRA") introduced a new basis for liability under the Civil FCA. The DRA also proposes financial incentives for States to enact their own false claims acts. The DRA provides that a State that has a false claims statute that meets the minimum standards in effect on January 1, 2007, earns an additional 10 percent of any Medicare funds recovered under that statute. This provision creates a strong incentive for states to enact their own false claims statutes or strengthen their additional false claims statutes. Currently, a significant number of states have enacted their own false claims statutes. In large part because of the enactment of the DRA, additional states have false claims legislation pending. On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009. The Act includes several amendments to the Civil FCA intended to protect federal government funds disbursed to subcontractors to the same extent that the Civil FCA protects funds distributed to prime contractors. The Act also seeks to address recent judicial interpretations of the statute's so-called "presentment clause," which requires that a false claim be presented to a government employee for payment before liability may be imposed, by clarifying that FCA liability "attaches whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the Federal Government; with an agent acting on the Government's behalf; or with a third party contractor, grantee, or other recipient of such money or property." The Act also allows the attorney general to delegate to Department of Justice attorneys the power to issue civil investigative demands for testimony, documents and interrogatory answers in FCA investigations and provides that information obtained through the use of the civil investigative demands can be used in a range of federal investigations and prosecutions. At this time, the impact of the Act on FCA enforcement actions and potential false claims liability for health care providers, including the Obligor, is unknown. Stark Law. Current federal law (known as the "Stark" law provisions) prohibits providers of "designated health services" from billing Medicare when the patient is referred by a physician or an immediate family member with a financial relationship with the provider, unless the financial relationship fits into a statutory or regulatory exception. "Designated health services" include the following: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The sanctions under the Stark law include denial and refund of payments, civil monetary penalties and exclusions from the Medicare program. 34 The Stark law includes specific reporting requirements providing that each entity furnishing covered items or services, upon request, must provide the Secretary of DHHS with certain information concerning its ownership, investment and compensation arrangements. Reportable information includes the covered items and services provided by the entity and the names and unique physician identification numbers of all physicians who have a financial relationship with the entity. Failure to adhere to these reporting requirements may subject the entity to significant civil money penalties. Management of the Obligor will have a compliance program to ensure material compliance with the Stark law. However, in light of the scarcity of case law interpreting the Stark law, there can be no assurances that the Obligor will not be found to have violated the Stark law, and if so, whether any sanction imposed would have a material adverse effect on the operations or the financial condition of the Obligor. Civil Provisions of Anti-Kickback Law. The federal Anti-Kickback Law, discussed above, also includes civil standards and penalties for conduct that implicates this statute but falls short of the necessary level of intent and knowledge to be criminal. In the Balanced Budget Act of 1997, Congress expanded civil sanctions under the Anti- Kickback Law to include civil money penalties of$50,000 for each prohibited act and up to "three times the total amount of remuneration offered, paid, solicited, or received, without regard to whether a portion of such remuneration was offered, paid, solicited, or received for a lawful purpose." Administrative Enforcement. As with civil laws, administrative enforcement provisions require a lower standard of proof of a violation than the criminal standard. Thus, health care providers have a risk of incurring monetary penalties as a result of an administrative enforcement action. Civil Monetary Penalty Statute. The federal Civil Monetary Penalty Statute in part prohibits a hospital from knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services to Medicare patients under the physician's direct care. Violations of the statute can result in civil money penalties against both the hospital and the physician in the amount of$2,000 each for each patient affected by such an arrangement. In July 1999, the OIG issued a Special Advisory Bulletin in which the OIG stated that it considered certain hospital/physician "gainsharing" arrangements (typically arrangements whereby hospitals share cost savings in patient care attributable in part to the physicians' efforts) to be in violation of this provision of the Civil Monetary Penalty Statute. According to the bulletin, the OIG believes that such arrangements may improperly induce physicians to reduce the level of care provided to patients. However, since the publication of the Special Advisory Bulletin, the OIG has issued a series of Advisory Opinions approving several proposed arrangements under the Civil Monetary Penalty Statute and the Anti-kickback Law whereby a hospital proposed to share with a group of physicians a percentage of the hospital's cost savings arising from the physicians' implementation of a number of cost reduction measures related to certain specified procedures. Nonetheless, each of the 35 Advisory Opinions was very narrow in scope, applied only to the facts of that situation and to the parties to whom it was issued, and indicated that the OIG will still closely scrutinize similar types of arrangements. The Centers for Medicare and Medicaid Services ("CMS") has proposed but not yet finalized an exception to the Stark Law for physicians who participate in incentive payment and shared savings programs. Exclusions from Medicare Participation. The term "exclusion" means that no Medicare or state health care program reimbursement will be made for any services rendered by the excluded party or for any services rendered on the order or under the supervision of an excluded physician. The Secretary of DHHS is required to exclude from federal health care program participation for not less than five years any individual or entity convicted of a criminal offense relating to the delivery of any item or service reimbursed under Medicare or a state health care program; any criminal offense relating to patient neglect or abuse in connection with the delivery of health care; a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other misdemeanor in connection with the delivery of health care services or with respect to any act or omission in a health care program (other than Medicare or a state health care program) operated by or financed in whole or in part by a governmental agency; or a felony offense relating to the illegal manufacture, distribution, prescription or dispensing of a controlled substance. The Secretary also has permissive authority to exclude individuals or entities under certain other circumstances, such as a misdemeanor conviction for fraud in connection with delivery of health care services or conviction for obstruction of an investigation of a health care violation. The minimum period of exclusion for certain permissive exclusions is three years. Exclusion of the Obligor could have a material impact on the ability of the Obligated Group to make payments on the Series 2013B Note. Enforcement Activity. Enforcement activity against health care providers is increasing, and enforcement authorities are adopting more aggressive approaches. In the current regulatory climate, it is anticipated that many hospitals, physician groups and other health care providers will be subject to investigation, audit or inquiry regarding billing practices or false claims. As with other health care providers, the Obligor may be the subject of Medicare intermediary or carrier, OIG, U.S. Attorney General, Department of Justice, state attorney general investigations, audits or inquiries in the future. Because of the complexity of these laws, the instances in which an alleged violation may arise to trigger such investigations, audits or inquiries is increasing and could result in enforcement action against the Obligor. Regardless of the merits of a particular case or cases, the Obligor could incur significant legal and settlement costs. Prolonged and publicized investigations could be damaging to the reputation, business and credit of the Obligor and certain of its affiliates, regardless of the outcome, and could have material adverse consequences on the financial condition of the Obligated Group. 36 Other Sources of Liability for Health Care Providers Health care providers may be subject to criminal prosecution and civil penalties under a variety of federal laws in addition to those discussed in the previous paragraphs. The confidentiality and security of patient medical records and other health information is subject to considerable regulation by state and federal governments. The administrative simplification provisions of HIPAA as amended by the Health Information Technology for Economic and Clinical Health Act, or the "HITECH Act," under the American Recovery and Reinvestment Act of 2009 ("ARRA") which was signed into law on February 17, 2009, established programs under Medicare and Medicaid for privacy and security of patient identifiable information, provided incentive payments for the "meaningful use" of certified electronic health records ("HER") technology, and mandated that standards and requirements be adopted for the electronic transmission of certain health information. DHHS has issued a series of regulations to comport with these requirements. The ARRA contained significant changes to HIPAA including a new requirement that covered entities must make notification in the event of a material breach of privacy, security or integrity of protected health information to individuals, DHHS, and in certain instances, depending on the number of people whose information was subject to the breach, to the media. In addition, the ARRA increased the liability of business associates of covered entities and places additional administrative responsibilities on health care providers and other covered entities regarding the privacy and security of health information. Pursuant to the ARRA, DHHS will be required to conduct periodic HIPAA compliance audits to ensure that covered entities, including health care providers, are complying with HIPAA and the new requirements created by the ARRA. Congress also established criminal penalties for knowingly violating patient privacy. Criminal penalties include up to $50,000 and one year in prison for obtaining or disclosing protected health information; up to $100,000 and up to five years in prison for obtaining protected health information under "false pretenses"; and up to $250,000 and up to ten years in prison for obtaining or disclosing protected health information with the intent to sell, transfer or use it for commercial advantage, personal gain or malicious harm. In addition, the ARRA authorizes state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten state residents. The Obligor incurs significant costs in implementing the policies and systems required to comply with these new requirements. The Obligor is considered a covered entity under HIPAA and intends to continue operating in compliance with HIPAA. If the Obligor is found to have violated any state or federal statute or regulation with regard to the security, confidentiality, dissemination or use of patient medical information, it could be liable for damages, or civil or criminal penalties. These 37 standards impose very complex procedures and operational requirements with which the Obligor is required to comply. There can be no assurance that differing interpretations of existing laws and regulations or the adoption of new laws and regulations would not have a material adverse effect on the ability of the Obligor to obtain or use health information which, in turn, could have a material adverse effect on the business of the Obligor. Similarly, because of the complexity of these regulations, there can be no assurances that the Obligor would not be reviewed, found to violate these standards and assessed penalties for such violations. Medicare and Medicaid Programs Currently, the Obligor's Health Center is licensed for Medicare. For the Fiscal Year ended December 31, 2012, approximately 18.8% of the total payor days for the skilled nursing beds in the Health Center were generated by Medicare patients. See "THE COMMUNITY—Health Center" in APPENDIX A hereto. The Obligor is subject to highly technical regulations by a number of federal, state and local government agencies and private agencies, including those that administer the Medicare program. Changes in the structure of the Medicare system, as well as potential limitations on payments from governmental and other third party payors, could potentially have an adverse effect on the results of operations of the Obligated Group. Actions by governmental agencies concerning the licensure and certification of the Community or the initiation of audits and investigations concerning billing practices could also potentially have an adverse effect on the results of operations of the Obligated Group. There is an expanding and increasingly complex body of law, regulation and policy (both federal and state) relating to the Medicare program, which is not directly related to payments under such programs. This includes reporting and other technical rules as well as broadly stated prohibitions regarding improper inducements for referrals, referrals by physicians for designated health services to entities with which the physicians have a prohibited financial relationship, and payment of kickbacks in connection with the purchase of goods and services (see "Fraud and Abuse Enforcement" and "Administrative Enforcement" above). Violations of prohibitions against false claims, improper inducements and payments, prohibited physician referrals, and illegal kickbacks may result in civil and/or criminal sanctions and penalties. Civil penalties range from monetary fines that may be levied on a per-violation basis to temporary or permanent exclusion from the Medicare program. The determination that any of the facilities of the Obligated Group were in violation of these laws could have a material adverse effect on finances of the Obligated Group. Medicare Reimbursement Medicare reimbursement to skilled nursing facilities ("SNFs") depends on several factors, including the character of the facility, the beneficiary's circumstances, and the 38 type of items and services provided. Extended care services furnished by SNFs are covered only if the patient spent at least three consecutive days as a hospital inpatient prior to admission to the SNF and if the patient was admitted to the SNF within thirty (30) days of discharge from a qualifying hospital stay. Medicare Part A covers nursing services furnished by or under the supervision of a registered professional nurse, as well as physical, occupational, and speech therapy provided by the SNF. "Ancillary" services furnished to the non-Medicare Part A SNF patients are also covered under Medicare Part B. SNF services for Medicare Part A inpatient stays are reimbursed for up to one hundred (100) days for each spell of illness. Medicare payments are subject to coinsurance and deductibles from the patient. Payments of Medicare patients in SNFs are now based on a Prospective Payment System ("PPS"). Under the PPS, SNFs are paid a single per diem rate per resident according to the Resource Utilization Group ("RUG") to which the patient is assigned. RUG rates are based on the expected resource needs of patients and cover routine services, therapy services, and nursing costs. SNF PPS payment rates are adjusted annually based on the skilled nursing facility "market basket" index, or the cost of providing SNF services. There is no guarantee that the SNF rates, as they may change from time to time, will cover the actual costs of providing care to Medicare SNF patients. In March 2010, the Medicare Payment Advisory Commission recommended eliminating the market based update for skilled nursing facilities. In addition, the Health Care Reform Statutes contain certain changes to Medicare reimbursement that may negatively impact the Medicare reimbursement levels for the Obligated Group. Commencing in 2013, the market basket adjustment is reduced by a productivity adjustment, which may result in payments lower than previous years. The Health Care Reform Statutes also required the Secretary of DHHS to develop a "value based" purchasing program (based on performance and quality measures and other factors) for skilled nursing facilities. DHHS is required to publish the measures selected with respect to fiscal year 2014, including procedures for the public to review such data. This will eventually result in a mandatory requirement for nursing homes reporting on key performance and other quality performance measures and the development of a pay for performance program for SNFs which will impact reimbursement to skilled nursing facilities. Compliance with the performance and other quality performance measures will be essential for full reimbursement under the Medicare Program. In 2014, the Health Care Reform Statutes require that the annual update to the standard federal rate for discharges during the rate year will be reduced by two percentage points for each facility that does not report quality data. The Secretary is also required to study the impact of expanding Medicare's healthcare acquired conditions reduced payment policy to skilled nursing facilities. Because the Health Care Reform Statutes are relatively new, the full impact of these provisions is unknown and subsequent laws, regulation and guidance impacting Medicare policy and reimbursement may provide additional changes which may adversely impact skilled nursing homes. 39 Medicare has also increased its efforts to recover overpayments. CMS is expanding its use of Recovery Audit Contractors ("RACs") to further assure accurate payments to providers. RACs search for potentially improper Medicare payments from prior years that may have been detected through CMS existing program integrity efforts. RACs use their own software and review processes to determine areas for review. Once a RAC identifies a potentially improper claim as a result of an audit, it applies an assessment to the provider's Medicare reimbursement in an amount estimated to equal the overpayment from the provider pending resolution of the audit. In 2007, during which time the RAC project was limited to five states including Florida, it returned approximately $247 million to the Medicare program. The permanent RAC program has been implemented in all 50 states. Such audits may result in reduced reimbursement for past alleged overpayments and may slow future Medicare payments to providers pending resolution of appeals process with RACs, as well as increase purported Medicare overpayments and associated costs for the Obligated Group. Other future legislation, regulation or actions by the federal government are expected to continue to trend toward more restrictive limitations on reimbursement for the long term care services. At present, no determination can be made concerning whether, or in what form, such legislation could be introduced and enacted into law. Similarly, the impact of future cost control programs and future regulations upon the financial performance of the Obligated Group cannot be determined at this time. Possible Changes in Tax Status The possible modification or repeal of certain existing federal income or state tax laws or other loss by the Obligor of the present advantages of certain provisions of the federal income or state tax laws could materially and adversely affect the status of the Obligor and thereby the revenues of the Obligor. The Obligor has obtained a letter from the Internal Revenue Service determined that it is exempt from federal income taxation under Section 501(a) of the Code by virtue of being an organization described in Section 501(c)(3) of the Code. As an exempt organization, the Obligor is subject to a number of requirements affecting its operation. The failure of the Obligor to remain qualified as an exempt organization would affect the funds available to the Obligor for payments to be made under the Loan Agreement. Failure of the Obligor or the Issuer to comply with certain requirements of the Code, or adoption of amendments to the Code to restrict the use of tax-exempt bonds for facilities such as those being financed with Bond proceeds, could cause interest on the Bonds to be included in the gross income of Bondholders or former Bondholders for federal income tax purposes. It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of nonprofit corporations. There can be, however, no assurance that future changes in the laws and regulations of the federal, state or local governments will not materially and adversely affect the operations and revenues of the Obligated Group by requiring it to pay income taxes. 40 Intermediate Sanctions On July 31, 1996, the Taxpayers Bill of Rights 2 (the "Taxpayers Act") was signed into law. The Taxpayers Act provides the IRS with an "intermediate" tax enforcement tool to combat violations by tax-exempt organizations of the private inurement prohibition of the Code. Previous to the "intermediate sanctions law," the IRS could punish such violations only through revocation of an entity's tax-exempt status. Intermediate sanctions may be imposed where there is an "excess benefit transaction," defined to include a disqualified person (i.e., a director, officer or other related party) (1) engaging in a non-fair market value transaction with the tax-exempt organization; (2) receiving excessive compensation from the tax-exempt organization; or (3) receiving payment in an arrangement that violates the private inurement proscription. A disqualified person who benefits from an excess benefit transaction will be subject to a "first tier" penalty excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in an excess benefit transaction knowing it to be improper are subject to a first-tier penalty excise tax of 10% of the amount of the excess benefit, subject to a maximum penalty of$10,000. A "second tier" penalty excise tax of 200% of the amount of the excess benefit may be imposed on the disqualified person (but not the organizational manager) if the excess benefit transaction is not corrected in a specified time period. Rights of Residents Although the Residency Agreements given to each resident of the Community a contractual right to use space and not any ownership rights in the Mortgaged Property, in the event that the Bond Trustee or the registered holders of the Bonds seek to enforce any of the remedies provided by the Bond Indenture, the Loan Agreement, the Series 2013B Note or the Mortgage upon the occurrence of a default under any or all of such documents, it is impossible to predict the resolution that a court might make of competing claims between the Bond Trustee or the registered holders of the Bonds and a resident of the Community who has full complied with all the terms and conditions of his or her Residency Agreement. Other Tax Status Issues The IRS has also issued Revenue Rulings dealing specifically with the manner in which a facility providing residential services to the elderly must operate in order to maintain its exemption under Section 501(c)(3). Revenue Rulings 61-72 and 72-124 hold that, if otherwise qualified, a facility providing residential services to the elderly is exempt under Section 501(c)(3) if the organization (1) is dedicated to providing, and in fact provides or otherwise makes available services for, care and housing to aged individuals who otherwise would be unable to provide for themselves without hardship, (2) to the extent of its financial ability, renders services to all or a reasonable proportion 41 of its residents at substantially below actual cost, and (3) renders services that minister to the needs of the elderly and relieve hardship or distress. Revenue Ruling 79-18 holds that a facility providing residential services to the elderly may admit only those tenants who are able to pay full rental charges, provided that those charges are set at a level that is within the financial reach of a significant segment of the community's elderly persons, and that the organization is committed by established policy to maintaining persons as residents, even if they become unable to pay the monthly charges after being admitted to the facility. Lack of Marketability for the Bonds Although the Underwriter intends, but is not obligated, to make a market for the Bonds, there can be no assurance that there will be a secondary market for the Bonds, and the absence of such a market for the Bonds could result in investors not being able to resell the Bonds, or at a particular price, should they need to or wish to do so. Bankruptcy If the Obligor were to file a petition for relief under the Federal Bankruptcy Code, its revenues and certain of its accounts receivable and other property acquired after the filing (and under certain conditions some or all thereof acquired within 120 days prior to the filing) would not be subject to the security interests created under the Master Indenture. The filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Obligor and its property and as an automatic stay of any act or proceeding to enforce a lien upon its property. If the bankruptcy court so ordered, the Obligor's property, including their accounts receivable and proceeds thereof, could be used for the benefit of the Obligor despite the security interest of the Master Trustee therein, provided that "adequate protection" is given to the lienholder. In a bankruptcy proceeding, the petitioner could file a plan for the adjustment of its debts which modifies the rights of creditors generally, or any class of creditors, secured or unsecured. The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interests of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly in favor of junior creditors. Certain judicial decisions have cast doubt upon the right of a trustee, in the event of a health care facility's bankruptcy, to collect and retain for the benefit of bondholders portions of revenues consisting of Medicare and other governmental receivables. 42 On April 20, 2005, the Healthcare Bankruptcy Bill was enacted (the "Healthcare Bankruptcy Act"). The stated goal of the Healthcare Bankruptcy Act was to encourage healthcare companies to consider the patients' rights and interests when administering their bankruptcy cases related to (1) disposal of patient records, (2) transferring patients to new facilities, (3) appointment of a patient ombudsman, and (4) exclusions of a debtor from Medicare and other federal healthcare programs. In the event of bankruptcy of the Obligor, there is no assurance that certain covenants, including tax covenants, contained in the Bond Indenture, the Loan Agreement, the Master Indenture and certain other documents would survive. Accordingly, the Obligor, as debtor in possession, or a bankruptcy trustee could take action that would adversely affect the exclusion of interest on the Bonds from gross income of the Owners for federal income tax purposes. Additional Indebtedness As previously noted, the Master Indenture permits the Obligated Group to incur Additional Indebtedness which may be equally and ratably secured with the Series 2013B Note and the Series 2013A Note. Any such additional parity indebtedness would be entitled to share ratably with the holders of the Series 2013B Note and the Series 2013A Note in any moneys realized from the exercise of remedies in the event of a default under the Master Indenture. The issuance of additional parity indebtedness could reduce the maximum Annual Debt Service Coverage Ratio and could impair the ability of the Obligated Group to maintain its compliance with certain covenants described in "The Master Indenture" in APPENDIX C hereto. There is no assurance that, despite compliance with the conditions upon which Additional Indebtedness may be incurred at the time such debt is created, the ability of the Obligated Group to make the necessary payments to repay the Series 2013B Note and the Series 2013A Note may not be materially adversely affected upon the incurrence of Additional Indebtedness. Certain Matters Relating to Enforceability of the Master Indenture The obligations of the Obligor and any future Member of the Obligated Group under the Series 2013B Note will be limited to the same extent as the obligations of debtors typically are affected by bankruptcy, insolvency and the application of general principles of creditors' rights and as additionally described below. The accounts of the Obligor and any future Member of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the incurrence of Additional Indebtedness) are met, notwithstanding the uncertainties as to the enforceability of certain obligations of the Obligated Group contained in the Master Indenture which bear on the availability of the assets and revenues of the Obligated Group to pay debt service on Obligations, including the Series 2013B Note pledged under the related Bond Indenture as security for the related series of Bonds. The 43 obligations described herein of the Obligated Group to make payments of debt service on Obligations issued under the Master Indenture (including transfers in connection with voluntary dissolution or liquidation) may not be enforceable to the extent (1) enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the enforcement of creditors' rights and by general equitable principles and (2) such payments (i) are requested with respect to payments on any Obligations issued by a member other than the member from which such payment is requested, issued for a purpose which is not consistent with the charitable purposes of the Member of the Obligated Group from which such payment is requested or issued for the benefit of a Member of the Obligated Group which is not a Tax-Exempt Organization; (ii) are requested to be made from any moneys or assets which are donor-restricted or which are subject to a direct or express trust which does not permit the use of such moneys or assets for such a payment; (iii) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the Member of the Obligated Group from which such payment is requested; or (iv) are requested to be made pursuant to any loan violating applicable usury laws. The extent to which the assets of any future Member of the Obligated Group may fall within the categories (ii) and (iii) above with respect to the Obligations cannot now be determined. The amount of such assets which could fall within such categories could be substantial. A Member of the Obligated Group may not be required to make any payment on any Obligation, or portion thereof, the proceeds of which were not loaned or otherwise disbursed to such Member of the Obligated Group to the extent that such payment would render such Member of the Obligated Group insolvent or which would conflict with or not be permitted by or which is subject to recovery for the benefit of other creditors of such Member of the Obligated Group under applicable laws. There is no clear precedent in the law as to whether such payments from a Member of the Obligated Group in order to pay debt service on the Series 2013B Note may be voided by a trustee in bankruptcy in the event of bankruptcy of a Member of the Obligated Group, or by third-party creditors in an action brought pursuant to Florida fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under Florida fraudulent conveyance statutes and common law, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, (1) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and (2) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or Florida fraudulent conveyance statutes, or the guarantor is undercapitalized. Application by courts of the tests of "insolvency," "reasonably equivalent value" and "fair consideration" has resulted in a conflicting body of case law. It is possible that, in an action to force a Member of the Obligated Group to pay debt service on an Obligation for which it was not the direct beneficiary, a court might not enforce such a payment in the event it is determined that such member is analogous to a guarantor of the debt of the Obligated Group who directly benefited from the borrowing and that 44 sufficient consideration for such member's guaranty was not received and that the incurrence of such Obligation has rendered or will render the such member insolvent. The effectiveness of the security interest in the Obligated Group's Gross Revenues granted in the Master Indenture may be limited by a number of factors, including: (i) present or future prohibitions against assignment contained in any applicable statutes or regulations; (ii) certain judicial decisions which cast doubt upon the right of the Master Trustee, in the event of the bankruptcy of any Member of the Obligated Group, to collect and retain accounts receivable from Medicare, Medicaid, general assistance and other governmental programs; (iii) commingling of the proceeds of Gross Revenues with other moneys of a Member of the Obligated Group not subject to the security interest in Gross Revenues; (iv) statutory liens; (v) rights arising in favor of the United States of America or any agency thereof; (vi) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the exercise of its equitable jurisdiction; (vii) federal bankruptcy laws which may affect the enforceability of the mortgage or the security interest in the Gross Revenues of the Obligated Group which are earned by the Obligated Group within 90 days preceding or, in certain circumstances with respect to related corporations, within one year preceding and after any effectual institution of bankruptcy proceedings by or against a Member of the Obligated Group; (viii) rights of third parties in Gross Revenues converted to cash and not in the possession of the Master Trustee; and (ix) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the Florida Uniform Commercial Code as from time to time in effect. Pursuant to the Master Indenture, each Member of the Obligated Group who pledges its Gross Revenues under the Master Indenture covenants and agrees that, if an Event of Default involving a failure to pay any installment of interest or principal on an Obligation should occur and be continuing, it will deposit daily the proceeds of its Gross Revenues. Such deposits will continue daily until such default is cured. It is unclear whether the covenant to deposit the proceeds of Gross Revenues with the Master Trustee is enforceable. In light of the foregoing and of questions as to limitations on the effectiveness of the security interest granted in such Gross Revenues, as described above, no opinion will be expressed by counsel to the Obligor as to enforceability of such covenant with respect to the required deposits. Environmental Matters Health care providers are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations which address, among other things, health care operations, facilities and properties owned or operated by health care providers. Among the type of regulatory requirements faced by health care providers are (a) air and water quality control requirements, (b) waste management requirements, including medical waste disposal, (c) specific regulatory requirements applicable to asbestos, polychlorinated biphenyls and radioactive substances, 45 (d) requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the clinics, (e) requirements for training employees in the proper handling and management of hazardous materials and wastes and (f) other requirements. In its role as the owner and operator of properties or facilities, each Member of the Obligated Group may be subject to liability for investigating and remedying any hazardous substances that may have migrated off of its property. Typical health care operations include, but are not limited to, in various combinations, the handling, use, storage, transportation, disposal and discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. As such, health care operations are particularly susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may (a) result in damage to individuals, property or the environment, (b) interrupt operations and increase their cost, (c) result in legal liability, damages, injunctions or fines and (d) result in investigations, administrative proceedings, penalties or other governmental agency actions. There is no assurance that a Member of the Obligated Group will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Obligated Group. The Mortgaged Property was subject to a "Phase P" environmental assessment by Aerostar SES, LLC ("Aerostar"). The report, dated January 30, 2013, concluded "no evidence of recognized environmental conditions" exist with respect to the Mortgaged Property other than concerns related to a dry cleaning facility located on an adjacent parcel. To alleviate such concerns, the report recommended performing groundwater sampling on the portion of the site abutting the property where the dry cleaning facility is located. In response to said recommendation the Obligor engaged Aerostar to perform a "Phase II" environmental site assessment, which was commenced on February 20, 2013 and, among other activities, included ground water testing for contaminants on that portion of the Mortgaged Property adjacent to the property on which the dry cleaning facility is located. While traces of the types of chemicals used in dry cleaning were detected in the ground water samples, the detected concentrations do not exceed the limits established by the Florida Administrative Code as the ground water cleanup target level, though the concentrations are very close to such level. Based on the results of its investigation, Aerostar did not recommend any additional assessment at this time, but did recommend that the Obligor consult with legal counsel concerning potential impacts from the dry cleaning facility. The Obligor has taken this recommendation under advisement. At the present time management of the Obligor is not aware of any pending or threatened claim, investigation or enforcement action regarding environmental issues with respect to the Mortgaged Property or the Community which, if determined adversely to the Obligor, would have a material adverse effect on its operations or financial condition. 46 Taxation of Interest on the Bonds Because the existence and continuation of the excludability of the interest on the Bonds from federal gross income depends upon events occurring after the date of issuance of the Bonds, the opinion of Bond Counsel described under the caption "TAX MATTERS" herein assumes the compliance by the Obligor and the Issuer with the provisions of the Code and the regulations relating thereto. No opinion is expressed by Bond Counsel with respect to the excludability of the interest on the Bonds in the event of noncompliance with such provisions. The failure of the Obligor or the Issuer to comply with the provisions of the Code and the regulations thereunder may cause the interest on the Bonds to become includable in gross income as of the date of issuance. Bond Examinations IRS officials have recently indicated that more resources will be invested in audits of tax-exempt bonds in the charitable organization sector with specific review of private use. In 2007 the IRS sent approximately two hundred post-issuance compliance questionnaires to nonprofit corporations that have borrowed on a tax-exempt basis regarding their post-issuance compliance with various requirements for maintaining the federal tax exemption of interest on their bonds. The questionnaire included questions relating to the nonprofit corporation's (i) record retention, which the IRS has particularly emphasized, (ii) qualified use of bond-financed property, (iii) arbitrage yield restriction and rebate requirements, (iv) debt management policies and (v) voluntary compliance and education. On September 11, 2008, the IRS issued an interim report analyzing the responses from the completed questionnaires. The report indicates that there are significant gaps in the implementation by nonprofit corporations of post-issuance and record retention procedures for tax-exempt bonds. IRS representatives indicate that after analyzing responses from the first wave of questionnaires, thousands more will be sent. Revision of IRS Service Form 990 for Nonprofit Corporations The IRS Form 990 is used by 501(c)(3) not-for-profit organizations (including the Obligor) to submit information required by the federal government for tax exemption. On December 20, 2007, the IRS released a revised Form 990 that requires detailed public disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The revised form also establishes uniform standards for reporting of information relating to tax exempt bonds, including compliance with the arbitrage rules and rules limiting private use of bond-financed facilities, including compliance with the safe harbor guidance in connection with management contracts and research contracts. The redesigned Form 990 is intended to result in enhanced transparency as to the operations of exempt organizations. It is also likely to result in enhanced enforcement, as the redesigned Form 990 will make a wealth of detailed information on compliance risk areas to the IRS and other stakeholders. Nonprofit health care organizations also became subject to additional reporting for tax- 47 exempt bonds. These reporting and recordkeeping requirements go beyond what many hospitals have done historically and require substantial additional efforts on the part of hospitals with outstanding tax-exempt bonds. A new schedule to the Form 990 return (Schedule K) is intended to address what the IRS believes is significant noncompliance with recordkeeping and record retention requirements. These concerns were reinforced, in the IRS's view, by the results of a bond questionnaire distributed to select hospitals in September 2007, the results of which were released in September 2008 and described above. Schedule K also focuses on the investment of bond proceeds that could violate the arbitrage rebate requirements and the private use of bond-financed facilities. At this time it is difficult to predict the additional burden that completion of the revised Form 990 may place on the Obligor and its operations. Construction Risk 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, plats, site plans or other necessary approvals or permits; strikes; labor disputes; shortages of materials and/or labor; transportation delays; restrictions related to endangered species; adverse weather conditions; fire; casualties; acts of God; war; acts of public enemies; terrorism; actions, inactions, laws, regulations and requirements of federal, state, county, city or local governments; actions or inactions of adjacent landowners; insurrections; riots; adverse conditions not reasonably anticipated or other causes beyond the control of the Obligor or its contractors. Such events could result in delaying the marketing, construction and substantial completion of the Project and thus the revenue flow therefrom. 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 fixed price obtained from the contractor for the Project. However, cost overruns 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 Obligor, delays due to acts or neglect of the Obligor or by independent contractors employed by the Obligor 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 Obligor not having sufficient moneys to complete construction of the Project, thereby materially affecting the receipt of revenues needed to make the required payments on the Series 2013B Note and the Series 2013A Note, which includes debt service on the Bonds. There can be no assurances given that the Project will be completed, or that it can be completed for the cost and within the time as described in this Official Statement. Failure to complete the Project, or to complete it in a timely fashion at the estimated cost, could adversely affect the ability of the Obligor to generate sufficient revenues to continue its planned operations and to make payments with respect to the Series 2013B Note, the Series 2013A Note or the Bonds. 48 Property and Casualty Insurance Pursuant to the Master Indenture, the Obligated Group maintains insurance coverage (including one or more self-insurance or shared or pooled-insurance programs) to protect it and its Property and operations, including without limitation professional liability claims. Recent hurricane seasons and the performance of the stock markets have reduced the number and quality of providers in the insurance industry which has led to increased premiums and reduced coverage for purchasers of insurance. Management of the Obligor believes that the current coverage limits provide reasonable coverage under the circumstances to protect the Community, which coverage is consistent with the coverage generally available to similarly situated communities. Nevertheless, should losses exceed insurance coverage, it could have a material adverse effect on the financial condition of the Obligated Group. Moreover, the Obligor is unable to predict the cost or availability of any such property and casualty insurance when its current coverage expires. Amendments to Documents Certain amendments to the Master Indenture, the Bond Indenture, the Loan Agreement and the Mortgage may be made without notice to or the consent of the holders of the Bonds. Such amendments could affect the security for the Bonds. Certain amendments, however, are not permitted without the consent of the holder of each outstanding Bond affected thereby, including (1) extensions in the stated maturity of the principal, or any installment of interest on, any Bond, or (2) any reduction in the principal amount of or interest on any Bond. See "The Master Indenture—Amendments and Waivers," "The Bond Indenture Supplemental Bond Indenture," and "The Loan Agreement—Amendments, Changes and Modifications" in APPENDIX C hereto. Other Possible Risk Factors The occurrence of any of the following events, or other unanticipated events, could adversely affect the operations of the Obligor: 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 Obligor; 49 5. The cost and availability of energy; 6. Increased unemployment or other adverse economic conditions in the service areas of the Obligor which would increase the proportion of patients who are unable to pay fully for the cost of their care; 7. Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the Obligor; 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 patients' assets or insurance coverage with the result that the patients' charges are reimbursed from government reimbursement programs rather than private payments; 11. The occurrence of natural disasters, including hurricanes, volcanic eruptions and typhoons, floods or earthquakes, or failures of storm water detention devices during such naturally occurring events, which may damage the Community and other facilities of the Obligated Group, interrupt utility service to the Community and such 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 Obligor and any other Members of the Obligated Group generally carry. FLORIDA REGULATION OF CONTINUING CARE FACILITIES Continuing care facilities in Florida are regulated by the Department of Insurance of the State of Florida (the "Insurance Department") under the provisions of Chapter 651, Florida Statutes, as amended ("Chapter 651"). Under Chapter 651, "continuing care" means furnishing pursuant to an agreement shelter, food and either nursing care or certain personal services, whether such nursing care or personal services are provided in the facility or in another setting designated by the agreement for continuing care, to an individual not related by consanguinity or affinity to the provider furnishing such care, upon payment of an entrance fee. Agreements to provide continuing care include agreements to provide care for any duration, including agreements that are terminable by either party. "Personal services" include, but are not limited to, such services as individual assistance with or supervision of essential activities of daily living. "Entrance fee" means an initial or deferred payment of a sum of money or property made as full or partial payment to assure the resident a place in a facility. An accommodation fee, 50 admission fee or other fee of similar form and application is considered to be an entrance fee. Certificate of Authority Chapter 651 provides that no person may engage in the business of providing continuing care or enter into continuing care agreements or construct a facility for the purpose of providing continuing care without a certificate of authority issued by the Insurance Department. A final certificate of authority may be issued after the applicant has provided the Insurance Department with the information and documents required by Chapter 651. The Obligor received a final certificate of authority for the Community, which remains in full force and effect. Once issued, a certificate of authority is renewable annually as of each September 30 upon a determination by the Insurance Department that the provider continues to meet the requirements of Chapter 651. Annual reports containing financial and other information about the provider and the facility are required to be filed with the Insurance Department annually on or before each May 1. If a provider fails to correct deficiencies within 20 days of notice from the Insurance Department, and if the time for correction is not extended, the Insurance Department may institute delinquency proceedings against the provider, as described below. Required Reserves Chapter 651 requires that each continuing care provider maintain: (a) a debt service reserve in an amount equal to the principal and interest payments becoming due during the current fiscal year (12 months' interest on the financing if no principal payments are currently due) on any mortgage loan or other long term financing, including property taxes; (b) an operating reserve in an amount equal to 15% of the facility's average total annual operating expenses set forth in the annual reports filed pursuant to Chapter 651 for the immediate preceding 3-year period, subject to adjustment in the event there is a change in the number of facilities owned; and (c) a renewal and replacement reserve in an amount equal to 15% of the total accumulated depreciation based on the audited financial statements included in the facility's annual report filed pursuant to Chapter 651, not to exceed 15% of the facility's average operating expenses for the past 3 fiscal years based on the audited financial statements for each of such years. These reserves are required to be held in a segregated escrow account maintained with a Florida bank, savings and loan association or trust company acceptable to the Insurance Department and, in the case of the operating reserve, must be in an unencumbered account held in escrow for the benefit of the residents. The Reserve Fund established with the Bond Trustee pursuant to the Bond Indenture and the escrow account established with U.S. Bank National Association, as escrow agent, are intended to meet the requirements of Chapter 651 for those reserves (the "Required Reserves"). 51 Chapter 651 requires the escrow agent holding the Required Reserves to deliver to the Insurance Department quarterly reports on the status of the escrow funds, including balances, deposits and disbursements. Chapter 651 provides that withdrawals can be made from the Required Reserves only after ten days' prior written notice to the Insurance Department, except that in an emergency the provider may petition for a waiver of such ten-day notice requirement (a waiver being deemed granted if not denied by the Insurance Department within three working days). Fines may be imposed for failure to deliver the quarterly reports or notices of withdrawal within the required time periods. Continuing Care Agreements and Residents' Rights Chapter 651 prescribes certain requirements for continuing care agreements and requires Insurance Department approval of the form of an agreement before it is used and of any changes to the terms of an agreement once it has been approved. In addition to requiring that the agreement state the amounts payable by the resident, the services to be provided and the health and financial conditions for acceptance of a resident, Chapter 651 requires that the agreement may be canceled by either party upon at least 30 days' notice. A provider that does not give its residents a transferable membership right or ownership interest in the facility may retain 2% of the entrance fee per month of occupancy prior to cancellation, plus a processing fee not exceeding 4% of the entrance fee, and must pay the refund within 120 days of notice of cancellation. The Resident Agreements for the Community meet the requirements of this provision. Chapter 651 requires that a prospective resident have the right to cancel without penalty a continuing care agreement within seven days of signing the continuing care agreement. During this seven-day period, any entrance fee or deposit must be held in escrow or, at the request of the prospective resident, held by the provider. If the prospective resident rescinds the continuing care contract during the seven-day rescission period, the entrance fee or deposit must be refunded to the prospective resident without deduction. If cancellation occurs after seven days, but prior to occupancy, the entire entrance fee must be refunded, less a processing fee not exceeding 4%, within 60 days of notice of cancellation. However, if cancellation occurs prior to occupancy due to death, illness, injury or incapacity of the prospective resident, the entire entrance fee must be refunded, less any costs specifically incurred by the provider at the written request of the resident. Chapter 651 further requires that a resident may not be dismissed or discharged without just cause. Failure to pay monthly maintenance fees will not be considered just cause until such time as the amounts paid by the resident, plus any benefits under Medicare or third party insurance, exceed the cost of caring for the resident, based on the per capita cost to the facility (which cost may be adjusted proportionately for amounts paid above the minimum charge for above-standard accommodations). 52 Chapter 651 also contains provisions giving residents the right: to form residents' organizations and choose representatives; to attend quarterly meetings with the provider; and to inspect the provider's annual reports to the Insurance Department and any examination reports prepared by the Insurance Department or any other governmental agencies (except those which are required by law to be kept confidential). Prior to the implementation of any increase in the monthly maintenance fee, the provider must provide, at a quarterly meeting of the residents, the reasons, by department cost centers, for any increase in the fee that exceeds the most recently published Consumer Price Index for all Urban Consumers, all items, Class A Areas of the Southern Region. Residents must also be notified of any plans filed with the Insurance Department relating to expansion of the facility or any additional financing or refinancing. Examinations and Delinquency Proceedings The Insurance Department is required to examine the business of each continuing care provider at least once every three years, in the same manner as provided under Florida law for examination for insurance companies. Inspections may also be requested by any interested party. The Insurance Department is required to notify the provider of any discrepancies and to set a reasonable time for corrective action and compliance by the provider. The Insurance Department may deny, suspend, revoke or refuse to renew a certificate of authority for various grounds relating to: the insolvent condition of the provider or the provider's being in a condition which renders its conduct of further business hazardous or injurious to the public; lack of one or more of the qualifications for a certificate of authority; material misstatements, misrepresentation, fraud, misappropriation of moneys or demonstrated lack of fitness or untrustworthiness; violations of Chapter 651 or any regulation or order of the Insurance Department; or refusal to permit examination or to furnish required information. Suspension of a certificate of authority may not exceed one year, during which period the provider may continue to operate and must file annual reports, but may not issue new continuing care agreements. At the end of the suspension period, the certificate of authority is to be reinstated, unless the Insurance Department finds that the causes for suspension have not been removed or that the provider is otherwise not in compliance with Chapter 651 (in which event the certificate of authority is deemed to have been revoked as of the end of the suspension period). In lieu of suspension, administrative fines may be levied, not exceeding $1,000 per violation, or $10,000 for knowing and willful violations. If the Insurance Department finds that sufficient grounds exist as to a continuing care provider for the rehabilitation (i.e., receivership), liquidation, conservation, reorganization, seizure or summary proceedings of an insurer as provided under Florida law pertaining to insurance companies, the Insurance Department may petition for an appropriate court order or pursue such other relief as is afforded under Part I of Chapter 53 631, Florida Statutes, as amended (the "Insurers Rehabilitation and Liquidation Act"), for insurance companies generally. Such grounds include, but are not limited to, insolvency or failure or refusal to comply with Insurance Department requirements. Chapter 651 provides that the rights of the Insurance Department are subordinate to the rights of a trustee or lender pursuant to an indenture, loan agreement or mortgage securing bonds issued to finance or refinance the facility. However, if the Insurance Department has been appointed as receiver of the facility, the court having jurisdiction over the receivership proceeding is authorized to enjoin a secured creditor from seeking to dispose of the collateral securing its mortgage for up to 12 months, upon a showing of good cause, such as a showing that the collateral should be retained in order to protect the life, health, safety or welfare of the residents or to provide sufficient time for relocation of the residents. If a trustee or lender becomes the mortgagee under the Mortgage pursuant to a foreclosure sale or otherwise through the exercise of remedies upon the default of the mortgagor, the rights of a resident of any portion of the applicable Mortgaged Property governed by Chapter 651, Florida Statutes, under a continuing care agreement, shall be honored and shall not be disturbed or affected (except as described below) as long as the resident continues to comply with all provisions of the continuing care agreement and has asserted no claim inconsistent with the rights of the trustee or lender. In such event, the Insurance Department shall not exercise its remedial rights provided under Chapter 651 with respect to the facility, including its right to enjoin disposal of the facility as described in the preceding paragraph. Upon acquisition of a facility by a trustee or lender pursuant to remedies under the Mortgage, the Insurance Department shall issue a 90-day temporary certificate of authority to operate the facility, provided that the trustee or lender will not be required to continue to engage in the marketing or resale of new continuing care agreements, pay any refunds of entrance fees otherwise required to be paid under a resident's continuing care agreement until expiration of such 90-day period, be responsible for acts or omissions of the operator of the facility arising prior to the acquisition of the facility by the trustee or lender, or provide services to the residents to the extent that the trustee or lender would be required to advance funds that have not been designated or set aside for such purposes. DISCLOSURE OF POTENTIAL RELATIONSHIPS In connection with this financing, the Obligor will establish a Project Fund, Reserve Fund, Cost of Issuance Fund or other such account with the Bond Trustee that will hold net bond proceeds and various funds held with the Master Trustee that will be funded with funds provided for the benefit of the Project, in each case, until they are withdrawn and expended. Under the terms of the Bond Indenture and the Master Indenture, the Obligor may direct the Bond Trustee and/or the Master Trustee, respectively to invest some or all of the funds within the investment parameters established in the Bond Indenture or the Master Indenture, as applicable. It is possible 54 that the Obligor will elect to hire Ziegler Lotsoff Capital Management LLC, an affiliate of the Underwriter, to direct the investment of these funds. If that occurs, Ziegler Lotsoff Capital Management, LLC will receive a fee for managing those assets. At this time, no relationship has been formally established. FINANCIAL REPORTING AND CONTINUING DISCLOSURE Financial Reporting The Master Indenture requires that the Obligated Group Representative provide to each Required Information Recipient, the following: (i) Quarterly unaudited financial statements of the Obligated Group as soon as practicable after they are available but in no event more than 45 days after the completion of such fiscal quarter, including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, and a calculation of Days Cash on Hand, Historical Debt Service Coverage Ratio and Occupancy and Health Center payor mix, for such fiscal quarter all prepared in reasonable detail and certified, subject to year-end adjustment, by an officer of the Obligated Group Representative. Such financing statements and calculations will be accompanied by a comparison to the annual budget provided pursuant to subparagraph (iii) below. If the Historical Debt Service Coverage Ratio for the Obligated Group for any Fiscal Year is less than 1.00:1 and Days Cash on Hand of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided in the Master Indenture, the Obligated Group will deliver the financial information and the calculations described in the above paragraph on a monthly basis within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and Days Cash on Hand of the Obligated Group is at least equal to the applicable Liquidity Requirement. (ii) Within 150 days of the end of each Fiscal Year, an annual audited financial report of the Obligated Group prepared by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year and a combined and an unaudited combining statement of cash flows for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants preparing such report containing calculations of the Obligated Group's Historical Debt Service Coverage Ratio and Days Cash on Hand for said Fiscal Year and a statement that such accountants have no knowledge of any default under the Master Indenture, or if such accountants have obtained knowledge of any such default or 55 defaults, they are required to disclose in such statement the default or defaults and the nature thereof. (iii) On or before the date of delivery of the financial reports referred to in paragraph (ii) above, an Officer's Certificate of the Obligated Group Representative (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or, if not, specifying all such defaults and the nature thereof, (B) calculating and certifying Days Cash on Hand and the Historical Debt Service Coverage Ratio as of the end of such month or Fiscal Year, as appropriate, and (C) attaching a summary of the Obligated Group's annual operating and capital budget for the coming Fiscal Year. (iv) On or before the date of delivery of the financial reports referred to in paragraphs (i) and (ii) above, a management's discussion and analysis of results for the applicable fiscal period and, assuming the Health Center Project is undertaken, will include a report on the progress of the Health Center Project and any deviations from the approved project budget and timeline. (v) Copies of(A) any board-approved revisions to the summary of the annual budget provided pursuant to paragraph (iii) above, or (B) any correspondence to or from the Internal Revenue Service concerning the status of the Obligor as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of the Bonds, promptly upon receipt. (vi) Such additional information as the Master Trustee, the Bond Trustee or Bondholder may reasonably request concerning any Member of the Obligated Group. Continuing Disclosure General. Inasmuch as the Bonds are limited obligations of the Issuer, the Issuer has determined that no financial or operating data concerning it is material to any decision to purchase, hold or sell the Bonds, and the Issuer will not provide any such information. The Obligor has undertaken all responsibilities for any continuing disclosure to holders of the Bonds as described below, and the Issuer shall have no liability to the holders or any other person with respect to such disclosures. The Obligor has covenanted for the benefit of the holders of the Bonds and the Beneficial Owners (as hereinafter defined under this caption), pursuant to a Continuing Disclosure Certificate (the "Disclosure Agreement") to be executed and delivered by the Obligor, to provide or cause to be provided (i) each year, certain financial information and operating data relating to the Obligated Group (the "Annual Report") by not later than each April 30 after the last day of the fiscal year of the Obligated Group, commencing with the Annual Report for the fiscal year ending December 31, 2013; provided, however, that if the audited financial statements of the Obligated Group are not available by such date, unaudited financial statements will be included in the Annual Report and audited financial statements will be provided when and if available; and (ii) timely notices of the 56 occurrence of certain enumerated events, if material. Currently the fiscal year of the Obligated Group commences on January 1. "Beneficial Owners" means the beneficial owner of any Bond held in a book-entry only system. In addition, the Obligor will provide the Dissemination Agent and the Repositories, as defined in the Disclosure Agreement, a copy of any information provided pursuant to the Master Indenture as described above under the subcaption "Financial Reporting" (the "Additional Information"). The Annual Report and the Additional Information will be filed by or on behalf of the Obligor and made available to holders of the Bonds through EMMA (http://emma.msrb.org), the information repository of the Municipal Securities Rulemaking Board, to comply with Rule 15c2-12 (as amended from time to time the "Rule") of the Securities and Exchange Commission (the "SEC"). These covenants have been made in order to assist the Underwriter and registered brokers, dealers and municipal securities dealers in complying with the requirements of the Rule. Notice of Certain Events, If Material. The Obligor covenants to provide, or cause to be provided, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner and in accordance with the Rule: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financing difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; (7) Modifications to rights of the owners of the Bonds; (8) Bond calls; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds; (11) Rating changes; (12) Bankruptcy, insolvency, receivership or similar event of the obligated person; 57 (13) The consummation of a merger, consolidation or acquisition involving the obligated person or sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such 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 trustee or the change of name of a trustee, if material. Annual Report. The Annual Report will contain or incorporate by reference at least the following items: (a) The audited financial statements of the Obligated Group for the fiscal year ending immediately preceding the due date of the Annual Report; provided, however, that if such audited financial statements are not available by the deadline for filing the Annual Report, they shall be provided when and if available, and unaudited financial statements shall be included in the Annual Report. The financial statements shall be audited and prepared pursuant to accounting and reporting policies conforming in all material respects to generally accepted accounting principles. (b) The Additional Information required by the Master Indenture. The Obligor may modify from time to time the specific types of information provided to the extent necessary to conform to changes in legal requirements, provided that any such modification will be done in a manner consistent with the Rule and will not materially impair the interests of the Bondowners. Any or all of the items listed above may be included by specific reference to other documents which previously have been provided to each of the repositories described above or filed with the SEC. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Obligor shall clearly identify each such other document as included by reference. Failure to Comply. In the event of a failure of the Obligor to comply with any provision of the Disclosure Agreement, any owner of Bonds or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Obligor to comply with the obligations under the Disclosure Agreement. A failure to comply with the Disclosure Agreement shall not be deemed an Event of Default under the Bond Indenture. The sole remedy under the Disclosure Agreement in the event of any failure of the Obligor to comply with the Disclosure Agreement shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damage thereunder under any circumstances. 58 Amendment of the Disclosure Agreement. The provisions of the Disclosure Agreement, including but not limited to the provisions relating to the accounting principles pursuant to which the financial statements are prepared, may be amended as deemed appropriate by an authorized officer of the Obligor but any such amendment must be adopted procedurally and substantively in a manner consistent with the Rule, including any interpretation thereof made from time to time by the SEC. Such interpretations currently include the requirements that (a) the amendment may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Obligated Group or the type of activities conducted thereby, (b) the undertaking, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (c) the amendment does not materially impair the interests of Bondowners, as determined by parties unaffiliated with the Obligor (such as independent legal counsel). The foregoing interpretations may be changed in the future. Compliance with Prior Undertakings. In connection with the issuance of certain Series 1999 Bonds (which were refunded with the proceeds of the Series 2013A Bonds) the Obligor entered into an undertaking in accordance with the Rule. During the period 2007 - 2011, the Obligor failed to either provide the required information or did not do so in a timely manner in accordance with such undertaking. The Obligor has subsequently filed all of the required information and, in connection with the issuance of the Bonds, has implemented procedures to ensure that the Annual Report and other required information under the Disclosure Agreement are filed in a timely manner. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Pursuant to Section 517.051, Florida Statutes, as amended, no person may directly or indirectly offer or sell securities of the Issuer except by an offering circular containing full and fair disclosure of all defaults as to principal or interest on its obligations since December 31, 1975, as provided by rule of the Florida Department of Financial Services (the "Department"). Pursuant to Rule 69W-400.003, Florida Administrative Code, the Department has required the disclosure of the amounts and types of defaults, any legal proceedings resulting from such defaults, whether a trustee or receiver has been appointed over the assets of the Issuer, and certain additional financial information, unless the Issuer believes in good faith that such information would not be considered material by a reasonable investor. As described herein, the Issuer has the power to issue bonds for the purpose of financing other projects for other borrowers which are payable from the revenues of the particular project or borrower. Revenue bonds issued by the Issuer for other projects may be in default as to principal and interest. The source of payment, however, for any such defaulted bond is separate and distinct from the source of payment of the Bonds and, 59 therefore, any default on such bonds would not, in the judgment of the Issuer, be considered material by a potential purchaser of the Bonds. The Obligor has not defaulted in any payment of principal or interest after December 31, 1975. LITIGATION Issuer There is not now pending or, to the Issuer's knowledge, threatened any litigation restraining or enjoining the issuance or delivery of the Bonds or the execution and delivery by the Issuer of the Bond Indenture, or the Loan Agreement or questioning or affecting the validity of the Bonds or the security therefor or the proceedings or Issuer under which they are or are to be issued, respectively. Obligor There is no litigation pending or, to the Obligor's knowledge, threatened against the Obligor, wherein an unfavorable decision would (i) adversely affect the ability of the Obligor to construct the Project or to operate its facilities or to carry out its obligations under the Master Indenture, the Loan Agreement or the Mortgage or (ii) would have a material adverse impact on the financial position or results of operations of the Obligor. LEGAL MATTERS Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the unqualified opinion of Bond Counsel. Foley & Lardner LLP has acted in the capacity as Bond Counsel for the purpose of rendering an opinion with respect to the authorization, issuance, delivery, legality and validity of the Bonds and for the purpose of rendering an opinion on the exclusion of the interest on the Bonds from gross income for federal income tax purposes and certain other tax matters and as Counsel to the Obligor. Certain matters will be passed upon for the Issuer by its counsel, Alan C. Jensen, Attorney at Law, Jacksonville Beach, Florida; for the Obligor by its counsel, Foley & Lardner LLP; and for the Underwriter by its counsel, Nabors, Giblin & Nickerson, P.A. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. 60 TAX MATTERS In the opinion of Foley & Lardner LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code"). Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX D hereto. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Issuer and the Obligor have covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) or any matters coming to Bond Counsel's attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. The opinion of Bond Counsel relies on factual representations made by the Issuer, the Obligor and other persons, including but not limited to the Underwriter. These factual representations include but are not limited to certifications by the Obligor regarding the investment of proceeds of the Bonds and regarding use of property financed and refinanced with proceeds of the Bonds that is reasonably expected to occur during the entire term of the Bonds. Bond Counsel has not verified these representations by independent investigation. Bond Counsel does not purport to be an expert in financial analysis, financial projections or similar disciplines. Failure of any of these factual representations to be correct may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. Certain requirements and procedures contained or referred to in the Bond Indenture, the Loan Agreement, the Tax Agreement, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Foley & Lardner LLP. 61 Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of Florida taxation to the extent described herein, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Beneficial Owner's federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Future legislation, if enacted into law, or clarification of the Code may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authorities, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service, or the courts, and is not a guarantee of result. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Issuer or the Obligor or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the Internal Revenue Service. The Issuer and the Obligor have covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Issuer, the Obligor or the Beneficial owners regarding the tax-exempt status of the Bonds in the event of an examination by the Internal Revenue Service. Under current procedures, parties other than the Issuer, the Obligor and their appointed counsel, including the Beneficial Owners, may have little, if any, right to participate in the examination process. Moreover, because achieving judicial review in connection with an examination of tax-exempt bonds is difficult, obtaining an independent review of Internal Revenue Service positions with which the Issuer or the Obligor legitimately disagrees, may not be practicable. Any action of the Internal Revenue Service, including but not limited to selection of the Bonds for examination, or the course or result of such examination, or an examination of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Issuer, the Obligor or the Beneficial Owners to incur significant expense. 62 Original Issue Discount The Bonds have an issue price that is less than the amount payable at the maturity of the Bonds (hereinafter called the "Discount Bonds"). Under existing law, the original issue discount in the selling price of the Discount Bonds, to the extent properly allocable to each owner of a Discount Bond, is excluded from gross income for federal income tax purposes to the same extent that any interest payable on such Discount Bond is or would be excluded from gross income for federal income tax purposes. The original issue discount is the excess of the stated redemption price at maturity of such Discount Bond over the initial offering price to the public, excluding underwriters or other intermediaries, at which price a substantial amount of such Discount Bonds were sold (the "issue price"). Under Section 1288 of the Code, original issue discount on tax-exempt obligations accrues on a compound interest basis. The amount of original issue discount that accrues to an owner of a Discount Bond during any accrual period generally equals (i) the issue price of such Discount Bond plus the amount of original issue discount accrued in all prior accrual periods multiplied by (ii) the yield to maturity of such Discount Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of each accrual period), less (iii) any interest payable on such Discount Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, and will increase the owner's tax basis in such Discount Bond. The adjusted tax basis in a Discount Bond will be used to determine taxable gain or loss upon a disposition (e.g., upon a sale, exchange, redemption, or payment at maturity) of such Discount Bond. Owners of Discount Bonds who did not purchase such Discount Bonds in the initial offering at the issue price should consult their own tax advisors with respect to the tax consequences of owning such Discount Bonds. Owners of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of the Discount Bonds. It is possible that under the applicable provisions governing the determination of state and local income taxes, accrued original issue discount on the Discount Bonds may be deemed to be received in the year of accrual, even though there will not be a corresponding cash payment until a later year. ADDITIONAL RISK FACTORS REGARDING FEDERAL INCOME TAX MATTERS The tax-exempt status of the Bonds currently depends, among other things, upon the maintenance by the Obligor of its status as an organization described in Section 501(c)(3) of the Code. The maintenance by the Obligor of its status as an organization 63 described in Section 501(c)(3) of the Code is contingent upon compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including their operation for charitable purposes and their avoidance of transactions that may cause their assets to inure to the benefit of private individuals. As these general principles were developed primarily for public charities that do not conduct large-scale technical operations and business activities, they often do not adequately address the myriad of operations and transactions entered into by organizations such as the Obligor. The Internal Revenue Service has announced that it intends to closely scrutinize transactions between not-for-profit corporations and for- profit entities. In addition, Foley & Lardner, in its capacity as Bond Counsel or counsel to the Obligor, has not rendered any opinion relating to whether actions that may be taken upon default by the Obligor under covenants relating to the Bonds or other obligations of the Obligor may adversely affect the status of the Obligor as an organization described in section 501(c)(3) of the Code. If a tax-exempt entity is found to have operated in such a manner as to result in an inurement or unlawful private benefit, the only remedy available to the IRS under the Code against that entity is revocation of that entity's tax-exempt status. Although the IRS has not often revoked such 501(c)(3) tax-exempt status of an organization, it could do so in the future. The loss of tax-exempt status by the Obligor could result in loss of the tax exempt status of the Bonds and of other tax-exempt debt of the Obligor retroactively to the date of issuance of such Bonds or debt, and, in turn, could cause defaults in the Obligor's covenants relating to the Bonds and other the Obligor tax-exempt debt. Less onerous sanctions have been enacted, which sanctions focus enforcement on private persons that transact business with an exempt organization rather than the exempt organization itself, but these sanctions do not replace the other remedies available to the IRS as mentioned above. For example, the Taxpayers Bill of Rights 2, referred to for purposes of this Official Statement as the Intermediate Sanctions Law, allows the Internal Revenue Service to impose "intermediate sanctions" against certain individuals in circumstances involving the violation by tax-exempt organizations of the prohibition against private inurement. Intermediate sanctions may be imposed in situations in which a "disqualified person" (such as an "insider") (i) engages in a transaction with a tax- exempt organization on other than a fair market value basis, (ii) receives unreasonable compensation from a tax-exempt organization or (iii) receives payment in an arrangement that violates the prohibition against private inurement. These transactions are referred to as "excess benefit transactions." Intermediate sanctions may be imposed in addition to revocation of tax-exempt status. In recent years, the Internal Revenue Service and state, county and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt organizations with respect to their exempt activities and the generation of unrelated business taxable income. An investigation or audit could lead to a challenge which could result in taxes, interest and penalties with respect to unreported unrelated business taxable 64 income and in some cases could ultimately affect the tax-exempt status of the Obligor as well as the exclusion from gross income for federal income tax purposes of the interest payable on the Bonds and other tax-exempt debt of the Obligor. In addition, legislation, if any, which may be adopted at the federal, state and local levels with respect to unrelated business income cannot be predicted. Any legislation could have the effect of subjecting a portion of the income of the Obligor to federal or state income taxes. In addition to the foregoing proposals with respect to income by not-for-profit corporations, various state and local governmental bodies have challenged the tax-exempt status of not-for-profit institutions and have sought to remove the exemption from real estate taxes of part or all of the property of various not-for-profit institutions on the grounds that a portion of its property was not being used to further the charitable purposes of the institutions or that the institutions did not provide sufficient care to indigent persons so as to warrant exemption from taxation as a charitable institution. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements. It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of not for profit corporations. There can be no assurance that future changes in the laws and regulations of federal, state or local governments will not materially adversely affect the operations and financial condition of the Obligor by requiring it to pay income or local property taxes. INDEPENDENT AUDITORS The audited financial statements of the Obligor as of and for the years ended December 31, 2010, 2011 and 2012, included in this Official Statement, have been audited by Moore Stephens Lovelace, P.A., independent auditors, as stated in their report appearing in APPENDIX B to this Official Statement. RATING At the time the Bonds are issued, Fitch Ratings ("Fitch") has assigned the Bonds a rating of"BBB" (stable outlook) based on the creditworthiness of the Obligor. The rating reflects only the view of the rating agency and is not a recommendation to buy, sell or hold the Bonds. Certain information and materials not included in this Official Statement were furnished to Fitch concerning the Bonds. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions by the rating agencies. There is no assurance that the rating mentioned above will remain for any given period of time or that such rating might not be lowered or withdrawn entirely by Fitch, if in its judgment circumstances so warrant. Except as set forth above under "FINANCIAL REPORTING AND CONTINUING DISCLOSURE," none of the Issuer, the Underwriter or the Obligor has any responsibility 65 to bring to the attention of the holders of the Bonds any proposed revisions or withdrawal of the rating on the Bonds. Any such downward change in or withdrawal of such rating may have an adverse effect on the market price of the Bonds. A further explanation of the significance of the ratings may be obtained from the rating agency. UNDERWRITING The Bonds are being purchased by B.C. Ziegler and Company as Underwriter for a purchase price of $16,770,522.20 (representing the principal amount of the Bonds minus an underwriter's discount of $220,838.50 and less original issue discount on the Bonds of $618,639.30), pursuant to a Bond Purchase Agreement, entered into by and between the Issuer and the Underwriter as approved by the Obligor (the "Contract of Purchase"). Pursuant to a Letter of Representation and Indemnification delivered concurrently with the Contract of Purchase, the Obligor has agreed to indemnify the Underwriter and the Issuer against certain liabilities. The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The obligations of the Underwriter to accept delivery of the Bonds are subject to various conditions contained in the Contract of Purchase. The Contract of Purchase provides that the Underwriter will purchase all of the Bonds if any Bonds are purchased. MISCELLANEOUS The references herein to the Act, the Bond Indenture, the Loan Agreement, the Master Indenture, the Mortgage and other materials are only brief outlines of certain provisions thereof and do not purport to summarize or describe all the provisions thereof. Reference is hereby made to such instruments, documents and other materials, copies of which will be furnished by the Bond Trustees upon request for further information. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The attached APPENDICES A through E are integral parts of this Official Statement and should be read in their entirety together with all of the foregoing statements. It is anticipated that CUSIP identification numbers will be printed on the Bonds, but neither the failure to print such numbers on any Bond nor any error in the printing of such numbers will constitute cause for a failure or refusal by the purchaser thereof to accept delivery of or pay for any Bonds. 66 The information assembled in this Official Statement has been supplied by the Obligor and other sources believed to be reliable, and, except for the statements under the heading "THE ISSUER" herein and information relating to the Issuer under the heading "LITIGATION—Issuer," the Issuer makes no representations with respect to nor warrants the accuracy of such information. The Obligor has agreed to indemnify the Issuer and the Underwriter against certain liabilities relating to the Official Statement. NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. By: /s/Joshua Ashby Chief Executive Officer 67 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A THE OBLIGOR AND THE COMMUNITY TABLE OF CONTENTS GENERAL 2 HISTORY AND BACKGROUND 2 THE COMPANY 2 Members of the Board of Directors 2 Certain Key Management Personnel 3 Employees 4 THE COMMUNITY 4 General Description 4 Unit Configuration and Inventory 6 Fee Structure and Refund Options for Independent Living Units 8 Assisted Living Units 11 Health Center 11 Competition 15 Marketing Program 15 The Project 16 RESIDENCY AGREEMENTS 16 Generally 16 Admission Requirements 16 HISTORICAL FINANCIAL INFORMATION 17 Summary Statements of Operations 17 Management's Discussion of Results of Operations and Financial Condition 21 INVESTMENT POLICY 23 NAVAL CONTINUING CARE RETIREMENT FOUNDATION,INC. FLEET LANDING GENERAL Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing (the "Company"), a Florida non profit corporation, was incorporated on October 1, 1985, to develop and operate a continuing care retirement community originally serving former military officers and their living spouses exclusively. The community now serves all qualified persons. The Internal Revenue Service (the "IRS") issued its determination on September 10, 1991 that the Company is a charitable organization described in Section 501(c)(3)of the Internal Revenue Code,as amended(the"Code"), and is,therefore,exempt from federal income taxation under Section 501(a)of the Code and is not a private foundation within the meaning of Section 509(a)of the Code. HISTORY AND BACKGROUND The Company operates a lifecare, entrance fee-based continuing care retirement community containing independent living, assisted living and skilled nursing units located in Atlantic Beach, Florida, known as Fleet Landing (the "Community"). The Company's mission is enrich the lives of older adults through high quality programs and services to support successful aging, and its vision statement is to be Florida's preferred continuing care organization, enabling older adults to age successfully, in the place they call home. Fleet Landing is a retirement community regulated under Chapter 651, Florida Statutes, whose residents (the "Life Care Residents") that are able to reside in the independent living units (the "Independent Living Units") enter into residency agreements (the "Residency Agreement") that require payment of an Entrance Fee (the "Entrance Fee") and a Monthly Service Fee (the "Monthly Service Fee"). Residency Agreements do not entitle Life Care Residents to an interest in the real estate or other property owned by the Company. Generally, payment of the Entrance Fee and Monthly Service Fees pursuant to a Residency Agreement entitles Life Care Residents to the use and privileges of Fleet Landing including assisted living and health units. Alternatively, residents (the "Non-life Care Residents") may directly enter the assisted living or skilled nursing units, subject to availability, pursuant to a separate admissions agreement. See"RESIDENCY AGREEMENTS"herein. Fleet Landing was initially accredited by the Commission on Accreditation of Rehabilitation Facilities, successor by merger to the Continuing Care Accreditation Commission ("CARF") in 2001, and re-accredited by CARF in 2011 with an expiration in 2016. THE COMPANY Members of the Board of Directors The business affairs of the Company are governed by a Board of Directors (the "Board")which currently consists of fourteen (14) directors (collectively, the "Directors") who serve without compensation. Directors are recruited and nominated by the Board's Governance Committee. Directors are elected for three-year terms and may be elected for two additional terms for a maximum length of service of nine consecutive years; provided, incumbent members of the Board serving prior to the adoption of the amendment to the Company's bylaws which provides for term limitations may be elected for subsequent terms. A-2 The current Directors of the Company, their backgrounds, and the expiration of their current terms are as follows: Members of Member of Expiration of Board of Directors Occupation Board Since Current Term Steve Jarecki,President Retired, U.S.Navy 1996 2014 Charles Metzler,Vice-President Retired, U.S.Navy 1998 2014 Roger Palmer,Treasurer Retired, Corporate Finance 2009 2015 Fleet Landing Executive 2010 2013 Joshua Ashby, Secretary Director/C.E.O. Helen Atter Attorney 2010 2013 Marty Jones Insurance Agent 2009 2015 Len Loving Retired, U.S.Marine Corps. 2001 2014 Gerald Maloney Retired, Business Professional 2006 2014 Rick Cueroni Retired, U.S. Coast Guard 2011 2014 Joe Mitrick Hospital Administration 2011 2014 Jane Verkouteren Retired, Banking 2011 2014 Ben de Luna Retired, Attorney 2012 2015 Cynthia Graham Retired, Banking 2012 2015 Gene Kendall Retired, U.S.Navy 2012 2015 Certain Key Management Personnel The Board relies on the Chief Executive Officer (appointed by the Board) and the professional management personnel employed by the Company for the management of the day-to-day operations of the Community. Certain key management personnel of the Community include the following: Joshua Ashby(age 31), Chief Executive Officer Joshua Ashby was named the Company's Chief Executive Officer/Executive Director in 2010. Mr. Ashby joined the Company's management team in 2005 as Director of Health Care Services, responsible for the total operations of an 80-bed skilled nursing center (the "Health Center"), Leeward Manor, a 76-unit assisted living community, a home health agency and a physician's clinic. In 2009,Mr. Ashby was promoted to Chief Operating Officer, responsible for managing the Community's day-to-day operations. He is licensed by the state of Florida as a nursing home administrator. Mr. Ashby earned a bachelor's degree in health sciences and a master of business administration degree from the University of North Florida. He currently serves as Chair Elect on the Board of LeadingAge of Florida, is on the Board of the Jacksonville Regional Chamber of Commerce Beaches Division, and is also a member of the University of North Florida Brooks College of Health Dean's Advisory Council. Cynthia Hack(age 52), Controller Cynthia Hack joined the Company in 2012 as Controller. Ms. Hack oversees the Community's business office and financial operations including all accounting functions. Prior to joining the Company, Ms. Hack served as the controller/financial officer for a private country club in Jacksonville. Ms.Hack earned a bachelor's degree in accounting from the University of Florida and a master's degree in business administration from the University of North Florida. A-3 Elizabeth Sholar(age 43),Senior Director of Health Care Services Elizabeth Sholar joined the Company's management team in 2000 and served as the administrator of its assisted living units for eight years. She has a background in social services and extensive experience working with resident care and geriatric populations. As Senior Director of Health Care Services, Ms. Sholar oversees the operation of Leeward Manor,the Community's 76-bed assisted living community, its 80-bed Health Center,a home health agency and a physician's clinic, ensuring that the Company provides the highest quality health care while maintaining regulatory compliance. She is a graduate of the University of North Florida, where she earned a bachelor's degree in psychology. Patricia Mack(age 58),Senior Director of Independent Living Services Patricia Mack joined the Company in 2007 as Director, Sales and Marketing and assumed increased responsibilities as the Senior Director of Independent Living Services in 2010. Ms.Mack has more than 25 years of progressive leadership experience in marketing, operations and sales management. Prior to joining the Company, Ms. Mack served as vice president of marketing and sales at Frederick Mennonite Community, a Pennsylvania- based continuing care retirement community. She has also served as vice president of marketing for Cherrydale Farms,a national fundraising company based in Pennsylvania. Tamara Schwarz(age 29),Senior Director of Human Resources Tamara Schwarz joined the Company in 2010 as Senior Director of Human Resources. Her duties include managing all human resources activities that support Fleet Landing staff members as well as staff recruitment, orientation, training and development. She brings prior human resources experience from the hospitality industry where she supported multiple hotels. Ms. Schwarz earned a bachelor's degree in psychology from Michigan State University and has a Professional Human Resources(PHR)designation. Employees As of December 31, 2012, the Company employed approximately 285.4 full-time equivalent employees, including 115.36 for the Independent Living Units, 45.4 for the Assisted Living Units, 93.06 for the Health Center, 8.83 in home health and 22.75 in administration. As of December 31, 2012, the Company employed a total of approximately 320 employees (both full-time and part-time), none of which are covered by a collective bargaining agreement. THE COMMUNITY General Description The Community opened in November, 1990, occupying an 86 acre site including a seven acre lake, with many spectacular views of flora, foliage and water. The site is located to the east adjacent to Selva Marina Country Club, a residential and golfing community. To the west, north and south is commercial real estate as well as Mayport Road, a major thoroughfare. The Community has retained many of the nature areas,native vegetation,oak and other trees on the site. Walking paths, boardwalks, gazebos, and numerous cul-de-sacs run throughout the campus. In 2006,the Community was expanded with proceeds of the City of Atlantic Beach,Florida Variable Rate Demand Health Care Facilities Revenue Bonds(Fleet Landing Project), Series 2006(the"Series 2006 Bonds"). There are 354 independent living units (the "Independent Living Units" or "ILUs"), including a total of 164 congregate living units (the "Apartments") in four contiguous buildings, with both covered and uncovered parking, attached through covered walkways to the main community building, The Coleman Center. Additionally, A-4 there are 190 units configured as quadplex, duplex and single family residences, with attached one and two car garages (the "Homes"). Of these, 34 were constructed with a portion of the proceeds of the Series 2006 Bonds. Occupancy of these additional Homes occurred between July 2007 and early 2012. The Health Center currently accommodates 80 residents, with 20 benefiting from memory care programs. Leeward Manor contains 76 assisted living units (the "Assisted Living Units") offering a variety of six different residence designs. See "The Project" herein for information relating to changes to the Health Center bed composition. Windward Commons, completed in 2009 with a portion of the proceeds of the Series 2006 Bonds, is a 24,332 square foot community center, which houses an indoor heated swimming pool with electric lift, whirlpool Jacuzzi, fully equipped exercise room with lockers and showers, aerobic room, massage room, technology lab, multi-purpose worship and meeting space with stage,café,artist studio,outdoor croquet and lawn bowls courts. The Coleman Center is situated upon Lake Constellation and is a 30,600 square foot building. It features a main kitchen and dining room offering breakfast, lunch and dinner, with stunning fountain and lake vistas, a veranda, bar and lounge a private dining room, billiards, card/game room, a library, computer kiosks, concierge, activities Marketing and Administrative offices. In addition,there is a 2,340 square foot outdoor,heated pool and adjacent 8,000 square foot sun and dining decks,complemented by large awnings providing sun protection for dining and a variety of outdoor celebrations. The Annex Clubhouse, a 3,500 square foot building, currently provides space for woodworking, a lounge, and private resident functions. [The Remainder of Page Intentionally Left Blank] A-5 Unit Configuration and Inventory The following table sets forth the unit configuration and, for the types of Independent Living Units , the approximate square footage: Approximate Square Type of Unit Total Footage Apartments St.Bart's 1/1 24 685 St.Croix 1/1.5 36 815 St. Lucia 2/2 Custom 40 1,070 St.Martin 2/2 Deluxe 32 1,165 St.Thomas 2/2 Royale w/Den 24 1,375 St. Vincent 2/2 Grande w/Den 8 1,980 Patio and Single Family Homes The Antigua 2/1 4 1,130 The Aruba 2/2 18 1,130 The Barbados 2/2 28 1,224 The Catalina 2/2 72 1,390 The Cozumel 2/2 w/den 26 1,500 The Grand Cayman 2/2 w/Den Villa 8 1,665 The Martinique 2/2 w/Den and EP 22 1,773* The Santa Domingo 2/2 w/Den 8 2,071* The Trinidad 3/2 with EP 1 2,105* The Veracruz 2/2 w/Den 3 2,243* Total Independent Living Units 354 Assisted Living Units 76 Health Center: 80 Private beds(18) Semi-private beds(62) Total 510 — * Completed with the proceeds of the Series 2006 Bonds Payment of the Entrance Fee and Monthly Service Fees entitles a Life Care Resident to occupancy of an Independent Living Unit equipped with various amenities and safety features and to parking, use of the common areas and various resident services, including thirty meals per month, all basic utilities (other than telephone), weekly maid service, unit maintenance, grounds maintenance, security and scheduled transportation services. The Entrance Fee is the total initial fee charged as a condition of admission to the Community. The Monthly Service Fee is the charge for occupancy of the unit for various services and amenities. Under the terms of the Residency Agreement, each Life Care Resident is guaranteed a room in the Community's Assisted Living Units or semi- private accommodations in the Health Center (at a reduced rate) if ordered by a physician and approved by the Community Medical Director. If the necessary accommodations are not immediately available to a Life Care Resident, then the Company will pay for the Life Care Resident's care in a similar community until space comes available in the Community. A-6 The Monthly Service Fee is determined by the size of the Independent Living Unit selected and by the number of Life Care Residents to occupy the unit. The Company may adjust the Monthly Service Fees with sixty (60) days written notice to the Life Care Residents in order to reflect the actual costs of providing the services contractually guaranteed to the Life Care Residents. The Company generally adjusts the Monthly Service Fees annually,effective January 1. The Monthly Service Fee for the first person in an Independent Living Unit is based on the pro-rata costs associated with the operation of Fleet Landing. The Monthly Service Fee for a second person in an Independent Living Unit will be established primarily on services allocated on a per-person basis, anticipated health costs allocated on a per-person basis, and meal service. The Monthly Service Fee begins at the time of execution of the Residency Agreement and is payable in advance on the first day of each calendar month. In return for payment of the Monthly Service Fee,the Life Care Resident shall receive: 1. Dining Room Credits. Residents of the Independent Living Units receive credit for thirty(30)meals per month in any independent living dining venue. 2. Utilities.These include electricity,heat,water,air conditioning,sewer fees,trash removal,and basic cable TV. Individual landline and cellular telephone charges,premium cable packages and internet services are contracted for and paid by the Life Care Resident directly to the provider and are not included in the Monthly Service Fee. 3. Housekeeping Service.Each Independent Living Unit will be cleaned by the housekeeping staff once each week to include vacuuming,light dusting,bed-linen changing,cleaning of bathroom fixtures and floors,cleaning of the kitchen floors,counters,fixtures and appliance faces.It does not include doing dishes or laundry,turning mattresses,or other similar tasks. Expanded cleaning to include window washing,oven cleaning,carpet shampooing,and other heavy cleaning will be performed on an annual scheduled basis. 4. Flatwork Laundry.Weekly laundering of resident's personal sheets,towels,pillowcases,and washcloths which are picked up from and returned to their residence. 5. Insurance.The Company insures the Community against reasonable losses and liabilities. Personal liability and personal property insurance are contracted for and paid by resident to the provider and are not included in the Monthly Service Fee. 6. Taxes. Taxes due on the Community's property are paid by the Company. The Company will not pay any ad valorem taxes that might be assessed against residents and those taxes that might become due on the residents income or personal property. 7. Safety& Security. Safety& Security staff are on duty at all times to screen visitors,patrol,protect and serve the Community,which is gated. State of the art technology includes,but is not limited to,security cameras,closed circuit TV and RFID controlled vehicle access. 8. Lighted,On-Site Parking.Lighted on-site parking spaces are available at no charge for all residents and guests.A one or two car garage is part of each Home and is included in the Monthly Service Fee. Limited covered parking is available to Apartment residents at an additional monthly or one-time fee. 9. Maintenance of Residences.Plant Operations staff promptly arranges and/or repairs all Community- owned items. 10. Maintenance of Common Spaces.The Plant Operations and Housekeeping staffs perform and/or oversee custodial duties and maintain the ground and common areas. 11. Scheduled Transportation.Routine local medical shuttles and shopping trips are scheduled in the Company's vehicles at no cost to a resident wishing to use the service. A-7 12. Special Diets.When a special diet is ordered by a physician,the dining services department will prepare meals for the resident that conform to standardized special diets at no additional charge. 13. Planned Events and Activities. Social,cultural, fitness,spiritual and recreational activities are available for the residents' benefit,although attendance or participation is strictly voluntary. 14. Use of Common Space.All common areas are open and available to the residents and their guests without charge for such use. 15. Urgent Alert Call System. Each residence is equipped with an urgent alert call system activated by the resident. When activated, Safety&Security staff will promptly respond. 16. Health Center Services-Clinic.No charge will be made for nursing services provided to a Life Care Resident who goes to the Health Center for services that can be provided by nursing staff and which are within license limitation of the Health Center. 17. Guarantee of a Health Center Bed. Each resident is guaranteed priority access to a bed in the Health Center if ordered by a physician and approved by the Fleet Landing Medical Director(a licensed physician). Fee Structure and Refund Options for Independent Living Units If a Life Care Resident occupying an Independent Living Unit becomes unable to care for himself or herself within the range of the services provided by the Community, as determined by the Executive Director in conjunction with the Medical Director, the Life Care Resident's physician and family, the Life Care Resident will be transferred to an Assisted Living Unit or skilled nursing bed in the Health Center. If a Life Care Resident is permanently transferred to an Assisted Living Unit or skilled nursing bed in the Health Center, his or her Independent Living Unit will become available for occupancy by another Life Care Resident;however,no refund of the Entrance Fee will be paid due to permanent transfer. If the Resident recovers sufficiently to resume unassisted living,a similar or alternate Independent Living Unit will be made available for use,depending upon availability. Generally. The Company offers a Residency Agreement that is generally known in the continuing care retirement community industry as an "Extensive" or "Type A" Contract, which offers shelter, residential services and amenities, as well as unlimited assisted living and nursing care. For the right to reside in the Community and receive life care services, a Life Care Resident of the Community must pay an Entrance Fee prior to occupancy which entitles the Life Care Resident to lifetime occupancy of the Independent Living Unit, subject to payment of applicable Monthly Service Fees and continuing to meet certain health and conduct requirements. The Entrance Fees are based on the size and location of the particular Independent Living Unit selected, the number of Life Care Residents in the Independent Living Unit and the refund plan selected by the Life Care Resident. In addition,certain options and upgrades that have occurred to the Independent Living Unit affect the amount of the Entrance Fee. Under certain contract options, Entrance Fees are partially refundable upon death or voluntary termination of the Residency Agreement by the Life Care Resident. Monthly Service Fees are based upon the size of the Independent Living Units and number of occupants. Refund Options. Under the terms of the Residency Agreement, before taking occupancy and within the seven day escrow period, a prospective Life Care Resident can rescind the Residency Agreement and all monies will be refunded less any costs specifically incurred at the that person's request. If,during the seven(7)day escrow period, a Life Care Resident has occupied the Independent Living Unit and subsequently rescinds the Residency Agreement, the departing Life Care Resident shall be entitled to a refund of all monies paid less any cost specifically incurred at the request of the Life Care Resident in preparing the Independent Living Unit for occupancy. The first five (5) months the Life Care Resident is living at the Community is termed the "Introductory Period." Should the Life Care Resident terminate the Residency Agreement for any reason during this period, the A-8 Life Care Resident forfeits five percent (5%) of the Entrance Fee. This Introductory Period is common to all three contract options described below. Entrance Fees are generally refunded within 120 days of termination of the Residency Agreement in accordance with the provisions of Chapter 651,Florida Statutes. Under the terms of the "Plan 0 Residency Agreement", a Life Care Resident terminating a Residency Agreement for reasons other than death will receive an Entrance Fee refund equal to the Entrance Fee paid less five percent (5%) for the Introductory Period and two percent (2%) per month for the following 47.5 months of occupancy, and less any amounts owed to the Company. After a total of 52.5 months of occupancy at the Community,no Entrance Fee refund will be paid to Life Care Residents terminating a Plan 0 Residency Agreement. Termination of the Plan 0 Residency Agreement resulting from death of the Life Care Resident within the Introductory Period will result in an Entrance Fee refund equal to the Entrance Fee paid less five percent (5%) and any costs incurred by the Company at the request of the Life Care Resident. After five months of occupancy, no refund will be paid under the Plan 0 Residency Agreement as a result of death. This program option is open to all Life Care Residents. Under the terms of the "Plan 50 Residency Agreement", should this Residency Agreement be terminated by either party after the date of execution of this Residency Agreement,the Life Care Resident,or,if applicable,the Life Care Resident's estate, will receive a refund of the entire Entrance Fee paid, less five percent(5%)during the Introductory Period and less an additional one and one-half percent (1.5%) per month thereafter for thirty (30) additional months. After a total of thirty-five (35) months of occupancy at the Community, the refund amount will remain unchanged at fifty percent (50%) of the entire Entrance Fee paid, regardless of the length of time the Life Care Resident resides at the Community. For actuarial reasons, this program is restricted to those Life Care Residents who have not attained the age of 81 by the date of residency. Should the Plan 50 Residency Agreement be executed by a couple, one Life Care Resident must be 80 or younger and the other must be 85 or younger on the date of residency. Under the terms of the"Plan 90 Residency Agreement", should the Residency Agreement be terminated by either party after the date of execution of this Residency Agreement, the Life Care Resident, or, if applicable, the Life Care Resident's estate, will receive a refund of the entire Entrance Fee paid, less five percent(5%) during the Introductory Period and less an additional one-half percent (0.5%) per month thereafter for ten (10) additional months. After a total of fifteen (15) months, the refund amount will remain unchanged at ninety percent (90%) of the Entrance Fee paid, regardless of the length of time the Life Care Resident resides at the Community. For actuarial reasons, this program is restricted to those Life Care Residents who have not attained the age of 81 by the date of residency. Should the Plan 90 Residency Agreement be executed by a couple, one Life Care Resident must be 80 or younger and the other must be 85 or younger on the date of residency. As of December 31, 2012,96.3%of the Life Care Residents have elected the Plan 0 Residency Agreement, 1.6% the Plan 50 Residency Agreement, 1.2%the Plan 75 Residency Agreement(discontinued as of July 1, 2012) 0.3%the Plan 90 Residency Agreement, and 0.6%the Plan 95 Residency Agreement(discontinued as of January 1, 2004). Current Monthly Service Fees for Independent Living Units. The table below sets forth the current Monthly Service Fees for the Community as of January 1, 2013. If there is a second Life Care Resident of an Independent Living Unit, $20,000 is added to the Entrance Fee under Plan 0, $27,400 is added under Plan 50 and $38,200 is added under Plan 90, and$1,097 is added to the Monthly Service Fee under all plans. [The Remainder of Page Intentionally Left Blank] A-9 Apartment Residences Plan 0 Plan 50 Plan 90 MSF St. Barts(685 sq.ft.) 1 Bedroom/1 Bath $140,170 $192,000 $267,750 $2,057 St. Croix(815 sq.ft.) 1 Bedroom/1.5 Bath $166,150 $227,600 $317,400 $2,286 St. Lucia(1,070 sq.ft.) 2 Bedroom/2 Bath $217,700 $298,300 $415,850 $2,628 St. Martin(1,165 sq.ft.) 2 Bedroom/2 Bath $236,700 $324,300 $452,100 $2,757 St. Thomas(1,375 sq.ft.) 2 Bedroom/2 Bath with Den $287,850 $394,300 $549,800 $3,164 St. Vincent(1,980 sq.ft) 2 Bedroom/2 Bath with Den $411,800 $564,200 $786,700 $4,247 Home Residences Plan 0 Plan 50 Plan 90 MSF The Antigua(1,130 sq.ft.) 2 Bedroom/1 Bath $236,600 $324,100 $451,900 $2,803 The Aruba (1,130 sq.ft.) $237,300 $325,100 $453,300 $2,803 2 Bedroom/2 Bath $255,300 $351,100 $489,500 $2,903 The Barbados(1,224 sq.ft.) $256,150 $351,000 $489,300 $2,976 2 Bedroom/2 Bath $275,150 $377,000 $525,500 $3,076 The Catalina(1,390 sq.ft.) $291,100 $398,800 $556,000 $3,205 2 Bedroom/2 Bath $310,100 $424,800 $592,300 $3,305 The Cozumel(1,500 sq.ft.) $314,000 $430,250 $599,850 $3,486 2 Bedroom/2 Bath with Den $339,875 $465,600 $649,200 $3,626 The Grand Cayman (1,665 sq.ft) 2 Bedroom/2 Bath with Den $358,600 $491,250 $684,900 $3,904 The Martinique(1,773 sq.ft.) 2 Bedroom/2 Bath with Den&EP $361,000 $494,600 $689,600 $4,156 The Santa Domingo (2,071 sq.ft.) $433,500 $593,900 $828,000 $4,678 2 Bedroom/2 Bath with Den $466,500 $639,100 $891,000 $4,818 The Trinidad(2,105 sq.ft.) 3 Bedroom/2 Bath with EP $401,650 $550,200 $767,100 $4,626 The Veracruz(2,243 sq.ft.) 2 Bedroom/2 Bath with Den $435,600 $596,800 $832,100 $4,935 Note:Bolded Entrance Fees indicate homes with enclosed porches. Entrance Fees and Monthly Service Fees have increased annually over the two previous fiscal years by approximately 2.5% and 2.1%, respectively. The weighted average Entrance Fee for "Plan 0," using a simple average of the Entrance Fees for those Homes with and without porches, is $218,480 for the Apartments, $310,963 for the Homes and$268,118 overall. A-10 Assisted Living Units Assisted Living Units are provided in Leeward Manor,a 51,000 square foot building originally constructed in 1996. An additional wing was added in 2005 providing additional floor plan options of one and two-bedroom apartments. There are 62 Assisted Living Units and the Community is licensed for 76 residents in the eleven standard rooms, four studios, fifteen suites, 21 one-bedroom apartments, nine one-bedroom studios and two two- bedroom apartments. Residents have the options of six floor plans varying in size from 260 square feet to 840 square feet. All rooms have a private bath and a card key entry system. Basic cable, emergency nurse response system and basic telephone service are included in the Monthly Service Fee. Daily laundry, weekly housekeeping services,recreational programming and three meals per day are provided. A licensed practical nurse is available 24 hours per day to assist with medication management, medical case management, and to respond to any resident emergencies. Nursing assistants provide support with activities of daily living such as bathing, dressing, and daily prompts and reminders for attendance at meals and recreational programs. Life Care Residents requiring a short-term stay in an Assisted Living Unit are charged the Monthly Service Fee for their Independent Living Unit(reduced by the cost of meals contracted for but not taken)plus the Assisted Living temporary daily rate, which is $119 per day for a standard unit. Monthly rates for Life Care Residents are based upon the square footage of the unit. Life Care Residents permanently transferring from the Independent Living Unit to an Assisted Living Unit will pay a monthly rate of$2,916 (current weighted average first person Monthly Service Fee for all the Independent Living Units) for a standard Assisted Living Unit, $3,570 for a studio unit, $3,917 for a suite, $3,863 for a one-bedroom apartment, $4,476 for a one-bedroom studio apartment, and $5,513 for a two-bedroom apartment in Leeward Manor. The daily rate for Non-Lifecare Residents is $147 for a standard unit. Current monthly Non-Life Care Resident rates are $3,983 for a standard unit, $5,023 for a studio, $5,393 for a suite, $5,333 for a one-bedroom apartment, $5,979 for a one-bedroom studio apartment and$7,056 for a two-bedroom apartment. Health Center The Health Center is a 58,918 square foot building that was constructed in 1990, originally comprised of 18 private rooms (each approximately 378 square feet)and 31 semi-private rooms(each approximately 483 square feet)with a licensed capacity of 80 persons, twenty of which are devoted to persons needing memory care services. The Health Center currently operates with a total of 78 beds subsequent to the conversion of two semi-private rooms to private in 2011. Services provided in the Health Center include: daily laundry,housekeeping,meal preparation and nursing services. Nursing services are designed to provide the required assistance in the areas of daily living, including toileting, bathing, feeding, and ambulation assistance as appropriate. Licensed Practical Nurses and Registered Nurses provide assistance 24 hours per day with medication management, medical case management, and response to medical emergencies. Social and recreational programs are provided as well as the opportunity for residents to participate in hobbies and educational activities. Physical therapy, occupational therapy, and speech therapy are available for residents whose medical condition warrants such treatment. Life Care Residents permanently transferring from the Independent Living or Assisted Living Units to the Health Center pay a rate equal to the current weighted average first person Monthly Service Fee in the Independent Living Units for a semi-private skilled nursing bed, which as of January 1, 2013 is $2,916. Life Care Residents requiring a short-term stay in the Health Center are charged the Monthly Service Fee for their Independent Living Unit (reduced by the cost of meals contracted for but not taken) and a Health Center Temporary Daily Rate. The Health Center daily per diem rate for Non-Life Care Residents requiring nursing care is currently$242 for a semi- private room and $270 for a private room. Monthly Service Fees and per diem rates for Life Care Residents and Non-Life Care Residents also receiving memory care services are slightly higher. A-11 All Health Center beds are certified for Medicare but none are certified for Medicaid. Average payor mix in the Health Center for the three most recent fiscal years and year to date 2013 is shown in the table which follows: Fiscal Years Ended December 31 and the Seven Months Ended July 31,2013 2010 2011 2012 7/31/2013 Life Care Resident 70.3% 67.6% 71.5% 74.4% Non-Life Care Resident 10.4% 10.9% 9.7% 6.9% Medicare 19.3% 21.5% 18.8% 18.7% Occupancy Average annual occupancy of the Community for the three most recent fiscal years and year to date 2013 is shown in the table which follows: Fiscal Years Ended December 31 and the Seven Months Ended July 31,2013 2010 2011 2012 7/31/2013 Independent Living Units()) 90.2% 91.6% 88.4% 90.0% Assisted Living Units 92.2% 93.5% 93.8% 89.9% Health Center: Nursing Beds(2) 90.8% 86.8% 88.5% 82.4% Memory Support 88.8% 98.7% 94.8% 94.4% (1) As of July 31,2013, the Independent Living Units were 91.5%occupied(with 96.3%of the homes and 85.9%of the apartments occupied). (2) The number of nursing beds was reduced from 60 to 58 in 2011 as two semi-private rooms were converted to private. A-12 Turnover analysis for the three most recent fiscal years and the seven months ended July 31, 2013 is shown in the table which follows: 2010 2011 2012 7/31/2013 Beginning Number of ILUs Occupied 310 319 321 322 Transfers to Health Center (18) (19) (25) (8) Deaths (7) (8) (8) (3) Move-outs (6) (6) (9) (5) Move-ins 40 35 43 18 Ending Number of ILUs Occupied 319 321 322 324 Ending Occupancy Percentage 92.1% 91.2% 91.0% 91.5% Wait List A pre-residency deposit in the amount of $1,000 secures placement on a waiting list registry (the "Registry").The deposit is held in a non-interest bearing account,refundable at any time upon written request. General financial data is submitted with the Registry deposit for informational purposes. Upon unit selection, an official confidential data application and full financial disclosure is submitted with the Reservation Agreement. The Registry deposit is then applied to the 10% Reservation Agreement deposit. The Registry is currently comprised of 148 households. Market Area The primary market area of the Community consists of Jacksonville, the associated beach communities, and nearby areas of coastal Florida including Fernandina/Amelia Island to the north and Ponte Vedra, St. Augustine and Palm Coast to the south(the"Primary Market Area"). Sixty percent of current occupied residences are by those whose state of origin is Florida, 66% of whom originate from the Primary Market Area. The remaining 40% of occupants in the Community have, for the most part, moved to the Community to be closer to family or to enjoy a seaside environment, tropical climate and moderate seasonal changes. Nineteen percent of residents of the Community have been drawn from the mid-Atlantic and the southeastern coastal states of Virginia, South Carolina, Georgia and North Carolina. A-13 Current Independent Living Unit Residents State of Origin(as of 12/31/12) State of Origin Percentage Florida 60% Virginia 6% Georgia 5% South Carolina 4% North Carolina 4% Other 21% Total 100% Note: 146 (45%) of the 322 occupied Independent Living Units (of an available 354) are affiliated with military service and 176 (55%) are unaffiliated with military service. [The Remainder of Page Intentionally Left Blank} A-14 Competition There are three existing continuing care retirement facilities which can be considered competitors of the Community. Additional information regarding the competing facilities for the year ended December 31, 2012, in comparison to the Community is provided below: Fleet(1) Cypress Vicars Landing The Atrium Village Landing Status (Nonprofit or For Profit) Nonprofit For Profit For Profit Nonprofit Contract Type CCRC Rental CCRC CCRC Distance from the Community N/A 10 miles 10 miles 12 miles ILUs 354 Not 359 227 Available ALUs 78 115 39 38 Skilled Nursing 80 84 120 60 Entrance Fee Range $138,100- N/A $93,984- $171,400- $460,100 $538,560 $671,600 Monthly Fee Range $2,007- Not $1,448- $2,636- $4,815 Available 4,886 $5,009 Current ILU Occupancy(as of 91.0% Not 82.14% 97.0% December 31,2012) Available (1) Plan"0" only. Sources: Fleet Landing;Florida Agency for Health Care Administration(The Atrium);Florida Office of Insurance Regulation(Cypress Village and Vicar's Landing) Marketing Program The Company's fully integrated approach to marketing consists of both traditional and emerging digital strategies and cultivation events designed to entice both potential residents aged 70 and over and their adult child influencers to visit the Community for a consultative,personalized tour. Print advertising targets affluent symphony and live theatre patrons, military publications and military convention attendees. Direct mail targets those whose age and income level qualified via a purchased list and those who currently reside in the Community's future resident database. Cultivation events continue to be the most efficient and comfortable approach for future residents and their families to be introduced to lifecare and the Community. Event content strategically addresses a variety of interests important to older adults—social, political, healthcare, intellectual, etc. Online marketing tactics continue to be of great development and emphasis to create sustained lead generation and a stronger competitive advantage. Specific tactics deployed or in development include, but are not limited to, advanced search engine optimization, Google local profile and reviews, link building, Google re-marketing, banner ads,pay per click, e-alerts, and online senior living directories. The Company utilizes Martino & Binzer, a nationally recognized senior living marketing and advertising firm,on a bid per project basis with respect to various marketing and advertising efforts. The continued success of the Company's marketing program is a critical element in the financial position of the Company. See"RISK FACTORS—Failure to Maintain Occupancy"in the Official Statement. A-15 The Project The Company has undertaken a project to renovate and enhance its Health Care Continuum (the "Health Care Repositioning Project"). The Health Care Repositioning Project includes the relocation of the existing Maintenance Facility,the construction of a new 24 bed Memory Care Facility, and an extensive renovation of the existing Skilled Nursing Facility. Phase I of the project will include the construction of a new 7,300 square foot maintenance facility. The facility will be configured to have office space for plant operations, remodeling services, and Housekeeping departments. This phase is scheduled to be completed by the end of 2013.Phase II of the project will begin in the first quarter of 2014 with the demolition of the existing Maintenance Facility and all of the adjacent structures. This location will serve as the site for the new Memory Care Facility. The new facility will have 3 neighborhoods of 8 private rooms each with a central dining area for all residents. This phase of the project is scheduled to be completed by the end of 2014. Phase III of the project will begin after the completion of the Memory Care Center and will include a major renovation and upgrade to the existing Skilled Nursing Facility. An existing section of the facility that previously served patients with memory impairment will be repurposed into a post-acute care unit for patients requiring intensive short-term rehabilitative services. The remainder of the facility will be renovated to increase the number of private rooms from 20 to 46. The renovation will include all common spaces, dining venues,resident rooms and administrative areas. The final phase is scheduled to be completed by the end of 2015. The following table illustrates the new configuration upon completion of the project. At July 31,2013 The"Project" Upon Completion Independent Living Units 354 - 354 Assisted Living Units 76 - 76 Memory Support Units - 24 24 Health Care Center: -Skilled Nursing Beds -Semi-Private 58 (40) 18 -Private 20 9 29 -Post Acute Care Unit - 17 17 RESIDENCY AGREEMENTS Generally The Company enters into a Residency Agreement with each Life Care Resident moving into an Independent Living Unit pursuant to which the Company provides such Life Care Resident with a living unit in the Community for as long as he or she is able to occupy the unit and the services described below for the Life Care Resident's lifetime, subject to the right of the Company or the Life Care Resident to terminate the Residency Agreement in certain events. Admission Requirements Eligibility. Any individual who will be 62 years old by the date of occupancy may make application to reside in the Community.All individuals eligible to make application will be afforded equal consideration. Physical. Each Life Care Resident must have sufficiently good health, as certified by a physician, to occupy his or her selected Independent Living Unit. If, in the interval between the execution of an agreement reserving the selected living unit and the execution of the Residency Agreement and payment of the Entrance Fee, the applicant's health status changes to the extent that the applicant would not be able to live independently, the applicant is not eligible to move in as a Life Care Resident without agreeing to secure the necessary supportive services at their own costs in order to safely live independently. Each Life Care Resident is responsible for disclosing any severe or chronic disorders. A-16 Financial. In addition to having adequate assets to pay his or her Entrance Fee, each Life Care Resident must possess the ability to pay his or her respective Monthly Service Fee. Also,each Life Care Resident must have sufficient monthly income after payment of the anticipated Monthly Service Fee to satisfy normal living expenses for goods and services not provided by the Community, which is evaluated on an individual basis, taking into account life expectancy, monthly income and total net worth, after payment of the Entrance Fee. Each Life Care Resident must show coverage under Medicare Parts A and B, or their equivalent. Each Life Care Resident is also encouraged to have a supplemental health insurance policy. Financial Assistance It is the declared policy of the Company that a Life Care Resident's occupancy shall not be terminated solely for the reason of financial inability of a Life Care Resident to pay the Monthly Service Fee,provided the Life Care Resident has applied to Company for dispensation of the Monthly Service Fees and has established the facts which justify special consideration and dispensation by the Company. Such an application for special consideration and dispensation of the Monthly Service Fees may be granted by the Company provided such special treatment does not impair, in the sole opinion of the Company, the ability of the Community to operate on a sound financial basis. Facts to be considered in the granting of such special financial consideration and dispensation are the assets and income of the Life Care Resident, but are not limited to these matters. In the event of dispensation of Monthly Service Fees (whether total or in part) the Company may require that the Life Care Resident move to the smallest available Independent Living Unit, Assisted Living Unit or semi-private nursing bed with the lowest Monthly Service Fee,during the period of such dispensation. Nondiscrimination The Company is operated on a non-discriminatory basis, and provides the facilities and services described in the Residency Agreement to individuals without unlawful discrimination due to race, color,religion,gender,age, national origin,ancestry,disability or any other unlawful reason. HISTORICAL FINANCIAL INFORMATION Summary Statements of Operations The following summaries of the Statement of Operations, Balance Sheets and Statement of Cash Flows of the Company for the three fiscal years ended December 31, 2010 through 2012 is derived from the financial statements of the Company which have been audited by Moore Stephens Lovelace, P.A., independent certified public accountants. Copies of the audited financial statements for the fiscal years ended December 31, 2010 through 2012 are included in Appendix B to this Official Statement. The data set forth in the following tables for each full fiscal year presented should be read in conjunction with the financial statements and related notes included in Appendix B to this Official Statement. The operating results of the Company for the seven months ended July 31, 2012 and 2013 are derived from the unaudited financial statements of the Company. The unaudited financial statements include all adjustments, consisting of normal recurring accruals that the Company considers necessary for a fair presentation of the Statement of Operations, Balance Sheet and Statement of Cash Flows for the periods covered by the unaudited financial statements. [The Remainder of Page Intentionally Left Blank] A-17 STATEMENT OF OPERATIONS Seven Months Ended July 31, Fiscal Years Ended December 31, Unaudited Unaudited 2013 2012 2012 2011 2010 UNRESTRICTED REVENUES GAINS AND OTHER SUPPORT: Resident services and healthcare fees $12,501,576 $12,269,830 $20,994,023 $21,192,658 $20,389,615 Entrance Fees earned 3,752,748 3,538,635 6,263,217 5,651,129 5,432,799 Contributions 8,398 0 415,842 0 0 Investment and other income 595,871 887,269 1,380,173 1,151,575 1,559,605 Net assets released from restriction 657,285 10,006 18,060 6,851 33,100 Total unrestricted revenue, gains, and other support 17,515,878 16,705,740 29,071,315 28,002,213 27,415,119 OPERATING EXPENSES: Health center 3,033,756 3,113,520 5,296,703 5,412,288 5,253,921 General and administrative 2,699,782 2,631,010 4,470,124 4,219,539 4,293,848 Plant and maintenance services 1,748,840 1,754,110 3,207,255 3,076,965 2,990,084 Food services 2,467,648 2,267,893 3,997,888 3,868,072 3,904,100 Home health 226,610 186,594 366,010 456,416 582,104 Environmental services 669,782 642,423 1,114,817 1,094,561 1,107,447 Assisted living 672,440 672,429 1,159,495 1,167,026 1,213,380 Other resident services 271,644 266,608 459,751 455,335 472,737 Other expense 70,000 70,000 43,588 338,000 30,000 Interest&Bank charges 1,182,847 1,336,115 2,283,823 2,547,460 2,582,927 Depreciation&Amortization 2,524,333 2,434,740 4,186,385 4,356,634 4,297,736 Total Operating expenses 15,567,682 15,375,442 26,585,838 26,992,296 26,728,284 Operating Income 1,948,196 1,330,298 2,485,477 1,009,917 686,835 OTHER NONOPERATING GAIN(LOSS) AND TEMP. RESTRICTED NET ASSETS: Loss on retirement of 1999/2006 Bonds (2,692,902) 0 0 0 0 Change in net unrealized gains/losses on investments 444,489 39,702 101,105 (217,555) (62,552) Change in temporarily restricted net assets (469,443) 273,443 950,241 181,733 (21,247) Change in Perm.restricted net assets 0 0 0 590 0 Change in Net Deficit ($769.660) $1,643,443 $3,536,823 $974.685 $603.036 A-18 BALANCE SHEETS As of July 31, As of December 31, 2013 2012 2011 2010 ASSETS CURRENT ASSETS: Cash and cash equivalents $5,490,682 $3,230,419 $2,342,257 $938,384 Short-term investments 8,924,052 4,364,869 982,514 0 Assets limited as to use-current 1,011,250 1,730,000 2,040,000 3,709,433 Accounts Receivable,net 791,507 1,797,942 1,930,127 1,486,492 Supplies 91,240 99,322 86,079 95,047 Prepaid expenses and other current 365,852 748,333 730,755 930,065 assets Total Current Assets 16,674,583 11,970,885 8,111,732 7,159,421 ASSETS LIMITED AS TO USE 14,906,420 17,666,405 17,518,855 17,154,575 PROPERTY AND EQUIPMENT,Net 58,166,402 58,142,321 57,906,544 58,951,289 OTHER ASSETS 837,543 2,159,738 2,285,408 2,412,812 Total Assets $90,584,948 $89,939,349 $85,822,539 $85,678,097 LIABILITIES&NET ASSETS CURRENT LIABILITIES: Accounts payable and accrued $2,582,488 $2,097,822 $1,941,925 $1,970,494 expenses Accrued interest 465,513 507,594 609,008 552,570 Current portion of long-term debt 1,011,250 1,730,000 2,040,000 3,105,000 Total Current Liabilities 4,059,251 4,335,416 4,590,933 5,628,064 Deferred Income-Entrance Fees 45,995,205 45,435,778 42,165,225 40,194,270 Refundable Entrance Fees 4,385,087 4,385,087 5,455,564 5,262,344 Long-term debt,less current portion 41,613,437 40,541,992 42,238,286 44,244,579 Gift annuity obligation 441,281 380,728 49,006 0 Total Liabilities 96,494,261 95,079,001 94,499,014 95,329,257 NET ASSETS(DEFICIT) Unrestricted (6,690,027) (6,345,736) (8,932,318) (9,724,680) Permanently restricted 40,590 40,590 40,590 40,000 Temporarily restricted 740,124 1,165,494 215,253 33,520 Total Net(Deficit) (5,909,313) (5,139,652) (8,676,475) (9,651,160) Total Liabilities&Net Deficit $90,584,948 $89,939,349 $85,822,539 $85,678,097 A-19 STATEMENTS OF CASH FLOWS Seven Months Ended July 31, Fiscal Years Ended December 31, 2013 2012 2012 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Change in net deficit ($769,660) $1,643,441 $3,536,823 $974,685 $603,036 Adjustments to reconcile change in net deficit to net cash provided: Depreciation and amortization 2,524,332 2,434,739 4,186,385 4,356,634 4,297,736 Amortization of bond discount 8,427 19,662 33,706 33,706 33,706 Amortization of bond premium (89,573) 0 0 0 0 Provision for doubtful accounts 70,000 70,000 43,588 338,000 30,000 Change in net unrealized(gains)/losses (444,489) 39,702 (101,105) 217,555 62,552 Entrance fees earned (3,752,748) (3,529,636) (6,263,217) (5,628,129) (5,432,799) Entrance fees received 4,820,835 3,274,471 9,824,211 8,673,470 7,901,290 Entrance fees refunded (576,052) (124,931) (290,441) (1,074,386) (695,889) Loss on retirement of 1999/2006 Bonds 2,692,902 0 0 0 0 Changes in operating assets and liabilities 1,678,229 1,604,817 478,134 (477,218) 421,455 NET CASH PROVIDED BY OPERATING ACTIVITIES 6,167,597 5,432,265 11,448,084 7,414,318 7,221,087 CASH FLOWS FROM INVESTING ACTIVITIES Net change in assets whose use is limited 3,923,223 1,116,054 263,555 1,087,598 (714,540) Net change in short-term investments (4,559,184) (1,995,411) (3,382,355) (982,514) 992,619 Additions to property, equipment and construction in progress (2,499,929) (2,066,158) (4,296,492) (3,184,485) (3,314,598) NET CASH USED IN INVESTING ACTIVITIES (3,135,890) (2,945,515) (7,415,292) (3,079,401) (3,036,519) CASH FLOWS FROM FINANCING ACTIVITIES Refundable entrance fees received 0 0 0 402,263 0 Refundable entrance fees refunded 0 (281,943) (1,070,477) (209,043) (415,788) Change in refundable deposits held in trust 219,299 151,290 (34,153) (19,264) (39,975) Payments of financing costs (860,004) 0 0 0 (26,000) Payments on long-term debt (125,000) (750,000) (2,040,000) (3,105,000) (4,350,000) Retirement of 1999/2006 bonds (42,720,000) 0 0 0 0 Proceeds from 2013A bonds 42,714,260 0 0 0 0 NET CASH USED IN FINANCING ACTIVITIES (771,445) (880,653) (3,144,630) (2,931,044) (4,831,763) INCREASE (DECREASE) IN CASH 2,260,262 1,606,097 888,162 1,403,873 (647,195) AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,230,419 2,342,257 2,342,257 938,384 1,585,579 CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,490,680 $3,948,354 $3,230,419 $2,342,257 $938,384 A-20 Management's Discussion of Results of Operations and Financial Condition Fiscal year ended 2012 compared to fiscal year 2011 and for the periods ended July 31, 2013 and 2012. The operating income for the year ended December 31, 2012 was $2,485,477, more than double the operating income for 2011. Amortized entrance fees and lower operating expenses were the primary contributors to the increase in operating income. The operating income for the first seven months of 2013 is $1,948,196 compared to the same period in 2012 of$1,330,298. The increase is due to the release of restricted contributions for the Health Center Project. Despite decreases in the Health Center's revenues resulting from lower resource utilization group rates and fewer Medicare stays, resident revenue in total remained on par with 2011 levels, totaling just under $21 million in 2012 and trending to be over$21 million by the end of 2013. The change in net deficit as of July 31,2013 is ($769,660) due to the unamortized cost of issuance from the 1999 and 2006 bonds of$2,128,000 and the 1999 bond discount of$564,000 being expensed in April when the bonds were refunded. The write off had no effect on operations, liquidity or debt service requirements. Average occupancy of the Independent Living Units decreased in 2012 to 88.4%, though the final occupancy at December 31, 2012 was 91.0% and has since increased to 91.5% as of July 31, 2013. The average occupancy rates of the Health Center and Assisted Living Units both increased by 0.3% from 2011 to 2012, but have decreased to 85.2%and 89.9%,respectively,during 2013. Temporarily restricted net assets increased by$1.4 million in 2012 due to generous contributions from the community toward the Health Center Project. Cash and equivalents increased from $3.3 million in 2011 to $7.6 million in 2012 and have increased another $6.8 million during 2013 for a total cash and equivalents balance of $14.4 million. Improvements in operations as well as decreases in the amount of reserves required by the state and lower debt service payments were key factors contributing to the increase in cash. As shown in the tables below, the Company remained in compliance with all financial and operating covenants during 2012 and 2013, and at July 31, 2013, days cash on hand was 406 days, compared to 326 days at December 31,2012. ANNUAL DEBT SERVICE Fiscal Years Ended 2010 2011 2012 2013"° Total Interest(1999+2006+2013A Bonds) $2,561,000 $2,443,743 $2,340,879 $1,958,147 Principal: Series 1999 Bonds 1,050,000 1,105,000 1,165,000 0 Series 2006 Bonds 3,300,000 2,000,000 875,000 125,000 Series 2013A Bonds 0 0 0 605,000 Total Debt Service $6,911,340 $5,548,743 $4,380,879 $2,688,147 Less: Initial Entry Fees(IEF) Collected Prior Fiscal Year 1,308,680 0 0 0 Collected Current Fiscal Year 1,253,990 2,188,640 534,085 0 Total Debt Serv.Net of IEF $4,348,670 $3,360,130 $3,846,794 $2,688,147 (U Unaudited. A-21 DEBT SERVICE COVERAGE RATIO Fiscal Years Ended December 31, Seven Months Ended July 31, unaudited unaudited 2010 2011 2012 2012 2013 Change in Net Deficit: $603,036 $974,685 $3,536,823 $1,643,443 ($769,660) Deduct: Entrance Fees Amortized (4,347,468) (4,593,925) (4,927,607) (2,875,533) (2,868,517) Contract Settlement Fees (1,085,331) (1,057,204) (1,335,610) (663,102) (884,231) Restricted Contributions (9,203) (183,870) (1,005,778) (283,449) (197,442) Net Unrealized Gain on Investments 0 0 (101,105) (39,702) (444,489) Gain on Asset Disposition (1,650) (6,652) 0 0 0 Add: Depreciation&Amortization 4,297,736 4,356,634 4,186,385 2,434,740 2,524,333 Interest Expense 2,582,927 2,547,460 2,283,823 1,336,115 1,182,847 Provision for Bad Debt 30,000 338,000 43,588 70,000 70,000 Net Unrealized Loss on Investments 62,552 217,555 0 0 0 Loss on Asset Disposition 0 0 88,934 20,308 2,569 Loss on Retirement of 1999&2006 Bonds 0 0 0 0 2,692,902 Funds Available for Debt Service before net 2,132,599 2,592,683 2,769,453 1,642,820 1,308,312 entrance fees Entrance Fees received,net of Refunds 6,789,613 7,792,304 8,463,293 2,867,597 4,244,783 Less: Initial Entrance Fees (1,253,990) (2,188,640) (534,085) 0 0 Funds Available for Debt Service Including Net 7,668,222 8,196,347 10,698,661 4,510,417 5,553,095 Entrance Fees Pro forma Maximum Annual Debt Service Series 3,878,740 3,878,740 3,878,740 2,262,598 2,262,598 (2013A/B Bonds) Historical Pro-forma DSCR(Series 2013A/B 1.98 2.11 2.76 1.99 2.45 Bonds) [The Remainder of Page Intentionally Left Blank] A-22 DAYS CASH ON HAND Fiscal Year Ended December 31, 2010 2011 2012 July 31,2013 Cash and cash equivalents 938,384 2,342,257 3,230,419 5,490,682 Investments - 982,514 4,364,869 8,924,052 Assets Whose Use Is Limited: Minimum Liquid Reserve Accounts 12,475,052 11,600,258 10,453,044 8,244,367 Less: Debt Service Reserve portion (3,261,700) (3,258,844) (3,259,450) (2,839,894) Wait List Escrow(I) - - 387,953 232,920 Refundable Entrance Fees 5,262,344 5,455,565 4,385,087 4,385,087 Charitable Purpose Fund-Unrestricted(.) - - 393,456 432,347 Total Cash and Investments 15,414,080 17,121,750 19,884,478 24,813,057 Annual Cash Operating Expenses Operating Expense 26,728,284 26,992,296 26,585,838 15,567,682 Depreciation and amortization (4,297,736) (4,356,634) (4,186,385) (2,524,333) Provision for bad debt (30,000) (338,000) (43,588) (70,000) Other Non-cash items (33,706) (33,707) (33,706) 81,146 Total Operating Expenses for Calculation 22,366,842 22,263,955 22,322,159 13,054,495 Annualized Expenses(3) 22,366,842 22,263,955 22,322,159 22,379,134 Daily Cash Operating Expenses 61,279 60,997 61,157 61,313 Days Cash on Hand 252 281 326 40 (I)-This represents amounts in the waitlist escrow account that are available to pay expenses or debt service. (2)-This represents the unrestricted portion of the charitable purpose fund available to pay expense or debt service. (3)-The July 31,2013 operating expenses were annualized by dividing expenses by 7 and multiplying by 12. INVESTMENT POLICY Funds held under the Bond Indenture are required to be invested in Permitted Investments (as defined in the Bond Indenture). All other funds are required to be invested according to the revised Investment Policy Statement of the Company (the "Investment Policy") adopted by the Finance Committee (the "Committee") of the Board of Directors, which policy may be modified from time to time and is formally reviewed and reported to the Board of Directors at least annually. The objectives of the Investment Policy are to: • Produce competitive rates of return and minimize losses in comparison to the appropriate benchmark/index set forth in the Investment Policy; • Preserve the principal value of the Company's funds; • Realize increased value in the investment base; • Ensure the availability of cash to meet projected operating and capital requirements; • Limit risk exposure through prudent diversification of investments into funds or portfolios demonstrating strong performance and sound investment strategies;and • Minimize realized losses. The Committee has retained an outside investment advisor (the "Manager") to assure that all investments are managed in a prudent and professional manner and in compliance with the stated objectives and constraints of the Investment Policy. Pursuant to the Investment Policy,the Manager must be a Registered Investment Advisor or part of a bank or insurance company. Subject to certain limitations, the stated objectives, and an annual review A-23 process set forth in the Investment Policy, the Committee has delegated direct control over investment decisions to the Manager. The Committee has developed the policies and restrictions set forth in the Investment Policy to be consistent with the risk tolerances of the Company while minimizing interference with the Manager's efforts to attain the Company's overall investment objectives. The Investment Policy defines the asset allocation policies for the Company's four investment portfolios: the Debt Service Reserve, the Operating Reserve, the Renewal & Replacement Reserve, and the Operating Fund. The Investment Policy provides that the Manager shall only invest the Debt Service Reserve,the Operating Reserve, and the Renewal&Replacement Reserve in portfolios comprised of U.S. Treasury bonds with a maximum average life of 7 years. Further, the Investment Policy provides that the Manager shall invest up to 60%of the Invested Excess Operating Funds in equity securities (e.g., index funds) and the balance in fixed income securities (e.g., intermediate public and private bond indexes and short-term U.S. Treasury securities). Subject to the limitations set forth in Florida Statutes Section 625.305,the Board has approved the following target asset allocation for the four investment portfolios in the aggregate: Investment Policy Target Asset Allocation Type of Asset Common Stock Fixed Income Debt Instruments Target 60% 40% Range 40%to 60% 40%to 60% In order to achieve a prudent level of portfolio diversification,the Investment Policy provides that there shall be no undue concentration of a specific account's assets in the securities of a single issuer or industry sector. The Investment Policy provides specific guidelines on the type, grade and amount the Manager may devote to certain investments within the equity,fixed income,and cash&equivalents asset classes,including restrictions on the extent to which holdings in one security and/or industry sector are permitted within each class. The Manager is prohibited from investing in private placements, letter stock,and uncovered options; or from engaging in short sales,margin transactions or other specialized investment activities. The Manager also is prohibited from making investments in financial futures (including, but not limited to, fixed income and interest rate futures), commodities,and currency exchange contracts. It is expected that no assets will be invested in securities whose issuers are in bankruptcy proceedings. A-24 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX B AUDITED FINANCIAL STATEMENTS [THIS PAGE INTENTIONALLY LEFT BLANK] NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING FINANCIAL STATEMENTS Years Ended December 31, 2012 and 2011 CONTENTS Page Number REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS Balance Sheets 3 Statements of Operations and Changes in Net Deficit 4 Statements of Cash Flows 5 Notes to Financial Statements MOORS STEPHENS LOVELACE, P.A. CERTIFIED PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing Atlantic Beach, Florida We have audited the accompanying financial statements of Naval Continuing Care.Retirement Foundation,Inc. dlb/a Fleet Landing (the`{Foundation"), which comprise the balance sheets as of December 31, 2012 and 2011, and the related statements of operations and changes in net deficit, and cash flows for the years then ended,and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these 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 audits to obtain reasonable assurance,about whether the financial statements are free from material misstatement, An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements, The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 evaluation of 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 financial statements, - 1 Board of Directors Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements refeiTed to above present fairly, in all material respects, the financial position of Naval Continuing C.are Retirement Foundation, Inc. dib/a Fleet Landing as of December 31, 2012 and 2011 and the results of its operations, changes in net deficit, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. MoOiw Si NS I 40V10 Certified Public Accountants Orlando, Florida April 23, 2013 - 2 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING BALANCE SHEETS December 31,2012 and 2011 ASSETS 2012 2011 CURRENT ASSETS Cash and cash equivalents $ 3,230,419 $ 2,342,257 Short-term investments 4,364,869 982,514 Current portion of assets whose use is limited 1,730,000 2,040,000 Accounts receivable, net 1,797,942 1,930,127 Interest receivable 47,772 65,708 Supplies 99,322 86,079 Prepaid expenses 700,561 665,047 TOTAL CURRENT ASSETS 11,970,885 8,111,732 ASSETS WHOSE USE IS LIMITED,less current portion 17,666,405 17,518,855 PROPERTY AND EQUIPMENT,net 58,142,321 57,906,544 DEFERRED FINANCING COSTS,net 2,159,738 2,285,408 TOTAL ASSETS $ 89,939,349 $ 85,822,539 The accompanying notes are an integral part of the financial statements. LIABILITIES AND NET ASSETS (DEFICIT) 2012 2011 CURRENT LIABILITIES Current portion of long-term debt $ 1,730,000 $ 2,040,000 Accounts payable 1,069,219 964,717 Entrance fee refund payable 67,392 79,793 Accrued interest 507,594 609,008 Accrued compensation and benefits 786,636 688,687 Refundable deposits held in trust 174,575 208,728 TOTAL CURRENT LIABILITIES 4,335,416 4,590,933 LONG-TERM LIABILITIES Gift annuity obligation 380,728 49,006 Long-term debt, less current portion 40,541,992 42,238,286 Refundable entrance fees 4,385,087 5,455,564 Unearned entrance fees 45,435,778 42,165,225 TOTAL LIABILITIES 95,079,001 94,499,014 COMMITMENTS AND CONTINGENCIES NET ASSETS(DEFICIT) Temporarily restricted net assets 1,165,494 215,253 Permanently restricted net assets 40,590 40,590 Unrestricted net deficit (6,345,736) (8,932,318) NET DEFICIT (5,139,652) (8,676,475) TOTAL LIABILITIES AND NET DEFICIT $ 89,939,349 $ 85,822,539 -3 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING STATEMENTS OF OPERATIONS AND CHANGES IN NET DEFICIT Years Ended December 31,2012 and 2011 2012 2011 REVENUE,GAINS AND OTHER SUPPORT Service fees $ 12,363,460 $ 11,769,970 I Iealthcare and home health fees 8,630,563 9,422,688 Entrance fees earned 6,263,217 5,651,129 Investment income 815,351 428,214 Other 564,822 723,361 Contributions 415,842 - Net assets released from restrictions 18,060 6,851 TOTAL REVENUE,GAINS AND OTHER SUPPORT 29,071,315 28,002,213 OPERATING EXPENSES Health center 5,296,703 5,412,286 General and administrative 4,470,123 4,219,539 Dietary service 3,997,888 3,868,072 Plant operations 3,207,255 3,076,965 Assisted living 1,159,495 1,167,027 Other resident services 459,751 455,335 Housekeeping 1,114,817 1,094,561 Home health 366,010 456,417 Depreciation and amortization 4,186,385 4,356,634 Interest and bank charges 2,283,823 2,547,460 Provision for doubtful accounts 43,588 338,000 TOTAL OPERATING EXPENSES 26,585,838 26,992,296 OPERATING INCOME 2,485,477 1,009,917 OTHER NONOPERATING GAIN(LOSS) Change in net unrealized gain/(loss)on investments 101,105 (217,555) CHANGE IN UNRESTRICTED NET DEFICIT 2,586,582 792,362 TEMPORARILY RESTRICTED NET ASSETS Restricted contributions 997,936 183,870 Investment income - 4,714 Change in value of gift annuities (29,635) - Net assets released from restrictions (18,060) (6,851) CHANGE IN TEMPORARILY RESTRICTED NET ASSETS 950,241 181,733 PERMANENTLY RESTRICTED NET ASSETS Restricted contributions - 590 CHANGE IN NET DEFICIT 3,536,823 974,685 NET DEFICIT AT BEGINNING OF YEAR (8,676,475) (9,651,160) NET DEFICIT AT END OF YEAR $ (5,139,652) $ (8,676,475) The accompanying notes are an integral part of the financial statements. -4 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING STATEMENTS OF CASH FLOWS Years Ended December 31, 2012 and 2011 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Change in net deficit $ 3,536,823 $ 974,685 Adjustments to reconcile change in net deficit to net cash provided by operating activities: Depreciation and amortization 4,186,385 4,356,634 Amortization of bond discount 33,706 33,707 Provision for doubtful accounts 43,588 338,000 Change in net unrealized(gain)/loss on investments (101,105) 217,555 Change in value of gift annuities 29,635 - Entrance fees earned (6,263,217) (5,651,129) Entrance fees received 9,824,211 8,696,470 Entrance fees refunded (290,441) (1,074,386) Changes in operating assets and liabilities: Accounts receivable from residents 88,597 (781,635) Interest receivable and other current assets (30,821) 208,278 Accounts payable 104,502 (155,197) Gift annuity obligation 302,087 49,006 Entrance fee refund payable (12,401) 27,418 Other current liabilities (3,465) 174,912 NET CASH PROVIDED BY OPERATING ACTIVITIES 11,448,084 7,414,318 CASH FLOWS FROM INVESTING ACTIVITIES Net change in assets whose use is limited 263,555 1,087,598 Net change in short-term investments (3,382,355) (982,514) Additions to property,equipment and construction in progress (4,296,492) (3,184,485) NET CASH USED IN INVESTING ACTIVITIES (7,415,292) (3,079,401) CASH FLOWS FROM FINANCING ACTIVITIES Refundable entrance fees received - 402,263 Refundable entrance fees refunded (1,070,477) (209,043) Change in refundable deposits held in trust (34,153) (19,264) Payments on long-term debt (2,040,000) (3,105,000) NET CASH USED IN FINANCING ACTIVITIES (3,144,630) (2,931,044) INCREASE IN CASH AND CASH EQUIVALENTS 888,162 1,403,873 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,342,257 938,384 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,230,419 $ 2,342,257 The accompanying notes are an integral part of the financial statements. - 5 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 2012 and 2011 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Organization Naval Continuing Care Retirement Foundation, Inc. (the "Foundation") is a not-for- profit organization which principally provides residential, healthcare, and other related services for residents, including retired career U.S. military officers, their spouses, and others of retirement age. The Foundation owns and operates a retire- ment community known as Fleet Landing (the "Community") in Atlantic Beach, Florida, which currently consists of 354 residential units (164 apartments and 190 homes), 76 assisted living units, and a 80-bed skilled nursing center. The Foundation continues to maintain its accreditation through the Continuing Care Accreditation Commission ("CARF-CCAC") and has been accredited by CARF- CCAC since August 2001. The Community operates under the "continuing care" concept in which residents enter into an occupancy agreement ("residency agreement"), which requires payment of a one-time entrance fee and a monthly service fee. Generally, these payments entitle residents to the use and privileges of the Community for life, including certain nursing services in the Community's skilled nursing facility. The residency agree- ment does not entitle the residents to an ownership interest in the real estate or any property owned by the Foundation. The following is a summary of the Foundation's significant accounting policies: Cash and Cash Equivalents Cash and cash equivalents principally consist of demand deposits, money market accounts, and short-term investments that, when purchased, had a maturity date of 90 days or less, except those classified as short-term investments and assets whose use is limited. Allowance for Doubtful Accounts Receivables are periodically evaluated for collectability based on past history with residents and third-party payors, their current financial condition, and management's judgment. If an account receivable becomes uncollectible, the amount is recognized in operations in the period the determination is made. The allowance for doubtful accounts was approximately $77,000 and $75,000 at December 31, 2012 and 2011, respectively. - 6 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets Whose Use Is Limited and Short-term Investments Assets whose use is limited ("AWUIL") are held by a trustee under bond indenture agreements, contractual requirements, or as required by law. The AWUIL and short- term investments consist of money market funds, corporate obligations, mortgage- backed securities, equities, commercial paper, and investments in U.S. Government and Agency securities and are reported at fair value, which are based on quoted closing or latest bid prices. AWUIL amounts required to meet current liabilities of the Foundation and short-term investments have been classified as current in the balance sheets. Investment income (including realized gains and losses on investments, interest, and dividends) is included in operating income or loss. Changes in unrealized gains and losses on investments are reported as other nonoperating gains and losses. Property and Equipment Property and equipment are recorded at cost. Additions, renewals, and betterments that extend the useful life of an asset are capitalized. Donated property is recorded at its estimated fair value at the date of receipt. Maintenance and repairs are expensed as incurred. Upon the sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, as follows: Estimated Useful Life Land improvements 20 Years Furniture and equipment 5 - 15 Years Buildings and improvements 30 -40 Years Interest costs incurred on borrowed funds during the period of construction of capital assets are capitalized as a component of the cost of acquiring those assets. Deferred Financing Costs Costs related to the issuance of debt are deferred and systematically amortized over the term of the related obligation. The Foundation recognized amortization of approximately $126,000 and $127,000 for the years ended December 31, 2012 and 2011, respectively. Deferred financing costs consist of the following at December 31, 2012 and 2011: 2012 2011 Bond issuance costs- Series 1999 Bonds(see Note 6) $ 3,168,923 $ 3,168,923 Bond issuance costs-Series 2006 Bonds(see Note 6) 426,785 426,785 Accumulated amortization (1,435,970) (1,310,300) Deferred financing costs,net $ 2,159,738 $ 2,285,408 - 7 - NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Financing Costs (Continued) During 2012, the Foundation began the process to refinance the Series 1999 and 2006 Bonds (see Note 10). Upon completion of the refinancing, the unamortized deferred financing costs will be expensed as part of the loss on extinguishment of debt. Original Issue Discount The Series 1999 Bonds were issued at a discount to their face value. The original issue discount is offset against the face amount of the bonds and is being amortized over the term of the issue (see Note 6). Estimated Obligation to Provide Future Services and Use of Facilities for Continuing Care Residents The Foundation annually calculates the present value of the net cost of future services and use of facilities to be provided to current residents and compares that amount with the balance of unearned entrance fees. If the present value of the net cost of future services and use of facilities exceeds the unearned entrance fees, a liability is recorded (obligation to provide future services and use of facilities). No liability has been recorded at December 31, 2012 and 2011, because the present value of the net cost of future services and use of facilities (discounted at 5%) is less than the unearned entrance fees. Revenue Recognition Service Fees Service fees paid by residents for apartment/home maintenance fees, meals, nursing supplies, security, and other services are assessed monthly and are recognized as revenue in the period services are rendered. Entrance Fees Entrance fees paid by residents upon entering a residency agreement are separated into distinct, nonrefundable and refundable portions. The nonrefundable portion represents advance payments for future services and is accounted for as deferred revenue and is amortized into income based on the remaining actuarial life expectancy of each continuing care resident. The period of amortization is adjusted annually, based on the actuarially determined estimated remaining life expectancy of each individual or joint and last survivor life expectancy of each pair of residents occupying the same unit. In the event of a resident or surviving resident's death, or the termination of the residency agreement, the obligations of the Foundation are considered fulfilled and the unamortized portion of the fee is recognized as revenue. - 8 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition (Continued) Entrance Fees (Continued) At December 31, 2012, the Foundation offers one residency agreement with three payment plan options, a Plan "0", Plan "50" and Plan "90". The difference between the payment plans relates to the amount of entrance fees refundable upon termination of the residency agreement. Plan "0" provides for a declining refund over a 52'/2- month period, with the Foundation retaining 5% during the first 5 months and an additional 2% per month thereafter for 47'/2 months. After 52'/2 months, there is no refund due. Plan "50" provides for a declining refund over a 35-month period, with the Foundation retaining 5% during the first 5 months and an additional 1.5% per month thereafter for 30 months. After 35 months, the refundable amount remains at 50%. Plan "90" provides for refunds of 90% of the entrance fee upon termination of the agreement or death of the resident. Under the Plan "90" payment plan, the Foundation retains 5% during the first 5 months and an additional .5% per month thereafter for 10 months. After 15 months, the refundable amount remains at 90%. In 2012, the Foundation discontinued offering the Plan "75" residency agreement. Plan "75" provides for refunds of 75% of the entrance fee upon termination of the agreement or death of the resident. Under the Plan "75" payment plan, the Foundation retains 5% during the first 5 months and an additional 1% per month thereafter for 20 months. After 25 months, the refundable amount remains at 75%. Payments of refunds are charged against the resident's unearned entrance fee and any resulting gain or loss is included in the statements of operations. Entrance fees paid by a resident upon entering into a refundable residency agreement are recorded as follows: The nonrefundable portion is recorded as "unearned entrance fees" and is amortized into income, based on the remaining actuarial life expectancy of the respective resident. The remaining balance is refundable to the resident upon termination of the residency agreement; accordingly, it is recorded as "refundable entrance fees." At December 31, 2012 and 2011, balances related to these refundable residency agreements approximated $4,385,000 and $5,456,000, respectively. The Foundation's contractual, as opposed to expected, refund obligation, assuming all contracts were terminated, approximated $23,848,000 and $23,359,000 at December 31, 2012 and 2011, respectively. Refundable deposits held in trust represent amounts paid by prospective residents to reserve a place on the waiting list for available units. Skilled Nursing and Assisted Living Revenue Skilled nursing and assisted living revenue is reported at the estimated net realizable amounts receivable from residents, third-party payors, and others at the time services are rendered. - 9 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition (Continued) Skilled Nursing and Assisted Living Revenue (Continued) Revenue for services rendered to Medicare program beneficiaries are based on prospectively determined case-mix rates. The rates vary according to a classification system based on clinical, diagnostic, and other factors subject to certain limitations and adjustments. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for estimated third-party settlements are made in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of settlement. Contributions Gifts of cash and other assets received with donor stipulations that limit the use of the donated assets are reported as a restricted contribution. When a restriction ends or the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the statements of operations as "net assets released from restrictions." Donor-restricted contributions whose restrictions are met in the same reporting period are reported as unrestricted contribu- tions in that period. The Foundation recorded approximately $416,000 during the year ended December 31, 2012 as an unrestricted contribution because the restriction was met during 2012. During 2011 and 2012, the Foundation received contributions restricted for the renovation of the health care center, the memory care unit (Nancy House) and various other restrictions (see Note 7). Gift Annuities During 2011, the Foundation began a gift annuity program whereby the donor makes a gift directly to the Foundation and the Foundation agrees to pay a specified amount to the donor, or to the donor's designee, for life. Investments are limited to conserva- tive assets, as required by Florida Statutes. Contribution revenue is recognized as the difference between the asset and liability upon receipt of the donation. During 2012 and 2011, the Foundation recognized contribution revenue from gift annuities of approximately $273,000 and $22,000, respectively. At December 31, 2012 and 2011, the fair value of investments related to the gift annuities was approximately $712,000 and $71,000, respectively, (see Note 3) and the annuity payment liability was approximately $381,000 and $49,000, respectively. The Foundation was in compliance with state of Florida regulations that require 110% of the estimated annuity payment liability be maintained in an investment reserve. Advertising Advertising costs are expensed as incurred. During 2012 and 2011, advertising expenses were approximately $342,100 and$290,400, respectively. - 10 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code ("IRC"). The IRC provides for taxation of certain unrelated business income. The Foundation does not have material taxable, unrelated business income. Accordingly, these financial statements include no provision or liability for income taxes. As of December 31, 2012, with certain statutory exceptions, the Foundation is no longer subject to income tax examinations by U.S. federal or state of Florida taxing authorities for any years before January 1, 2009. Fair Value of Financial Instruments The carrying values of the Foundation's financial instruments approximate their fair values. Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates and such differences could be material. Significant estimates include the allowance for doubtful accounts, gift annuity obligation and amortization of entrance fees. Reclassifications Certain reclassifications were made to the 2011 financial statements to conform to the 2012 financial statement presentation. These reclassifications had no impact on the previously reported change in net deficit. Subsequent Events The Foundation evaluated subsequent events for potential recognition and disclosure through April 23, 2013, which is the date the financial statements were issued (see Note 10). NOTE 2 - ACCOUNTS RECEIVABLE,NET At December 31, 2012 and 2011, accounts receivable consist of the following: 2012 2011 Resident monthly and healthcare center charges $ 885,141 $ 1,192,281 Entrance fees receivable 975,939 791,982 Other 13,711 21,158 Allowance for doubtful accounts (76,849) (75,294) Accounts receivable,net $ 1,797,942 $ 1,930,127 - 11 - NOTE 3 - ASSETS WHOSE USE IS LIMITED AND SHORT-TERM INVESTMENTS Assets whose use is limited by provisions of the trust indentures (see Note 6) and other contractual or regulatory obligations are summarized as follows at December 31, 2012 and 2011: Fund Purpose 2012 2011 Minimum Liquid To meet State of Florida Reserve minimum liquid reserve requirements $10,453,044 $ 11,600,258 Wait List Escrow Deposits from future residents 1,638,514 784,709 Bond Fund Used to pay interest and principal on the Series 1999 898,663 1,327,558 and 2006 Bonds Refundable Entrance Entrance fee funds held by Fees trustees 4,385,087 5,455,565 Charitable Gift Annuities Funds held to pay future annuity payments 711,602 71,304 Charitable Purpose Funds that have been desig- Fund nated to pay for employee scholarships, health center renovations, construction of a memory care unit and a variety of resident-related activities 1,309,495 319,461 19,396,405 19,558,855 Less current portion (1,730,000) (2,040,000) $17,666,405 $ 17,518,855 Amounts expected to be utilized to meet Series 1999 and 2006 Bond principal payments comprise the current portion of assets whose use is limited. In 2012 and 2011, the Foundation received temporarily and permanently restricted donations for the purpose of funding employee scholarships and supporting a variety of resident-related activities. In addition, the Foundation started a charitable gift annuity program. At December 31, 2012 and 2011, temporarily and permanently restricted net assets were approximately $1,206,000 and $256,000, respectively. These restricted contributions comprise a portion of the Charitable Purpose Fund. The composition of assets whose use is limited and short-term investments at December 31, 2012 and 2011, is as follows: 2012 2011 Cost Fair Value Cost Fair Value Cash and cash equivalents $ 4,548,163 $ 4,548,163 $ 2,501,182 $ 2,501,182 U.S. Government obligations 12,091,439 12,242,624 13,922,936 14,205,612 Equities 3,315,193 3,502,362 2,913,316 2,920,248 Mutual funds 3,378,027 3,468,125 870,678 914,327 Total $ 23,332,822 $ 23,761,274 $ 20,208,112 $ 20,541,369 - 12 - NOTE 3- ASSETS WHOSE USE IS LIMITED AND SHORT-TERM INVESTMENTS (Continued) Investment income and gains (losses) for the years ended December 31, 2012 and 2011, are reported in the statements of operations and changes in net deficit as follows: 2012 2011 Operating Income: Interest from bonds and debentures $ 365,422 $ 369,611 Realized gain on sale on investments 449,929 58,603 Total $ 815,351 $ 428,214 Other Nonoperating Gain(Loss): Change in net unrealized gain(loss)on investments $ 101,105 $(217,555) Temporarily Restricted Net Assets: Interest income $ - $ 4,714 NOTE 4- FAIR VALUE MEASUREMENTS The fair value of financial instruments is based upon three levels of valuation techniques. Level 1 utilizes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 is used for quoted prices of similar assets or liabilities or when quoted prices are in markets that are not active. Level 3 is utilized when no observable data or little market activity is available. If available, quoted market prices are used to value investments. U.S. Government obligations, equities, corporate bonds, and securities are valued at the closing price reported on the major market on which the individual securities are traded. Mutual funds are valued at the net asset value ("NAV") of shares held by the Foundation at year end. The NAV is based on the value of the underlying assets owned by the mutual fund, minus its liabilities, and then divided by the number of shares outstanding. Commercial paper is generally short term in nature and is valued using quoted market prices. The following table sets forth, by level, within the fair value hierarchy, the Foundation's investments and assets whose use is limited measured at fair value as of December 31, 2012 and 2011: December 31,2012 Fair Value Measurements Level 1 Level 2 Level 3 Total Short-term Investments and Assets Whose Use Is Limited: Cash and cash equivalents $ 4,548,163 $ - $ - $ 4,548,163 U.S. Treasuries 3,066,298 - - 3,066,298 Federal Agency securities 9,176,326 - - 9,176,326 Mutual funds—fixed income 2,793,599 - - 2,793,599 Mutual funds-International 674,526 - - 674,526 Equities-Domestic 3,308,536 - - 3,308,536 Equities-Foreign 193,826 - - 193,826 Total $ 23,761,274 $ - $ - $ 23,761,274 - 13 - NOTE 4- FAIR VALUE MEASUREMENTS(Continued) December 31,2011 Fair Value Measurements Level 1 Level 2 Level 3 Total Short-term Investments and Assets Whose Use Is Limited: Cash and cash equivalents $ 2,501,182 $ - $ - $ 2,501,182 U.S. Treasuries 4,402,753 - - 4,402,753 Federal Agency securities 9,638,520 - - 9,638,520 Mortgage securities 164,339 - - 164,339 Equities 2,920,248 - - 2,920,248 Mutual funds 914,327 - - 914,327 Total $ 20,541,369 $ - $ - $ 20,541,369 The fair value of the Foundation's Series 1999 and Series 2006 Bonds (see Note 6) at December 31, 2012 and 2011, were approximately $42,898,000 and $43,534,000, respectively, using quoted market prices (Level 1). The fair value of the gift annuity obligation is valued based on actuarial calculations and stated discount rates (Level 2). NOTE 5- PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 2012 and 2011: 2012 2011 Land $ 5,096,643 $ 4,694,810 Land improvements 10,730,453 10,730,453 Buildings 84,175,751 82,569,839 Machinery, equipment, furniture,and fixtures 13,592,793 12,659,997 Construction in progress 1,960,710 1,342,544 115,556,350 111,997,643 Total accumulated depreciation (57,414,029) (54,091,099) Property and equipment,net $ 58,142,321 $ 57,906,544 Depreciation expense for the years ended December 31, 2012 and 2011, was approximately$4,061,000 and $4,229,000, respectively. At December 31, 2012 and 2011, construction in progress consists of costs related to renovations of the skilled nursing facility, unit remodeling, and other renovations at various buildings on the Foundation's campus. - 14 - NOTE 6- LONG-TERM DEBT AND OBLIGATIONS Long-term debt and obligations consist of the following at December 31, 2012 and 2011: 2012 2011 City of Atlantic Beach, Florida Health Facilities Revenue Refunding Bonds (Fleet Landing Project), Series 1999, maturing in increasing amounts through 2029. Interest is payable semi-annually at rates ranging from 5.0%to 6.0%. $ 34,220,000 $ 35,385,000 City of Atlantic Beach,Florida Variable Rate Demand Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2006, maturing in January 2037. Interest is payable quarterly based on the weekly rate, as determined by the remarketing agent (.25% and .19%at December 31,2012 and 2011,respectively). 8,625,000 9,500,000 42,845,000 44,885,000 Less current portion of long-term debt (1,730,000) (2,040,000) Less unamortized bond discount (573,008) (606,714) Total long-term portion $ 40,541,992 S 42,238,286 In January 2007, the Foundation issued the City of Atlantic Beach, Florida Variable Rate Demand Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2006 (the "Series 2006 Bonds"), to finance certain costs of the acquisition, construc- tion, and installation of certain capital improvements, including the construction of 34 independent living units (4 homes and 15 duplexes), a community center, and renova- tions to existing property of the Foundation, pay interest on the bonds during construction, and pay certain costs of issuing the Series 2006 Bonds. The Series 2006 Bonds were initially issued in the principal amount of $5,000,000 with a maximum aggregate principal amount of$20,000,000. At December 31, 2012, the Foundation had $8,625,000 of Series 2006 Bonds outstanding. The Series 2006 Bonds are collateralized by a Letter of Credit and Reimbursement Agreement between the Foundation and a financial institution (the "Letter of Credit"). The Letter of Credit requires, among other things, that the Foundation maintain certain financial covenants, including debt service coverage ratio and days' cash on hand. The Letter of Credit expires in February 2014, and the Series 2006 Bonds are subject to mandatory redemption if the Letter of Credit is not renewed or a substitute letter of credit is not obtained. In 1999, the Foundation issued the Health Care Facilities Revenue Refunding Bonds (Fleet Landing Project), Series 1999 (the "Series 1999 Bonds") in the original aggregate principal amount of $45,580,000. The Series 1999 Bonds are due in varying annual amounts with final maturity on October 1, 2029. Interest is payable semi-annually at rates ranging from 5.0% to 6.0%. The Series 1999 Bonds are collateralized by a mortgage lien and security interest in the facilities and certain personal property of the Foundation, revenue of and entrance fees from the Foundation's operations and debt service reserve accounts established under the Trust Agreement. - 15 - NOTE 6- LONG-TERM DEBT AND OBLIGATIONS (Continued) Under the terms of the Series 1999 Bonds Indenture, the Foundation is required to maintain certain deposits with a trustee. The indenture also requires, among other things, that the Foundation maintain certain financial and nonfinancial covenants, including days' cash on hand, debt service coverage ratio, occupancy ratio, and a reserve ratio. The Foundation is not aware of any violations of the covenants for the Series 2006 Bonds or Series 1999 Bonds at December 31, 2012. Future maturities of the Series 1999 and Series 2006 Bonds consist of the following: Year Ending December 31, Amount 2013 $ 1,730,000 2014 1,800,000 2015 1,875,000 2016 1,950,000 2017 2,035,000 Thereafter 33,455,000 $ 42,845,000 The Series 1999 and Series 2006 Bonds are expected to be refunded with the issuance of the Series 2013A Bonds (see Note 10). The above maturity schedule does not reflect the future maturities of the Series 2013A Bonds. Cash paid for interest for the years ended December 31, 2012 and 2011, was approximately $2,341,000 and $2,444,000, respectively. Capitalized interest amounted to approximately$-0- and $43,000 for 2012 and 2011, respectively. NOTE 7- TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS Temporarily restricted net assets are comprised of the following funds at December 31, 2012 and 2011: Temporarily Restricted Net Assets 2012 2011 Health Care Renovation $ 206,688 $ 185,132 Memory Care Unit(Nancy House) 915,950 2,950 Spiritual wellness program 8,280 - Construction of a dog park 5,285 5,285 Support for the library 10,500 10,500 Home health program 10,000 - Miscellaneous restricted 8,791 11,386 Temporarily Restricted Net Assets $ 1,165,494 $ 215,253 At December 31, 2012 and 2011, permanently restricted net assets are comprised of funds that are to be held in perpetuity and the interest is to be used to provide employee scholarships. - 16 - NOTE 8- NET ASSETS RELEASED FROM RESTRICTION Net assets are released from donor restrictions when expenses are incurred to satisfy the restricted purposes or by occurrence of other events, as specified by the donors. Temporarily restricted net assets released during the years ended December 31, 2012 and 2011, consist of the following: Temporarily Restricted Net Assets-Released 2012 2011 Spiritual wellness program $ 9,880 $ - Employee Scholarship 6,151 2,700 Miscellaneous restricted 2,029 4,151 Temporarily Restricted Net Assets-Released $ 18,060 $ 6,851 NOTE 9- COMMITMENT AND CONTINGENCIES Credit Risk Financial instruments which potentially subject the Foundation to concentrations of credit risk consist principally of cash and cash equivalents in financial institutions in excess of Federal Deposit Insurance Corporation limits, investments, investments of assets whose use is limited, and accounts receivable. The Foundation may, from time to time, invest in government bonds. Such investments are limited to those issuers carrying an investment grade credit rating. In addition, the Foundation limits the amount which is invested in issues of any one government or corporation. Concen- trations of credit risk with respect to private-pay accounts receivable is somewhat mitigated by the number of private-pay residents. Credit risk with respect to Medicare program receivables is mitigated by the taxing authority of the governmen- tal entities funding the program. Minimum Liquid Reserve Continuing care retirement communities are required by Florida Statutes (the "Statutes") to maintain in an escrow account an amount equal to the principal and interest payments due during the fiscal year, including property taxes. In addition, an operating reserve is required in an amount equal to 15% of the average annual operating expenses, as defined by the Statutes, for the preceding three years. Providers are also required to maintain in an escrow account a renewal and replace- ment reserve equal to 15% of total accumulated depreciation, but not to exceed 15% of the average annual operating expenses for the preceding three years. Collectively, these reserves are referred to as a Minimum Liquid Reserve. The Foundation is in compliance with the Minimum Liquid Reserve Requirements at December 31, 2012 and 2011. - 17 - NOTE 9- COMMITMENT AND CONTINGENCIES (Continued) Medicare Program The Medicare program accounted for approximately 36% and 34% of health care fee revenue for the years ended December 31, 2012 and 2011, respectively. Laws and regulations governing the Medicare program are complex and are subject to inter- pretation. The Foundation believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future governmental review and interpretation, as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare program. Governmental funding for healthcare programs is subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determina- tions, and governmental funding restrictions, all of which may materially affect program reimbursement to health care facilities. Changes in the reimbursement policies of the Medicare program, as a result of legislative and regulatory actions, could adversely affect the revenues of the Foundation. Professional Liability Insurance and Litigation The Foundation has professional liability insurance coverage under a claims-incurred policy. The current policy expires on August 31, 2013 and is expected to be renewed under substantially similar terms. Management is unaware of any asserted or unasserted claims or incidents with respect to resident care that are considered probable to result in future claims. As a result, these financial statements do not contain a provision or liability related to incurred but unreported claims. Property Insurance Because of the frequency of hurricanes affecting the state of Florida, many insurance carriers have ceased offering property coverage for the full replacement value of a community affected by a hurricane. The Foundation has accrued a portion of its hurricane deductible as a liability. The amount accrued was approximately $286,000 and $226,000 at December 31, 2012 and 2011, respectively. Employee Benefit Plan The Foundation maintains a defined-contribution plan for its employees (the "Plan"). Employees are eligible to participate in the Plan upon employment and become eligible for employer-matching contributions after 90 days of service, as defined by the Plan. The Foundation annually matches 75% of the first 2% and then 40% thereafter of the employee's elective deferral up to $3,000 per participant. The employer's contribution to the Plan is fully vested after four years of service for employees who were hired after January 1, 2008, and after two years of service for all other employees of the Foundation. The Foundation's contribution to the Plan was approximately $104,000 and $109,000 for the years ended December 31, 2012 and 2011,respectively. - 18 - NOTE 10- SUBSEQUENT EVENT During 2012, the Foundation began activities to refinance the Series 1999 and 2006 Bonds with the issuance of$40,050,000 City of Atlantic Beach, Florida, Health Care Facilities Revenue and Refunding Bonds, Series 2013A ("Series 2013A Bonds"). The Foundation is expected to pledge gross revenues and property for the new financing. - 19 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING FINANCIAL STATEMENTS Years Ended December 31, 2011 and 2010 CONTENTS Page Number REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS Balance Sheets 2 Statements of Operations and Changes in Net Deficit 3 Statements of Cash Flows 4 Notes to Financial Statements 5 mOORE STEPHENS LOVELACE, PA. CRTIVIED PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Naval Continuing Care Retirement Foundation,Inc. d/bia Fleet Landing Atlantic Beach, Florida We have audited the accompanying balance sheets of Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing (the"Foundation') as of December 31, 2011 and 2010, and the related statements of operations and changes in net deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Foundation's management Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. The standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the tinzincial position of Naval Continuing Cate Retirement Foundation, Inc. d/b/a Fleet Landing as of December 31, 201 I. and 2010 and the results of its operations, changes in net deficit, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. MOORE STEPHENS LOVELACE, P.A. Certified Public Accountants Orlando,Florida April 11,2012 - - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING BALANCE SHEETS December 31, 2011 and 2010 ASSETS 2011 2010 CURRENT ASSETS Cash and cash equivalents $ 2,342,257 $ 938,384 Short-term investments 982,514 - Current portion of assets whose use is limited 2,040,000 3,709,433 Accounts receivable,net 1,930,127 1,486,492 Interest receivable 65,708 80,466 Supplies 86,079 95,047 Prepaid expenses 665,047 849,599 TOTAL CURRENT ASSETS 8,111,732 7,159,421 ASSETS WHOSE USE IS LIMITED,less current portion 17,518,855 17,154,575 PROPERTY AND EQUIPMENT,net 57,906,544 58,951,289 DEFERRED FINANCING COSTS,net 2,285,408 2,412,812 TOTAL ASSETS $ 85,822,539 $ 85,678,097 The accompanying notes are an integral part of the financial statements. LIABILITIES AND NET ASSETS (DEFICIT) 2011 2010 CURRENT LIABILITIES Current portion of long-term debt $ 2,040,000 $ 3,105,000 Accounts payable 964,717 1,119,914 Entrance fee refund payable 79,793 52,375 Accrued interest 609,008 552,570 Accrued compensation and benefits 688,687 570,213 Refundable deposits held in trust 208,728 227,992 TOTAL CURRENT LIABILITIES 4,590,933 5,628,064 LONG-TERM LIABILITIES Gift annuity obligation 49,006 - Long-term debt,less current portion 42,238,286 44,244,579 Refundable entrance fees 5,455,564 5,262,344 Unearned entrance fees 42,165,225 40,194,270 TOTAL LIABILITIES 94,499,014 95,329,257 COMMITMENTS AND CONTINGENCIES NET ASSETS(DEFICIT) Temporarily restricted net assets 215,253 33,520 Permanently restricted net assets 40,590 40,000 Unrestricted net deficit (8,932,318) (9,724,680) NET DEFICIT (8,676,475) (9,651,160) TOTAL LIABILITIES AND NET DEFICIT $ 85,822,539 $ 85,678,097 - 2 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING STATEMENTS OF OPERATIONS AND CHANGES IN NET DEFICIT Years Ended December 31,2011 and 2010 2011 2010 REVENUE,GAINS AND OTHER SUPPORT Service fees $ 11,769,970 11,660,913 Entrance fees earned 5,628,129 5,432,799 Healthcare fees 9,366,464 8,728,702 Investment income 428,214 787,875 Other 802,585 771,730 Net assets released from restrictions 6,851 33,100 TOTAL REVENUE,GAINS AND OTHER SUPPORT 28,002,213 27,415,119 OPERATING EXPENSES Health center 7,035,730 7,049,405 General and administrative 4,674,874 4,766,581 Depreciation and amortization 4,356,634 4,297,736 Dietary service 3,756,260 3,904,100 Plant operations 3,188,777 2,990,084 Interest and bank charges 2,547,460 2,582,927 Housekeeping 1,094,561 1,107,451 Provision for doubtful accounts 338,000 30,000 TOTAL OPERATING EXPENSES 26,992,296 26,728,284 OPERATING INCOME 1,009,917 686,835 OTHER NONOPERATING GAIN(LOSS) Change in net unrealized gain/(loss)on investments (217,555) (62,552) CHANGE IN UNRESTRICTED NET DEFICIT 792,362 624,283 TEMPORARILY RESTRICTED NET ASSETS Restricted contributions 183,870 9,203 Investment income 4,714 2,650 Net assets released from restrictions (6,851) (33,100) CHANGE IN TEMPORARILY RESTRICTED NET ASSETS 181,733 (21,247) PERMANENTLY RESTRICTED NET ASSETS Restricted contributions 590 - CHANGE IN NET DEFICIT 974,685 603,036 NET DEFICIT AT BEGINNING OF YEAR (9,651,160) (10,254,196) NET DEFICIT AT END OF YEAR $ (8,676,475) $ (9,651,160) The accompanying notes are an integral part of the financial statements. - 3 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. dlb/a FLEET LANDING STATEMENTS OF CASH FLOWS Years Ended December 31,2011 and 2010 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Change in net deficit $ 974,685 603,036 Adjustments to reconcile change in net deficit to net cash provided by operating activities: Depreciation and amortization 4,356,634 4,297,736 Amortization of bond discount 33,707 33,706 Provision for doubtful accounts 338,000 30,000 Change in net unrealized loss on investments 217,555 62,552 Entrance fees earned (5,628,129) (5,432,799) Entrance fees received 8,673,470 7,901,290 Entrance fees refunded (1,074,386) (695,889) Changes in operating assets and liabilities: Accounts receivable from residents (781,635) (45,013) Interest receivable and other current assets 208,278 49,628 Accounts payable (155,197) 368,060 Gift annuity obligation 49,006 - Entrance fee refund payable 27,418 (1,720) Other current liabilities 174,912 50,500 NET CASH PROVIDED BY OPERATING ACTIVITIES 7,414,318 7,221,087 CASH FLOWS FROM INVESTING ACTIVITIES Net change in assets whose use is limited 1,087,598 (714,540) Net change in short-term investments (982,514) 992,619 Additions to property,equipment and construction in progress (3,184,485) (3,314,598) NET CASH USED IN INVESTING ACTIVITIES (3,079,401) (3,036,519) CASH FLOWS FROM FINANCING ACTIVITIES Refundable entrance fees received 402,263 - Refundable entrance fees refunded (209,043) (415,788) Change in refundable deposits held in trust (19,264) (39,975) Payment of financing costs - (26,000) Payments on long-term debt (3,105,000) (4,350,000) NET CASH USED IN FINANCING ACTIVITIES (2,931,044) (4,831,763) INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS 1,403,873 (647,195) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 938,384 1,585,579 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,342,257 $ 938,384 The accompanying notes are an integral part of the financial statements. -4 - NAVAL CONTINUING CARE RETIREMENT FOUNDATION, INC. d/b/a FLEET LANDING NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 2011 and 2010 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Organization Naval Continuing Care Retirement Foundation, Inc. (the "Foundation") is a not-for- profit organization which principally provides residential, healthcare, and other related services for residents, including retired career U.S. military officers, their spouses, and others of retirement age. The Foundation owns and operates a retire- ment community known as Fleet Landing (the "Community") in Atlantic Beach, Florida, which currently consists of 354 residential units (164 apartments and 190 homes), 74 assisted living units, and an 78-bed skilled nursing center. The Foundation continues to maintain its accreditation through the Continuing Care Accreditation Commission ("CARF-CCAC") and has been accredited by CARF- CCAC since August 2001. The Community operates under the "continuing care" concept in which residents enter into an occupancy agreement ("residency agreement"), which requires payment of a one-time entrance fee and a monthly service fee. Generally, these payments entitle residents to the use and privileges of the Community for life, including certain nursing services in the Community's skilled nursing facility. The residency agree- ment does not entitle the residents to an ownership interest in the real estate or any property owned by the Foundation. The following is a summary of the Foundation's significant accounting policies: Cash and Cash Equivalents Cash and cash equivalents principally consist of demand deposits, money market accounts, and short-term investments that, when purchased, had a maturity date of 90 days or less, except those classified as short-term investments and assets whose use is limited. Allowance for Doubtful Accounts Receivables are periodically evaluated for collectability based on past history with residents and third-party payors, their current financial condition, and management's judgment. If an account receivable becomes uncollectible, the amount is recognized in operations in the period the determination is made. The allowance for doubtful accounts was approximately $75,000 and $67,000 at December 31, 2011 and 2010, respectively. - 5 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets Whose Use Is Limited and Short-term Investments Assets whose use is limited ("AWUIL") are held by a trustee under bond indenture agreements, contractual requirements, or as required by law. The AWUIL and short- term investments consist of money market funds, corporate obligations, mortgage- backed securities, equities, commercial paper, and investments in U.S. Government and Agency securities and are reported at fair value, which are based on quoted closing or latest bid prices. Amounts required to meet current liabilities of the Foundation have been classified as current in the balance sheets. Investment income (including realized gains and losses on investments, interest, and dividends) is included in operating income or loss. Changes in unrealized gains and losses on investments are reported as other nonoperating gains and losses. Property and Equipment Property and equipment are recorded at cost. Additions, renewals, and betterments that extend the useful life of an asset are capitalized. Donated property is recorded at its estimated fair value at the date of receipt. Maintenance and repairs are expensed as incurred. Upon the sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, as follows: Estimated Useful Life Land improvements 20 Years Furniture and equipment 5 - 15 Years Buildings and improvements 30 -40 Years Interest costs incurred on borrowed funds during the period of construction of capital assets are capitalized as a component of the cost of acquiring those assets. Deferred Financing Costs Costs related to the issuance of debt are deferred and systematically amortized over the term of the related obligation. Deferred financing costs consist of the following at December 31, 2011 and 2010: 2011 2010 Bond issuance costs-Series 1999 Bonds(see Note 6) $ 3,168,923 $ 3,168,923 Bond issuance costs-Series 2006 Bonds(see Note 6) 426,785 426,785 Accumulated amortization (1,310,300) (1,182,896) Deferred financing costs,net $ 2,285,408 $ 2,412,812 - 6 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Original Issue Discount The Series 1999 Bonds were issued at a discount to their face value. The original issue discount is offset against the face amount of the bonds and is being amortized over the term of the issue (see Note 6). Estimated Obligation to Provide Future Services and Use of Facilities for Continuing Care Residents The Foundation annually calculates the present value of the net cost of future services and use of facilities to be provided to current residents and compares that amount with the balance of unearned entrance fees. If the present value of the net cost of future services and use of facilities exceeds the unearned entrance fees, a liability is recorded (obligation to provide future services and use of facilities). No liability has been recorded at December 31, 2011 and 2010, because the present value of the net cost of future services and use of facilities (discounted at 5%) is less than the unearned entrance fees. Revenue Recognition Service Fees Service fees paid by residents for apartment/home maintenance fees, meals, nursing supplies, security, and other services are assessed monthly and are recognized as revenue in the period services are rendered. Entrance Fees Entrance fees paid by residents upon entering a residency agreement are separated into distinct nonrefundable and refundable portions. The nonrefundable portion represents advance payments for future services and is accounted for as deferred revenue and is amortized into income based on the remaining actuarial life expectancy of each continuing care resident. The period of amortization is adjusted annually, based on the actuarially determined estimated remaining life expectancy of each individual or joint and last survivor life expectancy of each pair of residents occupying the same unit. In the event of a resident or surviving resident's death, or the termination of the residency agreement, the obligations of the Foundation are considered fulfilled and the unamortized portion of the fee is recognized as revenue. The Foundation offers one residency agreement with a Plan "0" and Plan "75" payment plan. The difference between the payment plans relates to the amount of entrance fees refundable upon termination of the residency agreement. Plan "0" provides for a declining refund over a 52'/2 month period, with the Foundation retaining 5% during the first 5 months and an additional 2% per month thereafter for 471/2 months. After 52'/2 months, there is no refund due. Plan "75" provides for refunds of 75% of the entrance fee upon termination of the agreement or death of the resident. Under the Plan "75" payment plan, the Foundation retains 5% during the first 5 months and an additional 1% per month thereafter for 20 months. After 25 months, the refundable amount remains at 75%. Payments of such refunds are charged against the resident's unearned entrance fee and any resulting gain or loss is included in the statements of operations. - 7 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition (Continued) Entrance Fees (Continued) Entrance fees paid by a resident upon entering into a refundable residency agreement are recorded as follows: The nonrefundable portion is recorded as "unearned entrance fees" and is amortized into income, based on the remaining actuarial life expectancy of the respective resident. The remaining balance is refundable to the resident upon termination of the residency agreement; accordingly, it is recorded as "refundable entrance fees." At December 31, 2011 and 2010, balances related to these refundable residency agreements approximated $5,456,000 and $5,262,000, respectively. The Foundation's contractual, as opposed to expected, refund obligation, assuming all contracts were terminated, approximated $23,359,000 and $22,476,000 at December 31, 2011 and 2010, respectively. Refundable deposits held in trust represent amounts paid by prospective residents to reserve a place on the waiting list for available units. Skilled Nursing and Assisted Living Revenue Skilled nursing and assisted living revenue is reported at the estimated net realizable amounts receivable from residents, third-party payors, and others at the time services are rendered. Revenue for services rendered to Medicare program beneficiaries are based on prospectively determined case-mix rates. The rates vary according to a classification system based on clinical, diagnostic, and other factors subject to certain limitations and adjustments. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for estimated third-party settlements are made in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of settlement. Contributions Gifts of cash and other assets received with donor stipulations that limit the use of the donated assets are reported as a restricted contribution. When a restriction ends or the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the statements of operations as "net assets released from restrictions." Donor-restricted contributions whose restrictions are met in the same reporting period are reported as unrestricted contributions in that period. - 8 - NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Gift Annuities During 2011, the Foundation began a gift annuity program whereby the donor makes a gift directly to the Foundation and the Foundation agrees to pay a specified amount to the donor, or to the donor's designee, for life. Investments are limited to conservative assets, as required by Florida Statutes. Contribution revenue is recognized as the difference between the asset and liability upon receipt of the donation. During 2011, the Foundation recognized contribution revenue from gift annuities of approximately $22,000. At December 31, 2011, the fair value of investments related to the gift annuities was approximately $71,000 (see Note 3) and the annuity payment liability for future cash flows expect to be paid to annuitants was approximately$49,000. Advertising Advertising costs are expensed as incurred. During 2011 and 2010, advertising expenses were approximately $290,400 and $341,300, respectively. Income Taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code ("IRC"). The IRC provides for taxation of certain unrelated business income. The Foundation does not have material taxable, unrelated business income. Accordingly, these financial statements include no provision or liability for income taxes. As of December 31, 2011, with certain statutory exceptions, the Organization is no longer subject to income tax examinations by U.S. federal or state of Florida taxing authorities for any years before January 1, 2008. Fair Value of Financial Instruments The carrying values of the Foundation's financial instruments approximate their fair values. Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates and such differences could be material. Subsequent Events The Foundation evaluated subsequent events for potential recognition and disclosure through April 11, 2012 which is the date the financial statements were issued. - 9 - NOTE 2- ACCOUNTS RECEIVABLE,NET At December 31, 2011 and 2010, accounts receivable consist of the following: 2011 2010 Resident monthly and healthcare center charges $ 1,192,281 $1,220,250 Entrance fees receivable 791,982 321,670 Other 21,158 11,259 Allowance for doubtful accounts (75,294) (66,687) Accounts receivable,net $ 1,930,127 $1,486,492 NOTE 3 - ASSETS WHOSE USE IS LIMITED AND SHORT-TERM INVESTMENTS Assets whose use is limited by provisions of the trust indentures (see Note 6) and other contractual or regulatory obligations are summarized as follows at December 31, 2011 and 2010: Fund Purpose 2011 2010 Minimum Liquid To meet State of Florida minimum Reserve liquid reserve requirements $ 11,600,258 $ 12,475,052 Wait List Escrow Deposits from future residents 784,709 1,117,915 Escrow Build-Out Deposit required by Letter of Credit agreement (see Note 6) to ensure completion of the interiors of 14 homes. The amount escrowed will be released in the amount of $100,000 for each unit receiving a certificate of occupancy. - 604,433 Bond Fund Used to pay interest and principal on the Series 1999 and 2006 Bonds 1,327,558 1,273,022 Refundable Entrance Entrance fee funds held by trustees Fees 5,455,565 5,262,344 Charitable Gift Funds held to pay future annuity Annuities payments 71,304 - Legacy Fund Funds that have been designated to pay for employee scholarships and a variety of resident-related activities 319,461 131,242 19,558,855 20,864,008 Less current portion (2,040,000) (3,709,433) $ 17,518,855 $ 17,154,575 Amounts in the Escrow Build-Out and funds expected to be utilized to meet Series 1999 and 2006 Bond principal payments comprise the current portion of assets whose use is limited. - 10 - NOTE 3 - ASSETS WHOSE USE IS LIMITED AND SHORT-TERM INVESTMENTS (Continued) In 2011 and 2010, the Foundation received temporarily and permanently restricted donations for the purpose of funding employee scholarships and supporting a variety of resident related activities. In addition, the Foundation started a charitable gift annuity program. At December 31, 2011 and 2010, temporarily and permanently restricted net assets were approximately $256,000 and $74,000, respectively. These restricted contributions comprise a portion of the Legacy Fund. The composition of assets whose use is limited and short-term investments at December 31, 2011 and 2010, is as follows: 2011 2010 Cost Fair Value Cost Fair Value Cash and cash equivalents $ 2,501,182 $ 2,501,182 $ 4,504,272 $ 4,504,272 U.S. Government obligations 13,922,936 14,205,612 14,003,619 14,121,527 Equities 2,913,316 2,920,248 1,311,032 1,661,912 Mutual funds 870,678 914,327 518,796 576,297 Total $ 20,208,112 $ 20,541,369 $ 20,337,719 $ 20,864,008 Investment income and gains (losses) for the years ended December 31, 2011 and 2010, are reported in the statements of operations and changes in net deficit as follows: 2011 2010 Operating Income: Interest from bonds and debentures $ 369,611 $ 524,019 Realized gain on sale on investments 58,603 263,856 Total $ 428,214 $ 787,875 Other Nonoperating Gain(Loss): Change in net unrealized gain(loss) on investments $(217,555) $ (62,552) Temporarily Restricted Net Assets: _ Interest income $ 4,714 $ 2,650 NOTE 4 - FAIR VALUE MEASUREMENTS The fair value of financial instruments is based upon three levels of valuation techniques. Level 1 utilizes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 is used for quoted prices of similar assets or liabilities or when quoted prices are in markets that are not active. Level 3 is utilized when no observable data or little market activity is available. - 11 - NOTE 4- FAIR VALUE MEASUREMENTS (Continued) If available, quoted market prices are used to value investments. U.S. Government obligations, equities, corporate bonds, and securities are valued at the closing price reported on the major market on which the individual securities are traded. Mutual funds are valued at the net asset value ("NAV") of shares held by the Foundation at year end. The NAV is based on the value of the underlying assets owned by the mutual fund, minus its liabilities, and then divided by the number of shares outstanding. Commercial paper is generally short term in nature and is valued using quoted market prices. The following table sets forth by level within the fair value hierarchy, the Foundation's investments and assets whose use is limited measured at fair value as of December 31, 2011 and 2010: December 31,2011 Fair Value Measurements Level 1 Level 2 Level 3 Total Short-term Investments and Assets Whose Use Is Limited: Cash and cash equivalents $ 2,501,182 $ - $ - $ 2,501,182 U.S. Treasuries 4,402,753 - - 4,402,753 Federal Agency securities 9,638,520 - - 9,638,520 Mortgage securities 164,339 - - 164,339 Equities 2,920,248 - - 2,920,248 Mutual funds 914,327 - - 914,327 Total $ 20,541,369 $ - $ - $ 20,541,369 December 31,2010 Fair Value Measurements Level 1 Level 2 Level 3 Total Assets Whose Use Is Limited: Cash and cash equivalents $ 4,504,272 $ - $ - $ 4,504,272 U.S. Government obligations 14,121,527 - - 14,121,527 Equities 1,661,912 - - 1,661,912 Mutual funds 576,297 - - 576,297 $ 20,864,008 $ - $ - $ 20,864,008 The fair value of the Foundation's Series 1999 and Series 2006 bonds (see Note 6) at December 31, 2011, were approximately $34,034,000 and $9,500,000, respectively, using quoted market prices (Level 1). - 12 - NOTE 5- PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 2011 and 2010: 2011 2010 Land $ 4,694,810 $ 4,694,810 Land improvements 10,730,453 10,176,925 Buildings 82,569,839 76,727,012 Machinery, equipment,furniture,and fixtures 12,659,997 12,264,437 Construction in progress 1,342,544 4,983,618 111,997,643 108,846,802 Total accumulated depreciation (54,091,099) (49,895,513) Property and equipment,net $ 57,906,544 $ 58,951,289 Depreciation expense for the years ended December 31, 2011 and 2010, was approximately$4,229,000 and $4,172,000, respectively. At December 31, 2010, construction in progress consists of construction costs of the Village and Estate homes. At December 31, 2011, construction in progress consists of costs related to renovations of the skilled nursing facility, unit remodeling, and other renovations at various buildings on the Foundation's campus. NOTE 6- LONG-TERM DEBT AND OBLIGATIONS Long-term debt and obligations consist of the following at December 31, 2011 and 2010: 2011 2010 City of Atlantic Beach, Florida Health Facilities Revenue Refunding Bonds (Fleet Landing Project), Series 1999, maturing in increasing amounts through 2029. Interest is payable semi-annually at rates ranging from 5.0% to 6.0%. The bonds are collater- alized by a mortgage lien and security interest in the facilities and certain personal property of the Foundation, revenue of and entrance fees from the Foundation's operations, and debt service reserve accounts established under the Trust Agreement. $ 35,385,000 $ 36,490,000 City of Atlantic Beach,Florida Variable Rate Demand Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2006, maturing in January 2037. Interest is payable quarterly based on the weekly rate, as determined by the remarketing agent (.19% at December 31, 2011). The bonds are collateralized by a direct-pay letter of credit from a financial institution. The letter of credit expires in February 2013. 9,500,000 11,500,000 44,885,000 47,990,000 Less current portion (2,040,000) (3,105,000) Less unamortized bond discount (606,714) (640,421) Total long-term portion $ 42,238,286 $ 44,244,579 - 13 - NOTE 6- LONG-TERM DEBT AND OBLIGATIONS (Continued) In January 2007, the Foundation issued the City of Atlantic Beach, Florida Variable Rate Demand Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2006 (the "Series 2006 Bonds"), to finance certain costs of the acquisition, construc- tion, and installation of certain capital improvements, including the construction of 34 independent living units (4 homes and 15 duplexes), a community center, and renova- tions to existing property of the Foundation, pay interest on the bonds during construction, and pay certain costs of issuing the Series 2006 Bonds. The Series 2006 Bonds were initially issued in the principal amount of $5,000,000 with a maximum aggregate principal amount of $20,000,000. At December 31, 2011, the Foundation had $9,500,000 of Series 2006 Bonds outstanding. The Series 2006 Bonds are collateralized by a Letter of Credit and Reimbursement Agreement between the Foundation and a financial institution (the "Letter of Credit"). The Letter of Credit requires, among other things, that the Foundation maintain certain financial covenants, including debt service coverage ratio and days' cash on hand. The Letter of Credit expires in February 2013, and the Series 2006 Bonds are subject to mandatory redemption if the Letter of Credit is not renewed or a substitute letter of credit is not obtained. In 1999, the Foundation issued the Health Care Facilities Revenue Refunding Bonds (Fleet Landing Project), Series 1999 (the "Series 1999 Bonds") in the original aggregate principal amount of $45,580,000. The Series 1999 Bonds are due in varying annual amounts with final maturity on October 1, 2029. Interest is payable semi-annually at rates ranging from 5.0% to 6.0%. The Series 1999 Bonds are collateralized by a mortgage lien and security interest in the facilities and certain personal property of the Foundation, revenue of and entrance fees from the Foundation's operations and debt service reserve accounts established under the Trust Agreement. Under the terms of the Series 1999 Bonds Indenture, the Foundation is required to maintain certain deposits with a trustee. The indenture also requires, among other things, that the Foundation maintain certain financial and nonfinancial covenants, including days' cash on hand, debt service coverage ratio, occupancy ratio, and a reserve ratio. The Foundation is not aware of any violations of the covenants for the Series 2006 Bonds or Series 1999 Bonds at December 31, 2011. Future maturities of long-term debt and obligations consist of the following: Year Ending December 31, Amount 2012 $ 2,040,000 2013 1,730,000 2014 1,800,000 2015 1,875,000 2016 1,950,000 Thereafter 35,490,000 $ 44,885,000 - 14 - NOTE 6- LONG-TERM DEBT AND OBLIGATIONS (Continued) Cash paid for interest for the years ended December 31, 2011 and 2010, was approximately $2,444,000 and $2,561,000, respectively. Capitalized interest amounted to approximately $43,000 for 2011. NOTE 7- COMMITMENT AND CONTINGENCIES Credit Risk Financial instruments which potentially subject the Foundation to concentrations of credit risk consist principally of cash and cash equivalents in financial institutions in excess of Federal Deposit Insurance Corporation limits, investments, investments of assets whose use is limited, and accounts receivable. The Foundation may, from time to time, invest in government bonds. Such investments are limited to those issuers carrying an investment grade credit rating. In addition, the Foundation limits the amount which is invested in issues of any one government or corporation. Concen- trations of credit risk with respect to private-pay accounts receivable is somewhat mitigated by the number of private-pay residents. Credit risk with respect to Medicare program receivables is mitigated by the taxing authority of the governmen- tal entities funding the program. Minimum Liquid Reserve Continuing care retirement communities are required by Florida Statutes (the "Statutes") to maintain in an escrow account an amount equal to the principal and interest payments due during the fiscal year, including property taxes. In addition, an operating reserve is required in an amount equal to 15% of the average annual operating expenses, as defined by the Statutes, for the preceding three years. Providers are also required to maintain in an escrow account a renewal and replace- ment reserve equal to 15% of total accumulated depreciation, but not to exceed 15% of the average annual operating expenses for the preceding three years. Collectively, these reserves are referred to as a Minimum Liquid Reserve. The Foundation is in compliance with the Minimum Liquid Reserve Requirements at December 31, 2011 and 2010. Medicare Program and Health Care Reform The Medicare program accounted for approximately 36% and 34% of healthcare fee revenue for the years ended December 31, 2011 and 2010, respectively. Laws and regulations governing the Medicare program are complex and are subject to inter- pretation. The Foundation believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future governmental review and interpretation, as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare program. - 15 - NOTE 7- COMMITMENT AND CONTINGENCIES (Continued) Medicare Program and Health Care Reform (Continued) Governmental funding for healthcare programs is subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determina- tions, and governmental funding restrictions, all of which may materially affect program reimbursement to healthcare facilities. Changes in the reimbursement policies of the Medicare program as a result of legislative and regulatory actions could adversely affect the revenues of the Foundation. Professional Liability Insurance and Litigation The Foundation has professional liability insurance coverage under a claims-made policy. The current policy expires on August 31, 2012 and is expected to be renewed under substantially similar terms. Management is unaware of any asserted or unasserted claims or incidents with respect to resident care that are considered probable to result in future claims. As a result, these financial statements do not contain a provision or liability related to incurred but unreported claims. Property Insurance Because of the frequency of hurricanes affecting the state of Florida, many insurance carriers have ceased offering property coverage for the full replacement value of a community affected by a hurricane. The Foundation has accrued a portion of its hurricane deductible as a liability. The amount accrued was approximately $226,000 and $346,000 at December 31, 2011 and 2010, respectively. Employee Benefit Plan The Foundation maintains a defined-contribution plan for its employees (the "Plan"). Employees are eligible to participate in the Plan upon employment and become eligible for employer matching contributions after 90 days of service, as defined by the Plan. The Foundation annually matches 75% of the first 2% and then 40% thereafter of the employee's elective deferral up to $3,000 per participant. The employer's contribution to the Plan is fully vested after four years of service for employees who were hired after January 1, 2008, and after two years of service for all other employees of the Foundation. The Foundation's contribution to the Plan was approximately $109,000 and $100,000 for the years ended December 31, 2011 and 2010, respectively. - 16 - [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C DEFINITIONS OF CERTAIN TERMS AND EXCERPTS OF CERTAIN PROVISIONS OF CERTAIN PRINCIPAL DOCUMENTS [THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS DEFINITIONS OF CERTAIN TERMS 1 EXCERPTS FROM MASTER TRUST INDENTURE 23 SECTION 2.01. SERIES AND AMOUNT OF OBLIGATIONS 23 SECTION 2.02. APPOINTMENT OF OBLIGATED GROUP REPRESENTATIVE 23 SECTION 2.04. SUPPLEMENT CREATING OBLIGATIONS 23 SECTION 2.05. CONDITIONS TO ISSUANCE OF OBLIGATIONS HEREUNDER 24 SECTION 2.06. LIST OF HOLDERS OF OBLIGATIONS 24 SECTION 2.08. MUTILATED,DESTROYED,LOST AND STOLEN OBLIGATIONS 24 SECTION 3.01. REVENUE FUND 25 SECTION 3.02. INVESTMENT OF FUNDS 26 SECTION 3.03. ALLOCATION AND TRANSFERS OF INVESTMENT INCOME 26 SECTION 3.04. MASTER TRUSTEE RELIEVED FROM RESPONSIBILITY 26 SECTION 4.01. TITLE TO TRUST ESTATE 26 SECTION 4.02. FURTHER ASSURANCES 26 SECTION 4.03. RECORDING AND FILING 26 SECTION 4.04. PAYMENT OF PRINCIPAL,PREMIUM AND INTEREST 27 SECTION 4.05. PAYMENT OF TAXES AND OTHER CLAIMS 27 SECTION 4.06. MAINTENANCE OF PROPERTIES 28 SECTION 4.07. CORPORATE EXISTENCE; STATUS OF OBLIGOR 28 SECTION 4.08. PRESERVATION OF QUALIFICATIONS 28 SECTION 4.09. ADDITIONS TO FACILITIES 28 SECTION 4.10. INSURANCE 28 SECTION 4.11. RATES AND CHARGES 29 SECTION 4.12. DAMAGE OR DESTRUCTION 31 SECTION 4.13. CONDEMNATION 32 SECTION 4.14. OTHER PROVISIONS WITH RESPECT TO NET PROCEEDS 33 SECTION 4.15. FINANCIAL STATEMENTS,ETC 33 SECTION 4.16. PERMITTED ADDITIONAL INDEBTEDNESS 35 SECTION 4.17. CALCULATION OF DEBT SERVICE AND DEBT SERVICE COVERAGE 39 SECTION 4.18. SALE OR LEASE OF PROPERTY 41 SECTION 4.19. LIENS ON PROPERTY 42 SECTION 4.20. LIQUIDITY COVENANT 43 SECTION 4.21. APPROVAL OF CONSULTANTS 43 SECTION 5.01. MERGER,CONSOLIDATION, SALE OR CONVEYANCE 44 SECTION 6.01. ADMISSION OF OBLIGATED GROUP MEMBERS 45 SECTION 6.02. OBLIGATED GROUP MEMBERS 46 SECTION 6.03. WITHDRAWAL OF OBLIGATED GROUP MEMBERS 47 SECTION 6.04. SUCCESSOR OBLIGATED GROUP REPRESENTATIVE 47 SECTION 7.01. EVENTS OF DEFAULT 48 SECTION 7.02. ACCELERATION OF MATURITY;RESCISSION AND ANNULMENT 48 SECTION 7.03. POWERS OF SALE,TRANSFER,ASSIGNMENT,LEASE,AND OTHER DISPOSITIONS; SUITS FOR ENFORCEMENT 49 SECTION 7.04. INCIDENTS OF SALE 50 SECTION 7.05. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY MASTER TRUSTEE 51 SECTION 7.06. MASTER TRUSTEE MAY FILE PROOFS OF CLAIM 51 SECTION 7.07. MASTER TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF OBLIGATIONS 52 SECTION 7.08. APPLICATION OF MONEY COLLECTED 52 SECTION 7.09. LIMITATION ON SUITS 52 SECTION 7.10. UNCONDITIONAL RIGHT OF HOLDERS OF OBLIGATIONS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST 53 SECTION 7.11. RESTORATION OF RIGHTS AND REMEDIES 53 SECTION 7.12. RIGHTS AND REMEDIES CUMULATIVE 53 SECTION 7.13. DELAY OR OMISSION NOT WAIVER 53 SECTION 7.14. CONTROL BY HOLDERS OF OBLIGATIONS 53 SECTION 7.15. WAIVER OF PAST DEFAULTS 54 SECTION 7.16. UNDERTAKING FOR COSTS 54 SECTION 7.17. WAIVER OF STAY OR EXTENSION LAWS 54 SECTION 9.01. SUPPLEMENTS WITHOUT CONSENT OF HOLDERS OF OBLIGATIONS 54 SECTION 9.02. SUPPLEMENTS WITH CONSENT OF HOLDERS OF OBLIGATIONS 55 SECTION 10.01. SATISFACTION AND DISCHARGE OF INDENTURE 56 SECTION 10.02. OBLIGATIONS DEEMED PAID 56 SECTION 10.03. APPLICATION OF TRUST MONEY 56 SECTION 10.04. PAYMENT OF RELATED BONDS 57 EXCERPTS FROM INDENTURE OF TRUST 58 SECTION 2.02. ALL BONDS EQUALLY AND RATABLY SECURED,BONDS NOT AN OBLIGATION OF ISSUER 58 SECTION 2.05. REGISTRATION AND EXCHANGE OF BONDS;PERSONS TREATED AS OWNERS 58 SECTION 2.06. LOST, STOLEN,DESTROYED,AND MUTILATED BONDS 58 SECTION 2.13. PAYMENTS TO CEDE&CO 59 SECTION 3.02. CREATION OF THE BOND FUND 59 SECTION 3.03. PAYMENTS INTO THE BOND FUND 59 SECTION 3.04. USE OF MONEYS IN THE PRINCIPAL ACCOUNT AND THE INTEREST ACCOUNT 59 SECTION 3.06. PROJECT FUND 59 SECTION 3.07. COMPLETION CERTIFICATE 60 SECTION 3.08. CREATION OF THE RESERVE FUND 60 SECTION 3.09. PAYMENTS INTO THE RESERVE FUND 60 SECTION 3.10. USE OF MONEYS IN THE RESERVE FUND 60 SECTION 3.12. NONPRESENTMENT OF BONDS 61 SECTION 3.16. REBATE FUND 61 SECTION 3.17. COST OF ISSUANCE FUND 63 SECTION 4.01. PERFORMANCE OF COVENANTS; AUTHORITY 63 SECTION 4.02. PAYMENTS OF PRINCIPAL,PREMIUM,IF ANY,AND INTEREST 63 SECTION 4.03. SUPPLEMENTAL INDENTURES; RECORDATION OF BOND INDENTURE AND SUPPLEMENTAL INDENTURES 63 SECTION 4.04. LIEN OF BOND INDENTURE 63 SECTION 4.05. RIGHTS UNDER THE LOAN AGREEMENT 64 SECTION 4.05. TAX COVENANTS 64 SECTION 4.07. CHANGE IN LAW 64 SECTION 4.08. PROGRAM INVESTMENT 64 SECTION 5.03. METHOD OF SELECTION OF BONDS IN CASE OF PARTIAL REDEMPTION; REDEMPTION PRIORITY 65 SECTION 5.04. NOTICE OF REDEMPTION 65 SECTION 5.05. BONDS DUE AND PAYABLE ON REDEMPTION DATE;INTEREST CEASES TO ACCRUE 66 SECTION 5.08. EXTRAORDINARY OPTIONAL REDEMPTION 66 SECTION 6.01. INVESTMENT OF BOND FUND,CONSTRUCTION FUND AND RESERVE FUND MONEYS 67 SECTION 6.02. ALLOCATION AND TRANSFERS OF INVESTMENT INCOME 67 SECTION 6.03. VALUATION OF PERMITTED INVESTMENTS 68 SECTION 7.01. DISCHARGE OF THE BOND INDENTURE 68 SECTION 8.01. EVENTS OF DEFAULT 69 C-ii SECTION 8.02. REMEDIES ON EVENTS OF DEFAULT 69 SECTION 8.03. MAJORITY OF BONDHOLDERS MAY CONTROL PROCEEDINGS 70 SECTION 8.04. RIGHTS AND REMEDIES OF BONDHOLDERS 71 SECTION 8.05. APPLICATION OF MONEYS 71 SECTION 8.06. BOND TRUSTEE MAY ENFORCE RIGHTS WITHOUT BONDS 72 SECTION 8.07. BOND TRUSTEE TO FILE PROOFS OF CLAIM IN RECEIVERSHIP, ETC 72 SECTION 8.08. DELAY OR OMISSION NO WAIVER 72 SECTION 8.09. DISCONTINUANCE OF PROCEEDINGS ON DEFAULT, POSITION OF PARTIES RESTORED 73 SECTION 8.10. ENFORCEMENT OF RIGHTS 73 SECTION 8.11. UNDERTAKING FOR COSTS 73 SECTION 8.12. WAIVER OF EVENTS OF DEFAULT 73 SECTION 10.01. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF BONDHOLDERS 73 SECTION 10.02. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDHOLDERS74 SECTION 10.03. EXECUTION OF SUPPLEMENTAL INDENTURE 75 SECTION 10.04. CONSENT OF OBLIGOR 75 SECTION 10.05. AMENDMENTS, ETC.,OF THE LOAN AGREEMENT NOT REQUIRING CONSENT OF BONDHOLDERS 75 SECTION 10.06. AMENDMENTS, ETC.,OF THE LOAN AGREEMENT REQUIRING CONSENT OF BONDHOLDERS 75 EXCERPTS FROM LOAN AGREEMENT 77 SECTION 2.1. REPRESENTATIONS BY THE ISSUER 77 SECTION 2.2. REPRESENTATIONS BY THE OBLIGOR 77 SECTION 3.1. TERM OF THE LOAN AGREEMENT 79 SECTION 4.2. PROJECT;COMPLETION CERTIFICATE 79 SECTION 4.3. COST OF CONSTRUCTION 80 SECTION 4.4. PLANS;MODIFICATIONS OF PROJECT 80 SECTION 4.5. COMPLIANCE WITH REGULATORY REQUIREMENTS 80 SECTION 4.6. REQUESTS FOR DISBURSEMENTS 80 SECTION 4.7. COST OF ISSUANCE FUND 80 SECTION 4.8. MODIFICATION OF DISBURSEMENTS 80 SECTION 4.9. COVENANTS REGARDING TAX EXEMPTION 80 SECTION 4.10. ALLOCATION OF,AND LIMITATION ON,EXPENDITURES FOR THE PROJECT 81 SECTION 4.11. REPRESENTATIONS AND WARRANTIES AS TO TAX EXEMPT STATUS OF OBLIGOR 81 SECTION 4.12. DISPOSITION OF PROJECT 82 SECTION 4.13. SURPLUS CONSTRUCTION FUND MONEYS 82 SECTION 5.2. REPAYMENT OF LOAN 83 SECTION 5.3. CREDITS 83 SECTION 5.6. RESERVE FUND 83 SECTION 5.9. OBLIGATIONS OF OBLIGOR HEREUNDER UNCONDITIONAL 83 SECTION 7.1. NO WARRANTY OF MERCHANTABILITY,CONDITION OR SUITABILITY BY THE ISSUER 84 SECTION 7.8. NO PERSONAL LIABILITY 84 SECTION 8.1. ASSIGNMENT AND LEASING BY OBLIGOR 84 SECTION 8.2. ASSIGNMENT AND PLEDGE BY ISSUER 85 SECTION 9.1. FAILURE TO PERFORM COVENANTS 85 SECTION 9.2. REMEDIES FOR FAILURE TO PERFORM 85 SECTION 9.3. DISCONTINUANCE OF PROCEEDINGS 85 SECTION 9.4. NO REMEDY EXCLUSIVE 85 SECTION 9.5. LOAN AGREEMENT TO PAY ATTORNEYS'FEES AND EXPENSES 86 SECTION 9.6. WAIVERS 86 SECTION 10.1. GENERAL OPTION TO PREPAY NOTE 86 C-iii SECTION 10.2. CONDITIONS TO EXERCISE OF OPTION 86 EXCERPTS FROM MORTGAGE AND SECURITY AGREEMENT 87 2. MORTGAGE 87 3. SECURED INDEBTEDNESS;FUTURE ADVANCES;MAXIMUM AMOUNT AND TIME 88 5. TITLE COVENANTS 88 6. CONDITIONS TO CHANGES IN MORTGAGED PROPERTY 88 7. AFTER-ACQUIRED PROPERTY 88 8. REMOVAL WITH NOTICE;REPLACEMENTS AND SUBSTITUTIONS SUBJECT TO MORTGAGE 88 13. MAINTENANCE AND REPAIR 88 15. INSURANCE 88 16. INSURANCE PROCEEDS AND CONDEMNATION AWARDS 89 19. ACCELERATION UPON TRANSFER OF MORTGAGED PROPERTY 89 21. EVENTS OF DEFAULT 90 22. REMEDIES ON DEFAULT 90 23. POWER AND AUTHORITY 91 24. RIGHTS CUMULATIVE AND CONTINUING 91 27. CURING OF DEFAULTS BY MORTGAGEE 92 30. RELEASE OR SATISFACTION 92 C-iv DEFINITIONS OF CERTAIN TERMS Summarized below are definitions of certain words and terms used in this Official Statement. Any documents referred to in the following definitions include any modifications, amendments or supplements thereto from time to time made in accordance with the provisions of such documents. Words and terms that are capitalized in this Official Statement, whether or not defined below or elsewhere herein, are qualified by reference to the meanings assigned in the Master Indenture, the Bond Indenture, the Loan Agreement or the Mortgage, as applicable, unless a different meaning clearly appears from the context. "Account" means any account established within a Fund. "Act" means (A) with respect to the Master Indenture, when used with respect to any Holder of Obligations has the meaning specified in Section 1.04 and not the meaning assigned such term in any documents delivered in connection with the issuance of Obligations or Related Bonds, unless specifically provided for in such documents; and (B) with respect to the Loan Agreement and Bond Indenture, means Part II, Chapter 159, Florida Statutes,and other applicable provisions of law. "Additional Indebtedness" means Indebtedness incurred by any Member subsequent to the issuance of the Series 2013A Note. "Additional Obligation" means any evidence of Indebtedness or evidence of any repayment obligation under any Interest Rate Agreement issued after the issuance of the Series 2013A Note, which is authorized to be issued by a Member pursuant to the Master Trust Indenture which has been authenticated by the Master Trustee pursuant to Section 2.03 of the Master Trust Indenture. "Administration Expenses" means the reasonable and necessary fees and expenses incurred by the Issuer pursuant to the Loan Agreement and the Bond Indenture. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the policies of such Person, directly or indirectly, whether through the power to appoint and remove its directors, the ownership of voting securities, by contract,or otherwise;and the terms "controlling"and"controlled"have meanings correlative to the foregoing. "Aggregate Principal Amount" means the outstanding principal amount including, in the case of a security sold at a discount to the purchaser thereof the accreted value of such discount calculated in accordance with the documents authorizing such security,or if not so defined,generally accepted accounting principles. "Authorized Denominations"means the denomination of$5,000 or any integral multiple thereof. "Authorized Representative" shall mean, with respect to the Obligated Group Representative and each Obligated Group Member, its respective chief executive officer or president, or any other person or persons designated an Authorized Representative thereof by an Officer's Certificate of the Obligated Group Representative or the Obligated Group Member,signed by the respective Designated Officer and delivered to the Master Trustee. "Balloon Indebtedness" means Funded Indebtedness of which 25% or more of the original principal thereof matures during any consecutive 12 month period, if such maturing principal amount is not required to be amortized below such percentage by mandatory redemption or prepayment prior to such 12 month period. Balloon Indebtedness does not include Indebtedness which otherwise would be classified under the Master Trust Indenture as Put Indebtedness. "Board Resolution" of any specified Person means a copy of a resolution certified by the Person responsible for maintaining the records of the Governing Body of such Person to have been duly adopted by the Governing Body of such Person and to be in full force and effect on the date of such certification, and delivered to the Master Trustee. C-1 "Bond Counsel" means Foley& Lardner LLP,Jacksonville,Florida or any other attorney at law or firm of attorneys of nationally recognized experience in matters pertaining to the validity of, and exclusion from gross income for federal income tax purposes of interest on, the obligations of states and their political subdivisions as may be selected by the Obligor but is reasonably acceptable to the issuer of the Related Bonds. "Bond Fund" means the Bond Fund created in Section 3.02 of the Bond Indenture. "Bondholder" or "Owner" of the Bonds mean the registered owner of any fully registered Bond. "Bond Indenture" means the Indenture of Trust of even date herewith relating to the Bonds between the Issuer and the Bond Trustee,including any indentures supplemental thereto made in conformity therewith. "Bonds" means City of Atlantic Beach, Florida Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2013B issued pursuant to the Bond Indenture. "Bond Trustee" means U.S. Bank, National Association, being the registrar, a paying agent and the trustee under the Bond Indenture,or any successor corporate trustee. "Book Value" when used with respect to Property of a Member, means the value of such Property, net of accumulated depreciation and amortization, as reflected in the most recent audited financial statements of such Member that have been prepared in accordance with generally accepted accounting principles, and when used with respect to Property of all Members, means the aggregate of the values of such Property, net of accumulated depreciation and amortization,as reflected in the most recent audited combined financial statements of the Obligated Group prepared in accordance with generally accepted accounting principles,provided that such aggregate shall be calculated in such a manner that no portion of the value of any Property of any Member is included more than once. "Business Day" means any day other than (i) a Saturday, a Sunday or, in the City of New York, New York, or in Jacksonville, Florida (or, if different, in the city in which the designated corporate trust office of the Related Bond Trustee is located),a day on which banking institutions are authorized or required by law or executive order to close,or(ii)a day on which the New York Stock Exchange is closed. "Capital Addition" means any addition, improvements, extensions, alterations, relocations, enlargements, expansions,modifications or replacement of or to the Facilities. "Capitalized Lease" means any lease of real or personal property which, in accordance with generally accepted accounting principles,is required to be capitalized on the balance sheet of the lessee. "Capitalized Rentals" means, as of the date of determination, the amount at which the aggregate Net Rentals due and to become due under a Capitalized Lease under which a Person is a lessee would be reflected as a liability on a balance sheet of such Person. "Cash and Investments" means the sum of cash, cash equivalents, marketable securities of the Obligated Group Members, including without limitation board-designated assets, and amounts, if any, on deposit in the Operating Reserve Fund,Working Capital Fund, Entrance Fee Fund and Minimum Liquid Reserve Accounts,but at all times excluding (a) trustee-held funds other than those described above in this definition, (b) funds restricted by the donor to a use that would not permit the use of such funds to pay expenses or debt service on Indebtedness of the Obligated Group, and (c) any funds pledged or otherwise subject to a security interest for debt other than the Obligations, as shown on the most recent audited or unaudited financial statements of the Obligated Group. For the purposes of calculations hereunder, an Unrestricted Contribution from an Affiliate shall be treated as being made during the period of such calculation so long as the Unrestricted Contribution is made prior to the date the applicable certificate is required to be delivered with respect to such calculation. "Claims" shall mean all claims, lawsuits, causes of action and other legal actions and proceedings of whatever nature brought against (whether by way of direct action, counter claim, cross action or impleader) any Indemnified Party, even if groundless, false, or fraudulent, so long as the claim, lawsuit, cause of action or other C-2 legal action or proceeding is alleged or determined, directly or indirectly, to arise out of, to result from, to relate to or to be based upon, in whole or in part: (a) the issuance of the Bonds, (b) the duties, activities, acts or omissions (even if negligent) of any Person in connection with the issuance of the Bonds, or the obligations of the various parties arising under the Bond Indenture, the Loan Agreement or the Master Indenture, or (c) the duties, activities, acts or omissions (even if negligent) of any Person in connection with the design, construction, installation, operation,use,occupancy,maintenance or ownership of the Project or any part thereof. "Code" means the Internal Revenue Code of 1986, as amended from time to time, including, when appropriate, the statutory predecessor thereof, or any applicable corresponding provisions of any future laws of the United States of America relating to federal income taxation,and except as otherwise provided herein or required by the context hereof, includes interpretations thereof contained or set forth in the applicable regulations of the Department of the Treasury (including applicable final or temporary regulations and also including regulations issued pursuant to the statutory predecessor of the Code), the applicable rulings of the Internal Revenue Service (including published Revenue Rulings and private letter rulings),and applicable court decisions. "Commitment Indebtedness" means the obligation of any Member to repay amounts disbursed pursuant to a commitment from a financial institution to refinance or purchase when due,when tendered or when required to be purchased(a) other Indebtedness of such Member, or (b) Indebtedness of a Person who is not a Member, which Indebtedness is guaranteed by a Guaranty of such Member or secured by or payable from amounts paid on Indebtedness of such Member, in either case which Indebtedness or Guaranty of such Member was incurred in accordance with the provisions of Section 4.16 of the Master Trust Indenture, and the obligation of any Member to pay interest payable on amounts disbursed for such purposes, plus any fees, costs or expenses payable to such financial institution for,under or in connection with such commitment,in the event of disbursement pursuant to such commitment or in connection with enforcement thereof, including without limitation any penalties payable in the event of such enforcement. "Completion Certificate" means a certificate of the Obligor delivered pursuant to Section 4.2(b) of the Loan Agreement. "Completion Funded Indebtedness" means any Funded Indebtedness for borrowed money: (a) incurred for the purpose of financing the completion of any Facilities or marketing or other pre-opening expenses of such Facilities with respect to which Funded Indebtedness has been incurred in accordance with the provisions hereof; and(b) with a principal amount not in excess of the amount which is required to provide completed and equipped Facilities of substantially the same type and scope contemplated at the time such prior Funded Indebtedness was originally incurred, to provide for Funded Interest during the period of construction, to provide any reserve fund relating to such Completion Funded Indebtedness and to pay the costs and expenses of issuing such Completion Funded Indebtedness. "Consent" or "Request" of any specified Person mean, respectively, a written consent or request signed in the name of such Person by the Chairman of the Governing Body, the Chief Executive Officer, the President, a Vice President, the Treasurer, an Assistant Treasurer or the Chief Financial Officer of such Person or any other person or persons designated by an Officer's Certificate and delivered to the Master Trustee. "Construction Index" means the most recent issue of the "Dodge Construction Index for U.S. and Canadian Cities"with reference to the city in which the subject property is located(or, if such Index is not available for such city, with reference to the city located closest geographically to the city in which the subject property is located), or, if such Index is no longer published or used by the federal government in measuring costs under Medicare or Medicaid programs, such other index which is certified to be comparable and appropriate by the Obligated Group Representative in an Officer's Certificate delivered to the Master Trustee. "Consultant" means a professional consulting, accounting, marketing, investment banking or commercial banking firm or individual selected by the Obligated Group Representative having the skill and experience necessary to render the particular report required and having a favorable reputation for such skill and experience,which firm or individual does not control any Member of the Obligated Group or any Affiliate thereof and is not controlled by or under common control with any Member of the Obligated Group or an Affiliate thereof. C-3 "Construction Fund" means the construction fund created under Section 3.06 of the Bond Indenture. "Continuing Disclosure Agreement" means (i) with respect to the Bonds, the Continuing Disclosure Agreement of the Obligor dated the Delivery Date of the Bonds, and(ii) with respect to any other series of Bonds, the continuing disclosure certificate or agreement delivered by the Obligor in connection with the issuance of such series of Bonds in order to comply with the provisions of Rule 15c2-12 of the Securities Exchange Act of 1934. "Contributions" means the aggregate amount of all contributions, grants, gifts, bequests and devises actually received in cash or marketable securities by any Person in the applicable fiscal year of such Person and any such contributions, grants, gifts, bequests and devises originally received in a form other than cash or marketable securities by any Person which are converted in such fiscal year to cash or marketable securities and deposited into the accounts of the Obligated Group. "Cost" or"Costs" as applied to a Project means and includes any and all costs permitted by the Code and A- the Act. "Cost of Issuance" means (a) with respect to any tax exempt Bonds all costs that are treated as issuance costs within the meaning of Section 1.150-1(b) of the Code, and(b)with respect to any Bonds, all costs associated with the issuance of such Bonds including, but not limited to, (i) underwriter's spread(whether realized directly or derived through purchase of the Bonds at a discount below the price at which they are expected to be sold to the public); (ii) counsel fees (including Bond Counsel, underwriter's counsel, Issuer's counsel, Bond Trustee's counsel and Obligor's counsel fees that relate to the issuance of the Bonds, as well as any other specialized counsel fees incurred in connection with the issuance of the Bonds); (iii) financial advisory fees incurred in connection with the issuance of the Bonds; (iv) Rating Agency fees; (v) Bond Trustee fees incurred in connection with the issuance of the Bonds; (vi)Paying Agent and certifying registrar and authenticating agent fees related to issuance of the Bonds; (vii) accountant fees related to the issuance of the Bonds; (viii) printing costs of the Bonds and of the preliminary and final offering materials; (ix)publication costs associated with the financing proceedings; (x)any fees paid to the Issuer; and (xi) costs of engineering and feasibility studies necessary to the issuance of the Bonds; provided, that bond insurance premiums and certain credit enhancement fees, to the extent treated as interest expense under the Code,shall not be treated as"Costs of Issuance" in connection with the issuance of tax exempt Bonds. "Cost of Issuance Fund" means the cost of issuance fund created under Section 3.17 of the Bond Indenture. "Credit Facility" means any Liquidity Facility, letter of credit, bond insurance policy, standby purchase agreement, guaranty, line of credit, surety bond or similar credit or liquidity facility securing any Indebtedness of any Obligated Group Member. "Credit Facility Agreement" means any agreement between the Obligated Group Representative and the provider of a Credit Facility relating to the issuance of a Credit Facility. "Crossover Date" means, with respect to Crossover Refunding Indebtedness, the date on which the principal portion of the Crossover Refunded Indebtedness is paid or redeemed,or on which it is anticipated that such principal portion will be paid or redeemed, from the proceeds of such Crossover Refunding Indebtedness. "Crossover Refunded Indebtedness" means Indebtedness of a Person refunded by Crossover Refunding Indebtedness. "Crossover Refunding Indebtedness" means Indebtedness of a Person issued for the purpose of refunding other Indebtedness of such Person if the proceeds of such Crossover Refunding Indebtedness are irrevocably deposited in escrow to secure the payment on the applicable Crossover Date of the Crossover Refunded Indebtedness and earnings on such escrow deposit are required to be applied to pay interest or principal on either or both of such Crossover Refunding Indebtedness or such Crossover Refunded Indebtedness until the Crossover Date. C-4 "Current Value" means (i) with respect to Property, Plant and Equipment: (a) the aggregate fair market value of such Property,Plant and Equipment as reflected in the most recent written report of an appraiser selected by the Obligated Group Representative and, in the case of real property,who is a member of the American Institute of Real Estate Appraisers(MAI),delivered to the Master Trustee(which report shall be dated not more than three years prior to the date as of which Current Value is to be calculated) increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from the date of such report to the date as of which Current Value is to be calculated, minus the fair market value (as reflected in the most recent appraiser's report) of any Property, Plant and Equipment included in such report but disposed of since the last such report increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from the date of such report to the date as of which Current Value is to be calculated;plus (b)the Book Value of any Property, Plant and Equipment acquired since the last such report increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from the date of such acquisition to the date as of which Current Value is to be calculated, minus (c) the Book Value of any such Property, Plant and Equipment acquired since the last such report but disposed of; and (ii) with respect to any other Property, the fair market value of such Property. "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 Expenses (including interest on Indebtedness but excluding provisions for bad debt amortization, depreciation or any other non cash expenses)as shown on the most recent annual audited financial statements (or, with respect to any calculation of Days Cash on Hand as of any June 30, as reflected in the unaudited trailing twelve month financial statements for the period ending such June 30, as derived from the quarterly financial statements delivered pursuant to Section 4.15(b)(ii) of the Master Trust Indenture),by 365. "Debt Service Requirements" means, with respect to the period of time for which calculated, the aggregate of the payments required to be made during such period in respect of principal (whether at maturity, as a result of mandatory sinking fund redemption, mandatory prepayment or otherwise) and interest on outstanding Funded Indebtedness of each Person or a group of Persons with respect to which such requirements are calculated; provided that: (a) the amount of such payments for a future period shall be calculated in accordance with the assumptions contained in Sections 4.16 and 4.17 of the Master Trust Indenture; (b) interest shall be excluded from the determination of the Debt Service Requirements to the extent that Funded Interest is available to pay such interest; (c)principal of Indebtedness shall be excluded from the determination of Debt Service Requirements to the extent that amounts are on deposit in an irrevocable escrow and such amounts (including, where appropriate, the earnings or other increment to accrue thereon)are required to be applied to pay such principal and such amounts so required to be applied are sufficient to pay such principal; (d)principal of Indebtedness due in its final year shall be excluded from the determination of Debt Service Requirements to the extent moneys were initially deposited and are on deposit as of the date of calculation in a debt service reserve fund which required that moneys on deposit in the debt service reserve fund be used to pay a principal payment in the final year of such Indebtedness, and except for the payment to be received from such debt service reserve fund, the Indebtedness would have had approximately level debt service; (e)any annual fees payable in respect of a Credit Facility(other than annual fees to be paid from proceeds of a bond issue escrowed for such purpose) shall be included in the determination of Debt Service Requirements; and(f)principal of and interest on Qualified Intermediate Term Indebtedness shall be excluded. "Defeasance Obligations" means: (1) Direct obligations of the United States of America or obligations to the full and prompt payment of which the full faith and credit of the United States of America is pledged or evidences of ownership of proportionate interests in future interest and principal payments on such obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on such obligations, and which underlying obligations are not available to satisfy any claim of the custodian or any Person claiming through the custodian or to whom the custodian may be obligated;and (2) Obligations issued or guaranteed by the following instrumentalities or agencies of the United States of America: C-5 (a) Federal Home Loan Bank System; (b) Export-Import Bank of the United States; (c) Federal Financing Bank; (d) Government National Mortgage Association; (e) Farmers Home Administration; (f) Federal Home Loan Mortgage Company; (g) Federal Housing Administration; (h) Federal National Mortgage Association; (i) Any other agency or instrumentality of the United States of America created by an Act of Congress which is substantially similar to the foregoing in its legal relationship to the United States of America; and (3) Obligations described in Section 103(a)of the Code,provision for the payment of the principal of (and premium, if any) and interest on which shall have been made by the irrevocable deposit at least 123 days preceding the date of determination with a bank or trust company acting as a trustee or escrow agent for holders of such obligations of money, or obligations described in clause (1) above, the maturing principal of and interest on which,when due and payable,without reinvestment will provide money, sufficient to pay when due the principal of (and premium, if any) and interest on such obligations, and which money, or obligations described in clause (1) above,are not available to satisfy any other claim,including any claim of the trustee or escrow agent or any claim of any Person claiming through the trustee or escrow agent or any claim of any Person to whom the Person on whose behalf such irrevocable deposit was made, the trustee, or the escrow agent may be obligated,whether arising out of the insolvency of the Person on whose behalf such irrevocable deposit was made, the trustee or escrow agent or otherwise. "Delivery Date" means the date the Bonds are delivered to the initial purchasers against payment therefor. "Designated Officer" means the Chairman of the Governing Body,the Chief Executive Officer,President, any Vice President, the Chief Financial Officer, the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Obligated Group Representative, or any other person or persons so designated by an Officer's Certificate delivered to the Master Trustee. "Encumbered" means, with respect to Property, subject to (1) a Lien described in the following subsections of the definition of Permitted Encumbrances: subsection (b) other than a Lien securing Non-Recourse Indebtedness; subsection (e) but including only Capitalized Leases; subsection (m)(ii); subsection (s); and subsection (u)(ii), and (2) all other Liens not described in the definition of Permitted Encumbrances; provided that any amounts on deposit in a construction fund created in connection with the issuance of an Obligation which are held as security for the payment of such Obligation or any Indebtedness incurred to purchase such Obligation or the proceeds of which are advanced or otherwise made available in connection with the issuance of such Obligation, shall not be deemed to be Encumbered if the amounts are to be applied to construct or otherwise acquire Property which is not subject to a Lien. "Entrance Fee Fund" means any entrance fee fund or account established in connection with the financing of any Capital Addition. "Entrance Fees" means fees, other than security deposits, monthly rentals or monthly service charges, paid to a Member by residents of Independent Living Units for the purpose of obtaining the right to reside in those units including any refundable resident deposits described in any lease or similar Residency Agreement with respect C-6 to those Independent Living Units, but shall not include any such amounts held in escrow or otherwise set aside pursuant to the requirements of any such agreement prior to the occupancy of the unit covered by such Residency Agreement or pursuant to Chapter 651, Florida Statutes (which amounts shall be included if and when occupancy occurs and such set-aside is no longer required). "Event of Default" means (A)with respect to the Master Trust Indenture,the meaning set forth in Article VII of the Master Trust Indenture, and (B) with respect to the Bond Indenture, those defaults specified in Section 8.01 of the Bond Indenture. "Expenses" means, for any period, the aggregate of all expenses calculated under generally accepted accounting principles,including without limitation any accrual for taxes,assessments and insurance, incurred by the Person or group of Persons involved during such period, but excluding (a) interest on Funded Indebtedness, (b) depreciation and amortization, (c) extraordinary expenses, losses on the sale of assets other than in the ordinary course of business and losses on the extinguishment of debt or termination of pension plans, (d) any expenses resulting from a forgiveness of or the establishment of reserves against Indebtedness of an Affiliate which does not constitute an extraordinary expense, (e) losses resulting from any reappraisal, revaluation or write down of assets other than bad debts,(f)non cash expenses or losses,(g)any expenses paid with proceeds of any Related Bonds,and (h) any development, marketing, operating, overhead or management fees that have been deferred from the year in which they were originally due. If such calculation of Expenses is being made with respect to the Obligated Group, any such expenses attributable to transactions between any Member and any other Member shall be excluded. "Extendable Indebtedness"means Indebtedness which is repayable or subject to purchase at the option of the holder thereof prior to its stated maturity, but only to the extent of money available for the repayment or purchase therefor and not more frequently than once every year. "Facilities" means the continuing care retirement community and related elder care facilities owned by the Obligated Group Members located on the Premises, including any independent living units, assisted living units, a health center including nursing beds, all necessary and useful furnishings, equipment and machinery, and such interests in land as may be necessary or suitable for the foregoing, including roads and rights of access,utilities and other necessary site preparation facilities. "Federal Subsidy Payments" means the direct payments made by the United States Department of Treasury or other federal governmental agency or entity authorized to make such payments to the issuer or conduit borrower for any Related Bonds which constitute Subsidy Bonds. "Fiscal Year" means any 12 month period beginning on January 1 of any calendar year and ending on December 31 of such calendar year, or such other consecutive 12 month period selected by the Obligated Group Representative as the fiscal year for the Members. "Fitch" means Fitch Inc.,a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group,with written notice to the Master Trustee. "Funded Indebtedness" means,with respect to any Person, (a) all Indebtedness of such Person for money borrowed, credit extended, incurred or assumed which is not Short Term; (b) all Short Term Indebtedness incurred by the Person which is of the type described in Section 4.16(d) of the Master Trust Indenture; (c) the Person's Guaranties of Indebtedness which are not Short Term (but including Guaranties of Short Term Indebtedness described in Section 4.16(d) of the Master Trust Indenture); and (d) Capitalized Rentals under Capitalized Leases entered into by the Person; provided, however, that Indebtedness that could be described by more than one of the foregoing categories shall not in any case be considered more than once for the purpose of any calculation made pursuant to the Master Trust Indenture. "Funded Interest" means amounts irrevocably deposited in an escrow or other trust account(other than a debt service reserve fund held under a Related Bond Indenture) to pay interest on Funded Indebtedness or Related C-7 Bonds and interest earned on such amounts to the extent such interest earned is required to be applied to pay interest on Funded Indebtedness or Related Bonds. "Funded Interest Account" means the account of such name in the Construction Fund created in Section 3.06 of the Bond Indenture. "Funds" means the Cost of Issuance Fund, Bond Fund, the Reserve Fund, Rebate Fund and the Construction Fund. "Governing Body" means, with respect to a Member, the board of directors, the board of trustees or similar group in which the right to exercise the powers of corporate directors or trustees is vested. "Government Obligations" means direct obligations of the United States of America or obligations the full and timely payment of the principal of and interest on which is unconditionally guaranteed by the United States of America. "Gross Revenues" means all receipts, revenues, rentals, income, insurance proceeds (including, without limitation, all Medicaid, Medicare and other third party payments), condemnation awards, Entrance Fees, Federal Subsidy Payments and other moneys received by or on behalf of any Obligated Group Member, including (without limitation) revenues derived from(a) the ownership, operation or leasing of any portion of the Facilities (including, without limitation,fees payable by or on behalf of residents of the Facilities)and all rights to receive the same(other than the right to receive Medicaid and Medicare payments),whether in the form of accounts, general intangibles or other rights, and the proceeds of such accounts, general intangibles and other rights, whether now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and(b)gifts,grants, bequests, donations and contributions heretofore or hereafter made that are legally available to meet any of the obligations of the Obligated Group Member incurred in the financing, operation, maintenance or repair of any portion of the Facilities; provided, however, that there shall be excluded from Gross Revenues (i) all such items, whether now owned or hereafter acquired by the Obligated Group Members,which by their terms or by reason of applicable law cannot be granted, assigned or pledged hereunder or which would become void or voidable if granted, assigned or pledged hereunder by the Obligated Group Members, or which cannot be granted, pledged or assigned hereunder without the consent of other parties whose consent is not secured, or without subjecting the Master Trustee to a liability not otherwise contemplated by the provisions hereof, or which otherwise may not be, or are not, hereby lawfully and effectively granted,pledged and assigned by the Obligated Group Members, (ii) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent,(iii)gifts,grants,bequests,donations and contributions to an Obligated Group Member heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use of payments required under the Master Trust Indenture, (iv) any moneys received by any Obligated Group Member from prospective residents or commercial tenants in order to pay for customized improvements to those Independent Living Units or other areas of the Facilities to be occupied or leased to such residents or tenants, (v) all deposits made pursuant to Residency Agreements to be held in escrow until construction of the Facilities is completed, a certificate of occupancy has been issued and appropriate licenses, if required, have been issued, and (vi) all deposits and/or advance payments made in connection with any leases of the Independent Living Units and received prior to receipt of such certificate and licenses. "Guaranty" means all obligations of a Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any Primary Obligor in any manner,whether directly or indirectly, including but not limited to obligations incurred through an agreement, contingent or otherwise, by such Person: (a)to purchase such Indebtedness or obligation or any Property constituting security therefor; (b) to advance or supply funds: (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain working capital or other balance sheet condition; (c)to purchase securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the Primary Obligor to make payment of the Indebtedness or obligation;or(d)otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof. "Historical Debt Service Coverage Ratio" means, for any period of time, the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period by the Debt Service Requirements for such period and a denominator of one; provided, however, that in calculating the C-8 Debt Service Requirements for such period, (a) the principal amount of any Indebtedness included in such calculation which is paid during such period shall 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 Trust Indenture, and(b) to the extent an Interest Rate Agreement has been entered into in connection with any particular Indebtedness, the actual debt service paid after the effect of payments made to or received from the provider of the Interest Rate Agreement shall be used in the calculation. "Historical Pro Forma Debt Service Coverage Ratio" means, for any period of time,the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period by the Maximum Annual Debt Service Requirement for the Funded Indebtedness then outstanding(other than any Funded Indebtedness being refunded with the Funded Indebtedness then proposed to be issued)and the Funded Indebtedness then proposed to be issued and a denominator of one. "Holder" means a bearer of any Obligation issued in bearer form, and the registered owner of any Obligation issued in registered form. "Holder Consent" means the written consent of the Holders of a majority in aggregate principal amount of the total amount of Obligations then Outstanding. "Income Available for Debt Service" means for any period,the excess of Revenues over Expenses of the Person or group of Persons involved. "Indebtedness" means, for any Person, (a) all Guaranties by such Person, (b) all liabilities (exclusive of reserves such as those established for deferred taxes or litigation)recorded or required to be recorded as such on the audited financial statements of such Person in accordance with generally accepted accounting principles, and(c) all obligations for the payment of money incurred or assumed by such Person(i)due and payable in all events,or(ii)if incurred or assumed primarily to assure the repayment of money borrowed or credit extended,due and payable upon the occurrence of a condition precedent or upon the performance of work, possession of Property as lessee, rendering of services by others or otherwise; provided that Indebtedness shall not include Indebtedness of one Member to another Member, any Guaranty by any Member of Indebtedness of any other Member, the joint and several liability of any Member on Indebtedness issued by another Member, Interest Rate Agreements, any Subordinated Indebtedness owed to an Affiliate of such Person evidencing an obligation to repay funds advanced or to pay fees owed to such Affiliate or any obligation to repay Entrance Fees or moneys deposited by patients or others with a Member as security for or as prepayment of the cost of patient care or any rights of residents of life care,elderly housing or similar facilities to endowment or similar funds deposited by or on behalf of such residents. "Indemnified Party" shall mean the Issuer and any of its respective officers,directors,members,officials, consultants,agents, servants and employees,and any successor to any of such Persons. "Indemnified Persons" means the Indemnified Parties and the Bond Trustee. "Independent Counsel" means an attorney duly admitted to practice law in any state and, without limitation,may include independent legal counsel for any Member,the Master Trustee or any Related Bond Trustee. "Independent Living Units" means the independent living units that are or become part of the Facilities and are offered for occupancy on an Entrance Fee basis. "Interest Account" means the account of such name in the Bond Fund created in Section 3.02 of the Bond Indenture. "Interest Payment Date" means each May 15 and November 15, commencing May 15, 2014, or, if such day is not a Business Day, the immediately succeeding business day in the years during which the Bonds are Outstanding under the provisions of the Bond Indenture. C-9 "Interest Rate Agreement" means an interest rate exchange, hedge or similar agreement, expressly identified in an Officer's Certificate of the Obligated Group Representative delivered to the Master Trustee as being entered into in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g., a call, put, cap, floor or collar)and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof An Interest Rate Agreement shall not constitute Indebtedness hereunder. "Initial Entrance Fees" means Entrance Fees received upon the initial occupancy of any Independent Living Unit not previously occupied. "Initial Purchaser" means B.C.Ziegler and Company,the initial purchaser of the Series 2013B Bonds. "Insurance Consultant" means a person or firm who in the case of an individual is not an employee or officer of any Member and which, in the case of a firm,does not control any Member of the Obligated Group or any Affiliate thereof and is not controlled by or under common control with any Member of the Obligated Group or an Affiliate thereof, appointed by the Obligated Group Representative, qualified to survey risks and to recommend insurance coverage for nursing homes or health care facilities and services of the type involved, and having a favorable reputation for skill and experience in such surveys and such recommendations, and which may include a broker or agent with whom any Member transacts business. "Issuer" means City of Atlantic Beach, Florida, or any public corporation succeeding to its rights and obligations under the Loan Agreement. "Issuer Representative" means the Chairman of the Issuer or such other person at the time,and from time to time, designated by written certificate of the Issuer furnished to the Obligor and the Bond Trustee containing the specimen signature of such person and signed on behalf of the Issuer by its Chairman. Such certificate shall designate an alternate or alternates,any of whom may act at any time as Issuer Representative. "Lien" means any mortgage,pledge or lease of, security interest in or lien, charge or encumbrance on any Property of the Person involved in favor of, or which secures any obligation to,any Person other than any Member, and any Capitalized Lease under which any Member is lessee and the lessor is not another Member. "Liquidity Facility" means a written commitment to provide money to purchase or retire any Indebtedness if(i) on the date of delivery of such Liquidity Facility, the unsecured Funded Indebtedness or claims- paying ability of the provider of such Liquidity Facility or its parent holding company or other controlling entity is rated at least "A" by a least one of the Rating Agencies, and (ii) as of any particular date of determination, no amount realized under such Liquidity Facility for the payment of the principal or the purchase or redemption price of such Indebtedness (exclusive of amounts realized for the payment of accrued interest on such Indebtedness) shall be required to be repaid by the obligor on such Funded Indebtedness for a period of at least one year. "Liquidity Requirement" has the meaning given such term in Section 4.20 of the Master Trust Indenture. "Loan Agreement" means the Loan Agreement and any amendments and supplements hereto made in conformity herewith and with the Bond Indenture. "Losses" means losses, costs, damages, expenses,judgments,and liabilities of whatever nature(including, but not limited to, reasonable attorney's, accountant's and other professional's fees, litigation and court costs and expenses,amounts paid in settlement and amounts paid to discharge judgments and amounts payable by Indemnified Persons to any other Person under any arrangement providing for indemnification of that Person) directly or indirectly resulting from arising out of or relating to one or more Claims. "Master Indenture" means the Master Trust Indenture dated as of April 1,2013,between the Obligor and the Master Trustee, as supplemented by the Supplemental Indenture and any supplements or amendments thereto and modifications thereof. C-10 "Master Trustee" means U.S. Bank National Association, a limited purpose national banking association with trust powers in the State of Florida, as trustee hereunder, and any successor in trust appointed pursuant to Article VIII of the Master Trust Indenture. "Maturity" when used with respect to any Indebtedness means the date on which the principal of such Indebtedness or any installment thereof becomes due and payable as therein provided, whether at the Stated Maturity thereof or by declaration of acceleration,call for redemption,or otherwise. "Maximum Annual Debt Service Requirement" means (A) with respect to the Master Trust Indenture, the largest total Debt Service Requirements for the current or any succeeding Fiscal Year, and (B) with respect to the Loan Agreement and Bond Indenture, an amount equal to the maximum principal and interest requirements (taking into account all mandatory sinking fund payments) due in any calendar year on the Bonds calculated in accordance with the provisions of the Master Indenture; provided, however, that principal of the Bonds in its final year shall be excluded from the determination of Maximum Annual Debt Service Requirement to the extent moneys are on deposit as of the date of calculation in the Reserve Fund. "Maximum Principal Indebtedness" means an aggregate principal amount of Obligations now or hereafter issued and Outstanding under the Master Indenture in an amount not to exceed the aggregate principal sum of$150,000,000. "Maximum Rate" means the lesser of(a) 15%per annum, or(b) the maximum interest rate permitted by applicable Florida law. "Minimum Liquid Reserve Account" means the account maintained pursuant to the Escrow Agreement, dated as of October 1, 1994 and reissued on October 23, 2002, as amended by the Escrow Agreement Amendment, dated as of May 9,2007,and the Third Amendment to Escrow Agreement, dated as of April 1, 2013, each between the Obligor and U.S. Bank National Association or predecessor entity, as escrow agent, as acknowledged by the Florida Department of Insurance, in order to satisfy the minimum liquid reserve requirements of Section 651.035, Florida Statutes. In accordance with said Section 651.035, Florida Statues, amounts on deposit in the Reserve Fund shall be credited against the amounts required to be on deposit in the Minimum Liquid Reserve Account. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group, with written notice to the Master Trustee. "Mortgage" means the Mortgage and Security Agreement dated as of April 1, 2013,from the Obligor, as mortgagor, to the Master Trustee, as mortgagee, as supplemented by a Notice of Future Advance relating to the Mortgage and Security Agreement dated as of October 1,2013. "Mortgaged Property" means (A) with respect to the Master Trust Indenture, the real property and personal property of the Members which is subject to the Lien and security interest of the Master Trust Indenture and the Mortgage, and (B) with respect to the Mortgage, the Mortgagor's interest in the property described in Section 2 of the Mortgage, and all rents, receipts, issues, profits, proceeds (including insurance proceeds and condemnation awards)and products thereof,and all substitutions therefor or renewals or replacements thereof. "Net Proceeds" means, when used with respect to any insurance (other than the proceeds of business interruption insurance) or condemnation award or sale consummated under threat of condemnation, the gross proceeds from the insurance or condemnation award or sale with respect to which that term is used less all expenses (including attorney's fees,adjuster's fees and any expenses of the Obligated Group or the Master Trustee) incurred in the collection of such gross proceeds. C-11 "Net Rentals" means all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the leased Property other than upon termination of the lease for a default thereunder) payable under a lease or sublease of real or personal Property excluding any amounts required to be paid by the lessee(whether or not designated as rents or additional rents)on account of maintenance, repairs, insurance, taxes and similar charges. Net Rentals for any future period under any so called "percentage lease" shall be computed on the basis of the amount reasonably estimated to be payable thereunder for such period, but in any event not less than the amount paid or payable thereunder during the immediately preceding period of the same duration as such future period; provided that the amount estimated to be payable under any such percentage lease shall in all cases recognize any change in the applicable percentage called for by the terms of such lease. "Non-Recourse Indebtedness" means any Indebtedness the liability for which is effectively limited to Property, Plant and Equipment (other than the Premises) and the income therefrom, with no recourse, directly or indirectly,to any other Property of any Member. "Note" means the promissory note issued by the Obligor pursuant to the Supplemental Indenture relating to the Bonds. "Obligated Group" means,collectively,all of the Obligated Group Members. "Obligated Group Member" or "Member" means the Obligor and any other Person who has satisfied the requirements set forth in the Master Trust Indenture for becoming an Obligated Group Member and its successors until any such Person or a successor or transferee Person satisfies the requirements set forth in the Master Trust Indenture for ceasing to be an Obligated Group Member. "Obligated Group Representative" means the Obligor, or any successor Obligated Group Representative appointed pursuant to Section 6.04 of the Master Trust Indenture. "Obligation" means any promissory note, guaranty, lease, contractual agreement to pay money or other obligation of any Obligated Group Member which is authenticated and delivered pursuant to the Master Trust Indenture and which is entitled to the benefits of the Master Trust Indenture. "Obligation Register" means the register of ownership of the Obligations to be maintained pursuant to the Master Trust Indenture. "Obligor" means Naval Continuing Care Retirement Founding, Inc., a Florida nonprofit corporation, and any and all successors thereto in accordance with the Master Trust Indenture. "Occupied" means any Independent Living Units for which a Residency Agreement has been executed,all related Entrance Fees then due have been paid in accordance with such Residency Agreement, and the monthly service fees for which are currently being paid(for purposes of this definition, combined Independent Living Units are counted as the number of original individual units so combined). "Officer's Certificate" means a certificate signed,in the case of a certificate delivered by a Member of the Obligated Group, by the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the President, any Vice President, Director of Finance or any other Authorized Representative of any Member of the Obligated Group or in the case of a certificate delivered by any other corporation, by the President, any Vice President, Chief Operating Officer, Chief Financial Officer, Director of Finance or any other officer or agent authorized to sign by resolution of the Governing Body of such corporation or, in the case of a certificate delivered by any other Person,the chief executive or chief financial officer of such other Person. "Operating Reserve Fund" means any operating reserve fund or account established pursuant to a Supplement in connection with the financing of a Capital Addition. "Opinion of Bond Counsel" shall mean an opinion in writing signed by Bond Counsel. C-12 "Opinion of Counsel" means a written opinion of counsel who may (except as otherwise expressly provided herein)be counsel to any Obligated Group Member. "Outstanding" when used with respect to Obligations means, as of the date of determination, all Obligations theretofore authenticated and delivered under the Master Trust Indenture,except: (1) Obligations theretofore cancelled and delivered to the Master Trustee or delivered to the Master Trustee for cancellation; (2) Obligations for whose payment or redemption money (or Defeasance Obligations to the extent permitted by Section 10.02 of the Master Trust Indenture) shall have theretofore been deposited with the Master Trustee or any Paying Agent for such Obligations in trust for the Holders of such Obligations pursuant to the Master Trust Indenture; provided, that, if such Obligations are to be redeemed, notice of such redemption has been duly given or waived pursuant to the Master Trust Indenture or irrevocable provision for the giving of such notice satisfactory to the Master Trustee has been made pursuant to the Master Trust Indenture;and (3) Obligations upon transfer of or in exchange for or in lieu of which other Obligations have been authenticated and delivered pursuant to the Master Trust Indenture; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Obligations have given any request, demand, authorization, direction, notice, consent, or waiver hereunder, Obligations owned by any Obligated Group Member or any Affiliate of any Obligated Group Member shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Master Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Obligations that the Master Trustee knows to be so owned shall be so disregarded. Obligations so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Master Trustee the pledgee's right so to act with respect to such Obligations and that the pledgee is not an Obligated Group Member or an Affiliate of any Obligated Group Member. "Outstanding" with respect Bonds, as of any particular time, all Bonds which have been duly authenticated and delivered by the Bond Trustee under the Bond Indenture,except: (a) Bonds theretofore cancelled by the Bond Trustee or delivered to the Bond Trustee for cancellation after purchase in the open market or because of payment at or redemption prior to maturity; (b) Bonds for the payment or redemption of which cash funds (or Government Obligations to the extent permitted in Section 7.01 of the Bond Indenture)shall have been theretofore deposited with the Bond Trustee (whether upon or prior to the maturity or redemption date of any such Bonds);provided that if such Bonds are to be redeemed prior to the maturity thereof,notice of such redemption shall have been given or arrangements satisfactory to the Bond Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Bond Trustee, shall have been filed with the Bond Trustee and provided further that prior to such payment or redemption, the Bonds to be paid or redeemed shall be deemed to be Outstanding for the purpose of transfers and exchanges under Section 2.05 of the Bond Indenture;and (c) Bonds in lieu of which other Bonds have been authenticated under Section 2.06 of the Bond Indenture. "Paying Agent" means (A) with respect to the Master Trust Indenture, any Person authorized by the Obligated Group Representative to pay the principal of(and premium, if any) or interest on any Obligations on behalf of the Obligated Group, and (B) with respect to the Loan Agreement and Bond Indenture, any bank or trust company, including the Bond Trustee, designated pursuant to the Bond Indenture to serve as a paying agency or place of payment for the Bonds,and any successor designated pursuant to the Bond Indenture. C-13 "Payment Office"with respect to the Bond Trustee or other Paying Agent means the office maintained by the Bond Trustee or any affiliate of the Bond Trustee or of another Paying Agent for the payment of interest and principal on the Bonds. "Permitted Encumbrances" means the Master Trust Indenture, any Related Loan Agreement, any Related Bond Indenture and,as of any particular date: (a) Liens arising by reason of good faith deposits with a Member in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any Member 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; 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 to maintain self- insurance or to participate in any funds established to cover any insurance risks or in connection with workers' compensation,unemployment insurance,pensions or profit sharing plans or other social security plans or programs, or to share in the privileges or benefits required for corporations participating in such arrangements; (b) any Lien described in EXHIBIT B of the Master Trust Indenture which is existing on the date of execution of the Master Trust Indenture provided that no such Lien may be extended,renewed or modified to apply to any Property of a 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 Encumbrance; (c) any Lien on the Property of any Member granted in favor of or securing Indebtedness to any other Member,with Holder Consent; (d) the Master Trust Indenture, the Mortgage and any other Lien on Property if such Lien equally and ratably secures all of the Obligations and only the Obligations; (e) leases which relate to Property of the Obligated Group which is of a type that is customarily the subject of such leases, such as office space for physicians and educational institutions, food service facilities, gift shops, commercial, beauty shop, banking, radiology, other similar specialty services, pharmacy and similar departments or employee rental apartments; and any leases, licenses or similar rights to use Property whereunder a Member is lessee, licensee or the equivalent thereof upon fair and reasonable terms no less favorable to the lessee or licensee than would obtain in a comparable arm's length transaction; (f) Liens for taxes and special assessments which are not then delinquent, or if then delinquent are being contested in accordance with Section 4.05 of the Master Trust Indenture; (g) utility, access and other easements and rights of way, restrictions, encumbrances and exceptions which do not materially interfere with or materially impair the operation of the Property affected thereby(or,if such Property is not being then operated,the operation for which it was designed or last modified); (h) any mechanic's, laborer's, materialman's, broker's, appraiser's, supplier's or vendor's Lien or right in respect thereof if payment is not yet due under the contract in question or has been due for less than 60 days,or if such Lien is being contested in accordance with the provisions of the Master Trust Indenture; (i) such Liens, defects, irregularities of title and encroachments on adjoining property as normally exist with respect to property similar in character to the Property involved and which do not materially adversely affect the value of,or materially impair,the Property affected thereby for the purpose for which it was acquired or is held by the owner thereof; (j) zoning laws and similar restrictions which are not violated by the Property affected thereby; C-14 (k) statutory rights under Section 291, Title 42 of the United States Code, as a result of what are commonly known as Hill Burton grants, and similar rights under other federal statutes or statutes of the state in which the Property involved is located; (1) all right, title and interest of the state where the Property involved is located, municipalities and the public in and to tunnels,bridges and passageways over,under or upon a public way; (m) Liens on or in Property given, granted, bequeathed or devised by the owner thereof existing at the time of such gift, grant, bequest or devise, provided that (i) such Liens consist solely of restrictions on the use thereof or the income therefrom, or (ii) such Liens secure Indebtedness which is not assumed by any Member and such Liens attach solely to the Property (including the income therefrom) which is the subject of such gift, grant, bequest or devise; (n) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired,or in respect of which any Member shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall be in existence; (o) Liens on moneys deposited by patients or others with a Member as security for or as prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar facilities to endowment, prepayment or similar funds deposited by or on behalf of such residents; (p) Liens on Property due to rights of third party payors for recoupment of excess reimbursement paid; (q) any security interest in a rebate fund, any depreciation reserve, debt service or interest reserve, debt service, construction fund or any similar fund established pursuant to the terms of any Supplement, Related Bond Indenture or Related Loan Agreement in favor of the Master Trustee, a Related Bond Trustee or the holder of the Indebtedness issued pursuant to such Supplement, Related Bond Indenture or Related Loan Agreement or the holder of any related Commitment Indebtedness; (r) any Lien on any Related Bond or any evidence of Indebtedness of any Member acquired by or on behalf of any Member which secures Commitment Indebtedness and only Commitment Indebtedness; (s) any Lien on Property acquired by a Member which Lien secures Indebtedness issued, incurred or assumed by any Member, in connection with and to effect such acquisition or existing Indebtedness which will remain outstanding after such acquisition which Lien encumbers Property other than Property that is pledged pursuant to Granting Clause Second of the Master Trust Indenture, if in any such case the aggregate principal amount of such Indebtedness does not exceed the fair market value subject to such Lien as determined in good faith by the Governing Body of the Member; (t) Liens on accounts receivable arising as a result of the sale of such accounts receivable with or without recourse,provided that the principal amount of Indebtedness secured by any such Lien does not exceed the face amount of such accounts receivable sold; (u) such Liens, covenants, conditions and restrictions, if any, which do not secure Indebtedness and which are other than those of the type referred to above, and which (i) in the case of Property owned by the Obligated Group on the date of execution of the Master Trust Indenture,do not and will not,so far as can reasonably be foreseen,materially adversely affect the value of the Property currently affected thereby or materially impair the same,and(ii) in the case of any other Property,do not materially impair or materially interfere with the operation or usefulness thereof for the purpose for which such Property was acquired or is held by a Member; and (v) such Liens as are required to be granted by Chapter 651, Florida Statutes or any successor or similar law,if applicable to any Facilities. C-15 "Permitted Investments" means 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, or the Federal Farm Credit Bank, 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 Master 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, without regard to gradation,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, without regard to gradation, 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 three 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; (h) repurchase agreements with respect to and secured by Government Obligations or by obligations described in clause (b) and (c) above, which agreements may be entered into with a bank (including without limitation the Bond Trustee or the Master Trustee), a trust company, financial services firm or a broker dealer which is a member of the Securities Investors Protection Corporation, provided that (i) the Master Trustee or a custodial agent of the Master Trustee has possession of the collateral and that the collateral is, to the knowledge of the Master Trustee, free and clear of third-party claims, (ii) a master repurchase agreement or specific written repurchase agreement governs the transaction, (iii) the collateral securities are valued no less frequently than monthly, (iv) the fair market value of the collateral securities in relation to the amount of the repurchase obligation, including C-16 principal and interest, is equal to at least 103%, and (v) such obligations must be held in the custody of the Bond Trustee or the Master Trustee's agent; and (i) 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 AAAm or AAAm-G by a Rating Agency, including money market mutual funds from which the Master Trustee or its affiliates derive a fee for investment advisory or other services to the fund. The Master Trustee shall be entitled to assume that any investment which at the time of purchase is a Permitted Investment remains a Permitted Investment thereafter(even if any rating is downgraded),absent receipt of written notice or information to the contrary. To the extent such investment is no longer a Permitted Investment,the Obligated Group Representative shall promptly provide the Master Trustee written notice of such status and the Master Trustee shall proceed to invest such amounts pursuant to Section 3.02 of the Master Trust Indenture. "Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof or any other entity. "Place of Payment" for a series of Obligations means a city or political subdivision designated as such pursuant to the Master Trust Indenture or a Supplement. "Premises" means(A)with respect to the Master Trust Indenture,the real property described in EXHIBIT A of the Master Trust Indenture, as it may be amended from time to time, and(B)with respect to the Mortgage the real property described in EXHIBIT A of the Mortgage, together with all appurtenances, easements and rights of way pertaining thereto, including, without limitation, all appurtenant easements, whether now existing or hereafter granted or created,and including,without limitation,easements for access and utilities. "Premium Security" means any Permitted Investment purchased or to be purchased at a premium from funds in the Project Account. "Primary Obligor" means the Person who is primarily obligated on an obligation which is guaranteed by another Person. "Principal Account" means the account of such name in the Bond Fund created in Section 3.02 of the Bond Indenture. "Project" means the project described in EXHIBIT A attached to the Loan Agreement. "Project Account"means the"Project Fund"created in Section 3.06 of the Bond Indenture. "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 the Maximum Annual Debt Service Requirement for the Funded Indebtedness expected to be outstanding during such period and a denominator of one. "Projected Rate" means the projected yield at par of an obligation as set forth in the report of a Consultant. Such report shall state that in determining the Projected Rate such Consultant reviewed the yield evaluations at par of not less than three obligations (or such lesser number as the Consultant shall deem appropriate, but in no event less than one) selected by such Consultant, the interest on which is entitled to the exemption from federal income tax afforded by Section 103(a) of the Code or any successor thereto (or, if it is not expected that it will be reasonably possible to issue such tax-exempt obligations, or if the interest on the Indebtedness for which the Projected Rate is being calculated is not entitled to such exemption, then obligations the interest on which is subject to federal income taxation) which obligations such Consultant states in its report are reasonable comparators for utilizing in developing such Projected Rate and which obligations: (i) were outstanding on a date selected by the C-17 Consultant which date so selected occurred during the 90 day period preceding the date of the calculation utilizing the Projected Rate in question, (ii) to the extent practicable, are obligations of Persons engaged in operations similar to those of the Obligated Group and having a credit rating similar to that of the Obligated Group,(iii)are not entitled to the benefits of any credit enhancement (including without limitation any letter or line of credit or insurance policy) if the obligation for which the Projected Rate is being determined is not benefited by any credit enhancement, and (iv) to the extent practicable, have a remaining term and amortization schedule substantially the same as the obligation with respect to which such Projected Rate is being developed. "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 by a Person. "Property, Plant and Equipment" means all Property of each Member which is classified as property, plant and equipment under generally accepted accounting principles. "Put Date" means (a) any date on which an owner of Put Indebtedness may elect to have such Put Indebtedness paid, purchased or redeemed by or on behalf of the underlying obligor prior to its stated maturity date, or (b) any date on which Put Indebtedness is required to be paid, purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner) prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund or other than by reason of acceleration upon the occurrence of an event of default. "Put Indebtedness" means Indebtedness which is (a)payable or required to be purchased or redeemed by or on behalf of the underlying obligor, at the option of the owner thereof, prior to its stated maturity date, or (b) payable or required to be purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner)prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund or other than by reason of acceleration upon the occurrence of an event of default. "Qualified Intermediate Term Indebtedness" shall mean any Indebtedness that (a) matures not more than seven years from the date of its issuance or incurrence and is issued or incurred to finance Facilities for the Obligor,and(b)will,according to an Officer's Certificate of the Obligated Group Representative,be used to finance facilities the Initial Entrance Fees for which (based solely on prospective residents from whom the Obligor has received a deposit of at least 10%of the projected Initial Entrance Fee of such resident)will be sufficient to generate an amount of funds equal to the aggregate of the principal amount of such Qualified Intermediate Term Indebtedness and all interest to accrue thereon through the projected date on which such Qualified Intermediate Term Indebtedness is to be paid in full(excluding Funded Interest on such Qualified Intermediate Term Indebtedness). "Qualified Project Costs" means Costs of the Project which constitute costs for property which is to be owned by the Obligor or another member of the Obligated Group and will not be used in an "unrelated trade or business" (as such term is used in Section 513(a)of the Code)of the Obligor(or any other organization described in Section 501(c)(3) of the Code) or in the trade or business of a person who is neither a governmental unit nor an organization described in Section 501(c)(3) of the Code. Costs of Issuance are not Qualified Project Costs and any fees paid to banks for letters of credit, for municipal bond insurance premiums or other guaranty fees and any capitalized interest on the Bonds shall be allocated between Qualified Project Costs to be paid or reimbursed from proceeds of the Bonds and Costs other than Qualified Project Costs to be paid or reimbursed from the proceeds of the Bonds. Qualified Project Costs shall not include costs or expenses paid more than sixty (60) days prior to the adoption by the Issuer,the Obligor or another member of the Obligated Group of a reimbursement resolution unless those expenditures qualify as"preliminary expenditures"within the meaning of the Code. "Rating Agency" means,as applicable,Moody's, Standard&Poor's or Fitch. "Rebate Fund" means that special fund established in the name of the Issuer with the Bond Trustee pursuant to Section 3.16 of the Bond Indenture. C-18 "Registered Owner" or"Owners" means the person or persons in whose name or names a Bond shall be registered on books of the Issuer kept by the Bond Trustee for that purpose in accordance with the terms of the Bond Indenture. "Regular Record Date" means the last day of the month preceding each regularly scheduled interest payment date therefor. "Related Bond Indenture" means any indenture, bond resolution or other comparable instrument pursuant to which a series of Related Bonds is issued including, without limitation, the Series 2013B Bond Indenture. "Related Bond Trustee" means the bond trustee and its successor in the trust created under any Related Bond Indenture. "Related Bonds" means the Series 2013B Bonds and any other revenue bonds or other 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 to issue obligations on behalf thereof ("governmental issuer"), pursuant to a single Related Bond Indenture, the proceeds of which are loaned or otherwise made available to any Obligated Group Member in consideration of the execution,authentication and delivery of an Obligation to or for the order of such governmental issuer. "Related Loan Agreement" means the Series 2013B Loan Agreement, any loan agreement, financing agreement, credit agreement or other comparable instrument entered into in connection with a series of Related Bonds. "Required Information Recipient" means the Master Trustee, each Related Bond Trustee, each provider of a Credit Facility so long as such Credit Facility is in effect, the Initial Purchaser, the Municipal Securities Rulemaking Board, which currently accepts continuing disclosure submissions through its Electronic Municipal Market Access web portal, or any successor entity authorized and approved by the Securities and Exchange Commission from time to time to act as a recognized municipal securities repository, and all Related Bondholders who hold$500,000 or more in principal amount of Related Bonds and request such reports in writing(which written request shall include a certification as to such ownership). "Reserved" means an Independent Living Unit(a) which is Occupied, or (b) for which a Member of the Obligated Group has received a deposit equal to not less than 10% of the Entrance Fee related to such Independent Living Unit. "Reserve Fund" means the Debt Service Reserve Fund created in Section 3.08 of the Bond Indenture. "Reserve Fund Obligations" means cash and Permitted Investments. "Reserve Fund Requirement" means,(i)for the period commencing on the date of issuance of the Bonds to but not including November 15, 2014, an amount equal to the interest due on the Bonds on November 15, 2014 ($1,048,345.31), (ii) for the period commencing on November 15, 2014, to but not including November 15, 2037, amount equal to 12 months of interest due on the Bonds during such period($990,562.50), and(iii)from November 15, 2037 until maturity of the Bonds, an amount equal to the Maximum Annual Debt Service on the Bonds ($3,540,812.50). "Residency Agreement" means each and every contract, including without limitation any "reservation agreement" or "residency agreement," as amended from time to time, between an Obligated Group Member and a resident of the Facilities giving the resident certain rights of occupancy in the Facilities, including, without limitation,the Independent Living Units,assisted living units,skilled nursing beds or specialty care(dementia)beds and providing for certain services to such resident. C-19 "Responsible Officer" means (A) with respect to the Master Trustee, an officer of the Master Trustee having direct responsibility for administration of the Master Trust Indenture, and (B) with respect to Bond Trustee, an officer of the Bond Trustee having direct responsibility for administration of the Bond Indenture. "Revenue Fund" means the Revenue Fund created by Section 3.01 of the Master Trust Indenture. "Revenues" means, for any period, (a) in the case of any Person providing health care services and/or senior living services, the sum of (i) net patient service revenues and resident service revenues, plus (ii) other operating revenues, plus (iii) non-operating revenues (other than Contributions, income derived from the sale of assets not in the ordinary course of business, any gain from the extinguishment of debt or other extraordinary item, earnings which constitute Funded Interest or earnings on amounts which are irrevocably deposited in escrow to pay the principal of or interest on Indebtedness, but including investment income), plus (iv) Unrestricted Contributions, plus (v) Entrance Fees (other than Initial Entrance Fees) received minus (A) Entrance Fees amortized during such Fiscal Year, and (B) Entrance Fees refunded to residents, plus (vi) payments received from any Affiliate of an Obligated Group Member, plus (vii) any Federal Subsidy Payments; and (b) in the case of any other Person, gross revenues less sale discounts and sale returns and allowances, as determined in accordance with generally accepted accounting principles; but excluding in either case (i) any unrealized gain or loss resulting from changes in the valuation of investment securities or unrealized changes in the value of derivative investments, (ii)any gains on the sale or other disposition of fixed or capital assets not in the ordinary course, (iii) earnings resulting from any reappraisal, revaluation or write up of fixed or capital assets, (iv) any revenues recognized from deferred revenues related to Entrance Fees, and(v) insurance(other than business interruption)and condemnation proceeds; provided, however, that if such calculation is being made with respect to the Obligated Group, such calculation shall be made in such a manner so as to exclude any revenues attributable to transactions between any Member and any other Member. For purposes of calculations under the Master Trust Indenture, an Unrestricted Contribution from an Affiliate shall be treated as being made during the period of such calculation so long as the Unrestricted Contribution is made prior to the date the applicable certificate is required to be delivered with respect to such calculation. "Secured Indebtedness" means the obligations secured by the Mortgage consisting of(i) the principal amount of, and all interest, redemption premiums, if any, and other amounts due on or with respect to, all Obligations of the Obligated Group now or hereafter issued and Outstanding pursuant to the terms of the Master Indenture,and(ii)all other amounts due and owing under the Master Indenture. "Securities Depository" means The Depository Trust Company,New York,New York,and any successor thereto as permitted by the Bond Indenture. "Series 2013A Note" means the initial Obligation issued by the Obligated Group Representative pursuant to the terms of the Master Indenture and the Supplemental Master Trust Indenture Number 1,to secure repayment of the related Series 2013A Bonds(as defined in the forepart of the Official Statement). "Series 2013B Bond Indenture" means the Indenture of Trust, dated as of October 1, 2013,between the City of Atlantic Beach,Florida and the Series 2013B Bond Trustee,relating to the Series 2013B Bonds. "Series 2013B Bonds" means the City of Atlantic Beach, Florida Health Care Facilities Revenue Bonds (Fleet Landing Project),Series 2013B issued pursuant to the Series 2013B Bond Indenture. "Series 2013B Bond Trustee" means U.S. Bank National Association, as bond trustee under the Series 2013B Bond Indenture. "Series 2013B Loan Agreement" means the Loan Agreement, dated as of October 1, 2013, between the City of Atlantic Beach,Florida and the Obligor,relating to the Series 2013B Bonds. "Series 2013B Note" means the Obligation issued by the Obligated Group Representative pursuant to the terms of the Master Indenture and the Supplemental Indenture to secure repayment of the Series 2013B Bonds. C-20 "Short Term" when used in connection with Indebtedness, means having an original maturity less than or equal to one year and not renewable at the option of the debtor for a term greater than one year beyond the date of original issuance. "Special Record Date" means a special date fixed to determine the names and addresses of owners of Bonds for purposes of paying interest on a special interest payment date for the payment of defaulted interest, all as further provided in Section 2.03 of the Bond Indenture. "Stable Occupancy" means in connection with the incurrence of Additional Indebtedness for any Capital Addition, the meaning given such term in the Supplement relating to such Additional Indebtedness, based on the sustainable capacity for which such facility was designed as stated in the Consultant's report issued at such time. "Standard & Poor's" means Standard&Poor's, a business of Standard&Poor's Financial Services LLC, a limited liability company organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Standard & Poor's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Representative,with written notice to the Master Trustee. "Stated Maturity" when used with respect to any Indebtedness or any installment of interest thereon means any date specified in the instrument evidencing such Indebtedness or such installment of interest as a fixed date on which the principal of such Indebtedness or any installment thereof or the fixed date on which such installment of interest is due and payable. "Subordinated Indebtedness" means any promissory note, guaranty, lease, contractual agreement to pay money or other obligation the terms of the documents providing for the issuance of which expressly provide that all payments on such indebtedness shall be subordinated to the timely payment of all Obligations, whether currently Outstanding or subsequently issued. "Subsidy Bonds" means any Related Bonds for which the issuer or conduit borrower is entitled to receive Federal Subsidy Payments directly from the United States Department of Treasury or other federal governmental agency or entity authorized to make such payments under the Code. "Supplement" means an indenture supplemental to, and authorized and executed pursuant to the terms of, the Master Trust Indenture. "Supplemental Indenture" means the Supplemental Master Trust Indenture Number 2, dated as of October 1, 2013, by the Obligor executed and delivered to the Master Trustee, supplementing the Master Trust Indenture and providing for the issuance of the Note. "Surplus Project Fund Moneys" means all moneys (including moneys earned pursuant to the provisions of Article VI of the Bond Indenture) remaining in the Construction Fund after completion or termination of the Project (as evidenced by a Completion Certificate) and payment of all other costs then due and payable from the Construction Fund. "Tax Compliance Agreement" means the Tax Exemption Agreement and Certificate between the Issuer and the Obligor,related to the Bonds. "Tax-Exempt Organization" means a Person organized under the laws of the United States of America or any state thereof that is exempt from federal income taxes under Section 501(a) of the Code as 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. "Testing Date" shall have the meaning ascribed to it in Section 4.20 of the Master Trust Indenture. C-21 "Threshold Amount" means the greater of(a) 3%of Book Value or,at the option of the Obligated Group Representative, the Current Value of the Property, Plant and Equipment of the Obligated Group, or (b) $1,000,000 plus an amount equal to $1,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of January 1,2013. "Trust Estate" means (A)with respect to the Master Trust Indenture, the meaning given such term in the Granting Clauses of the Master Trust Indenture, and (B) with respect to the Loan Agreement and the Bond Indenture, the property pledged and assigned to the Bond Trustee pursuant to the granting clauses of the Bond Indenture. "Unrestricted Contributions" means Contributions which are not restricted in any way that would prevent their application to the payment of debt service on Indebtedness of the Person receiving such Contributions. "Working Capital Fund" means any working capital fund or account established in connection with the financing of a Capital Addition. C-22 EXCERPTS FROM MASTER TRUST INDENTURE The following are certain excerpts from the Master Trust Indenture. These excerpts do not purport to be complete and are qualified in their entirety by reference to the Master Trust Indenture. ARTICLE II THE OBLIGATIONS SECTION 2.01. SERIES AND AMOUNT OF OBLIGATIONS. (a) Obligations shall be issued under the Master Trust Indenture in series created by Supplements permitted hereunder. Each series shall be designated to differentiate the Obligations of such series from the Obligations of any other series. No Obligation issued hereunder shall be secured on a basis senior to other Obligations; provided, however, that the provision of an Interest Rate Agreement, letter or line of credit, standby bond purchase agreement, bond insurance policy or other similar instrument or obligation issued by a financial institution or municipal bond insurer or the establishment of a debt service reserve fund or account for the sole benefit of the Holders of certain Obligations, shall be permitted. The number of series of Obligations that may be created under the Master Trust Indenture is not limited. The aggregate principal amount of Obligations of each series that may be created under the Master Trust Indenture is not limited except as restricted by Supplement and the provisions of Article IV of the Master Trust Indenture. (b) Any Obligated Group Member proposing to incur Indebtedness other than the Series 2013A Note whether evidenced by Obligations issued pursuant to a Supplement or by evidences of Indebtedness issued pursuant to documents other than the Master Trust Indenture, shall give written notice of its intention to incur such Indebtedness, including in such notice the amount of Indebtedness to be incurred, to the Obligated Group Representative and the other Obligated Group Members. The Obligated Group Representative shall provide the Master Trustee with a copy of any such notice it receives prior to the date such Indebtedness is to be incurred. Any such Obligated Group Member, other than the Obligated Group Representative, proposing to incur such Indebtedness other than the Series 2013A Note, shall obtain the written consent of the Obligated Group Representative, which consent shall be evidenced by an Officer's Certificate of the Obligated Group Representative filed with the Master Trustee or an endorsement to such Indebtedness signed by the Obligated Group Representative. The Series 2013A Note is issued simultaneously with the execution and delivery hereof. SECTION 2.02. APPOINTMENT OF OBLIGATED GROUP REPRESENTATIVE. Each Obligated Group Member, by becoming an Obligated Group Member, irrevocably appoints the Obligated Group Representative as its agent and true and lawful attorney in fact and grants to the Obligated Group Representative(a) full and exclusive power to execute Supplements authorizing the issuance of Obligations or series of Obligations,(b) full and exclusive power to execute Obligations for and on behalf of the Obligated Group and each Obligated Group Member, (c) full and exclusive power to execute Supplements on behalf of the Obligated Group and each Obligated Group Member pursuant to Sections 9.01 and 9.02 of the Master Trust Indenture, and(d) full power to prepare, or authorize the preparation of, any and all documents, certificates or disclosure materials reasonably and ordinarily prepared in connection with the issuance of Obligations hereunder, or Related Bonds associated therewith, and to execute and deliver such items to the appropriate parties in connection therewith. SECTION 2.04. SUPPLEMENT CREATING OBLIGATIONS. The Obligated Group Representative (on behalf of the Obligated Group Members)and the Master Trustee may from time to time enter into a Supplement in order to create Obligations hereunder. Each Supplement authorizing the issuance of Obligations shall specify and determine the date of the Obligations, the principal amount thereof, the purposes for which such Obligations are being issued, the form, title, designation, and the manner of numbering or denominations, if applicable, of such Obligations, the date or dates of maturity of such Obligations,the rate or rates of interest(or method of determining the rate or rates of interest) and premium, if any, borne by such Obligations, the arrangement for place and medium of payment, and any other provisions deemed advisable or necessary, and any of the foregoing terms may be incorporated into such Supplement by reference. Each Obligation shall be issuable, shall be transferable and exchangeable and shall be subject to redemption as specified in the Master Trust Indenture and in the Supplement. Any Obligation to be held by a Related Bond Trustee in connection with the issuance of Related Bonds shall be in the principal amount equal to the aggregate principal amount of such Related Bonds and shall be registered in the name of the Related Bond Trustee as assignee of the issuer of the Related Bonds. Unless an Obligation has been C-23 registered under the Securities Act of 1933, as amended (or similar legislation subsequently enacted), each such Obligation shall be endorsed with a legend which shall read substantially as follows: "This [describe Obligation] has not been registered under the Securities Act of 1933 or any state securities law (or any such similar subsequent legislation);" provided, however, such legend shall not be required if the Master Trustee is provided with an Opinion of Counsel to the effect that such legend is not required. A Supplement and the Obligations issued thereunder may contain, as applicable, provisions relating to bond insurance or other forms of credit or liquidity enhancement, as well as any and all compatible provisions necessary in order to make the Obligations meet the requirements of an issuer of any credit or liquidity enhancement. Similarly, a Supplement may provide for Obligations to be issued in fixed or variable rate forms, as the case may be, with such tender and redemption provisions as may be deemed necessary for the issuance thereof and provide for the execution of required documents necessary for such purposes, and may specifically subordinate payment, remedies and any other provisions of the Obligations issued thereunder to the provisions of any other Obligations. SECTION 2.05. CONDITIONS TO ISSUANCE OF OBLIGATIONS HEREUNDER. With respect to Obligations created hereunder, simultaneously with or prior to the execution, authentication and delivery of Obligations pursuant to the Master Trust Indenture: (a) The Obligated Group Representative(on behalf of the Obligated Group Members)and the Master Trustee shall have entered into a Supplement as provided in Section 2.04 of the Master Trust Indenture, and all requirements and conditions to the issuance of such Obligations set forth in the Supplement and in the Master Trust Indenture, including,without limitation,the provisions of Section 4.16 of the Master Trust Indenture(provided that such provisions shall not be applicable to the Series 2013A Note), shall have been complied with and satisfied, as provided in an Officer's Certificate of the Obligated Group Representative,a copy of which shall be delivered to the Master Trustee;and (b) The Obligated Group Representative shall have delivered to the Master Trustee an Opinion of Counsel to the effect that (1) registration of such Obligations under the Securities Act of 1933, as amended, and qualification of the Master Trust Indenture or the Supplement under the Trust Indenture Act of 1939, as amended, is not required, or, if such registration or qualification is required, that all applicable registration and qualification provisions of said acts have been complied with, and (2) the Master Trust Indenture and the Obligations are valid, binding and enforceable obligations of each of the Obligated Group Members in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance and other laws affecting creditors'rights generally,usual equity principles and other customary exclusions. SECTION 2.06. LIST OF HOLDERS OF OBLIGATIONS. The Master Trustee shall keep on file at its office the Obligation Register which shall consist of a list of the names and addresses of the Holders of all Obligations. At reasonable times and under reasonable regulations established by the Master Trustee,the Obligation Register may be inspected and copied by any Obligated Group Member, the Holder of any Obligation or the authorized representative thereof, provided that the ownership by such Holder and the authority of any such designated representative shall be evidenced to the satisfaction of the Master Trustee. SECTION 2.08. MUTILATED, DESTROYED, LOST AND STOLEN OBLIGATIONS. If (i) any mutilated Obligation is surrendered to the Master Trustee, or the Master Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Obligation, and (ii) there is delivered to the Master Trustee such security or indemnity as may be required by the Master Trustee to save it and the Obligated Group Representative harmless, then, in the absence of notice to the Obligated Group Representative or the Master Trustee that such Obligation has been acquired by a bona fide purchaser, the Obligated Group Representative shall execute and upon its request the Master Trustee shall authenticate and deliver in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Obligation, a new Obligation of like tenor, series, interest rate and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Obligation has become or is about to become due and payable, the Obligated Group Representative in its discretion may, instead of issuing a new Obligation, pay such Obligation. C-24 Upon the issuance of any new Obligation under this Section, the Obligated Group Representative and the Master Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Master Trustee) connected therewith. Every new Obligation issued pursuant to this Section in lieu of any destroyed, lost or stolen Obligation shall constitute an original additional contractual obligation of the maker thereof, whether or not the destroyed, lost or stolen Obligation shall be at any time enforceable by anyone, and shall be entitled to all the benefits and security of the Master Trust Indenture equally and proportionately with any and all other Obligations duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated,destroyed, lost or stolen Obligations. ARTICLE III FUNDS AND ACCOUNTS SECTION 3.01. REVENUE FUND. (a) If an Event of Default under Section 7.01(a)of the Master Trust Indenture shall occur and continue for a period of five days, each Obligated Group Member shall deposit with the Master Trustee all Gross Revenues of such Obligated Group Member(except to the extent otherwise provided by or inconsistent with any instrument creating any mortgage, lien, charge, encumbrance,pledge or other security interest granted,created,assumed,incurred or existing in accordance with the provisions of Section 4.19 of the Master Trust Indenture) during each succeeding month, beginning on the first day thereof and on each day thereafter, until no default under Section 7.01(a)of the Master Trust Indenture or in the payment of any other Obligations then exists. (b) On the fifth Business Day preceding the end of each month in which any Obligated Group Member has made payments to the Master Trustee for deposit into the Revenue Fund, the Master Trustee shall withdraw and pay or deposit from the amounts on deposit in the Revenue Fund the following amounts in the order indicated: First: To the payment of all amounts due the Master Trustee under the Master Trust Indenture; Second: To the payment of the amounts then due and unpaid upon the Obligations, other than Obligations constituting Subordinated Indebtedness, for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Obligations for principal (and premium, if any)and interest,respectively; Third: To the payment of the amounts then due and unpaid upon the Obligations constituting Subordinated Indebtedness for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Obligations for principal (and premium, if any) and interest,respectively; and Fourth: To the Obligated Group Representative. (c) The money deposited to the Revenue Fund, together with all investments thereof and investment income therefrom, shall be held in trust and applied solely as provided in this Section and in Section 7.08 of the Master Trust Indenture. Pending disbursements of the amounts on deposit in the Revenue Fund,the Master Trustee shall promptly invest and reinvest such amounts in accordance with Section 3.02 of the Master Trust Indenture. All such investments shall have a maturity not greater than 91 days from date of purchase. (d) Except as described in Section 3.01(a) above, each Obligated Group Member shall be entitled to full possession and use of its Gross Revenues. C-25 SECTION 3.02. INVESTMENT OF FUNDS. Any moneys held by the Master Trustee hereunder, including any fund or account established pursuant to any Supplement, shall be invested or reinvested by the Master Trustee in Permitted Investments upon the receipt of an Obligated Group Representative Request (upon which the Master Trustee is entitled to rely). Any such investments shall be held by or under the control of the Master Trustee and shall mature, or be redeemable at the option of the Master Trustee at such times as it is anticipated by the Obligated Group Representative that moneys from the particular fund will be required for the purposes of the Master Trust Indenture. For the purpose of any investment or reinvestment under this Section,investments shall be deemed to mature at the earliest date on which the obligor under such investment is,on demand,obligated to pay a fixed sum in discharge of the whole of such obligation. Any Permitted Investments may be purchased from or sold to the Master Trustee or any of its respective affiliates. SECTION 3.03. ALLOCATION AND TRANSFERS OF INVESTMENT INCOME. Any investments in any fund or account shall be held by or under the control of the Master Trustee and shall be deemed at all times a part of the fund or account from which the investment was made. Any loss resulting from such investments shall be charged to such fund or account. Any interest or other gain from any fund or account from any investment or reinvestment pursuant to Section 3.02 of the Master Trust Indenture on deposit in such fund or account(other than the Revenue Fund) on each January 1, April 1, July 1 and October 1 shall be transferred to the Obligated Group Representative upon its written request. SECTION 3.04. MASTER TRUSTEE RELIEVED FROM RESPONSIBILITY. The Master Trustee shall be fully protected in relying upon any Obligated Group Representative Request relating to investments in any fund,and shall not be liable for any losses or prepayment penalties as a result of complying with any such Obligated Group Representative Request,and shall not be required to ascertain any facts with respect to such Request. ARTICLE IV COVENANTS OF THE OBLIGATED GROUP MEMBERS SECTION 4.01. TITLE TO TRUST ESTATE. The Obligor warrants that it has good and indefeasible title to the Trust Estate free and clear of any liens, charges, encumbrances, security interests and adverse claims whatsoever except the encumbrances permitted by Section 4.19 of the Master Trust Indenture. The Obligor represents that it has the right to mortgage the Mortgaged Property and to enter into the Mortgage and will warrant and defend to Master Trustee, the title and the lien of the Master Trust Indenture and the Mortgage as a valid and enforceable mortgage thereon and lien on the Trust Estate, including the Mortgaged Property,and a security interest therein subject to Permitted Encumbrances. This Master Trust Indenture constitutes a valid and subsisting lien on and security interest in the Trust Estate,all in accordance with the terms hereof,subject to Permitted Encumbrances. SECTION 4.02. FURTHER ASSURANCES. The Obligor, upon the request of the Master Trustee or any Related Bond Trustee,will execute, acknowledge,deliver and record and/or file such further instruments and do such further acts as may be necessary, desirable or proper to carry out more effectively the purpose of the Master Trust Indenture and to subject the Trust Estate to the liens and security interests hereof. SECTION 4.03. RECORDING AND FILING. The Obligor shall cause the Mortgage and all other instruments necessary to create and/or preserve the liens and security interests granted hereunder and all amendments and supplements thereto and substitutions therefor to be recorded, filed,re-recorded and refiled in such manner and in such places as are necessary to protect the lien on and security interests in the Trust Estate and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges. Additionally, the Obligor hereby authorizes the Master Trustee at any time and from time to time to file any financing statements, amendments thereto and continuation statements with or without the signature of the Obligor as authorized by applicable law,as applicable to all or part of the Property for the purpose of securing the lien on and security interest in the Trust Estate created pursuant to the Master Trust Indenture and the Mortgage. Notwithstanding the preceding sentence, the Master Trustee shall not be liable for failure to effect any such filings. For purposes of such filings, the Obligor agrees to furnish any information requested by the Master Trustee promptly upon request by the Master Trustee. The Obligor hereby irrevocably constitutes and appoints the Master Trustee and any officer or agent of the Master Trustee, with full power of substitution, as its true and lawful attorneys in fact with full irrevocable power and authority in the place and stead of the Obligor or in the Obligor's own name to execute in the Obligor's name C-26 any documents and otherwise to carry out the purposes of this Section 4.03, to the extent that the Obligor's authorization above is not sufficient. To the extent permitted by law, the Obligor hereby ratifies all acts said attorneys in fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable. Furthermore,the Master Trust Indenture shall also constitute a "fixture filing" for the purpose of Article 9 of the Florida Uniform Commercial Code against all of the Trust Estate which is or to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of the Obligor and the Master Trustee as set forth in Section 1.05 of the Master Trust Indenture. The Obligor shall promptly notify the Master Trustee of any change in its organizational identification number or address. SECTION 4.04. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Obligated Group Representative will duly and punctually pay the principal of(and premium, if any)and interest on the Obligations in accordance with the terms of the Obligations and the Master Trust Indenture. Each Obligated Group Member hereby jointly and severally unconditionally guarantees the full and timely payment of the principal of,and premium,if any, and interest on all Outstanding Obligations which such Person has not created or otherwise made (and on which such Person is not otherwise primarily liable) in accordance with the terms thereof, whether at Stated Maturity, declaration of acceleration, call for redemption or otherwise. Such guaranty shall not be affected, modified or impaired upon the happening from time to time of any event, other than the payment of such Obligations(or provision therefor), including,without limitation,any of the following,whether or not with notice to,or the consent of,the guarantor: (a) the waiver, compromise, settlement, release or termination by any Person of the obligations evidenced by such Obligations or any covenant or security in support thereof; (b) the failure to give notice to the guarantor of the occurrence of an event of default under the terms and provisions of the Master Trust Indenture or any agreement under which such Obligations are created, assumed, guaranteed or secured; (c) any failure, omission, or delay on the part of the Master Trustee or the Holder of such Obligations to enforce, assert or exercise any right, power or remedy conferred on the Master Trustee or such Holder in the Master Trust Indenture or any other agreement under which such Obligations are created, assumed, guaranteed or secured; (d) the voluntary or involuntary liquidation,dissolution,sale or other disposition of all or substantially all the assets,marshaling of assets and liabilities,receivership,insolvency, bankruptcy, assignment for the benefit of creditors, reorganization or arrangement under bankruptcy or similar laws, composition with creditors or readjustment of,or other similar proceedings affecting any such guarantor or any other obligor on Obligations; (e) the invalidity, irregularity, illegality, unenforceability, or lack of value of, or any defect in any of the Obligations so guaranteed or any collateral security therefor;or (f) to the extent permitted by law,any event or action that would, in the absence of this Section,result in the release or discharge by operation of laws of such guarantor from the performance or observance of any obligation,covenant,or agreement contained in the Master Trust Indenture. SECTION 4.05. PAYMENT OF TAXES AND OTHER CLAIMS. Each Obligated Group Member will pay or discharge or cause to be paid or discharged before the same shall become delinquent, (1) all taxes, assessments, and other governmental charges lawfully levied or assessed or imposed upon it or upon its income, profits, or property, and (2) all lawful claims for labor, materials, and supplies which, if unpaid, might by law become a lien upon its property; provided, however, that no such Person shall be required to pay and discharge or cause to be paid and discharged any such tax, assessment, governmental charge, or claim to the extent that the amount, applicability,or validity thereof shall currently be contested in good faith by appropriate proceedings, such Person shall have established and shall maintain adequate reserves on its books for the payment of the same and such property is not jeopardized as a result of nonpayment. C-27 SECTION 4.06. MAINTENANCE OF PROPERTIES. Each Obligated Group Member will cause all its properties used or useful in the conduct of its business to be maintained and kept in good condition, repair, and working order and supplied with all necessary equipment, ordinary wear and tear, casualty, condemnation, and acts of God excepted. Each Obligated Group Member will cause to be made all necessary repairs, renewals, replacements, betterments, and improvements thereof, all as in the judgment of the Obligated Group Representative may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent any such Person from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of such Person (and in the opinion of the Governing Body of such Person if the property involved is any substantial part of the properties of such Person taken in the aggregate), desirable in the conduct of its business and not disadvantageous in any material respect to the Holders of the Obligations. SECTION 4.07. CORPORATE EXISTENCE; STATUS OF OBLIGOR. (a) Subject to Section 5.01 of the Master Trust Indenture, each Obligated Group Member will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory), and franchises; provided,however,that no Person shall be required to preserve any right or franchise if the Governing Body of such Person shall determine that the preservation thereof is no longer desirable in the conduct of its business and that the loss thereof is not disadvantageous in any material respect to the Holders of the Obligations. (b) The Obligor's exact legal name is correctly set forth at the beginning of the Master Trust Indenture, and the Obligor is an organization of the type specified in the first paragraph of the Master Trust Indenture. The Obligor is formed or incorporated in or organized under the laws of the State of Florida. The Obligor will not cause or permit any change to be made in its name or identity unless the Obligor shall have first notified the Master Trustee in writing of such change at least 30 days prior to the effective date of such change,and shall have first taken all action required by the Master Trustee for the purpose of perfecting or protecting the lien and security interest of the Master Trustee created hereby or by the Mortgage. The place where the Obligor keeps its books and records, including recorded data of any kind or nature, regardless of the medium or recording, including software, writings, plans, specifications and schematics, has been for the preceding two months and will continue to be the address of the Obligor set forth in Section 1.05 of the Master Trust Indenture (unless the Obligor notifies the Master Trustee in writing at least 30 days prior to the date of such change). (c) The Obligor covenants and agrees to take all action necessary to preserve its status as an organization described in Section 501(c)(3)of the Code. SECTION 4.08. PRESERVATION OF QUALIFICATIONS. Each Obligated Group Member will not allow any permit,right, license, franchise or privilege so long as it is necessary for the ownership or operation of the Trust Estate as a continuing care retirement community to lapse or be forfeited. If an Obligated Group Member becomes a provider of services under and a participant in the Medicare program or any successor program thereto or any program by a federal, state or local government providing for payment or reimbursement for services rendered for health care,such Obligated Group Member shall use its commercially reasonable efforts to remain fully qualified as a provider of services and a participant in such program; provided, however, that no Obligated Group Member shall be required to maintain any such qualification if(i) the Governing Board of such Person shall determine that the maintenance of such qualification is not in the best economic interest of such Person, and (ii) at least 30 days prior to the discontinuance of such qualification, such Person shall notify the Initial Purchaser of such proposed discontinuance and shall provide the Initial Purchaser with a written explanation of the basis for such determination. SECTION 4.09. ADDITIONS TO FACILITIES. Any additions, improvements and extensions to the Facilities and repairs, renewals and replacements thereof, including (without limitation) any capital improvements, shall upon their acquisition become part of the Facilities. SECTION 4.10. INSURANCE. Each Member shall maintain, or cause to be maintained at its sole cost and expense, insurance with respect to its Property, the operation thereof and its business against such casualties, contingencies and risks (including but not limited to public liability and employee dishonesty) and in amounts not less than is customary in the case of corporations engaged in the same or similar activities and similarly situated and as is adequate to protect its Property and operations. The Master Trustee shall be named as an additional insured under all such policies. The Obligated Group Representative shall annually review the insurance each Member C-28 maintains as to whether such insurance is customary and adequate. In addition,the Obligated Group Representative shall, at least once every two Fiscal Years with respect to commercial insurance and at least once every Fiscal Year with respect to self-insurance (commencing with its Fiscal Year ending December 31, 2012), cause a certificate of an Insurance Consultant or Insurance Consultants to be delivered to the Master Trustee within 120 days of the applicable Fiscal Year which indicates that the insurance then being maintained by the Members meets the standards described above. The Obligated Group Representative shall cause copies of its review, or the certificates of the Insurance Consultant or Insurance Consultants, as the case may be, to be delivered promptly to the Master Trustee. The Obligated Group or any Member may self-insure if the Insurance Consultant or Insurance Consultants determine(s) that such self-insurance meets the standards set forth in the first sentence of this paragraph and is prudent under the circumstances; provided, however, that no Member of the Obligated Group shall self-insure any of its Property,Plant and Equipment. Naming of the Master Trustee as an insured or additional insured under any insurance policy, or the furnishing to the Master Trustee of information relating thereto, shall not impose upon the Master Trustee any responsibility or duty to approve the form of such policy, the level of coverage, the qualifications of the company issuing same or any other matters relating thereto. SECTION 4.11. RATES AND CHARGES. (a) Each Member covenants and agrees to operate 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 hereunder to the extent permitted by law. Each Member 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 Section. The Members covenant and agree that the Obligated Group Representative will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the Fiscal Year ended December 31,2012 and will deliver a copy of such calculation to the Persons to whom such report is required to be delivered under Section 4.15 hereof. (b) If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Obligated Group Representative, at the Obligated Group's expense, shall select a Consultant and notify the Master Trustee of the selection within thirty (30) days following the calculation described in the Master Trust Indenture, and shall engage a Consultant in accordance with Section 4.21 of the Master Trust Indenture to make recommendations with respect to the rates, fees and charges of the Members and the Obligated Group's methods of operation and other factors affecting its financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year; provided, however, the Obligated Group Representative shall not be required to engage a Consultant for a Fiscal Year in which the Historical Debt Service Coverage Ratio is less than 1.20:1 if: (i) the Historical Debt Service Coverage Ratio is equal to or greater than 1.00:1 and (ii) Days Cash on Hand exceeds two hundred fifty (250) days; but the Obligated Group Representative shall be required to engage a Consultant,regardless of Days Cash on Hand, if the Historical Debt Service Coverage Ratio is less than 1.20:1 for two(2)consecutive Fiscal Years. (c) Within sixty (60) days of the actual engagement of any such Consultant, the Obligated Group Representative shall cause a copy of the Consultant's report and recommendations, if any, to be filed with each Member and each Required Information Recipient. Each Member shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Representative) and permitted by law. This Section shall not be construed to prohibit any Member from serving indigent residents to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of residents without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements of this Section. (d) The foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required above, the Obligated Group shall not be obligated to select a Consultant to make such recommendations if: (a) there is filed with the Master Trustee and C-29 delivered to each Required Information Recipient a written report addressed to them of a Consultant which contains an opinion of such Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year sufficient to meet the requirements of this Section, and such report is accompanied by a concurring opinion of Independent Counsel as to any conclusions of law supporting the opinion of such Consultant; (b) the report of such Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Consultant, the Obligated Group has generated the maximum amount of Revenues reasonably practicable given such laws or regulations; and (c) the Historical Debt Service Coverage Ratio of the Obligated Group for such Fiscal Year was at least 1.00:1. The Obligated Group shall not be required to cause the Consultant's report referred to in the preceding sentence to be prepared more frequently than once every two (2) Fiscal Years if at the end of the first of such two (2) Fiscal Years the Obligated Group provides to the Master Trustee and each Related Bond Trustee an opinion of Independent Counsel to the effect that the applicable laws and regulations underlying the Consultant's report delivered in respect of the previous Fiscal Year have not changed in any material way. (e) If the Obligated Group fails to achieve a Historical Debt Service Coverage Ratio of 1.20:1 for any Fiscal Year, such failure shall not constitute an Event of Default under this Master Trust Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for preparing a report and adopting a plan and follows each recommendation contained in such report to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Obligated Group Representative) and permitted by law; provided,however, it shall be an Event of Default under this Master Trust Indenture if(i)the Obligated Group fails to achieve a Historical Debt Service Coverage Ratio of at least 1.00:1 and the Days Cash on Hand of the Obligated Group as of the last day of the Fiscal Year is less than one hundred eighty (180) days or (ii) the Obligated Group fails to achieve a Historical Debt Service Coverage Ratio of at least 1.00:1 for two(2)consecutive Fiscal Years. (f) Notwithstanding any other provisions of this Master Trust Indenture,in the event that any Member of the Obligated Group incurs any Additional Indebtedness for any acquisition, construction, renovation or replacement project, the Debt Service Requirements on such Additional Indebtedness and the Revenues and Expenses relating to the project or projects financed with the proceeds of such Additional Indebtedness shall be excluded from the calculation of the Historical Debt Service Coverage Ratio of the Obligated Group for the purposes of complying with this Section 4.11 until the first full Fiscal Year following the later of(i) the estimated completion of the acquisition, construction, renovation or replacement project being paid for with the proceeds of such Additional Indebtedness provided that such completion occurs no later than six (6) months following the completion date for such project set forth in the Consultant's report described in(A)below,or(ii)the first full Fiscal Year in which Stable Occupancy is achieved in the case of construction, renovation or replacement of elderly housing facilities or nursing facilities financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected in the report of the Consultant referred to in paragraph (A) below to occur no later than during the fifth full Fiscal Year following the incurrence of such Additional Indebtedness,or(iii)the end of the fifth full Fiscal Year after the incurrence of such Additional Indebtedness,if the following conditions are met: (A) there is delivered to the Master Trustee a report or opinion of a Consultant to the effect that the Projected Debt Service Coverage Ratio for the first full Fiscal Year following the later of(i) the estimated completion of the acquisition, construction, renovation or replacement being paid for with the proceeds of such Additional Indebtedness, or (ii) the first full Fiscal Year following the year in which Stable Occupancy is achieved in the case of construction, renovation or replacement of elderly housing facilities or nursing facilities being financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected to occur no later than during the fifth full Fiscal Year following the incurrence of such Additional Indebtedness,will be not less than 1.20:1 after giving effect to the incurrence of such Additional Indebtedness and the application of the proceeds thereof;provided,however, that in the event that a Consultant shall 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 Members to produce the required ratio, then such ratio shall be reduced to the highest practicable ratio then permitted by such laws or regulations but in no event less than 1.00:1; provided, however, that in the event a 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 Consultant's report described in this subparagraph(A); and C-30 (B) 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 Section 4.15 hereof 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 (i) the Additional Indebtedness to be incurred if(1)the interest on such Additional Indebtedness during such period is funded from proceeds thereof or other funds of the Member then on hand and available therefore, and(2)no principal of such Additional Indebtedness is payable during such period,and(ii)the Revenues to be derived from the project to be financed from the proceeds of such Additional Indebtedness. SECTION 4.12. DAMAGE OR DESTRUCTION. Each Member agrees to notify the Master Trustee immediately in the case of the destruction of its Facilities or any portion thereof as a result of fire or other casualty, or any damage to such Facilities or portion thereof as a result of fire or other casualty,the Net Proceeds of which are estimated to exceed the Threshold Amount. If such Net Proceeds do not exceed the Threshold Amount, such Net Proceeds may be paid directly to the Member suffering such casualty or loss. The Members covenant that they will expend or contract to expend an amount not less than the amount of any such Net Proceeds within 24 months after receipt thereof to(i)repair,replace or restore the damaged or destroyed Facilities,(ii)acquire or construct additional capital assets for any one or more Members, or(iii)repay the principal portion of any Indebtedness incurred by any one or more Members of the Obligated Group to acquire or construct capital assets or refinance Indebtedness incurred for such purpose. In the event such Net Proceeds exceed the Threshold Amount, the Member suffering such casualty or loss shall within 12 months after the date on which the Net Proceeds are finally determined,elect by written notice to the Master Trustee one of the following three options: (a) Option A-Repair and Restoration. Such Member may elect to replace,repair,reconstruct,restore or improve any of the Facilities of the Obligated Group or acquire additional Facilities for the Obligated Group or repay Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds.In such event an amount equal to the Net Proceeds of any insurance relating thereto shall be deposited, when received, with the Master Trustee and such Member shall proceed forthwith to replace, repair, reconstruct,restore or improve Facilities of the Obligated Group or to acquire additional Facilities and will apply the Net Proceeds of any insurance relating to such damage or destruction received from the Master Trustee to the payment or reimbursement of the costs of such replacement, repair, reconstruction, restoration, improvement or acquisition or to the repayment of such Indebtedness. So long as an Event of Default has not occurred and is continuing hereunder, any Net Proceeds of insurance relating to such damage or destruction received by the Master Trustee shall be released from time to time by the Master Trustee to such Member upon the receipt by the Master Trustee of: (i) the Request of such Member specifying the expenditures made or to be made or the Indebtedness incurred in connection with such replacement, repair, reconstruction, restoration, improvement or acquisition and stating that such Net Proceeds, together with any other moneys legally available for such purposes, will be sufficient to complete such replacement, repair, reconstruction, restoration,improvement or acquisition; and (ii) if such expenditures were or are to be made or such Indebtedness was incurred for the construction or renovation of Facilities,the written approval of such Request by an independent architect. It is further understood and agreed that in the event such Member shall elect this Option A, such Member shall complete the replacement, repair, reconstruction, restoration, improvement and acquisition of the Facilities, whether or not the Net Proceeds of insurance received for such purposes are sufficient to pay for the same. (b) Option B - Prepayment of Obligations. Such Member may elect to have all of the Net Proceeds payable as a result of such damage or destruction applied to the prepayment of the Obligations. In such event such Member shall, in its notice of election to the Master Trustee, direct the Master Trustee to apply such Net Proceeds, when and as received,to the prepayment of Obligations on a pro rata basis among all Obligations Outstanding. C-31 (c) Option C -Partial Restoration and Partial Prepayment of Obligations. Such Member may elect to have a portion of such Net Proceeds applied to the replacement,repair, reconstruction, restoration and improvement of the Facilities of the Obligated Group or the acquisition of additional Facilities for the Obligated Group or the repayment of Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds with the remainder of such Net Proceeds to be applied to prepay Obligations on a pro rata basis among all Obligations Outstanding, in which event such Net Proceeds to be used for replacement, repair, reconstruction, restoration, improvement and acquisition shall be applied as set forth in subparagraph (a) of this Section 4.12 and such Net Proceeds to be used for prepayment of the Obligations shall be applied as set forth in subparagraph (b) of this Section. Notwithstanding the foregoing, the proceeds of business interruption insurance are not subject to the provisions of this Section. SECTION 4.13. CONDEMNATION. The Master Trustee shall cooperate fully with the Members in the handling and conduct of any prospective or pending condemnation proceedings with respect to their Facilities or any part thereof. Each Member hereby irrevocably assigns to the Master Trustee, as its interests may appear, all right, title and interest of such Member in and to any Net Proceeds of any award, compensation or damages payable in connection with any such condemnation or taking, or payment received in a sale transaction consummated under threat of condemnation (any such award, compensation, damages or payment being hereinafter referred to as an "award"),which exceeds the Threshold Amount. Such Net Proceeds shall be initially paid to the Master Trustee for disbursement or use as hereinafter provided. If such Net Proceeds do not exceed the Threshold Amount, such Net Proceeds may be paid to the Member in question. The Members covenant that they will expend or contract to expend an amount not less than the amount of any such Net Proceeds within 24 months of the receipt thereof to (i) restore,replace or repair the condemned Facilities,(ii)acquire or construct additional capital assets,or(iii)repay the principal portion of Indebtedness incurred by one or more Members of the Obligated Group to acquire or construct capital assets or to refinance Indebtedness incurred for such purpose. In the event such Net Proceeds exceed the Threshold Amount, the Member in question shall within 12 months after the date on which the Net Proceeds are finally determined elect by written notice of such election to the Master Trustee one of the following three options: (a) Option A - Repairs and Improvements. The Member may elect to use the Net Proceeds of the award for restoration or replacement of or repairs and improvements to the Facilities of the Obligated Group or the acquisition of additional Facilities for the Obligated Group or the repayment of Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds.In such event,so long as an Event of Default has not occurred and is continuing hereunder, such Member shall have the right to receive such Net Proceeds from the Master Trustee from time to time upon the receipt by the Master Trustee of: (i) the Request of such Member specifying the expenditures made or to be made or the Indebtedness incurred in connection with such restoration, replacement, repairs, improvements and acquisitions and stating that such Net Proceeds, together with any other moneys legally available for such purposes, will be sufficient to complete such restoration, replacement, repairs, improvements and acquisition; and (ii) if such expenditures were or are to be made or such Indebtedness was incurred for the construction or renovation of Facilities,the written approval of such Request by an independent architect. (b) Option B - Prepayment of Obligations. Such Member may elect to have such Net Proceeds of the award applied to the prepayment of the Obligations. In such event such Member shall, in its notice of election to the Master Trustee, direct the Master Trustee to apply such Net Proceeds, when and as received, to the prepayment of Obligations on a pro rata basis among all Obligations Outstanding. (c) Option C -Partial Restoration and Partial Prepayment of Obligations. Such Member may elect to have a portion of such Net Proceeds of the award applied to the repair,replacement,restoration and improvement of the Facilities of the Obligated Group or the acquisition of additional Facilities for the Obligated Group or the repayment of Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds, with the C-32 remainder of such Net Proceeds to be applied to the prepayment of Obligations on a pro rata basis among all Obligations Outstanding, in which event such Net Proceeds to be used for repair, replacement, restoration, improvement and acquisition shall be applied as set forth in subparagraph (a) of this Section 4.13 and such Net Proceeds to be used for prepayment of the Obligations shall be applied as set forth in subparagraph (b) of this Section. SECTION 4.14. OTHER PROVISIONS WITH RESPECT TO NET PROCEEDS. Amounts received by the Master Trustee in respect of any awards shall, at the Request of the Obligated Group Representative, be deposited with the Master Trustee in a special trust account and be invested or reinvested by the Master Trustee as directed in writing by the Obligated Group Representative in Permitted Investments subject to any Member's right to receive the same pursuant to Sections 4.12 and 4.13 of the Master Trust Indenture. If any Member elects to proceed under either Section 4.12(a) or(c) of the Master Trust Indenture or 4.13(a) or(c)of the Master Trust Indenture, any amounts in respect of such Net Proceeds not so paid to such Member shall be used to prepay Obligations on a pro rata basis among all Obligations Outstanding. SECTION 4.15. FINANCIAL STATEMENTS,ETC. (a) The Members covenant that they will keep or cause to be kept proper books of records and accounts in which full, true and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Obligated Group in accordance with generally accepted accounting principles consistently applied except as may be disclosed in the notes to the audited financial statements referred to in subparagraph (b) below. To the extent that generally accepted accounting principles would require consolidation of certain financial information of entities which are not Members of the Obligated Group with financial information of one or more Members, consolidated financial statements prepared in accordance with generally accepted accounting principles which include information with respect to entities which are not Members of the Obligated Group may be delivered in satisfaction of the requirements of this Section 4.15 so long as: (i) supplemental information in sufficient detail to separately identify the information with respect to the Members of the Obligated Group is delivered to the Required Information Recipients with the audited financial statements; (ii) such supplemental information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements delivered to the Required Information Recipients and, in the opinion of the accountant, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole; and (iii) such supplemental information is used for the purposes hereof or for any agreement, document or certificate executed and delivered in connection or pursuant to the Master Trust Indenture. (b) The Obligated Group Representative will furnish or cause to be furnished to each Required Information Recipient (and the Master Trustee shall have no duty or obligation to review or examine the contents thereof),all of the following: (i) Quarterly unaudited financial statements of the Obligated Group as soon as practicable after they are available but in no event more than 45 days after the completion of such fiscal quarter, including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period, a combined or combining balance sheet as of the end of each such fiscal quarter, and a calculation of Days Cash on Hand, Historical Debt Service Coverage Ratio and Occupancy, for such fiscal quarter if required to be calculated by Sections 4.11 and 4.20 of the Master Trust Indenture,all prepared in reasonable detail and certified,subject to year end adjustment,by an officer of the Obligated Group Representative. Such financial statements and calculations shall be accompanied by a comparison to the annual budget provided pursuant to subsection(iii)below. If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 and Days Cash on Hand of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided herein, the Obligated Group will deliver the financial information and the calculations described in the above paragraph on a monthly basis within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and Days Cash on Hand of the Obligated Group is at least equal to the Liquidity Requirement. (ii) Within 150 days of the end of each Fiscal Year, an annual audited financial report of the Obligated Group prepared by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year, a combined and an unaudited combining C-33 statement of cash flows for such Fiscal Year, and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year,showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants preparing such report containing calculations of the Obligated Group's Historical Debt Service Coverage Ratio and Days Cash on Hand for said Fiscal Year and a statement that such accountants have no knowledge of any default under the Master Trust Indenture insofar as it relates to accounting matters or to the Obligated Group's financial covenants, or if such accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof. (iii) On or before the date of delivery of the financial reports referred to in subsection (b)(ii) above, an Officer's Certificate of the Obligated Group Representative (A) stating that the Obligated Group is in compliance with all of the terms,provisions and conditions of the Master Trust Indenture,any Related Loan Agreement, and any Related Bond Indenture or, if not, specifying all such defaults and the nature thereof, (B) calculating and certifying Days Cash on Hand and the Historical Debt Service Coverage Ratio, if required to be calculated for such Fiscal Year by Sections 4.11 and 4.20 of the Master Trust Indenture,as of the end of such month or Fiscal Year, as appropriate, and (C) attaching a summary of the Obligated Group's annual operating and capital budget for the coming Fiscal Year. (iv) On or before the date of delivery of the financial reports referred to in subsections (b)(i) and(ii)above,a management's discussion and analysis of results for the applicable fiscal period. (v) Copies of (A) any board approved revisions to the summary of the annual budget provided pursuant to subsection(b)(iii) above, or(B) any correspondence to or from the Internal Revenue Service concerning the status of the Obligor as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of any Related Bonds,promptly upon receipt. (vi) Within 150 days of the end of the Firscal Year ending December 31, 2012, and within 150 days of the end of each third Fiscal Year thereafter,the Obligated Group will obtain an actuarial report, including a calculation of funded status, and the Obligated Group shall deliver an executive summary of such report, including a calculation of the Obligated Group's funded status. Should the Obligated Group engage an actuary to report on funding status more frequently than in the preceding sentence, an executive summary of such report shall be provided. (vii) Such additional information as the Master Trustee or any Related Bond Trustee may reasonably request concerning any Member. (c) The Members also agree that, within 10 days after its receipt thereof, the Obligated Group Representative will file with the Required Information Recipients a copy of each Consultant's report or counsel's opinion required to be prepared under the terms of the Master Trust Indenture. (d) The Obligated Group Representative shall give prompt written notice of a change of accountants by the Obligated Group to the Master Trustee and each Related Bond Trustee. The notice shall state(i)the effective date of such change; (ii) whether there were any unresolved disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which the accountants claimed would have caused them to refer to the disagreement in a report on the disputed matter, if it was not resolved to their satisfaction; and (iii) such additional information relating thereto as such Related Bond Trustee or the Master Trustee may reasonably request. (e) Without limiting the foregoing, each Member will permit, upon reasonable notice, the Master Trustee or any such Related Bond Trustee (or such persons as they may designate) to visit and inspect, at the expense of such Person, its Property and to discuss the affairs,finances and accounts of the Obligated Group with its officers and independent accountants, all at such reasonable times and locations and as often as the Master Trustee or such Related Bond Trustee may reasonably desire. C-34 (f) The Obligated Group Representative may designate a different Fiscal Year for the Members of the Obligated Group by delivering a notice to the Master Trustee designating the first and last day of such new Fiscal Year and whether or not there will be any interim fiscal period(the "Interim Period")of a duration of greater than or less than 12 months preceding such new Fiscal Year. The Members covenant that they will furnish to the Master Trustee and each Related Bond Trustee, as soon as practicable after they are available, but in no event more than 150 days after the last day of such Interim Period, a financial report for such Interim Period certified by a firm of nationally or regionally recognized independent certified public accountants selected by the Obligated Group Representative covering the operations of the Obligated Group for such Interim Period and containing a combined balance sheet as of the end of such Interim Period and a combined statement of changes in fund balances and changes in financial position for such Interim Period and a combined statement of revenues and expenses for such Interim Period, showing in each case in comparative form the financial figures for the comparable period in the preceding Fiscal Year,together with a separate written statement of the accountants preparing such report containing a calculation of the Obligated Group's Historical Debt Service Coverage Ratio for the Interim Period and a statement that such accountants have obtained no knowledge of any default by any Member in the fulfillment of any of the terms, covenants, provisions or conditions of the Master Trust Indenture, or if such accountants shall have obtained knowledge of any such default or defaults,they shall disclose in such statement the default or defaults and the nature thereof(but such accountants shall not be liable directly or indirectly to anyone for failure to obtain knowledge of any default). (g) Delivery of such reports, information and documents described in this Section 4.15 to the Master Trustee is for informational purposes only, and the Master Trustee's receipt thereof shall not constitute notice to it of any information contained therein or determinable from information contained therein, including compliance by the Obligated Group or the Members with any of its or their covenants hereunder, as to which the Master Trustee is entitled to rely exclusively on Officer's Certificates. SECTION 4.16. PERMITTED ADDITIONAL INDEBTEDNESS. So long as any Obligations are outstanding, the Obligated Group will not incur any Additional Indebtedness (whether or not incurred through the issuance of Additional Obligations)other than: (a) Funded Indebtedness, if prior to incurrence thereof or, if such Funded Indebtedness was incurred in accordance with another subsection of this Section 4.16 and any Member wishes to have such Indebtedness classified as having been issued under this subsection(a),prior to such classification,there is delivered to the Master Trustee: (i) an Officer's Certificate to the effect that for the most recent Fiscal Year for which audited financial statements have been filed with the Master Trustee as required by the Master Trust Indenture, the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group was not less than 1.20:1; (ii) (A) an Officer's Certificate to the effect that for the most recent Fiscal Year or four consecutive quarters for which audited financial statements have been filed with the Master Trustee as required by the Master Trust Indenture,the Historical Debt Service Coverage Ratio of the Obligated Group was not less than 1.20:1; and (B) a written report of a Consultant (prepared in accordance with industry standards) to the effect that the estimated Projected Debt Service Coverage Ratio of the Obligated Group will be not less 1.25:1 for each of the first two full Fiscal Years following the later of(1) the estimated completion of the development, marketing, acquisition, construction, renovation or replacement facilities being paid for with the proceeds of such additional Funded Indebtedness, or (2) the first full Fiscal Year following the attainment of Stable Occupancy in the case of construction, renovation or replacement of elderly housing facilities being financed with the proceeds of such additional Funded Indebtedness, provided that the attainment of Stable Occupancy is projected to occur no later than during the fifth full Fiscal Year following the incurrence of such Funded Indebtedness, or (3) following the incurrence of Funded Indebtedness for other purposes; provided that such report shall include forecast balance sheets, statements of revenues and expenses and statements of changes in financial position for such Fiscal Year and a statement of the relevant assumptions upon which such forecasted statements are based, which financial statements must indicate that sufficient revenues and cash flow could be generated to pay the operating expenses of the Obligated Group's proposed and existing Facilities and the debt service on the Obligated Group's other existing Indebtedness during such Fiscal Year;or C-35 (iii) with respect to the Funded Indebtedness issued not later than March 31, 2014 issued for the purpose of financing certain improvements to the Health Care Center and the addition of memory support Units, in the aggregate principal amount not exceeding$20,000,000. (b) Completion Funded Indebtedness in an amount of no more than 10% of the Funded Indebtedness originally incurred to finance the construction of the Facilities, if there is delivered to the Master Trustee: (i) an Officer's Certificate of the Member for whose benefit such Indebtedness is being issued stating that at the time the original Funded Indebtedness for the Facilities to be completed was incurred, such Member had reason to believe that the proceeds of such Funded 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 an expert setting forth the amount estimated to be needed to complete the Facilities,and(iii) an Officer's Certificate of such Member stating that the proceeds of such Completion Funded 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)above. (c) Funded Indebtedness for the purpose of refunding (whether in advance or otherwise, including without limitation refunding through the issuance of Crossover Refunding Indebtedness) any outstanding Funded Indebtedness if prior to the incurrence thereof an Officer's Certificate of a Member is delivered to the Master Trustee stating that, taking into account the issuance of the proposed Funded Indebtedness and the application of the proceeds thereof and any other funds available to be applied to such refunding, the Maximum Annual Debt Service Requirement of the Obligated Group will not be increased by more than 10%,provided that if only a portion of any outstanding Funded Indebtedness is being refunded, such Officer's Certificate shall state that under such assumptions the Maximum Annual Debt Service Requirement of the Obligated Group will not be increased. (d) Short Term Indebtedness (other than accounts payable under subsection (h) hereof), in a total principal amount which at the time incurred does not, together with the principal amount of all other such Short Term Indebtedness of the Obligated Group then outstanding under this subsection (d) but excluding the principal payable on all Funded Indebtedness during the next succeeding 12 months and also excluding such principal to the extent that amounts are on deposit in an irrevocable escrow and such amounts (including, where appropriate, the earnings or other increments to accrue thereon)are required to be applied to pay such principal and such amounts so required to be applied are sufficient to pay such principal, exceed 10% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported upon by independent certified public accountants are available; provided, however, that for a period of 20 consecutive calendar days in each Fiscal Year the total amount of such Short Term Indebtedness of the Obligated Group outstanding under this subsection(d) shall be not more than 5%of the Revenues of the Obligated Group during the preceding Fiscal Year plus such additional amount as the Obligated Group Representative certifies in an Officer's Certificate is (i) attributable to Short Term Indebtedness incurred to offset a temporary delay in the receipt of funds due from third party payors, and(ii) in the minimum amount reasonably practicable taking into account such delay. For the purposes of this subsection, Short Term Indebtedness shall not include overdrafts to banks to the extent there are immediately available funds of the Obligated Group sufficient to pay such overdrafts and such overdrafts are incurred and corrected in the normal course of business. (e) Balloon Indebtedness if: (i) (A) there is in effect at the time such Balloon Indebtedness is incurred a binding commitment(including without limitation letters or lines of credit or insurance)which may be subject only to commercially reasonable contingencies by a financial institution or bond insurer or surety generally regarded as responsible, to provide financing sufficient to pay the principal amount of such Balloon Indebtedness coming due in each consecutive 12 month period in which 25% or more of the original principal amount of such Balloon Indebtedness comes due; and (B) the conditions set forth in subsection (a) are met for any Fiscal Year in which 25% or more of the original principal amount of such Balloon Indebtedness comes due when it is assumed that (1) the portion of Balloon Indebtedness coming due in C-36 such Fiscal Year matures over 30 years from the date of issuance of the Balloon Indebtedness, bears interest on the unpaid balance at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years, or (2) the portion of Balloon Indebtedness coming due in such Fiscal Year matures according to its actual principal amortization schedule,bears interest on the unpaid balance at the Projected Rate, but this clause (2) shall only be used if the amortization of all Indebtedness of the Obligated Group outstanding, when the Balloon Indebtedness debt service being calculated is calculated according to this subsection(e),varies no more 10%per year; or (ii) the aggregate principal amount of all Balloon Indebtedness issued pursuant to this subsection(e)does not exceed 10%of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported upon by independent certified public accountants are available, and the total amount of all Indebtedness outstanding which was issued pursuant to the provisions of this subsection (e)(ii), and subsections (d), (f)(iii), (1) and (n) shall not exceed 15% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported on by independent certified public accountants are available;or (iii) the Balloon Indebtedness to be incurred has a remaining term of five years or greater beginning in such Fiscal Year,and (A) the Member incurring such Balloon Indebtedness establishes in an Officer's Certificate filed with the Master Trustee an amortization schedule for such Balloon Indebtedness, which amortization schedule shall provide for payments of principal and interest for each Fiscal Year that are not less than the amounts required to make any actual payments required to be made in such Fiscal Year by the terms of such Balloon Indebtedness; (B) such Member agrees in such Officer's Certificate to deposit each Fiscal Year with a bank or trust company (pursuant to an agreement between such Member and such bank or trust company)the amount of principal shown on such amortization schedule net of any amount of principal actually paid on such Balloon Indebtedness during such Fiscal Year (other than from amounts on deposit with such bank or trust company) which deposit shall be made prior to any such required actual payment during such Fiscal Year if the amounts so on deposit are intended to be the source of such actual payments; and (C) the conditions described in subsection (a) above are met with respect to such Balloon Indebtedness when it is assumed that such Balloon Indebtedness is actually payable in accordance with such amortization schedule. (f) Put Indebtedness if: (i) the amount of such Put Indebtedness does not exceed 10% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported upon by independent certified public accountants are available and the conditions set forth in subsection (a) above are met with respect to such Put Indebtedness when it is assumed that (A) such Put Indebtedness bears interest at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years commencing with the next succeeding Put Date, or(B) such Put Indebtedness bears interest at the Projected Rate and is payable according to its actual principal amortization schedule, but this subsection(i) shall only be used if the debt service of all Indebtedness of the Obligated Group outstanding, when the Put Indebtedness debt service being calculated is calculated according to this subsection (i), varies no more than 10%per year; (ii) (A) there is in effect at any time such Put Indebtedness is incurred a binding commitment(including without limitation letters or lines of credit or insurance)which may be subject only to commercially reasonable contingencies by a financial institution or bond insurer or surety generally regarded as responsible, to provide financing sufficient to pay the principal amount of such Put Indebtedness on any Put Date, and(B) the conditions set forth in subsection(a)are met for any Fiscal Year in which 25% or more of the original principal amount of such Put Indebtedness may come due when it is C-37 assumed that(1)the portion of Put Indebtedness which may come due in such Fiscal Year matures over 30 years from the date of issuance of the Put Indebtedness, bears interest on the unpaid balance at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years, or (2) the portion of Put Indebtedness which may come due in such Fiscal Year matures according to its actual principal amortization schedule, bears interest on the unpaid balance at the Projected Rate, but this subsection (ii) shall only be used if the amortization of all Indebtedness of the Obligated Group outstanding, when the Balloon Indebtedness debt service being calculated is calculated according to this subsection(ii),varies more than 10%per year; or (iii) the aggregate principal amount of all Put Indebtedness issued pursuant to this subsection (f)does not exceed 10%of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported on by independent certified public accountants are available, and the total amount of all Indebtedness outstanding which was issued pursuant to the provisions of this subsection(iii), and subsections(d),(e)(ii),(1)and(n)shall not exceed 15%of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported on by independent certified public accountants are available. (g) Liabilities for contributions to self-insurance or shared or pooled risk insurance programs required or permitted to be maintained under the Master Trust Indenture. (h) Indebtedness consisting of accounts payable incurred in the ordinary course of business or other Indebtedness not incurred or assumed primarily to assure the repayment of money borrowed or credit extended which Indebtedness is incurred in the ordinary course of business, including but not limited to deferred obligations for the refund or repayment of Entrance Fees. (i) Indebtedness incurred in connection with a sale or pledge of accounts receivable with or without recourse by any Member consisting of an obligation to repurchase all or a portion of such accounts receivable upon certain conditions, provided that the principal amount of such Indebtedness permitted hereby shall not exceed the aggregate sale price of such accounts receivable received by such Member,with Holder Consent. (j) Non-Recourse Indebtedness,without limit. (k) Extendable Indebtedness if the conditions set forth in subsection (a) above are met when it is assumed that(i) such Indebtedness bears interest at the Projected Rate and is amortized on a level debt service basis over a term equal to the remaining term of the Extendable Indebtedness, or(ii) such Extendable Indebtedness bears interest at the Projected Rate and is payable according to its actual principal amortization schedule, but only if the debt service of all Indebtedness of the Obligated Group outstanding,when the Extendable Indebtedness debt service being calculated is calculated according to this subsection(ii),varies no more than 10%per year. (1) Subordinated Indebtedness,without limit. (m) Commitment Indebtedness,without limit. (n) Indebtedness the principal amount of which at the time incurred, together with the aggregate principal amount of all other Indebtedness then outstanding which was issued pursuant to the provisions of this subsection (n) and which has not been subsequently reclassified as having been issued under another subsection of this Section 4.16, does not exceed 10%of the Revenues of the Obligated Group for the latest preceding Fiscal Year for which financial statements reported upon by independent certified public accountants are available; provided, however, that the total amount of all Indebtedness outstanding which was issued pursuant to the provisions of subsections (d), (e)(ii), (f)(iii), (1) and this subsection (n) shall not exceed 15% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported on by independent certified public accountants are available. It is agreed and understood by the parties hereto that various types of Indebtedness may be incurred under any of the above referenced subsections with respect to which the tests set forth in such subsection are met and need C-38 not be incurred under only a subsection specifically referring to such type of Indebtedness (e.g., Balloon Indebtedness and Put Indebtedness may be incurred under subsection(a)above if the tests therein are satisfied). Each Member covenants that Indebtedness of the type permitted to be incurred under subsection (h) above will not be allowed to become overdue for a period in excess of that which is ordinary for similar institutions without being contested in good faith and by appropriate proceedings. Each Member covenants that prior to, or as soon as reasonably practicable after, the incurrence of Indebtedness by such Member for money borrowed or credit extended, or the equivalent thereof, after the date of issuance of the Series 2013A Note, it will deliver to the Master Trustee an Officer's Certificate which identifies the Indebtedness incurred, identifies the subsection of this Section 4.16 pursuant to which such Indebtedness was incurred, demonstrates compliance with the provisions of such subsection and attaches a copy of the instrument evidencing such Indebtedness; provided, however, that this requirement shall not apply to Indebtedness incurred pursuant to subsection(g)or(h)of this Section 4.16. Each Member agrees that, prior to incurring Additional Indebtedness for money borrowed from or credit extended by entities other than issuers of Related Bonds, sellers of real or personal property for purchase money debt, lessors of such property or banks or other institutional lenders, it will provide the Master Trustee with an opinion of Independent Counsel to the effect that, to such Counsel's knowledge, such Member has complied in all material respects with all applicable state and federal laws regarding the sale of securities in connection with the incurrence of such Additional Indebtedness (including the issuance of any securities or other evidences of indebtedness in connection therewith) and such Counsel has no reason to believe that a right of rescission under such laws exists on the part of the entities to which such Additional Indebtedness is to be incurred. The provisions of the Master Trust Indenture notwithstanding, the Members of the Obligated Group may not incur any Additional Indebtedness the proceeds of which will be used for the acquisition of real Property or the construction of any Facilities unless the right, title and interest in any assets to be financed or refinanced with the proceeds of such Additional Indebtedness and the real estate upon which such assets will be located have been mortgaged and assigned to the Master Trustee pursuant to the Mortgage or pursuant to a mortgage in substantially the form of the Mortgage and such assets and real estate are not subject to any other Lien except for Permitted Encumbrances. SECTION 4.17. CALCULATION OF DEBT SERVICE AND DEBT SERVICE COVERAGE. The various calculations of the amount of Indebtedness of a Person, the amortization schedule of such Indebtedness and the debt service payable with respect to such Indebtedness required under certain provisions of the Master Trust Indenture shall be made in a manner consistent with that adopted in Section 4.16 of the Master Trust Indenture and in this Section 4.17. In the case of Balloon or Put Indebtedness issued pursuant to subsection (b), (e), (f) or (n) of Section 4.16 of the Master Trust Indenture, unless such Indebtedness is reclassified pursuant to this Section 4.17 as having been issued pursuant to another subsection of Section 4.16 of the Master Trust Indenture, the amortization schedule of such Indebtedness and the debt service payable with respect to such Indebtedness for future periods shall be calculated on the assumption that such Indebtedness is being issued simultaneously with such calculation. With respect to Put Indebtedness, if the option of the holder to require that such Indebtedness be paid, purchased or redeemed prior to its stated maturity date, or if the requirement that such Indebtedness be paid, purchased or redeemed prior to its stated maturity date (other than at the option of such holder and other than pursuant to any mandatory sinking fund or any similar fund), has expired or lapsed as of the date of calculation, such Put Indebtedness shall be deemed payable in accordance with its terms. In determining the amount of debt service payable on Indebtedness in the course of the various calculations required under certain provisions of the Master Trust Indenture, if the terms of the Indebtedness being considered are such that interest thereon for any future period of time is expressed to be calculated at a varying rate per annum, a formula rate or a fixed rate per annum based on a varying index, then for the purpose of making such determination of debt service, interest on such Indebtedness for such period (the "Determination Period") shall be computed by assuming that the rate of interest applicable to the Determination Period is equal to the average of the rate of interest(calculated in the manner in which the rate of interest for the Determination Period is expressed to be calculated) which was in effect on the last date of each of the 12 full calendar months immediately preceding the month in which such calculation is made; provided that if the index or other basis for calculating such interest was C-39 not in existence for at least 12 full calendar months next preceding the date of calculation, the rate of interest for such period shall be deemed to be the average rate of interest that was in effect on the last day of each full calendar month next preceding the date of calculation; and if the average rate of interest borne by such Indebtedness for such shorter period cannot be calculated, the rate of interest for such period shall be deemed to be the Projected Rate.No debt service shall be deemed payable upon the exercise by a holder of Extendable Indebtedness of the option to tender such Indebtedness for payment. Obligations issued to secure Indebtedness permitted to be incurred under Section 4.16 of the Master Trust Indenture shall not be treated separately as Additional Indebtedness from the Indebtedness secured thereby in a manner which would require such Indebtedness to be included more than one time in the calculations performed under the Master Trust Indenture. No debt service shall be deemed payable with respect to Commitment Indebtedness until such time as funding occurs under the commitment which gave rise to such Commitment Indebtedness. From and after such funding, the amount of such debt service shall be calculated in accordance with the actual amount required to be repaid on such Commitment Indebtedness and the actual interest rate and amortization schedule applicable thereto. No Additional Indebtedness shall be deemed to arise when any funding occurs under any such commitment or any such commitment is renewed upon terms which provide for substantially the same terms of repayment of amounts disbursed pursuant to such commitment as obtained prior to such renewal. In addition, no Additional Indebtedness shall be deemed to arise when Indebtedness which bears interest at a variable rate of interest is converted to Indebtedness which bears interest at a fixed rate or the method of computing the variable rate on such Indebtedness is changed or the terms upon which Indebtedness, if Put Indebtedness, may be or is required to be tendered for purchase are changed, if such conversion or change is in accordance with the provisions applicable to such variable rate Indebtedness or Put Indebtedness in effect immediately prior to such conversion or change. Balloon Indebtedness incurred as provided under subsection(b) or(n) of Section 4.16 of the Master Trust Indenture, unless reclassified pursuant to this Section 4.17, shall be deemed to be payable in accordance with the assumptions set forth in subsection (e)(i)(B) of Section 4.16 of the Master Trust Indenture. Put Indebtedness incurred as provided under subsection (b) or (n) of Section 4.16 of the Master Trust Indenture, unless reclassified pursuant to this Section 4.17, shall be deemed to be payable in accordance with the assumptions set forth in subsection(f)(i)of Section 4.16 of the Master Trust Indenture. For the purpose of determining whether any particular Guaranty may be incurred, it shall be assumed that 100%of the Indebtedness guaranteed is Funded Indebtedness of the guarantor under such Guaranty. For the purpose of calculating any historical Debt Service Requirements, the guarantor's Debt Service Requirements under a Guaranty shall be deemed to be the actual amount paid on such Guaranty by the guarantor. For any other purpose, a guarantor shall be considered liable only for 20% of the annual debt service requirement on the Indebtedness guaranteed; provided, however, if the guarantor has been required by reason of its guaranty to make a payment in respect of such Indebtedness within the immediately preceding 24 months, the guarantor shall be considered liable for 100%of the annual debt service requirement on the Indebtedness guaranteed. For purposes of the various calculations required under the Master Trust Indenture for Capitalized Leases, the Capitalized Rentals under a Capitalized Lease at the time of such calculation shall be deemed to be the principal payable thereon. In the case of Indebtedness related to any Subsidy Bonds, debt service payable shall be computed net of Federal Subsidy Payments scheduled to be received by the issuer of such Subsidy Bonds or the Obligor in connection with such Subsidy Bonds during the applicable time period. Each Member may elect to have Indebtedness issued pursuant to one provision of Section 4.16 of the Master Trust Indenture, including without limitation subsection (n) of Section 4.16 of the Master Trust Indenture, reclassified as having been incurred under another provision of Section 4.16 of the Master Trust Indenture, by demonstrating compliance with such other provision on the assumption that such Indebtedness is being reissued on the date of delivery of the materials required to be delivered under such other provision including the certification of any applicable Projected Rate. From and after such demonstration, such Indebtedness shall be deemed to have been C-40 incurred under the provision with respect to which such compliance has been demonstrated until any subsequent reclassification of such Indebtedness. Anything herein to the contrary notwithstanding,any portion of any Indebtedness of any Member for which an Interest Rate Agreement has been obtained by such Member shall be deemed to bear interest for the period of time that such Interest Rate Agreement is in effect at a net rate which takes into account the interest payments made by such Member on such Indebtedness and the payments made or received by such Member on such Interest Rate Agreement; provided that the long term credit rating of the provider of such Interest Rate Agreement (or any guarantor thereof) is in one of the three highest rating categories of any Rating Agency (without regard to any refinements of gradation of rating category by numerical modifier or otherwise) or is at least as high as that of the Obligated Group. In addition, so long as any Indebtedness is deemed to bear interest at a rate taking into account an Interest Rate Agreement,any payments made by a Member on such Interest Rate Agreement shall be excluded from Expenses and any payments received by a Member on such Interest Rate Agreement shall be excluded from Revenues,in each case, for all purposes of the Master Trust Indenture. SECTION 4.18. SALE OR LEASE OF PROPERTY. Each Member agrees that it will not sell, lease, donate, transfer or otherwise dispose (including without limitation any involuntary disposition) of Property (either real or personal property, including Cash and Investments) unless the Obligated Group Representative determines that the Property has been sold, leased,donated,transferred or otherwise disposed of in one or more of the following transfers or other dispositions of Property: (a) In return for other Property of equal or greater value and usefulness (if such value is estimated to be greater than $10,000 it shall be evidenced by an independent appraisal of such Property obtained in the manner provided for under the definition of"Current Value"herein); (b) In the ordinary course of business upon fair and reasonable terms; (c) To any Person, if prior to such sale, lease or other disposition there is delivered to the Master Trustee an Officer's Certificate of a Member stating that, in the judgment of the signer, such Property has, or within the next succeeding 24 calendar months is reasonably expected to, become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale, lease or other disposition thereof will not impair the structural soundness,efficiency or economic value of the remaining Property; (d) From a Member to another Member; provided that no portion of any Facilities financed with proceeds of any Related Bonds shall be transferred by the Obligor to any other Member unless the Related Bond Trustee has received an Opinion of Bond Counsel to the effect that such transfer will not adversely affect (i) the validity of such Related Bonds, or (ii) with respect to any Related Bonds the interest on which is tax-exempt, the exclusion of interest on such Related Bonds from the gross income of the owners thereof for federal income tax purposes; (e) Upon fair and reasonable terms no less favorable to the Member than would be obtained in a comparable arm's length transaction; (f) The Property sold, leased, donated, transferred or otherwise disposed of does not, for any consecutive 12 month period, exceed 3% of the total Book Value or, at the option of the Obligated Group Representative, the Current Value of all Property of the Obligated Group and (i) the Historical Debt Service Coverage Ratio was not less than 1.30:1 for the last Fiscal Year for which audited financial statements have been delivered to the Master Trustee; provided that if such transfer is of cash or investments, then in calculating the Historical Debt Service Coverage Ratio for purposes of such transfer,the Income Available for Debt Service will be reduced by one year's estimated interest earnings attributable the moneys to be used for such transfer using, at the option of the Obligated Group Representative, either (A) the current budgeted investment rate, or (B) the actual average investment rate on the transferred funds, as certified in an Officer's Certificate, and(ii) as of the end of the last fiscal quarter for which financial statements have been delivered to the Master Trustee as required under Section 4.15 of the Master Trust Indenture, the Obligated Group had not less than 180 Days Cash on Hand after giving effect to the transaction. If the Historical Debt Service Coverage Ratio as calculated above is not less than 1.30:1, C-41 the foregoing percentage of the total Book Value or Current Value may be increased as follows under the following conditions: (A) to 5%, if Days Cash on Hand would not be less than 250 after the effect of such sale, lease or disposition of assets; or (B) to 7.5%, if Days Cash on Hand would not be less than 350 after the effect of such sale, lease or disposition of assets; or (C) to 10%, if Days Cash on Hand would not be less than 450 after the effect of such sale, lease or disposition of assets; (g) To any Person if such Property consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on the Obligations. For purposes of this Section 4.18, payments by the Obligated Group of any development, marketing, operating, or other subordinated fees that have been deferred from the year in which they were originally due as a result of subordination will not be treated as a disposition of Property. In connection with any sale, lease or other disposition of Property, to the extent the Member of the Obligated Group receives Property in return for such sale, lease or disposition, the Property which is sold, leased or disposed of shall be treated, for purposes of the provisions of this Section 4.18, as having been transferred in satisfaction of the provisions of subsection(a) above to the extent of the fair market value of the Property received by the Member of the Obligated Group. The Member shall be required,however,to satisfy the conditions contained in one of the other provisions of this Section 4.18 with respect to the remaining value of such Property in excess of the fair market value of the Property received by the Member in return therefor prior to any such sale, lease or other disposition. Each Member further agrees that it will not sell, lease, donate or otherwise dispose of Property (A) which could reasonably be expected at the time of such sale, lease, donation or disposition to result in a reduction of the Historical Debt Service Coverage Ratio for the Obligated Group such that the Obligated Group would be required to retain a Consultant pursuant to Section 4.11 of the Master Trust Indenture, or(B) if a Consultant has been retained in the circumstances described in Section 4.11 of the Master Trust Indenture, such action, in the opinion of such Consultant, will have an adverse effect on the Income Available for Debt Service of the Obligated Group. The rendering of any service, the making of any loan or gift, the extension of any credit or any other transaction, with any Affiliate shall be permitted if there is compliance with any of subsections (a) through (g) above or if such transaction is pursuant to the reasonable requirements of such Member's activities and upon fair and reasonable terms no less favorable to it than would obtain in a comparable arm's length transaction with a person not an Affiliate. Upon Request of the Obligated Group Representative accompanied by an Officer's Certificate and an Opinion of Counsel to the effect that the conditions precedent for the disposition of such property set forth in this Section 4.18 (other than the condition precedent set forth in Section 4.18(d) above) have been satisfied, the rights, title, liens,security interests and assignments herein granted shall cease, determine and be void as to such property only and the lien of the Master Trust Indenture shall be released by the Master Trustee as to such property in due form at the expense of the Obligated Group Members. SECTION 4.19. LIENS ON PROPERTY. (a) Each Member covenants that it will not create or permit to be created or remain and, at its cost and expense,promptly discharge or terminate all Liens on its Property or any part thereof which are not Permitted Encumbrances. (b) Subsection(a)notwithstanding, a Lien on Property of any Member securing Indebtedness shall be classified a Permitted Encumbrance (as provided in clause (b) of the definition thereof) and therefore be permitted if: C-42 (i) such Lien secures Non-Recourse Indebtedness; or (ii) (A) after giving effect to such Lien and all other Liens classified as Permitted Encumbrances under this subsection (ii)(A), the Book Value or, at the option of the Obligated Group Representative,the Current Value of the Property of the Obligated Group which is Encumbered is not more than 2% of the value of all of the Property of the Obligated Group (calculated on the same basis as the value of the Encumbered Property), and (B) the conditions described in Section 4.16(a) are met for allowing the incurrence of one dollar of additional Funded Indebtedness. SECTION 4.20. LIQUIDITY COVENANT. The Obligated Group covenants that it will calculate the Days Cash on Hand of the Obligated Group as of June 30 and December 31 of each Fiscal Year,commencing with June 30, 2013 (each such date being a "Testing Date"). The Obligated Group shall deliver an Officer's Certificate setting forth such calculation as of December 31 to the Master Trustee not less than 45 days after such December 31, and include such calculation as of June 30 in the Officer's Certificate delivered pursuant to Section 4.15 of the Master Trust Indenture. Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have a no less than 180 Days Cash on Hand(the "Liquidity Requirement"). If the Days Cash on Hand as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Representative shall, within 30 days after delivery of the Officer's Certificate disclosing such deficiency, deliver an Officer's Certificate approved by a resolution of the Governing Body of the Obligated Group Representative to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to raise the level of Days Cash on Hand to the Liquidity Requirement for future Testing Dates. If the Obligated Group has not raised the level of Days Cash on Hand to the Liquidity Requirement by the next Testing Date immediately subsequent to delivery of the Officer's Certificate required in the preceding paragraph, the Obligated Group Representative shall, within 30 days after receipt of the Officer's Certificate disclosing such deficiency, select a Consultant in accordance with Section 4.27 of the Master Trust Indenture to make recommendations with respect to the rates,fees and charges of the Obligated Group and the Obligated Group's methods of operation and other factors affecting its financial condition in order to increase Days Cash on Hand to the Liquidity Requirement for future Testing Dates. A copy of the Consultant's report and recommendations, if any, shall be filed with each Member and each Required Information Recipient within 60 days after the date such Consultant is actually engaged. Each Member of the Obligated Group shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member)and permitted by law. Notwithstanding any other provision of the Master Trust Indenture, failure of the Obligated Group to achieve the required Liquidity Requirement for any Testing Date shall not constitute an Event of Default under the Master Trust Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for 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 such Member)and permitted by law. SECTION 4.21. APPROVAL OF CONSULTANTS. (a) If at any time the Members of the Obligated Group are required to engage a Consultant under Sections 4.11 or 4.20 hereof, such Consultant shall be engaged in the manner set forth in this Section 4.21. (b) Upon selecting a Consultant as required under the provisions of this Master Trust Indenture, the Obligated Group Representative will notify the Master Trustee of such selection. The Master Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the Holders of all Obligations Outstanding under this Master Trust Indenture of such selection. Such notice(which shall be provided by the Obligor) shall (i) include the name of the Consultant and a brief description of the Consultant, (ii) state the reason that the Consultant is being engaged including a description of the covenant(s)of this Master Trust Indenture that require the Consultant to be engaged, and(iii) state that the Holder of the Obligation will be deemed to have C-43 consented to the selection of the Consultant named in such notice unless such Holder submits an objection to the selected Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within 15 days of the date that the notice is sent to the Holders. No later than two Business Days after the end of the 15-day objection period,the Master Trustee shall notify the Obligated Group of the number of objections. If 66.6%or more in aggregate principal amount of the Holders of the Outstanding Obligations have been deemed to have consented to the selection of the Consultant or have not responded to the request for consent, the Obligated Group Representative shall engage the Consultant within three Business Days. If 33.4% or more in aggregate principal amount of the Holders of the Obligations Outstanding have objected to the Consultant selected, the Obligated Group Representative shall select another Consultant which may be engaged upon compliance with the procedures of this Section 4.21. (c) When the Master Trustee notifies the Holders of Obligations of such selection,the Master Trustee will also request any Related Bond Trustee to send a notice containing the information required by subparagraph(b) above to the owners of all of the Related Bonds outstanding. Such Related Bond Trustee shall, as the owner of an Obligation securing such Related Bonds, consent or object to the selection of the Consultant in accordance with the response of the owners of such Related Bonds. If 66.6%or more in aggregate principal amount of the owners of the Related Bonds have been deemed to have consented to the selection of the Consultant or have not responded to the request for consent,the Obligated Group Representative shall engage the Consultant within three Business Days. If 33.4% or more in aggregate principal amount of the owners of the Related Bonds outstanding have objected to the Consultant selected, the Obligated Group Representative shall select another Consultant which may be engaged upon compliance with the procedures of this Section 4.21. The 15-day notice period described in (b) above may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds 15 days to respond to the notice given by the Related Bond Trustee. By acceptance of an Obligation securing any Related Bonds, the Related Bond Trustee agrees to comply with the provisions of this Section 4.21. ARTICLE V CONSOLIDATION,MERGER,CONVEYANCE AND TRANSFER SECTION 5.01. MERGER, CONSOLIDATION, SALE OR CONVEYANCE. (a) Each Member agrees that it will not merge into, or consolidate with, one or more corporations which are not Members, or allow one or more of such corporations to merge into it, or sell or convey all or substantially all of its Property to any Person who is not a Member,unless: (i) Any successor corporation to such Member (including without limitation any purchaser of all or substantially all the Property of such Member) is a corporation organized and existing under the laws of the United States of America or a state thereof and shall execute and deliver to the Master Trustee an appropriate instrument containing the agreement of such successor corporation to assume,jointly and severally, the due and punctual payment of the principal of, premium, if any, and interest on all Outstanding Obligations according to their tenor and the due and punctual performance and observance of all the covenants and conditions of the Master Trust Indenture to be kept and performed by such Member; (ii) Immediately after such merger or consolidation, or such sale or conveyance, no Member would be in default in the performance or observance of any covenant or condition of any documents delivered in connection with any Indebtedness including, without limitation, Related Bond Indentures, Related Loan Agreements and Credit Facilities,or the Master Trust Indenture; (iii) Assuming that any Indebtedness of any successor or acquiring corporation is Indebtedness of such Member and that the Revenues and Expenses of the Member for such most recent Fiscal Year include the Revenues and Expenses of such other corporation, (A) immediately after such merger or consolidation, sale or conveyance, the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year for which financial statements that have been reported C-44 upon by independent certified public accountants are available would be not less than 1.20:1 or that such Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group is greater than the Historical Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year prior to such merger or consolidation, sale or conveyance, and (B) immediately after such merger or consolidation, sale or conveyance, the Obligated Group would be in compliance with the Liquidity Requirement of Section 4.20 hereof of the Master Trust Indenture for the most recent quarter after adjustment for the change or that such calculation of Days Cash on Hand of the Obligated Group is greater than such calculation would be immediately prior to such merger or consolidation,sale or conveyance;and (iv) If all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or fully provided for, there shall be delivered to the Master Trustee an Opinion of Bond Counsel to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance would not, in and of itself, adversely affect the validity of such Related Bonds or the exemption otherwise available from federal or state income taxation of interest payable on such Related Bonds. (b) In case of any such consolidation, merger, sale or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for its predecessor, with the same effect as if it had been named herein as such Member. Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the conditions described in Section 6.01 of the Master Trust Indenture to becoming,a Member of the Obligated Group prior to any such succession,assignment or other change in such Member's corporate status.Any successor corporation to such Member thereupon may cause to be signed and may issue in its own name Obligations hereunder and the predecessor corporation shall be released from its obligations hereunder and under any Outstanding Obligations, if such predecessor corporation shall have conveyed all Property owned by it (or all such Property shall be deemed conveyed by operation of law) to such successor corporation. All Obligations so issued by such successor corporation hereunder shall in all respects have the same legal rank and benefit under the Master Trust Indenture as Obligations theretofore or thereafter issued in accordance with the terms of the Master Trust Indenture as though all of such Obligations had been issued hereunder by such prior Member 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 rely upon an opinion of Independent Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of the Master Trust Indenture summarized under this Section 5.01 and that it is proper for the Master Trustee under the provisions of the Master Trust Indenture to join in the execution of any instrument required to be executed and delivered by the Master Trustee. ARTICLE VI MEMBERSHIP IN THE OBLIGATED GROUP SECTION 6.01. ADMISSION OF OBLIGATED GROUP MEMBERS. Any other Person may become a Member of the Obligated Group if: (a) Such Person is a business entity; (b) Such Person shall execute and deliver to the Master Trustee a Supplement in a form acceptable to the Master Trustee which shall be executed by the Master Trustee and the Obligated Group Representative, containing the agreement of such Person (i) to become a Member of the Obligated Group and thereby to become subject to compliance with all provisions of the Master Trust Indenture, and (ii) unconditionally and irrevocably (subject to the right of such Person to cease its status as a Member of the Obligated Group pursuant to the terms and conditions of Section 6.03 of the Master Trust Indenture) to jointly and severally make payments upon each Obligation; C-45 (c) The Obligated Group Representative and each Member shall have approved the admission of such Person to the Obligated Group;and (d) The Master Trustee shall have received (i) an Officer's Certificate of the Obligated Group Representative which(A)demonstrates that(1)immediately upon such Person becoming a Member of the Obligated Group, the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year for which financial statements that have been reported upon by independent certified public accountants are available,after adjustment for the addition of the new Member,would be not less than 1.20:1,or that such Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group with such Person is greater than the Historical Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year without such Person becoming a Member of the Obligated Group, and (2) immediately upon such Person becoming a Member of the Obligated Group, the Obligated Group would be in compliance with the Liquidity Requirement of Section 4.20 of the Master Trust Indenture based on the most recent quarterly financial statements delivered to the Master Trustee pursuant to Section 4.15 of the Master Trust Indenture or that such calculation of Days Cash on Hand of the Obligated Group is greater than such calculation would be without such Person becoming a Member of the Obligated Group; (B) states that prior to and immediately after such Person becoming a Member of the Obligated Group, no event of default exists hereunder and no event shall have occurred which with the passage of time or the giving of notice, or both, would become such an event of default; and (C) prior to and immediately after such Person becoming a Member of the Obligated Group, the Members would not be in default in the performance or observance of any covenant or condition to be performed or observed hereunder; (ii) an opinion of Independent Counsel in form and substance acceptable to the Master Trustee to the effect that (x) the instrument described in Section 6.01(b) above has been duly authorized, executed and delivered and constitutes a legal, valid and binding agreement of such Person, enforceable in accordance with its terms, subject to customary exceptions for bankruptcy, insolvency and other laws generally affecting enforcement of creditors' rights and application of general principles of equity, and (y) the addition of such Person to the Obligated Group will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status; (iii) evidence from each Rating Agency then maintaining a rating on any series of Related Bonds to the effect that the admission of such Person to the Obligated Group will not result in a lower rating on such series of Related Bonds; (iv) if all amounts due or to become due on all Related Bonds have not been paid to the holders thereof and provision for such payment has not been made in such manner as to have resulted in the defeasance of all Related Bond Indentures, an Opinion of Bond Counsel to the effect that under then existing law the consummation of such transaction would not, in of itself, adversely affect the validity of any Related Bonds or any exemption from federal or state income taxation of interest payable on such Related Bonds otherwise entitled to such exemption; provided that in making the calculation called for by subsection(d)(i) above, (x) there shall be excluded from Revenues any Revenues generated by Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person's entry into the Obligated Group occurs,and(y)there shall be excluded from Expenses any Expenses related to Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person's entry into the Obligated Group occurs. Each successor,assignee, surviving,resulting or transferee corporation of a Member must agree to become, and satisfy the above described conditions to becoming, a Member of the Obligated Group prior to any such succession,assignment or other change in such Member's corporate status. SECTION 6.02. OBLIGATED GROUP MEMBERS. Upon any Person's becoming an Obligated Group Member as provided in Section 6.01: (a) the Master Trustee may pursue any remedies consequent upon an Event of Default against any Obligated Group Member, or all of them, without notice to, demand upon or joinder of(and without in any way releasing)any of the others,or against any one or more or all of them at the same time or at different times; (b) any right of contribution or right acquired by subrogation by any Obligated Group Member against any other Obligated Group Member arising out of the payment of Indebtedness shall be subordinated to the rights of the Master Trustee and the Holders of Obligations;and C-46 (c) each Obligated Group Member shall designate the Obligated Group Representative as its attorney in fact with full power of substitution to perform, satisfy, and discharge every obligation, covenant, duty or liability to be performed on the part of the Obligated Group Member hereunder. SECTION 6.03. WITHDRAWAL OF OBLIGATED GROUP MEMBERS. Each Member covenants that it will not take any action, corporate or otherwise,which would cause it or any successor thereto into which it is merged or consolidated under the terms of the Master Trust Indenture to cease to be a Member of the Obligated Group unless: (a) prior to cessation of such status, there is delivered to the Master Trustee an Opinion of Bond Counsel to the effect that, under then existing law, the cessation by the Member of its status as a Member will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable thereon to which such Bond would otherwise be entitled; (b) prior to the cessation of such status,there is delivered to the Master Trustee an Officer's Certificate of the Obligated Group Representative to the effect that: (i) (A) immediately after such cessation the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year for which financial statements that have been reported upon by independent certified public accountants are available, after adjustment for the removal of the Member, would be not less than 1.20:1 or that such Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group is greater than the Historical Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year prior to such cessation, and (B) immediately after such cessation, the Obligated Group would be in compliance with the Liquidity Requirement of Section 4.20 of the Master Trust Indenture for the most recent quarter after adjustment for the removal of the Member, or that such calculation of Days Cash on Hand of the Obligated Group is greater than such calculation would be immediately prior to such cessation; (ii) prior to and immediately after such cessation, no Event of Default exists hereunder and no event shall have occurred which with the passage of time or the giving of notice,or both,would become such an Event of Default;(iii)evidence from each Rating Agency then maintaining a rating on any series of Related Bonds to the effect that the withdrawal of such Person from the Obligated Group will not result in a lower rating on such series of Related Bonds; and (iv) prior to and immediately after such cessation, the Members would not be in default in the performance or observance of any covenant or condition to be performed or observed hereunder; (c) prior to such cessation there is delivered to the Master Trustee an opinion of Independent Counsel to the effect that the cessation by such Member of its status as a Member will not, in of itself, adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status; (d) any Liens in favor of the withdrawing Member on the Property of a remaining Member is released and satisfied unless such Lien constitutes a Permitted Encumbrance after the withdrawing Member is no longer a Member; and (e) prior to cessation of such status, the Obligated Group Representative and each Member, consents in writing to the withdrawal by such Member. SECTION 6.04. SUCCESSOR OBLIGATED GROUP REPRESENTATIVE. Naval Continuing Care Retirement Foundation, Inc. shall serve as the Obligated Group Representative until such time as Naval Continuing Care Retirement Foundation,Inc. either (i)withdraws from the Obligated Group in accordance with this Article VI of the Master Trust Indenture, or (ii)delivers to the Master Trustee its resignation as the Obligated Group Representative. Naval Continuing Care Retirement Foundation, Inc. covenants to fulfill all of the duties of the Obligated Group Representative under the Master Trust Indenture. Naval Continuing Care Retirement Foundation, Inc. agrees that it shall not withdraw from the Obligated Group or resign as Obligated Group Representative until Naval Continuing Care Retirement Foundation,Inc.has appointed another Obligated Group Representative and such successor Obligated Group Representative has accepted its duties in writing. Each Obligated Group Member by becoming an Obligated Group Member acknowledges that the Obligated Group Representative has certain powers and duties under the Master Trust Indenture and authorizes the Obligated Group Representative to exercise such powers and carry out such duties. C-47 ARTICLE VII REMEDIES OF THE MASTER TRUSTEE AND HOLDERS OF SECURED OBLIGATIONS IN EVENT OF DEFAULT SECTION 7.01. EVENTS OF DEFAULT. Event of Default, as used herein, shall mean any of the following events, whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment,decree or order of any court or any order,rule or regulation of any administrative or governmental body: (a) default in the payment of the principal of(or premium,if any) or interest on any Obligation when it becomes due and payable at its Maturity and the continuance of such default beyond the period of grace, if any, provided in the instrument creating such Obligation; or (b) any Obligated Group Member shall fail duly to observe or perform any other covenant or agreement(other than a covenant or agreement whose performance or observance is elsewhere in this Section 7.01 specifically dealt with) on the part of such Person contained in the Master Trust Indenture for a period of 45 days after the date on which written notice of such failure,requiring the same to be remedied,shall have been given to the Obligated Group Representative by the Master Trustee, or to the Obligated Group Representative and the Master Trustee by the Holders of at least 25%in aggregate principal amount of Obligations then Outstanding;provided that if any such default can be cured by such Obligated Group Member but cannot be cured within the 45 day curative period described above, it shall not constitute an Event of Default if corrective action is instituted by such Obligated Group Member within such 45 day period and diligently pursued until the default is corrected;or (c) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging any Obligated Group Member a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization or arrangement of any Obligated Group Member under the Federal Bankruptcy Code or any other similar applicable Federal or state law, and such decree or order shall have continued undischarged and unstayed for a period of 90 days; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver or trustee or assignee in bankruptcy or insolvency of any Obligated Group Member or of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have remained in force undischarged and unstayed for a period of 90 days;or (d) any Obligated Group Member shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the institution of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or arrangement under the Federal Bankruptcy Code or any other similar applicable Federal or state law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or trustee or assignee in bankruptcy or insolvency of it or of its Trust Estate,or shall make assignment for the benefit of creditors,or shall admit in writing its inability to pay its debts generally as they become due,or action shall be taken by the Governing Body of any Obligated Group Member in furtherance of any of the aforesaid purposes;or (e) any Obligated Group Member shall fail to pay or make provision for payment of any recourse Indebtedness(other than Subordinated Indebtedness owed to an Affiliate of the Obligated Group Member) having a principal balance of not less than $100,000 and the continuance of such failure beyond the applicable grace period, if any; or (f) the Master Trustee has received written notice that an event of default, as therein defined, under any instrument under which Obligations may be incurred or secured, including, without limitation, Related Bond Indentures, Related Loan Agreements, Credit Facilities, the Mortgage or other documents delivered in connection with the issuance of Related Bonds,has occurred and is continuing beyond the applicable period of grace, if any. SECTION 7.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default occurs and is continuing, then and in every such case the Master Trustee or the Holders of not less than 25% in principal amount of the Outstanding Obligations (or, in the case of any Event of Default described in subparagraph(f)of Section 7.01 above resulting in the loss of any exclusion from gross income of interest on,or the invalidity of, any Indebtedness secured by a pledge of Obligations, the Holders of not less than 25% in principal C-48 amount of the Outstanding Obligations of the affected series) may declare the principal of all the Obligations to be due and payable immediately, by a notice in writing to the Obligated Group Representative and all of the Holders of Obligations (and to the Master Trustee if given by Holders of Obligations), and upon any such declaration such principal shall become immediately due and payable. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Master Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the affected Outstanding Obligations,by written notice to the Obligated Group Representative and the Master Trustee,shall rescind and annul such declaration and its consequences if: (a) one or more Obligated Group Members has paid or deposited with the Master Trustee a sum sufficient to pay: (1) all overdue installments of interest on all Obligations, (2) the principal of (and premium, if any, on) any Obligations which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Obligations, and (3) all sums paid or advanced by the Master Trustee hereunder and the reasonable compensation,expenses,disbursements and advances of the Master Trustee, its agents and counsel;and (b) all Events of Default, other than the nonpayment of the principal of Obligations which have become due solely by such acceleration,have been cured or waived as provided in Section 7.15 of the Master Trust Indenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 7.03. POWERS OF SALE, TRANSFER, ASSIGNMENT, LEASE, AND OTHER DISPOSITIONS; SUITS FOR ENFORCEMENT. In case an Event of Default shall occur and be continuing, the Master Trustee,in its discretion may,subject to the provisions of Section 7.17 of the Master Trust Indenture: (a) foreclose the Mortgage or any mortgage or deed of trust delivered pursuant to Section 4.16 of the Master Trust Indenture; (b) protect and enforce its rights and the rights of the Master Trustee under the Master Trust Indenture by sale pursuant to judicial proceedings or by a suit, action, or proceeding in equity or at law or otherwise,whether for the specific performance of any covenant or agreement contained in the Master Trust Indenture or in aid of the execution of any power granted in the Master Trust Indenture or for the foreclosure of the Master Trust Indenture or for the enforcement of any other legal, equitable, or other remedy, as the Master Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Master Trustee; or (c) as to all or part of the personal property (tangible or intangible) and fixtures included in the Trust Estate(such portion of the Trust Estate herein referred to as the "Collateral"), (i) proceed under the Florida Uniform Commercial Code and exercise with respect to the Collateral all the rights, remedies, and powers of a secured party under the Florida Uniform Commercial Code, including, without limitation, the right and power to sell, at public or private sale or sale, or otherwise dispose of, lease, or utilize,the Collateral and any part or parts thereof in any manner authorized or permitted under the Florida Uniform Commercial Code after default by a debtor, and, to the extent permitted by law, the Obligor expressly waives any notice of sale or other disposition of the Collateral and any other rights and remedies of a debtor or formalities prescribed by law relative to sale or disposition of the Collateral or exercise of any other right or remedy of the Master Trustee existing after default hereunder, and, to the extent any such notice is required and cannot be waived, the Obligor agrees that if such notice is mailed, postage prepaid, to the Master Trustee at its address stated in the first paragraph C-49 hereof at least ten days before the time of the sale or disposition, such notice shall be deemed reasonable and shall fully satisfy any requirement for giving of said notice, (ii) take possession of the Collateral and enter upon any premises where the same may be situated for such purpose without being deemed guilty of trespass and without liability for damages thereby occasioned and take any action deemed necessary or appropriate or desirable by the Master Trustee, at its option and in its discretion, to repair, refurbish, or otherwise prepare the Collateral for sale, lease, or other use or disposition as herein authorized, (iii) transfer at any time to itself or to its nominee the Collateral, or any part thereof, and receive the money, income proceeds, or benefits attributable or accruing thereto and hold the same as security for the Outstanding Obligations or apply same as herein provided,and (iv) require the Members to assemble the Collateral and make it available to the Master Trustee at a place to be designated by the Master Trustee that is reasonably convenient to all parties. The Master Trustee shall be fully subrogated to the rights of all vendor's lienholders and other lienholders whose indebtedness is paid in whole or in part from proceeds of Obligations. The filing of a suit to foreclose any security interest hereunder shall never be considered an election so as to preclude foreclosure under any power of sale herein contained after dismissal of such a suit. SECTION 7.04. INCIDENTS OF SALE. Upon any sale of any of the Trust Estate, whether made under the power of sale hereby given or pursuant to judicial proceedings,to the extent permitted by law: (a) any Holder or Holders of Obligations or the Master Trustee may bid for and purchase the property offered for sale, and upon compliance with the terms of sale may hold, retain, and possess and dispose of such property, without further accountability, and may, in paying the purchase money therefor, deliver any Outstanding Obligations or claims for interest thereon in lieu of cash to the amount which shall, upon distribution of the net proceeds of such sale,be payable thereon,and such Obligations,in case the amounts so payable thereon shall be less than the amount due thereon, shall be returned to the Holders thereof after being appropriately stamped to show partial payment; (b) the Master Trustee may make and deliver to the purchaser or purchasers a good and sufficient bill of sale,and instrument of assignment and transfer of the property sold; (c) the Master Trustee is hereby irrevocably appointed the true and lawful attorney of each Member, in its name and stead, to make all necessary deeds, bills of sale, and instruments of assignment and transfer of the property thus sold; and for that purpose it may execute all necessary deeds, bills of sale, and instruments of assignment and transfer, and may substitute one or more persons, firms, or corporation with like power, each Member hereby ratifying and confirming all that its said attorney or such substitute or substitutes shall lawfully do by virtue hereof; but if so requested by the Master Trustee or by any purchaser,any Member shall ratify and confirm any such sale or transfer by executing and delivering the Master Trustee or to such purchaser or purchasers all proper deeds, bills of sale, instruments of assignment and transfer, and release as may be designated in any such request; (d) rights, titles, interests, claims, and demands whatsoever, either at law or in equity or otherwise, of the Members of, in, and to the property so sold shall be divested and such sale shall be a perpetual bar both at law and in equity against each of the Members and their respective successors and assigns, and against any and all persons claiming or who may claim the property sold or any part thereof by, through,or under the Members or their respective successors and assigns;and (e) receipt of the Master Trustee or of the officer making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchaser money and such purchaser or purchasers and his or their assigns or personal representative shall not, after paying such purchase money and receiving such receipt, be C-50 obligated to see to the application of such purchase money, or be in any wise answerable for any loss, misapplication,or non application thereof. Upon a sale of substantially all the Trust Estate, whether made under the power of sale hereby granted or pursuant to judicial proceedings,the Obligated Group Representative will permit,to the extent permitted by law,the purchaser thereof and its successors and assigns to take and use the names of the Members and to carry on business under such name or any variant thereof and to use and employ any and all other trade names, brands,and trademarks of the Members; and in such event, upon written request of such purchaser, its successors, or its assigns, any Member will,at the expense of the purchaser,change its name in such manner as to eliminate any similarity. SECTION 7.05. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY MASTER TRUSTEE. The Obligated Group Members covenant(subject to any notice and grace periods contained herein)that if: (a) default is made in the payment of any installment of interest on any Obligation when such interest becomes due and payable,or (b) default is made in the payment of the principal of(or premium, if any, on) any Obligation at the maturity thereof, each Obligated Group Member will, upon demand of the Master Trustee, pay to it, for the benefit of the Holders of such Obligations, the whole amount then due and payable on such Obligations for principal (and premium, if any) and interest, with interest at the rate borne by the Obligations upon the overdue principal (and premium, if any); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Master Trustee, its agents and counsel. If the Obligated Group Members fail to pay any of the foregoing amounts forthwith upon demand, the Master Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Obligated Group Members or any other obligor upon the Obligations and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Obligated Group Members or any other obligor upon the Obligations,wherever situated. If an Event of Default occurs and is continuing, the Master Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Obligations by such appropriate judicial proceedings as the Master Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in the Master Trust Indenture or in aid of the exercise of any power granted herein,or to enforce any other proper remedy. If an Event of Default occurs and is continuing, the Master Trustee,as the beneficiary under the Mortgage, may in its discretion proceed to enforce its rights and seek any remedies available to it under the Mortgage. SECTION 7.06. MASTER TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition, or other judicial proceeding relative to the Obligated Group Members or any other obligor upon the Obligations or the property of the Obligated Group Members or of such other obligor or their creditors, the Master Trustee (irrespective of whether the principal of the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Master Trustee shall have made any demand on the Obligated Group Members for the payment of overdue principal, premium, or interest) shall be entitled and empowered,by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Master Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Master Trustee, its agents and counsel which shall be deemed an administrative claim)and of the Holders of Obligations allowed in such judicial proceeding,and C-5 1 (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator,custodian,or other similar official in any such judicial proceeding is hereby authorized by each Holder of Obligations to make such payments to the Master Trustee,and in the event that the Master Trustee shall consent to the making of such payments directly to the Holders of Obligations, to pay to the Master Trustee any amount due to it for the reasonable compensation, expenses,disbursements,and advances of the Master Trustee, its agents and counsel,and any other amounts due the Master Trustee under the Master Trust Indenture which shall be deemed an administrative claim. Nothing herein contained shall be deemed to authorize the Master Trustee to authorize or consent to or accept or adopt on behalf of any Holder of Obligations any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Holder thereof,or to authorize the Master Trustee to vote in respect of the claim of any Holder of Obligations in any such proceeding. SECTION 7.07. MASTER TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF OBLIGATIONS. All rights of action and claims under the Master Trust Indenture or the Obligations may be prosecuted and enforced by the Master Trustee without the possession of any of the Obligations or the production thereof in any proceeding relating thereto,and any such proceeding instituted by the Master Trustee shall be brought in its own name as trustee of an express trust,and any recovery of judgment shall,after provision for the payment of the reasonable compensation, expenses, disbursements, and advances of the Master Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Obligations in respect of which such judgment has been recovered. SECTION 7.08. APPLICATION OF MONEY COLLECTED. Any money collected by the Master Trustee pursuant to this Article VII and any proceeds of any sale (after deducting the costs and expenses of such sale, including a reasonable compensation to the Master Trustee, its agents and counsel, and any taxes,assessments, or liens prior to the lien of the Master Trust Indenture, except any thereof subject to which such sale shall have been made), whether made under any power of sale herein granted or pursuant to judicial proceedings, together with, in the case of any entry or sale as otherwise provided herein,any other sums then held by the Master Trustee as part of the Trust Estate, shall be deposited in the Revenue Fund created by the Master Trust Indenture, shall be applied in the order specified in Section 3.01 of the Master Trust Indenture, at the date or dates fixed by the Master Trustee and, in case of the distribution of such money on account of principal(or premium, if any),upon presentation of the Obligations and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid. In the event the Master Trustee incurs expenses or renders services in any proceedings which result from the occurrence or continuance of an Event of Default under Section 7.01(c)or 7.01(d)of the Master Trust Indenture, or from the occurrence of any event which, by virtue of the passage of time, would become such Event of Default, the expenses so incurred and compensation for services so rendered are intended to constitute expenses of administration under the United States Bankruptcy Code or equivalent law. SECTION 7.09. LIMITATION ON SUITS. No Holder of any Obligation shall have any right to institute any proceeding,judicial or otherwise, with respect to the Master Trust Indenture, or for the appointment of a receiver or trustee,or for any other remedy hereunder,unless: (a) such Holder has previously given written notice to the Master Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the Outstanding Obligations shall have made written request to the Master Trustee to institute proceedings in respect of such Event of Default in its own name as Master Trustee hereunder; (c) such Holder or Holders have offered to the Master Trustee indemnity satisfactory to it against the costs,expenses and liabilities to be incurred in compliance with such request; (d) the Master Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding;and C-52 (e) no direction inconsistent with such written request has been given to the Master Trustee during such 60 day period by the Holders of a majority in principal amount of the Outstanding Obligations; it being understood and intended that no one or more Holders of Obligations shall have any right in any manner whatever by virtue of or by availing of, any provision of the Master Trust Indenture to affect, disturb or prejudice the rights of any other Holders of Obligations,or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under the Master Trust Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders of Obligations. SECTION 7.10. UNCONDITIONAL RIGHT OF HOLDERS OF OBLIGATIONS TO RECEIVE PRINCIPAL,PREMIUM AND INTEREST. Notwithstanding any other provision in the Master Trust Indenture, the Holder of any Obligation shall have the right which is absolute and unconditional to receive payment of the principal of(and premium, if any) and (subject to Section 2.07 of the Master Trust Indenture) interest on such Obligation on the respective Stated Maturities expressed in such Obligation (or, in the case of redemption, on the redemption date)and to institute suit for the enforcement of any such payment,and such rights shall not be impaired without the consent of such Holder. SECTION 7.11. RESTORATION OF RIGHTS AND REMEDIES. If the Master Trustee or any Holder of Obligations has instituted any proceeding to enforce any right or remedy under the Master Trust Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Master Trustee or to such Holder of Obligations, then and in every such case the Obligated Group Members, the Master Trustee and the Holders of Obligations shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Master Trustee and the Holders of Obligations shall continue as though no such proceeding had been instituted. SECTION 7.12. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to the Master Trustee or to the Holders of Obligations is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 7.13. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Master Trustee or of any Holder of any Obligation to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article VII or by law to the Master Trustee or to the Holders of Obligations may be exercised from time to time, and as often as may be deemed expedient, by the Master Trustee or by the Holders of Obligations,as the case may be. SECTION 7.14. CONTROL BY HOLDERS OF OBLIGATIONS. The Holders of a majority in principal amount of the Outstanding Obligations shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Master Trustee or exercising any trust or power conferred on the Master Trustee,provided that: (a) such direction shall not be in conflict with any rule of law or with the Master Trust Indenture, (b) the Master Trustee may take any other action deemed proper by the Master Trustee which is not inconsistent with such direction; and (c) the Master Trustee shall not be required to act on any direction given to it pursuant to this Section until indemnity as set forth in Section 8.03(e)of the Master Trust Indenture is provided to it by such Holders. C-53 SECTION 7.15. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Obligations may on behalf of the Holders of all the Obligations waive any past default hereunder and its consequences,except a default: (a) in the payment of the principal of(or premium,if any)or interest on any Obligation,or (b) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Obligation affected. Upon any such waiver,such default shall cease to exist,and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of the Master Trust Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 7.16. UNDERTAKING FOR COSTS. All parties to the Master Trust Indenture agree, and each Holder of any Obligation by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require,in any suit for the enforcement of any right or remedy under the Master Trust Indenture,or in any suit against the Master Trustee for any action taken or omitted by it as Master Trustee,the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys'fees,against any party litigant in such suit,having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Master Trustee,to any suit instituted by any Holder of Obligations,or group of Holders of Obligations,holding in the aggregate more than 10%in principal amount of the Outstanding Obligations, or to any suit instituted by any Holder of Obligations for the enforcement of the payment of the principal of(or premium, if any) or interest on any Obligation on or after the respective Stated Maturities expressed in such Obligation(or,in the case of redemption,on or after the redemption date). SECTION 7.17. WAIVER OF STAY OR EXTENSION LAWS. Each Obligated Group Member covenants(to the extent that it may lawfully do so)that it will not at any time insist upon,or plead,or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force,which may affect the covenants or the performance of the Master Trust Indenture; and each Obligated Group Member(to the extent that it may lawfully do so)hereby expressly waives all benefit or advantage of any such law,and covenants that it will not hinder,delay, or impede the execution of any power herein granted to the Master Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE IX SUPPLEMENTS AND AMENDMENTS SECTION 9.01. SUPPLEMENTS WITHOUT CONSENT OF HOLDERS OF OBLIGATIONS. Without the Consent of the Holders of any Obligations,each Obligated Group Member,when authorized by a Board Resolution, and the Master Trustee at any time may enter into one or more Supplements for any of the following purposes: (a) to evidence the succession of another Person to an Obligated Group Member, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of an Obligated Group Member as permitted by the Master Trust Indenture or to evidence additions to, or withdrawals from, membership in the Obligated Group in accordance with the provisions of Article VI of the Master Trust Indenture; (b) to add to the covenants of the Obligated Group Members for the benefit of the Holders of Obligations, or to surrender any right or power herein conferred upon the Obligated Group Members, or to add to the Events of Default enumerated in Section 7.01 of the Master Trust Indenture; (c) to cure any ambiguity or to correct or supplement any provision herein that may be inconsistent with any other provision herein,or to make any other provision with respect to matters or questions arising under the C-54 Master Trust Indenture that shall not be inconsistent with the Master Trust Indenture,provided such action shall not adversely affect the interests of the Holders of Obligations; (d) to modify or supplement the Master Trust Indenture in such manner as may be necessary or appropriate to qualify the Master Trust Indenture under the Trust Indenture Act of 1939 as then amended, or under any similar Federal or State statute or regulation, including provisions whereby the Master Trustee accepts such powers, duties, conditions and restrictions hereunder and the Obligated Group Members undertake such covenants, conditions or restrictions additional to those contained in the Master Trust Indenture as would be necessary or appropriate so to qualify the Master Trust Indenture; provided, however, that nothing herein contained shall be deemed to authorize inclusion in the Master Trust Indenture or in any Supplements provisions referred to in Section 316(a)(2)of the said Trust Indenture Act or any corresponding provision provided for in any similar statute hereafter in effect; (e) to create and provide for the issuance of Obligations as permitted hereunder; (f) to increase or maintain any credit rating assigned to any series of Related Bonds by a Rating Agency so long as no Obligation issued hereunder shall be secured on a basis senior to other Obligations; (g) to change Section 4.15 of the Master Trust Indenture to permit the financial statements required therein to more accurately reflect the financial position and operations of the Obligated Group; (h) To specify and determine matters necessary or desirable for the incorporation of any future rules and regulations with respect to Subsidy Bonds;and (i) to make any amendment to any provision of the Master Trust Indenture or to any Supplement which is only applicable to Obligations issued thereafter or which will not apply so long as any Obligation then Outstanding remains Outstanding. SECTION 9.02. SUPPLEMENTS WITH CONSENT OF HOLDERS OF OBLIGATIONS. With the Consent of the Holders of not less than a majority in principal amount of the Outstanding Obligations, by Act of said Holders delivered to the Obligated Group Representative and the Master Trustee, each Obligated Group Member, when authorized by a Board Resolution, and the Master Trustee may enter into Supplements for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Master Trust Indenture or of modifying in any manner the rights of the Holders of the Obligations under the Master Trust Indenture;provided,however,that no such Supplement shall,without the Consent of the Holder of each Outstanding Obligations affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on,any Obligations or any date for mandatory redemption thereof, or reduce the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof, or change any Place of Payment where, or the coin or currency in which, any Obligations or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof(or, in the case of redemption, on or after the redemption date),or (b) reduce the percentage in principal amount of the Outstanding Obligations, the Consent of whose Holders is required for any such Supplement, or the Consent of whose Holders is required for any waiver (of compliance with certain provisions of the Master Trust Indenture or certain defaults hereunder and their consequences)provided for in the Master Trust Indenture,or (c) modify any of the provisions of this Section or Section 7.15 of the Master Trust Indenture,except to increase any such percentage or to provide that certain other provisions of the Master Trust Indenture cannot be modified or waived without the Consent of the Holder of each Obligation affected thereby. It shall not be necessary for any Act of Holders of Obligation under this Section to approve the particular form of any proposed Supplement,but it shall be sufficient if such Act shall approve the substance thereof. C-55 ARTICLE X SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 10.01. SATISFACTION AND DISCHARGE OF INDENTURE. If at any time the Obligated Group Members shall have paid or caused to be paid the principal of(and premium,if any)and interest on all the Obligations Outstanding hereunder,as and when the same shall have become due and payable (in the case of Obligations related to any Subsidy Bonds, without regard to expected Federal Subsidy Payments), and if the Obligated Group Members shall also pay or provide for the payment of all other sums payable hereunder by each Obligated Group Member then the Master Trust Indenture shall cease to be of further effect(except as to (1) rights of registration of transfer and exchange,(2)substitution of mutilated,defaced,or apparently destroyed, lost or stolen Obligations, (3) rights of Holders to receive payments of principal thereof (and premium, if any) and interest thereon, (4) the rights, remaining obligations, if any, and immunities of the Master Trustee hereunder, and (5) the rights of the Holders as beneficiaries hereof with respect to the property so deposited with the Master Trustee payable to all or any of them) and the Master Trustee, on the Obligated Group Representative's Request accompanied by an Officer's Certificate and an Opinion of Counsel (both to the effect that all conditions precedent in the Master Trust Indenture relating to the satisfaction and discharge of the Master Trust Indenture have been satisfied) and at the cost and expense of the Obligated Group Representative, shall execute proper instruments acknowledging satisfaction of and discharging the Master Trust Indenture. Notwithstanding the satisfaction and discharge of the Master Trust Indenture, the obligations of the Obligated Group Members to the Master Trustee under Section 8.07 of the Master Trust Indenture and,if funds shall have been deposited with the Master Trustee pursuant to Section 10.02 of the Master Trust Indenture,the obligations of the Master Trustee under Section 10.03 of the Master Trust Indenture shall survive. SECTION 10.02. OBLIGATIONS DEEMED PAID. Obligations of any series shall be deemed to have been paid if(a) (1) in case such Obligations are to be redeemed on any date prior to their Stated Maturity, the Obligated Group Representative by Obligated Group Representative Request shall have given to the Master Trustee in form satisfactory to it irrevocable instructions to give notice of redemption of such Obligations on said redemption date, (2)there shall have been deposited with the Master Trustee either money sufficient, or Defeasance Obligations the principal of and the interest on which will provide money sufficient without reinvestment (as established by an Officer's Certificate delivered to the Master Trustee accompanied by a report of an independent accountant setting forth the calculations upon which such Officer's Certificate is based), to pay when due the principal of (and premium, if any) and interest due and to become due on said Obligations (in the case of Obligations related to any Subsidy Bonds,without regard to expected Federal Subsidy Payments)on and prior to the redemption date or Stated Maturity thereof,as the case may be,and(3) in the event said Obligations are not by their terms subject to redemption within the next 45 days, the Obligated Group Representative shall have given the Master Trustee in form satisfactory to it irrevocable instructions to give a notice to the Holders of such Obligations that the deposit required by clause (2) above has been made with the Master Trustee and that said Obligations are deemed to have been paid in accordance with this Section and stating such maturity or redemption date upon which money is to be available for the payment of the principal of(and premium, if any) and interest on said Obligations (in the case of Obligations related to any Subsidy Bonds,without regard to expected Federal Subsidy Payments), or (b)such Obligations are delivered to the Master Trustee by the Related Bond Trustee together with instructions from the Obligated Group Representative directing the Master Trustee to retire and cancel such Obligations. SECTION 10.03. APPLICATION OF TRUST MONEY. The Defeasance Obligations and money deposited with the Master Trustee pursuant to Section 10.02 of the Master Trust Indenture and principal or interest payments on any such Defeasance Obligations shall be held in trust,shall not be sold or reinvested,and shall be applied by it, in accordance with the provisions of the Obligations and the Master Trust Indenture, to the payment, either directly or through any Paying Agent (including the Obligated Group Representative acting as Paying Agent)as the Master Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money or Defeasance Obligations were deposited; provided that,upon delivery to the Master Trustee of an Officer's Certificate (accompanied by the report of an independent accountant setting forth the calculations upon which such Officer's Certificate is based) establishing that the money and Defeasance Obligations on deposit following the taking of the proposed action will be sufficient for the purposes described in clause(2)of Section 10.02 of the Master Trust Indenture,any money received from principal or interest C-56 payments on Defeasance Obligations deposited with the Master Trustee or the proceeds of any sale of such Defeasance Obligations, if not then needed for such purpose, shall, upon Obligated Group Representative Request be reinvested,to the extent practicable, in other Defeasance Obligations or disposed of as requested by the Obligated Group Representative. For purposes of any calculation required by this Article X,any Defeasance Obligation which is subject to redemption at the option of its issuer, the redemption date for which has not been irrevocably established as of the date of such calculation, shall be assumed to cease to bear interest at the earliest date on which such obligation may be redeemed at the option of the issuer and the principal of such obligation shall be assumed to be received at its stated maturity. SECTION 10.04. PAYMENT OF RELATED BONDS. Notwithstanding any other provision of this Article X,no Obligation will be considered paid or deemed to have been paid unless the Related Bonds, if any, have been paid or deemed paid pursuant to the Related Bond Indenture. C-57 EXCERPTS FROM INDENTURE OF TRUST The following are certain excerpts from the Indenture of Trust. These excerpts do not purport to be complete and are qualified in their entirety by reference to the Indenture of Trust. ARTICLE II AUTHORIZATION,TERMS,EXECUTION AND ISSUANCE OF BONDS SECTION 2.02. ALL BONDS EQUALLY AND RATABLY SECURED, BONDS NOT AN OBLIGATION OF ISSUER. All Bonds issued under the Bond Indenture and at any time Outstanding shall in all respects be equally and ratably secured hereby,without preference, priority, or distinction on account of the date or dates or the actual time or times of the issuance or maturity of the Bonds, so that all Bonds at any time issued and Outstanding hereunder shall have the same right,lien,and preference under and by virtue of the Bond Indenture,and shall all be equally and ratably secured hereby. The Bonds shall be payable solely out of the revenues and other security pledged hereby and shall not constitute an indebtedness of the Issuer within the meaning of any state constitutional provision or statutory limitation and shall never constitute nor give rise to a pecuniary liability of the Issuer. SECTION 2.05. REGISTRATION AND EXCHANGE OF BONDS; PERSONS TREATED AS OWNERS. The Issuer shall cause books for the registration and for the transfer of the Bonds as provided in the Bond Indenture to be kept by the Bond Trustee which is hereby appointed the bond registrar of the Issuer for the Bonds. Upon surrender for transfer of any fully registered Bond at the Payment Office of the Bond Trustee, duly endorsed for transfer or accomplished by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, the Issuer shall execute and the Bond Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Bond or Bonds of a like Aggregate Principal Amount for a like principal amount and maturity. The Issuer shall execute and the Bond Trustee shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive, bearing numbers not contemporaneously Outstanding. The execution by the Issuer of any fully registered Bond of any denomination shall constitute full and due authorization of such denomination and the Bond Trustee shall thereby be authorized to authenticate and deliver such Bond. The Bond Trustee shall not be required to transfer or exchange any Bond after the mailing of notice calling such Bond or any portion thereof for redemption has been given as herein provided,nor during the period beginning at the opening of business fifteen days before the day of mailing by the Bond Trustee of a notice of prior redemption and ending at the close of business on the day of such mailing except for Bondholders of$1,000,000 or more in aggregate principal amount of the Bonds. As to any Bond,the Person in whose name the same shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes,and payment of principal of or interest on any Bond shall be made only to or upon the written order of the Registered Owner thereof or his legal representative, but such registration may be changed as hereinabove provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums paid. The Bond Trustee shall require the payment by any Bondholder requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. SECTION 2.06. LOST, STOLEN, DESTROYED,AND MUTILATED BONDS. Upon receipt by the Bond Trustee of evidence satisfactory to it of the ownership of and the loss, theft, destruction, or mutilation of any Bond and, in the case of a lost, stolen, or destroyed Bond, of indemnity satisfactory to it, and upon surrender and cancellation of the Bond if mutilated, (i) the Issuer shall execute, and the Bond Trustee shall authenticate and deliver, a new Bond of the same series, date and maturity as the lost, stolen, destroyed or mutilated Bond in lieu of such lost, stolen, destroyed, or mutilated Bond, or (ii) if such lost, stolen, destroyed, or mutilated Bond shall have matured or have been called for redemption, in lieu of executing and delivering a new Bond as aforesaid,the Issuer may pay such Bond. Any such new Bond shall bear a number not contemporaneously Outstanding. The applicant C-58 for any such new Bond may be required to pay all expenses and charges of the Issuer and of the Bond Trustee in connection with the issue of such new Bond. All Bonds shall be held and owned upon the express condition that,to the extent permitted by law, the foregoing conditions are exclusive with respect to the replacement and payment of mutilated, destroyed, lost, or stolen Bonds, negotiable instruments, or other securities. If, after the delivery of such new Bond, a bona fide purchaser of the original Bond in lieu of which such duplicate Bond was issued presents for payment such original Bond, the Obligor or the Bond Trustee shall be entitled to recover upon such new Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Obligor or the Bond Trustee in connection therewith. SECTION 2.13. PAYMENTS TO CEDE & CO. Notwithstanding any other provision of the Bond Indenture to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on, such Bond and all notices, transfers and deliveries with respect to such Bond shall be made and given, respectively, in the manner provided in the DTC Letter. ARTICLE III REVENUES AND FUNDS SECTION 3.02. CREATION OF THE BOND FUND. There is hereby created by the Issuer and ordered established with the Bond Trustee a trust fund to be designated as the "City of Atlantic Beach, Florida Health Care Facilities Revenue Bonds (Fleet Landing Project) Bond Fund" (the "Bond Fund"). There are hereby created by the Issuer and ordered established with the Bond Trustee two separate accounts within the Bond Fund to be designated as the Principal Account and the Interest Account, respectively. Moneys on deposit in the Principal Account shall be used to pay the principal of and premium, if any,on the Bonds,when due and payable. Moneys on deposit in the Interest Account shall be used to pay the interest on the Bonds. SECTION 3.03. PAYMENTS INTO THE BOND FUND. There shall be deposited into the Interest Account all accrued interest received from the sale of the Bonds to the initial purchasers thereof. In addition, there shall also be deposited into the Principal Account or the Interest Account,as and when received, (i) all payments on the Note, (ii) all moneys transferred to the Bond Fund from the Reserve Fund pursuant to Section 3.10 of the Bond Indenture, (iii) all other moneys required to be deposited therein pursuant to the Loan Agreement, and(iv) all other moneys received by the Bond Trustee when accompanied by directions that such moneys are to be paid into the Principal Account or the Interest Account. There also shall be retained or deposited in the Principal Account or the Interest Account all interest and other income received on investments or moneys required to be transferred thereto, in accordance with Section 6.02 of the Bond Indenture. The Issuer hereby covenants and agrees that so long as any of the Bonds are Outstanding it will deposit, or cause to be deposited, into the Principal Account or the Interest Account for its account sufficient sums from revenues and receipts derived from the Loan Agreement promptly to meet and pay the principal of,premium, if any,and interest on the Bonds as the same become due and payable. SECTION 3.04. USE OF MONEYS IN THE PRINCIPAL ACCOUNT AND THE INTEREST ACCOUNT. Except as provided in Sections 3.15 and 8.05 of the Bond Indenture,moneys in the Principal Account or the Interest Account shall be used solely for the payment of the principal of, premium, if any, and interest on the Bonds on a pro rata basis. SECTION 3.06. PROJECT FUND. (a) There is hereby created and established with the Bond Trustee a trust fund designated as the "City of Atlantic Beach, Florida Health Care Facilities Revenue Bonds (Fleet Landing Project)Project Fund"(the "Project Fund"). Moneys in the Project Fund shall be used to pay Costs of the Project or as hereinafter provided. Under no circumstances shall moneys in the Project Fund be used to pay Cost of Issuance. (b) Payments from the Project Fund shall be made in accordance with this Article III and Article IV of the Loan Agreement. Upon receipt of the required certificates, the Bond Trustee shall pay the amount requested to the extent that the Obligor is entitled to payment pursuant to the Loan Agreement. (c) If an Event of Default occurs under the Bond Indenture, and the Bond Trustee declares the principal of all Bonds and the interest accrued thereon to be due and payable, no moneys may be paid out of the C-59 Project Fund by the Bond Trustee during the continuance of such an Event of Default; provided, however, that if such an Event of Default shall be waived and such declaration shall be rescinded by the Bond Trustee or the holders and owners of the Bonds pursuant to the terms of the Bond Indenture,the full amount of any such remaining moneys in the Project Fund may again be disbursed by the Bond Trustee in accordance with the provisions of the Loan Agreement and the Bond Indenture. (d) The Bond Trustee shall not be accountable for the use or application of the proceeds form the Project Fund disbursed in accordance with the provisions of the Loan Agreement and this Bond Indenture. SECTION 3.07. COMPLETION CERTIFICATE. At such time as the Obligor determines that construction of the Project has been completed in substantial compliance with the final plans and specifications for the Project or has determined to terminate any further construction of the Project, it shall deliver the Completion Certificate to the Bond Trustee in accordance with and to the extent required by the Loan Agreement. SECTION 3.08. CREATION OF THE RESERVE FUND. (a) There is hereby created and established with the Bond Trustee a trust fund designated as the "City of Atlantic Beach Health Care Facilities Revenue Bonds (Fleet Landing Project)Debt Service Reserve Fund" (the "Reserve Fund"). (b) Moneys on deposit in the Reserve Fund shall be used to provide a reserve for the payment of the principal of and interest on the Bonds. SECTION 3.09. PAYMENTS INTO THE RESERVE FUND. In addition to the deposits required by Section 3.01 of the Bond Indenture, there shall be deposited into the Reserve Fund any Reserve Fund Obligations delivered by the Obligor to the Bond Trustee pursuant to Section 5.6 of the Loan Agreement. In addition,there shall be deposited into the Reserve Fund all moneys required to be transferred thereto pursuant to Section 6.02 of the Bond Indenture, and all other moneys received by the Bond Trustee when accompanied by directions that such moneys are to be paid into the Reserve Fund. There shall also be retained in the Reserve Fund all interest and other income received on investments of Reserve Fund moneys in the Reserve Fund to the extent provided in Section 6.02 of the Bond Indenture. SECTION 3.10. USE OF MONEYS IN THE RESERVE FUND. (a) Except as provided in this Section 3.10 and in Section 3.15 of the Bond Indenture,moneys in the Reserve Fund shall be used solely for the payment of the principal of and interest on the Bonds in the event moneys in the Bond Fund and the Funded Interest Account are insufficient to make such payments when due,whether on an interest payment date,redemption date,maturity date, acceleration date or otherwise. (b) Upon the occurrence of an Event of Default of which the Bond Trustee is deemed to have notice hereunder and the election by the Bond Trustee of the remedy specified in Section 8.02(a) of the Bond Indenture, any Reserve Fund Obligations in the Reserve Fund shall, subject to the provisions of Section 3.16 of the Bond Indenture, be transferred by the Bond Trustee to the Principal Account and applied in accordance with Section 8.05 of the Bond Indenture. In the event of the redemption of a portion of the Bonds, any Reserve Fund Obligations on deposit in the Reserve Fund in excess of the Reserve Fund Requirement on the Bonds to be Outstanding immediately after such redemption may, subject to the provisions of Section 3.16 of the Bond Indenture, be transferred to the Principal Account and applied to the payment of the principal of the Bonds to be redeemed. On March 15 and November 15 in each year, any earnings on the Reserve Fund Obligations on deposit in the Reserve Fund that are in excess of the Reserve Fund Requirement shall be transferred into the Interest Account of the Bond Fund. (c) On the final maturity date of the Bonds, any Reserve Fund Obligations in the Reserve Fund in excess of the Reserve Fund Requirement after giving effect to such maturity may,upon the direction of the Obligor, be used to pay the principal of and interest on the Bonds on such final maturity date. (d) If at any time moneys in the Reserve Fund are sufficient to pay the principal or redemption price of all Bonds, the Bond Trustee may use the moneys on deposit in the Reserve Fund to pay such principal or redemption price of the Bonds. C-60 (e) In accordance with Section 651.035, Florida Statutes, not less than ten (10) days prior to any withdrawal of monies from the Reserve Fund,notice of the withdrawal from the Reserve Fund shall be given by the Bond Trustee or the Obligor by telephone (850/413-3140) (promptly confirmed in writing) or facsimile (850/488- 0313) to the Florida Office of Insurance Regulation, Specialty Product Administration, The Larson Building 200 East Gaines Street, Tallahassee, Florida 32399-0327 (the "Office of Insurance"), provided that such notice by telephone, by facsimile or in writing may be given to the Office of Insurance at other telephone numbers or other addresses if required by the Office of Insurance to be used in lieu of the foregoing. The Bond Trustee shall provide the Office of Insurance with any information concerning the Reserve Fund upon request of the Office of Insurance or the Borrower. SECTION 3.12. NONPRESENTMENT OF BONDS. In the event that any Bonds shall not be presented for payment when the principal thereof or interest thereon becomes due, either at maturity, the date fixed for redemption thereof,or otherwise, if funds sufficient for the payment thereof shall have been deposited into the Bond Fund or otherwise made available to the Bond Trustee for deposit therein as provided in Section 3.03 of the Bond Indenture, all liability of the Issuer to the owner or owners thereof for the payment of such Bonds shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Bond Trustee to hold such fund or funds,without liability for interest thereon, for the benefit of the owner or owners of such Bonds,who shall thereafter be restricted exclusively to such fund or funds for any claim of whatever nature on his or their part under the Bond Indenture or on, or with respect to, said Bond, and all such funds shall remain uninvested. If any Bond shall not be presented for payment within the period of two years following the date of final maturity of such Bond, the Bond Trustee shall, to the extent required by law, transfer such funds to the state treasury of the state in which the principal office of the Bond Trustee is located, in which case the owner of such Bonds shall look only to such state for payment, or, in the alternative, to the extent permitted by law, the Bond Trustee shall, upon request in writing by the Obligor,return such funds to the Obligor free of any trust or lien and such Bond shall, subject to the defense of any applicable statute of limitation, thereafter be an unsecured obligation of the Obligor. In either event, the Bond Trustee shall have no further responsibility with respect to such moneys or payment of such Bonds. Thereafter,the Bondholders shall be entitled to look only to the Obligor for payment, and then only to the extent of the amount so repaid by the Bond Trustee. The Obligor shall not be liable for any interest on any sums paid to it. SECTION 3.16. REBATE FUND. (a) A special Rebate Fund is hereby established by the Issuer. The Rebate Fund shall be for the sole benefit of the United States of America and shall not be subject to the claim of any other Person, including without limitation the Bondholders. The Rebate Fund is established for the purpose of complying with Section 148 of the Code. The money deposited in the Rebate Fund, together with all investments thereof and investment income therefrom, shall be held in trust and applied solely as provided in this Section. The Rebate Fund is not a portion of the Trust Estate and is not subject to the lien of the Bond Indenture. Notwithstanding the foregoing, the Bond Trustee with respect to the Rebate Fund is afforded all the rights,protections and immunities otherwise accorded to it hereunder. (b) Within 60 days after the close of each fifth "Bond Year," the Obligor shall provide the Bond Trustee a computation in the form of a certificate of an officer of the Obligor of the amount of"Excess Earnings," if any, for the period beginning on the date of delivery of the Bonds and ending at the close of such"Bond Year" and the Obligor shall pay to the Bond Trustee for deposit into the Rebate Fund an amount equal to the difference,if any, between the amount then in the Rebate Fund and the Excess Earnings so computed. The term "Bond Year" means with respect to the Bonds each one-year period ending on the anniversary of the date of delivery of the Bonds or such other period as may be elected by the Issuer in accordance with the Code and notice of which election has been given to the Bond Trustee. If, at the close of any Bond Year, the amount in the Rebate Fund exceeds the amount that would be required to be paid to the United States of America under paragraph(d) below if the Bonds had been paid in full, such excess may, at the request of the Obligor, be transferred from the Rebate Fund and paid to the Obligor. (c) In general, "Excess Earnings"for any period of time means the sum of (i) the excess of-- C-61 (A) the aggregate amount earned during such period of time on all "Nonpurpose Investments" (including gains on the disposition of such Obligations) in which "Gross Proceeds" of the issue are invested (other than amounts attributable to an excess described in this subparagraph(c)(i)),over (B) the amount that would have been earned during such period of time if the "Yield" on such Nonpurpose Investments (other than amounts attributable to an excess described in this subparagraph (c)(i))had been equal to the yield on the issue,plus (ii) any income during such period of time attributable to the excess described in subparagraph(c)(i)above. The term Nonpurpose Investments,Gross Proceeds, Issue Date and Yield shall have the meanings given to such terms in Section 148 of the Code. (d) The Bond Trustee shall,as directed in writing by the Obligor,pay to the United States of America at least once every five years, to the extent that funds are available in the Rebate Fund or otherwise provided by the Obligor, an amount that ensures that at least 90 percent of the Excess Earnings from the date of delivery of the Bonds to the close of the period for which the payment is being made will have been paid. The Bond Trustee shall pay to the United States of America not later than 60 days after the Bonds have been paid in full as directed by the Obligor in writing, to the extent that funds are available in the Rebate Fund or otherwise provided by the Obligor, 100 percent of the amount then required to be paid under Section 148(f)of the Code as a result of Excess Earnings. (e) The amounts to be computed, paid, deposited or disbursed under this section shall be determined by the Obligor acting on behalf of the Issuer within thirty days after each Bond Year. By such date, the Obligor shall also notify, in writing, the Bond Trustee and the Issuer of the determinations the Obligor has made and the payment to be made pursuant to the provisions of this section. Upon written request of any Registered Owner of Bonds, the Obligor shall furnish to such Registered Owner of Bonds a certificate (supported by reasonable documentation, which may include calculation by Bond Counsel or by some other service organization) showing compliance with this section and other applicable provisions of Section 148 of the Code. (f) The Bond Trustee shall maintain a record of the periodic determinations by the Obligor of the Excess Earnings for a period beginning on the first anniversary date of the issuance of the Bonds and ending on the date six years after the final retirement of the Bonds. Such records shall state each such anniversary date and summarize the manner in which the Excess Earnings,if any,was determined. (g) If the Bond Trustee shall declare the principal of the Bonds and the interest accrued thereon immediately due and payable as the result of an Event of Default specified in the Bond Indenture,or if the Bonds are optionally or mandatorily prepaid or redeemed prior to maturity as a whole in accordance with their terms, any amount remaining in any of the funds shall be transferred to the Rebate Fund to the extent that the amount therein is less than the Excess Earnings computed by the Obligor as of the date of such acceleration or redemption, and the balance of such amount shall be used immediately by the Bond Trustee for the purpose of paying principal of, redemption premium,if any,and interest on the Bonds when due. In furtherance of such intention,the Issuer hereby authorizes and directs its Chairman to execute any documents, certificates or reports required by the Code and to make such elections,on behalf of the Issuer,which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds. (h) The requirements contained in this Section relating to the computation and payment of Excess Earnings shall not be applicable if all Gross Proceeds of the Bonds are expended in compliance with Section 1.148-7 of the Code. (i) Notwithstanding any of the provisions of this Section, the Bond Trustee shall have no duty or responsibility with respect to the Rebate Fund except to follow the specific written instructions of the Obligor. C-62 SECTION 3.17. COST OF ISSUANCE FUND. There is hereby created and established with the Bond Trustee a trust fund designated as the "City of Atlantic Beach, Florida Health Care Facilities Revenue Bonds (Fleet Landing Project)Cost of Issuance Fund" (the "Cost of Issuance Fund"). The Bond Trustee shall disburse moneys in the Cost of Issuance Fund as provided in Article IV of the Loan Agreement. Moneys in the Cost of Issuance Fund may be used only for payment of the Cost of Issuance. On the earlier of(a) the day the Bond Trustee receives a certificate of the Obligor to the effect that all Cost of Issuance relating to the Bonds has been paid,and(b) the 180th day following the Delivery Date, any moneys remaining in the Cost of Issuance Fund shall be transferred to the Interest Account of the Bond Fund. The Cost of Issuance Fund shall then be closed. ARTICLE IV COVENANTS OF THE ISSUER SECTION 4.01. PERFORMANCE OF COVENANTS; AUTHORITY. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in the Bond Indenture, in any and every Bond and in all proceedings of the Issuer pertaining hereto; provided, however, that except for the covenant of the Issuer set forth in Section 4.02 of the Bond Indenture relating to payment of the Bonds, the Issuer shall not be obligated to take any action or execute any instrument pursuant to any provision hereof until it shall have been requested to do so by the Obligor or by the Bond Trustee, or shall have received the instrument to be executed and at the option of the Issuer shall have received from the party requesting such execution assurance satisfactory to the Issuer that the Issuer shall be reimbursed for its reasonable expenses incurred or to be incurred in connection with taking such action or executing such instrument. The Issuer covenants that it is duly authorized under the laws of the State of Florida, including particularly and without limitation the Act,to issue the Bonds and to execute the Bond Indenture, and to pledge the revenues and receipts hereby pledged, and to assign its rights under and pursuant to the Loan Agreement and the Note in the manner and to the extent herein set forth, that all action on its part and to the extent herein set forth,that all action on its part for the issuance of the Bonds and the execution and delivery of the Bond Indenture has been duly and effectively taken and will be duly taken as provided herein, and that the Bonds in the hands of the owners thereof are and will be valid and enforceable limited obligations of the Issuer according to the import hereof,except as enforcement thereof and hereof may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting the rights of creditors and by the application of general principles of equity,if such remedies are pursued. SECTION 4.02. PAYMENTS OF PRINCIPAL,PREMIUM, IF ANY, AND INTEREST. The Issuer will promptly pay or cause to be paid the principal of,premium, if any, and interest on all Bonds issued hereunder according to the terms hereof. The principal, premium, if any, and interest payments are payable solely from revenues and other amounts derived from the Note, and from the other security pledged hereby,which revenues and security are hereby specifically pledged to the payment thereof in the manner and to the extent herein specified. Nothing in the Bonds or in the Bond Indenture shall be considered or construed as pledging any funds or assets of the Issuer other than those pledged hereby. SECTION 4.03. SUPPLEMENTAL INDENTURES; RECORDATION OF BOND INDENTURE AND SUPPLEMENTAL INDENTURES. The Issuer will execute and deliver all indentures supplemental hereto, and will cause the Bond Indenture, the Loan Agreement, and all supplements hereto and thereto, as well as all security instruments and financing statements relating thereto, to be filed in each office required by law in order to publish notice of the liens created by the Bond Indenture and the Loan Agreement. The Bond Trustee, at the Obligor's expense will cause all continuation statements and all supplements to any financing statement or continuation statement and other instruments as may be required, at all times to be recorded,registered and filed in such manner and in such places as may be required by law in order fully to preserve and protect the security of the Bondholders and all rights of the Bond Trustee hereunder. Notwithstanding the preceding sentence, the Bond Trustee shall not be liable for failure to effect any such filings. SECTION 4.04. LIEN OF BOND INDENTURE. The Issuer hereby agrees not to create any lien having priority or preference over the lien of the Bond Indenture upon the Trust Estate or any part thereof, other than the security interest granted by it to the Bond Trustee, except as otherwise specifically provided in Article VIII of the Bond Indenture. The Issuer agrees that no obligations the payment of which is secured by payments or other C-63 moneys or amounts derived from the Loan Agreement and the other sources provided herein will be issued by it except in accordance with Sections 2.09 and 2.10 of the Bond Indenture. SECTION 4.05. RIGHTS UNDER THE LOAN AGREEMENT. The Issuer will observe all of the obligations, terms and conditions required on its part to be observed or performed under the Loan Agreement. The Issuer agrees that wherever in the Loan Agreement it is stated that the Issuer will notify the Bond Trustee, give the Bond Trustee some right or privilege, or in any way attempts to confer upon the Bond Trustee the ability for the Bond Trustee to protect the security for payment of the Bonds, that such part of the Loan Agreement shall be as though it were set out in the Bond Indenture in full. The Issuer agrees that the Bond Trustee as assignee of the Loan Agreement may enforce, in its name or in the name of the Issuer, all rights of the Issuer (except those rights of the Issuer to indemnification and payment under Sections 5.7, 7.5 and 9.5 of the Loan Agreement) and all obligations of the Obligor under and pursuant to the Loan Agreement for and on behalf of the Bondholders,whether or not the Issuer is in default hereunder. SECTION 4.05. TAX COVENANTS. (a)The Issuer covenants and agrees that until the final maturity of the Bonds, based upon the Obligor's covenants in Section 4.9 of the Loan Agreement, it will not knowingly take any action, use any money on deposit in any fund or account maintained in connection with the Bonds, whether or not such money was derived from the proceeds of the sale of the Bonds or from any other source, in a manner that would cause the Bonds to be arbitrage bonds, within the meaning of Section 148 of the Code. In the event the Obligor notifies the Issuer that it is necessary to restrict or limit the yield on the investment of moneys held by the Bond Trustee pursuant to the Bond Indenture,or to use such moneys in any certain manner to avoid the Bonds being considered arbitrage bonds, the Issuer at the written direction and expense of the Obligor shall deliver to the Bond Trustee appropriate written instructions of the Issuer, in which event the Bond Trustee shall take such action as instructed to restrict or limit the yield on such investment or to use such moneys in accordance with such instructions. (b) The Issuer shall not knowingly use any proceeds of Bonds or any other funds of the Issuer, directly or indirectly, in any manner, and shall not knowingly take any other action or actions, that would result in any of the Bonds being treated other than as an obligation described in Section 103(a)of the Code. (c) The Issuer will not knowingly use any portion of the proceeds of the Bonds, including any investment income earned on such proceeds, directly or indirectly,to make or finance loans to Persons who are not "Exempt Persons." For purposes of the preceding sentence,a loan to an organization described in Section 501(c)(3) of the Code for use with respect to an unrelated trade or business, determined according to Section 513(a) of the Code,constitutes a loan to a Person who is not an"Exempt Person." (d) The Issuer will not knowingly take any action that would result in all or any portion of the Bonds being treated as federally guaranteed within the meaning of Section 149(6)(2)of the Code. (e) For purposes of this Section, the Issuer's compliance shall be based solely on acts or omissions by the Issuer, and no acts, omissions or directions of the Obligor, the Bond Trustee or any other Persons shall be attributable to the Issuer. SECTION 4.07. CHANGE IN LAW. To the extent that published rulings of the Internal Revenue Service, or amendments to the Code modify the covenants of the Issuer that are set forth in the Bond Indenture or that are necessary for interest on the Bonds to be excludable from gross income for federal income tax purposes,the Issuer, upon receiving the written Opinion of Bond Counsel to such effect, will comply, at the expense of the Obligor,with such modifications and direct the Bond Trustee to take such action as may be required to comply with such modifications. SECTION 4.08. PROGRAM INVESTMENT. The proceeds of the Bonds are to be used to finance the Project. With respect to the Bonds,the Issuer asserts— C-64 (a) At least 95 percent of all obligations acquired with the proceeds of the Bonds, by amount of cost outstanding, will be evidences of loans to a substantial number of persons representing the general public, loans to exempt persons,or loans to provide housing and related facilities,or any combination of the foregoing. (b) At least 95 percent of all amounts received by the Issuer with respect to the Bonds will be used for one or more of the following purposes: to make loans to exempt organizations, to pay the principal or interest or otherwise to service the debt on the Bonds;to reimburse the Issuer or to pay for administrative costs of issuing such obligations;or to redeem or retire such Bonds of the Issuer at the next earliest possible date of redemption. (c) Any person or any related party, as defined in Section 1.150-1 of the Code, as amended, from whom the Issuer may acquire obligations, shall not, pursuant to an arrangement, formal or informal, purchase the Issuer's bonds in an amount related to the amount of the obligations to be acquired from such person by the Issuer. (d) The Issuer does not waive the right to treat the Loan Agreement as a program investment. ARTICLE V REDEMPTION OF BONDS SECTION 5.03. METHOD OF SELECTION OF BONDS IN CASE OF PARTIAL REDEMPTION; REDEMPTION PRIORITY. (a) In the event that less than all of the Outstanding Bonds are to be redeemed as provided in Sections 5.01 or 5.08 of the Bond Indenture,the Obligor may select the particular maturities to be redeemed. If less than all of the Outstanding Bonds of a single maturity are to be redeemed,they shall be selected by the Securities Depository or by lot in such manner as the Bond Trustee may determine. (b) If a Bond is of a denomination larger than the minimum Authorized Denomination, a portion of such Bond may be redeemed, but Bonds shall be redeemed only in the principal amount of an Authorized Denomination and no Bond may be redeemed in part if the principal amount to be Outstanding following such partial redemption is not an Authorized Denomination. SECTION 5.04. NOTICE OF REDEMPTION. Bonds shall be called for redemption by the Bond Trustee as herein provided upon receipt by the Bond Trustee at least 45 days prior to the redemption date of a certificate of the Obligor specifying the principal amount of Bonds to be called for redemption, the applicable redemption price or prices and the provision or provisions of the Bond Indenture pursuant to which such Bonds are to be called for redemption. The provisions of the preceding sentence shall not apply to the redemption of Bonds pursuant to the sinking fund provided in Section 5.02 of the Bond Indenture, and such Bonds shall be called for redemption by the Bond Trustee without the necessity of any action by the Obligor or the Issuer. In case of every redemption, the Bond Trustee shall cause notice of such redemption to be given by mailing by first class mail, postage prepaid, a copy of the redemption notice to the owners of the Bonds designated for redemption in whole or in part,at their addresses as the same shall last appear upon the registration books, in each case not more than 60 nor less than 30 days prior to the redemption date. In addition, notice of redemption shall be sent by first class or registered mail,return receipt requested, or by over night delivery service(1)contemporaneously with such mailing: (A) to any owner of$1,000,000 or more in principal amount of Bonds, and(B) to at least two or more information services of national recognition that disseminate redemption information with respect to municipal bonds; and(2)to any securities depository registered as such pursuant to the Securities Exchange Act of 1934, as amended, that is an owner of Bonds to be redeemed so that such notice is received at least two days prior to such mailing date. An additional notice of redemption shall be given by certified mail, postage prepaid, mailed not less than 60 nor more than 90 days after the redemption date to any owner of Bonds selected for redemption that has not surrendered the Bonds called for redemption,at the address as the same shall last appear upon the registration books. All notices of redemption shall state: (1) the redemption date, C-65 (2) the redemption price, (3) the identification, including complete designation(including series) and issue date of the Bonds and the CUSIP number(and in the case of partial redemption, certificate number and the respective principal amounts,interest rates and maturity dates)of the Bonds to be redeemed, (4) the condition for redemption,if any, (5) that on the redemption date the redemption price will become due and payable upon each such Bonds,and that interest thereon shall cease to accrue from and after said date,and (6) the name and address of the Bond Trustee and any paying agent for such Bonds, including the place where such Bonds are to be surrendered for payment of the redemption price and the name and phone number of a contact person at such address. Provided,however, that failure to give any such notice, or any defect therein,shall not affect the validity of any proceedings for the redemption of such Bonds. SECTION 5.05. BONDS DUE AND PAYABLE ON REDEMPTION DATE; INTEREST CEASES TO ACCRUE. On or before the Business Day prior to the redemption date specified in the notice of redemption, an amount of money sufficient to redeem all Bonds called for redemption at the appropriate redemption price, including accrued interest to the date fixed for redemption, shall be deposited with the Bond Trustee. If at the time of mailing of notice of any optional redemption the Obligor shall not have deposited with the Bond Trustee moneys sufficient to redeem all of the Bonds called for redemption, such notice may state that it is conditional in that it is subject to the deposit of moneys with the Bond Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited. On the redemption date the principal amount of each Bond to be redeemed,together with the accrued interest thereon to such date and redemption premium, if any,shall become due and payable; and from and after such date, notice having been given and deposit having been made in accordance with the provisions of this Article V,then,notwithstanding that any Bonds called for redemption shall not have been surrendered, no further interest shall accrue on any such Bonds. From and after such date of redemption (such notice having been given and such deposit having been made), the Bonds to be redeemed shall not be deemed to be Outstanding hereunder,and the Issuer shall be under no further liability in respect thereof. SECTION 5.08. EXTRAORDINARY OPTIONAL REDEMPTION. The Bonds shall be subject to optional redemption by the Issuer at the written direction of the Obligor prior to their scheduled maturities, in whole or in part at a redemption price equal to the principal amount thereof plus accrued interest from the most recent interest payment date to the redemption date on any date following the occurrence of any of the following events: (1) in case of damage or destruction to,or condemnation of,any property,plant,and equipment of any Obligated Group Member, to the extent that the net proceeds of insurance or condemnation award exceed the Threshold Amount and the Obligor has determined not to use such net proceeds or award to repair, rebuild or replace such property,plant,and equipment;or (2) as a result of any changes in the Constitution or laws of the State of Florida or of the United States of America or of any legislative, executive,or administrative action(whether state or federal) or of any final decree, judgment, or order of any court or administrative body (whether state or federal), the obligations of the Obligor under the Loan Agreement have become, as established by an Opinion of Counsel, void or unenforceable in each case in any material respect in accordance with the intent and purpose of the parties as expressed in the Loan Agreement. C-66 ARTICLE VI INVESTMENTS SECTION 6.01. INVESTMENT OF BOND FUND, CONSTRUCTION FUND AND RESERVE FUND MONEYS. Any moneys held as part of the Bond Fund, Project Fund or Reserve Fund shall be invested or reinvested by the Bond Trustee at the written request and direction of the Obligor(upon which the Bond Trustee is entitled to rely) in Permitted Investments, subject to the provisions of the Bond Indenture. All Permitted Investments shall be either subject to redemption at any time at a fixed value at the option of the owner thereof or shall mature or be marketable not later than the Business Day prior to the date on which the proceeds are expected to be expended. For the purpose of any investment or replacement under this Section,the Permitted Investments shall be deemed to mature at the earliest date on which the Obligor is, on demand, obligated to pay a fixed sum in discharge of the whole of such obligation. The Bond Trustee may make any and all investments permitted by the provisions of this Section through its trust department and may charge its ordinary and customary fees for such trades, including cash sweep account fees. In order to comply with the directions of the Obligor, the Bond Trustee may sell,at the market price, or present for redemption,or may otherwise cause liquidation prior to their maturities, any of the obligations in which funds have been invested, and the Bond Trustee shall not be liable for any loss or penalty of any nature resulting therefrom. In order to avoid loss in the event of any need for funds,the Obligor may instruct the Bond Trustee, in lieu of a liquidation or redemption of investments in the fund or account needing funds, to exchange such investment for investments in another fund or account that may be liquidated at no, or at reduced, loss. The Bond Trustee shall be under no liability for interest on any moneys received hereunder unless specifically agreed to in writing. Notwithstanding anything to the contrary in this Section 6.01, (i)the Obligor shall not direct the Bond Trustee to purchase any Premium Security unless the written instructions of the Obligor to make such purchase set forth the amount of premium on such Premium Security, and (ii) the Obligor shall not direct the Bond Trustee to sell any Premium Security, unless prior to such sale, the Obligor has directed the Bond Trustee as to the amount of realized premium on such Premium Security to be transferred from the Funded Interest Account to the account in which such Premium Security was held. Ratings of Investment Securities shall be determined at the time of purchase of such Investment Securities and without regard to ratings subcategories. The Bond Trustee shall have no responsibility to monitor the ratings of Investment Securities after the initial purchase of such Investment Securities. SECTION 6.02. ALLOCATION AND TRANSFERS OF INVESTMENT INCOME. Any investments in any Fund shall be held by or under the control of the Bond Trustee and shall be deemed at all times a part of the Fund from which the investment was made. Any loss resulting from such investments shall be charged to such Fund. The Bond Trustee shall not be liable for any loss or penalty resulting from any such investment made in accordance with any permitted direction by an Obligor or for the Bonds becoming "arbitrage bonds" by reason of any such investment. Any interest or other gain from any fund from any investment or reinvestment pursuant to Section 6.01 of the Bond Indenture shall be allocated and transferred as follows: (a) On a monthly basis the Bond Trustee shall furnish to the Obligor a full and complete statement of all receipts and disbursements of Permitted Investments in any Fund and Account covering such period. (b) Any interest or other gain realized as a result of any investments or reinvestments of moneys in the Principal Account and the Interest Account of the Bond Fund shall be credited at least semiannually to the Interest Account unless a deficiency exists in the Reserve Fund, in which case such interest or other gain shall be paid into the Reserve Fund forthwith. (c) Any interest or other gain realized as a result of any investments or reinvestments of moneys in the Reserve Fund shall be credited to the Reserve Fund if a deficiency exists therein at that time. If a deficiency does not exist in the Reserve Fund at that time, such interest or other gain on other amounts paid into the Reserve Fund shall be paid during the construction period for the Project for deposit into the Funded Interest Account of the Project Fund created in connection with the issuance of Bonds for the Project or if after the completion of such construction period, for deposit into the Interest Account of the Bond Fund, in each case at least semiannually. C-67 The Bond Trustee shall sell and reduce to cash a sufficient portion of such investments whenever the cash balance in any fund is insufficient for the purposes of such fund. SECTION 6.03. VALUATION OF PERMITTED INVESTMENTS. Accounting and valuation of Permitted Investments in any Fund or Account will be performed as follows: (a) On a monthly basis the Bond Trustee shall furnish to the Obligor a full and complete statement of all receipts and disbursements of Permitted Investments in any Fund and Account covering such period. (b) The Bond Trustee shall also furnish on or before November 15 of each year a statement of the assets contained in each Fund and Account. Assets will be valued at market value as of October 31 by the Bond Trustee in such statement in accordance with the normal valuation procedures of the Bond Trustee; provided, however, in the event monies are withdrawn from the Reserve Fund for a deficiency in the Principal Account or Interest Account pursuant to Section 3.10(b)of the Bond Indenture, assets in the Reserve Fund shall also be valued as of the first Business Day after such transfer is made (such date and each October 31 referred to as a "Valuation Date"). (c) If on any Valuation Date, the amount on deposit in the Reserve Fund is less than 90% of the Reserve Fund Requirement as a result of a decline in the market value of investments on deposit in the Reserve Fund, the Obligor shall deposit with the Bond Trustee an amount necessary to restore the Reserve Fund to the Reserve Fund Requirement within 120 days following the date on which the Obligor receives notice of such deficiency. (d) If at any time, the amount on deposit in the Reserve Fund is less than 100% of the Reserve Fund Requirement as a result of a draw on such Reserve Fund,the Obligor shall deposit with the Bond Trustee an amount necessary to restore the Reserve Fund to the Reserve Fund Requirement in not more than 12 substantially equal monthly installments beginning on the first day of the seventh month after the month in which such draw occurred. ARTICLE VII DISCHARGE OF BOND INDENTURE SECTION 7.01. DISCHARGE OF THE BOND INDENTURE. If, when the Bonds secured hereby shall become due and payable in accordance with their terms or otherwise as provided in the Bond Indenture and the whole amount of the principal of,premium, if any,and interest due and payable upon all of the Bonds shall be paid, or provision shall have been made for the payment of the same, together with all other sums payable hereunder (including but not limited to the fees and expenses of the Bond Trustee and any Paying Agent, in accordance with Section 3.13 of the Bond Indenture), then the right, title and interest of the Bond Trustee in and to the Trust Estate and all covenants, agreements and other obligations of the Issuer to the Bondholders shall thereupon cease, terminate and become void and be discharged and satisfied. In such event,upon the written request of the Issuer or of the Obligor, and upon receipt of an Opinion of Counsel to the effect that all conditions precedent herein provided relating to the satisfaction and discharge of the Bond Indenture have been complied with, the Bond Trustee shall execute such documents as may be reasonably required by the Issuer and shall turn over to the Obligor any surplus in the Cost of Issuance Fund,Bond Fund,Reserve Fund and Project Fund. All Outstanding Bonds of any one or more series shall prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed in this Section if(i) in case said Bonds are to be redeemed on any date prior to their maturity, the Obligor shall have given to the Bond Trustee in form satisfactory to it irrevocable written instructions to give on a date in accordance with the provisions of Section 5.04 of the Bond Indenture notice of redemption of such Bonds on said redemption date, such notice to be given in accordance with the provisions of Section 5.04 of the Bond Indenture, (ii) there shall have been deposited with the Bond Trustee (or another Paying Agent) either moneys in an amount which shall be sufficient, or Government Obligations which shall not contain provisions permitting the redemption thereof at the option of the issuer, or any other Person other than the holder thereof, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which, together with the moneys, if any, deposited with or held by the Bond Trustee or any Paying Agent at the same time (including the Bond Fund and the Reserve Fund), shall be C-68 sufficient, in the opinion of an independent certified public accountant, to pay when due the principal of, premium, if any,and interest due and to become due on said Bonds on or prior to the redemption date or maturity date thereof, as the case may be,and(iii) in the event that said Bonds are not by their terms subject to redemption within the next 45 days, the Obligor shall have given the Bond Trustee in form satisfactory to it irrevocable written instructions to give, as soon as practicable in the same manner as the notice of redemption is given pursuant to Section 5.04 of the Bond Indenture, a notice to the owners of such Bonds that the deposit required by subclause (ii) above has been made with the Bond Trustee(or another depository)and that said Bonds are deemed to have been paid in accordance with this Section and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal of, premium, if any, and interest on said Bonds. Neither the Government Obligations nor moneys deposited with the Bond Trustee pursuant to this Section nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of,premium,if any,and interest on said Bonds;provided any such cash received from such principal or interest payments on such Government Obligations deposited with the Bond Trustee, if not then needed for such purpose, shall, at the written direction of the Obligor, either (1) be reinvested, to the extent practicable, in Government Obligations of the type described in clause (ii) of this paragraph maturing at the times and in amounts sufficient to pay when due the principal of,premium,if any,and interest to become due on said Bonds on or prior to such redemption date or maturity date thereof, as the case may be, or(2) be used to pay principal and/or interest on the Bonds. At such time as any Bond shall be deemed paid as aforesaid, it shall no longer be secured by or entitled to the benefits of the Bond Indenture, except for the purpose of any payment from such moneys or Government Obligations deposited with the Bond Trustee and the purpose of transfer and exchange pursuant to Section 2.05 of the Bond Indenture. The release of the obligations of the Issuer under this Section shall be without prejudice to the rights of the Bond Trustee to be paid reasonable compensation for all services rendered by it hereunder and all its reasonable and necessary expenses, charges and other disbursements incurred on or about the administration of the trust hereby created and the performance of its powers and duties hereunder. ARTICLE VIII DEFAULTS AND REMEDIES SECTION 8.01. EVENTS OF DEFAULT. If any of the following events occur, it is hereby defined as and shall be deemed an"Event of Default": (a) Default in the payment of the principal of or premium, if any, on any Bond when the same shall become due and payable, whether at the stated maturity thereof, or upon proceedings for redemption or as required by the sinking fund provisions hereof or otherwise. (b) Default in the payment of any installment of interest on any Bond when the same shall become due and payable. (c) Declaration under the Master Indenture that the principal of, and accrued interest on, any Obligation issued thereunder is immediately due and payable. (d) Failure by the Issuer in the performance or observance of any other of the covenants, agreements or conditions on its part in the Bond Indenture or in the Bonds contained,which failure shall continue for a period of 60 days after written notice specifying such failure and requesting that it be remedied, is given to the Issuer and the Obligor by the Bond Trustee or to the Issuer, the Obligor and to the Bond Trustee by the owners of not less than 25% in principal amount of the Bonds Outstanding; provided that such failure is the result of the failure of the Obligor to perform its obligations under the Loan Agreement. SECTION 8.02. REMEDIES ON EVENTS OF DEFAULT. Upon the occurrence of an Event of Default,the Bond Trustee shall have the following rights and remedies: (a) The Bond Trustee shall, in the event that the payment of the principal of and accrued interest on any Note has been declared due and payable immediately by the Master Trustee, by notice in writing given to the C-69 Issuer and the Obligor, declare the principal amount of all Bonds then Outstanding and the interest accrued thereon to be immediately due and payable and said principal and interest shall thereupon become immediately due and payable. Upon any declaration of acceleration hereunder, the Bond Trustee shall give notice to the Bondholders in the same manner as a notice of redemption under Article V of the Bond Indenture, stating the date upon which the Note and the Bonds shall be payable. The provisions of the preceding paragraph, however, are subject to the condition that if, after the payment of the principal of,and accrued interest on,the Note and the Bonds has been declared due and payable immediately, the declaration of the acceleration of the Note shall be annulled in accordance with the provisions of the Master Indenture, the declaration of the acceleration of the Bonds shall be automatically annulled, and the Bond Trustee shall promptly give written notice of such annulment to the Issuer and the Obligor and notice to Bondholders in the same manner as a notice of redemption under Article V of the Bond Indenture; but no such annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon; (b) The Bond Trustee may, by mandamus, or other suit, action or proceeding at law or in equity, enforce the rights of the Bondholders, and require the Issuer or the Obligor or both of them to carry out the agreements with or for the benefit of the Bondholders and to perform its or their duties under the Act, the Loan Agreement and the Bond Indenture. (c) The Bond Trustee may, by action or suit in equity, require the Issuer to account as if it were the trustee of an express trust for the Bondholders but any such judgment against the Issuer shall be enforceable only against the funds and accounts hereunder in the hands of the Bond Trustee. (d) The Bond Trustee may, by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders. (e) The Bond Trustee may,upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Bond Trustee and the Bondholders, have appointed a receiver or receivers of the Trust Estate upon a showing of good cause with such powers as the court making such appointment may confer. No right or remedy is intended to be exclusive of any other right or remedy, but each and every such right or remedy shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. If any Event of Default shall have occurred and if requested by the owners of at least 25% in Aggregate Principal Amount of Bonds then Outstanding and indemnified as provided in Section 9.01(m)of the Bond Indenture (except the remedy under Section 8.02(a) above, for which no indemnity may be required), the Bond Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Section as it, being advised by counsel, shall deem most expedient in the interests of such Bondholders. In the event the Bond Trustee shall receive inconsistent or conflicting requests and indemnity from two or more groups of owners of Outstanding Bonds, each representing less than a majority of the aggregate principal amount of the Outstanding Bonds, the Bond Trustee, in its sole discretion,may determine what action,if any,shall be taken. SECTION 8.03. MAJORITY OF BONDHOLDERS MAY CONTROL PROCEEDINGS. Anything in the Bond Indenture to the contrary notwithstanding the owners of at least a majority in Aggregate Principal Amount of the Bonds then Outstanding shall have the right, at any time, to the extent permitted by law, by an instrument or instruments in writing executed and delivered to the Bond Trustee, to direct the time, method, and place of conducting all proceedings, to be taken in connection with the enforcement of the terms and conditions of the Bond Indenture, or for the appointment of a receiver, and any other proceedings hereunder; provided that such direction shall not be otherwise than in accordance with the provisions hereof and provided, further, that notwithstanding anything to the contrary in the Bond Indenture, the Issuer shall have the sole ability to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of Section 4.10 of the Loan Agreement. The Bond Trustee shall not be required to act on any direction given to it pursuant to this Section until indemnity as set forth in Section 9.01(m)of the Bond Indenture is provided to it by such Bondholders. C-70 SECTION 8.04. RIGHTS AND REMEDIES OF BONDHOLDERS. No owner of any Bond shall have any right to institute any suit, action, or proceeding in equity or at law for the enforcement of the Bond Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other applicable remedy hereunder, unless a default has occurred of which the Bond Trustee has been notified as provided in Section 9.01 of the Bond Indenture, or of which by said Section it is deemed to have notice, nor unless such default shall have become an Event of Default and the owners of at least a majority in Aggregate Principal Amount of Bonds then Outstanding shall have made written request to the Bond Trustee and shall have offered reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit, or proceeding in their own names, nor unless they have also offered to the Bond Trustee indemnity as provided in Section 9.01(m)of the Bond Indenture, nor unless the Bond Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit, or proceeding in its own name; and such notification, request, and offer of indemnity are hereby declared in every case at the option of the Bond Trustee to be conditions precedent to the execution of the powers and trusts of the Bond Indenture, and to any action or cause of action for the enforcement of the Bond Indenture, or for the appointment of a receiver or for any other remedy hereunder; it being understood and intended that no one or more owners of the Bonds shall have the right in any manner whatsoever to affect, disturb, or prejudice the lien of the Bond Indenture by his, her, its, or their action or to enforce any right hereunder except in the manner herein provided and that all proceedings at law or in equity shall be instituted, had, and maintained in the manner herein provided and for the equal benefit of the owners of all Bonds then Outstanding. Nothing in the Bond Indenture contained shall, however, affect or impair the right of any owner of Bonds to enforce the payment of the principal of,premium, if any, or interest on any Bond at and after the maturity thereof, or the obligation of the Issuer to pay the principal of,premium, if any,and interest on each of the Bonds to the respective owners of the Bonds at the time and place,from the source and in the manner herein,and in the Bonds expressed. SECTION 8.05. APPLICATION OF MONEYS. (a) Subject to the provisions of subparagraph (c) below, all moneys received by the Bond Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the costs and expenses (including reasonable attorney fees) of the proceedings resulting in the collection of such moneys and the expenses, liabilities, and advances incurred or made by the Bond Trustee,be deposited into the Bond Fund, and all moneys so deposited into the Bond Fund and all moneys held in or deposited into the Bond Fund during the continuance of an Event of Default and available for payment of the Bonds under the provisions of Section 3.04 of the Bond Indenture shall(after payment of the fees and expenses of the Bond Trustee and the Issuer) be applied as follows: (i) Unless the principal of all of the Bonds shall have become or shall have been declared due and payable,all such moneys shall be applied: First: To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds in the order of the maturity of the installments of such interest and,if the amount available shall not be sufficient to pay in full any particular installment,then to the payment ratably, according to the amounts due on such installment,to the Persons entitled thereto,without any discrimination or privilege;and Second: To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Bond Indenture), in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due at the rate of interest borne by such Bonds and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date,to the persons entitled thereto,without any discrimination or privilege. (ii) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon all of the Bonds (together with interest on overdue installments of principal at the rate of interest borne by each Bond),without preference or priority of principal over interest, any other installment of interest, or of any Bond over any other Bond, or of any series of Bonds over any other series of Bonds ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or privilege. C-71 (iii) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article then, subject fo the provisions of paragraph (ii) of this Section in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of the foregoing paragraph(i)of this Section. (b) Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Bond Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Bond Trustee shall apply such moneys, it shall fix the date (which shall be an Interest Payment Date unless it shall deem another date more suitable)upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Bond Trustee shall give such notice as it may deem appropriate of the deposit of any such moneys and of the fixing of any such date, and shall not be required to make payment to the owner of any unpaid Bond until such unpaid Bond shall be presented to the Bond Trustee for appropriate endorsement or for cancellation if fully paid. (c) Notwithstanding the foregoing, any moneys transferred into any Account of the Bond Fund from the Reserve Fund shall be held by the Bond Trustee separate and apart from any other moneys in such Account of the Bond Fund. (d) Whenever all of the Bonds and interest thereon have been paid under the provisions of this Section and all expenses and fees of the Bond Trustee and the Paying Agents and all Administration Expenses have been paid, any balance remaining in any funds shall be paid to the Obligor as provided in Section 3.15 of the Bond Indenture. SECTION 8.06. BOND TRUSTEE MAY ENFORCE RIGHTS WITHOUT BONDS. All rights of action and claims under the Bond Indenture or any of the Bonds Outstanding hereunder may be enforced by the Bond Trustee without the possession of any of the Bonds or the production thereof in any trial or proceedings relative thereto; and any suit or proceeding instituted by the Bond Trustee shall be brought in its name as Bond Trustee, without the necessity of joining as plaintiffs or defendants any owners of the Bonds and any recovery of judgment shall be for the ratable benefit of the owners of the Bonds,subject to the provisions of the Bond Indenture. SECTION 8.07. BOND TRUSTEE TO FILE PROOFS OF CLAIM IN RECEIVERSHIP, ETC. In the case of any receivership,insolvency,bankruptcy,reorganization, arrangement,adjustment, composition,or other judicial proceedings affecting the Obligor, the Bond Trustee shall,to the extent permitted by law, be entitled to file such proofs of claims and other documents as may be necessary or advisable in order to have claims of the Bond Trustee and of the Bondholders allowed in such proceedings for the entire amount due and payable by the Issuer under this Bond Indenture or by the Obligor at the date of the institution of such proceedings and for any additional amounts which may become due and payable by it after such date, without prejudice, however, to the right of any Bondholder to file a claim in his,her or its own behalf No provision of the Bond Indenture empowers the Bond Trustee to authorize, consent to, accept or adopt on behalf of any Bondholder any plan or reorganization, arrangement, adjustment or composition affecting any of the rights of any Bondholders, or authorizes the Bond Trustee to vote in respect of the claim in any proceeding described in this Section. In the event the Bond Trustee incurs expenses or renders services in any proceedings affecting the Obligor and described in this Section, the expenses so incurred and compensation for services so rendered are intended to constitute expenses of administration under the United States Bankruptcy Code or equivalent law. SECTION 8.08. DELAY OR OMISSION NO WAIVER. No delay or omission of the Bond Trustee or of any Bondholder to exercise any right or power accruing upon any default or Event of Default shall exhaust or impair any such right or power or shall be construed to be a waiver of any such default or Event of Default, or acquiescence therein; and every power and remedy given by the Bond Indenture may be exercised from time to time and as often as may be deemed expedient. C-72 SECTION 8.09. DISCONTINUANCE OF PROCEEDINGS ON DEFAULT, POSITION OF PARTIES RESTORED. In case the Bond Trustee shall have proceeded to enforce any right under the Bond Indenture, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Bond Trustee, then and in every such case the Issuer and the Bond Trustee shall be restored to their former positions and rights hereunder with respect to the Trust Estate, and all rights, remedies, and powers of the Bond Trustee shall continue as if no such proceedings had been taken. SECTION 8.10. ENFORCEMENT OF RIGHTS. The Bond Trustee, as pledgee and assignee for security purposes of all the right,title,and interest of the Issuer in and to the Loan Agreement(except those rights of the Issuer under Section 5.7, 7.5, and 9.5 of the Loan Agreement) and the Note shall, upon compliance with applicable requirements of law and except as otherwise set forth in this Article VIII,be the sole real party in interest in respect of, and shall have standing, exclusive of owners of Bonds to enforce each and every right granted to the Issuer under the Loan Agreement and under the Note. The Issuer and the Bond Trustee hereby agree,without in any way limiting the effect and scope thereof,that the pledge and assignment hereunder to the Bond Trustee of any and all rights of the Issuer in and to the Note and the Loan Agreement shall constitute an agency appointment coupled with an interest on the part of the Bond Trustee which, for all purposes of the Bond Indenture, shall be irrevocable and shall survive and continue in full force and effect notwithstanding the bankruptcy or insolvency of the Issuer or its default hereunder or on the Bonds. Subject to Section 9.01 of the Bond Indenture, in exercising such right and the rights given the Bond Trustee under this Article VIII,the Bond Trustee shall take such action as, in the judgment of the Bond Trustee, would best serve the interests of the Bondholders, taking into account the provisions of the Master Indenture,together with the security and remedies afforded to owners of the Note. SECTION 8.11. UNDERTAKING FOR COSTS. All parties to the Bond Indenture agree, and each Bondholder by his acceptance thereof shall be deemed to have agreed,that any court may in its discretion require,in any suit for the enforcement of any right or remedy under the Bond Indenture, or in any suit against the Bond Trustee for any action taken or omitted by it as Bond Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Bond Trustee, to any suit instituted by any Bondholder, or group of Bondholders, holding in aggregate more than 10% in principal amount of the Outstanding Bonds, or to any suit instituted by a Bondholder for the enforcement of the payment of the principal of(or premium, if any) or interest on any Bond on or after the respective maturities thereof expressed in such Bond(or,in the case of redemption,on or after the redemption date). SECTION 8.12. WAIVER OF EVENTS OF DEFAULT. The Bond Trustee may in its discretion waive any Event of Default hereunder and its consequences, and shall do so upon the written request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding; provided, however, that the Bond Trustee may not waive an Event of Default described in subparagraph(a) of Section 8.01 of the Bond Indenture without the written consent of the Registered Owners of all Bonds then Outstanding; and provided,further,that notwithstanding anything to the contrary in the Bond Indenture,the Issuer shall have the sole ability to waive any Event of Default in connection with the covenants and obligations of the Obligor under Section 4.10 of the Loan Agreement. ARTICLE X SUPPLEMENTAL INDENTURES AND AMENDMENTS TO THE LOAN AGREEMENT SECTION 10.01. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF BONDHOLDERS. The Issuer and the Bond Trustee may, without the consent of, or notice to, the Bondholders, enter into such indentures or agreements supplemental hereto (which supplemental indentures or agreements shall thereafter form a part hereof)for any one or more or all of the following purposes: (a) To add to the covenants and agreements in the Bond Indenture contained other covenants and agreements thereafter to be observed for the protection or benefit of the Bondholders. (b) To cure any ambiguity, or to cure, correct, or supplement any defect or inconsistent provision contained in the Bond Indenture,or to make any provisions with respect to matters arising under the Bond Indenture C-73 or for any other purpose if such provisions are necessary or desirable and do not, in the judgment of the Bond Trustee,adversely affect the interests of the owners of Bonds. (c) To subject to the Bond Indenture additional revenues,properties,or collateral. (d) To qualify the Bond Indenture under the Trust Indenture Act of 1939,if such be hereafter required in the Opinion of Counsel. (e) To satisfy any requirements imposed by a Rating Agency if necessary to maintain the then current rating on the Bonds. (f) To maintain the extent to which the interest on the Bonds is not includable in the gross income of the recipients thereof, if in the Opinion of Bond Counsel such supplemental indenture or agreement is necessary. SECTION 10.02. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDHOLDERS. Exclusive of supplemental indentures covered by Section 10.01 of the Bond Indenture, the owners of not less than a majority in Aggregate Principal Amount of the Bonds then Outstanding affected thereby shall have the right, from time to time, to consent to and approve the execution by the Issuer and the Bond Trustee of such indenture or indentures supplemental hereto as shall be deemed necessary or desirable by the Issuer for the purpose of modifying, altering, amending, adding to,or rescinding, in any particular, any of the terms or provisions contained in the Bond Indenture; provided, however, that without the consent of the owners of all the Bonds at the time Outstanding nothing herein contained shall permit,or be construed as permitting any of the following: (a) An extension of the maturity of, or a reduction of the principal amount of, or a reduction of the rate of,or extension of the time of payment of interest on,or a reduction of a premium payable upon any redemption of,any Bond. (b) The deprivation of the owner of any Bond then Outstanding of the lien created by the Bond Indenture(other than as originally permitted hereby). (c) A privilege or priority of any Bond or Bonds,over any other Bond. (d) A reduction in the Aggregate Principal Amount of the Bonds required for consent to any supplemental bond indenture. Upon the execution of any supplemental bond indenture pursuant to the provisions of this Section, the Bond Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties, and obligations under the Bond Indenture of the Issuer, the Bond Trustee and all owners of Bonds then Outstanding shall thereafter be determined, exercised, and enforced hereunder, subject in all respects to such modifications and amendments. If at any time the Issuer shall request the Bond Trustee to enter into such supplemental bond indenture for any of the purposes of this Section, the Bond Trustee shall, upon being satisfactorily indemnified with respect to costs, fees and expenses (including attorneys fees), cause notice of the proposed execution of such supplemental indenture to be mailed to the Registered Owners of the Bonds at their addresses as the same last appear on the registration books. Such notice shall briefly set forth the nature of the proposed supplemental bond indenture and shall state that copies thereof are on file at the designated office of the Bond Trustee for inspection by all Bondholders. If,within sixty days or such longer period as shall be prescribed by the Issuer following the giving of such notice, the owners of not less than a majority in Aggregate Principal Amount of the Bonds Outstanding at the time of the execution of any such supplemental bond indenture shall have consented to and approved the execution thereof as herein provided, no owner of any Bond shall have any right 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 Bond Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. C-74 SECTION 10.03. EXECUTION OF SUPPLEMENTAL INDENTURE. The Bond Trustee is authorized to join with the Issuer in the execution of any such supplemental bond indenture and to make further agreements and stipulations which may be contained therein, but the Bond Trustee shall not be obligated to enter into any such supplemental bond indenture which affects its rights, duties,or immunities under the Bond Indenture. The Bond Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution and delivery of a supplemental bond indenture is authorized or permitted by the Bond Indenture and has been effected in compliance with the provisions hereof. In connection with a supplemental bond indenture entered into pursuant to Section 10.01(b) of the Bond Indenture, the Bond Trustee may in its discretion determine whether or not in accordance with such provision the Bondholders would be affected by modification or amendment of the Bond Indenture, and any such determination shall be binding and conclusive upon the Issuer, the Obligor, and Bondholders. The Bond Trustee may receive an Opinion of Counsel as conclusive evidence as to whether the Bondholders would be so affected by any such modification or amendment to the Bond Indenture. Any supplemental bond indenture executed in accordance with the provisions of this Article shall thereafter form a part of the Bond Indenture; and all the terms and conditions contained in any such supplemental bond indenture as to any provision authorized to be contained therein shall be deemed to be part of the Bond Indenture for any and all purposes. In case of the execution and delivery of any supplemental bond indenture, express reference may be made thereto in the text of the Bonds issued thereafter, if any, if deemed necessary or desirable by the Bond Trustee. SECTION 10.04. CONSENT OF OBLIGOR. Anything herein to the contrary notwithstanding, a supplemental bond indenture under this Article shall not become effective unless and until the Obligor shall have consented in writing to the execution and delivery of such supplemental bond indenture unless the Obligor is in default under the Loan Agreement or an Event of Default described under Section 8.01(a), (b) or (c) of the Bond Indenture has occurred and is continuing, in which case no consent of the Obligor shall be required. The Bond Trustee shall cause notice of the proposed execution of any supplemental indenture together with a copy of the proposed supplemental bond indenture to be mailed to the Obligor at least fifteen days prior to the proposed date of execution of such supplemental bond indenture. SECTION 10.05. AMENDMENTS, ETC., OF THE LOAN AGREEMENT NOT REQUIRING CONSENT OF BONDHOLDERS. The Issuer and the Bond Trustee shall, without the consent of or notice to the Bondholders,consent to any amendment, change,or modification of the Loan Agreement as may be required (a) by the provisions of the Loan Agreement and the Bond Indenture, (b) for the purpose of curing any ambiguity or formal defect or omission,(c) to satisfy any requirements imposed by a Rating Agency if necessary to maintain the then current rating on the Bonds, (d) to maintain the extent to which the interest on the Bonds is not includable in the gross income of the recipients thereof, if in the Opinion of Bond Counsel such amendment is necessary, and(e) in connection with any other change therein which does not adversely affect the Bond Trustee or the owners of the Bonds. SECTION 10.06. AMENDMENTS, ETC., OF THE LOAN AGREEMENT REQUIRING CONSENT OF BONDHOLDERS. Except for the amendments, changes, or modifications as provided in Section 10.05 of the Bond Indenture,neither the Issuer nor the Bond Trustee shall consent to any other amendment, change, or modification of the Loan Agreement without the giving of notice to and the written approval or consent of the owners of not less than a majority in Aggregate Principal Amount of the Bonds at the time Outstanding given and procured as provided in Section 10.02 of the Bond Indenture. If at any time the Issuer and the Obligor shall request the consent of the Bond Trustee to any such proposed amendment,change, or modification of the Loan Agreement, the Bond Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change, or modification to be given in the same manner as provided in Section 10.02 of the Bond Indenture. Such notice shall briefly set forth the nature of such proposed amendment, change, or modification and shall state that copies of the instrument embodying the same are on file at the designated office of the Bond Trustee for inspection by all Bondholders. In executing any amendment, change or modification of the Loan Agreement, the Bond Trustee shall be entitled to receive, and shall be fully protected in relying upon,an Opinion of Counsel stating that the execution and delivery of such amendment, change, modification of the Loan Agreement is authorized or permitted by the Bond Indenture and the Loan Agreement and has been effected in compliance with the provisions of the Bond Indenture C-75 and the Loan Agreement. The Bond Trustee may, but shall not be obligated to, enter into any such amendment, change, or modification which affects the Bond Trustee's own rights, duties or immunities. In connection with any amendment, change or modification in connection with Section 10.05(e) of the Bond Indenture, the Bond Trustee may in its discretion determine whether or not in accordance with such provision the Bond Trustee or the Bondholders would be prejudiced by such amendment, change, modification. Any such determination shall be binding and conclusive on the Issuer, the Obligor, and the Bondholders. The Bond Trustee may receive an Opinion of Counsel as conclusive evidence as to whether the Bondholders would be so affected by any such amendment, change,or modification of the Loan Agreement. C-76 EXCERPTS FROM LOAN AGREEMENT The following are certain excerpts from the Loan Agreement. These excerpts do not purport to be complete and are qualified in their entirety by reference to the Loan Agreement. ARTICLE II REPRESENTATIONS SECTION 2.1. REPRESENTATIONS BY THE ISSUER. The Issuer represents that: (a) The Issuer is a municipality duly organized and validly existing under and pursuant to the laws of the State of Florida and has full power and authority under the laws of the State of Florida (including, in particular, the Act) to enter into the transactions contemplated by the Loan Agreement and to carry out its obligations hereunder. By proper action the Issuer has duly authorized the execution and delivery of the Loan Agreement and the Bond Indenture and the performance of its obligations under the Loan Agreement and the Bond Indenture. (b) To the best of the Issuer's knowledge, neither the execution and delivery of the Bonds, the Bond Indenture or the Loan Agreement, the consummation of the transactions contemplated thereby and hereby nor the fulfillment of or compliance with the terms and conditions or provisions of the Bonds, the Bond Indenture or the Loan Agreement conflict with or result in the breach of any of the terms, conditions or provisions of any constitutional provision or statute of the State of Florida or of any agreement or instrument or judgment, order or decree of which the Issuer has notice that it is a party or constitutes a default under any of the foregoing or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature upon any property or assets of the Issuer under the terms of any instrument or agreement. (c) The Issuer has the power and authority to issue the Bonds for the purpose of financing all or any portion of the Cost of the Project, funding a debt service reserve fund and paying a portion of the Cost of Issuance. The Bonds shall be in the principal amount, mature, bear interest, be subject to redemption prior to maturity, be secured,and have such other terms and conditions as are set forth in the Bond Indenture. (d) The Bonds are to be issued under and secured by the Bond Indenture pursuant to which the Issuer's interest in the Loan Agreement and in the Note,and the revenues and receipts derived by the Issuer from the Note,will be pledged and assigned to the Bond Trustee as security for payment of the principal of,premium, if any, and interest on the Bonds. (e) The Obligor has represented to the Issuer that that the Project constitutes a "project" within the meaning of the Act. (f) The issuance of the Bonds and the execution of the Loan Agreement and the Bond Indenture have been approved by the Issuer at a duly constituted meeting. (g) Except as otherwise permitted by the Loan Agreement,the Issuer covenants that it has not and will not pledge the income and revenues derived from the Loan Agreement other than to secure the Bonds. (h) After reasonable public notice given by publication in The Beaches Leader,a newspaper published and of general circulation in the City of Atlantic Beach, Florida on September 5, 2013, the Issuer held a public hearing on September 23,2013 concerning the issuance of the Bonds,financing of the Project and the location of the Project. After such hearing, the Issuer authorized the issuance of the Bonds by duly adopting a resolution on September 23,2013. SECTION 2.2. REPRESENTATIONS BY THE OBLIGOR. The Obligor represents that: (a) The Obligor is a nonprofit corporation duly incorporated and in good standing under the laws of the State of Florida, has power to enter into the Obligor Documents and by proper corporate action has duly authorized the execution and delivery of the Obligor Documents. C-77 (b) Neither the execution and delivery of any of the Obligor Documents, the consummation of the transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms and conditions of the Obligor Documents, conflict with or result in a breach of any of the terms, conditions or provisions of any corporate restriction or any agreement or instrument to which the Obligor is now a party or by which it is bound or constitute a default under any of the foregoing. (c) No event of default or any event which, with the giving of notice or the lapse of time, or both, would constitute an event of default under the Master Indenture,has occurred. (d) To the best of the Obligor's knowledge, information and belief, all of the documents, instruments and written information supplied by or on behalf of the Obligor, which have been reasonably relied upon by Bond Counsel in rendering their opinion with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes or counsel to the Obligor in rendering its opinion with respect to the status of the Obligor under Section 501(c)(3) of the Code, are true and correct in all material respects, do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to be stated therein to make the information provided therein, in light of the circumstances under which such information was provided, not misleading. (e) The Project consists entirely of property that is owned, or to be owned, and operated by the Obligor. The Project will not be used in an "unrelated trade or business" (as such term is used in Section 513(a) of the Code) of the Obligor(or any other organization that is exempt from federal income tax under Section 501(c)(3) of the Code that may rent or use any portion of the Project) or for any private business use (other than by an organization that is exempt from federal income tax under Section 501(c)(3) of the Code) within the meaning and contemplation of Section 141(b)of the Code. (f) The Tax Compliance Agreement executed and delivered by the Obligor concurrently with the issuance and delivery of the Bonds is true, accurate and complete in all material respects as of the date on which executed and delivered. (g) The Obligor agrees that it and any other Obligated Group Member(i) shall not perform any act or enter into any agreement which would adversely affect its members'federal income tax status and shall conduct its operations in the manner which conforms to the standards necessary to qualify the members as a charitable organization within the meaning of Section 501(c)(3)of the Code or any successor provisions of federal income tax law,(ii)shall not perform any act, enter into any agreement or use or permit the Facilities,or any portion thereof,to be used in any manner, or for any trade or business or other non-exempt use related to the purposes of the Obligor, which would adversely affect the exclusion of interest on the Bonds, from federal gross income pursuant to Section 103 of the Code, (iii) shall not do or fail to do any act or undertaking which may give rise to unrelated trade or business income with respect to its operations at the Facilities, and (iv) shall not directly or indirectly use or permit the use (including the making of any investment) of any proceeds of the Bonds or any other funds of the Issuer or the Obligated Group, or take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148(a)of the Code. (h) The Obligor agrees that neither it nor any related party to the Obligor(as defined in Section 1.150- 1(b) of the Code) will purchase any of the Bonds in an amount related to the obligation represented by the Loan Agreement,as described in Section 1.148-1(b)of the Code. (i) Any information that has been or will be supplied by the Obligor that has been or will be relied upon by the Issuer, the Bond Trustee and Bond Counsel with respect to the exclusion from gross income for federal income tax purposes of interest on the Bonds is true and correct. (j) The Obligor is duly authorized to operate the Facilities and the Project under the laws, rulings, regulations and ordinances of the State of Florida and the departments,agencies and political subdivisions thereof. (k) The Project constitutes a "project" within the meaning of the Act. All proceeds of the Bonds will be used to finance a"cost"within the meaning of the Act. C-78 (1) Based on current facts, estimates and circumstances, it is currently expected that the Project will not be sold or disposed of in a manner producing sale proceeds which, together with accumulated proceeds of the Bonds or earnings thereon, would be sufficient to enable the Obligor to retire substantially all of the Bonds prior to the maturity of the Bonds. (m) The Obligor will construct the Project and operate its Facilities in accordance with all applicable zoning, planning, building and environmental laws, ordinances, rules and regulations of governmental authorities rating or inspection organizations, bureaus, associations, or offices having jurisdiction over the Facilities or the Project, as the case may be. The Obligor has obtained or will cause to be obtained all requisite approvals of the State of Florida and of other federal,state,regional and local governmental bodies for the Facilities and the Project. (n) Substantially all of the net proceeds of the Bonds, including earnings from the investment thereof, were used,or will be used,to pay Qualified Project Costs. (o) The Obligor will not discriminate against the residents of its Facilities or the Project on the basis of race,religion,sex or national origin. (p) The Obligor agrees to perform all obligations imposed upon it by the express terms of the Bond Indenture. ARTICLE III TERM OF LOAN AGREEMENT SECTION 3.1. TERM OF THE LOAN AGREEMENT. Subject to Section 11.12 of the Loan Agreement,the Loan Agreement shall remain in full force and effect from the date of delivery hereof until such time as all of the Bonds shall have been fully paid or provision made for such payment pursuant to the Bond Indenture and all reasonable and necessary fees and expenses of the Bond Trustee and the Issuer accrued and to accrue through final payment of the Bonds and all liabilities of the Obligor with respect to the Bonds accrued and to accrue through final payment of the Bonds have been paid. ARTICLE IV ISSUANCE OF THE BONDS; CONSTRUCTION OF PROJECTS;DISBURSEMENTS SECTION 4.2. PROJECT; COMPLETION CERTIFICATE. (a) The Obligor shall cause the Project to be acquired, constructed, and improved, as applicable, with due diligence and pursuant to the requirements of the applicable laws of the State of Florida in all material respects. (b) The Obligor shall deliver to the Bond Trustee within 90 days after the final completion or termination of the Project a certificate(the"Completion Certificate")of an Obligor to the effect that: (i) the Project has been completed substantially in accordance with the plans and specifications,as then amended,and the date of completion; (ii) the Cost of the Project has been fully paid for and no claim or claims exist against the Obligor or against the Project out of which a lien based on furnishing labor or material exists or might ripen; provided, however, there may be excepted from the foregoing statement any claim or claims out of which a lien exists or might ripen in the event that the Obligor intends to contest such claim or claims in accordance with the Loan Agreement, in which event such claim or claims shall be described; provided, further, that it shall be stated that moneys are on deposit in the applicable account of the Project Fund sufficient to make payment of the full amount that might in any event be payable in order to satisfy such claim or claims; provided, further, that there may also be excepted from the foregoing statement any claim that has been insured over pursuant to an endorsement to any title insurance;and C-79 (iii) all permits, certificates and licenses necessary for the occupancy and use of the Project have been obtained and are in full force and effect. SECTION 4.3. COST OF CONSTRUCTION. The Obligor represents and warrants that it will use its best efforts to construct or cause the construction of the Project at a price which will permit completion of the Project within the amount of the funds to be deposited in the Construction Fund and within the amount of other available funds of the Obligor. SECTION 4.4. PLANS; MODIFICATIONS OF PROJECT. The Obligor hereby covenants and agrees that no changes or modifications, or substitutions, deletions, or additions shall be made with respect to the Project if such change disqualifies the Project under the Act. SECTION 4.5. COMPLIANCE WITH REGULATORY REQUIREMENTS. The Obligor agrees that the Project shall be constructed strictly in accordance with all applicable ordinances and statutes, and in accordance with the requirements of all regulatory authorities in all material respects, and any rating or inspection organization, bureau, association, or office having jurisdiction, and it will furnish to the Issuer all information necessary for the Issuer to comply with all of the foregoing and all laws,regulations, orders and other governmental requirements. The Obligor shall, at no expense to the Issuer, promptly comply in all material respects or cause compliance in all material respects with all laws, ordinances, orders, rules, regulations and requirements of duly constituted public authorities which may be applicable to the Obligor or to its Facilities and operations, including without limitation,Chapter 651,Florida Statutes. The Obligor shall cause the Minimum Liquid Reserve Account to be maintained and funded in an amount which, together with the moneys on deposit in the Reserve Fund, shall satisfy all of the Obligor's escrow requirements under Section 651.035,Florida Statutes. SECTION 4.6. REQUESTS FOR DISBURSEMENTS. (a) The Obligor shall be entitled to disbursements of moneys in the Project Fund to pay the Costs related to the Project. The Obligor shall request disbursements from the Project Fund on the form attached hereto as Exhibit C to the Loan Agreement to pay Costs of the Project, and to reimburse itself for Costs of the Project paid by the Obligor , upon presentation to the Bond Trustee of a request for disbursement signed by the Obligor,but in no event more than once a month. (b) Notwithstanding the foregoing, the Obligor shall make no request for disbursement of moneys from the Project Fund for payment of Cost of Issuance. SECTION 4.7. COST OF ISSUANCE FUND. The Obligor shall be entitled to disbursement of moneys in the Cost of Issuance Fund to pay the Cost of Issuance. The Obligor shall request disbursements from the Cost of Issuance Fund on the form attached to the Loan Agreement as EXHIBIT B to pay Cost of Issuance,and to reimburse itself for Cost of Issuance paid by the Obligor,upon presentation to the Bond Trustee of a request for disbursement signed by the Obligor,but in no event more often than four times a month. SECTION 4.8. MODIFICATION OF DISBURSEMENTS. The making of any disbursement or any part of a disbursement shall not be deemed an approval or acceptance by the Bond Trustee of the work theretofore done. Upon prior notice to the Obligor and in order to satisfy requirements specified in the Master Indenture, the Bond Trustee may deduct from any disbursement to be made under the Loan Agreement any amount necessary for the payment of fees and expenses required to be paid under the Loan Agreement and any insurance premiums,taxes, assessments, water rates, sewer rents and other charges, liens and encumbrances upon the facilities,whether before or after the making of the Loan Agreement, and any amounts necessary for the discharge of mechanic's liens, and apply such amounts in payment of such fees, expenses, premiums, taxes, assessments, charges, liens and encumbrances. All such sums so applied shall be deemed disbursements under the Loan Agreement. SECTION 4.9. COVENANTS REGARDING TAX EXEMPTION. The Obligor hereby represents and covenants as follows: C-80 (a) the Obligor will, at the expense of the Obligor, comply with, and make all filings required by, all effective rules, rulings or regulations promulgated by the Department of the Treasury or the Internal Revenue Service with respect to the obligations such as the Bonds,if any; (b) the Obligor will continue to conduct its operations in a manner that will result in its continuing to qualify as an organization described in Section 501(c)(3)of the Code including but not limited to the timely filing of all returns, reports and requests for determination with the Internal Revenue Service and the timely notification of the Internal Revenue Service of all changes in its organization and purposes from the organization and purposes previously disclosed to the Internal Revenue Service; (c) the Obligor will not divert any substantial part of its corpus or income for a purpose or purposes other than those for which it is organized and operated as described in Section 4.11 of the Loan Agreement; (d) the Obligor will use no portion of the proceeds of the Bonds to provide any airplane, sky-box or other private luxury box, facility primarily used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises; and (e) the Obligor agrees to provide to the Bond Trustee, at such time as required by the Bond Trustee, all information required by the Bond Trustee with respect to Nonpurpose Investments (as defined in Section 148 of the Code)not held in any fund under the Bond Indenture. SECTION 4.10. ALLOCATION OF, AND LIMITATION ON, EXPENDITURES FOR THE PROJECT. The Obligor covenants to account for the expenditure of sale proceeds and investment earnings to be used for the Cost of the Project on its books and records by allocating proceeds to expenditures within 18 months of the later of the date that(1)the expenditure is made, or(2)the Project is completed. The foregoing notwithstanding, the Obligor shall not expend sale proceeds or investment earnings thereon more than 60 days after the earlier of(1) the fifth anniversary of the delivery of the Bonds,or(2)the date the Bonds are retired,unless the Obligor obtains an Opinion of Bond Counsel that such expenditure will not adversely affect the tax-exempt status of the Bonds. For purposes hereof, the Obligor shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. SECTION 4.11. REPRESENTATIONS AND WARRANTIES AS TO TAX EXEMPT STATUS OF OBLIGOR. The Obligor hereby represents and warrants as follows: (a) the Obligor is an organization exempt from federal income taxation under Section 501(a) of the Code by virtue of being described in Section 501(c)(3)of the Code; (b) the purposes, character, activities and methods of operation of the Obligor have not changed materially since its organization and are not materially different from the purposes,character,activities and methods of operation at the time of its receipt of a determination by the Internal Revenue Service that it is an organization described in Section 501(c)(3)of the Code(the"Determination'); (c) the Obligor has not diverted a substantial part of its corpus or income for a purpose or purposes other than the purpose or purposes for which it is organized or disclosed to the Internal Revenue Service in connection with its Determination; (d) the Obligor has not operated since its organization in a manner that would result in it being classified as an "action" organization within the meaning of Section 1.501(c)(3)-1(c)(3) of the Code including, but not limited to, promoting or attempting to influence legislation by propaganda or otherwise as a substantial part of its activities; (e) with the exception of the payment of compensation (and the payment or reimbursement of expenses)which is not excessive and is for personal services which are reasonable and necessary to carrying out the purposes of the Obligor,no person controlled by any such individual or individuals nor any person having a personal C-81 or private interest in the activities of the Obligor has acquired or received, directly or indirectly, any income or assets,regardless of form, of the Obligor during the current Fiscal Year and the period, if any,preceding the current Fiscal Year,other than as reported to the Internal Revenue Service by the Obligor; (1) the Obligor is not a"private foundation"within the meaning of Section 509(a)of the Code; (g) the Obligor has not received any indication or notice whatsoever to the effect that its exemption under Section 501(a)of the Code as an organization described in Section 501(c)(3)of the Code has been revoked or modified, or that the Internal Revenue Service is considering revoking or modifying such exemption, and such exemption is still in full force and effect; (h) the Obligor has filed with the Internal Revenue Service all requests for determination, reports and returns required to be filed by it and such requests for determination, reports and returns have not omitted or misstated any material fact and has notified the Internal Revenue Service of any changes in its organization and operation since the date of its Determination; (i) the Obligor has not devoted more than an insubstantial part of its activities in furtherance of a purpose other than an exempt purpose within the meaning of Section 501(c)(3)of the Code;and (j) the Obligor has not taken any action, nor does it know of any action that any other person has taken,nor does it know of the existence of any condition,which would cause the Obligor to lose its exemption from taxation under Section 501(a) of the Code or cause the interest on the Bonds to become taxable to the recipient thereof because such interest is not excludable from the gross income of such recipient for federal income tax purposes under Section 103(a)of the Code. SECTION 4.12. DISPOSITION OF PROJECT. The Obligor covenants that the property constituting the Project or any portion thereof will not be sold or otherwise disposed in a transaction resulting in the receipt by the Obligor of cash or other compensation, unless the Obligor obtains an Opinion of Bond Counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Bonds. SECTION 4.13. SURPLUS CONSTRUCTION FUND MONEYS. If, upon delivery of the Completion Certificate, there shall be any Surplus Project Fund Moneys, such Surplus Project Fund Moneys (to the extent not otherwise required to be rebated to the United States in accordance with section 148(f) of the Code) shall, upon the written request of the Obligor to the Bond Trustee, be used by the Bond Trustee either (i) to purchase for cancellation Bonds at any reasonable price as determined by the Obligor,which price,however, shall not exceed the principal amount thereof plus accrued interest thereon; (ii) unless the Project has been canceled, for application toward the costs of acquisition,construction, and improvement of additional facilities related thereto;or(iii)for any combination of(i) and(ii)above all as set forth in such written request. If the Bonds are then subject to redemption at par,any of such Surplus Project Fund Moneys not to be used in a manner set forth in(i),(ii)or(iii)above shall be applied to redeem Bonds in the largest principal amount then subject to redemption at par that does not exceed the amount of such Surplus Project Fund Moneys. Prior to any such application described above the Bond Trustee shall have been furnished with an Opinion of Bond Counsel to the effect that such action will not adversely affect any exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Any of such Surplus Project Fund Moneys not to be applied for the purposes set forth in (i), (ii) or (iii) above or which may not be applied to redeem Bonds as set forth above shall be deposited in an escrow account and moneys on deposit in such escrow account shall at the written request of the Obligor be applied to pay the principal of Bonds upon redemption thereof on the earliest practicable redemption date upon which such Bonds may be redeemed at par;provided, that any moneys held in such escrow account shall be invested in accordance with Section 6.01 of the Bond Indenture but may not be invested to produce a yield greater than the yield on the Bonds except to the extent permitted by the Code. In lieu of treating the Surplus CProject Fund Moneys as set forth above, upon the written request of the Obligor,such Surplus Project Fund Moneys shall either be deposited or disbursed by the Bond Trustee in any manner designated in writing by the Obligor if the Bond Trustee shall have been furnished with an Opinion of Bond Counsel to the effect that such action will not adversely affect any exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes and is authorized by the Act. C-82 ARTICLE V LOAN OF BOND PROCEEDS; NOTE; PROVISION FOR PAYMENT SECTION 5.2. REPAYMENT OF LOAN. The Obligor agrees to pay to the Bond Trustee for the account of the Issuer all payments when due on the Note pursuant to the payment provisions contained in such Note. If for any reason the amounts paid to the Bond Trustee by the Obligor on the Note,together with any other amounts available in the Bond Fund, are not sufficient to pay principal of, premium, if any, and interest on the Bonds when due,the Obligor agrees to pay the amount required to make up such deficiency. SECTION 5.3. CREDITS. Any amount in an account of the Bond Fund at the close of business of the Bond Trustee on the day immediately preceding any payment date on the Note in excess of the aggregate amount then required to be contained in such account of the Bond Fund pursuant to Section 5.2 of the Loan Agreement shall be credited pro rata against the payments due by the Obligor on such next succeeding principal or interest payment date on the Note. In the event that all of the Bonds then Outstanding are called for redemption, any amounts contained in the Reserve Fund and the Bond Fund at the close of business of the Bond Trustee on the day immediately preceding such redemption date shall be credited against the payments due by the Obligor on the Note,as provided below. The principal amount of any Bonds to be applied by the Bond Trustee as a credit against any sinking fund payment pursuant to Section 5.02 of the Bond Indenture shall be credited against the obligation of the Obligor with respect to payment of installments of principal of the Note as described in the Supplemental Indenture. The cancellation by the Bond Trustee of any Bonds purchased by the Obligor or of any Bonds redeemed or purchased by the Issuer through funds other than funds received on the Note shall constitute payment of a principal amount of the Note equal to the principal amount of the Bonds so cancelled. Upon receipt of written notice from the Bond Trustee of such cancellation, the Master Trustee shall at the request of the Obligor endorse on the Note such payment of such principal amount thereof. SECTION 5.6. RESERVE FUND. (a) In the event any moneys in the Reserve Fund are transferred to the Bond Trustee for deposit to the Bond Fund pursuant to Section 3.10 or 3.11 of the Bond Indenture, except if such moneys are transferred due to the redemption of all Bonds, the Obligor agrees to deposit additional Reserve Fund Obligations into the Reserve Fund in an amount sufficient to satisfy the Reserve Fund Requirement, such amount to be deposited in accordance with Section 6.03(d)of the Bond Indenture. (b) In the event the value of the Reserve Fund Obligations(as determined pursuant to the statement of the Bond Trustee furnished in accordance with Section 6.03(b) of the Bond Indenture) on deposit in the Reserve Fund is less than 90%of the Reserve Fund Requirement as a result of a decline in the market value of investments on deposit in the Reserve Fund,the Obligor agrees to deposit additional Reserve Fund Obligations into the Reserve Fund in an amount sufficient to satisfy the Reserve Fund Requirement, such amount to be deposited in accordance with Section 6.03(c)of the Bond Indenture. (c) On or prior to November 15, 2014 and November 15, 2037, the Obligor agrees to deposit additional Reserve Fund Obligations into the Reserve Fund in an amount sufficient, together with Reserve Fund Obligations then on deposit in the Reserve Fund, to satisfy the Reserve Fund Requirement in effect on November 14, 2014 or November 15, 2037, respectively, such amount to be deposited in accordance with Section 6.03(d) of the Bond Indenture. SECTION 5.9. OBLIGATIONS OF OBLIGOR HEREUNDER UNCONDITIONAL. The obligations of the Obligor to make the payments required in Section 5.2 of the Loan Agreement shall be absolute and unconditional. The Obligor will not suspend or discontinue, or permit the suspension or discontinuance of, any payments provided for in Section 5.2 of the Loan Agreement for any cause including,without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws or administrative rulings of or administrative actions by the United States of America or the State of Florida or C-83 any political subdivision of either, or any failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with the Loan Agreement, whether express or implied. Nothing contained in this Section shall be construed to release the Issuer from the performance of any agreements on its part herein contained;and in the event the Issuer shall fail to perform any such agreement, the Obligor may institute such action against the Issuer as the Obligor may deem necessary to compel performance, provided that no such action shall violate the agreements on the part of the Obligor contained herein and the Issuer shall not be required to pay any costs, expenses, damages or any amounts of whatever nature except for amounts received pursuant to the Loan Agreement. Nothing herein shall be construed to impair the Obligor's right to institute an independent action for any claim that it may have against the Issuer, the Bond Trustee, any Bondholder or any other third party. The Obligor may,however, at its own cost and expense and in its own name or in the name of the Issuer, prosecute or defend any action or proceedings or take any other action involving third persons which the Obligor deems reasonably necessary in order to secure or protect this right of possession, occupancy,and use hereunder,and in such event the Issuer hereby agrees to cooperate fully with the Obligor. ARTICLE VII SPECIAL COVENANTS SECTION 7.1. NO WARRANTY OF MERCHANTABILITY, CONDITION OR SUITABILITY BY THE ISSUER. The Issuer makes no warranty, either express or implied, as to the condition of the Project or that the Project will be suitable for the Obligor's purposes or needs. Without limiting the effect of the preceding sentence, it is expressly agreed that in connection with each sale or conveyance pursuant to the Loan Agreement (i) the Issuer makes no warranty of merchantability and (ii) there are no warranties which extend beyond the description contained herein. SECTION 7.8. NO PERSONAL LIABILITY. No obligations contained in the Bonds, the Bond Indenture or the Loan Agreement shall be deemed to be the obligations of any officer, director, member, trustee, agent or employee of the Issuer, the Bond Trustee or the Obligor in his or her individual capacity, and neither the governing body of the Obligor or the Bond Trustee,any official of the Issuer,nor any official of the Issuer executing the Bonds, the Bond Indenture or the Loan Agreement shall be liable personally thereon or be subject to any personal liability or accountability with respect thereto. ARTICLE VIII ASSIGNMENT AND LEASING SECTION 8.1. ASSIGNMENT AND LEASING BY OBLIGOR. This Loan Agreement may be assigned, and all or any portion of the Project may be leased by the Obligor without the consent of either the Issuer or the Bond Trustee,provided that each of the following conditions is complied with: (a) No assignment or leasing shall relieve the Obligor from primary liability for any of its obligations hereunder, and in the event of any such assignment or leasing the Obligor shall continue to remain primarily liable for payment of the loan payments and other payments specified in Article V of the Loan Agreement and for performance and observance of the other covenants and agreements contained herein; provided that if: (i) the Obligor withdraws from the Obligated Group (as defined in the Master Indenture) and is released from its obligations on the Note by the Master Trustee pursuant to the Master Indenture; and (ii) the Loan Agreement has been assigned to a remaining member of the Obligated Group in accordance with this Section 8.1, the Obligor shall also be released from its liability for its obligations hereunder, including payment of the loan payments and other payments specified in Article V of the Loan Agreement and the performance and observance of the other covenants and agreements contained herein. (b) The assignee or lessee shall assume in writing the obligations of the Obligor hereunder to the extent of the interest assigned or leased,provided that the provisions of this subsection shall not apply to a lease of a portion of the Project or an operating contract for the performance by others of Obligor or medical services on or in connection with the Project,or any part thereof. C-84 (c) The requirements relating to assignment and leasing contained in the Tax Compliance Agreement and Master Indenture are met. (d) The Obligor shall,within 30 days after the delivery thereof, furnish or cause to be furnished to the Issuer and the Bond Trustee a true and complete copy of each such assumption of obligations and assignment or lease of the Project,as the case may be. SECTION 8.2. ASSIGNMENT AND PLEDGE BY ISSUER. Solely pursuant to the Bond Indenture, the Issuer may assign its interest in and pledge any moneys receivable under the Note and the Loan Agreement (except in respect of certain rights to indemnification and for Administration Expenses, indemnification and payment of attorneys'fees and expenses pursuant to Sections 5.7,7.5 and 9.5 of the Loan Agreement and to the right to receive notices) to the Bond Trustee as security for payment of the principal of, premium, if any, and interest on the Bonds. The Obligor consents to such assignment and pledge. ARTICLE IX FAILURE TO PERFORM COVENANTS AND REMEDIES THEREFOR SECTION 9.1. FAILURE TO PERFORM COVENANTS. Upon failure of the Obligor to pay when due any payment (other than failure to make any payment on any Note, which default shall have no grace period) required to be made under the Loan Agreement or to observe and perform any covenant, condition or agreement on its part to be observed or performed hereunder, and continuation of such failure for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, is given to the Obligor by the Issuer or the Bond Trustee,the Issuer or the Bond Trustee shall have the remedies provided in Section 9.2 of the Loan Agreement. SECTION 9.2. REMEDIES FOR FAILURE TO PERFORM. Upon the occurrence of a failure of the Obligor to perform as provided in Section 9.1 of the Loan Agreement,the Issuer or the Bond Trustee, as assignee or successor of the Issuer, upon compliance with all applicable law, in its discretion may take any one or more of the following steps: (a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Issuer,and require the Obligor to carry out any agreements with or for the benefit of the Bondholders and to enforce performance and observance of any duty, obligation, agreement or covenant of the Obligor under the Act or the Loan Agreement;or (b) by action or suit in equity require the Obligor to account as if it were the trustee of an express trust for the Issuer;or (c) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Issuer;or (d) upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Bond Trustee and the Bondholders, have appointed a receiver or receivers of the Trust Estate upon a showing of good cause with such powers as the court making such appointment may confer. SECTION 9.3. DISCONTINUANCE OF PROCEEDINGS. In case any proceeding taken by the Issuer or the Bond Trustee on account of any failure to perform under Section 9.1 of the Loan Agreement shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Issuer or the Bond Trustee, then and in every case the Issuer and the Bond Trustee shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Issuer and the Bond Trustee shall continue as though no such proceeding had been taken. SECTION 9.4. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Issuer or the Bond Trustee is intended to be exclusive of any other available remedy or remedies,but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power C-85 accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Bond Trustee to exercise any remedy reserved to it in this Article IX, it shall not be necessary to give any notice, other than notice required in Section 9.1 of the Loan Agreement. Such rights and remedies given the Issuer hereunder shall also extend to the Bond Trustee and the holders of the Bonds, subject to the Bond Indenture. SECTION 9.5. LOAN AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the event the Issuer or the Bond Trustee should employ attorneys or incur other expenses for the enforcement of performance or observance of any obligation or agreement on the part of the Obligor herein or in the Bond Indenture contained, the Obligor agrees that it will on demand therefor pay to the Issuer or the Bond Trustee, as the case may be, the reasonable fee of such attorneys and such other reasonable expenses incurred by the Issuer or the Bond Trustee. SECTION 9.6. WAIVERS. In the event any agreement contained in the Loan Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach waived and shall not be deemed to waive any other breach hereunder. In view of the assignment of the Issuer's rights in and under the Loan Agreement to the Bond Trustee under the Bond Indenture,the Issuer shall have no power to waive any failure to perform under Section 9.1 of the Loan Agreement without the consent of the Bond Trustee(other than a failure to observe the covenants contained in Section 4.10 of the Loan Agreement, which may be waived by the Issuer without the consent of the Bond Trustee). ARTICLE X PREPAYMENT OF NOTE SECTION 10.1. GENERAL OPTION TO PREPAY NOTE. The Obligor shall have and is hereby granted the option exercisable at any time to prepay all or any portion of its payments due or to become due on the Note by depositing with the Bond Trustee for payment into the Bond Fund an amount of money or Government Obligations the principal and interest on which when due, will be equal to an amount sufficient to pay the principal of, premium, if any, and interest on any portion of the Bonds then Outstanding under the Bond Indenture, without penalty. The exercise of the option granted by this Section shall not be cause for redemption of Bonds unless such redemption is permitted at that time under the provisions of the Bond Indenture and the Obligor specifies the date for such redemption. In the event the Obligor prepays all of its payments due and to become due on the Note by exercising the option granted by this Section and upon payment of all reasonable and necessary fees and expenses of the Bond Trustee,the Issuer and any Paying Agent accrued and to accrue through final payment of the Bonds called for redemption as a result of such prepayment and of all Administration Expenses through final payment of the Bonds called for redemption as a result of such prepayment, the Loan Agreement shall terminate; provided that no such termination shall occur unless all of the Bonds are no longer Outstanding. SECTION 10.2. CONDITIONS TO EXERCISE OF OPTION. To exercise the option granted in Section 10.1 of the Loan Agreement, the Obligor shall give written notice to the Bond Trustee which shall specify therein the date of such redemption,which date shall be not less than 30 days from the date the notice is mailed. C-86 EXCERPTS FROM MORTGAGE AND SECURITY AGREEMENT The following are certain excerpts from the Mortgage and Security Agreement. These excerpts do not purport to be complete and are qualified in their entirety by reference to the Mortgage and Security Agreement. 2. Mortgage. In consideration of ten dollars and other valuable consideration received by the Mortgagor, the receipt and sufficiency of which is hereby acknowledged, and in order to secure the Secured Indebtedness and the performance and observance of all of the provisions of the Master Indenture and the Mortgage, the Mortgagor hereby mortgages, grants, bargains, sells, liens, remises, releases, conveys, assigns, transfers, hypothecates, pledges, delivers, sets over, warrants and confirms to the Mortgagee, and grants the Mortgagee a security interest in, the Mortgagor's interest in the following described real and personal property, rights, titles, interests and estates: (a) All Gross Revenues of the Obligated Group Members; (b) The Premises, including, without limitation, all buildings, structures, fixtures, additions, enlargements, extensions, improvements, modifications or repairs now or hereafter located thereon or therein and with the tenements,hereditaments, servitudes, appurtenances, rights,privileges and immunities thereunto belonging or appertaining which may from time to time be owned by the Obligated Group Members, and all claims or expectancy, of, in and to the Premises, it being the intention of the parties hereto that,so far as may be permitted by law,all property of the character hereinabove described,which is now owned or is hereafter acquired by the Obligated Group Members and is affixed or attached or annexed to the Premises, shall be and remain or become and constitute a portion of the Premises, and the security covered by and subject to the lien of the Mortgage; (c) All of the rights, titles, interests and estates, now owned or hereafter acquired by the Obligated Group Members in and to any and all accounts, chattel paper, goods, documents, instruments, general intangibles, deposit accounts, investment property, equipment, furniture, furnishings, machinery, inventory, fixtures, and any and all other personal property of any kind or character defined in and subject to the provisions of the Florida Uniform Commercial Code, including the supporting obligations thereof, proceeds and products of and from any and all of such personal property used in connection with or arising out of the operation and use of the improvements located on the Premises and any substitutions or replacements therefor; (d) Any and all leases, subleases,tenancies,licenses,occupancy agreements or agreements to lease all or any portion of the Premises and all extensions, renewals, amendments, modifications and replacements thereof, and any options, rights of first refusal or guarantees relating thereto(collectively,the "Leases"); all rents, income,receipts,revenues, security deposits, escrow accounts,reserves, issues,profits, awards and payments of any kind payable under the Leases or otherwise arising from the Premises including, without limitation, minimum rents, additional rents, percentage rents, parking, maintenance and deficiency rents; (e) Any amounts on deposit from time to time in any fund or account with or paid over to the Mortgagee under the Master Indenture, subject to the provisions of the Master Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein; (f) Any and all property that may,from time to time hereinafter,by delivery or by writing of any kind, be subjected to the lien and security interest hereof by the Obligated Group Members or by anyone on their behalf (and the Mortgagee is hereby authorized to receive the same at any time as additional security hereunder),which subject to the lien and security interest hereof of any such property as additional security may be made subject to any reservations, limitations, or conditions which shall be set forth in a written instrument executed by the grantor or the person so acting in its behalf or by the Mortgagee respecting the use and disposition of such property or the proceeds thereof; and (g) All the appurtenances appertaining to any of the foregoing. C-87 3. Secured Indebtedness; Future Advances; Maximum Amount and Time. As specified above, the Mortgage shall secure the Secured Indebtedness, including,without limitation,future advances hereafter constituting Secured Indebtedness,whether such future advances are obligatory or are to be made at the option of the Mortgagee, or otherwise, as are made within twenty (20) years from the date hereof, to the same extent as if such future advances were made on the date of execution of the Mortgage. The total principal amount of Secured Indebtedness secured hereby may decrease or increase from time to time, but the total unpaid principal amount so secured at any one time shall not exceed the Maximum Principal Indebtedness, plus (i) interest, redemption premium, if any, and other amounts (without duplication) due thereon, (ii) any disbursements made for the payment of taxes, levies or insurance on the Mortgaged Property, (iii)payments made for maintenance, repair, protection and preservation of the Mortgaged Property, (iv) any amounts owed to the Mortgagee hereunder or under Section 8.07 of the Master Indenture,and(v)interest on all such disbursements,all as provided in the Mortgage and the Master Indenture. This Mortgage shall not secure any future advances constituting Secured Indebtedness made more than twenty(20)years from the date hereof. 5. Title Covenants. The Mortgagor covenants that the Mortgaged Property is free from all encumbrances,other than Permitted Encumbrances, that lawful seisin of and good right to encumber the Mortgaged Property are vested in the Mortgagor, and that the Mortgagor hereby fully warrants the title to the Mortgaged Property and will defend the same against the lawful claims of all persons whomsoever. The mortgage and security interest granted to Mortgagee herein is senior to all obligations except Permitted Encumbrances. 6. Conditions to Changes in Mortgaged Property. The right of the Mortgagor to make any changes to the Mortgaged Property or other property placed on the Premises in the manner hereinafter provided is expressly subject to the condition that such changes will not materially impair the structural soundness, usefulness or market value of the Mortgaged Property or significantly alter the character or purpose or significantly detract from the operating efficiency of the Mortgaged Property, materially impair its revenue-producing capacity, or otherwise materially adversely affect its operation or otherwise materially adversely affect the purposes of the Mortgage and, to the extent that such changes will modify the nature, scope or purpose of any portion of the Mortgaged Property financed or refinanced with the proceeds of tax-exempt Related Bonds, the Mortgagor must deliver an Opinion of Bond Counsel addressed to the Master Trustee and any issuer of such tax-exempt Related Bonds confirming that such changes, in and of themselves,will not adversely affect the exclusion from gross income for federal income tax purposes of the interest on such tax-exempt Related Bonds. 7. After-Acquired Property. All buildings, structures, improvements, furnishings, fixtures, machinery, equipment, inventory or other property now located or hereafter acquired, constructed, placed, installed or located on the Premises, and all substitutions and replacements of or for or accessions to such property, are subject to the terms and conditions of the Mortgage and the security interest created hereby. 8. Removal with Notice; Replacements and Substitutions Subject to Mortgage. If the Mortgagor in its sole discretion determines that any personal property constituting a part of the Mortgaged Property has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary, and if the conditions of Section 6 of the Mortgage and the applicable provisions of the Master Indenture are complied with,then the Mortgagor may remove such property from the Mortgaged Property and may, to the extent permitted by law, sell, trade in, exchange or otherwise dispose of same, in whole or in part. The Mortgagee shall, at the Mortgagor's written request,join in the execution of any instruments necessary to release the lien on such property created by the Mortgage on property permitted to be released by this Section. 13. Maintenance and Repair. The Mortgagor agrees that until payment of the Secured Indebtedness due and payable shall have been made, it will, at its own expense,keep or cause to be kept the Mortgaged Property (i)in safe operating condition, and (ii)in good repair and in good operating condition, and make from time to time all necessary repairs thereto and renewals and replacements thereof. The Mortgagor shall not permit or suffer others to commit a nuisance in or about the Mortgaged Property or itself commit a nuisance in connection with its use or occupancy thereof. 15. Insurance. The Mortgagor shall during the term of the Mortgage keep the Mortgaged Property continuously insured against such risks as are customarily insured against in connection with the operation of similar facilities of like size, type and location, paying as the same become due and payable all premiums with respect C-88 thereto. Such insurance shall include, without intending to limit the foregoing, all such insurance required to be maintained pursuant to the terms of the Master Indenture. All property and casualty insurance policies carried pursuant to the foregoing shall name the Mortgagee as an additional named insured thereunder as the interest of such party may appear, and proceeds thereunder shall be made payable and shall be applied as provided in Section 16 below. Each property and casualty insurance policy required by this Section shall prohibit termination, expiration, or cancellation (for reasons other than non-payment of premiums), without at least thirty (30) days prior written notice to the Mortgagee or cancellation(for reason of non-payment of premiums)without at least ten(10)days prior written notice to the Mortgagee. A certificate of,or copies of,each such policy shall be filed with the Mortgagee. The Mortgagor shall pay all premiums (either up front or in agreed installments) and charges for the maintenance and renewal of the insurance and, upon written notice or demand from the Mortgagee, shall promptly furnish the Mortgagee with receipts and proofs thereof. If the Mortgagor fails to provide the receipts and proofs so requested,then the Mortgagee,without waiving the option to foreclose or exercise any other remedy hereunder,may (but shall not be required to), after written notice to the Mortgagor, obtain such insurance for the protection of the Mortgagee, and any expenses reasonably incurred by the Mortgagee in so doing shall become part of the Secured Indebtedness secured hereby, shall become immediately due and payable, and shall bear interest at the maximum lawful rate. In the event of foreclosure of the Mortgage or transfer of the Mortgaged Property in full or partial satisfaction of the Secured Indebtedness secured hereby, all interest of the Mortgagor in the policy or policies of insurance(including any claim to proceeds attributable to losses theretofore occurring but not yet paid to Mortgagor) shall pass to the purchaser, grantee or transferee, subject,however, to the terms and provisions of the Mortgage and the Master Indenture. If a policy shall provide that the insurance benefits thereunder shall be payable through any period of grace beyond the stated expiration date, for purposes of the Mortgage, such policy's expiration date shall be deemed to be the last day of such grace period. The Mortgagor shall provide to its insurers all reports or notices of change in value of the Mortgaged Property so as to maintain the insurance coverage required by the terms of this Section 15. Nothing in the preceding sentence requires the Mortgagor to obtain market value appraisals on the Mortgaged Property(or any part thereof) unless required by an insurer or such insurers'insurance policy. 16. Insurance Proceeds and Condemnation Awards. If, prior to the payment in full or satisfaction of the Secured Indebtedness (or provision for payment thereof having been made in accordance with the provisions of the Master Indenture) the Mortgaged Property, or any part or component thereof, shall be damaged, lost or destroyed, by whatever cause, or if any public authority or entity, in the exercise of its power of eminent domain, takes or damages the Mortgaged Property, or any part or component thereof, there shall be no abatement or reduction in the Secured Indebtedness payable by the Mortgagor under the Master Indenture or hereunder,and all of the insurance proceeds (whether payable from the policies of insurance described in Section 15 above or from other policies of insurance carried by the Mortgagor or third parties), and any award or compensation resulting from such taking or damage by condemnation shall be applied as provided in the Master Indenture, the terms of which are incorporated herein by reference. This Mortgage extends to and shall encumber any insurance proceeds payable on account of or related to the Mortgaged Property and the operations thereof and any judgments, awards, damages and settlements hereafter rendered or paid and resulting from condemnation proceedings with respect to the Mortgaged Property, or any portion thereof,or the taking of the Mortgaged Property,or any portion thereof,under the power of eminent domain. Any sums payable to the Mortgagor and arising out of the power of eminent domain with respect to the property and any proceeds of casualty insurance on the Mortgaged Property shall be applied as provided in the Master Indenture. 19. Acceleration Upon Transfer of Mortgaged Property. Except to the extent permitted by Section 8 of the Mortgage or by the terms of the Master Indenture, if all or any material part of the Mortgaged Property or an interest therein is sold or transferred by Mortgagor in any manner whatsoever without Mortgagee's prior written consent,Mortgagee may, at Mortgagee's option, declare all of the sums secured by the Mortgage to be accelerated and immediately due and payable. Mortgagee's right to accelerate the Mortgage upon any such sale or transfer of the Mortgaged Property or any interest therein is included in the Mortgage as a material inducement to Mortgagee's extending the credit secured hereby and has been relied upon by Mortgagee in establishing the terms and conditions thereof; accordingly,the limitations contained in this paragraph shall be strictly construed against the Mortgagor and Mortgagor's successor(s)in interest and in favor of Mortgagee. C-89 21. Events of Default. Each of the following events is hereby declared an "event of default" hereunder; provided, however, that in any case in which such event of default shall be occasioned by the action or inaction of the Master Trustee, such action or inaction may be cured by the Mortgagor within the time and in the manner as contemplated by the provisions of the Mortgage and the Master Indenture: (a) The Mortgagor shall fail to make full and punctual payment or to fully perform any of its obligations in a manner constituting an "Event of Default" as defined in Section 7.01 of the Master Indenture;or (b) The Mortgagor shall fail to make full and punctual payment of any sum due under the Mortgage when due,or to fully perform any of its other obligations under the Mortgage and such failure to perform its other obligations shall continue for thirty(30) days after written notice specifying such default and requiring the same to be remedied shall have been given to the Mortgagor and by the Mortgagee;or (c) This Mortgage shall cease to be a first priority mortgage and/or security agreement with respect to the Mortgaged Property, or any thereof, subject only to Permitted Encumbrances, or shall be invalid or unenforceable in any material respect. Before the entry of final judgment or decree in any suit, action or proceeding instituted by the Mortgagee under the provisions of the Mortgage or the Master Indenture or before the completion of the enforcement of any other remedy under the Mortgage or the Master Indenture,the Mortgagee shall be permitted(with the consent of the Holders of Outstanding Obligations if and to the extent required under the Master Indenture) to discontinue such suit, action, proceeding or enforcement of any remedy if, in its opinion, any default forming the basis of such suit, action,proceeding or enforcement of any remedy shall have been remedied. 22. Remedies on Default. In the event any of the Secured Indebtedness shall at the time be outstanding and unpaid and provision for the payment thereof shall not have been made in accordance with the provisions of the Master Indenture, whenever any event of default referred to in Section 21 above shall have occurred and be continuing, the Mortgagee may, subject to the terms and provisions of the Master Indenture (including, without limitation, the provisions set forth in the Master Indenture concerning the Master Trustee's exercise of remedies),take any one or more of the following remedial steps: (a) Declare all Secured Indebtedness and other amounts payable under the Master Indenture for the remainder of the term thereof and of the Mortgage to be immediately due and payable, whereupon the same shall become immediately due and payable; (b) Foreclose on the Mortgage, enter into possession of the Mortgaged Property or any part thereof without notice or demand and sell or lease the Mortgaged Property or any part thereof for the account of the Mortgagor, holding the Mortgagor liable for the difference between the amounts received and the Secured Indebtedness and other amounts payable by the Mortgagor hereunder; (c) Collect and apply to the Secured Indebtedness all rents and profits from the Mortgaged Property in the manner provided in the Master Indenture; (d) Inspect, examine and make copies of the books and records and any and all accounts and data of the Mortgagor relating to the use and operation of the Mortgaged Property; (e) Take such steps to protect and enforce its rights whether by action, suit or proceeding in equity or at law for the specific performance of any covenant, condition or agreement in the Master Indenture or in the Mortgage, or in aid of the execution of any power herein granted,or for any foreclosure hereunder, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as the Mortgagee shall elect; (f) Apply, on motion to any court of competent jurisdiction, for the appointment of a receiver to take charge of, manage, preserve, protect, complete construction of and operate the Mortgaged C-90 Property; to collect the rents, issues, profits and income therefrom; to make all necessary and needed repairs to the Mortgaged Property; to pay all taxes and assessments against the Mortgaged Property and insurance premiums for insurance thereon; and after the payment of the expense of the receivership, including reasonable attorneys' fees to the Mortgagee's attorney, and after compensation to the receiver for management and completion of the Mortgaged Property, to apply the net proceeds derived therefrom in reduction of the Secured Indebtedness secured hereby or in such manner as such court shall direct. The appointment of such receiver shall be a matter of strict right to the Mortgagee,regardless of the value of the security for the Secured Indebtedness secured hereby or of the solvency of any party bound for the payment of such Secured Indebtedness. All expenses, fees and compensation incurred pursuant to a receivership approved by any such court shall be secured by the lien of the Mortgage until paid. The receiver and the receiver's agents shall be entitled to enter upon and take possession of any and all of the Mortgaged Property, together with any and all business assets used in conjunction therewith or thereon, or any part or parts thereof, and operate and conduct such business or businesses to the same extent and in the same manner as any owner of such property might lawfully do. The receiver, personally or through his agents, may exclude any parties entitled thereto pursuant to the Master Indenture wholly from the Mortgaged Property, and have, hold, use, operate, manage and control the same and each and every part thereof, and may, in the name of the Mortgagor exercise all of the Mortgagor's rights and powers and maintain, restore, insure and keep insured, the Mortgaged Property as the receiver may deem judicious. Such receivership shall,at the option of the Mortgagee,continue until full payment of all sums secured hereby,or until title to the Mortgaged Property shall have passed by foreclosure sale under the Mortgage; (g) Take or exercise all rights and remedies granted a secured party by the Florida Uniform Commercial Code;and (h) Take all other actions and pursue all other remedies available under any other contract or agreement or otherwise by statute, at law or in equity, whether or not inconsistent with the foregoing, that may appear necessary or appropriate to collect the sums then due and thereafter to become due from the Mortgagor by reason of the Mortgage or the Master Indenture, or to enforce specific performance and observance of any obligation,agreement or covenant of the Mortgagor thereunder. 23. Power and Authority. In order to further and more fully secure the payment of the principal of and interest on the Secured Indebtedness upon the happening of any event of default as herein provided, the Mortgagor hereby authorizes and permits the Mortgagee for and on its behalf and on behalf of and in the name of the Holders of Outstanding Obligations, to foreclose the Mortgagor's interest in the Mortgaged Property by foreclosure in the manner provided by the Florida Statutes, which remedy shall be in addition to the other remedies provided in any other applicable provisions of the Mortgage and the Master Indenture. The Mortgagee shall have full power and authority to deal in and with the Mortgaged Property, including the power and authority to protect, conserve and to sell or to lease or to encumber or otherwise to manage and dispose of the Mortgaged Property. 24. Rights Cumulative and Continuing. The rights, powers and remedies of the Mortgagee granted and arising under the Mortgage and the Master Indenture,or any other instrument or agreement existing between the Mortgagor and the Mortgagee shall be separate, distinct, and cumulative of other powers and rights herein granted and of all other rights which the Mortgagee may have in law or equity, and the exercise of any one or more of them shall not be construed as an election to proceed under any one provision herein, or under the Master Indenture, or under any such other instrument or agreement,to the exclusion of any other provisions,or an election of remedies to the bar of any other remedy allowed in law or equity. No waiver of any obligation hereunder or of any obligation secured hereby shall at any time thereafter be held to be a waiver of the terms hereof or of the terms of any other instrument or agreement. No delay or omission by the Mortgagee to exercise any right, power or remedy accruing upon any default shall exhaust or impair any such right,power or remedy or shall be construed to be a waiver of any such default or acquiescence therein. Every right,power and remedy given by the Mortgage to the Mortgagee may be exercised from time to time and as often as may be deemed expedient by the Mortgagee. Each and every right, power and remedy shall be in addition to any other right, power or remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every right and remedy given hereunder shall extend fully to the Mortgagee, and the Holders of the Obligations issued and Outstanding under the Master Indenture shall be deemed third party beneficiaries of all covenants and agreements herein contained, the enforcement of which is subject, however, to all of the terms and conditions set forth in the Mortgage and the Master Indenture. In the event any C-91 agreement contained in the Mortgage should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. 27. Curing of Defaults by Mortgagee. The Mortgagee shall, after giving written notice to the Mortgagor at least five (5) days prior to taking any action under this provision (unless under the circumstances, delay caused by the requirement of such notice could result in the Mortgaged Property or any substantial part thereof, being materially endangered or subject to loss or forfeiture), have the right to pay, or cause to be paid, any sums required to be paid and to take, or cause to be taken, any other action deemed by the Mortgagee to be necessary or convenient to cure any Event of Default of the Mortgagor under the Master Indenture or any event of default hereunder. Any and all sums expended or expenses incurred by the Mortgagee in so curing such an Event of Default or event of default shall become immediately due and payable by the Mortgagor to the Mortgagee and, together with interest from date of disbursement, shall be secured by the lien of the Mortgage. The Mortgagee shall be subrogated to the interest of any lien holder paid out of sums secured by the Mortgage. No payment by the Mortgagee under this section or any other provisions contained herein or in the Master Indenture shall be deemed to cure or waive any default,Event of Default or event of default. 30. Release or Satisfaction. Whenever there is no outstanding obligation secured hereby (including, without limitation, any contingent or unmatured obligation or any other amount due or to become due from the Obligated Group under the Master Indenture)and no commitment to make advances secured hereby, the Mortgagee shall,on written demand by the Mortgagor,give a release or satisfaction hereof in recordable form. C-92 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION [THIS PAGE INTENTIONALLY LEFT BLANK] FORM OF BOND COUNSEL OPINION October 24, 2013 The Honorable Mayor B.C. Ziegler and Company, and City Commission as Underwriter of the City of Atlantic Beach St. Petersburg, Florida Atlantic Beach, Florida U.S. Bank National Association, as Bond Trustee and Master Trustee Jacksonville, Florida Re: $17,610,000 City of Atlantic Beach, Florida Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2013B Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the City of Atlantic Beach, Florida (the "Issuer') of its Health Care Facilities Revenue Bonds (Fleet Landing Project), Series 2013B, in the aggregate principal amount of $17,610,000 (the "Bonds"), pursuant to an Indenture of Trust dated as of October 1, 2013 (the "Bond Indenture"), between the Issuer and U.S. Bank National Association, as bond trustee (the "Bond Trustee"). The Issuer loaned the proceeds of the Bonds to Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing, a Florida not for profit corporation (the "Corporation"), pursuant to a Loan Agreement dated as of October 1, 2013 (the "Loan Agreement"), between the Issuer and the Corporation. The Corporation's obligations under the Loan Agreement are secured by Naval Continuing Care Retirement Foundation, Inc. Series 2013B Note, dated October 1, 2013 (the "Master Note"), issued pursuant to a Master Trust Indenture dated as of April 1, 2013, as supplemented (the "Master Indenture"), particularly as supplemented by a Supplemental Master Trust Indenture Number 2 dated as of October 1, 2013, each between the Corporation and U.S. Bank National Association, as master trustee (the "Master Trustee"). The Master Note has been executed and delivered to the Bond Trustee on behalf of the Issuer in a principal amount equal to the aggregate principal amount of the Bonds. Under the Loan Agreement and by the Master Note, the Corporation has agreed to make payments sufficient to pay when due the principal of, premium, if any, and interest on the Bonds in the manner provided in the Bond Indenture, and such payments and the rights of the Issuer under the Loan Agreement (except for the right to enforce certain limited provisions of the Loan Agreement) and the Master Note were pledged and assigned by the Issuer to the Bond Trustee as security for the Bonds. D-1 The Honorable Mayor and City Commission of the City of Atlantic Beach, Florida October 24, 2013 Page 2 The Bonds are payable solely from (i) payments made by the Corporation pursuant to the Loan Agreement and the Master Note (except any reimbursement or indemnity payments payable to the Issuer), and (ii) all cash and securities held by the Bond Trustee from time to time in specified trust funds under the Bond Indenture, all in the manner and to the extent provided in the Bond Indenture (collectively, the "Pledged Revenues"). For purposes of this opinion we have examined(i) the resolution of the Issuer authorizing the issuance of the Bonds, (ii) executed counterparts of the Bond Indenture and the Loan Agreement and the executed Master Note, (iii) the opinion of even date herewith of Alan C. Jensen, P.A., as counsel to the Issuer, and (iv) such certified proceedings and other papers as we have considered necessary and appropriate to render this opinion. As to questions of fact material to our opinion, we have relied upon representations and covenants made on behalf of the Issuer and the Corporation in the Bond Indenture, the Loan Agreement and the Tax Regulatory Agreement dated October 24, 2013 (including the exhibits thereto, the "Tax Agreement"), among the Issuer, the Corporation and the Bond Trustee, certificates of officials of the Issuer, certificates of officers of the Corporation (including certifications as to the use of Bond proceeds and the operation and use of the property financed thereby), and certificates of others, without undertaking to verify the same by independent investigation. We express no opinion herein as to the accuracy, completeness or sufficiency of any offering material relating to the Bonds. We have not passed upon any matters relating to the business, affairs or condition (financial or otherwise) of the Corporation and no inference should be drawn that we have expressed any opinion on matters relating to the ability of the Corporation to perform its obligations under the contracts described herein. Based upon the foregoing, we are of the opinion that, under existing law: 1. The Issuer validly exists as a municipality of the State of Florida and has the power to issue the Bonds and to enter into and perform the Bond Indenture and the Loan Agreement. 2. The Bond Indenture and the Loan Agreement were duly authorized, executed and delivered by the Issuer and are valid, binding and enforceable obligations of the Issuer. All rights of the Issuer under the Loan Agreement (except for the right to enforce certain limited provisions of the Loan Agreement) and the Master Note have been validly assigned to the Bond Trustee under the Bond Indenture. 3. The Bonds were duly authorized, executed and delivered by the Issuer and are valid, binding and enforceable special and limited obligations of the Issuer payable solely from the Pledged Revenues. 4. The interest payable on the Bonds (i) is excluded from gross income of the owner of the Bonds for federal income tax purposes as of the date hereof, and (ii) is not an item of tax D-2 The Honorable Mayor and City Commission of the City of Atlantic Beach, Florida October 24, 2013 Page 3 preference for purposes of the federal alternative minimum tax imposed on all taxpayers; however, it should be noted that with respect to certain corporations, such interest is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax.. The Bonds are "private activity bonds" under Section 141(a) of the Code, "qualified 501(c)(3) bonds" under Section 145(a) of the Code and "qualified bonds" under Section 141(e) of the Code. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Issuer and the Corporation have made certain representations and have covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. The opinion set forth in this paragraph assumes the accuracy of these representations and compliance with these covenants. We have not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) or any matters coming to our attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. We express no opinion regarding other federal income tax consequences arising with respect to the Bonds. Our opinions expressed herein are predicated upon present laws and interpretations thereof. We assume no affirmative obligation with respect to any change of circumstances or law that may adversely affect after the date hereof the exclusion from gross income for federal income tax purposes of interest on the Bonds. It is to be understood that the rights of the owners of the Bonds and the enforceability of the Bonds, the Bond Indenture, the Loan Agreement and the Master Note may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, FOLEY & LARDNER LLP D-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E BOOK-ENTRY ONLY SYSTEM This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The Issuer believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The Issuer cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC 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 for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. 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 securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Authority E-1 ("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 highest rating: AAA. 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. Purchases of 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 each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 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 certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 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 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 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. 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 Indenture. For example, Beneficial Owners of 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 Paying Agent/Registrar and request that copies of notices be provided directly to them. E-2 Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 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 Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments and redemption proceeds 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 Issuer or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as 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 nor its nominee, the Paying Agent/Registrar, or the Issuer, 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 responsibility of the Issuer or the Paying Agent/Registrar, 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. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry Only System, and (ii) except as described above, notices that are to be given to registered owners under the Indentures will be given only to DTC. E-3 Information concerning DTC and the Book-Entry Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the Issuer or the Underwriter. Effect of Termination of Book-Entry Only System In the event that the Book-Entry Only System is discontinued by DTC or the use of the Book-Entry Only System is discontinued by the Issuer, the following provisions will be applicable to the Bonds. The Bonds may be exchanged for an equal aggregate principal amount of the Bonds in authorized denominations and of the same maturity upon surrender thereof at the principal office for payment of the Bond Trustee. The transfer of any Bond may be registered on the books maintained by the Bond Trustee for such purpose only upon the surrender of such Bond to the Bond Trustee with a duly executed assignment in form satisfactory to the Bond Trustee. For every exchange or transfer of registration of Bonds, the Bond Trustee and the Issuer may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer. The Issuer shall pay the fee, if any, charged by the Bond Trustee for the transfer or exchange. The Bond Trustee will not be required to transfer or exchange any Bond after its selection for redemption. The Issuer and the Bond Trustee may treat the person in whose name a Bond is registered as the absolute owner thereof for all purposes, whether such Bond is overdue or not, including for the purpose of receiving payment of, or on account of, the principal of, premium, if any, and interest on, such Bond. Limitations For so long as the Bonds are registered in the name of DTC or its nominee, Cede & Co., the Issuer and the Bond Trustee will recognize only DTC or its nominee, Cede & Co., as the registered owner of the Bonds for all purposes, including payments, notices and voting. Under the Bond Indenture, payments made by the Bond Trustee to DTC or its nominee will satisfy the Issuer's respective obligations under the Bond Indenture and the Obligor's respective obligations under the Loan Agreement to the extent of the payments so made. None of the Issuer, the Underwriter nor the Bond Trustee will have any responsibility or obligation with respect to (i) the accuracy of the records of DTC, its nominee or any DTC Participant or Indirect Participant with respect to any beneficial ownership interest in any Bond, (ii) the delivery to any DTC Participant or Indirect Participant or any other Person, other than an owner, as shown in the Bond Register, of any notice with respect to any Bond including, without limitation, any notice of redemption, tender, purchase or any event that would or could give rise to a tender or purchase right or option with respect to any Bond, (iii) the payment to any DTC Participant or Indirect Participant or any other Person, other than an owner, as shown in E-4 the Bond Register, of any amount with respect to the principal of, premium, if any, or interest on, or the purchase price of, any Bond or (iv) any consent given by DTC as registered owner. Prior to any discontinuation of the book-entry only system described above, the Issuer and the Bond Trustee may treat DTC as, and deem DTC to be, the absolute owner of the Bonds for all purposes whatsoever, including, without limitation, (i) the payment of principal of, premium, if any, and interest on the Bonds, (ii) giving notices of redemption and other matters with respect to the Bonds, (iii) registering transfers with respect to the Bonds, and (iv) the selection of Bonds for redemption. E-5 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] ti C 2 r; tt • I-Full of Life .„„ tT, td MIX From responsible souru. FSC FSC'C017146 Printed by:ImageMaster www.lmageMaster.com