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$46,875,000 Bond 1999 North Ridge Project - Destroy 030135DORSEY & WHITNEY LLP MINNEAPOLIS PILLSBURY CENTER SOUTH NEW YORK WASHINGTON, D.C. 220 SOUTH SIXTH STREET DENVER LONDON MINNEAPOLIS, MINNESOTA 55402-1498 SEATTLE BRUSSELS TELEPHONE: (612) 340-2600 HONG KONG FAX: (612) 340-2568 PARGO DES MOINES BILLINGS ROCHESTER MISSOULA COSTA MESA JEROME P. GILLIGAN (612) 340-2962 GREAT FALLS FAX (612) 340-2644 gilliga .lerome@dorseylaw.com June 18, 1999 Mr. Kirk McDonald Community Development Coordinator City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428-4898 Re: $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 City of New Hope, Minnesota Dear Kirk: Enclosed is a copy of the transcript of proceedings in connection with the issuance of the above Bonds for your records. It was a pleasure working with you on this matter. Y urs truly, Jerome P. Gilligan JPG:cmn Enclosure CLOSING MEMORANDUM $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 City of New Hope, Minnesota Date and Time of Closing: March 17, 1999 at 9:00 a.m. Date and Time of Preclosing: March 16, 1999 at 1:00 p.m. Place of Closing and Preclosing: Offices of Dougherty Summit Securities LLC 90 South 7' Street, Suite 4300 Minneapolis, MN Terms and Initials Used Herein: Company: City: Trustee: Underwriter: Accountants: Bond Counsel (BC): Company Counsel (CC): Underwriter's Counsel (UC): Minnesota Masonic Home North Ridge City of New Hope, Minnesota U.S. Bank Trust National Association Dougherty Summit Securities LLC Larson, Allen, Weishair & Co. LLP Dorsey & Whitney LLP Orbovich & Gartner Chartered Gray, Plant, Mooty, Mooty & Bennett, P.A. 2 I. FINANCING DOCUMENTS BC 1. Loan Agreement between the City and the Company BC 2. Indenture of Trust between the City and the Trustee BC 3. Regulatory Agreement between the Company and the Trustee BC 4. Mortgage Agreement between the Company and the City BC 5. Assignment of Mortgage Agreement from the City to the Trustee BC 6. UCC -1 Financing Statement with respect to the Indenture (City, as debtor, and Trustee, as secured party) BC 7. UCC -1 Financing Statement with respect to the Mortgage Agreement (Company, as debtor, City, as secured party, and Trustee, as assignee of secured party) II. OFFERING DOCUMENTS UC 8. Bond Purchase Agreement between the City, the Company, and the Underwriter UC 9. Continuing Disclosure Agreement between the Company and the Trustee, as dissemination agent UC 10. Preliminary Official Statement UC 11. Official Statement UC 12. Blue Sky Memorandum III. CITY CLOSING DOCUMENTS BC 13. Certificate of Official Action Resolution Affidavits as to Publication of Notices of Hearing BC 14. General Incumbency and No Litigation Certificate -2- BC 15. Request and Authorization to the Trustee BC 16. City Tax Certificate Underwriter's Certificate Company Tax Certificate Letter of Bond Counsel BC 17. Internal Revenue Service Form 8038 N. COMPANY CLOSING DOCUMENTS BC 18. Incumbency Certificate CC Resolution of Board of Directors CC Articles of Incorporation CC Bylaws CC Certificate of Good Standing CC Evidence of 501(c)(3) Status BC 19. Certificate of Officers V. ACCOUNTANTS UC 20. Consent Letters of Accountants dated February 22, 1999 and March 9, 1999 VI. TRUSTEE CLOSING DOCUMENTS BC 21. Incumbency Certificate and Receipt of Trustee BC 22. Incumbency Certificate of Trustee, as dissemination agent VII. PROJECT DOCUMENTS CC 23. Title Insurance Policy CC 24. Amended Assessment Agreement CC 25. Certificate Regarding Insurance and attached Insurance Certificates -3- go VIII. OPINIONS OF COUNSEL BC 26. Opinion of Bond Counsel BC 27. Supplemental Opinion of Bond Counsel CC 28. Opinion of Counsel to the Company UC 29. Opinion of Counsel to the Underwriter IX. MISCELLANEOUS BC 30. Receipt for the Bonds, executed by the Underwriter BC 31. Specimen Bond BC 32. Agreement to Release Lots 1 and 2, Block 1 North Ridge Care Center Addition from Amended Declaration of Restricted Covenants between the Company and the City BC 33. PILOT Agreement between the City and the Company go The City of New Hope, Minnesota, has assigned, and granted a security interest in, its right, title and interest in this Loan Agreement to U.S. Bank Trust National Association, as Trustee under an Indenture of Trust, dated as of March 1, 1999, between the City of New Hope, Minnesota, and said Trustee. LOAN AGREEMENT between CITY OF NEW HOPE, MINNESOTA and MINNESOTA MASONIC HOME NORTH RIDGE Dated as of March 1, 1999 TABLE OF CONTENTS Page Parties.................................................................. iv Recitals................................................................. iv ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION .............................................. 1 Section 1.1. Definitions ........................................... 1 Section 1.2. Compliance Certificates and Opinions ..................... 7 Section 1.3. Form of Documents Delivered to City or Trustee ............ 8 Section 1.4. Representations by the Company ......................... 9 Article II. THE LOAN AND REPAYMENT THEREOF ......................... 11 Section 2.1. Loan of Bond Proceeds ................................. 11 Section 2.2. Loan Repayments ..................................... 11 Section 2.3. Fee Payments ........................................ 13 Section 2.4. Certain of Company's Obligations Unconditional ............ 13 Section 2.5. Surplus Funds ........................................ 14 Section 2.6. Company's Obligation to Prepay Loan and Direct Redemption of Series 1999 Bonds ................... 15 Section 2.7. Title Insurance ........................................ 15 Section 2.8. Payment of Management Fees ........................... 15 ARTICLE III. ACQUISITION OF FACILITIES ................................ 16 Section 3.1. Acquisition of Facilities ................................ 16 ARTICLE IV. OPERATION, MAINTENANCE AND INSPECTION ............... 17 Section 4.1. Maintenance of the Facilities ............................ 17 Section 4.2. Operation of the Facilities ............................... 17 Section 4.3. Taxes, Charges and Assessments ......................... 18 Section 4.4. Liens and Encumbrances ............................... 19 Section 4.5. Permitted Contests .................................... 19 Section 4.6. Rates and Charges; Retention of Independent Management Consultant ................................ 20 Section 4.7. Inspections; Reports; Financial Statements ................. 21 Section 4.8. Asset Transfers ................................:...... 22 ARTICLE V. ALTERATIONS; IMPROVEMENTS; REMOVALS; RELEASES,ETC............................................ 24 Section 5.1. Additions, Alterations and Changes to Facilities ............. 24 Section 5.2. Installation and Removal of Equipment by the Company ...................................... 25 MC Section 5.3. No Credit for Additions or Replacements .................. 25 Section 5.4. Execution of Other Documents ........................... 25 ARTICLE VI. INDEBTEDNESS ............................................ 26 Section 6.1. Indebtedness Generally ................................. 26 Section 6.2. Short Term Indebtedness ............................... 26 Section 6.3. Interim Indebtedness ................................... 26 Section 6.4. Long Term Indebtedness ................................ 26 Section 6.5. Calculation of Debt Service ............................. 29 ARTICLE VII. OTHER COVENANTS OF THE COMPANY ..................... 30 Section 7.1. Continuing Existence and Qualification; Mergers, Consolidations and Transfers of Assets .................... 30 Section 7.2. Corporate Authorization ................................ 31 Section 7.3. Maintenance of Security Interests ......................... 31 Section 7.4. Operation and Equipping of Facilities ..................... 31 Section 7.5. Bankruptcy .......................................... 31 Section 7.6. Compliance .......................................... 32 Section 7.7. Notice of Default ...................................... 32 Section 7.8. Indemnity ........................................... 32 Section 7.9. Insurance ............................................ 33 Section 7.10. Insurers and Policies ................................... 34 Section 7.11. Insurance Consultant ................................... 34 Section 7.12. Federal Grants ........................................ 34 Section 7.13. Status ............................................... 35 Section 7.14. Tax Covenants ....................................... 35 Section 7.15. Environmental Use of Project ............................ 37 ARTICLE VIII. DAMAGE; DESTRUCTION; INSURANCE AND CONDEMNATION PROCEEDS .............................. 39 Section 8.1. Company to Repair, Replace, Rebuild or Restore ............ 39 Section 8.2. Cooperation of the City and Trustee ....................... 40 Section 8.3. Business Interruption Insurance Proceeds ................... 40 ARTICLES IX. COVENANTS OF THE CITY ................................. 41 Section 9.1. Restrictions .......................................... 41 Section 9.2. Redemption of Bonds .................................. 41 Section 9.3. Nature of City's Covenants ........... I .... I ............. 41 Section 9.4. City to Cooperate ..............................:...... 41 ARTICLE X. PREPAYMENT .............................................. 42 Section 10.1. Prepayments and Credits ................................ 42 Section 10.2. Company's Option to Direct Redemption of Bonds ........... 42 RTICLE XI. EVENTS OF DEFAULT; REMEDIES ............................. 44 Section 11.1. Events of Default ..................................... 44 Section 11.2. Remedies ............................................ 45 Section 11.3. Manner of Exercise .................................... 46 Section 11.4. Right of Entry ........................................ 46 Section 11.5. Right to Lease ........................................ 46 Section 11.6. Collection of Indebtedness by the Trustee; Deficiency Section 13.5. Judgment............................................ 46 Section 11.7. Trustee May File Proofs of Claim ......................... 47 Section 11.8. Restoration of Positions ................................ 47 Section 11.9. Waiver of Appraisement, Etc., Laws ...................... 48 Section 11.10. Suits to Protect the Security ............................. 48 Section 11.11. Agreement to Pay Attorneys' Fees and Expenses ............. 48 Section 11.12. Effect of Force Majeure................................ 49 ARTICLE XII. ASSIGNMENTS, LEASES AND OPERATING ARRANGEMENTS BY THE COMPANY ....................... 50 Section 12.1. No Assignments by Company Except as Permitted ........... 50 Section 12.2. Leases and Operating Contracts .......................... 50 ARTICLE XIII. MISCELLANEOUS ......................................... 51 Section 13.1. Notices ............................................. 51 Section 13.2. Binding Effect ........................................ 51 Section 13.3. Severability .......................................... 52 Section 13.4. Effect of Headings and Table of Contents .................. 52 Section 13.5. Amendments, Changes and Modifications .................. 52 Section 13.6. Execution Counterparts ................................. 52 Section 13.7. Construction ......................................... 52 SIGNATURES .................................................... 52 THIS LOAN AGREEMENT, dated as of March 1, 1999, between the CITY OF NEW HOPE, a municipality organized and existing under the Constitution and laws of the State of Minnesota (as hereinafter defined, the "City"), and MINNESOTA MASONIC HOME NORTH RIDGE, a nonprofit corporation organized and existing under the laws of the State of Minnesota (as hereinafter defined, the "Company"); WITNESSETH: WHEREAS, the City is authorized by the Act, as hereinafter defined, to issue its revenue bonds to finance or refinance a development consisting of a combination of a multifamily housing development, as defined in the Act, and a new or existing health care facility, as defined in Minnesota Statutes, Section 469.153, which revenue bonds shall be payable solely from the revenues of the development or other security pledged therefor; and WHEREAS, simultaneously with the execution and delivery of this Loan Agreement, the City and U.S. Bank Trust National Association, in St. Paul, Minnesota, as Trustee (hereinafter, together with any successor trustee under the below mentioned Indenture, referred to as the "Trustee"), will execute and deliver the Indenture of Trust, as hereinafter defined, pursuant to which the City will issue its Series 1999 Bonds, as hereinafter defined, to finance the acquisition by the Company of a 559 -bed nursing home facility, 180 -unit senior housing facility and 25 -unit assisted living facility located in the City and to fund a reserve fund and pay certain costs of issuance of the Series 1999 Bonds; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto DO HEREBY AGREE as follows: -iv- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1. Definitions. For all purposes of this Agreement except as otherwise expressly provided or unless the context clearly otherwise requires: A. The terms defined in Section 1.01 of the Indenture, when used in this Agreement, shall have the meanings specified in that Section. B. All references in this instrument to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. C. The words "herein," "hereof, ' and "hereunder," and other words of similar import, without reference to any particular Article, Section or subdivision, refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. D. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular. E. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles. F. All computations herein provided for shall be made in accordance with generally accepted accounting principles. Accountant means a certified public accountant or accountants retained by the Company. Acquisition and Construction Fund means the fund created in Section 5.02 of the Indenture. Affiliate means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For the purposes of this definition, "control' when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Appraiser means a Person experienced in the business of appraising property retained by the Company. Architect means a Person who is a registered architect in the State of Minnesota, retained by the Company. Audited Fiscal Year means a Fiscal Year for which the audit report and opinion referred to in paragraph B of Section 4.7 have been completed. Balloon Indebtedness means Long Term Indebtedness twenty-five percent (25%) or more of the original principal amount of which (A) is due in any 12 -month period or (B) may, at the option of the holder thereof, be required to be redeemed, prepaid, or purchased directly or indirectly by the Company or otherwise paid in any 12 -month period; provided, that, in calculating the principal amount of such Balloon Indebtedness due or required to be redeemed, prepaid, purchased or otherwise paid in any 12 -month period, such principal amount shall be reduced to the extent that all or any portion of such amount is required to be amortized prior to such 12 -month period. Board of Directors means the governing body of the Company or any duly authorized committee thereof. Bond Purchase Agreement means a contract between the City, the Company and the Original Purchaser or Purchasers of a series of Bonds. City means the City of New Hope, Minnesota, and any successor to its functions hereunder. Company means Minnesota Masonic Home North Ridge, a nonprofit corporation organized and existing under the laws of the State of Minnesota, and any permitted successor to the Company under Section 7.1 hereof. Company Certificate means a certificate signed by the Chairman, President, a Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Company, and delivered to the Trustee. Company Request, Company Order or Company Consent means, respectively, a written request, order or consent signed in the name of the Company by the Chairman, President, a Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Company, and delivered to the Trustee. Company Resolution means a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. -2- Company Tax Certificate means the certificate relating to tax matters and the Series 1999 Bonds, to be provided by and in the name of the Company on the date of issuance of the Series 1999 Bonds. Completion Date with reference to any Project means the date of completion of that Project. Construction Contract means any contract of the Company providing for the construction, equipping or installation of any part of a Project, including any amendment thereof made in accordance with the provisions thereof and hereof. Contractor means a Person with whom the Company enters into a Construction Contract. Current Assets means those assets of the Company which under generally accepted accounting principles are considered current assets. Current Liabilities means those liabilities of the Company which under generally accepted accounting principles are considered current liabilities. Event of Default means any event defined as such in Section 11.1. Facilities means, collectively, the Land, the Nursing Facility, the Housing Facility and any Improvement, as such properties may at any time exist. Fee Payments means the payments required to be made by the Company by Section 2.3. Fiscal Year means the period commencing on the first day of January of each year and ending on the last day of such year, or any other twelve (12) month period specified in a Company Resolution as the fiscal year of the Company. Housing Facility means the 25 -unit assisted living facility and 180 -unit multifamily housing facility and related facilities (other than the Nursing Facility) designed and intended for occupancy by elderly persons, located on the Land. Improvement means any addition, enlargement, improvement, extension or alteration of or to the Facilities as they then exist located on the Land, and any fixtures, structures or other facilities acquired or constructed by the Company and located on the Land. Indebtedness shall mean (i) all indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed, (ii) all indebtedness for the payment of the purchase price of property or assets purchased, (iii) all guaranties, -3- endorsements, assumptions and other contingent obligations with respect to, or to purchase or to otherwise acquire, indebtedness of others, (iv) all indebtedness secured by any mortgage, pledge or lien existing on property owned, subject to such mortgage, pledge or lien, whether or not indebtedness secured thereby shall have been assumed, and (v) installment purchase contracts, loans secured by purchase money security interests, lease -purchase agreements or capital leases (including leases of real property), entered into by the Company in connection with the acquisition of property not previously owned by the Company and computed in accordance with generally accepted accounting principles; provided, however, that "Indebtedness" does not include trade accounts payable and accrued expenses incurred in the normal course of business. For purposes of this definition no single evidence of indebtedness shall be counted more than once even though more than one of the clauses (i) - (v) above may apply. Indenture means the Indenture of Trust, dated as of the date of this instrument, between the City and the Trustee, as the same may from time to time be amended or supplemented in accordance with the provisions thereof. Insurance Consultant means any Person experienced in matters relating to the insurance of facilities of the same character as the Facilities, retained by the Company. Interim Indebtedness means any Indebtedness incurred, assumed or guaranteed by the Company on an interim basis to provide temporary financing as permitted by Section 6.3 hereof. Land means the real estate described in Exhibit A to the Mortgage and any additional real estate which may be included within the lien of the Mortgage, but excluding any real estate released from the lien of the Mortgage pursuant to the terms of this Agreement or the Mortgage. Loan means the loan by the City to the Company of the proceeds of the Bonds, exclusive of any accrued interest paid by the Original Purchaser of the Bonds upon the delivery thereof, but including the underwriting discount, if any, in connection with the sale of Bonds by the City to the Original Purchaser. Loan Repayment means a payment required to be made by the Company by Section 2.2 hereof. Loan Repayment Date means a date on which a Loan Repayment is due. Long Term Indebtedness means Indebtedness of the Company other than Short Term Indebtedness or Interim Indebtedness. Management Consultant means a Person qualified to study operations of nursing home facilities, assisted living facilities and multifamily housing facilities and having a favorable Im reputation throughout the State of Minnesota for skill and experience in such work and, unless otherwise specified in the Loan Agreement, retained by the Company and acceptable to the Trustee. Mortgage means the Mortgage Agreement, dated as of the date of this instrument, between the Company and the City, as the same may be amended or supplemented in accordance with the provisions thereof. Mortgaged Property has the meaning given such term in the Mortgage. Net Proceeds, when used with respect to any insurance claim or condemnation award, means the gross proceeds from such insurance claim or condemnation award remaining after payment of all expenses (including attorneys' fees and any expenses of the City, the Company and the Trustee) incurred in the collection of such gross proceeds. Net Revenues Available for Debt Service shall mean the Total Revenues for a specified period, whether historic or projected, less the total operating expenses of the Company for the same specified period (excluding extraordinary losses and expenses and unrealized losses on investments), as determined in accordance with generally accepted accounting principles, to which shall be added the amount of all depreciation, amortization and interest expense on Long Term Indebtedness and other non-operating income and contributions available for debt service, all for the same specified period. Nursing Facility means the 559 -bed nursing home facility located on the Land. Opinion of Counsel means a written opinion of legal counsel, who may (except as otherwise specifically provided herein or in the Indenture) be counsel for the City or the Company. Original Purchaser means, with respect to any series of Bonds, the original purchaser or underwriter of such series of Bonds. Permitted Encumbrances means those encumbrances set forth in Section 3.2 of the Mortgage. Principal and Interest Requirements on Long Term Indebtedness shall mean, for any Fiscal Year, and subject to the provisions of Section 6.5 hereof, the amount required to pay the interest on and the principal of Long Term Indebtedness (including assumed debt) becoming due in such Fiscal Year. Bonds. Proiect means any Improvement to be financed in whole or in part by a series of -5- Project Costs means with reference to any Project any and all sums of money required to acquire, construct and install that Project, excluding Costs of Issuance but including the following: A. all expenses incurred in connection with the acquisition of real property, or any interest in real property, necessary for the Project or mortgaging of the Land, including title insurance; B. the expense of preparation of the plans and specifications and of all other architectural, engineering, testing and supervisory services incurred and to be incurred in the planning, construction and completion of the Project; C. the cost of acquisition and installation of all items of equipment, machinery or furnishings included in the Project; D. premiums on all insurance relating to construction during the period before completion of the Project, to the extent that such premiums are not paid by a Contractor; E. the contract price of all labor, services, materials, supplies, equipment and remodeling furnished under a Construction Contract; F. all expenses incurred in seeking to enforce any remedy against a Contractor, any subcontractor or any surety in respect of any default under any Construction Contract; G. the cost of all other labor, services, materials, supplies and equipment necessary to complete the acquisition, construction and installation of the Project, including the cost of moving property previously owned or leased by the Company; H. all interest accruing on money borrowed by the Company for financing of the Project Costs during construction and up to six months thereafter; I. all fees and expenses of the Trustee and any Paying Agent relating to the Bonds that become due before the Completion Date of the Project; J. without limitation by the foregoing, all other expenses which under generally accepted accounting principles constitute necessary capital expenditures for the Project and are authorized by the Act to be paid from the proceeds of the Bonds; and K. all advances, payments and expenditures made or to be made by the City, the Trustee and any other Person with respect to any of the foregoing expenses. Registered Land Surveyor means a Person engaged in the profession of surveying land and licensed in the State of Minnesota, retained by the Company. 0 ( Regulatory Agreement means the Regulatory Agreement, dated as of March 1, 1999, between the Company and the Trustee and including any amendment thereof. Repair and Replacement Fund means the fund created in Section 5.07 of the Indenture. Series 1999 Bonds means the series of Bonds created by Section 3.01 of the Indenture. Short Term Indebtedness shall mean any Indebtedness incurred, assumed or guaranteed by the Company maturing or callable at the option of the holder thereof not more than three hundred sixty-five (365) days after it is incurred, but shall not include Interim Indebtedness. Supplemental Indenture means any indenture supplemental to the Indenture and entered into pursuant to Article XI of the Indenture. Total Revenues shall mean the total resident revenues and other operating revenues of the Company for a specified period, but excluding unrealized gains on investments, as determined in accordance with generally accepted accounting principles. Trustee means U.S. Bank Trust National Association, in St. Paul, Minnesota, and any successor trustee under the Indenture. Unrelated Improvement means any fixtures, structures, land or other facilities, including any machinery, equipment or fixtures necessary in connection therewith, acquired or constructed by the Company not on the Land. Variable Rate Indebtedness means any portion of Long Term Indebtedness the interest rate on which varies periodically such that the interest rate at a future date cannot accurately be calculated. Vice -President when used with respect to the Company or the Trustee means any vice-president, whether or not designated by a number or a word added to such title. Section 1.2. Compliance Certificates and Opinions. Upon any application or request by the Company to the City or the Trustee to take any action under any provision of this Agreement, the Mortgage or the Indenture, the Company shall famish the City or the Trustee, as the case may be, a Company Certificate stating that all conditions precedent, if any, provided for in this Agreement, the Mortgage or the Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of a Company Certificate and an Opinion of Counsel is specifically required by any provision of this Agreement, the Mortgage or the -7- Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (3) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1.3. Form of Documents Delivered to City or Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument. An "application" under any provision of this Agreement or the Indenture shall consist of, and shall not be deemed complete until the City or the Trustee shall have been furnished, all such documents, cash, securities and other instruments as are required by such provision to establish the right of the Company to the transaction applied for, and the date of in such application shall be deemed to be the date upon which such application shall be so completed. Wherever in this Agreement, in connection with any application or certificate or report to the City or the Trustee, it is provided that the Company shall deliver any document as a condition of the granting of such application, or as evidence of the Company's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in each case be conditions precedent to the right of the Company to have such application granted or to the sufficiency of such certificate or report. Section 1.4. Representations by the Company. The Company makes the following representations as the basis for its covenants herein: (1) The Company is a nonprofit corporation duly organized and in good standing under the laws of the State of Minnesota and is in good standing under the laws of the State of Minnesota, is an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code, has power to enter into the Bond Purchase Agreement for the Series 1999 Bonds, this Agreement, the Regulatory Agreement, and the Mortgage, and by proper action of its governing body has authorized the execution and delivery of the Bond Purchase Agreement, this Agreement, the Regulatory Agreement, and the Mortgage. (2) The execution and delivery of the Bond Purchase Agreement relating to the Series 1999 Bonds, this Agreement, the Regulatory Agreement, and the Mortgage, the consummation of the transactions contemplated hereby and thereby, and the fulfillment of the terms and conditions hereof and thereof do not and will not conflict with or result in a breach of any of the terms or conditions of the articles of incorporation or bylaws of the Company or of any corporate restriction or of any agreement or instrument to which the Company is now a party, and do not and will not constitute a default under any of the foregoing, or result in the creation or imposition of any liens, charges or encumbrances of any nature upon any of the property or assets of the Company contrary to the terms of any instrument or agreement. (3) The Company has obtained all requisite approvals of the State of Minnesota and other federal, state, regional and local governmental bodies for the sale and issuance of the Series 1999 Bonds and application of the proceeds thereof as contemplated by this Agreement, the Regulatory Agreement, and the Indenture; the Facilities comply with all applicable federal, state and local zoning and subdivision laws, regulations, codes and ordinances, and, to the best of the Company's knowledge, will be in compliance with applicable federal, state and local environmental, pollution control and building laws, regulations, codes and ordinances. (4) The Company has good and marketable fee simple title to the Land, subject only to Permitted Encumbrances. u (5) The Company is an organization described in Section 501(c)(3) of the Code, is not a "private foundation" as defined in Section 509(a) of the Code and is exempt from federal income tax under Section 501(a) of such Code, and the trade or business to be carried on by the Company in or with respect to the Facilities financed with the proceeds of the Series 1999 Bonds is not and will not be an unrelated trade or business, determined by applying Section 513(a) of the Code, to any extent which will adversely affect the tax-exempt status of the interest to be paid on the Series 1999 Bonds. -10- ARTICLE If THE LOAN AND REPAYMENT THEREOF Section 2.1. Loan of Bond Proceeds. The City agrees to lend to the Company the entire proceeds of all Bonds as received by or in behalf of the City upon the original issuance by the City of such Bonds. For this purpose the proceeds of Bonds (and therefore the Loan) shall be deemed to include the underwriting discount, if any, or other amount by which the amount received by or on behalf of the City on the original sale of any Bonds to the Original Purchaser is less than the principal amount of such Bonds. The obligation of the City to lend such proceeds shall be discharged, and the obligation of the Company to repay the Loan shall become effective, when such proceeds are received by the Trustee from the City or the Original Purchaser. The Company hereby accepts the Loan from the City, on the terms and conditions herein and in the Indenture specified, by having the proceeds of the Loan applied and disbursed in accordance with the provisions of the Indenture. The Company also agrees that until the proceeds of the Bonds are expended as provided in the Indenture the Trustee shall have a security interest in such proceeds as additional security for the payment of the Bonds. Section 2.2. Loan Repayments. The Company agrees to repay the Loan in installments, referred to herein as Loan Repayments, which in the aggregate (payable as provided below), shall be sufficient to pay in full and when due all the Bonds from time to time Outstanding, including (i) the total interest becoming due and payable on the Bonds to the respective dates of payment thereof whether at, before or after their Stated Maturity, (ii) the total principal amount of the Bonds, and (iii) the premium, if any, that shall be payable on the redemption of any Bonds. In addition, the Company agrees to pay interest on overdue installments of principal, premium, if any, and (to the extent lawful) interest on the Loan at the rate or rates borne by the Bond or Bonds as to which such installments are overdue. Without limiting the foregoing provisions of this Section 2.2, the Company agrees to make Loan Repayments as follows: (A) On or before April 15, 1999, and on or before the fifteenth day of each month thereafter to and including August 15, 1999, an amount not less than one-fifth of the total amount of interest payable on the Series 1999 Bonds and on or before September 15, 1999, and on or before the fifteenth day of each month thereafter, an amount not less than one-sixth of the total amount of interest payable on the Series 1999 Bonds on the next succeeding Interest Payment Date relating to the Series 1999 Bonds; provided, however, that if on any Loan Repayment Date the balance on hand in the Interest Account is sufficient to pay in full the interest due on the next succeeding Interest Payment Date on the Series 1999 Bonds, no additional payment need be made under this subsection (A) on such Loan Repayment Date. The Company shall be entitled to a credit against the -11- payment due under this paragraph (A) on any Loan Repayment Date in an amount equal to the amount of accrued and capitalized interest on deposit in the Interest Account on that Loan Repayment Date. If, on the last Loan Repayment Date preceding any Interest Payment Date, the balance then on hand in the Interest Account is not sufficient to pay all interest due on the Bonds on such Interest Payment Date, the Company will forthwith pay to the Trustee an amount equal to such deficiency, for credit to the Interest Account. (B) On or before April 15, 1999, and on or before the fifteenth day of each month thereafter, an amount not less than one -eleventh of the total amount of principal payable on the Series 1999 Bonds on March 1, 2000 and on or before March 15, 1999, and on or before the fifteenth day of each month thereafter an amount not less than one -twelfth of the total amount of principal payable on the Series 1999 Bonds on the next succeeding Principal Payment Date; provided, however, that if on any Loan Repayment Date the balance on hand in the Principal Account (except for amounts transferred from the Construction Fund and held in a subaccount under 5.02 of the Indenture) is sufficient to pay (and may be used to pay) in full the principal due on the next succeeding Principal Payment Date on the Series 1999 Bonds, no additional payment need be made under this subsection (B) on such Loan Repayment Date. If, on the last Loan Repayment Date preceding each Principal Payment Date, the balance then on hand in the Principal Account is not sufficient (and available) to pay all principal due on the Bonds on such Principal Payment Date, the Company will forthwith pay to the Trustee an amount equal to such deficiency, for credit to the Principal Account. (C) On or before any date (other than a Sinking Fund Payment Date) on which Series 1999 Bonds are to be redeemed from amounts in the Principal Account, for credit to the Principal Account, an amount equal to the full amount required to pay the Redemption Price of the Series 1999 Bonds to be so redeemed, less the amount, if any, then on hand in the Principal Account and available for the payment of such Redemption Price. (D) If the Trustee transfers money from the Reserve Fund to the Bond Fund pursuant to Section 5.06 of the Indenture, on the fifteenth day of each month thereafter (until the balance in the Reserve Fund is equal to the Reserve Requirement), the Company shall pay to the Trustee for credit to the Reserve Fund an amount equal to at least one-sixth of the amount so transferred. (E) On or before April 15, 1999, and on or before the fifteenth day of each month thereafter, an amount equal to $20 times the aggregate amount of assisted living units and rental housing units in the Housing Facility for credit to the Repair and Replacement Fund. Reference is hereby made to Section 4.01 of the Indenture, which states that prior to the issuance of any series of Additional Bonds there shall be delivered to the Trustee, among -12- - other things, an executed counterpart of an amendment to this Agreement providing for additional Loan Repayments sufficient to provide for the payment of the principal of, premium, if any, and interest on all Bonds Outstanding after the issuance of such series of Additional Bonds. Any such amendment may provide for the same or for different Loan Repayment Dates with respect to such series of Additional Bonds, but no amendment shall reduce or authorize any later payments of the Loan Repayments or postpone the dates thereof required to be made in respect of the Series 1999 Bonds pursuant to this Section 2.2. By the Indenture the City will assign to the Trustee, and grant to the Trustee a security interest in, all right, title and interest of the City in and to this Agreement and to all payments hereunder (excepting only certain rights of the City to indemnification, to its Fee Payments and to legal expenses and other expenses under Sections 2.3, 7.8 and 11.11 hereof). All Loan Repayments shall be made directly to the Trustee at its principal corporate trust office and applied in the manner provided in the Indenture. The Loan Repayments herein provided for are subject to prepayment and to certain credits, as provided in Section 10.1 hereof. Section 2.3. Fee Payments. In addition to the Loan Repayments, the Company agrees to pay to the City and the Trustee when due, as Fee Payments, the reasonable fees of the Trustee and all costs and expenses of the City and the Trustee incurred in issuing and paying the Bonds and making, administering and collecting the Loan, including but not limited to (i) the fees and other costs incurred by the City or the Trustee under the Indenture for services of Paying Agents, (ii) all costs incurred in connection with the transfer, registration, exchange or redemption of the Bonds, (iii) all fees and other costs incurred for services of such engineers, architects, attorneys, management consultants, accountants and other consultants as are employed by the City or the Trustee to make examinations and reports, provide services and render opinions required under this Agreement, the Mortgage or the Indenture and (iv) amounts advanced by the City or the Trustee under this Agreement, the Mortgage or the Indenture and which the Company is obligated to repay. Notwithstanding anything contained in Article V of the Indenture, such fees and expenses shall be paid when due by the Company. Section 2.4. Certain of Comnany s Obligations Unconditional. The Company shall bear all risk of damage or destruction in whole or in part to the Facilities or any part thereof, including without limitation any loss, complete or partial, or interruption in the use, occupancy or operation of the Facilities, or any thing which for any reason interferes with, prevents or renders burdensome the use or occupancy of the Facilities or the compliance by the Company with the terms of this Agreement. In furtherance of the foregoing, but without limiting any of the other provisions of this Agreement, the obligation of the Company to make Loan Repayments and Fee Payments shall be absolute and unconditional and the Company shall not be entitled to any abatement, diminution, set-off, abrogation, waiver or modification thereof nor to any termination of this Agreement by any reason whatsoever except as expressly provided herein, regardless of any right of set-off, recoupment or counterclaim that the Company might otherwise have against -13- the City or the Trustee or any other Person and regardless of any contingency, act of God, event or cause whatsoever and notwithstanding any circumstance or occurrence that may arise or take place before, during or after the completion of a Project, including, without limiting the generality of the foregoing, the following: (a) any damage to or destruction of any part or all of the Facilities or any other properties owned or operated by the Company; (b) the taking of any part or all of the Facilities or any other properties owned or operated by the Company by the City or any public authority or agency in the exercise of the power of eminent domain or otherwise; (c) any assignment, novation, merger, consolidation, transfer of assets, leasing or other similar transaction of or affecting the Company, whether with or without the approval of the City or the Trustee, except as otherwise expressly provided in this Agreement; (d) any failure of the City to perform or observe any agreement or covenant, whether express or implied, or any duty, liability or obligation, arising out of or in connection with this Agreement or the Indenture, or the failure by the Trustee to perform or observe any agreement or covenant, whether express or implied, or any duty, liability or obligation, arising out of or in connection with the Indenture, the Mortgage or any Collateral Document; (e) any change or delay in the time of availability of a Project or any Improvement, or delays in the construction of a Project or any Improvement; (f) the failure to complete or to maintain satisfactory progress in the acquisition, construction, installation and equipping of a Project or any Improvement for any cause or reason; (g) foreclosure by the City or Trustee of the Mortgage or the enforcement of any other remedy available hereunder or thereunder or under applicable laws; (h) failure of consideration, failure of title or commercial frustration; (i) any change in the tax or other laws of the United States or of any state or other governmental authority; or 0) the appointment of a receiver of the Company or of all or any part of its assets. Section 2.5. Surplus Funds. When all the Bonds and all other obligations incurred or to be incurred by the Company under this Agreement have been paid, or sufficient -14- funds (including investments in Defeasance Obligations as provided in Section 6.02 of the Indenture) are held in trust for the payment of the Bonds and all such other obligations, any surplus funds remaining to the credit of any Trust Fund shall be paid to the Company. Section 2.6. Comnanv's Obligation to Prepay Loan and Direct Redemption of Series 1999 Bonds. If the Company receives from any source written notice of a Determination of Taxability with respect to the Series 1999 Bonds, the Company shall immediately notify the Trustee and City of such fact and within fifteen days thereafter pay to the Trustee, for credit to the Bond Fund an amount equal to the Redemption Price of all Outstanding Series 1999 Bonds payable on the Redemption Date upon which all then Outstanding Series 1999 Bonds are to be redeemed in accordance with Section 3.08 of the Indenture. Such payment shall be used by the Trustee to pay the Redemption Price of all Outstanding Series 1999 Bonds as provided in Section 3.08 of the Indenture. Section 2.7. Title Insurance. The Company shall obtain and deposit with the Trustee prior to the issuance of the Series 1999 Bonds a mortgagee's policy of title insurance (ALTA form), or a binder therefor, in a face amount not less than $46,875,000 insuring the Mortgage to be a first mortgage lien on a merchantable fee simple title to the Mortgaged Property in the Trustee, free and clear of other liens and encumbrances except Permitted Encumbrances and without exception for mechanics' liens not of record or for defects which would be disclosed by a survey. Section 2.8. Payment of Management Fees. Any management fee payable pursuant to a management agreement with an Affiliate of the Company is and shall at all times and in all respects be wholly subordinate and junior in right of payment to all other sums payable under this Loan Agreement and the Mortgage (herein called "Superior Indebtedness") and interest accruing before or after filing of any petition in bankruptcy. Without limiting the foregoing during the continuance of any default in the payment of any Superior Indebtedness, whether by redemption, maturity, acceleration of the maturity thereof or otherwise, no payment of such fees shall be made. The Company further agrees that during the term of this Loan Agreement, the Company will not pay any management fee to an Affiliate of the Company if an Event of Default exists hereunder, or if such payment would cause an Event of Default hereunder. -15- ARTICLE III ACQUISITION OF FACILITIES Section 3.1. Acquisition of Facilities. On the date of issuance of the Series 1999 Bonds the Company shall acquire the Facilities. The proceeds of the Series 1999 Bonds together with other funds of the Company shall be used to acquire the Facilities. Upon the issuance of the Series 1999 Bonds the Company shall pay $2,683,148.80 to the Trustee in immediately available funds for deposit in the Acquisition and Construction Fund. -16- ARTICLE IV OPERATION, MAINTENANCE AND INSPECTION Section 4.1. Maintenance of the Facilities. Until all the Bonds have been redeemed or retired and all other obligations incurred or to be incurred by the Company under this Agreement have been paid, or sufficient funds (including investments in Government Obligations in accordance with Article VI of the Indenture) are held in trust for the payment of all such obligations, the Company shall, at its sole cost and expense, keep and maintain the Facilities, both inside and outside, in a good state of repair and preservation, ordinary wear and tear, obsolescence in spite of repair and acts of God excepted, and will make all necessary repairs, renewals, replacements, betterments and improvements thereof so that the business carried on in connection therewith may be properly and advantageously conducted at all times. The Company will not use or permit the use of the Facilities, or any part thereof, for any unlawful purpose or permit any nuisance to exist thereon. The Company shall provide all equipment, furnishings, supplies and other personal property required or convenient for the proper operation, repair and maintenance of the Facilities in an economical and efficient manner, consistent with then current standards of operation and administration generally acceptable for multifamily housing facilities for the elderly, assisted living facilities for the elderly and nursing home facilities. Section 4.2. Operation of the Facilities. The Company will faithfully and efficiently administer, maintain and operate the Facilities, as a health care facility and a multifamily housing development for occupancy primarily by elderly persons, open to the general public, free of discrimination based upon race, color, religion, creed, national origin or sex. The Company further agrees that: (a) it will use, maintain and operate the Facilities on a revenue-producing basis, consistent with the Company's obligations imposed under this Agreement and its status or it as a tax-exempt organization, as determined by the Internal Revenue Service, as a nursing home facility, assisted living facility and housing for the elderly; (b) it will use the Facilities only in furtherance of the lawful corporate purposes of the Company; (c) it will not use the Facilities for sectarian instruction nor will it use the Facilities primarily as a place of religious worship or as a facility used primarily as a part of a program of a school or department of divinity for any religious denomination or the religious training of ministers, priests, rabbis or other similar persons in the field of religion; -17- (d) it will not use the Facilities or suffer or permit the Facilities to be used by any Person or in any manner which would result in the loss of tax exemption of interest on the Bonds otherwise afforded under the Code and, further, it will not permit any of the proceeds of the Bonds to be used, directly or indirectly, in any manner which would result in the Bonds being classified as "arbitrage bonds" within the meaning of Section 148(a) of the Code, as heretofore or hereafter amended, and any regulations promulgated thereunder, or in any other manner which would result in the loss of tax exemption of interest on the Bonds otherwise afforded under the Code; (e) it will not, in any substantial way, engage in any business or activities other than (i) that of maintaining and operating the Facilities or facilities comparable thereto, and related activities incident thereto (including, without limitation, operation of homes for the elderly, physicians' offices, parking ramps, parking lots, home health care services and alcoholic and drug dependency facilities), or (ii) any other business or activity within the exempt purposes of the Company; (f) it will continue to be duly qualified to do business in the State of Minnesota and, subject to the provisions of Section 7.1 hereof, will maintain its legal existence; and (g) it will comply with the provisions of the Regulatory Agreement. Section 4.3. Taxes. Charges and Assessments. Subject to the provisions of Section 4.5 hereof relating to permitted contests, the Company agrees to pay or cause to be paid: (a) all taxes and charges on account of the use, occupancy or operation of the Facilities, including but not limited to all sales, use, occupation, real and personal property taxes, business and occupation taxes, permit and inspection fees, occupation and license fees and water, gas, electric light, power or other utility charges assessed or charged on or against the Facilities or on account of the Company's use or occupancy thereof or the activities conducted thereon or therein; and (b) all taxes, assessments and impositions, general and special, ordinary and extraordinary, of every name and kind, which shall be taxed, levied, imposed or assessed during the term of this Agreement upon all or any part of the Facilities, or the interest of the Company in and to the Facilities, or upon the City's, Company's or Trustee's interest, or the interest of any of them, in this Agreement, the Mortgage, any Collateral Document or the Indenture or the Loan Repayments payable hereunder and all other lawful governmental taxes, impositions and charges of every kind or nature, ordinary or extraordinary, general or special, foreseen or unforeseen, whether similar or dissimilar to any of the foregoing, and all applicable interest and penalties thereon, if any, which shall be or become due and payable and which shall be lawfully levied, assessed or imposed. on If under applicable law any such tax, charge, fee, rate, imposition or assessment may at the option of the taxpayer be paid in installments, the Company may exercise such option. Nothing contained herein shall be deemed to constitute an admission by the Company to any third party other than the Trustee that the Company is liable for, or its properties are subject to, any tax, charge, fee, rate, imposition or assessment. Section 4.4. Liens and Encumbrances. The Company represents and warrants that, as of the date of execution of this Agreement, there exists no lien, charge or encumbrance, other than Permitted Encumbrances, upon the Mortgaged Property, or any Loan Repayment or Fee Payment, prior to this Agreement or the Mortgage. Except as otherwise permitted by the provisions of this Agreement or the Mortgage or any Collateral Document, the Company will not create or suffer to be created any lien, encumbrance or charge upon the Mortgaged Property, other than Permitted Encumbrances, and, subject to the provisions of Section 4.5 hereof relating to permitted contests, it will satisfy or cause to be discharged, or will make adequate provision to satisfy and discharge, within sixty (60) days after the same shall occur, all lawful claims and demands (excepting such as may arise from or in connection with the construction of a Project and as are payable from the moneys on deposit in the Acquisition and Construction Fund) for labor, materials, supplies or other items which, if not satisfied, might by law become a lien upon the Mortgaged Property; provided that liens for labor or materials arising by operation of statutory law shall not be within the purview of this Section 4.4 if, when such liens shall be perfected, the Company shall cause them to be promptly discharged. If any such lien shall be filed or asserted against the Mortgaged Property, or any installment of Loan Repayments or Fee Payments, by reason of work, labor, services or materials supplied or claimed to have been supplied, the Company shall, subject to the provisions of Section 4.5 hereof relating to permitted contests, within thirty (30) days after it receives notice of the filing thereof or the assertion thereof, cause the same to be discharged of record, or effectively prevent the enforcement or foreclosure thereof against the Facilities, or any installment of Loan Repayments or Fee Payments, by contest, payment, deposit, bond, order of court or otherwise. Section 4.5. Permitted Contests. The Company shall not be required to pay any tax, charge, assessment or imposition referred to in Section 4.3 hereof, nor to remove any lien, charge or encumbrance required to be removed under Section 4.4 hereof, so long as the Company shall contest, in good faith and at its own cost and expense, the amount or validity thereof, in an appropriate manner or by appropriate proceedings which shall operate during the pendency thereof to prevent the collection of or other realization upon the tax, assessment, levy, fee, rent, charge, lien or encumbrance so contested, and the sale, forfeiture, or loss of the Facilities or any part thereof, or of the Loan Repayment or any portion thereof, to satisfy the same; provided that no such contest shall subject the City or the Trustee to the risk of any liability. Each such contest shall be promptly prosecuted to final conclusion (subject to the right of the Company to settle any such contest), and in any event the Company will save the City and the Trustee harmless against all losses, judgments, decrees and costs (including attorneys' fees and expenses in connection therewith) and will, promptly after the final determination of such contest or settlement thereof, -19- r pay and discharge the amounts which shall be levied, assessed or imposed or determined to be payable therein, together with all penalties, fines, interests, costs and expenses thereon or in connection therewith. The Company shall give the City and Trustee prompt written notice of any such contest. Notwithstanding the foregoing, nothing herein shall be construed to prevent the City from assessing or taxing the Facilities or any other property of the Company or from contesting any claim of the Company as to the amount or invalidity of any such assessment or tax. If the Trustee shall notify the Company that, in the Opinion of Counsel, by nonpayment of any of the foregoing items the lien of the Mortgage as to any substantial part of the Mortgaged Property will be materially endangered or the Mortgaged Property, or any substantial part thereof, will be subject to imminent loss or forfeiture or the obligations of the Company under this Agreement shall be materially impaired, then the Company shall promptly pay all such unpaid items and cause them to be satisfied and discharged. Section 4.6. Rates and Charges; Retention of Independent Management Consultant. (a) The Company will fix, charge and collect, or cause to be fixed, charged and collected, subject to applicable requirements or restrictions imposed by law, such rates, fees and charges for the use of facilities of and for the services furnished or to be furnished by the Company, such that Net Revenues Available for Debt Service in each Fiscal Year will be at least one hundred ten percent (110%) of the Principal and Interest Requirements on Long Term Indebtedness during such Fiscal Year. The foregoing is subject to the qualification that if, in the opinion of Counsel, applicable state or federal laws or regulations, or the rules and regulations of agencies having jurisdiction, shall not permit the Company to produce such level of Net Revenues Available for Debt Service or, in the opinion of Counsel, that maintenance of the 110% coverage would be reasonably likely to cause the Company to lose its 501(c)(3) status, then the Company shall, in conformity with the then prevailing laws, rules or regulations, maintain rates, fees and charges to equal the maximum permissible level. (b) The Company, from time to time and as often as shall be necessary, will revise, or cause to be revised, subject to applicable requirements or restrictions imposed by law, the rates, fees and charges so that the Net Revenues Available for Debt Service of the Company in each Fiscal Year will be not less than the amount required for such Fiscal Year under paragraph (a) above. (c) If the Net Revenues Available for Debt Service of the Company for any Fiscal Year are less than 110% of the Principal and Interest Requirements on Long Term Indebtedness during such Fiscal Year, then the Company will promptly employ an Independent Management Consultant to review and analyze the reports required by Section 4.7 hereof to be made by the Company, inspect the Facilities, their operation and administration and submit to the Company and Trustee written reports, and make such recommendations as to the operation and -20- administration of the Facilities as such Independent Management Consultant deems appropriate, including any recommendation as to a revision of the rates, fees and charges of the facilities of the Company or the methods of operation thereof. The Company agrees to consider any recommendations by the Independent Management Consultant and, to the fullest extent advisable in the reasonable determination of the Company's Board of Directors, to adopt and carry out such recommendations. If the Company has previously retained a an Independent Management Consultant and the Net Revenues Available for Debt Service are less than 105% of the Principal and Interest Requirements for the succeeding Fiscal Year, the Company agrees that it will adopt and carry out the recommendations of the Independent Management Consultant to the fullest extent feasible. The Company may retain a second Independent Management Consultant, but until the report of the second Independent Management Consultant is received, the Company will comply with the provisions of this paragraph. (d) So long as the Company is otherwise in full compliance with its obligations under this Agreement, including following, to the fullest extent provided in paragraph (c) of this Section, the recommendations of the Independent Management Consultant, it shall not constitute an Event of Default that the Net Revenues Available for Debt Service of the Company for any Fiscal Year are less than 110% of the Principal and Interest Requirements on Long Term Indebtedness for such Fiscal Year. Section 4.7. Inspections; Reports, Financial Statements. The Trustee shall, through its officers, employees, consultants, attorneys and other authorized representatives, have free and unobstructed access at all reasonable times to the Facilities and records (except patient records) of the Company with respect thereto for purposes of inspection. The Company will at any and all reasonable times, upon the written request of the Trustee and reasonable notice to the Company, permit the Trustee, by its officers, employees, consultants, attorneys and other authorized representatives, to inspect the books of account, records, reports and other papers of the Company, and to take copies and extracts therefrom, and will afford and procure a reasonable opportunity to make any such inspection, and the Company will furnish to the Trustee any and all such other information as the Trustee may reasonably request, with respect to the performance by the Company of its covenants in this Agreement. The Company will supply to the Trustee upon request, within sixty (60) days after receipt by the Company, a copy of all reports of inspections and accompanying recommendations of all health care facility licensing and accreditation agencies which inspect the Facilities. The Company covenants that it will keep proper books of record and account in which full, true and correct entries shall be made of all dealings or transactions of or in relation to the business and affairs of the Company, in accordance with generally accepted accounting principles consistently applied and will furnish to the Trustee: A. If requested in writing by the Trustee, copies of any periodic unaudited financial statements of the Company which are prepared in the normal course of the Company's operations, certified by the Treasurer, Controller or other authorized financial officer of the Company, promptly as such financial statements become available; -21- / B. Within one hundred twenty (120) days after the last day of each Fiscal Year, a complete audit report and opinion certified by an Independent Accountant, which report and opinion shall be based upon an examination made in accordance with generally accepted auditing standards, covering the operations of the Company for such Fiscal Year and containing a balance sheet as at the end of such Fiscal Year, showing in each case in comparative form the figures for the preceding Fiscal Year, together with a separate written statement of such Independent Accountant preparing such report that such Independent Accountant has obtained no knowledge of any default by the Company in the fulfillment of any of the terms, covenants, provisions or conditions of this Agreement, or if such Independent Accountant shall have obtained knowledge of any such default he shall disclose in such statement the default and the nature thereof, but such Independent Accountant shall not hereby be liable directly or indirectly to anyone for failure to obtain knowledge of any default; C. Within one hundred twenty (120) days after the last day of each Fiscal Year, a Company Certificate stating that the Company has made a review of its activities during the preceding Fiscal Year for the purpose of determining whether or not the Company has complied with all of the terms, provisions and conditions of this Agreement and that the Company has kept, observed, performed and fulfilled each and every covenant, provision and condition of this Agreement on its part to be performed and is not in default in the performance or observance of any of the terms, covenants, provisions or conditions hereof, or if the Company shall be in default such certificate shall specify all such defaults and the nature thereof; such Company Certificate shall specifically show the calculations with respect to compliance with the rate covenant required by Section 4.6 hereof; and D. Such additional information as the Trustee may reasonably request concerning the Company or the Facilities, in order to enable the Trustee to determine whether the covenants, terms and provisions of this Agreement have been complied with by the Company. Section 4.8. Asset Transfers. So long as any Bonds are Outstanding, and no Event of Default has occurred which is continuing, the Company will sell, transfer or otherwise dispose of assets included in, or necessary for the operation of, the Facilities only in the following circumstances: (a) subject to Section 7.1 hereof, the assets are sold, transferred or otherwise disposed of at their fair market value; (b) the assets are obsolete, worn out, or otherwise of no further value to the operation of the Facilities; or (c) assets may be transferred to an Affiliate without limit as to amount if the Trustee receives a Company Certificate stating that immediately after the transfer the Current Assets of the Company are equal to or greater than one hundred twenty-five percent (125%) of the Current Liabilities of the Company. _22_ A bona fide loan (not intended as a permanent transfer of assets) by the Company to an Affiliate shall not be deemed a sale, transfer, or other disposition of assets for purposes of this Section 4.8. -23- ARTICLE V ALTERATIONS; IMPROVEMENTS; REMOVALS; RELEASES, ETC. Section 5.1. Additions. Alterations and Changes to Facilities. The Company shall have the right from time to time at its sole cost and expense to make additions, modifications, alterations, improvements and changes (hereinafter collectively referred to as "alterations") in or to the Facilities as it, in its discretion, may deem to be desirable for its uses and purposes, subject, however, in all cases to the following conditions: (a) No alteration of any kind shall be made which would result in a violation of the provisions of Section 4.2. (b) No building or buildings constituting a part of the Facilities shall be demolished or removed nor shall any material alteration to the Facilities be made which would substantially impair the structural strength, utility or market value thereof or would significantly alter the character or purpose or detract from the value or operating efficiency of the Facilities, or would significantly impair the revenue-producing capability of the Facilities or would adversely affect the ability of the Company to comply with the terms of this Agreement. (c) All alterations to the Facilities shall be located wholly within the boundary lines of the Land and shall, to the extent not constituting personal property, become a part of the Facilities subject to the Mortgage. (d) No change shall be made in the location of any property subject to the Mortgage or any Collateral Document which removes such property into a jurisdiction in which such Mortgage or security interest thereby created has not been recorded or filed in the manner required by law to preserve such Mortgage or security interest in such property. (e) No work in connection with any alteration shall be undertaken until the Company shall have procured and paid for, so far as the same may be required, from time to time, all municipal and other governmental permits and authorizations of the various municipal departments and governmental subdivisions having jurisdiction. (f) All work in connection with any alteration shall be done promptly and in good workmanlike manner and in compliance with the building and zoning laws of the City or other governmental subdivision wherein the Facilities are situated, and with all laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments and the appropriate departments, commissions, boards and officers thereof, and shall not violate the provisions of any policy of insurance covering the Facilities, and the work shall be prosecuted with reasonable dispatch, unavoidable delays excepted. -24- (g) Workers' compensation insurance shall cover all persons employed in connection with the work and with respect to whom death or bodily injury claims could be asserted against the Company or the Facilities, and general liability insurance (specifically covering this class of risk) in such amounts as is customarily carried by like organizations engaged in like activities of comparable size and liability exposure and as otherwise required or permitted by applicable law. The general liability insurance provided for in this paragraph may be effected by an appropriate endorsement, if obtainable, upon the insurance referred to in Section 7.9 hereof. All such insurance shall be effected with financially sound and reputable insurance companies. Upon the Trustee's written request, the Company shall deliver to the Trustee all policies or certificates therefor issued by the respective insurers endorsed "Premium Paid" by the Company or agencies issuing the same or with other evidence of payment of the premiums satisfactory to the Trustee. Section 5.2. Installation and Removal of Equipment by the Comfy. The Company may from time to time in its sole discretion install or place within the Facilities or elsewhere on the Land items of equipment, furnishings and other tangible personal property not constituting fixtures. All items so installed by the Company shall become part of the Facilities and be included under the terms of this Agreement and subject to the lien of the Mortgage, but may be subject to a lease or other purchase money security interest, the lien of which is superior to the lien of the Mortgage. So long as it is not in default hereunder, the Company may, without the consent of the City or the Trustee, remove, alter or modify any item of equipment, furnishings and other tangible personal property not constituting fixtures, but any damage resulting to the Facilities therefrom shall be repaired and the Facilities restored to their previous condition at the sole expense of the party effecting such removal or at the sole expense of the Company. Section 5.3. No Credit for Additions or Replacements. The Company shall not be entitled to any credit upon Loan Repayments, Fee Payments, or other obligations under this Agreement on account of the addition or replacement of any portion of the Facilities. Section 5.4. Execution of Other Documents. The Trustee and the Company shall execute any documents reasonably requested by the other party in connection with any action taken by either of them under Article IV of the Mortgage, including, but not limited to, documents required to add any real property to or remove any real property from the lien of the Mortgage. -25- ARTICLE VI INDEBTEDNESS Section 6.1. Indebtedness Generally. The Company agrees that, until all of its obligations under this Agreement have been fully paid and discharged, the Company shall not, directly or indirectly, incur any Indebtedness (secured or unsecured) except as provided in this Article. Section 6.2. Short Term Indebtedness. The Company may incur such Short Term Indebtedness as in its judgment may be deemed expedient, provided that Short Term Indebtedness when incurred shall not cause the total Short Term Indebtedness to exceed in the aggregate then outstanding, five percent (5%) of the Total Revenues of the Company for the preceding Audited Fiscal Year. Short Term Indebtedness may be secured by a pledge and assignment of all or any part of the Company's accounts receivable or personal property not constituting part of the Mortgaged Property, but in no other manner. Section 6.3. Interim Indebtedness. The Company may incur Interim Indebtedness to provide temporary financing of Improvements and Unrelated Improvements for which the City shall have previously agreed to provide permanent financing by the issuance of Additional Bonds or for which other lenders shall have previously agreed to provide financing which will constitute Long Term Indebtedness, but only after the right of the Issuer to issue Additional Bonds has been established pursuant to the Indenture or the right of the Company to enter into the permanent financing has been established pursuant to Section 6.4 hereof. Interim Indebtedness may not be secured by a parity security interest in the property secured under the Mortgage or any Collateral Document unless the tests set forth in Section 6.4 hereof are met. Section 6.4. Long Term Indebtedness. The Company may incur Long Term Indebtedness only as provided in this Section 6.4. (a) Before incurring or otherwise becoming liable with respect to any Long Term Indebtedness, the Company shall furnish the Trustee (i) a Company Certificate which shall: (A) state the general purpose for which such Long Term Indebtedness is to be incurred; and (B) state the principal amount of Long Term Indebtedness to be incurred, the maturity date or dates thereof and the interest rate or rates with respect thereto; and (ii) an Opinion of Counsel for the Company to the effect that all conditions precedent herein specified for incurring such Long Term Indebtedness have been satisfied. -26- (b) The Company shall not incur any Long Term Indebtedness to refund Outstanding Bonds unless, in addition to the filing of the items described in subsection (a) above: (i) there shall be filed with the Trustee a report of an Independent Accountant to the effect that the proceeds of the Long Term Indebtedness, together with any other funds deposited with the Trustee for such purpose, will be not less than an amount sufficient to pay the principal of and the redemption premium, if any, on the Outstanding Bonds to be refunded and the interest which will become due and payable thereon on or prior to the redemption date or stated maturity thereof, or that the principal of and interest on Government Obligations purchased from such proceeds or from other funds provided by the Company and deposited in trust with the Trustee, which Government Obligations do not permit redemption thereof at the option of the issuer, when due and payable (or redeemable at the option of the holder) and will provide, together with any other moneys which shall have been deposited irrevocably with the Trustee for such purpose, sufficient moneys to pay such principal, redemption premium, if any, and interest; and (ii) there shall be filed with the Trustee an opinion of Bond Counsel to the effect that the incurring of such Long Term Indebtedness and the refunding of Bonds with the proceeds thereof will not prejudice the exemption from federal income tax of the interest accruing on any of the Bonds. (c) Except as provided in subsections (b) and (d) of this Section 6.4, the Company shall not incur any Long Term Indebtedness unless it shall furnish the Trustee, in addition to the items described in subsection (a) of this Section 6.4, either: (i) a written report or opinion of an Independent Accountant stating that the Net Revenues Available for Debt Service of the Company for each of the last two Audited Fiscal Years preceding the date on which the proposed Long Term Indebtedness is to be incurred were more than one hundred fifteen percent (115%) of the maximum Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for any then outstanding Long Term Indebtedness or Bonds to be refinanced by the proposed Long Term Indebtedness) for any Fiscal Year beginning after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred but before the final Stated Maturity of all then Outstanding Bonds, or (ii) an Independent Accountant's certificate stating that the Net Revenues Available for Debt Service of the Company for each of the last two Audited Fiscal Years preceding the date on which the proposed Long Term Indebtedness is to be incurred were not less than one hundred ten percent (110%) of the Principal and Interest Requirements on Long Term Indebtedness for such Fiscal Years and a financial forecast prepared by an Independent Accountant and accompanied by an examination report stating that the estimated Net Revenues Available for Debt Service of the Company for each of the three (3) consecutive Fiscal Years beginning after the Fiscal Year in which any Improvements or Unrelated Improvements being financed by such Long Term Indebtedness are to be placed in service or after funded interest relating to such Long Term Indebtedness been expended, or, if no Improvements or Unrelated Improvements are to be financed thereby, _27_ after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred, will be not less than one hundred twenty percent (120%) of the maximum Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for any then outstanding Long Term Indebtedness or Bonds to be refinanced by the proposed Long Term Indebtedness) for any Fiscal Year beginning after the Fiscal Year in which any Improvements or Unrelated Improvements being financed by such Long Term Indebtedness are to be placed in service, or, if no Improvements or Unrelated Improvements are to be financed thereby, after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred, but before the final Stated Maturity of all then Outstanding Bonds. (d) Notwithstanding the provisions of subsection (c) of this Section 6.4, the Company may incur Long Term Indebtedness for refinancing the principal amount of any outstanding Long Term Indebtedness, provided the Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for the Long Term Indebtedness to be refinanced thereby) for each Fiscal Year after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred but before the final Stated Maturity of all then Outstanding Bonds will be no greater than the Principal and Interest Requirements on Long Term Indebtedness would have been for each such Fiscal Year had such proposed Long Term Indebtedness not been incurred nor the refinancing accomplished. (e) Any Long Term Indebtedness may be secured by a pledge, lien, mortgage or other security interest with respect to any tangible property of the Company as the parties thereto may provide, but not any intangible property of the Company or lien upon or security interest in revenues or income of the Company or its accounts receivable other than an assignment of leases and rents; provided, however, that the Company shall not secure nor attempt to secure Long Term Indebtedness (other than Additional Bonds) with an interest in the property secured under the Mortgage or any Collateral Document which is prior to or on a parity with the interest granted to the Trustee pursuant to the Mortgage or any Collateral Document. (f) The Company may incur Long Term Indebtedness without limit as to amount, and without meeting the conditions of paragraphs (b) through (e) of this Section 6.4, but only if (i) the payment of such Long Term Indebtedness is expressly subordinated to the payment of operating expenses and payment, when due, of the principal of and interest on Short Term Indebtedness or the Bonds and any other Long Term Indebtedness of the Company incurred under paragraphs (b) through (e) of this Section, and (ii) the remedies provided for in the event of a default on such subordinated Long Term Indebtedness are limited to the Company's cash flow after payment of all unsubordinated Indebtedness, and do not permit the holder of the subordinated Long Term Indebtedness to exercise remedies against any assets of the Company, so long as any Bonds are Outstanding. M Section 6.5. Calculation of Debt Service. The calculation of Principal and Interest Requirements on Long Term Indebtedness whether pursuant to this Agreement or the Indenture, shall be made in a manner consistent with that set forth in Section 6.4 and the following: (a) With respect to Balloon Indebtedness, such Balloon Indebtedness shall be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period over the period from the date of calculation to the maturity of such Balloon Indebtedness at an assumed interest rate (which shall be the interest rate certified by a commercial bank or investment banker to be the interest rate at which the Company could reasonably expect to borrow the same amount by issuing a note with a term of the maturity of such Balloon Indebtedness). (b) Except as otherwise provided in subsection (a) above with respect to Balloon Indebtedness which is also Variable Rate Indebtedness, in determining the amount of debt service payable on Variable Rate Indebtedness for any future period, interest on such indebtedness for any period of calculation (the "Determination Period") shall be computed by assuming that the rate of interest applicable to the Determination Period is equal to the average annual rate of interest on similar securities (calculated in the manner in which the rate of interest for the Determination Period is to be calculated) which was in effect for the twenty-four month period prior to a date selected by the Company, which selected date is within 45 days immediately preceding the beginning of the Determination Period, as certified by a banking or investment banking institution knowledgeable in matters of variable rate financing or, if it is not possible to calculate such average annual rate of interest, by assuming that the rate of interest applicable to the Determination Period is equal to the rate of interest then in effect on such Variable Rate Indebtedness plus two percent (2%). In addition, debt service shall include any continuing credit enhancement, liquidity and/or remarketing fees for the relevant period. -29- ARTICLE VII OTHER COVENANTS OF THE COMPANY Section 7.1. Continuing Existence and Oualification; Mergers Consolidations and Transfers of Assets. The Company will maintain its existence as a Minnesota nonprofit corporation and will take no action nor suffer any action to be taken by others which will alter, change or destroy its status as an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code (or any successor sections of a subsequent federal income tax statute or code). The Company will remain duly qualified to do business in the State of Minnesota and will not dispose of all or substantially all of its assets by sale, lease (unless permitted by the provisions of Section 12.2 hereof) or otherwise or consolidate with or merge into another corporation or permit any other corporation to consolidate with or merge into it unless: A. the surviving, resulting or transferee corporation, as the case may be, if other than the Company, is organized under the laws of the United States or one of the states thereof, shall be duly qualified to do business in the State of Minnesota, shall have a total unrestricted fund balance at least equal to that of the Company as of the date of such consolidation, merger or transfer and would be able to issue at least $1.00 of Long Term Indebtedness under Section 6.4(c) hereof, B. at least thirty (30) days before any merger, consolidation or transfer of assets becomes effective, the Company shall give the City and the Trustee written notice of the proposed transaction; C. prior to any merger, consolidation or transfer of assets, an opinion of Bond Counsel shall be delivered to the Trustee stating that such merger, consolidation or transfer of assets will not cause interest on the Bonds to become includable in the gross income for federal income tax purposes of recipients thereof subject to federal income taxation; and D. prior to any merger, consolidation or transfer of assets, the surviving, resulting or transferee corporation, as the case may be, if other than the Company, shall deliver to the Trustee an instrument assuming all of the obligations of the Company under this Agreement, the Mortgage and any Collateral Document and an Opinion of Counsel for such successor corporation stating that the instrument is (subject to customary qualifications) a valid, binding and enforceable obligation of such successor and that all of the conditions of this Section 7.1 have been satisfied; and thereafter the Company may merge, consolidate or dispose of all or substantially all of its assets and thereafter dissolve. -30- Section 7.2. Corporate Authorization. The Company covenants and warrants that it is duly authorized under the laws of the State of Minnesota and under all other applicable provisions of law to execute and deliver this Agreement, the Regulatory Agreement and the Mortgage, that all action on its part for the authorization of this Agreement, the Regulatory Agreement and the Mortgage has been duly and effectually taken, that this Agreement and the Mortgage are and will be valid and enforceable obligations of the Company, that the Company now has, or will use its best efforts to obtain, all licenses necessary to maintain and operate the Facilities, that no permits, rights, franchises or privileges of the Company will be allowed to lapse or be forfeited so long as the same shall be necessary for the operations of the Facilities, and that it will procure the extension or renewal of each and every right, franchise or privilege so expiring and necessary or desirable for the operation of the Facilities. Section 7.3. Maintenance of Security Interests. The Company will execute all instruments, including financing statements, deemed necessary or advisable for perfection of and continuance of the perfection of the liens and security interests created by the Mortgage and any Collateral Document. The Company will provide the Trustee with a Company Certificate stating that all actions necessary to perfect and continue such lien and security interests have been taken. Such Company Certificate is to be provided prior to the date of closing for each series of Bonds and in any event at least once every five (5) years from and after the date hereof, so long as any Bonds are Outstanding. However, all obligations of the Company under this Section 7.3 are subject to the conditions that the City and the Trustee shall execute all instruments, including financing statements, required of them in the Opinion of Counsel, and will file and record all such instruments executed by the Company, the City and/or the Trustee, or cause them to be filed and recorded, and shall continue the liens of all such instruments by appropriate refiling and re- recording as specified in the Opinion of Counsel, or cause them to be so continued, for as long as any Bonds shall remain Outstanding. Notwithstanding the foregoing, the Trustee shall not be responsible for the initial filing of any financing statements. All filing and recording costs incurred under this Section 7.3 shall be the responsibility of the Company. Section 7.4. Operation and Equipping of Facilities. The Company will continuously furnish and equip the Facilities so that they shall at all times be a complete and operational health care facility and housing facility for the elderly and will conduct its business in a manner similar to other efficiently administered and operated health care facilities and housing facilities for the elderly of a similar type and nature. The Company will use its best efforts to operate the Facilities at optimum capacity and will not divert patients or residents to any other health care facility or housing facility if such patients could reasonably be admitted and taken care of by the Facilities consistent with its admission and operating policies. Section 7.5. Bankruptcy. The Company will not go into voluntary bankruptcy or insolvency, or apply for or consent to the appointment of a receiver or trustee of itself or of its property or make any general assignment for the benefit of its creditors, or suffer any order adjudicating it to be bankrupt or insolvent or appointing a receiver or trustee of its property. -31- Section 7.6. Compliance. The Company will not suffer or permit any default to occur under this Agreement, but will faithfully observe and perform all of the conditions, covenants and agreements hereof. Section 7.7. Notice of Default. The Company will give to the Trustee and the City prompt notice of any condition or event that constitutes an Event of Default or, with the passage of time and/or the giving of notice, would constitute an Event of Default under subsections B through F of Section 11.1. Section 7.8. Indemnity. The Company agrees to pay, and protect, indemnify and save the City and the Trustee harmless from and against, all liabilities, losses, damages, costs and expenses (including attorneys' fees and expenses of the City and the Trustee), causes of action, suits, claims, demands and judgments of any nature (other than those arising from the gross negligence or willful misconduct of the indemnified party) arising from: Bonds. (1) any injury to or death of any person or damage to property in or upon the Facilities, or growing out of or connected with the use, non-use, condition or occupancy of the Facilities or a part thereof, (2) violation of any agreement, warranty, covenant or condition of this Agreement, except by the City; (3) violation of any contract, agreement or restriction by the Company relating to the Facilities; (4) violation of any law, ordinance, regulation or court order affecting the Facilities or a part thereof or the ownership, occupancy or use thereof; or (5) any statement or information relating to the expenditure of the proceeds of the Bonds contained in the "Arbitrage Certificate" or similar document furnished by the Company to the City or the Trustee which, at the time made, is misleading, untrue or incorrect in any material respect; or (6) any statement or information contained in the Official Statement furnished to purchasers of the Bonds that is untrue or incorrect in any material respect, and any omission from such Official Statement of any statement or information which should be contained therein for the purpose for which the same is to be used or which is necessary to make the statements therein not misleading in any material respect. The provisions of this Section 7.8 shall survive the retirement and payment of the -32- r' Section 7.9. Insurance. The Company shall at all times keep and maintain the Facilities insured against such risks and in such amounts, with such deductible provisions, as are customary in connection with the operation of facilities of the type and size comparable to the Facilities. Subject to the provisions of Section 7.11, the Company shall carry and maintain, or cause to be carried and maintained, and pay or cause to be paid timely the premiums for, at least the following insurance with respect to the Facilities and the Company: (a) insurance coverage for buildings and contents including steam boilers, fired - pressure vessels and certain other machinery for fire, lightning, windstorm and hail, explosion, aircraft and vehicles, sprinkler leakage, elevator, and all other risks of direct physical loss, at all times in an amount not less than (i) an amount necessary to pay and retire and redeem all the Outstanding Bonds in accordance with the provisions of the Indenture (including, without limiting the foregoing, principal, interest to maturity or the earliest practicable Redemption Date, as the case may be, Redemption Prices, expenses of redemption and Paying Agents' fees) and to pay, retire, or redeem all Long Term Indebtedness, or (ii) the replacement cost of the Facilities, whichever is less; the insurance required by this paragraph (a) may provide for a deductible not exceeding $50,000, which deductible amount may be adjusted based on changes in the Consumer Price Index following the date hereof; (b) general liability (other than as set forth in subsection (c) of this Section 7.9); (c) comprehensive professional liability insurance, including malpractice and other health care facility operation professional liability insurance (other than as set forth in subsection (b) of this Section 7.9); (d) comprehensive automobile liability insurance; (e) worker's compensation insurance or self-insurance as required by the laws of the State of Minnesota; and (f) business interruption insurance covering actual losses in gross operating earnings of the Company resulting directly from necessary interruption of business caused by damage to or destruction (resulting from fire and lightning; accident to a fired -pressure vessel or machinery; and other perils, including windstorm and hail, explosion, civil commotion, aircraft and vehicles, sprinkler leakage, smoke, vandalism and malicious mischief, and accident) to real or personal property constituting part of the Facilities, less charges and expenses which do not necessarily continue during the interruption of business, for such length of time as may be required with the exercise of due diligence and dispatch to rebuild, repair or replace such properties as have been damaged or destroyed, with limits equal to at least one hundred percent (100%) of the maximum Principal and Interest Requirements on Long Term Indebtedness for any current or subsequent Fiscal Year. -33- Section 7.10. Insurers and Policies. Each insurance policy required by Section 7.9 hereof (i) shall be issued or written by such insurer (or insurers) as is financially responsible, or by an insurance fund established by the United States or State of Minnesota or an agency or instrumentality thereof, (ii) shall be in such form and with such provisions (including, without limitation and where applicable, loss payable clauses payable to the Trustee, waiver of subrogation clauses, provisions relieving the insurer of liability to the extent of minor claims and the designation of the named assureds) as are generally considered standard provisions for the type of insurance involved and (iii) shall prohibit cancellation or substantial modification by the insurer without at least thirty (30) days' prior written notice to the Trustee and the Company. Without limiting the generality of the foregoing, all insurance policies carried pursuant to clauses (a) and (f) of Section 7.9 above shall name the Trustee and the Company as parties insured thereunder as the respective interest of each of such parties may appear, and loss thereunder shall be made payable and shall be applied as provided in Article VIII or Section 10.2 of this Agreement, as the case may be. Section 7.11. Insurance Consultant. The Company covenants to review each year the insurance carried by the Company with respect to the Company and the Facilities and will carry insurance insuring against the risks and hazards specified in Section 7.9, paragraphs (a) and (f), and, to the extent feasible, the risks and hazards specified in Section 7.9, paragraphs (b) through (e), to the same extent that other corporations comparable to the Company and owning or operating facilities of the size and type comparable to the Facilities carry such insurance. At least once every five (5) years, from and after the date hereof, the Company shall retain an Independent Insurance Consultant for the purpose of reviewing the insurance coverage of, and the insurance required for, the Company and the Facilities and making recommendations respecting the types, amounts and provisions of insurance that should be carried with respect to the Company and the Facilities and their operation, maintenance and administration. A signed copy of the report of the Independent Insurance Consultant shall be filed with the Trustee. The insurance requirements specified in Section 7.9 and this Section 7.11 shall be deemed modified or superseded as necessary to conform with the recommendations contained in said report. The Company shall, on or before January 1 of each year, commencing January 1, 2000, submit to the Trustee a Company Certificate verifying that all insurance required by this Agreement is in full force and effect as of the date of such Company Certificate. Section 7.12. Federal Grants. The Company covenants that, so long as any Bonds are Outstanding, if at any time or times the Company obtains federal grants in aid, it will at all times comply with the terms of such grants and the laws and regulations under which they are made. Section 7.13. Status. The Company covenants that none of its revenues, income or profits, whether realized or unrealized, will be distributed to any of its members, or inure to the benefit of any private person, association or corporation, other than for the lawful corporate purposes of the Company; provided, however, that the Company may pay to any Person the value -34- of any service or product performed for or supplied to the Company by such Person and provided that the provisions of this Section 7.13 shall not apply to any endowment funds released in accordance with the terms of such endowment. The Company further warrants and covenants that it does now admit patients and administer services, and will continue to do so, without regard to race, creed, color, sex, handicap or national origin. The Company further agrees that it will not act or fail to act in any other manner which would adversely affect the tax-free nature for federal income tax purposes of the interest on the Bonds. Section 7.14. Tax Covenants. In order to ensure that the interest on the Bonds shall at all times be free from federal income taxation, the Company specifically represents, warrants and covenants with the City, the Trustee and all Holders of the Bonds: (A) It will fulfill all conditions specified in Sections 103 and 141 through 150 of the Code and applicable Treasury Regulations as necessary to maintain the tax-exempt status of the interest borne by the Bonds. (B) All of the property financed or otherwise provided by the net proceeds of the Series 1999 Bonds will be owned by organizations described in Section 501(c)(3) of the Code. (C) Less than five percent (5%) of the net proceeds of the Series 1999 Bonds will be used either (i) by an organization described in Section 501(c)(3) of the Code in an activity that constitutes an unrelated trade or business, or (ii) in a trade or business by a Person other than an organization described in Section 501(c)(3) of the Code or a governmental unit (within the meaning of Section 141 of the Code). (D) Not more than two percent (2%) of the proceeds of the Series 1999 Bonds will be applied to the payment of Costs of Issuance, and all Costs of Issuance in excess of that amount will be paid by the Company from funds other than proceeds of the Series 1999 Bonds. (E) The Company has not leased, sold, assigned, granted or conveyed, and will not lease, sell, assign, grant or convey, all or any portion of the facilities financed or refinanced by the Series 1999 Bonds or any interest thereon to the United States or any agency or instrumentality thereof within the meaning of Section 149(b) of -the Code. (F) No portion of the proceeds of the Series 1999 Bonds will be used to provide any of the following facilities related or incidental thereto: any airplane, skybox or other -35- private luxury box, facility used primarily for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises. (G) As of the date hereof, the Company is the only "principal user" of the facilities financed or refinanced by the Series 1999 Bonds and the Company will not permit any other Person to become a "principal user" of those facilities if such action would cause the interest on the Series 1999 Bonds to become subject to federal income taxation in the hands of the Holders thereof; (H) The average maturity of the Series 1999 Bonds does not exceed 120% of the average reasonably expected economic life of the facilities financed or refinanced by the Series 1999 Bonds as determined in accordance with Section 147(b) of the Code. (1) No obligations have been or will be issued under Section 141, 142, 143, 144 or 145 of the Code that are being sold at substantially the same time as the Series 1999 Bonds, pursuant to a common plan of marketing and that are payable in whole or in part by the Company or otherwise have any common or pooled security for the payment of debt service thereon with the Series 1999 Bonds. (J) The Company will provide the City all information required to satisfy the informational requirements set forth in Section 149(e) of the Code, including the information necessary to complete IRS Form 8038. (K) The Company will not use the proceeds of the Series 1999 Bonds in such a manner as to cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and applicable Treasury Regulations. To this end, the Company shall comply with the provisions of the Company Tax Certificate. (L) The Company reasonably expects that at least 85% of the spendable proceeds of the Series 1999 Bonds will be used to carry out the governmental purpose of the issue within three years of the date the Series 1999 Bonds are issued. Not more than 50% of the proceeds of the Bonds will be invested in nonpurpose investments (as defined in Section 149(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more. (M) The Company will comply with the Regulatory Agreement and comply with and fulfill all other requirements and conditions of the Code and Treasury Regulations and rulings issued pursuant thereto relating to the acquisition, construction and operation of the facilities financed or refinanced by the Series 1999 Bonds to the end that interest on the Series 1999 Bonds shall at all times be free from federal income taxation. (N) Neither the Company nor any "related party," as defined in Treasury Regulations, Section 1.150-1(b), shall pursuant to an arrangement, formal or informal, -36- purchase obligations of the City in an amount related to the principal amount of the Series 1999 Bonds. Section 7.15. Environmental Use of Facilities. The Company shall not use the Facilities in any manner so as to violate any applicable law, rule, regulation or ordinance of any governmental body or in such manner as to vitiate insurance upon the Facilities. The Company shall not commit or permit any waste upon the Facilities which would materially decrease the value of the Facilities. The Company shall comply with all regulations concerning the environment, health and safety relating to the generation, use, handling, production, disposal, discharge and storage of Hazardous Materials, as defined herein, in, on, under, or about the Facilities. The Company shall promptly take any and all necessary action in response to the presence, storage, use, disposal, transportation or discharge of any Hazardous Materials in, on, under or about the Facilities by the Company or persons acting on behalf of or at the direction of the Company as all applicable laws, rules, regulations, or ordinances may require; provided, however, that the Company shall not, without the Trustee's prior written consent, which consent shall not be unreasonably withheld, take any remedial action in response to the presence of any Hazardous Materials in, on, under or about the Facilities, nor enter into any settlement agreement, consent decree, or other compromise in respect to any claims, proceedings, lawsuits or actions, completed or threatened pursuant to any Hazardous Materials laws or in connection with any third party, if such remedial action, settlement, consent or compromise might, in the Trustee's sole determination, impair the value of the Facilities; the Trustee's prior consent shall not, however, be necessary in the event that the presence of Hazardous Materials in, on, under, or about the Facilities either (i) poses an immediate threat to the health, safety, welfare or property right of any individual, or (ii) is of such a nature that an immediate remedial response is necessary under applicable laws, rules, regulations, or ordinances, and it is not possible to obtain the Trustee's consent prior to undertaking such action. In the event the Company undertakes any remedial action with respect to any Hazardous Materials on, under or about the Facilities, the Company shall immediately notify the Trustee of any such remedial action, and shall conduct and complete such remedial action (A) in compliance with all applicable federal, state and local laws, regulations, rules; ordinances and policies, (B) to the reasonable satisfaction of the Trustee and (C) in accordance with the orders and directives of all federal, state and local governmental authorities. The Company shall protect, indemnify and hold the City, the Trustee and their respective directors, officers, employees and agents, harmless from and against any and all claims, proceedings, lawsuits, liabilities, damages, losses, fines, penalties, judgments, settlements, awards, costs and expenses (including, without limitation, reasonable attorney fees and costs and expenses of investigation and proof) which arise out of or relate in any way to any generation, use, handling, production, transportation, disposal or storage of any Hazardous Materials in, on, under, or about the Facilities by the Company or any person acting on behalf of or at the direction of the Company, including, without limitation: (i) all foreseeable and all unforeseeable consequential damages directly or indirectly arising out of (A) the use, generation, storage, discharge or disposal of Hazardous Materials by the Company, or persons acting on -37- behalf of or at the direction of the Company, or (B) any residual contamination affecting any natural resource or the environment, and (ii) the costs of any required or necessary repair, cleanup, or detoxification of the Facilities and the preparation of any closure or other required plans (all such costs, damages, and expenses referred to in this Section 7.15 hereafter referred to as "Expenses"). In addition, the Company agrees that in the event any Hazardous Material is caused to be removed from the Facilities by the Company, the Trustee, or any other person or entity, such Hazardous Material shall be considered generated, transported or disposed of solely in the name of the Company and the Company shall assume any and all liability for such removed Hazardous Material. The indemnification of the City and the Trustee by the Company shall be a continuing indemnification and shall remain in full force and effect notwithstanding the expiration or termination of this Agreement. Notwithstanding the foregoing, the Company will not indemnify any party for the consequences of the gross negligence or willful misconduct of the indemnified party. As used herein, the term Hazardous Material shall mean: (i) oil, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other substances, materials or pollutants which (1) pose a hazard to the Facilities, to adjacent premises or to persons on or about the Facilities or adjacent premises, (2) substances which cause the Facilities to be in violation of any local, state or federal law, rule, regulation or ordinance, or (3) substances which are defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" or words of similar import under any applicable local, state or federal law or under the regulations, policy guidelines or other publications adopted or promulgated pursuant thereto, including, but not limited to: (A) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9601, et seq.; (B) the Hazardous Materials Transportation Act, as amended, 49 U.S.C. § 1601, et sem.; (C) the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §6901, et SeMc .; (D) the Clean Air Act, 42 U.S.C. §7412; (E) the Toxic Substance Control Act, 15 U.S.C. §2601 et seq.; (F) The Clean Water Act, 33 U.S.C. § 1317 and 1321(b)(2)A and (G) rules, regulations, ordinances and other publications adopted or promulgated pursuant to the aforesaid laws; (ii) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, and (iii) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety or property interests of the Company or its employees, the occupants of the Facilities or the owners and/or occupants of property adjacent to or surrounding the Facilities. ma ARTICLE VIII DAMAGE; DESTRUCTION; INSURANCE AND CONDEMNATION PROCEEDS Section 8.1. Company to Repair, Replace, Rebuild or Restore. If there are any Outstanding Bonds when all or any part of the Facilities are taken by eminent domain, or destroyed or damaged, unless the Company exercises its option to direct the City to call all Outstanding Bonds for redemption pursuant to Section 10.2 hereof: (1) The Company shall proceed promptly, subject to the provisions of subsection (2), to replace, repair, rebuild and restore the Facilities to substantially the same condition as existed before the taking or event causing the damage or destruction, with such changes, alterations and modifications (including substitution or addition of other property) as may be desired by the Company and will be suitable for continued operation of the Facilities for the business purposes of the Company, and the Company will pay all costs thereof and be entitled to retain all Net Proceeds of the condemnation award or insurance claim. (2) If the condemnation award or insurance claim exceeds $150,000, all Net Proceeds of the condemnation award or insurance claim shall be paid directly to the Trustee and deposited in the Repair and Replacement Fund. The Trustee shall apply the Net Proceeds to payment of the costs of repair, replacement, rebuilding or restoration upon compliance with Section 5.07 of the Indenture. If the Net Proceeds are not sufficient to pay such costs in full, the Company will nonetheless complete the same and will pay that portion of the cost thereof in excess of the amount of the Net Proceeds. (3) The Company shall not, by reason of the payment of any costs of repair, rebuilding, replacement or restoration, be entitled to any reimbursement from the City or any abatement or diminution of the Loan Repayments or the other sums payable by the Company hereunder. Any balance of Net Proceeds remaining after payment of all costs of any repair, rebuilding, replacement or restoration shall be paid into the Reserve Fund or the Principal Account, as provided in Section 5.07 of the Indenture, or, if there are no Outstanding Bonds, to the Company. (4) All buildings, improvements and equipment acquired in the repair, rebuilding, replacement or restoration of the Facilities, together with any interests in land acquired by the Company as necessary for such restoration, shall be deemed a part of the Facilities and available for use and occupancy by the Company without the payment of any additional amounts other than those provided herein, to the same extent as if they had been specifically described in this Agreement; provided that no land, interest in land, buildings, improvements or equipment shall be acquired subject to any lien or encumbrance, other than Permitted Encumbrances. -39- Section 8.2. Cooperation of the City and Trustee. The City and Trustee will cooperate fully with the Company in filing any proof of loss with respect to any insurance policy covering casualties referred to in Section 8.1 hereof, in the handling and conduct of any litigation arising with respect thereto, and in the handling and conduct of any prospective or pending condemnation proceedings affecting the Facilities or any part thereof, and will, to the extent they may lawfully do so, permit the Company to litigate in any such litigation or proceeding in the name and on behalf of the City and Trustee. In no event will the City or Trustee voluntarily settle or consent to the settlement of any proceeding arising out of any insurance claim, or any prospective or pending condemnation proceeding, with respect to the Facilities or any part thereof without the written consent of the Company. Section 8.3. Business Interruption Insurance Proceeds. All proceeds of business interruption insurance required to be maintained pursuant to subsection (f) of Section 7.9 hereof shall be deposited in the Interest Account or the Principal Account, but only to the extent necessary to satisfy the obligations of the Company under Section 2.2 hereof. Em ARTICLE IX COVENANTS OF THE CITY Section 9.1. Restrictions. The City and the Company acknowledge and agree that the Loan Repayments and all other rights, title and interest of the City in this Agreement (other than the right of the City to a portion of Fee Payments under Section 2.3 hereof, to indemnification under Section 7.8 hereof and to payment of legal expenses under Section 11.11 hereof) are being assigned and a security interest therein granted to the Trustee as security for the Bonds issued under the Indenture and that the City has entered into certain covenants with the Trustee in the Indenture which may affect the Facilities and this Agreement in the event of default hereunder. Section 9.2. Redemption of Bonds. If the Company is not in default hereunder, the City, at the request of the Company, shall forthwith take all steps, if any, that may be necessary under the applicable provisions of the Indenture to effect redemption of all or part of the then Outstanding Bonds, as may be specified by the Company, on the Redemption Date specified by the Company. Section 9.3. Nature of City's Covenants. The Company acknowledges and agrees that any obligation of the City created by or arising out of this Agreement shall be payable solely out of the proceeds derived from this Agreement, the sale of the Bonds, any insurance and condemnation awards received pursuant hereto or sale or other disposition of the property secured by the Mortgage upon a default by the Company. The foregoing limitation shall not, however, preclude the Company from seeking injunctive relief in any court to compel the City to perform any such obligation. Section 9.4. City to Cooperate. Whenever any provision of this Agreement gives the Company any rights, the full realization of which is or may be subject to further action of the Trustee under the Indenture, the City will cooperate with the Company and will supply all necessary certificates and other things to the Trustee to effect the intent of this Agreement. -41- ARTICLE X PREPAYMENT Section 10.1. Prepayments and Credits. There is hereby reserved to the Company the right, and the Company is hereby authorized and permitted, at any time and as often as it may choose, to prepay all or any part of the Loan Repayments, and the City agrees that the Trustee may accept such prepayments of Loan Repayments when tendered by the Company. The Trustee shall credit such prepayments to the Interest Account or the Principal Account, or both, as directed by the Company making the prepayment. In case the Company intends to effect any redemption of Bonds of any series at the election of the Company, the Company shall, at least forty-five (45) days (or such lesser time period as the Trustee shall agree to) prior to the Redemption Date, notify the Trustee of its intent to effect such redemption and, if such redemption shall apply to less than all of the Outstanding Bonds, of the principal amount of Outstanding Bonds of any series to be redeemed. All Loan Repayments and other sums prepaid pursuant to this Section 10.1 shall, if requested by the Company, be applied to the redemption of Outstanding Bonds in the manner and to the extent provided in Article XIII of the htdenture and, as to Series 1999 Bonds, in Section 3.03 of the Indenture. The Company may, at its option, reduce the amount of any Loan Repayment required with respect to the principal amount of Bonds of any series by an amount equal to the principal amount of Outstanding Bonds of that series maturing or otherwise payable on the next succeeding Principal Payment Date that shall be surrendered uncancelled by the Company to the Trustee not less than forty-five (45) days before the appropriate Principal Payment Date, provided that before or simultaneously with any such surrender a Company Certificate shall be delivered to the Trustee stating the Company's election to use such Bonds for such purpose. If Term Bonds are redeemed at the option of the Company, the Term Bonds so optionally redeemed may, at the option of the Company exercising such option, be applied as a credit against any subsequent Loan Repayment required for payment of such Term Bonds, provided that (i) the Company shall have delivered to the Trustee a Company Certificate stating its election to apply such Term Bonds as such a credit and specifying the year in which such credit shall apply and (ii) the Company may not take such credit less than forty-five (45) days before the appropriate Sinking Fund Payment Date. Section 10.2. Company's Option to Direct Redemntion of Bonds. The Company shall have the option to direct the City to call for redemption all of the then Outstanding Bonds if. (1) the Facilities are damaged or destroyed to such extent that, in the reasonable judgment of the Company, they cannot be restored within twelve (12) months of the event causing the damage or destruction to a condition permitting conduct of the normal -42- operations of the Company, and at a cost not exceeding the Net Proceeds of insurance received or likely to be received as a result of such damage or destruction; or (2) a governmental authority or person, firm or corporation acting under governmental authority, by exercise of the power of eminent domain, takes title to all or substantially all of the Facilities, or so much thereof that in the reasonable judgment of the Company the Facilities cannot be restored within twelve (12) months following completion of the proceedings by which such title is taken to a condition permitting conduct of the normal operations of the Company and at a cost not exceeding the Net Proceeds of the award in such condemnation proceedings. To exercise its option under this Section 10.2, the Company must: (i) give the Trustee written notice of its exercise of the option within ninety (90) days following the event which is the basis of the option (the event causing the damage or destruction or the completion of the proceedings by which title is taken by the power of eminent domain), describing the event, and (ii) deposit with the Trustee the sum (which may be transferred from the Repair and Replacement Fund in accordance with Section 5.07 of the Indenture) necessary in order to redeem the Outstanding Bonds at their principal amount plus accrued interest in accordance with Section 13.08 of the Indenture. -43- ARTICLE XI EVENTS OF DEFAULT; REMEDIES Section 11.1. Events of Default. The following shall be "Events of Defaults" under this Agreement, and the term "Event of Default," wherever used herein, means any one of the following events, whatever the reason for such default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to 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 any installment of the Loan Repayments when such installment becomes due and payable, and continuance of such default for a period of five (5) days; or B. Subject to the provisions of Sections 4.6 and 11.12 hereof, default in the performance or breach of any covenant, warranty or representation of the Company in this Agreement (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section 11.1 specifically dealt with), the Mortgage, or any Collateral Document, and continuance of such default or breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the Company by the City, the Trustee or the Holder or Holders of twenty-five percent (25%) or more in aggregate principal amount of Bonds then Outstanding, a written notice, stating it is a "Notice of Default," specifying such default or breach and requiring it to be remedied; provided, however, that if the Company shall fail to take any action which, if begun and prosecuted with due diligence, cannot be completed within a period of thirty (30) days, then such period shall be extended to such date, not more than one hundred eighty (180) days thereafter, as is specified in a Company Certificate as necessary to enable the Company to begin and complete such action through the exercise of due diligence; or C. The abandonment by the Company of the Facilities or any substantial part thereof, or the operations thereof herein contemplated, continued for a period of five (5) days after there has been given, by registered or certified mail, written notice to the Company by the City, the Trustee, or the Holder or Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding; or D. The entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Federal Bankruptcy Act or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability MVA to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or E. Any final judgments, or writs or warrants of attachment or of any similar processes in an aggregate amount in excess of the greater of $150,000 or two and one-half percent (2.5%) of the insured value of the Facilities entered or filed against the Company or against any of its property and remaining unvacated, unpaid, unbonded, uninsured or unstayed for a period of thirty (30) days; or F. If any representation by the Company herein is false or misleading in any material respect; provided, however, that if after any default shall have occurred which does not result in a nonpayment of principal, premium, if any, or interest on the Bonds, and prior to the Trustee exercising any of the remedies provided in subsections A through D of Section 11.2 hereof, the Company shall have completely cured such default by depositing with the Trustee sufficient moneys or by performing such other acts or things in respect of which it may have been in default under this Agreement as the Trustee shall determine, then in every such case such default shall be waived, rescinded and annulled by the Trustee by written notice given to the Company; but no such waiver, rescission and annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. In addition, if the acceleration of the maturity of the Bonds and its consequences shall have been annulled and rescinded pursuant to, and in accordance with the provisions of, Section 7.02 of the Indenture, the acceleration of all Loan Repayments, Fee Payments and any other amounts payable hereunder shall likewise be automatically annulled and rescinded, but no such annulment or rescission shall affect any subsequent default or impair any right or remedy consequent thereon. Section 11.2. Remedies. If any Event of Default shall occur and be continuing, the Trustee may, or if requested in writing by the Holders of twenty-five percent (25%) or more of the principal amount of Bonds then Outstanding shall, exercise one or more of the following remedies: (1) Declare all Loan Repayments, Fee Payments and any other amounts payable under the Loan Agreement to be immediately due and payable (being an amount equal to that necessary to pay in full the principal of and interest accrued on all Bonds then Outstanding, assuming acceleration of the Bonds under the Indenture, and to pay all other amounts payable thereunder and under the Loan Agreement), whereupon the same shall become immediately due and payable by the Company; or (2) Exercise any one or more of the remedies specified in the Mortgage; or -45- (3) Petition a court of competent jurisdiction for the appointment of a receiver to take possession of and manage and operate the assets of the Company for the benefit of the City and the Holders of the Bonds then Outstanding; or (4) Take whatever action at law or in equity may appear necessary or appropriate to collect the Loan Repayments and other amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Company under the Loan Agreement. In case of any sale of the property secured by the Mortgage or any Collateral Document upon the exercise of any remedy thereunder, all Loan Repayments, Fee Payments and any other amounts payable hereunder, if not already due pursuant to subsection (1) of this Section 11.2, shall automatically become due and payable. Section 11.3. Manner of Exercise. No remedy herein conferred upon or reserved to the 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 this Agreement or now or hereafter existing at law or in equity, including, among other remedies, injunctions to restrain violations or attempted violations of any provision of this Agreement by the Company. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time as often as may be deemed expedient. In order to entitle the Trustee to exercise any remedy reserved to it in this Article XI, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Section 11.4. Right of Entry. If the Trustee exercises one of the remedies provided for in clause (2) of Section 11.2 hereof, pursuant to a foreclosure of the Mortgage, the Trustee may then or at any time thereafter seek the appointment of a court appointed receiver to take possession of the Mortgaged Property or any portion thereof, and the Company covenants in any such event peacefully and quietly to yield up and surrender the Mortgaged Property or such portion thereof to the Trustee. Section 11.5. Right to Lease. If the Trustee elects to lease the Mortgaged Property or any part thereof, it may collect the rents from such lease and apply the same, first, to the payment of the expense of entry and leasing, and secondly, to the Loan Repayments payable hereunder. In the event that the proceeds from such lease are not sufficient to pay in full the foregoing, the Company shall remain and be liable therefor, and the Company promises and agrees to pay the amount of any such deficiency from time to time and the Trustee may at any time and from time to time sue and recover judgment for any such deficiency or deficiencies. Section 11.6. Collection of Indebtedness by the Trustee: Deficiency Judgment. The Company covenants that, if default is made in any payment, then, upon demand of the Trustee, the Company will pay to the Trustee the whole amount then due and payable with interest at the respective rates prescribed in the Bonds on overdue principal, premium, if any, and, to the extent that payment of such interest is legally enforceable, on overdue installments of interest; 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 City and Trustee, its agent and counsel. If the Company fails to pay such amounts forthwith upon such demand, the City or the Trustee, in its own name and as trustee of an express trust, shall be entitled to recover judgment against the Company for the whole amount so due and unpaid. The City or the Trustee shall be entitled, if permitted by law, to recover judgment as aforesaid either before, after or during the pendency of any proceedings for the enforcement of this Agreement or the foreclosure of the Mortgage or any Collateral Document, and in case of a sale of the Mortgaged Property, or a portion thereof, or any personal property secured under any Collateral Document, the Trustee, in its own name and as trustee of an express trust, shall be entitled to enforce payment of, and to receive, all amounts then remaining due and unpaid and shall be entitled to recover judgment for any portion of the same remaining unpaid, with interest as aforesaid. Any money collected by the Trustee under this Article XI shall be applied as provided in Section 7.05 of the Indenture. Section 11.7. 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 Company or the property of the Company, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, A. to file and prove a claim and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) allowed in such judicial proceeding, and B. to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same. Section 11.8. Restoration of Positions. If the Trustee or any Bondholder has instituted any proceeding to enforce any right or remedy under this Agreement, the Indenture, the Mortgage or any Collateral Document, by foreclosure, entry or otherwise, and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or such Bondholder, then and in every such case the Company, the City, the Bondholders, and the Trustee shall, subject to any determination in such proceeding, be restored to their former positions hereunder, and thereafter all rights and remedies of the City, the Bondholders, and the Trustee shall continue as though no such proceeding had been instituted. Section 11.9. Waiver of Annraisement, Etc., Laws. To the full extent that it may lawfully so agree, the Company will not at any time insist upon, plead, claim or take the benefit or advantage of, any appraisement, valuation, stay or extension law now or hereafter in force, in order to prevent or hinder the enforcement of this Agreement, the Mortgage or any Collateral Document, or the leasing or sale of the Mortgaged Property, or any part thereof, or the sale of the personal property secured under any Collateral Document, or the possession of the Mortgaged Property or any part thereof by any purchaser at any sale; but the Company, for itself and all who may claim under it, so far as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. The Company, for itself and all who may claim under it, waives, to the extent that it lawfully may, all right to have the property comprising the Mortgaged Property and any real or personal property secured under any Collateral Document marshalled upon any foreclosure thereof, and agrees that any court having jurisdiction to foreclose the Mortgage and any Collateral Document may order the sale of the Mortgaged Property, or any portion thereof, and any real or personal property secured under any Collateral Document, as an entirety. If any law in this Section 11.9 referred to and now in force, of which the Company or its successor or successors might take advantage despite this Section 11.9, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the application of this Section 11.9. Section 11.10. Suits to Protect the Security. The Trustee shall have power to institute and to maintain such proceedings as it may deem expedient to prevent any impairment of the Facilities or any portion thereof, including any property secured under the Mortgage or any Collateral Document, by any acts which may be unlawful or in violation of this Agreement, and such suits and proceedings as the Trustee may deem expedient to protect its interests in the Facilities or any portion thereof, including any property secured under the Mortgage or any Collateral Document, including power to institute and maintain proceedings to restrain the enforcement of or compliance with any governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of, or compliance with, such enactment, rule or order would impair the security or be prejudicial to the interests of the Bondholders or the Trustee. Section 11.11. Agreement to Pay Attorneys' Fees and Expenses. If the Company defaults under any provision of this Agreement and the Trustee or the City employs attorneys or incurs other expenses for the collection of Loan Repayments or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Trustee or the City the reasonable fees of such attorneys and such other expenses so incurred by the Trustee or the City; and as security for the performance of the obligations of the Company under this Section 11.11 the Trustee shall MR have a lien prior to the Bonds upon all property and funds held or collected by the Trustee as such, except funds or investments held in trust for the benefit of the Holders of particular Bonds. Section 11.12. Effect of Force Maieure. If by reason of force majeure the Company is unable in whole or in part to carry out the agreements on its part contained in this Agreement, other than the obligations of the Company contained in Section 2.2, Section 2.3, Section 4.2(e), Section 7. 1, Section 7.5, Section 7.8 or Section 7.13 hereof, the Company shall not be deemed in breach or violation of any provision of this Agreement or in default during the continuance of such inability. The term "force majeure" as used herein means acts of God; strikes or other similar disturbances; acts of public enemies; rules and regulations promulgated by state or federal agencies; explosions, breakage or accident to machinery, transmission pipes or canals; or partial or entire failure of utilities. The Company agrees, however, to remedy with all reasonable dispatch the cause or causes preventing the Company from carrying out its agreements; provided, however, that the settlement of strikes and other similar disturbances shall be within the reasonable discretion of the Company, and the Company shall not be required to make settlement of strikes and other similar disturbances by acceding to the demands of the opposing party or parties when such course is in the reasonable judgment of the Company not in the best interests of the Company. MO ARTICLE XII ASSIGNMENTS, LEASES AND OPERATING ARRANGEMENTS BY THE COMPANY Section 12.1. No Assignments by Company Except as Permitted. Except as otherwise provided in this Article XII and Section 7.1 hereof, the Company shall not, without the prior written consent of the Trustee, assign its rights or interests under this Agreement. Section 12.2. Leases and Operating Contracts. The Company may lease any part of the Facilities, or contract for the performance by others of operations or services on or in connection with the Facilities, or any part thereof, for any lawful purpose, provided that (a) no such lease or contract shall be inconsistent with the provisions of this Agreement or the Indenture, (b) the Company shall remain fully obligated and responsible under this Agreement to the same extent as if such lease or contract had not been executed, (c) no assignee or lessee shall be allowed to utilize a substantial portion of the Housing Facility or Nursing Facility primarily for an activity which would not itself qualify as a "development," as defined in the Act, (d) in each case the Company shall determine that the lessee or assignee has sufficient financial responsibility and technical competence to render services necessary for the operation of nursing facilities, assisted living facilities and multifamily housing facilities for the elderly, and (e) no assignment shall be for security purposes. In addition, each such lease or contract shall be expressly conditioned upon, and shall by its terms not be effective until, an opinion of Bond Counsel shall be given to the Company and the Trustee to the effect that the exemption from federal income tax of the interest on the Bonds shall not be adversely affected by such lease or contract. Whenever any Event of Default shall have happened and for so long as it shall be subsisting, the Trustee may, by writing addressed to the Company and to any assignee, lessee or sublessee known to the Trustee, direct that future rents or other moneys due the Company pursuant to any such lease or assignment be paid directly to the Trustee for deposit in the Bond Fund, and any lease or assignment shall contain a provision recognizing the rights of the Trustee in this regard. Any sums received by the Trustee pursuant hereto shall be credited against the Loan Repayments otherwise due from the Company. -50- ARTICLE XIII MISCELLANEOUS Section 13.1. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when mailed by certified mail, return receipt requested, postage prepaid, with proper address as indicated below. The City, the Company, the Trustee and the Original Purchaser may, by written notice given by each to the others, designate any address or addresses to which notices, certificates or other communications to them shall be sent when required as contemplated by this Agreement. Until otherwise provided by the respective parties, all notices, certificates and communications to each of them shall be addressed as follows: To the City: To the Company: To the Trustee: To the Original Purchaser of the Series 1999 Bonds: City of New Hope City Hall 4401 Xylon Avenue North New Hope, Minnesota 55428 Attention: City Manager Minnesota Masonic Home North Ridge 5430 Boone Avenue North New Hope, Minnesota 55428 Attention: President U.S. Bank Trust National Association 180 East Fifth Street, Suite 200 St. Paul, Minnesota 55101 Attention: Corporate Trust Department Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Attention: President Section 13.2. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the City and the Company and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, shall give to any Person, other than the parties hereto, and their respective successors and permitted assigns hereunder, the Trustee and the Holders of Bonds, any benefit or other legal or equitable right, remedy or claim under this Agreement. -51- Section 13.3. Severability. If any provision of this Agreement shall be held invalid, illegal or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof, and the remaining provisions shall not in any way be affected or impaired thereby. Section 13.4. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 13.5. Amendments, Changes and Modifications. Except as otherwise provided in the Indenture, subsequent to the issuance of the Series 1999 Bonds and before the Indenture is satisfied and discharged in accordance with its terms, neither this Agreement or the Mortgage may be effectively amended, changed, modified, altered or terminated nor may any provision be waived hereunder except in accordance with the provisions of Article X of the Indenture. Section 13.6. Execution Coun=arts. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 13.7. Construction. This Agreement shall be construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the CITY OF NEW HOPE, MINNESOTA and MINNESOTA MASONIC HOME NORTH RIDGE have caused this LOAN AGREEMENT to be executed in their respective corporate names by their duly authorized officers, all as of the date first written above and all pursuant to the authority granted in resolutions adopted by the City and the Company prior to the date hereof. CITY OF NEW HOPE, MINNESOTA By Mayor And City Manager -52- MINNESOTA MASONIC HOME NORTH RIDGE n � By Its L�_f�syvrcl�yi -53- INDENTURE OF TRUST between CITY OF NEW HOPE, MINNESOTA and U.S. BANK TRUST NATIONAL ASSOCIATION as Trustee Dated as of March 1, 1999 TABLE OF CONTENTS Page PARTIES.............................................................. v RECITAL.............................................................. v GRANTING CLAUSES .................................................. vi ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION ......................................... I Section 1.01. Definitions ........................................ 1 Section 1.02. Compliance Certificates and Opinions .................. 9 Section 1.03. Form of Documents Delivered to Trustee ................ 10 Section 1.04. Acts of Bondholders ................................ 1 l Section 1.05. Notices, etc., to Trustee, City and Company .............. 12 Section 1.06. Notices to Bondholders; Waiver ....................... 13 Section 1.07. Effect of Headings and Table of Contents ................ 13 Section 1.08. Successors and Assigns .............................. 13 Section 1.09. Separability Clause ................................. 13 Section 1.10. Execution and Counterparts ........................... 13 Section 1.11. Construction ....................................... 13 Section 1.12. Benefit of Indenture ................................. 13 Section 1.13. Limitation of Liability ............................... 13 Section 1.14. Respecting the Loan Agreement ....................... 14 ARTICLE II - THE BONDS ............................................... 15 Section 2.01. General Title ...................................... 15 Section 2.02. General Limitations; Issuable in Series .................. 15 Section 2.03. Terms of Particular Series ............................ 15 Section 2.04. Form and Denominations ............................. 16 Section 2.05. Execution, Authentication and Delivery ................. 16 Section 2.06. Temporary Bonds ................................... 17 Section 2.07. Registration, Transfer and Exchange .................... 17 Section 2.08. Mutilated, Destroyed, Lost and Stolen Bonds ............. 18 Section 2.09. Payment of Interest; Interest Rights Preserved ............ 19 Section 2.10. Persons Deemed Owners ............................. 20 Section 2.11. Cancellation ................................. :..... 20 Section 2.12. Securities Depository ................................ 20 ARTICLE III - THE SERIES 1999 BONDS ................................... 23 Section 3.01. Specific Title and Terms of the Series 1999 Bonds ......... 23 Section 3.02. Interest Calculations; Payments of Principal and Interest ........................................... 23 -i- Section 3.03. Optional Redemption ................................ 24 Section 3.04. Mandatory Redemption of Series 1999 Term Bonds ........ 24 Section 3.05. Authentication and Delivery of Series 1999 Bonds ......... 26 Section 3.06. Deposit of Series 1999 Bond Proceeds .................. 26 Section 3.07. Form of Series 1999 Bonds ........................... 26 Section 3.08. Mandatory Redemption of Series 1999 Bonds Section 5.06. Reserve Fund ...................................... Upon Determination of Taxability ...................... 26 ARTICLE IV - AUTHENTICATION AND DELIVERY OF ADDITIONAL BONDS................................................. 28 Section 4.01. General Provisions .................................. 28 ARTICLE V - APPLICATION OF TRUST MONEY ........................... 30 Section 5.01. "Trust Money" Defined .............................. 30 Section 5.02. Acquisition and Construction Fund ..................... 30 Section 5.03. Bond Fund ........................................ 31 Section 5.04. Interest Account .................................... 31 Section 5.05. Principal Account ................................... 32 Section 5.06. Reserve Fund ...................................... 32 Section 5.07. Repair and Replacement Fund ......................... 33 Section 5.08. Rebate Fund ....................................... 34 Section 5.09. Fee Payments ...................................... 34 Section 5.10. Investments ....................................... 34 Section 5.11. Trust Money ....................................... 35 ARTICLE VI - DEFEASANCE ............................................ 37 Section 6.01. Payment of Indebtedness; Satisfaction and Discharge of Indenture ............................... 37 Section 6.02. Defeasance of Bonds ................................ 37 Section 6.03. Application of Deposited Money ....................... 38 Section 6.04. Final Disposition of Moneys .......................... 38 ARTICLE VII - EVENTS OF DEFAULT; REMEDIES .......................... 39 Section 7.01. Events of Default ................................... 39 Section 7.02. Acceleration of Maturity ............................. 39 Section 7.03. Other Remedies .................................... 40 Section 7.04. Sale Matures All Bonds .............................. 40 Section 7.05. Application of Money ............................... 40 Section 7.06. Bondholders or Trustee May Purchase; Purchaser May Apply Bonds Toward Purchase Price ............... 41 Section 7.07. Receiver .......................................... 42 Section 7.08. Collection of Indebtedness by the Trustee ................ 42 Section 7.09. Trustee May File Proofs of Claims ..................... 43 Section 7.10. Trustee May Enforce Claims Without Possession of Bonds ................................. 43 Section 7.11. Limitation on Suits .................................. 44 Section 7.12. Unconditional Right of Bondholders to Receive Principal, Premium and Interest ........................ 44 Section 7.13. Restoration of Positions .............................. 44 Section 7.14. Rights and Remedies Cumulative ...................... 45 Section 7.15. Delay or Omission Not Waiver ........................ 45 Section 7.16. Control by Bondholders .............................. 45 Section 7.17. Waiver of Past Defaults .............................. 46 Section 7.18. Undertaking for Costs ............................... 46 Section 7.19. Suits to Protect the Trust Estate and Other Property ........ 46 Section 7.20. Rights Under Loan Agreement ........................ 47 ARTICLE VIII - THE TRUSTEE ........................................... 48 Section 8.01. Certain Duties and Responsibilities ..................... 48 Section 8.02. Notice of Event of Default ............................ 49 Section 8.03. Certain Rights of Trustee ............................. 49 Section 8.04. Not Responsible for Recitals or Issuance of Bonds ......... 51 Section 8.05. May Hold Bonds ................................... 51 Section 8.06. Money Held in Trust ................................ 51 Section 8.07. Compensation and Reimbursement ..................... 51 Section 8.08. Corporate Trustee Required; Eligibility .................. 51 Section 8.09. Resignation and Removal; Appointment of Successor ....................................... 52 Section 8.10. Acceptance of Appointment by Successor Trustee ......... 53 Section 8.11. Merger, Conversion, Consolidation or Successor to Business ........................................ 53 Section 8.12. Co -trustees and Separate Trustees ...................... 54 Section 8.13. Trustee and Loan Agreement .......................... 55 Section 8.14. Resignation or Removal of Paying Agent; Successors ........................................ 56 ARTICLE IX - BONDHOLDERS' MEETINGS ............................... 57 Section 9.01. Purposes for Which Bondholders' Meetings May BeCalled ......................................... 57 Section 9.02. Place of Meetings of Bondholders ...................... 57 Section 9.03. Call and Notice of Bondholders' Meetings ............... 57 Section 9.04. Persons Entitled to Vote at Bondholders' Meetings ........ 58 Section 9.05. Determination of Voting Rights; Conduct and Adjournment of Meetings ............................ 58 Section 9.06. Counting Votes and Recording Action of Meetings ........ 59 Section 9.07. Revocation by Bondholders ........................... 59 ARTICLE X - AMENDMENT OF LOAN AGREEMENT, MORTGAGE, REGULATORY AGREEMENT AND COLLATERAL DOCUMENTS ............................................. 60 Section 10.01. Amendment to Loan Agreement, Mortgage, Regulatory Agreement, and Collateral Documents Without Consent of Bondholders ....................... 60 Section 10.02. Amendment to Loan Agreement, Mortgage Regulatory Agreement or Collateral Documents With Consent of Bondholders ....................................... 61 Section 10.03. Consent to Amendments ............................. 62 ARTICLE XI - SUPPLEMENTAL INDENTURES ............................. 63 Section 11.01. Supplemental Indentures Without Consent of Bondholders ....................................... 63 Section 11.02. Supplemental Indentures With Consent of Bondholders ....................................... 64 Section 11.03. Execution of Supplemental Indentures .................. 65 Section 11.04. Effect of Supplemental Indentures ...................... 65 Section 11.05. Reference in Bonds to Supplemental Indentures ........... 65 Section 11.06. Consent of Company ................................ 65 ARTICLE XII - COVENANTS ............................................. 66 Section 12.01. Payment of Principal, Premium and Interest .............. 66 Section 12.02. Money for Bond Payments to be Held in Trust ............ 66 Section 12.03. Tax -Free Nature of Bonds ............................ 67 ARTICLE XIII - REDEMPTION ........................................... 68 Section 13.01. Right of Redemption ................................ 68 Section 13.02. Election to Redeem; Notice to Trustee .................. 68 Section 13.03. Selection by Trustee of Bonds to be Redeemed ............ 68 Section 13.04. Notice of Redemption ............................... 68 Section 13.05. Deposit of Redemption Price .......................... 69 Section 13.06. Bonds Payable on Redemption Date .................... 69 Section 13.07. Bonds Redeemed in Part ............................. 69 Section 13.08. Redemption of All Bonds ............................ 70 SIGNATURES...................................................... 71 EXHIBIT A ...................................................... A-1 -iv- THIS INDENTURE OF TRUST, dated as of March 1, 1999, between the CITY OF NEW HOPE, a municipality organized and existing under the Constitution and laws of the State of Minnesota (hereinafter referred to as the "City"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association, as Trustee (hereinafter, together with any successor trustee under this Indenture, referred to as the "Trustee"), WITNESSETH WHEREAS, pursuant to the Act, as hereinafter defined, the City is authorized to issue its revenue bonds for the purposes described in the Act, and is also authorized by the Act to lend the proceeds of its revenue bonds under the conditions prescribed by the Act; and WHEREAS, simultaneously with the execution and delivery of this Indenture, the City and Minnesota Masonic Home North Ridge, a nonprofit corporation organized and existing under the laws of the State of Minnesota (hereinafter, together and with any permitted successor under Section 7.1 of the Loan Agreement, as hereinafter defined, the "Company"), have entered into a Loan Agreement pursuant to which the Company covenants to make Loan Repayments (as hereinafter defined) in amounts and at times which will be sufficient to pay when due the principal of, premium, if any, and interest on the revenue bonds herein authorized; and WHEREAS, all things have been done that are necessary to make the revenue bonds herein authorized, when executed and issued by the City and authenticated and delivered hereunder, the valid obligations of the City in accordance with their terms, and to constitute this Indenture a valid contract for the security of the revenue bonds herein authorized, in accordance with its terms; -v- GRANTING CLAUSES NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, to secure payment of the principal of, premium, if any, and interest on the Bonds according to their tenor and effect and the performance of all covenants and conditions therein and herein contained, and in consideration of the premises, and of the purchase of the Bonds by the Holders thereof, the City by these presents does pledge and grant to the Trustee and its successors in trust a security interest in the following described property, rights, privileges and franchises (which collectively are hereinafter called the "Trust Estate"), to wit: GRANTING CLAUSE FIRST All right, title, interest and privilege of the City in, to and under the Loan Agreement, including, but not limited to, all Loan Repayments and Fee Payments (all as hereinafter defined), but excluding the rights of the City to its portion of said Fee Payments under Section 2.3 of the Loan Agreement and to indemnification under Section 7.8 and legal expenses and other expenses under Section 11.11 of the Loan Agreement. GRANTING CLAUSE SECOND All right, title, interest and privilege of the City in, to and under the Mortgage. GRANTING CLAUSE THIRD All other property of every kind which is now or hereafter subjected to the lien of this Indenture or pledged or assigned to the Trustee pursuant to the provisions of this Indenture, including without limitation the Mortgaged Property, as hereinafter defined, all cash and securities now or hereafter held in the Trust Funds created or established under this Indenture, and all insurance proceeds and condemnation awards or other moneys represented by "Trust Moneys" (as hereinafter defined). TO HAVE AND TO HOLD the Trust Estate unto the Trustee and its successors and assigns forever. BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Holders from time to time of all the Bonds without any priority of any one Bond over any other except as elsewhere herein expressly provided. UPON THE TRUSTS and subject to the covenants and conditions -hereinafter set -vi- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context clearly otherwise requires: A. The terms defined in Section 1.1 of the Agreement, when used in this Indenture, shall have the meanings specified in that Section. B. All references in this instrument to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. C. The words "herein," "hereof," and "hereunder," and other words of similar import, without reference to any particular Article, Section or subdivision, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. D. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular. E. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles. F. All computations herein provided for shall be made in accordance with generally accepted accounting principles. Acquisition and Construction Fund means the fund created in Section 5.02. Act means Minnesota Statutes, Chapter 462C, as amended. Additional Bonds means any Bonds issued pursuant to Article IV. Assignment of Mortgage means the Assignment of Mortgage Agreement, dated as of March 1, 1999, between the City and the Trustee. Bond Counsel means any attorney or firm of attorneys nationally recognized as experienced in matters relating to the tax-exempt financing of facilities of the same character as the Facilities, retained by the Company and acceptable to the City and the Trustee. Bond Fund means the fund created in Section 5.03. Bond Year means the period commencing on the second day of March of each year and ending on the first day of March of the following year. r- Register. Bondholder means a Person in whose name a Bond is registered in the Bond Bond Re ig ster and Bond Re isg trar have the respective meanings specified in Section 2.07. Bonds means all Bonds issued pursuant to this Indenture, including the Series 1999 Bonds and any Additional Bonds. Business Day means any day other than a Saturday, Sunday or other day on which the Trustee is not open for business. City means the City of New Hope, Minnesota, and any successor to its functions hereunder. City Certificate means a certificate signed by the City Manager or other officer of the City specified in a City Resolution, and delivered to the Trustee. City Council means the governing body of the City. City Request, City Order or City Consent means, respectively, a written request, order or consent of the City, signed by the City Manager or other officer of the City designated by a City Resolution, and delivered to the Trustee. City Resolution means a resolution, ordinance or other appropriate enactment by the City Council certified by an appropriate officer of the City to have been duly adopted by the City Council and to be in full force and effect on the date of such certification, and delivered to the Trustee. Code means the Internal Revenue Code of 1986, as amended. All references in this instrument to sections of the Code are to the sections thereof as they exist on the date of execution of this instrument. Collateral Document means any written instrument other than the Loan Agreement, the Indenture and the Mortgage, whereby any property or interest in property of any kind is granted, pledged, conveyed, assigned, or transferred to the City or Trustee, or both, as security for payment of the Bonds or performance by the Company of its obligations under the Loan Agreement, or both. Company means Minnesota Masonic Home North Ridge, a nonprofit corporation organized and existing under the laws of the State of Minnesota, and any permitted successor to such Company under Section 7.1 of the Loan Agreement. -2- Company Certificate means a certificate signed by the Chairman, President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Company, and delivered to the Trustee. Company Request, Company Order or Company Consent means, respectively, a written request, order, or consent signed in the name of the Company by the Chairman, President, a Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Company, and delivered to the Trustee. Company Resolution means a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. Construction Contract means any contract of the Company providing for the construction, equipping or installation of any part of a Project, including any amendment thereof made in accordance with the provisions thereof and of the Loan Agreement. Contractor means a Person with whom the Company enters into a Construction Contract. Costs of Issuance with reference to any series of Bonds means, without duplication, any and all costs incurred by the City and the Company in the authorization, sale and issuance of that series of Bonds, including, but not limited to, all legal, abstracting, financial and accounting fees and expenses; underwriters' fees or commissions; printing and engraving costs; fees, costs and expenses of the City; the initial or acceptance fee and expenses of the Trustee; all fees and taxes required in connection with recording or filing the Mortgage and the Assignment of Mortgage and all financing statements; and all other expenses incurred in connection with the preparation of the Loan Agreement, this Indenture, the Regulatory Agreement, the Mortgage, the Assignment of Mortgage and any other documents. Defaulted Interest has the meaning given such term in Section 2.09. Defeasance Obligations means Government Obligations which are not subject to redemption. Determination of Taxability shall mean receipt by the Trustee of a statutory notice of deficiency by the Internal Revenue Service, a ruling from the National Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction which holds in effect that interest payable on the Series 1999 Bonds is includable for federal income tax purposes in the gross income of a Bondholder because of any act or omission of the Company (or any successor or transferee) or of the Trustee; provided, however, that the Company shall have an opportunity for no more than 180 days after receipt by the Trustee to contest any such statutory notice, ruling or final decision and that no such statutory notice, ruling or final decision shall be 1931 deemed a "Determination of Taxability" if the Company is contesting the same during such 180 day period in good faith until the earliest of (a) abandonment of such contest by the Company, (b) the date on which such statutory notice, ruling or final decision becomes final, or (c) the 181 st day after the initial receipt by the Trustee of such statutory notice, ruling or final decision; and provided further that no Determination of Taxability shall arise from the interest on the Bonds being included (1) in income for purposes of calculating alternative minimum taxable income of any taxpayer; (2) in earnings and profits of branches of foreign corporation for purposes of calculating the "branch profits tax"; (3) within gross income to certain recipients of social security benefits; or (4) as passive investment income to certain subchapter S corporations which have subchapter C earnings and profits. Event of Default means any event defined as such in Section 7.01. Facilities means, collectively, the Land, the Nursing Facility, the Housing Facility and any Improvement, as such properties may at any time exist. Government Obligations means direct obligations of, or obligations the principal of and the interest on which are fully and unconditionally guaranteed by, the United States of America, or securities or receipts evidencing ownership interests in any of the foregoing obligations or in specified portions (such as principal or interest) of any of the foregoing obligations. Holder means a Bondholder. Housing Facility means the 25 -bed assisted living facility and the 180 -bed multifamily housing facility and related facilities (other than the Nursing Facility) designated and intended for occupancy by elderly persons, located on the Land. Improvement means any addition, enlargement, improvement, extension or alteration of or to the Facilities as they then exist located on the Land, and shall also mean any fixtures, structures or other facilities acquired or constructed by the Company and located on the Land. Indenture means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more Supplemental Indentures. Independent when used with respect to any specified Person, means such a Person who (i) is in fact independent; (ii) does not have any direct financial interest or any material indirect financial interest in the Company or any Affiliate, other than the payment to be received under a contract for services to be performed by such Person; and (iii) is not connected with the Company or any Affiliate as an official, officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be me appointed by the Company or the Trustee, as the case may be, and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof. Interest Account means the account so designated within the Bond Fund. Interest Payment Date means a fixed date specified in a Bond and the Indenture as a date on which an installment of interest on a Bond is due and payable. Land has the meaning given such term in the Mortgage. Loan means the loan by the City to the Company of the proceeds of the Bonds, exclusive of any accrued interest paid by the Original Purchaser of the Bonds upon the delivery thereof, but including the underwriting discount, if any, in connection with the sale of Bonds by the City to the Original Purchaser. Loan Agreement means the Loan Agreement, dated as of the date of this instrument, between the City and the Company, as the same may be from time to time amended or supplemented in accordance with the provisions thereof and hereof. Loan Repayment means a payment required to be made by the Company by Section 2.2 of the Loan Agreement. Maturity, when used with respect to any Bond, means the date on which the principal of such Bond becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. Mortgage means the Mortgage Agreement, dated as of the date of this instrument, between the Company and the City, as the same may from time to time be amended or supplemented in accordance with the provisions thereof and hereof. Mortgaged Property has the meaning given such term in the Mortgage. Net Proceeds, when used with respect to any insurance claim or condemnation award, means the gross proceeds from such insurance claim or condemnation award remaining after payment of all expenses (including attorneys' fees and any expenses of the City, the Company and the Trustee) incurred in the collection of such gross proceeds. Nursing Facility means the 559 -bed nursing home facility located on the Land. Opinion of Counsel means a written opinion of legal counsel, who may (except as otherwise specifically provided in the Loan Agreement or this Indenture) be counsel for the City or the Company. -5- Original Purchaser means, with respect to any series of Bonds, the original purchaser or underwriter of such series of Bonds. Outstanding, when used with reference to Bonds, means, as of the date of determination, all Bonds theretofore issued and delivered under this Indenture, except: (i) Bonds theretofore cancelled by the Trustee or delivered to the Trustee cancelled or for cancellation; (ii) Bonds and portions of Bonds for whose payment or redemption money or Defeasance Obligations (as provided in Article VI hereof) shall have been theretofore deposited with the Trustee in trust for the Holders of such Bonds; provided, however, that if such Bonds are to be redeemed, notice of such redemption shall have been duly given pursuant to this Indenture or irrevocable instructions to call such Bonds for redemption at a stated Redemption Date shall have been given to the Trustee; and (iii) Bonds in exchange for or in lieu of which other Bonds shall have been issued and delivered pursuant to this Indenture; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Bonds have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Bonds owned by the City or the Company or any Affiliate shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Bonds which the Trustee knows to be so owned shall be disregarded. Paying Agent means any Person in addition to the Trustee designated by or pursuant to this Indenture to receive and disburse the principal of, premium, if any, and interest on the Bonds on behalf of the City. Person means any individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. Principal Account means the account so designated within the Bond Fund. Principal and Interest Requirements on OutstandingBonds onds shall mean, for any Bond Year, the amount required to pay the principal of and the interest on all Outstanding Bonds during such Bond Year, to be determined on the assumption that all Bonds will be retired at their Stated Maturities except for those Term Bonds which this Indenture provides must be redeemed prior to their Stated Maturities from sinking fund payments the Loan Agreement requires the Company to make for such purpose, which Term Bonds will be assumed to be retired on their respective Sinking Fund Payment Dates. 0 Principal Payment Date means the Stated Maturity of principal of any Serial Bond and the Sinking Fund Payment Date for, or, if a Term Bond is not to be redeemed on a Sinking Fund Payment Date, the Stated Maturity of such Term Bond. Protect means any Improvement to be financed in whole or in part by a series of Bonds. Project Costs means with reference to any Project any and all sums of money required to acquire, construct and install that Project, excluding Costs of Issuance but including the following: A. all expenses incurred in connection with the acquisition of real property, or any interest in real property, necessary for the Project or mortgaging of the Land, including title insurance; B. the expense of preparation of the plans and specifications and of all other architectural, engineering, surveying, testing and supervisory services incurred and to be incurred in the planning, construction and completion of the Project; C. the cost of acquisition and installation of all items of equipment, machinery or furnishings included in the Project; D. premiums on all insurance relating to construction during the period before completion of the Project, to the extent that such premiums are not paid by a Contractor; E. the contract price of all labor, services, materials, supplies, equipment and remodeling furnished under a Construction Contract; F. all expenses incurred in seeking to enforce any remedy against a Contractor, any subcontractor or any surety in respect of any default under any Construction Contract; G. the cost of all other labor, services, materials, supplies and equipment necessary to complete the acquisition, construction and installation of the Project, including costs of moving property previously owned or leased by the Company; H. all interest accruing on money borrowed by the Company for financing of the Project Costs during construction and up to six months thereafter; I. all fees and expenses of the Trustee and any Paying Agent relating to the Bonds that become due before the Completion Date of the Project; -7- J. without limitation by the foregoing, all other expenses which under generally accepted accounting principles constitute necessary capital expenditures for the Project and are authorized by the Act to be paid from the proceeds of the Bonds; and K. all advances, payments and expenditures made or to be made by the City, the Trustee and any other Person with respect to any of the foregoing expenses. Oualified Investments means those obligations and securities set forth in Section 5. 10, in which Trust Money may be invested. Rebate Fund means the fund created in Section 5.08. Record Date means the fifteenth day (whether or not a Business Day) of the calendar month immediately preceding each Interest Payment Date. Redemption Date, when used with respect to any Bond to be redeemed, means the date on which it is to be redeemed pursuant hereto. Redemption Price, when used with respect to any Bond to be redeemed, means the price at which it is to be redeemed pursuant hereto. Regulatory Agreement means the Regulatory Agreement, dated as of March 1, 1999, between the Company and the Trustee, including any amendment thereof. Repair and Replacement Fund means the fund created in Section 5.07. Reserve Fund means the fund created in Section 5.06. Reserve Requirement means, as of the date of calculation, an amount of money equal to the least of. (i) ten percent (10%) of the stated principal amount (or the issue price, for any series of Bonds which has more than a de minimis amount of original issue discount or premium, within the meaning of the Code), of each series of Bonds, any of which are Outstanding, or (ii) one hundred percent (100%) of the maximum Principal and Interest Requirements on Outstanding Bonds for the then current or any future Bond Year, or (iii) one and one-quarter times the average Principal and Interest Requirements on Outstanding Bonds. Responsible Officer, when used with respect to the Trustee, means the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any vice-president (whether or not designated by a number or a word or words added before or after the title "vice-president'), the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer (whether or not designated by a word or words added before or after the title "trust officer") or assistant trust officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers, and shall also mean, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. Serial Bonds means Bonds which are not Term Bonds. Series 1999 Bonds Reserve Requirement means the Reserve Requirement attributable to the Series 1999 Bonds, which is on the date of delivery of the Series 1999 Bonds, an amount equal to $3,334,088.75. Sinking Fund Payment Date means one of the dates set forth in Section 3.04 hereof (as to the Series 1999 Bonds) or any applicable provision of a Supplemental Indenture (as to any series of Additional Bonds) for the making of mandatory principal payments for Term Bonds. Special Record Date has the meaning set forth in Section 2.09. Stated Maturity when used with respect to any Bond, means the date specified in such Bond as the fixed date on which the principal of such Bond is due and payable. Supplemental Indenture means any indenture supplemental to this instrument entered into pursuant to Article XI. Term Bonds means those Bonds of a single Stated Maturity in a principal amount which the Indenture provides must be redeemed prior to their Stated Maturity from sinking fund payments the Loan Agreement requires the Company to make for such purpose. Trust Estate has the meaning specified in the Granting Clauses hereof. Trust Funds means all of the funds and accounts created pursuant to this Indenture, except the Rebate Fund. Trust Money has the meaning stated in Section 5.01. Trustee means U.S. Bank Trust National Association, in St. Paul, Minnesota, and any successor Trustee under this Indenture. Section 1.02. Compliance Certificates and Opinions. Upon any application or request by the City or the Company to the Trustee to take any action under any provision of this Indenture or the Loan Agreement, the City or such Company shall furnish the Trustee a City Certificate or a Company Certificate stating that all conditions precedent, if any, provided for in this Indenture or the Loan Agreement relating to the proposed action have been complied with MI and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of a Company Certificate and an Opinion of Counsel is specifically required by any provision of this Indenture or the Loan Agreement relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture or the Loan Agreement shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (3) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the City or the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the City or the Company stating that the information with respect to such factual matters is in the possession of the City or the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. -10- An "application" for the authentication and delivery of Bonds, or the release of property, or the withdrawal of cash, under any provision of this Indenture, shall consist of, and shall not be deemed complete until the Trustee shall have been furnished with, all such documents, cash, Bonds, securities and other instruments as are required by such provision to establish the right of the City or the Company to the transaction applied for, and the date of such application shall be deemed to be the date upon which such application shall be so completed. Wherever in this Indenture, in connection with any application or certificate or report to the Trustee, it is provided that the City or the Company shall deliver any document as a condition of the granting of such application, or as evidence of the City's or such Company's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the City or such Company to have such application granted or to the sufficiency of such certificate or report. Section 1.04. Acts of Bondholders. A. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Bondholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Bondholders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the City and/or the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Bondholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 2.10 hereof) conclusive in favor of the Trustee, the City and the Company if made in the manner provided in this Section 1.04. B. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Persons executing the same, may also be proved in -any other manner which the Trustee deems sufficient. -11- C. The fact and date of execution of any such instrument or writing may also be provided in any other manner which the Trustee deems sufficient; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section 1.04. D. The ownership of Bonds shall be proved by the Bond Register. E. Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Bond shall bind every future Holder of the same Bond and the Holder of every Bond issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee, the City or the Company in reliance thereon, whether or not notation of such action is made upon such Bond. Section 1.05. Notices, etc., to Trustee. City and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Bondholders or other document provided or permitted by this Indenture shall be sufficient for any purpose under this Indenture and shall be deemed given when mailed certified mail, return receipt requested, postage prepaid (except as otherwise provided in this Indenture) (with a copy to the other parties), at the following addresses (or such other address as may be provided by any party by notice): To the City: City of New Hope City Hall 4401 Xylon Avenue North New Hope, Minnesota 55428 Attention: City Manager To the Company: Minnesota Masonic Home North Ridge 5430 Boone Avenue North New Hope, Minnesota 55428 Attention: President To the Trustee: U.S. Bank Trust National Association 180 East Fifth Street, Suite 200 St. Paul, Minnesota 55101 Attention: Corporate Trust Department To the Original Purchaser of the Series 1999 Bonds: Dougherty Summit Securities LLC Suite 4400 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: President -12- Section 1.06. Notices to Bondholders, Waiver. Where this Indenture provides for notice to Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Bondholder affected by such event, at his address as it appears on the Bond Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Bondholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Bondholder shall affect the sufficiency of such notice with respect to other Bondholders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Bondholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 1.07. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.08. Successors and Assigns. All covenants and agreements in this Indenture by the City shall bind its successors, whether so expressed or not. Section 1.09. Separability Clause. In case any provision in this Indenture or in the Bonds shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.10. Execution and Counterparts. This Indenture may be executed in any number of counterparts. All such counterparts shall be deemed to be originals and shall together constitute one and the same instrument. Section 1.11. Construction. This Indenture shall be construed in accordance with the laws of the State of Minnesota. Section 1.12. Benefit of Indenture. Nothing in this Indenture or in the Bonds express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any separate trustee or co -trustee appointed under Section 8.12 hereof, the Company and the Holders of Bonds any benefit or other legal or equitable right, remedy or claim under this Indenture. Section 1.13. Limitation of Liability. Nothing in this Indenture or in the Bonds express or implied, shall impose upon, or give rise to, a pecuniary liability of the City or a charge upon its general credit or taxing powers. In entering into this Indenture, the City has not obligated itself except with respect to the application of the revenues derived from the Loan Agreement, the Net Proceeds of insurance or condemnation awards, amounts in the Reserve Fund and the proceeds from the issuance and sale of the Bonds. It is specifically recognized that -13- the obligations of the City under this Indenture, to the extent involving any monetary cost, are to be performed only out of the above described revenues or from the disposition of the property subject to the lien of the Mortgage or any Collateral Document. Section 1.14. Respecting the Loan Agreement. With regard to any alleged default concerning which notice is given to the Company under the provisions of clause C of Section 7.01 hereof, the City hereby appoints the Company as its attorney, in the name and stead of the City, with full power to do any and all things and acts to the same extent that the City could do and perform; provided that the Company shall first give the City notice of its intention so to perform on behalf of the City. Certain of the covenants of the City hereunder will be assumed by the Company in the Loan Agreement, and, while the Loan Agreement remains in full force and effect, the obligations shall be the responsibility of the Company, or, if the Loan Agreement is terminated, then such covenants are enforceable only to the extent of the revenues derived from the property subject to the lien of the Mortgage or any Collateral Document, or from the Trust Moneys held by the Trustee. The rights and duties given under this Indenture to the Company shall be applicable only while the Loan Agreement is in full force and effect. -14- ARTICLE 11 THE BONDS Section 2.01. General Title. The general title of the Bonds of all series shall be "Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project)." Section 2.02. General Limitations; Issuable in Series. The aggregate principal amount of Bonds that may be authenticated and delivered and Outstanding under this Indenture is not limited, except as provided in Articles III and IV hereof and except as may be limited by law. The Bonds may be issued in series as from time to time authorized by City Resolution. The Bonds are special limited obligations of the City. Principal of, premium, if any, and interest on the Bonds are payable solely out of the revenues derived from the Loan Agreement and to the extent payable out of proceeds of the Bonds, amounts in the Reserve Fund, insurance proceeds or condemnation awards, or from the sale or other disposition of the property subject to the lien of the Mortgage and any Collateral Document. The State of Minnesota and the County of Hennepin shall not in any event be liable for the payment of the principal of, premium, if any, or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever that may be undertaken by the City. Neither the Bonds nor any of the agreements or obligations of the City contained herein or in the Loan Agreement shall be construed to constitute an indebtedness of the State of Minnesota, the County of Hennepin or the City within the meaning of any constitutional or statutory provisions whatsoever. With respect to the Bonds of any particular series, the City may incorporate in or add to the general title of such Bonds any words, letters or figures designed to distinguish that series. Unless otherwise provided with respect to any particular Series of Bonds, the Bonds of each Series shall be dated as of their date of authentication. If the Stated Maturity of any Bond or if any Interest Payment Date, Redemption Date or Sinking Fund Payment Date shall not be a Business Day, then the payment of principal, premium, or interest due on such date may be made on the next succeeding Business Day, with the same force and effect as if made on the Stated Maturity, Interest Payment Date, Redemption Date or Sinking Fund Payment Date, and without additional interest accruing thereon for the period after such Stated Maturity, Interest Payment Date, Redemption Date or Sinking Fund Payment Date (whether or not such next succeeding Business Day occurs in a succeeding month). Section 2.03. Terms of Particular Series. Each series of Bonds (except the Series 1999 Bonds, which are created by Article III hereof) shall be created by a Supplemental -15- Indenture authorized by a City Resolution. The Bonds of each series (other than the Series 1999 Bonds, as to which specific provision is made in this instrument) shall bear such date or dates, shall be payable at such place or places, shall have such Stated Maturities and Redemption Dates, shall bear interest at such rate or rates, from such date or dates, payable in such installments and on such dates and at such place or places, and may be redeemable at such price or prices and upon such terms (in addition to the prices and terms herein specified for redemption of all Bonds) as shall be provided in the Supplemental Indenture creating that series. The City may, at the time of the creation of any series of Bonds or at any time thereafter, make, and the Bonds of that series may contain, provision for: A. a sinking, amortization, improvement or other analogous fund; B. limiting the aggregate principal amount of the Bonds of that series; and/or C. exchanging Bonds of that series, at the option of the Holders thereof, for other Bonds of the same series of the same aggregate principal amount of a different authorized kind and/or authorized denomination or denominations; all upon such terms as the City Council may determine. All Bonds of the same series shall be substantially identical except as to denomination, the differences specified herein or in a Supplemental Indenture between interest rates, Stated Maturities and redemption provisions. Section 2.04. Form and Denominations. The form of the Bonds of each series (other than the Series 1999 Bonds, as to which specific provisions are made in this instrument) shall be established by the provisions of the Supplemental Indenture creating such series. The Bonds of each series shall be distinguished from the Bonds of other series in such manner as the City Council may determine. The Bonds of each series shall be issuable in fully registered form in such denominations as shall be provided in the provisions of the Supplemental Indenture creating such series (other than the Series 1999 Bonds, as to which specific provisions are made in this instrument). In the absence of any other provision with respect to the Bonds of any particular series, the Bonds of such series shall be in the denomination of $5,000 or any integral multiple thereof. Section 2.05. Execution. Authentication and Delivery. Each Bond shall be executed on behalf of the City by the officers of the City specified in a City Resolution, and shall be sealed with the official seal of the City. The signature of any City officer and the seal may be manual or facsimile, if permitted by applicable law. Bonds bearing the signatures of individuals who were at any time the proper officers of the City shall bind the City, notwithstanding that such individuals or any of them have -16- ceased to hold such offices prior to the authentication and delivery of such Bonds or did not hold such offices at the date of such Bonds. At any time and from time to time after the execution and delivery of this Indenture, the City may deliver Bonds executed by the proper officers of the City to the Trustee for authentication; and the Trustee shall authenticate and deliver such Bonds as in this Indenture provided and not otherwise. No Bond shall be secured by, or entitled to any lien, right or benefit under, this Indenture or be valid or obligatory for any purpose, unless there appears on such Bond a certificate of authentication substantially in the form provided for herein executed by a representative of the Trustee by manual signature, and such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly authenticated and delivered hereunder. Section 2.06. Temporary Bonds. Pending the preparation of definitive Bonds, the City, if authorized by law, may execute, and upon City Order a Responsible Officer of the Trustee shall authenticate and deliver, temporary Bonds which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Bonds in lieu of which they are issued, in registered form, and with such appropriate insertions, omissions, substitutions and other variations as the officers of the City executing such Bonds may determine, as evidenced by their signing of such Bonds. If temporary Bonds are issued, the City will cause definitive Bonds to be prepared without unreasonable delay. After the preparation of definitive Bonds, the temporary Bonds shall be exchangeable for definitive Bonds upon surrender of the temporary Bonds at the principal office of the Trustee, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Bonds the City shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Bonds of authorized denominations. Until so exchanged the temporary Bonds shall in all respects be entitled to the security and benefits under this Indenture, the Loan Agreement, the Mortgage, and any Collateral Document, and interest thereon, when and as payable, shall be paid to the Holders of temporary Bonds upon presentation thereof for notation of such payment thereon. Section 2.07. Registration. Transfer and Exchange. The City shall cause to be kept at the principal corporate trust office of the Trustee a register (the "Bond Register") in which, subject to such reasonable regulations as it may prescribe, the City shall provide for the registration of Bonds of all series and of transfers of Bonds of all series. The Trustee is hereby appointed "Bond Registrar" for the purpose of registering Bonds and transfers of Bonds as herein provided. Upon surrender for transfer of any Bond at the office of the Bond Registrar, the City shall execute, and the Trustee shall authenticate and deliver, in the name of the designated -17- transferee or transferees, one or more new Bonds of the same series, of any authorized denomination or denominations, of like aggregate principal amount and having the same Stated Maturity and interest rate. At the option of the Holder, Bonds may be exchanged upon surrender thereof at the principal corporate trust office of the Trustee, for other Bonds of the same series, Stated Maturity and interest rate of a like aggregate principal amount, of any authorized denomination or denominations, as requested by the Holder surrendering the same. The appropriate officials of the City will execute, and the Trustee shall authenticate and deliver, Bonds required for any such exchange. All Bonds surrendered upon any exchange or transfer provided for in this Indenture shall be promptly canceled by the Trustee and thereafter disposed of as directed by City Order. All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the City evidencing the same debt, and entitled to the same security and benefits under this Indenture, the Loan Agreement, the Mortgage and any Collateral Document, as the Bonds surrendered upon such transfer or exchange. Every Bond presented or surrendered for transfer or exchange shall (unless the requirement is waived by the City and the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the City and the Bond Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration, transfer or exchange herein provided for, but the City may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of the Bonds, other than exchanges under Section 2.06 hereof not involving any transfer. The City shall not be required (i) to issue, transfer or exchange any Bond during a period beginning at the opening of business fifteen (15) days before the day of mailing a notice of redemption of Bonds selected for redemption and ending at the close of business on the day of such mailing, or (ii) to transfer or exchange any Bond selected for redemption in whole or in part. Section 2.08. Mutilated, Destroyed, Lost and Stolen Bonds. If (i) any mutilated Bond is surrendered to the Trustee, or the Trustee receives evidence to satisfaction of the destruction, loss or theft of any Bond and (ii) there is delivered to the Trustee such security or indemnity as may be required by the Trustee to save the City, the Trustee and the Company harmless, then, in the absence of notice to the Trustee that such Bond has been acquired by a bona fide purchaser, the City shall execute and upon its request the Trustee shall authenticate and deliver, in exchange for or in lieu of such mutilated, destroyed, lost or stolen Bond, a new Bond of the same series and of like tenor, principal amount, Stated Maturity and interest rate. s In case any such mutilated, destroyed, lost or stolen Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a new Bond, pay such Bond. Upon the issuance of any new Bond under this Section 2.08, the 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 Trustee) connected therewith. Every new Bond issued pursuant to this Section 2.08 in lieu of any destroyed, lost or stolen Bond shall constitute an original additional contractual obligation of the City, whether or not the destroyed, lost or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture, the Loan Agreement, the Mortgage, and any Collateral Document equally and proportionately with any and all other Bonds hereby secured. The provisions of this Section 2.08 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 Bonds. Section 2.09. Payment of Interest: Interest Rights Preserved. Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Bond (or one or more predecessor Bonds) is registered at the close of business on the Record Date for such interest. Any interest on any Bond which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest') shall forthwith cease to be payable to the registered Holder on the relevant Record Date by virtue of having been such Holder; and such Defaulted Interest shall be paid to the Persons in whose names the Bonds (or their respective predecessor Bonds) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Bond and the date of the proposed payment, and at the same time such Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Section provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to each Bondholder at his address as it appears in the Bond Register, not less than 10 -19- days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published in a newspaper, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Bonds (or their respective predecessor Bonds) are registered on such Special Record Date. Subject to the foregoing provisions of this Section, each Bond delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond. Section 2.10. Persons Deemed Owners. The City, the Trustee, any Paying Agent and any other agent of the City may treat the Person in whose name any Bond is registered as the owner of such Bond for the purpose of receiving payment of principal of (and premium, if any), and interest on, such Bond and for all other purposes whatsoever whether or not such Bond be overdue, and neither the City, the Trustee, any Paying Agent nor any other agent of the City shall be affected by notice to the contrary. Section 2.11. Cancellation. All Bonds surrendered for payment, redemption, transfer or exchange shall be promptly cancelled. The City or the Company may at any time deliver to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder which the City or the Company may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Trustee. All cancelled Bonds held by the Trustee shall be disposed of as required by law, and the Trustee shall retain a record of such disposal and shall deliver to the City a certificate of a Responsible Officer certifying as to the destruction thereof. Section 2.12. Securities Depository. (a) For purposes of this section the following terms shall have the following meanings: "Beneficial Owner" shall mean, whenever used with respect to a Bond, the person in whose name such Bond is recorded as the beneficial owner of such Bond by a Participant on the records of such Participant, or such person's subrogee. "Cede & Co." shall mean Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to the Bonds. "DTC" shall mean The Depository Trust Company of New York, New York. "Participant" shall mean any broker-dealer, bank or other financial institution for which DTC holds Bonds as securities depository. -20- "Representation Letter" shall mean the Representation Letter pursuant to which the Issuer agrees to comply with DTC's Operational Arrangements. (b) The Bonds shall be initially issued as separately authenticated fully registered bonds, and one Bond shall be issued in the principal amount of each stated maturity of the Bonds. Upon initial issuance, the ownership of such Bonds shall be registered in the bond register in the name of Cede & Co., as nominee of DTC. The Trustee and the Issuer may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds registered in its name for the purposes of payment of the principal of or interest on the Bonds, selecting the Bonds or portions thereof to be redeemed, if any, giving any notice permitted or required to be given to registered owners of Bonds under this resolution, registering the transfer of Bonds, and for all other purposes whatsoever; and neither the Trustee nor the Issuer shall be affected by any notice to the contrary. Neither the Trustee nor the Issuer shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in the Bonds under or through DTC or any Participant, or any other person which is not shown on the bond register as being a registered owner of any Bonds, with respect to the accuracy of any records maintained by DTC or any Participant, with respect to the payment by DTC or any Participant of any amount with respect to the principal of or interest on the Bonds, with respect to any notice which is permitted or required to be given to owners of Bonds under this resolution, with respect to the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Bonds, or with respect to any consent given or other action taken by DTC as registered owner of the Bonds. So long as any Bond is registered in the name of Cede & Co., as nominee of DTC, the Trustee shall pay all principal of and interest on such Bond, and shall give all notices with respect to such Bond, only to Cede & Co. in accordance with DTC's Operational Arrangements, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer's obligations with respect to the principal of and interest on the Bonds to the extent of the sum or sums so paid. No person other than DTC shall receive an authenticated Bond for each separate stated maturity evidencing the obligation of the Issuer to make payments of principal and interest. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the Bonds will be transferable to such new nominee in accordance with paragraph (e) hereof. (c) In the event the Issuer determines that it is in the best interest of the Beneficial Owners that they be able to obtain Bonds in the form of bond certificates, the Issuer may notify DTC and the Trustee, whereupon DTC shall notify the Participants of the availability through DTC of Bonds in the form of certificates. In such event, the Bonds will be transferable in accordance with paragraph (d) hereof. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving notice to the Issuer and the Trustee and discharging its responsibilities with respect thereto under applicable law. In such event the Bonds will be transferable in accordance with paragraph (d) hereof. (d) In the event that any transfer or exchange of Bonds is permitted under paragraph (b) or (c) hereof, such transfer or exchange shall be accomplished upon receipt by the Trustee of the -21- - Bonds to be transferred or exchanged and appropriate instruments of transfer to the permitted transferee in accordance with the provisions of this resolution. In the event Bonds in the form of certificates are issued to owners other than Cede & Co., its successor as nominee for DTC as owner of all the Bonds, or another securities depository as owner of all the Bonds, the provisions of this resolution shall also apply to all matters relating thereto, including, without limitation, the printing of such Bonds in the form of bond certificates and the method of payment of principal of and interest on such Bonds in the form of bond certificates. -22- ARTICLE III THE SERIES 1999 BONDS Section 3.01. Specific Title and Terms of the Series 1999 Bonds. There is hereby created and there shall be a series of Bonds entitled "Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999." The Series 1999 Bonds shall be dated, as originally issued, as of March 1, 1999. The aggregate principal amount of the Series 1999 Bonds that may be authenticated and delivered and Outstanding under this Indenture is limited to and shall not exceed $46,875,000. The Series 1999 Bonds shall be issued in fully registered form in the denomination of $5,000 or any integral multiple thereof. The Stated Maturities of the Series 1999 Bonds shall be as set forth below, and Series 1999 Bonds having such Stated Maturities shall be in the aggregate principal amounts and shall bear interest payable on March 1 and September 1 of each year, commencing September 1, 1999, at the respective rates per annum set forth below opposite the respective Stated Maturities, and at the same rates (to the extent that the payment of such interest shall be legally enforceable) on overdue installments of interest. Stated Aggregate Stated Aggregate Maturity Principal Interest Maturity Principal Interest March 1 Amount Rate March 1 Amount Rate 2000 $665,000 4.20% 2008 $ 970,000 5.40% 2001 690,000 4.40 2009 1,020,000 5.45 2002 725,000 4.60 2010 1,075,000 5.50 2003 755,000 4.80 2011 1,135,000 5.55 2004 790,000 5.00 2012 1,200,000 5.60 2005 830,000 5.10 2015 4,020,000 5.75 2006 875,000 5.20 2019 6,540,000 5.90 2007 920,000 5.30 2029 24,665,000 5.875 Section 3.02. Interest Calculations: Payments of Principal and Interest. Interest on the Series 1999 Bonds shall be calculated on the basis of a 360 -day year of twelve 30 -day months. The principal of and premium, if any, on the Series 1999 Bonds shall be payable at the principal corporate trust office of the Trustee. Interest on the Series 1999 Bonds which is payable, and is punctually paid on any Interest Payment Date shall be paid by check or draft drawn upon the Trustee and mailed to the Persons in whose name the Series 1999 Bonds are -23- registered as of the close of business on the Record Date for such Interest Payment Date at the address of such Holders as they appear on the Bond Register. Section 3.03. Optional Redemption. The Series 1999 Bonds maturing on and after March 1, 2010, shall be subject to redemption at the option of the Company, evidenced by Company Request, on March 1, 2009, and on any date thereafter, in whole or in part, and if in part from Stated Maturities specified in such Company Request, and as to Series 1999 Bonds of the same Stated Maturity by lot or in such manner as deemed fair by the Trustee, at the Redemption Prices, expressed as a percentage of the principal amount of Series 1999 Bonds to be so redeemed, set forth below, together with interest accrued on the principal amount to be redeemed to the Redemption Date: Redemption Dates Redemption Prices March 1, 2009 through February 28, 2010 102% March 1, 2010 through February 28, 2011 101% March 1, 2011 and thereafter 100% Section 3.04. Mandatory Redemption of Series 1999 Term Bonds. Series 1999 Bonds having a Stated Maturity of March 1 in the years 2015, 2019 and 2029, shall be redeemed on March 1 of the years shown below (each such date being herein referred to as a "Sinking Fund Payment Date") and in the amounts (hereinafter referred to as a "Mandatory Sinking Fund Payment') set forth below: *Final Maturity Term Bonds Maturing March 1, 2015 Sinking Fund Payment Date Principal (March 1) Amount 2013 $1,265,000 2014 1,340,000 2015* 1,415,000 -24- * Final Maturity Term Bonds Maturing March 1, 2019 Sinking Fund Payment Date Principal (March 1) Amount 2016 $1,495,000 2017 1,585,000 2018 1,680,000 2019* 1,780,000 Term Bonds Maturing March 1, 2029 Sinking Fund Payment Date Principal (March 1) Amount Sinking Fund Payment Date Principal _(March 1) Amount 2020 $1,885,000 2025 $2,505,000 2021 1,995,000 2026 2,650,000 2022 2,110,000 2027 2,805,000 2023 2,235,000 2028 2,970,000 2024 2,365,000 2029* 3,145,000 * Final Maturity or, if less than such amount of Series 1999 Term Bonds is Outstanding on any such Sinking Fund Payment Date, an amount equal to the aggregate principal amount of all Series 1999 Term Bonds then Outstanding. The Trustee shall select and call for redemption, in accordance with Article XIII hereof, from the Series 1999 Term Bonds the amounts specified above, and the Series 1999 Term Bonds selected by the Trustee shall become due and payable on such date. The Company may, in accordance with the option set forth in Section 10.1 of the Loan Agreement, reduce the amount of any Mandatory Sinking Fund Payment payable on any Sinking Fund Payment Date by an amount equal to the principal amount of Outstanding Series 1999 Term Bonds then to be redeemed that shall be surrendered uncanceled by the Company to the Trustee, provided that the Company shall have surrendered such Series 1999 Term Bonds to the Trustee not less than forty- five (45) days prior to such Sinking Fund Payment Date, together with a Company Certificate -25- stating its election to use such Series 1999 Term Bonds for such purpose. In such case, the Trustee shall reduce the amount of Series 1999 Term Bonds to be redeemed on the Sinking Fund Payment Date specified in such Company Certificate by the principal amount of Series 1999 Term Bonds so surrendered by the Company. If Series 1999 Term Bonds are redeemed at the option of the Company pursuant to Section 3.03 hereof, the Series 1999 Term Bonds so optionally redeemed may, at the option of the Company, be applied as a credit against any subsequent Mandatory Sinking Fund Payment with respect to Series 1999 Term Bonds otherwise to be redeemed thereby, such credit to be equal to the principal amount of such Series 1999 Term Bonds redeemed pursuant to said Section 3.03 hereof, provided that the Company shall have delivered to the Trustee not less than forty- five (45) days prior to such Sinking Fund Payment Date a Company Certificate stating its election to apply such Series 1999 Term Bonds as such a credit. In such case, the Trustee shall reduce the amount of Series 1999 Term Bonds to be redeemed on the Sinking Fund Payment Date specified in such Company Certificate by the principal amount of Series 1999 Term Bonds so redeemed pursuant to said Section 3.03. Any credit given to Mandatory Sinking Fund Payments pursuant to this Section 3.04 shall not affect any subsequent Mandatory Sinking Fund Payments, which shall remain payable as otherwise provided in this Section 3.04, unless and until another credit is given in accordance with the provisions hereof. Any Supplemental Indenture authorizing the issuance of Additional Bonds may provide for a similar mandatory redemption with regard to such Additional Bonds issued thereunder; and, in so doing, may provide that money to be used for such mandatory redemption is to be deposited in the Principal Account or may create a similar fund or account for such purpose. Section 3.05. Authentication and Delivery of Series 1999 Bonds. The Series 1999 Bonds, up to the aggregate principal amount of $46,875,000, may forthwith upon the execution and delivery of this Indenture, or from time to time thereafter, be executed by the proper officials of the City and delivered to the Trustee for authentication, and shall thereupon be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following: (a) a City Resolution authorizing the execution and delivery of the Loan Agreement, this Indenture and the issuance and sale of the Series 1999 Bonds; (b) a Company Resolution authorizing the execution and delivery of the Loan Agreement, the Regulatory Agreement, and the Mortgage, and approving this Indenture and the issuance and sale of the Series 1999 Bonds; (c) an original executed counterpart of the Loan Agreement, the Regulatory Agreement, the Mortgage and the Assignment of Mortgage; and -26- (d) a City Request which requests the Trustee to authenticate the Series 1999 Bonds, requests and authorizes the Trustee to deliver the Series 1999 Bonds so authenticated to the Original Purchaser therein identified upon payment to the Trustee, but for the account of the City, of a sum specified in such City Request and directs the Trustee as to the disposition of the proceeds of the Series 1999 Bonds. Section 3.06. Deposit of Series 1999 Bond Proceeds. The City shall deposit with the Trustee all of the net proceeds of the sale of the Series 1999 Bonds (including accrued interest thereon from the date from which interest is to be paid thereon to the date of delivery to the Original Purchaser thereof), and the Trustee shall transfer or credit such proceeds to the Persons, Funds or Accounts specified in the City Request described in Section 3.05(d) hereof. Section 3.07. Form of Series 1999 Bonds. The Series 1999 Bonds shall be in substantially the form attached hereto as Exhibit A, with such variations as may be necessary and appropriate for numbers, dates and other matters. Section 3.08. Mandatory Redemption of Series 1999 Bonds Upon Determination of Taxability. Upon the occurrence of a Determination of Taxability with respect to the Series 1999 Bonds, all Outstanding Series 1999 Bonds shall be subject to mandatory redemption, and shall be called for redemption by the Trustee, in whole, on the first day for which proper notice of redemption can be given after the date upon which the Trustee receives written notice of the Determination of Taxability, at a Redemption Price equal to their principal amount plus accrued interest to the Redemption Date. In the event that Series 1999 Bonds are called for mandatory redemption as a result of a Determination of Taxability, and the Company deposits, or causes to be deposited, on or before the Redemption Date, the full Redemption Price calculated in accordance with this Section 3.08, such deposit shall constitute and be deemed to be liquidated damages with respect to such Determination of Taxability and its consequences. Thereafter, the Company shall have no further liability to the Holders of the Series 1999 Bonds with respect to the events giving rise to the Determination of Taxability, even if such events constitute a violation by the Company of its covenants in the Loan Agreement. _27_ ARTICLE IV AUTHENTICATION AND DELIVERY OF ADDITIONAL BONDS Section 4.01. General Provisions. In addition to the Series 1999 Bonds, whose authentication and delivery is provided for in Article III hereof, in order to refund any Outstanding Bonds or to finance or refinance any Improvements, Additional Bonds may at any time and from time to time be executed by the City and delivered to the Trustee for authentication, but only upon receipt by the Trustee of the following: A. A City Resolution authorizing the issuance of the Additional Bonds and the sale thereof to the purchaser or purchasers named therein for the purchase price set forth therein; B. A City Order directing the authentication of such Additional Bonds and the delivery thereof to or upon the order of the purchaser or purchasers named therein upon payment of the purchase price set forth therein; C. A Company Certificate requesting the issuance of such Additional Bonds, stating that no default has occurred under the Loan Agreement which has not been cured, that the Additional Bonds to be authenticated have not theretofore been issued and that all conditions precedent provided for in this Indenture relating to the authentication and delivery of such Additional Bonds have been complied with; D. A Company Certificate, Opinion of Counsel, and as applicable, a report of an Independent Accountant or Management Consultant required by Section 6.4 of the Loan Agreement, demonstrating the ability of the Company to incur the Long Term Indebtedness underlying or evidenced by such Additional Bonds; E. An Opinion of Bond Counsel: (1) stating that all conditions precedent provided in this Indenture relating to the authentication and delivery of such Additional Bonds have been complied with; (2) stating that the Additional Bonds whose authentication and delivery are then applied for, when issued and executed by the City and authenticated and delivered by the Trustee, will be the valid and binding obligations of the City in accordance with their terms and entitled to the benefits of and secured by the lien of this Indenture, the Loan Agreement, the Mortgage and any Collateral Document equally and ratably with all Outstanding Bonds; and WH (3) stating that the issuance of such Additional Bonds will not affect the tax-exempt nature for federal income tax purposes of the Bonds then Outstanding; F. An executed counterpart of the Supplemental Indenture creating such Additional Bonds; G. Cash in the amount necessary to make the balance in the Reserve Fund equal to the Reserve Requirement immediately after the issuance of the Additional Bonds, which cash may be from proceeds of such Additional Bonds if so provided in the City Order referred to in paragraph B; H. An executed counterpart of an amendment to the Loan Agreement providing for additional Loan Repayments sufficient to provide for the payment of principal, premium, if any, and interest on all Bonds to be Outstanding after the issuance of such series of Additional Bonds, and providing for additional Fee Payments if deemed necessary; I. The City Resolution authorizing the execution and delivery of the Supplemental Indenture, the amendment to the Loan Agreement and such Additional Bonds; J. Executed counterparts of amendments or supplements to the Mortgage and any Collateral Document, unless in the Opinion of Counsel none is required, subjecting to the lien thereof all property acquired or to be acquired from the proceeds of such Additional Bonds, and required by the provisions of this Indenture to be so subjected; and K. A Company Resolution authorizing the execution and delivery of the amendment to the Loan Agreement, the amendment or supplement to the Mortgage, if any, and any Collateral Document and approving the Supplemental Indenture and the issuance and sale of such Additional Bonds. Any Additional Bonds shall be dated, shall bear interest at a rate or rates not exceeding the maximum rate, if any, permitted by law, shall have Stated Maturities, and may be subject to redemption prior to their Stated Maturities at such times and prices and on such terms and conditions (in addition to those specified in Article XIII hereof), all as may be provided by the Supplemental Indenture authorizing their issuance. All Additional Bonds shall be payable and secured equally and ratably and on a parity with the Series 1999 Bonds and any Additional Bonds theretofore issued, entitled to the same benefits and security of this Indenture, the Loan Agreement, the Mortgage, and any Collateral Documents. -29- ARTICLE V APPLICATION OF TRUST MONEY Section 5.01. "Trust Money' Defined. All money received by the Trustee, A. upon the release of property from the lien of the Loan Agreement, the Mortgage, any Collateral Document or this Indenture, or B. as compensation for, or proceeds of sale of, any part of the Mortgaged Property taken by eminent domain or purchased by, or sold pursuant to an order of, a governmental authority or otherwise disposed of, or C. as proceeds of insurance upon any part of the Facilities, or D. as elsewhere herein provided to be held and applied under this Article V, or required to be paid to the Trustee and whose disposition is not elsewhere herein otherwise specifically provided for, including, but not limited to the investment income of all Funds and accounts held by the Trustee under this Indenture, other than amounts held in the Rebate Fund, or or E. as proceeds from the sale of the Series 1999 Bonds and any Additional Bonds, F. as Loan Repayments, or as otherwise payable under the Loan Agreement, (all such moneys being herein sometimes called "Trust Money") shall be held by the Trustee as a part of the Trust Estate, and, upon the exercise by the Trustee of any remedy specified in Article VII hereof, such Trust Money shall be applied in accordance with Section 7.05 hereof, except to the extent that the Trustee is holding in trust money and/or Government Obligations for the payment of any specified Bonds which are no longer deemed to be Outstanding under the provisions of Article VI hereof, which money and/or Government Obligations shall be applied only as provided in said Article VI. Prior to the exercise of any such remedy, all or any part of the Trust Money shall be held, invested, withdrawn, paid or applied by the Trustee, from time to time, as provided in this Article V and in Article VI hereof. Section 5.02. Acquisition and Construction Fund. A special trust fund is hereby established with the Trustee and designated as the "Acquisition and Construction Fund." Upon the initial issuance and delivery of the Series 1999 Bonds an initial deposit shall be made to the Acquisition and Construction Fund from the proceeds of the Bonds to be applied by the Trustee at the direction of the Company by a Company Certificate to pay a portion of the purchase price of the Facilities by the Company and to pay, or reimburse the Company for payment, of Costs of Issuance. In addition, as provided in Section 3.1 of the Loan Agreement the Company shall upon -30- the initial issuance and delivery of the Series 1999 Bonds pay to the Trustee the amount of $2,683,148.80 for deposit in the Acquisition and Construction Fund. $420,000 of such amount shall be transferred to the Interest Account in the Bond Fund and the remainder of such amount shall be applied by the Trustee at the direction of the Company by a Company Certificate to pay, or reimburse the Company for payment of, costs of renovation, rehabilitation and improvement of the Facilities and costs of acquisition and installation of items of equipment therein and Costs of Issuance. Any money received by the Trustee for payment of Project Costs shall be credited to the Acquisition and Construction Fund. All money in the Acquisition and Construction Fund shall be held by the Trustee in trust and, subject to the provisions of this Section 5.02, shall be applied to the payment of the cost of the acquisition of the Facilities by the Company, costs of renovation, rehabilitation and improvement of the Facilities and costs of acquisition and installation of items of equipment in the Facilities, or Project Costs, and, pending such application, shall be subject to a lien and charge in favor of the Holders of the Outstanding Bonds. If the Trustee has accelerated the Bonds in accordance with Section 7.02 and has accelerated the Loan Repayments in accordance with the provisions of subsection A of Section 11.2 of the Loan Agreement, the Trustee shall immediately transfer any amounts remaining in the Acquisition and Construction Fund to the Bond Fund to be applied in accordance with the provisions of Article VII. All income derived from the investment of amounts in the Acquisition and Construction Fund, after payment of any unpaid Trustee's fees, shall be credited as received to the Interest Account of the Bond Fund. Section 5.03. Bond Fund. A special trust fund is hereby established with the Trustee and designated as the "Bond Fund." There are hereby established within the Bond Fund two separate trust accounts, designated as the "Interest Account" and the "Principal Account." Section 5.04. Interest Account. An initial deposit shall be made to the Interest Account from the proceeds of the Series 1999 Bonds and from amounts paid to the Trustee by the Company upon the initial issuance and delivery of the Bonds; such moneys, together with investment income thereon shall be applied by the Trustee to the payment of interest on the series of Bonds from which such proceeds were derived. There shall be credited to the Interest Account the total amount of each Loan Repayment made by the Company pursuant to subsection (A) of Section 2.2 of the Loan Agreement, except as otherwise provided in Section 5.06 hereof. On or before each Interest Payment Date, the Trustee shall withdraw from the Interest Account an amount sufficient to pay the interest due on the Bonds on such Interest Payment Date, and shall use such amount to pay, or make provision with the Paying Agent for the payment of, interest on the Bonds on such Interest Payment Date. -31- If on any Interest Payment Date the balance in the Interest Account is not sufficient to pay the total amount of interest due on all Bonds on such Interest Payment Date, the Trustee shall transfer any money then on hand in the Reserve Fund or the Principal Account, in the order listed and in an amount equal to such deficiency, to the Interest Account and apply the amount so transferred to payment of interest then due on Bonds. All income derived from the investment of amounts on hand in the Interest Account, after payment of any unpaid Trustee's fees, shall be credited as received to the Interest Account. Section 5.05. Principal Account. There shall be credited to the Principal Account the total amount of each Loan Repayment made by the Company pursuant to subsections (B) and (C) of Section 2.2 of the Loan Agreement, except as otherwise provided in Section 5.06 hereof. Amounts on hand in the Principal Account shall be used on any Interest Payment Date to make up any deficiency in the Interest Account, in the manner and to the extent provided in the third paragraph of Section 5.04. On or before each Principal Payment Date and Redemption Date, the Trustee shall withdraw from the Principal Account an amount sufficient to pay the principal and premium, if any, due on the Bonds on such Principal Payment Date or Redemption Date, as the case may be, and shall use such amount to pay, or make provision with the Paying Agent for the payment of, principal of and premium, if any, on the Bonds on such Principal Payment Date or Redemption Date. If on any Principal Payment Date or Redemption Date the balance in the Principal Account is not sufficient to pay the total amount of principal and premium, if any, due on all Bonds on such Principal Payment Date or Redemption Date, as the case may be, the Trustee shall transfer any money then on hand in the Reserve Fund, in an amount equal to such deficiency, to the Principal Account, and apply the amount so transferred to payment of principal and premium, if any, then due on Bonds. All income derived from the investment of amounts on hand in the Principal Account, after payment of any unpaid Trustee's fees, shall be credited as received to the Principal Account. Section 5.06. Reserve Fund. A special trust fund is hereby established with the Trustee and designated as the "Reserve Fund." Upon the initial issuance and delivery of the Series 1999 Bonds an initial deposit to the credit of the Reserve Fund shall be made from proceeds of the Series 1999 Bonds in an amount equal to the Series 1999 Bonds Reserve Requirement. -32- If on any Interest Payment Date, Principal Payment Date or Redemption Date there is a deficiency in the Interest Account or the Principal Account, for payment of interest, principal or premium then due with respect to all Bonds, the Trustee shall transfer from the Reserve Fund to the Interest Account or the Principal Account an amount equal to such deficiency. No investment of amounts on hand in the Reserve Fund shall be made in any Qualified Investments maturing more than seven years after the date of such investment. All income derived from the investment of amounts on hand in the Reserve Fund, after payment of any unpaid Trustee's fees, shall remain in, and be credited as received to, the Reserve Fund until such time as the balance in the Reserve Fund is equal to the Reserve Requirement, and thereafter all such investment -income shall be transferred as received to the Interest Account. If at any time (including, but not limited to, any Principal Payment Date and any Redemption Date), the balance in the Reserve Fund exceeds the Reserve Requirement, after payment of any unpaid Trustee's fees, the Trustee shall immediately transfer such excess to the Interest Account. If any amount is transferred from the Reserve Fund to the Bond Fund pursuant to this Section 5.06 as a result of the failure of the Company to make the Loan Repayments required by Section 2.2 of the Loan Agreement, the Trustee shall thereafter credit to the Reserve Fund all payments received by the Trustee from the Company pursuant to paragraph D of Section 2.2 of the Loan Agreement. Section 5.07. Repair and Replacement Fund. A special trust fund is hereby established with the Trustee and designated as the "Repair and Replacement Fund." Moneys shall be credited to the Repair and Replacement Fund and used as hereinafter provided: (a) The Trustee shall deposit in the Repair and Replacement Fund the amounts remitted therefor by the Company as provided in Section 2.2(E) of the Loan Agreement. The Trustee shall apply money in such fund not more often than once each month as requested in a Company certificate only to the payment of items of repair, improvement, and replacement with respect to the Housing Facility which constitute capital expenditures under generally accepted accounting principles. The Company certificate shall identify the expenditures to be made by nature and amount, and the contractor or vendor providing the repair, replacement, or other improvement, and shall certify that the expenditures are proper expenditures to be made or reimbursed from the Repair and Replacement Fund. Subject to the provisions of Section 5.06, if, on any Maturity Date, the amount then on hand in the Bond Fund is not sufficient to pay the principal, premium, if any, and interest then due on the Bonds, whether at maturity or upon redemption or by acceleration, then the Trustee shall transfer from the Repair and Replacement Fund to the Bond Fund an amount equal to the lesser of (i) the deficiency in the Bond Fund, or (ii) the money then credited to the Repair and Replacement Fund. -33- (b) There shall be credited to the Repair and Replacement Fund all Net Proceeds of condemnation awards or insurance relating to condemnation, damage or destruction of the Facilities if in excess of $150,000. Amounts on hand in the Repair and Replacement Fund shall be disbursed by the Trustee to pay the cost of replacement, repair, reconstruction or restoration of the Facilities as provided in Section 8.1 of the Loan Agreement or transferred to the Bond Fund in accordance with Section 10.2 of the Loan Agreement and used to redeem Bonds pursuant to Section 13.08 hereof. Any amount remaining in the Repair and Replacement Fund after payment of all costs of replacement, repair, reconstruction, or restoration relating to the condemnation, damage or destruction to which such amount relates, shall be transferred to the Reserve Fund if and to the extent the balance on hand in the Reserve Fund is less than the Reserve Requirement; any amounts not transferred to the Reserve Fund pursuant to the foregoing clause shall be transferred to the Principal Account. All income realized from the investment of the Repair and Replacement Fund shall be credited as received to the Repair and Replacement Fund and used and applied as additional Net Proceeds. Section 5.08. Rebate Fund. A special fund is hereby established with the Trustee and designated as the "Rebate Fund." The Trustee shall make information regarding the Bonds and investments hereunder available to the Company, shall make deposits and disbursements from the Rebate Fund in accordance with the instructions received from the Company pursuant to the Company Tax Certificate, shall invest the Rebate Fund pursuant to the requirements of the Company Tax Certificate and shall deposit income from such investments immediately upon receipt thereof in the Rebate Fund. Section 5.09. Fee Payments. By Section 2.3 of the Loan Agreement, the Company has covenanted to pay directly to the Trustee when due Fee Payments in an amount sufficient to pay the costs and expenses of the Trustee. Such Fee Payments shall not be treated or considered as Trust Moneys for any purpose of.this Indenture and the Trustee may on its own behalf enforce such covenant against the Company. The Trustee shall have a lien on all Trust Moneys, except money and/or Government Obligations held by the Trustee for the payment of any specified Bonds under Article VI hereof, prior to the lien securing the Bonds for such costs and expenses as set forth in Section 8.07 hereof. Section 5.10. Investments. Subject to the provisions of any law then in effect to the contrary, the Trustee shall invest all Trust Money on hand from time to time as specified in a Company Request in any of the following Qualified Investments: (i) Government Obligations, (ii) bonds, debentures, participation certificates or notes issued by any of the following: Bank for Cooperatives, Federal Financing Bank, Federal Land Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal National Mortgage Association, Export -Import Bank of the United States, Farmer's Home Administration, Federal Home Loan Mortgage Corporation or Government National Mortgage Association, or any other agency or corporation which has been or may hereafter be created by or pursuant to an Act of the Congress of the United States as an agency or instrumentality thereof; (iii) certificates of deposit or time deposits with any banking or savings institution which is insured by the Federal Deposit Insurance Corporation, provided that -34- such certificates of deposit or time deposits, if not insured by the Federal Deposit Insurance Corporation, are fully secured by Government Obligations which are lodged with a bank or trust company as collateral security; (iv) shares in an Investment Company registered under the Federal Investment Company Act of 1940 whose shares are registered under the Federal Securities Act of 1933 and whose only investments are Qualified Investments described in clause (i) or (ii) of this Section; or (v) commercial paper of United States industrial corporation or United States direct issuers rated in the highest rating category by Moody's Investors Service or Standard and Poor's Corporation; provided, however, such commercial paper may not be issued by the Company or any "related person" as that term is defined by Section 147(a)(2) of the Internal Revenue Code; (vi) repurchase agreements entered into with primary reporting dealers in United States government securities collateralized at least 102% by Qualified Investments described in clause (i) or (ii) of this Section, if (A) such Qualified Investments are delivered to the Trustee or are supported by a safekeeping receipt issued by a depository satisfactory to the Trustee, (B) the value of the underlying Qualified Investments shall be maintained at a current market value, calculated not less frequently than monthly, of not less than the current balance of the deposit, (C) a prior perfected security interest in the obligations which are securing such agreement has been granted to the Trustee and (D) such Qualified Investments are free and clear of any adverse third party claims; or (vii) a written investment contract with or guaranteed by a bank, bank holding company, trust company, domestic branch of a foreign bank, domestic corporation or insurance company organized and existing under the laws of the United States or any state thereof whose similar obligations are rated "A" or better by Moody's Investors Service or Standard & Poor's Corporation. Moneys credited to any account or fund maintained hereunder which are uninvested pending disbursement or receipt of proper investment directions or as directed herein, may be deposited to and held in a non-interest bearing demand deposit account established with the Commercial Banking Department of the Trustee or with any bank affiliated with the Trustee, without the pledge of Bonds to or other collateralization of such deposit accounts. The Trustee shall without further direction from the City or the Company sell such Qualified Investments as and when required to make any payment for the purpose for which such investments are held. Each investment shall be credited to the fund for which it is held, after payment of any unpaid Trustee's fees, subject to any other provision of this Indenture directing some other credit, but income on such Qualified Investments shall be held or transferred, as received, in accordance with this Article V. The Trustee shall furnish the Company, not less than semiannually, an accounting of all investments. The Trustee may make any investment permitted by this Section 5. 10, through or with its own commercial banking or investment departments or those of its affiliates, unless otherwise directed by the Company. Section 5.11. Trust Monev. All Trust Money shall be trust funds under the terms hereof and shall not be subject to lien or attachment of any creditor of the City, the Trustee or the -35- Company. Such Trust Money shall be held in trust and applied in accordance with the provisions of this Indenture. All Trust Money, for any legal, tax or other purpose, shall be considered funds of the Company, although subject to the security interest of the Trustee imposed by this Indenture. Fz11 ARTICLE VI DEFEASANCE Section 6.01. Payment of Indebtedness: Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to rights of transfer or exchange of Bonds herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Bonds theretofore authenticated and delivered (other than (i) Bonds which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.08 and (ii) Bonds for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 12.02) have been delivered to the Trustee canceled or for cancellation; or (B) all such Bonds not theretofore delivered to the Trustee canceled or for cancellation, have been defeased in accordance with Section 6.02; and (2) the Company has paid or caused to be paid all other sums payable hereunder by the City and the Company; and (3) the Company has delivered to the Trustee a Company Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Section 6.02. Defeasance of Bonds. Bonds shall be defeased and shall no longer be deemed Outstanding (except as to rights of transfer or exchange of Bonds herein expressly provided for) when there are delivered to the Trustee: (1) Defeasance Obligations, the principal of, premium, if any, and interest on which when due will, without reinvestment, provide cash at times and in amounts which together with the cash, if any, deposited with the Trustee at the same time as the Defeasance Obligations are delivered to the Trustee, shall be sufficient to pay the full amount of principal, premium, if any, and interest which will become due and payable with respect to such Bonds, on and before their Stated Maturity or on and before a specified Redemption Date, as the case may be, and if any of such Bonds are to be redeemed arrangements satisfactory to the Trustee have been made for giving notice of such redemption at the expense of the Company in the manner provided by Section 13.04 hereof, and -37- (2) an opinion of Bond Counsel to the effect that the deposit described in clause (1) will not adversely affect the exemption from federal income taxation of interest on any Outstanding Bond; and (3) a report of an Independent Accountant verifying the mathematical sufficiency of the proceeds of the Defeasance Obligations and any cash delivered to the Trustee as described in clause (1), to pay the entire amount of principal, premium, if any, and interest on the Bonds to be defeased on and before their Stated Maturity or Redemption Date, as the case may be; and (4) a Company Certificate and an Opinion of Counsel, each stating that, assuming the accuracy of the report referred to in clause (3), all conditions precedent herein provided for relating to the defeasance of such Bonds have been complied with. Section 6.03. Application of Deposited Monev. All money, obligations and income thereon deposited with the Trustee pursuant to Section 6.01 shall not be a part of the Trust Estate and shall not be deemed Trust Money but shall constitute a special trust fund for the benefit of the Persons entitled thereto, and shall be applied by the Trustee to the payment (either directly or through a Paying Agent), to the Persons entitled thereto, of the principal, premium, if any, and interest for payment of which such money or obligation were deposited with the Trustee. Section 6.04. Final Disposition of Moneys. Upon the satisfaction and discharge of this Indenture and the satisfaction of any and all claims against the Issuer, any moneys remaining in any fund created under this Indenture and not required for the payment of any Bond shall be paid to the Company. WE ARTICLE VII EVENTS OF DEFAULT; REMEDIES Section 7.01. Events of Default. The term "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to 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 any interest upon any Bond when it becomes due and payable; or B. Default in the payment of the principal of (or premium, if any, on) any Bond when the same becomes due and payable; or C. Default in the performance, or breach, of any covenant or warranty of the City contained in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section 7.01 specifically dealt with), and continuance of such default or breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the City and the Company by the Trustee, or to the City, the Company and the Trustee by the Holder or Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default' hereunder; or D. The occurrence of an "Event of Default' under the Loan Agreement or under the Mortgage or Regulatory Agreement. Section 7.02. Acceleration of Maturity. If an Event of Default relating to Bonds occurs and is continuing, then and in every such case the Trustee may, and upon the written request by registered or certified mail to the Trustee by the Holder or Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding shall, declare the principal of all the Outstanding Bonds to be due and payable immediately by a notice in writing to the City and the Company, and upon any such declaration such principal shall become immediately due and payable; provided, however, that no Bonds shall be accelerated under this Section 7.02 unless and until the Trustee shall have exercised the remedy specified in subsection (1) of Section 11.2 of the Loan Agreement. At any time after such a declaration of acceleration has been made, but before the Trustee has exercised any other remedy specified in the Loan Agreement, the Mortgage or any Collateral Document, the Holders of a majority in aggregate principal amount of the Bonds then -39- Outstanding, by written notice to the City, the Company and the Trustee, may rescind and annul such declaration and its consequences if: A. there has been paid to or deposited with the Trustee by or for the account of the City, a sum sufficient to pay (1) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and (2) all overdue installments of interest on all Bonds, (3) the principal of (and premium, if any, on) any Bonds which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by such Bonds, (4) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the rate borne by the Bonds; and B. all Events of Default, other than the non-payment of the principal of Bonds which have become due solely by such acceleration, have been cured or waived as provided in Section 7.17 hereof. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 7.03. Other Remedies. If an Event of Default occurs and is continuing, then in every such case the Trustee may, and upon the written request by registered or certified mail to the Trustee by the Holder or Holders of at least twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding shall, exercise one or more of the remedies specified in subsections (2), (3) and/or (4) of Section 11.2 of the Loan Agreement, in accordance with the provisions of Article XI of the Loan Agreement. Section 7.04. Sale Matures All Bonds. In case of any sale of the property secured by the Mortgage or any Collateral Document, or any part thereof, under Article XI of the Loan Agreement or Section 2.3 of the Mortgage, the principal of and accrued interest on all the Bonds then Outstanding, if not already due, shall immediately become due and payable. Section 7.05. Application of Money. All money collected by the Trustee pursuant to this Article, including the proceeds of any lease or sale, or any profits or issues of the property securing the Mortgage or any Collateral Document or any part thereof, under Article XI of the Loan Agreement, together with any and all other sums then held by the Trustee as part of the Trust Estate, shall be applied as follows: MR A. First: To the payment of the costs and expenses of such lease or sale, including reasonable compensation of the Trustee, its agents and counsel, and of all charges, expenses, liabilities and advances incurred or made by the Trustee, without negligence or bad faith, under this Indenture or in executing any trust or power hereunder or under the Loan Agreement, the Mortgage or any Collateral Document, to the payment of all Fee Payments payable to the City pursuant to Section 2.3 of the Loan Agreement and to the payment of all taxes, assessments or liens prior to the lien of this Indenture (including reasonable fees and disbursements of the Trustee), except any taxes, assessments or liens subject to which such lease or sale shall have been made; B. Second: To the payment of the whole amount then due and unpaid upon the Bonds then Outstanding, for principal (and premium, if any) and interest, with interest al the respective rates prescribed in the Bonds on overdue principal (and premium, if any) and (to the extent that payment of such interest is enforceable under applicable law) on overdue installments of interest; and in case such proceeds shall be insufficient to pay in full the whole amount so due and unpaid upon the Bonds then Outstanding, then to the payment of such principal and interest, without any preference or priority, ratably according to the aggregate amount so due (in lawful money of the United States of America) for principal, premium, if any, and interest, at the date fixed by the Trustee for the distribution of such proceeds; and C. Third: The surplus, if any, shall be paid to the Company, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. Section 7.06. Bondholders or Trustee May Purchase; Purchaser May Apply Bonds Toward Purchase Price. At any sale of the property secured by the Mortgage or any Collateral Document, or any part thereof, under Article XI of the Loan Agreement, any Bondholder or Bondholders or the Trustee may bid for and purchase the property offered for sale, may make payment on account thereof as herein provided, and, upon compliance with the terms of such sale, may hold, retain and dispose of such property without further accountability therefor. In case of any sale of the property secured by the Mortgage or any Collateral Document, or any part thereof, under Article XI of the Loan Agreement, any purchaser shall be entitled, for the purpose of making payment for the property purchased, to use any Bonds then Outstanding and claims for interest, in order that there may be credited thereon the sums payable out of the net proceeds of such sale to the Holder of such Bonds and claims for interest as his ratable share of such net proceeds; and thereupon such purchaser shall be credited on account of such purchase price with the portion of such net proceeds that shall be applicable to the payment of, and shall have been credited upon, the Bonds and claims for interest so used. Section 7.07. Receiver. Upon the occurrence of an Event of Default and commencement of judicial proceedings by the Trustee to enforce any right under this Indenture, the Loan Agreement, the Mortgage or any Collateral Document, the Trustee shall be entitled, without notice or demand and without regard to the adequacy of the security for the Bonds or the -41- - solvency of the Company, to the appointment of a receiver of any property and of the profits, revenues and other income thereof, but, notwithstanding the appointment of any receiver, the Trustee shall be entitled to retain possession and control of, and to collect and receive the income from, cash, securities and other personal property held by, or required to be deposited or pledged with, the Trustee hereunder and to retain control of, and to collect and receive the income from, all property subject to the lien of the Mortgage and any Collateral Document. Section 7.08. Collection of Indebtedness by the Trustee. The City covenants that, if A. default is made in the payment of any interest on any Bond 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 Bond as the same becomes due and payable, then, upon demand of the Trustee, it will cause the Company, on behalf of the City, to pay to the Trustee for the benefit of the Holders of such Bonds the whole amount then due and payable on such Bonds, for principal, premium, if any, and interest, with interest at the respective rates prescribed in the Bonds on overdue principal (and premium, if any) and (to the extent that payment of such interest is legally enforceable) on overdue installments of interest; 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 Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon demand the Trustee, in its own name and as trustee of an express trust, shall be entitled to sue for and recover judgment against the Company for the whole amount so due and unpaid. The Trustee shall be entitled to sue and recover judgment as aforesaid either before, after or during the pendency of any proceedings for the enforcement of the lien of this Indenture, the Mortgage or any Collateral Document and in case of a sale of the Trust Estate and the application of the proceeds of sale as aforesaid, the Trustee, in its own name and as trustee of an express trust, shall be entitled to enforce payment of, and to receive, all amounts then remaining due and unpaid upon the Outstanding Bonds, for the benefit of the Holders thereof, and shall be entitled to recover judgment for any portion of the same remaining unpaid, with interest as aforesaid. No recovery of any such judgment upon any property of the Company shall affect or impair the lien of this Indenture upon the Trust Estate or any rights, powers or remedies of the Trustee hereunder, or any rights, powers or remedies of the Holders of the Bonds. Section 7.09. Trustee May File Proofs of Claims. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the City or the Company or any other obligor upon the Bonds or the property of the City or the Company or of such other obligor or their -42- - creditors, the Trustee (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the City and/or the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, A. to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Bonds then Outstanding and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Bondholders allowed in such judicial proceedings, and B. to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Bondholder to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Bondholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents and counsel. Section 7.10. Trustee May Enforce Claims Without Possession of Bonds. All rights of action and claims under this Indenture, the Bonds, the Loan Agreement, the Mortgage, or any Collateral Document may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of Holders of the Bonds in respect of which such judgment has been recovered. Section 7.11. Limitation on Suits. No Holder of any Bond shall have any right to institute any proceedings, judicial or otherwise, with respect to this Indenture, the Loan Agreement, the Mortgage or any Collateral Document, or for the appointment of a receiver or trustee, or for any remedy hereunder or thereunder, unless: A. such Holder shall previously have given written notice to the Trustee of a continuing Event of Default; B. the Holders of not less than twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee to -43- institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; C. such Holder or Holders shall have offered the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; D. the Trustee for sixty (60) days after its receipt of such written request and offer of indemnity has failed to institute any such proceeding; and E. no direction inconsistent with such written request has been given to the Trustee during such sixty (60) day period by the Holder or Holders of a majority in principal amount of Bonds then Outstanding; it being understood and intended that no one or more Holders of Bonds shall have any right, in any manner whatever, by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Bonds or to obtain or seek to obtain priority or preferences over any other Holders of Bonds or to enforce any right under this Indenture, the Loan Agreement, the Mortgage or any Collateral Document, except in the manner herein provided and for the equal and ratable benefit of all the Holders of Bonds then Outstanding. Section 7.12. Unconditional Right of Bondholders to Receive Principal. Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Bond shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and interest on such Bond on the Stated Maturity expressed in such Bond (or, in the case of redemption, on the Redemption Date or Sinking Fund Payment Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. Section 7.13. Restoration of Positions. If the Trustee or any Bondholder has instituted any proceeding to enforce any right or remedy under this Indenture, the Loan Agreement, the Mortgage, or any Collateral Document, by foreclosure, entry or otherwise, and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Bondholder, then and in every such case the City, the Company, the Trustee and the Bondholders shall, subject to any determination in such proceeding, be restored to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Bondholders shall continue as though no such proceeding had been instituted. Section 7.14. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Bondholders is intended to be exclusive of any other right or remedy, but every such right or remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or under the Loan no -- Agreement, the Mortgage or any Collateral Document, or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or under the Loan Agreement, the Mortgage or any Collateral Document or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 7.15. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Bond 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 under the Loan Agreement, the Mortgage or any Collateral Document, or by law, to the Trustee or to the Bondholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Bondholders, as the case may be. Section 7.16. Control by Bondholders. The Holders of twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding shall have the right, during the continuance of an Event of Default, A. to require the Trustee to proceed to enforce this Indenture, the Loan Agreement, the Mortgage or any Collateral Document, either by judicial proceedings for the enforcement of the payment of the Bonds or the foreclosure of the Mortgage or the enforcement of any other remedy; and B. to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee hereunder, or under the Loan Agreement, the Mortgage or any Collateral Document; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Holders not taking part in such direction, and (3) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 7.17. Waiver of Past Defaults. Any Event of Default under subsection D of Section 7.01 hereof shall be automatically waived, rescinded and annulled if the corresponding "Event of Default" under the Loan Agreement shall be waived, rescinded and annulled pursuant to, and in accordance with the provisions of, Section 11.1 of the Loan Agreement. Before any sale of any of the Trust Estate has been made under this Article or any judgment or decree for payment of money due has been obtained by the Trustee as provided in this Article, the Holders of not less than twenty-five percent (25%) in principal amount of the Outstanding Bonds may, by -45- Act of such Bondholders delivered to the Trustee, the City and the Company, on behalf of the Holders of all the Bonds 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 Bond, or B. in respect of a covenant or provision hereof which under Article XI cannot be modified or amended without the consent of the Holder of each Outstanding Bond 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 this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 7.18. Undertaking for Costs. The Company and all parties to this Indenture agree, and each Holder of any Bond 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 this Indenture, or in any suit against the Trustee for any action taken or omitted by it as 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 7.18 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Bondholder or group of Bondholders holding in the aggregate more than twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds, or to any suit instituted by any Bondholder for the enforcement of the payment of the principal of, premium, if any, or interest on any Bond on or after the Stated Maturity expressed in such Bond (or, in the case of redemption, on or after the Redemption Date). Section 7.19. Suits to Protect the Trust Estate and Other Property. The Trustee shall have power to institute and to maintain such proceedings as it may deem expedient to prevent any impairment of the Trust Estate or the property secured by the Mortgage or any Collateral Document by any acts which may be unlawful or in violation of this Indenture, the Loan Agreement, the Mortgage or any Collateral Document, and to protect its interests and the interests of the Bondholders in the Trust Estate and in the issues, profits, revenues and other income arising therefrom, including power to institute and maintain proceedings to restrain the enforcement of or compliance with any governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of, or compliance with, such enactment, rule or order would impair the security hereunder or thereunder or be prejudicial to the interest of the Bondholders or the Trustee. K Me Section 7.20. Rights Under Loan Agreement. The City, in the Granting Clauses, has pledged and granted a security interest in all of its rights in the Loan Agreement (with certain exceptions) to the Trustee, and the Trustee in its name or in the name of the City may enforce all rights and remedies of the City under and pursuant to the Loan Agreement. -47- GlXWO)S i11 THE TRUSTEE Section 8.01. Certain Duties and Responsibilities. A. Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, the Loan Agreement, the Mortgage and any Collateral Document, and no implied covenants or obligations shall be read into this Indenture, the Loan Agreement, the Mortgage or any Collateral Document against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, the Mortgage and the Loan Agreement; but in the case of any such certificates or opinions which by any provisions hereof, the Mortgage or the Loan Agreement are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, the Mortgage or the Loan Agreement. B. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, the Loan Agreement, the Mortgage and any Collateral Document, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. C. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (1) this subsection shall not be construed to limit the effect of subsection A of this Section 8.01; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; K" (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (4) no provision of this Indenture, the Loan Agreement, the Mortgage or any Collateral Document shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or thereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. D. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 8.01. The Trustee acknowledges that, upon satisfaction of the conditions set forth in the Mortgage and the Loan Agreement for the granting or release of easements or the release of property from the lien of the Mortgage, the Trustee shall promptly give written acknowledgment of the satisfaction of such condition, and shall cooperate in providing or consenting to, all documents and actions necessary to accomplish such release. Section 8.02. Notice of Event of Default. Within ninety (90) days after the occurrence of any default hereunder, the Trustee shall transmit by mail to all Bondholders notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Bond, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Bondholders; and provided, further, that in the case of any default of the character specified in subsection C of Section 7.01 no such notice to Bondholders shall be given until at least thirty (30) days after the occurrence thereof. Section 8.03. Certain Rights of Trustee. Except as otherwise provided in Section 8.01 hereof: A. the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; B. any request or direction of the City or the Company mentioned herein shall be sufficiently evidenced by a City Request, City Order, Company Request or Company Order and any resolution of the City Council or resolution of the Board of Directors of the Company may be sufficiently evidenced by a City Resolution or Company Resolution; C. whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon a City Certificate or Company Certificate; D. the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; E. the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture, the Loan Agreement, the Mortgage or any Collateral Document, at the request or direction of any of the Bondholders pursuant to this Indenture, unless such Bondholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; F. the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; G. the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder or under the Loan Agreement, the Mortgage or any Collateral Document, either directly or by or through agents or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and H. the Trustee shall not be personally liable, in case of entry by it upon the Facilities, for debts contracted or liabilities or damages incurred in the management or operation of the Trust Estate. if a Section 8.04. Not Responsible for Recitals or Issuance of Bonds. The recitals ^ contained herein and in the Bonds, except the Trustee's certificate of authentication on the Bonds, shall not be taken as the statements of the Trustee, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the value or condition of the Facilities or any part thereof, or as to the title of the Company thereto or as to the security afforded thereby or hereby or as to the validity or sufficiency of this Indenture, the Loan Agreement, the Mortgage, any Collateral Document, or of the Bonds. Section 8.05. May Hold Bonds. The Trustee, any Paying Agent, or any other agent of the City, in its individual or any other capacity, may become the owner or pledgee of Bonds and may otherwise deal with the City and/or the Company with the same rights it would have if it were not Trustee, Paying Agent, or such other agent. Section 8.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the City. Section 8.07. Compensation and Reimbursement. As security for the performance of the obligations of the Company to make Fee Payments to the Trustee under Section 2.3 of the Loan Agreement and to indemnify the Trustee under Section 7.8 of the Loan Agreement, the Trustee shall, except as to money and/or Government Obligations held by the Trustee for the payment of any specified Bonds which are no longer deemed to be Outstanding under the provisions of Article VI hereof, be secured under this Indenture by a lien prior to the Bonds; and for the payment of such compensation, expenses, reimbursements and indemnity the Trustee shall have the right to use and apply any Trust Money, held by it except money and/or Governmental Obligations held by the Trustee pursuant to Article VI hereof as aforesaid. Section 8.08. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000, subject to supervision or examination by a federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 8.08 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 8.08, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. -51- Section 8.09. Resignation and Removal; Appointment of Successor. A. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Trustee under Section 8.10 hereof. B. The Trustee may resign at any time by giving written notice thereof to the City and the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. C. The Trustee may be removed at any time by Act of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding, delivered to the Trustee, the City and the Company. D. If at anytime: (1) the Trustee shall cease to be eligible under Section 8.08 hereof and shall fail to resign after written request therefor by the City, the Company or by any Bondholder, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the City by a City Resolution may remove the Trustee, or (ii) any Bondholder who has been a bona fide Holder of a Bond for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. E. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the City, by a City Resolution, shall promptly appoint a successor Trustee acceptable to the Company, whose acceptance shall not be unreasonably withheld. In case all or substantially all of the Trust Estate shall be in the possession of a receiver or trustee lawfully appointed, such receiver or trustee, by written instrument, may similarly appoint a successor to fill a vacancy until a new Trustee shall be so appointed by the Bondholders. If, within one (1) year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding delivered to the City, the retiring Trustee and the Company, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the City. If no successor Trustee shall have been so -52- - appointed by the City or the Bondholders and accepted appointment in the manner hereinafter provided, any Bondholder who has been a bona fide Holder of a Bond for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. G. The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Bonds at their addresses as shown in the Bond Register. Each notice shall include the name of the successor Trustee and the address of its principal corporate trust office. Section 8.10. Acceptance of Appointment by Successor Trustee. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the City and to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the City or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument or instruments transferring to such successor Trustee all the rights, powers, and trusts of the retiring Trustee in and to all property and money held by such retiring Trustee hereunder or under the Loan Agreement, Mortgage or any Collateral Document, subject nevertheless to its lien, if any, provided for in Section 8.07. Upon request of any such successor Trustee, the City and the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VIII, to the extent operative. Section 8.11. Merger, Conversion, Consolidation or Successor to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or which it may sell or transfer, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article VIII, to the extent operative, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Bonds shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Bonds so authenticated with the same effect as if such successor Trustee had itself authenticated such Bonds. -53- Section 8.12. Co -trustees and Separate Trustees. At any time or times, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Estate may at the time be located, the City and the Trustee shall have power to appoint, and, upon the request of the Trustee or of the Holder or Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, the City shall for such purpose join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint one or more persons approved by the Trustee either to act as co - trustee, jointly with the Trustee, of all or any part of the Trust Estate, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons, in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 8.12. If the City does not join in such appointment within fifteen (15) days after the receipt by it of a request so to do, or in case a default has occurred and is continuing, the Trustee alone shall have power to make such appointment. Should any written instrument from the City be required by any co -trustee or separate trustee so appointed for more fully confirming to such co -trustee or separate trustee such property, title, right or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the City. Every co -trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: A. The Bonds shall be authenticated and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by or required to be deposited or pledged with the Trustee hereunder shall be exercised solely by the Trustee. B. The rights, powers, duties and obligations conferred or imposed upon the Trustee in respect of such property shall be conferred or imposed upon and exercised or performed by the Trustee or by the Trustee and each co -trustee or separate trustee jointly, as shall be provided in the instrument appointing such co -trustee or separate trustee, except to the extent that, under the law of any jurisdiction in which any particular act is to be performed, the Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co -trustee or separate trustee. C. The Trustee at any time, by an instrument in writing, with the concurrence of the City evidenced by a City Resolution, may accept the resignation of or remove any co - trustee or separate trustee appointed under this Section 8.12, and, in case a default has occurred and is continuing, the Trustee shall have power to accept the resignation of or remove any such co -trustee or separate trustee without the concurrence of the City. Upon the written request of the Trustee, the City shall join with the Trustee in the execution, -54- delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co -trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 8.12. D. No co -trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Trustee, or any other trustee hereunder. E. Any Act of Bondholders delivered to the Trustee shall be deemed to have been delivered to each such co -trustee and separate trustee. Upon the acceptance in writing of such appointment by any such co -trustee or separate trustee, he, she or it shall be vested with the estates or property specified in the instrument of appointment, jointly with the Trustee (except insofar as local law makes it necessary for any such co -trustee or separate trustee to act alone), subject to all the terms of this Indenture. Every such acceptance shall be filed with the Trustee. Any co -trustee or separate trustee may, at any time by an instrument in writing, constitute the Trustee its or his attorney-in- fact and agent, with full power and authority to do all acts and things and to exercise all discretion on his, her or its behalf. In case any co -trustee or separate trustee shall die, become incapable of acting, resign or be removed, all the property, titles, rights and powers of such co -trustee or separate trustee, so far as permitted by law, shall vest in and be exercised by the Trustee without the appointment of a new trustee as successor to such co -trustee or separate trustee. The provisions of Sections 8.01 and 8.03 shall be applicable to any co -trustee or separate trustee appointed under this Section 8.12. Section 8.13. Trustee and Loan Agreement. Reference is hereby made to the Loan Agreement, wherein it is provided that the Trustee will accept certain duties, perform or consent to certain acts, receive certain documents and exercise certain rights and remedies under such Loan Agreement, the Mortgage and any Collateral Document. The Trustee hereby consents to such terms and provisions contained in the Loan Agreement and covenants and agrees to accept such duties, perform such acts and receive such documents thereunder as is expressly set forth therein on the terms and conditions therein specified. The Trustee hereby covenants and agrees to exercise all rights and remedies set forth in the Loan Agreement relating to the Loan Agreement, the Mortgage and any Collateral Document as the Trustee deems necessary and proper, employing the standards set forth in Section 8.01 hereof, in the best interests of the Holders of the Bonds. -55- Section 8.14. Resignation or Removal of Paying Agent, Successors. Any Paying Agent may at any time resign and be discharged of the duties and obligations created by this instrument and any Supplemental Indenture by giving at least sixty (60) days' written notice to the City, the Company and the Trustee. Any Paying Agent may be removed at any time by an instrument filed with such Paying Agent and the Trustee and signed by the City and the Company. Any successor Paying Agent shall be appointed by the City, with the approval of the Company, and shall be a bank or trust company duly organized under the laws of any State of the United States or a national banking association, having a capital stock and surplus aggregating at least $10,000,000, and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by this Indenture. In the event of the resignation or removal of any Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys or securities held by it as Paying Agent to its successor, or if there be no successor, to the Trustee. -56- a►�7111WW ./ BONDHOLDERS' MEETINGS Section 9.01. Purposes for Which Bondholders' Meetings May Be Called. A meeting of Bondholders may be called at any time and from time to time pursuant to this Article IX for any of the following purposes: A. to give any notice to the City, the Trustee or the Company, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or of any default under the Loan Agreement and its consequences, or to take any other action authorized to be taken by Bondholders pursuant to Article VII hereof; B. to remove the Trustee and appoint a successor trustee pursuant to Article VIII hereof; C. to consent to the execution of any amendment to the Loan Agreement, the Mortgage or any Collateral Document pursuant to Article X hereof or of a Supplemental Indenture pursuant to Article XI hereof; or D. to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Bonds under any other provision of this Indenture, the Loan Agreement or the Mortgage, or under applicable law. Section 9.02. Place of Meetings of Bondholders. Meetings of Bondholders may be held at such place or places as the Trustee or, in case of its failure to act, the City or the Bondholders calling the meeting, shall from time to time determine. Section 9.03. Call and Notice of Bondholders' Meetings. A. The Trustee may at any time call a meeting of Bondholders to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of Bondholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed, not less than twenty (20) nor more than one hundred eighty (180) days prior to the date fixed for the meeting, to each Bondholder. Failure of the Bondholder to receive such notice, or any defect therein shall not, however, in any way impair or affect the validity of any such meeting. B. In case at any time the City or the Company, pursuant to a City Resolution or a Company Resolution, or the Holders of at least ten percent (10%) in aggregate principal amount of the Bonds then Outstanding, shall have requested the Trustee to call a meeting of the Bondholders, by written request setting forth in reasonable detail the action -57- proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the City or the Company or the Holders of Bonds in the amount above specified may determine the time and the place in the location designated in Section 9.02 hereof for such meeting and may call such meeting to take any action authorized in Section 9.01 hereof by giving notice thereof as provided in subsection A of this Section 9.03. Section 9.04. Persons Entitled to Vote at Bondholders' Meetings. To be entitled to vote at any meeting of Bondholders, a Person shall be (i) a Holder of one or more Bonds, or (ii) a Person appointed by an instrument in writing as proxy for a Holder or Holders of Bonds by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Bondholders shall be the Persons entitled to vote at such meeting and their counsel - - and any representatives of the Trustee and its counsel, representatives of the City and its counsel and any representative of the Company and its counsel. Section 9.05. Determination of Voting Rights; Conduct and Adjournment of Meetings. A. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Bondholders in regard to proof of the holding of Bonds and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Bonds shall be proved in the manner specified in Section 1.04 hereof and the appointment of any proxy shall be proved in the manner specified in Section 1.04. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.04 hereof or other proof. B. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the City or by Bondholders as provided in subsection B of Section 9.03 hereof, in which case the City or the Bondholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority of the Bonds represented at the meeting and entitled to vote. C. At any meeting each Bondholder or proxy shall be entitled to one vote for each $5,000 principal amount, or fraction thereof, of Outstanding Bonds held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Bond challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Bondholder or proxy. RM D. At any meeting of Bondholders, the presence of Persons holding or representing Bonds in an aggregate principal amount sufficient under the appropriate provision of this Indenture to take action upon the business for the transaction of which such meeting was called shall constitute a quorum. Any meeting of Bondholders duly called pursuant to Section 9.03 hereof may be adjourned from time to time by vote of the Holders (or proxies for the Holders) of a majority of the Bonds represented at the meeting and entitled to vote, whether or not a quorum shall be present; and the meeting may be held as so adjourned without further notice. Section 9.06. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Bondholders shall be by written ballots on which shall be subscribed the signatures of the Holders of Bonds or of their representatives by proxy and the serial number or numbers of the Bonds held or represented by them. The permanent chairman of the meeting shall appoint at least two (2) inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Bondholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 9.03 hereof. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and the City and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 9.07. Revocation by Bondholders. At any time prior to (but not after) the evidencing to the Trustee, in the manner provided in Section 1.04 hereof, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Bonds specified in this Indenture in connection with such action, any Holder of a Bond which is included in the Bonds the Holders of which have consented to such action may, by filing written notice with the Trustee at its principal office and upon proof of holding as provided in Section 1.04 hereof, revoke such consent so far as concerns such Bond. Except as aforesaid any such consent given by the Holder of any Bond shall be conclusive and binding upon such Holder and upon all future Holders of such Bond and of any Bond issued in exchange therefor or in lieu thereof, irrespective of whether or not any notation in regard thereto is made upon such Bond. Any action taken by the Holders of the percentage in aggregate principal amount of the Bonds specified in this Indenture in connection with such action shall be conclusively binding upon the City, the Trustee and the Holders of all the Bonds. MWE ARTICLE X AMENDMENT OF LOAN AGREEMENT, MORTGAGE, REGULATORY AGREEMENT, AND COLLATERAL DOCUMENTS Section 10.01. Amendment to Loan Agreement, Mortgage, Regulatory Agreement, and Collateral Documents Without Consent of Bondholders. Without the consent of the Holders of any Bonds, the Trustee, at any time and from time to time, may consent to one or more amendments or supplements to the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Document, in form satisfactory to the Trustee, for any of the following purposes: A. To correct or amplify the description of any property at any time subject to the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Document, or better to assure, convey and confirm unto the Trustee any property subject or required to be subject to the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Document, or to subject to the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Document, additional property; or B. To add to the conditions, limitations and restrictions of the Company in the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Documents other conditions, limitations and restrictions thereafter to be observed; or C. To consent to the creation of any series of Additional Bonds, as provided in Article IV hereof, including therein any amendment of the Loan Agreement to provide for increased Loan Repayments and, if necessary, Fee Payments, to provide terms and conditions relating to the acquisition, construction, installation and equipping of any Improvement financed with the proceeds of such series of Additional Bonds, or to subject to the lien of the Mortgage such Improvement; or D. To modify or eliminate any of the terms of the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Document; provided, however, that: (1) any such modification or elimination shall be expressly provided in such amendment to the Loan Agreement, the Mortgage, the Regulatory Agreement, or any Collateral Document to become effective only when there are no Bonds Outstanding of any series created prior to the execution of such amendment to the Loan Agreement, the Mortgage or any Collateral Document; and (2) the Trustee may, in its discretion, decline to enter into any such amendment which, in its opinion, may not afford adequate protection to the Trustee when the same becomes effective; or E. To evidence the succession of another corporation to the Company in accordance with the provisions of Section 7.1 of the Loan Agreement, and the assumption by any such successor of the covenants of the Company contained in the Loan Agreement, the Mortgage, the Regulatory Agreement and any Collateral Document, or to evidence the succession of any successor Trustee under the provisions of Article VIII hereof, or F. To add to the covenants of the Company or to surrender any right or power conferred upon the Company; or G. To add any property or other right to the lien of the Mortgage or any Collateral Document, or to release any property (or undivided interest therein) or other right from the Mortgage or any Collateral Document when made in accordance with, and subject to the provisions of, the Loan Agreement, the Mortgage or any Collateral Document; or H. To eliminate, modify, or add any provision which in the opinion of Bond Counsel is necessary or desirable in order to preserve the exemption of interest on the Bonds from federal income taxation; or I. To cure any ambiguity, to correct or supplement any provision of the Loan Agreement, the Mortgage, the Regulatory Agreement or any Collateral Document that may be inconsistent with any other provision of the Loan Agreement, the Mortgage, the Regulatory Agreement or any Collateral Document, or to make any other provisions with respect to matters or questions arising under the Loan Agreement, the Mortgage or any Collateral Document, which shall not be inconsistent with the provisions thereof or the Indenture, provided such action shall not adversely affect the interests of the Holders of the Bonds. Section 10.02. Amendment to Loan Agreement, Mortgage. Regulate,ry Agreement or Collateral Documents With Consent of Bondholders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding which are affected by such amendment to the Loan Agreement, the Mortgage, the Regulatory Agreement or any Collateral Document, by Act of said Holders delivered to the City and the Trustee, the City, when authorized by a City Resolution, and the Trustee may enter into an amendment or amendments to the Loan Agreement or an amendment or amendments or a supplement or supplements to the Mortgage or any Collateral Document for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Loan Agreement, the Mortgage, the Regulatory Agreement or any Collateral Document; provided, however, that no such amendment shall, without the consent of the Holder of each Outstanding Bond affected thereby, A. reduce the aggregate amount of Loan Repayments payable under the Loan Agreement, or allow any installment of Loan Repayments to be paid subsequent to the -61- time needed for the payment of principal of, premium, if any, and interest on the Bonds, or B. modify any of the provisions of the Loan Agreement, the Mortgage or any Collateral Document to eliminate the requirement that the Trustee consent to every amendment thereto, or C. release from the lien of the Mortgage or any Collateral Document any of the property secured thereby, or permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture on any part of the Trust Estate, except as expressly permitted by this Indenture, the Loan Agreement, the Mortgage or any Collateral Document. For all purposes of this Section 10.02, Bonds shall be deemed to be "affected" by an amendment if such amendment adversely affects or diminishes the rights of Holders thereof to be assured of the payment of principal of, premium, if any, and interest on the Bonds. The Trustee may in its discretion determine whether or not any Bonds would be affected by any amendment and any such determination shall be conclusive upon the Holders of all Bonds, whether theretofore or thereafter authenticated and delivered hereunder. The Trustee shall not be liable for any such determination made in good faith. It shall not be necessary for any Act of Bondholders under this Section 10.02 to approve the particular form of any proposed amendment or supplement to the Loan Agreement, the Mortgage or any Collateral Document, but it shall be sufficient if such Act shall approve the substance thereof. Section 10.03. Consent to Amendments. In consenting to an amendment to the Loan Agreement or the execution of an amendment or supplement to the Mortgage, the Regulatory Agreement or any Collateral Document permitted by this Article X, the Trustee shall be entitled to receive, and (subject to Section 8.01 hereof) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such consent or amendment or supplement is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such amendment or supplement that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. -62- ARTICLE XI SUPPLEMENTAL INDENTURES Section 11.01. Supplemental Indentures Without Consent of Bondholders. Without the consent of the Holders of any Bonds, the City, when authorized by a City Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any one of the following purposes: A. To correct or amplify the description of the Trust Estate, or better to assure, convey and confirm unto the Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property, or to subject to the lien and pledge of this Indenture additional revenues, properties or collateral; or B. To add to the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Bonds or of any series of Bonds, as herein set forth, other conditions, limitations and restrictions thereafter to be observed; or C. To provide for the creation of any series of Additional Bonds, as provided in, and subject to the conditions and requirements of, Article IV hereof; or that: D. To modify or eliminate any of the terms of this Indenture; provided, however, (1) any such Supplemental Indenture shall expressly provide that such modification or elimination shall become effective only when there are no Bonds Outstanding of any series created prior to the execution of such Supplemental Indenture; and (2) the Trustee may, in its discretion, decline to enter into any such Supplemental Indenture which, in its opinion, may not afford adequate protection to the Trustee when the same becomes effective; or E. To add to the covenants of the City, for the benefit of the Holders of the Bonds or of any series of Bonds, or to surrender any right or power herein conferred upon the City; or -63- F. To add, modify or eliminate any provision which, in the opinion of Bond Counsel, it is necessary or desirable to add, modify or eliminate in order to preserve the exemption of interest on the Bonds from federal income taxation; or G. To cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action shall not adversely affect the interests of the Holders of the Bonds then Outstanding. Section 11.02. Supplemental Indentures With Consent of Bondholders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds of all series Outstanding which are affected by such Supplemental Indenture, by Act of said Holders delivered to the City, the Company and the Trustee, the City, when authorized by a City Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Bonds under this Indenture; provided, however, that no such Supplemental Indenture shall, without the consent of the Holder of each Outstanding Bond affected thereby, A. change the Stated Maturity of the principal of, or any Interest Payment Date of, any Bond, or reduce the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof, or change the coin or currency in which any Bond or the premium or 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 Bonds the consent of whose Holders is required for any such Supplemental Indenture, or the consent of whose Holders is required for any amendment or supplement to the Loan Agreement, the Mortgage or any Collateral Document, or for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or C. modify any of the provisions of this Section 11.02 or Section 7.17 hereof, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Bond affected thereby; or D. permit the creation of any lien ranking prior to or on a parity with the lien of this Indenture on any part of the Trust Estate or reduce the preferences herein expressly provided for Bonds or terminate the lien of this Indenture on any property at any time subject hereto, except as otherwise expressly provided herein. .: For all purposes of this Section 11.02, Bonds shall be deemed to be "affected" by a Supplemental Indenture if such Supplemental Indenture adversely affects or diminishes the rights of Holders thereof against the City or the Trust Estate. The Trustee may in its discretion determine whether any Bonds would be affected by any Supplemental Indenture and any such determination shall be conclusive upon the Holders of all Bonds, whether theretofore or thereafter authenticated and delivered hereunder. The Trustee shall not be liable for any such determination made in good faith. It shall not be necessary for any Act of Bondholders under this Section 11.02 to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 11.03. Execution of Supplemental Indentures. In executing or accepting the additional trust created by any Supplemental Indenture permitted by this Article XI or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 8.01 hereof) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such Supplemental Indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such Supplemental Indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 11.04. Effect of Supplemental Indentures. Upon the execution of any Supplemental Indenture under this Article XI, this Indenture shall be modified in accordance therewith, and such Supplemental Indenture shall form a part of this Indenture for all purposes and every Holder of Bonds theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 11.05. Reference in Bonds to Supplemental Indentures. Bonds authenticated and delivered after the execution of any Supplemental Indenture pursuant to the provisions of this Article XI may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such Supplemental Indenture. If the City shall so determine, new Bonds so modified as to conform in the opinion of the Trustee and the City to any such Supplemental Indenture may be prepared and executed by the appropriate officials of the City and authenticated and delivered by the Trustee in exchange for Outstanding Bonds. Section 11.06. Consent of Company. So long as there is not a subsisting Event of Default under the Loan Agreement, no Supplemental Indenture shall become effective unless and until delivery to the Trustee of a Company Consent to such Supplemental Indenture. -65- WA1041M.111 COVENANTS Section 12.01. Payment of Principal. Premium and Interest. Solely from the money derived from the Loan Agreement (other than to the extent payable out of proceeds of the Bonds, amounts in the Reserve Fund, the Net Proceeds of insurance or condemnation awards or proceeds of the sale or other disposition of the Mortgaged Property under the Mortgage), the City will duly and punctually pay the principal of, premium, if any, and interest on the Bonds in accordance with the terms of the Bonds and this Indenture. Money derived from the Loan Agreement includes all money derived from the Granting Clauses set forth herein, including, but not limited to, Loan Repayments under the Loan Agreement and Trust Moneys deposited under this Indenture. Nothing in the Bonds or in this Indenture or the Loan Agreement shall be considered as assigning or pledging funds or assets of the City other than those covered by the Granting Clauses set forth herein. Section 12.02. Money for Bond Payments to be Held in Trust. The City will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 12.02, that such Paying Agent will: A. hold all sums held by it for the payment of principal of, premium, if any or interest on Bonds in trust for the benefit of the Holders of such Bonds until such sums shall be paid to such Holders or otherwise disposed of as herein provided; and B. at any time during the continuance of any default in the making of any payment of principal premium, if any, or interest, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The City may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by City Order direct any Paying Agent to pay, to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of, premium, if any, or interest on any Bond and remaining unclaimed for a period of two years and eleven months after such principal, premium, if any, -or interest has become due and payable shall be paid to the Company; and the Holder of such Bond shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 12.03. Tax -Free Nature of Bonds. The City covenants and agrees for the benefit of the Bondholders that it will take no affirmative action which, and the Trustee covenants and agrees for the benefit of the Bondholders that it will not permit any thing or act under its control to be done in such manner as, would result in loss of tax exemption of interest on the Bonds under the Code and the regulations promulgated thereunder, nor will either use any of the proceeds received from the sale of the Bonds, directly or indirectly, in any manner which would result in such Bonds being classified as arbitrage bonds within the meaning of Section 148(a) of the Code and the regulations promulgated and in effect thereunder. -67- i ARTICLE XIII 1:7:117g512YCi]�1 Section 13.01. Right of Redemption. The Bonds of any series are subject to redemption as provided in this Article XIII and in the Supplemental Indenture creating such series (except the Series 1999 Bonds, as to which the provisions specified in Article III hereof shall apply). Section 13.02. Election to Redeem; Notice to Trustee. The election of the City or the Company to redeem any Bonds shall be evidenced by a City Order or Company Order. In case of any redemption at the election of the City or the Company of less than all of the Outstanding Bonds of any series, the City or the Company, shall, at least forty-five (45) days prior to the Redemption Date fixed by the City or the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Bonds of such series to be redeemed. Any redemption of Term Bonds made in accordance with Section 3.04 hereof or a similar provision of a Supplemental Indenture shall not require any action by the City or the Company. Section 13.03. Selection by Trustee of Bonds to be Redeemed. If less than all of the Outstanding Bonds of any series are to be redeemed, the Company shall specify, by Company Order, the Stated Maturities of the Bonds to be redeemed. If less than all Bonds of a single Stated Maturity are to be redeemed, the particular Bonds to be redeemed shall be selected by the Trustee from the Outstanding Bonds of that Stated Maturity not previously called for redemption, by lot or in such manner as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Bonds in a denomination larger than $5,000 or the smallest authorized denomination of the Bonds of that series. The Trustee shall promptly notify the City and the Company in writing of the Bonds selected for redemption and, in the case of any Bond selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Bonds shall relate, in the case of any Bond redeemed or to be redeemed only in part, to the portion of the principal of such Bond which has been or is to be redeemed. Section 13.04. Notice of Redemption. Notice of redemption shall be mailed first- class, postage prepaid, not less than thirty (30) days prior to the Redemption Date; to each Holder of Bonds to be redeemed; but no defect in any notice so mailed shall affect the validity of the proceedings for redemption as to any Bond not affected by such defect. All notices of redemption shall state: U3 A. the Redemption Date, B. the Redemption Price, C. the principal amount of Bonds of each series to be redeemed, and, if less than all Outstanding Bonds of a series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Bonds of such series to be redeemed, D. that on the Redemption Date, the Redemption Price will become due and payable upon each such Bond, and that interest thereon shall cease to accrue on and after such date, E. the place or places where such Bonds are to be surrendered for payment of the Redemption Price, and F. if it be the case, that such Bonds are to be redeemed by the application of certain specified Trust Moneys or for certain specified reasons. Section 13.05. Deposit of Redemption Price. On or before each Redemption Date the Company shall deposit with the Trustee an amount of money sufficient to pay the Redemption Price of all the Bonds to be redeemed on that date. Section 13.06. Bonds Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Bonds so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and on and after such date (unless the Company shall default in the payment of the Redemption Price) such Bonds shall cease to bear interest. Upon surrender of any such Bond for redemption in accordance with such notice, such Bond shall be paid at the Redemption Price. Installments of interest whose Stated Maturity is on or prior to the Redemption Date shall continue to be payable to the Holders of Bonds registered as such on the relevant Record Dates according to the terms of such Bonds and Section 2.09. If any Bond called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date or Sinking Fund Payment Date at the rate prescribed by the Bond. Section 13.07. Bonds Redeemed in Part. Any Bond which is to be redeemed only in part shall be surrendered to the Trustee (with, if the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the appropriate officials of the City shall execute and the Trustee shall authenticate and deliver to the Holder of such Bond, without service charge, a new Bond or Bonds of the same series, of any authorized denomination or denominations, as requested by such Holder, having the same Stated Maturity and interest rate an in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. Section 13.08. Redemption of All Bonds. Upon the occurrence of certain events and upon certain terms and conditions described in Section 10.2 of the Loan Agreement, the Company is permitted or obligated to prepay all or a portion of the Loan and other obligations of the Company under the Loan Agreement. In any such event, upon compliance with the provisions of Section 10.2 of the Loan Agreement, the Trustee shall forthwith fix a date of redemption for all Outstanding Bonds, which date shall be the earliest practicable date for any series of Outstanding Bonds which will occur after notice of such redemption shall have been given in accordance with Section 13.04 hereof. -70- IN WITNESS WHEREOF, the CITY OF NEW HOPE, MINNESOTA and U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee, have caused this Indenture of Trust to be executed in their respective corporate names by their duly authorized officers, and the City has caused its corporate seal to be hereunto affixed, all as of the day and year first written above. CITY OF NEW HOPE, MINNESOTA By Mayor AndZ&aezz�" City Manager -71- U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By Its -72- EXHIBIT A FORM OF SERIES 1999 BOND UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF HENNEPIN CITY OF NEW HOPE Housing and Health Care Facilities Revenue Bond (Minnesota Masonic Home North Ridge Project) Series 1999 No. R - MATURITY DATE REGISTERED HOLDER: PRINCIPAL AMOUNT: DATE OF INTEREST RATE ORIGINAL ISSUE March 1, 1999 DOLLARS CUSIP The City of New Hope, Minnesota, a municipality organized and existing under the Constitution and laws of the State of Minnesota (hereinafter called the "City"), for value received, hereby promises to pay to the registered Holder named above, or registered assigns, upon surrender hereof at the principal corporate trust office of the Trustee named below, from the source and in the manner hereinafter provided, on the Maturity Date specified above, the principal amount specified above and to pay interest thereon from the Date of Original Issue specified above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable on March 1 and September 1 in each year, commencing September 1, 1999, from the source and in the manner hereinafter provided, until such principal amount is paid or duly provided for at the rate per annum specified above, and at the same rate (to the extent that the payment of such interest shall be legally enforceable) on any overdue installment of interest, all except as the provisions below with respect to redemption of this Bond may become applicable hereto. Payment of the principal of, premium, if any, and interest on this Bond shall be made in coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts. Interest so payable, and punctually paid or duly provided for, on any Interest Payment Date, will be paid by check or draft to the person in A-1 r whose name this Bond is registered at the close of business on the fifteenth day (whether or not a business day) of the calendar month immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall be paid by check or draft to the person in whose name this Bond is registered at the close of business on a special record date fixed by the Trustee pursuant to the Indenture hereafter referred to. Notwithstanding any other provisions of this Bond, so long as this Bond is registered in the name of Cede & Co., as nominee of The Depository Trust Company, or in the name of any other nominee of The Depository Trust Company or other securities depository, the Registrar shall pay all principal of and interest on this Bond, and shall give all notices with respect to this Bond, only to Cede & Co. or other nominee in accordance with the operational arrangements of The Depository Trust Company or other securities depository as agreed to by the City. This Bond is one of a duly authorized issue of Bonds of the City designated as "Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project)" (herein called the "Bonds"), not limited in aggregate principal amount, issued and to be issued in one or more series under, and all secured by, an Indenture of Trust, dated as of March 1, 1999 (herein called the "Indenture"), between the City and U.S. Bank Trust National Association, in St. Paul, Minnesota, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto, copies of which are on file with the Trustee, reference is hereby made for a description of the nature and extent of the security, the respective rights thereunder of the Holders of the Bonds, the Trustee and the City and the terms upon which the Bonds are issued and are to be authenticated and delivered. As provided in the Indenture, the Bonds are issuable in series which may vary as in the Indenture provided or permitted. The Bonds of this series (herein called the "Series 1999 Bonds" and together with any Additional Bonds issued under the Indenture on a parity with the Series 1999 Bonds the "Bonds") are issued by the City in the aggregate principal sum of $46,875,000 for the purpose of making a loan (herein called the "Loan") of the proceeds thereof to Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (herein called the "Company"), under a Loan Agreement, dated as of March 1, 1999 (herein called the "Loan Agreement"), between the City and the Company, to finance part of the costs to be incurred by the Company in the acquisition within the City of a nursing home facility and an assisted living and multifamily rental facility, designed and intended to be used primarily by elderly persons (the Company's nursing home and assisted living and multifamily rental facility, any improvements thereto and the land upon which they are located, are herein collectively called the "Facilities"). By the Loan Agreement, the Company has agreed to repay the Loan, together with interest thereon, in amounts and at times sufficient to pay the principal of, premium, if any, and interest on the Bonds as the same shall become due and payable. By a Mortgage Agreement, dated as of March 1, 1999 (herein called the "Mortgage"), the Company has granted to the City, and the City has assigned to the Trustee for the equal and ratable benefit of the Holders of the Bonds, a mortgage lien on substantially all A-2 of the real property comprising the Facilities (herein called the "Mortgaged Property"). As provided in the Loan Agreement and the Mortgage, under certain circumstances, portions of the Mortgaged Property, or undivided interests therein, may be released from the lien of the Mortgage. Reference is hereby made to the Loan Agreement and the Mortgage, copies of which are on file with the Trustee, for a description of the agreements and covenants contained therein and a description of the Mortgaged Property. By the Indenture the City has, for the benefit of the Holders of the Bonds, pledged and granted to the Trustee a security interest in the City's interest in the Loan Agreement (except for certain rights to administrative and legal costs and indemnification). This Bond and the series of which it forms a part are issued pursuant to and in full compliance with the Constitution and laws of the State of Minnesota, particularly Minnesota Statutes, Chapter 462C, as amended, and pursuant to the Indenture. The Bonds are not a general obligation of the City and the taxing power of the City is not pledged to the payment of the Bonds or the interest thereon. The Bonds are limited obligations of the City. Principal of, premium, if any, and interest on the Series 1999 Bonds are payable solely out of the revenues derived from the Loan Agreement (other than to the extent payable out of proceeds of the Bonds, amounts in the Reserve Fund established under the Indenture, the net proceeds of insurance claims or condemnation awards or the disposition of the Mortgaged Property). The State of Minnesota and the County of Hennepin shall not in any event be liable for the payment of the principal of, premium, if any, or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever that may be undertaken by the City. Neither the Bonds nor any of the agreements or obligations of the City relating thereto shall be construed to constitute an indebtedness of the State of Minnesota, the County of Hennepin or the City within the meaning of any constitutional or statutory provisions whatsoever, nor constitute or give rise to a pecuniary liability or be a charge against the general credit or taxing powers of the State, County or City. All of the Outstanding Bonds are subject to redemption on any interest payment date, in whole but not in part, at the option of the Company, at their principal amount plus accrued interest to the date of redemption, if the Facilities are taken by condemnation, damaged or destroyed to such extent that they cannot be restored within twelve months to a condition permitting conduct of normal operations of the Company and at a cost not exceeding the net proceeds of the condemnation award or insurance. In addition, upon a Determination of Taxability (as defined in the Indenture), all Outstanding Bonds are subject to mandatory redemption, in whole but not in part, on the first day for which proper notice of redemption can be given by the Trustee, at their principal amount plus accrued interest to the date of redemption. The Series 1999 Bonds maturing on and after March 1, 2010, are subject to redemption at the option of the Company, on March 1, 2009, and on any date thereafter, in whole or in part, and if in part from maturities specified by the Company, and by lot as to Series 1999 A-3 Bonds having the same maturity date at the Redemption Prices, expressed as a percentage of the principal amount of Series 1999 Bonds to be so redeemed, set forth below, together with interest accrued on the principal amount to be redeemed to the Redemption Date: Redemption Dates Redemption Prices March 1, 2009 through February 28, 2010 102% March 1, 2010 through February 28, 2011 101% March 1, 2011 and thereafter 100% The Series 1999 Bonds having a stated maturity of March 1 in the years 2015, 2019 and 2029, shall be redeemed through operation of mandatory sinking fund installments provided in the Indenture on March 1, in the years and in the principal amounts set forth in the Indenture at a Redemption Price equal to their principal amount and accrued interest. Notice of redemption shall be published, if required by applicable law, and mailed at least thirty days before the redemption date to each Holder of Bonds to be redeemed; but no defect in or failure to give such notice of redemption shall affect the validity of proceedings for redemption of any Bond not affected thereby. All Bonds so called for redemption will cease to bear interest on the specified redemption date, provided funds for their redemption have been duly deposited, and, except for the purpose of payment, shall no longer be protected by the Indenture and shall not be deemed Outstanding under the provisions of the Indenture. It is provided in the Indenture that Bonds of a denomination larger than $5,000 may be redeemed in part ($5,000 or an integral multiple thereof) and that upon a partial redemption of any such Bond the same shall be surrendered in exchange for one or more new Bonds in authorized form for the unredeemed portion of principal. If provision is made for the payment of principal of, premium, if any, and interest on this Bond in accordance with the Indenture, this Bond shall no longer be deemed Outstanding under the Indenture, shall cease to be entitled to the benefits of the Indenture, the Loan Agreement and the Mortgage, and shall thereafter be payable solely from the funds provided for such payment. If an Event of Default, as defined in the Indenture, shall occur, the principal of all the Bonds may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided; the amendment thereof and the modification of the rights and obligations of the City and the rights of the Holders of the Bonds at any time with the consent of the Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding which are affected by such amendment or modification. The Indenture also contains provisions permitting M Bonds having the same maturity date at the Redemption Prices, expressed as a percentage of the principal amount of Series 1999 Bonds to be so redeemed, set forth below, together with interest accrued on the principal amount to be redeemed to the Redemption Date: Redemption Dates Redemption Prices March 1, 20_ through February 28 [29], 20_ 102% March 1, 20_ through February 28 [29], 20_ 101% March 1, 20_ and thereafter 100% The Series 1999 Bonds having a stated maturity of March 1 in the years 2015, 2019 and 2029, shall be redeemed through operation of mandatory sinking fund installments provided in the Indenture on March 1, in the years and in the principal amounts set forth in the Indenture at a Redemption Price equal to their principal amount and accrued interest. Notice of redemption shall be published, if required by applicable law, and mailed at least thirty days before the redemption date to each Holder of Bonds to be redeemed; but no defect in or failure to give such notice of redemption shall affect the validity of proceedings for redemption of any Bond not affected thereby. All Bonds so called for redemption will cease to bear interest on the specified redemption date, provided funds for their redemption have been duly deposited, and, except for the purpose of payment, shall no longer be protected by the Indenture and shall not be deemed Outstanding under the provisions of the Indenture. It is provided in the Indenture that Bonds of a denomination larger than $5,000 may be redeemed in part ($5,000 or an integral multiple thereof) and that upon a partial redemption of any such Bond the same shall be surrendered in exchange for one or more new Bonds in authorized form for the unredeemed portion of principal. If provision is made for the payment of principal of, premium, if any, and interest on this Bond in accordance with the Indenture, this Bond shall no longer be deemed Outstanding under the Indenture, shall cease to be entitled to the benefits of the Indenture, the Loan Agreement and the Mortgage, and shall thereafter be payable solely from the funds provided for such payment. If an Event of Default, as defined in the Indenture, shall occur, the principal of all the Bonds may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided; the amendment thereof and the modification of the rights and obligations of the City and the rights of the Holders of the Bonds at any time with the consent of the Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding which are affected by such amendment or modification. The Indenture also contains provisions permitting RM, Holders of twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding, on behalf of all the Holders of all the Bonds, to waive compliance by the City with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be conclusive and binding upon such Holder and on all future Holders of this Bond and of any Bond issued in lieu hereof whether or not notation of such consent or waiver is made upon this Bond. The Holder of this Bond shall have no right to enforce the provisions of the Indenture, the Loan Agreement or the Mortgage, to institute action to enforce the covenants therein, to take any action with respect to a default under the Indenture or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, this Bond is transferable on the Bond Register upon surrender of this Bond for transfer to the Trustee duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Bonds of the same series, of authorized denominations, for the same aggregate principal amount and of the same Stated Maturity and interest rate will be issued to the designated transferee or transferees. The Bonds are issuable only in registered form without coupons in the denomination of $5,000 or any integral multiple thereof. No service charge shall be made for any transfer or exchange hereinbefore referred to, but the City may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The City, the Trustee and any agent of the City may treat the person in whose name this Bond is registered as the absolute owner hereof for all purposes whether or not this Bond is overdue, and neither the City, the Trustee nor any such agent shall be affected by notice to the contrary. It is hereby certified and recited that all conditions, acts and things required to exist, happen and be performed precedent to or in the issuance of this Bond and the issue of which it is a part, do exist, have happened and have been performed in regular and due form as required by law; and that the opinion attached hereto is a true copy of the legal opinion by Bond Counsel with reference to the Series 1999 Bonds. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Bond shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. WE IN WITNESS WHEREOF, the City has caused this Bond to be duly executed by its duly authorized officers. Dated: City Manager CITY OF NEW HOPE, MINNESOTA Mayor CERTIFICATE OF AUTHENTICATION This is one of the Bonds of the series designated therein referred to in the within - mentioned Indenture. U.S. BANK TRUST NATIONAL ASSOCIATION. as Trustee By Authorized Representative ME ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to the applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF TRANS MIN ACT....... Custodian ......... (Cult) (Minor) Under Uniform Transfers to Minors Act........ . (State) Additional abbreviations may also be used although not in the above list. ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto the within Bond and does hereby irrevocably constitute and appoint attorney, to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever. Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements include membership or participation in STAMP or such other "signature guaranty program" as may be determined by the Trustee in addition to or in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-7 REGULATORY AGREEMENT between U.S. BANK TRUST NATIONAL ASSOCIATION and MINNESOTA MASONIC HOME NORTH RIDGE REGULATORY AGREEMENT Table of Contents Section Page PARTIES .............................................................. 1 PREAMBLES............................................................ 1 1. Federal Tax Covenants Relating to Project ............................ 2 2. Occupancy Restrictions ........................................... 3 3. Rental Restrictions .............................................. 5 4. Term of Restrictions ............................................. 5 5. Transfer Restrictions ............................................. 6 6. Enforcement................................................... 6 7. Indemnification................................................. 7 8. Amendment .................................................... 7 9. Severability.................................................... 8 10. Notices....................................................... 8 11. Governing Law ................................................. 8 12. Attorneys' Fees ................................................. 9 13. Regulatory Agreement Binding; Covenants Run with the Land ............ 9 TESTIMONIUM.......................................................... 10 SIGNATURES............................................................ 10 EXHIBIT A - The Land EXHIBIT B - Form of Income Certification -i- REGULATORY AGREEMENT THIS REGULATORY AGREEMENT (including Exhibit A attached hereto), dated as of March 1, 1999, by and between MINNESOTA MASONIC HOME NORTH RIDGE, a Minnesota nonprofit corporation, and its successors and assigns (hereinafter called the "Owner") and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association (the "Trustee"), WITNESSETH WHEREAS, the City of New Hope, Minnesota (the "City") is authorized by Minnesota Statutes, Chapter 462C, as amended (the "Law"), to carry out the programs and projects described therein and contemplated thereby in the financing of housing by providing loans with respect to multifamily residential housing developments by issuing revenue bonds to carry out its programs, and by pledging the assets and revenues granted or pledged to secure such financing and by pledging its rights under agreements made in connection therewith for the security for the payment of the principal of and interest on any such revenue bonds; and WHEREAS, the City will issue its Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (the "Bonds"), in the principal amount of $46,875,000, pursuant to an Indenture of Trust, dated as of March 1, 1999 (the "Indenture"), between the City and the Trustee, and will loan the proceeds thereof to the Owner pursuant to a Loan Agreement, dated as of March 1, 1999 (the "Loan Agreement"), to finance, among other things, the cost of acquisition of a facility containing 25 -assisted living units and 180 multifamily residential housing units (which residential multifamily housing units, together with the land on which they are located (the "Land", as described in Exhibit A attached hereto) are hereinafter referred to as the "Project"); and WHEREAS, to secure its obligations under the Loan Agreement and to secure the Bonds, the Owner will execute and deliver to the City a Mortgage Agreement, dated as of March 1, 1999 (the "Mortgage"); and WHEREAS, the exclusion of interest on the Bonds paid to the registered owners of the Bonds from gross income for purposes of federal income taxation is dependent upon the Project and the use of the proceeds of the Bonds complying with certain sections of the Internal Revenue Code of 1986 and Treasury Regulations applicable thereto (collectively, the "Code") including, without limitation, Section 142(d); and WHEREAS, compliance by the Project with the Code and the use of the proceeds of the Bonds is in large part within the control of the Owner; and WHEREAS, the City is unwilling to provide proceeds of the Bonds to finance the Project unless the Owner shall, by entering into this Regulatory Agreement (the "Regulatory Agreement'), consent to be regulated by the Trustee to assure compliance with the Code and to preserve the tax-exempt status of the Bonds under the Code. NOW, THEREFORE, in consideration of the mutual premises and covenants hereinafter set forth, and of other valuable consideration, the Owner and the City agree as follows: 1. Federal Tax Covenants Relating to the Project. To induce the City to issue the Bonds and loan the proceeds to the Owner, the Owner represents, warrants and covenants with respect to the Project that: (a) The Project will be acquired for the purpose of providing multifamily residential rental property and the Project constitutes residential rental property, as such phrase is used in Section 142(a)( 7 ) of the Code. (b) At no time will either the Owner or any related party occupy a unit in the Project other than units occupied or to be occupied by agents, employees or representatives of the Owner and reasonably required for the proper maintenance or management of the Project. In the event a unit within the Project is occupied by the Owner, the Project must include no fewer than four units not occupied by the Owner. (c) The Project consists of a single "development" and, for this purpose, proximate buildings or structures are part of the same development only if owned for federal income tax purposes by the same person and if the buildings are financed pursuant to a common plan; buildings or structures are proximate if they are all located on a single parcel of land or several parcels of land which are contiguous except for the interposition of a road, street, stream or similar property. (d) All of the units in the Project will contain complete living, sleeping, eating, cooking, and sanitation facilities for a single person or a family. (e) None of the units in the Project will at any time be utilized on a transient basis, or used as a hotel, motel, dormitory, fraternity house, sorority house, rooming house, hospital, sanitarium or rest home. (f) The Owner shall not restrict Qualifying Tenants (as hereinafter defined) from the enjoyment of unrestricted access to all common facilities and common areas of the Project. (g) The Owner shall not discriminate on the basis of race, creed, color, sex, or national origin in the lease, use or occupancy of the Project or in connection with the employment or application for employment of persons for the operation and management of the Project. (h) All records of the Owner relating to the Project, including all tenant lists and applications, shall be maintained in the State in a reasonable condition for proper audit and subject to examination during business hours by representatives of the City or the Trustee. -2- W All tenant leases (including existing renewals of leases) shall be expressly subordinate to the Mortgage, and all leases (including existing renewals of leases) of units to Qualifying Tenants shall contain clauses, among others, wherein each individual lessee: (1) certifies the accuracy of the statements made in its application and Certification of Tenant Eligibility (as hereinafter defined); (2) agrees that the family income, family composition and other eligibility requirements at the time the lease is executed shall be deemed substantial and material obligations of his or her tenancy; that he or she will comply promptly with all requests for income, family composition and other information relevant to determining low or moderate income status from the Owner, the City or the Trustee, and that his or her failure or refusal to comply with a request for information with respect thereto shall be deemed a violation of a substantial obligation of his or her tenancy; and (3) agrees that his or her lease may be terminated on thirty (30) days notice after any noncompliance by such tenant if such noncompliance would adversely affect the federal tax-exempt status of interest on the Bonds. 0) The proceeds of the Bonds will be used in accordance with the representations, warranties and covenants of the Loan Agreement. 2. Occupancy Restrictions. The Owner represents, warrants and covenants that, for the period specified in Section 4 hereof: (a) At least twenty percent (20%) of the completed units in the Project shall be occupied (or treated as occupied as provided herein) by Qualifying Tenants. "Qualifying Tenants" shall mean those persons and families (treating all occupants of a unit as a single family) who shall be determined from time to time by the Owner to be eligible as "... individuals whose income is fifty percent (50%) or less of area median gross income..." within the meaning of Section 142(d)(2)(B) of the Code. In determining the applicable income limit, the Owner shall apply the provisions of Revenue Ruling 89-24. "Income" shall be determined in a manner consistent with determinations of lower income families under Section 8 of the United States Housing Act of 1937 (and as presently set forth in 24 CFR 813.106). For purposes of this definition, the occupants of a residential unit shall not be deemed to be Qualifying Tenants if all the occupants of such residential unit at any time are "students", as defined in Section 151(c)(4 ) of the Code, no one of whom is entitled to file a joint return under Section 6013 of the Code. The determination of whether an individual or family is of low or moderate income shall be made at the time the tenancy commences and on an ongoing basis thereafter, determined at least annually. Any unit occupied by an individual or family who is a Qualifying Tenant at the commencement of occupancy shall not continue to be treated as if occupied by a Qualifying Tenant during their tenancy in such unit if such individual or family subsequently ceases to be of -3- low or moderate income unless such individual's or family's income does not exceed 140% of the maximum income qualifying as low or moderate income for a family of its size. In the event that a unit does cease to be treated as occupied by a Qualifying Tenant for such reason, and thereupon less than forty percent (40%) of the completed units in the Project would not be occupied (or treated as occupied) by Qualifying Tenants, the next vacant unit of comparable or smaller size not previously occupied by a Qualifying Tenant must be rented to a Qualifying Tenant. Any completed unit vacated by a Qualifying Tenant shall be treated as occupied by a Qualifying Tenant until reoccupied (on other than a temporary basis not in excess of 31 days), at which time a redetermination shall be made as to whether the unit is occupied by a Qualifying Tenant. The Owner shall make reasonable efforts to rent the vacated unit, or the next available unit of comparable or smaller size, to a Qualifying Tenant before any similar units in the Project are rented to tenants not constituting a Qualifying Tenant. (b) As a condition to initial and continuing occupancy, each person who is intended to be a Qualifying Tenant on and after the date of this Regulatory Agreement shall be required annually to sign and deliver to Owner a Certification of Tenant Eligibility in the general form attached hereto as Exhibit B (the "Eligibility Certification"), in which the prospective Qualifying Tenant certifies that he or she or his or her family qualifies as being of low or moderate income. In addition, such person shall be required to provide whatever other information, documents or certifications are deemed necessary by the Trustee to substantiate the Eligibility Certification, on an ongoing annual basis, and to verify that such tenant continues to be a Qualifying Tenant within the meaning of Section 3(a) hereof. (c) The form of lease to be utilized by the Owner in renting any units in the Project on and after the date of this Regulatory Agreement to any person who is intended to be a Qualifying Tenant shall provide for termination of the lease and consent by such person to immediate eviction in accordance with applicable law for failure to qualify as a Qualifying Tenant as a result of any material misrepresentation made by such person with respect to the Eligibility Certification. (d) Eligibility Certifications will be maintained on file by the Owner with respect to each Qualifying Tenant who resides in a Project unit or resided therein during the immediately preceding calendar year, commencing with the calendar year ending December 31, 1999, and the Owner will, promptly upon request by the Trustee, file a copy thereof with the City or Trustee. (e) The Owner covenants and agrees that during the term of this Regulatory Agreement, on or before the March 31 after the close of each calendar year (or on or before such other date as may hereafter be prescribed by the Code), the Owner shall certify to the United States Treasury Department (on Form 8703 or such other form as may hereafter be prescribed by the Code or the Treasury Department) that the Project continues to meet the requirements of Section 142(d) of the Code, and shall provide a copy of such annual certification to the City and the Trustee. The Owner shall provide a similar certification to the City or Trustee more 0 frequently than annually (but not more frequently than quarterly), upon request by the City or the Trustee. 3. Rental Restrictions. The Owner represents, covenants and warrants that each unit in the Project will be rented or available for rental to members of the general public on a continuous basis until the termination of such requirements, as provided in Section 4(b) hereof. 4. Term of Restrictions. (a) Occupancy Restrictions. The term of the Occupancy Restrictions set forth in Section 4 of this Regulatory Agreement shall commence on the date of issuance of the Bonds and shall end on the latest of the following: (i) the date which is 15 years after the date on which at least 50% of the units in the Project were first occupied (which date is hereby determined to be March 17, 2014); or (ii) the first day on which none of the Bonds are Outstanding; or (iii) the termination date of any Housing Assistance Payments Contract relating to the Project under Section 8 of the United States Housing Act of 1937, including the initial term and any renewal thereof. (b) Rental Restrictions. The term of the Rental Restrictions set forth in Section 4 of this Regulatory Agreement will remain in effect during the longer of (i) the period during which any of the Bonds remain Outstanding; or (ii) the term of the Occupancy Restrictions set forth in paragraph (a) of this Section 4. (c) Earlier Termination of Restrictions. Notwithstanding the provisions of (a) and (b) of this Section 5, this Regulatory Agreement and all other restrictions hereunder shall terminate upon foreclosure of the Mortgage or transfer of title to the Project by deed in lieu of foreclosure. In addition, this Regulatory Agreement and the restrictions hereunder shall also cease to apply in the event of an involuntary noncompliance caused by unforeseen events such as fire, seizure, requisition, a change in federal law or an action of a federal agency after the date of issue of the Bonds which prevents the Trustee from enforcing the requirements of this Regulatory Agreement or condemnation or similar event; provided in all such cases that: (i) the Bonds are retired as soon as reasonably practicable or (ii) any insurance proceeds or condemnation award or other amounts received as a result of such loss or destruction are used to provide a project which meets the requirements of Section 142(d) or any successor provision of the Code and applicable Treasury Regulations, or any successor law or regulation, in which case this Regulatory Agreement shall be automatically reinstated as to such successor project. However, the foregoing provisions of this paragraph shall cease to apply in the event of foreclosure, transfer of title by deed in lieu of foreclosure or similar event if, at any time subsequent to such event and during the period set forth in paragraph (a) of this Section 5, the Owner, or a related person, obtains an ownership interest in the Project for federal tax purposes. (d) Termination of Regulatory Agreement. Unless earlier terminated pursuant to the provisions of paragraph (c) of this Section 4, this Regulatory Agreement shall terminate upon the later of the termination of the Occupancy Restrictions or the Rental Restrictions as provided in paragraphs (a) and (b) of this Section 4. -5- 5. Transfer Restrictions. The Owner covenants and agrees that the Owner will cause or require as a condition precedent to any conveyance, transfer, assignment or any other disposition of the Project prior to the termination of the Rental Restrictions and Occupancy Restrictions provided herein (the "Transfer") that the transferee of the Project pursuant to the Transfer assume in writing, in a form acceptable to the Trustee, all duties and obligations of the Owner under this Regulatory Agreement, including this Section 5, in the event of a subsequent Transfer by the transferee prior to expiration of the Rental Restrictions and Occupancy Restrictions provided herein ( the "Assumption Agreement"). The Owner shall deliver the Assumption Agreement to the Trustee prior to the Transfer. 6. Enforcement. (a) The Owner shall permit any duly authorized representative of the Trustee to inspect any books and records of the Owner regarding the Project and the operation thereof, including the incomes of Qualifying Tenants. (b) The Owner shall submit any information, documents or certificates requested by the City or the Trustee which either of them deem reasonably necessary to substantiate the Owner's continuing compliance with the provisions of this Regulatory Agreement or the Code. (c) The Trustee and the Owner each covenant that it will not knowingly take or permit any action that would adversely affect the exclusion of interest on the Bonds from gross income of the Owners thereof for purposes of federal income taxation. Moreover, each covenants to take any lawful action (including amendment of this Regulatory Agreement as may be necessary, in the opinion of bond counsel to the City) to comply fully with all applicable rules, rulings, policies, procedures, regulations or other official statements promulgated or proposed by the Department of the Treasury or the Internal Revenue Service from time to time pertaining to obligations the interest on which is tax-exempt under Section 142(d) or any successor provision of the Code and affecting the Project. (d) If the Owner defaults in the performance or observance of any covenant, agreement or obligation of the Owner set forth in this Regulatory Agreement and such default remains uncured for a period of 30 days after notice thereof is given by the Trustee to the Owner, then the Trustee, may (i) institute and prosecute any proceeding at law or in equity to abate, prevent or enjoin such default, or to recover money damages caused by such default and (ii) exercise any remedies available pursuant to the Mortgage, Loan Agreement or Indenture. The Owner agrees that an action to recover money damages for default will not be an adequate remedy at law, and the City shall have the right to institute an action for and seek specific performance by the Owner to remedy such default. The provisions hereof are imposed upon and made applicable to the Land and shall run with the Land and shall be enforceable against the Owner, each purchaser, grantee, owner or lessee of the Project, and the respective heirs, legal representatives, successors and assigns of the Owner and each such purchaser, grantee, owner or lessee. 0 No delay in enforcing the provisions hereof as to any breach or violation shall impair, damage or waive the right of any party entitled to enforce the same or to obtain relief against or recover for the continuation or repetition of such breach or violation or any similar breach or violation thereof at any later time or time. (e) The Owner and the Trustee each acknowledge that the primary purpose for requiring compliance by the Owner with the restrictions provided in this Regulatory Agreement is to comply with the Code and to preserve the federal income tax exemption of interest on the Bonds to the owners thereof, and that the Trustee, on behalf of the owners of the Bonds, who are declared to be third party beneficiaries of this Regulatory Agreement, shall be entitled, for any breach of the provisions hereof, to all remedies both at law and in equity in the event of any default hereunder. 7. Indemnification. The Owner hereby indemnifies, and agrees to defend and hold harmless, the City and Trustee from and against all liabilities, losses, damages, costs, expenses (including attorneys' fees and expenses), causes of action, suits, allegations, claims, demands and judgments of any nature arising from the consequences of a legal or administrative proceeding or action brought against them, or any of them, on account of any failure by the Owner to comply with the terms of this Regulatory Agreement, or on account of any representation or warranty contained herein being untrue, including, without limitation, any action for damages, or for payment or reimbursement of taxes, penalties and interest, brought by the owners of the Bonds or state or federal taxing authorities as a result of the interest on the Bonds becoming includable in gross income of the owners thereof for federal and State of Minnesota income tax purposes. 8. Amendment. It is agreed that the parties hereto shall promptly amend this Regulatory Agreement (in a form suitable for recording) (a) to the extent and when necessary or advisable, in the opinion of bond counsel to the City, to preserve the exclusion of interest on the Bonds from gross income of the owners thereof for purposes of federal income taxation and (b) to the extent requested by either party if, in the opinion of bond counsel to the City, such amendment will not adversely affect the federal tax exemption of interest on the Bonds and is in compliance with the Act.. 9. Severability. The invalidity of any clause, part or provision of this Regulatory Agreement shall not affect the validity of the remaining portions thereof. 10. Notices. All notices to be given pursuant to this Regulatory Agreement shall be in writing and shall be deemed given when mailed by certified or registered mail, return receipt requested, or hand delivered, to the parties hereto at the addresses set forth below. A duplicate copy of each notice, certificate or other communication given hereunder by the City or the Owner shall also be given to the Trustee at the address set forth below. The City, the Owner and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. The initial addresses for notices and other communications are as follows: -7- To the Owner: Minnesota Masonic Home North Ridge 5430 Boone Avenue North New Hope, Minnesota 55428 Attention: President To the Trustee: U.S. Bank Trust National Association Corporate Trust Department 180 East 5' Street St. Paul, MN 55101 11. Governing Law. This Regulatory Agreement shall be governed by the laws of the State of Minnesota and, where applicable, the laws of the United States of America. 12. Attorneys' Fees. In case any action at law or in equity, including an action for declaratory relief, is brought against the Owner to enforce the provisions of this Regulatory Agreement, the Owner agrees to pay reasonable attorneys' fees and other reasonable expenses incurred by the Trustee in connection with such action. 13. Regulatory Agreement Binding: Covenants Run with the Land. This Regulatory Agreement and the covenants contained herein shall run with the Land and shall bind the Owner, its successors and assigns, and all subsequent owners of the Project or any interest therein, and the benefits shall inure to the Trustee and its successors and assigns, for the term of this Regulatory Agreement as provided in Section 4 hereof. IN WITNESS WHEREOF, the parties have caused this Regulatory Agreement to be signed by their respective duly authorized representatives, as of the day and year first written above. U.S. BANK TRUST NATIONAL ASSOCIATION 4 By STATE OF MINNESOTA ) ) ss. COUNTY OF ate') ) Th�regqing instrument was ackg�}owledggggd before me this ��2 day of March, 1999, by J //lL�F�Ra theVic-E ('QCS1A6-J of U.S. Bank Trust National Association, a national banking association, on behalf of U.S. Bank Trust National Association. Notary Public ■ ■ JOHN W. GIBBONS NOTARY PUEUC•MINNESOTA My Commission Egima Jan. 31,20W a w 61 MINNESOTA MASONIC HOME NORTH RIDGE moi' ' � � t ��►� STATE OF MINNESOTA ) ) ss. COUNTY OF O A ) The foregoing instrument was acknowledged before me this day of March, 1999, by _7?4 aca5 and fdWI14 /4, PjCc.yhz1_ r y - the and — l e�rf respectively, of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation, on behalf of the corporation. NotaryPublic v m j4j',JOHN W. GIBBONS NOTARY PUBLIC -MINNESOTA q,-- & My Commission Eq*w Jan. $1, 2000 e ys EXHIBIT A The Land TRACT A Lot 1, Block 1 North Ridge Care Center Addition, except the most southerly 30 feet thereof, according to the recorded plat thereof, and situate in Hennepin County. TRACT B The most Southerly 30 feet of Lot 1, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, Minnesota. A-1 EXHIBIT B Form of Income Certification Certification of Tenant Eligibility W. Vs7k JCfaiix:7i I/We, the undersigned, being first duly swom, state that Uwe have read and answered fully and truthfully each of the following questions for all persons who are to occupy the unit in the development for which application is made, all of whom are listed below: 1. 2. 3. 4. Name of Members Relationship Social of the to Head of Security Household Household Age Number Head Spouse Income Computation 5. Place of Employment 6. Anticipated Annual Income. The anticipated total annual income from all sources of each person listed in item 1 above for the twelve month period beginning on the date of this certificate, including income described in (a) below, but excluding all income described in (b) below, is $ (a) The amount set forth above includes all of the following income (unless such income is described in (b) below; (i) all wages and salaries, overtime pay, commissions, fees, tips and bonuses before payroll deductions; (ii) net income from the operation of a business or profession or from the rental of real or personal property (without deducting expenditures for business expansion or amortization of capital indebtedness or any allowance for depreciation of capital assets); (iii) interest and dividends (including income from assets as set forth in item 7(b) below); (iv) the full amount of periodic payments received from social security, annuities, insurance policies, retirement funds, pensions, disability or death benefits and other similar types of periodic receipts; (v) payments in lieu of earnings, such as unemployment and disability compensation, workmen's compensation and severance pay; (vi) the maximum amount of public assistance available to the above persons; (vii) periodic and determinable allowances, such as alimony and child support payments and regular contributions and gifts received from persons not residing in the dwelling; (viii) all regular pay, special pay and allowances of a member of the Armed Forces (whether or not living in the dwelling) who is the head of the household or spouse•, and (ix) any earned income tax credit to the extent it exceeds income tax liability. (b) The following income is excluded from the amount set forth above (i) casual, sporadic or irregular gifts; (ii) amounts that are specifically for or in reimbursement of medical expenses; (iii) lump sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and workmen's compensation), capital gains and settlement for personal or property losses; (iv) amounts of educational scholarships paid directly to student or educational institution, and amounts paid by the government to a veteran for use in meeting the costs of tuition, fees, books and equipment, but in either case only to the extent used for such purposes; (v) hazardous duty pay to a member of the household in the armed forces who is away from home and exposed to hostile fire; (vi) relocation payments under Title II of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970; (vii) income from employment of children (including foster children) under the age of 18 years; (viii) foster child care payments; (ix) the value of coupon allotments under the Food Stamp Act of 1977; (x) payments to volunteers under the Domestic Volunteer Service Act of 1973; IM (xi) payments received under the Alaska Native Claims Settlement Act; (xii) income derived from certain submarginal land of the United States that is held in trust for certain Indian tribes; (xiii) payments on allowances made under the Department of Health and Human Services' Low -Income Home Energy Assistance Program; (xiv) payments received from the Job Partnership Training Act; (xv) income derived from the disposition of funds of the Grand River Bank of Ottawa Indians; and (xiv) the first $2,000 of per capita shares received from judgments awarded by the Indian Claims Commission or the Court of Claims or from funds held in trust for an Indian tribe by the Secretary of Interior. 7. Net Family Assets. If any of the persons described in item 1 above (or any person whose income or contributions were included in item 6 above) has any savings, stocks, bonds, equity in real property or other form of capital investment (excluding interests in Indian trust lands), provide: (a) the total value of all such assets owned by all such persons: (b) the amount of income expected to be derived from such assets in the 12 -month period commencing on the date hereof: and (c) the amount of such income included in item 6: 8. Students (a) Will all of the persons listed in item 1 above be or have they been full-time students during five calendar months of this calendar year at an educational institution (other than a correspondence school) with regular faculty and students? Yes No (b) (Complete only if the answer to item 8(a) is "Yes".) Is any such person (other than nonresident aliens) married and eligible to file a joint federal income tax return? Yes No IM The above information is full, true and complete to the best of my knowledge. I have no objections to inquiries being made for the purpose of verifying the statements made herein. The undersigned acknowledge that the lease executed by the undersigned may be canceled upon notice as provided therein if the undersigned have misrepresented any of the information set forth above. I acknowledge that all of the above information is relevant to the status under federal income tax law of the interest on bonds issued with respect to the apartments for which application is being made. I consent to the disclosure of such information to the City of New Hope, Minnesota, as issuer of such bonds, to U.S. Bank Trust National Association, as trustee for the owners of such bonds, to any credit enhancer of such bonds, and any authorized agent of the Treasury Department or Internal Revenue Service. Date: Signature STATE OF MINNESOTA ) ss. COUNTY OF ) Subscribed and sworn to before me this day of 199_, (SEAL) IM Notary Public FOR COMPLETION BY PROJECT OWNER OR MANAGER ONLY: A. Calculation of eligible income: (1) Enter amount entered for entire household in item 6 above: (2) If the amount entered in item 7(a) above is greater than $5,000, enter the greater of (i) the amount entered in 7(b) less the amount entered in 7(c) or (ii) 10% of the amount entered in 7(a): (3) TOTAL ELIGIBLE INCOME (Line A(1) plus line A(2): B. The amount entered in A(3) (Total Eligible Income) is: Less than $ , which is an amount equal to 50% of median income for the Minneapolis -St. Paul SMSA, which is the maximum income at which a household may be determined to be a Lower -Income Tenant as that term is defined in the Regulatory Agreement. More than the above-mentioned amount. C. Number of apartment unit assigned: D. This apartment unit was was not last occupied for a period of at least 31 consecutive days by a person or persons whose aggregate anticipated annual income, as certified in the above manner, was less than or equal to the amount at which a person would have qualified as a Lower -Income Tenant under the terms of the Regulatory Agreement. E. Applicant: Qualifies as a Lower -Income Tenant. Does not qualify as a Lower Income Tenant, Owner or Manager [,a MORTGAGE AGREEMENT between MINNESOTA MASONIC HOME NORTH RIDGE and CITY OF NEW HOPE, MINNESOTA Dated as of March 1, 1999 (THIS MORTGAGE AGREEMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS AND CONSTITUTES A FIXTURE FILING UNDER MINNESOTA STATUTES, SECTION 336.9-313) This instrument was drafted by: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402 Tax statements for the real property described in this instrument should be sent to: Minnesota Masonic Home North Ridge 5430 Boone Avenue North New Hope, Minnesota 55428 TABLE OF CONTENTS Page PARTIES.............................................................. IMPROVEMENTS TO LIEN OF MORTGAGE ................ RECITALS............................................................. Section 4.1. Grant of Easements, Licenses, Etc ......................... ARTICLE I - DEFINITIONS ............................................... 1 Section I.I. Definitions ........................................... 1 ARTICLE II - MORTGAGE AND SECURITY INTEREST ...................... 5 Section 2.1. Mortgage and Security Interest ........................... 5 Section 2.2. Payments and Performances Secured ....................... 8 Section 2.3. Remedies Upon Event of Default ......................... 8 Section 2.4. Right of Entry ......................................... 9 Section 2.5. Assignment of Rents ................................... 9 Section 2.6. Receivership .......................................... 9 Section 2.7. Attorneys' Fees ....................................... 11 ARTICLE III - REPRESENTATIONS, COVENANTS, PERMITTED ENCUMBRANCES ....................................... 13 Section 3.1. Warranty of Title ...................................... 13 Section 3.2. Permitted Encumbrances ................................ 13 Section 3.3. Environmental Warranties ............................... 15 Section 3.4. Compliance With Environmental Laws; Indemnity ....................................... 16 Section 3.5. Compliance With Other Laws and Restrictions ............... 17 Section 3.6. Waiver of Marshalling .................................. 17 ARTICLE IV - EASEMENTS, TIE-IN WALLS, REMOVAL OF MORTGAGED PROPERTY, ADDITION OF IMPROVEMENTS TO LIEN OF MORTGAGE ................ 18 Section 4.1. Grant of Easements, Licenses, Etc ......................... 18 Section 4.2. Release of Mortgaged Property ........................... 18 Section 4.3. Tie -In Walls .......................................... 18 Section 4.4. Removal of Facilities ................................... 19 Section 4.5. Addition of Improvements to Lien of Mortgage .............. 19 Section 4.6. Release of Land ........................................ 19 Section 4.7. Equipment of Company ................................. 22 Section 4.8. Further Assurances ..................................... 22 -i- ARTICLE V - MISCELLANEOUS .......................................... 23 Section 5.1. Recording ............................................ 23 Section 5.2. Binding Effect ........................................ 23 Section 5.3. Amendments ......................................... 23 Section 5.4. Use of Mortgaged Property .............................. 23 Section 5.5. Fixture Filing ......................................... 23 SIGNATURES.......................................................... 25 ACKNOWLEDGMENTS................................................. 26 Exhibit A - Legal Description of the Land THIS MORTGAGE AGREEMENT, dated as of March 1, 1999, between MINNESOTA MASONIC HOME NORTH RIDGE, a nonprofit corporation organized and existing under the laws of the State of Minnesota (as hereinafter defined, the "Company") and the CITY OF NEW HOPE, MINNESOTA, a municipal corporation organized and existing under the Constitution and laws of the State of Minnesota (as hereinafter defined, the "City"); WITNESSETH WHEREAS, the City will issue and deliver its Series 1999 Bonds (together with any Additional Bonds issued under the Indenture and secured by this Mortgage, the "Bonds"), as hereinafter defined, in the principal amount of $46,875,000, maturing and payable in full on or before March 1, 2029 (as hereinafter defined, the "Maturity Date"), under and pursuant to Minnesota Statutes, Chapter 462C, as amended, and an Indenture, as hereinafter defined, between the City and the Trustee, as hereinafter defined; and WHEREAS, the City will loan the proceeds of the Bonds to the Company pursuant to the Loan Agreement, as hereinafter defined, between the City and the Company; and WHEREAS, by the Loan Agreement, the Company has covenanted, among other things, to make Loan Payments, as hereinafter defined, sufficient to pay the principal of, premium, if any, and interest on the Bonds, when due; and WHEREAS, the City has, by the Indenture, pledged and granted to the Trustee a security interest in all of the City's right, title and interest in the Loan Agreement (except for certain rights for payment of administration and legal expenses and indemnification), including, but not limited to, such Loan Payments, in order to secure the full and prompt payment of the principal of, premium, if any, and interest on the Bonds; and WHEREAS, the Company is the owner and holder of title in fee simple absolute to the land (as hereinafter defined, the "Land") described in Exhibit A attached hereto and hereby made a part hereof, which Land is subject to certain permitted encumbrances enumerated in Section 3.2 below and on said Exhibit A (as hereinafter defined, the "Permitted Encumbrances"); and WHEREAS, there is located on the Land certain buildings, structures and other improvements which are not personal property and/or fixtures, and which are operated as a nursing home (the "Nursing Facility") and an assisted living and housing facility (the "Housing Facility"), all of which are owned by the Company; and WHEREAS, the Company is justly indebted to the City in the principal amount of Forty -Six Million Eight Hundred Seventy -Five Thousand Dollars ($46,875,000), or so much thereof as may have been advanced to or for the benefit of the Company and remains unpaid from time to time, as evidenced by the Loan Agreement; and WHEREAS, said principal amount, together with interest thereon at the maximum rate of 5.90% per annum, is payable in accordance with the terms of the Loan Agreement, with the entire unpaid principal balance and any unpaid, accrued interest thereon maturing and being due and payable in full not later than the Maturity Date; and WHEREAS, there are now, or may in the future be, located on, within or about the Land, the Nursing Facility, the Housing Facility and other Improvements as hereinafter defined, certain items of Fixtures and Personalty as hereinafter more particularly described; and WHEREAS, a condition of the City's loan of the proceeds of the Bonds to the Company is that the Company enter into this Mortgage Agreement; and WHEREAS, the City will confirm the assignment of this Mortgage Agreement to the Trustee by a separate Assignment of Mortgage Agreement, dated as of the date hereof, between the City and the Trustee; NOW, THEREFORE, THIS MORTGAGE AGREEMENT FURTHER WITNESSETH: -iv- ARTICLE I DEFINITIONS Section 1.1. Definitions. The terms defined in this Article I shall for all purposes of this Mortgage Agreement have the meanings herein specified, unless the context clearly otherwise requires: Additional Bonds means any Bonds issued pursuant to Article IV of the Indenture. Bonds means all Bonds issued pursuant to the Indenture, including the Series 1999 Bonds and any Additional Bonds. City means the City of New Hope, Minnesota, and any successor to its functions. Company means Minnesota Masonic Home North Ridge, a nonprofit corporation organized and existing under the laws of the State of Minnesota, and any permitted successors to the Company under Section 7.1 of the Loan Agreement. Company Certificate means a certificate respecting the Company signed by the Chairperson, President, any Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Company, and delivered to the Trustee. Environmental Laws means any federal, state or local law, statute, code, ordinance, regulation, requirement or rule relating to or governing the generation, handling, labeling, storage, transport or disposal of Hazardous Substances. Event of Default means any event defined as such in Section 11.1 of the Loan Agreement. Facilities means, collectively, the Land, the Nursing Facility, the Housing Facility and any Improvement, as such properties may at any time exist. Fixtures means all machinery, apparatus, building materials, equipment, fixtures, fittings, vehicles, furnishings, furniture, appliances, goods, chattels, appurtenances and articles of personal property of every kind and nature whatsoever now owned or hereafter acquired by the Company, and now or hereafter located in, upon, about, on or under the Land, the Housing Facility, the Nursing Facility, and any additional Improvements, or any part thereof and used, usable or adapted for use in connection with any present or future use, management, operation or enjoyment thereof, whether or not actually or constructively attached to the Land, the Housing Facility, the Nursing Facility, and any additional Improvements, and including all trade, domestic and ornamental fixtures, including, but without limiting the generality of the foregoing, concrete, steel, lumber, bricks, dry wall, insulation and other construction and building materials; any and all plans, specifications, architectural agreements, construction contracts, subcontracts, purchase contracts, purchase orders and management contracts relating to the Mortgaged Property, as that term is hereinafter defined, to the extent that such documents are assumable by the Trustee; carpeting, underpadding and floor coverings; draperies, curtains and rods; hot water heaters; stoves; ranges; vent hoods; cooking apparatus and appurtenances; mechanical kitchen equipment; refrigerators; waste disposals; furniture and furnishings; plumbing pipes, fixtures and appliances; sinks; basins; showers and tubs; water closets; faucets; dishwashing machines; washing machines; dryers; mantels; light fixtures; lighting, heating, ventilating, air conditioning, cooling and incinerating apparatus, units and equipment; furnaces; heaters; radiators; heat registers; thermostats; fire control, sprinkling and extinguishing apparatus and equipment; freezing and refrigeration plants, units and equipment; laundry equipment; generating equipment; water, gas, electric and compressed air supply and distribution fixtures, piping, wiring, equipment and appurtenances; windows; window shades, blinds; venetian blinds; millwork; doors; locks; hardware; awnings; screens; storm sash, doors and windows; engines; pipes; pumps; tanks; motors; boilers; dynamos; conduits; switchboards and telephone equipment and wiring; lifting, cleaning, call and communications and closed-circuit television apparatus, equipment, antennas and units; sewage treatment and disposal facilities and apparatus; vacuum cleaning systems; elevators; escalators; partitions; ducts; compressors; office, maintenance and recreation equipment and supplies; furnishings of any resident recreation facility and other public spaces, halls and lobbies; swimming pool equipment and supplies, if any; parking lot lighting fixtures and such other goods, chattels, personal property, fixtures and equipment as are usually found on and in real estate of the character hereby conveyed, including without limitation all nursing and medical equipment, machinery and supplies, together with all appurtenances and additions thereto, extensions, betterments, improvements, renewals and replacements thereof, substitutions therefor, and proceeds from a sale thereof, together with all of the Company's, right, title and interest in and to any such property which is subject to or covered by any security agreement, conditional sales contract, chattel mortgage, title retention agreement or similar lien or claim, together with the benefit of any payments or deposits now or hereafter made by the Company, or for the benefit of the Company thereon, all of which property shall hereinafter be referred to as "Fixtures" and, to the extent permitted by law, is and shall be hereby declared, deemed and considered to be fixtures and accessions to the freehold, forming a part of said Facilities as between the parties hereto and all persons claiming by, through or under them, and not severable wholly or in part without material injury to the freehold, and shall be deemed to be a portion of the security for the indebtedness secured by this Mortgage and to be covered hereby. Hazardous Substances means any dangerous, toxic or hazardous pollutants, contaminants, chemicals, wastes, materials or substances, as defined in or governed by the provisions of the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, and/or the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. § 6901 et seq. and 42 U.S.C. § 9601 et seq.), as amended, or any other Environmental Laws, and also including urea - formaldehyde, polychlorinated biphenyls, dioxin, radon, asbestos, asbestos containing materials, nuclear or radioactive fuel or waste, infectious waste, and petroleum, including but not limited to crude oil or any fraction thereof, natural gas, natural gas liquids, gasoline and synthetic gas, or any other waste, substance, pollutant or contaminant which would subject the owner of the Land -2- to any damages, penalties or liabilities under any applicable law, statute, code, ordinance, regulation, requirement or rule. HousingFacility means the building containing 25 -unit assisted living facility and 180 -unit multifamily housing facility, and related facilities (other than the Nursing Facility) designed and intended for occupancy by elderly persons, located on the Land. Impositions means any of or all of those taxes, charges, assessments, fees, and/or rates referred to in Section 4.3 of the Loan Agreement. hnprovement(s) means any addition, enlargement, improvement, extension or alteration of or to the Facilities as they then exist and any fixtures, structures or other facilities acquired or constructed by the Company, and located on the Land. Indenture means the Indenture of Trust, dated as of the date of this Mortgage Agreement, between the City and the Trustee, as the same may from time to time be amended or supplemented in accordance with the provisions thereof. Land means the land described on Exhibit A hereto, and any additional land or any interest therein which may be included within the lien of this Mortgage Agreement pursuant to Article IV hereof, but excluding any land or interest therein released from the lien of this Mortgage Agreement pursuant to the terms hereof or of the Loan Agreement. Loan means the loan by the City to the Company of the proceeds of the Bonds, exclusive of any accrued interest paid by the Original Purchaser of the Bonds upon the delivery thereof, but including the underwriting discount, if any, in connection with the sale of Bonds by the City to the Original Purchaser. Loan Agreement means the Loan Agreement, dated as of the date of this Mortgage Agreement, between the Company and the City, as the same may from time to time be amended or supplemented in accordance with the provisions thereof and of the Indenture. Loan Payment means a payment required to be made by the Company by Section 2.2 of the Loan Agreement. Maturity Date means March 1, 2029, the date designated in the Loan Agreement upon which the entire principal amount of the Loan together with all accrued and unpaid interest is due and payable in full. Mortgaged Property means the property described as such in Section 2.1 hereof. Mortgagee means the City or any assignee of its interest in this Mortgage Agreement, including the Trustee. -3- Nursing Facility means the 559 -bed nursing home facility located on the Land. Opinion of Counsel means a written opinion of counsel, who may (except as otherwise expressly provided herein or in the Indenture) be counsel for the City or the Company. Permitted Encumbrances means those certain permitted encumbrances generally applicable to the Mortgaged Property owned by the Company as set forth in Section 3.2 below and those enumerated on Exhibit A respecting the Land. Permitted Substances means substances which are normally used in or result from operation of the businesses being lawfully conducted within the Facilities in accordance with the Loan Agreement. Personalty means all of the Fixtures as hereinabove defined which under the law of the State of Minnesota may not be deemed fixtures and accessions to the freehold, notwithstanding any agreement of the parties hereto, but are deemed personal property. Registered Land Surveyor means a person engaged in the profession of surveying land and licensed in the State of Minnesota retained by the Company. Series 1999 Bonds has the meaning set forth in the Indenture. Trustee means U.S. Bank Trust National Association, in St. Paul, Minnesota, and any successor trustee under the Indenture. Any terms used herein with initial letter capitalized but not defined herein have the meanings given such terms in the Loan Agreement, unless the context hereof clearly requires otherwise. The terms defined in this Article include the plural as well as the singular. so ARTICLE II MORTGAGE AND SECURITY INTEREST Section 2.1. Mortea¢e and Security Interest. The Company, in consideration of the issuance of the Bonds and the making of the Loan and other good and lawful consideration, the receipt of which is hereby acknowledged from the City, and to secure, and as security for, the making of the Loan Payments by the Company and the performance and observance by the Company of all of the other covenants, agreements, representations, warranties and conditions herein or in the Loan Agreement contained, by these presents does hereby sell, mortgage, convey, grant, assign, transfer, pledge, set over and confirm unto the City, its successor and successors and its or their assigns forever, with power of sale, and grants a lien and security interest in, that portion of the Mortgaged Property in which it has an interest, consisting of all and singular the following described premises and property: (a) The Land described in Exhibit A attached hereto and made a part hereof as though set forth in full herein; (b) The Improvements, the Facilities, and the Fixtures, including without limitation all buildings, structures, improvements and appurtenances now standing or at any time hereafter constructed or placed upon the Land, or any part thereof, including all right, title and interest of the Company in and to all building materials, plants and fixtures of every kind and nature whatsoever on the Land or in any building, structure or improvement now or hereafter standing on the Land, or any part thereof, it being the intention of the parties hereto that so far as may be permitted by law all tangible property now owned or hereafter acquired by the Company and affixed or attached to said real estate shall be deemed to be, and shall be considered as, fixtures and appurtenances to said real estate of the Company; (c) The reversion or reversions, remainder or remainders, in and to the Land and each and every part thereof, together with the entire interest of the Company in and to all and singular the tenements, hereditaments, easements, rights, privileges and appurtenances to said real estate belonging or in any wise appertaining thereto; (d) All rights, title, and interest of the Company in and to any streets, ways or alleys adjoining the Land or any part thereof, and all the estate, right, title, interest, claim or demand whatsoever of the Company, either in law or in equity, in possession or expectancy, of, in and to said real estate; (e) All proceeds of any taking of or damage to, or any sale in lieu of a taking of, any portion of the Facilities under or pursuant to the power of condemnation or eminent domain; (f) All Personalty; -5- (g) All of the leasehold estate and all rights, title and interest of the Company, from time to time, in and to any and all leases, contracts, franchises, permits and licenses (including without limitation certificates of need to the extent transferable under Minnesota law, food, and any other licenses reasonably necessary to operate the Nursing Facility and the Housing Facility, and/or to permit the reconstruction, maintenance and operation of either or both thereof, now belonging or hereafter acquired by the Company, or added thereto, without assumption by, or any liability or obligation thereunder on the part of, the Mortgagee, and including without limitation, all cash or security deposits (including without limitation patient, resident or tenant security deposits, if any), all escrow accounts, and all advance rentals and deposits or payments of similar nature; (h) All reversion and reversions, remainder and remainders thereof and all rents, income (including without limitation income derived from the occupation of rooms and nursing and/or retirement or assisted living beds, and income generated by nursing and/or retirement or assisted living services and other services), issues, royalties, revenues, payments (including without limitation payments from any consumer credit/debit/charge card organization or entity), and profits which shall hereafter be realized, become due, or be paid in connection with the operation and use of said Facilities and Personalty and the right, title and interest of the Company in and under all leases thereof now or hereafter existing, reserving only a revocable (under the terms provided for in this Mortgage) license to the Company to collect and utilize said rents, income, issues, royalties, revenues and profits belonging to it (which reservation Mortgagee may terminate at any time by giving written notice to the Company), so long as there is no Event of Default under this Mortgage or the Loan Agreement. All such rents, income, issues, royalties, revenues and profits so received by the Company shall be received in trust to pay the usual and reasonable operating expenses of, and Impositions upon, the Facilities and Personalty and the sums owing to the Trustee as they become due and payable hereunder or under the terms of the Loan Agreement, or any other documents executed in connection with the Loan secured hereby, as now existing or as hereafter modified, or proper accruals therefor, and the excess only, after the payment of all of the foregoing which are then currently due, shall be the Company's absolute property; (i) All repayments or return premiums upon any policy of insurance maintained pursuant to the terms hereof, and refunds or rebates made of Impositions; 0) All evidence of title, insurance policies, insurance proceeds and claims or demands with respect thereto, deposits, condemnation proceeds and sale proceeds herein assigned; (k) All general intangibles of the Company which relate to any of the Facilities and/or Personalty, including without limitation accounts, trade names and contract rights, such contract rights including without limitation contract rights under management contracts, leases of equipment, accounts receivable, bank accounts, room rental, bed rental, catering and services 10 accounts, rights to room rental payments and proceeds, and payments and proceeds from licenses for use and occupancy; (1) All after-acquired interests of the Company in and to each of the items referred to in each of the above paragraphs, and all proceeds and products thereof; and (m) All the estate, rights, title, claim, interest and demand whatsoever of the Company, either in law or equity, of, in and to the Mortgaged Property. TO HAVE AND TO HOLD, all and singular, the Mortgaged Property and the rights and privileges hereby granted, mortgaged, conveyed, assigned and pledged, by the Company, or intended so to be, unto the City and its successors and assigns forever, in trust, nevertheless, with power of sale for the equal and pro rata benefit and security of each and every Holder of the Bonds issued and to be issued under the Indenture, without preference, priority or distinction as to the participation in the lien, benefit and protection hereof of one Bond over or from the others, by reason of priority in the date of issue or negotiation or maturity thereof, or for any reason whatsoever, so that each and all of such Bonds shall have the same right, lien and privilege under this Mortgage Agreement and shall be equally secured hereby with the same effect as if the same had all been made, issued and negotiated simultaneously with the delivery hereof and were expressed to mature on one and the same date, except as otherwise expressly provided; SUBJECT, NEVERTHELESS, to Permitted Encumbrances; PROVIDED, NEVERTHELESS, and these presents are upon the express condition, that if the Company, or its successors or assigns, shall well and truly pay or cause to be paid the Loan Payments according to the provisions set forth in the Loan Agreement (which is by reference incorporated herein and made a part hereof with the same effect as if it were set forth in full herein), and shall also pay or cause to be paid all other sums payable under the Loan Agreement by the Company and shall faithfully and punctually perform all other conditions, covenants and agreements set forth in the Loan Agreement, then these presents and the estate, lien, security interests and rights hereby granted shall cease, determine and become void, and thereupon the Mortgagee, on payment of its lawful charges and disbursements then unpaid, on demand of the Company and upon the payment of the cost and expenses thereof, shall duly execute, acknowledge and deliver to the Company such instruments of satisfaction or release in respect of the Mortgaged Property as may be necessary or proper to discharge this Mortgage Agreement of record, and if necessary shall grant, reassign and deliver to the Company, its successors or assigns all and singular the property and interests by each hereby granted, conveyed, mortgaged and assigned, and all substitutes therefor, or any part thereof, not previously disposed of or released as in the Loan Agreement provided; otherwise this Mortgage Agreement shall be and remain in full force; -7- AND IT IS HEREBY COVENANTED, DECLARED AND AGREED by and between the parties hereto that all of the Mortgaged Property is to be held and applied, subject to the further covenants, agreements and conditions set forth in the Loan Agreement and herein. Section 2.2. Payments and Performances Secured. This Mortgage Agreement shall cover and secure: (A) payment of any and all amounts payable by the Company under the Loan Agreement, including the Loan and all Loan Payments relating to the Bonds; and (B) performance of each covenant, agreement or condition of the Company in the Loan Agreement. Section 2.3. Remedies Upon Event of Default. If an Event of Default shall have occurred and be continuing, the Mortgagee shall be entitled to exercise any or all of the remedies set forth or provided in the Loan Agreement or the Indenture, including, but not limited to, petitioning a court of competent jurisdiction for the appointment of a receiver to take possession of and manage and operate the assets of the Company for the benefit of the Holders of the Bonds then Outstanding and including but not limited to declaring all outstanding indebtedness under the Loan Agreement relating to the Bonds immediately due and payable without notice, and the Mortgagee is hereby authorized and empowered at its option, to (1) proceed to protect and enforce its rights by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, in the Loan Agreement or in any other instrument which refers to or secures the Loan Agreement, or in aid of the execution of any right, power or remedy herein or therein granted, or for the foreclosure of this Mortgage Agreement, or for damages, or to collect the indebtedness secured hereby, or for the enforcement of any other appropriate legal, equitable, statutory or contractual remedy, and shall be entitled to the appointment of a receiver to operate and protect the Facilities and Personalty and to collect rents due under any lease, and/or (2) sell the Mortgaged Property, or any portion thereof, at public auction in one or more parcels, at the Mortgagee's option (the entire Mortgaged Property being for the purpose of Minnesota Statutes, Section 580.08, a single tract, or each parcel of the Land described on Exhibit A hereto being a separate and distinct economic unit and a single tract for said purposes, at the Mortgagee's option), and convey the same to the purchaser in fee simple, as the statute in such case provides, the Company to remain liable for any deficiency, if permitted by law. Further, the Mortgagee, in exercising its rights hereunder, shall also have, without limitation, all of the rights and remedies provided by the Minnesota Uniform Commercial Code, including the right to proceed under the Minnesota Uniform Commercial Code provisions governing default as to any Fixtures or Personalty which may be included in the Mortgaged Property and separately from the Land, the Housing Facility, the Nursing Facility, and Improvements included in the Mortgaged Property, or to proceed as to any or all of such Fixtures and Personalty in accordance with its rights and remedies in respect of said Land, the Housing Facility, the Nursing Facility, and Improvements. If the Mortgagee elects to proceed separately as to any such Fixtures and Personalty, the Company agrees to make such property available to the Mortgagee at a place or 10 places reasonably acceptable to the Mortgagee, and, if any notification of intended disposition of any of such property is required by law, such notification shall be deemed commercially reasonable and reasonably and properly given if mailed at least ten (10) days before such disposition in the manner provided in the Loan Agreement. Upon the occurrence of any Event of Default, the Company shall deliver and surrender to the Mortgagee all books and records maintained, or caused to be maintained, by it in connection with the management and/or operation of the Facilities and Personalty. Section 2.4. Right of Entry. If the Mortgagee exercises one of the remedies provided in Section 2.3 hereof, pursuant to foreclosure of this Mortgage Agreement, the Mortgagee may then or at any time thereafter take complete and peaceful possession of the Mortgaged Property or any portion thereof, with or without process of law, and may remove all persons therefrom, and the Company covenants in any such event peacefully and quietly to yield up and surrender the Mortgaged Property, or such portion thereof, to the Mortgagee. Section 2.5. Assignment of Rents. As additional security for the debt secured by this Mortgage Agreement, the Company does hereby bargain, sell, assign and set over unto the Mortgagee all rents, profits and other income of any kind which, whether before or after foreclosure or during the full statutory period of redemption, if any, shall accrue and be owing for the use or occupation of the Mortgaged Property, or any part thereof. Section 2.6. Receivership The Company agrees that upon or any time after (i) the occurrence of an Event of Default, or (ii) the first publication of notice of sale for the foreclosure of this Mortgage Agreement pursuant to Minnesota Statutes, Chapter 580, or (iii) the commencement of an action to foreclose this Mortgage Agreement pursuant to Minnesota Statutes, Chapter 581, or (iv) the commencement of the period of redemption, if any, after foreclosure of this Mortgage Agreement, then in any such event the Mortgagee shall, upon application to the District Court in the county where the Mortgaged Property is located, by an action separate from the foreclosure under Chapter 580, in the foreclosure action under Chapter 581 or by independent action (it being understood and agreed that the existence of a foreclosure proceeding under Chapter 580 or a foreclosure action under Chapter 581 is not a prerequisite to any action for a receiver hereunder), be entitled to the appointment of a receiver for the rents, issues, profits and all other income of every kind which shall accrue and be owing for the use or occupation of the Mortgaged Property or any part thereof, whether before or after foreclosure and during the full statutory period of redemption, if any, upon a showing that an Event of Default has occurred and is continuing, including, without limitation, any violation of a covenant relating to any of the following: (1) payment when due of prior or current real estate taxes or special assessments with respect to the Mortgaged Property; (2) payment when due of premiums for insurance of the types required by the Loan Agreement; or Im �. (3) keeping of the covenants required of a lessor or licensor pursuant to Minnesota Statutes, Section 504. 18, Subdivision 1; or (4) repayment of tenant security deposits, with interest thereon, as required by Minnesota Statutes, Section 504.20, if applicable. The Mortgagee shall be entitled to the appointment of a receiver without regard to waste, adequacy of the security or solvency of the Company. The court shall determine the amount of the bond to be posted by the receiver. The receiver, who shall be an experienced property manager, shall collect (until the indebtedness secured hereby is paid in full and, in the case of a foreclosure sale, during the entire redemption period, if any) the rents, profits and all other income of any kind from the Mortgaged Property, manage the Mortgaged Property so as to prevent waste, execute leases without or beyond the period of the receivership, if approved by the court, and apply all rents, profits and other income collected by the receiver in the following order: (a) payment of the reasonable fees of the receiver; (b) the items listed in clauses (1) through (4) above (to the extent applicable) in the priority as numbered; (c) expenses for normal maintenance, operation and management of the Mortgaged Property; and (d) the balance to the Mortgagee to be credited, before commencement of foreclosure, against the indebtedness secured hereby, in such order as the Mortgagee may elect, or to be credited, after commencement of foreclosure, to the amount required to be paid to effect a reinstatement prior to foreclosure sale, or to be credited, after a foreclosure sale, to any deficiency and then to the amount required to be paid to effect a redemption, pursuant to Minnesota Statutes, Sections 580.30, 580.23 and 581.10, or its successors, as the case may be, with any excess to be paid to the Mortgagee; provided, however, that if this Mortgage Agreement is not reinstated nor the Mortgaged Property redeemed, as and during the times provided by said Sections 580.30, 580.23 or 581.10, or its successors, the entire amount received pursuant hereto, after deducting therefrom the amounts applied by the Mortgagee to any deficiency, shall be the property of the purchaser of the Mortgaged Property at the foreclosure sale, together with all or any part of the Mortgaged Property acquired through foreclosure. The receiver shall file periodic accountings as the court determines are necessary and a final accounting at the time of the receiver's discharge. The Mortgagee shall have the right, at any time and without limitation, as provided in Minnesota Statutes, Section 582.03, to advance money to the receiver to pay any part or all of the expenses which the receiver should otherwise pay if cash were available from the Mortgaged Property, and sums so advanced, with interest at -10- the respective rates provided in the Bonds on overdue principal from the date advanced, shall be a part of the sum required to be paid to redeem from any foreclosure sale. Said sums shall be proved by the affidavit of the Mortgagee, its agent or attorney, describing the expenses for which the same were advanced and describing the Mortgaged Property, which must be filed for record in the office where this Mortgage Agreement is recorded, and a copy thereof shall be furnished to the sheriff and the receiver at least ten (10) days before the expiration of any period of redemption. Upon the happening of any of the events set forth above, or during any period of redemption after foreclosure sale and prior to the appointment of a receiver as hereinbefore provided, the Mortgagee shall have the right to collect the rents, profits and other income of every kind from the Mortgaged Property and apply the same in the manner hereinbefore provided with respect to a receiver. The rights set forth in this paragraph shall be binding upon the occupiers of the Mortgaged Property from the date of filing by the Mortgagee in the office where this Mortgage Agreement is recorded, in the county in which the Mortgaged Property is located, of a notice of default in the terms and conditions of this Mortgage Agreement and service of a copy of the notice upon the occupiers of the Mortgaged Property. Enforcement hereof shall not cause the Mortgagee to be deemed a mortgagee in possession, unless it elects in writing to be so deemed. For the purpose aforesaid, Mortgagee may enter and take possession of the Mortgaged Property and manage and operate the same and take any action which, in the Mortgagee's judgment, is necessary or proper to conserve the value of the Mortgaged Property. The costs and expenses (including any receiver's fees, attorneys' fees, costs and agent's compensation) incurred by the Mortgagee pursuant to the powers herein contained shall be deemed to be immediately due and payable by the Company to the Mortgagee, shall be secured hereby and shall bear interest from the date paid at the respective rates provided in the Bonds on overdue principal. The Mortgagee shall not be liable to account to the Company for any action taken pursuant hereto other than to account for any rents, issues or profits actually received by the Mortgagee. Section 2.7. Attorneys' Fees. If an Event of Default occurs and the Mortgagee employs attorneys or incurs other expenses for the foreclosure of this Mortgage Agreement or the enforcement or performance of any obligation of the Company hereunder, the Company will, on demand of the Mortgagee and receipt of an accounting therefor, pay to the Mortgagee the reasonable fee of such attorneys and such other expenses so incurred, to the extent then permitted by Minnesota law. As used in this Mortgage the phrase "attorneys' fees" shall include, without limitation, fees incurred in good faith in investigation, drafting, collection and/or negotiation procedures in connection with this Mortgage, the Loan Agreement, any other Loan document, or the Mortgaged Property, in connection with any appearances reasonably necessary to protect the Mortgagee's interests in any probate, bankruptcy and/or receivership proceedings involving the Company, fees incurred in good faith in preparation for the commencement or defense of any proceedings or threatened suits or proceedings, and fees incurred in good faith prior to trial, at -11- trial and through all appeals, whether or not the Mortgagee prevails in such proceedings, disbursements made by attorneys in good faith in conducting such matters, and court costs. -12- ARTICLE III REPRESENTATIONS, COVENANTS, PERMITTED ENCUMBRANCES Section 3.1. Warranty of Title. The Company hereby covenants and warrants that it is and will continue to be well and truly seized of good and merchantable title in fee simple to the Mortgaged Property and that it has good right and lawful authority to convey and grant a lien and security interest in the same to the Mortgagee and that the title, lien and security interest hereby conveyed is and will forever be free, clear and unencumbered subject, however, only to the Permitted Encumbrances. The Company covenants and agrees to warrant and defend its good and merchantable title to the Mortgaged Property (subject to Permitted Encumbrances) and its good right and lawful authority to grant a lien and security interest in the same to the Mortgagee. The Company further warrants and represents that the Land is neither agricultural property, property in agricultural use, nor the homestead of the Company. Section 3.2. Permitted Encumbrances. The Permitted Encumbrances which are applicable to the Mortgaged Property are as follows: (a) liens for taxes and special assessments which are not then delinquent, or if then delinquent are being contested in accordance with Section 4.5 of the Loan Agreement; (b) utility, access and other easements and rights-of-way, restrictions, restrictive covenants and exceptions that the Company certifies to the Mortgagee will not interfere with or impair the operation of the Mortgaged Property, or, if it is not being operated, the operation for which it was designed or last modified; (c) any mechanic's, laborer's, materialman's, supplier's, or vendor's lien or right in respect thereof if payment is not yet due under the contract in question or if such lien is being contested in accordance with Section 4.5 of the Loan Agreement; (d) such minor defects, irregularities, encumbrances, easements, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the Facilities and Personalty and which the Company certifies by Company Certificate do not materially impair the property affected thereby for the purpose for which it was intended; (e) zoning laws; (f) liens arising in connection with workers' compensation, unemployment insurance, taxes, assessments, statutory obligations or liens, social security legislation, undetermined liens and charges incidental to construction, or other similar charges arising in the ordinary course of operation and not overdue or, if overdue, being contested in accordance with Section 4.5 of the Loan Agreement, and such other liens and charges at the time required by law -13- as a condition precedent to the transaction of the business of the Company or the exercise of any privileges or licenses necessary to the Company; (g) superior liens in Fixtures, provided that: (1) no such superior lien shall extend to or cover any property of the Company other than the property then being acquired; (2) the aggregate principal amount of debt, as determined under generally accepted accounting principles, secured by the superior lien at the time of acquisition of the property subject thereto shall not exceed one hundred percent (100%) of the cost of such property or of the then fair value of such property as determined by the Board of Directors of the Company authorizing such work or acquisition, whichever shall be less; (3) such superior lien may take the form of purchase money mortgages, liens, pledges or security interests (which term shall include conditional sales agreements and other title retention agreements) upon or in fixtures to be located on or in the Mortgaged Property and all replacements, extensions or renewals thereof upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the principal amount) of the debt secured thereby; (4) until paid or discharged at maturity or otherwise, the Company will pay or cause to be paid the interest on all outstanding superior lien obligations of the Company according to their terms; at or before the maturity thereof, the Company will pay or cause to be paid the principal of, or will renew or extend (at the same or a lower or higher rate of interest, but without increasing the aggregate principal amount), all outstanding superior lien obligations of the Company; and the Company will prevent any default whereby the right may arise to exercise any remedy under or with respect to any superior lien on all or any portion of the Mortgaged Property; and (5) no superior lien shall be created in or extend to any property purchased in whole or in part from proceeds of the sale of Bonds; (h) inferior liens in Improvements, provided that: (1) no such inferior lien shall extend to or cover any property of the Company other than the Improvement then being acquired or constructed; (2) the aggregate principal amount of debt, as determined under generally accepted accounting principles, secured by the inferior lien at the time of acquisition or construction of the Improvement subject thereto shall not exceed one hundred percent (100%) of the cost of such Improvement or of the then fair value of such Improvement as -14- determined by the Board of Directors of the Company authorizing such Improvement, whichever shall be less; (3) such inferior lien may take the form of purchase money mortgages, liens, pledges or security interests (which term shall include conditional sales agreements and other title retention agreements) upon or in the Improvement to be located on or in the Mortgaged Property and all replacements, extensions or renewals thereof upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the principal amount) of the debt secured thereby; (4) until paid or discharged at maturity or otherwise, the Company will pay or cause to be paid the interest on all outstanding inferior lien obligations upon Mortgaged Property according to their terms; at or before the maturity thereof, the Company will pay or cause to be paid the principal of, or will renew or extend (at the same or at a lower or higher rate of interest, but without increasing the aggregate principal amount), all outstanding inferior lien obligations upon Mortgaged Property; and the Company will prevent any default whereby the right may arise to exercise any remedy under or with respect to any inferior lien upon Mortgaged Property; and (5) no inferior lien shall be created in or extend to any Improvement purchased in whole or in part from proceeds of the sale of Bonds; (i) superior liens in the form of leases or purchase money security interests in those items of Personalty which are equipment, furnishings and other tangible personal property placed by the Company, in, upon, about or under the Land, the Housing Facility, the Nursing Facility, and other Improvements; 0) superior liens in accounts receivable to finance current operating expenses prior to the occurrence of any Event of Default under the Loan Agreement; and (k) exceptions, easements, restrictions and encumbrances shown as of the date of this Mortgage Agreement on Exhibit A hereto with respect to the Mortgaged Property. Section 3.3. Environmental Warranties. The Company represents, warrants and covenants for itself and with respect to the Mortgaged Property that as of the date of this instrument: there are no conditions existing which would if continued subject the Company to damages, penalties, injunctive relief or cleanup costs under any existing Environmental Laws, or which require or are likely to require cleanup, removal, remedial action or other response by the Company pursuant to existing Environmental Laws; the Company is not a party to any litigation or administrative proceeding, nor, so far as is known by the Company, is any litigation or administrative proceeding threatened against it, which asserts or alleges that the Company has violated or is violating Environmental Laws or that the Company is required to cleanup, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or -15- release of any hazardous substances or materials; the Company is not subject to any judgment, decree, order or citation related to or arising out of any Environmental Laws nor has the Company been named or listed as a potentially responsible party by any governmental body or agency in a matter arising under any Environmental Laws; and there are not now nor, to the Company's knowledge after reasonable investigation, have there ever been materials deposited, leaked, spilled or discharged or disposed of on, or under the Land or stored, treated or recycled at or in tanks or other facilities thereon, which materials, if known to be present on or in the Land or present in soils or ground water, would require cleanup, removal or some other remedial action under any Environmental Laws. These representations and warranties shall be deemed to be continuing and shall survive the termination or foreclosure of this Mortgage Agreement. Section 3.4. Compliance With Environmental Laws; Indemnity. With the exception of the storage, use and disposal of reasonable quantities of Permitted Substances, all of which shall be properly contained, stored, handled, used and disposed of in accordance with all Environmental Laws, the Company covenants that it shall not place, locate, produce, generate, create, store, treat, handle, transport, incorporate, discharge, emit, spill, release, deposit or dispose of any Hazardous Substance in, upon, under, over or from the Facilities and Personalty and, with the exception of the storage, use and disposal of reasonable quantities of Permitted Substances, which shall be properly contained, stored, handled, used and disposed of in accordance with all applicable Environmental Laws, shall not permit any Hazardous Substance to be placed, located, produced, generated, created, stored, treated, handled, transported, incorporated, discharged, emitted, spilled, released, deposited, disposed of or to escape therein, thereupon, thereunder, thereover or therefrom. The Company covenants that it will comply with all Environmental Laws which are applicable to such Facilities and Personalty. The Company agrees to promptly and properly remove and dispose of any Hazardous Substance found on or in such Facilities and Personalty and to clean up and detoxify such Facilities and Personalty after any such removal, all at the Company's sole cost and expense and in compliance with all applicable Environmental Laws. At any time, and from time to time, if the Mortgagee so requests after the Mortgagee has received notice or information that would cause the Mortgagee to believe that there is or may be environmental liability with respect to the Facilities and Personalty, the Company, at the Mortgagee's option, shall have any environmental assessment, review, audit and/or report relating to the Facilities and Personalty heretofore provided by the Company to the Mortgagee updated and/or amplified by an engineer or scientist acceptable to the Mortgagee, or shall have such an assessment, review, audit and/or report prepared for the Mortgagee if none has previously been so provided. Any such updating or amplification of an existing environmental assessment, review, audit and/or report, or any preparation of a new assessment, review, audit and/or report shall be performed at the sole cost and expense of the Company. The Company shall indemnify the Mortgagee, the City, their directors, officers, officials, employees, agents, contractors, licensees, invitees, successors and assigns, and the Holders of the Bonds (hereinafter collectively referred to as "Indemnified Parties") against, shall hold the Indemnified Parties harmless from, and shall reimburse the Indemnified Parties for, any and all claims, demands, judgments, penalties, liabilities, costs, damages and expenses incurred by the Indemnified Parties, including court costs and attorneys' fees (prior to trial, at trial and on -16- appeal), in any action, administrative proceeding or negotiations against or involving any of the Indemnified Parties, resulting from any breach of the foregoing covenants, from the incorrectness or untruthfulness of any warranty or representation set forth in Section 3.3 hereof, from a failure by the Company to perform any of its obligations hereunder with respect to any Hazardous Substance, or from the discovery of any Hazardous Substance in, upon, under or over, or emanating from, the Mortgaged Property, it being the intent of the Company that the Indemnified Parties shall have no liability for damage or injury to human health, the environment or natural resources caused by, for abatement, clean-up, removal or disposal of, or otherwise with respect to, Hazardous Substances by virtue of the interest of the Mortgagee in the Mortgaged Property created hereby or as the result of the Mortgagee exercising any of its rights or remedies with respect thereto hereunder, including but not limited to becoming the owner of the Mortgaged Property by foreclosure or conveyance in lieu of foreclosure. The foregoing covenants, representations and warranties of Section 3.3 hereof and of this Section shall be deemed continuing covenants, representations and warranties for the benefit of the Indemnified Parties, including but not limited to any purchaser at a foreclosure sale, any transferee of the title of the Mortgagee or any other purchaser at a foreclosure sale, and any subsequent owner of the Facilities and Personalty claiming by, through or under the Mortgagee, and shall survive the satisfaction or release of this Mortgage Agreement, any foreclosure of this Mortgage Agreement and/or any acquisition of title to the Mortgaged Property or any portion thereof by the Mortgagee, or by anyone claiming by, through or under the Mortgagee, by deed in lieu of foreclosure or otherwise. Any amounts covered by the foregoing indemnification shall bear interest from the date paid at the respective rates provided in the Bonds on overdue principal and shall be secured hereby. Section 3.5. Compliance With Other Laws and Restrictions. The Company shall comply with all present and future laws, statutes, ordinances, codes, rules, regulations and requirements of any governmental authority having or claiming jurisdiction with reference to that portion of the Facilities and Personalty owned by each and the manner of leasing, using, operating or maintaining the same, including but not limited to the provisions of Minnesota Statutes Section 504.18, Subdivision 1, and Section 504.20, as now existing or as hereafter amended, if applicable, and with all private covenants and restrictions, if any, affecting the title to the Facilities and Personalty, or any thereof. Section 3.6. Waiver of Marshalling. The Company, for itself and on behalf of all persons, parties and entities which may claim under the Company, hereby waives any and all requirements of law relating to the marshalling of assets, if any, which would be applicable in connection with the enforcement by the Mortgagee of its remedies upon an Event of Default, absent this waiver. -17- ARTICLE IV EASEMENTS, TIE-IN WALLS, REMOVAL OF MORTGAGED PROPERTY, ADDITION OF IMPROVEMENTS TO LIEN OF MORTGAGE Section 4.1. Grant of Easements, Licenses, Etc. The Company may at any time or times grant to itself or others easements, licenses, rights of way and other rights or privileges in the nature of easements with respect to the Land, free from the lien of this Mortgage Agreement, or the Company may release existing easements, licenses, rights of way and other rights or privileges with or without consideration, and the Mortgagee will execute and deliver any instrument necessary or appropriate to confirm and grant or release any such easement, license, right of way or privilege; provided, however, that prior to any such grant or release there shall have been supplied to the Mortgagee a Company Certificate and a certificate or report of an Independent Management Consultant to the effect that: (a) such grant or release is not detrimental to the proper operation of the Facilities and Personalty, and (b) such grant or release will not impair the operating unity or the efficiency of the Facilities and Personalty on the Land or materially and adversely affect the character thereof. Section 4.2. Release of Mortgaged Property. Portions of the Mortgaged Property may be released from the lien of this Mortgage Agreement in accordance with the provisions of, and upon the terms and conditions set forth in, the Loan Agreement and Sections 4.3 and 4.6 hereof. In any such case, the Mortgagee and the Company will do, execute, acknowledge and deliver all and every such act, conveyance and instrument necessary to accomplish the same in accordance with the provisions of Section 5.4 of the Loan Agreement. Section 4.3. Tie -In Walls. The Company may, at its own expense, (a) connect or "tie-in" walls (including use of existing walls for the support of future adjacent buildings) and utilities and other facilities located on the Land to other structures erected on the Land or on real property adjacent to or near the Land or partly on such adjacent real property and partly on the Land, or (b) in connection with the expansion or improvement of any building on the Land, tear down any wall of such building and build an addition to such building (either on the Land or on real property adjacent thereto or partly on such adjacent real property and partly on the Land); provided, however, that, prior to any such expansion, addition, improvement, tearing down or connection with the "tie-in" walls, utilities and other facilities, the Mortgagee shall have approved the same in writing based on a certification and/or opinion of an Independent Architect that the same will not impair the operating unity or the efficiency of the Facilities and Personalty on the Land or adversely affect the character thereof, and based on an Opinion of Counsel stating that all party -wall agreements, easements, cross -easements or other instruments relating to such go expansion, addition, improvement, tearing down or connection with the "tie-in" walls, utilities and other facilities, which are necessary or desirable to define the relative rights of the owners and encumbrancers of the same therein, and to fully preserve the security hereof, have been duly executed, delivered and recorded, to which Opinion of Counsel copies of all such instruments shall be attached. The Mortgagee shall release from the lien of this Mortgage Agreement any interest in the Mortgaged Property, or join in any such party -wall agreements, easements, cross - easements or other agreements, to the extent necessary to effect the purpose of this Section 4.3. Section 4.4. Removal of Facilities. The Company will not move any major portion of the Facilities and Personalty located on the Land or any major portion of its operations in connection therewith to any site which is not a part of the Land unless this Mortgage Agreement is appropriately amended to include such site within the lien hereof. Section 4.5. Addition of Improvements to Lien of Mortgage. All buildings, structures or improvements, including without limitation the Housing Facility, the Nursing Facility and any Improvements which may be acquired or constructed by the Company, subsequent to the date hereof and which are located on the Land, and all property of every kind or nature, including without limitation Fixtures and/or Personalty, added to or installed in any building, structure or improvement located on the Land, shall, immediately upon the acquisition thereof by the Company, and without any further conveyance or assignment, become subject to the mortgage, lien and security interest of this Mortgage Agreement. Nevertheless, the Company, in accordance with the provisions of Section 5.4 of the Loan Agreement, will do, execute, acknowledge and deliver all and every such further acts, conveyances and assurances as the Mortgagee shall require for accomplishing the purposes of this Section 4.5. Section 4.6. Release of Land. In addition to the right granted to the Company in Section 4.3 hereof, the Company shall have the right, at any time and from time to time, to obtain a release from the lien of this Mortgage Agreement of any part of the Land not containing any permanent structure necessary for the total operating unity and efficiency of the Facilities (as determined in writing by an Independent Management Consultant, which determination shall be binding on the Mortgagee and the Company) for the purpose of selling the same to a third person or for the purpose of securing any Long Term Indebtedness, and the Mortgagee shall, from time to time, release from the lien of this Mortgage Agreement such real property so sold, pledged or disposed of, but only upon receipt by the Mortgagee of the following: A. a Company Request for such release; B. a Company Certificate, signed also as to clause (1) of this subsection by a Registered Land Surveyor and as to clause (4) of this subsection by an Independent Architect, setting forth in substance as follows: (1) the area of the Land to be released; -19- (2) the calculation of the release price, which shall be (i) in the case of any sale to a third party, the sale price, or (ii) in any other case, an amount equal to the value of such Land as determined by an Independent Appraiser; (3) that the Land to be released either (i) is not needed for the operation of the Facilities and Personalty for the purpose for which it was intended or (ii) is to be used to secure Long Term Indebtedness in order to improve the other Mortgaged Property for use in the business of the Company; and, in either case, is not necessary for the total operating unity and efficiency of the Facilities and Personalty; (4) that the release will not impair the structural integrity or the usefulness of the Facilities and Personalty and will not inhibit adequate means of ingress to or egress from the Facilities; (5) that no default under the Loan Agreement has occurred which has not been cured; and (6) that all conditions precedent herein provided for relating to such release have been complied with; C. a survey prepared by a Registered Land Surveyor describing and showing the Land after giving effect to such release; D. cash equal to the release price as certified pursuant to subsection B(2) of this Section 4.6; E. an Opinion of Counsel stating that (i) both the Land being released and the Land remaining subject hereto constitute separate parcels for conveyancing and real estate tax purposes in conformance with all applicable subdivision laws, ordinances, codes and regulations, and (ii) that the certificates, opinions and other instruments and cash which have been or are therewith delivered to and deposited with the Mortgagee conform to the requirements of this Section 4.6 and (iii) that, upon the basis of such application, the property may be lawfully released from the lien of this Mortgage Agreement, and that all conditions precedent herein provided for relating to such release have been complied with; and F. the written determination of the Management Consultant described above in this Section 4.6. In addition to the right of release provided for above, the Company -shall have the right at any time and from time to time to obtain a release of any part of the Land not containing any permanent structure necessary for the total operating unity and efficiency of the Facilities and Personalty (as determined by an Independent Management Consultant, which determination shall be binding on the Mortgagee and both of the Company) from the lien of this Mortgage -20- Agreement for the purpose of substituting or exchanging the same for other real property (with or without permanent structures thereon) to become subject to the lien of this Mortgage Agreement (herein called the "Substituted Property"), but only upon receipt by the Mortgagee of the following: a. a Company Request for such release; b. a Company Certificate, signed also as to clause (1) of this subsection by a Registered Land Surveyor and as to clause (4) of this subsection by an Independent Architect, setting forth in substance as follows: (1) the area of the Land to be released; (2) the calculation of the release price, which shall be that amount, if any, by which the value of the Land to be released exceeds the value of the Substituted Property, as determined by an Independent Appraiser; (3) that either (i) the Land to be released is not needed for the operation of the Facilities and Personalty for the purpose for which it was intended or (ii) the Substituted Property will be used for the same purpose for which the Land to be released was used; and, in any case, the result of the exchange or substitution does not impair the total operating unity and efficiency of the Facilities and Personalty; (4) that the result of the release of such Land and the substitution thereof by the Substituted Property will not impair the structural integrity of the Facilities or the usefulness of the Facilities and Personalty for these purposes and will not inhibit adequate means of ingress to or egress from the Facilities; (5) that no default under the Loan Agreement has occurred which has not been cured; and (6) that all conditions precedent herein provided for relating to such release have been complied with; c. a survey prepared by a Registered Land Surveyor describing and showing the Land after giving effect to such exchange or substitution; d. cash equal to the release price, if any, determined in accordance with clause b(2); and e. an Opinion of Counsel stating (i) that both the Land being released and the Land remaining subject hereto constitute separate parcels for conveyancing and real estate tax purposes in conformance with all applicable subdivision laws, ordinances, codes and regulations -21- and (ii) that the certificates, opinions and other instruments and cash, if any, which have been or are therewith delivered to and deposited with the Mortgagee conform to the requirements of this Mortgage Agreement, (iii) that, upon the basis of such application, the Land may be lawfully released from the lien of this Mortgage Agreement and substituted or exchanged for the Substituted Property, (iv) that the Substituted Property has become subject to the lien of this Mortgage Agreement and (v) that all conditions precedent herein provided for relating to such exchange or substitution have been complied with. Simultaneously with the release of any Land as provided in this Section 4.6, the cash, in the amount or amounts, if any, specified in subsection D or subsection d of this Section 4.6, shall be deposited by the Trustee in the Reserve Fund, if and to the extent necessary to increase the balance therein to the Reserve Requirement, and thereafter to the Principal Account, to be used to pay the Bonds. Section 4.7. Equipment of Company. As provided in Section 5.2 of the Loan Agreement, the Company may install or place within the Facilities or elsewhere on the Land items of Personalty which are equipment, furnishings and other tangible personal property not constituting fixtures. Such items shall be subject to the security interest created hereunder and prior to the occurrence of any Event of Default may be removed, altered or modified by the Company as provided in Sections 4.8 and 5.2 of the Loan Agreement. Section 4.8. Further Assurances. The Company shall procure, do, execute, acknowledge and deliver each and every further act, deed, conveyance, transfer, document and assurance necessary or proper for the carrying out more effectively of the purposes of this Mortgage Agreement and, without limiting the foregoing, for granting, bargaining, selling, conveying, warranting, mortgaging, assigning, pledging and confirming unto the Mortgagee all of the Mortgaged Property, including, without limitation, the preparation, execution and filing of any documents, such as financing statements and continuation statements, deemed advisable by the Mortgagee for perfecting and maintaining its lien on and security interest in the Mortgaged Property. _22_ ARTICLE V MISCELLANEOUS Section 5.1. Recording. The Company will at its own expense cause this Mortgage Agreement and all supplements hereto, and any other instruments of further assurances, to be promptly recorded, filed and registered, and at all times to be recorded, filed and registered, in such manner and in such places as may be required by law fully to preserve and protect the rights of the Mortgagee hereunder as to all of the Mortgaged Property and will pay any mortgage registration tax payable thereon. Section 5.2. Binding Effect. All terms, covenants, conditions and agreements of the Company contained herein or set forth in the Loan Agreement shall be binding upon the Company, its successors and assigns, and every covenant, condition and agreement herein contained or set forth in the Loan Agreement in favor of the Mortgagee shall apply to and inure to the benefit of the City and the Mortgagee, its successors or assigns. This Mortgage Agreement is expressly made subject to all terms, conditions, covenants and agreements set forth in the Loan Agreement. Section 5.3. Amendments. Except as provided in Article IV hereof and in the Loan Agreement, this Mortgage Agreement may only be amended in accordance with the provisions of Article X of the Indenture. Section 5.4. Use of Mortgaged Property. It is recognized by the parties hereto that unless and until an Event of Default shall have occurred and the Mortgagee shall have exercised one of its remedies under Section 2.3 hereof, the Company shall have the unencumbered right to the use of that portion of the Mortgaged Property in the ordinary course of its business, subject only to the covenants, conditions and agreements contained in the Loan Agreement. Section 5.5. Fixture Filing. This instrument shall be deemed to be a Fixture Financing Statement within the meaning of the Minnesota Uniform Commercial Code, Minnesota Statutes, Section 336.9-313, and for such purposes the following information is set forth: (1) Name and address of Debtor: (2) Name and address of Secured Party: -23- Minnesota Masonic Home North Ridge 5430 Boone Avenue North New Hope, Minnesota 55428 Employer ID No. 41-1921948 City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428 (3) Assignee of Secured Party: (4) Description of the types (or items) of property covered by this Financing Statement (5) Description of real estate to which collateral is attached or upon which it is located: U.S. Bank Trust National Association 180 East Fifth Street, Suite 200 St. Paul, Minnesota 55101 Fixtures, as described on Page 1 above. See Exhibit A hereto. The above-described collateral is or is to become fixtures upon the above-described real estate, and this Financing Statement is to be filed for record in the real estate records of Hennepin County, Minnesota. -24- IN WITNESS WHEREOF, Minnesota Masonic Home North Ridge has caused this Mortgage Agreement to ksigned in its name and on its behalf by its authorized L& iYftuk'm and pursuant to a resolution duly adopted by the Board of Directors of the Company at a meeting duly called and held prior to the execution and delivery hereof, all as of the day and year first written above. MINNESOTA MASONIC HOME NORTH RIDGE And Aur.. -1 1 its Pa J. -25- STATE OF MINNESOTA ) ss. COUNTY OF HENNEPIN ) On this &/A day of March, 1999, before me, a notary public in and for said county and state, personally appeared % rma5 D. arJa;6%om and h- , known to me to be the L'lra.Y�ua�/i and Pe5.��i tf respectively, of MINNESOTA MASONIC HOME NORTH RIDGE, the nonprofit corporation that executed the foregoing instrument. IN WITNESS WHEREOF, I have hereunto set my hand and official seal this day of March, 1999. Notary Public r _ (NOTARIAL SEAL) JOHN W. GIBBONS NOTARY PUBLIC•MINNES0 ur CWMW ., Ex*ss JvA $1.2M s -26- EXHIBIT A LEGAL DESCRIPTION OF THE LAND TRACT A Lot 1, Block 1 North Ridge Care Center Addition, except the most southerly 30 feet thereof, according to the recorded plat thereof, and situate in Hennepin County. TRACT B The most Southerly 30 feet of Lot 1, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, Minnesota. TRACT C Lot 2, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, Hennepin County, Minnesota. A-1 PERMITTED ENCUMBRANCES 1. Subject to drainage and utility easements as shown on plat and as shown in recital on the certificate. 2. Subject to restrictions, covenants and lien as shown in deed recorded as Document No. 1494994 (torrens) and as Document No. 4762836 (abstract) and as shown in recital on the certificate. Amended by Amendment to Covenants and Restrictions dated December 1, 1986, recorded January 15, 1987 as Document No. 5213116 (abstract), and filed February 9, 1987 as Document No. 1802435. Further amended by Second Amendment to Covenants and Restrictions dated August 1, 1989, recorded December 27, 1989 as Document No. 5610251 (abstract), and filed December 28, 1989 as Document No. 2063367 (torrens). Amended by Third Amendment to Covenants and Restrictions dated November 1, 1995, filed November 28, 1995 as Document No. 6505794 (abstract) and as Document No. 2657104 (torrens). (As to Lot 1) 3. Resolution vacating 55th Avenue North between Boone Avenue and Zealand Avenue North filed and recorded December 21, 1982 as Document No. 1494356 (torrens) and as Document No. 4760992 (abstract). 4. Terms and conditions of Assessment Agreement dated December 1, 1982, filed and recorded January 7, 1983 as Document No. 1496209 (torrens) and as Document No. 4763652 (abstract). (As to Lot 1) 5. Terms and conditions of Declaration of Restrictive Covenant for the benefit of the City of New Hope dated May 21, 1985, filed and recorded May 21, 1985 as Document No. 1646663 (torrens) and as Document No. 4995815 (abstract). Amended by Amended Declaration of Restrictive Covenants dated December 1, 1986, recorded January 15, 1987 as Document No. 5213117 (abstract), and filed February 9, 1987 as Document No. 1802436 (torrens), and amended by Agreement dated and filed as Document No. 6. Easement for Construction and Maintenance of Public Improvement in favor of the City of New Hope dated March 13, 1989, filed August 16, 1989 as Document No. 2033116 (torrens). 7. Notice of Completion of Vacation Proceedings dated July 24, 1989, filed and recorded August 17, 1989 as Document No. 2033432 (torrens), and as Document No. 5564411 (abstract). 8. Terms and conditions of Certificate and Declaration as to Qualified Project Period dated December 31, 1986, recorded January 26, 1987 as Document No. 5217330 (abstract) filed January 24, 1996 as Document No. 2672118 (torrens) and Amended by Amended and Restated Certificate and Declaration as to Qualified Project Period dated November 1, 1995, filed November 28, 1995 as Document No. 6505795 (abstract) and filed January 24, 1996 as Document No. 2672119 (torrens). (As to Lot 1) A-2 9. Regulatory Agreement dated March 1, 1999, filed as Document No. between Minnesota Masonic Home North Ridge and U.S. Bank Trust National Association. 10. Pilot Agreement dated March 17, 1999, filed as Document No. , between Minnesota Masonic Home North Ridge and the City of New Hope. A-3 ASSIGNMENT OF MORTGAGE AGREEMENT between CITY OF NEW HOPE, MINNESOTA and U.S. BANK TRUST NATIONAL ASSOCIATION as Trustee Dated as of March 1, 1999 This instrument was drafted by Dorsey & Whitney LLP 220 South Sixth Street Minneapolis, Minnesota 55402 THIS ASSIGNMENT OF MORTGAGE AGREEMENT, dated as of March 1, f 1999, between the CITY OF NEW HOPE, MINNESOTA, a municipal corporation organized and existing under the Constitution and laws of the State of Minnesota (the "Assignor"), and U.S. Bank Trust National Association, a national banking association organized and existing under the laws of the United States, as Trustee under the Indenture of Trust hereinafter referred to (with any successor trustee, the "Assignee"). WITNESSETH WHEREAS, the Assignor will, under and pursuant to Minnesota Statutes, Chapter 462C, as amended, and an Indenture of Trust, dated as of March 1, 1999 (the "Indenture"), between the Assignor and the Assignee, issue and deliver its Series 1999 Bonds, as defined in the Indenture, in the aggregate principal amount of $46,875,000, maturing and payable in full on or before March 1, 2029 (collectively with any other bonds hereafter issued under the Indenture and secured by the Mortgage hereafter described, the "Bonds"); and WHEREAS, the Assignor will loan the proceeds of the Bonds to Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (with any permitted successor under the Loan Agreement hereinafter referred to, the "Company") pursuant to a Loan Agreement, dated as of March 1, 1999, between the Assignor and the Company; and WHEREAS, by the Loan Agreement, the Company has covenanted, among other things, to make Loan Repayments (as defined therein), sufficient to pay the principal of, premium, if any, and interest on the Bonds when due; and WHEREAS, the Company, to secure its obligations under the Loan Agreement has executed a Mortgage Agreement, dated as of March 1, 1999 (the "Mortgage"), granting to the Assignor a mortgage lien on and security interest in certain real and personal property as therein specified, including the real property in Hennepin County, Minnesota, the legal description of which appears on Exhibit A hereto, and which is hereby incorporated herein by reference; and WHEREAS, the Mortgage was duly filed for record in the office of the Registrar of Titles of Hennepin County, Minnesota, on the _ day of 1999, as Document No. and in the office of the County Recorder of Hennepin County, Minnesota, on the day of 1999, as Document No. ; and WHEREAS, the Assignor has, by the Indenture, pledged and granted to the Assignee a security interest in all of the Assignor's rights, title and interests in the Loan Agreement (except certain rights to payment of administration and legal expenses -and indemnification), including, but not limited to, such Loan Repayments, and the Mortgage in order to secure, inter alia, the full and prompt payment of the principal of, premium, if any, and interest on the Bonds. NOW, THEREFORE, the Assignor, in consideration of the purchase of the Bonds by the Holders thereof, from time to time, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as security for the payment of the principal of, premium, if any, and interest on the Bonds and the performance of the provisions of the Indenture and such other agreements as are specified by the Mortgage, does hereby sell, assign, transfer and set over to the Assignee and its successors as trustee under the Indenture, all of its right, title and interest in and to the Mortgage, together with all right and interest in the land therein described, and to the debt thereby secured (including the Loan Agreement (other than amounts payable to the Assignor under Sections 2.3, 7.8 and 11.11 thereof) and the other obligations therein specified), and hereby constitutes and appoints the Assignee its attorney irrevocable to collect and receive such debt, and to foreclose, enforce and satisfy the Mortgage the same as it might or could have done were these presents not executed but at the cost and expense of the Assignee as provided in the Indenture. IN WITNESS WHEREOF, the CITY OF NEW HOPE, MINNESOTA, has caused these presents to be signed in its name and on its behalf by its authorized officers, all as of the day and year first written above. CITY OF NEW HOPE, MINNESOTA By Mayor (SEAL) And 416 city -manager -2- STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) On this 1- day of March, 1999, before me, a notary public in and for said county and state, personally appeared W. Peter Enck and Daniel J. Donahue, known to me to be the Mayor and City Manager, respectively, of the CITY OF NEW HOPE, MINNESOTA, the municipal corporation that executed the foregoing instrument. P- IN IN WITNESS WHEREOF, I have hereunto set my hand and official seal this day of March, 1999. ■ a STEVEN Ran3l, LIOTA My Commission Expires 2000 mom', 'M -3- 'S j� O'L,-� Notary Public EXHIBIT A LEGAL DESCRIPTION OF THE LAND TRACT A Lot 1, Block I North Ridge Care Center Addition, except the most southerly 30 feet thereof, according to the recorded plat thereof, and situate in Hennepin County. TRACT B The most Southerly 30 feet of Lot 1, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, Minnesota. TRACT C Lot 2, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, Hennepin County, Minnesota. A-1 heal STATE OF MINNESOTA �1 ' UCC -1 FINANCING STATEMENT Www This statement if presented for filing pursuant to Minnesota Uniform Commercial Code Minnesota Statutes Chapter 336.9-402 (Type in Black Ink) Mailing Address City Debtor - Last Name Social 3. Name Fed. ID# Mailing Address d1�,nt1RR7n Ol Won Avenue North Code Filing Officer V V V, V � ttlufl1 cg MfiR :i 7 Pt312� !i S OF ',— l' $'I r; 'l L- P.;.];.;, 1'II{hl f:JC O 1 TI9 City State Zip Code Minneapolis 05428 4. Secured Party Name 5. Assignee of Secured Party U.S. Bank Trust National Association *'-fling Address Mailing Address East Fifth Street, Suite 200 CityState Zip Code City State Zip Code St. Paul IN 5101 6. This financing statement covers the following types or items of property. (If crops are covered describe the real estate and list the name of record owner). Chattel paper and contract rights consisting of all of the rights, title and interest of the Debtor in, to and under that certain Loan Agreement (it "Loan Agreement'), dated as of March 1, 1999, by and between the Debtor and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), and all proceeds thereof, including the loan repayments and other income therefrom, but excluding at amounts payable to the Debtor under Sections 2.3 and 11.1 of the Loan Agreement and to indemnification under Section 7.8 of the Loan Agreement. Debtor is a transmitting utility as defined by Minnesota Statutes Chapter 336.9-105 COPY TO: (name and address) CITY Dorsey & .Whitney LLP Attn: Jerome P. Gilligan 220 South Sixth Street Minneapolis, MN 55402 Please do not type outside the bracketed area. Debtor's Signature Mayor (Required in Most Cases see Instructions) Debtor's Signature Secured Party's Signature (06920819 Rev. 5/93) Standard Form Approved by Secretary of State (1) FILING OFFICER COPY ALPHABETICAL STATE OF MINNESOTA UCC -1 FINANCING STATEMENT This statement if presented for filing pursuant to Minnesota Uniform Commercial Code Minnesota Statutes Chapter 336.9-402 (Type in Black Ink) Filing Officer �3 Hi i° 17 12: t; cl 1. Individual Debtor - Last Name First Name Middle I. ,.`:C J I ''. ' ` 7(7 rr'Tll I ... Social Security # Mailing Address City State Zip Code 2. Individual Debtor - Last Name First Name Middle I. Social Security # Mailing Address City State Zip Code 3. Business Debtor - Name Minnesota Masonic Home North Ride Attn: President Fed. ID# Mailing Address 41-1921948 430 Boone Avenue North City State Zip Code New Hope MN 05428 4. Secured Party Name 5. Assignee of Secured Party City of New Hoe U.S. Bank Trust National Association N ''ing Address Mailing Address 4 X lon Avenue North 180 East Fifth Street, Suite 200 City I State Zip Code City I State Zip Code New Hoe MN 05428 St. Paul MN r5101 6. -[his financing statement covers the following types or items of property. (If crops are covered describe the real estate and list the name of record owner). SEE EXHIBIT A COPY TO: (name and Dorsey & Whitney LLP Attn: Jerome P. Gilligan 220 South Sixth Street Minneapolis, MN 55402 Please do not type outside the bracketed area. Debtor is a transmitting utility as defined by Minnesota Statutes Chapter 336.9-105 Debtor's Signature 4'Aaj, (Required in Most Cases see Signature /D-Ie5ideq f Secured Party's Signature (06920819 Rev. 5/93) Standard Form Approved by secretary of State (1) FILING OFFICER COPY ALPHABETICAL RIDGE ITT i EXHIBIT A TO UCC -1 FINANCING STATEMENT DEBTOR: Minnesota Masonic Home North Ridge 99 PIP ` 7 F' 112: 45 5430 Boone Avenue North S '�. 0-S !AIL New Hope, Minnesota 55428 -;;;; ESO j r Attn: President EID: 41-1921948 PARTY: City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428 ASSIGNEE: U.S. Bank Trust National Association 180 East Fifth Street, Suite 200 St. Paul, Minnesota 55101 (a) Any and all items of personal property owned by the Debtor and located on Lots 1 and 2, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, or in the improvements located thereon, but not including equipment, furnishings or other tangible personal property installed but then removed by the Debtor pursuant to Section 4.7 of a Mortgage Agreement, dated as of March 1, 1999 (the "Mortgage") from the Debtor to the Secured Party with assignment to U.S. Bank Trust National Association. (b) All of the leasehold estate and all rights, title and interest of the Debtor, from time to time, in and to any and all leases, contracts, franchises, permits and licenses (including without limitation certificates of need to the extent transferable under Minnesota law, food, and any other licenses reasonably necessary to operate the Nursing Facility and the Housing Facility, and/or to permit the reconstruction, maintenance and operation of either or both thereof, now belonging or hereafter acquired by the Debtor, or added thereto, without assumption by, or any liability or obligation thereunder on the part of, the Secured Party, and including without limitation, all cash or security deposits (including without limitation patient, resident or tenant security deposits, if any), all escrow accounts, and all advance rentals and deposits or payments of similar nature. (c) All reversion and reversions, remainder and remainders thereof and all rents, income (including without limitation income derived from the occupation of rooms and nursing and/or retirement or assisted living beds, and income generated by nursing and/or retirement or assisted living services and other services), issues, royalties, revenues, payments (including without limitation payments from any consumer credit/debit/charge card organization or entity), and profits which shall hereafter be realized, become due, or be paid in connection with the operation V V -y- t 7 lill t�+ iii ifl and use of the Facilities and Personalty and the right, title and interest of the Debtor in and under all leases thereof now or hereafter existing. (d) All repayments or return premiums upon any policy of insurance maintained pursuant to the terms hereof, and refunds or rebates made of Impositions. (e) All evidence of title, insurance policies, insurance proceeds and claims or demands with respect thereto, deposits, condemnation proceeds and sale proceeds herein assigned. (f) All general intangibles of the Debtor which relate to any of the Facilities and/or Personalty, including without limitation accounts, trade names and contract rights, such contract rights including without limitation contract rights under management contracts, leases of equipment, accounts receivable, bank accounts, room rental, bed rental, catering and services accounts, rights to room rental payments and proceeds, and payments and proceeds from licenses for use and occupancy; (g) All after-acquired interests of the Debtor in and to each of the items referred to in each of the above paragraphs, and all proceeds and products thereof; and (h) All the estate, rights, title, claim, interest and demand whatsoever of the Debtor, either in law or equity, of, in and to the Mortgaged Property. Capitalized terms used herein and not otherwise defined herein shall have the meaning given to them in the Mortgage. -2- BOND PURCHASE AGREEMENT among CITY OF NEW HOPE, MINNESOTA ("Issuer") MINNESOTA MASONIC HOME NORTH RIDGE ("Company") and DOUGHERTY SUMMIT SECURITIES LLC ("Underwriter") $46,875,000 City of New Hope, Minnesota Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 March 4,1999 BOND PURCHASE AGREEMENT Dated as of March 4, 1999 City of New Hope, Minnesota Minnesota Masonic Home North Ridge Dougherty Summit Securities LLC (the "Underwriter") hereby offers to purchase, upon the terms and conditions hereinafter specified, the bonds specified on the cover page hereof (the "Bonds"), being issued by the City of New Hope, Minnesota (the "Issuer"), under and pursuant to an Indenture of Trust, dated as of March 1, 1999 (the "Indenture"), between the Issuer and U.S. Bank Trust National Association, St. Paul, Minnesota, as trustee (the "Trustee"). If and when accepted by each of you, this document shall constitute our Bond Purchase Agreement (the "Bond Purchase Agreement"). All terms not defined in this Bond Purchase Agreement shall have the meanings set forth in the Indenture. It is our understanding that the Bonds are being issued by the Issuer under the authority of Minnesota Statutes, Chapter 462C, as amended (the "Act"), and are secured by the Indenture. The proceeds from the sale of the Bonds will be loaned to Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company") pursuant to a Loan Agreement, dated as of March 1, 1999 (the "Agreement") and used to acquire the Facilities (as defined in the Indenture). The Bonds have been offered by the Underwriter for sale as described in the Preliminary Official Statement, dated as of February 22, 1999 (the "Preliminary Official Statement"). The Issuer and the Company hereby approve distribution of the Preliminary Official Statement and the final Official Statement with respect to the Bonds dated March 9, 1999 (the "Official Statement"), and consent to their use by the Underwriter in connection with offers and sales of the Bonds. The Bonds will be sold by the Underwriter as described in the Official Statement. Representations and Covenants of the Issuer. The Issuer hereby represents and warrants to the Underwriter that: (a) The financing of the Project, the issuance and sale of the Bonds, the execution and delivery of the Agreement, this Bond Purchase Agreement and the Indenture and the performance of all covenants and agreements of the Issuer contained in the Agreement, this Bond Purchase Agreement and the Indenture have been duly authorized by a resolution of the governing body of the Issuer adopted at a meeting thereof duly called and held on February 22, 1999, by the affirmative vote of not less than a majority of its members. A public hearing on the proposal to issue the Bonds was called and held on February 22, 1999, at which time all persons who appeared were given an opportunity to express their views with respect to the proposal to issue the Bonds. (b) To finance the Company's acquisition of the Facilities, the Issuer has duly authorized the Bonds to be issued upon the terms set forth in the Indenture, under the provisions of which the Issuer has agreed to pledge and grant to the Trustee a security interest in certain of its interests in the Loan Agreement as security for the payment of the principal of and interest and premium, if any, on the Bonds. (c) There is no action, suit, proceeding, inquiry, or investigation at law or in equity before or by any court, public board, or body pending to which the Issuer is a party or, to the knowledge of the Issuer, threatened against or affecting the Issuer (or any basis therefor) wherein an unfavorable decision, ruling or finding would have a material adverse effect on the validity or security of the Bonds, the Indenture, the Agreement, this Bond Purchase Agreement, or the transactions contemplated thereby, or the exclusion of interest on the Bonds from gross income for purposes of Federal income taxation. 2. Representations and Covenants of the Company. The Company hereby represents and warrants to the Underwriter and the Issuer that: (a) The Company is a nonprofit corporation, duly organized and validly existing and in good standing under the laws of the State of Minnesota. The Company will be in compliance in all material respects with the laws of the State of Minnesota on the Closing Date and has full power and authority to enter into the Agreement; this Bond Purchase Agreement; the Mortgage Agreement dated as of March 1, 1999, granted by the Company to the Issuer with respect to the Bonds (the "Mortgage"); the Continuing Disclosure Agreement dated as of March 1, 1999, between the Company and the Trustee (the "Disclosure Agreement"), and the Regulatory Agreement dated as of March 1, 1999, between the Company, the Issuer and the Trustee (the "Regulatory Agreement"). (b) The Company is conducting its business in all material respects in substantial compliance with all applicable and valid laws, rules and regulations of the State of Minnesota. (c) This Bond Purchase Agreement, the Agreement, the Regulatory Agreement, the Mortgage, and the Disclosure Agreement, when executed and delivered, will have been duly and validly authorized, executed, and delivered, will be in full force and effect, and will be valid and binding obligations of the Company, except to the extent that the enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting creditors' rights generally. (d) The execution and delivery of this Bond Purchase Agreement, the Agreement, the Regulatory Agreement, the Mortgage, and the Disclosure Agreement, the consummation of the transactions contemplated thereby, and the fulfillment of the terms and conditions thereof, do not and will not conflict with or result in a breach of any of the terms or conditions of any restriction or any -2- agreement or instrument to which the Company is now a party or by which it is bound or to which any property of the Company is subject, and do not and will not constitute a default under any of the foregoing, and do not and will not be in violation of any order, decree, statute, rule, or regulation of any court or any State or Federal regulatory body having jurisdiction over the Company or its properties, including the Facilities, and do not and will not result in the creation or imposition of any lien, charge, or encumbrance of any nature upon any of the property or assets of the Company contrary to the terms of any instrument or agreement to which the Company is a party or by which it is bound. (e) The use of the Facilities as proposed will comply in all material respects with all presently applicable development, pollution control, water conservation, and other laws, regulations, rules, and ordinances of the Federal government and the State of Minnesota and the respective agencies thereof and the political subdivisions in which the Facilities are located. The Company has obtained and will obtain all necessary and material approvals of and licenses, permits, consents, and franchises from Federal, State, county, municipal, or other governmental authorities having jurisdiction over the Facilities to operate the Facilities and to enter into, execute, and perform its obligations under the Agreement, this Bond Purchase Agreement, the Regulatory Agreement, the Mortgage, and the Disclosure Agreement. (f) The information supplied by the Company that has been relied upon by Bond Counsel and counsel for the Underwriter, with respect to the tax status of interest on the Bonds, is correct and complete. (g) The Company shall take all necessary action on its part to cause the Bonds to comply with the provisions of the laws and regulations of the State of Minnesota under which the Bonds are issued and the applicable provisions of the Internal Revenue Code of 1986, as amended, and the applicable regulations promulgated thereunder or under any prior or succeeding Federal tax laws (collectively, the "Code"), and will not take any action, or permit any action within its control to be taken, which would violate such provisions or which would cause interest on the Bonds to become includable in gross income for purposes of Federal income taxation. (h) The money on deposit in any fund or account created or maintained under the Indenture in connection with the Bonds, whether or not such money was derived from other sources, will not be used by or under the direction of the Company in a manner which would cause the Bonds to be "arbitrage bonds" within the meaning of the Code, and the Company specifically agrees that the investment of money in any such fund or account shall be restricted as may be necessary, and the earnings on such investment rebated to the United States to the extent necessary, to prevent the Bonds from being "arbitrage bonds". -3- (i) In addition to the covenants undertaken in (g) and (h) above, the Company hereby makes, for the benefit of the Underwriter, all covenants undertaken with respect to the Bonds as set forth in Article VII of the Agreement. (j) There are no actions, suits, or proceedings pending or, to the knowledge of the Company, threatened against the Company or any property of the Company in any court or before any Federal, State, municipal, or other governmental agency, which, if decided adversely to the Company, would individually or in the aggregate, have a material adverse effect upon the Company or upon the business or properties of the Company, or on the validity or enforceability of the Bonds, the Indenture, the Agreement, this Bond Purchase Agreement, the Mortgage, the Regulatory Agreement and the Disclosure Agreement, or the documents to be delivered pursuant thereto. (k) The Company has duly approved and authorized the distribution and use of the Preliminary Official Statement and the distribution and use of the Official Statement. The Preliminary Official Statement is "deemed final' by the Company within the meaning of Rule 15c2-12 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934 (the "Rule"). (1) The information contained in the Preliminary Official Statement is true and correct, and the information in the Official Statement is true and correct, in all material respects. The Preliminary Official Statement does not, and the Official Statement does not, contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. (m) Except as specifically disclosed in the Preliminary Official Statement and the Official Statement, the Company has not failed to pay when due the principal of or interest on any material obligation of the Company. (n) At the Closing Date, the Mortgage will constitute a valid and perfected fust lien on the property described therein, subject only to Permitted Encumbrances as defined therein. (o) The Company shall promptly advise the Underwriter of the institution of any proceeding to which it is a party or of which it has knowledge which may adversely affect the offering, sale or distribution of the Bonds. (p) The Company will not take or omit to take any action that will in any way result in the proceeds from the sale of the Bonds being applied in a manner inconsistent with the provisions of the Agreement, or as described in the Official Statement. (q) Any certificate signed by an officer of the Company authorized to so sign and delivered to the Issuer or the Underwriter with respect to the matters addressed in this Agreement shall be deemed a representation and warranty by the Company to such parties as to the statements made therein. (r) The Company agrees to furnish to the Underwriter, so long as any Bonds are outstanding, the financial statements and other reports of the Company as provided in Section 4.7 of the Loan Agreement. The Company also agrees to furnish to the Underwriter, so long as any Bonds are outstanding, its quarterly unaudited financial statements within 45 days after the end of each fiscal quarter, and acknowledges that the Underwriter will provide such information to holders or beneficial owners of the Bonds upon request. Covenants of the Company and the Issuer. The Company and the Issuer covenant with the Underwriter as follows: (a) The Issuer and the Company shall cooperate with the Underwriter in qualifying the Bonds for offer and sale under the securities laws of such jurisdictions of the United States as the Underwriter may request. Any cost incurred by the Issuer in so cooperating shall be paid by the Company. Neither the Issuer nor the Company shall be required to consent to suit or to service of process in any jurisdiction. (b) Within 90 days after the Closing Date, if any event occurs as a result of which the Official Statement as then amended or supplemented, might include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Company shall promptly notify the Underwriter thereof in writing. Upon the request of the Underwriter, the Company will prepare and deliver to the Underwriter at the Company's expense as many copies of an amendment or supplement to the Official Statement reasonably requested by the Underwriter that will correct the untrue statement or omission. 4. Conditions of Underwriter's Obligations. The obligations of the Underwriter to purchase and pay for the Bonds are subject to the following conditions: (a) The representations and covenants of the Company and the Issuer contained herein shall be true and correct as of the Closing Date. (b) At the Closing Date, the Company and the Issuer shall have performed all of their obligations hereunder theretofore to be performed. (c) At the Closing Date, there shall be delivered to the Underwriter: -5- (i) the bond counsel opinion and supplemental bond counsel opinion of Dorsey & Whitney LLP, in form and substance satisfactory to the Underwriter covering usual and customary matters; an opinion of Orbovich & Gartner Chartered, as counsel for the Company, addressed to the Issuer, the Trustee, the Underwriter and bond counsel, in form and substance satisfactory to the Underwriter covering usual and customary matters; and (iii) an opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A., counsel to the Underwriter, in form and substance satisfactory to the Underwriter covering usual and customary matters. In rendering the above opinions, counsel may rely upon customary certificates. (d) The Bonds, the Agreement, the Indenture, the Regulatory Agreement, the Mortgage, and the Disclosure Agreement, in substantially the forms existing on the date hereof, with such changes therein as may be mutually agreed upon by the parties thereto and the Underwriter, shall have been duly authorized, executed, and delivered by the respective parties thereto and such agreements and all other action taken necessary to issue and authorize the Bonds shall be in full force and effect on the Closing Date. (e) All proceedings and related matters in connection with the authorization, issue, sale, and delivery of the Bonds shall have been satisfactory to bond counsel and counsel for the Underwriter, and such counsel shall have been furnished with such papers and information as they may have reasonably requested to enable them to pass upon the matters referred to in this paragraph. (f) The Company and the Issuer shall have furnished or caused to be furnished to the Underwriter on the Closing Date certificates satisfactory to the Underwriter as to the accuracy of their respective representations and warranties contained herein as of the date hereof and as of the Closing Date and as to the performance by them of their respective obligations hereunder to be performed at or prior to the Closing Date. (g) The offer and sale of the Bonds and any related separate securities shall be exempt from registration under the Securities Act of 1933, as amended; the Bonds and any related separate securities shall constitute "municipal securities" within the meaning of the Securities Exchange Act of 1934, as amended; and the Indenture and any related separate securities shall be exempt from qualification under the Trust Indenture Act of 1939, as amended. (h) The Bonds shall be registered or exempt from registration for sale in such states as the Underwriter may designate. (i) No material adverse change or other development involving a prospective material and adverse change in, or affecting the affairs, business, financial condition, results of operations, prospects or properties (including the Facilities) of, the Issuer or the Company shall occur between the date hereof and the Closing Date, unless the Underwriter is informed of such changes or development in writing by the Company. (j) No order suspending the sale of the Bonds in any jurisdiction in which a sale is proposed shall have been issued on or prior to the Closing Date and be continuing, and no proceedings for that purpose either shall have been instituted and shall be continuing or, to the knowledge of the Company or the Underwriter, shall be contemplated. (k) There shall have occurred no material change in any matters pertinent to this offering that in the judgment of the Underwriter requires a revision of or supplement to the Official Statement for sale of the Bonds. All proceedings taken at or prior to the Closing Date in connection with the authorization, issue, and sale of the Bonds shall be satisfactory in form and substance to the Underwriter, and the Underwriter shall have been furnished with all such documents, certificates, and opinions as the Underwriter may request to evidence the accuracy and completeness of any of the representations, warranties, or statements, the performance of any covenants of the Company or the compliance with any of the conditions herein contained. All such opinions, certificates, letters, and documents will be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Underwriter and to counsel for the Underwriter, as to which both the Underwriter and such counsel shall act reasonably. If any conditions of the Underwriter's obligation hereunder to be satisfied prior to the Closing Date are not so satisfied, this Bond Purchase Agreement may be terminated by the Underwriter by notice in writing or by telegram to the Company and the Issuer. If so terminated, the Company agrees to pay the Issuer's costs and attorneys' fees. The Underwriter may waive in writing compliance by the Company of any one or more of the foregoing conditions or extend the time for their performance. Purchase, Sale and Delivery of the Bonds; Offerin¢ by Underwriter. On the basis of the representations, warranties and covenants contained herein, but subject to the terms and conditions herein set forth, the Underwriter agrees to purchase from the Issuer, and the Issuer agrees to sell to the Underwriter, all, but not less than all, of the Bonds for an aggregate purchase price of $45,822,768.05 plus accrued interest on the Bonds from March 1, 1999, to the date of original issuance and delivery to the Underwriter. -7- The Issuer will deliver the Bonds in definitive form to or for the account of the Underwriter against payment of the purchase price therefor by check payable in immediately available funds to the order of the Trustee or, at the election of the Underwriter, by wire transfer of immediately available funds to the Trustee, or any combination thereof, at or prior to 1:00 p.m., Central time, on March 17, 1999, or at such other time not later than five business days thereafter as the Underwriter and the Company shall mutually agree (the "Closing Date"). The Bonds will be delivered in fully registered form in such denominations and registered to such persons as the Underwriter shall request prior to the Closing Date. The Bonds may be in printed, engraved, typewritten, or photocopied form, and each such form shall constitute "definitive" form. It is understood that the Underwriter proposes to offer the Bonds for sale to the public (which may include selected dealers) as set forth in the Official Statement. Concessions from the public offering price may be allowed to selected dealers. It is understood that the initial public offering price and concessions set forth in the Official Statement may vary after the initial public offering. It is further understood that the Bonds may be offered to the public at prices other than the prices specified in the Official Statement. The net premium on the sale of the Bonds, if any, shall accrue to the benefit of the Underwriter. The Issuer and Company hereby confirm and consent to the use and distribution by the Underwriter of the Preliminary Official Statement and Official Statement. The Issuer has not undertaken to review and has no responsibility for the accuracy, completeness or sufficiency of the information contained in the Preliminary Official Statement or Official Statement. 6. Indemnification by Comoany. The Company will indemnify and hold harmless the Underwriter and the Issuer and each person, if any, who controls the Underwriter and the Issuer within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or under any other statute or at common law or otherwise, or pursuant to a breach of contract by the Company or an intentional or reckless untruthful representation by the Company and, except as hereinafter provided, will reimburse the Underwriter, the Issuer and each such controlling person, if any, for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement contained in the Official Statement (other than under the headings "TAX MATTERS" or "UNDERWRITING" therein or in Appendix C thereto) or contained herein, or arise out of or are based on an omission from the Official Statement of information necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Underwriter and the Issuer shall not be indemnified with respect to matters which arise from their own gross negligence or willful misconduct. Promptly after receipt by the Underwriter, the Issuer or any such controlling person of notice of the commencement of any action in respect of which indemnity may be sought against the Company under this Section, such person will notify the -8- Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel satisfactory to the Underwriter, the Issuer or such controlling person, as the case may be, and the payment of expenses) insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. The Underwriter, the Issuer or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company unless: (i) the employment of such counsel has been specifically authorized by the Company, or (ii) the named parties to any such action (including any impleaded parties) include both such indemnified party and the Company and a conflict of interest between the Company and such indemnified party is likely to arise. In such event, the Company shall not have the right to assume the defense of such action as to the indemnified party, and the indemnified party shall have the right to select separate counsel to assume such legal defense and to otherwise participate in the defense of such action. It is understood that in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, the Company shall not be liable for the fees and expenses of more than one separate firm of attorneys for all such indemnified parties. The Company shall not be liable to indemnify any person for any settlement of any such action effected without its consent. This indemnity agreement will be in addition to any liability which the Company may otherwise have. To the same extent as the foregoing indemnity contained in this Section from the Company to the Underwriter and the Issuer and each person, if any, who controls the Underwriter and the Issuer, the Underwriter agrees to indemnify and hold harmless the Company and the Issuer and each person, if any, who controls the Company and the Issuer within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, provided however, that such indemnification relates only to the information in the Official Statement under the heading "UNDERWRITING." In case any such claim shall be presented in writing or any action shall be brought against the Company or the Issuer based on such section of the Official Statement, in respect of which indemnity may be sought from the Underwriter on account of its agreement contained in this Section, the Underwriter shall have the rights and duties given to the Company in the immediately preceding paragraph and the Company and the Issuer shall have the rights and duties given by the immediately preceding paragraph to the Underwriter and the Issuer. 7. Contribution. If the indemnification provided for in Section 6 is unenforceable (as determined by final judgment of a court of competent jurisdiction) or otherwise unavailable to an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to herein, the Company shall, in lieu of indemnifying the indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the indemnified party on the other from the offering of the Bonds. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required herein, then the Company shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the indemnified party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the indemnified party on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discount and/or fees received by such indemnified party. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and such indemnified party agree that it would not be just and equitable if contribution pursuant to this subsection were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph, the indemnified party shall not be required to contribute any amount in excess of the amount by which the total underwriting discount and/or fees received by such indemnified party with respect to the Bonds exceeds the amount of any damages which the indemnified party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section I l (f) of the Securities Act of 1933) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Pavment of Costs and Expenses All costs and expenses incident to the execution and performance of this Bond Purchase Agreement and to the sale and delivery of the Bonds, including, but not limited to: (i) the fees and expenses of the Issuer's counsel; (ii) the fees and expenses of the counsel and accountants to the Company; (iii) the fees and expenses of bond counsel; (iv) all costs and expenses incurred in connection with the preparation, printing, and distribution of the Preliminary Official Statement and Official Statement; (v) the fees and expenses of Underwriter's counsel; (vi) all fees, costs and expenses of the Trustee; (vii) all costs and expenses incurred in connection with the preparation and printing of the Bonds; and (viii) fees in connection with the qualification of the Bonds for sale and determination of the eligibility for investment under state securities laws, shall be payable by the Company. 9. Termination. The Underwriter may terminate its obligations hereunder by written notice to the Issuer and the Company, and if, at any time subsequent to the date hereof and on or prior to the Closing Date: -10- (a) (i) Legislation shall have been enacted by the Congress, or recommended to the Congress for passage by the President of the United States or the Department of the Treasury of the United States or the Internal Revenue Service or any member of the United States Congress, or favorably reported for passage to either House of the Congress by any Committee of such House to which such legislation has been referred for consideration, or (ii) a decision shall have been rendered by a court established under Article III of the Constitution of the United States, or the United States Tax Court, or (iii) an order, ruling, regulation or communication (including a press release) shall have been issued by the Department of the Treasury of the United States or the Internal Revenue Service, in each case referred to in clauses (i), (ii) and (iii), with the purpose or effect, and reasonable likelihood, directly or indirectly, of causing interest on the Bonds to be includable in gross income for purposes of Federal income taxation. (b) Legislation shall have been enacted or a decision by a court of the United States shall be rendered or any action taken by the Securities and Exchange Commission which, in the opinion of counsel to the Underwriter, has the effect of requiring the offer or sale of the Bonds to be registered under the Securities Act of 1933, as amended, or the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, or any event shall have occurred that, in the judgment of the Underwriter, makes untrue or incorrect in any material respect any statement or information contained in the Preliminary Official Statement or Official Statement or that, in the judgment of the Underwriter, should be reflected therein in order to make the statements contained therein not misleading in any material respect. (c) (i) In the judgment of the Underwriter, the market price of the Bonds is adversely affected because (A) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange, the New York Stock Exchange or other national securities exchange, or any governmental authority, shall impose, as to the Bonds or similar obligations, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, underwriters; (B) a general banking moratorium shall have been established by Federal, New York or Minnesota authorities; or (C) a war involving the United States of America shall have been declared, or any other national or international calamity or crisis shall have occurred, or any conflict involving the armed forces of the United States of America shall have escalated to such a magnitude as to materially affect the ability of the Underwriter to market the Bonds; (ii) any litigation shall be instituted, pending, or threatened to restrain or enjoin the issuance or sale of the Bonds or in any way contesting or affecting any authority or security for or the validity of the Bonds, or the existence or powers of the Issuer; or (iii) legislation shall have been introduced in or enacted by the Legislature of the State of Minnesota with a purpose or effect that would, in the reasonable judgment of the Underwriter, adversely affect the security for the Bonds. (d) There shall have occurred any change that, in the reasonable judgment of the Underwriter, makes unreasonable or unreliable any of the assumptions on which (i) yield on the Bonds was determined for purposes of compliance with the Code, (ii) payment of debt service on the Bonds was determined, or (iii) the exclusion from gross income for Federal income tax purposes of interest on the Bonds was determined. (e) Additional material restrictions, not in force as of the date hereof, shall have been imposed on trading in securities generally by any governmental authority or by any national securities exchange. (f) There shall exist general political, regulatory, economic or market conditions which, in the sole judgment of the Underwriter, shall not be satisfactory to permit the sale of the Bonds. 10. Survival of Certain Representations and Warranties. All agreements, covenants, representations and warranties and all other statements of the Issuer and its officials and officers and the Company set forth in or made pursuant to this Bond Purchase Agreement shall remain in full force and effect and shall survive the Closing Date and the delivery of and payment for the Bonds. 11. Governine Law. This Bond Purchase Agreement shall be governed by the laws of the State of Minnesota. 12. Counterparts. This Bond Purchase Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 13. Severability. If any portion of this Bond Purchase Agreement shall be held invalid or inoperative, then, so far as is reasonable and possible: (a) the remainder of this Bond Purchase Agreement shall be considered valid and operative, and (b) effect shall be given to the intent manifested by the portion held invalid or inoperative. 14. Notices. All notices provided for in this Bond Purchase Agreement shall be made in writing either: -12- (a) By actual delivery of the notice into the hands of the parties entitled thereto, Qi (b) By the mailing of the notice in the United States mails to the address stated below (or at such other address as may have been designated by written notice), of the party entitled thereto, by certified or registered mail, return receipt requested. The notice shall be deemed to be received (i) in case of actual delivery on the date of its actual receipt by the party entitled thereto, and (ii) in case of mailing on the date of deposit in the United States mail, postage prepaid. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and mailed or delivered: To the Underwriter: Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, MN 55402-4114 Attn: Executive Vice President To the Company: Minnesota Masonic Home North Ridge c/o Minnesota Masonic Home 11501 Minnesota Masonic Home Drive Bloomington,MN 55437-3699 Attn: President To the Issuer: City of New Hope 4401 Xylon Avenue North New Hope, MN 55428-4898 Attn: City Manager 15. Modification of the Bond Purchase Amendment. This Bond Purchase Agreement may not be modified or amended except by written agreement executed by all parties hereto. 16. Number and Gender of Words. Whenever the context so requires, the masculine shall include the feminine and neuter, and the singular shall include the plural, and conversely. 17. Other Instruments. The parties hereto covenant and agree that they will execute such other and further instruments and documents as are or may become necessary or convenient to effectuate and carry out this Bond Purchase Agreement. -13- 18. Captions. The captions used in this Bond Purchase Agreement are for convenience only and shall not be construed in interpreting this Bond Purchase Agreement. 19. Parties. This Bond Purchase Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors, legal representatives, heirs and assigns. 20. Entire A¢reement. This Bond Purchase Agreement contains the entire understanding between the parties hereto and supersedes any prior understandings or written or oral agreements between them respecting the subject matter hereof. 21. Time. Time shall be of essence of this Bond Purchase Agreement. DOUGHERTY SUMMIT SECURITIES LLC By. 1 '� Its Executive Vice President -14- Confirmed and accepted as of the date first above written. CITY OF NEW HOPE, MINNESOTA By: Its Mayor W�4/Z4 By: �% Its City Manager -15- Confirmed and accepted as of the date first above written. GP:534917 Q MINNESOTA MASONIC HOME NORTH RIDGE By:UVNi G• U�LIJ , Yrs Its President -16- Its h,&VV CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by Minnesota Masonic Home North Ridge, its successors and assigns (the "Borrower") and U.S. Bank Trust National Association, its successors and assigns (the "Trustee") in connection with the issuance of the $46,875,000 City of New Hope, Minnesota Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 (the `Bonds"). The Bonds are being issued pursuant to an Indenture of Trust dated as of March 1, 1999, between the City of New Hope, Minnesota (the "Issuer") and the Trustee (the "Indenture"). The proceeds of the Bonds are being loaned by the Issuer to the Borrower pursuant to a Loan Agreement dated as of March 1, 1999 between the Issuer and the Borrower (the "Loan Agreement"). The Borrower and the Trustee covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Borrower and the Trustee for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). The Borrower and the Trustee acknowledge that the Issuer has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Agreement, and has no liability to any person, including any Holder or Beneficial Owner of the Bonds, with respect to the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Borrower pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the President of the Borrower, or such other person as the Borrower shall designate in writing to the Trustee from time to time. "Dissemination Agent" shall mean the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by y the Borrower and which has filed with the Trustee a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any nationally recognized municipal securities information repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in Exhibit B. "Official Statement" shall mean the Official Statement with respect to the Bonds, dated March 9, 1999. "Participating Underwriter" shall mean Dougherty Summit Securities LLC, as the original underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of Minnesota. "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The Borrower shall, or shall cause the Dissemination Agent to, not later than six months after the end of the Borrower's fiscal year (presently December 31), commencing with the fiscal year ended December 31, 1999, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Borrower may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the Borrower's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f). (b) Not later than fifteen (15) days prior to the date specified in subsection (a) for providing the Annual Report to the Repositories, the Borrower shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). (c) If the Borrower does not provide to the Dissemination Agent a copy of the Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository and the State Repository, if any, in substantially the form attached as Exhibit A. 2 (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and (ii) provided the Annual Report has been provided to the Dissemination Agent by the Borrower, file a report with the Borrower, the Issuer and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided, and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The Borrower's Annual Report shall contain or include by reference the following: 1. The audited financial statements of the Borrower for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated from time to time by the Financial Accounting Standards Board. If the Borrower's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the Borrower's audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. 2. An update of the Borrower's operating data contained in Appendix A to the Official Statement under the headings "Governance," "Management," "General Operations," "Competition and Service Area," "Historical Utilization," "Sources of Resident Revenues," "Personnel and Staffing," "Financial Data and Management's Discussion," and "Management's Discussion of Operations." SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Borrower shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. principal and interest payment delinquencies; 2. non-payment related defaults; 3. modifications to rights of Bondholders; 4. optional, contingent or unscheduled bond calls; 5. defeasances; 6. rating changes; 3 7. adverse tax opinions or events affecting the tax-exempt status of the Bonds; 8. unscheduled draws on debt service reserves reflecting financial difficulties; and 9. substitution of credit or liquidity providers, or their failure to perform; 10. release, substitution or sale of property securing repayment of the Bonds; 11. unscheduled draws on credit enhancements reflecting financial difficulties. (b) The Trustee shall, within three (3) Business Days of obtaining actual knowledge of the occurrence of any of the Listed Events contact the Disclosure Representative, inform such person of the event, and request that the Borrower promptly notify the Trustee in writing whether or not to report the event pursuant to subsection (f). (c) Whenever the Borrower obtains knowledge of the occurrence of a Listed Event, because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Borrower shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Borrower has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Borrower shall promptly notify the Trustee in writing. Such notice shall instruct the Trustee to report the occurrence pursuant to subsection (f). (e) If in response to a request under subsection (b), the Borrower determines that the Listed Event would not be material under applicable federal securities laws, the Borrower shall so notify the Trustee in writing and instruct the Trustee not to report the occurrence. (f) If the Trustee has been instructed by the Borrower to report the occurrence of a Listed Event, the Trustee shall file a notice of such occurrence with the Repositories and each State Repository with a copy to the Borrower. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Holders of affected Bonds pursuant to the Indenture. SECTION 6. Termination of Reporting Obligation. The Borrower's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If the Borrower's obligations under the Loan Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the Borrower and the original Borrower shall have no further responsibility hereunder. If such termination or substitution occurs prior to the final maturity of the Bonds, the Borrower shall give notice of such termination or substitution in the same manner as for a Listed Event under Section 5(f). SECTION 7. Dissemination Agent. The Borrower may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Borrower pursuant to this Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The initial Dissemination Agent shall be the Trustee. SECTION 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Borrower and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the Borrower) and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it 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 an obligated person with respect to the Bonds,, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance 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 or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Borrower shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Borrower. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(f), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. 5 SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Borrower from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Borrower chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Borrower shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Borrower or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall), or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Borrower or the Trustee, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture or the Loan Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Borrower or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article Nine of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Borrower agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the Borrower under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Borrower: Minnesota Masonic Home North Ridge c/o Minnesota Masonic Home 11501 Minnesota Masonic Home Drive Bloomington, MN 55437-3699 Attention: President Telephone/Fax: (612) 948-6202; (612) 948-6113 G To the Trustee: U.S. Bank Trust National Association 180 East Fifth Street, Second Floor St. Paul, MN 55101 Attention: Corporate Trust Department Telephone/Fax: (651) 244-0706; (651) 244-0712 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Borrower, the Trustee, the Dissemination Agent, the Participating Underwriter, and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Dated as of March 1, 1999. MINNESOTA MASONIC HOME NORTH RIDGE By Uo Its President By Its ' U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By Au zed Officer EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of New Hope, Minnesota Name of Bond Issue: $46,875,000 City of New Hope, Minnesota, Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 Name of Borrower: Minnesota Masonic Home North Ridge Date of Issuance: March 1, 1999 NOTICE IS HEREBY GIVEN that the Borrower has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of March 1, 1999, between the undersigned Trustee and the Borrower. [The Borrower anticipates that the Annual Report will be filed by .] Dated: U.S. BANK TRUST NATIONAL ASSOCIATION, Trustee, on behalf of Borrower By Authorized Signatory cc: Minnesota Masonic Home North Ridge IO:i;J11119.9 Nationally Recognized Municipal Securities Information Repositories approved by the Securities and Exchange Commission as of the date hereof: Bloomberg Municipal Repositories P.O. Box 840 Princeton, NJ 08542-0840 Internet address: MUNIS@Bloomberg.com (609)279-3200 FAX (609) 279-5962 Thomson NRMSIR Attn: Municipal Disclosure 395 Hudson Street, 3rd Floor New York, NY 10004 Internet address: Disclosure@Muller.com (212) 807-5001 FAX (212) 989-2078 Kenny Information Services, Inc. 65 Broadway, 16th Floor New York, NY 10006 Attn: Kenny Repository Service (212) 7704595 FAX (212) 797-7994 DPC Data, Inc. One Executive Drive Fort Lee, NJ 07024 Internet address: nrmsir@dpcdata.com (201)346-0701 FAX (201) 947-0107 GP:534935 v2 PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 22, 1999 0 c .� t .9 NEW ISSUE NOT RATED c_ In the opinion of Bond Counsel according to laws, regulations, rulings and decisions in effect on the date of delivery of the $ Series 1999 Bonds, interest on the Series 1999 Bonds is not includible in gross income for federal income tax purposes or in taxable net m c income of individuals, estates or trusts for State of Minnesota income tax purposes. Interest on the Series 1999 Bonds is not an item of tax preference for purposes of determining the federal alternative minimum tax imposed on individuals or for purposes of determining the cMinnesota alternative minimum tax imposed on individuals, estates or trusts. Interest on the Series 1999 Bonds is subject to the co Minnesota franchise tax imposed on corporations and financial institutions and is includible in adjusted current earnings for purposes of `0 3 the federal and Minnesota alternative minimum taxes imposed on corporations. See "TAX MATTERS" herein. w H o ° $46,400,000* ' - CITY OF NEW HOPE, MINNESOTA E= � o ° Housing and Health Care Facilities Revenue Bonds a (Minnesota Masonic Home North Ridge Project) ° Series 1999 h ' Dated: March 1, 1999 Due: As shown on the inside front cover 0 o a c- ,;, The Series 1999 Bonds are limited obligations of the City of New Hope, Minnesota (the "City") and do not constitute general E o `= obligations or a debt, liability, or pledge of the full faith and credit of the City, the County of Hennepin or the State of Minnesota or of any 2 political subdivision or agency thereof. The Series 1999 Bonds are not secured by or payable from any taxes, revenues or assets of the City except for the City's interest in the Loan Agreement and amounts held pursuant to the Indenture. Undefined capitalized terms used y H cc on this cover are defined in the text hereof or Appendix C. c ._ z Pursuant to the Loan Agreement, all proceeds of the Series 1999 Bonds will be loaned by the City to Minnesota Masonic Home F v'� North Ridge, a Minnesota nonprofit corporation (the "Company"). Proceeds of the Series 1999 Bonds will be used with other funds of the E ° Company to (1) acquire the 559 -bed North Ridge Care Center nursing home facility, the 180 -unit North Ridge Apartments facility and the E N `- 25 -unit North Ridge Personal Care Suites facility as more fully described herein (the "Facilities"), from North Ridge Care Center, Inc. (the R "Seller"), and make certain improvements to the Facilities, (2) fund the Reserve Fund and (3) pay certain costs of issuance of the Series 1999 Bonds. The Series 1999 Bonds will be payable sole) from the moneys held for the payment thereof b U.S. Bank Trust National PY Y Y PY Y o p 3 Association, in St. Paul, Minnesota, as Trustee, or its successors, under the Indenture, including amounts held in the Reserve Fund and c - Loan Repayments required to be made under the Loan Agreement by the Company. The Series 1999 Bonds will be secured by a mortgage lien on and security interest in the Facilities and the rents and revenues of the Facilities. E � An investment in the Series 1999 Bonds is subject to certain risks. See "BONDHOLDERS' RISKS" herein. ° The Series 1999 Bonds will be issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof v y Principal of the Series 1999 Bonds is payable at the principal corporate trust office of the Trustee, and interest on the Series 1999 Bonds, „ payable each March 1 and September 1, commencing September 1, 1999 and will be payable on such dates by check or draft mailed to the ` .ro persons shown as the registered owners of the Series 1999 Bonds on the fifteenth day of the month preceding each interest payment date. m .y 2 The Series 1999 Bonds are hereby offered for purchase by investors solely in Book -Entry form. Therefore, all Series 1999 z Bonds will be issued as fully registered bonds without coupons, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), to whom all payments and notices with respect to the Series 1999 Bonds will be made. As long as the Series 1999 s Bonds are in Book -Entry form, purchasers of Series 1999 Bonds will not receive actual Series 1999 Bond certificates. Instead purchasers a, N of Series 1999 Bonds will become the beneficial owners of such Series 1999 Bonds, with such ownership evidenced solely in the Book - Entry System records maintained by DTC and certain Participants (and Indirect Participants) who participate with DTC in maintaining the o s Book -Entry System. See "THE BONDS -- Book -Entry System." c€ .E The Series 1999 Bonds are subject to redemption and prepayment as described herein under "THE SERIES 1999 BONDS -- `c 'n o Redemption Prior to Maturity." _ = a = q The Series 1999 Bonds are offered, subject to prior sale, when, as and if accepted by the Underwriter named below and subject v to an opinion as to validity and tax exemption by Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel, the approval of certain c matters by Orbovich & Gartner Chartered, St. Paul, Minnesota, as counsel to and for the benefit of the Company, the approval of certain E matters by Gray, Plant, Monty, Mooty & Bennett, P.A., Minneapolis, Minnesota, as counsel to and for the benefit of the Underwriter, and certain other conditions. It is expected that delivery of the Series 1999 Bonds will be made on or about March 17, 1999, against payment therefor. Subject to applicable securities laws and prevailing market conditions, the Underwriter intends, but is not obligated, to effect v E secondary market trading in the Series 1999 Bonds. For information with respect to the Underwriter, see "UNDERWRITING" herein. m h O v i _ N )*Preliminary; subject to change _ E `o DOUGHERTY SUMMIT SECURITIES LLC a � � The date of this Official Statement is March , 1999 y v m F ,E Maturity Schedule $ Serial Series 1999 Bonds Maturity Principal Interest March 1 Amount Rate Price Term Series 1999 Bonds Due March 1, - Price % $ % Term Series 1999 Bonds Due March 1, 2029 - Price % (Plus Accrued Interest from March 1, 1999) THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION BY REASON OF THE PROVISIONS OF SECTION 3(a)(2) OF THE SECURITIES ACT OF 1933, AS AMENDED. THE REGISTRATION OR QUALIFICATION OF THESE SECURITIES UNDER THE SECURITIES OR BLUE SKY LAWS OF THE STATES IN WHICH THEY HAVE BEEN REGISTERED OR QUALIFIED, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES SHALL NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THESE SECURITIES OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS SUMMARY INFORMATION ................ INTRODUCTORY STATEMENT......... BONDHOLDERS' RISKS ...................... THE SERIES 1999 BONDS .................................................. SECURITY FOR THE BONDS ............................................ SOURCES AND USES OF FUNDS ..................................... THECITY............................................................................. DEBT SERVICE SCHEDULE .............................................. Page ............................10 ............................14 ............................16 ............................ 16 ............................17 ENFORCEABILITY OF OBLIGATIONS..................................................................................................................17 APPROVAL OF LEGAL PROCEEDINGS................................................................................................................18 TAXMATTERS.........................................................................................................................................................18 UNDERWRITING......................................................................................................................................................20 SECURITIES LAWS CONSIDERATIONS FOR MINNESOTA RESIDENTS........................................................20 CONTINUING DISCLOSURE...................................................................................................................................20 LITIGATION..............................................................................................................................................................21 MISCELLANEOUS....................................................................................................................................................22 Appendix A: THE COMPANY AND THE FACILITIES Appendix B: FINANCIAL STATEMENTS OF THE SELLER Appendix C: CERTAIN DEFINITIONS AND SUMMARY OF DOCUMENTS Appendix D: MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM Appendix E: FORM OF BOND COUNSEL OPINION Appendix F: EXCERPTS FROM APPRAISAL No person has been authorized by the City, the Underwriter, or the Company to give any information regarding the Series 1999 Bonds, the Company, the Facilities, the offering contained herein and related matters or to make any representations other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which it is unlawful for any person to make such offer or solicitation. The information set forth herein has been provided by or on behalf of the Company. Neither the City nor the Underwriter makes any guarantee as to accuracy or completeness of such information, and its inclusion herein is not to be construed as a representation by the Underwriter or the City. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement at any time nor any sale made hereunder creates any implication that the information herein is correct as of any time subsequent to its date. The following is a summary of certain information contained in this Official Statement. The summary is not comprehensive or complete and is qualified in its entirety by reference to the complete Official Statement. Undefined capitalized terms used below are defined in Appendix C hereto or elsewhere in this Official Statement. The Series 1999 Bonds .................. $46,400,000* Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 to be issued by the City of New Hope, Minnesota, in denominations of $5,000 or whole multiples thereof. See "THE SERIES 1999 BONDS -- Interest; Maturity; Payment" and "THE CITY." Payment ......................................... Interest accrues on the Series 1999 Bonds at the rates set forth on the inside of the cover page hereof and is payable on March I and September I of each year (commencing September 1, 1999) by check or draft of the Trustee mailed on such dates to the persons who were the registered owners of Series 1999 Bonds as of the 15th day of the month preceding each interest payment date. The Series 1999 Bonds are being issued solely in Book -Entry form. See "THE SERIES 1999 BONDS -- Interest; Maturity; Payment" and "THE SERIES 1999 BONDS -- Book -Entry System." Redemption or Prepayment ................................ As more fully described herein, Series 1999 Bonds are subject to redemption and prepayment prior to maturity, as follows: (a) optional redemption upon request of the Company in whole or in part on any day on or after March 1, at a redemption price equal to the principal amount so redeemed plus accrued interest to the redemption date and with a premium on certain dates as described herein; (b) mandatory redemption at par plus accrued interest upon a Determination of Taxability; (c) extraordinary redemption at par plus accrued interest due to the occurrence of certain events of casualty or condemnation; (d) for Term Bonds, mandatory redemption at par plus accrued interest due to sinking fund redemption; and (e) acceleration due to an Event of Default occurring under the Indenture, the Loan Agreement or the Mortgage. See "THE SERIES 1999 BONDS -- Redemption Prior to Maturity." Use of Proceeds ............................. Pursuant to the Loan Agreement, proceeds of the Series 1999 Bonds will be loaned to the Company, which, with other funds will be applied to (i) acquire and improve the Facilities, (ii) fund the Reserve Fund, and (iii) pay certain costs of issuance. See "SOURCES AND USES OF FUNDS." The Company ................................ The Company is Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation. Pursuant to the Loan Agreement, the Company will agree to make Loan Repayments sufficient to pay when due all principal of and interest on the Series 1999 Bonds. See Appendix A: "THE COMPANY AND THE FACILITIES." Security for the Series 1999 Bonds ................... The Series 1999 Bonds will be secured by a mortgage lien on and security interest in the Facilities, including the land and fixed assets associated with the Facilities. The Series 1999 Bonds will also be secured by an assignment of rents and revenues from the Facilities (subject to the pledge of the Company's accounts receivable to secure Short -Term Indebtedness), and by amounts on deposit in separate accounts pledged to such series held by the Trustee under the Indenture, including amounts in the Reserve Fund. The Series 1999 Bonds are limited obligations of the City and do not constitute general obligations or a debt, liability, or pledge of the full faith and credit of the City, the State of Minnesota or of any political subdivision or agency thereof. The Series 1999 Bonds are not secured by or payable from any taxes, revenues or assets of the City except for the City's interest in the Loan Agreement and amounts held pursuant to the Indenture as described herein. See "SECURITY FOR THE BONDS." *Preliminary; subject to change Coverage ........................................ Set forth below are historic pro forma computations of debt service coverage for the noted years based on historic operating data of the Seller for the most recent three fiscal years and the projected debt service on the Series 1999 Bonds. See "BONDHOLDERS' RISKS -- Nature of Pro Forma Debt Service Coverage." Historic Pro Forma Debt Service Coverage For the Years Ending December 31 1998 1997 1996 Income Available for Debt Service(l) $4,034,370 $4,364,612 $4,497,874 Debt Service on the Series 1999 Bonds(2) 3,300,000 3,300,000 3,300,000 Debt Service Coverage Ratio 1.22x 1.32x 1.36x (1) Income Available for Debt Service is defined as net operating income plus non cash items (depreciation and amortization) and interest. Adjustments have been made for real estate taxes on the Nursing Facility (which were paid by the Seller but are not expected to be paid by the Company after 1999 except as required under a payment in lieu of tax agreement with the City beginning in the year 2009). Proceeds of officer life insurance have been excluded from the 1997 Income Available for Debt Service. (2) Represents estimated maximum annual debt service on the Series 1999 Bonds. Trustee and Paying Agent .............. U.S. Bank Trust National Association, in St. Paul, Minnesota. Investment Risks ............................ An investment in the Bonds involves risks, including, but not limited to, those discussed under `BONDHOLDERS' RISKS." (This page has been left blank intentionally) OFFICIAL STATEMENT $46,400,000* CITY OF NEW HOPE, MINNESOTA Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 INTRODUCTORYSTATEMENT The following is a brief introduction as to certain matters discussed elsewhere in this Official Statement and is qualified in its entirety as to such matters by such discussion and the text of the actual documents described or referenced. Any capitalized term not required to be capitalized or otherwise defined herein is used with the meaning assigned in Appendix C or in the Indenture (defined below), the Loan Agreement (defined below) or other document with respect to which the term is used. Any definition of a term contained in the text hereof is for ease of reference only and is qualified in its entirety by any corresponding definition in Appendix C or the documents with respect to which such term relates. The Appendices hereto are an integral part of this Official Statement and each potential investor should review the Appendices in their entirety. General This Official Statement provides information regarding the Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (the "Series 1999 Bonds"), to be issued by the City of New Hope, Minnesota (the "City"), under Minnesota Statutes, Chapter 462C (the "Act'), in the above -stated aggregate principal amount pursuant to an Indenture of Trust (the "Indenture"), between the City and U.S. Bank Trust National Association, in St. Paul, Minnesota (the "Trustee"). See Appendix C: "THE INDENTURE" Pursuant to a Loan Agreement (the "Loan Agreement'), between the City and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), proceeds of the sale of the Series 1999 Bonds will be loaned to the Company. Proceeds of the Series 1999 Bonds and other funds will be applied to (i) acquire an existing 559 -bed nursing home facility (the "Nursing Facility") and a connected building that contains 25 assisted living suites (the "Personal Care Suites") and 180 units of senior independent living apartments (the "Apartments" and together with the Personal Care Suites and the Nursing Facility, the "Facilities") from North Ridge Care Center, Inc., a Minnesota corporation (the "Seller"), and fund certain improvements thereto; (ii) fund the Reserve Fund created by the Indenture; and (iii) pay costs of issuance of the Series 1999 Bonds. See "SOURCES AND USES OF FUNDS" and Appendix A: "THE COMPANY AND THE FACILITIES" At least 20% of the units in the Apartments must be set aside for persons or families with incomes less than 50% of median area income, as described in Appendix C: "THE REGULATORY AGREEMENT." Additional bonds ("Additional Bonds") may be issued that will be secured by the Indenture and payable equally and ratably on a parity with the Series 1999 Bonds as described herein. See "THE SERIES 1999 BONDS -- Additional Bonds." The Series 1999 Bonds and any Additional Bonds are collectively referred to herein as the "Bonds." *Preliminary; subject to change. The Company The Company is organized as a Minnesota nonprofit corporation and an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. The Company is managed by a seven -member governing body controlled by members of the board of trustees of Minnesota Masonic Home, a Minnesota nonprofit corporation, the Company's sponsor organization. Minnesota Masonic Home and other organizations affiliated with the Company have no obligations with respect to the Bonds. See Appendix A: "THE COMPANY." Loan Repayments; Mortgage Proceeds of the Series 1999 Bonds will be loaned to the Company pursuant to the Loan Agreement under which the Company will agree to make monthly payments ("Loan Repayments") which, if fully and promptly paid, shall be in amounts and at times sufficient to pay when due the scheduled principal of and interest on the Bonds. See Appendix C: "THE LOAN AGREEMENT." Pursuant to the Indenture, the City will pledge to the Trustee, for the benefit of the holders of the Bonds, all of its interest in the Loan Agreement (other than certain indemnification and expense reimbursement payments) to secure payment of the principal of, premium, if any, and interest on the Series 1999 Bonds. Pursuant to a Mortgage Agreement between the Company and the City, which will be assigned to the Trustee (the "Mortgage"), the Series 1999 Bonds will be secured by a mortgage lien on and security interest in the land and fixed assets of the Facilities. Pursuant to the Mortgage, the Series 1999 Bonds will also be secured by an assignment of all rents and revenues derived from the Facilities. Property subject to the Mortgage can be released under certain conditions. See "SECURITY FOR THE BONDS -- Mortgage," and Appendix C: "THE MORTGAGE." Reserve Fund On the date of issuance of the Series 1999 Bonds, proceeds of the Series 1999 Bonds or other funds, in an amount equal to the maximum annual debt service on the Series 1999 Bonds, will be deposited in the Reserve Fund to secure the Bonds. Amounts in the Reserve Fund may be used by the Trustee to pay principal and premium of and interest on the Bonds (including any Additional Bonds) in the event available sums in the Bond Fund created by the Indenture are insufficient for such purpose. See "SECURITY FOR THE BONDS -- Reserve Fund" and Appendix C: "THE INDENTURE -- Reserve Fund." Special Covenants of the Company The Loan Agreement places certain restrictions on the incurrence of indebtedness by the Company, unless certain debt service coverage tests are satisfied. Additionally, subject to certain conditions, the Company has agreed to charge rates sufficient to pay operating costs and 110% of debt service on the Bonds. The Company also agrees in the Loan Agreement to make deposits on a monthly basis to the Repair and Replacement Fund. The Loan Agreement restricts the Company from transferring any funds or assets to any person for less than fair market value, provided, however, that assets may be transferred to an affiliate of the Company as long as the Current Assets of the Company are equal to or greater than 125% of the Current Liabilities of the Company immediately after the transfer. See "SECURITY FOR THE BONDS -- Special Covenants." Bondholders' Risks Certain risks associated with an investment in the Series 1999 Bonds are discussed under "BONDHOLDERS' RISKS." Miscellaneous This Official Statement (including the Appendices hereto) contains descriptions of, among other matters, the Indenture, the Loan Agreement, the Mortgage, the Company, the City, the Facilities and the Series 1999 Bonds. -2- Such descriptions and information do not purport to be comprehensive or definitive. All references to documents described herein are qualified in their entirety by reference to such documents, copies of which are available for inspection at the principal corporate trust office of the Trustee. BONDHOLDERS' RISKS No person should purchase any Series 1999 Bonds without carefully reviewing the following information, which summarizes some, but not all, factors that should be carefully considered before such purchase. Adequacy of the Company's Revenues The payment of principal of, premium, if any, and interest on the Bonds is intended to be made from payments of the Company under the Loan Agreement. The ability of the Company to pay debt service on the Bonds is dependent upon the Company's ability to maintain occupancy in the Facilities and to charge and collect rates sufficient to pay operating expenses and debt service. Future revenues and expenses of such Facilities are subject to conditions which may change in the future to an extent that cannot be determined at this time. Such conditions may include the inability to maintain adequate occupancy levels due to inadequate demand for beds or units, noncompetitive rates or services, delays in receiving payments or reductions in payments from third party payors, disadvantageous general or local economic conditions, inability to control expenses, and other factors. Acquisition Risk The Facilities are being acquired by the Company from the Seller pursuant to an Asset Purchase Agreement dated December 2, 1998, as amended (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Seller made certain representations and warranties regarding the condition of the Facilities and their historical operations. The historical results of operations of the Seller with respect to the Facilities do not provide any guaranty as to future results. Under the Purchase Agreement, the Seller also agrees to provide certain indemnification to the Company, limited, however, to the amount of approximately $1,000,000. If the Company attempted to collect on such indemnification, the Seller could raise a variety of defenses, and the time and expense involved in collection may be prohibitive. Government Regulation and Reimbursement General. Nursing facilities are subject to extensive governmental regulation through state licensing requirements and, in the case of nursing facilities, complex laws and regulations imposed at the federal and state level for facilities to remain licensed and certified to receive payments under the so-called Medicaid and Medicare programs. The Minnesota Department of Health renews nursing home licenses annually and makes periodic inspections to determine compliance with licensure and certification requirements. Continuing licensure to provide nursing care is essential to the operation of the Nursing Facility. Further, revenues of the Nursing Facility are significantly dependent on payments under the Medicaid program, such that a loss of certification for participation in the Medicaid program, or an elimination of or a material reduction in the availability of Medicaid payments, would materially adversely affect the operations and financial condition of the Nursing Facility. See Appendix D. Changes in law. Licensing and certification requirements are subject to change, and there can be no assurance that the Nursing Facility will be able to maintain all necessary licenses or certifications, or that it will not incur substantial costs in doing so. Both federal and state regulation relating to nursing and residential care and the payment thereof have been subject to change in the past, and future change can be expected. The effect of such changes may materially adversely affect the operations and financial condition of the Nursing Facility. In attempts to limit federal and state expenditures, there have been, and the Company expects that there will continue to be, a number of proposals to limit Medicare and Medicaid payments, including those for care provided by nursing facilities. The Balanced Budget Act of 1997 included reductions in projected Medicare spending over the five-year period of 1998 through 2002 by $115 billion, which is a reduction of approximately 8.5%. Although certain of these cutbacks may affect nursing facilities, at this time, the effect of such reductions on nursing facilities has not been determined. Previous federal changes include limitations on payments to nursing facilities under the Medicare and Medicaid programs and an increased emphasis on cost control. Further, various health care reform proposals 3- have been made recently which may result in changes in general health care funding in the near future. It is presently unclear which, if any, of such proposals might be actually enacted into law or their effect on the Nursing Facility. The methods of determining the amount and availability of payments under the Medicaid program in Minnesota have been subject to a variety of significant changes in the past, and future changes can be expected to occur. The Minnesota Legislature in 1998 established a sunset with respect to the current cost -based reimbursement system, to be replaced by a performance-based contract reimbursement system. The details of the successor reimbursement system have not yet been determined. Further, various studies and proposals for changes in Minnesota reflect a general emphasis on directing residents requiring lower levels of care to non -licensed facilities and otherwise encouraging non -institutional care for the aged to save Medicaid costs. See Appendix D. In addition to the foregoing, it is possible in the future that assisted living facilities such as the Personal Care Suites will be subject to regulation as a healthcare facility. It is impossible to predict the impact such regulation might have on the Personal Care Suites. Dependence on Medicaid. For calendar year 1998, approximately 63% of the revenues of the Nursing Facility were derived from Medicaid payment rates established under the Minnesota Medical Assistance ("MA") Program. States currently fund a substantial portion of Medicaid payments and exercise considerable discretion in determining payments allowed to care providers. Regulations promulgated by the federal Health Care Financing Administration provide that states are not required to pay for long-term care services on a cost -related basis. As a result, the reimbursement payments allowed by many states are based less on the actual costs of the nursing services and more on formula rates which the governmental agencies deem reasonable, creating a more competitive environment for nursing facilities. The political emphasis on budget cutting, further changes in the Medicaid and Medicare funding and changes in reimbursement patterns of the federal government and the State of Minnesota may have an adverse effect upon the revenues of the Nursing Facility. See Appendix D. Contractual Alternative Payment System. The Nursing Facility participates in the Minnesota Contractual Alternative Payment System (the "Alternative Payment System") for payment of services provided under the MA program. The Alternative Payment System discontinues use of costs and cost limits in calculation of future facility rates. Rates are set by contract and are initially those being received at the time the Nursing Facility entered into the contract, with future rates adjusted only by an annual inflation index and for administratively or legislatively approved moratorium exception projects. Nursing facilities participating in the Alternative Payment System also receive limited exemptions from certain state regulatory and reimbursement restrictions. (See Appendix D: "Contractual Alternative Payment System.") Given the limitations on rate increases under the Alternative Payment System, there can be no assurance that such rates in the future will be sufficient for timely payment in full of all debt service and for the proper operation of the Nursing Facility. Limitations under the cost -based reimbursement system previously applicable to the Nursing Facility created certain risks and negative incentives. Payment rates under the Alternative Payment System, while more predictable, are generally not sensitive to changes in facilities' actual costs, except that payment by case-mix level continues. The Nursing Facility participates in the Alternative Payment System pursuant to a contract with the Minnesota Department of Human Services ("DHS"). Adverse interpretation of contract language, of a foreseeable or unforeseeable nature, could increase the Nursing Facility's costs or decrease its revenue. The Alternative Payment System, its terms, its funding, and its continued existence are all subject to annual legislative review and potential revision. Standard Minnesota Medicaid Reimbursement. Although the Nursing Facility currently participates in the Alternative Payment System, it is possible, for various reasons, that it would be reimbursed in the future under the standard MA program, all as further described in Appendix D. If subject in the future to the standard MA program, there can be no assurance that such reimbursement rates will be sufficient for timely payment in full of all debt service and for the proper operation of the Nursing Facility. 4- Medicare Prospective Payment System The Balanced Budget Act of 1997 created some projections for the reduction of funding for skilled nursing facilities over the next five years in the amount of $9.5 billion. Some of the provisions to carry this out are as follows: • Implementation of the Prospective Payment System (PPS) for cost report periods on or after July 1, 1998. This will be accomplished over a three-year phase-in period. • Consolidated billing, which is anticipated to be implemented sometime after July 1, 1999. HCFA has indefinitely postponed implementation because of technical difficulties. • Therapy Services effective January 1, 1999, will have caps applied to Part B provision. Medicare PPS is a price -based reimbursement system with an all-inclusive per diem structure, covering routine services, capital costs, and select ancillary services (including pharmacy, lab, x-ray, medical supplies). Under PPS, bundled per diem payments will be made to Skilled Nursing Facilities (SNFs) and the SNF will in tum pay vendors. Per diem payments will be based on a case-mix adjusted patient classification system called Resource Utilization Group III (RUGS 1I1) with 44 levels of care. Under RUGS III, the case mix is determined using the Minimum Data Set (MDS) assessment tool. For determining future per diem payments under the PPS system, costs based on the 1995 year end Medicare cost report from each SNF will be inflated and will be geographically adjusted for a wage index, and all Medicare Part A services will be bundled into these costs. Statutorily excluded from PPS are standard physician services. During the first transition year, reimbursement will be 75% facility specific and 25% at the federal rate. During the second transition year, reimbursement will be 50% facility specific and 50% at the federal rate. During the third transition year, reimbursement will be 25% facility specific with 75% at the federal rate. Thereafter, the reimbursement will be 100% federal rate. The Medicare facility specific rate includes the facility's costs from the Medicare cost report beginning during the 1995 fiscal year (10/1/94 - 9/30/95) and includes an estimated amount for Part B covered services provided during a Part A stay. The earliest consolidated billing may become effective is July 1, 1999 with a six-month transition period for those SNFs without the necessary systems and billing capability. Consolidated billing applies to all Medicare participating skilled nursing facilities. It applies to all residents with Part A/Part B coverage and to all Part A ancillary services and to all Part B services with the exception of exempted physician -related services. Under PPS, all services must be provided directly by SNF employees or under arrangement with outside suppliers, and billed under the SNF provider number. PPS has established caps for Part B therapy services of $1,500 per year per beneficiary. Services to be billed directly by SNFs include physical therapy, occupational therapy, speech language pathology, laboratory tests, diagnostic x-ray, prosthetic devices, TPN/PEN, dressing, ambulance services and others currently being defined. See Appendix D. The impact of consolidated billing on SNFs will likely include the revision of vendor contracts and the ability to share risk with those vendors, allowing the SNFs to manage their internal costs for supplies. Each SNF will need to establish and monitor systems for tracking each individual resident and the clinical use of supplies and ancillary services. The Company does not expect the operations of the Nursing Facility to be materially adversely affected by these new Medicare changes. "Fraud and Abuse" Laws and Regulations Anti -Kickback Laws. The Federal Medicare/Medicaid Anti -Fraud and Abuse Amendments to the Social Security Act (the "Anti -Kickback Law") make it a criminal felony offense (subject to certain exceptions) to I&M knowingly or willfully offer, pay, solicit or receive, remuneration in order to induce business for which reimbursement may be provided under the Medicare or Medicaid programs. The arrangements prohibited under the Anti -Kickback Law can involve hospitals, physicians and other health care providers such as nursing homes. Prohibited arrangements may include joint ventures between providers, space and equipment rentals, purchases of physician practices, physician recruiting programs and management and personal services contracts. In addition to criminal penalties, violations of the Anti -Kickback Law can lead to civil monetary penalties and exclusion from the Medicare and Medicaid programs for not less than five years. Exclusion from either of these programs would have a material adverse impact on the operations and financial condition of the Nursing Facility. Billing and Reimbursement Practices. Health care providers, including nursing homes, also are subject to criminal, civil and exclusionary penalties for violating billing and reimbursement standards under state and federal law. In recent years, state and federal enforcement authorities have investigated and prosecuted providers for submitting false claims to Medicare or Medicaid for services not rendered or for misrepresenting the level or necessity of services actually rendered in order to obtain a higher level of reimbursement. The Department of Health and Human Services Office of Inspector General ("OIG") and the Department of Justice ("DOJ") have conducted several joint investigation and prosecution projects in the last two years involving a significant number of hospitals and certain other health care providers nationwide in an effort to recover alleged overpayments. In some instances, the OIG and DOJ have recovered double or treble damages, plus penalties and interest, and have imposed strict compliance measures to ensure correct billing practices in the future. Managed Care Nursing facilities throughout the United States are facing a health care environment that is becoming increasingly dominated by the development of risk-based managed care plans. The necessity for nursing facilities to contract with managed care plans is increasing not only for privately insured residents but also for certain Medicare beneficiaries. States are experimenting with innovative delivery and payment systems to provide care to Medicare beneficiaries, and in Minnesota there are certain plans that provide for contractual risk -sharing in the delivery of services to individuals who are eligible for both Medicaid and Medicare. The current trend in health care reimbursement is for the federal government to enable the states to use managed care as a way to reduce costs without the need for federal interference and approval. There can be no assurances that the Nursing Facility will choose to, or will be able to, enter into satisfactory contracts with such managed care plans or that the revenues generated for the Nursing Facility by any such managed care plans with which the Nursing Facility may choose to contract will be sufficient to meet the Nursing Facility's actual operating costs. Nature of Pro Forma Debt Service Coverage Page (iii) above contains data prepared on a historic pro forma basis calculating debt service coverage on the Series 1999 Bonds based on the most recent three fiscal years of income available for debt service of the Seller. Actual debt service coverage will inevitably vary from that shown on a historical basis, and the actual results may be materially worse due to various conditions, including, but not limited to, higher than anticipated operating costs, increased or new competition, lack of or decline in market demand, changes in demographics, changes in the local or national economies, and changes in governmental regulations. The use of historic operating data in such computations is not a forecast of future operations of the Company. Future performance will vary from such past performance because of numerous reasons that may include cost inflation greater than any increase in revenues, changes in state or local regulations governing payments under the Medicaid system, and most, if not all, of the factors discussed above. Year 2000 Problem The Year 2000 problem is a result of computer programs being written using two digits rather than four digits to define the applicable year. Computer programs that have data -sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a computer system failure or miscalculations causing disruptions of operations, including among other things, the temporary inability to process transactions, send invoices, or engage in other routine activities. -6- The Company is conducting a review of the computer systems upon which the Facilities are reliant to assess vulnerability to the Year 2000 problem. In addition to its internal computer systems, the Company is reliant upon the computer systems of the Trustee, Federal and Department of Human Services computers, consultants, agents and other contracting parties, all of which may be indirectly reliant upon computer systems of other third parties. At the present time, the Company is unable to determine the extent to which the Company is vulnerable to any failure of third parties to solve their Year 2000 problems. There can be no assurance that the computer systems of other entities upon which the Company directly or indirectly relies will be timely modified or converted to address the Year 2000 problem. To the extent the Year 2000 problem is not resolved by such third parties, there could be an interruption in the payment of Medicaid or Medicare reimbursements, interest or principal payments made on the Series 1999 Bonds, or in the administration of services to the Facilities. Other Regulatory Matters Various health and safety regulations and statutes apply to the Nursing Facility and are administered and enforced by various state agencies. Violations of certain health and safety standards could result in closure of all or a portion of licensed facilities or imposition of the requirement of complying with such standards. The Nursing Facility is currently in compliance with all existing material regulations and standards. Such standards are, however, subject to change and there can be no guarantee that in the future the Nursing Facility will meet these changed standards or that the Nursing Facility will not be required to expend significant sums in order to comply with such changed standards. Environmental Matters There are numerous environmental risks that can arise in connection with real estate investments, including, without limitation: (1) areas of on-site and off-site environmental contamination; (2) past, present, or future violations of environmental laws; (3) adequacy of waste handling procedures; and (4) potential environmental restrictions on future uses of property. The Facilities, like other types of commercial real estate, may be subject to such environmental risks which can result in substantial costs to the Company from any mandatory clean-up, damages, fines or penalties that might be ordered with respect thereto. Any environmental problems discovered with respect to the Facilities could have an adverse effect on the collateral value thereof. A Phase I environmental survey dated as of January 4, 1999 has been performed on the site of the Facilities without indication of the presence of environmental contaminants at a level requiring remediation or notice to governmental authorities. Value of Mortgaged Property Security for the Bonds includes a mortgage lien on the land, and fixed assets of the Facilities. Further security is provided through an assignment of all rents and revenues of the Facilities, subject to the pledge of accounts receivable with respect to the incurrence of Short Term Indebtedness. Attempts to foreclose under the Mortgage may be met with protracted litigation and/or bankruptcy proceedings, which proceedings cause delays. See "ENFORCEABILITY OF OBLIGATIONS." Thus, there can be no assurance that upon the occurrence of an Event of Default, the Trustee will be able to obtain possession of the Facilities and generate revenue therefrom in a timely fashion. Furthermore, the Facilities are designed and operated as special purpose structures and related facilities, which will reduce their value in foreclosure or sale. For these and other reasons, there can be no assurance that proceeds derived from the sale of the Facilities upon default and foreclosure of the Mortgage would be sufficient to pay the Bonds and accrued interest thereon. Nature of Appraisal Tisdell Appraisal Services, Inc., Burnsville, Minnesota, was retained by the Company to appraise the market value of the Facilities. Excerpts from the appraisal are contained in Appendix F hereto. Such appraisal reflects solely the opinion of the appraiser and is not a guarantee of the value of the Facilities. In particular, the -7- appraisal does not evaluate the net proceeds which might be receivable in the event of a forced sale of the Facilities or foreclosure of the Mortgage if any Event of Default should occur under the Loan Agreement. Effect of Affiliates The Company is one of five subsidiaries of Minnesota Masonic Home, a Minnesota nonprofit corporation ("MMH"). MMH and the other subsidiaries of MMH have no liability for payment of principal of or interest on the Series 1999 Bonds. Under the Loan Agreement, the Company may transfer cash to its affiliates so long as the Current Assets of the Company are equal to or greater than 125% of the Current Liabilities of the Company immediately after the transfer. See "SECURITY FOR THE BONDS -- Special Covenants" Tax -Exempt Status of Company and Other Tax Matters In order to maintain its status as an organization treated as exempt from federal income taxation, the Company will be subject to a number of requirements affecting its operations. Failure to satisfy these requirements, the modification of or repeal of certain existing federal income tax laws, any change in Internal Revenue Service policies or positions, or a change in the Company's method of operations, purposes, or character could result in the loss by the Company of its tax-exempt status. The Internal Revenue Service has been scrutinizing the acquisition of health care facilities by nonprofit organizations exempt from federal income taxation and the use of tax-exempt bonds to finance such acquisitions. Failure by the Company to maintain its tax-exempt status or a determination that the operation of the Facilities constitutes an unrelated trade or business of the Company could adversely affect the funds available to the Company to make payments under the Bonds by subjecting the income from the Facilities to federal income taxation and by disallowing any deduction to the Company for interest paid on the Bonds and could result in the includability, of the interest on the Bonds in gross income for federal income tax purposes. The exclusion of interest on the Series 1999 Bonds from gross income for federal income tax purposes is also dependent upon continuing compliance by the Company with the requirements of the Regulatory Agreement. Normal Risks Attending Any Investment in Real Estate There are many diverse risks attending any investment in real estate, not within the Company's control, which may have a substantial bearing on the profitability and financial feasibility of the Facilities. Such risks include possible adverse use of adjoining land, fire or other casualty, condemnation, increased taxes, changes in demand for such Facilities, decline in the neighborhood and local or general economic conditions and changing governmental regulations. Labor Matters In recent years, many nursing homes have suffered from an increasing scarcity of skilled nursing personnel and aides to staff their facilities. The trend in the scarcity of qualified personnel could eventually force the Nursing Facility to pay increased salaries to such personnel as competition for such employees intensifies, and, in an extreme situation, could lead to difficulty in keeping the Nursing Facility licensed. To date however, the Nursing Facility has not experienced any significant staffing shortages of skilled nurses or nursing assistants. The Nursing Facility has never needed to use pooled labor. The Company does not contemplate that any of its employees will belong to or become affiliated with any labor union. The Company does not know of any current activity at the Facilities with respect to the formation of a collective bargaining unit. In early 1998, a labor union unsuccessfully solicited employees at the Facilities. Successful attempts have been made to organize employees of similar facilities in the State of Minnesota and there is no assurance that a future effort will not be made at the Facilities, and if such an effort were successful, there is no assurance what impact it would have on labor costs. -8- Insurance Although the Company will be required to obtain certain insurance as set forth in the Loan Agreement, there can be no assurance that the Facilities will not suffer losses for which insurance cannot be or has not been obtained or that the amount of any such loss, or the period during which the Facilities cannot generate revenues, will not exceed the coverage of such insurance policies. The Company is insured against patient abuse claims. In recent years, the number of lawsuits and the dollar amount of patient abuse recoveries have been increasing dramatically nationwide, resulting in increased insurance premiums. Competition The Facilities face competition from other existing nursing and residential care or rental facilities, and may face additional competition in the future if and when there occurs the construction of new, or the renovation of existing, facilities. Note, however, that since 1983, there has been a legislative moratorium on the construction or addition of nursing care beds subject to certain exceptions. While the moratorium is expected to continue indefinitely, there is not assurance that legislative changes will not permit the addition of nursing care beds in the Company's service area in the future. Additionally, home health care and other alternatives to institutionalized care are expected to become increasingly competitive with care provided in nursing homes. No assurances can be given that occupancy or rates of the Facilities will not be adversely affected by such competition. See Appendix A: "THE FACILITIES" Effect of Federal Bankruptcy Laws on Security for the Bonds Bankruptcy proceedings and equity principles may delay or otherwise adversely affect the enforcement of Bondholders' rights in the property granted as security for the Bonds. Furthermore, if the security for the Bonds is inadequate for payment in full of the Bonds, bankruptcy proceedings and equity principles may also limit any attempt by the Trustee to seek payment from other property of the Company, if any. See "ENFORCEABILITY OF OBLIGATIONS." Also federal bankruptcy law permits adoption of a reorganization plan even though it has not been accepted by the holders of a majority in aggregate principal amount of the Bonds if the Bondholders are provided with the benefit of their original lien or the "indubitable equivalent." In addition, if the bankruptcy court concludes that the Bondholders have "adequate protection," it may (i) substitute other security subject to the lien of the Bondholders and (ii) subordinate the lien of the Bondholders (a) to claims by persons supplying goods and services to the Company after bankruptcy and (b) to the administrative expenses of the bankruptcy proceeding. The bankruptcy court may also have the power to invalidate certain provisions of the Loan Agreement and Mortgage that make bankruptcy and related proceedings by the Company an event of default thereunder. Absence of Rating No rating as to the creditworthiness of the Series 1999 Bonds has been requested from any organization engaged in the business of publishing such ratings. Typically, unrated bonds lack liquidity in the secondary market in comparison with rated bonds. As a result of the foregoing, the Series 1999 Bonds are believed to bear interest at higher rates than would prevail for bonds with comparable maturities and redemption provisions that have investment grade credit ratings. Series 1999 Bonds should not be purchased by any investor who, because of financial condition, investment policies or otherwise, does not desire to assume, or have the ability to bear, the risks inherent in an investment in the Series 1999 Bonds. Secondary Market The Underwriter expects to effect secondary market trading in the Series 1999 Bonds. However, the Underwriter is not obligated to repurchase any Series 1999 Bonds at the request of the holders thereof and cannot assure that there will be a continuing secondary market in the Series 1999 Bonds. In addition, adverse developments, including insufficient cash flow from the Facilities, may have an unfavorable effect upon the bid and asked prices for the Series 1999 Bonds in the secondary market. :Z THE SERIES 1999 BONDS Interest; Maturity; Payment The Series 1999 Bonds will be issued in the aggregate principal amounts and will bear interest as set forth on the cover hereof payable semiannually on March 1 and September I (each an "Interest Payment Date") of each year commencing on September 1, 1999. Interest will be calculated on the basis of a 360 -day year with twelve months of thirty days. The ownership of any Series 1999 Bonds offered hereby will be beneficial ownership and not record ownership so long as the Series 1999 Bonds are held in book -entry form. While in such form, the Series 1999 Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company. See this section, "Book -Entry System" The Series 1999 Bonds are issuable in fully registered form, in the denomination of $5,000 and integral multiples thereof not exceeding the principal amount maturing in any year. In the event any Series 1999 Bond is mutilated, lost, stolen or destroyed, the City may execute, and the Trustee may authenticate, a new Series 1999 Bond in accordance with the provisions therefor in the Indenture, and the City and the Trustee may charge the owner of such Series 1999 Bond with reasonable fees and expenses in connection therewith and require indemnity satisfactory to them. Book -Entry System The Depository Trust Company ("DTC"), New York, New York, will act as the securities depository for the Series 1999 Bonds. The Series 1999 Bonds will be fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee), with one Series 1999 Bond certificate issued for all Series 1999 Bonds of each stated maturity. DTC 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 securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book - entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Series 1999 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 1999 Bonds on DTC's records. The ownership interest of each actual purchaser of each such Series 1999 Bond (`Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 1999 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in Series 1999 Bonds, except in the event that use of the Book - Entry System for the Series 1999 Bonds is discontinued. To facilitate subsequent transfers, all Series 1999 Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Series 1999 Bonds with DTC and their -10- registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 1999 Bonds on deposit; DTC's records reflect only the identity of the Direct Participants to whose account such Series 1999 Bonds are credited, which may or may not be the Beneficial Owners. The 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. Redemption notices shall be sent to Cede & Co. If less than all of the Series 1999 Bonds 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. will consent or vote with respect to Series 1999 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 1999 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 1999 Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on a payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of DTC, and the disbursement of such payment to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 1999 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 1999 Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Series 1999 Bonds will be printed and delivered. DTC management is aware that some computer applications, systems, and the like for processing data ("Systems") that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC has informed its Participants and other members of the financial community (the "Industry") that it has developed and is implementing a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to security holders, book - entry deliveries, and settlement of trades within DTC ("DTC Services"), continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, DTC's ability to properly perform its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third party vendors from whom DTC licenses software and hardware, and third party vendors on whom DTC relies for information on the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the Industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant; and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate. According to DTC, the foregoing information with respect to DTC has been provided to the Industry for informational purposes only and is not intended to serve as a representation, warrant, or contract modification of any kind. The information in this section concerning DTC and DTC's Book -Entry System has been obtained from DTC. The City and the Company take no responsibility for the accuracy thereof. Redemption Prior to Maturity Mandatory Sinking Fund Redemption. The Term Bonds of the Series 1999 Bonds will be subject to mandatory redemption prior to maturity by lot in such manner as the Trustee may determine through the operation of mandatory sinking fund payments as provided in the Indenture, at the principal amount so to be redeemed plus accrued interest to the redemption date, in accordance with the following schedules: Series 1999 Bonds Maturing March 1, Redemption Date Principal March 1 Amount * Maturity Date Series 1999 Bonds Maturine March 1. 2029 Redemption Date Principal March I Amount * Maturity Date At the option of the Company, exercised not less than 45 days prior to any sinking fund redemption date, the Company may (i) deliver to the Trustee for cancellation Term Bonds in any aggregate principal amount desired, or (ii) receive a credit in respect of such sinking fund obligation for any Term Bonds which prior to such date have been purchased or redeemed (otherwise than through the operation of the sinking fund) and not otherwise previously been applied as a credit against sinking fund payments. Optional Redemption. Series 1999 Bonds maturing after March 1, are subject to redemption prior to maturity upon request of the Company in whole or in part on any day on or after March 1, , in such order of maturities as shall be selected by the Company and by lot within a maturity, at their principal amount, plus accrued -12- interest and a premium, expressed as a percentage of principal amount, set forth in the following table during the designated redemption periods: Redemption Periods Premium March 1, through and including February 28, 2% March 1, through and including February 28, 1% March 1, and thereafter NONE Extraordinary Redemption Upon Certain Events of Calamity or Condemnation. The Bonds are subject to extraordinary redemption, in whole, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, on any date selected by the Company for which timely notice of redemption can be given, if the Facilities shall be damaged or destroyed or taken in condemnation proceedings to such extent that in the reasonable judgment of the Company the Facilities cannot reasonably be restored within twelve months to a condition permitting conduct of the normal operations of the Company and at a cost not exceeding the Net Proceeds of the insurance or condemnation award. Mandatory Redemption Upon Determination of Taxability. All Series 1999 Bonds are subject to mandatory redemption in whole prior to maturity, on the first day for which proper notice of call can be given, at their principal amount, plus accrued interest, without premium, upon the occurrence of a Determination of Taxability. A "Determination of Taxability" means receipt by the Trustee of a statutory notice of deficiency by the Internal Revenue Service, a ruling from the National Office of the Intemal Revenue Service, or a final decision of a court of competent jurisdiction which holds in effect that interest payable on the Series 1999 Bonds is includable for federal income tax purposes in the gross income of a Bondholder because of any act or omission of the Company (or any successor or transferee) or of the Trustee; provided, however, that the Company shall have an opportunity for no more than 180 days after receipt by the Trustee to contest any such statutory notice, ruling or final decision and that no such statutory notice, ruling or final decision shall be deemed a "Determination of Taxability" if the Company is contesting the same during such 180 day period in good faith until the earliest of (a) abandonment of such contest by the Company, (b) the date on which such statutory notice, ruling or final decision becomes final, or (c) the 181st day after the initial receipt by the Trustee of such statutory notice, ruling or final decision; and provided further that no Determination of Taxability shall arise from the interest on the Series 1999 Bonds being included (1) in income for purposes of calculating alternative minimum taxable income of any taxpayer; (2) in earnings and profits of branches of foreign corporations for purposes of calculating the "branch profits tax'; (3) within gross income to certain recipients of social security or railroad retirement benefits; or (4) as passive investment income to certain S corporations which have subchapter C earnings and profits. Acceleration. Upon an Event of Default under the Indenture, all Bonds are subject to acceleration and prepayment on any date selected by the Trustee at their principal amount, plus accrued interest, without premium. Notice of Redemption; Payment The Trustee is required to cause notice of the call for any redemption to be mailed to the then owner of each Bond to be redeemed, by first class mail, not less than 30 days prior to the redemption date. Failure to mail or any defect in any such notice shall not affect the validity of any proceedings for the redemption of any Bond for which notice was properly given. Interest on any Bonds or portions thereof called for redemption ceases to accrue on the date established for redemption pursuant to such notice if notice of redemption has been properly given and if funds sufficient to redeem the Bonds have been deposited with the Trustee on or before the redemption date. Ownership thereof. The person in whose name a Series 1999 Bond is registered may be treated for all purposes as the owner -13- Additional Bonds Additional Bonds may be issued which will be secured on an equal and parity basis with the Series 1999 Bonds. Additional Bonds (other than certain Additional Bonds issued to refund Bonds) may be issued only upon satisfying a debt service test substantially similar to the test applied to the Company's right to incur indebtedness. See Appendix C: "THE INDENTURE -- Additional Bonds." SECURITY FOR THE BONDS Limited Obligations THE BONDS WILL BE LIMITED OBLIGATIONS OF THE CITY AND WILL NOT CONSTITUTE A DEBT, LIABILITY, GENERAL OBLIGATION OR PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY, THE STATE OF MINNESOTA OR ANY POLITICAL SUBDIVISION THEREOF. THE ISSUANCE OF THE BONDS DOES NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO PAY THE BONDS FROM TAXES OR TO MAKE ANY APPROPRIATION THEREFOR. NO BONDHOLDER WILL HAVE THE RIGHT TO DEMAND PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS OUT OF ANY FUNDS OR FROM ANY SOURCES OF REVENUE OTHER THAN THOSE EXPRESSLY PLEDGED TO THE PAYMENT OF THE BONDS PURSUANT TO THE INDENTURE. Assignment of Loan Agreement; Loan Payments Under the Indenture, the City has pledged its interest in the Loan Agreement (including Loan Repayments by the Company, but excluding certain rights of the City to payment of fees, expenses and indemnification) to the Trustee to secure the Bonds. Monthly Loan Repayments under the Loan Agreement will be paid directly to the Trustee and will be sufficient, if paid promptly and in full, to pay when due all principal of and interest on the Series 1999 Bonds. The Trustee is authorized to exercise the rights of the City and enforce the obligations of the Company under the Loan Agreement. Reserve Fund On the date of issuance of the Series 1999 Bonds, proceeds of the Series 1999 Bonds in an amount equal to the maximum scheduled annual principal and interest on such Bonds shall be deposited in the Reserve Fund. On the closing date for issuance of any series of Additional Bonds issued on a parity basis with the Series 1999 Bonds, funds equal to the Reserve Requirement (defined in Appendix C) for such series of Additional Bonds shall be deposited in the Reserve Fund. Amounts in the Reserve Fund may be used by the Trustee to pay principal of, premium, if any, and interest on the Series 1999 Bonds (and all parity Additional Bonds) if amounts available in the Bond Fund are insufficient for such purpose. If amounts in the Reserve Fund are in excess of the Reserve Requirement, such excess amounts shall be transferred to the Bond Fund. In accordance with the Loan Agreement, the Company must restore amounts in the Reserve Fund if amounts therein are less than the Reserve Requirement by monthly paying cash equal to one-sixth of the deficiency, commencing on the fifteenth day of the second month after the transfer. Amounts in the Reserve Fund may be invested in Qualified Investments, but with maturities no longer than seven years. Under certain circumstances amounts in the Reserve Fund may be used to pay the Trustee's fees. Mortgage Under the Mortgage, the Company will grant to the City a mortgage lien on and security interest in land and fixed assets of the Facilities, as well as all rents and revenues derived from the Facilities, subject to the pledge of the Company's accounts receivable to secure Short -Term Indebtedness. In tum, the City will assign its interest in the Mortgage to the Trustee. The Mortgage will secure the payments due in respect of Series 1999 Bonds (and parity Additional Bonds). The mortgage lien and security interest, and assignment of rents and revenues will encumber the real estate site of the Facilities, all improvements and all equipment and furnishings located from time -14- to time at the Facilities owned by the Company, subject to certain Permitted Encumbrances. See Appendix C: "THE MORTGAGE" Special Covenants Rates and Charges; Unrestricted Net Assets. In the Loan Agreement, subject to legal requirements, the Company agrees to fix, charge and collect such rates, fees and charges for the use of Facilities of and for the services furnished by the Company such that Net Revenues Available for Debt Service (defined in Appendix C) in each Fiscal Year will be at least I10% of the Principal and Interest Requirements on Long -Term Indebtedness (defined in Appendix C) during such Fiscal Year. Notwithstanding the foregoing, if the Company cannot meet such financial covenant, no Event of Default will occur so long as (i) the Company promptly employs an Independent Management Consultant (defined in Appendix C) to make recommendations and (ii) to the fullest extent feasible, the Company follows the recommendations of the consultant. See Appendix C: "THE LOAN AGREEMENT -- Rate Covenant." Limitations on the Company's Debt. The Loan Agreement restricts the incurrence of debt by the Company. The Company may incur Short Term Indebtedness (Indebtedness maturing within 365 days), provided such Indebtedness shall not exceed 5% of the Total Revenues (defined in Appendix C) of the Company for the preceding Fiscal Year. Short Term Indebtedness may be incurred by a pledge and assignment of all or any part of the Company accounts receivable and certain other personal property, but in no other manner. With certain exceptions, the Company may not incur Long -Term Indebtedness (any Indebtedness other than Short -Term Indebtedness) to refinance outstanding Long -Term Indebtedness or to finance or refinance facilities (other than Additional Bonds issued to refund Bonds) unless, among other things, (i) an Independent Accountant states that for each of the last two Fiscal Years Net Revenues Available for Debt Service of the Company exceeded 115% of maximum Principal and Interest Requirements on Long -Term Indebtedness (including the proposed Long -Term Indebtedness, but excluding refinanced Indebtedness), or (ii) an Independent Accountant provides an examined financial forecast to the effect that, for each of the three Fiscal Years following the year when any facilities financed thereby are placed in service, or if no facilities are to be financed thereby, after the Fiscal Year in which the proposed Long -Term Indebtedness is to be incurred, estimated Net Revenues Available for Debt Service of the Company will be not less than 120% of maximum Principal and Interest Requirements on Long -Term Indebtedness (including the proposed Long -Term Indebtedness, but excluding refinanced Indebtedness) for each year after placement in service or incurrence as appropriate. For further conditions and qualifications as to when Indebtedness may be incurred by the Company, including application of the debt service test if the Company has "Balloon Indebtedness," see Appendix C: "THE LOAN AGREEMENT -- Limitation On Debt." Transfers. Under the Loan Agreement, the Company is prohibited from transferring any funds or assets to any other person for less than the fair market value thereof, unless the assets are obsolete, wom out or otherwise of no further value to the operation of the Facilities. However, assets may be transferred to an Affiliate without limit as to amount if the Trustee receives a Company Certificate stating that immediately after the transfer the Current Assets of the Company will be equal to or greater than 125% of the Current Liabilities of the Company. Repair and Replacement Fund. Under the Loan Agreement, the Company is obligated to make monthly deposits to the Repair and Replacement Fund in an amount equal to $20 times the number of units in the Apartments and Personal Care Suites. Amounts in the Repair and Replacement Fund are to be disbursed for the payment of items of repair, improvement and replacement with respect to the Apartments and Personal Care Suites which constitute capital expenditures under generally accepted accounting principles. Defeasance Upon certain terms and conditions specified in the Indenture, the Bonds or portions thereof will be deemed to be paid and the security provided in the Indenture, the Loan Agreement and the Mortgage may be discharged prior to maturity or redemption of the Bonds upon the provision for the payment of such Bonds. In that case, the Bonds will be secured solely by the cash and securities deposited with the Trustee for such purpose. -15- SOURCES AND USES OF FUNDS Following are the expected sources and uses of funds (exclusive of accrued interest) as presently estimated for the costs associated with the acquisition of the Facilities: Series 1999 Sources* Par Amount of Series 1999 Bonds $ 46,400,000 Less Original Issue Discount Company Equity 5,000,000 TOTAL $ 51,400,000 Series 1999 Uses* Acquisition of the Facilities $ 44,000,000 Capital Improvements to the Facilities 2,000,000 Financing and Acquisition Costs, including Underwriter's Discount(1) 1,100,000 Working Capital 1,000,000 Debt Service Reserve Fund 3.300.000 TOTAL $51,400,000 (1) Includes Underwriter's compensation, legal fees, real estate costs, printing costs and other similar costs. *Preliminary; subject to change. THE CITY The City is a municipal corporation and political subdivision of the State duly organized and existing under and by virtue of the laws of the State. The City is authorized by the Act to issue the Series 1999 Bonds, and to loan the proceeds thereof to the Company pursuant to the Loan Agreement for the application described herein. -16- DEBT SERVICE SCHEDULE The following table sets forth, for each year ending March 1, the amounts required each year to be paid with respect to the Series 1999 Bonds, assuming no prepayment other than for mandatory sinking fund redemptions. Principal of the Series 1999 Bonds will be paid on March 1 of each year and interest will be paid on each March 1 and September 1. Year Ending March 1 Principal Interest Total 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 ENFORCEABILITY OF OBLIGATIONS On the date of issuance of the Series 1999 Bonds, Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel, shall deliver its opinion, dated the delivery date, that the Series 1999 Bonds, the Loan Agreement and the Indenture are valid and legally binding on the City, enforceable in accordance with their respective terms. Orbovich & Gartner Chartered, St. Paul, Minnesota, as counsel to the Company, will deliver its opinion that the Loan Agreement, the Disclosure Agreement, the Regulatory Agreement and the Mortgage are valid and legally binding agreements of the Company, each enforceable in accordance with its respective terms. The foregoing opinions will be generally qualified to the extent that the enforceability of the respective instruments may be limited by laws, decision and equitable principles affecting remedies and by bankruptcy or insolvency or other laws, decisions and equitable principles affecting creditors' rights generally. _17_ While the Series 1999 Bonds are secured or payable pursuant to the Indenture, the Loan Agreement and the Mortgage, the practical realization of payment from any security will depend upon the exercise of various remedies specified in the respective instruments. These and other remedies are dependent in many respects upon judicial action, which is subject to discretion and delay. Accordingly, the remedies specified in the above documents may not be readily available or may be limited. APPROVAL OF LEGAL Legal matters incident to the issuance and sale of the Series 1999 Bonds and with regard to the tax-exempt status of interest on the Series 1999 Bonds under existing laws are subject to the approving legal opinion of Dorsey & Whitney LLP, Minneapolis, Minnesota, as Bond Counsel. Certain legal matters will be passed on for the Company by its counsel, Orbovich & Gartner Chartered, St. Paul, Minnesota. The Underwriter has been represented in this transaction by Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, Minnesota. TAX MATTERS Tax Exemption In the opinion of Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel, based upon federal and Minnesota laws, regulations, rulings and decisions in effect on the date of delivery of the Series 1999 Bonds, the interest on the Series 1999 Bonds is not includable in gross income for federal income tax purposes or in taxable net income of individuals, estates or trusts for Minnesota income tax purposes. Interest on the Series 1999 Bonds is includable in taxable income of corporations and financial institutions for purposes of the Minnesota franchise tax. Interest on the Series 1999 Bonds is not an item of tax preference for purposes of the federal or Minnesota alternative minimum taxes, but such interest is includable in adjusted current earnings for the purpose of determining the alternative minimum taxable income of corporations for purposes of the federal and Minnesota alternative minimum taxes. The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements (the "Federal Tax Requirements") that must be met subsequent to the issuance of the Series 1999 Bonds in order that, for federal income tax purposes, interest on the Series 1999 Bonds not be included in gross income pursuant to Section 103 of the Code. The Federal Tax Requirements include, but are not limited to, requirements relating to the expenditure of proceeds of the Series 1999 Bonds, requirements relating to the operation of the facilities financed by the Series 1999 Bonds, restrictions on the investment of proceeds of the Series 1999 Bonds prior to expenditure and the requirement that certain earnings on the "gross proceeds" of the Series 1999 Bonds be paid to the federal government. Noncompliance with the Federal Tax Requirements may cause interest on the Series 1999 Bonds to become subject to federal and Minnesota income taxation retroactive to their date of issue irrespective of the date on which such noncompliance occurs or is ascertained. In expressing its opinion, Bond Counsel will assume compliance by the City, the Company and the Trustee with the tax covenants contained in each of the Loan Agreement, Regulatory Agreement and Indenture. No provision has been made for an increase in the interest rate on the Series 1999 Bonds in the event that interest on the Series 1999 Bonds becomes subject to federal or Minnesota income taxation; however, upon the occurrence of a Determination of Taxability with respect to the Series 1999 Bonds, the Series 1999 Bonds are subject to mandatory redemption. See "THE SERIES 1999 BONDS -- Redemption Prior to Maturity -Mandatory Redemption Upon Determination of Taxability" herein. Related Federal Tax Considerations Interest on the Series 1999 Bonds may be included in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code. Deductions for losses incurred by property and casualty insurance companies must be reduced by 15% of the interest received or accrued on the Series 1999 Bonds. 18- In addition to the collateral tax consequences set forth above, prospective purchasers of the Series 1999 Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Certain corporations may have a tax imposed on passive income, including tax-exempt interest, such as interest on the Series 1999 Bonds. Prospective purchasers of the Series 1999 Bonds should consult their tax advisors as to the applicability and impact of these and other potential collateral tax consequences of owning and disposing of the Series 1999 Bonds. THE FOREGOING IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF COLLATERAL TAX CONSEQUENCES ARISING FROM RECEIPT OF INTEREST ON THE SERIES 1999 BONDS. PROSPECTIVE PURCHASERS OR BOND HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO COLLATERAL TAX CONSEQUENCES, INCLUDING WITHOUT LIMITATION, THE DETERMINATION OF GAIN OR LOSS ON THE SALE OF A SERIES 1999 BOND, THE CALCULATIONS OF ALTERNATIVE MINIMUM TAX LIABILITY, THE INCLUSION OF SOCIAL SECURITY OR OTHER RETIREMENT PAYMENTS IN TAXABLE INCOME, THE DISALLOWANCE OF DEDUCTIONS FOR CERTAIN EXPENSES ATTRIBUTABLE TO THE SERIES 1999 BONDS AND STATE OR LOCAL TAX RULES. Original Issue Discount The Series 1999 Bonds with stated maturities in (the "Discount Bonds") are being sold at a discount from the principal amount payable on such Series 1999 Bonds at maturity. The difference between the initial offering price at which a substantial amount of the Discount Bonds of a given maturity is sold to the public (the "Issue Price") and the principal amount payable at maturity constitutes "original issue discount" under the Code. The amount of original issue discount that is deemed to accrue to a holder of a Discount Bond under Section 1288 of the Code is excluded from gross income for federal income tax purposes and from taxable net income of individuals, estates and trusts for Minnesota income tax purposes to the same extent that stated interest on such Discount Bond would be excluded from gross income. See "Tax Exemption" above. The amount of the original issue discount that is treated as accruing with respect to a Discount Bond is added to the tax basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (whether by sale, exchange, redemption or payment at maturity). Interest in the form of original issue discount is treated under Section 1288 as accruing at a constant yield method that reflects semiannual compounding on days that are determined by reference to the maturity date of the Discount Bond. The amount of original issue discount that is treated as accruing for any particular semiannual accrual period generally is equal to the excess of (1) the product of (a) one-half of the yield on such Discount Bonds (adjusted as necessary for an initial short period) and (b) the adjusted issue price of such Discount Bonds, over (2) the amount of stated interest actually payable. For purposes of the preceding sentence, the adjusted issue price is determined by adding to the initial offering price for such Discount Bonds the original issue discount that is treated as having accrued during all prior semiannual accrual periods. If a Discount Bond is sold or otherwise disposed of between semiannual compounding dates, then the original issue discount that would have accrued for that semiannual accrual period for federal income tax purposes is to be apportioned in equal amounts among the days in such accrual period. If a Discount Bond is purchased for a cost that exceeds the sum of (1) the Issue Price, plus (2) accrued interest and accrued original issue discount, the amount of original issue discount that is deemed to accrue thereafter to the purchaser is reduced by an amount that reflects amortization of such excess over the remaining term of such Discount Bond. Except for the Minnesota rules described above, no opinion is expressed by Bond Counsel as to state and local income tax treatment of original issue discount. It is possible under certain state and local income tax laws that original issue discount on a Discount Bond may be taxable in the year of accrual, and may be deemed to accrue earlier than under federal law. Holders of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of owning such Discount Bonds. IRE Bond Premium The Series 1999 Bonds with stated maturities in (the "Premium Bonds") are being sold at a price greater than the principal amounts payable on such Series 1999 Bonds at maturity. To the extent that a purchaser of a Premium Bond acquires a Premium Bond at a price greater than the principal amount payable at maturity, such excess maybe considered "amortizable bond premium" under Section 171 of the Code. In general, any amortizable bond premium with respect to a Premium Bond must be amortized under the Code. The amount of premium so amortized will reduce the owner's basis in such Premium Bond for federal income tax purposes, and such amortized premium is not deductible for federal income tax purposes. In the case of tax-exempt debt instrument subject to early call, the bond premium rules include special rules that impact the period over which the premium is amortized. The rate of the amortization of the bond premium and the corresponding basis reduction may result in a Bondholder realizing a taxable gain when a Premium Bond owned by such Bondholder is sold or disposed of for an amount equal to or less than such Premium Bond's original cost. Purchasers should consult their own tax advisors as to the computation and treatment of such amortizable bond premium, including, but not limited to, the calculation of gain or loss upon the sale, redemption, maturity, receipt or payment or other disposition of a Premium Bond. UNDERWRITING The Series 1999 Bonds are being purchased from the City by Dougherty Summit Securities LLC in Minneapolis, Minnesota (the "Underwriter"). The Underwriter has agreed to purchase the Series 1999 Bonds for compensation equal to $ subject to the terms of a certain Bond Purchase Agreement (the "Bond Purchase Agreement"), between the City, the Company and the Underwriter. The Bond Purchase Agreement provides that the Underwriter shall purchase all Series 1999 Bonds if any are purchased and that the obligation to make such purchase is subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The initial public offering prices set forth on the cover page hereof may be changed from time to time by the Underwriter. The Company has agreed under the Bond Purchase Agreement to indemnify the Underwriter and the City against certain liabilities, including certain liabilities under the federal and state securities laws. SECURITIES LAWS CONSIDERATIONS FOR MINNESOTA RESIDENTS The offering of the Series 1999 Bonds is to be undertaken only in those jurisdictions in which such offering may be lawfully made in accordance with the relevant provisions of all applicable state and federal securities laws. Minnesota residents. The Series 1999 Bonds have not been rated by any rating agency. Consequently, in accordance with regulations of the State of Minnesota Commerce Department, with respect to Minnesota residents, the Series 1999 Bonds may be offered solely to and may be purchased only by persons having a minimum annual gross income of $30,000 and a net worth of $30,000, or in the alternative, a net worth of $75,000. Net worth is determined exclusive of home, home furnishings and automobiles. CONTINUING Pursuant to a Continuing Disclosure Agreement (the "Disclosure Agreement"), the Company will agree to provide annual reports, by June 30 of each year commencing in 2000, to the Trustee, each Nationally Recognized Municipal Securities Information Repository, and any State Depository for Minnesota (collectively the "Repositories"), as designated for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934. Except as otherwise provided in the Disclosure Agreement, each Annual Report of the Company shall contain annual financial statements of the Company. Additionally, each Annual Report of the Company shall include operating data and financial information of the Company contained in Appendix A to the Official Statement, including information of the type contained in the following subheadings of Appendix A: 20- Governance Management General Operations Competition and Service Area Historical Utilization Sources of Resident Revenues Personnel and Staffing Financial Data and Management's Discussion Management's Discussion of Operations Such information shall be presented in a manner consistent with the Official Statement. The Company will agree in the Disclosure Agreement to provide timely notice to each Repository of any of the events listed below. The following events are subject to disclosure, if deemed material: Delinquency in payment when due of any principal of or interest on the Bonds. ii. Occurrence of any nonpayment Event of Default under the Indenture or Loan Agreement as defined in each such instrument. iii. Unscheduled draws on the Reserve Fund reflecting financial difficulties. iv. Unscheduled draws on credit enhancements reflecting financial difficulties (the Series 1999 Bonds have no third party credit enhancement). V. Substitution of credit or liquidity providers, or their failure to perform (the Series 1999 Bonds have no third party liquidity provider or credit enhancement). vi. Adverse tax opinions or events affecting the tax-exempt status of the Series 1999 Bonds. vii. Modifications to the rights of Bondholders. viii. Bond calls. ix. Defeasance of the Series 1999 Bonds or any portion thereof. X. Release, substitution or sale of property securing repayment of the Series 1999 Bonds. xi. Rating changes (the Series 1999 Bonds will not be rated). The Trustee will provide timely notice to each Repository of any failure of the Company to provide the required annual report by June 30 of any year. Failure of the Company to comply with the Disclosure Agreement will not constitute an event of default under the Indenture or the Loan Agreement. LITIGATION There is no pending litigation seeking to restrain or enjoin the issuance or delivery of the Series 1999 Bonds or questioning or affecting the legality of the Series 1999 Bonds or the proceedings and authority under which the Series 1999 Bonds are to be issued. There is no litigation pending which in any manner questions the undertaking of the financing by the Company or the operations of the Facilities by the Company or the validity or enforceability of the Indenture, the Loan Agreement, the Regulatory Agreement or the Mortgage. 21- MISCELLANEOUS The foregoing does not purport to be comprehensive or definitive and all references to any document herein are qualified in their entirety by reference to each such document. All references to the Series 1999 Bonds are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the aforesaid documents. Copies of these documents are available for inspection during the period of the offering at the offices of the Underwriter in Minneapolis, Minnesota, and thereafter at the principal corporate trust office of the Trustee. All information contained in Appendices A and B has been derived from information provided by the Company. The Underwriter makes no representations or warranties as to the accuracy or completeness of the information in any of the Appendices. The Company and the City have authorized the use and distribution of this Official Statement; provided, however, that the City has not participated in the preparation of this Official Statement, has not made an independent investigation with respect to the information contained herein, and assumes no responsibility for the accuracy or completeness of the information contained herein. The Company has approved the information contained herein. GP:533583 v4 -22- APPENDIX A THE COMPANY AND THE FACILITIES (This page has been left blank intentionally) THE COMPANY General The Company is a nonprofit corporation, incorporated under the laws of the State of Minnesota in November of 1998 for the purpose of acquiring, owning and operating the Facilities. The Company is an entity described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and is exempt from federal income taxation under Section 501(a) of the Code. The principal offices of the Company, prior to the issuance of the Series 1999 Bonds and the acquisition of the Facilities, are located at 11501 Masonic Home Drive, Bloomington, Minnesota 55437, and its telephone number is (612) 948-7000. Minnesota Masonic Home, a Minnesota nonprofit corporation formed in 1906 ("MMH"), has the right to appoint the governing board of the Company and thereby to set policies and long-term goals of the Company. MMH is a corporation described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and is exempt from federal income taxation under Section 501(a) of the Code. MMH also controls Minnesota Masonic Home Care Center in Bloomington, Minnesota, and certain other affiliated corporations. Governance The management and direction of the business of the Company is vested in its Board of Directors. The members of the Board of Directors are appointed by the Board of Trustees of MMH. Terms of office and qualification of the directors are set forth in the Company's Bylaws. The initial and current members of the Company's Board of Directors and their principal occupations are as follows: Name In Bomholdt Raymond G. Christensen, M.D. Rita S. Glazebrook, Ph.D. Raymond F. Gustafson, D.D.S. Jeffry N. Lewis Gerald M. Skogley Thomas D. Watson Office Secretary/Treasurer Vice -Chairman Chairman Principal Occupation Newspaper columnist Physician Educator Retired Retired Retired Retired The Articles of Incorporation and Bylaws of the Company provide that MMH has the sole right to appoint and remove the members of the Board of Directors of the Company and to approve all changes to the Articles of Incorporation and Bylaws before they become effective. Six of the seven members of the Board of Directors of the Company also currently serve as members of the Board of Trustees of Minnesota Masonic Home. The following individuals are the key officers of the Company: Edwin A. Martini, Jr. President and Chief Executive Officer Michael Hanson Director of Finance Edwin A. Martini, Jr., who is also the President and Chief Executive Officer of MMH, began his career at MMH in 1972. A graduate of Mankato State University with a degree in Political Science and Business Administration, Mr. Martini has also received certificates in several management and health care programs and is a licensed Long -Term Care Administrator. He serves on the executive committee of the board of directors of CareChoice, Minnesota's first health care cooperative, and is also a board member of Fairview Partners, a coordinated system of a hospital, physicians and long-term care providers. In addition to his numerous other A-1 affiliations with gerontological health care and housing organizations, Mr. Martini is an active member of many Masonic organizations and community organizations. Michael Hanson, who is also the Director of Finance of MMH, joined MMH in 1994. After graduating with highest honors, Phi Beta Kappa, from the University of Arkansas with B.S. degrees in Accounting and Finance and Computer Science, Mr. Hanson received his MBA in Financial Economics from the University of Southern California, also with highest honors. Mr. Hanson is a Certified Pubic Accountant (CPA) and a Certified Internal Auditor (CIA). Mr. Hanson is a member of an advisory council for the FASB and AICPA developing updated health care financial models. He also serves on the board of Care Alliance LLC Pharmacy and is involved with several other health care related ventures. He is also an adjunct professor at community colleges, most recently teaching courses in governmental accounting and finance. Management The Company will enter into a management contract with Minnesota Masonic Home Management Services, an affiliate of MMH, with respect to management of the Facilities. Minnesota Masonic Home Management Services is a not-for-profit, tax exempt subsidiary of MMH, and will provide management services that include general oversight of the operations of the Facilities and certain financial and accounting services. Fees to be paid by the Company under such management agreement are subordinated to the payment of debt service on the Series 1999 Bonds, and are expected to be no less favorable to the Company than if the Company were to enter into a similar management contract with an unaffiliated entity in an arm's length transaction. See "THE FACILITIES --Personnel and Staffing." THE FACILITIES The Site and Physical Facilities North Ridge Care Center (the "Nursing Facility") is a 559 -bed licensed and certified skilled nursing facility located at 5430 Boone Avenue North in the city of New Hope, a northwestern suburb of Minneapolis. The Nursing Facility comprises three connected buildings. A ground -floor walkway connects the Nursing Facility with North Ridge Apartments and Personal Care Suites, a four-story building containing 180 units of senior housing apartments (the "Apartments") and 25 assisted living units (the "Personal Care Suites"). The entire campus of the Facilities consists of approximately 13 acres. The campus of the Nursing Facility, Apartments and Personal Care Suites is easily accessible to several major thoroughfares, including US Highway 169, less than one-half mile to the west. The immediate neighborhood is more than 85% developed, bounded by residential buildings on the north and east and by industrial/commercial properties on the south and west. A vacant lot lies directly across the street to the west, and the Company has learned that the adult day care program currently located in the Company's apartment building expects to acquire and develop such property for adult day care. It has been the policy and plan of the Seller of the Facilities, and will be the policy and plan of the Company, to maintain the Facilities in excellent condition, with implementation of renovations, additions, remodeling and updating on an ongoing basis. The Company intends to continue making improvements to remain competitive and maintain the value of the properties. The Nursing Facility structure contains 189,599 square feet, excluding certain basement -level crawl space and a shared 2,110 square foot breezeway and solarium that connects the Nursing Facility to the Apartments and Personal Care Suites. The Nursing Facility is constructed of masonry brick, with a prestressed concrete structure, which results in a fire-resistant system. The roof is flat and covered with pitch and gravel. The original structure, now known as the South Building, opened in 1966 with 108 beds. The North Building, connected to the South Building, was built in 1969-1970 and added 164 beds. A skyway connects the West Building, built in 1978, to the Nursing Facility complex. The West Building added another 121 beds. In A-2 1980, an additional 166 beds were constructed in a wing of the South Building, bringing the total number of licensed beds to 559. The South Building has undergone recent remodeling. See "Management's Discussion of Operations." Three elevators provide service between the floors of the North and West Buildings. The South Building, which is one floor with a partial lower level, does not contain an elevator. The Nursing Facility is 70% sprinklered and 100% air conditioned. The Nursing Facility is carpeted throughout, except for activity areas and dining rooms, which are either carpeted or vinyl tiled. While most of the Nursing Facility uses recessed fluorescent lighting, some of the dining rooms have chandeliers. A nursing station located in the center of the South Building services its four wings. The center area and hallways are carpeted, the ceilings have acoustical tiles and wood beams, and the walls are papered. All hallways have handrails to assist the residents. Resident rooms are furnished similarly throughout the Nursing Facility. The Apartments and Personal Care Suites The Apartments and Personal Care Suites are located in a four-story building of 216,784 square feet, constructed in 1983 and connected to the Nursing Facility by a first -floor walkway. The building contains 180 senior housing apartments and 25 assisted living units, of which one unit is reserved for short -stay observation or respite use. In 1988, a four-story addition of 3,700 square feet, which is used for office space, was constructed as part of a complete remodeling in 1988 of the mostly southerly section of the building. The Apartments and Personal Care Suites building, which is 100% sprinklered and 100% air conditioned, has a decorative masonry brick and stucco exterior, with window canopies on each living unit. The windows are double sliding casement, and the roof is flat with pitch and gravel. The Apartments include 28 efficiencies averaging 460 square feet, 131 one -bedroom apartments averaging 590 square feet, and 21 two-bedroom apartments, which average 900 square feet. The rooms are furnished similarly, with carpeted floors, painted sheetrock walls and recessed lighting. The bathrooms are finished with carpeted floors, vinyl covered walls, and acoustical tile ceiling with recessed fluorescent lights. Each unit is equipped with an emergency call system. Residents of the Apartments and Personal Care Suites may use the activity rooms, which contain movable partitions, and lounge areas located on each floor. Other amenities include a coin-operated laundry room with two washers and two driers on each floor, and a dining room on the second floor. The kitchen, located adjacent to the dining room, has a clay tile floor, ceramic tile walls, stainless steel food preparation equipment, and suspended fluorescent lights. The heated underground garage contains 65 parking stalls. This area is finished with painted concrete floors and concrete block walls. This parking is provided in addition to the approximately 300 surface parking stalls located on the campus of the Facilities (167 at the Nursing Facility and 133 at the Apartments and Personal Care Suites). The following page is a diagram of the physical layout of the Facilities A-3 56th AVE. 1Y Built in 1988 4 25 Personal Care Suite I� Z Cbuilt Office Towe in 1988 m Beauty Primary Public - Entry f,, KEY North Ridge Apartments & Personal Care Suites "Apartments" North Ridge Care Center "Nursing Facility" Streets, Parking & Loading Docks Built in 1983 180 senior housing apts. 4 Ground floor breezeway & solarium 55th AVE. Built in 1969-1970 164 beds D do 0 MGR7G. WE37®�. H Skyway built in 1978 Built in 1978 SOUTi'8 121 beds %�> BLDG, 54` N AVE. Original Structurebuilt in 1966 - 108 beds Additional 166 beds in 1980 A-4 General Operations The Nursing Facility. The Nursing Facility contains a total of 559 skilled nursing care beds, in 13 private rooms and 273 semi -private two -bed rooms. The Nursing Facility provides health care treatment and convalescent facilities to in-patient, disabled and older persons, including those admitted as an interim step, after hospitalization and before returning to their homes, as well as those admitted for long -tern residency. The Nursing Facility is licensed by the State of Minnesota as a nursing home and is certified under federal regulations as a skilled nursing facility. See "Regulatory Matters" below and Appendix D: "MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM." Nursing Facility residents receive room and board, 24-hour professional nursing care, special diets as required and such drugs and therapy as may be prescribed by the resident's physician. Three balanced meals are provided to each resident daily, either in his or her room or at a central dining location. Light snacks are provided during the day and at bedtime. Additional services, such as access to a variety of medical specialists and therapies, telephone, beauty/barber services, and others, are available to the residents at an additional charge. The Nursing Facility is managed by a full-time Administrator and a Director of Nurses, who is a registered nurse responsible for supervising the licensed nurses and nursing assistants. The Nursing Facility provides social services programs by licensed social workers. A licensed physician is on 24-hour call. In addition, the Nursing Facility has an arrangement with the hospital of the resident's choice for the transfer of the resident and his or her medical records between the Nursing Facility and such hospital when necessary. A resident council has been established at the Nursing Facility. It meets on a regular basis to provide the residents of the Nursing Facility with a forum for the discussion of resident concerns and needs, thereby assisting the administration of the Nursing Facility in understanding the needs and preferences of the residents and generating ways in which the Nursing Facility might be responsive to such needs and wishes. The Apartments and Personal Care Suites. Occupancy for the Apartments and Personal Care Suites is limited to persons 55 years of age and older. At least twenty percent (20%) of the units in the Apartments must be set aside for persons or families with incomes of less than fifty percent (50%) of the median area income, adjusted for family size. See Appendix C: "THE REGULATORY AGREEMENT." The current monthly rental rates are $1,125 for a two-bedroom unit (with an additional $135 for each extra person), $870 for a one -bedroom unit (with an extra $135 for each extra person), and $735 for an efficiency unit. The rates for the Personal Care Suites, which include home health care, are $75.00 per day (single) and $85.00 per day (double). Tenants are required to choose either a 20 -meal package or a 30 -meal package for their evening meal. The 20 -meal package currently costs $135, and the 30 -meal package currently costs $185. Telephones are an extra $25.00 per month. The Nursing Facility provides its residents a wide range of additional services and amenities, which are available to the residents of the Apartments and Personal Care Suites as well. A gift shop/pharmacy is open to visitors as well as to residents and employees. A branch office of a local bank is open during business hours. There is also a beautylbarber shop and vending machine areas. Care services include physical, occupational, speech and music therapy programs, podiatry, and chaplaincy services. Psychological assistance is available, as is a social service department and planned activities services. Employees make use of the Nursing Facility's child day care program and the nursing assistant training program. Regulatory Matters. Operation of the Nursing Facility is subject to continuing compliance with various federal, state and local statutes, ordinances, rules and regulations with respect to licensing, health, drugs, building standards and fire prevention. The Nursing Facility is licensed and regulated by the Minnesota Department of Health. The Company expects that immediately upon the acquisition of the Nursing Facility from Seller, the Minnesota Department of Health will issue to the Company a license for the Nursing Facility. Annual renewal of this license is dependent upon compliance with statutes, ordinances, rules and regulations, which could require changes in the facility, equipment, personnel or services of the Company and might adversely affect its operations. Seller and the Company believe that they are in compliance in all material respects with current licensing A-5 requirements and are unaware of any pending changes to such licensing requirements. See also Appendix D: "MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM." Year 2000 Compliance Efforts. The Seller has initiated and is implementing a compliance plan to avoid Year 2000 problems. Testing of equipment and other compliance efforts are on schedule and expected to be completed by March 31, 1999. Particular attention is being paid to the compliance efforts of the Facilities' payors. HCFA has given assurances to the Seller that Medicare payments will not be interrupted or adversely affected by the Year 2000 problem. It has not yet received, however, assurances from the State of Minnesota with respect to Medicaid payments. The Seller is in the process of collecting letters from all of its non-governmental payors and significant vendors. All of the Seller's equipment that will potentially be affected by the Year 2000 problem has been identified and is in the process of being tested and updated. The Facilities have budgeted for the acquisition of new software programs as well as new hardware where appropriate. Competition and Service Area The primary competition for the Facilities are nursing homes, board and care facilities and assisted living facilities located in the Facilities' primary service area. Since 1983, there has been a legislative moratorium on the construction or addition of nursing care beds, subject to certain exceptions. While the moratorium is expected to continue indefinitely, there is no assurance that legislative changes will not permit the addition of nursing care beds in the Company's service area in the future. In addition to the competition provided by assisted living facilities and other nursing homes, in recent years services provided by home health care agencies, hospice agencies, visiting nurses, meals on wheels, adult day care centers, group homes for the elderly and retirement apartments have been expanding and are expected to provide competition to the Facilities in the future. The Company's primary service area for the Facilities is the northwest metropolitan Twin Cities suburban area, including the entire city of New Hope, and portions of the cities of Plymouth, Crystal, Golden Valley and RoH)insdale. The over -85 age group is the fastest growing segment of the population. The following table lists information the Company has obtained about facilities that compete with the Facilities in their primary service area: Name and Location St. Therese Home, New Hope Colonial Acres Health Care Center, Golden Valley Ambassador Good Samaritan Center, New Hope Covenant Manor, Golden Valley St. Therese Apartments, New Hope Approximate Recent BedfUnits Occupancy 302 licensed beds 98% 120 licensed beds 93% 94 licensed beds 90% 16 assisted living units 96% 220 apartments 99% As the largest nursing home in the State of Minnesota, the Nursing Facility has had the advantage of certain economies of scale, and the Company believes that the Nursing Facility has enjoyed a reputation for excellent resident care. The Company believes the rental rates at the Apartments and Personal Care Suites are competitive with other similar housing facilities for the elderly within its primary service area (approximate radius of 10 miles). Historical Utilization The following table sets forth comparative information with respect to utilization of the Facilities for the years ended December 31, 1998, 1997 and 1996: GE (1) One of the units is reserved for short-term observation or respite occupancy. That unit has been occupied 27% in 1998, 48% in 1997 and 48% in 1996. The remaining 24 units have had 100% occupancy. As the population ages, other organizations are entering the field of providing a variety of competing services for the elderly. In addition, fewer new admissions to nursing facilities are assessed at levels requiring the least amount of care, and more new admissions are older and in need of more intense care. Seniors can receive many care services in settings other than nursing facilities. As a result of these factors, the Nursing Facility has experienced fewer individuals staying in the Nursing Facility for extended stays of more than two years. This situation of shorter term and unstable census requires that the Nursing Facility accommodate by adjusting the numbers of staff immediately upon a drop in census and increasing the community awareness of the services provided in the Nursing Facility. See "Management's Discussion of Operations." There can be no assurance, however, that any such efforts will be successful in maintaining occupancy rates at the levels experienced by the Nursing Facility in past years. Sources of Resident Revenues The Company does not expect to receive payment of rent from any source other than the individual residents living in the Apartments and the Personal Care Suites. To the extent such residents receive services and amenities, they pay on a fee-for-service basis. The following table sets forth the sources of per diem room revenues for the Nursing Facility for the years ended December 31, 1998, 1997 and 1996: Years ended December 31 1998 1997 1996 Medicaid 63.4% 65.4% 61.1% Medicare 5.4% 3.9% 3.9% Private Pay and Other 31.2% 30.7% 35.0% Insurance TOTALS 100% 100% 100% In December of 1996, the Nursing Facility executed a contract with the State of Minnesota under which the Nursing Facility receives payments based on agreed-upon rates rather than the cost -based reimbursement rates A-7 Years ended December 31 1998 1997 1996 Nursing Facility Licensed Beds 559 559 559 Occupancy 98.3% 99.1% 99.3% Apartments Units 180 180 180 Occupancy 97.9% 98.5% 97.2% Personal Care Suites Units (1) 25 25 25 Occupancy 100% 100% 100% (1) One of the units is reserved for short-term observation or respite occupancy. That unit has been occupied 27% in 1998, 48% in 1997 and 48% in 1996. The remaining 24 units have had 100% occupancy. As the population ages, other organizations are entering the field of providing a variety of competing services for the elderly. In addition, fewer new admissions to nursing facilities are assessed at levels requiring the least amount of care, and more new admissions are older and in need of more intense care. Seniors can receive many care services in settings other than nursing facilities. As a result of these factors, the Nursing Facility has experienced fewer individuals staying in the Nursing Facility for extended stays of more than two years. This situation of shorter term and unstable census requires that the Nursing Facility accommodate by adjusting the numbers of staff immediately upon a drop in census and increasing the community awareness of the services provided in the Nursing Facility. See "Management's Discussion of Operations." There can be no assurance, however, that any such efforts will be successful in maintaining occupancy rates at the levels experienced by the Nursing Facility in past years. Sources of Resident Revenues The Company does not expect to receive payment of rent from any source other than the individual residents living in the Apartments and the Personal Care Suites. To the extent such residents receive services and amenities, they pay on a fee-for-service basis. The following table sets forth the sources of per diem room revenues for the Nursing Facility for the years ended December 31, 1998, 1997 and 1996: Years ended December 31 1998 1997 1996 Medicaid 63.4% 65.4% 61.1% Medicare 5.4% 3.9% 3.9% Private Pay and Other 31.2% 30.7% 35.0% Insurance TOTALS 100% 100% 100% In December of 1996, the Nursing Facility executed a contract with the State of Minnesota under which the Nursing Facility receives payments based on agreed-upon rates rather than the cost -based reimbursement rates A-7 under the current reimbursement system. This voluntary alternative system for payment was created by the legislature in 1995, and as of the date of this Official Statement, well over half of the nursing facilities in Minnesota have applied for and been accepted into this system. Under the alternative payment system ("APS"), reimbursement continues to be made on the basis of the numbers of residents in each of the eleven case-mix categories. The Nursing Facility, however, no longer prepares and files Medicaid cost reports and, therefore, will have more flexibility in budgeting expenditures. The Nursing Facility has a base contract rate, with annual adjustments made for inflation and certain other limited circumstances. For more detail regarding APS and its effect on the Nursing Facility, see Appendix D: "MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM." Personnel and Staffing As of December 31, 1998, the Facilities were staffed by a total of 1,050 persons with 597 full time equivalents at the Nursing Facility and 39.8 full-time equivalents at the Apartments and Personal Care Suites. A full-time equivalent represents one 2080 hour -per -year employee. All current employees are expected to be employees of the Company or an affiliate of the Company immediately following the delivery of the Bonds. It is anticipated that the Nursing Facility Administrator will be employed by Minnesota Masonic Home Management Services. The Facilities have a long tradition of strong volunteer support, with a combined total of over 12,000 hours of service being provided during 1997 and similar number of hours in 1998. These services include assistance with resident recreational activities, visitation, and a variety of other resident support services. Immediately following the acquisition of the Facilities, the owners of the Seller, Charles T. Thompson and M. Melinda Pattee, and the current chief financial officer of the Seller, Ann T. Yungner, will continue in key administrative roles. Information about these individuals is as follows: Charles T. Thompson, 42, has been the Chief Executive Officer and President of the Seller since 1995. From 1979 to 1987, Mr. Thompson was comptroller of the Seller, during which time he managed the planning, financing and construction of the Apartments and Personal Care Suites as well as additions and renovations to the Nursing Facility. As a licensed nursing home administrator, Mr. Thompson served as administrator of the Nursing Facility from 1988 through 1994. Mr. Thompson received a B.S. degree in Business Administration from Northern Arizona University in 1975 and participated in the University of Minnesota Graduate Program in Public Health for Long Term Care in 1979 and 1980. He is a member of the boards of directors of Marquette Banks Northwest Area, Care Alliance LLC Pharmacy and Senior Outreach Services and serves on the North Memorial Medical Ethics Beard. Mr. Thompson is president of Care Partners, LLC. M Melinda Pattee, 49, is the Secretary/Treasurer of the Seller and has been Administrator of the Nursing Facility since 1995. From 1978 to 1985, Ms. Pattee was an occupational therapist at the Nursing Facility, from 1985 to 1986 she was the special projects coordinator, and from 1986 through 1994, she was the director of supportive services, in which position her responsibilities included managing the operations of the Nursing Facility. Ms. Pattee is a graduate of the College of St. Catherine, from which she received a B.A. degree in occupational therapy. She is a licensed nursing home administrator, having done her course work for such licensure at the University of Minnesota. She is a member of the TwinWest Chamber Foundation Advisory Board, Northwest YMCA Advisory Board, and Women's Health Leadership Trust. Ann T. Yungner, 41, is a Certified Public Accountant and has served as Chief Financial Officer of the Seller since 1994. Ms. Yungner was Director of Finance for the Seller from 1987 through 1994 and had been Administrative Accountant to the Seller from 1983 through 1986. Prior to 1983, she was employed by Peat Marwick and Main (formerly Main Hurdman), as staff auditor and supervising senior auditor. A graduate of Mankato State University with a B.S. degree in Accounting, Ms. Yungner received certification as a CPA in 1982. She is a member of the Minnesota society of Certified Public Accountants and the American Institute of Certified Public Accountants. Ms. Yungner serves on the Executive Financial Committee of Care Partners, LLC, and is the Treasurer of the Wayzata Youth Hockey Boosters. A-8 The Company believes that the Seller's relationship with its staff has been excellent and its employment practices have been and are in conformance with applicable federal, state and local laws. The Company does not know of any current activity at the Facilities with respect to the formation of a collective bargaining unit. FTE's by Department - the Nursing Facility Department FTE's Nursing 4.53 RN 44.83 LPN 72.31 Aides 255.55 Director of Nursing 1.00 Other Nursing Medical Records 4.00 Staff Development 4.53 Resident Service Attendant 12.37 Unit Managers/Reception 12.32 Other Care Related Social Service 7.80 Admissions 2.78 Activities 21.38 Volunteer Coordinator 1.00 Rehabilitation Physical Therapy 12.41 Occupational Therapy 4.01 Speech Therapy 1.61 Nutritional Services Director 1.00 Dietitian 0.80 Production 44.00 Purchasing 2.53 Fabric Care 15.28 Housekeeping 22.11 Carpet Care 6.54 Plant Operations & Maintenance Van 11.48 Administration 3.00 Office 8.05 Human Resources 4.00 Community Relations 1.00 Security 2.92 Secretarial 2.00 Switchboard 4.26 Child Daycare 7.52 Beauty Shop 2.63 Total FTE's 597.02 A-9 FTE's by Department - the Apartments and Personal Care Suites Department FTE's Administration 2.50 Dietary 13.88 Housekeeping 6.28 Activities 2.00 Maintenance 1.50 Office and Admissions 4.45 Personal Care Attendants 6.49 Case Managers 2.70 Total FTEs 39.80 Financial Data and Management's Discussion Financial Data. Set forth below is selected financial information with respect to the Seller for the stated years ended December 31. Complete audited financial statements are attached hereto in Appendix B. OPERATING EXPENSES Nursing 1998 1997 1996 REVENUE 1,725,802 1,674,095 1,631,867 Resident Services $30,347,221 $29,127,531 $27,804,994 Prior Years' Revenue Adjustments 149,472 (87,702) 37,874 Interest Income 275,815 256,091 255,764 Unrealized Gain (Loss) on Investments 35,264 (16,996) (67,281) Realized Gain on Investments 46,280 -- 1,327,299 Gain (Loss) on Sale of Assets 593 45,901 (5,056) Proceeds from Officer Life Insurance -- 598,940 -- Miscellaneous 2,277,347 10,226 (19,259) TOTAL REVENUE $30,854,645 $29,933,991 $28,007,036 OPERATING EXPENSES Nursing $12,904,365 $11,651,533 $10,977,501 Other Care Related 1,725,802 1,674,095 1,631,867 Ancillary Services 1,588,700 1,406,910 1,318,167 Dietary 2,709,045 2,481,228 2,422,452 Laundry 373,540 361,374 373,812 Housekeeping 841,694 822,317 808,379 Plant Operations and Maintenance 1,286,698 1,293,290 1,327,299 Property and Related 1,139,170 1,161,999 1,211,332 General and Administrative 2,403,591 2,472,158 1,927,168 Payroll Taxes and Employee Benefits 2,277,347 2,089,879 2,057,941 Interest 823,480 803,197 813,152 Depreciation and Amortization 896,040 891,906 915,825 TOTAL $28,969,472 $27,109,886 $25,784,896 OPERATING INCOME $ 1,885,173 $ 2,824,105 $ 2,222,140 EXTRAORDINARY ITEM - Loss on Refinancing -- (64,594) -- NET INCOME $ 1,885,173 $ 2,759,511 $ 2,222,140 A-10 Management's Discussion of Operations General. The senior services industry is facing a time of significant change and corresponding opportunities. The Company believes that it is positioning itself to take advantage of the market changes. The market for senior services is transitioning from a cost -based system to a prospective payment model. Management of the Company believes it has, and the Facilities have, management expertise in maximizing opportunities under a prospective payment model. Strategic Reasons for Acquisition. In acquiring the Facilities, the Company will act consistently with the long-term strategies of MMH, particularly utilizing growth as an opportunity for success in times of change while continuing MMH's 75 -year history of providing high quality services to and enhancing the quality of life of people served. The Board of Trustees of MMH, in its strategic planning process, has anticipated industry change and has recognized the value of expanding its provision of services to the elderly to locations beyond its existing 80 -acre site in south Bloomington, Minnesota. The Board of Trustees of MMH, after extensive analysis, determined that the Seller's objectives are mission -driven, similar to those of MMH, and that the Seller has demonstrated alignment with the core values of MMH. The operations at the Facilities reflect an emphasis on the resident or tenant as the focus in the delivery of health care and other services and also reflect an emphasis on quality in the delivery of services. These goals are consistent with those of MMH and its affiliates, including the Company. Management of MMH believes that its growth, through the acquisition of the Facilities by the Company, will enable MMH and its affiliates to have a greater impact and be more successful in the Twin Cities health care market. The long term care industry is experiencing a strong trend of consolidation, as a certain concentration of expertise and resources, with economies of scale, is seen as critical for organizational stability in the field of health care. While the Apartments and Personal Care Suites are a vital and integral part of the assets to be acquired by the Company, the value brought by the Nursing Facility is of paramount importance. By acquiring the Nursing Facility, which is the largest stand-alone nursing home in Minnesota, MMH believes it will expand its influence and gain economies of scale. Comparative Results: 1996 to 1998. The Facilities' operating revenues increased from $27,842,868 in 1996, to $29,039,829 in 1997 and to $30,496,693 in 1998. This represents a 9.5% increase from 1996 to 1998. The increase is primarily due to rate and rent increases as well as level of acuity increases. Occupancy remained fairly constant. In 1997, the Nursing Facility began to provide rehabilitation services in-house instead of buying those services from an outside agency. Among the effects of this change were increased revenues as well as increased related operating expenses. A consultant was hired during 1997 to facilitate the process of change of therapy service providers. In 1997, $598,940 of other income was derived from a one-time item: proceeds of Officers Life Insurance policies The Facilities' operating expenses increased from $25,784,896 in 1996 to $27,109,886 in 1997 and to $28,969,472 in 1998. This represents a 12.4% increase from 1996 to 1998. The increase is primarily due to standard wage increases precipitated by a record low unemployment rate realized locally during the period. In 1997, the Nursing Facility debt was refinanced with additional indebtedness incurred for major improvements. The Seller's investment income has not changed dramatically in the past three years. Land held for investment was sold in 1997 for a net gain of $45,901. The number of days revenue in accounts receivable has increased from 32 days in 1996 to 40 days in 1998. The increase is primarily due to two major factors. The Facilities have entered into several third party capitated contracts during this time period. These third party payors tend to pay much more slowly than the other payors A-11 from whom the Facilities have received payments in the past. Many balances are held over 120 days before being paid. Another major factor is the increasingly lengthy process of resident application for Medical Assistance. The Nursing Facility does not receive reimbursement from Medical Assistance for any resident whose application is still being processed. See APPENDIX D. Capital expenditures were $622,273 in 1996, $768,022 in 1997 and $1,055,324 in 1998. The major projects in 1996 were the exterior painting of the Apartments and Personal Care Suites and replacements of exterior awnings to the south building of the Nursing Facility. The major project in 1997 was extensive renovation of the south building of the Nursing Facility, which began with the addition of an air exchange system and was followed by replacement of the roof and windows. In 1998 the major project was continuation of the renovation in the south building of the Nursing Facility, including: replacement of the roof, replacement of all resident room windows and common area windows, renovation of resident bathrooms, renovation of resident rooms (including new carpet, new heat registers, new closet doors and nightstands), complete modernization of the tub rooms, including installation of two recumbent tubs with electronic lifts and two side access tubs, and renovation of corridors with new carpet and handrails. In addition, two resident rooms were constructed at the end of one wing of the south building, leaving two rooms vacant for future expansion. GP:559622 Q A-12 APPENDIX B FINANCIAL STATEMENTS OF THE SELLER Financial Statements and Independent Auditor's Report, December 31, 1998, 1997 and 1996 (This page has been left blank intentionally) NORTH RIDGE CARE CENTER, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 1996, 1997 AND 1996 NORTH RIDGE CARE CENTER, INC. TABLE OF CONTENTS DECEMBER 31, 1998, 1997 AND 1996 INDEPENDENT AUDITOR'S REPORT BALANCE SHEETS STATEMENTS OF INCOME AND RETAINED EARNINGS STATEMENTS OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS 2 4 INDEPENDENT AUDITOR'S REPORT Board of Directors North Ridge Care Center, Inc. New Hope, Minnesota A � LARSON ;'i s ALLEN 11111 IS IR & CO.,LLP CERTIFIED PUBLIC ACCOUNTANTS We have audited the accompanying balance sheets of North Ridge Care Center, Inc. as of December 31, 1998, 1997 and 1996, and the related statements of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those 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 financial position of North Ridge Care Center, Inc. as of December 31, 1998, 1997 and 1996, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 10 to the financial statements, on December 2, 1998, North Ridge Care Center, Inc. entered into an asset purchase agreement with an unrelated party to sell essentially all its assets. Minneapolis, Minnesota February 12, 1999 --e f-6.1 LLQ LARSON, ALLEN, WEISHAIR SF CO., LLP (1) BALANCE SHEETS CURRENT ASSETS Cash and Cash Equivalents Investments Accounts Receivable - Residents Accounts Receivable - Third Party Settlement Receivable - Related Parties Accrued Interest Receivable Current Portion Assets Whose Use is Limited Prepaid Expenses Total Current Assets ASSETS WHOSE USE iS LiMiTED Replacement Reserve Fund Bond Fund Real Estate Escrow Mortgage Escrow FHA Rehabilitation Fund Insurance Escrow Resident Trust Funds and Security Deposits Total Assets Whose Use is Limited Less: Current Portion of Assets Whose Use is Limited Non -Current Assets Whose Use is Limited PROPERTY AND EQUBPMENT (at Cost) Land Land Improvements Buildings and Improvements Equipment and Furnishings Vehicles Total Less: Accumulated Depreciation Total Property and Equipment (at Depreciated Cost) OTHER ASSETS Notes Receivable - Related Parties Land Held for Investment Unamortized Financing Costs Cash Value of Officers' Life Insurance (Net of Policy Loans of $46,050) Interest in Split -Dollar Policies Total Other Assets Total Assets See accompanying Notes to Financial Statements. 1998 1997 1996 3,227,203 $ 3,337,833 1,224, 393 1,843,851 3,372,786 3,265,627 98,000 - 29,947 48,107 984,406 1,007,883 351,644 247,671 9,288,379 9,750,97-2- 442,448 369,048 344,226 282,185 27,296 243,836 $ 1,709,039 984,406 $ 724,633 $ 747,288 852,653 19,499,175 6,047,685 128,256 $ 27,275,057 16,179,191 $ 367,728 358,801 374,980 319,580 1,403 27,816 244,883 $ 1,695,191 1,007,883 $ 687,308 $ 747,288 695,406 18,849,134 5,842,350 123,734 $ 26,257,912 15,293,062 $ 11,095,866 $ 10,964,850 279,996 475,791 99,906 152,946 492,924 88,481 - 271,424 $ 855,693 $ 1,005,775 $ 21,964,571 (2) $ 1,646,232 1,448, 791 2,460,314 30,000 17,707 46,662 1,047,592 56,229 $ 6,753,527 $ 331,481 348,189 362,936 250,000 67,144 24,049 245,274 $ 1,629,073 1,047, 592 $ 581,481 $ 747,288 695,406 18,333,934 5,592,015 123,734 $ 25,492,377 14,391,714 $ 11,100,663 373,362 445,904 443,382 164,440 631,418 $ 2,058,506 $ 22,408,905 $ 20,494,177 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long -Term Debt Accounts Payable - Trade Accounts Payable - Related Party Accounts Payable - Third Party Resident Trust Funds Payable and Security Deposits Accrued Salaries and Payroll Taxes Accrued Vacation Benefits Accrued Real Estate Taxes Accrued Profit Sharing Accrued Interest Unearned Rent Total Current Liabilities LONG-TERM DEBT (Net of Current Maturities Shown Above) Total Liabilities CONTINGENT LIABILITIES AND COMMITMENTS STOCKHOLDERS'EQUITY Common Stock - No Par Value; Authorized 100,000 Shares; 10,000 Issued and Outstanding Contribution in Aid of Construction Retained Earnings (Page 4) Total Stockholders' Equity Total Liabilities and Stockholders' Equity 1998 1997 1996 $ 3,640,746 $ 3,825,746 $ 398,316 983,524 844,494 602,027 - 3,391 - - 75,558 - 199,772 217,587 222,077 676,108 548,768 441,128 654,060 572,491 414,060 721,000 763,000 832,500 - - 100,000 292,195 278,867 301,598 101,326 102,051 102,649 $ 7,268,731 $ 7,231,953 $ 3,414,355 8,588,153 8,601,656 10,868,055 $ 15,856,884 $ 15,833,609 $ 14,282,410 $ 25,000 $ 25,000 $ 25,000 1,084,976 1,112, 094 1,139,212 4,997,711 5,438,202 5,047,555 $ 6,107,687 $ 6,575,296 $ 6,211,767 $ 21,964,571 $ 22,408,905 $ 20,494,177 (3) NORTH RIDGE CARE CENTER, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 PERCENT OF AMOUNT REVENUE REVENUE Resident Services $ 30,347,221 98.4 % Prior Years' Revenue Adjustments 149,472 0.5 Interest Income 275,815 0.9 Realized Gain on Investments 46,280 0.1 Unrealized Gain (Loss) on Investments 35,264 0.1 Gain (Loss) on Sale of Assets 593 - Proceeds from Officer Life Insurance - Miscellaneous - - Total Revenue $ 30,854,645 100.0 % OPERATING EXPENSES INCOME FROM OPERATIONS BEFORE INTEREST, DEPRECIATION AND AMORTIZATION INTEREST DEPRECIATION AND AMORTIZATION NET INCOME BEFORE EXTRA- ORDINARY ITEM EXTRAORDINARY ITEM Loss on Refinancing NET INCOME Distributions to Stockholders Changes in Retained Earnings Retained Earnings - Beginning RETAINED EARNINGS - ENDING (to Page 3) See accompanying Notes to Financial Statements. (4) 27,249,952 88.3 $ 3,604,693 11.7 % 823,480 2.7 896,040 2.9 $ 1,885,173 6.1 $ 1,885,173 6.1 % (2,325,664) $ (440,491) 5,438,202 $ 4,997,711 $ 5,438,202 $ 5,047,555 (5) 1997 1996 PERCENT OF PERCENT OF AMOUNT REVENUE AMOUNT REVENUE $ 29,127,531 97.3 % $ 27,804,994 99.3 % (87,702) (0.3) 37,874 0.1 256,091 0.9 255,764 0.9 (16,996) (0.1) (67,281) (0.2) 45,901 0.2 (5,056) 598,940 2.0 10,226 - (19,259) (0.1) $ 29,933,991 100.0 % T-28,007,036 100.0 % 25,414,783 84.9 24,055,919 85.9 $ 4,519,208 15.1 % $ 3,951,117 14.1 % 803,197 2.7 813,152 2.9 891,906 3.0 915,825 3.3 $ 2,824,105 9.2 % $ 2,222,140 7.2 % (64,594) (0.2) $ 2,759,511 9.2 % $ 2,222,140 7.9 % (2,368,864) (1,618,405) $ 390,647 $ 603,735 5,047,555 4,443,820 $ 5,438,202 $ 5,047,555 (5) NORTH RIDGE CARE CENTER, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Resident Services Cash Paid to Suppliers and Employees Interest Received Proceeds from Officer Life Insurance Interest Paid Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of Property and Equipment Prepaid Selling Expenses Proceeds from Sale of Fixed Assets Proceeds from Sale of Land Held for Investment Advances to Related Parties Collections on Loans to Related Parties Purchase of Investments Proceeds from Sale of Investments Payments of Operating Cash into Bond and Reserve Funds Interest Income Reinvested in Band and Reserve Funds Payments from Escrow Funds for Operating Expenses and Fixed Assets Payments of Principal and Interest on Bonds Payable from Bond Fund Net Cash Used by Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Financing Costs Paid Principal Payments on Long -Term Debt Acquisition of Demand Notes Distributions to Stockholders Net Cash Used by Financing Activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning 1998 $ 30,358,658 (26,859,188) 293,116 266,010 1997 $ 28,367,405 (25,170,177) 254,646 1,041,966 MDR $ 27,339,577 (24,065,703) 240,282 (810,153) (813,048) (647,904) $ 3,248,443 $ 3,680,792 $ 2,866,252 $ (1,055,324) $ (768,022) $ (622,273) (182,851) - 18,000 - 10,000 - 550,000 - (127,050) (25,000) (127,945) 245,416 234,932 (2,175,502) (1,703,086) (1,268,349) 2,832,355 1,308,026 1,153,348 (1,001,029) (1,095,264) (1,082,351) (37,595) (36,143) (34,188) 379,868 448,772 514,660 606,466 606,334 381,123 $ (742,662) $ (468,967) $ (841,043) $ - $ (32,447) $ (290,747) (389,578) (333,440) 1,270,665 (2,325,664) (2,368,864) (1,618,405) $ (2,616,411) $ (1,520,224) $ (1,951,845) $ (110,630) $ 1,691,601 $ 73,364 3,337,833 1,646,232 1,572,868 CASH AND CASH EQUIVALENTS - ENDING $ 3,227,203 $ 3,337,833 $ 1,646,232 (6) NORTH RIDGE CARE CENTER, INC. STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Income (Page 4) Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization Unrealized (Gain) Loss on Investments Unrealized Gain on Officer Life Insurance Realized Gain on Investments (Gain) Loss on Sale of Fixed Assets Extraordinary Item - Write off of Unamortized Financing Costs (Increase) Decrease in: Accounts Receivable Other Current Assets Cash Value of Officers' Life Insurance Increase in: Accounts Payable Other Current Liabilities Net Cash Provided by Operating Activities 1998 1997 $ 1,885,173 $ 2,759,511 896,040 919,023 (35,264) 16,996 (6,011) - (46,280) (593) (45,901) 39,993 (205,159) (757,606) 97,035 (115,187) 266,010 435,952 217,979 179,513 $ 3,248,443 242,437 185,574 3,680792 $ 2,222,140 915,825 67,281 5,056 (495,418) 24,311 (24,235) 56,051 95,241 $ 2,866,252 SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Proceeds from New Borrowing Less: Uses of New Borrowing Payment of Principal and Interest on Refinanced Debt Prepayment Penalty Line of Credit Fee and Cap Fee Financing Costs Trustee Fee Net Proceeds Total Financing Costs Less: Financing Costs Paid from Bond Proceeds Net Financing Costs Paid Land Improvements Financed by Special Assessments See accompanying Notes to Financial Statements. (7) $ - $ 3,725,000 $ 2,279,234 22,640 75,200 74,764 2,500 T--1 776W $ $ 107,211 (74,764) $ 92,243 $ - $ NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations North Ridge Care Center, Inc. owns and operates a 559 -bed licensed nursing facility, a 180 - unit congregate housing facility, and a 25 -unit assisted living facility for the elderly in New Hope, Minnesota. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Standards of Accounting and Financial Reporting The Corporation follows the accounting guidance in the audit and accounting guide, Health Care Organizations, which is in conformity with the recommendations of the American Institute of Certified Public Accountants. Resident Services Revenue Resident services revenue includes room charges and ancillary services to residents and is recorded at established billing rates, net of contractual adjustments, resulting from agreements with third -party payors. Provisions for estimated third -party payor settlements are provided in the period the related services are rendered. Differences between the amounts accrued and subsequent settlements are recorded in revenues in the year of settlement. Cash and Cash Equivalents Cash and cash equivalents consist of investments that mature within three months from their purchase date. Cash and cash equivalents consist of the following: Cash Money Market Account Total 1998 $ 2,036,533 1,190,670 3,227,203 1997 $ 2,784,344 553,489 3,337,833 1996 $ 1,579,993 66,239 1,646,232 Concentration of Credit Risk The Corporation places its temporary cash investments at various financial institutions. At times such investments may be in excess of the FDIC insurance limit. (8) NOTE 1 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments The Corporation's securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings. The Corporation had unrealized gains (losses) of $35,264, ($16,996) and ($67,281) during the years ended December 31, 1998, 1997 and 1996, respectively, as a result of changes in market value. Third Party Reimbursement Agreements Medicaid The facility participates in the Medicaid program which is administered by the Minnesota Department of Human Services (DHS). In 1995, the State of Minnesota authorized the DHS by statute to establish a contractual alternative payment system, called the "Nursing Home Contract Project." The purpose of the Project is to explore a contract -based reimbursement system as an alternative to the current cost -based system for reimbursement. During the year ended December 31, 1996, the Corporation was approved for participation in the Project and is paid its reimbursement rates effective July 1, 1995 with annual inflationary adjustments. By Minnesota statute, a nursing facility may not charge private paying residents in multiple occupancy rooms per diem rates in excess of the approved Medicaid rates for similar services. Medicare By Minnesota statute, a nursing facility which participates in the Medicaid program must also participate in the Medicare program. This program is administered by the federal Department of Health and Human Services. Annual cost reports must be submitted to the designated intermediary for cost settlement. Effective January 1, 1999, the Medicare program transitioned to a Prospective Payment System (PPS). The PPS is a per diem price based system. Filing of cost reports will be a continued requirement, however, they will not contain a cost settlement. (9) NOTE 1 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL. STATEMENTS DECEMBER 31, 1998, 1999 AND 1996 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Occupancy Percentages During the years ended December 31, 1998, 1997 and 1996, the occupancy percentages and the percentages of residents covered under the Medicaid and Medicare programs were as follows: Congregate Care: Total Occupancy 97.9% 98.5% 97.2% Assisted Living Total Occupancy 100.0% 100.0% 100.0% Accounts Receivable The Corporation accounts for uncollectible accounts by the reserve method. The allowances for uncollectible accounts were approximately $300,000, $200,000 and $140,000 at December 31, 1998, 1997 and 1996, respectively. Depreciation For financial statement purposes, property and equipment are depreciated over their estimated useful lives by the straight-line method. Different lives are used for tax purposes in accordance with applicable rules and regulations. Assets Whose Use is Limited Assets whose use is limited include assets held by trustees under incentive agreements and resident funds held in trust. Unamortiaed Financing Costs Financing costs associated with the issuance of the Multi -family Housing Development Refunding Revenue Bonds (GN\flA Collateralized - North Ridge Care Center, Inc. Project) Series 1995A and the Multi -family Housing Development Revenue Bonds (GNMA Collateralized North Ridge Care Center, Inc. Project) Series 1995B (Taxable), the Variable Rate demand notes and the mortgage payable are being amortized over the term of the obligations. (10) 1998 1997 1996 Care Center: Total Occupancy 98.3% 99.1% 99.3% Medicaid 63.4% 61.0% 61.5% Medicare 5.4% 3.9% 3.9% Congregate Care: Total Occupancy 97.9% 98.5% 97.2% Assisted Living Total Occupancy 100.0% 100.0% 100.0% Accounts Receivable The Corporation accounts for uncollectible accounts by the reserve method. The allowances for uncollectible accounts were approximately $300,000, $200,000 and $140,000 at December 31, 1998, 1997 and 1996, respectively. Depreciation For financial statement purposes, property and equipment are depreciated over their estimated useful lives by the straight-line method. Different lives are used for tax purposes in accordance with applicable rules and regulations. Assets Whose Use is Limited Assets whose use is limited include assets held by trustees under incentive agreements and resident funds held in trust. Unamortiaed Financing Costs Financing costs associated with the issuance of the Multi -family Housing Development Refunding Revenue Bonds (GN\flA Collateralized - North Ridge Care Center, Inc. Project) Series 1995A and the Multi -family Housing Development Revenue Bonds (GNMA Collateralized North Ridge Care Center, Inc. Project) Series 1995B (Taxable), the Variable Rate demand notes and the mortgage payable are being amortized over the term of the obligations. (10) NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE 2 INVESTMENTS Investments consist of the following at December 31, 1998, 1997 and 1996: 1997 Estimated Cost Market Value U.S. Treasury Bills 1998 $ 1,065,734 U.S. Government Backed Estimated Cost Market Value U.S. Treasury Bills $ 393,481 $ 393,481 U.S. Government Backed Prime Rate Fund 200,000 Securities (C.M.O.) 8,403 9,330 Stock Investment 236,930 277,450 Prime Rate Fund 200,000 196,807 Certificates of Deposit 347,325 347,325 Total 1,186,139 1,224,39-3- 1997 Estimated Cost Market Value U.S. Treasury Bills $ 1,065,734 $ 1,065,734 U.S. Government Backed Securities (C.M.O.) 61,313 62,791 Stock Investment 175,088 152,751 Prime Rate Fund 200,000 199,600 Certificates of Deposit 362,975 362,975 Total 1,865,110 1,843,851 1996 Estimated Cost Market Value U.S. Treasury Bills $ 685,822 $ 685,822 U.S. Government Backed Securities (C.M.O.) 74,819 71,070 Stock Investment 104,461 37,950 Prime Rate Fund 200,000 199,001 Certificates of Deposit 454,948 454,948 Total 1,520,050 1,448,7U-1- NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE 3 ASSETS WHOSE USE IS LIMITED Assets whose use is limited that are required for obligations classified as current liabilities are reported in current assets. Escrow Deposits and Bond Reserves Replacement Reserve Fund The Corporation, under terms of the FHA insured mortgage, makes required deposits into this account to assure the availability of funds to replace building components, furniture and equipment. Bond Fund The Bond Fund was established for North Ridge Care Center, Inc. to deposit monthly amounts necessary to pay bond principal and interest payments when due. Real Estate and Insurance Escrows The Corporation makes required deposits into these accounts for future payments of real estate taxes and insurance. Mortgage Escrow The mortgage escrow was established to provide a reserve for payment of principal and interest in the event the Corporation's principal and interest payments are insufficient to meet debt service requirements. FHA Rehabilitation Fund The FHA Rehabilitation Fund is an escrow deposit agreement covering the incomplete on-site improvements. The following is a summary of the escrow deposits and bond funds at December 31, 1998, 1997 and 1996: Replacement Reserve Fund Money Market Fund Bond Fund Norwest U.S. Government Fund Real Estate Tax Escrow Certificates of Deposit Money Market Fund Total Real Estate Escrows (12) 1998 1997 1996 $ 442,448 $ 367,728 $ 331,481 $ 369,048 $ 358,801 $ 348,189 $ 280,000 $ 280,000 $ 280,000 64,226 94,980 82,936 344,226 374,980 362,936 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1997 AND 1996 NOTE 3 ASSETS WHOSE USE IS LIMITED (CONTINUED) 1998 1997 1996 Insurance Escrow Money Market Fund Mortoaae Escrow Certificate of Deposit Money Market Fund Total Mortgage Escrows FHA Rehabilitation Fund Money Market Fund NOTE 4 LAND HELD FOR INVESTMENT $ 27,296 $ 27,816 $ 24,049 250,000 $ 250,000 $ 250,000 32,185 69,580 - 282,185 319,580 250,000 $ $ 1,403 $ 67,144 The Corporation acquired land in Brooklyn Park, Minnesota for investment purposes. At December 31, 1996, the cost of the land acquired for investment purposes and related carrying costs was $445,904. The land was sold in 1997 for a gain of $45,901. NOTE 5 RELATED PARTY TRANSACTIONS Northridge Properties of New Hope, a partnership owned in part by the stockholders of North Ridge Care Center, Inc., owns and operates an elderly congregate care facility in New Hope, Minnesota. During the year ended December 31, 1997, Northridge Properties of New Hope paid off a note receivable due the Corporation. Interest income of $16,563 and $27,874 on these notes was recorded for the years ended December 31, 1997 and 1996, respectively During the years ended December 31, 1998, 1997 and 1996, Northridge Properties of New Hope purchased/incurred the following expenses at cost from North Ridge Care Center, Inc.: (13) 1998 1997 1996 Manageent Fees $ 60,000 $ 54,750 $ 55,250 Meals 34,182 35,394 43,638 Interest Expense - 16,583 27,894 Contracted Services 13,711 18,265 19,591 Total $ 107,893 $ 124,992 $ 146,373 (13) NOTE 5 NOTE 6 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 RELATED PARTY TRANSACTIONS (CONTINUED) At December 31, 1996, Northridge Properties of New Hope owed North Ridge Care Center, Inc. $17,707 for these expenses. At December 31, 1997, North Ridge Care Center, Inc. owed Northridge Properties $3,391 for advances made to North Ridge Care Center, Inc. North Ridge CP, LLC, a limited liability company, is owned by the stockholders of North Ridge Care Center, Inc. At December 31, 1998, 1997 and 1996, North Ridge CP, LLC owed the Corporation $279,996, $152,946 and $127,946, respectively, on unsecured demand notes bearing interest at rates ranging from 4-6%. At December 31, 1998, 1997 and 1996, none of these notes were classified as current. Payments are at the discretion of management. The Corporation recorded $6,618, $6,248 and $2,360 in interest income on the notes receivable for the year ended December 31, 1998, 1997 and 1996, respectively. The Corporation leases approximately 1,300 square feet of the long-term care facility to a related party to operate a pharmacy. This lease is being accounted for as an operating lease. During each of the years 1998, 1997 and 1996, the Corporation received $34,656 in lease payments from this arrangement. Future minimum rentals on this lease total $18,192 for the six months ending June 30, 1999. The tenant has the option to renew the lease for three consecutive three year terms expiring on December 31, 2004. LONG-TERM DEBT Following is the long-term debt at December 31, 1998, 1997 and 1996: Description Securit 1998 1997 1996 6.05%-6.20% City of New Hope, Series 1995A $2,090,000 Due January 1, 2017 at 6.05% and $5,470,000 Due January 1, 2031 at 6.20% Minnesota Multi -family Housing Development Refunding Revenue Bonds Series 1995A See Page 14 (Tax -Exempt) Para. (1) $ 7,560,000 $ 7,560,000 $ 7,560,000 6.7% City of New Hope, Minnesota Multi -family Housing Development Refunding Revenue Bonds Series 1995B (Taxable) See Page 14 Due January 1, 2005 Para. (1) 620,000 695,000 765,000 (14) NOTE 6 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 LONG-TERM DEBT (CONTINUED) Description Security 1998 1997 1996 8%% Mortgage Payable - See Page 14 Marquette Bank Para. (2) - - 2,460,091 Variable Rate Demand Notes See Page 15 Para. (4) 3,535,000 3,725,000 - 12% Note Payable - Stock See Page 15 Redemption (Related Party) Para. (3) 201,083 213,183 223,920 12% Note Payable - Stock See Page 15 Redemption (Related Party) Para. (3) 215,063 225,589 234,930 9% Special Assessment - City of Land New Hope Improvements 97,753 8,630 11,751 9% Assessments Payable - City Land of Brooklyn Park Improvements - - 10,679 Total $ 12,228,899 $ 12,427,402 $ 11,266,371 Less: Current Maturities 3,640,746 3,825,746 398,316 Long -Term Debt $ 8,588,153 $ 8,601,656 $ 10,868,055 (1) In November 1995, the City of New Hope authorized the issuance of tax-exempt Multi- family Housing Development Refunding Revenue Bonds in the amount of $7,560,000 (Series 1995A) and the taxable Multi -family Housing Development Revenue Bonds in the amount of $800,000 (Series 1995B). The proceeds were used to refinance the Series 1986 bonds. By the terms of the bond issue, the City of New Hope has no direct obligation for payment of the bonds. The bonds are secured by a GNMA security in the principal amount of $8,363,000. The GNMA security is secured by an FHA insured mortgage which is further secured by a security agreement placed on all land, buildings, fixtures and equipment of the North Ridge Apartments and Assisted Living Project. The mortgage and security agreement have been assigned to Norwest Bank Minnesota, National Association, as Trustee. In 1986, the Corporation entered into a restrictive covenant with the City of New Hope that the property would not be exempt from real estate taxes for 50 years. (2) The Corporation refinanced two promissory notes in 1993 with a ten year note payable to Marquette Bank of New Hope in the amount of $3,350,000. Monthly payments of principal and interest of $42,000 are required. The interest rate is 8%%, but is subject to a five year rate reset. A second mortgage and security interest has been placed on the land, building, fixtures and equipment, accounts receivable and cash of the Corporation in favor of Marquette Bank of New Hope. During the year ended December 31, 1997 the Corporation refinanced this debt with the Demand Notes described in Paragraph 4. As a result of this transaction the organization incurred prepayment penalties in the amount of $24,601 and recognized the amortization on the remaining unamortized financing costs in the amount of $39,993 for a total extraordinary item of $64,594. (15) NOTE 6 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 LONG-TERM DEBT (CONTINUED) (3) Pursuant to the approval of the Corporation's Board of Directors in 1977 and 1978, the Corporation entered into a redemption agreement with two former shareholders for the purchase of their stock. Unsecured installment notes were issued to the former stockholders in payment of the redemption price in the amounts of $300,000 each. Monthly principal and interest payments are $3,086 on each note. The notes are due in 2007 and 2008, respectively. (4) On August 28, 1997, North Ridge Care Center, Inc. Variable Rate Demand Notes were sold through a direct placement to pay off existing bank debt and finance the renovation of the nursing facility. The renovation project began in 1997 with an estimated cost of $980,000 to be spent in 1998. A first mortgage and security agreement has been placed on the property and equipment of the nursing facility owned by North Ridge Care Center, Inc., in favor of the bond trustee, Norwest Bank Minnesota, N.A. By definition, the Variable Rate Demand Note is a long-term taxable note bearing an interest rate of which is indexed to a current short-term market rate. The interest rate for the years ended December 31, 1998 and 1997 ranged from 5.50% to 5.60%. The demand feature allows the noteholder liquidity upon 7 days notice at par value plus accrued interest. The Organization holds an irrevocable direct pay letter of credit renewable annually with the bond trustee for the face amount of the notes. In the event remarketing is unsuccessful, the letter of credit will be drawn upon to pay the bond trustee. The Organization has a liability to the bond trustee immediately upon a draw on the letter of credit. Because of the demand feature of these notes, the entire amount is classified as a current liability on the financial statements. The notes shall require amortization over 20 years. Payment will be structured for level debt service with principal paid annually. Principal payment is calculated by computing the average daily interest rate for the year multiplied by the outstanding principal balance amortized over the remaining life of the loan. The difference between the interest only payments and the amount of principal that normally amortizes is due annually on August 1. Maturity requirements on long-term debt are as follows: Year Ending December 31, 1999 2000 2001 2002 2003 Later Years Total The Corporation is subject to various financial and administrative covenants which are reflected in the debt documents. (16) Mortgages, Notes Payable and Special Bonds Assessments Total $ 80,000 $ 3,560,746 $ 3,640,746 85,000 37,952 122,952 90,000 41,596 131,596 100,000 41,596 141,596 100,000 41,596 141,596 7,725,000 325,413 8,050,413 $ 8,180,000 $ 4,048,899 $ 12,228,899 The Corporation is subject to various financial and administrative covenants which are reflected in the debt documents. (16) ff� �T6f37 NOTE 9 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 In 1982, the City of New Hope, Minnesota issued and sold General Obligation Tax Increment Bonds and contributed a portion of the proceeds to North Ridge Care Center, Inc. as an incentive to construct a congregate housing facility in the city. North Ridge Care Center, Inc. has no direct obligation to pay the Bonds. However, the Corporation has entered into a Redevelopment Agreement that provides for a lien on the land in favor of the Housing and Redevelopment Authority created by the City of New Hope. The provisions of the lien relate to the sale of the congregate housing complex or upon certain transfers of stock of the Corporation. If these events occur, the amount required to be paid to the Housing and Redevelopment Authority is the greater of $585,000 or a formula amount based on the sales price of the property. The funds contributed from the City of New Hope were used by the Corporation to finance the land acquisition and the development of the land into a congregate housing facility as follows: Cost of Land $ 685,000 Interest Reduction Program 702,000 Utilities and Micellaneous Land Improvements 111,525 Total Contribution in Aid of Construction $ 1,498,525 The interest reduction program and land improvements are being amortized over the assets' estimated lives of 30 years. At December 31, 1998, 1997 and 1996, unamortized contributions in aid of construction were $1,084,976, $1,112,094 and $1,139,212, respectively. The Corporation has elected under Section 1362 of the Internal Revenue Code to be an S corporation. An S corporation is not taxed as a separate entity; rather, the income or loss of the Corporation is included in its stockholders` individual income tax returns. Therefore, no provision for income taxes is included in these financial statements. EMPLOYEE PROFIT SHARING AND 401(x) RETIREMENT SAVINGS PLAN The Corporation has a qualified profit sharing and 401(k) retirement savings plan that covers substantially all employees who meet certain minimum age and hours of employment requirements. Contributions to the profit sharing plan are at the discretion of the Board of Directors. The 401(k) retirement savings portion of the plan provides that eligible employees may elect a salary deferral up to the maximum amount allowed as a deduction by the Internal Revenue Code with a discretionary matching percentage of employer contributions. During 1998, 1997 and 1996, contributions to the profit sharing plan were approximately $50,000, $100,000 and $100,000, respectively. No discretionary matching of 401(k) employer contributions was made during the years ended December 31, 1998, 1997 and 1996. (17) .I- iFi°.. NOTE 10 SALE of BUSINESS On December 2, 1998, the Corporation agreed to sell the resident accounts receivable and the property and equipment of the Corporation to an unrelated party for an amount in excess of book value. Closing of the transaction is scheduled for March 1999. At December 31, 1998, the Corporation had $182,851 of prepaid expenses relating to the sale. Oovemment Regulations - Medicaid The DHS reserves the right to perform field audit examinations of the Corporation's records. Any adjustments resulting from such an audit could retroactively adjust Medicaid revenue. During the year ended December 31, 1998 a field audit was performed on the rate periods from July 1, 1994 through June 30, 1997. No adjustments were made as a result of the field audit. No rate periods remain open to examination. Government �e�ulatloros� - PAedlea� The Medicare intermediary has the authority to audit the Corporation's records any time within a three-year period after the date the Corporation receives a final notice of program reimbursement for each cost reporting period. Any adjustments resulting from such an audit could retroactively adjust Medicare revenue. W9orttecs' Comoensatlon Insurance Prior to January 1, 1997, the Corporation was covered under standard premium and retention insurance plans requiring annual settlements. Beginning January 1, 1997 the Corporation is no longer covered under a retention policy. Workers' compensation insurance expenses for the years ended December 31, 1998, 1997 and 1996 were $200,176, $206,205 and $303,404, respectively. The refunds related to prior year policies were $38,491, $114,373 and $165,957 for the years ended December 31, 1998, 1997 and 1996, respectively. 99RELM The Corporation is a defendant in an EEOC complaint alleging discrimination. The action is being vigorously contested by management. No determination can be made of the eventual outcome, nor can the amount of exposure be determined. No provision has been made in the financial statements for any liability that may result. Shareholders' Aereement The shareholders and the Corporation have entered into a shareholders' agreement with the Corporation whereby upon the death of a shareholder, the surviving shareholder has the option to purchase the deceased shareholder's shares at a predetermined price as determined under the agreement. Under this agreement, the Corporation shall be obligated to re -purchase any shares not purchased by the other shareholder. (18) NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED) Health Care Financing Administration BHCFA9 During the year ended December 31, 1997, the Department of Health and Human Services conducted an investigation of North Ridge Care Center and determined that the Care Center was not in compliance with Federal requirements for nursing homes participating in the Medicare and Medicaid programs. As a result of this investigation, HCFA imposed a civil penalty in the amount of $283,800 against the Corporation. As of the date of this report the Corporation has appealed this filing and feels that the civil penalty will be reversed as a result of this appeal. At December 31, 1998 and 1997, the Corporation has recorded the $283,800 liability in accounts payable and miscellaneous expense on the financial statements. NOTE 12 INTEREST IN SPLIT -DOLLAR POLICIES Prior to December, 1997 the Corporation was the beneficiary to the cash surrender value on split -dollar life insurance policies on the lives of two former officers. During the year ended December 31, 1997, one of the former officers died. Proceeds in the amount of approximately $850,000 were received on the split dollar life insurance policies held by the Corporation. Of this amount approximately $350,000 had previously been recorded on the financial statements as interest in split dollar policies. The remainder was recognized as income during the year ended December 31, 1997. At December 31, 1998, 1997 and 1996, the Corporation's interest in the split -dollar policies was $-0-, $271,424 and $631,418, respectively. (19) (This page has been left blank intentionally) APPENDIX C CERTAIN DEFINITIONS AND SUMMARY OF DOCUMENTS (This page has been left blank intentionally) DEFINITIONS OF CERTAIN TERMS In addition to the terms defined elsewhere in the Official Statement, the following terms shall have the meaning set forth herein. Accountant shall mean a certified public accountant or accountants retained by the Company. Acquisition and Construction Fund shall mean the fund created in Section 5.02 of the Indenture. Act shall mean Minnesota Statutes, Chapter 462C, as amended. Additional Bonds shall mean any Bonds issued pursuant to Article IV of the Indenture. Affiliate shall mean any Person who is directly or indirectly controlling or controlled by or under direct or indirect common control with the Company; `control' means the power to direct management and policies, directly or indirectly, whether through ownership of voting securities, by contract, or otherwise. Appraiser shall mean a Person experienced in the business of appraising property retained by the Company. Architect shall mean a Person who is a registered architect in the State of Minnesota, retained by the Company. Assignment of Mortgage shall mean the Assignment of Mortgage Agreement, dated as of March 1, 1999, between the City and the Trustee. Board of Directors shall mean the governing body of the Company or any duly authorized committee thereof. Bond Counsel shall mean any attorney or firm of attorneys nationally recognized as experienced in matters relating to the tax-exempt financing of facilities of the same character as the Facilities, retained by the Company and acceptable to the City and the Trustee. Bond Fund shall mean the fund created in Section 5.03 of the Indenture. Bondholder shall mean a Person in whose name a Bond is registered in the Bond Register. Bonds shall mean all Bonds issued pursuant to the Indenture, including the Series 1999 Bonds and any Additional Bonds. Business Dav shall mean any day other than a Saturday, Sunday or other day on which the Trustee is not open for business. City shall mean the City of New Hope, Minnesota, and any successor to its functions under the Loan Agreement and the Indenture. City Council shall mean the governing body of the City. Code shall mean the Internal Revenue Code of 1986, as amended. All references herein to sections of the Code are to the sections thereof as they existed on the date of execution of the Indenture. C-1 Collateral Document shall mean any written instrument other than the Loan Agreement, the Indenture and the Mortgage, whereby any property or interest in property of any kind is granted, pledged, conveyed, assigned or transferred to the City or Trustee, or both, as security for payment of the Bonds or performance by the Company of its obligations under the Loan Agreement, or both. Comoanv shall mean Minnesota Masonic Home North Ridge, a nonprofit corporation organized and existing under the laws of the State of Minnesota, and any permitted successor to such Company under Section 7.1 of the Loan Agreement. Comoany Resolution shall mean a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. Current Assets shall mean those assets of the Company which under generally accepted accounting principles are considered current assets. Current Liabilities shall mean those liabilities of the Company which under generally accepted accounting principles are considered current liabilities. Determination of Taxability shall mean receipt by the Trustee of a statutory notice of deficiency by the Internal Revenue Service, a ruling from the National Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction which holds in effect that interest payable on the Series 1999 Bonds is includable for federal income tax purposes in the gross income of a Bondholder because of any act or omission of the Company (or any successor or transferee) or of the Trustee; provided, however, that the Company shall have an opportunity for no more than 180 days after receipt by the Trustee to contest any such statutory notice, ruling or final decision and that no such statutory notice, ruling or final decision shall be deemed a "Determination of Taxability if the Company is contesting the same during such 180 day period in good faith until the earliest of (a) abandonment of such contest by the Company, (b) the date on which such statutory notice, ruling or final decision becomes final, or (c) the 181st day after the initial receipt by the Trustee of such statutory notice, ruling or final decision; and provided further that no Determination of Taxability shall arise from the interest on the Bonds being included (I) in income for purposes of calculating altemative minimum taxable income of any taxpayer; (2) in earnings and profits of branches of foreign Companys for purposes of calculating the "branch profits tax"; (3) within gross income to certain recipients of social security benefits; or (4) as passive investment income to certain subchapter S corporations which have subchapter C earnings and profits. Event of Default shall mean any event defined as such in Section 11.1 of the Loan Agreement or in Section 7.01 of the Indenture. Facilities shall mean, collectively, the Land, the Nursing Facility, the Housing Facility and any Improvement, as such properties may at any time exist. Fee Payments shall mean the payments required to be made by the Company by Section 2.3 of the Loan Agreement. Fiscal Year shall mean the period commencing on the first day of January of any year and ending on the last day of December of such year, or any other twelve (12) month period specified in a Company Resolution as the fiscal year of the Company. Government Obligations shall mean direct obligations of, or obligations the principal of and the interest on which are fully and unconditionally guaranteed by, the United States of America, or securities or receipts evidencing ownership interests in any of the foregoing obligations or in specified portions (such as principal or interest) of any of the foregoing obligations. C-2 Holder shall mean a Bondholder. Housing Facility means the 25 -unit assisted living facility and the 180 -unit multifamily housing facility and related facilities designed and intended for occupancy by elderly persons, located on the Land. Improvement shall mean any addition, enlargement, improvement, extension or alteration of or to the Facilities as they then exist, and any fixtures, structures or other facilities acquired or constructed by the Company and located on the Land. Indebtedness shall mean (i) all indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed, (ii) all indebtedness for the payment of the purchase price of property or assets purchased, (iii) all guaranties, endorsements, assumptions and other contingent obligations with respect to, or to purchase or to otherwise acquire, indebtedness of others, (iv) all indebtedness secured by any mortgage, pledge or lien existing on property owned, subject to such mortgage, pledge or lien, whether or not indebtedness secured thereby shall have been assumed, and (v) installment purchase contracts, loans secured by purchase money security interests, lease -purchase agreements or capital leases (including leases of real property) entered into by the Company in connection with the acquisition of property not previously owned by the Company and computed in accordance with generally accepted accounting principles; provided, however, that "Indebtedness" does not include trade accounts payable and accrued expenses incurred in the normal course of business. For purposes of this definition no single evidence of indebtedness shall be counted more than once even though more than one of the clauses (i) - (v) above may apply. Indenture shall mean the Indenture of Trust, dated as of March 1, 1999, between the City and the Trustee, as the same may from time to time he amended or supplemented in accordance with the provisions thereof. Independent, when used with respect to any specified Person, shall mean such a Person who (i) is in fact independent; (ii) does not have any direct financial interest or any material indirect financial interest in the Company or any Affiliate, other than the payment to be received under a contract for services to be performed by such Person; and (iii) is not connected with the Company or any Affiliate as an official, officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Interest Account shall mean the Account so designated within the Bond Fund. Interest Payment Date shall mean a fixed date specified in a Bond and the Indenture as a date on which an installment of interest on a Bond is due and payable. Interim Indebtedness shall mean any Indebtedness incurred, assumed or guaranteed by the Company on an interim basis to provide temporary financing as permitted by Section 6.3 of the Loan Agreement. Land shall mean the real estate described in Exhibit A to the Mortgage and any additional real estate which may be included within the lien of the Mortgage, but excluding any real estate released from the lien of the Mortgage pursuant to the teens of the Loan Agreement or the Mortgage. Loan shall mean the loan by the City to the Company of the proceeds of the Bonds, exclusive of any accrued interest paid by the Original Purchaser of the Bonds upon the delivery thereof, but including the underwriting discount, if any, in connection with the sale of Bonds by the City to the Original Purchaser. Loan Agreement shall mean the Loan Agreement, dated as of March 1, 1999, between the City and the Company, as the same may be from time to time amended or supplemented in accordance with the provisions thereof. Loan Repayment shall mean a payment required to be made by the Company pursuant to Section 2.2 of the Loan Agreement. C-3 Loan Repayment Date shall mean a date on which a Loan Repayment is due. Lone Term Indebtedness shall mean Indebtedness of the Company other than Short Term Indebtedness or Interim Indebtedness. Management Consultant shall mean a Person qualified to study operations of nursing home facilities, assisted living facilities and multifamily housing facilities and having a favorable repute throughout the State of Minnesota for skill and experience in such work and, unless otherwise specified in the Loan Agreement, retained by the Company and acceptable to the Trustee. Mortgage shall mean the Mortgage Agreement, dated as of the date of the Loan Agreement and Indenture, between the Company and the City, as the same may be amended or supplemented in accordance with the provisions thereof and the Indenture. Mortgaged Property shall mean the property described in Section 2.1 of the Mortgage. Net Proceeds, when used with respect to any insurance claim or condemnation award, shall mean the gross proceeds from such insurance claim or condemnation award remaining after payment of all expenses (including attorneys' fees and any expenses of the City, the Company and the Trustee) incurred in the collection of such gross proceeds. Net Revenues Available for Debt Service shall mean the Total Revenues for a specified period, whether historic or projected, less the total operating expenses of the Company for the same specified period (excluding extraordinary losses and expenses and unrealized losses on investments), as determined in accordance with generally accepted accounting principles, to which shall be added the amount of all depreciation, amortization and interest expense on Long Term Indebtedness and other non-operating income and contributions available for debt service, all for the same specified period. Nursing Facility shall mean the 559 -bed nursing home facility located on the Land. Opinion of Counsel shall mean a written opinion of counsel, who may (except as otherwise specifically provided in the Loan Agreement or in the Indenture) be counsel for the City or the Company. Original Purchaser shall mean, with respect to any series of Bonds, the original purchaser or underwriter of such series of Bonds. Outstanding, when used with reference to Bonds, shall mean, as of the date of determination, all Bonds theretofore issued and delivered under the Indenture, except: (i) Bonds theretofore cancelled by the Trustee or delivered to the Trustee cancelled or for cancellation; (ii) Bonds and portions of Bonds for whose payment or redemption moneys or Government Obligations (as provided in Article VI of the Indenture) shall have been theretofore deposited with the Trustee in trust for the Holders of such Bonds; provided, however, that if such Bonds are to be redeemed, notice of such redemption shall have been duly given pursuant to the Indenture or irrevocable instructions to call such Bonds for redemption at a stated Redemption Date shall have been given to the Trustee; and (iii) Bonds in exchange for or in lieu of which other Bonds shall have been issued and delivered pursuant to the Indenture; C-4 provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Bonds have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture, Bonds owned by the City or the Company or any Affiliate shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which the Trustee knows to be so owned shall be disregarded. Permitted Encumbrances shall mean (a) liens for taxes and special assessments which are not then delinquent, or if then delinquent are being contested in accordance with the Loan Agreement, (b) utility, access and other easements and rights-of-way, restrictions, restrictive covenants and exceptions that the Company certifies to the Trustee will not interfere with or impair the operation of the Mortgaged Property, or if it is not being operated, the operation for which it was designed or last modified; (c) any mechanic's, laborer's, materialman's, supplier's or vendor's lien or right in respect thereof if payment is not yet due under the contract in question or if such lien is being contested in accordance with the Loan Agreement; (d) such minor defects, irregularities, encumbrances, easements, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the Land and do not materially impair the property affected thereby for the purpose for which it was intended; (e) zoning laws; (f) liens arising in connection with workers' compensation, unemployment insurance, taxes, assessments, statutory obligations or liens, social security legislation, undetermined liens and charges incidental to construction, or other similar charges arising in the ordinary course of operation and not overdue or, if overdue, being contested in accordance with the Loan Agreement, and such other liens and charges at the time required by law as a condition precedent to the transaction of the health care activities of the Company or the exercise of any privileges or licenses necessary to the Company; (g) superior liens in fixtures being acquired by the Company, subject to certain restrictions and limitations imposed by the Loan Agreement and the Mortgage; (h) inferior liens in Improvements, subject to certain limitations imposed by the Mortgage; (i) superior liens in form of leases or purchase money security interests in equipment, furnishings and other tangible property placed by the Company in, upon, about or under the Land, Housing Facility, Nursing Facility and other Improvements; 0) superior liens in accounts receivable to finance current operating expenses prior to the occurrence of an Event of Default under the Loan Agreement; and (k) other encumbrances identified in the Mortgage. Person shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization, or government or any agency or political subdivision thereof. Principal Account shall mean the Account created within the Bond Fund. Principal and Interest Requirements on Lona Term Indebtedness shall mean, for any Fiscal Year, and subject to the provisions of Section 6.5 of the Loan Agreement, the amount required to pay the interest on and the principal of Long Term Indebtedness (including assumed debt) becoming due in such Fiscal Year. Principal and Interest Requirements on Outstanding Bonds shall mean, for any Fiscal Year, the amount required to pay the principal of and the interest on all Outstanding Bonds during such Fiscal Year, to be determined on the assumption that all Bonds will be retired at their Stated Maturities except for those Term Bonds which the Indenture provides must be redeemed prior to their Stated Maturities from sinking fund payments the Loan Agreement requires the Company to make for such purpose, which Term Bonds will be assumed to be retired on their respective Sinking Fund Payment Dates. Principal Payment Date shall mean the Stated Maturity of principal of any Serial Bond and the Sinking Fund Payment Date for, or, if such Bond is not to be redeemed on a Sinking Fund Payment Date, the Stated Maturity of, any Term Bond. Project shall mean any Improvement to be financed in whole or in part by a series of Bonds. Proiect Costs shall mean with reference to any Project any and all sums of money required to acquire, construct and install that Project, excluding Costs of Issuance but including the following: C-5 A. all expenses incurred in connection with the acquisition of real property, or any interest in real property, necessary for the Project or mortgaging of the Land, including title insurance; B. the expense of preparation of the plans and specifications and of all other architectural, engineering, surveying, testing and supervisory services incurred and to be incurred in the planning, construction and completion of the Project; C. the cost of acquisition and installation of all items of equipment, machinery or furnishings included in the Project; D. premiums on all insurance relating to construction during the period before completion of the Project, to the extent that such premiums are not paid by a Contractor; E. the contract price of all labor, services, materials, supplies, equipment and remodeling furnished under a Construction Contract; F. all expenses incurred in seeking to enforce any remedy against a Contractor, any subcontractor or any surety in respect of any default under any Construction Contract; G. the cost of all other labor, services, materials, supplies and equipment necessary to complete the acquisition, construction and installation of the Project, including costs of moving property previously owned or leased by the Company; H. all interest accruing on money borrowed by the Company for financing of the Project Costs during construction and up to six months thereafter; I. all fees and expenses of the Trustee and any Paying Agent relating to the Bonds that become due before the Completion Date; J. without limitation by the foregoing, all other expenses which under generally accepted accounting principles constitute necessary capital expenditures for the completion of the Project and are authorized by the Act to be paid from the proceeds of the Bonds; and K all advances, payments and expenditures made or to be made by the City, the Trustee and any other Person with respect to any of the foregoing expenses. Qualified Investments shall mean: (i) Government Obligations; (ii) bonds, debentures, participation certificates or notes issued by any of the following: Bank for Cooperatives, Federal Financing Bank, Federal Land Banks, Federal Home Loan Mortgage Company, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal National Mortgage Association, Export -Import Bank of the United States, Farmer's Home Administration or Government National Mortgage Association, or any other agency or Company which has been or may hereafter be created by or pursuant to an Act of the Congress of the United States as an agency or instrumentality thereof; (iii) shares in an Investment Company registered under the Federal Investment Company Act of 1940 whose shares are registered under the Federal Securities Act of 1933 and whose only investments are Qualified Investments described in clause (i) or (ii) of this Section; (iv) certificates of deposit, time deposits, banker's acceptances or other similar banking arrangements with any banking or savings institution which is insured by the Federal Deposit Insurance Company, provided that such certificates of deposit, time deposits, banker's acceptances and other arrangements, if not insured by the Federal Deposit Insurance Company, are fully secured by Qualified Investments described in clause (i) or (ii) of this Section, which Qualified Investments are lodged with a bank or trust company as collateral security; (v) commercial paper of United States industrial corporations or United States direct issuers rated in the highest rating category by Moody's Investors Service or Standard and Poor's Company; provided, however, such commercial paper may not be issued by the Company or any `related person' as that term is defined by Section 147(a)(2) of the Internal Revenue Code; (vi) C-6 repurchase agreements entered into with primary reporting dealers in United States government securities collateralized at least 100% by Qualified Investments described in clause (i) or (ii) of this Section, if (A) such Qualified Investments are delivered to the Trustee or are supported by a safekeeping receipt issued by a depository satisfactory to the Trustee, (B) the value of the underlying Qualified Investments shall be maintained at a current market value, calculated not less frequently than monthly, of not less than the current balance of the deposit, (C) a prior perfected security interest in the obligations which are securing such agreement has been granted to the Trustee and (D) such Qualified Investments are free and clear of any adverse third party claims; or (vii) a written investment contract with or guaranteed by a bank, bank holding company, trust company, domestic branch of a foreign bank, domestic Company or insurance company organized and existing under the laws of the United States or any state thereof whose similar obligations are rated "A" or better by Moody's Investors Service or Standard & Poor's Company. Rebate Fund shall mean the fund created in Section 5.08 of the Indenture. Redemption Date, when used with respect to any Bond to be redeemed, shall mean the date on which it is to be redeemed pursuant to the Indenture. Redemption Price, when used with respect to any Bond to be redeemed, shall mean the price at which it is to be redeemed pursuant to the Indenture. Regulatory Agreement shall mean the Regulatory Agreement, dated as of March 1, 1999, between the Company and the Trustee. Repair and Replacement Fund shall mean the fund created in Section 5.07 of the Indenture. Repair and Replacement Fund Deposit shall mean an amount equal to the product of $20 times the number of assisted living units and residential rental housing units in the Housing Facility. Reserve Fund shall mean the fund created in Section 5.06 of the Indenture. Reserve Requirement shall mean, as of the date of calculation, an amount of money equal to the least of (i) ten percent (10%) of the stated principal amount (or issue price, for any series of Bonds which has more than a de minimis amount of original issue discount or premium), within the meaning of the Code, of each series of Bonds, any of which are Outstanding, or (ii) one hundred percent (100%) of the maximum Principal and Interest Requirements on Outstanding Bonds for the then current or any future Fiscal Year, or (iii) one and one-quarter times the average Principal and Interest Requirements on Outstanding Bonds. Serial Bonds shall mean Bonds which are not Term Bonds. Series 1999 Bonds shall mean the Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 of the City issued under the Indenture. Short Term Indebtedness shall mean any Indebtedness incurred, assumed or guaranteed by the Company maturing or callable at the option of the Lender not more than three hundred sixty-five (365) days after it is incurred, but shall not include Interim Indebtedness. Sinking Fund Payment Date shall mean one of the dates set forth in Section 4.04 of the Indenture (as to the Series 1999 Bonds) or any applicable provision of a Supplemental Indenture (as to any series of Additional Bonds) for the making of mandatory principal payments for Term Bonds. Stated Maturity, when used with respect to any Bond, shall mean the date specified in such Bond as the fixed date on which principal of such Bond is due and payable. C-7 Supplemental Indenture shall mean any indenture supplemental to the Indenture and entered into pursuant to Article XI of the Indenture. Term Bonds shall mean those Bonds of a single Stated Maturity in a principal amount which the Indenture provides must be redeemed prior to their Stated Maturity any of which the Indenture provides must be redeemed prior to their Stated Maturity from sinking fund payments the Loan Agreement requires the Company to make for such purpose. Total Revenues shall mean the total resident revenues and other operating revenues of the Company for a specified period, but excluding unrealized gains on investments, as determined in accordance with generally accepted accounting principles. Trust Funds shall mean all of the funds and accounts created pursuant to the Indenture, except the Rebate Fund. Trustee shall mean U.S. Bank Trust National Association, in St. Paul, Minnesota, and any successor trustee under the Indenture. Unrelated Improvements shall mean any fixtures, structures, land or other facilities, including any machinery, equipment or fixtures necessary in connection therewith, acquired or constructed by the Company not on the Land. THE LOAN AGREEMENT The following is a summary of certain provisions of the Loan Agreement. Reference is made to the Loan Agreement for a complete recital of its terms. Loan to the Company The City agrees to loan to the Company the proceeds of all Bonds. The amount of the Loan is deemed to include any premium or discount at which the Bonds are sold by the City but not any accrued interest received by the City. Repayment of the Loan The Company agrees to repay the Loan in installments in aggregate amounts sufficient to provide full and prompt payment of the principal of, premium, if any, and interest on all Bonds when due. To provide for repayment of the Series 1999 Bonds, the Company agrees to pay on or before April 15, 1999, and on or before the fifteenth day of each month thereafter through and including August 15, 1999, an amount not less than one-fifth of the total amount of interest payable on the Series 1999 Bonds on September 1, 1999, and on or before September 15, 1999, and on or before the fifteenth day of each month thereafter an amount not less than one-sixth of the total amount of interest payable on the Series 1999 Bonds on the next succeeding Interest Payment Date, plus on or before April 15, 1999, and on or before the fifteenth day of each month thereafter through and including February 15, 2000, an amount not less than one -eleventh of the total amount of principal payable on the Series 1999 Bonds on March 1, 2000, and on or before March 15, 2000 and on or before the fifteenth day of each month thereafter an amount not less than one -twelfth of the total amount of principal payable on the Series 1999 Bonds on the next succeeding Principal Payment Date, subject to certain credits for amounts on hand in the Bond Fund and available therefor or for Series 1999 Bonds previously redeemed or surrendered to the Trustee by the Company. In addition, if amounts are transferred from the Reserve Fund to the Bond Fund at any time, the Company shall make additional payments under the Loan Agreement in an amount, payable on the fifteenth day of each month thereafter, sufficient to increase the balance in the Reserve Fund to the Reserve Requirement at the end of a six-month period. W On or before April 15, 1999 and on or before the fifteenth day of each month thereafter, the Company shall pay to the Trustee for credit to the Repair and Replacement Account an amount equal to the Repair and Replacement Fund Deposit. The Company may prepay any part or all of the Loan at any time. Prepayment of the Loan does not accelerate or permit the redemption of any Bond, except as provided with respect to the optional redemption of Bonds described under "The Series 1999 Bonds - Redemption Prior to Maturity" in this Official Statement. Deposit in Acquisition and Construction Fund On the date of issuance of the Series 1999 Bonds the Company shall pay $ to the Trustee for deposit in the Acquisition and Construction Fund. Such amount shall he applied by the Trustee at the direction of the Company to pay, or reimburse the Company for payment, of costs of renovation, rehabilitation or improvement of the Facilities and costs of acquisition and installation of items of equipment therein. Company's Obligations Unconditional The Company agrees to bear all risk of damage or destruction in whole or in part to the Facilities or any part thereof, including without limitation any loss, complete or partial, or interruption in the use, occupancy or operation of the Facilities, or any thing which for any reason interferes with, prevents or renders burdensome the use or occupancy of the Facilities or the compliance by the Company with the terms of the Loan Agreement. The Company agrees that its obligations to make Loan Repayments and Fee Payments shall be absolute and unconditional and the Company shall not be entitled to any abatement, diminution, setoff, abrogation, waiver or modification thereof nor to any termination of the Loan Agreement by any reason whatsoever regardless of any rights of set-off, recoupment or counterclaim that the Company might otherwise have against the City or the Trustee or any other party or parties and regardless of any contingency, act of God, event or cause whatsoever and notwithstanding any circumstance or occurrence that may arise or take place. Maintenance of the Facilities The Company agrees that it will, at its sole cost and expense, keep and maintain the Facilities, both inside and outside, in a good state of repair and preservation, ordinary wear and tear, obsolescence in spite of repair and acts of God excepted, and will make all necessary repairs, renewals, replacements, betterments and improvements thereof so that the business carried on in connection therewith may be properly and advantageously conducted at all times. The Company will not use or permit the use of the Facilities, or any part thereof, for any unlawful purpose or permit any nuisance to exist thereon. The Company shall provide all equipment, furnishings, supplies and other personal property required or convenient for the proper operation, repair and maintenance of the Facilities in an economical and efficient manner, consistent with then current standards of operation and administration generally acceptable for multifamily housing facilities for the elderly, assisted living facilities and nursing home facilities. Operation of the Facilities The Company agrees to faithfully and efficiently administer, maintain and operate the Facilities, or, if permitted by the Loan Agreement cause the Facilities to be faithfully and efficiently administered, maintained and operated, as a nursing home facility, an assisted living facility and a multifamily housing development for occupancy primarily by elderly persons open to the general public, free of discrimination based upon race, color, religion, creed, national origin or sex. The Company further covenants and agrees in the Loan Agreement that it will not operate the Facilities in a manner which would adversely affect its status as an organization described in Section 501(C)(3) of the Code. C-9 Insurance The Company agrees to keep and maintain the Facilities at all times insured against such risks and in such amounts, with such deductible provisions, as are customary in connection with the operation of facilities of the type and size comparable to the Facilities and the Company agrees to carry and maintain at least the following insurance with respect to the Facilities and the Company: (a) insurance coverage for buildings and contents including steam boilers, fired -pressure vessels and certain other machinery for fire, lightning, windstorm and hail, explosion, riot, aircraft and vehicles, sonic shock, sprinkler leakage, elevator and all other risks of direct physical loss, at all times in an amount not less than (i) an amount necessary to pay and retire and redeem all the Outstanding Bonds in accordance with the provisions of the Indenture and to pay, retire or redeem all Long Term Indebtedness, or (ii) the replacement cost of the Facilities, whichever is less; the insurance required by this paragraph (a) may provide for a deductible not exceeding $50,000, which may be adjusted based on changes in the Consumer Price Index following March 1, 1999; (b) general liability (other than as set forth in subsection (c) below); (c) comprehensive professional liability insurance, including malpractice and other health care facility operation professional liability insurance (other than as set forth in subsection (b) above); (d) comprehensive automobile liability insurance; (e) worker's compensation insurance or self-insurance as required by the laws of the State of Minnesota; and (f) business interruption insurance covering actual losses in gross operating earnings of the Company resulting directly from necessary interruption of business caused by damage to or destruction (resulting from fire and lightning; accident to a fired -pressure vessel or machinery; and other perils, including windstorm and hail, explosion, riot, riot attending a strike, civil commotion, aircraft and vehicles, sonic shock waves, sprinkler leakage, smoke, vandalism and malicious mischief, elevator collision, accident to steam boiler and fired - pressure vessels and electric steam generator) of real or personal property constituting part of the Facilities, less charges and expenses which do not necessarily continue during the interruption of business, for such length of time as may be required with the exercise of due diligence and dispatch to rebuild, repair or replace such properties as have been damaged or destroyed, with limits equal to at least 100% of the maximum Principal and Interest on Long Term Indebtedness for any current or subsequent Fiscal Year. Damage, Destruction and Condemnation If all or any part of the Facilities is damaged, destroyed or taken by condemnation, the Company must repair and replace the Facilities, subject to the Company's option to direct redemption of the Bonds. If, in the reasonable judgment of the Company, the Facilities cannot be restored within twelve months of the event of damage or completion of the condemnation proceedings to a condition permitting conduct of the normal operations of the Company and at a cost not exceeding the Net Proceeds of the insurance or condemnation award, the Company has the option of directing the City to call all Outstanding Bonds for redemption at their principal amount plus accrued interest on the earliest practical date for which notices can be given pursuant to the provisions of the Indenture. Leases and Operating Contracts The Company may lease any part of the Facilities, or contract for the performance by others of operations or services on or in connection with the Facilities, or any part thereof, for any lawful purpose, provided that (a) no such C-10 lease or contract shall be inconsistent with the provisions of the Loan Agreement or the Indenture, (b) the Company shall remain fully obligated and responsible under the Loan Agreement to the same extent as if such lease or contract had not been executed, (c) no assignee or lessee shall be allowed to utilize a substantial portion of the Facilities primarily for an activity which would not itself qualify as a "development" as defined in Minnesota Statutes, Chapter 462C, as amended, (d) in each case the Company shall determine that the lessee or assignee has sufficient financial responsibility and technical competence to render services necessary for the operation of nursing facilities, assisted living facilities and multifamily housing facilities for the elderly, and (e) no assignment shall be for security purposes. In addition, each such lease or contract shall be expressly conditioned upon, and shall by its terms not be effective until, a signed opinion of Bond Counsel shall be rendered that the exemption from federal income tax of the interest on the Bonds shall not be adversely affected by any such lease or contract. Maintenance of Company Existence; Mergers, Consolidations and Transfer of Assets The Company is required to maintain its existence as a Minnesota nonprofit corporation and take no action nor suffer any action to be taken by others which will alter, change or terminate its status as an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code (or any successor sections of a subsequent federal income tax statute or code). The Company must remain duly qualified to do business in the State of Minnesota and not dispose of all or substantially all of its assets by sale, lease (unless permitted by the provisions of the Loan Agreement) or otherwise or consolidate with or merge into another corporation or permit any other corporation to consolidate with or merge into it unless: A. the surviving, resulting or transferee corporation, as the case may be, shall be organized under the laws of the United States or one of the states thereof, shall be duly qualified to do business in the State of Minnesota, shall have a total unrestricted fund balance at least equal to that of the Company as of the date of such consolidation, merger or transfer and would be able to issue at least $1.00 of Long Term Indebtedness under Section 6.4(c) of the Loan Agreement; B. at least thirty days before any merger, consolidation or transfer of assets becomes effective, the Company shall give the City and the Trustee written notice of the proposed transaction; C. prior to any merger, consolidation or transfer of assets, an opinion of Bond Counsel shall be delivered to the Trustee stating that such merger, consolidation or transfer of assets will not cause interest on the Bonds to become includable in the gross income for federal income tax purposes of recipients thereof subject to federal income taxation; and D. prior to any merger, consolidation or transfer of assets, the surviving, resulting or transferee corporation, as the case may be, if other than the Company, shall deliver to the Trustee an instrument assuming all of the obligations of the Company under the Loan Agreement, the Mortgage and any Collateral Document and an Opinion of Counsel stating that the instrument is a valid, binding and enforceable obligation or such successor and that all of the conditions of Section 7.1 of the Loan Agreement have been satisfied. Tax Covenants In order to ensure that the interest on the Series 1999 Bonds shall at all times be free from federal income taxation, the Company represents, warrants and covenants in the Loan Agreement that it will fulfill all conditions specified in Sections 103 and 141 through 150 of the Code and applicable Treasury Regulations as are necessary to establish and maintain the tax-exempt status of the interest borne by the Series 1999 Bonds and has made various specific representations, warranties and covenants relating thereto. The tax covenants in the Loan Agreement shall survive the retirement and payment of the Series 1999 Bonds and the discharge of the City's and Company's other obligations under the Loan Agreement. C-11 Rate Covenant (a) The Company will fix, charge and collect, or cause to be fixed, charged and collected, subject to applicable requirements or restrictions imposed by law, such rates, fees and charges for the use of facilities of and for the services furnished or to be furnished by the Company, such that Net Revenues Available for Debt Service in each Fiscal Year will be at least one hundred ten percent (110%) of the Principal and Interest Requirements on Long Term Indebtedness during such Fiscal Year. The foregoing is subject to the qualification that if, in the opinion of Counsel, applicable state or federal laws or regulations, or the rules and regulations of agencies having jurisdiction, shall not permit the Company to produce such level of Net Revenues Available for Debt Service or, in the opinion of Counsel, maintenance of the 110% coverage would be reasonably likely to cause the Company to lose its 501(c)(3) status, then the Company shall, in conformity with the then prevailing laws, rules or regulations, maintain rates, fees and charges to equal the maximum permissible level. (b) The Company, from time to time and as often as shall be necessary, will revise, or cause to be revised, subject to applicable requirements or restrictions imposed by law, the rates, fees and charges so that the Net Revenues Available for Debt Service of the Company in each Fiscal Year will be not less than the amount required for such Fiscal Year under paragraph (a) above. (c) If the Net Revenues Available for Debt Service of the Company for any Fiscal Year are less than 110% of the Principal and Interest Requirements on Long Term Indebtedness during such Fiscal Year, then the Company will promptly employ an Independent Management Consultant to review and analyze the reports required by the Loan Agreement to be made by the Company, inspect the Facilities, their operation and administration and submit to the Company and Trustee written reports, and make such recommendations as to the operation and administration of the Facilities as such Independent Management Consultant deems appropriate, including any recommendation as to a revision of the rates, fees and charges of the facilities of the Company or the methods of operation thereof. The Company agrees to consider any recommendations by the Independent Management Consultant and, to the fullest extent advisable in the reasonable determination of the Company's Board of Directors, to adopt and carry out such recommendations. If the Company has previously retained an Independent Management Consultant and the Net Revenues Available for Debt Service are less than 105% of the Principal and Interest Requirements for the succeeding Fiscal Year, the Company agrees that it will adopt and carry out the recommendations of the management Consultant to the fullest extent feasible. The Company may retain a second Management Consultant, but until the report of the second Management Consultant is received, the Company will comply with the provisions of this paragraph. (d) So long as the Company is otherwise in full compliance with its obligations under the Loan Agreement, including following, to the fullest extent provided in paragraph (c) of this section, the recommendations of the Management Consultant, it shall not constitute an Event of Default that the Net Revenues Available for Debt Service of the Company for any Fiscal Year are less than 110%a of the Principal and Interest Requirements on Long Term Indebtedness for such Fiscal Year. Limitation on Debt The Company covenants that it will not incur, assume or guarantee ("incur") any Indebtedness (secured or unsecured) to parties other than the City except as provided below. Short Term Indebtedness. The Company may incur such Short Term Indebtedness as in its judgment may be deemed expedient, provided that Short Term Indebtedness when incurred shall not cause the total Short Term Indebtedness to exceed in the aggregate then outstanding, five percent (5%) of the Total Revenues of the Company for the preceding Audited Fiscal Year. Short Term Indebtedness may be secured by a pledge and assignment of all or any part of the Company's accounts receivable, any securities or cash owned by the Company, or personal property not constituting part of the Mortgaged Property, but in no other manner. C-12 Interim Indebtedness. The Company may incur Interim Indebtedness to provide temporary financing of Improvements and Unrelated Improvements for which the City shall have previously agreed to provide permanent financing by the issuance of Additional Bonds or for which other lenders shall have previously agreed to provide financing which will constitute Long Term Indebtedness, but only after the right of the Issuer to issue Additional Bonds has been established pursuant to the Indenture or the right of the Company to enter into the permanent financing has been established pursuant to the following paragraph. Long Term Indebtedness. The Company may incur Long Term Indebtedness only as provided in Section 6.4 of the Loan Agreement. (a) Before incurring or otherwise becoming liable with respect to any Long Term Indebtedness, the Company shall furnish the Trustee (i) a Company Certificate which shall: (A) state the general purpose for which such Long Term Indebtedness is to be incurred; and (B) state the principal amount of Long Term Indebtedness to be incurred, the maturity date or dates thereof and the interest rate or rates with respect thereto; and (ii) an Opinion of Counsel for the Company to the effect that all conditions precedent specified for incurring such Long Term Indebtedness have been satisfied. (b) The Company shall not incur any Long Term Indebtedness to refund Outstanding Bonds unless, in addition to the filing of the items described in subsection (a) above: (i) there shall be filed with the Trustee a report of an Independent Accountant to the effect that the proceeds of the Long Term Indebtedness, together with any other funds deposited with the Trustee for such purpose, will be not less than an amount sufficient to pay the principal of and the redemption premium, if any, on the Outstanding Bonds to be refunded and the interest which will become due and payable thereon on or prior to the redemption date or stated maturity thereof, or that the principal of and interest on Government Obligations purchased from such proceeds or from other funds provided by the Company and deposited in trust with the Trustee, which Government Obligations do not permit redemption thereof at the option of the issuer, when due and payable (or redeemable at the option of the holder) and will provide, together with any other moneys which shall have been deposited irrevocably with the Trustee for such purpose, sufficient moneys to pay such principal, redemption premium, if any, and interest; and (ii) there shall be filed with the Trustee an opinion of Bond Counsel to the effect that the incurring of such Long Tenn Indebtedness and the refunding of Bonds with the proceeds thereof will not prejudice the exemption from federal income tax of the interest accruing on any of the Bonds. (c) Except as provided in subsections (b) and (d), the Company shall not incur any Long Term Indebtedness unless it shall furnish the Trustee, in addition to the items described in subsection (a), either: (i) a written report or opinion of an Independent Accountant stating that the Net Revenues Available for Debt Service of the Company for each of the last two Audited Fiscal Years preceding the date on which the proposed Long Term Indebtedness is to be incurred were more than one hundred fifteen percent (115%) of the maximum principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for any then outstanding Long Term Indebtedness or Bonds to be refinanced by the proposed Long Term Indebtedness) for any Fiscal Year beginning after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred but before the final Stated Maturity of all then Outstanding Bonds, or (ii) an Independent Accountant's certificate stating that the Net Revenues Available for Debt Service of the Company for each of the last two Audited Fiscal Years preceding the date on which the proposed Long Term Indebtedness is to be incurred were not less than one hundred ten percent (110%) of the Principal and Interest Requirements on Long Term Indebtedness for such Fiscal Years and a financial forecast prepared by an Independent Accountant and accompanied by an examination report stating that the estimated Net Revenues C-13 Available for Debt Service of the Company for each of the three (3) consecutive Fiscal Years beginning after the Fiscal Year in which any Improvements or Unrelated Improvements being financed by such Long Term Indebtedness are to be placed in service or after funded interest relating to such Long Term Indebtedness has been expended, or, if no improvements or Unrelated Improvements are to be financed thereby, after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred, will be not less than one hundred twenty percent (120%) of the maximum Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for any then outstanding Long Term Indebtedness or Bonds to be refinanced by the proposed Long Tenn Indebtedness) for any Fiscal Year beginning after the Fiscal Year in which any Improvements or Unrelated Improvements being financed by such Long Term Indebtedness are to be placed in service, or, if no Improvements or Unrelated Improvements are to be financed thereby, after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred, but before the final Stated Maturity of all then Outstanding Bonds. (d) Notwithstanding the provisions of subsection (c), the Company may incur Long Term Indebtedness for refinancing the principal amount of any outstanding Long Term Indebtedness, provided the Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for the Long Term Indebtedness to be refinanced thereby) for each Fiscal Year after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred but before the final Stated Maturity of all then Outstanding Bonds will be no greater than the Principal and Interest Requirements on Long Term Indebtedness would have been for each such Fiscal Year had such proposed Long Term Indebtedness not been incurred nor the refinancing accomplished. (e) Any Long Term Indebtedness may be secured by a pledge, lien, mortgage or other security interest with respect to any tangible property of the Company as the parties thereto may provide, but not any intangible property of the Company or lien upon or security interest in revenues or income of the Company or its accounts receivable other than an assignment of leases and rents; provided, however, that the Company shall not secure nor attempt to secure Long Term Indebtedness (other than Additional Bonds) with an interest in the property secured under the Mortgage or any Collateral Document which is prior to or, except as provided in the Loan Agreement, on a parity with the interest granted to the Trustee pursuant to the Mortgage or any Collateral Document. (f) The Company may incur Long Term Indebtedness without limit as to amount, and without meeting the conditions of paragraphs (b) through (e) above, but only if (i) the payment of such Long Term Indebtedness is expressly subordinated to the payment of operating expenses and payment, when due, of the principal of and interest on the Bonds and any other Long Term Indebtedness of the Company incurred under paragraphs (b) through (e) above, and (ii) the remedies provided for in the event of a default on such subordinated Long Term Indebtedness are limited to the Company's cash flow after payment of all unsubordinated Indebtedness, and do not permit the holder of the subordinated Long Term Indebtedness to exercise remedies against any assets of the Company, so long as any Bonds are Outstanding. The calculation of Principal and Interest Requirements on Long Term Indebtedness whether pursuant to the Loan Agreement or the Indenture, shall be made in a manner consistent with that set forth above and the following: (a) With respect to Balloon Indebtedness, as hereafter defined, such Balloon Indebtedness shall be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period from the date of calculation to the date of maturity of such Balloon Indebtedness at an assumed interest rats (which shall be the interest rate certified by a commercial bank or investment banker to be the interest rate at which the Company could reasonably expect to borrow the same amount by issuing a note with a term of the maturity of such Balloon Indebtedness). Balloon Indebtedness means Long Tenn Indebtedness twenty-five percent (25%) or more of the original principal amount of which (A) is due in any 12 -month period or (B) may, at the option of the holder thereof, be required to be redeemed, prepaid, or purchased directly or indirectly by the Company or a member thereof or otherwise paid in C-14 any 12 -month period; provided, that, in calculating the principal amount of such Balloon Indebtedness due or required to be redeemed, prepaid, purchased or otherwise paid in any 12 -month period, such principal amount shall be reduced to the extent that all or any portion of such amount is required to be amortized prior to such 12 -month period. (b) Except as otherwise provided in subsection (a) above with respect to Balloon Indebtedness which is also Variable Rate Indebtedness, as hereinafter defined, in determining the amount of debt service payable on Variable Rate Indebtedness for any future period, interest on such indebtedness for any period of calculation (the "Determination Period") shall be computed by assuming that the rate of interest applicable to the Determination Period is equal to the average annual rate of interest on similar securities (calculated in the manner in which the rate of interest for the Determination Period is to be calculated) which was in effect for the twenty-four month period prior to a date selected by Company, which selected date is within 45 days immediately preceding the beginning of the Determination Period, as certified by a banking or investment banking institution knowledgeable in matters of variable rate financing or, if it is not possible to calculate such average annual rate of interest, by assuming that the rate of interest applicable to the Determination Period is equal to the rate of interest then in effect on such Variable Rate Indebtedness plus two percent (2%). In addition, debt service shall include any continuing credit enhancement, liquidity and/or remarketing fees for the relevant period. Variable Rate Indebtedness means any portion of Long Term Indebtedness or Additional Bonds the interest rate on which varies periodically such that the interest rate at a future date cannot accurately be calculated. Asset Transfers So long as any Bonds are Outstanding and no Event of Default has occurred and is continuing, the Company will sell, transfer or otherwise dispose of assets included in, or necessary for the operation of, the Facilities only in the following circumstances: (a) subject to the Loan Agreement provisions relating to disposition of all or substantially all of the Company's assets, the assets are sold, transferred or otherwise disposed of at their fair market value; (b) the assets are obsolete, worn out, or otherwise of no further value to the operation of the Facilities; or (c) assets may be transferred to an Affiliate without limit as to amount if the Trustee receives a Company Certificate stating that immediately after the transfer the Current Assets of the Company will be equal to or greater than one hundred twenty-five percent (125%) of the Current Liabilities of the Company. Taxes, Charges and Assessments Subject to the Company's right to contest the same in good faith, the Company is required to pay or cause to be paid: (a) all taxes and charges on account of the use, occupancy or operation of the Facilities, including but not limited to all sales, use, occupation, real and personal property taxes, business and occupation taxes, permit and inspection fees, occupation and license fees and water, gas, electric light, power or other utility charges assessed or charged on or against the Facilities or on account of the Company's use or occupancy thereof or the activities conducted thereon or therein; and (b) all taxes, assessments and impositions, general and special, ordinary and extraordinary, of every name and kind, which shall be taxed, levied, imposed or assessed during the term of the Loan Agreement upon all or any part of the Facilities, or the interest of the Company in and to the Facilities, or upon the City's, Company's or Trustee's interest, or the interest of any of them, in the Loan Agreement, the Mortgage, any Collateral Document or the Indenture or the Loan Repayments payable hereunder and all other lawful C-15 governmental taxes, impositions and charges of every kind or nature, ordinary or extraordinary, general or special, foreseen or unforeseen, whether similar or dissimilar to any of the foregoing, and all applicable interest and penalties thereon, if any, which shall be or become due and payable and which shall be lawfully levied, assessed or imposed. Financial Statements The Company is required to furnish to the Trustee: A. If requested in writing by the Trustee, copies of any periodic unaudited financial statements of . the Company which are prepared in the normal course of the Company's operations, certified by the Treasurer, Controller or other authorized financial officer of the Company, promptly as such financial statements become available; B. within 120 days after the last day of each Fiscal Year, a complete audit report and opinion certified by an Independent Accountant, which report and opinion shall be based upon an examination made in accordance with generally accepted auditing standards, covering the operations of the Company for such Fiscal Year and containing a balance sheet as at the end of such Fiscal Year, showing in each case in comparative form the figures for the preceding Fiscal Year, together with a separate written statement of such Independent Accountant preparing such report that such Independent Accountant has obtained no knowledge of any default by the Company in the fulfillment of any of the terms, covenants, provisions or conditions of the Loan Agreement, or if such Independent Accountant shall have obtained knowledge of any such default he shall disclose in such statement the default and the nature thereof; but such Independent Accountant shall not hereby be liable directly or indirectly to anyone for failure to obtain knowledge of any default; C. within 120 days after the last day of each Fiscal Year, a Company Certificate stating that the Company has made a review of its activities during the preceding Fiscal Year for the purpose of determining whether or not the Company has complied with all of the terms, covenants, provisions and conditions of the Loan Agreement and that the Company has kept, observed, performed and fulfilled each and every term, covenant, provision and condition of the Loan Agreement on its part to be kept, observed, performed and fulfilled and is not in default in the keeping, observance, performance or fulfillment of any of the terms, covenants, provisions or conditions of the Loan Agreement, or if the Company shall be in default such certificate shall specify all such defaults and the nature thereof; such Company Certificate shall specifically show the calculations with respect to compliance with the rate covenant described under the section herein entitled "Rate Covenant"; and D. such additional information as the Trustee may reasonably request concerning the Company or the Facilities, in order to enable the Trustee or such Holder to determine whether the covenants, terms, conditions and provisions of the Loan Agreement have been complied with by the Company. ]Events of Default; Remedies Any of the following is an event of default under the Loan Agreement: A. default in the payment of any Loan Repayment when due and payable, and continuance of such default for a period of five days; or B. except to the extent resulting from "force majeure", default in the performance or breach of any covenant, warranty or representation of the Company in the Loan Agreement (other than a covenant or warranty a default in the performance of which or breach of which is elsewhere in this paragraph specifically dealt with) the Mortgage, or any Collateral Document, and continuance of such default or breach for a period of thirty days after there has been given, by registered or certified mail, to the Company by the City, the Trustee C-16 or the Holder or Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding a written notice specifying such default or breach and requiring it to be remedied; provided, however, that if the Company shall fail to take any action which, if begun and prosecuted with due diligence, cannot be completed within a period of thirty days, then such period shall be increased to such extent as shall be necessary to enable the Company to begin and complete such action through the exercise of due diligence; or C. the abandonment by the Company of the Facilities or any substantial part thereof, or the operations thereof herein contemplated, continued for a period of five days after mailed notice to the Company as described in subparagraph B above; or D. the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or E. any final judgments, or writs or warrants of attachment or of any similar processes in an aggregate amount in excess of the greater of $150,000 or 2.5% of the insured value of the Facilities entered or filed against the Company or against any of its property and remaining unvacated, unpaid, unbonded, uninsured or unstayed for a period of thirty days; or F. if any representation by the Company in the Loan Agreement is false or misleading in any material respect; provided, however, that if after any default shall have occurred which does not result in a nonpayment of principal, premium, if any, or interest on the Bonds, and prior to the Trustee exercising any of the remedies provided in subsections (1) through (4) of the following paragraph, the Company shall have completely cured such default by depositing with the Trustee sufficient moneys or by performing such other acts or things in respect of which it may have been in default under the Loan Agreement as the Trustee shall determine, then in every such case such default shall be waived, rescinded and annulled by the Trustee by written notice given to the Company; but no such waiver, rescission and annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. If any Event of Default shall occur and be continuing, the Trustee may, or if requested in writing by the Holders of twenty-five percent (25%) or more of the principal amount of Bonds then Outstanding shall, exercise one or more of the following remedies: (1) Declare all Loan Repayments, Fee Payments and any other amounts payable under the Loan Agreement to be immediately due and payable (being an amount equal to that necessary to pay in full the principal of and interest accrued on all Bonds then Outstanding, assuming acceleration of the Bonds under the Indenture, and to pay all other amounts payable thereunder and under the Loan Agreement), whereupon the same shall become immediately due and payable by the Company; or (2) Exercise any one or more of the remedies specified in the Mortgage; or (3) Petition a court of competent jurisdiction for the appointment of a receiver to take possession of and manage and operate the assets of the Company for the benefit of the City and the Holders of the Bonds then Outstanding; or C-17 (4) Take whatever action at law or in equity may appear necessary or appropriate to collect the Loan Repayments and other amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Company under the Loan Agreement. Amendment of Loan Agreement The Loan Agreement may be amended only in accordance with the Indenture, which provides that the Trustee may consent to amendments to the Loan Agreement or the Mortgage without the consent of Bondholders: (A) to correct or amplify the description of any property at any time subject to the Loan Agreement, the Mortgage or any Collateral Document; or (B) to add to the conditions, limitations and restrictions of the Company in the Loan Agreement, the Mortgage or any Collateral Documents; or (C) to consent to the creation of any series of Additional Bonds; or (D) to modify or eliminate any of the terms of the Loan Agreement, the Mortgage or any Collateral Document; or (E) to evidence the succession of another Company to the Company in accordance with the provisions of the Loan Agreement; or (F) to add to the covenants of the Company or to surrender any right or power conferred upon the Company; or (G) to add or release any property or other right to the lien of the Mortgage or any Collateral Document; or (H) to eliminate, modify or add any provision which in the opinion of Bond Counsel is necessary or desirable in order to preserve the exemption of interest on the Bonds from federal income taxation, or (I) to cure any ambiguity, to correct or supplement any irrelevant provision of the Loan Agreement, the Mortgage or any Collateral Document. With the consent of the Holders of not less than a majority in principal amount of the Bonds of all series Outstanding which are affected thereby, the Loan Agreement or the Mortgage may be amended in any respect, but no such amendment may, without the consent of the Holder of each Outstanding Bond affected thereby, change the aggregate amount of Loan Repayments or extend the time of payment beyond the time necessary for payment of principal of, premium, if any, and interest on the Bonds, or eliminate the requirement that the Trustee consent to any amendment, or release property from the lien of the Mortgage except as permitted by the Loan Agreement and the Mortgage. THEINDENTURE The following is a summary of certain provisions of the Indenture. Reference is made to the Indenture for a complete recital of its terms. Trust Estate The Indenture pledges to the Trustee, in trust to secure payment of the Bonds, a security interest in (i) all right, title and interest of the City in the Loan Agreement, including the Loan Repayments and Fee Payments but excluding the payments to the City for its expenses or as indemnification, (ii) all cash and securities held in the Trust Funds, and (iii) all other property now or thereafter subjected to the lien of the Indenture. The Trust Funds established by the Indenture are the Bond Fund, Acquisition and Construction Fund, Reserve Fund Repair and Replacement Fund, Rebate Fund and any other fund created pursuant to the terms of a Supplemental Indenture. Acquisition and Construction Fund Upon the initial issuance and delivery of the Series 1999 Bonds an initial deposit shall be made to the Acquisition and Construction Fund from the proceeds of the Bonds to be applied by the Trustee at the direction of the Company by a Company Certificate to pay a portion of the purchase price of the Facilities by the Company and to pay, or reimburse the Company for payment, of costs of issuance of the Series 1999 Bonds. In addition the Company shall upon the initial issuance and delivery of the Series 1999 Bonds pay to the Trustee the amount of $ for deposit in the Acquisition and Construction Fund. Such amount shall be applied by the Trustee at the direction of the C-18 Company by a Company Certificate to pay costs of renovation, rehabilitation and improvement of the Facilities and costs of acquisition and installation of items equipment therein. Any money received by the Trustee for payment of Project Costs shall be credited to the Acquisition and Construction Fund. Bond Fund Two accounts in the Bond Fund are established - the Interest Account and the Principal Account. From the net proceeds of the Series 1999 Bonds there shall be credited to the Interest Account accrued interest on the Series 1999 Bonds to the date of delivery paid by the Original Purchaser thereof. All Loan Repayments shall be credited as received to the Interest Account and the Principal Account. Moneys in these accounts shall be used solely for payment when due of the principal of and interest on the Bonds. Reserve Fund A Reserve Fund is established under the Indenture. To the Reserve Fund shall be credited, from the proceeds of the Series 1999 Bonds on the date of delivery of the Series 1999 Bonds, an amount equal to the Reserve Requirement upon the issuance of the Series 1999 Bonds There is also to be credited to the Reserve Fund investment income realized from the Reserve Fund if and to the extent necessary to increase the amount on deposit therein to the Reserve Requirement, and thereafter all such investment income shall be transferred to the Interest Account. Moneys on hand in the Reserve Fund are to be used to pay principal of and interest on Bonds when due if to the extent the amount on hand in the Bond Fund is insufficient for that purpose. If and to the extent the amount on hand in the Reserve Fund at any time exceeds the Reserve Requirement, the excess is to be transferred to the Interest Account. Under certain circumstances, as described under "The Loan Agreement—Repayment of the Loan," the Company will be required to make additional payments to the Trustee for deposit in the Reserve Fund. See, also, "Security for the Bonds --Reserve Fund" in this Official Statement. Repair and Replacement Fund A Repair and Replacement Fund is established under the Indenture. The Trustee shall deposit in the Repair and Replacement Fund the amounts remitted therefor by the Company as provided in the Loan Agreement. The Trustee shall apply money in such fund not more often than once each month as requested in a Company certificate only to the payment of items of repair, improvement, and replacement with respect to the Housing Facilities constitute capital expenditures under generally accepted accounting principles. The Company certificate shall identify the expenditures to be made by nature and amount, and the contractor or vendor providing the repair, replacement, or other improvement, and shall certify that the expenditures are proper expenditures to be made or reimbursed from the Repair and Replacement Fund. Subject to the provisions of the Loan Agreement, if, on any Maturity Date, the amount then on hand in the Bond Fund is not sufficient to pay the principal, premium, if any, and interest then due on the Bonds, whether at maturity or upon redemption or by acceleration, then the Trustee shall transfer from the Repair and Replacement Fund to the Bond Fund an amount equal to the lesser of (i) the deficiency in the Bond Fund, or (ii) the money then credited to the Repair and Replacement Fund; the Repair and Replacement Fund. Net Proceeds of insurance or condemnation awards in excess of $150,000 are to be credited to the Repair and Replacement Fund for use in paying the cost of repairing, replacing or restoring the Facilities after damage, destruction or condemnation. Any excess of Net Proceeds remaining after payment of such costs shall be transferred to the Reserve Fund, if and to the extent necessary to increase that amount on deposit therein to the Reserve Requirement, and thereafter to the Principal Account. C-19 Rebate Fund The Trustee shall make deposits to and disbursements from the Rebate Fund in accordance with the instructions received from the Company pursuant to the Loan Agreement, shall invest the Rebate Fund pursuant to the requirements of the Loan Agreement and shall deposit income from such investments immediately upon receipt thereof in the Rebate Fund. In accordance with requirements of the Internal Revenue Code of 1986, as amended, the Trustee shall pay every five years to the United States an amount which ensures that at least 90% of the "Rebate Amount' at the time of such payment will have been paid to the United States. No later than sixty days after the final retirement of any series of Bonds, the Trustee shall pay to the United States an amount sufficient to pay the remaining balance of the Rebate Amount. See "The Loan Agreement—Tax Covenants." Additional Bonds In order to refund any Outstanding bonds or finance or refinance any Improvements, Additional Bonds may at any time and from time to time be executed by the City and delivered to the Trustee for authentication, but only upon receipt by the Trustee of the following: A. A City Resolution authorizing the issuance of the Additional Bonds and the sale thereof; B. A City Order directing the authentication of such Additional Bonds and the delivery thereof, C. A Company Certificate requesting the issuance of such Additional Bonds, stating that no default has occurred under the Loan Agreement which has not been cured, that the Additional Bonds to be authenticated have not theretofore been issued and that all conditions precedent provided for in the Indenture relating to the authentication and delivery of such Additional Bonds have been complied with; D. A Company Certificate, Opinion of Counsel, and as applicable, a report of an Independent Accountant or Management Consultant required by the Loan Agreement, demonstrating the ability of the Company to incur the Long Term Indebtedness underlying or evidenced by such Additional Bonds; E. An Opinion of Bond Counsel: (1) stating that all conditions precedent provided in the Indenture relating to the authentication and delivery of such Additional Bonds have been complied with; (2) stating that the Additional Bonds whose authentication and delivery are then applied for, when issued and executed by the City and authenticated and delivered by the Trustee, will be the valid and binding obligations of the City in accordance with their terms and entitled to the benefits of and secured by the lien of the Indenture, the Loan Agreement, the Mortgage and any Collateral Document equally and ratably with all Outstanding Bonds; and (3) stating that the issuance of such Additional Bonds will not affect the tax-exempt nature for federal income tax purposes of the Bonds then Outstanding; F. An executed counterpart of the Supplemental Indenture creating such Additional Bonds; G. Cash in the amount necessary to make the balance in the Reserve Fund equal to the Reserve Requirement immediately after the issuance of the Additional Bonds, which cash may be from proceeds of such Additional Bonds if so provided in the City Order referred to in paragraph B; H. An executed counterpart of an amendment to the Loan Agreement providing for additional Loan Repayments sufficient to provide for the payment of principal, premium, if any, and interest on all Bonds to be Outstanding after the issuance of such series of Additional Bonds, and providing for additional Fee Payments if deemed necessary; I. The City Resolution authorizing the execution and delivery of the Supplemental Indenture, the amendment to the Loan Agreement and such Additional Bonds; C-20 J. Executed counterparts of amendments or supplements to the Mortgage and any Collateral Document, unless in the Opinion of Counsel none is required, subjecting to the lien thereof all property acquired or to be acquired from the proceeds of such Additional Bonds, and required by the provisions of the Indenture to be so subjected; and K. A Company Resolution authorizing the execution and delivery of the amendment to the Loan Agreement, the amendment or supplement to the Mortgage, if any, and any Collateral Document and approving the Supplemental Indenture and the issuance and sale of such Additional Bonds. Any Additional Bonds shall be dated, shall bear interest at a rate or rates not exceeding the maximum rate, if any, permitted by law, shall have Stated Maturities, and may be subject to redemption prior to their Stated Maturities at such times and prices and on such terms and conditions, all as may be provided by the Supplemental Indenture authorizing their issuance. All Additional Bonds shall be payable and secured equally and ratably and on a parity with the Series 1999 Bonds and any Additional Bonds theretofore issued, entitled to the same benefits and security of the Indenture, the Loan Agreement, the Mortgage, and any Collateral Documents. Investments Subject to the provisions of any law then in effect to the contrary, the Trustee shall invest all Trust Moneys on hand from time to time in the Trust Funds as specified in a Company Request in any Qualified Investments, which mature or are subject to redemption at the option of the holder thereof on or prior to the date or dates that the Company anticipates that moneys therefrom will be required. The Trustee may trade with itself or its affiliates in the purchase and sale of such Qualified Investments and the Trustee shall not be liable or responsible for any loss resulting from any such investment. Such Qualified Investments shall be registered in the name of the Trustee. The Trustee may invest in Qualified Investments through its own trust department and Trust Moneys may be deposited in time deposits of, or certificates of deposit issued by, the Trustee or its affiliates. The Trustee shall without further direction from the City or the Company sell such Qualified Investments as and when required to make any payment for the purpose of which such investments are held. Each investment shall be credited to the fund for which it is held, subject to any other provisions of the Indenture directing some other credit, but income on such Qualified Investments shall be held or transferred, as received, in accordance with the Indenture. Events of Default; Remedies Any of the following events is an Event of Default under the Indenture: A. Default in the payment of any interest upon any Bond when it becomes due and payable; or B. Default in the payment of the principal of (or premium, if any, on) any Bond when the same becomes due and payable; or C. Default in the performance, or breach, of any covenant or warranty of the City contained in the Indenture, and continuance of such default or breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the City and the Company by the Trustee, or to the City, the Company and the Trustee by the Holder or Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default'; or D. The occurrence of an "Event of Default' under the Loan Agreement or under the Mortgage or Regulatory Agreement. C-21 If an Event of Default occurs and is continuing, then and in every such case the Trustee may, and upon the written request by registered or certified mail to the Trustee by the Holder or Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding shall, declare the principal of all the Outstanding Bonds to be due and payable immediately by a notice in writing to the City and the Company, and upon any such declaration such principal shall become immediately due and payable; provided, however, that no Bonds shall be accelerated unless and until the Trustee shall have exercised the remedy specified in subsection A of Section 11.2 of the Loan Agreement. Supplemental Indentures The City and the Trustee may enter into Supplemental Indentures, without the consent of the Holders of any Bonds, to correct or amplify the description of the trust estate; to subject additional properties or revenues to the lien of the Indenture; to add to the conditions for the issuance of Bonds; to provide for the issuance of any series of Additional Bonds; to provide for the exchange of Bonds; to add to the covenants of the City; to modify or eliminate any of the terms of the Indenture (provided (1) any such modifications or eliminations shall be expressly provided in such Supplemental Indenture to become effective only when there are no Bonds Outstanding of any series credited prior to the execution of such Supplemental Indenture, and (2) the Trustee may, in its discretion, decline to enter into any such Supplemental Indenture, which, in its opinion, may not afford adequate protection to the Trustee when the same becomes effective); or to cure ambiguities or inconsistencies in the Indenture. With the consent of the Holders of a majority of Bonds of all series Outstanding which are affected thereby, the City and Trustee may enter into a Supplemental Indenture adding to, changing or eliminating any of the provisions of the Indenture, except that no Supplemental Indenture shall, without the consent of the Holder of each Outstanding Bond affected thereby, change the date of payment of principal of or interest on any Bond, or reduce the principal amount thereof or interest thereon, or change the medium of payment, or impair the right to sue for payment after maturity, or reduce the percentage of principal amount of Outstanding Bonds whose Holders must consent to any Supplemental Indenture or waive an Event of Default under or compliance with certain provisions of the Indenture. Defeasance Whenever the conditions specified in either clause (1) or clause (2) of the following subparagraph A, and the conditions specified in the following subparagraphs B and C shall exist, namely: A. either (1) all Bonds theretofore authenticated and delivered have been cancelled by the Trustee and delivered to the Trustee for cancellation, excluding, however, (a) Bonds for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Trustee and thereafter repaid to the Company or discharged from such trust, and (b) Bonds alleged to have been destroyed, lost or stolen which have been replaced or paid and (i) which, prior to the satisfaction and discharge of the Indenture, have not been presented to the Trustee with a claim of ownership and enforceability by the Holder thereof, or (ii) whose enforceability by the Holder thereof has been determined adversely to the Holder by a court of competent jurisdiction or other competent tribunal; or (2) the City or the Company has deposited or caused to be deposited with the Trustee as trust funds in trust cash or Government Obligations which do not permit the redemption thereof at the option of the issuer, the principal of, premium, if any, and interest on which when due (or upon the redemption thereof at the option of the holder), will, without reinvestment, provide cash which, together with the cash, if any, deposited with the Trustee at the same time, shall be sufficient to pay and discharge the entire indebtedness on Bonds not theretofore cancelled by the Trustee or delivered to the Trustee for cancellation, for principal, premium, if any, and interest which have become due and payable, or to the Stated Maturity or Redemption Date, as the case C-22 may be, and has made arrangements satisfactory to the Trustee for the giving of notice of redemption, if any, by the Trustee in the name, and at the expense, of the Company; B. the City or the Company has paid, caused to be paid or made arrangements satisfactory to the Trustee for the payment of all other sums payable under the Loan Agreement and Indenture by the City or the Company until the Bonds are so paid; and C. the City or the Company has delivered to the Trustee an officials' certificate and an Opinion of Counsel each stating that all conditions provided for in the Indenture relating to the satisfaction and discharge thereof have been complied with and a report of an Independent Accountant verifying the sufficiency of the deposit made pursuant to paragraph A(2) above; then the Indenture and the lien, rights and interests thereby granted or granted by the Loan Agreement, the Mortgage and any Collateral Document shall cease, be discharged and become null and void, and the Trustee shall, at the expense of the Company, execute and deliver such instruments of satisfaction as may be necessary, and forthwith the estate, right, title and interest of the Trustee in and to all of the Trust Estate and in and to all rights under the Loan Agreement, the Mortgage and any Collateral Documents (except the moneys or Government Obligations deposited as required above) shall thereupon be discharged and satisfied, and the Trustee shall in such case transfer, deliver and pay the same to the Company or upon Company Order. THE MORTGAGE The following is a summary of certain provisions of the Mortgage. Reference is made to the Mortgage for a complete recital of its terns. As additional security for the Bonds and the performance of each covenant, agreement or condition of the Company set forth in the Loan Agreement, the Company, by the Mortgage, will grant to the City a mortgage on and security interest in the Mortgaged Property subject to certain specified Permitted Encumbrances. The City will assign its interest in the Mortgage to the Trustee pursuant to the Assignment of Mortgage. The Mortgage creates a security interest in any personal property owned by the Company to be located on the Land. The Company shall have the right, at any time and from time to time, to release any part of the Land not containing any permanent structure necessary for the total operating unity and efficiency of the Facilities (as determined by an Independent Management Consultant) from the lien of the Mortgage for the purpose of selling the same or for the purpose of securing any Long Term Indebtedness, and the Trustee shall, from time to time, release from the lien of the Mortgage such real property, upon the conditions set forth in the Mortgage. The release price shall be (i) in the case of any sale to a third party, the sale price, or (ii) in case the Company desires to release such property in order to secure Long Term Indebtedness, an amount equal to the value of such property as determined by an Independent Appraiser. In addition to the right of release described above, the Company shall have the right at any time and from time to time to release any part of the Land not containing any permanent structure necessary for the total operating unity and efficiency of the Facilities (as determined by an Independent Management Consultant) from the lien of the Mortgage for the purpose of substituting or exchanging the same for other real property (with or without permanent structures thereon) to become subject to the lien of the Mortgage (herein called the "Substituted Property"), upon the conditions set forth in the Mortgage. The release price shall be that amount, if any, by which the value of the property to be released, exceeds the value of the Substituted Property, as determined by an Independent Appraiser. Simultaneously with the release of any real property as provided above, the release price, if any, specified in Section 4.6 of the Mortgage, shall be deposited by the Trustee in the Reserve Fund, if and to the extent necessary to increase the amount on deposit therein to the Reserve Requirement, and thereafter to the Principal Account, to be used to pay the Bonds. C-23 Except as otherwise provided in the Mortgage and the Loan Agreement, the Mortgage can be amended only in accordance with the provisions of the Indenture described under "The Loan Agreement --Amendment of the Loan Agreement". Upon the occurrence and continuation of an Event of Default under the Loan Agreement or a default in the payment of principal of, premium, if any, or interest on the Bonds, the Trustee, pursuant to the Mortgage, is authorized, among other remedies, to foreclose the Mortgage by judicial proceedings or by any other method authorized by law. See "Bondholders' Risks --Value of Mortgaged Property" in this Official Statement. THE REGULATORY AGREEMENT The following is a summary of certain provisions of the Regulatory Agreement and is qualified in its entirety by reference to the Regulatory Agreement. Section 142(d) of the Code provides that interest on certain governmental obligations, the proceeds of which are to be used to provide "residential rental property," shall be exempted from federal income taxation if at all times during the Qualified Project Period (as described below) at least 20% or more of the units in the residential rental property are occupied by tenants whose adjusted family income is 50% or less of the median income ("Median Income") for the Minneapolis -Saint Paul Metropolitan Statistical Area as determined by the United States Department of Housing and Urban Development and adjusted for family size, or 40% or more of such units are occupied by tenants whose adjusted family income is 60% or less of such Median Income. Tenants meeting either of the foregoing income requirements are referred to as "Low -Income Tenants." Such restrictions are applicable to the portion of the Housing Facility containing the 180 -units of residential rental housing pursuant to the provisions of Section 145(d) of the Code. The Company has irrevocably elected the twenty percent/fifty percent ("20%/50%") requirement. Section 1.103-8(b) of the Income Tax Regulations (the "Regulations") sets forth certain requirements for compliance with Section 142(d) of the Code. The Regulations require, among other things, that (1) the twenty percent (20%) Low -Income Tenant occupancy requirement must be met on a continuous basis during the Qualified Project Period (as described below), and (2) during the Qualified Project Period all of the multifamily rental housing units in the Housing Facility must be rented or available for rental to the general public on a continuous basis. Under the Regulations, the failure to satisfy the Rental Housing Requirements (as defined below) of the Regulations with respect to a project may, unless corrected within a reasonable period (i.e., not less than sixty days) after such noncompliance is first discovered or should have been discovered by the exercise of reasonable diligence, cause the loss of the tax exempt status of the Series 1999 Bonds as of the date of their original issue, irrespective of the date such noncompliance actually occurred. The Series 1999 Bonds will be redeemed in such event. In order to satisfy the rental housing requirements of the Code and Regulations (the "Rental Housing Requirements"), the company has covenanted in the Regulatory Agreement to comply with certain provisions therein regarding the operation and occupancy of the multifamily housing units in the Housing Facility. The Regulatory Agreement will be recorded and filed in the appropriate land records office of Hennepin County, Minnesota, binding the Company and its successors and assigns, including all subsequent owners of the Housing Facility or any part thereof. The provisions of the Regulatory Agreement are intended to ensure compliance with the Rental Housing Requirements and will remain in effect for the Qualified Project Period. The Regulatory Agreement will, however, terminate with respect to the Housing Facility in the event of an involuntary loss of the Housing Facility, including the substantial destruction of the Housing Facility (unless the Housing Facility is restored), provided the Series 1999 Bonds are redeemed. The Regulatory Agreement provides as follows with respect to the Rental Housing Requirements: C-24 (1) That the Qualified Project Period commences on the date of issuance of the Series 1999 Bonds, and will terminate on the later of (a) the date which is 15 years after the date of issuance of the Series 1999 Bonds, (b) the date on which no Series 1999 Bonds (including any refunding of the Series 1999 Bonds) are outstanding or (c) the date on which assistance provided under Section 8 of the United States Housing Act of 1937, if any, terminates. (2) All of the multifamily rental housing units in the Housing Facility will remain available for occupancy on a rental basis until the later of the expiration of the Qualified Project Period or the date on which the Series 1999 Bonds have been paid in full. (3) As required by the Regulations, during the Qualified Project Period, twenty percent (20%) of the multifamily rental housing units in the Housing Facility must be occupied at all times by persons or families whose adjusted family income at the time of their initial occupancy is equal to or less than fifty percent (50%) of the Median Income for the Minneapolis -Saint Paul Metropolitan Statistical Area, as determined by the United States Department of Housing and Urban Development. Each tenant's adjusted family income shall be determined in a manner consistent with income determinations under Section 8 of the United States Housing Act of 1937, as amended. (4) The twenty percent (20%) of the multifamily rental housing units in the Housing Facility required to he occupied by Low -Income Tenants will be substantially similar to all other multifamily rental housing units in the Housing Facility, and the Low -Income Tenants will enjoy equal access to all conunon facilities including in the Housing Facility. (5) The Company will report and certify its compliance with the Rental Housing Requirements as required by the Regulatory Agreement, such reports and certifications to be submitted at the times required to the Trustee. (6) The adjusted family income of each Low -Income Tenant will be verified by obtaining an income certification statement such tenant, and by obtaining either federal income tax returns or employer income verifications. If the Company violates the Rental Housing Requirements, the Trustee may exercise whatever remedies may then be available in law or equity, including specifically the right to compel compliance with the Rental Housing Requirements by an action for specific performance. C-25 (This page has been left blank intentionally) APPENDIX D 1 MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM J General The operation of the Nursing Facility is subject to extensive government regulation, and a substantial portion of the revenues from the Nursing Facility will be dependent on reimbursement under the Medicaid program. The following information describes the Minnesota Medicaid and federal Medicare reimbursement programs and the Minnesota Alternative Payment System. As the Nursing Facility is a participant in the contractual Alternative Payment System, the Medicaid discussion under the heading "Cost -Based Rate -Setting System" below will be applicable only if the Alternative Payment System contract is terminated. Further, as a result of 1998 Minnesota legislative changes, the standard Minnesota Medicaid system is scheduled to be revamped effective July 1, 2000, to impose a performance-based contractual reimbursement system on all Minnesota nursing facilities. It is difficult to accurately predict what impact this change will have on the Nursing Facility's Medicaid reimbursement. Medicaid. Medicaid is a government assistance program established under Title XIX of the federal Social Security Act and is administered by state governments. One part of the Medicaid program provides payments, within certain limits, for nursing care, room and board, drugs, certain therapeutic and other services for persons who have depleted their own financial resources and are unable to provide for their own medical and living expenses. The Nursing Facility revenues from its licensed nursing beds are derived in significant part from such payments. Medicaid requires that state Medicaid plans must provide payment rates that are consistent with efficiency, economy, and quality of care. Furthermore, payments must be sufficient to enlist enough providers so that Medicaid services are available to recipients at least to the same extent that comparable services are available to the general population, and providers must accept Medicaid payment as payment in full as a condition of participation in the Medicaid program. In order to receive approval of the United States Health Care Financing Administration ("HCFA"), the state Medicaid agency must provide HCFA with assurances that it has complied with the public notice requirements. The United States Department of Health and Human Services pays each state a federal medical assistance percentage (the "FMAP") of the expenditures the state makes for medical services under its Medicaid program. The FMAP is calculated based on the United States Department of Commerce's statistics of average income per person in each state and in the nation as a whole. States may claim the FMAP without regard to any maximum on the dollar amounts per recipient. The FMAP, however, can be reduced if a state does not have an effective program to control use of institutional services. States also receive federal reimbursement for a percentage of specified administrative costs. States which pay more than they should for Medicaid services as a result of eligibility errors or errors in determining the amount an individual or family must spend on medical care as a condition of eligibility may be subject to a reduction in federal Medicaid funding. Within certain federal limitations, each state participating in the Medicaid program can establish eligibility for participation and the method of determining the amount of payments to health care providers. Since 1985, certified nursing facilities in Minnesota have been paid for Medicaid patient services on the basis of daily per resident rates that are determined under a system (the "Rate -setting System") that is based on prior actual operating costs and on calculated property costs. Presently, Minnesota generally requires nursing facilities participating in the Medicaid program to charge private paying residents only the applicable Medicaid rate. An exception from the foregoing exists for single bed rooms. The daily Medicaid resident rates for each facility are determined by the Minnesota Department of Human Services ("DHS") annually for each 12 -month period commencing on July 1 (a "rate year"). Such rates are established for each of eleven levels of care (residents are assigned to one of the eleven "case mix" classifications based on the severity of their disability and the complexity of their nursing needs). Such so-called "case-mix" levels are designated "A" through "K." Higher alphabetical designations reflect greater required levels of care. D-1 Cost -Based Rate -Setting System. For each licensed nursing home in Minnesota that does not participate in the Minnesota Contractual Alternative Payment System, DHS determines daily rates based on cost reports submitted by the facility for the last preceding 12 -month period commencing on October 1 (a "reporting year"), with such costs being converted to a per resident day cost component to establish a daily rate basically equal to the sum of such components. Historic cost components are divided into four categories: (i) "care -related costs" (with one subcategory for nursing care costs and one subcategory for other care -related costs); (ii) "other -operating costs;" (iii) "pass-through costs;" and (iv) "property costs" (including since 1993, a capital repair and replacement amount). Higher case-mix levels have higher daily rates. Each level reflects a nursing cost sub -component for the facility's overall nursing costs, as determined for the "A" case-mix level, which amount is multiplied by an applicable weighting factor that increases as the case-mix level increases (level "A" factor being 1.00 and level "K" factor being 4.12). Rate components based on all additional operating costs for the facility's reporting year are calculated on a per resident day basis that reflects actual occupancy of the facility during the reporting year, irrespective of case-mix level. In determining the rates, all allowed operating costs (both "care -related costs" and "other -operating costs") are increased by an index related to expected inflation of the costs from the reporting year to the rate year. The inflation factor must be submitted by the Commissioner of Finance to the legislature for budgetary approval. Operating cost components that are care related are presently disallowed to the extent they exceed 125% of median applicable costs in the facility's region (of which there are three in the state). All other -operating costs in excess of 110% of the median regional costs are presently disallowed. General and administrative costs (which are a part of the other -operating costs component) are presently disallowed if they exceed between 13% and 15% (depending on the number of beds in the facility) of all other operating costs; further, certain efficiency incentives are added to the component for other operating costs if the component is less than the 110% limit. The component for "pass-through costs" relates to costs such as real estate taxes, nursing facility licensure fees, county pre -admission screening fees, assessments and certain other limited expenses, and is calculated on a historic daily per resident basis without any limit. The remaining major cost component used in establishing daily Medicaid resident rates relates to property costs. Pursuant to State legislation enacted in 1992, a base rate was established for each facility utilizing its property -related rate in effect September 30, 1992. Rate increases for capital costs incurred after that date are based on the incremental rate increase resulting from that cost increase as calculated under a "rental" formula. To be included in the calculation, costs and debt must be for certain purposes and be within certain limitations. If these conditions are met, the costs and related debt are included in the rate -setting calculation. The incremental rate increase in the rental formula resulting from capital cost increases is added to the existing base property rate. The rental formula provides for a return (presently 5.66%) on allowable equity (allowed appraised value less allowed debt) plus allowable interest costs. These allowable costs are converted into a daily resident rate using an assumed occupancy of 95% of the facility's capacity. An additional daily per resident day allowance for movable equipment is added to that rate. Under the rental formula, rate increases for new capital asset costs are calculated by adding the new costs to the previously existing appraised value allowed for the facility, adding the new allowable debt to the existing allowable debt, and recalculating the rental rate for the facility. The incremental change in the rental rate is then added to the facility's base rate existing before the new cost was incurred. In addition to the foregoing, a certain refinancing incentive is recognized in Minnesota, which generally allows a facility to retain the savings in the average interest (and amortized allowed issuance costs) for the remaining portion of the rate year in which the refinancing occurs, and one-half of such savings in the three rate years thereafter. Because of the timing difference between the reporting year and the related rate year, the impact upon a nursing facility's estimated rates caused by increases in operating costs, changes in occupancy and changes in average levels of care are not reflected in a facility's daily rate structure for up to 21 months (i.e., from the beginning of the reporting year on October 1 of one calendar year until the beginning of the related rate year on July D-2 I of the second ensuing calendar year). See "BONDHOLDERS' RISKS -- Government Regulation and Reimbursement -- Dependence on Medicaid." The State of Minnesota is expected to pay monthly payments for Medicaid patients upon billing from each facility, but from time to time payments have been known to be delayed or reduced for various reasons. Annually, a "desk audit" is performed by DHS on submitted cost reports. Furthermore, DHS may from time to time conduct a "field audit" of a facility's books and records, which subjects past payments by DHS to retroactive adjustment (thereby potentially resulting in a facility's repayment to the State of prior payments). The State has the right to conduct field audits with respect to each cost report for a period up to five years, with each facility having certain appeal rights. As a result of the foregoing, key factors that currently affect nursing facilities' rates under the Rate -setting System include, but are not necessarily limited to, the following: (i) the lag in recognition of various operating cost increases in excess of the inflation factor; (ii) limits on allowed operating costs that are reflected in the daily rates; (iii) changes in care levels of a facility's residents; (iv) changes in a facility's occupancy levels; (v) changes in statutory, regulatory or interpretive rules governing the Medicaid program; and (vi) administrative matters relating to the accounting for and program recognition of the facility's resident care levels and its operating and property - related costs. Changes to System. The State of Minnesota is among those states having the highest proportion of nursing facility residents and Medicaid nursing home beds, and in the recent past, various proposals and studies have been directed to controlling future increases in or reducing existing levels of state funding for the Medicaid program, including an emphasis on encouraging care to be provided outside of nursing homes, especially for the lower case- mix levels (those residents needing the least amount of care). The 1995 Minnesota legislature enacted changes in allowable costs, spending limits and inflation factors. These changes included the removal of an eight cent per diem that had been added to the rates for the past two years to provide payment for additional costs mandated by the federal government; substitution of a new formula for the calculation of certain efficiency incentives; replacement of the current inflation index by the less -favorable Consumer Price Index; limitations on year-to-year increases in operating costs; and limitations on operating costs at "high-cost facilities." In addition to these changes in the cost -based Rate -setting System, the Minnesota legislature enacted a voluntary alternative payment system, under which a limited number of facilities, selected after application to and negotiation with the DHS, will be paid a fixed rate, adjusted only for inflation, in exchange for which such facilities will be exempt from a number of the current cost -based regulations such as private -pay equalization to the Medicaid rate for the first 100 days of admission, cost reports, audits, settle -ups and certain moratorium restrictions. The Nursing Facility is participating in the Alternative Payment System. The Alternative Payment System is described below under the caption "Contractual Alternative Payment System." In 1998, the Minnesota legislature enacted into law provisions for the "sunset" of the current Minnesota cost -based Rate -Setting System. The law authorizes and directs DHS to report to the legislature in January of 1999 with recommendations for implementation of a new system of Medicaid reimbursement for long-term care facilities in Minnesota. The 1998 legislation replaces the Rate -Setting System with a new payment mechanism for nursing homes for rate years beginning July 1, 2000. As proposed, the new system would include a formula that would pay a facility its previous year's rates plus a factor for inflation. The proposed system contains many features similar to the current Alternative Payment System and will also require each facility to establish a quality improvement program and to submit certain financial and performance data. Although the legislation envisions that specific details for the proposed system will be adopted during the 1999 legislative session, there can be no assurances that any such performance-based contract system will be enacted and implemented. Nor can there be any degree of certainty as to the effect of any such new system on the Company and its financial condition as compared with effect of reimbursement under the current cost -based system or the Alternative Payment System. MINNESOTA LAWS, REGULATIONS, AND INTERPRETATIONS THEREOF GOVERNING MEDICAID PAYMENTS HAVE CHANGED FROM TIME TO TIME IN THE PAST, AND FUTURE CHANGES J CAN BE EXPECTED. THE EFFECT OF ANY FUTURE CHANGES CANNOT BE PREDICTED WITH ANY CERTAINTY, BUT SUCH CHANGES COULD MATERIALLY ADVERSELY AFFECT THE OPERATION OF D-3 THE NURSING FACILITY OR THE FINANCIAL CONDITION OF THE COMPANY GENERALLY. See "BONDHOLDERS' RISKS -- Government Regulation and Reimbursement." Medicare. Under Minnesota law, facilities receiving Medicaid payments must also be certified for the Medicare program (Title XVIII of the federal Social Security Act). Medicare is funded directly by the federal government and is administered by the HCFA through fiscal intermediaries. Medicare coverage provides for nursing home care for up to 100 days following the discharge of a patient after a qualifying hospital stay. The facility is then permitted to charge interim rates for services subject to year-end adjustment based upon the actual average cost of services provided. The Balanced Budget Act of 1997 provided for consolidation of payments under Medicare and to accomplish that objective established a prospective payment system ("PPS"), to begin, for some providers, with cost report periods starting on or after July 1, 1998. Under PPS, Medicare payments for post-hospital extended care in skilled nursing facilities is based on the level of care required for each resident under a national, uniform resident assessment system required under federal law for all skilled nursing facilities. The Medicare PPS includes per diem payment for room and board services, nursing services, therapies, lab services, drugs and x-rays. See "BONDHOLDERS' RISKS -- Medicare Prospective Payment System" for further discussion of the PPS. There can be no assurances of the effect, if any, PPS will have on the net revenues of the Nursing Facility. Contractual Alternative Payment System Background. In 1995, changes in Minnesota law authorized the DHS to establish a contractual Alternative Payment System (the "Alternative Payment System") as an alternative to the current cost -based system used to calculate rates paid to nursing facilities for services provided under the Minnesota Medicaid program. The Alternative Payment System's stated purpose is to determine whether a contract -based reimbursement system reduces the level of regulation, paperwork and procedural requirements while providing greater flexibility and incentives for nursing facilities to stimulate competition and innovation while maintaining quality care. The Nursing Facility has participated in the Alternative Payment System since 1996. The current contract applies for the one-year period ending on May 2, 1999, although it is expected to be renegotiated annually. The maximum term, however, including renewals, is four years. The Nursing Facility's annual fee for participation in the Alternative Payment System is $1,000. Summary. The Alternative Payment System discontinues use of costs and cost limits in calculation of future facility rates. Instead, the contract rate system begins with the Nursing Facility's rates at the time of its initial contract and on each July l applies an annual inflation index. The Alternative Payment System also provides the Nursing Facility limited exemption from state provisions relating to equalization of private and Medicaid rates, related party therapy revenue, cost reporting, and auditing. The Alternative Payment System contract has various provisions allowing termination and a general description of the procedure for transition back to a cost -based payment system following termination. Alternative Payment System Description. Under the Alternative Payment System, the Nursing Facility was initially paid the total payment rates for each case-mix category that it was receiving under the cost -based reimbursement system in effect at the time the contract first became effective (in 1996). While payments will continue to be made by case-mix category, calculation of the Nursing Facility's future Medicaid payment rates are no longer based on incurred and reported costs. A cost -related rate adjustment is permitted only if the Nursing Facility seeks and receives approval for an exception to the nursing home moratorium through the established competitive administrative process or obtains an exception to the nursing home moratorium law through special legislation. Except as required with respect to Medicare cost reporting, the Nursing Facility no longer is required to file a cost report (as is currently required under the cost -based reimbursement system). In addition, the Nursing Facility is no longer subject to audits of historical costs or revenues, or paybacks or retroactive adjustments based on those costs or revenues for any reporting year beginning October 1, 1995 and thereafter. Any appeal concerning reporting D-4 year ended September 30, 1994 will be incorporated into the Nursing Facility's contract payment rate upon its resolution. Participation in the Alternative Payment System also entitles the Nursing Facility to limited exemption from the state equalization law, which requires facilities participating in the Medicaid program to charge other private pay residents the same rates paid under the Medicaid program. If, upon admission, it is determined by the Nursing Facility that a resident is likely to be discharged less than 101 days after admission, the Nursing Facility may charge such a resident a short -stay private pay rate equal to the greater of the Medicare payment rate (less charges for ancillary services) or the resident's case-mix payment rate. If the resident remains in the Nursing Facility longer than 100 days, the Nursing Facility must retroactively reduce the resident's payment rate to that resident's Medicaid case-mix rate effective from the date of admission and must reimburse the resident for any overpayments. Under the Alternative Payment System, the Nursing Facility may also negotiate with DHS to implement a smaller Medicare distinct part than would otherwise be allowed under Minnesota law. Currently, the Nursing Facility is obligated to maintain 50% of its beds as Medicare certified. The Nursing Facility is also allowed to change its arrangement for providing therapy services to its residents from utilizing an unrelated vendor to utilizing a related vendor or employees to provide therapy services. Under these circumstances, DHS is authorized to waive one or more of the existing state restrictions on payment for ancillary services. The Alternative Payment System contract requires the Nursing Facility to participate in efforts by DHS to develop outcome -based standards and measurements as well as a system of incentive -based payments for achieving specified outcomes in the provision of services under the Alternative Payment System. No significant action has been taken by DHS on these incentive -based payments. In addition to being subject to the Alternative Payment System's general rule that the Nursing Facility's future rates for payment under the Medicaid program will not be based on costs, the Nursing Facility must agree to abide by certain specific restrictions. In particular, with the exception of adjustments for project costs for approved moratorium exceptions as discussed above, the Nursing Facility's contract payment rate will not be adjusted to reflect any additional costs that the Nursing Facility incurs as a result of a construction project. In addition, the contract payment rate will not be adjusted for any change of ownership or control occurring during the contract term. If the contact is terminated, a cost report must be filed by the Nursing Facility for a reporting period beginning on the contract termination date and ending the September 30th which is at least six months but less than 18 months following the termination date. On each July 1 following the contract termination date, the contract payment rate will be adjusted by an inflation index until the Nursing Facility returns to cost -based reimbursement on the July 1 following the September 30 marking the end of the cost reporting period. The Company believes, however, based on legislation passed by the Minnesota legislature in 1998, that beginning in 1999, all facilities in the Alternative Payment System will, at the conclusion of their contracts, transition to a new system in which payment rates will not be determined by filed cost reports. Such new system will bear more resemblance to the Alternative Payment System than to the former cost -based Rate -Setting System. After the contract termination date, all other provisions of the Alternative Payment System will no longer apply to the Nursing Facility. The Alternative Payment System contract contains various termination provisions allowing the State to terminate the contract due to nonappropriation or withdrawal of legislative authority, for breach by the Nursing Facility, or in the event the State contracts with a managed care entity to provide services in the region where the Nursing Facility is located. Notwithstanding those provisions, the State or the Nursing Facility may terminate the contract without cause for any reason by giving the other 30 days' written notice. The contract also contains certain required provisions for State contracts concerning maintenance of records, audits, compliance with the Minnesota Government Data Practices Act, intellectual property rights, assignment of antitrust claims, indemnification, and requirements to report significant events that may affect the level of service of either the Nursing Facility or its key providers or subcontractors. [M, (This page has been left blank intentionally) APPENDIX E FORM OF BOND COUNSEL OPINION (This page has been left blank intentionally) DORSEY & WHITNEY LLP l MINNEAPOLIS WASHINGTON, D.C. LONDON BRUSSELS HONG KONG DES MOINES ROCHESTER COSTA MESA City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428 PILLSBURY CENTER SOUTH 220 SOUTH SIXTH STREET MINNEAPOLIS, MINNESOTA 55402-1498 TELEPHONE: (612) 340-2600 FAX: (612) 340-2868 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Re: $ Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 City of New Hope, Minnesota Ladies and Gentlemen: NEW YORK DENVER SEATTLE FARGO BILLINGS MISSOULA GREAT FALLS We have acted as Bond Counsel in connection with the authorization, issuance and sale by the City of New Hope, Minnesota (the "City"), of its Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999, in the aggregate principal amount of $ (the "Bonds"). For the purpose of rendering this opinion, we have examined: (1) a Loan Agreement (the "Loan Agreement"), dated as of March 1, 1999, between the City and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the Company); (2) the Indenture of Trust (the "Indenture"), dated as of March 1, 1999, between the City and U.S. Bank Trust National Association, as trustee (the "Trustee"); (3) the Regulatory Agreement, dated as of March 1, 1999 (the "Regulatory Agreement") between the Company and the Trustee; (4) certified copies of resolutions of the governing body of the City approving and authorizing the execution and delivery of the Loan Agreement, the Indenture, the Bonds and other documents; (5) the form of the Bonds; and (6) such other documents as we consider necessary in order to render this opinion. As to questions of fact material to our opinion, we have assumed the authenticity of and relied upon the certified .—) DORSEY & WHITNEY LLP Page -2- City of New Hope, Minnesota Dougherty Summit Securities LLC proceedings, certificates, affidavits and other documents furnished to us without undertaking to verify the same by independent investigation. From such examination and on the basis of laws, regulations, rulings and decisions in effect on the date hereof, it is our opinion that: (1) The City is a municipal corporation validly existing under the Constitution and laws of the State of Minnesota and is authorized thereby to issue the Bonds and to enter into and carry out the provisions of the Loan Agreement and the Indenture. (2) The Loan Agreement and the Indenture have each been duly and validly authorized, executed and delivered by the City and are valid instruments legally binding on the City and enforceable in accordance with their terms. (3) The Bonds have been duly and validly authorized, executed and delivered by the City and are valid and binding special limited obligations of the City enforceable in accordance with their terms and the terms of the Indenture. (4) The Bonds are not general obligations or an indebtedness of the City within the meaning of any constitutional or statutory limitation, and do not constitute or give rise to a general liability of the City or a charge against its general credit or taxing power, but are payable solely from revenues pledged to the payment thereof and secured by the provisions of the Indenture, under which the payments made by the Company pursuant to the Loan Agreement are to be made to the Trustee for the account of the City and deposited in a special trust account created by the City for that purpose. (5) All interests of the City in the Loan Agreement including amounts payable thereunder to the City by the Company (excepting only the right of the City to payment or reimbursement of legal and administrative costs and to indemnification) have been duly pledged and assigned to the Trustee and a security interest therein granted by the Indenture; provided, however, we express no opinion as to the priority of such pledge, assignment and security interest. (6) The Bonds are "private activity bonds" within the meaning of Section 141 and "qualified 501(c)(3) bonds" within the meaning of Section 145 of the Internal Revenue Code of 1986 (the "Code"). The Bonds bear interest that is not includable in gross income of the owner thereof for federal income tax purposes or in taxable net income of individuals, estates and trusts for Minnesota income tax purposes. Interest on the Bonds is includable in taxable income DORSEY & WHITNEY LLP Page -3- City of New Hope, Minnesota Dougherty Summit Securities LLC of corporations and financial institutions for purposes of the Minnesota franchise tax. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax applicable to all taxpayers or the Minnesota alternative minimum tax applicable to individuals, estates and trusts„ but is includable in "adjusted current earnings" for the purpose of determining the alternative minimum taxable income of corporations for purposes of the federal alternative minimum tax. The Code establishes certain requirements (the "Federal Tax Requirements") that must be met subsequent to the issuance of the Bonds in order that, for federal income tax purposes, interest on the Bonds not be included in gross income. The Federal Tax Requirements include, but are not limited to, requirements relating to the expenditure of Bond proceeds, restrictions on the investment of Bond proceeds prior to expenditure and the requirement that certain earnings on the "gross proceeds" of the Bonds be paid to the federal government. Noncompliance with the Federal Tax Requirements may cause interest on the Bonds to become subject to federal and Minnesota income taxation retroactive to their date of issue, irrespective of the date on which such noncompliance occurs or is ascertained. The Loan Agreement, the Regulatory Agreement and Indenture contain provisions which, if complied with, will satisfy the Federal Tax Requirements. In expressing the opinion in paragraph (6), we have assumed compliance by the Company, the City and the Trustee with the provisions of the Loan Agreement, the Regulatory Agreement and the Indenture. Except as expressly stated in this opinion, we express no opinion as to federal or state tax consequences arising from ownership of the Bonds or receipt of interest thereon. It is to be understood that the rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture and the Loan Agreement may be subject to (i) state and federal laws, rulings, decisions and principles of equity affecting remedies, and (ii) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable. In rendering this opinion we have relied upon the opinion of Orbovich & Gartner Chartered, St. Paul, Minnesota, counsel to the Company, that the Company is an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code, that the Loan Agreement and the Regulatory Agreement have been duly authorized, executed and delivered by the Company, and as to the characterization of the Company's activities in connection with the properties financed from proceeds of the Bonds as activities that do not constitute an unrelated trade or business under Section 513(a) of the Code. DORSEY & WHITNEY LLP Page -4- City of New Hope, Minnesota Dougherty Summit Securities LLC We have also relied upon certifications made by officers of the City and Company, including certifications as to the use of the proceeds of the Bonds, the nature, use, cost and useful life of the facilities financed by the Bonds and other matters material to the tax-exempt status of the interest borne by the Bonds. Dated this _ day of March, 1999. 1 GP:533583 v4 J APPENDIX F EXCERPTS FROM APPRAISAL (This page has been left blank intentionally) Tisdell Appraisal Services, Inc. Certified General Real Property Appraisers 13529 Knox Dr. • P.O. Box 5010 Phone: (612) 894-2488 • Fax: (612) 894-2296 December 24, 1998 Edwin A. Martini, Jr. Minnesota Masonic Homes 11501 Masonic Home Drive Bloomington, Minnesota 55437-3699 Burnsville, MN 55337 Re: A complete appraisal with a summary report of the North Ridge Care Center and the North Ridge Apartments, located at 5430 and 5500 Boone Avenue North in New Hope, Minnesota. Mr. Martini, I hereby certify that I have personally inspected the above described properties on December 4, 1998 for the purpose of estimating a Market Value. It is my opinion that the Market Value of the above described properties as of the date of inspection is: North Ridge Care Center: $34,700,000 North Ridge Apartments: $14,300,000 Total Value All Real Estate: $49,000,000 Market Value is defined as the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus. (See Appraisal Report Supplement and Certification for a complete definition of Market Value.) This appraisal is subject to the terms and conditions of the "Appraisal Report Supplement and Certifications" on pages 4 and 5 of this report. If Tisdell Appraisal Services, Inc. may be of further assistance, please call at your convenience. Appraisal report by: Tisdell Appraisal Services, Inc. Joe T. Tisdell / Appraiser ID# 4002279 3 APPRAISAL REPORT SUPPLEMENT AND CERTIFICATION DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus. Implicitly in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and acting in what they consider their best interests; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale. *Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgment. ENVIRONMENTAL DISCLAIMER ON HAZARDOUS MATERIALS: In this appraisal assignment, the existence of potentially hazardous material used in construction or maintenance of the building, such as the presence of urea -formaldehyde foam insulation, asbestos, and/or the existence of substances such as toxic waste or radon gas, and/or the existence of any other environment influence that may adversely affect the value of the property, was not observed by me. I, however, am not qualified to detect the present existence of such materials/substances/ influences on or in the property. The existence of urea -formaldehyde foam insulation, or other potentially hazardous material, or toxic waste or radon gas, may have effect on the value of the property. I CERTIFY THAT TO THE BEST OF MY KNOWLEDGE AND BELIEF THAT: -I have met the "Competency Provision of USPAP". My attached resume states my licensing and experience that qualify me for an appraisal of this type. -I have met the 14 USPAP guidelines that were attached to the engagement letter. -The statements of fact contained in this report are true and correct. -The reported analyses, opinions, and conclusions are limited only to the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. -I have no present or prospective interest in the property that is the subject of this report, and I have no interest or bias with respect to the parties involved. -My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. -This assignment is not based upon a requested minimum valuation, a specific valuation, or approval of any proposed financing. 0 APPRAISAL REPORT SUPPLEMENT AND CERTIFICATION (CONT.) -My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. -I have made a personal inspection of the property that is the subject of this report. -No one provided significant professional assistance to the person signing this report. CONTINGENT AND LIMITING CONDITIONS: The certification of the appraiser stated above are subject to the following conditions and to such other specific and limiting conditions as are set forth by the appraiser in the report. 1. The appraiser assumes no responsibility for matters of a legal nature affecting the property appraised or the title thereto, nor does the appraiser render any opinion as to the title, which is assumed to be good and marketable. The property was considered as though under responsible ownership. 2. Any sketch in the report may show approximate dimensions and is included to assist the reader in visualizing the property. The appraiser has made no survey of the property. 3. The appraiser is not required to give testimony or appear in court because of having made the appraisal with reference to the property in question, unless arrangements have been previously made therefore. 4. Any distribution of the valuation in the report between land and improvements applies only under the existing program of utilization. The separate valuations for land and building must not be used in conjunction with any other appraisal and are invalid if so used. 5. The appraiser assumes that there are no hidden or unapparent conditions of the property, subsoil, or structures, which would render it more or less valuable. The appraiser assumes no responsibility for such conditions, or for engineering which might be required to discover such factors. 6. Information, estimates, and opinions furnished to the appraiser, and contained in the report, were obtained from sources considered reliable and believed to be true and correct. However, no responsibility for accuracy of such items furnished the appraiser can be assumed by the appraiser. 7. Disclosure of the contents of the appraisal is governed by the Bylaws and Regulations of the professional society with which the appraiser is affiliated. 8. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to the property value, the identity of the appraiser, professional designations, reference to any professional appraisal organizations, or the firm with which the appraiser is connected), shall be used for any purposes by anyone but the client specified in the report, the borrower if appraisal fee paid by same, the mortgagee or its successors and assigns, mortgage insurer, consultants professional appraisal organizations, any state or federally approved financial institution, any department agency, or instrumentality of the United States or any state or the District of Columbia, without the previous written consent of the appraiser: nor shall it be conveyed by anyone to the public through advertising, public relations, news, sales or other media, without the written consent and approval of the appraiser. 9. On all appraisals, subject to satisfactory completion, repairs, or alterations, the appraisal report and value conclusion are contingent upon completion of the improvements in a workmanlike manner. 10. In addition to meeting the requirements of the (FIRREA) Financial Institutions Reform, Recovery and Enforcement Act of 1989, and (OCC) Office of the Comptroller of the Currency, the a sisalme requirements of the (OTS) Office of Thrift Supervision. /--�� _ 9i oe T. Tisdell Date 5 SUMMARY OF SALIENT FACTS & CONCLUSIONS Property Address: North Ridge Care Center: 5430 Boone Avenue North, New Hope, Minnesota 55428 North Ridge Apartments: 5500 Boone Avenue North, New Hope, Minnesota 55428 Owner of Record: North Ridge Care Center, Inc. 5430 Boone Avenue North, New Hope, Minnesota 55428 Date of Appraisal: December 4, 1998 Property Rights Appraised: Fee Simple Estate Purpose of Appraisal: Estimate Market Value of the unencumbered fee simple estate Land Area: North Ridge Care Center: 358,980 SF (8.24 acres) North Ridge Apartments: 214,629 SF (4.93 acres) Property Description: The subject properties consist of a 559 bed skilled nursing facility with a partial basement. There is also a 204 unit senior apartment and assisted living facility with partial basement. Zoning: North Ridge Care Center: R - 4 North Ridge Apartments: R - 5 Highest and Best Use: Present Use Assessed Value and Taxes: North Ridge Apartments: Assessed Value: $12,682,700 1998 Real Estate Taxes: $511,884.76 North Ridge Apartments: Assessed Value: $8,869,000 1998 Real Estate Taxes: $252,951 SUMMARY OF SALIENT FACTS & CONCLUSIONS (Continued) Values Indicated: North Ridge Care Center Sales Comparison Approach $32,160,000 Cost Approach: $26,041,000 Income Approach: $34,713,000 Final Estimate of Value: $34,713,000 or rounded: $34,700,00 North Ridge Apartments Sales Comparison Approach $13,916,000 Cost Approach: $14,441,000 Income Approach: $14,343,000 Final Estimate of Value: $14,343,000 or rounded: $14,300,000 Total Value All Real Estate $49,000,000 7 SCOPE OF THE APPRAISAL The term, "Scope of the Appraisal", means the extent of the process of collecting, confirming and reporting data. The professional standards clearly impose a responsibility on the appraiser to determine the extent of the work and of the report in relation to the significance of the appraisal problem. As part of the "Scope of the Appraisal", the appraiser signifies acceptance of this responsibility. After determining that this appraiser is qualified to complete this type of an assignment, I accepted this appraisal assignment. I was aware that the purpose of the appraisal was for financing. I then followed standard procedure as follows: The municipality and the county in which the property is located was contacted to obtain basic information, such as legal ownership, tax information, community information, utilities and zoning. The site was then inspected, at which time photographs were taken. The first step in the appraisal was to determine which approaches were applicable in order to arrive at a value of the subject. It was determined that the Cost Approach, the Market Data Approach and the Income Approach were applicable approaches. These approaches to value were reviewed and examined for errors, proofread, and then a summary was written, arriving at the final estimate of value. All information was verified with the City of New Hope and the Hennepin County Assessor by the appraiser. OWNERSHIP OF RECORD North Ridge Care Center and North Ridge Apartments North Ridge Care Center, Inc. 5430 Boone Avenue North New Hope, Minnesota 55428 91 PROPERTY RIGHTS APPRAISED The subject property was appraised including the property rights of "fee simple" title. "Fee Simple" title is defined as absolute ownership unencumbered by any other interest or estate subject only to the four powers of government. SUBJECT PROPERTY SALES HISTORY Both the North Ridge Care Center and North Ridge Apartments have been owned by North Ridge Care Center, Inc. since their original construction, which was 1966 for North Ridge Care Center and 1983 for North Ridge Apartments. No changes of ownership have occurred during that entire time. F HIGHEST AND BEST USE The definition of highest and best use is the use that maximizes return to the property. Real estate is valued in terms of its highest and best use. The highest and best use of the land or site, if vacant and available for use, may be different from the highest and best use of the improved property. This will be true when the improvement is not an appropriate use but yet makes a contribution to the total property value in excess of the value of the site. The highest and best use must meet the following four criteria: 1. It must be physically possible. The use as stated must be within the capability of the tract itself and the services available to it. The use must be based on the physical improvements on the tract and their condition. 2. It must be financially feasible. The net operating income that can reasonably be expected from that property operated in that use must provide a rate of return satisfactory to the buyer/investor. 3. It must be legally permissible. The use as stated must comply with local restrictions such as zoning, building codes, and environmental regulations. 4. It must be maximally productive. The highest and best use is the one that produces the highest net operating income with consistent risk for that particular market. Highest and best use of the site as if vacant The highest and best use of the sites, if vacant and ready to be built upon, would be ideal for a health care related facility such as senior housing, assisted living, multiple family housing, etc., assuming there were a need. The site's locations and zoning do not readily lend themselves to commercial, office, warehouse, or industrial development. Highest and best use of the property as improved North Ridge Care Center was originally constructed as a skilled nursing facility in 1966 and had additions constructed in 1969, 1978, 1980, and 1998. North Ridge Apartments were originally constructed as senior apartments and assisted living facility in 1983 with an office addition constructed in 1988. The facilities have experienced favorable occupancy rates and have been financially successful by health care facility standards. The properties, as existing, appear to have been developed consistent with the highest and best use of the sites, are an acceptable use for the area, and meet all the criteria for the highest and best use, as improved. No alternative uses of the facilities as improved are consider to be warranted. Therefore, skilled nursing, senior apartments, and assisting facilities are considered to represent the highest and best use. M MARKET TRENDS The State of Minnesota has approximately 448 Medicaid certified health care facilities, which totals almost 50,000 nursing home beds, ranking second only to Wisconsin in number of beds. Revenues to these facilities comes from Medicaid, which is funded jointly by federal and state governments, federal Medicare programs, private payers, and insurance plans. If current trends continue, it is estimated that the total cost of long term care could double by the year 2010. Indications are that Minnesota will need approximately 9,000 nursing beds within 20 years to accommodate an expected 32% increase in the number of people age 75 and over. Current occupancy rates in the state average 90%. With current and expected trends continuing and with limited competition, financial risk is generally low for good quality providers in areas where population patterns are either level or showing growth. In the case of the subject properties, occupancy rates have been historically high, and at present, North Ridge Care Center is at a 98 to 99 per cent and North Ridge Apartments is also at a 98 to 99 per cent. North Ridge Care Center and North Ridge Apartments are considered to be the the "provider of choice" in the West and Northwest Metro area. SUBJECT PROPERTY MARKETING TIME The salability of any given facility is subject to state regulations, which change, for better or worse, as years pass. Regulations currently in place do add incentives for health care facility ownership and the health care market has become active recently. Since health care facility financing packages are normally complicated, it can take a few months to make those arrangements. Therefore, it is my estimation that the average marketing time for the facility would be 6 months to 1 year. 11 SUBJECT PROPERTY LEGAL DESCRIPTIONS North Ridge Care Center Parcel #06-118-21-43-0037: Lot 2, Block 1, North Ridge Care Center Addition. North Ridge Apartments Parcel #06-118-21-43-0036: Lot 1, Block 1, North Ridge Care Center Addition 1998 HENNEPIN COUNTY ASSESSOR'S VALUES AND TAXES Assessed Value Real Estate Taxes Parcel #06-118-21-43-0037 $12,682,700* $511,884.76* Parcel #06-118-21-43-0036 $8,869,000** $252,951** *Land Value: $893,000/Improvements Value: $11,789,700. Includes special assessment of $4,207 and $2,299 annual solid waste assessment **Land Value: $923,000/Improvements Value: $7,946,000. Includes solid waste assessment of $1,607. 12 AREA DESCRIPTION The subject properties are located in New Hope, Minnesota, a second ring suburb community located approximately 10 miles Northwest of Minneapolis. New Hope is surrounded by the cities of Crystal and Robbinsdale to the Northeast and East, Golden Valley to the South, Plymouth to the West, and Brooklyn Park to the North. The Minneapolis/St. Paul Metro area had approximately 2,839,000 residents, according to a 1994 estimate. New Hope has a current estimated population of 21,698 residents and has shown little population growth since 1994, primarily because the majority of the available land has been developed, and any significant growth is stymied because the community is "landlocked" by the surrounding communities. U.S. Highway 169 runs in a North/South direction on the West edge of the community, and Highway 9 (Rockford Road) runs in an East/West direction. Highway 100, which is a short distance East of the East edge of the community, also runs in a North/South direction. Commuting time to downtown Minneapolis is estimated to be 15 minutes and downtown St. Paul in approximately 25 minutes. Egan Companies is the largest employer in the community with over 625 employees, and Lakeside Limited, Inc. is second with 350 employees, roughly the same amount as the North Ridge Care Center and Apartments, followed by Tool Products Company with 340 employees. UTILITIES The City of New Hope receives electrical service from Northern States Power Company, natural gas service from Minnegasco, and has its own water and sewer departments. Telephone service is provided by U.S West. See Community Profile in addendum. FLOOD HAZARD ZONE The subject properties are not located in a flood hazard zone, according to FEMA. Zone C. Community Map #270177 OO1B. Map date is 1/2/81. 13 NEW ISSUE NOT RATED In the opinion of Bond Counsel according to laws, regulations, rulings and decisions in effect on the date of delivery of the Series 1999 Bonds, interest on the Series 1999 Bonds is not includible in gross income for federal income tax purposes or in taxable net income of individuals, estates or trusts for State of Minnesota income tax purposes. Interest on the Series 1999 Bonds is not an item of tax preference for purposes of determining the federal alternative minimum tax imposed on individuals or for purposes of determining the Minnesota alternative minimum tax imposed on individuals, estates or trusts. Interest on the Series 1999 Bonds is subject to the Minnesota franchise tax imposed on corporations and financial institutions and is includible in adjusted current earnings for purposes of the federal and Minnesota alternative minimum taxes imposed on corporations. See "TAX MATTERS" herein. $46,875,000 CITY OF NEW HOPE, MINNESOTA Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 Dated: March 1, 1999 Due: As shown on the inside front cover The Series 1999 Bonds are limited obligations of the City of New Hope, Minnesota (the "City") and do not constitute general obligations or a debt, liability, or pledge of the full faith and credit of the City, the County of Hennepin or the State of Minnesota or of any political subdivision or agency thereof. The Series 1999 Bonds are not secured by or payable from any taxes, revenues or assets of the City except for the City's interest in the Loan Agreement and amounts held pursuant to the Indenture. Undefined capitalized terms used on this cover are defined in the text hereof or Appendix C. Pursuant to the Loan Agreement, all proceeds of the Series 1999 Bonds will be loaned by the City to Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"). Proceeds of the Series 1999 Bonds will be used with other funds of the Company to (1) acquire the 559 -bed North Ridge Care Center nursing home facility, the 180 -unit North Ridge Apartments facility and the 25 -unit North Ridge Personal Care Suites facility as more fully described herein (the "Facilities"), from North Ridge Care Center, Inc. (the "Seller"), and make certain improvements to the Facilities, (2) fund the Reserve Fund and (3) pay certain costs of issuance of the Series 1999 Bonds. The Series 1999 Bonds will be payable solely from the moneys held for the payment thereof by U.S. Bank Trust National Association, in St. Paul, Minnesota, as Trustee, or its successors, under the Indenture, including amounts held in the Reserve Fund and Loan Repayments required to be made under the Loan ement by the Company. The Series 1999 Bonds will be secured by a mortgage lien on and security interest in the Facilities and the rents and revenues of the Facilities. An investment in the Series 1999 Bonds is subject to certain risks. See "BONDHOLDERS' RISKS" herein. The Series 1999 Bonds will be issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Principal of the Series 1999 Bonds is payable at the principal corporate trust office of the Trustee, and interest on the Series 1999 Bonds, payable each March 1 and September 1, commencing September 1, 1999 and will be payable on such dates by check or draft mailed to the persons shown as the registered owners of the Series 1999 Bonds on the fifteenth day of the month preceding each interest payment date. The Series 1999 Bonds are hereby offered for purchase by investors solely in Book -Entry form. Therefore, all Series 1999 Bonds will be issued as fully registered bonds without coupons, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), to whom all payments and notices with respect to the Series 1999 Bonds will be made. As long as the Series 1999 Bonds are in Book -Entry forth, purchasers of Series 1999 Bonds will not receive actual Series 1999 Bond certificates. Instead purchasers of Series 1999 Bonds will become the beneficial owners of such Series 1999 Bonds, with such ownership evidenced solely in the Book -Entry System records maintained by DTC and certain Participants (and Indirect Participants) who participate with DTC in maintaining the Book -Entry System. See "THE BONDS -- Book -Entry System." The Series 1999 Bonds are subject to redemption and prepayment as described herein under "THE SERIES 1999 BONDS --Redemption Prior to Maturity." The Series 1999 Bonds are offered, subject to prior sale, when, as and if accepted by the Underwriter named below and subject to an opinion as to validity and tax exemption by Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel, the approval of certain matters by Orbovich & Gartner Chartered, St. Paul, Minnesota, as counsel to and for the benefit of the Company, the approval of certain matters by Gray, Plant, Monty, Monty & Bennett, P.A., Minneapolis, Minnesota, as counsel to and for the benefit of the Underwriter, and certain other conditions. It is expected that delivery of the Series 1999 Bonds will be made on or about March 17, 1999, against payment therefor. Subject to applicable securities laws and prevailing market conditions, the Underwriter intends, but is not obligated, to effect secondary market trading in the Series 1999 Bonds. For information with respect to the Underwriter, see "UNDERWRITING" herein. DOUGHERTY SUMMIT SECURITIES LLC The date of this Official Statement is March 9, 1999 Maturity Schedule $11,650,000 Serial Series 1999 Bonds Maturity Principal Interest March 1 Amount Rate Price 2000 $665,000 4.20% 100% 2001 690,000 4.40 100 2002 725,000 4.60 100 2003 755,000 4.80 100 2004 790,000 5.00 100 2005 830,000 5.10 100 2006 875,000 5.20 100 2007 920,000 5.30 100 2008 970,000 5.40 100 2009 1,020,000 5.45 100 2010 1,075,000 5.50 100 2011 1,135,000 5.55 100 2012 1,200,000 5.60 100 $4,020,000 5.75% Term Series 1999 Bonds Due March 1, 2015 - Price 100% $6,540,000 5.90% Term Series 1999 Bonds Due March 1, 2019 - Price 100% $24,665,000 5.875% Term Series 1999 Bonds Due March 1, 2029 - Price 98.267% (Plus Accrued Interest from March 1, 1999) THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION BY REASON OF THE PROVISIONS OF SECTION 3(a)(2) OF THE SECURITIES ACT OF 1933, AS AMENDED. THE REGISTRATION OR QUALIFICATION OF THESE SECURITIES UNDER THE SECURITIES OR BLUE SKY LAWS OF THE STATES IN WHICH THEY HAVE BEEN REGISTERED OR QUALIFIED, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES SHALL NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THESE SECURITIES OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS Page SUMMARY INFORMATION..................................................................................................................................... ii INTRODUCTORY STATEMENT............................................................................................................................... l BONDHOLDERS' RISKS............................................................................................................................................3 THE SERIES 1999 BONDS........................................................................................................................................10 SECURITY FOR THE BONDS..................................................................................................................................14 SOURCES AND USES OF FUNDS...........................................................................................................................16 THECITY...................................................................................................................................................................16 DEBT SERVICE SCHEDULE....................................................................................................................................17 ENFORCEABILITY OF OBLIGATIONS..................................................................................................................17 APPROVAL OF LEGAL PROCEEDINGS................................................................................................................18 TAXMATTERS.........................................................................................................................................................18 UNDERWRITING......................................................................................................................................................20 SECURITIES LAWS CONSIDERATIONS FOR MINNESOTA RESIDENTS........................................................20 CONTINUING DISCLOSURE...................................................................................................................................20 LITIGATION..............................................................................................................................................................21 MISCELLANEOUS....................................................................................................................................................21 Appendix A: THE COMPANY AND THE FACILITIES Appendix B: FINANCIAL STATEMENTS OF THE SELLER Appendix C: CERTAIN DEFINITIONS AND SUMMARY OF DOCUMENTS Appendix D: MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM Appendix E: FORM OF BOND COUNSEL OPINION Appendix F: EXCERPTS FROM APPRAISAL No person has been authorized by the City, the Underwriter, or the Company to give any information regarding the Series 1999 Bonds, the Company, the Facilities, the offering contained herein and related matters or to make any representations other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which it is unlawful for any person to make such offer or solicitation. The information set forth herein has been provided by or on behalf of the Company. Neither the City nor the Underwriter makes any guarantee as to accuracy or completeness of such information, and its inclusion herein is not to be construed as a representation by the Underwriter or the City. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement at any time nor any sale made hereunder creates any implication that the information herein is correct as of any time subsequent to its date. The following is a summary of certain information contained in this Official Statement. The summary is not comprehensive or complete and is qualified in its entirety by reference to the complete Official Statement. Undefined capitalized terms used below are defined in Appendix C hereto or elsewhere in this Official Statement. The Series 1999 Bonds .................. $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 to be issued by the City of New Hope, Minnesota, in denominations of $5,000 or whole multiples thereof. See "THE SERIES 1999 BONDS -- Interest; Maturity; Payment" and "THE CITY." Payment ......................................... Interest accrues on the Series 1999 Bonds at the rates set forth on the inside of the cover page hereof and is payable on March I and September I of each year (commencing September 1, 1999) by check or draft of the Trustee mailed on such dates to the persons who were the registered owners of Series 1999 Bonds as of the 15th day of the month preceding each interest payment date. The Series 1999 Bonds are being issued solely in Book -Entry form. See "THE SERIES 1999 BONDS -- Interest; Maturity; Payment" and "THE SERIES 1999 BONDS -- Book -Entry System." Redemption or Prepayment ................................ As more fully described herein, Series 1999 Bonds are subject to redemption and prepayment prior to maturity, as follows: (a) optional redemption upon request of the Company in whole or in part on any day on or after March 1, 2009 at a redemption price equal to the principal amount so redeemed plus accrued interest to the redemption date and with a premium on certain dates as described herein; (b) mandatory redemption at par plus accrued interest upon a Determination of Taxability; (c) extraordinary redemption at par plus accrued interest due to the occurrence of certain events of casualty or condemnation; (d) for Tenn Bonds, mandatory redemption at par plus accrued interest due to sinking fund redemption; and (e) acceleration due to an Event of Default occurring under the Indenture, the Loan Agreement or the Mortgage. See "THE SERIES 1999 BONDS -- Redemption Prior to Maturity." Use of Proceeds ............................. Pursuant to the Loan Agreement, proceeds of the Series 1999 Bonds will be loaned to the Company, which, with other funds will be applied to (i) acquire and improve the Facilities, (ii) fund the Reserve Fund, and (iii) pay certain costs of issuance. See "SOURCES AND USES OF FUNDS." The Company ................................ The Company is Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation. Pursuant to the Loan Agreement, the Company will agree to make Loan Repayments sufficient to pay when due all principal of and interest on the Series 1999 Bonds. See Appendix A: "THE COMPANY AND THE FACILITIES." Security for the Series 1999 Bonds ................... The Series 1999 Bonds will be secured by a mortgage lien on and security interest in the Facilities, including the land and fixed assets associated with the Facilities. The Series 1999 Bonds will also be secured by an assignment of rents and revenues from the Facilities (subject to the pledge of the Company's accounts receivable to secure Short -Term Indebtedness), and by amounts on deposit in separate accounts pledged to such series held by the Trustee under the Indenture, including amounts in the Reserve Fund. The Series 1999 Bonds are limited obligations of the City and do not constitute general obligations or a debt, liability, or pledge of the full faith and credit of the City, the State of Minnesota or of any political subdivision or agency thereof. The Series 1999 Bonds are not secured by or payable from any taxes, revenues or assets of the City except for the City's interest in the Loan Agreement and amounts held pursuant to the Indenture as described herein. See "SECURITY FOR THE BONDS." t!i! Pro Forma Debt Service Coverage ........................................ Set forth below are historic pro forma computations of debt service coverage for the noted years based on historic operating data of the Seller for the most recent three fiscal years and the projected debt service on the Series 1999 Bonds. See "BONDHOLDERS' RISKS -- Nature of Pro Forma Debt Service Coverage." Historic Pro Forma Debt Service Coverage For the Years Ending December 31 1998 1997 1996 Income Available for Debt Service(1) $4,034,370 $4,364,612 $4,497,874 Debt Service on the Series 1999 Bonds(2) 3,334,089 3,334,089 3,334,089 Debt Service Coverage Ratio 1.21x 1.31x 1.35x (1) Income Available for Debt Service is defined as net operating income plus non cash items (depreciation and amortization) and interest. Adjustments have been made for real estate taxes on the Nursing Facility (which were paid by the Seller but are not expected to be paid by the Company after 1999 except as required under a payment in lieu of tax agreement with the City beginning in the year 2009). Proceeds of officer life insurance have been excluded from the 1997 Income Available for Debt Service. (2) Represents maximum annual debt service on the Series 1999 Bonds for any year ending on a March I. Trustee and Paying Agent .............. U.S. Bank Trust National Association, in St. Paul, Minnesota. Investment Risks ............................ An investment in the Bonds involves risks, including, but not limited to, those discussed under `BONDHOLDERS' RISKS." (This page has been left blank intentionally.) OFFICIAL STATEMENT $46,875,000 CITY OF NEW HOPE, MINNESOTA Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 INTRODUCTORYSTATEMENT The following is a brief introduction as to certain matters discussed elsewhere in this Official Statement and is qualified in its entirety as to such matters by such discussion and the text of the actual documents described or referenced. Any capitalized term not required to be capitalized or otherwise defined herein is used with the meaning assigned in Appendix C or in the Indenture (defined below), the Loan Agreement (defined below) or other document with respect to which the term is used. Any definition of a term contained in the text hereof is for ease of reference only and is qualified in its entirety by any corresponding definition in Appendix C or the documents with respect to which such term relates. The Appendices hereto are an integral part of this Official Statement and each potential investor should review the Appendices in their entirety. General This Official Statement provides information regarding the Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (the "Series 1999 Bonds"), to be issued by the City of New Hope, Minnesota (the "City"), under Minnesota Statutes, Chapter 462C (the "Act"), in the above -stated aggregate principal amount pursuant to an Indenture of Trust (the "Indenture"), between the City and U.S. Bank Trust National Association, in St. Paul, Minnesota (the "Trustee"). See Appendix C: "THE INDENTURE" Pursuant to a Loan Agreement (the "Loan Agreement'), between the City and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), proceeds of the sale of the Series 1999 Bonds will be loaned to the Company. Proceeds of the Series 1999 Bonds and other funds will be applied to (i) acquire an existing 559 -bed nursing home facility (the "Nursing Facility") and a connected building that contains 25 assisted living suites (the "Personal Care Suites") and 180 units of senior independent living apartments (the "Apartments" and together with the Personal Care Suites and the Nursing Facility, the "Facilities") from North Ridge Care Center, Inc., a Minnesota corporation (the "Seller"), and fund certain improvements thereto; (ii) fund the Reserve Fund created by the Indenture; and (iii) pay costs of issuance of the Series 1999 Bonds. See "SOURCES AND USES OF FUNDS" and Appendix A: "THE COMPANY AND THE FACILITIES." At least 20% of the units in the Apartments must be set aside for persons or families with incomes less than 50% of median area income, as described in Appendix C: "THE REGULATORY AGREEMENT." Additional bonds ("Additional Bonds") may be issued that will be secured by the Indenture and payable equally and ratably on a parity with the Series 1999 Bonds as described herein. See "THE SERIES 1999 BONDS -- Additional Bonds." The Series 1999 Bonds and any Additional Bonds are collectively referred to herein as the "Bonds." The Company The Company is organized as a Minnesota nonprofit corporation and an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. The Company is managed by a seven -member governing body controlled by members of the board of trustees of Minnesota Masonic Home, a Minnesota nonprofit corporation, the Company's sponsor organization. Minnesota Masonic Home and other organizations affiliated with the Company have no obligations with respect to the Bonds. See Appendix A: "THE COMPANY." Loan Repayments; Mortgage Proceeds of the Series 1999 Bonds will be loaned to the Company pursuant to the Loan Agreement under which the Company will agree to make monthly payments ("Loan Repayments") which, if fully and promptly paid, shall be in amounts and at times sufficient to pay when due the scheduled principal of and interest on the Bonds. See Appendix C: "THE LOAN AGREEMENT." Pursuant to the Indenture, the City will pledge to the Trustee, for the benefit of the holders of the Bonds, all of its interest in the Loan Agreement (other than certain indemnification and expense reimbursement payments) to secure payment of the principal of, premium, if any, and interest on the Series 1999 Bonds. Pursuant to a Mortgage Agreement between the Company and the City, which will be assigned to the Trustee (the "Mortgage"), the Series 1999 Bonds will be secured by a mortgage lien on and security interest in the land and fixed assets of the Facilities. Pursuant to the Mortgage, the Series 1999 Bonds will also be secured by an assignment of all rents and revenues derived from the Facilities. Property subject to the Mortgage can be released under certain conditions. See "SECURITY FOR THE BONDS -- Mortgage," and Appendix C: "THE MORTGAGE." Reserve Fund On the date of issuance of the Series 1999 Bonds, proceeds of the Series 1999 Bonds or other funds, in an amount equal to the maximum annual debt service on the Series 1999 Bonds, will be deposited in the Reserve Fund to secure the Bonds. Amounts in the Reserve Fund may be used by the Trustee to pay principal and premium of and interest on the Bonds (including any Additional Bonds) in the event available sums in the Bond Fund created by the Indenture are insufficient for such purpose. See "SECURITY FOR THE BONDS -- Reserve Fund" and Appendix C: "THE INDENTURE -- Reserve Fund." Special Covenants of the Company The Loan Agreement places certain restrictions on the incurrence of indebtedness by the Company, unless certain debt service coverage tests are satisfied. Additionally, subject to certain conditions, the Company has agreed to charge rates sufficient to pay operating costs and 110% of debt service on the Bonds. The Company also agrees in the Loan Agreement to make deposits on a monthly basis to the Repair and Replacement Fund. The Loan Agreement restricts the Company from transferring any funds or assets to any person for less than fair market value, provided, however, that assets may be transferred to an affiliate of the Company as long as the Current Assets of the Company are equal to or greater than 125% of the Current Liabilities of the Company immediately after the transfer. See "SECURITY FOR THE BONDS -- Special Covenants." Bondholders' Risks Certain risks associated with an investment in the Series 1999 Bonds are discussed under "BONDHOLDERS' RISKS." Miscellaneous This Official Statement (including the Appendices hereto) contains descriptions of, among other matters, the Indenture, the Loan Agreement, the Mortgage, the Company, the City, the Facilities and the Series 1999 Bonds. Fla Such descriptions and information do not purport to be comprehensive or definitive. All references to documents described herein are qualified in their entirety by reference to such documents, copies of which are available for inspection at the principal corporate trust office of the Trustee. BONDHOLDERS' RISKS No person should purchase any Series 1999 Bonds without carefully reviewing the following information, which summarizes some, but not all, factors that should be carefully considered before such purchase. Adequacy of the Company's Revenues The payment of principal of, premium, if any, and interest on the Bonds is intended to be made from payments of the Company under the Loan Agreement. The ability of the Company to pay debt service on the Bonds is dependent upon the Company's ability to maintain occupancy in the Facilities and to charge and collect rates sufficient to pay operating expenses and debt service. Future revenues and expenses of such Facilities are subject to conditions which may change in the future to an extent that cannot be determined at this time. Such conditions may include the inability to maintain adequate occupancy levels due to inadequate demand for beds or units, noncompetitive rates or services, delays in receiving payments or reductions in payments from third party payors, disadvantageous general or local economic conditions, inability to control expenses, and other factors. Acquisition Risk The Facilities are being acquired by the Company from the Seller pursuant to an Asset Purchase Agreement dated December 2, 1998, as amended (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Seller made certain representations and warranties regarding the condition of the Facilities and their historical operations. The historical results of operations of the Seller with respect to the Facilities do not provide any guaranty as to future results. Under the Purchase Agreement, the Seller also agrees to provide certain indemnification to the Company, limited, however, to the amount of approximately $1,000,000. If the Company attempted to collect on such indemnification, the Seller could raise a variety of defenses, and the time and expense involved in collection may be prohibitive. Government Regulation and Reimbursement General. Nursing facilities are subject to extensive governmental regulation through state licensing requirements and, in the case of nursing facilities, complex laws and regulations imposed at the federal and state level for facilities to remain licensed and certified to receive payments under the so-called Medicaid and Medicare programs. The Minnesota Department of Health renews nursing home licenses annually and makes periodic inspections to determine compliance with licensure and certification requirements. Continuing licensure to provide nursing care is essential to the operation of the Nursing Facility. Further, revenues of the Nursing Facility are significantly dependent on payments under the Medicaid program, such that a loss of certification for participation in the Medicaid program, or an elimination of or a material reduction in the availability of Medicaid payments, would materially adversely affect the operations and financial condition of the Nursing Facility. See Appendix D. Changes in law. Licensing and certification requirements are subject to change, and there can be no assurance that the Nursing Facility will be able to maintain all necessary licenses or certifications, or that it will not incur substantial costs in doing so. Both federal and state regulation relating to nursing and residential care and the payment thereof have been subject to change in the past, and future change can be expected. The effect of such changes may materially adversely affect the operations and financial condition of the Nursing Facility. In attempts to limit federal and state expenditures, there have been, and the Company expects that there will continue to be, a number of proposals to limit Medicare and Medicaid payments, including those for care provided by nursing facilities. The Balanced Budget Act of 1997 included reductions in projected Medicare spending over the five-year period of 1998 through 2002 by $I IS billion, which is a reduction of approximately 8.5%. Although certain of these cutbacks may affect nursing facilities, at this time, the effect of such reductions on nursing facilities has not been determined. Previous federal changes include limitations on payments to nursing facilities under the Medicare and Medicaid programs and an increased emphasis on cost control. Further, various health care reform proposals 3- have been made recently which may result in changes in general health care funding in the near future. It is presently unclear which, if any, of such proposals might be actually enacted into law or their effect on the Nursing Facility. The methods of determining the amount and availability of payments under the Medicaid program in Minnesota have been subject to a variety of significant changes in the past, and future changes can be expected to occur. The Minnesota Legislature in 1998 established a sunset with respect to the current cost -based reimbursement system, to be replaced by a performance-based contract reimbursement system. The details of the successor reimbursement system have not yet been determined. Further, various studies and proposals for changes in Minnesota reflect a general emphasis on directing residents requiring lower levels of care to non -licensed facilities and otherwise encouraging non -institutional care for the aged to save Medicaid costs. See Appendix D. In addition to the foregoing, it is possible in the future that assisted living facilities such as the Personal Care Suites will be subject to regulation as a healthcare facility. It is impossible to predict the impact such regulation might have on the Personal Care Suites. Dependence on Medicaid. For calendar year 1998, approximately 63% of the revenues of the Nursing Facility were derived from Medicaid payment rates established under the Minnesota Medical Assistance ("MA") Program. States currently fund a substantial portion of Medicaid payments and exercise considerable discretion in determining payments allowed to care providers. Regulations promulgated by the federal Health Care Financing Administration provide that states are not required to pay for long-term care services on a cost -related basis. As a result, the reimbursement payments allowed by many states are based less on the actual costs of the nursing services and more on formula rates which the governmental agencies deem reasonable, creating a more competitive environment for nursing facilities. The political emphasis on budget cutting, further changes in the Medicaid and Medicare funding and changes in reimbursement patterns of the federal government and the State of Minnesota may have an adverse effect upon the revenues of the Nursing Facility. See Appendix D. Contractual Alternative Payment System. The Nursing Facility participates in the Minnesota Contractual Alternative Payment System (the "Alternative Payment System") for payment of services provided under the MA program. The Alternative Payment System discontinues use of costs and cost limits in calculation of future facility rates. Rates are set by contract and are initially those being received at the time the Nursing Facility entered into the contract, with future rates adjusted only by an annual inflation index and for administratively or legislatively approved moratorium exception projects. Nursing facilities participating in the Alternative Payment System also receive limited exemptions from certain state regulatory and reimbursement restrictions. (See Appendix D: "Contractual Alternative Payment System.") Given the limitations on rate increases under the Alternative Payment System, there can be no assurance that such rates in the future will be sufficient for timely payment in full of all debt service and for the proper operation of the Nursing Facility. Limitations under the cost -based reimbursement system previously applicable to the Nursing Facility created certain risks and negative incentives. Payment rates under the Alternative Payment System, while more predictable, are generally not sensitive to changes in facilities' actual costs, except that payment by case-mix level continues. The Nursing Facility participates in the Alternative Payment System pursuant to a contract with the Minnesota Department of Human Services ("DHS"). Adverse interpretation of contract language, of a foreseeable or unforeseeable nature, could increase the Nursing Facility's costs or decrease its revenue. The Alternative Payment System, its terms, its funding, and its continued existence are all subject to annual legislative review and potential revision. Standard Minnesota Medicaid Reimbursement. Although the Nursing Facility currently participates in the Alternative Payment System, it is possible, for various reasons, that it would be reimbursed in the future under the standard MA program, all as further described in Appendix D. If subject in the future to the standard MA program, there can be no assurance that such reimbursement rates will be sufficient for timely payment in full of all debt service and for the proper operation of the Nursing Facility. 4- Medicare Prospective Payment System The Balanced Budget Act of 1997 created some projections for the reduction of funding for skilled nursing facilities over the next five years in the amount of $9.5 billion. Some of the provisions to carry this out are as follows: • Implementation of the Prospective Payment System (PPS) for cost report periods on or after July 1, 1998. This will be accomplished over a three-year phase-in period. • Consolidated billing, which is anticipated to be implemented sometime after July 1, 1999. HCFA has indefinitely postponed implementation because of technical difficulties. • Therapy Services effective January 1, 1999, will have caps applied to Part B provision. Medicare PPS is a price -based reimbursement system with an all-inclusive per diem structure, covering routine services, capital costs, and select ancillary services (including pharmacy, lab, x-ray, medical supplies). Under PPS, bundled per diem payments will be made to Skilled Nursing Facilities (SNFs) and the SNF will in turn pay vendors. Per diem payments will be based on a case-mix adjusted patient classification system called Resource Utilization Group III (RUGS III) with 44 levels of care. Under RUGS II1, the case mix is determined using the Minimum Data Set (MDS) assessment tool. For determining future per diem payments under the PPS system, costs based on the 1995 year end Medicare cost report from each SNF will be inflated and will be geographically adjusted for a wage index, and all Medicare Part A services will be bundled into these costs. Statutorily excluded from PPS are standard physician services. During the first transition year, reimbursement will be 75% facility specific and 25% at the federal rate. During the second transition year, reimbursement will be 50% facility specific and 50% at the federal rate. During the third transition year, reimbursement will be 25% facility specific with 75% at the federal rate. Thereafter, the reimbursement will be 100% federal rate. The Medicare facility specific rate includes the facility's costs from the Medicare cost report beginning during the 1995 fiscal year (10/1/94 - 9/30/95) and includes an estimated amount for Part B covered services provided during a Part A stay. The earliest consolidated billing may become effective is July 1, 1999 with a six-month transition period for those SNFs without the necessary systems and billing capability. Consolidated billing applies to all Medicare participating skilled nursing facilities. It applies to all residents with Part A/Part B coverage and to all Part A ancillary services and to all Part B services with the exception of exempted physician -related services. Under PPS, all services must be provided directly by SNF employees or under arrangement with outside suppliers, and billed under the SNF provider number. PPS has established caps for Part B therapy services of $1,500 per year per beneficiary. Services to be billed directly by SNFs include physical therapy, occupational therapy, speech language pathology, laboratory tests, diagnostic x-ray, prosthetic devices, TPN/PEN, dressing, ambulance services and others currently being defined. See Appendix D. The impact of consolidated billing on SNFs will likely include the revision of vendor contracts and the ability to share risk with those vendors, allowing the SNFs to manage their internal costs for supplies. Each SNF will need to establish and monitor systems for tracking each individual resident and the clinical use of supplies and ancillary services. The Company does not expect the operations of the Nursing Facility to be materially adversely affected by these new Medicare changes. "Fraud and Abuse" Laws and Regulations Anti -Kickback Laws. The Federal Medicare/Medicaid Anti -Fraud and Abuse Amendments to the Social Security Act (the "Anti -Kickback Law") make it a criminal felony offense (subject to certain exceptions) to 5- knowingly or willfully offer, pay, solicit or receive, remuneration in order to induce business for which reimbursement may be provided under the Medicare or Medicaid programs. The arrangements prohibited under the Anti -Kickback Law can involve hospitals, physicians and other health care providers such as nursing homes. Prohibited arrangements may include joint ventures between providers, space and equipment rentals, purchases of physician practices, physician recruiting programs and management and personal services contracts. In addition to criminal penalties, violations of the Anti -Kickback Law can lead to civil monetary penalties and exclusion from the Medicare and Medicaid programs for not less than five years. Exclusion from either of these programs would have a material adverse impact on the operations and financial condition of the Nursing Facility. Billing and Reimbursement Practices. Health care providers, including nursing homes, also are subject to criminal, civil and exclusionary penalties for violating billing and reimbursement standards under state and federal law. In recent years, state and federal enforcement authorities have investigated and prosecuted providers for submitting false claims to Medicare or Medicaid for services not rendered or for misrepresenting the level or necessity of services actually rendered in order to obtain a higher level of reimbursement. The Department of Health and Human Services Office of Inspector General ("OIG") and the Department of Justice ("DOJ") have conducted several joint investigation and prosecution projects in the last two years involving a significant number of hospitals and certain other health care providers nationwide in an effort to recover alleged overpayments. In some instances, the OIG and DOJ have recovered double or treble damages, plus penalties and interest, and have imposed strict compliance measures to ensure correct billing practices in the future. Managed Care Nursing facilities throughout the United States are facing a health care environment that is becoming increasingly dominated by the development of risk-based managed care plans. The necessity for nursing facilities to contract with managed care plans is increasing not only for privately insured residents but also for certain Medicare beneficiaries. States are experimenting with innovative delivery and payment systems to provide care to Medicare beneficiaries, and in Minnesota there are certain plans that provide for contractual risk -sharing in the delivery of services to individuals who are eligible for both Medicaid and Medicare. The current trend in health care reimbursement is for the federal government to enable the states to use managed care as a way to reduce costs without the need for federal interference and approval. There can be no assurances that the Nursing Facility will choose to, or will be able to, enter into satisfactory contracts with such managed care plans or that the revenues generated for the Nursing Facility by any such managed care plans with which the Nursing Facility may choose to contract will be sufficient to meet the Nursing Facility's actual operating costs. Nature of Pro Forma Debt Service Coverage Page (iii) above contains data prepared on a historic pro forma basis calculating debt service coverage on the Series 1999 Bonds based on the most recent three fiscal years of income available for debt service of the Seller. Actual debt service coverage will inevitably vary from that shown on a historical basis, and the actual results may be materially worse due to various conditions, including, but not limited to, higher than anticipated operating costs, increased or new competition, lack of or decline in market demand, changes in demographics, changes in the local or national economies, and changes in governmental regulations. The use of historic operating data in such computations is not a forecast of future operations of the Company. Future performance will vary from such past performance because of numerous reasons that may include cost inflation greater than any increase in revenues, changes in state or local regulations governing payments under the Medicaid system, and most, if not all, of the factors discussed above. Year 2000 Problem The Year 2000 problem is a result of computer programs being written using two digits rather than four digits to define the applicable year. Computer programs that have data -sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a computer system failure or miscalculations causing disruptions of operations, including among other things, the temporary inability to process transactions, send invoices, or engage in other routine activities. M The Company is conducting a review of the computer systems upon which the Facilities are reliant to assess vulnerability to the Year 2000 problem. In addition to its internal computer systems, the Company is reliant upon the computer systems of the Trustee, Federal and Department of Human Services computers, consultants, agents and other contracting parties, all of which may be indirectly reliant upon computer systems of other third parties. At the present time, the Company is unable to determine the extent to which the Company is vulnerable to any failure of third parties to solve their Year 2000 problems. There can be no assurance that the computer systems of other entities upon which the Company directly or indirectly relies will be timely modified or converted to address the Year 2000 problem. To the extent the Year 2000 problem is not resolved by such third parties, there could be an interruption in the payment of Medicaid or Medicare reimbursements, interest or principal payments made on the Series 1999 Bonds, or in the administration of services to the Facilities. Other Regulatory Matters Various health and safety regulations and statutes apply to the Nursing Facility and are administered and enforced by various state agencies. Violations of certain health and safety standards could result in closure of all or a portion of licensed facilities or imposition of the requirement of complying with such standards. The Nursing Facility is currently in compliance with all existing material regulations and standards. Such standards are, however, subject to change and there can be no guarantee that in the future the Nursing Facility will meet these changed standards or that the Nursing Facility will not be required to expend significant sums in order to comply with such changed standards. Environmental Matters There are numerous environmental risks that can arise in connection with real estate investments, including, without limitation: (1) areas of on-site and off-site environmental contamination; (2) past, present, or future violations of environmental laws; (3) adequacy of waste handling procedures; and (4) potential environmental restrictions on future uses of property. The Facilities, like other types of commercial real estate, may be subject to such environmental risks which can result in substantial costs to the Company from any mandatory clean-up, damages, fines or penalties that might be ordered with respect thereto. Any environmental problems discovered with respect to the Facilities could have an adverse effect on the collateral value thereof. A Phase I environmental survey dated as of January 4, 1999 has been performed on the site of the Facilities without indication of the presence of environmental contaminants at a level requiring remediation or notice to governmental authorities. Value of Mortgaged Property Security for the Bonds includes a mortgage lien on the land, and fixed assets of the Facilities. Further security is provided through an assignment of all rents and revenues of the Facilities, subject to the pledge of accounts receivable with respect to the incurrence of Short Term Indebtedness. Attempts to foreclose under the Mortgage may be met with protracted litigation and/or bankruptcy proceedings, which proceedings cause delays. See "ENFORCEABILITY OF OBLIGATIONS." Thus, there can be no assurance that upon the occurrence of an Event of Default, the Trustee will be able to obtain possession of the Facilities and generate revenue therefrom in a timely fashion. Furthermore, the Facilities are designed and operated as special purpose structures and related facilities, which will reduce their value in foreclosure or sale. For these and other reasons, there can be no assurance that proceeds derived from the sale of the Facilities upon default and foreclosure of the Mortgage would be sufficient to pay the Bonds and accrued interest thereon. Nature of Appraisal Tisdell Appraisal Services, Inc., Burnsville, Minnesota, was retained by the Company to appraise the market value of the Facilities. Excerpts from the appraisal are contained in Appendix F hereto. Such appraisal reflects solely the opinion of the appraiser and is not a guarantee of the value of the Facilities. In particular, the -7- appraisal does not evaluate the net proceeds which might be receivable in the event of a forced sale of the Facilities or foreclosure of the Mortgage if any Event of Default should occur under the Loan Agreement. Effect of Affiliates The Company is one of five subsidiaries of Minnesota Masonic Home, a Minnesota nonprofit corporation ("MMH"). MMH and the other subsidiaries of MMH have no liability for payment of principal of or interest on the Series 1999 Bonds. Under the Loan Agreement, the Company may transfer cash to its affiliates so long as the Current Assets of the Company are equal to or greater than 125% of the Current Liabilities of the Company immediately after the transfer. See "SECURITY FOR THE BONDS -- Special Covenants." Tax -Exempt Status of Company and Other Tax Matters In order to maintain its status as an organization treated as exempt from federal income taxation, the Company will be subject to a number of requirements affecting its operations. Failure to satisfy these requirements, the modification of or repeal of certain existing federal income tax laws, any change in Internal Revenue Service policies or positions, or a change in the Company's method of operations, purposes, or character could result in the loss by the Company of its tax-exempt status. The Internal Revenue Service has been scrutinizing the acquisition of health care facilities by nonprofit organizations exempt from federal income taxation and the use of tax-exempt bonds to finance such acquisitions. Failure by the Company to maintain its tax-exempt status or a determination that the operation of the Facilities constitutes an unrelated trade or business of the Company could adversely affect the funds available to the Company to make payments under the Bonds by subjecting the income from the Facilities to federal income taxation and by disallowing any deduction to the Company for interest paid on the Bonds and could result in the includability, of the interest on the Bonds in gross income for federal income tax purposes. The exclusion of interest on the Series 1999 Bonds from gross income for federal income tax purposes is also dependent upon continuing compliance by the Company with the requirements of the Regulatory Agreement. Normal Risks Attending Any Investment in Real Estate There are many diverse risks attending any investment in real estate, not within the Company's control, which may have a substantial bearing on the profitability and financial feasibility of the Facilities. Such risks include possible adverse use of adjoining land, fire or other casualty, condemnation, increased taxes, changes in demand for such Facilities, decline in the neighborhood and local or general economic conditions and changing governmental regulations. Labor Matters In recent years, many nursing homes have suffered from an increasing scarcity of skilled nursing personnel and aides to staff their facilities. The trend in the scarcity of qualified personnel could eventually force the Nursing Facility to pay increased salaries to such personnel as competition for such employees intensifies, and, in an extreme situation, could lead to difficulty in keeping the Nursing Facility licensed. To date however, the Nursing Facility has not experienced any significant staffing shortages of skilled nurses or nursing assistants. The Nursing Facility has never needed to use pooled labor. The Company does not contemplate that any of its employees will belong to or become affiliated with any labor union. The Company does not know of any current activity at the Facilities with respect to the formation of a collective bargaining unit. In early 1998, a labor union unsuccessfully solicited employees at the Facilities. Successful attempts have been made to organize employees of similar facilities in the State of Minnesota and there is no assurance that a future effort will not be made at the Facilities, and if such an effort were successful, there is no assurance what impact it would have on labor costs. -8- Insurance Although the Company will be required to obtain certain insurance as set forth in the Loan Agreement, there can be no assurance that the Facilities will not suffer losses for which insurance cannot be or has not been obtained or that the amount of any such loss, or the period during which the Facilities cannot generate revenues, will not exceed the coverage of such insurance policies. The Company is insured against patient abuse claims. In recent years, the number of lawsuits and the dollar amount of patient abuse recoveries have been increasing dramatically nationwide, resulting in increased insurance premiums. Competition The Facilities face competition from other existing nursing and residential care or rental facilities, and may face additional competition in the future if and when there occurs the construction of new, or the renovation of existing, facilities. Note, however, that since 1983, there has been a legislative moratorium on the construction or addition of nursing care beds subject to certain exceptions. While the moratorium is expected to continue indefinitely, there is not assurance that legislative changes will not permit the addition of nursing care beds in the Company's service area in the future. Additionally, home health care and other alternatives to institutionalized care are expected to become increasingly competitive with care provided in nursing homes. No assurances can be given that occupancy or rates of the Facilities will not be adversely affected by such competition. See Appendix A: "THE FACILITIES." Effect of Federal Bankruptcy Laws on Security for the Bonds Bankruptcy proceedings and equity principles may delay or otherwise adversely affect the enforcement of Bondholders' rights in the property granted as security for the Bonds. Furthermore, if the security for the Bonds is inadequate for payment in full of the Bonds, bankruptcy proceedings and equity principles may also limit any attempt by the Trustee to seek payment from other property of the Company, if any. See "ENFORCEABILITY OF OBLIGATIONS." Also federal bankruptcy law permits adoption of a reorganization plan even though it has not been accepted by the holders of a majority in aggregate principal amount of the Bonds if the Bondholders are provided with the benefit of their original lien or the "indubitable equivalent." In addition, if the bankruptcy court concludes that the Bondholders have "adequate protection," it may (i) substitute other security subject to the lien of the Bondholders and (ii) subordinate the lien of the Bondholders (a) to claims by persons supplying goods and services to the Company after bankruptcy and (b) to the administrative expenses of the bankruptcy proceeding. The bankruptcy court may also have the power to invalidate certain provisions of the Loan Agreement and Mortgage that make bankruptcy and related proceedings by the Company an event of default thereunder. Absence of Rating No rating as to the creditworthiness of the Series 1999 Bonds has been requested from any organization engaged in the business of publishing such ratings. Typically, unrated bonds lack liquidity in the secondary market in comparison with rated bonds. As a result of the foregoing, the Series 1999 Bonds are believed to bear interest at higher rates than would prevail for bonds with comparable maturities and redemption provisions that have investment grade credit ratings. Series 1999 Bonds should not be purchased by any investor who, because of financial condition, investment policies or otherwise, does not desire to assume, or have the ability to bear, the risks inherent in an investment in the Series 1999 Bonds. Secondary Market The Underwriter expects to effect secondary market trading in the Series 1999 Bonds. However, the Underwriter is not obligated to repurchase any Series 1999 Bonds at the request of the holders thereof and cannot assure that there will be a continuing secondary market in the Series 1999 Bonds. In addition, adverse developments, including insufficient cash flow from the Facilities, may have an unfavorable effect upon the bid and asked prices for the Series 1999 Bonds in the secondary market. SM THE SERIES 1999 BONDS Interest; Maturity; Payment The Series 1999 Bonds will be issued in the aggregate principal amounts and will bear interest as set forth on the cover hereof payable semiannually on March 1 and September 1 (each an "Interest Payment Date") of each year commencing on September 1, 1999. Interest will be calculated on the basis of a 360 -day year with twelve months of thirty days. The ownership of any Series 1999 Bonds offered hereby will be beneficial ownership and not record ownership so long as the Series 1999 Bonds are held in book -entry form. While in such form, the Series 1999 Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company. See this section, "Book -Entry System." The Series 1999 Bonds are issuable in fully registered form, in the denomination of $5,000 and integral multiples thereof not exceeding the principal amount maturing in any year. In the event any Series 1999 Bond is mutilated, lost, stolen or destroyed, the City may execute, and the Trustee may authenticate, a new Series 1999 Bond in accordance with the provisions therefor in the Indenture, and the City and the Trustee may charge the owner of such Series 1999 Bond with reasonable fees and expenses in connection therewith and require indemnity satisfactory to them. Book -Entry System The Depository Trust Company ("DTC"), New York, New York, will act as the securities depository for the Series 1999 Bonds. The Series 1999 Bonds will be fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee), with one Series 1999 Bond certificate issued for all Series 1999 Bonds of each stated maturity. DTC 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 securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book - entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Series 1999 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 1999 Bonds on DTC's records. The ownership interest of each actual purchaser of each such Series 1999 Bond (`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 1999 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in Series 1999 Bonds, except in the event that use of the Book - Entry System for the Series 1999 Bonds is discontinued. To facilitate subsequent transfers, all Series 1999 Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Series 1999 Bonds with DTC and their -10- registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 1999 Bonds on deposit; DTC's records reflect only the identity of the Direct Participants to whose account such Series 1999 Bonds are credited, which may or may not be the Beneficial Owners. The 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. Redemption notices shall be sent to Cede & Co. If less than all of the Series 1999 Bonds 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. will consent or vote with respect to Series 1999 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 1999 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 1999 Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on a payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of DTC, and the disbursement of such payment to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 1999 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 1999 Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Series 1999 Bonds will be printed and delivered. DTC management is aware that some computer applications, systems, and the like for processing data ("Systems") that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC has informed its Participants and other members of the financial community (the "Industry") that it has developed and is implementing a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to security holders, book - entry deliveries, and settlement of trades within DTC ("DTC Services"), continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, DTC's ability to properly perform its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third party vendors from whom DTC licenses software and hardware, and third party vendors on whom DTC relies for information on the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the Industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant; and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate. - 11 - According to DTC, the foregoing information with respect to DTC has been provided to the Industry for informational purposes only and is not intended to serve as a representation, warrant, or contract modification of any kind. The information in this section concerning DTC and DTC's Book -Entry System has been obtained from DTC. The City and the Company take no responsibility for the accuracy thereof. Redemption Prior to Maturity Mandatory Sinking Fund Redemption. The Term Bonds of the Series 1999 Bonds will be subject to mandatory redemption prior to maturity by lot in such manner as the Trustee may determine through the operation of mandatory sinking fund payments as provided in the Indenture, at the principal amount so to be redeemed plus accrued interest to the redemption date, in accordance with the following schedules: * Maturity Date Series 1999 Bonds Maturing March 1, 2015 Redemption Date Principal March 1 Amount 2013 $1,265,000 2014 1,340,000 2015* 1,415,000 Series 1999 Bonds Maturing March 1, 2019 Redemption Date Principal March 1 Amount 2016 $1,495,000 2017 1,585,000 2018 1,680,000 2019* 1,780,000 Series 1999 Bonds Maturing March 1, 2029 Redemption Date Principal March 1 Amount 2020 $1,885,000 2021 1,995,000 2022 2,110,000 2023 2,235,000 2024 2,365,000 2025 2,505,000 2026 2,650,000 2027 2,805,000 2028 2,970,000 2029* 3,145,000 -12- At the option of the Company, exercised not less than 45 days prior to any sinking fund redemption date, the Company may (i) deliver to the Trustee for cancellation Term Bonds in any aggregate principal amount desired, or (ii) receive a credit in respect of such sinking fund obligation for any Term Bonds which prior to such date have been purchased or redeemed (otherwise than through the operation of the sinking fund) and not otherwise previously been applied as a credit against sinking fund payments. Optional Redemption. Series 1999 Bonds maturing after March 1, 2009 are subject to redemption prior to maturity upon request of the Company in whole or in part on any day on or after March 1, 2009, in such order of maturities as shall be selected by the Company and by lot within a maturity, at their principal amount, plus accrued interest and a premium, expressed as a percentage of principal amount, set forth in the following table during the designated redemption periods: Redemption Periods Premium March 1, 2009 through and including February 28, 2010 2% March 1, 2010 through and including February 28, 2011 1% March 1. 2011 and thereafter NONE Extraordinary Redemption Upon Certain Events of Calamity or Condemnation. The Bonds are subject to extraordinary redemption, in whole, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, on any date selected by the Company for which timely notice of redemption can be given, if the Facilities shall be damaged or destroyed or taken in condemnation proceedings to such extent that in the reasonable judgment of the Company the Facilities cannot reasonably be restored within twelve months to a condition permitting conduct of the normal operations of the Company and at a cost not exceeding the Net Proceeds of the insurance or condemnation award. Mandatory Redemption Upon Determination of Taxability. All Series 1999 Bonds are subject to mandatory redemption in whole prior to maturity, on the first day for which proper notice of call can be given, at their principal amount, plus accrued interest, without premium, upon the occurrence of a Determination of Taxability. A "Determination of Taxability" means receipt by the Trustee of a statutory notice of deficiency by the Internal Revenue Service, a ruling from the National Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction which holds in effect that interest payable on the Series 1999 Bonds is includable for federal income tax purposes in the gross income of a Bondholder because of any act or omission of the Company (or any successor or transferee) or of the Trustee; provided, however, that the Company shall have an opportunity for no more than 180 days after receipt by the Trustee to contest any such statutory notice, ruling or final decision and that no such statutory notice, ruling or final decision shall be deemed a "Determination of Taxability" if the Company is contesting the same during such 180 day period in good faith until the earliest of (a) abandonment of such contest by the Company, (b) the date on which such statutory notice, ruling or final decision becomes final, or (c) the 181st day after the initial receipt by the Trustee of such statutory notice, ruling or final decision; and provided further that no Determination of Taxability shall arise from the interest on the Series 1999 Bonds being included (1) in income for purposes of calculating alternative minimum taxable income of any taxpayer; (2) in earnings and profits of branches of foreign corporations for purposes of calculating the "branch profits tax'; (3) within gross income to certain recipients of social security or railroad retirement benefits; or (4) as passive investment income to certain S corporations which have subchapter C earnings and profits. Acceleration. Upon an Event of Default under the Indenture, all Bonds are subject to acceleration and prepayment on any date selected by the Trustee at their principal amount, plus accrued interest, without premium. Notice of Redemption; Payment The Trustee is required to cause notice of the call for any redemption to be mailed to the then owner of each Bond to be redeemed, by first class mail, not less than 30 days prior to the redemption date. Failure to mail or any defect in any such notice shall not affect the validity of any proceedings for the redemption of any Bond for which notice was properly given. Interest on any Bonds or portions thereof called for redemption ceases to accrue -13- on the date established for redemption pursuant to such notice if notice of redemption has been properly given and if funds sufficient to redeem the Bonds have been deposited with the Trustee on or before the redemption date. Ownership The person in whose name a Series 1999 Bond is registered may be treated for all purposes as the owner thereof. Additional Bonds Additional Bonds may be issued which will be secured on an equal and parity basis with the Series 1999 Bonds. Additional Bonds (other than certain Additional Bonds issued to refund Bonds) may be issued only upon satisfying a debt service test substantially similar to the test applied to the Company's right to incur indebtedness. See Appendix C: "THE INDENTURE -- Additional Bonds." SECURITY FOR THE BONDS Limited Obligations THE BONDS WILL BE LIMITED OBLIGATIONS OF THE CITY AND WILL NOT CONSTITUTE A DEBT, LIABILITY, GENERAL OBLIGATION OR PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY, THE STATE OF MINNESOTA OR ANY POLITICAL SUBDIVISION THEREOF. THE ISSUANCE OF THE BONDS DOES NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO PAY THE BONDS FROM TAXES OR TO MAKE ANY APPROPRIATION THEREFOR. NO BONDHOLDER WILL HAVE THE RIGHT TO DEMAND PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS OUT OF ANY FUNDS OR FROM ANY SOURCES OF REVENUE OTHER THAN THOSE EXPRESSLY PLEDGED TO THE PAYMENT OF THE BONDS PURSUANT TO THE INDENTURE. Assignment of Loan Agreement; Loan Payments Under the Indenture, the City has pledged its interest in the Loan Agreement (including Loan Repayments by the Company, but excluding certain rights of the City to payment of fees, expenses and indemnification) to the Trustee to secure the Bonds. Monthly Loan Repayments under the Loan Agreement will be paid directly to the Trustee and will be sufficient, if paid promptly and in full, to pay when due all principal of and interest on the Series 1999 Bonds. The Trustee is authorized to exercise the rights of the City and enforce the obligations of the Company under the Loan Agreement. Reserve Fund On the date of issuance of the Series 1999 Bonds, proceeds of the Series 1999 Bonds in an amount equal to the maximum scheduled annual principal and interest on such Bonds shall be deposited in the Reserve Fund. On the closing date for issuance of any series of Additional Bonds issued on a parity basis with the Series 1999 Bonds, funds equal to the Reserve Requirement (defined in Appendix C) for such series of Additional Bonds shall be deposited in the Reserve Fund. Amounts in the Reserve Fund may be used by the Trustee to pay principal of, premium, if any, and interest on the Series 1999 Bonds (and all parity Additional Bonds) if amounts available in the Bond Fund are insufficient for such purpose. If amounts in the Reserve Fund are in excess of the Reserve Requirement, such excess amounts shall be transferred to the Bond Fund. In accordance with the Loan Agreement, the Company must restore amounts in the Reserve Fund if amounts therein are less than the Reserve Requirement by monthly paying cash equal to one-sixth of the deficiency, commencing on the fifteenth day of the second month after the transfer. Amounts in the Reserve Fund may be invested in Qualified Investments, but with maturities no longer than seven years. Under certain circumstances amounts in the Reserve Fund may be used to pay the Trustee's fees. -14- Mortgage Under the Mortgage, the Company will grant to the City a mortgage lien on and security interest in land and fixed assets of the Facilities, as well as all rents and revenues derived from the Facilities, subject to the pledge of the Company's accounts receivable to secure Short -Term Indebtedness. In turn, the City will assign its interest in the Mortgage to the Trustee. The Mortgage will secure the payments due in respect of Series 1999 Bonds (and parity Additional Bonds). The mortgage lien and security interest, and assignment of rents and revenues will encumber the real estate site of the Facilities, all improvements and all equipment and furnishings located from time to time at the Facilities owned by the Company, subject to certain Permitted Encumbrances. See Appendix C: "THE MORTGAGE." Special Covenants Rates and Charges; Unrestricted Net Assets. In the Loan Agreement, subject to legal requirements, the Company agrees to fix, charge and collect such rates, fees and charges for the use of Facilities of and for the services furnished by the Company such that Net Revenues Available for Debt Service (defined in Appendix C) in each Fiscal Year will be at least 110% of the Principal and Interest Requirements on Long -Term Indebtedness (defined in Appendix C) during such Fiscal Year. Notwithstanding the foregoing, if the Company cannot meet such financial covenant, no Event of Default will occur so long as (i) the Company promptly employs an Independent Management Consultant (defined in Appendix C) to make recommendations and (ii) to the fullest extent feasible, the Company follows the recommendations of the consultant. See Appendix C: "THE LOAN AGREEMENT -- Rate Covenant." Limitations on the Company's Debt. The Loan Agreement restricts the incurrence of debt by the Company. The Company may incur Short Term Indebtedness (Indebtedness maturing within 365 days), provided such Indebtedness shall not exceed 5% of the Total Revenues (defined in Appendix C) of the Company for the preceding Fiscal Year. Short Term Indebtedness may be incurred by a pledge and assignment of all or any part of the Company accounts receivable and certain other personal property, but in no other manner. With certain exceptions, the Company may not incur Long -Term Indebtedness (any Indebtedness other than Short -Term Indebtedness) to refinance outstanding Long -Term Indebtedness or to finance or refinance facilities (other than Additional Bonds issued to refund Bonds) unless, among other things, (i) an Independent Accountant states that for each of the last two Fiscal Years Net Revenues Available for Debt Service of the Company exceeded 115% of maximum Principal and Interest Requirements on Long -Term Indebtedness (including the proposed Long -Term Indebtedness, but excluding refinanced Indebtedness), or (ii) an Independent Accountant provides an examined financial forecast to the effect that, for each of the three Fiscal Years following the year when any facilities financed thereby are placed in service, or if no facilities are to be financed thereby, after the Fiscal Year in which the proposed Long -Term Indebtedness is to be incurred, estimated Net Revenues Available for Debt Service of the Company will be not less than 120% of maximum Principal and Interest Requirements on Long -Term Indebtedness (including the proposed Long -Term Indebtedness, but excluding refinanced Indebtedness) for each year after placement in service or incurrence as appropriate. For further conditions and qualifications as to when Indebtedness may be incurred by the Company, including application of the debt service test if the Company has "Balloon Indebtedness," see Appendix C: "THE LOAN AGREEMENT -- Limitation On Debt." Transfers. Under the Loan Agreement, the Company is prohibited from transferring any funds or assets to any other person for less than the fair market value thereof, unless the assets are obsolete, wom out or otherwise of no further value to the operation of the Facilities. However, assets may be transferred to an Affiliate without limit as to amount if the Trustee receives a Company Certificate stating that immediately after the transfer the Current Assets of the Company will be equal to or greater than 125% of the Current Liabilities of the Company. Repair and Replacement Fund. Under the Loan Agreement, the Company is obligated to make monthly deposits to the Repair and Replacement Fund in an amount equal to $20 times the number of units in the Apartments and Personal Care Suites. Amounts in the Repair and Replacement Fund are to be disbursed for the payment of items of repair, improvement and replacement with respect to the Apartments and Personal Care Suites which constitute capital expenditures under generally accepted accounting principles. -15- Defeasance Upon certain terms and conditions specified in the Indenture, the Bonds or portions thereof will be deemed to be paid and the security provided in the Indenture, the Loan Agreement and the Mortgage may be discharged prior to maturity or redemption of the Bonds upon the provision for the payment of such Bonds. In that case, the Bonds will be secured solely by the cash and securities deposited with the Trustee for such purpose. SOURCES AND USES OF FUNDS Following are the expected sources and uses of funds (exclusive of accrued interest) as presently estimated for the costs associated with the acquisition of the Facilities: Series 1999 Sources Par Amount of Series 1999 Bonds $ 46,875,000 Less Original Issue Discount (427,444) Company Equity 5,000,000 TOTAL $ 51,447,556 Series 1999 Uses Acquisition of the Facilities $ 44,000,000 Capital Improvements to the Facilities 2,000,000 Financing and Acquisition Costs, including Underwriter's Discount(1) 1,113,467 Working Capital 1,000,000 Debt Service Reserve Fund 3,334,089 TOTAL $51,447,556 (1) Includes Underwriter's compensation, legal fees, real estate costs, printing costs and other similar costs. THE CITY The City is a municipal corporation and political subdivision of the State duly organized and existing under and by virtue of the laws of the State. The City is authorized by the Act to issue the Series 1999 Bonds, and to loan the proceeds thereof to the Company pursuant to the Loan Agreement for the application described herein. -16- DEBT SERVICE SCHEDULE The following table sets forth, for each year ending March 1, the amounts required each year to be paid with respect to the Series 1999 Bonds, assuming no prepayment other than for mandatory sinking fund redemptions. Principal of the Series 1999 Bonds will be paid on March I of each year and interest will be paid on each March 1 and September 1. Year Ending March I Principal Interest Total 2000 $665,000.00 $2,667,336.25 $3,332,336.25 2001 690,000.00 2,639,406.25 3,329,406.25 2002 725,000.00 2,609,046.25 3,334,046.25 2003 755,000.00 2,575,696.25 3,330,696.25 2004 790,000.00 2,539,456.25 3,329,456.25 2005 830,000.00 2,499,956.25 3,329,956.25 2006 875,000.00 2,457,626.25 3,332,626.25 2007 920,000.00 2,412,126.25 3,332,126.25 2008 970,000.00 2,363,366.25 3,333,366.25 2009 1,020,000.00 2,310,986.25 3,330,986.25 2010 1,075,000.00 2,255,396.25 3,330,396.25 2011 1,135,000.00 2,196,271.25 3,331,271.25 2012 1,200,000.00 2,133,278.75 3,333,278.75 2013 1,265,000.00 2,066,078.75 3,331,078.75 2014 1,340,000.00 1,993,341.25 3,333,341.25 2015 1,415,000.00 1,916,291.25 3,331,291.25 2016 1,495,000.00 1,834,928.75 3,329,928.75 2017 1,585,000.00 1,746,723.75 3,331,723.75 2018 1,680,000.00 1,653,208.75 3,333,208.75 2019 1,780,000.00 1,554,088.75 3,334,088.75 2020 1,885,000.00 1,449,068.75 3,334,068.75 2021 1,995,000.00 1,338,325.00 3,333,325.00 2022 2,110,000.00 1,221,118.75 3,331,118.75 2023 2,235,000.00 1,097,156.25 3,332,156.25 2024 2,365,000.00 965,850.00 3,330,850.00 2025 2,505,000.00 826,906.25 3,331,906.25 2026 2,650,000.00 679,737.50 3,329,737.50 2027 2,805,000.00 524,050.00 3,329,050.00 2028 2,970,000.00 359,256.25 3,329,256.25 2029 3,145,000.00 184,768.75 3,329,768.75 ENFORCEABILITY OF OBLIGATIONS On the date of issuance of the Series 1999 Bonds, Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel, shall deliver its opinion, dated the delivery date, that the Series 1999 Bonds, the Loan Agreement and the Indenture are valid and legally binding on the City, enforceable in accordance with their respective terms. Orbovich & Gartner Chartered, St. Paul, Minnesota, as counsel to the Company, will deliver its opinion that the Loan Agreement, the Disclosure Agreement, the Regulatory Agreement and the Mortgage are valid and legally binding agreements of the Company, each enforceable in accordance with its respective terms. The foregoing opinions will be generally qualified to the extent that the enforceability of the respective instruments may be limited by laws, decision and equitable principles affecting remedies and by bankruptcy or insolvency or other laws, decisions and equitable principles affecting creditors' rights generally. -17- While the Series 1999 Bonds are secured or payable pursuant to the Indenture, the Loan Agreement and the Mortgage, the practical realization of payment from any security will depend upon the exercise of various remedies specified in the respective instruments. These and other remedies are dependent in many respects upon judicial action, which is subject to discretion and delay. Accordingly, the remedies specified in the above documents may not be readily available or may be limited. APPROVAL OF LEGAL Legal matters incident to the issuance and sale of the Series 1999 Bonds and with regard to the tax-exempt status of interest on the Series 1999 Bonds under existing laws are subject to the approving legal opinion of Dorsey & Whitney LLP, Minneapolis, Minnesota, as Bond Counsel. Certain legal matters will be passed on for the Company by its counsel, Orbovich & Gartner Chartered, St. Paul, Minnesota. The Underwriter has been represented in this transaction by Gray, Plant, Monty, Mooty & Bennett, P.A., Minneapolis, Minnesota. TAX MATTERS Tax Exemption In the opinion of Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel, based upon federal and Minnesota laws, regulations, rulings and decisions in effect on the date of delivery of the Series 1999 Bonds, the interest on the Series 1999 Bonds is not includable in gross income for federal income tax purposes or in taxable net income of individuals, estates or trusts for Minnesota income tax purposes. Interest on the Series 1999 Bonds is includable in taxable income of corporations and financial institutions for purposes of the Minnesota franchise tax. Interest on the Series 1999 Bonds is not an item of tax preference for purposes of the federal or Minnesota alternative minimum taxes, but such interest is includable in adjusted current earnings for the purpose of determining the alternative minimum taxable income of corporations for purposes of the federal and Minnesota alternative minimum taxes. The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements (the "Federal Tax Requirements") that must be met subsequent to the issuance of the Series 1999 Bonds in order that, for federal income tax purposes, interest on the Series 1999 Bonds not be included in gross income pursuant to Section 103 of the Code. The Federal Tax Requirements include, but are not limited to, requirements relating to the expenditure of proceeds of the Series 1999 Bonds, requirements relating to the operation of the facilities financed by the Series 1999 Bonds, restrictions on the investment of proceeds of the Series 1999 Bonds prior to expenditure and the requirement that certain earnings on the "gross proceeds" of the Series 1999 Bonds be paid to the federal government. Noncompliance with the Federal Tax Requirements may cause interest on the Series 1999 Bonds to become subject to federal and Minnesota income taxation retroactive to their date of issue irrespective of the date on which such noncompliance occurs or is ascertained. In expressing its opinion, Bond Counsel will assume compliance by the City, the Company and the Trustee with the tax covenants contained in each of the Loan Agreement, Regulatory Agreement and Indenture. No provision has been made for an increase in the interest rate on the Series 1999 Bonds in the event that interest on the Series 1999 Bonds becomes subject to federal or Minnesota income taxation; however, upon the occurrence of a Determination of Taxability with respect to the Series 1999 Bonds, the Series 1999 Bonds are subject to mandatory redemption. See "THE SERIES 1999 BONDS -- Redemption Prior to Maturity -Mandatory Redemption Upon Determination of Taxability" herein. Related Federal Tax Considerations Interest on the Series 1999 Bonds may be included in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code. Deductions for losses incurred by property and casualty insurance companies must be reduced by 15% of the interest received or accrued on the Series 1999 Bonds. -18- In addition to the collateral tax consequences set forth above, prospective purchasers of the Series 1999 Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Certain corporations may have a tax imposed on passive income, including tax-exempt interest, such as interest on the Series 1999 Bonds. Prospective purchasers of the Series 1999 Bonds should consult their tax advisors as to the applicability and impact of these and other potential collateral tax consequences of owning and disposing of the Series 1999 Bonds. THE FOREGOING IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF COLLATERAL TAX CONSEQUENCES ARISING FROM RECEIPT OF INTEREST ON THE SERIES 1999 BONDS. PROSPECTIVE PURCHASERS OR BOND HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO COLLATERAL TAX CONSEQUENCES, INCLUDING WITHOUT LIMITATION, THE DETERMINATION OF GAIN OR LOSS ON THE SALE OF A SERIES 1999 BOND, THE CALCULATIONS OF ALTERNATIVE MINIMUM TAX LIABILITY, THE INCLUSION OF SOCIAL SECURITY OR OTHER RETIREMENT PAYMENTS IN TAXABLE INCOME, THE DISALLOWANCE OF DEDUCTIONS FOR CERTAIN EXPENSES ATTRIBUTABLE TO THE SERIES 1999 BONDS AND STATE OR LOCAL TAX RULES. Original Issue Discount The Series 1999 Bonds with a stated maturity of March 1, 2029 (the "Discount Bonds") are being sold at a discount from the principal amount payable on such Series 1999 Bonds at maturity. The difference between the initial offering price at which a substantial amount of the Discount Bonds of a given maturity is sold to the public (the "Issue Price") and the principal amount payable at maturity constitutes "original issue discount" under the Code. The amount of original issue discount that is deemed to accrue to a holder of a Discount Bond under Section 1288 of the Code is excluded from gross income for federal income tax purposes and from taxable net income of individuals, estates and trusts for Minnesota income tax purposes to the same extent that stated interest on such Discount Bond would be excluded from gross income. See "Tax Exemption" above. The amount of the original issue discount that is treated as accruing with respect to a Discount Bond is added to the tax basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (whether by sale, exchange, redemption or payment at maturity). Interest in the form of original issue discount is treated under Section 1288 as accruing at a constant yield method that reflects semiannual compounding on days that are determined by reference to the maturity date of the Discount Bond. The amount of original issue discount that is treated as accruing for any particular semiannual accrual period generally is equal to the excess of (1) the product of (a) one-half of the yield on such Discount Bonds (adjusted as necessary for an initial short period) and (b) the adjusted issue price of such Discount Bonds, over (2) the amount of stated interest actually payable. For purposes of the preceding sentence, the adjusted issue price is determined by adding to the initial offering price for such Discount Bonds the original issue discount that is treated as having accrued during all prior semiannual accrual periods. If a Discount Bond is sold or otherwise disposed of between semiannual compounding dates, then the original issue discount that would have accrued for that semiannual accrual period for federal income tax purposes is to be apportioned in equal amounts among the days in such accrual period. If a Discount Bond is purchased for a cost that exceeds the sum of (1) the Issue Price, plus (2) accrued interest and accrued original issue discount, the amount of original issue discount that is deemed to accrue thereafter to the purchaser is reduced by an amount that reflects amortization of such excess over the remaining term of such Discount Bond. Except for the Minnesota rules described above, no opinion is expressed by Bond Counsel as to state and local income tax treatment of original issue discount. It is possible under certain state and local income tax laws that original issue discount on a Discount Bond may be taxable in the year of accrual, and may be deemed to accrue earlier than under federal law. Holders of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of owning such Discount Bonds. -19- UNDERWRITING The Series 1999 Bonds are being purchased from the City by Dougherty Summit Securities LLC in Minneapolis, Minnesota (the "Underwriter"). The Underwriter has agreed to purchase the Series 1999 Bonds for compensation equal to $624,787.50, subject to the terms of a certain Bond Purchase Agreement (the "Bond Purchase Agreement"), between the City, the Company and the Underwriter. The Bond Purchase Agreement provides that the Underwriter shall purchase all Series 1999 Bonds if any are purchased and that the obligation to make such purchase is subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The initial public offering prices set forth on the cover page hereof may be changed from time to time by the Underwriter. The Company has agreed under the Bond Purchase Agreement to indemnify the Underwriter and the City against certain liabilities, including certain liabilities under the federal and state securities laws. SECURITIES LAWS CONSIDERATIONS FOR MINNESOTA RESIDENTS The offering of the Series 1999 Bonds is to be undertaken only in those jurisdictions in which such offering may be lawfully made in accordance with the relevant provisions of all applicable state and federal securities laws. Minnesota residents. The Series 1999 Bonds have not been rated by any rating agency. Consequently, in accordance with regulations of the State of Minnesota Commerce Department, with respect to Minnesota residents, the Series 1999 Bonds may be offered solely to and may be purchased only by persons having a minimum annual gross income of $30,000 and a net worth of $30,000, or in the alternative, a net worth of $75,000. Net worth is determined exclusive of home, home furnishings and automobiles. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement (the "Disclosure Agreement"), the Company will agree to provide annual reports, by June 30 of each year commencing in 2000, to the Trustee, each Nationally Recognized Municipal Securities Information Repository, and any State Depository for Minnesota (collectively the "Repositories"), as designated for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934. Except as otherwise provided in the Disclosure Agreement, each Annual Report of the Company shall contain annual financial statements of the Company. Additionally, each Annual Report of the Company shall include operating data and financial information of the Company contained in Appendix A to the Official Statement, including information of the type contained in the following subheadings of Appendix A: Governance Management General Operations Competition and Service Area Historical Utilization Sources of Resident Revenues Personnel and Staffing Financial Data and Management's Discussion Management's Discussion of Operations Such information shall be presented in a manner consistent with the Official Statement. The Company will agree in the Disclosure Agreement to provide timely notice to each Repository of any of the events listed below. The following events are subject to disclosure, if deemed material: Delinquency in payment when due of any principal of or interest on the Bonds. ii. Occurrence of any nonpayment Event of Default under the Indenture or Loan Agreement as defined in each such instrument. -20- iii. Unscheduled draws on the Reserve Fund reflecting financial difficulties. iv. Unscheduled draws on credit enhancements reflecting financial difficulties (the Series 1999 Bonds have no third parry credit enhancement). Substitution of credit or liquidity providers, or their failure to perform (the Series 1999 Bonds have no third party liquidity provider or credit enhancement). vi. Adverse tax opinions or events affecting the tax-exempt status of the Series 1999 Bonds. vii. Modifications to the rights of Bondholders. viii. Bond calls. ix. Defeasance of the Series 1999 Bonds or any portion thereof. X. Release, substitution or sale of property securing repayment of the Series 1999 Bonds. xi. Rating changes (the Series 1999 Bonds will not be rated). The Trustee will provide timely notice to each Repository of any failure of the Company to provide the required annual report by June 30 of any year. Failure of the Company to comply with the Disclosure Agreement will not constitute an event of default under the Indenture or the Loan Agreement. Pursuant to the Bond Purchase Agreement, the Company will provide its quarterly unaudited financial statements to the Underwriter within 45 days of the end of each fiscal quarter. The Underwriter will provide such information to holders or beneficial owners of the Series 1999 Bonds upon request. LITIGATION There is no pending litigation seeking to restrain or enjoin the issuance or delivery of the Series 1999 Bonds or questioning or affecting the legality of the Series 1999 Bonds or the proceedings and authority under which the Series 1999 Bonds are to be issued. There is no litigation pending which in any manner questions the undertaking of the financing by the Company or the operations of the Facilities by the Company or the validity or enforceability of the Indenture, the Loan Agreement, the Regulatory Agreement or the Mortgage. MISCELLANEOUS The foregoing does not purport to be comprehensive or definitive and all references to any document herein are qualified in their entirety by reference to each such document. All references to the Series 1999 Bonds are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the aforesaid documents. Copies of these documents are available for inspection during the period of the offering at the offices of the Underwriter in Minneapolis, Minnesota, and thereafter at the principal corporate trust office of the Trustee. All information contained in Appendices A and B has been derived from information provided by the Company. The Underwriter makes no representations or warranties as to the accuracy or completeness of the information in any of the Appendices. The Company and the City have authorized the use and distribution of this Official Statement; provided, however, that the City has not participated in the preparation of this Official Statement, has not made an independent investigation with respect to the information contained herein, and assumes no responsibility for the accuracy or completeness of the information contained herein. The Company has approved the information contained herein. GP:564738 vl -21- (This page Inas been left blank intentionally.) APPENDIX A THE COMPANY AND THE FACILITIES (This page has been left blank intentionally.) THE COMPANY General The Company is a nonprofit corporation, incorporated under the laws of the State of Minnesota in November of 1998 for the purpose of acquiring, owning and operating the Facilities. The Company is an entity described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and is exempt from federal income taxation under Section 501(a) of the Code. The principal offices of the Company, prior to the issuance of the Series 1999 Bonds and the acquisition of the Facilities, are located at 11501 Masonic Home Drive, Bloomington, Minnesota 55437, and its telephone number is (612) 948-7000. Minnesota Masonic Home, a Minnesota nonprofit corporation formed in 1906 ("MMH"), has the right to appoint the governing board of the Company and thereby to set policies and long -tern goals of the Company. MMH is a corporation described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and is exempt from federal income taxation under Section 501(a) of the Code. MMH also controls Minnesota Masonic Home Care Center in Bloomington, Minnesota, and certain other affiliated corporations. Governance The management and direction of the business of the Company is vested in its Board of Directors. The members of the Board of Directors are appointed by the Board of Trustees of MMH. Terms of office and qualification of the directors are set forth in the Company's Bylaws. The initial and current members of the Company's Board of Directors and their principal occupations are as follows: Name Jo Bornholdt Raymond G. Christensen, M.D. Rita S. Glazebrook, Ph.D. Raymond F. Gustafson, D.D.S. Jeffry N. Lewis Gerald M. Skogley Thomas D. Watson Office Secretary/Treasurer Vice -Chairman Chairman Principal Occupation Newspaper columnist Physician Educator Retired Retired Retired Retired The Articles of Incorporation and Bylaws of the Company provide that MMH has the sole right to appoint and remove the members of the Board of Directors of the Company and to approve all changes to the Articles of Incorporation and Bylaws before they become effective. Six of the seven members of the Board of Directors of the Company also currently serve as members of the Board of Trustees of Minnesota Masonic Home. The following individuals are the key officers of the Company: Edwin A. Martini, Jr. President and Chief Executive Officer Michael Hanson Director of Finance Edwin A. Martini, Jr., who is also the President and Chief Executive Officer of MMH, began his career at MMH in 1972. A graduate of Mankato State University with a degree in Political Science and Business Administration, Mr. Martini has also received certificates in several management and health care programs and is a licensed Long -Term Care Administrator. He serves on the executive committee of the board of directors of CareChoice, Minnesota's first health care cooperative, and is also a board member of Fairview Partners, a coordinated system of a hospital, physicians and long-term care providers. In addition to his numerous other A-1 affiliations with gerontological health care and housing organizations, Mr. Martini is an active member of many Masonic organizations and community organizations. Michael Hanson, who is also the Director of Finance of MMI, joined MMH in 1994. After graduating with highest honors, Phi Beta Kappa, from the University of Arkansas with B.S. degrees in Accounting and Finance and Computer Science, Mr. Hanson received his MBA in Financial Economics from the University of Southern California, also with highest honors. Mr. Hanson is a Certified Pubic Accountant (CPA) and a Certified Internal Auditor (CIA). Mr. Hanson is a member of an advisory council for the FASB and AICPA developing updated health care financial models. He also serves on the board of Care Alliance LLC Pharmacy and is involved with several other health care related ventures. He is also an adjunct professor at community colleges, most recently teaching courses in governmental accounting and finance. Management The Company will enter into a management contract with Minnesota Masonic Home Management Services, an affiliate of MMH, with respect to management of the Facilities. Minnesota Masonic Home Management Services is a not-for-profit, tax exempt subsidiary of MMH, and will provide management services that include general oversight of the operations of the Facilities and certain financial and accounting services. Fees to be paid by the Company under such management agreement are subordinated to the payment of debt service on the Series 1999 Bonds, and are expected to be no less favorable to the Company than if the Company were to enter into a similar management contract with an unaffiliated entity in an arm's length transaction. See "THE FACILITIES --Personnel and Staffing." THE FACILITIES The Site and Physical Facilities North Ridge Care Center (the "Nursing Facility") is a 559 -bed licensed and certified skilled nursing facility located at 5430 Boone Avenue North in the city of New Hope, a northwestern suburb of Minneapolis. The Nursing Facility comprises three connected buildings. A ground -floor walkway connects the Nursing Facility with North Ridge Apartments and Personal Care Suites, a four-story building containing 180 units of senior housing apartments (the "Apartments") and 25 assisted living units (the "Personal Care Suites"). The entire campus of the Facilities consists of approximately 13 acres. The campus of the Nursing Facility, Apartments and Personal Care Suites is easily accessible to several major thoroughfares, including US Highway 169, less than one-half mile to the west. The immediate neighborhood is more than 85% developed, bounded by residential buildings on the north and east and by industrial/commercial properties on the south and west. A vacant lot lies directly across the street to the west, and the Company has learned that the adult day care program currently located in the Company's apartment building expects to acquire and develop such property for adult day care. It has been the policy and plan of the Seller of the Facilities, and will be the policy and plan of the Company, to maintain the Facilities in excellent condition, with implementation of renovations, additions, remodeling and updating on an ongoing basis. The Company intends to continue making improvements to remain competitive and maintain the value of the properties. The Nursing Facility structure contains 189,599 square feet, excluding certain basement -level crawl space and a shared 2,110 square foot breezeway and solarium that connects the Nursing Facility to the Apartments and Personal Care Suites. The Nursing Facility is constructed of masonry brick, with a prestressed concrete structure, which results in a fire-resistant system. The roof is flat and covered with pitch and gravel. The original structure, now known as the South Building, opened in 1966 with 108 beds. The North Building, connected to the South Building, was built in 1969-1970 and added 164 beds. A skyway connects the West Building, built in 1978, to the Nursing Facility complex. The West Building added another 121 beds. In A-2 1980, an additional 166 beds were constructed in a wing of the South Building, bringing the total number of licensed beds to 559. The South Building has undergone recent remodeling. See "Management's Discussion of Operations." Three elevators provide service between the floors of the North and West Buildings. The South Building, which is one floor with a partial lower level, does not contain an elevator. The Nursing Facility is 70% sprinklered and 100% air conditioned. The Nursing Facility is carpeted throughout, except for activity areas and dining rooms, which are either carpeted or vinyl tiled. While most of the Nursing Facility uses recessed fluorescent lighting, some of the dining rooms have chandeliers. A nursing station located in the center of the South Building services its four wings. The center area and hallways are carpeted, the ceilings have acoustical tiles and wood beams, and the walls are papered. All hallways have handrails to assist the residents. Resident rooms are furnished similarly throughout the Nursing Facility. The Apartments and Personal Care Suites The Apartments and Personal Care Suites are located in a four-story building of 216,784 square feet, constructed in 1983 and connected to the Nursing Facility by a first -floor walkway. The building contains 180 senior housing apartments and 25 assisted living units, of which one unit is reserved for short -stay observation or respite use. In 1988, a four-story addition of 3,700 square feet, which is used for office space, was constructed as part of a complete remodeling in 1988 of the mostly southerly section of the building. The Apartments and Personal Care Suites building, which is 100% sprinklered and 100% air conditioned, has a decorative masonry brick and stucco exterior, with window canopies on each living unit. The windows are double sliding casement, and the roof is flat with pitch and gravel. The Apartments include 28 efficiencies averaging 460 square feet, 131 one -bedroom apartments averaging 590 square feet, and 21 two-bedroom apartments, which average 900 square feet. The rooms are furnished similarly, with carpeted floors, painted sheetrock walls and recessed lighting. The bathrooms are finished with carpeted floors, vinyl covered walls, and acoustical the ceiling with recessed fluorescent lights. Each unit is equipped with an emergency call system. Residents of the Apartments and Personal Care Suites may use the activity rooms, which contain movable partitions, and lounge areas located on each floor. Other amenities include a coin-operated laundry room with two washers and two driers on each floor, and a dining room on the second floor. The kitchen, located adjacent to the dining room, has a clay tile floor, ceramic tile walls, stainless steel food preparation equipment, and suspended fluorescent lights. The heated underground garage contains 65 parking stalls. This area is finished with painted concrete floors and concrete block walls. This parking is provided in addition to the approximately 300 surface parking stalls located on the campus of the Facilities (167 at the Nursing Facility and 133 at the Apartments and Personal Care Suites). The following page is a diagram of the physical layout of the Facilities A-3 66th AVE. KEY North Ridge Apartments & Personal Care Suites "Apartments" North Ridge Care Center "Nursing Facility" Streets, Parking & Loading Docks Built in 1983 180 senior housing apts. Ground floor breezeway & solarium Built in 1988 25 Personal Care Suite Office Tower Built in built in 1988 1969-1970 Beauty 164 beds Shop Pharmacy Bank ' SLOG.''; Primary WEST Public BLDG. Entry Skyway built in 1978 Built in 1978 SOUYH 121 beds BLDG. Beauty Shop 1 64TH AVE. Original Structure built in 1966 - 108 beds Additional 166 beds in 1980 A-4 General Operations The Nursing Facility. The Nursing Facility contains a total of 559 skilled nursing care beds, in 13 private rooms and 273 semi -private two -bed rooms. The Nursing Facility provides health care treatment and convalescent facilities to in-patient, disabled and older persons, including those admitted as an interim step, after hospitalization and before returning to their homes, as well as those admitted for long-term residency. The Nursing Facility is licensed by the State of Minnesota as a nursing home and is certified under federal regulations as a skilled nursing facility. See "Regulatory Matters" below and Appendix D: "MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM." Nursing Facility residents receive room and board, 24-hour professional nursing care, special diets as required and such drugs and therapy as may be prescribed by the resident's physician. Three balanced meals are provided to each resident daily, either in his or her room or at a central dining location. Light snacks are provided during the day and at bedtime. Additional services, such as access to a variety of medical specialists and therapies, telephone, beauty/barber services, and others, are available to the residents at an additional charge. The Nursing Facility is managed by a full-time Administrator and a Director of Nurses, who is a registered nurse responsible for supervising the licensed nurses and nursing assistants. The Nursing Facility provides social services programs by licensed social workers. A licensed physician is on 24-hour call. In addition, the Nursing Facility has an arrangement with the hospital of the resident's choice for the transfer of the resident and his or her medical records between the Nursing Facility and such hospital when necessary. A resident council has been established at the Nursing Facility. It meets on a regular basis to provide the residents of the Nursing Facility with a forum for the discussion of resident concerns and needs, thereby assisting the administration of the Nursing Facility in understanding the needs and preferences of the residents and generating ways in which the Nursing Facility might be responsive to such needs and wishes. The Apartments and Personal Care Suites. Occupancy for the Apartments and Personal Care Suites is limited to persons 55 years of age and older. At least twenty percent (20%) of the units in the Apartments must be set aside for persons or families with incomes of less than fifty percent (50%) of the median area income, adjusted for family size. See Appendix C: "THE REGULATORY AGREEMENT." The current monthly rental rates are $1,125 for a two-bedroom unit (with an additional $135 for each extra person), $870 for a one -bedroom unit (with an extra $135 for each extra person), and $735 for an efficiency unit. The rates for the Personal Care Suites, which include home health care, are $75.00 per day (single) and $85.00 per day (double). Tenants are required to choose either a 20 -meal package or a 30 -meal package for their evening meal. The 20 -meal package currently costs $135, and the 30 -meal package currently costs $185. Telephones are an extra $25.00 per month. The Nursing Facility provides its residents a wide range of additional services and amenities, which are available to the residents of the Apartments and Personal Care Suites as well. A gift shop/pharmacy is open to visitors as well as to residents and employees. A branch office of a local bank is open during business hours. There is also a beauty/barber shop and vending machine areas. Care services include physical, occupational, speech and music therapy programs, podiatry, and chaplaincy services. Psychological assistance is available, as is a social service department and planned activities services. Employees make use of the Nursing Facility's child day care program and the nursing assistant training program. Regulatory Matters. Operation of the Nursing Facility is subject to continuing compliance with various federal, state and local statutes, ordinances, rules and regulations with respect to licensing, health, drugs, building standards and fire prevention. The Nursing Facility is licensed and regulated by the Minnesota Department of Health. The Company expects that immediately upon the acquisition of the Nursing Facility from Seller, the Minnesota Department of Health will issue to the Company a license for the Nursing Facility. Annual renewal of this license is dependent upon compliance with statutes, ordinances, rules and regulations, which could require changes in the facility, equipment, personnel or services of the Company and might adversely affect its operations. Seller and the Company believe that they are in compliance in all material respects with current licensing A-5 requirements and are unaware of any pending changes to such licensing requirements. See also Appendix D: "MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM." Year 2000 Compliance Efforts. The Seller has initiated and is implementing a compliance plan to avoid Year 2000 problems. Testing of equipment and other compliance efforts are on schedule and expected to be completed by March 31, 1999. Particular attention is being paid to the compliance efforts of the Facilities' payors. HCFA has given assurances to the Seller that Medicare payments will not be interrupted or adversely affected by the Year 2000 problem. It has not yet received, however, assurances from the State of Minnesota with respect to Medicaid payments. The Seller is in the process of collecting letters from all of its non-governmental payors and significant vendors. All of the Seller's equipment that will potentially be affected by the Year 2000 problem has been identified and is in the process of being tested and updated. The Facilities have budgeted for the acquisition of new software programs as well as new hardware where appropriate. Competition and Service Area The primary competition for the Facilities are nursing homes, board and care facilities and assisted living facilities located in the Facilities' primary service area. Since 1983, there has been a legislative moratorium on the construction or addition of nursing care beds, subject to certain exceptions. While the moratorium is expected to continue indefinitely, there is no assurance that legislative changes will not permit the addition of nursing care beds in the Company's service area in the future. In addition to the competition provided by assisted living facilities and other nursing homes, in recent years services provided by home health care agencies, hospice agencies, visiting nurses, meals on wheels, adult day care centers, group homes for the elderly and retirement apartments have been expanding and are expected to provide competition to the Facilities in the future. The Company's primary service area for the Facilities is the northwest metropolitan Twin Cities suburban area, including the entire city of New Hope, and portions of the cities of Plymouth, Crystal, Golden Valley and Robbinsdale. The over -85 age group is the fastest growing segment of the population. The following table lists information the Company has obtained about facilities that compete with the Facilities in their primary service area: Name and Location St. Therese Home, New Hope Colonial Acres Health Care Center, Golden Valley Ambassador Good Samaritan Center, New Hope Covenant Manor, Golden Valley St. Therese Apartments, New Hope Approximate Recent Bed/Units Occupancy 302 licensed beds 98% 120 licensed beds 93% 94 licensed beds 90% 16 assisted living units 96% 220 apartments 99% As the largest nursing home in the State of Minnesota, the Nursing Facility has had the advantage of certain economies of scale, and the Company believes that the Nursing Facility has enjoyed a reputation for excellent resident care. The Company believes the rental rates at the Apartments and Personal Care Suites are competitive with other similar housing facilities for the elderly within its primary service area (approximate radius of 10 miles). Historical Utilization The following table sets forth comparative information with respect to utilization of the Facilities for the years ended December 31, 1998, 1997 and 1996: A-6 (1) One of the units is reserved for short-term observation or respite occupancy. That unit has been occupied 27% in 1998, 48% in 1997 and 48% in 1996. The remaining 24 units have had 100% occupancy. As the population ages, other organizations are entering the field of providing a variety of competing services for the elderly. In addition, fewer new admissions to nursing facilities are assessed at levels requiring the least amount of care, and more new admissions are older and in need of more intense care. Seniors can receive many care services in settings other than nursing facilities. As a result of these factors, the Nursing Facility has experienced fewer individuals staying in the Nursing Facility for extended stays of more than two years. This situation of shorter term and unstable census requires that the Nursing Facility accommodate by adjusting the numbers of staff immediately upon a drop in census and increasing the community awareness of the services provided in the Nursing Facility. See "Management's Discussion of Operations." There can be no assurance, however, that any such efforts will be successful in maintaining occupancy rates at the levels experienced by the Nursing Facility in past years. Sources of Resident Revenues The Company does not expect to receive payment of rent from any source other than the individual residents living in the Apartments and the Personal Care Suites. To the extent such residents receive services and amenities, they pay on a fee-for-service basis. The following table sets forth the sources of per diem room revenues for the Nursing Facility for the years ended December 31, 1998, 1997 and 1996: Years ended December 31 1998 1997 1996 Medicaid 63.4% 65.4% 61.1% Medicare 5.4% 3.9% 3.9% Private Pay and Other 31.2% 30.7% 35.0% Insurance TOTALS 100% 100% 100% In December of 1996, the Nursing Facility executed a contract with the State of Minnesota under which the Nursing Facility receives payments based on agreed-upon rates rather than the cost -based reimbursement rates A-7 Years ended December 31 1998 1997 1996 Nursing Facility Licensed Beds 559 559 559 Occupancy 98.3% 99.1% 99.3% Apartments Units 180 180 180 Occupancy 97.9% 98.5% 97.2% Personal Care Suites Units (1) 25 25 25 Occupancy 100% 100% 100% (1) One of the units is reserved for short-term observation or respite occupancy. That unit has been occupied 27% in 1998, 48% in 1997 and 48% in 1996. The remaining 24 units have had 100% occupancy. As the population ages, other organizations are entering the field of providing a variety of competing services for the elderly. In addition, fewer new admissions to nursing facilities are assessed at levels requiring the least amount of care, and more new admissions are older and in need of more intense care. Seniors can receive many care services in settings other than nursing facilities. As a result of these factors, the Nursing Facility has experienced fewer individuals staying in the Nursing Facility for extended stays of more than two years. This situation of shorter term and unstable census requires that the Nursing Facility accommodate by adjusting the numbers of staff immediately upon a drop in census and increasing the community awareness of the services provided in the Nursing Facility. See "Management's Discussion of Operations." There can be no assurance, however, that any such efforts will be successful in maintaining occupancy rates at the levels experienced by the Nursing Facility in past years. Sources of Resident Revenues The Company does not expect to receive payment of rent from any source other than the individual residents living in the Apartments and the Personal Care Suites. To the extent such residents receive services and amenities, they pay on a fee-for-service basis. The following table sets forth the sources of per diem room revenues for the Nursing Facility for the years ended December 31, 1998, 1997 and 1996: Years ended December 31 1998 1997 1996 Medicaid 63.4% 65.4% 61.1% Medicare 5.4% 3.9% 3.9% Private Pay and Other 31.2% 30.7% 35.0% Insurance TOTALS 100% 100% 100% In December of 1996, the Nursing Facility executed a contract with the State of Minnesota under which the Nursing Facility receives payments based on agreed-upon rates rather than the cost -based reimbursement rates A-7 under the current reimbursement system. This voluntary alternative system for payment was created by the legislature in 1995, and as of the date of this Official Statement, well over half of the nursing facilities in Minnesota have applied for and been accepted into this system. Under the alternative payment system ("APS"), reimbursement continues to be made on the basis of the numbers of residents in each of the eleven case-mix categories. The Nursing Facility, however, no longer prepares and files Medicaid cost reports and, therefore, will have more flexibility in budgeting expenditures. The Nursing Facility has a base contract rate, with annual adjustments made for inflation and certain other limited circumstances. For more detail regarding APS and its effect on the Nursing Facility, see Appendix D: "MEDICARE AND MINNESOTA MEDICAID REIMBURSEMENT AND THE ALTERNATIVE PAYMENT SYSTEM" Personnel and Staffing As of December 31, 1998, the Facilities were staffed by a total of 1,050 persons with 597 full time equivalents at the Nursing Facility and 39.8 full-time equivalents at the Apartments and Personal Care Suites. A full-time equivalent represents one 2080 hour -per -year employee. All current employees are expected to be employees of the Company or an affiliate of the Company immediately following the delivery of the Bonds. The Facilities have a long tradition of strong volunteer support, with a combined total of over 12,000 hours of service being provided during 1997 and similar number of hours in 1998. These services include assistance with resident recreational activities, visitation, and a variety of other resident support services. Immediately following the acquisition of the Facilities, the owners of the Seller, Charles T. Thompson and M. Melinda Pattee, and the current chief financial officer of the Seller, Ann T. Yungner, will continue in key administrative roles. Information about these individuals is as follows: Charles T. Thompson, 42, has been the Chief Executive Officer and President of the Seller since 1995. From 1979 to 1987, Mr. Thompson was comptroller of the Seller, during which time he managed the planning, financing and construction of the Apartments and Personal Care Suites as well as additions and renovations to the Nursing Facility. As a licensed nursing home administrator, Mr. Thompson served as administrator of the Nursing Facility from 1988 through 1994. Mr. Thompson received a B.S. degree in Business Administration from Northern Arizona University in 1975 and participated in the University of Minnesota Graduate Program in Public Health for Long Term Care in 1979 and 1980. He is a member of the boards of directors of Marquette Banks Northwest Area, Care Alliance LLC Pharmacy and Senior Outreach Services and serves on the North Memorial Medical Ethics Board. Mr. Thompson is president of Care Partners, LLC. M Melinda Pattee, 49, is the Secretary/Treasurer of the Seller and has been Administrator of the Nursing Facility since 1995. From 1978 to 1985, Ms. Pattee was an occupational therapist at the Nursing Facility, from 1985 to 1986 she was the special projects coordinator, and from 1986 through 1994, she was the director of supportive services, in which position her responsibilities included managing the operations of the Nursing Facility. Ms. Pattee is a graduate of the College of St. Catherine, from which she received a B.A. degree in occupational therapy. She is a licensed nursing home administrator, having done her course work for such licensure at the University of Minnesota. She is a member of the Twin West Chamber Foundation Advisory Board, Northwest YMCA Advisory Board, and Women's Health Leadership Trust. Ann T. Yungner, 41, is a Certified Public Accountant and has served as Chief Financial Officer of the Seller since 1994. Ms. Yungner was Director of Finance for the Seller from 1987 through 1994 and had been Administrative Accountant to the Seller from 1983 through 1986. Prior to 1983, she was employed by Peat Marwick and Main (formerly Main Hurdman), as staff auditor and supervising senior auditor. A graduate of Mankato State University with a B.S. degree in Accounting, Ms. Yungner received certification as a CPA in 1982. She is a member of the Minnesota society of Certified Public Accountants and the American Institute of Certified Public Accountants. Ms. Yungner serves on the Executive Financial Committee of Care Partners, LLC, and is the Treasurer of the Wayzata Youth Hockey Boosters. A-8 The Company believes that the Seller's relationship with its staff has been excellent and its employment practices have been and are in conformance with applicable federal, state and local laws. The Company does not know of any current activity at the Facilities with respect to the formation of a collective bargaining unit. FTE's by Department - the Nursing Facility Department FTE's Nursing 4.53 RN 44.83 LPN 72.31 Aides 255.55 Director of Nursing 1.00 Other Nursing Medical Records 4.00 Staff Development 4.53 Resident Service Attendant 12.37 Unit Managers/Reception 12.32 Other Care Related Social Service 7.80 Admissions 2.78 Activities 21.38 Volunteer Coordinator 1.00 Rehabilitation Physical Therapy 12.41 Occupational Therapy 4.01 Speech Therapy 1.61 Nutritional Services Director 1.00 Dietitian 0.80 Production 44.00 Purchasing 2.53 Fabric Care 15.28 Housekeeping 22.11 Carpet Care 6.54 Plant Operations & Maintenance Van 11.48 Administration 3.00 Office 8.05 Human Resources 4.00 Community Relations 1.00 Security 2.92 Secretarial 2.00 Switchboard 4.26 Child Daycare 7.52 Beauty Shop 2.63 Total FTE's 597.02 A-9 FTE's by Department - the Apartments and Personal Care Suites Department FTE's Administration 2.50 Dietary 13.88 Housekeeping 6.28 Activities 2.00 Maintenance 1.50 Office and Admissions 4.45 Personal Care Attendants 6.49 Case Managers 2.70 Total FTEs 39.80 Financial Data and Management's Discussion Financial Data. Set forth below is selected financial information with respect to the Seller for the stated years ended December 31. Complete audited financial statements are attached hereto in Appendix B. OPERATING EXPENSES Nursing 1998 1997 1996 REVENUE 1,725,802 1,674,095 1,631,867 Resident Services $30,347,221 $29,127,531 $27,804,994 Prior Years' Revenue Adjustments 149,472 (87,702) 37,874 Interest income 275,815 256,091 255,764 Unrealized Gain (Loss) on Investments 35,264 (16,996) (67,281) Realized Gain on Investments 46,280 -- 1,327,299 Gain (Loss) on Sale of Assets 593 45,901 (5,056) Proceeds from Officer Life Insurance -- 598,940 -- Miscellaneous 2,277,347 10,226 (19,259) TOTAL REVENUE $30,854,645 $29,933,991 $28,007,036 OPERATING EXPENSES Nursing $12,904,365 $11,651,533 $10,977,501 Other Care Related 1,725,802 1,674,095 1,631,867 Ancillary Services 1,588,700 1,406,910 1,318,167 Dietary 2,709,045 2,481,228 2,422,452 Laundry 373,540 361,374 373,812 Housekeeping 841,694 822,317 808,379 Plant Operations and Maintenance 1,286,698 1,293,290 1,327,299 Property and Related 1,139,170 1,161,999 1,211,332 General and Administrative 2,403,591 2,472,158 1,927,168 Payroll Taxes and Employee Benefits 2,277,347 2,089,879 2,057,941 Interest 823,480 803,197 813,152 Depreciation and Amortization 896,040 891,906 915,825 TOTAL $28,969,472 $27,109,886 $25,784,896 OPERATING INCOME $ 1,885,173 $ 2,824,105 $ 2,222,140 EXTRAORDINARY ITEM - Loss on Refinancing -- (64,594) -- NET INCOME $ 1,885,173 $ 2,759,511 $ 2,222,140 A-10 Management's Discussion of Operations General. The senior services industry is facing a time of significant change and corresponding opportunities. The Company believes that it is positioning itself to take advantage of the market changes. The market for senior services is transitioning from a cost -based system to a prospective payment model. Management of the Company believes it has, and the Facilities have, management expertise in maximizing opportunities under a prospective payment model. Strategic Reasons for Acquisition. In acquiring the Facilities, the Company will act consistently with the long-term strategies of MMH, particularly utilizing growth as an opportunity for success in times of change while continuing MMH's 75 -year history of providing high quality services to and enhancing the quality of life of people served. The Board of Trustees of MMH, in its strategic planning process, has anticipated industry change and has recognized the value of expanding its provision of services to the elderly to locations beyond its existing 80 -acre site in south Bloomington, Minnesota. The Board of Trustees of MMH, after extensive analysis, determined that the Seller's objectives are mission -driven, similar to those of MMH, and that the Seller has demonstrated alignment with the core values of MMH. The operations at the Facilities reflect an emphasis on the resident or tenant as the focus in the delivery of health care and other services and also reflect an emphasis on quality in the delivery of services. These goals are consistent with those of MMH and its affiliates, including the Company. Management of MMH believes that its growth, through the acquisition of the Facilities by the Company, will enable MMH and its affiliates to have a greater impact and be more successful in the Twin Cities health care market. The long term care industry is experiencing a strong trend of consolidation, as a certain concentration of expertise and resources, with economies of scale, is seen as critical for organizational stability in the field of health care. While the Apartments and Personal Care Suites are a vital and integral part of the assets to be acquired by the Company, the value brought by the Nursing Facility is of paramount importance. By acquiring the Nursing Facility, which is the largest stand-alone nursing home in Minnesota, MMH believes it will expand its influence and gain economies of scale. Comparative Results: 1996 to 1998. The Facilities' operating revenues increased from $27,842,868 in 1996, to $29,039,829 in 1997 and to $30,496,693 in 1998. This represents a 9.5% increase from 1996 to 1998. The increase is primarily due to rate and rent increases as well as level of acuity increases. Occupancy remained fairly constant. In 1997, the Nursing Facility began to provide rehabilitation services in-house instead of buying those services from an outside agency. Among the effects of this change were increased revenues as well as increased related operating expenses. A consultant was hired during 1997 to facilitate the process of change of therapy service providers. In 1997, $598,940 of other income was derived from a one-time item: proceeds of Officers Life Insurance policies. The Facilities' operating expenses increased from $25,784,896 in 1996 to $27,109,886 in 1997 and to $28,969,472 in 1998. This represents a 12.4% increase from 1996 to 1998. The increase is primarily due to standard wage increases precipitated by a record low unemployment rate realized locally during the period. In 1997, the Nursing Facility debt was refinanced with additional indebtedness incurred for major improvements. The Seller's investment income has not changed dramatically in the past three years. Land held for investment was sold in 1997 for a net gain of $45,901. The number of days revenue in accounts receivable has increased from 32 days in 1996 to 40 days in 1998. The increase is primarily due to two major factors. The Facilities have entered into several third party capitated contracts during this time period. These third party payors tend to pay much more slowly than the other payors A-11 from whom the Facilities have received payments in the past. Many balances are held over 120 days before being paid. Another major factor is the increasingly lengthy process of resident application for Medical Assistance. The Nursing Facility does not receive reimbursement from Medical Assistance for any resident whose application is still being processed. See APPENDIX D. Capital expenditures were $622,273 in 1996, $768,022 in 1997 and $1,055,324 in 1998. The major projects in 1996 were the exterior painting of the Apartments and Personal Care Suites and replacements of exterior awnings to the south building of the Nursing Facility. The major project in 1997 was extensive renovation of the south building of the Nursing Facility, which began with the addition of an air exchange system and was followed by replacement of the roof and windows. in 1998 the major project was continuation of the renovation in the south building of the Nursing Facility, including: replacement of the roof, replacement of all resident room windows and common area windows, renovation of resident bathrooms, renovation of resident rooms (including new carpet, new heat registers, new closet doors and nightstands), complete modernization of the tub rooms, including installation of two recumbent tubs with electronic lifts and two side access tubs, and renovation of corridors with new carpet and handrails. In addition, two resident rooms were constructed at the end of one wing of the south building, leaving two rooms vacant for future expansion. GP:559622 Q A-12 APPENDIX B FINANCIAL STATEMENTS OF THE SELLER Financial Statements and Independent Auditor's Report, December 31, 1998, 1997 and 1996 (This page has been left blank intentionally.) NORTH RIDGE CARE CENTER, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 1998, 1997 AND 1996 NORTH RIDGE CARE CENTER, INC. TABLE OF CONTENTS DECEMBER 39, 1996, 9999 AND 9996 BALANCE SHEETS STATEMENTS OF INCOME AND RETAINED EARNINGS Yi��i7aq-.Vl :0-:9 i LARSON i111% ALLEN ' I (I' WEISHAIR & CO.,LLP CERTIFIED PURUC AC[OUNTANTS INDEPENDENT AUDITORS REPORT Board of Directors North Ridge Care Center, Inc. New Hope, Minnesota We have audited the accompanying balance sheets of North Ridge Care Center, Inc. as of December 31, 1998, 1997 and 1996, and the related statements of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those 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 financial position of North Ridge Care Center, Inc. as of December 31, 1998, 1997 and 1996, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 10 to the financial statements, on December 2, 1998, North Ridge Care Center, Inc. entered into an asset purchase agreement with an unrelated party to sell essentially all its assets.64 LLPp LARSON, ALLEN, WEISHAIR & CO., LLP Minneapolis, Minnesota February 12, 1999 (1) ��' E X41 BALANCER 31, 1998, 1997 AN*' ASSETS CURRENT ASSETS Cash and Cash Equivalents Investments Accounts Receivable - Residents Accounts Receivable - Third Party Settlement Receivable - Related Parties Accrued Interest Receivable Current Portion Assets Whose Use is Limited Prepaid Expenses Total Current Assets ASSETS WHOSE USE IS LIMITED Replacement Reserve Fund Bond Fund Real Estate Escrow Mortgage Escrow FHA Rehabilitation Fund Insurance Escrow Resident Trust Funds and Security Deposits Total Assets Whose Use is Limited Less: Current Portion of Assets Whose Use is Limited Non -Current Assets Whose Use is Limited PROPERTY AND ECIUM HENT (at Cost) Land Land Improvements Buildings and Improvements Equipment and Furnishings Vehicles Total Less: Accumulated Depreciation Total Property and Equipment (at Depreciated Cost) OTHER ASSETS Notes Receivable - Related Parties Land Held for Investment Unamortized Financing Costs Cash Value of Officers' Life Insurance (Net of Policy Loans of $46,050) Interest in Split -Dollar Policies Total Other Assets Total Assets See accompanying Notes to Financial Statements. 1998 INC. 1996 1997 3,227,203 1,224, 393 3,372,786 98,000 29,947 984,406 351,644 9,288,379 442,448 369,048 344,226 282,185 27,296 243,836 $ 1,709,039 984,406 $ 724,633 $ 747,288 852,653 19,499,175 6,047,685 128,256 $ 27,275,057 16,179,191 $ 11,095,866 $ 279,996 475,791 99,906 $ 855,693 $ 21,964,571 (2) 3,337,833 1,843,851 3,265,627 48,107 1,007,883 247,671 9,750,972 $ 367,728 358,801 374,980 319,580 1,403 27,816 244,883 $ 1,695,191 1,007,883 $ 687,308 $ 747,288 695,406 18,849,134 5,842,350 123,734 $ 26,257,912 15,293,062 $ 10,964,850 152,946 492,924 88,481 271,424 $ 1,005,775 $ 22,408,905 1996 1,646,232 1,448,791 2,460,314 30,000 17,707 46,662 1,047,592 56,229 $ 6,753,527 $ 331,481 348,189 362,936 250,000 67,144 24,049 245,274 $ 1,629,073 1,047,592 $ 581,481 $ 747,288 695,406 18,333,934 5,592,015 123,734 $ 25,492,377 14,391,714 $ 11,100,663 373,362 445,904 443,382 164,440 631,418 $ 2,058,506 $ 20,494,177 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long -Tenn Debt Accounts Payable - Trade Accounts Payable - Related Party Accounts Payable - Third Party Resident Trust Funds Payable and Security Deposits Accrued Salaries and Payroll Taxes Accrued Vacation Benefits Accrued Real Estate Taxes Accrued Profit Sharing Accrued Interest Unearned Rent Total Current Liabilities LONG-TERM DEBT (Net of Current Maturities Shown Above) Total Liabilities CONTINGENT LIABILITIES AND COMMITMENTS STOCKHOLDERS'EQUITY Common Stock - No Par Value; Authorized 100,000 Shares; 10,000 Issued and Outstanding Contribution in Aid of Construction Retained Earnings (Page 4) Total Stockholders' Equity Total Liabilities and Stockholders' Equity I $ 3,640,746 983,524 199,772 676,108 654,060 721,000 292,195 101,326 $ 7,268,731 1997 3,825,746 844,494 3,391 75,558 217,587 548,768 572,491 763,000 278,867 102,051 $ 7,231,953 FM 398,316 602,027 222,077 441,128 414,060 832,500 100,000 301,598 102,649 $ 3,414,355 8,588,153 8,601,656 10,868,055 $ 15,856,884 $ 15,833,609 $ 14,282,410 $ 25,000 $ 25,000 $ 25,000 1,084,976 1,112,094 1,139,212 4,997,711 5,438,202 5,047,555 $ 6,107,687 $ 6,575,296 $ 6,211,767 $ 21,964,571 $ 22,408,905 $ 20,494,177 (3) NORTH RIDGE CARE CENTER, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 PERCENT OF AMOUNT REVENUE REVENUE 6.1 % Resident Services $ 30,347,221 98.4 % Prior Years' Revenue Adjustments 149,472 0.5 Interest Income 275,815 0.9 Realized Gain on Investments 46,280 0.1 Unrealized Gain (Loss) on Investments 35,264 0.1 Gain (Loss) on Sale of Assets 593 - Proceeds from Officer Life Insurance - Miscellaneous - Total Revenue $ 30,854,645 100.0 % OPERATING EXPENSES 27,249,952 88.3 INCOME FROM OPERATIONS BEFORE INTEREST, DEPRECIATION AND AMORTIZATION $ 3,604,693 11.7 % INTEREST 823,480 2.7 DEPRECIATION AND AMORTIZATION 896,040 2.9 NET INCOME BEFORE EXTRA- ORDINARY ITEM EXTRAORDINARY ITEM Loss on Refinancing NET INCOME Distributions to Stockholders Changes in Retained Earnings Retained Earnings - Beginning RETAINED EARNINGS - ENDING (to Page 3) See accompanying Notes to Financial Statements. (4) $ 1,885,173 6.1 % $ 1,885,173 6.1 (2,325,664) $ (440,491) 5,438,202 $ 4,997,711 199 ODS111MI 7 1996 PERCENT OF PERCENT OF REVENUE AMOUNT REVENUE $ 29,127,531 97.3 % $ 27,804,994 99.3 % (87,702) (0.3) 37,874 0.1 256,091 0.9 255,764 0.9 (16,996) (0.1) (67,281) (0.2) 45,901 0.2 (5,056) 598,940 2.0 10,226 - (19,259) (0.1) T-29,933,991 100.0 % $ 28,007,036 100.0'% 25,414,783 84.9 24,055,919 85.9 $ 4,519,208 803,197 891,906 $ 2,824,105 15.1 % $ 3,951,117 2.7 813,152 3.0 915,825 9.2 % $ 2,222,140 (64,594) (0.2) - $ 2,759,511 9.2 % $ 2,222,140 (2,368,864) (1,618,405) $ 390,647 $ 603,735 5,047,555 4,443,820 $ 5,438,202 $ 5,047,555 (5) 14.1 % 2.9 3.3 7.2 7.9 % NORTH RIDGE CARE CENTER, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Resident Services Cash Paid to Suppliers and Employees Interest Received Proceeds from Officer Life Insurance Interest Paid Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of Property and Equipment Prepaid Selling Expenses Proceeds from Sale of Fixed Assets Proceeds from Sale of Land Held for Investment Advances to Related Parties Collections on Loans to Related Parties Purchase of Investments Proceeds from Sale of Investments Payments of Operating Cash into Bond and Reserve Funds Interest Income Reinvested in Bond and Reserve Funds Payments from Escrow Funds for Operating Expenses and Fixed Assets Payments of Principal and Interest on Bonds Payable from Bond Fund Net Cash Used by Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Financing Costs Paid Principal Payments on Long -Term Debt Acquisition of Demand Notes Distributions to Stockholders Net Cash Used by Financing Activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning 1998 $ 30,358,658 (26, 859,188) 293,116 266,010 (810,153) $ 3,248,443 IRM $ 28,367,405 (25,170,177) 254,646 1,041,966 (813,048) $ 3,680,792 IEFZ: $ 27,339,577 (24,065,703) 240,282 (647,904) $ 2,866,252 $ (1,055,324) $ (768,022) $ (622,273) (182,851) - 18,000 - 10,000 - 550,000 - (127,050) (25,000) (127,945) 245,416 234,932 (2,175,502) (1,703,086) (1,268,349) 2,832,355 1,308,026 1,153,348 (1,001,029) (1,095,264) (1,082,351) (37,595) (36,143) (34,188) 379,868 448,772 514,660 606,466 606,334 381,123 $ (742,662) $ (468,967) $ (841,043) $ - $ (32,447) $ (290,747) (389,578) (333,440) 1,270,665 (2,325,664) (2,368,864) (1,618,405) $ (2,616,411) $ (1,520,224) $ (1,951,845) $ (110,630) $ 1,691,601 $ 73,364 3,337,833 1,646,232 1,572,868 CASH AND CASH EQUIVALENTS - ENDING $ 3,227,203 $ 3,337,833 $ 1,646,232 (6) NORTH RIDGE CARE CENTER, INC. STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Proceeds from New Borrowing Less: Uses of New Borrowing Payment of Principal and Interest on Refinanced Debt Prepayment Penalty Line of Credit Fee and Cap Fee Financing Costs Trustee Fee Net Proceeds Total Financing Costs Less: Financing Costs Paid from Bond Proceeds Net Financing Costs Paid Land Improvements Financed by Special Assessments See accompanying Notes to Financial Statements. (7) - $ 3,725,000 2,279,234 22,640 75,200 74,764 2,500 1, 0, $ 107,211 (74,764) 44 $ 92,243 $ 1998 1997 1996 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Income (Page 4) $ 1,885,173 $ 2,759,511 $ 2,222,140 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 896,040 919,023 915,825 Unrealized (Gain) Loss on Investments (35,264) 16,996 67,281 Unrealized Gain on Officer Life Insurance (6,011) - - Realized Gain on Investments (46,280) - (Gain) Loss on Sale of Fixed Assets (593) (45,901) 5,056 Extraordinary Item - Write off of Unamortized Financing Costs - 39,993 - (Increase) Decrease in: Accounts Receivable (205,159) (757,606) (495,418) Other Current Assets 97,035 (115,187) 24,311 Cash Value of Officers' Life Insurance 266,010 435,952 (24,235) Increase in: Accounts Payable 217,979 242,437 56,051 Other Current Liabilities 179,513 185,574 95,241 Net Cash Provided by Operating Activities$ 3,248,443 $ 3.680 ,792 1_2 .866,252 SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Proceeds from New Borrowing Less: Uses of New Borrowing Payment of Principal and Interest on Refinanced Debt Prepayment Penalty Line of Credit Fee and Cap Fee Financing Costs Trustee Fee Net Proceeds Total Financing Costs Less: Financing Costs Paid from Bond Proceeds Net Financing Costs Paid Land Improvements Financed by Special Assessments See accompanying Notes to Financial Statements. (7) - $ 3,725,000 2,279,234 22,640 75,200 74,764 2,500 1, 0, $ 107,211 (74,764) 44 $ 92,243 $ NORTH RIDGE CARE CENTER, WC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 199% AND 1996 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations North Ridge Care Center, Inc. owns and operates a 559 -bed licensed nursing facility, a 180 - unit congregate housing facility, and a 25 -unit assisted living facility for the elderly in New Hope, Minnesota. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Standards of Accounting and Financial Reporting The Corporation follows the accounting guidance in the audit and accounting guide, Health Care Organizations, which is in conformity with the recommendations of the American Institute of Certified Public Accountants. Resident Services Revenue Resident services revenue includes room charges and ancillary services to residents and is recorded at established billing rates, net of contractual adjustments, resulting from agreements with third -party payors. Provisions for estimated third -party payor settlements are provided in the period the related services are rendered. Differences between the amounts accrued and subsequent settlements are recorded in revenues in the year of settlement. Cash and Cash Equivalents Cash and cash equivalents consist of investments that mature within three months from their purchase date. Cash and cash equivalents consist of the following, Cash Money Market Account Total 1998 $ 2,036,533 1,190,670 3,227,203 1997 $ 2,784,344 553,489 3,337,833 1996 $ 1,579,993 66,239 1,646, 232 Concentration of Credit Risk The Corporation places its temporary cash investments at various financial institutions. At times such investments may be in excess of the FDIC insurance limit. (8) NOTE 1 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments The Corporation's securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings. The Corporation had unrealized gains (losses) of $35,264, ($16,996) and ($67,281) during the years ended December 31, 1998, 1997 and 1996, respectively, as a result of changes in market value. Third Party Reimbursement Agreements Medicaid The facility participates in the Medicaid program which is administered by the Minnesota Department of Human Services (DHS). In 1995, the State of Minnesota authorized the DHS by statute to establish a contractual alternative payment system, called the "Nursing Home Contract Project." The purpose of the Project is to explore a contract -based reimbursement system as an alternative to the current cost -based system for reimbursement. During the year ended December 31, 1996, the Corporation was approved for participation in the Project and is paid its reimbursement rates effective July 1, 1995 with annual inflationary adjustments. By Minnesota statute, a nursing facility may not charge private paying residents in multiple occupancy rooms per diem rates in excess of the approved Medicaid rates for similar services. Medicare By Minnesota statute, a nursing facility which participates in the Medicaid program must also participate in the Medicare program. This program is administered by the federal Department of Health and Human Services. Annual cost reports must be submitted to the designated intermediary for cost settlement. Effective January 1, 1999, the Medicare program transitioned to a Prospective Payment System (PPS). The PPS is a per diem price based system. Filing of cost reports will be a continued requirement, however, they will not contain a cost settlement. (9) NOTE 1 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Occupancy Percentages During the years ended December 31, 1998, 1997 and 1996, the occupancy percentages and the percentages of residents covered under the Medicaid and Medicare programs were as follows: Congregate Care: Total Occupancy 97.9% 98.5% 97.2% Assisted Living Total Occupancy 100.0% 100.0% 100.0% Accounts Receivable The Corporation accounts for uncollectible accounts by the reserve method. The allowances for uncollectible accounts were approximately $300,000, $200,000 and $140,000 at December 31, 1998, 1997 and 1996, respectively. Depreciation For financial statement purposes, property and equipment are depreciated over their estimated useful lives by the straight-line method. Different lives are used for tax purposes in accordance with applicable rules and regulations. Assets Whose Use is Limited Assets whose use is limited include assets held by trustees under incentive agreements and resident funds held in trust. Unamortized Financing Costs Financing costs associated with the issuance of the Multi -family Housing Development Refunding Revenue Bonds (GNiiiA Collateralized - North Ridge Care Center, Inc. Project) Series 1995A and the Multi -family Housing Development Revenue Bonds (GNiVIA Collateralized North Ridge Care Center, Inc. Project) Series 1995B (Taxable), the Variable Rate demand notes and the mortgage payable are being amortized over the term of the obligations. (10) 1998 1997 1996 Care Center: Total Occupancy 98.3% 99.1% 99.3% Medicaid 63.4% 61.0% 61.5% Medic -are 5.4% 3.9% 3.9% Congregate Care: Total Occupancy 97.9% 98.5% 97.2% Assisted Living Total Occupancy 100.0% 100.0% 100.0% Accounts Receivable The Corporation accounts for uncollectible accounts by the reserve method. The allowances for uncollectible accounts were approximately $300,000, $200,000 and $140,000 at December 31, 1998, 1997 and 1996, respectively. Depreciation For financial statement purposes, property and equipment are depreciated over their estimated useful lives by the straight-line method. Different lives are used for tax purposes in accordance with applicable rules and regulations. Assets Whose Use is Limited Assets whose use is limited include assets held by trustees under incentive agreements and resident funds held in trust. Unamortized Financing Costs Financing costs associated with the issuance of the Multi -family Housing Development Refunding Revenue Bonds (GNiiiA Collateralized - North Ridge Care Center, Inc. Project) Series 1995A and the Multi -family Housing Development Revenue Bonds (GNiVIA Collateralized North Ridge Care Center, Inc. Project) Series 1995B (Taxable), the Variable Rate demand notes and the mortgage payable are being amortized over the term of the obligations. (10) NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE INVESTMENTS Investments consist of the following at December 31, 1998, 1997 and 1996: 1997 Estimated Cost Market Value U.S. Treasury Bills 1998 $ 1,065,734 U.S. Government Backed Estimated Securities (C.M.O.) Cost Market Value U.S. Treasury Bills $ 393,481 $ 393,481 U.S. Government Backed 200,000 199,600 Securities (C.M.O.) 8,403 9,330 Stock Investment 236,930 277,450 Prime Rate Fund 200,000 196,807 Certificates of Deposit 347,325 347,325 Total 1,186,139 1,224, 393 1997 Estimated Cost Market Value U.S. Treasury Bills $ 1,065,734 $ 1,065,734 U.S. Government Backed Securities (C.M.O.) 61,313 62,791 Stock Investment 175,088 152,751 Prime Rate Fund 200,000 199,600 Certificates of Deposit 362,975 362,975 Total 1,865,110 1, 843, 851 1996 Estimated Cost Market Value U.S. Treasury Bills $ 685,822 $ 685,822 U.S. Government Backed Securities (C.M.O.) 74,819 71,070 Stock Investment 104,461 37,950 Prime Rate Fund 200,000 199,001 Certificates of Deposit 454,948 454,948 Total 1,520,050 1,448,7T-- NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 9998, 1997 AND 1996 Assets whose use is limited that are required for obligations classified as current liabilities are reported in current assets. Escrow Deposits and Bond Reserves Replacement Reserve Fund The Corporation, under terms of the FHA insured mortgage, makes required deposits into this account to assure the availability of funds to replace building components, furniture and equipment. Bond Fund The Bond Fund was established for North Ridge Care Center, Inc. to deposit monthly amounts necessary to pay bond principal and interest payments when due. ReaI Estate and Insurance Escrows The Corporation makes required deposits into these accounts for future payments of real estate taxes and insurance. Mortetage Escrow The mortgage escrow was established to provide a reserve for payment of principal and interest in the event the Corporation's principal and interest payments are insufficient to meet debt service requirements. FICA Rehabilitation Fund The FHA Rehabilitation Fund is an escrow deposit agreement covering the incomplete on-site improvements. The following is a summary of the escrow deposits and bond funds at December 31, 1998, 1997 and 1996: 1998 1997 1996 Replacement Reserve Fund Money Market Fund $ 442,448 $ 367,728 $ 331,481 Bond Fund Norwest U.S. Government Fund $ 369,048 $ 358,801 $ 348,189 Real Estate Tax Escrow Certificates of Deposit $ 280,000 $ 280,000 $ 280,000 Money Market Fund 64,226 94,980 82,936 Total Real Estate Escrows 344,226 374,980 362,936 (12) NOTE 3 NOTE 4 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 ASSETS WHOSE USE IS LIMITED (CONTINUED) Insurance Escrow Money Market Fund Mortgage Escrow Certificate of Deposit Money Market Fund Total Mortgage Escrows FHA Rehabilitation Fund Money Market Fund LAND HELD FOR INVESTMENT 1998 $ 27,296 250,000 1997 1996 $ 27,816 $ 24,049 250,000 $ 250,000 32,185 69,580 - 282,185 319,580 250,000 $ $ 1,403 $ 67,144 The Corporation acquired land in Brooklyn Park, Minnesota for investment purposes. At December 31, 1996, the cost of the land acquired for investment purposes and related carrying costs was $445,904. The land was sold in 1997 for a gain of $45,901. NOTE 5 RELATED PARTY TRANSACTIONS Northridge Properties of New Hope, a partnership owned in part by the stockholders of North Ridge Care Center, Inc., owns and operates an elderly congregate care facility in New Hope, Minnesota. During the year ended December 31, 1997, Northridge Properties of New Hope paid off a note receivable due the Corporation. Interest income of $16,563 and $27,874 on these notes was recorded for the years ended December 31, 1997 and 1996, respectively During the years ended December 31, 1998, 1997 and 1996, Northridge Properties of New Hope purchased/incurred the following expenses at cost from North Ridge Care Center, Inc.: (13) 1998 1997 1996 Manageent Fees $ 60,000 $ 54,750 $ 55,250 Meals 34,182 35,394 43,638 Interest Expense - 16,583 27,894 Contracted Services 13,711 18,265 19,591 Total $ 107,893 $ 124,992 $ 146,373 (13) NOTE 5 NOTE 6 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 RELATED PARTY TRANSACTIONS (CONTINUED) At December 31, 1996, Northridge Properties of New Hope owed North Ridge Care Center, Inc. $17,707 for these expenses. At December 31, 1997, North Ridge Care Center, Inc. owed Northridge Properties $3,391 for advances made to North Ridge Care Center, Inc. North Ridge CP, LLC, a limited liability company, is owned by the stockholders of North Ridge Care Center, Inc. At December 31, 1998, 1997 and 1996, North Ridge CP, LLC owed the Corporation $279,996, $152,946 and $127,946, respectively, on unsecured demand notes bearing interest at rates ranging from 4-6%. At December 31, 1998, 1997 and 1996, none of these notes were classified as current. Payments are at the discretion of management. The Corporation recorded $6,618, $6,248 and $2,360 in interest income on the notes receivable for the year ended December 31, 1998, 1997 and 1996, respectively. The Corporation leases approximately 1,300 square feet of the long-term care facility to a related party to operate a pharmacy. This lease is being accounted for as an operating lease. During each of the years 1998, 1997 and 1996, the Corporation received $34,656 in lease payments from this arrangement. Future minimum rentals on this lease total $18,192 for the six months ending June 30, 1999. The tenant has the option to renew the lease for three consecutive three year terms expiring on December 31, 2004. LONG-TERM DEBT Following is the long-term debt at December 31, 1998, 1997 and 1996: Description Security 1998 1997 1996 6.05%-6.20% City of New Hope, Series 1995A $2,090,000 Due January 1, 2017 at 6.05% and $5,470,000 Due January 1, 2031 at 6.20% Minnesota Multi -family Housing Development Refunding Revenue Bonds Series 1995A See Page 14 (Tax -Exempt) Para. (1) $ 7,560,000 $ 7,560,000 $ 7,560,000 6.7% City of New Hope, Minnesota Multi -family Housing Development Refunding Revenue Bonds Series 19958 (Taxable) See Page 14 Due January 1, 2005 Para. (1) 620,000 695,000 765,000 (14) NOTE 6 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 LONG-TERM DEBT (CONTINUED) Description Security 1998 1997 1996 8'/.% Mortgage Payable - See Page 14 Marquette Bank Para. (2) - - 2,460,091 Variable Rate Demand Notes See Page 15 Para. (4) 3,535,000 3,725,000 - 12% Note Payable - Stock See Page 15 Redemption (Related Party) Para. (3) 201,083 213,183 223,920 12% Note Payable - Stock See Page 15 Redemption (Related Party) Para. (3) 215,063 225,589 234,930 9% Special Assessment - City of Land New Hope Improvements 97,753 8,630 11,751 9% Assessments Payable - City Land of Brooklyn Park Improvements - - 10,679 Total $ 12,228,899 $ 12,427,402 $ 11,266,371 Less: Current Maturities 3,640,746 3,825,746 398,316 Long -Term Debt $ 8,588,153 $ 8,601,656 $ 10,868,055 (1) In November 1995, the City of New Hope authorized the issuance of tax-exempt Multi- family Housing Development Refunding Revenue Bonds in the amount of $7,560,000 (Series 1995A) and the taxable Multi -family Housing Development Revenue Bonds in the amount of $800,000 (Series 19958). The proceeds were used to refinance the Series 1986 bonds. By the terms of the bond issue, the City of New Hope has no direct obligation for payment of the bonds. The bonds are secured by a GNMA security in the principal amount of $8,363,000. The GNMA security is secured by an FHA insured mortgage which is further secured by a security agreement placed on all land, buildings, fixtures and equipment of the North Ridge Apartments and Assisted Living Project. The mortgage and security agreement have been assigned to Norwest Bank Minnesota, National Association, as Trustee. In 1986, the Corporation entered into a restrictive covenant with the City of New Hope that the property would not be exempt from real estate taxes for 50 years. (2) The Corporation refinanced two promissory notes in 1993 with a ten year note payable to Marquette Bank of New Hope in the amount of $3,350,000. Monthly payments of principal and interest of $42,000 are required. The interest rate is 8'/,%, but is subject to a five year rate reset. A second mortgage and security interest has been placed on the land, building, fixtures and equipment, accounts receivable and cash of the Corporation in favor of Marquette Bank of New Hope. During the year ended December 31, 1997 the Corporation refinanced this debt with the Demand Notes described in Paragraph 4. As a result of this transaction the organization incurred prepayment penalties in the amount of $24,601 and recognized the amortization on the remaining unamortized financing costs in the amount of $39,993 for a total extraordinary item of $64,594. (15) NOTE 6 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 LONG-TERM DEBT (CONTINUED) (3) Pursuant to the approval of the Corporation's Board of Directors in 1977 and 1978, the Corporation entered into a redemption agreement with two former shareholders for the purchase of their stock. Unsecured installment notes were issued to the former stockholders in payment of the redemption price in the amounts of $300,000 each. Monthly principal and interest payments are $3,086 on each note. The notes are due in 2007 and 2008, respectively. (4) On August 28, 1997, North Ridge Care Center, Inc. Variable Rate Demand Notes were sold through a direct placement to pay off existing bank debt and finance the renovation of the nursing facility. The renovation project began in 1997 with an estimated cost of $980,000 to be spent in 1998. A first mortgage and security agreement has been placed on the property and equipment of the nursing facility owned by North Ridge Care Center, Inc., in favor of the bond trustee, Norwest Bank Minnesota, N.A. By definition, the Variable Rate Demand Note is a long-term taxable note bearing an interest rate of which is indexed to a current short-term market rate. The interest rate for the years ended December 31, 1998 and 1997 ranged from 5.50% to 5.60%. The demand feature allows the noteholder liquidity upon 7 days notice at par value plus accrued interest. The Organization holds an irrevocable direct pay letter of credit renewable annually with the bond trustee for the face amount of the notes. In the event remarketing is unsuccessful, the letter of credit will be drawn upon to pay the bond trustee. The Organization has a liability to the bond trustee immediately upon a draw on the letter of credit. Because of the demand feature of these notes, the entire amount is classified as a current liability on the financial statements. The notes shall require amortization over 20 years. Payment will be structured for level debt service with principal paid annually. Principal payment is calculated by computing the average daily interest rate for the year multiplied by the outstanding principal balance amortized over the remaining life of the loan. The difference between the interest only payments and the amount of principal that normally amortizes is due annually on August 1. Maturity requirements on long-term debt are as follows: The Corporation is subject to various financial and administrative covenants which are reflected in the debt documents. (16) Mortgages, Notes Payable and Special Year Ending December 31, Bonds Assessments Total 1999 $ 80,000 $ 3,560,746 $ 3,640,746- 2000 85,000 37,952 122,952 2001 90,000 41,596 131,596 2002 100,000 41,596 141,596 2003 100,000 41,596 141,596 Later Years 7,725,000 325,413 8,050,413 Total $ 8,180,000 $ 4,048,899 $ 12,228,899 The Corporation is subject to various financial and administrative covenants which are reflected in the debt documents. (16) NOTE 8 NOTE 9 NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 9996 CONTRIBUTION IN AID OF CONSTRUCTION In 1982, the City of New Hope, Minnesota issued and sold General Obligation Tax Increment Bonds and contributed a portion of the proceeds to North Ridge Care Center, Inc. as an incentive to construct a congregate housing facility in the city. North Ridge Care Center, Inc. has no direct obligation to pay the Bonds. However, the Corporation has entered into a Redevelopment Agreement that provides for a lien on the land in favor of the Housing and Redevelopment Authority created by the City of New Hope. The provisions of the lien relate to the sale of the congregate housing complex or upon certain transfers of stock of the Corporation. If these events occur, the amount required to be paid to the Housing and Redevelopment Authority is the greater of $585,000 or a formula amount based on the sales price of the property. The funds contributed from the City of New Hope were used by the Corporation to finance the land acquisition and the development of the land into a congregate housing facility as follows: Cost of Land $ 685,000 Interest Reduction Program 702,000 Utilities and Micellaneous Land Improvements 111,525 Total Contribution in Aid of Construction $ 1,498,525 The interest reduction program and land improvements are being amortized over the assets' estimated lives of 30 years. At December 31, 1998, 1997 and 1996, unamortized contributions in aid of construction were $1,084,976, $1,112,094 and $1,139,212, respectively. INCOME TAXES The Corporation has elected under Section 1362 of the Internal Revenue Code to be an S corporation. An S corporation is not taxed as a separate entity; rather, the income or loss of the Corporation is included in its stockholders' individual income tax returns. Therefore, no provision for income taxes is included in these financial statements. EMPLOYEE PROFIT SHARING AND 401(x) RETIREMENT SAVINGS PLAN The Corporation has a qualified profit sharing and 401(k) retirement savings plan that covers substantially all employees who meet certain minimum age and hours of employment requirements. Contributions to the profit sharing plan are at the discretion of the Board of Directors. The 401(k) retirement savings portion of the plan provides that eligible employees may elect a salary deferral up to the maximum amount allowed as a deduction by the Internal Revenue Code with a discretionary matching percentage of employer contributions. During 1998, 1997 and 1996, contributions to the profit sharing plan were approximately $50,000, $100,000 and $100,000, respectively. No discretionary matching of 401(k) employer contributions was made during the years ended December 31, 1998, 1997 and 1996. (17) j, �'._ 194114" iii ':.1.. N i 161 1 AN NOTE 10 SALE OF BUSINESS On December 2, 1998, the Corporation agreed to sell the resident accounts receivable and the property and equipment of the Corporation to an unrelated party for an amount in excess of book value. Closing of the transaction is scheduled for March 1999. At December 31, 1998, the Corporation had $182,851 of prepaid expenses relating to the sale. 'u'� I ,�i, TIS ` �, I�till Iii ,�. ;[IS • I Government Regulations - Medicaid The DHS reserves the right to perform field audit examinations of the Corporation's records. Any adjustments resulting from such an audit could retroactively adjust Medicaid revenue. During the year ended December 31, 1998 a field audit was performed on the rate periods from July 1, 1994 through June 30, 1997. No adjustments were made as a result of the field audit. No rate periods remain open to examination. Government Regulations - Medicare The Medicare intermediary has the authority to audit the Corporation's records any time within a three-year period after the date the Corporation receives a final notice of program reimbursement for each cost reporting period. Any adjustments resulting from such an audit could retroactively adjust Medicare revenue. Workers' Compensation Insurance Prior to January 1, 1997, the Corporation was covered under standard premium and retention insurance plans requiring annual settlements. Beginning January 1, 1997 the Corporation is no longer covered under a retention policy. Workers' compensation insurance expenses for the years ended December 31, 1998, 1997 and 1996 were $200,176, $206,205 and $303,404, respectively. The refunds related to prior year policies were $38,491, $114,373 and $165,957 for the years ended December 31, 1998, 1997 and 1996, respectively. LlUgation The Corporation is a defendant in an EEOC complaint alleging discrimination. The action is being vigorously contested by management. No determination can be made of the eventual outcome, nor can the amount of exposure be determined. No provision has been made in the financial statements for any liability that may result. Shareholders' Agreement The shareholders and the Corporation have entered into a shareholders' agreement with the Corporation whereby upon the death of a shareholder, the surviving shareholder has the option to purchase the deceased shareholder's shares at a predetermined price as determined under the agreement. Under this agreement, the Corporation shall be obligated to re -purchase any shares not purchased by the other shareholder. (18) NORTH RIDGE CARE CENTER, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED) Health Care Financing Administration (HCF During the year ended December 31, 1997, the Department of Health and Human Services conducted an investigation of North Ridge Care Center and determined that the Care Center was not in compliance with Federal requirements for nursing homes participating in the Medicare and Medicaid programs. As a result of this investigation, HCFA imposed a civil penalty in the amount of $283,800 against the Corporation. As of the date of this report the Corporation has appealed this filing and feels that the civil penalty will be reversed as a result of this appeal. At December 31, 1998 and 1997, the Corporation has recorded the $283,800 liability in accounts payable and miscellaneous expense on the financial statements. NOTE 12 INTEREST IN SPLIT -DOLLAR POLICIES Prior to December, 1997 the Corporation was the beneficiary to the cash surrender value on split -dollar life insurance policies on the lives of two former officers. During the year ended December 31, 1997, one of the former officers died. Proceeds in the amount of approximately $850,000 were received on the split dollar life insurance policies held by the Corporation. Of this amount approximately $350,000 had previously been recorded on the financial statements as interest in split dollar policies. The remainder was recognized as income during the year ended December 31, 1997. At December 31, 1998, 1997 and 1996, the Corporation's interest in the split -dollar policies was $-0-, $271,424 and $631,418, respectively. (19) (This page has been left blank intentionally.) APPENDIX C CERTAIN DEFINITIONS AND SUMMARY OF DOCUMENTS (This page has been left blank intentionally.) J DEFINITIONS OF CERTAIN TERMS In addition to the terms defined elsewhere in the Official Statement, the following terms shall have the meaning set forth herein. Accountant shall mean a certified public accountant or accountants retained by the Company. Acquisition and Construction Fund shall mean the fund created in Section 5.02 of the Indenture. Act shall mean Minnesota Statutes, Chapter 462C, as amended. Additional Bonds shall mean any Bonds issued pursuant to Article IV of the Indenture. Affiliate shall mean any Person who is directly or indirectly controlling or controlled by or under direct or indirect common control with the Company; "control' means the power to direct management and policies, directly or indirectly, whether through ownership of voting securities, by contract, or otherwise. Appraiser shall mean a Person experienced in the business of appraising property retained by the Company. Architect shall mean a Person who is a registered architect in the State of Minnesota, retained by the Company. Assignment of Mortgage shall mean the Assignment of Mortgage Agreement, dated as of March 1, 1999, between the City and the Trustee. Board of Directors shall mean the governing body of the Company or any duly authorized committee thereof. Bond Counsel shall mean any attorney or firm of attorneys nationally recognized as experienced in matters relating to the tax-exempt financing of facilities of the same character as the Facilities, retained by the Company and acceptable to the City and the Trustee. Bond Fund shall mean the fund created in Section 5.03 of the Indenture. Bondholder shall mean a Person in whose name a Bond is registered in the Bond Register. Bonds shall mean all Bonds issued pursuant to the Indenture, including the Series 1999 Bonds and any Additional Bonds. Bond Year shall mean the period commencing on the second day of March of each year and ending on the first day of March on the following year. Business Da v shall mean any day other than a Saturday, Sunday or other day on which the Trustee is not open for business. City shall mean the City of New Hope, Minnesota, and any successor to its functions under the Loan Agreement and the Indenture. City Council shall mean the governing body of the City. C-1 Code shall mean the Internal Revenue Code of 1986, as amended. All references herein to sections of the Code are to the sections thereof as they existed on the date of execution of the Indenture. Collateral Document shall mean any written instrument other than the Loan Agreement, the Indenture and the Mortgage, whereby any property or interest in property of any kind is granted, pledged, conveyed, assigned or transferred to the City or Trustee, or both, as security for payment of the Bonds or performance by the Company of its obligations under the Loan Agreement, or both. Comuany shall mean Minnesota Masonic Home North Ridge, a nonprofit corporation organized and existing under the laws of the State of Minnesota, and any permitted successor to such Company under Section 7.1 of the Loan Agreement. Company Resolution shall mean a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. Current Assets shall mean those assets of the Company which under generally accepted accounting principles are considered current assets. Current Liabilities shall mean those liabilities of the Company which under generally accepted accounting principles are considered current liabilities. Determination of Taxability shall mean receipt by the Trustee of a statutory notice of deficiency by the Internal Revenue Service, a ruling from the National Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction which holds in effect that interest payable on the Series 1999 Bonds is includable for federal income tax purposes in the gross income of a Bondholder because of any act or omission of the Company (or any successor or transferee) or of the Trustee; provided, however, that the Company shall have an opportunity for no more than 180 days after receipt by the Trustee to contest any such statutory notice, ruling or final decision and that no such statutory notice, ruling or final decision shall be deemed a "Determination of Taxability" if the Company is contesting the same during such 180 day period in good faith until the earliest of (a) abandonment of such contest by the Company, (b) the date on which such statutory notice, ruling or final decision becomes final, or (c) the 181st day after the initial receipt by the Trustee of such statutory notice, ruling or final decision; and provided further that no Determination of Taxability shall arise from the interest on the Bonds being included (1) in income for purposes of calculating alternative minimum taxable income of any taxpayer; (2) in earnings and profits of branches of foreign Companys for purposes of calculating the "branch profits tax'; (3) within gross income to certain recipients of social security benefits; or (4) as passive investment income to certain subchapter S corporations which have subchapter C earnings and profits. Event of Default shall mean any event defined as such in Section 11.1 of the Loan Agreement or in Section 7.01 of the Indenture. Facilities shall mean, collectively, the Land, the Nursing Facility, the Housing Facility and any Improvement, as such properties may at any time exist. Fee Payments shall mean the payments required to be made by the Company by Section 2.3 of the Loan Agreement. Fiscal Year shall mean the period commencing on the first day of January of any year and ending on the last day of December of such year, or any other twelve (12) month period specified in a Company Resolution as the fiscal year of the Company. Government Obli atg ions shall mean direct obligations of, or obligations the principal of and the interest on which are fully and unconditionally guaranteed by, the United States of America, or securities or receipts evidencing 140 1 ownership interests in any of the foregoing obligations or in specified portions (such as principal or interest) of any of the foregoing obligations. Holder shall mean a Bondholder. Housine Facility means the 25 -unit assisted living facility and the 180 -unit multifamily housing facility and related facilities (other than the Nursing Facility) designed and intended for occupancy by elderly persons, located on the Land. J Improvement shall mean any addition, enlargement, improvement, extension or alteration of or to the Facilities as they then exist, and any fixtures, structures or other facilities acquired or constructed by the Company and located on the Land. Indebtedness shall mean (i) all indebtedness, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed, (ii) all indebtedness for the payment of the purchase price of property or assets purchased, (iii) all guaranties, endorsements, assumptions and other contingent obligations with respect to, or to purchase or to otherwise acquire, indebtedness of others, (iv) all indebtedness secured by any mortgage, pledge or lien existing on property owned, subject to such mortgage, pledge or lien, whether or not indebtedness secured thereby shall have been assumed, and (v) installment purchase contracts, loans secured by purchase money security interests, lease -purchase agreements or capital leases (including leases of real property) entered into by the Company in connection with the acquisition of property not previously owned by the Company and computed in accordance with generally accepted accounting principles; provided, however, that "Indebtedness" does not include trade accounts payable and accrued expenses incurred in the normal course of business. For purposes of this definition no single evidence of indebtedness shall be counted more than once even though more than one of the clauses (i) - (v) above may apply. Indenture shall mean the Indenture of Trust, dated as of March 1, 1999, between the City and the Trustee, as the same may from time to time be amended or supplemented in accordance with the provisions thereof. Independent, when used with respect to any specified Person, shall mean such a Person who (i) is in fact independent; (ii) does not have any direct financial interest or any material indirect financial interest in the Company or any Affiliate, other than the payment to be received under a contract for services to be performed by such Person; and (iii) is not connected with the Company or any Affiliate as an official, officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Interest Account shall mean the Account so designated within the Bond Fund. Interest Payment Date shall mean a fixed date specified in a Bond and the Indenture as a date on which an installment of interest on a Bond is due and payable. Interim Indebtedness shall mean any Indebtedness incurred, assumed or guaranteed by the Company on an interim basis to provide temporary financing as permitted by Section 6.3 of the Loan Agreement. Land shall mean the real estate described in Exhibit A to the Mortgage and any additional real estate which may be included within the lien of the Mortgage, but excluding any real estate released from the lien of the Mortgage pursuant to the terms of the Loan Agreement or the Mortgage. Loan shall mean the loan by the City to the Company of the proceeds of the Bonds, exclusive of any accrued interest paid by the Original Purchaser of the Bonds upon the delivery thereof, but including the underwriting discount, if any, in connection with the sale of Bonds by the City to the Original Purchaser. C-3 Loan Agreement shall mean the Loan Agreement, dated as of March 1, 1999, between the City and the Company, as the same may he from time to time amended or supplemented in accordance with the provisions thereof. Loan Repayment shall mean a payment required to be made by the Company pursuant to Section 2.2 of the Loan Agreement. Loan Repayment Date shall mean a date on which a Loan Repayment is due. Long Term Indebtedness shall mean Indebtedness of the Company other than Short Term Indebtedness or Interim Indebtedness. Management Consultant shall mean a Person qualified to study operations of nursing home facilities, assisted living facilities and multifamily housing facilities and having a favorable repute throughout the State of Minnesota for skill and experience in such work and, unless otherwise specified in the Loan Agreement, retained by the Company and acceptable to the Trustee. Mortgage shall mean the Mortgage Agreement, dated as of the date of the Loan Agreement and Indenture, between the Company and the City, as the same may be amended or supplemented in accordance with the provisions thereof and the Indenture. Mortgaged Property shall mean the property described in Section 2.1 of the Mortgage. Net Proceeds, when used with respect to any insurance claim or condemnation award, shall mean the gross proceeds from such insurance claim or condemnation award remaining after payment of all expenses (including attorneys' fees and any expenses of the City, the Company and the Trustee) incurred in the collection of such gross proceeds. Net Revenues Available for Debt Service shall mean the Total Revenues for a specified period, whether historic or projected, less the total operating expenses of the Company for the same specified period (excluding extraordinary losses and expenses and unrealized losses on investments), as determined in accordance with generally accepted accounting principles, to which shall be added the amount of all depreciation, amortization and interest expense on Long Term Indebtedness and other non-operating income and contributions available for debt service, all for the same specified period. Nursing Facility shall mean the 559 -bed nursing home facility located on the Land. Opinion of Counsel shall mean a written opinion of counsel, who may (except as otherwise specifically provided in the Loan Agreement or in the Indenture) be counsel for the City or the Company. Original Purchaser shall mean, with respect to any series of Bonds, the original purchaser or underwriter of such series of Bonds. Outstanding, when used with reference to Bonds, shall mean, as of the date of determination, all Bonds theretofore issued and delivered under the Indenture, except: (i) Bonds theretofore cancelled by the Trustee or delivered to the Trustee cancelled or for cancellation; (ii) Bonds and portions of Bonds for whose payment or redemption moneys or Government Obligations (as provided in Article VI of the Indenture) shall have been theretofore deposited with the Trustee in trust for the Holders of such Bonds; provided, however, that if such Bonds are to be redeemed, notice of C-4 such redemption shall have been duly given pursuant to the Indenture or irrevocable instructions to call such Bonds for redemption at a stated Redemption Date shall have been given to the Trustee; and (iii) Bonds in exchange for or in lieu of which other Bonds shall have been issued and delivered pursuant to the Indenture; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Bonds have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture, Bonds owned by the City or the Company or any Affiliate shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which the Trustee knows to be so owned shall be disregarded. Permitted Encumbrances shall mean (a) liens for taxes and special assessments which are not then delinquent, or if then delinquent are being contested in accordance with the Loan Agreement; (b) utility, access and other easements and rights-of-way, restrictions, restrictive covenants and exceptions that the Company certifies to the Trustee will not interfere with or impair the operation of the Mortgaged Property, or if it is not being operated, the operation for which it was designed or last modified; (c) any mechanic's, laborer's, materialman's, supplier's or vendor's lien or right in respect thereof if payment is not yet due under the contract in question or if such lien is being contested in accordance with the Loan Agreement; (d) such minor defects, irregularities, encumbrances, easements, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the Land and do not materially impair the property affected thereby for the purpose for which it was intended; (e) zoning laws; (f) liens arising in connection with workers' compensation, unemployment insurance, taxes, assessments, statutory obligations or liens, social security legislation, undetermined liens and charges incidental to construction, or other similar charges arising in the ordinary course of operation and not overdue or, if overdue, being contested in accordance with the Loan Agreement, and such other liens and charges at the time required by law as a condition precedent to the transaction of the health care activities of the Company or the exercise of any privileges or licenses necessary to the Company; (g) superior liens in fixtures being acquired by the Company, subject to certain restrictions and limitations imposed by the Loan Agreement and the Mortgage; (h) inferior liens in Improvements, subject to certain limitations imposed by the Mortgage; (i) superior liens in form of leases or purchase money security interests in equipment, furnishings and other tangible property placed by the Company in, upon, about or under the Land, Housing Facility, Nursing Facility and other Improvements; 0) superior liens in accounts receivable to finance current operating expenses prior to the occurrence of an Event of Default under the Loan Agreement; and (k) other encumbrances identified in the Mortgage. Person shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization, or government or any agency or political subdivision thereof. Principal Account shall mean the Account created within the Bond Fund. Principal and Interest Requirements on Long Term Indebtedness shall mean, for any Fiscal Year, and subject to the provisions of Section 6.5 of the Loan Agreement, the amount required to pay the interest on and the principal of Long Term Indebtedness (including assumed debt) becoming due in such Fiscal Year. Principal and Interest Requirements on Outstanding Bonds shall mean, for any Bond Year, the amount required to pay the principal of and the interest on all Outstanding Bonds during such Bond Year, to be determined on the assumption that all Bonds will be retired at their Stated Maturities except for those Term Bonds which the Indenture provides must be redeemed prior to their Stated Maturities from sinking fund payments the Loan Agreement requires the Company to make for such purpose, which Term Bonds will be assumed to be retired on their respective Sinking Fund Payment Dates. C-5 Principal Payment Date shall mean the Stated Maturity of principal of any Serial Bond and the Sinking Fund Payment Date for, or, if such Bond is not to be redeemed on a Sinking Fund Payment Date, the Stated Maturity of, any Term Bond. Project shall mean any Improvement to be financed in whole or in part by a series of Bonds. Project Costs shall mean with reference to any Project any and all sums of money required to acquire, construct and install that Project, excluding Costs of Issuance but including the following: A. all expenses incurred in connection with the acquisition of real property, or any interest in real property, necessary for the Project or mortgaging of the Land, including title insurance; B. the expense of preparation of the plans and specifications and of all other architectural, engineering, surveying, testing and supervisory services incurred and to be incurred in the planning, construction and completion of the Project C. the cost of acquisition and installation of all items of equipment, machinery or furnishings included in the Project; D. premiums on all insurance relating to construction during the period before completion of the Project, to the extent that such premiums are not paid by a Contractor; E. the contract price of all labor, services, materials, supplies, equipment and remodeling furnished under a Construction Contract; F. all expenses incurred in seeking to enforce any remedy against a Contractor, any subcontractor or any surety in respect of any default under any Construction Contract; G. the cost of all other labor, services, materials, supplies and equipment necessary to complete the acquisition, construction and installation of the Project, including costs of moving property previously owned or ]eased by the Company; H. all interest accruing on money borrowed by the Company for financing of the Project Costs during construction and up to six months thereafter; I. all fees and expenses of the Trustee and any Paying Agent relating to the Bonds that become due before the Completion Date; J. without limitation by the foregoing, all other expenses which under generally accepted accounting principles constitute necessary capital expenditures for the completion of the Project and are authorized by the Act to be paid from the proceeds of the Bonds; and K. all advances, payments and expenditures made or to be made by the City, the Trustee and any other Person with respect to any of the foregoing expenses. Oualified Investments shall mean: (i) Government Obligations; (ii) bonds, debentures, participation certificates or notes issued by any of the following: Bank for Cooperatives, Federal Financing Bank, Federal Land Banks, Federal Home Loan Mortgage Company, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal National Mortgage Association, Export -Import Bank of the United States, Farmer's Home Administration or Government National Mortgage Association, or any other agency or corporation which has been or may hereafter be created by or pursuant to an Act of the Congress of the United States as an agency or instrumentality thereof; (iii) shares in an Investment Company registered under the Federal Investment Company Act of 1940 whose shares are registered under C-6 the Federal Securities Act of 1933 and whose only investments are Qualified Investments described in clause (i) or (ii) of this Section; (iv) certificates of deposit, time deposits, banker's acceptances or other similar banking arrangements with any banking or savings institution which is insured by the Federal Deposit Insurance Corporation, provided that such certificates of deposit, time deposits, banker's acceptances and other arrangements, if not insured by the Federal Deposit Insurance Corporation, are fully secured by Qualified Investments described in clause (i) or (ii) of this Section, which Qualified Investments are lodged with a bank or trust company as collateral security; (v) commercial paper of United States industrial corporations or United States direct issuers rated in the highest rating category by Moody's Investors Service or Standard and Poor's Corporation; provided, however, such commercial paper may not be issued by the Company or any `related person" as that term is defined by Section 147(a)(2) of the Internal Revenue Code; (vi) repurchase agreements entered into with primary reporting dealers in United States government securities collateralized at least 100% by Qualified Investments described in clause (i) or (ii) of this Section, if (A) such Qualified Investments are delivered to the Trustee or are supported by a safekeeping receipt issued by a depository satisfactory to the Trustee, (B) the value of the underlying Qualified Investments shall be maintained at a current market value, calculated not less frequently than monthly, of not less than the current balance of the deposit, (C) a prior perfected security interest in the obligations which are securing such agreement has been granted to the Trustee and (D) such Qualified Investments are free and clear of any adverse third party claims; or (vii) a written investment contract with or guaranteed by a bank, bank holding company, trust company, domestic branch of a foreign bank, domestic corporation or insurance company organized and existing under the laws of the United States or any state thereof whose similar obligations are rated "A" or better by Moody's Investors Service or Standard & Poor's Company. Rebate Fund shall mean the fund created in Section 5.08 of the Indenture. Redemption Date, when used with respect to any Bond to be redeemed, shall mean the date on which it is to be redeemed pursuant to the Indenture. Redemption Price, when used with respect to any Bond to be redeemed, shall mean the price at which it is to be redeemed pursuant to the Indenture. Regulatory Agreement shall mean the Regulatory Agreement, dated as of March 1, 1999, between the Company and the Trustee. Repair and Replacement Fund shall mean the fund created in Section 5.07 of the Indenture. Repair and Replacement Fund Deposit shall mean an amount equal to the product of $20 times the number of assisted living units and residential rental housing units in the Housing Facility. Reserve Fund shall mean the fund created in Section 5.06 of the Indenture. Reserve Requirement shall mean, as of the date of calculation, an amount of money equal to the least of (i) ten percent (10%) of the stated principal amount (or issue price, for any series of Bonds which has more than a de minimis amount of original issue discount or premium, within the meaning of the Code), of each series of Bonds, any of which are Outstanding, or (ii) one hundred percent (100%) of the maximum Principal and Interest Requirements on Outstanding Bonds for the then current or any future Bond Year, or (iii) one and one-quarter times the average Principal and Interest Requirements on Outstanding Bonds. Serial Bonds shall mean Bonds which are not Term Bonds. Series 1999 Bonds shall mean the Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 of the City issued under the Indenture. C-7 Short Term Indebtedness shall mean any Indebtedness incurred, assumed or guaranteed by the Company maturing or callable at the option of the Lender not more than three hundred sixty-five (365) days after it is incurred, but shall not include Interim Indebtedness. Sinking Fund Payment Date shall mean one of the dates set forth in Section 4.04 of the Indenture (as to the Series 1999 Bonds) or any applicable provision of a Supplemental Indenture (as to any series of Additional Bonds) for the making of mandatory principal payments for Term Bonds. Stated Maturity, when used with respect to any Bond, shall mean the date specified in such Bond as the fixed date on which principal of such Bond is due and payable. Supplemental Indenture shall mean any indenture supplemental to the Indenture and entered into pursuant to Article XI of the Indenture. Term Bonds shall mean those Bonds of a single Stated Maturity in a principal amount which the Indenture provides must be redeemed prior to their Stated Maturity any of which the Indenture provides must be redeemed prior to their Stated Maturity from sinking fund payments the Loan Agreement requires the Company to make for such purpose. Total Revenues shall mean the total resident revenues and other operating revenues of the Company for a specified period, but excluding unrealized gains on investments, as determined in accordance with generally accepted accounting principles. Trust Funds shall mean all of the funds and accounts created pursuant to the Indenture, except the Rebate Fund. Trustee shall mean U.S. Bank Trust National Association, in St. Paul, Minnesota, and any successor trustee under the Indenture. Unrelated Irrtnrovements shall mean any fixtures, structures, land or other facilities, including any machinery, equipment or fixtures necessary in connection therewith, acquired or constructed by the Company not on the Land. THE LOAN AGREEMENT The following is a summary of certain provisions of the Loan Agreement. Reference is made to the Loan Agreement for a complete recital of its terms. Loan to the Company The City agrees to loan to the Company the proceeds of all Bonds. The amount of the Loan is deemed to include any premium or discount at which the Bonds are sold by the City but not any accrued interest received by the City. Repayment of the Loan The Company agrees to repay the Loan in installments in aggregate amounts sufficient to provide full and prompt payment of the principal of, premium, if any, and interest on all Bonds when due. To provide for repayment of the Series 1999 Bonds, the Company agrees to pay on or before April 15, 1999, and on or before the fifteenth day of each month thereafter through and including August 15, 1999, an amount not less than one-fifth of the total amount of interest payable on the Series 1999 Bonds on September 1, 1999, and on or before September 15, 1999, and on or before the fifteenth day of each month thereafter an amount not less than one-sixth of the total amount of interest payable on the Series 1999 Bonds on the next succeeding Interest Payment Date, plus on or before April 15, 1999, and C-8 on or before the fifteenth day of each month thereafter through and including February 15, 2000, an amount not less than one -eleventh of the total amount of principal payable on the Series 1999 Bonds on March 1, 2000, and on or before March 15, 2000 and on or before the fifteenth day of each month thereafter an amount not less than one -twelfth of the total amount of principal payable on the Series 1999 Bonds on the next succeeding Principal Payment Date, subject to certain credits for amounts on hand in the Bond Fund and available therefor or for Series 1999 Bonds previously redeemed or surrendered to the Trustee by the Company. In addition, if amounts are transferred from the Reserve Fund to the Bond Fund at any time, the Company shall make additional payments under the Loan Agreement in an amount, payable on the fifteenth day of each month thereafter, sufficient to increase the balance in the Reserve Fund to the Reserve Requirement at the end of a six-month period. On or before April 15, 1999 and on or before the fifteenth day of each month thereafter, the Company shall pay to the Trustee for credit to the Repair and Replacement Account an amount equal to the Repair and Replacement Fund Deposit. The Company may prepay any part or all of the Loan at any time. Prepayment of the Loan does not accelerate or permit the redemption of any Bond, except as provided with respect to the optional redemption of Bonds described under "The Series 1999 Bonds - Redemption Prior to Maturity" in this Official Statement. Deposit in Acquisition and Construction Fund On the date of issuance of the Series 1999 Bonds the Company shall pay $5,000,000 (less certain earnest money deposits and other amounts previously advanced by the Company with respect to the acquisition of the Facilities) to the Trustee for deposit in the Acquisition and Construction Fund. Such amount shall be applied by the Trustee at the direction of the Company to pay, or reimburse the Company for payment, of costs of renovation, rehabilitation or improvement of the Facilities and costs of acquisition and installation of items of equipment therein. Company's Obligations Unconditional The Company agrees to bear all risk of damage or destruction in whole or in part to the Facilities or any part thereof, including without limitation any loss, complete or partial, or interruption in the use, occupancy or operation of the Facilities, or any thing which for any reason interferes with, prevents or renders burdensome the use or occupancy of the Facilities or the compliance by the Company with the terms of the Loan Agreement. The Company agrees that its obligations to make Loan Repayments and Fee Payments shall be absolute and unconditional and the Company shall not be entitled to any abatement, diminution, set-off, abrogation, waiver or modification thereof nor to any termination of the Loan Agreement by any reason whatsoever regardless of any rights of set-off, recoupment or counterclaim that the Company might otherwise have against the City or the Trustee or any other party or parties and regardless of any contingency, act of God, event or cause whatsoever and notwithstanding any circumstance or occurrence that may arise or take place. Maintenance of the Facilities The Company agrees that it will, at its sole cost and expense, keep and maintain the Facilities, both inside and outside, in a good state of repair and preservation, ordinary wear and tear, obsolescence in spite of repair and acts of God excepted, and will make all necessary repairs, renewals, replacements, betterments and improvements thereof so that the business carried on in connection therewith may be properly and advantageously conducted at all times. The Company will not use or permit the use of the Facilities, or any part thereof, for any unlawful purpose or permit any nuisance to exist thereon. The Company shall provide all equipment, furnishings, supplies and other personal property required or convenient for the proper operation, repair and maintenance of the Facilities in an economical and efficient manner, consistent with then current standards of operation and administration generally acceptable for multifamily housing facilities for the elderly, assisted living facilities and nursing home facilities. C-9 Operation of the Facilities The Company agrees to faithfully and efficiently administer, maintain and operate the Facilities, or, if permitted by the Loan Agreement cause the Facilities to be faithfully and efficiently administered, maintained and operated, as a nursing home facility, an assisted living facility and a multifamily housing development for occupancy primarily by elderly persons open to the general public, free of discrimination based upon race, color, religion, creed, national origin or sex. The Company further covenants and agrees in the Loan Agreement that it will not operate the Facilities in a manner which would adversely affect its status as an organization described in Section 501(C)(3) of the Code. Insurance The Company agrees to keep and maintain the Facilities at all times insured against such risks and in such amounts, with such deductible provisions, as are customary in connection with the operation of facilities of the type and size comparable to the Facilities and the Company agrees to carry and maintain at least the following insurance with respect to the Facilities and the Company: (a) insurance coverage for buildings and contents including steam boilers, fired -pressure vessels and certain other machinery for fire, lightning, windstorm and hail, explosion, riot, aircraft and vehicles, sonic shock, sprinkler leakage, elevator and all other risks of direct physical loss, at all times in an amount not less than (i) an amount necessary to pay and retire and redeem all the Outstanding Bonds in accordance with the provisions of the Indenture and to pay, retire or redeem all Long Term Indebtedness, or (ii) the replacement cost of the Facilities, whichever is less; the insurance required by this paragraph (a) may provide for a deductible not exceeding $50,000, which may be adjusted based on changes in the Consumer Price Index following March 1, 1999; (b) general liability (other than as set forth in subsection (c) below); (c) comprehensive professional liability insurance, including malpractice and other health care facility operation professional liability insurance (other than as set forth in subsection (b) above); (d) comprehensive automobile liability insurance; (e) worker's compensation insurance or self-insurance as required by the laws of the State of Minnesota; and (f) business interruption insurance covering actual losses in gross operating earnings of the Company resulting directly from necessary interruption of business caused by damage to or destruction (resulting from fire and lightning; accident to a fired -pressure vessel or machinery; and other perils, including windstorm and hail, explosion, riot, riot attending a strike, civil commotion, aircraft and vehicles, sonic shock waves, sprinkler leakage, smoke, vandalism and malicious mischief, elevator collision, accident to steam boiler and fired - pressure vessels and electric steam generator) of real or personal property constituting part of the Facilities, less charges and expenses which do not necessarily continue during the interruption of business, for such length of time as may be required with the exercise of due diligence and dispatch to rebuild, repair or replace such properties as have been damaged or destroyed, with limits equal to at least 100% of the maximum Principal and Interest on Long Term Indebtedness for any current or subsequent Fiscal Year. Damage, Destruction and Condemnation If all or any part of the Facilities is damaged, destroyed or taken by condemnation, the Company must repair and replace the Facilities, subject to the Company's option to direct redemption of the Bonds. C-10 i If, in the reasonable judgment of the Company, the Facilities cannot be restored within twelve months of the event of damage or completion of the condemnation proceedings to a condition permitting conduct of the normal operations of the Company and at a cost not exceeding the Net Proceeds of the insurance or condemnation award, the Company has the option of directing the City to call all Outstanding Bonds for redemption at their principal amount plus accrued interest on the earliest practical date for which notices can be given pursuant to the provisions of the Indenture. Leases and Operating Contracts The Company may lease any part of the Facilities, or contract for the performance by others of operations or services on or in connection with the Facilities, or any part thereof, for any lawful purpose, provided that (a) no such lease or contract shall be inconsistent with the provisions of the Loan Agreement or the Indenture, (b) the Company shall remain fully obligated and responsible under the Loan Agreement to the same extent as if such lease or contract had not been executed, (c) no assignee or lessee shall be allowed to utilize a substantial portion of the Facilities primarily for an activity which would not itself qualify as a "development" as defined in Minnesota Statutes, Chapter 462C, as amended, (d) in each case the Company shall determine that the lessee or assignee has sufficient financial responsibility and technical competence to render services necessary for the operation of nursing facilities, assisted living facilities and multifamily housing facilities for the elderly, and (e) no assignment shall be for security purposes. In addition, each such lease or contract shall be expressly conditioned upon, and shall by its terms not be effective until, a signed opinion of Bond Counsel shall be rendered that the exemption from federal income tax of the interest on the Bonds shall not be adversely affected by any such lease or contract. Maintenance of Company Existence; Mergers, Consolidations and Transfer of Assets The Company is required to maintain its existence as a Minnesota nonprofit corporation and take no action nor suffer any action to be taken by others which will alter, change or terminate its status as an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code (or any successor sections of a subsequent federal income tax statute or code). The Company must remain duly qualified to do business in the State of Minnesota and not dispose of all or substantially all of its assets by sale, lease (unless permitted by the provisions of the Loan Agreement) or otherwise or consolidate with or merge into another corporation or permit any other corporation to consolidate with or merge into it unless: A. the surviving, resulting or transferee corporation, as the case may be, shall be organized under the laws of the United States or one of the states thereof, shall be duly qualified to do business in the State of Minnesota, shall have a total unrestricted fund balance at least equal to that of the Company as of the date of such consolidation, merger or transfer and would be able to issue at least $1.00 of Long Term Indebtedness under Section 6.4(c) of the Loan Agreement; B. at least thirty days before any merger, consolidation or transfer of assets becomes effective, the Company shall give the City and the Trustee written notice of the proposed transaction; C. prior to any merger, consolidation or transfer of assets, an opinion of Bond Counsel shall be delivered to the Trustee stating that such merger, consolidation or transfer of assets will not cause interest on the Bonds to become includable in the gross income for federal income tax purposes of recipients thereof subject to federal income taxation; and D. prior to any merger, consolidation or transfer of assets, the surviving, resulting or transferee corporation, as the case may be, if other than the Company, shall deliver to the Trustee an instrument assuming all of the obligations of the Company under the Loan Agreement, the Mortgage and any Collateral Document and an Opinion of Counsel stating that the instrument is a valid, binding and enforceable obligation or such successor and that all of the conditions of Section 7.1 of the Loan Agreement have been satisfied. C-11 Tax Covenants In order to ensure that the interest on the Series 1999 Bonds shall at all times be free from federal income taxation, the Company represents, warrants and covenants in the Loan Agreement that it will fulfill all conditions specified in Sections 103 and 141 through 150 of the Code and applicable Treasury Regulations as are necessary to establish and maintain the tax-exempt status of the interest borne by the Series 1999 Bonds and has made various specific representations, warranties and covenants relating thereto. The tax covenants in the Loan Agreement shall survive the retirement and payment of the Series 1999 Bonds and the discharge of the City's and Company's other obligations under the Loan Agreement. Rate Covenant (a) The Company will fix, charge and collect, or cause to be fixed, charged and collected, subject to applicable requirements or restrictions imposed by law, such rates, fees and charges for the use of facilities of and for the services furnished or to be furnished by the Company, such that Net Revenues Available for Debt Service in each Fiscal Year will be at least one hundred ten percent (110%) of the Principal and Interest Requirements on Long Term Indebtedness during such Fiscal Year. The foregoing is subject to the qualification that if, in the opinion of Counsel, applicable state or federal laws or regulations, or the rules and regulations of agencies having jurisdiction, shall not permit the Company to produce such level of Net Revenues Available for Debt Service or, in the opinion of Counsel, maintenance of the 110% coverage would be reasonably likely to cause the Company to lose its 501(c)(3) status, then the Company shall, in conformity with the then prevailing laws, rules or regulations, maintain rates, fees and charges to equal the maximum permissible level. (b) The Company, from time to time and as often as shall be necessary, will revise, or cause to be revised, subject to applicable requirements or restrictions imposed by law, the rates, fees and charges so that the Net Revenues Available for Debt Service of the Company in each Fiscal Year will be not less than the amount required for such Fiscal Year under paragraph (a) above. (c) If the Net Revenues Available for Debt Service of the Company for any Fiscal Year are less than 110% of the Principal and Interest Requirements on Long Term Indebtedness during such Fiscal Year, then the Company will promptly employ an Independent Management Consultant to review and analyze the reports required by the Loan Agreement to be made by the Company, inspect the Facilities, their operation and administration and submit to the Company and Trustee written reports, and make such recommendations as to the operation and administration of the Facilities as such Independent Management Consultant deems appropriate, including any recommendation as to a revision of the rates, fees and charges of the facilities of the Company or the methods of operation thereof. The Company agrees to consider any recommendations by the Independent Management Consultant and, to the fullest extent advisable in the reasonable determination of the Company's Board of Directors, to adopt and carry out such recommendations. If the Company has previously retained an Independent Management Consultant and the Net Revenues Available for Debt Service are less than 105% of the Principal and Interest Requirements for the succeeding Fiscal Year, the Company agrees that it will adopt and carry out the recommendations of the management Consultant to the fullest extent feasible. The Company may retain a second Management Consultant, but until the report of the second Management Consultant is received, the Company will comply with the provisions of this paragraph. (d) So long as the Company is otherwise in full compliance with its obligations under the Loan Agreement, including following, to the fullest extent provided in paragraph (c) of this section, the recommendations of the Management Consultant, it shall not constitute an Event of Default that the Net Revenues Available for Debt Service of the Company for any Fiscal Year are less than 110% of the Principal and Interest Requirements on Long Term Indebtedness for such Fiscal Year. C-12 Limitation on Debt The Company covenants that it will not incur, assume or guarantee ("incur") any Indebtedness (secured or unsecured) to parties other than the City except as provided below. Short Term Indebtedness. The Company may incur such Short Term Indebtedness as in its judgment may be deemed expedient, provided that Short Term Indebtedness when incurred shall not cause the total Short Term Indebtedness to exceed in the aggregate then outstanding, five percent (5%) of the Total Revenues of the Company for the preceding Audited Fiscal Year. Short Term Indebtedness may be secured by a pledge and assignment of all or any part of the Company's accounts receivable, any securities or cash owned by the Company, or personal property not constituting part of the Mortgaged Property, but in no other manner. Interim Indebtedness. The Company may incur Interim Indebtedness to provide temporary financing of Improvements and Unrelated Improvements for which the City shall have previously agreed to provide permanent financing by the issuance of Additional Bonds or for which other lenders shall have previously agreed to provide financing which will constitute Long Term Indebtedness, but only after the right of the Issuer to issue Additional Bonds has been established pursuant to the Indenture or the right of the Company to enter into the permanent financing has been established pursuant to the following paragraph. Long Term Indebtedness. The Company may incur Long Term Indebtedness only as provided in Section 6.4 of the Loan Agreement. (a) Before incurring or otherwise becoming liable with respect to any Long Term Indebtedness, the Company shall furnish the Trustee (i) a Company Certificate which shall: (A) state the general purpose for which such Long Term Indebtedness is to be incurred; and (B) state the principal amount of Long Term Indebtedness to be incurred, the maturity date or dates thereof and the interest rate or rates with respect thereto; and (ii) an Opinion of Counsel for the Company to the effect that all conditions precedent specified for incurring such Long Term Indebtedness have been satisfied. (b) The Company shall not incur any Long Term Indebtedness to refund Outstanding Bonds unless, in addition to the filing of the items described in subsection (a) above: (i) there shall be filed with the Trustee a report of an Independent Accountant to the effect that the proceeds of the Long Term Indebtedness, together with any other funds deposited with the Trustee for such purpose, will be not less than an amount sufficient to pay the principal of and the redemption premium, if any, on the Outstanding Bonds to be refunded and the interest which will become due and payable thereon on or prior to the redemption date or stated maturity thereof, or that the principal of and interest on Government Obligations purchased from such proceeds or from other funds provided by the Company and deposited in trust with the Trustee, which Government Obligations do not permit redemption thereof at the option of the issuer, when due and payable (or redeemable at the option of the holder) and will provide, together with any other moneys which shall have been deposited irrevocably with the Trustee for such purpose, sufficient moneys to pay such principal, redemption premium, if any, and interest; and (ii) there shall be filed with the Trustee an opinion of Bond Counsel to the effect that the incurring of such Long Term Indebtedness and the refunding of Bonds with the proceeds thereof will not prejudice the exemption from federal income tax of the interest accruing on any of the Bonds. (c) Except as provided in subsections (b) and (d), the Company shall not incur any Long Term Indebtedness unless it shall furnish the Trustee, in addition to the items described in subsection (a), either: (i) a written report or opinion of an Independent Accountant stating that the Net Revenues Available for Debt Service of the Company for each of the last two Audited Fiscal Years preceding the date on which C-13 the proposed Long Term Indebtedness is to be incurred were more than one hundred fifteen percent (115%) of the maximum Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for any then outstanding Long Term Indebtedness or Bonds to be refinanced by the proposed Long Term Indebtedness) for any Fiscal Year beginning after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred but before the final Stated Maturity of all then Outstanding Bonds, or (ii) an Independent Accountant's certificate stating that the Net Revenues Available for Debt Service of the Company for each of the last two Audited Fiscal Years preceding the date on which the proposed Long Term Indebtedness is to be incurred were not less than one hundred ten percent (110%) of the Principal and Interest Requirements on Long Term Indebtedness for such Fiscal Years and a financial forecast prepared by an Independent Accountant and accompanied by an examination report stating that the estimated Net Revenues Available for Debt Service of the Company for each of the three (3) consecutive Fiscal Years beginning after the Fiscal Year in which any Improvements or Unrelated Improvements being financed by such Long Term Indebtedness are to be placed in service or after funded interest relating to such Long Term Indebtedness has been expended, or, if no improvements or Unrelated Improvements are to be financed thereby, after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred, will be not less than one hundred twenty percent (120%) of the maximum Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for any then outstanding Long Term Indebtedness or Bonds to be refinanced by the proposed Long Term Indebtedness) for any Fiscal Year beginning after the Fiscal Year in which any Improvements or Unrelated Improvements being financed by such Long Term Indebtedness are to be placed in service, or, if no Improvements or Unrelated Improvements are to be financed thereby, after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred, but before the final Stated Maturity of all then Outstanding Bonds. (d) Notwithstanding the provisions of subsection (c), the Company may incur Long Term Indebtedness for refinancing the principal amount of any outstanding Long Term Indebtedness, provided the Principal and Interest Requirements on Long Term Indebtedness (including such requirements for the proposed Long Term Indebtedness but excluding such requirements for the Long Term Indebtedness to be refinanced thereby) for each Fiscal Year after the Fiscal Year in which the proposed Long Term Indebtedness is to be incurred but before the final Stated Maturity of all then Outstanding Bonds will be no greater than the Principal and Interest Requirements on Long Term Indebtedness would have been for each such Fiscal Year had such proposed Long Term Indebtedness not been incurred nor the refinancing accomplished. (e) Any Long Term Indebtedness may be secured by a pledge, lien, mortgage or other security interest with respect to any tangible property of the Company as the parties thereto may provide, but not any intangible property of the Company or lien upon or security interest in revenues or income of the Company or its accounts receivable other than an assignment of leases and rents; provided, however, that the Company shall not secure nor attempt to secure Long Term Indebtedness (other than Additional Bonds) with an interest in the property secured under the Mortgage or any Collateral Document which is prior to or, except as provided in the Loan Agreement, on a parity with the interest granted to the Trustee pursuant to the Mortgage or any Collateral Document. (f) The Company may incur Long Term Indebtedness without limit as to amount, and without meeting the conditions of paragraphs (b) through (e) above, but only if (i) the payment of such Long Term Indebtedness is expressly subordinated to the payment of operating expenses and payment, when due, of the principal of and interest on the Bonds and any other Long Term Indebtedness of the Company incurred under paragraphs (b) through (e) above, and (ii) the remedies provided for in the event of a default on such subordinated Long Term Indebtedness are limited to the Company's cash flow after payment of all unsubordinated Indebtedness, and do not permit the holder of the subordinated Long Term Indebtedness to exercise remedies against any assets of the Company, so long as any Bonds are Outstanding. C-14 1 J The calculation of Principal and Interest Requirements on Long Term Indebtedness whether pursuant to the Loan Agreement or the Indenture, shall be made in a manner consistent with that set forth above and the following: (a) With respect to Balloon Indebtedness, as hereafter defined, such Balloon Indebtedness shall be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period from the date of calculation to the date of maturity of such Balloon Indebtedness at an assumed interest rate (which shall be the interest rate certified by a commercial bank or investment banker to be the interest rate at which the Company could reasonably expect to borrow the same amount by issuing a note with a term of the maturity of such Balloon Indebtedness). Balloon Indebtedness means Long Term Indebtedness twenty-five percent (25%) or more of the original principal amount of which (A) is due in any 12 -month period or (B) may, at the option of the holder thereof, be required to be redeemed, prepaid, or purchased directly or indirectly by the Company or a member thereof or otherwise paid in any 12 -month period; provided, that, in calculating the principal amount of such Balloon Indebtedness due or required to be redeemed, prepaid, purchased or otherwise paid in any 12 -month period, such principal amount shall be reduced to the extent that all or any portion of such amount is required to be amortized prior to such 12 -month period. (b) Except as otherwise provided in subsection (a) above with respect to Balloon Indebtedness which is also Variable Rate Indebtedness, as hereinafter defined, in determining the amount of debt service payable on Variable Rate Indebtedness for any future period, interest on such indebtedness for any period of calculation (the "Determination Period") shall be computed by assuming that the rate of interest applicable to the Determination Period is equal to the average annual rate of interest on similar securities (calculated in the manner in which the rate of interest for the Determination Period is to be calculated) which was in effect for the twenty-four month period prior to a date selected by Company, which selected date is within 45 days immediately preceding the beginning of the Determination Period, as certified by a banking or investment banking institution knowledgeable in matters of variable rate financing or, if it is not possible to calculate such average annual rate of interest, by assuming that the rate of interest applicable to the Determination Period is equal to the rate of interest then in effect on such Variable Rate Indebtedness plus two percent (2%). In addition, debt service shall include any continuing credit enhancement, liquidity and/or remarketing fees for the relevant period. Variable Rate Indebtedness means any portion of Long Term Indebtedness or Additional Bonds the interest rate on which varies periodically such that the interest rate at a future date cannot accurately be calculated. Asset Transfers So long as any Bonds are Outstanding and no Event of Default has occurred and is continuing, the Company will sell, transfer or otherwise dispose of assets included in, or necessary for the operation of, the Facilities only in the following circumstances: (a) subject to the Loan Agreement provisions relating to disposition of all or substantially all of the Company's assets, the assets are sold, transferred or otherwise disposed of at their fair market value; (b) the assets are obsolete, wom out, or otherwise of no further value to the operation of the Facilities; or (c) assets may be transferred to an Affiliate without limit as to amount if the Trustee receives a Company Certificate stating that immediately after the transfer the Current Assets of the Company will be equal to or greater than one hundred twenty-five percent (125%) of the Current Liabilities of the Company. C-15 Taxes, Charges and Assessments be paid: Subject to the Company's right to contest the same in good faith, the Company is required to pay or cause to (a) all taxes and charges on account of the use, occupancy or operation of the Facilities, including but not limited to all sales, use, occupation, real and personal property taxes, business and occupation taxes, permit and inspection fees, occupation and license fees and water, gas, electric light, power or other utility charges assessed or charged on or against the Facilities or on account of the Company's use or occupancy thereof or the activities conducted thereon or therein; and (b) all taxes, assessments and impositions, general and special, ordinary and extraordinary, of every name and kind, which shall be taxed, levied, imposed or assessed during the tens of the Loan Agreement upon all or any part of the Facilities, or the interest of the Company in and to the Facilities, or upon the City's, Company's or Trustee's interest, or the interest of any of them, in the Loan Agreement, the Mortgage, any Collateral Document or the Indenture or the Loan Repayments payable hereunder and all other lawful governmental taxes, impositions and charges of every kind or nature, ordinary or extraordinary, general or special, foreseen or unforeseen, whether similar or dissimilar to any of the foregoing, and all applicable interest and penalties thereon, if any, which shall be or become due and payable and which shall be lawfully levied, assessed or imposed. Financial Statements The Company is required to furnish to the Trustee A. If requested in writing by the Trustee, copies of any periodic unaudited financial statements of the Company which are prepared in the normal course of the Company's operations, certified by the Treasurer, Controller or other authorized financial officer of the Company, promptly as such financial statements become available; B. within 120 days after the last day of each Fiscal Year, a complete audit report and opinion certified by an Independent Accountant, which report and opinion shall be based upon an examination made in accordance with generally accepted auditing standards, covering the operations of the Company for such Fiscal Year and containing a balance sheet as at the end of such Fiscal Year, showing in each case in comparative form the figures for the preceding Fiscal Year, together with a separate written statement of such Independent Accountant preparing such report that such Independent Accountant has obtained no knowledge of any default by the Company in the fulfillment of any of the terms, covenants, provisions or conditions of the Loan Agreement, or if such Independent Accountant shall have obtained knowledge of any such default he shall disclose in such statement the default and the nature thereof; but such Independent Accountant shall not hereby be liable directly or indirectly to anyone for failure to obtain knowledge of any default; C. within 120 days after the last day of each Fiscal Year, a Company Certificate stating that the Company has made a review of its activities during the preceding Fiscal Year for the purpose of determining whether or not the Company has complied with all of the terms, covenants, provisions and conditions of the Loan Agreement and that the Company has kept, observed, performed and fulfilled each and every term, covenant, provision and condition of the Loan Agreement on its part to be kept, observed, performed and fulfilled and is not in default in the keeping, observance, performance or fulfillment of any of the terms, covenants, provisions or conditions of the Loan Agreement, or if the Company shall be in default such certificate shall specify all such defaults and the nature thereof; such Company Certificate shall specifically show the calculations with respect to compliance with the rate covenant described under the section herein entitled "Rate Covenant"; and C-16 D. such additional information as the Trustee may reasonably request concerning the Company or the Facilities, in order to enable the Trustee or such Holder to determine whether the covenants, terms, conditions and provisions of the Loan Agreement have been complied with by the Company. Events of Default; Remedies Any of the following is an event of default under the Loan Agreement: A. default in the payment of any Loan Repayment when due and payable, and continuance of such default for a period of five days; or B. except to the extent resulting from "force majeure", default in the performance or breach of any covenant, warranty or representation of the Company in the Loan Agreement (other than a covenant or warranty a default in the performance of which or breach of which is elsewhere in this paragraph specifically dealt with) the Mortgage, or any Collateral Document, and continuance of such default or breach for a period of thirty days after there has been given, by registered or certified mail, to the Company by the City, the Trustee or the Holder or Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding a written notice specifying such default or breach and requiring it to be remedied; provided, however, that if the Company shall fail to take any action which, if begun and prosecuted with due diligence, cannot be completed within a period of thirty days, then such period shall be increased to such extent as shall be necessary to enable the Company to begin and complete such action through the exercise of due diligence; or C. the abandonment by the Company of the Facilities or any substantial part thereof, or the operations thereof herein contemplated, continued for a period of five days after mailed notice to the Company as described in subparagraph B above; or D. the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or E. any final judgments, or writs or warrants of attachment or of any similar processes in an aggregate amount in excess of the greater of $150,000 or 2.5% of the insured value of the Facilities entered or filed against the Company or against any of its property and remaining unvacated, unpaid, unbonded, uninsured or unstayed for a period of thirty days; or F. if any representation by the Company in the Loan Agreement is false or misleading in any material respect; provided, however, that if after any default shall have occurred which does not result in a nonpayment of principal, premium, if any, or interest on the Bonds, and prior to the Trustee exercising any of the remedies provided in subsections (1) through (4) of the following paragraph, the Company shall have completely cured such default by depositing with the Trustee sufficient moneys or by performing such other acts or things in respect of which it may have been in default under the Loan Agreement as the Trustee shall determine, then in every such case such default shall be waived, rescinded and annulled by the Trustee by written notice given to the Company; but no such waiver, rescission and annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. C-17 If any Event of Default shall occur and be continuing, the Trustee may, or if requested in writing by the Holders of twenty-five percent (25%) or more of the principal amount of Bonds then Outstanding shall, exercise one or more of the following remedies: (1) Declare all Loan Repayments, Fee Payments and any other amounts payable under the Loan Agreement to be immediately due and payable (being an amount equal to that necessary to pay in full the principal of and interest accrued on all Bonds then Outstanding, assuming acceleration of the Bonds under the Indenture, and to pay all other amounts payable thereunder and under the Loan Agreement), whereupon the same shall become immediately due and payable by the Company; or (2) Exercise any one or more of the remedies specified in the Mortgage; or (3) Petition a court of competent jurisdiction for the appointment of a receiver to take possession of and manage and operate the assets of the Company for the benefit of the City and the Holders of the Bonds then Outstanding; or (4) Take whatever action at law or in equity may appear necessary or appropriate to collect the Loan Repayments and other amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Company under the Loan Agreement. Amendment of Loan Agreement The Loan Agreement may be amended only in accordance with the Indenture, which provides that the Trustee may consent to amendments to the Loan Agreement or the Mortgage without the consent of Bondholders: (A) to correct or amplify the description of any property at any time subject to the Loan Agreement, the Mortgage or any Collateral Document; or (B) to add to the conditions, limitations and restrictions of the Company in the Loan Agreement, the Mortgage or any Collateral Documents; or (C) to consent to the creation of any series of Additional Bonds; or (D) to modify or eliminate any of the terms of the Loan Agreement, the Mortgage or any Collateral Document; or (E) to evidence the succession of another Company to the Company in accordance with the provisions of the Loan Agreement; or (F) to add to the covenants of the Company or to surrender any right or power conferred upon the Company; or (G) to add or release any property or other right to the lien of the Mortgage or any Collateral Document or (H) to eliminate, modify or add any provision which in the opinion of Bond Counsel is necessary or desirable in order to preserve the exemption of interest on the Bonds from federal income taxation, or (I) to cure any ambiguity, to correct or supplement any irrelevant provision of the Loan Agreement, the Mortgage or any Collateral Document. With the consent of the Holders of not less than a majority in principal amount of the Bonds of all series Outstanding which are affected thereby, the Loan Agreement or the Mortgage may be amended in any respect, but no such amendment may, without the consent of the Holder of each Outstanding Bond affected thereby, change the aggregate amount of Loan Repayments or extend the time of payment beyond the time necessary for payment of principal of, premium, if any, and interest on the Bonds, or eliminate the requirement that the Trustee consent to any amendment, or release property from the lien of the Mortgage except as permitted by the Loan Agreement and the Mortgage. THEINDENTURE The following is a summary of certain provisions of the Indenture. Reference is made to the Indenture for a complete recital of its terms. C-18 Trust Estate The Indenture pledges to the Trustee, in trust to secure payment of the Bonds, a security interest in (i) all right, title and interest of the City in the Loan Agreement, including the Loan Repayments and Fee Payments but excluding the payments to the City for its expenses or as indemnification, (ii) all cash and securities held in the Trust Funds, and (iii) all other property now or thereafter subjected to the lien of the Indenture. The Trust Funds established by the Indenture are the Bond Fund, Acquisition and Construction Fund, Reserve Fund, Repair and Replacement Fund, Rebate Fund and any other fund created pursuant to the terms of a Supplemental Indenture. Acquisition and Construction Fund Upon the initial issuance and delivery of the Series 1999 Bonds an initial deposit shall be made to the Acquisition and Construction Fund from the proceeds of the Bonds to be applied by the Trustee at the direction of the Company by a Company Certificate to pay a portion of the purchase price of the Facilities by the Company and to pay, or reimburse the Company for payment, of costs of issuance of the Series 1999 Bonds. In addition the Company shall upon the initial issuance and delivery of the Series 1999 Bonds pay to the Trustee the amount of $5,000,000 (less certain earnest money deposits and other amounts previously advanced by the Company with respect to the acquisition of the Facilities) for deposit in the Acquisition and Construction Fund. Such amount shall be applied by the Trustee at the direction of the Company by a Company Certificate to pay costs of renovation, rehabilitation and improvement of the Facilities and costs of acquisition and installation of items equipment therein. Any money received by the Trustee for payment of Project Costs shall be credited to the Acquisition and Construction Fund. Bond Fund Two accounts in the Bond Fund are established - the Interest Account and the Principal Account. From the net proceeds of the Series 1999 Bonds there shall be credited to the Interest Account accrued interest on the Series 1999 Bonds to the date of delivery paid by the Original Purchaser thereof. All Loan Repayments shall be credited as received to the Interest Account and the Principal Account. Moneys in these accounts shall be used solely for payment when due of the principal of and interest on the Bonds. Reserve Fund A Reserve Fund is established under the Indenture. To the Reserve Fund shall be credited, from the proceeds of the Series 1999 Bonds on the date of delivery of the Series 1999 Bonds, an amount equal to the Reserve Requirement upon the issuance of the Series 1999 Bonds ($3,334,088.75). There is also to be credited to the Reserve Fund investment income realized from the Reserve Fund if and to the extent necessary to increase the amount on deposit therein to the Reserve Requirement, and thereafter all such investment income shall be transferred to the Interest Account. Moneys on hand in the Reserve Fund are to be used to pay principal of and interest on Bonds when due if to the extent the amount on hand in the Bond Fund is insufficient for that purpose. If and to the extent the amount on hand in the Reserve Fund at any time exceeds the Reserve Requirement, the excess is to be transferred to the Interest Account. Under certain circumstances, as described under "The Loan Agreement --Repayment of the Loan," the Company will be required to make additional payments to the Trustee for deposit in the Reserve Fund. See, also, "Security for the Bonds --Reserve Fund" in this Official Statement. ME Repair and Replacement Fund A Repair and Replacement Fund is established under the Indenture. The Trustee shall deposit in the Repair and Replacement Fund the amounts remitted therefor by the Company as provided in the Loan Agreement. The Trustee shall apply money in such fund not more often than once each month as requested in a Company certificate only to the payment of items of repair, improvement, and replacement with respect to the Housing Facilities constitute capital expenditures under generally accepted accounting principles. The Company certificate shall identify the expenditures to be made by nature and amount, and the contractor or vendor providing the repair, replacement, or other improvement, and shall certify that the expenditures are proper expenditures to be made or reimbursed from the Repair and Replacement Fund. Subject to the provisions of the Loan Agreement, if, on any Maturity Date, the amount then on hand in the Bond Fund is not sufficient to pay the principal, premium, if any, and interest then due on the Bonds, whether at maturity or upon redemption or by acceleration, then the Trustee shall transfer from the Repair and Replacement Fund to the Bond Fund an amount equal to the lesser of (i) the deficiency in the Bond Fund, or (ii) the money then credited to the Repair and Replacement Fund; the Repair and Replacement Fund. Net Proceeds of insurance or condemnation awards in excess of $150,000 are to be credited to the Repair and Replacement Fund for use in paying the cost of repairing, replacing or restoring the Facilities after damage, destruction or condemnation. Any excess of Net Proceeds remaining after payment of such costs shall be transferred to the Reserve Fund, if and to the extent necessary to increase that amount on deposit therein to the Reserve Requirement, and thereafter to the Principal Account. Rebate Fund The Trustee shall make deposits to and disbursements from the Rebate Fund in accordance with the instructions received from the Company pursuant to the Loan Agreement, shall invest the Rebate Fund pursuant to the requirements of the Loan Agreement and shall deposit income from such investments immediately upon receipt thereof in the Rebate Fund. In accordance with requirements of the Internal Revenue Code of 1986, as amended, the Trustee shall pay every five years to the United States an amount which ensures that at least 90% of the `Rebate Amount" at the time of such payment will have been paid to the United States. No later than sixty days after the final retirement of any series of Bonds, the Trustee shall pay to the United States an amount sufficient to pay the remaining balance of the Rebate Amount. See "The Loan Agreement --Tax Covenants" Additional Bonds In order to refund any Outstanding bonds or finance or refinance any Improvements, Additional Bonds may at any time and from time to time be executed by the City and delivered to the Trustee for authentication, but only upon receipt by the Trustee of the following: A. A City Resolution authorizing the issuance of the Additional Bonds and the sale thereof; B. A City Order directing the authentication of such Additional Bonds and the delivery thereof; C. A Company Certificate requesting the issuance of such Additional Bonds, stating that no default has occurred under the Loan Agreement which has not been cured, that the Additional Bonds to be authenticated have not theretofore been issued and that all conditions precedent provided for in the Indenture relating to the authentication and delivery of such Additional Bonds have been complied with; D. A Company Certificate, Opinion of Counsel, and as applicable, a report of an Independent Accountant or Management Consultant required by the Loan Agreement, demonstrating the ability of the Company to incur the Long Term Indebtedness underlying or evidenced by such Additional Bonds; C-20 E. An Opinion of Bond Counsel: (1) stating that all conditions precedent provided in the Indenture relating to the authentication and delivery of such Additional Bonds have been complied with; (2) stating that the Additional Bonds whose authentication and delivery are then applied for, when issued and executed by the City and authenticated and delivered by the Trustee, will be the valid and binding obligations of the City in accordance with their terms and entitled to the benefits of and secured by the lien of the Indenture, the Loan Agreement, the Mortgage and any Collateral Document equally and ratably with all Outstanding Bonds; and (3) stating that the issuance of such Additional Bonds will not affect the tax-exempt nature for federal income tax purposes of the Bonds then Outstanding; F. An executed counterpart of the Supplemental Indenture creating such Additional Bonds; G. Cash in the amount necessary to make the balance in the Reserve Fund equal to the Reserve Requirement immediately after the issuance of the Additional Bonds, which cash may be from proceeds of such Additional Bonds if so provided in the City Order referred to in paragraph B; H. An executed counterpart of an amendment to the Loan Agreement providing for additional Loan Repayments sufficient to provide for the payment of principal, premium, if any, and interest on all Bonds to be Outstanding after the issuance of such series of Additional Bonds, and providing for additional Fee Payments if deemed necessary; I. The City Resolution authorizing the execution and delivery of the Supplemental Indenture, the amendment to the Loan Agreement and such Additional Bonds; J. Executed counterparts of amendments or supplements to the Mortgage and any Collateral Document, unless in the Opinion of Counsel none is required, subjecting to the lien thereof all property acquired or to be acquired from the proceeds of such Additional Bonds, and required by the provisions of the Indenture to be so subjected; and K. A Company Resolution authorizing the execution and delivery of the amendment to the Loan Agreement, the amendment or supplement to the Mortgage, if any, and any Collateral Document and approving the Supplemental Indenture and the issuance and sale of such Additional Bonds. Any Additional Bonds shall be dated, shall bear interest at a rate or rates not exceeding the maximum rate, if any, permitted by law, shall have Stated Maturities, and may be subject to redemption prior to their Stated Maturities at such times and prices and on such terms and conditions, all as may be provided by the Supplemental Indenture authorizing their issuance. All Additional Bonds shall be payable and secured equally and ratably and on a parity with the Series 1999 Bonds and any Additional Bonds theretofore issued, entitled to the same benefits and security of the Indenture, the Loan Agreement, the Mortgage, and any Collateral Documents. Investments Subject to the provisions of any law then in effect to the contrary, the Trustee shall invest all Trust Moneys on hand from time to time in the Trust Funds as specified in a Company Request in any Qualified Investments, which mature or are subject to redemption at the option of the holder thereof on or prior to the date or dates that the Company anticipates that moneys therefrom will be required. The Trustee may trade with itself or its affiliates in the purchase and sale of such Qualified Investments and the Trustee shall not be liable or responsible for any loss resulting from any such investment. Such Qualified Investments shall be registered in the name of the Trustee. The Trustee may invest in Qualified Investments through its own trust department and Trust Moneys may be deposited in time deposits of, or certificates of deposit issued by, the Trustee or its affiliates. The Trustee shall without further direction from the City or the Company sell such Qualified Investments as and when required to make any payment for the purpose of which such investments are held. Each investment shall be C-21 credited to the fund for which it is held, subject to any other provisions of the Indenture directing some other credit, but income on such Qualified Investments shall be held or transferred, as received, in accordance with the Indenture. Events of Default; Remedies Any of the following events is an Event of Default under the Indenture: A. Default in the payment of any interest upon any Bond when it becomes due and payable; or B. Default in the payment of the principal of (or premium, if any, on) any Bond when the same becomes due and payable; or C. Default in the performance, or breach, of any covenant or warranty of the City contained in the Indenture, and continuance of such default or breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the City and the Company by the Trustee, or to the City, the Company and the Trustee by the Holder or Holders of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default"; or D. The occurrence of an "Event of Default" under the Loan Agreement or under the Mortgage or Regulatory Agreement. If an Event of Default occurs and is continuing, then and in every such case the Trustee may, and upon the written request by registered or certified mail to the Trustee by the Holder or Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding shall, declare the principal of all the Outstanding Bonds to be due and payable immediately by a notice in writing to the City and the Company, and upon any such declaration such principal shall become immediately due and payable; provided, however, that no Bonds shall be accelerated unless and until the Trustee shall have exercised the remedy specified in subsection A of Section 11.2 of the Loan Agreement. Supplemental Indentures The City and the Trustee may enter into Supplemental Indentures, without the consent of the Holders of any Bonds, to correct or amplify the description of the trust estate; to subject additional properties or revenues to the lien of the Indenture; to add to the conditions for the issuance of Bonds; to provide for the issuance of any series of Additional Bonds; to provide for the exchange of Bonds; to add to the covenants of the City; to modify or eliminate any of the terms of the Indenture (provided (1) any such modifications or eliminations shall be expressly provided in such Supplemental Indenture to become effective only when there are no Bonds Outstanding of any series credited prior to the execution of such Supplemental Indenture, and (2) the Trustee may, in its discretion, decline to enter into any such Supplemental Indenture, which, in its opinion, may not afford adequate protection to the Trustee when the same becomes effective); or to cure ambiguities or inconsistencies in the Indenture. With the consent of the Holders of a majority of Bonds of all series Outstanding which are affected thereby, the City and Trustee may enter into a Supplemental Indenture adding to, changing or eliminating any of the provisions of the Indenture, except that no Supplemental Indenture shall, without the consent of the Holder of each Outstanding Bond affected thereby, change the date of payment of principal of or interest on any Bond, or reduce the principal amount thereof or interest thereon, or change the medium of payment, or impair the right to sue for payment after maturity, or reduce the percentage of principal amount of Outstanding Bonds whose Holders must consent to any Supplemental Indenture or waive an Event of Default under or compliance with certain provisions of the Indenture. C-22 Defeasance Whenever the conditions specified in either clause (1) or clause (2) of the following subparagraph A, and the conditions specified in the following subparagraphs B and C shall exist, namely: A. either (1) all Bonds theretofore authenticated and delivered have been cancelled by the Trustee and delivered to the Trustee for cancellation, excluding, however, (a) Bonds for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Trustee and thereafter repaid to the Company or discharged from such trust, and (b) Bonds alleged to have been destroyed, lost or stolen which have been replaced or paid and (i) which, prior to the satisfaction and discharge of the Indenture, have not been presented to the Trustee with a claim of ownership and enforceability by the Holder thereof, or (ii) whose enforceability by the Holder thereof has been determined adversely to the Holder by a court of competent jurisdiction or other competent tribunal; or (2) the City or the Company has deposited or caused to be deposited with the Trustee as trust funds in trust cash or Government Obligations which do not permit the redemption thereof at the option of the issuer, the principal of, premium, if any, and interest on which when due (or upon the redemption thereof at the option of the holder), will, without reinvestment, provide cash which, together with the cash, if any, deposited with the Trustee at the same time, shall be sufficient to pay and discharge the entire indebtedness on Bonds not theretofore cancelled by the Trustee or delivered to the Trustee for cancellation, for principal, premium, if any, and interest which have become due and payable, or to the Stated Maturity or Redemption Date, as the case may be, and has made arrangements satisfactory to the Trustee for the giving of notice of redemption, if any, by the Trustee in the name, and at the expense, of the Company; B. the City or the Company has paid, caused to be paid or made arrangements satisfactory to the Trustee for the payment of all other sums payable under the Loan Agreement and Indenture by the City or the Company until the Bonds are so paid; and C. the City or the Company has delivered to the Trustee an officials' certificate and an Opinion of Counsel each stating that all conditions provided for in the Indenture relating to the satisfaction and discharge thereof have been complied with and a report of an Independent Accountant verifying the sufficiency of the deposit made pursuant to paragraph A(2) above; then the Indenture and the lien, rights and interests thereby granted or granted by the Loan Agreement, the Mortgage and any Collateral Document shall cease, be discharged and become null and void, and the Trustee shall, at the expense of the Company, execute and deliver such instruments of satisfaction as may be necessary, and forthwith the estate, right, title and interest of the Trustee in and to all of the Trust Estate and in and to all rights under the Loan Agreement, the Mortgage and any Collateral Documents (except the moneys or Government Obligations deposited as required above) shall thereupon be discharged and satisfied, and the Trustee shall in such case transfer, deliver and pay the same to the Company or upon Company Order. THE MORTGAGE The following is a summary of certain provisions of the Mortgage. Reference is made to the Mortgage for a complete recital of its terms. As additional security for the Bonds and the performance of each covenant, agreement or condition of the Company set forth in the Loan Agreement, the Company, by the Mortgage, will grant to the City a mortgage on and „J security interest in the Mortgaged Property subject to certain specified Permitted Encumbrances. The City will assign C-23 its interest in the Mortgage to the Trustee pursuant to the Assignment of Mortgage. The Mortgage creates a security interest in any personal property owned by the Company to be located on the Land. The Company shall have the right, at any time and from time to time, to release any part of the Land not containing any permanent structure necessary for the total operating unity and efficiency of the Facilities (as determined by an Independent Management Consultant) from the lien of the Mortgage for the purpose of selling the same or for the purpose of securing any Long Term Indebtedness, and the Trustee shall, from time to time, release from the lien of the Mortgage such real property, upon the conditions set forth in the Mortgage. The release price shall be (i) in the case of any sale to a third party, the sale price, or (ii) in case the Company desires to release such property in order to secure Long Term Indebtedness, an amount equal to the value of such property as determined by an Independent Appraiser. In addition to the right of release described above, the Company shall have the right at any time and from time to time to release any part of the Land not containing any permanent structure necessary for the total operating unity and efficiency of the Facilities (as detemtined by an Independent Management Consultant) from the lien of the Mortgage for the purpose of substituting or exchanging the same for other real property (with or without permanent structures thereon) to become subject to the lien of the Mortgage (herein called the "Substituted Property"), upon the conditions set forth in the Mortgage. The release price shall be that amount, if any, by which the value of the property to be released, exceeds the value of the Substituted Property, as determined by an Independent Appraiser. Simultaneously with the release of any real property as provided above, the release price, if any, specified in Section 4.6 of the Mortgage, shall be deposited by the Trustee in the Reserve Fund, if and to the extent necessary to increase the amount on deposit therein to the Reserve Requirement, and thereafter to the Principal Account, to be used to pay the Bonds. Except as otherwise provided in the Mortgage and the Loan Agreement, the Mortgage can be amended only in accordance with the provisions of the Indenture described under "The Loan Agreement --Amendment of the Loan Agreement". Upon the occurrence and continuation of an Event of Default under the Loan Agreement or a default in the payment of principal of, premium, if any, or interest on the Bonds, the Trustee, pursuant to the Mortgage, is authorized, among other remedies, to foreclose the Mortgage by judicial proceedings or by any other method authorized by law. See "Bondholders' Risks --Value of Mortgaged Property" in this Official Statement. THE REGULATORY AGREEMENT The following is a summary of certain provisions of the Regulatory Agreement and is qualified in its entirety by reference to the Regulatory Agreement. Section 142(d) of the Code provides that interest on certain governmental obligations, the proceeds of which are to be used to provide "residential rental property," shall be exempted from federal income taxation if at all times during the Qualified Project Period (as described below) at least 20% or more of the units in the residential rental property are occupied by tenants whose adjusted family income is 50% or less of the median income ("Median Income") for the Minneapolis -Saint Paul Metropolitan Statistical Area as determined by the United States Department of Housing and Urban Development and adjusted for family size, or 40% or more of such units are occupied by tenants whose adjusted family income is 60% or less of such Median Income. Tenants meeting either of the foregoing income requirements are referred to as "Low -Income Tenants." Such restrictions are applicable to the portion of the Housing Facility containing the 180 -units of residential rental housing pursuant to the provisions of Section 145(d) of the Code. The Company has irrevocably elected the twenty percent/fifty percent ("20%/50%d') requirement. Section 1.103-8(b) of the Income Tax Regulations (the "Regulations") sets forth certain requirements for compliance with Section 142(d) of the Code. The Regulations require, among other things, that (1) the twenty percent C-24 1 J (20%) Low -Income Tenant occupancy requirement must be met on a continuous basis during the Qualified Project Period (as described below), and (2) during the Qualified Project Period all of the multifamily rental housing units in the Housing Facility must be rented or available for rental to the general public on a continuous basis. Under the Regulations, the failure to satisfy the Rental Housing Requirements (as defined below) of the Regulations with respect to a project may, unless corrected within a reasonable period (i.e., not less than sixty days) after such noncompliance is first discovered or should have been discovered by the exercise of reasonable diligence, cause the loss of the tax exempt status of the Series 1999 Bonds as of the date of their original issue, irrespective of the date such noncompliance actually occurred. The Series 1999 Bonds will be redeemed in such event. In order to satisfy the rental housing requirements of the Code and Regulations (the "Rental Housing Requirements"), the company has covenanted in the Regulatory Agreement to comply with certain provisions therein regarding the operation and occupancy of the multifamily housing units in the Housing Facility. The Regulatory Agreement will be recorded and filed in the appropriate land records office of Hennepin County, Minnesota, binding the Company and its successors and assigns, including all subsequent owners of the Housing Facility or any part thereof. The provisions of the Regulatory Agreement are intended to ensure compliance with the Rental Housing Requirements and will remain in effect for the Qualified Project Period. The Regulatory Agreement will, however, terminate with respect to the Housing Facility in the event of an involuntary loss of the Housing Facility, including the substantial destruction of the Housing Facility (unless the Housing Facility is restored), provided the Series 1999 Bonds are redeemed. The Regulatory Agreement provides as follows with respect to the Rental Housing Requirements: (1) That the Qualified Project Period commences on the date of issuance of the Series 1999 Bonds, and will terminate on the later of (a) the date which is 15 years after the date of issuance of the Series 1999 Bonds, (b) the date on which no Series 1999 Bonds (including any refunding of the Series 1999 Bonds) are outstanding or (c) the date on which assistance provided under Section 8 of the United States Housing Act of 1937, if any, terminates. (2) All of the multifamily rental housing units in the Housing Facility will remain available for occupancy on a rental basis until the later of the expiration of the Qualified Project Period or the date on which the Series 1999 Bonds have been paid in full. (3) As required by the Regulations, during the Qualified Project Period, twenty percent (20%) of the multifamily rental housing units in the Housing Facility must be occupied at all times by persons or families whose adjusted family income at the time of their initial occupancy is equal to or less than fifty percent (50%) of the Median Income for the Minneapolis -Saint Paul Metropolitan Statistical Area, as determined by the United States Department of Housing and Urban Development. Each tenant's adjusted family income shall be determined in a manner consistent with income determinations under Section 8 of the United States Housing Act of 1937, as amended. (4) The twenty percent (20%) of the multifamily rental housing units in the Housing Facility required to be occupied by Low -Income Tenants will be substantially similar to all other multifamily rental housing units in the Housing Facility, and the Low -Income Tenants will enjoy equal access to all common facilities including in the Housing Facility. (5) The Company will report and certify its compliance with the Rental Housing Requirements as required by the Regulatory Agreement, such reports and certifications to be submitted at the times required to the Trustee. (6) The adjusted family income of each Low -Income Tenant will be verified by obtaining an income certification statement such tenant, and by obtaining either federal income tax returns or employer income verifications. C-25 THE NURSING FACILITY OR THE FINANCIAL CONDITION OF THE COMPANY GENERALLY. See "BONDHOLDERS' RISKS -- Government Regulation and Reimbursement." Medicare. Under Minnesota law, facilities receiving Medicaid payments must also be certified for the Medicare program (Title XVIII of the federal Social Security Act). Medicare is funded directly by the federal government and is administered by the HCFA through fiscal intermediaries. Medicare coverage provides for nursing home care for up to 100 days following the discharge of a patient after a qualifying hospital stay. The facility is then permitted to charge interim rates for services subject to year-end adjustment based upon the actual average cost of services provided. The Balanced Budget Act of 1997 provided for consolidation of payments under Medicare and to accomplish that objective established a prospective payment system ("PPS"), to begin, for some providers, with cost report periods starting on or after July 1, 1998. Under PPS, Medicare payments for post-hospital extended care in skilled nursing facilities is based on the level of care required for each resident under a national, uniform resident assessment system required under federal law for all skilled nursing facilities. The Medicare PPS includes per diem payment for room and board services, nursing services, therapies, lab services, drugs and x-rays. See "BONDHOLDERS' RISKS -- Medicare Prospective Payment System" for further discussion of the PPS. There can be no assurances of the effect, if any, PPS will have on the net revenues of the Nursing Facility. Contractual Alternative Payment System Background. In 1995, changes in Minnesota law authorized the DHS to establish a contractual Alternative Payment System (the "Alternative Payment System") as an alternative to the current cost -based system used to calculate rates paid to nursing facilities for services provided under the Minnesota Medicaid program. The Alternative Payment System's stated purpose is to determine whether a contract -based reimbursement system reduces the level of regulation, paperwork and procedural requirements while providing greater flexibility and incentives for nursing facilities to stimulate competition and innovation while maintaining quality care. The Nursing Facility has participated in the Alternative Payment System since 1996. The current contract applies for the one-year period ending on May 2, 1999, although it is expected to be renegotiated annually. The maximum term, however, including renewals, is four years. The Nursing Facility's annual fee for participation in the Alternative Payment System is $1,000. Summary. The Alternative Payment System discontinues use of costs and cost limits in calculation of future facility rates. Instead, the contract rate system begins with the Nursing Facility's rates at the time of its initial contract and on each July I applies an annual inflation index. The Alternative Payment System also provides the Nursing Facility limited exemption from state provisions relating to equalization of private and Medicaid rates, related party therapy revenue, cost reporting, and auditing. The Alternative Payment System contract has various provisions allowing termination and a general description of the procedure for transition back to a cost -based payment system following termination. Alternative Payment System Description. Under the Alternative Payment System, the Nursing Facility was initially paid the total payment rates for each case-mix category that it was receiving under the cost -based reimbursement system in effect at the time the contract first became effective (in 1996). While payments will continue to be made by case-mix category, calculation of the Nursing Facility's future Medicaid payment rates are no longer based on incurred and reported costs. A cost -related rate adjustment is permitted only if the Nursing Facility seeks and receives approval for an exception to the nursing home moratorium through the established competitive administrative process or obtains an exception to the nursing home moratorium law through special legislation. Except as required with respect to Medicare cost reporting, the Nursing Facility no longer is required to file a cost report (as is currently required under the cost -based reimbursement system). In addition, the Nursing Facility is no longer subject to audits of historical costs or revenues, or paybacks or retroactive adjustments based on those costs or revenues for any reporting year beginning October 1, 1995 and thereafter. Any appeal concerning reporting D-4 year ended September 30, 1994 will be incorporated into the Nursing Facility's contract payment rate upon its resolution. �l Participation in the Alternative Payment System also entitles the Nursing Facility to limited exemption from the state equalization law, which requires facilities participating in the Medicaid program to charge other private pay residents the same rates paid under the Medicaid program. If, upon admission, it is determined by the Nursing Facility that a resident is likely to be discharged less than 101 days after admission, the Nursing Facility may charge such a resident a short -stay private pay rate equal to the greater of the Medicare payment rate (less charges for ancillary services) or the resident's case-mix payment rate. If the resident remains in the Nursing Facility longer than 100 days, the Nursing Facility must retroactively reduce the resident's payment rate to that resident's Medicaid case-mix rate effective from the date of admission and must reimburse the resident for any overpayments. Under the Alternative Payment System, the Nursing Facility may also negotiate with DHS to implement a smaller Medicare distinct part than would otherwise be allowed under Minnesota law. Currently, the Nursing Facility is obligated to maintain 50% of its beds as Medicare certified. The Nursing Facility is also allowed to change its arrangement for providing therapy services to its residents from utilizing an unrelated vendor to utilizing a related vendor or employees to provide therapy services. Under these circumstances, DHS is authorized to waive one or more of the existing state restrictions on payment for ancillary services. The Alternative Payment System contract requires the Nursing Facility to participate in efforts by DHS to develop outcome -based standards and measurements as well as a system of incentive -based payments for achieving specified outcomes in the provision of services under the Alternative Payment System. No significant action has been taken by DHS on these incentive -based payments. In addition to being subject to the Alternative Payment System's general rule that the Nursing Facility's future rates for payment under the Medicaid program will not be based on costs, the Nursing Facility must agree to abide by certain specific restrictions. In particular, with the exception of adjustments for project costs for approved moratorium exceptions as discussed above, the Nursing Facility's contract payment rate will not be adjusted to reflect any additional costs that the Nursing Facility incurs as a result of a construction project. In addition, the contract payment rate will not be adjusted for any change of ownership or control occurring during the contract term. If the contact is terminated, a cost report must be filed by the Nursing Facility for a reporting period beginning on the contract termination date and ending the September 30th which is at least six months but less than 18 months following the termination date. On each July 1 following the contract termination date, the contract payment rate will be adjusted by an inflation index until the Nursing Facility returns to cost -based reimbursement on the July I following the September 30 marking the end of the cost reporting period. The Company believes, however, based on legislation passed by the Minnesota legislature in 1998, that beginning in 1999, all facilities in the Alternative Payment System will, at the conclusion of their contracts, transition to a new system in which payment rates will not be determined by filed cost reports. Such new system will bear more resemblance to the Alternative Payment System than to the former cost -based Rate -Setting System. After the contract termination date, all other provisions of the Alternative Payment System will no longer apply to the Nursing Facility. The Alternative Payment System contract contains various termination provisions allowing the State to terminate the contract due to nonappropriation or withdrawal of legislative authority, for breach by the Nursing Facility, or in the event the State contracts with a managed care entity to provide services in the region where the Nursing Facility is located. Notwithstanding those provisions, the State or the Nursing Facility may terminate the contract without cause for any reason by giving the other 30 days' written notice. The contract also contains certain required provisions for State contracts concerning maintenance of records, audits, compliance with the Minnesota Government Data Practices Act, intellectual property rights, assignment of antitrust claims, indemnification, and requirements to report significant events that may affect the level of service of either the Nursing Facility or its key providers or subcontractors. (This page has been left blank intentionally.) APPENDIX E FORM OF BOND COUNSEL OPINION (This page has been left blank intentionally.) 1 DORSEY & WHITNEY LLP MINNEAPOLIS WASHINGTON, D.C. LONDON BRUSSELS HONG KONG DES MOINES ROCHESTER COSTA MESA City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428 PILLSBURY CENTER SOUTH 220 SOUTH SIXTH STREET MINNEAPOLIS, MINNESOTA $$402-1498 TELEPHONE: (612) 340-2600 FAX: (612) 340-2868 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Re: $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 City of New Hope, Minnesota Ladies and Gentlemen: NEW YORK DENVER SEATTLE FARGO BILLINGS MISSOULA GREAT FALLS We have acted as Bond Counsel in connection with the authorization, issuance and sale by the City of New Hope, Minnesota (the "City"), of its Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999, in the aggregate principal amount of $46,875,000 (the "Bonds"). For the purpose of rendering this opinion, we have examined: (1) a Loan Agreement (the "Loan Agreement'), dated as of March 1, 1999, between the City and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the Company); (2) the Indenture of Trust (the "Indenture"), dated as of March 1, 1999, between the City and U.S. Bank Trust National Association, as trustee (the "Trustee"); (3) the Regulatory Agreement, dated as of March 1, 1999 (the "Regulatory Agreement") between the Company and the Trustee; (4) certified copies of resolutions of the governing body of the City approving and authorizing the execution and delivery of the Loan Agreement, the Indenture, the Bonds and other documents; (5) the form of the Bonds; and (6) such other documents as we consider necessary in order to render this opinion. As to questions of fact material to our opinion, we have assumed the authenticity of and relied upon the certified DORSEY & WHITNEY LLP Page -2- City of New Hope, Minnesota Dougherty Summit Securities LLC proceedings, certificates, affidavits and other documents furnished to us without undertaking to verify the same by independent investigation. From such examination and on the basis of laws, regulations, rulings and decisions in effect on the date hereof, it is our opinion that: (1) The City is a municipal corporation validly existing under the Constitution and laws of the State of Minnesota and is authorized thereby to issue the Bonds and to enter into and carry out the provisions of the Loan Agreement and the Indenture. (2) The Loan Agreement and the Indenture have each been duly and validly authorized, executed and delivered by the City and are valid instruments legally binding on the City and enforceable in accordance with their terms. (3) The Bonds have been duly and validly authorized, executed and delivered by the City and are valid and binding special limited obligations of the City enforceable in accordance with their terms and the terms of the Indenture. (4) The Bonds are not general obligations or an indebtedness of the City within the meaning of any constitutional or statutory limitation, and do not constitute or give rise to a general liability of the City or a charge against its general credit or taxing power, but are payable solely from revenues pledged to the payment thereof and secured by the provisions of the Indenture, under which the payments made by the Company pursuant to the Loan Agreement are to be made to the Trustee for the account of the City and deposited in a special trust account created by the City for that purpose. (5) All interests of the City in the Loan Agreement including amounts payable thereunder to the City by the Company (excepting only the right of the City to payment or reimbursement of legal and administrative costs and to indemnification) have been duly pledged and assigned to the Trustee and a security interest therein granted by the Indenture; provided, however, we express no opinion as to the priority of such pledge, assignment and security interest. (6) The Bonds are "private activity bonds" within the meaning of Section 141 and "qualified 501(c)(3) bonds" within the meaning of Section 145 of the Internal Revenue Code of 1986 (the "Code"). The Bonds bear interest that is not includable in gross income of the owner thereof for federal income tax purposes or in taxable net income of individuals, estates and trusts for Minnesota income tax purposes. Interest on the Bonds is includable in taxable income DORSEY & WHITNEY LLP Page -3- City of New Hope, Minnesota Dougherty Summit Securities LLC of corporations and financial institutions for purposes of the Minnesota franchise tax. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax applicable to all taxpayers or the Minnesota alternative minimum tax applicable to individuals, estates and trusts„ but is includable in "adjusted current earnings" for the purpose of determining the alternative minimum taxable income of corporations for purposes of the federal alternative minimum tax. The Code establishes certain requirements (the "Federal Tax Requirements") that must be met subsequent to the issuance of the Bonds in order that, for federal income tax purposes, interest on the Bonds not be included in gross income. The Federal Tax Requirements include, but are not limited to, requirements relating to the expenditure of Bond proceeds, restrictions on the investment of Bond proceeds prior to expenditure and the requirement that certain earnings on the "gross proceeds" of the Bonds be paid to the federal government. Noncompliance with the Federal Tax Requirements may cause interest on the Bonds to become subject to federal and Minnesota income taxation retroactive to their date of issue, irrespective of the date on which such noncompliance occurs or is ascertained. The Loan Agreement, the Regulatory Agreement and Indenture contain provisions which, if complied with, will satisfy the Federal Tax Requirements. In expressing the opinion in paragraph (6), we have assumed compliance by the Company, the City and the Trustee with the provisions of the Loan Agreement, the Regulatory Agreement and the Indenture. Except as expressly stated in this opinion, we express no opinion as to federal or state tax consequences arising from ownership of the Bonds or receipt of interest thereon. It is to be understood that the rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture and the Loan Agreement may be subject to (i) state and federal laws, rulings, decisions and principles of equity affecting remedies, and (ii) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable. In rendering this opinion we have relied upon the opinion of Orbovich & Gartner Chartered, St. Paul, Minnesota, counsel to the Company, that the Company is an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code, that the Loan Agreement and the Regulatory Agreement have been duly authorized, executed and delivered by the Company, and as to the characterization of the Company's activities in connection with the properties financed from proceeds of the Bonds as activities that do not constitute an unrelated trade or business under Section 513(a) of the Code. DORSEY & WHITNEY LLP Page -4- City of New Hope, Minnesota Dougherty Summit Securities LLC We have also relied upon certifications made by officers of the City and Company, including certifications as to the use of the proceeds of the Bonds, the nature, use, cost and useful life of the facilities financed by the Bonds and other matters material to the tax-exempt status of the interest borne by the Bonds. Dated this 17"' day of March, 1999. APPENDIX F EXCERPTS FROM APPRAISAL (This page has been left blank intentionally.) Tisdell Appraisal Services, Inc. Certified General Real Property Appraisers 13529 Knox Dr. • P.O. Box 5010 Phone: (612) 894.2488 • Fax: (612) 894-2296 December 24, 1998 Edwin A. Martini, Jr. Minnesota Masonic Homes 11501 Masonic Home Drive Bloomington, Minnesota 55437-3699 Burnsville, MN 55337 Re: A complete appraisal with a summary report of the North Ridge Care Center and the North Ridge Apartments, located at 5430 and 5500 Boone Avenue North in New Hope, Minnesota. Mr. Martini, I hereby certify that I have personally inspected the above described properties on December 4, 1998 for the purpose of estimating a Market Value. It is my opinion that the Market Value of the above described properties as of the date of inspection is: North Ridge Care Center: $34,700,000 North Ridge Apartments: $14,300,000 Total Value All Real Estate: $49,000,000 Market Value is defined as the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus. (See Appraisal Report Supplement and Certification for a complete definition of Market Value.) This appraisal is subject to the terms and conditions of the "Appraisal Report Supplement and Certifications" on pages 4 and 5 of this report. If Tisdell Appraisal Services, Inc. may be of further assistance, please call at your convenience. Appraisal report by: Tisdell Appraisal Services, Inc. Joe T. Tisdell / Appraiser ID# 4002279 3 APPRAISAL REPORT SUPPLEMENT AND CERTIFICATION DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus. Implicitly in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and acting in what they consider their best interests; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale. *Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgment. ENVIRONMENTAL DISCLAIMER ON HAZARDOUS MATERIALS: In this appraisal assignment, the existence of potentially hazardous material used in construction or maintenance of the building, such as the presence of urea -formaldehyde foam insulation, asbestos, and/or the existence of substances such as toxic waste or radon gas, and/or the existence of any other environment influence that may adversely affect the value of the property, was not observed by me. I, however, am not qualified to detect the present existence of such materials/substances/ influences on or in the property. The existence of urea -formaldehyde foam insulation, or other potentially hazardous material, or toxic waste or radon gas, may have effect on the value of the property. I CERTIFY THAT TO THE BEST OF MY KNOWLEDGE AND BELIEF THAT: -I have met the "Competency Provision of USPAP". My attached resume states my licensing and experience that qualify me for an appraisal of this type. -I have met the 14 USPAP guidelines that were attached to the engagement letter. -The statements of fact contained in this report are true and correct. -The reported analyses, opinions, and conclusions are limited only to the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. -I have no present or prospective interest in the property that is the subject of this report, and I have no interest or bias with respect to the parties involved. -My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. -This assignment is not based upon a requested minimum valuation, a specific valuation, or approval of any proposed financing. 4 APPRAISAL REPORT SUPPLEMENT AND CERTIFICATION (CONT.) -My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. -I have made a personal inspection of the property that is the subject of this report. -No one provided significant professional assistance to the person signing this report. CONTINGENT AND LIMITING CONDITIONS: The certification of the appraiser stated above are subject to the following conditions and to such other specific and limiting conditions as are set forth by the appraiser in the report. 1. The appraiser assumes no responsibility for matters of a legal nature affecting the property appraised or the title thereto, nor does the appraiser render any opinion as to the title, which is assumed to be good and marketable. The property was considered as though under responsible ownership. 2. Any sketch in the report may show approximate dimensions and is included to assist the reader in visualizing the property. The appraiser has made no survey of the property. 3. The appraiser is not required to give testimony or appear in court because of having made the appraisal with reference to the property in question, unless arrangements have been previously made therefore. 4. Any distribution of the valuation in the report between land and improvements applies only under the existing program of utilization. The separate valuations for land and building must not be used in conjunction with any other appraisal and are invalid if so used. 5. The appraiser assumes that there are no hidden or unapparent conditions of the property, subsoil, or structures, which would render it more or less valuable. The appraiser assumes no responsibility for such conditions, or for engineering which might be required to discover such factors. 6. Information, estimates, and opinions furnished to the appraiser, and contained in the report, were obtained from sources considered reliable and believed to be true and correct. However, no responsibility for accuracy of such items furnished the appraiser can be assumed by the appraiser. 7. Disclosure of the contents of the appraisal is governed by the Bylaws and Regulations of the professional society with which the appraiser is affiliated. 8. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to the property value, the identity of the appraiser, professional designations, reference to any professional appraisal organizations, or the firm with which the appraiser is connected), shall be used for any purposes by anyone but the client specified in the report, the borrower if appraisal fee paid by same, the mortgagee or its successors and assigns, mortgage insurer, consultants professional appraisal organizations, any state or federally approved financial institution, any department agency, or instrumentality of the United States or any state or the District of Columbia, without the previous written consent of the appraiser: nor shall it be conveyed by anyone to the public through advertising, public relations, news, sales or other media, without the written consent and approval of the appraiser. 9. On all appraisals, subject to satisfactory completion, repairs, or alterations, the appraisal report and value conclusion are contingent upon completion of the improvements in a workmanlike manner. 10. In addition to meeting the requirements of the (FIRREA) Financial Institutions Reform, Recovery and Enforcement Act of 1989, and (OCC) Office of the Comptroller of the Currency, the a raisal me requirements of the (OTS) Office of Thrift Supervision. 1-02.2 - 9i foe T. Tisdell Date 5 SUMMARY OF SALIENT FACTS & CONCLUSIONS Property Address: North Ridge Care Center: 5430 Boone Avenue North, New Hope, Minnesota 55428 North Ridge Apartments: 5500 Boone Avenue North, New Hope, Minnesota 55428 Owner of Record: North Ridge Care Center, Inc. 5430 Boone Avenue North, New Hope, Minnesota 55428 Date of Appraisal: December 4, 1998 Property Rights Appraised: Fee Simple Estate Purpose of Appraisal: Estimate Market Value of the unencumbered fee simple estate Land Area: North Ridge Care Center: 358,980 SF (8.24 acres) North Ridge Apartments: 214,629 SF (4.93 acres) Property Description: The subject properties consist of a 559 bed skilled nursing facility with a partial basement. There is also a 204 unit senior apartment and assisted living facility with partial basement. Zoning: North Ridge Care Center: R - 4 North Ridge Apartments: R - 5 Highest and Best Use: Present Use Assessed Value and Taxes: North Ridge Apartments: Assessed Value: $12,682,700 1998 Real Estate Taxes: $511,884.76 North Ridge Apartments: Assessed Value: $8,869,000 1998 Real Estate Taxes: $252,951 F SUMMARY OF SALIENT FACTS & CONCLUSIONS (Continued) Values Indicated: North Ridge Care Center Sales Comparison Approach $32,160,000 Cost Approach: $26,041,000 Income Approach: $34,713,000 Final Estimate of Value: $34,713,000 or rounded: $34,700,00 North Ridge Apartments Sales Comparison Approach $13,916,000 Cost Approach: $14,441,000 Income Approach: $14,343,000 Final Estimate of Value: $14,343,000 or rounded: $14,300,000 Total Value All Real Estate $49,000,000 7 SCOPE OF THE APPRAISAL The term, "Scope of the Appraisal', means the extent of the process of collecting, confirming and reporting data. The professional standards clearly impose a responsibility on the appraiser to determine the extent of the work and of the report to relation to the significance of the appraisal problem. As part of the "Scope of the Appraisal', the appraiser signifies acceptance of this responsibility. After determining that this appraiser is qualified to complete this type of an assignment, I accepted this appraisal assignment. I was aware that the purpose of the appraisal was for financing. I then followed standard procedure as follows: The municipality and the county in which the property is located was contacted to obtain basic information, such as legal ownership, tax information, community information, utilities and zoning. The site was then inspected, at which time photographs were taken. The first step in the appraisal was to determine which approaches were applicable in order to arrive at a value of the subject. It was determined that the Cost Approach, the Market Data Approach and the Income Approach were applicable approaches. These approaches to value were reviewed and examined for errors, proofread, and then a summary was written, arriving at the final estimate of value. All information was verified with the City of New Hope and the Hennepin County Assessor by the appraiser. OWNERSHIP OF RECORD North Ridge Care Center and North Ridge Apartments North Ridge Care Center, Inc. 5430 Boone Avenue North New Hope, Minnesota 55428 0 PROPERTY RIGHTS APPRAISED The subject property was appraised including the property rights of "fee simple" title. "Fee Simple" title is defined as absolute ownership unencumbered by any other interest or estate subject only to the four powers of government. SUBJECT PROPERTY SALES HISTORY Both the North Ridge Care Center and North Ridge Apartments have been owned by North Ridge Care Center, Inc. since their original construction, which was 1966 for North Ridge Care Center and 1983 for North Ridge Apartments. No changes of ownership have occurred during that entire time. R HIGHEST AND BEST USE The definition of highest and best use is the use that maximizes return to the property. Real estate is valued in terms of its highest and best use. The highest and best use of the land or site, if vacant and available for use, may be different from the highest and best use of the improved property. This will be true when the improvement is not an appropriate use but yet makes a contribution to the total property value in excess of the value of the site. The highest and best use must meet the following four criteria: 1. It must be physically possible. The use as stated must be within the capability of the tract itself and the services available to it. The use must be based on the physical improvements on the tract and their condition. 2. It must be financially feasible. The net operating income that can reasonably be expected from that property operated in that use must provide a rate of return satisfactory to the buyer/investor. 3. It must be legally permissible. The use as stated must comply with local restrictions such as zoning, building codes, and environmental regulations. 4. It must be maximally productive. The highest and best use is the one that produces the highest net operating income with consistent risk for that particular market. Highest and best use of the site as if vacant The highest and best use of the sites, if vacant and ready to be built upon, would be ideal for a health care related facility such as senior housing, assisted living, multiple family housing, etc., assuming there were a need. The site's locations and zoning do not readily lend themselves to commercial, office, warehouse, or industrial development. Highest and best use of the property as improved North Ridge Care Center was originally constructed as a skilled nursing facility in 1966 and had additions constructed in 1969, 1978, 1980, and 1998. North Ridge Apartments were originally constructed as senior apartments and assisted living facility in 1983 with an office addition constructed in 1988. The facilities have experienced favorable occupancy rates and have been financially successful by health care facility standards. The properties, as existing, appear to have been developed consistent with the highest and best use of the sites, are an acceptable use for the area, and meet all the criteria for the highest and best use, as improved. No alternative uses of the facilities as improved are consider to be warranted. Therefore, skilled nursing, senior apartments, and assisting facilities are considered to represent the highest and best use. 10 MARKET TRENDS The State of Minnesota has approximately 448 Medicaid certified health care facilities, which totals almost 50,000 nursing home beds, ranking second only to Wisconsin in number of beds. Revenues to these facilities comes from Medicaid, which is funded jointly by federal and state governments, federal Medicare programs, private payers, and insurance plans. If current trends continue, it is estimated that the total cost of long term care could double by the year 2010. Indications are that Minnesota will need approximately 9,000 nursing beds within 20 years to accommodate an expected 32% increase in the number of people age 75 and over. Current occupancy rates in the state average 90%. With current and expected trends continuing and with limited competition, financial risk is generally low for good quality providers in areas where population patterns are either level or showing growth. In the case of the subject properties, occupancy rates have been historically high, and at present, North Ridge Care Center is at a 98 to 99 per cent and North Ridge Apartments is also at a 98 to 99 per cent. North Ridge Care Center and North Ridge Apartments are considered to be the the "provider of choice" in the West and Northwest Metro area. SUBJECT PROPERTY MARKETING TIME The salability of any given facility is subject to state regulations, which change, for better or worse, as years pass. Regulations currently in place do add incentives for health care facility ownership and the health care market has become active recently. Since health care facility financing packages are normally complicated, it can take a few months to make those arrangements. Therefore, it is my estimation that the average marketing time for the facility would be 6 months to 1 year. 11 SUBJECT PROPERTY LEGAL DESCRIPTIONS North Ridge Care Center Parcel #06-118-21-43-0037: Lot 2, Block 1, North Ridge Care Center Addition. North Ridge Apartments Parcel #06-118-21-43-0036: Lot 1, Block 1, North Ridge Care Center Addition 1998 HENNEPIN COUNTY ASSESSOR'S VALUES AND TAXES Assessed Value Real Estate Taxes Parcel #06-118-21-43-0037 $12,682,700* $511,884.76* Parcel #06-118-21-43-0036 $8,869,000** $252,951** *Land Value: $893,000/Improvements Value: $11,789,700. Includes special assessment of $4,207 and $2,299 annual solid waste assessment **Land Value: $923,000/lmprovements Value: $7,946,000. Includes solid waste assessment of $1,607. 12 AREA DESCRIPTION The subject properties are located in New Hope, Minnesota, a second ring suburb community located approximately 10 miles Northwest of Minneapolis. New Hope is surrounded by the cities of Crystal and Robbinsdale to the Northeast and East, Golden Valley to the South, Plymouth to the West, and Brooklyn Park to the North. The Minneapolis/St. Paul Metro area had approximately 2,839,000 residents, according to a 1994 estimate. New Hope has a current estimated population of 21,698 residents and has shown little population growth since 1994, primarily because the majority of the available land has been developed, and any significant growth is stymied because the community is "landlocked" by the surrounding communities. U.S. Highway 169 runs in a North/South direction on the West edge of the community, and Highway 9 (Rockford Road) runs in an East/West direction. Highway 100, which is a short distance East of the East edge of the community, also runs in a North/South direction. Commuting time to downtown Minneapolis is estimated to be 15 minutes and downtown St. Paul in approximately 25 minutes. Egan Companies is the largest employer in the community with over 625 employees, and Lakeside Limited, Inc. is second with 350 employees, roughly the same amount as the North Ridge Care Center and Apartments, followed by Tool Products Company with 340 employees. UTILITIES The City of New Hope receives electrical service from Northern States Power Company, natural gas service from Minnegasco, and has its own water and sewer departments. Telephone service is provided by U.S West. See Community Profile in addendum. FLOOD HAZARD ZONE The subject properties are not located in a flood hazard zone, according to FEMA. Zone C. Community Map #270177 001B. Map date is 1/2/81. 13 3400 CITY CENTER CONSULTING OFFICE, BEIJING CHINA 33 SOUTH SIXTH STREET MINNEAPOLIS, MN 55402-3796 612 343-2500 FAX: 612 333-0066 WEB SITE: www.gpmlaw.com March 17, 1999 $46,875,000 CITY OF NEW HOPE, MINNESOTA Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Re: Blue Sky Memorandum Ladies and Gentlemen: Attached hereto is a Blue Sky Memorandum (the "Memorandum") that is furnished to you for general informational purposes only in connection with the offering and sale of the above -referenced obligations (the "Bonds"), being made on behalf of the City of New Hope, Minnesota (the "Issuer"). The proceeds from the sale of the Bonds Will be loaned to Minnesota Masonic Home North Ridge, a Minnesota non-profit corporation (the "Company"). The Company is exempt from federal income taxation because it is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and will use the proceeds of the Bonds to acquire certain existing nursing home, assisted living and senior housing facilities, to finance the Reserve Fund, and to pay certain issuance costs. The Memorandum sets forth in summary form certain information relating to the provisions of the securities or blue sky laws of the various jurisdictions enumerated therein and is based upon an examination of the latest compilations available to us of the applicable laws of the various jurisdictions enumerated therein. We have not consulted with local counsel in any jurisdiction, and, as members of the Bar of the State of Minnesota, we do not purport to be experts in the law of any other jurisdiction. No person is entitled to rely upon the Memorandum as an opinion of counsel. The statements made in the Memorandum assume that the Bonds are, and will be upon the completion of the transaction, securities exempt from registration under the Securities Act of 1933, as amended, under Section 3(a)(2) thereof. These statements are GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. ATTORNEYS AT LAW Dougherty Summit Securities LLC March 17, 1999 Page 2 subject to the existence of broad discretionary powers in the securities commissions (or other administrative bodies or officials) of many jurisdictions, authorizing them, among other things, to withdraw the exempt status accorded by statute to particular classes of, and certain transactions in, securities and to make special requirements with respect to any offering of securities. The Memorandum does not purport to cover the requirements or restrictions, if any, of the laws of any jurisdiction with respect to (i) the use in any jurisdiction of any selling or advertising material other than a final Official Statement regarding the Bonds, or (ii) the form or substance of advertising or the filing requirements applicable thereto. In preparing the Memorandum, we have assumed the accuracy of the information furnished to us by the Issuer, and, where we have stated that persons licensed or registered as dealers or brokers may make offers or sales of Bonds, we have assumed compliance by such persons with all dealer or broker requirements in connection with offers or sales thereof and with all statutes, rules, and regulations with respect to licensing and registration. Very truly yours, GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. GP:567315 v1 3400 CITY CENTER 33 SOUTH SIXTH STREET MINNEAPOLIS, MN 5 5402-3 796 612 343-2800 FAX: 612 333-0066 WEB SITE: www.gpmlaw.com March 17, 1999 CONSULTING OFFICE, BEIJING CHINA $46,875,000 CITY OF NEW HOPE, MINNESOTA Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Re: Blue Sky Memorandum Ladies and Gentlemen: We wish to advise you that in each of the following jurisdictions action, if required, has been completed so that the above -referenced obligations (the "Bonds") may be sold to the public by dealers or brokers registered or licensed in such jurisdictions. Arizona Colorado Florida Illinois Indiana Iowa Massachusetts Minnesota Missouri North Dakota Ohio South Dakota Texas Wisconsin Pursuant to your instructions, no determination has been made regarding sales to the public of the Bonds, nor is any action being taken to register or qualify the Bonds for sale to the public or to meet filing requirements, if any, in any other jurisdiction, and offers and sales to the public in any such jurisdiction should not be made without such review or action. Very truly yours, GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. GP:567316 v1 GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. ATTORNEYS AT LAW CERTIFICATE OF OFFICIAL ACTION OF THE CITY OF NEW HOPE, MINNESOTA I, the undersigned, do hereby certify that I am the City Clerk of the City of New Hope, Minnesota (the "City") and that: (a) Attached hereto and marked Exhibit A, is a true and correct copy of Resolution No. 99-34 duly adopted by the City Council at a lawful meeting duly called and held on February 22, 1999, at which meeting a quorum was present and acting throughout, which resolution remains in full force and effect in the form in which adopted. (b) Attached hereto and marked Exhibit B is a true and correct copy of the affidavit of publication of a notice of public hearing published on January 20, 1999, in the New Hope -Golden Valley Sun Post. (c) Attached hereto and marked Exhibit C is a true and correct copy of the affidavit of publication of a notice of public hearing published on February 3, 1999, in the New Hone -Golden Valley Sun Post. (d) Public hearings were held on February 8, 1999 and February 22, 1999 by the City Council pursuant to the notices of public hearing referred to in paragraphs (b) and (c) above and all persons who appeared at such hearings were given an opportunity to express their views with respect to the project and issuance of the bonds described in the notice. Dated: March 17, 1999. CITY OF NEW HOPE, MINNESOTA �&ata(YUYLX- Valerie Leone, City Clerk 4401 Xylon Avenue North New Hope, Minnesota 55428-4898 STATE OF MINNESOTA) COUNTY OF HENNEPIN) ss CITY OF NEW HOPE ) City Hall: 612-531-5100 Police: 612-531-5170 Public Works: 612-533-4823 TDD: 612-531-5109 EXHIBIT A City Hall Fax: 612-531-5136 Police Fax: 612-531-5174 Public Works Fax: 612-533-7650 Fire Dept. Fax 612-531-5175 I, the undersigned, being the duly qualified City Clerk of the City of New Hope, Minnesota, hereby attest and certify that: 1. As such officer, I have the legal custody of the original record from which the attached resolution was transcribed. 2. 1 have carefully compared the attached resolution with the original record of the meeting at which the resolution was acted upon. 3. 1 find the attached resolution to be a true, correct and complete copy of the original: RESOLUTION NO. 99-34 RESOLUTION APPROVING A HOUSING PROGRAM AND AUTHORIZING THE ISSUANCE AND SALE OF HOUSING AND HEALTH CARE FACILITIES REVENUE BONDS (MINNESOTA MASONIC HOME NORTH RIDGE PROJECT), SERIES 1999, AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS 4. 1 further certify that the affirmative vote on said resolution was 4 ayes, 0 nayes, and 1 absent/abstention. 5. Said meeting was duly held, pursuant to call and notice thereof, as required by law, and a quorum was present. WITNESS my hand officially as such Clerk and the seal of said City, this 24th day of February, 1999. (Seal) Valerie Leone, City Clerk Family Styled City V�v For Family Living RESOLUTION NO. 99-34 RESOLUTION APPROVING A HOUSING PROGRAM AND AUTHORIZING THE ISSUANCE AND SALE OF HOUSING AND HEALTH CARE FACILITIES REVENUE BONDS (MINNESOTA MASONIC HOME NORTH RIDGE PROJECT), SERIES 1999, AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS follows: BE IT RESOLVED by the City Council of the City of New Hope (the "City"), as Section 1. Recitals and Findings. I.I. By the provisions of Minnesota Statutes, Chapter 462C, as amended (the "Act"), the City is authorized to plan, administer, issue and sell revenue bonds or obligations to make or purchase loans to finance one or more multifamily housing developments within its boundaries, which revenue bonds or obligations shall be payable solely from the revenues of the development. Pursuant to Section 462C.07, Subdivision 1 of the Act, in the purchase or making of multifamily housing loans and the issuance of revenue bonds or other obligations, the City may exercise within its corporate limits any of the powers the Minnesota Housing Finance Agency may exercise under Minnesota Statutes, Chapter 462A, without limitation under the provisions of Minnesota Statutes, Chapter 475. 1.2. The City has received a request from representatives of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), that the City approve a housing program (the "Program") pursuant to the Act, which provides for the issuance by the City of revenue bonds (the "Bonds") under the Act to finance the acquisition of North Ridge Apartments, an assisted and catered living community for the elderly consisting of 205 units located at 5500 Boone Avenue North in the City, and of North Ridge Care Center, a long term care facility consisting of 559 licensed skilled nursing home beds located at 5430 Boone Avenue North in the City (the "Facilities") by the Company. A copy of the Program has been presented to this Council and is ordered placed on file with the City Clerk. The Program has been submitted to the Metropolitan Council for review and comment as required by the Act. 1.3. Minnesota Statutes, Section 462C.04 and Section 147(f) of the Internal Revenue Code of 1986, as amended and regulations promulgated thereunder, requires that prior to the issuance of the Bonds, this Council approve the Program and the issuance of the Bonds after conducting a public hearing thereon. On February 8, 1999 and February 22,1999, this Council held public hearings on the proposal to approve the Program and issue the Bonds at which all interested persons were offered an opportunity to express their views, in person or in writing, on the proposed issuance of the Bonds. This Council has carefully considered the views submitted at the public hearings and the written comments (if any) submitted to the City on the Program and issuance of the Bonds. 1.4. The Bonds will be issued pursuant to an Indenture of Trust (the "Indenture"), between the City and U.S. Bank Trust National Association, as trustee (the "Trustee"). The proceeds of the Bonds will be loaned by the City to the Company pursuant to a Loan Agreement (the "Loan Agreement"), between the City and the Company. Under the Loan Agreement the Company will agree to make loan payments sufficient to pay the principal of, premium, if any, and interest on the Bonds as the same shall become due and payable. By the Indenture, the City will grant a security interest to the Trustee in certain revenues and payments to be received by the City under the Loan Agreement. The Bonds are to be purchased by Dougherty Summit Securities LLC (the "Underwriter") pursuant to a Bond Purchase Agreement (the `Bond Purchase Agreement'), by and among the City, the Company and the Underwriter.' The Bonds will be secured by a Mortgage Agreement (the "Mortgage"), from the Company to the City, pursuant to which the City will be granted a first mortgage lien and security interest in the Facilities and will be assigned all rents and leases with respect to the Facilities. The City will assign all of its interest in the Mortgage to the Trustee pursuant to an Assignment of Mortgage Agreement (the "City Mortgage Assignment') between the City and the Trustee. The Indenture, the Loan Agreement, the Mortgage and the City Mortgage Assignment are referred to as the "City Financing Documents". 1.5. In connection with its acquisition of the Facilities the Company has requested that the City modify the Amended Declaration of Restrictive Covenants dated December 1, 1986 (the "Amended Declaration') which imposes certain restrictions on the Facilities in favor of the City. The Amended Declaration is proposed to be modified pursuant to the Agreement to Release Lots 1 and 2, Block 1 North Ridge Care Center Addition from Amended Declaration of Restrictive Covenants between the Company and the City (the "Modification to Amended Declaration'), and as a condition to the City executing the Amendment to Restrictive Covenants the City and Company will execute and deliver a PILOT Agreement (the "PILOT Agreement'). 1.6. Drafts of the following documents relating to the Bonds have been prepared and submitted to this Council and are hereby directed to be filed in the office of the City Clerk: (i) Loan Agreement; (ii) Indenture; (iii) Bond Purchase Agreement; (iv) Mortgage; (v) City Mortgage Assignment; -2- (vi) Preliminary Official Statement (the "Preliminary Official Statement') relating to the offering of the Bonds for sale by the Underwriter; (vii) Modification to Amended Declaration; and (viii) PILOT Agreement. Section 2. Approval and Authorization. 2.1. The Program is hereby approved. It is hereby determined that it is desirable for the City to proceed with the issuance of the Bonds in a maximum aggregate principal amount not to exceed $49,000,000. The Bonds shall bear interest at the rates per annum and mature on the dates and in the principal amounts, and shall contain the further terms and conditions, including provisions with respect to redemption of the Bonds prior to the stated maturity thereof, set forth in the Indenture heretofore filed with the City (as the same may be amended or completed as hereinafter provided). The aggregate principal amount of the Bonds, the interest rates to be home by the Bonds, the principal maturity schedule for the Bonds, the provisions with respect to redemption of the Bonds prior to maturity and the purchase price for the Bonds to be paid by the Underwriter under the Bond Purchase Agreement have not as yet been determined. The Mayor and City Manager are hereby authorized to approve such terms of the Bonds, provided that the maximum aggregate principal amount of the Bonds does not exceed $49,000,000, no interest rate on the Bonds exceeds 7.00% per annum the Bonds mature no later than 31 years after the date of issuance thereof, and the purchase price of the Bonds to be paid by the Underwriter is not less than 98% of the principal amount thereof (exclusive of original issue discount). 2.2. The form of the Bond Purchase Agreement heretofore filed with the City is hereby approved, subject to such changes therein as may be deemed desirable by the Mayor, the City Manager and the City Attorney. The Bonds are hereby authorized to be sold to the Underwriter upon the terms set forth in the Bond Purchase Agreement. The Mayor and the City Manager of the City are hereby authorized and directed, on behalf of the City, to execute and deliver the Bond Purchase Agreement in substantially the form of the Bond Purchase Agreement heretofore filed with the City, together with such changes and completions thereof as may be approved by the Mayor, the City Manager and the City Attorney, subject to the limitations contained in this resolution, the execution thereof to constitute conclusive evidence of the approval of such changes and completions. 2.3. The forms of the City Financing Documents heretofore filed with the City are hereby approved. The Mayor and the City Manager of the City are hereby authorized and directed, on behalf of the City, to execute and deliver the City Financing Documents in substantially the forms hereby approved, but including such modifications, insertions and -3- additions as are necessary and appropriate in their opinion and in the opinion of the City Attorney and consistent with the Act. The execution of the City Financing Documents by the appropriate officers of the City shall be conclusive evidence of the approval thereof and of the terms of the Bonds by the City. 2.4. The City hereby consents to the distribution by the Underwriter of the Preliminary Official Statement and the final Official Statement to potential purchasers of the Bonds; however, the City makes no representations with respect to, and assumes no responsibility for the sufficiency, accuracy, completeness or contents of, the Preliminary Official Statement or the final Official Statement. To satisfy the requirements of Rule 15c2-12 of the Securities Exchange Commission, as amended, upon the finalization of the Preliminary Official Statement the City Manager is hereby authorized on behalf of the City to deem the information relating to the City contained in the Preliminary Official Statement to be final as of its date. 2.5. The Mayor and the City Manager of the City are authorized and directed to prepare and execute the Bonds and to deliver them to the Trustee pursuant to the Indenture for authentication and delivery to the purchaser or purchasers thereof, together with a certified copy of this resolution and other documents required by the Indenture. As provided in the Indenture, the Bonds shall be executed by the manual or facsimile signatures of the Mayor and City Manager and shall be authenticated by the Bond Registrar (as defined in the Indenture), as authenticating agent, pursuant to Minnesota Statutes, Section 475.55, Subdivision 1. 2.6. As provided in the Indenture, the Bonds are special, limited obligations of the City. Principal of, premium, if any, and interest on the Bonds are payable solely out of the revenues derived from the sources described in the granting clauses of the Indenture. Neither the State of Minnesota nor the County of Hennepin shall in any event be liable for the payment of the principal of, premium, if any, or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever that may be undertaken by the City. Neither the Bonds nor any of the agreements or obligations of the City contained in the City Financing Documents shall be construed to constitute an indebtedness of the State of Minnesota, the County of Hennepin or the City, within the meaning of any constitutional or statutory provisions whatsoever, nor to constitute or give rise to a pecuniary liability or be a charge against the general credit or taxing power of the State of Minnesota, the County of Hennepin or the City. The agreement of the City to perform the covenants and other provisions contained in this resolution or the Bonds, the City Financing Documents or the Bond Purchase Agreement shall be subject at all times to the availability of the revenues furnished by the Company sufficient to pay all costs of such enforcement or the enforcement thereof, and the City shall not be subject to any personal or pecuniary liability thereon other than as stated above. 2.7. The Mayor, the City Manager and the City Clerk of the City are authorized and directed to prepare and furnish to bond counsel and the Underwriter certified copies of all proceedings and records of the City relating to the Bonds, and such other affidavits and -4- certificates as may be required to show the facts relating to the legality of the Bonds as such facts appear from the books and records in the officers' custody and control or as otherwise known to them; and all such certified copies, certificates and affidavits, including any heretofore furnished, shall constitute representations of the City as to the truth of all statements contained therein. 2.8. The forms of the Modification to Amended Declaration and PILOT Agreement are hereby approved. The Mayor and the City Manager of the City are hereby authorized and directed, on behalf of the City, to execute and deliver the Modification to Amended Declaration and the PILOT Agreement in substantially the forms hereby approved, but including such modifications, insertions and additions as are necessary and appropriate in their opinion and in the opinion of the City Attorney. The execution of the Modification to Amended Declaration and the PILOT Agreement by the appropriate officers of the City shall be conclusive evidence of the approval thereof by the City. 2.9. The Mayor and the City Manager of the City are hereby authorized to execute such additional agreements, documents and certificates in connection with the Bonds as may be necessary and appropriate in their opinion and in the opinion of the City Attorney and consistent with the Act. Copies of such additional agreements, documents and certificates, when executed, shall be delivered, filed and recorded as provided therein. 2.10. The approvals hereby given to the various documents referred to above includes approval of such additional details therein as may be necessary and appropriate and such modifications thereof, deletions therefrom and additions thereto as may be approved by the City Attorney and by the Mayor and the City Manager authorized herein to execute said documents prior to their execution; and the Mayor and the City Manager are hereby authorized to approve said changes on behalf of the City. The execution of any instrument by the appropriate officer or officers of the City herein authorized shall be conclusive evidence of the approval of such documents in accordance with the terms hereof. In the absence of the Mayor or the City Manager, the documents authorized by this resolution to be executed may be executed by the Acting Mayor or the Assistant City Manager. Adopted this 22nd day of February, 1999. Q� Mayor Attest:Q/u City Clerk (SEAL) -5- STATE OF MINNESOTA) ss. EXHIBIT B chim newspapers AFFIDAVIT OF PUBLICATION COUNTY OF HENNEPIN) Frank Chilinski, being duly sworn on an oath states or affirms, that he is the publisher of the newspaper known as Sun -Post or the president's designated agent, and has full knowledge of the facts stated below: (A) The newspaper has complied with all of the requirements constituting qualification as a qualified newspaper, as provided by Minn. Stat. §331A.02, §331A.07, and other applicable laws, as amended. (B) The printed public notice that is attached was published in the newspaper once each week, for one successive weeks; it was first published on Wednesday, the 20 day of January , 1999, and was thereafter printed and published on every Wednesday to and including Wednesday, the _ day of 1999; and printed below is a copy of the lower case alphabet from A to Z, both inclusive, which is hereby acknowledged as being the size and kind of type used in the composition and publication of the notice: ak &fghijklmnopgrst Publisher Subscribed and swor o or affir d before me ,op-tNs a 6 day of=_, 1999. N i }LAi' RATE INFORMATION (1) Lowest classified rate paid by commercial users $ 2.55ep r line for comparable space (2) Maximum rate allowed by law $ 6.20eo r line (3) Rate actually charged $ 1.30ear line ,City o1 New Hoge �: , ' NOTICE OF PUBLIC HEAitING Dated the 28th day of Decemirer 1998 .+; A/ Werta J. Leone City.Clerk (Jan. 20, 1999) P2/Cty New Hope North 'Ridge Apte. STATE OF MINNESOTA) SS. EXHIBIT C c� newspapers AFFIDAVIT OF PUBLICATION COUNTY OF HENNEPIN) Frank Chilinski, being duly swom on an oath states or affirms, that he is the publisher of the newspaper known as Sun -Post or the president's designated agent, and has full knowledge of the facts stated below: (A) The newspaper has complied with all of the requirements constituting qualification as a qualified newspaper, as provided by Minn. Stat. §331A.02, §331A.07, and other applicable laws, as amended. (B) The printed public notice that is attached was published in the newspaper once each week, for one successive weeks; it was first published on Wednesday, the 3 day of February . 1999, and was thereafter printed and published on every Wednesday to and including Wednesday, the day of 1999; and printed below is a copy of the lower case alphabet from A to Z, both inclusive, which is hereby acknowledged as being the size and kind of type used in the composition and publication of the notice: abcdefghijUmnopgretu a � Publisher Subscribed and sworn toop-r affirms before me on this 7 day of e9 , 1999. RATE INFORMATION (1) Lowest classified rate paid by commercial users for comparable space (2) Maximum rate allowed by law $ 2.55 per line $ 6.20 per line (3) Rate actually charged $ 1.30 per line City of New Hope (ficial PubBcation) - -- NOTICE -OF PUBLIC HARING Mi, npartmenra, a <uoumt assisted andcateredliving carr, munity for theelderly located at 5500 Boone Avenue Norm in the City, and North Ridge Care Center, a long term eai facility consisting of 659'licensed Acilled humin'ban beds located at 5930 Boon Avenue North in the City�tl `Facilities'), by Minnesota Masonic Home North Ridge, Minnesota nonprofit corporation, or by a limited Rabibl eompanyto he formed to further the purposes and char table activities of Minnesota Masonic Home, a Mimesol non profit corporation - The Bonds will be limited obligations of the Cit ofthe Be vise of the e interest. with A for is, dapp_nnththe Ci"Irk priort fol -above- . re punted marshals are available upon request at lea miring days in advsnca. Pleame contact the City Cler make arrangements (telephone 631-5}17, TDD coach, -5109). .. - Dated the 25th- day 'ofJanuarx 1999. - Ist Wane J Inane Valerie J. Leone City Clark - (Feb. 3, 1999)P2fElderly Living GENERAL, INCUMBENCY, AND NO -LITIGATION CERTIFICATE OF THE CITY OF NEW HOPE, MINNESOTA The undersigned, Mayor and City Manager, respectively, of the City of New Hope, Minnesota, a municipality organized and existing under the Constitution and laws of the State of Minnesota (the "City"), acting for the City, do hereby certify that the City is a duly constituted and existing municipal corporation under the laws of the State of Minnesota, and do further certify as follows: 1. We are the duly elected or appointed, qualified and acting Mayor and City Manager, respectively. 2. The following described instruments, as executed and delivered by the Mayor and City Manager, are in substantially the same form and text as the copies of such instruments which were before and approved or ratified by the City Council at a meeting of the City on February 22, 1999, except for such modifications, insertions and additions as may have been approved by the Mayor and City Manager. Document Date Other Party or Parties Indenture of Trust As of 3/1/99 U.S. Bank Trust National Association, (the "Indenture") as Trustee (the "Trustee") Loan Agreement As of 3/1/99 Minnesota Masonic Home North Ridge (the "Company") Mortgage Agreement As of 3/1/99 Company Assignment of Mortgage As of 3/1/99 Trustee Agreement Bond Purchase Agreement 3/4/99 Company and Dougherty (the `Bond Purchase Summit Securities LLC Agreement") Agreement to Release Lots 3/1/99 Company 1 and 2, Block 1, North Ridge Care Center Addition from Amended Declaration of Restrict Covenants PILOT Agreement 3/1/99 Company The instruments specified in this paragraph 2 are hereinafter sometimes collectively referred to as the "Documents". 3. The persons named below were on the date or dates of the execution of the Documents, are on the date hereof, the duly elected or appointed and qualified incumbents of the offices of the City set opposite their respective names and the signatures appearing at the right of their respective names are the genuine signatures of said officers. Title Name Mayor W. Peter Erick City Manager Daniel J. Donahue 4. The Mayor and City Manager of the City have executed the Documents, and the $46,875,000 aggregate principal amount of Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (the "Bonds") of the City, initially dated as of March 1, 1999, substantially in the form set forth in the Indenture, bearing interest and maturing as set forth in the Indenture. Each of the Bonds has been executed with the facsimile signatures of the Mayor and City Manager. 5. To the best of our knowledge and belief, the City has duly authorized, executed and delivered by all necessary actions: (i) the Bonds, and (ii) the Documents, and as of the date hereof, each is in full force and effect, and each constitutes an obligation of the City, and the City is entitled to the benefits of the same. To the best of our knowledge and belief the City has authorized by all necessary action the execution, delivery, receipt and due performance of each of the foregoing instruments and any and all such other agreements and documents as may be required to be executed, delivered and received by the City in order to carry out, give effect to and consummate the transactions contemplated by the foregoing instruments. There is no litigation pending or threatened to restrain or enjoin the issuance or delivery of the Bonds, or in any way contesting or affecting any authority for the issuance of the Bonds or the validity of the Bonds or the Documents or in any way contesting the corporate existence or the power of the City. The Documents have not been modified, amended or repealed as of the date hereof. The representations of the City contained in Section 1 of the Bond Purchase Agreement are true and correct in all material respects as of the date hereof, and the City has performed and complied with all conditions and agreements required by the Bond Purchase Agreement to be performed or complied with by it prior to the Closing Date as defined in the Bond Purchase Agreement. Gia Dated: March 17, 1999. CITY OF NEW HOPE, MINNESOTA By ` �Z W. Peter E�Mayor And { Daniel J. Donahue, City Manager -3- REQUEST AND AUTHORIZATION March 17, 1999 U.S. Bank Trust National Association 180 East Fifth Street, Suite 200 St. Paul, Minnesota 55101 Ladies and Gentlemen: Responsive to the Indenture of Trust (the "Indenture"), dated as of March 1, 1999, by and between the City of New Hope, Minnesota (the "City") and U.S. Bank Trust National Association, in St. Paul, Minnesota, as Trustee (the "Trustee") (an original executed counterpart of which is being retained by you) there are delivered to you herewith duly executed on behalf of the City the $46,875,000 in aggregate principal amount of the Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 of the City (the "Bonds"), initially dated as of March 1, 1999, and conforming to the specifications set forth in the Indenture. You are hereby authorized and directed to authenticate and deliver the Bonds on behalf of the City to Dougherty Summit Securities LLC (the "Underwriter") pursuant to the Bond Purchase Agreement, dated March 4, 1999, between the City, the Underwriter and Minnesota Masonic Home North Ridge (the "Company"), upon payment therefor to you of the agreed purchase price therefor, namely $45,941,316.33 (representing $45,822,768.05 for the principal amount of the Bonds, and $118,548.28 of accrued interest on the Bonds from March 1, 1999) for the Bonds, together with funds from Minnesota Masonic Home North Ridge in the amount of $2,683,148.80. Upon receipt of such purchase price and other funds, you are hereby authorized and directed to deposit and apply such money immediately as follows: (i) deposit $42,488,679.30 of the proceeds of the Bonds and all of the funds received from the Company to the Acquisition and Construction Fund created in Section 5.02 of the Indenture; (ii) deposit $3,334,088.75 of the proceeds of the Bonds to the Reserve Fund created in Section 5.06 of the Indenture; and (iii) deposit $118,548.28 of the proceeds of the Bonds to the Interest Account in the Bond Fund created in Section 5.03 of the Indenture. Being delivered to you herewith are those documents required to be delivered to ( you under the provisions of Section 3.05 of the Indenture. This instrument constitutes the request and authorization to the Trustee to authenticate and deliver the Bonds, which is the document required to be delivered to you by Section 3.05(d) of the Indenture. CITY OF NEW HOPE, MINNESOTA By A LZ Mayor 24'��A nd 'City Manager -2- Receipt of the above-described money and documents is hereby acknowledged. U.S. BANK TRUST NATIONAL TION, as Trustee By— Its M11 CITY OF NEW HOPE, MINNESOTA CITY TAX CERTIFICATE I, the undersigned, do hereby certify and declare that I am on the date hereof the City Manager, duly qualified and acting as such, of the City of New Hope, Minnesota (the "City"). I further certify as follows: 1. Definitions. For all purposes of this Certificate the following terms have the following meanings. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Code or the Indenture. Indenture. Acquisition and Construction Fund means the fund so designated created by the Additional Bonds means any bonds issued under Article IV of the Indenture. Bond Fund means the fund so designated created by the Indenture. Bond Purchase Agreement means the Bond Purchase Agreement, dated March 4, 1999, between the City, the Company and the Underwriter. Bond Year means (i) the period from the Closing Date to March 1, 2000, and (ii) each subsequent period of one year ending on March 1. Bond Yield means 5.880487%. Bonds means the Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge), Series 1999 issued by the City under the Indenture. Certificate means this City Tax Certificate. Closing Date means March 17, 1999. Code means the Internal Revenue Code of 1986, including any amendment thereof. Company means Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation, its successors and assigns, and any permitted successor thereto under the Loan Agreement. Computation Date means an Installment Computation Date and the Final Computation Date. Final Computation Date means the date on which the last Bond is discharged. If the Bonds are paid on their stated maturity dates, the Final Computation Date will be March 1, 2029. Fiscal Year means the fiscal year of the Company which currently commences on January 1 of a year and ends on the last day of such year. Gross Proceeds means the original proceeds of the Bonds received from the Underwriter as described in Section 4.1 hereof and any other funds that are part of a reserve or replacement fund for the Bonds, whether or not held by the Trustee under the Indenture. Gross Proceeds include amounts on hand in the Reserve Fund but do not include amounts on hand in the Bond Fund unless in a particular Bond Year investment income thereon is more than $100,000, in which event and for such Bond Year, Gross Proceeds include amounts on hand in the Bond Fund. Indenture means the Indenture of Trust, dated as of March 1, 1999, between the City and the Trustee, including any amendment thereof. Installment Computation Date means the last day of the fifth Bond Year and the last day of every fifth Bond Year thereafter but not including the Final Computation Date. If the Bonds are paid on their Stated Maturity dates, the Installment Computation Dates will be March 1, 2004, March 1, 2009, March 1, 2014, March 1, 2019 and March 1, 2024. Investment Property means any security, obligation (other than a tax-exempt obligation unless such tax-exempt obligation is a "specified private activity bond" within the meaning of Section 57(a)(5)(C) of the Code), annuity contract, or any other investment -type property. Loan Agreement means the Loan Agreement, dated as of March 1, 1999, between the City and the Company, including any amendment thereof. Net Proceeds means the original proceeds of the Bonds, as described in Section 4.1 hereof, plus all investment earnings thereon and on amounts credited to the Reserve Fund. Nonpurpose Investment means any Investment Property in which Gross Proceeds of the Bonds are invested. Rebatable Arbitraee means, as of a Computation Date, the amount payable under Section 148(f) of the Code with respect to Gross Proceeds or, with respect to a Voluntary Computation Date, the amount which would be payable to the United States under Section 148(f) of the Code with respect to Gross Proceeds if such Voluntary Computation Date were a Computation Date. -2- Regulations means the Treasury Regulations promulgated, proposed or applicable (! to the Bonds under the Code, including without limitation Income Tax Regulations, Sections 1.148-1 through 1.148 -11,1.149(b) -1,1.149(d)-1, 1.149(3)-1, 1.149(g)-1, 1.150-1 and 1.150-2. Reserve Fund means the fund so designated created by the Indenture. Reserve Requirement means, as of any date of calculation, the least of (i) the maximum amount of principal and interest coming due on the Outstanding Bonds and any Additional Bonds in the then current or any future Fiscal Year, (ii) 125% of the average amount of principal and interest coming due on the Outstanding Bonds and any Additional Bonds over their remaining term, or (iii) 10% of the stated principal amount (or the issue price, for any series of Additional Bonds which has more than a de minimis amount of original issue discount or premium, within the meaning of the Code) of each series of Bonds or Additional Bonds, any of which are Outstanding. Section 501(c)(3) Organization mans any organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code. Trustee means U.S. Bank Trust National Association, as Trustee under the Indenture, its successors and assigns. Underwriter means Dougherty Summit Securities LLC, its successors and assigns. Yield with respect to any Investment Property means that discount rate which, when computing the present value of all unconditionally payable amounts of principal and interest paid and to be paid on such Investment Property produces an amount equal to the present value of the Investment Property. 2. Purpose of Certificate: Authority of Si vers. 2.1. This Certificate is given to establish the expectations of the City regarding the expenditure of the proceeds of the Bonds, pursuant to Section 148 of the Code and Section 1.148-2(b) of the Regulations. The City and the undersigned have made no independent investigation of the matters stated herein. The expectations of the City described herein are based upon the provisions of the Loan Agreement and Indenture and upon the representations of the Underwriter and the Company as to the matters contained in their certificates attached hereto. To the best of the City's knowledge, information and belief, the expectations described in this Certificate are reasonable. No facts, estimates, conditions or circumstances that would materially alter the expectations described in this Certificate are known to the City. Nothing has come to the attention of the City which would make unreasonable or incorrect the expectations described herein or the representations of the Underwriter or Company described in their certificates attached hereto. -3- 2.2. The undersigned is an officer of the City responsible for issuing the Bonds. 3. Purpose of Bonds. The Bonds are being issued to provide money to be lent by the City to the Company in order to (i) finance the acquisition of the Facilities, (ii) fund the Reserve Fund, and (iii) pay a portion of the costs of issuance of the Bonds. 4. Issuance of Bonds: Allocation of Sale Proceeds: Issue Price: Yield 4.1. The Bonds have been sold by the City to the Underwriter by the Bond Purchase Agreement. In accordance with the Bond Purchase Agreement the Bonds are being issued on the Closing Date by delivery thereof to the Underwriter for a purchase price calculated as follows: For Principal $ 46,875,000.00 For Accrued Interest 118,548.28 (Less Original Issue Discount) 427,444.45 (Less Underwriter's Discount) 624.787.50 Total purchase price $45,941,316.33 4.2. The Bonds are being issued pursuant to the Indenture. The Indenture establishes the following funds, each to be held by the Trustee: a Bond Fund, a Reserve Fund, an Acquisition and Construction Fund, a Repair and Replacement Fund and a Costs of Issuance Fund. 4.3. On the Closing Date the Trustee will allocate and apply the total purchase price of the Bonds, as shown in Section 4.1 as follows: Acquisition and Construction Fund $42,488,679.30 Bond Fund 118,548.28 Reserve Fund 3.334.088.75 Total $ 45,941,316.33 4.4. The Bonds are a "fixed yield issue," as defined in Section 1.148-1(b) of the Regulations. Accordingly, the Bond Yield on the Bonds will be calculated, as provided in Section 1.148-4(b) of the Regulations, as that discount rate which when used in computing the present value as of the Closing Date of all unconditionally payable payments of principal, interest, and fees paid or reasonably expected to be paid for qualified guarantees on the Bonds, produces an amount which is equal to the present value, using the same discount rate, of the aggregate issue price thereof. The "issue price" of the Bonds is $46,447,555.55, plus accrued interest which is the initial offering price of the Bonds to the public, as evidenced by the Underwriter's Certificate with respect thereto. M,e 5. Use of Funds. 5.1. Bond Fund. The money credited on the Closing Date to the Bond Fund, as described in Section 4.3 will be used, with income earned from the investment thereof, to pay a portion of the interest payable on the Bonds on September 1, 1999. The Company is obligated by the Loan Agreement to make monthly payments to the Trustee, for credit to the Bond Fund, in amounts sufficient to pay the principal of and interest on the Bonds when due. The principal of and interest on the Bonds are payable from the Bond Fund. It is expected that all amounts credited to the Bond Fund will be used to pay interest on the Bonds on or before September 1, 1999. It is expected that all amounts credited to the Bond Fund will be used to pay the interest on and principal of the Bonds within 13 months after the date on which the Trustee receives such amounts. The Bond Fund will be used primarily to achieve a proper matching of revenues and debt service within each Bond Year and will be fully depleted at least once a year on each March 1, except for a reasonable carryover amount which is expected not to exceed the greater of (i) one year's investment income on money in the Bond Fund or (ii) one -twelfth of the annual debt service then payable on the Bonds. The Principal and Interest Accounts will constitute . "bona fide debt service funds" as defined in Section 1.148-1(b) of the Regulations and amounts therein may be invested at yields in excess of the Bond Yield. 5.2. Reserve Fund. The amounts deposited in the Reserve Fund as set forth in Section 4.3 was deemed necessary by the Underwriter in marketing the Bonds and, therefore, are reasonably required. The amount required to be on deposit in the Reserve Fund is the Reserve Requirement, which, with respect to the Bonds, is equal to the lesser of (1) the maximum annual debt service on the Bonds during the then current or any succeeding Bond Year, (2) an amount equal to 10% of the "proceeds" of the Bonds, within the meaning of Section 148(d)(1) of the Code and (3) 125% of the average debt service on the Bonds in any Bond Year during the terms of the Bonds. All income from the investment of amounts in the Reserve Fund will, to the extent the balance therein is equal to the Reserve Requirement, be credited to the Interest Account. The sum of the amounts deposited in the Reserve Fund as set forth in Section 4.3 is equal to the maximum annual debt service on the Bonds and is less than 125% of the average annual debt service on the Bonds. Money on hand in the Reserve Fund is to be transferred by the Trustee to the Bond Fund if on any date on which principal of or interest on the Bonds is due and payable the balance then on hand in the Bond Fund is not sufficient to make such payment in full. If the balance on hand in the Reserve Fund falls below the Reserve Requirement by reason of such a transfer from the Reserve Fund to the Bond Fund the Company is obligated by the Loan Agreement to pay to the Trustee an amount sufficient to restore the balance in the Reserve Fund to the Reserve Requirement. If the balance on hand in the Reserve Fund exceeds the Reserve Requirement the Trustee is to transfer such excess to the Bond Fund; until so transferred such excess shall not be invested at a Yield in excess of the Bond Yield. 5.3. Acguisition and Construction Fund. On the Closing Date a portion of the proceeds of the sale of the Bonds will be credited to the Acquisition and Construction Fund, as described in Section 4.3. Based on the certificate of the Company proceeds from the Bonds in -5- the Construction Fund will be disbursed on the date of issuance of the Bonds to pay costs of acquisition by the Company of the Housing Facility and the Nursing Home Facility, as defined in the Indenture; and the Company does not expect to sell or otherwise dispose of any property acquired with the proceeds of the Bonds before the final maturity of the Bonds, except such portions thereof that may be disposed of in the ordinary course due to normal wear and tear, obsolescence, or depreciation. 5.4. Rebate Fund. As provided in the Indenture, and as described in greater detail in Section 5.08 of the Indenture and Section 8 hereof the Trustee is to credit to the Rebate Fund amounts received from time to time for payment to the United States. The Rebate Fund is not a "trust fund" and does not secure the Bonds. 5.5. Other Funds. The Repair and Replacement Fund is created by the Indenture, and it is not reasonably expected that amounts in such funds will be used or pledged to pay the principal of or interest on the Bonds. The City has not created or established, and does not expect to create or establish, any fund or account, other than as described in this Certificate, reasonably expected to be used or pledged to pay the principal of or interest on the Bonds. 6. Yield on Loan Agreement. 6.1. The Yield on the Loan Agreement is not expected to exceed the Bond Yield by more than of one and one-half percentage point. 6.2. The Loan Agreement is a program investment as defined in Section 1.148-1(b) of the Regulations because: (a) the Company is, and by the Loan Agreement has agreed to maintain its status as, a Section 501(c)(3) Organization; and (b) at least 90% of all amounts received by the City under the Loan Agreement and the Note will be used for one or more of the following purposes: (i) to pay debt service on the Bonds; (ii) to reimburse the City for, or to pay, administrative costs of issuing the Bonds; or (iii) to redeem the Bonds. The Loan Agreement provides that any person from whom the City may acquire obligations under the program shall not pursuant to any arrangement, formal or informal, purchase the Bonds in an amount related to the amount of the obligations to be acquired by the City under the program from such person. 7. General. 7.1. The proceeds of the Bonds, including income from investment, do not exceed the amount necessary for the governmental purposes of the Bonds. 7.2. No portion of the Bonds is issued for the purpose of investing the sale proceeds thereof at a Yield higher than the Bond Yield. 0 7.3. The City does not expect to sell or otherwise transfer any of its interest in or rights under the Loan Agreement other than to the Trustee pursuant to the Indenture. 7.4. No other obligations of the City are being issued at substantially the same time as the Bonds, being sold pursuant to a common plan of financing or marketing, or being paid out of substantially the same source as the Bonds. 8. Arbitrage Rebate. The Company has agreed in the Company Tax Certificate to do all things required or necessary to comply with the rebate requirements of Sections 148(f) of the Code, including a requirement that the Company pay, when due, any Rebatable Arbitrage required to be paid to the United States. Dated: March 17, 1999. -7- CITY OF NEW HOPE, MINNESOTA By 4C)" is City Manager CERTIFICATE OF UNDERWRITER The undersigned officer of Dougherty Summit Securities LLC (the "Underwriter"), which is purchasing the $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (the "Bonds") of the City of New Hope, Minnesota, dated, as originally issued, as of March 1, 1999, hereby certifies that: 1. The funding of the Reserve Fund in an amount equal to the maximum principal and interest to come due on the Bonds in any year beginning on March 2 of a year and ending on March 1 of the following year was deemed necessary by us to market the Bonds. 2. Based upon our records and other information available to us which we have no reason to believe is not correct: (a) All of the Bonds have been the subject of a bona fide initial offering to the public (excluding bond houses, brokers or other persons or organizations acting in the capacity of underwriters or wholesalers) at the respective prices or yields shown on the inside of the cover of the Official Statement relating to the Bonds (the "Official Statement'), plus accrued interest (if any). (b) At the time the Underwriter agreed to purchase the Bonds, based upon the then prevailing market conditions, the Underwriter had no reason to believe that any of the Bonds would be initially sold to the public (excluding bond houses, brokers or other persons or organizations acting in the capacity as underwriters or wholesalers) at prices greater than the respective prices, or yields less than the respective yields, shown on the cover of the Official Statement, plus accrued interest (if any). (c) At least ten percent (10%) of each maturity of the Bonds was sold to the public (excluding bond houses, brokers or other persons or organizations acting in the capacity as underwriters or wholesalers) at the respective prices or yields shown on the cover of the Official Statement, plus accrued interest (if any). 3. We have calculated the yield on the Bonds in accordance with Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), to be not less than 5.880487%, using the initial offering price of the Bonds, including accrued interest to the public, and the methodology contained in Section 4.4 of the City Tax Certificate of the City to which this Certificate is attached. 4. We have calculated the average maturity of the Bonds in accordance with Section 147(b) of the Code to be not greater than 19.46 years. Dated: March 17, 1999. DOUGHERTY SUMMIT SECURITIES LLC -2- MINNESOTA MASONIC HOME NORTH RIDGE COMPANY TAX CERTIFICATE We, the undersigned, do hereby certify and declare that we are on the date hereof the Chairman and President and Chief Executive Officer of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation. We further certify as follows: 1. Definitions. For all purposes of this Certificate the terms used herein with initial letters capitalized have the meaning assigned to such terms in the attached City Tax Certificate, except that the term Certificate when used herein refers to this Company Tax Certificate. 2. City Tax Certificate. We have read the attached City Tax Certificate and believe the statements contained therein are correct in all respects. The Company represents and agrees that the expectations of the City described therein are reasonable, and that, to the best of the knowledge and belief of the Company, no facts, estimates, conditions or circumstances that would materially change such expectations are known to the Company. 3. Letter from Bond Counsel. We have read the attached letter from Bond Counsel, dated March 17, 1999 (the "Bond Counsel Letter") relating to tax matters, and the representations and covenants of the Company in Sections 4 and 5 of this Certificate are made after taking into Account the statements contained in the Bond Counsel Letter. 4. Application of Bond Proceeds. In order to comply with Section 145(a) of the Code, the Company covenants that (i) the costs of the acquisition of the Housing Facility and Nursing Facility to be financed with the proceeds of the Bonds consist of capital costs of such facilities (the facilities to be financed with the proceeds of the Bonds are herein called the "Facilities"), (ii) the Facilities will be owned by the Company (or another Section 501(c)(3) Organization), and (iii) the Facilities will not be used, directly or indirectly, in any activity which constitutes (A) an unrelated trade or business activity of the Company or any other Section 501(c)(3) Organization, determined by applying Section 513(a) of the Code, or (B) a trade or business of a Non -Exempt Person. 5. $150,000,000 Volume Limitation. The Company represents that none of costs of the acquisition of the Facilities to be financed with proceeds of the Bonds were paid or incurred before August 5, 1997; therefore the Bonds are exempt from $150,000,000 Limitation. 6. No Federal Guarantee. The Company covenants that the Bonds will not be "federally guaranteed" within the meaning of Section 149(b) of the Code. For purposes of this Section 6, the Bonds are "federally guaranteed" if: (i) the payment of principal or interest with respect to the Bonds is guaranteed, directly or indirectly; (in whole or in part) by the United States (or any agency or instrumentality thereof), or - (ii) five percent of more of the proceeds of the Bonds are (A) used to make loans the payment of principal or interest with respect to which is to be guaranteed (in whole or in part) by the United States (or any agency of instrumentality hereof) or (B) invested (directly or indirectly) in federally insured deposits or accounts. For purposes of the previous paragraph, the Bonds shall not be treated as "federally guaranteed" by reason of any investment of Bond proceeds (i) during the initial three-year temporary period until such proceeds are needed for the governmental purpose for which the Bonds are being issued, (ii) during the thirteen -month temporary period applicable to bona fide debt service fund investments, (iii) in bonds issued by the United States Treasury and (iv) in any other investments permitted by the Regulations. 7. The Facilities. 7.1. Cost of the Project. The estimated total cost of the acquisition of the Facilities is $43,805,531. The Company will purchase the Facilities on the date of issuance of the Bonds and it is expected that all of the original proceeds of the Bonds, other than the amounts deposited in the Reserve Fund and accrued interest on the Bonds to be deposited in the Bond Fund, will be expended by the Company on or before March 17, 1999. Except as otherwise permitted by Section 1.148-6(d)(3)(ii) of the Regulations relating to de minimis expenditures for certain specified purposes, all of the Net Proceeds of the Bonds will be expended, directly or indirectly, to finance costs of a type that are properly chargeable to a capital account (or would be so chargeable with a proper election) under general federal income tax principles in effect at the time the cost is paid. The Company acknowledges that if Net Proceeds of the Bonds are spent for non -capital purposes other than as permitted by this Section, a like amount of then available funds of the Company will be treated as unspent proceeds of the Bonds and the Company may be in violation of one or more of the tax covenants set forth in Section 7.14 of the Loan Agreement. 7.2. Temporary Period. All of the original proceeds of the Bonds, other than the amounts deposited in the Reserve Fund and accrued interest on the Bonds to be deposited in the Bond Fund, are expected to be spent on March 17, 1999 to pay the purchase price of the Facilities. The total purchase price to be paid by the Company with respect to the Facilities is $43,805,531 and such purchase price is allocated as set forth in Exhibit A hereto. $42,488,679.30 of the purchase price of the Facilities will be paid from Net Proceeds of the Bonds and $1,316,851.70 from funds of the Company. The portion of the purchase price to be paid from Net Proceeds of the Bonds is allocated to the portion of the cost of acquisition of the Facilities as shown on Exhibit A hereto. 7.3. Costs of Issuance. Not more than 2% of the proceeds of the Bonds will be used to pay costs of issuance of the Bonds. -2- - 7.4. Miscellaneous. The proceeds of the Bonds will not be used to replace proceeds of an earlier issue of tax-exempt bonds which were not expended on the project for which such earlier issue was issued, or for substantially the same project as was intended for any such replaced and unexpended proceeds of any such earlier issue; nor will the proceeds of the Bonds be used to replace any other invested moneys. It is not expected that any substantial property acquired with the proceeds of the Bonds will be sold or otherwise disposed of, in whole or in part, before the final maturity date of the Bonds. The Company has not been an obligor with respect to state or municipal obligations issued within 30 days prior to the date hereof which were sold pursuant to a common plan of marketing with the Bonds and the Company does not expect to become an obligor with respect to any such obligations within 30 days after the date hereof. 8. Chanee in Use. The Company acknowledges that notwithstanding the fact that the Facilities will continue to be owned by the Company during the period the Bonds are outstanding, if any portion of the Facilities is used in a trade or business of any Person other than the Company, another Section 501(c)(3) Organization or a Governmental Unit or in an unrelated trade or business of the Company or such other Section 501(c)(3) Organization (the "Private Use Portion"), the Company shall be treated for federal income tax purposes as engaged in an unrelated trade or business as defined in Section 503(a) of the Code with respect to such Private Use Portion for such period and will not be allowed to deduct interest paid on the portion of the Loan used to finance such Private Use Portion. In that event, the amount of gross income attributable to the Private Use Portion for any period will not be less than the fair rental value of the Private Use Portion for such period. The Company also acknowledges that if at any time during the period the Bonds are outstanding, the Facilities are no longer owned by the Company, another Section 501(c)(3) Organization or a Governmental Unit, interest payable on such owner's financing relating to the Facilities which accrues during the period of such ownership will not be deductible for federal income tax purposes by such owner. The tax consequences discussed in this Section 8 are in addition to, and not a substitution for, the potential loss of the federal income tax exemption for interest on the Bonds as a result of the events referred to herein which may constitute a default by the Company in its obligations under Section 4.09 of the Loan Agreement. 9. Maturity Limitation. In order to comply with Section 147(b) of the Code, the Company represents that the average reasonably expected economic life of the Facilities, by types of assets, is as follows: -3- Adjusted Economic Type of Economic Asset Life x Asset Life 1 Cost (2)* Asset Cost (3) Buildings and Improvements 25 $39,712,008 $ 992,800,200 Equipment 5 2,874,500 14,372,500 Land -- 1,657,000 TOTAL $1,006,372,700 (1) The "Economic Life" of an asset is expressed in years and is not less than the longer of (1) reasonably expected economic life of the asset, or (2) the "midpoint life" under the Asset Depreciation Range ("ADR") system, as set forth in Revenue Procedure 77-10, 1977-1 C.B. 548, as modified by Revenue Procedure 83-85, 1983-1 C.B. 745, where applicable, and the "guideline lives" under Revenue Procedure 62-21, 1962-2 C.B. 418, in the case of structures. (2) The term "Asset Cost" refers to the purchase price of the asset to the Company. (3) The product of the Adjusted Economic Life and Asset Cost. The "average reasonably expected economic life" of the Facilities is 23.63 years which is computed by dividing the total product of Adjusted Economic Life and the Asset Cost of the Facilities (other than Land), or $1,006,372,700, by the total Asset Cost for assets, or $42,586,508. For this purpose, the reasonably expected economic life of each asset has been determined as of the later of. (i) the Closing Date, or (ii) the date on which such asset is expected to be placed in service. 10. Prohibited Uses of Bond Proceeds. The Company covenants that none of the Net Proceeds shall be used to provide any airplane, skybox or other private luxury box, any facility primarily used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises. 11. Minor Portion for Bonds. At any time Gross Proceeds of the Bonds do not qualify for investment at a yield in excess of the Bond Yield pursuant to an applicable temporary period, or pursuant to the exception for a reasonably required reserve fund, said gross proceeds (if not held in a refunding escrow) may be invested without yield restriction as part of the "minor portion" as set forth in Section 148(e) of the Code. The "minor portion" of the Bonds is $100,000. 12. Universal Cap. Pursuant to the provisions of Section 1.148-6(b) of the Regulations, for purposes of determining, inter alia, compliance with yield restriction and arbitrage rebate provisions of Section 148 of the Code, amounts that would otherwise be gross proceeds allocable to the Bonds shall be allocated (and remain allocated) to the Bonds only to the 155 extent that the value of the nonpurpose investments allocated to the Bonds does not exceed the value of the outstanding Bonds (i.e., the universal cap). Value shall be determined in accordance with the provisions of Sections 1.148-4(e) and 1.148-5(d), respectively, of the Regulations. For purposes of complying with the universal cap provisions of Section 1.148-6(b) of the Regulations, the City (or the Company on behalf of the City) will compute the amount of the universal cap and the value of the nonpurpose investments on the dates required pursuant to Section 1.148-6(b)(2)(iii) of the Regulations; provided that the universal cap need not be applied on any otherwise required date if its application on that date would not result in a reduction or reallocation of gross proceeds of the Bonds; further provided that since the City and the Company reasonably expect as of the date hereof that the universal cap will not reduce the amount of gross proceeds allocable to the Bonds during the term of the issue, the City and Company need not apply the universal cap on any date the Bonds actually meet the provisions of Section 1.148-6(b)(2)(i) of the Regulations. 13. Miscellaneous. This Certificate is, in part, to serve as a guideline in implementing the requirements of Sections 148 to 150 of the Code. If regulations validly promulgated under the Code contain requirements which differ from those outlined here which must be satisfied for the Bonds to be "qualified 501(c)(3) bonds" (as defined in the Code) or in order to avoid the imposition of penalties under Section 148 of the Code, pursuant to the covenants contained in the Loan Agreement, the Company is obligated to take such steps as are necessary to comply with such requirements. If, under such regulations, compliance with any of the requirements of this Certificate is not necessary to maintain the exclusion from gross income of interest on the Bonds from federal income taxation, the Company shall not be obligated to comply with that requirement. The Company has been advised to seek the advice of Bond Counsel in fulfilling its obligations under the Code to take all steps as are necessary to maintain the status of the Bonds as "qualified 501(c)(3) bonds." 14. Undertakings. 14.1. The Company, by Section 7.14 of the Loan Agreement, has covenanted to comply with the requirements of Section 148 of the Code. The Company covenants that it will consult with nationally recognized bond counsel and undertake to determine from time to time what is required with respect to the rebate provisions contained in Section 148(f) of the Code and will comply with any requirements that may be applicable to the Bonds. The methodology described in this Certificate will be followed, except to the extent inconsistent with any requirements of future regulations or written advice received from bond counsel. 14.2. Detailed records with respect to each and every Nonpurpose Investment attributable to Gross Proceeds of the Bonds must be maintained by the Company and the Trustee, including: (i) purchase date, (ii) purchase price, (iii) information establishing fair market value on the date such investment became a Nonpurpose Investment, (iv) any accrued interest paid, (v) face amount, (vi) coupon rate, (vii) periodicity of interest payments, (viii) disposition price, (ix) any accrued interest received, and (x) disposition date. Such detailed record keeping is required -5- for the calculation of the Rebatable Arbitrage which, in part, will require a determination of the difference between the actual aggregate earnings of all the Nonpurpose Investments and the amount of such earnings assuming a rate of return equal to the Bond Yield. 15. Rebatable Arbitrage Calculation and Payment. 15.1. For purposes of complying with Section 148, the Company will prepare or have prepared a calculation of the Rebatable Arbitrage consistent with the rules described in this Section 16. The Company will provide the Trustee a complete copy of the calculation of the Rebatable Arbitrage within 30 days after each Computation Date. Concurrent with the delivery of such calculations to the Trustee, the Company shall remit to the Trustee, the amount indicated by those calculations the amount of Rebatable Arbitrage. All calculations delivered to the Trustee pursuant hereto shall be accompanied by a written statement of a firm of independent certified public accountants or nationally recognized bond counsel stating that they have reviewed such calculations and believe them to be correct. 15.2. The Company shall direct the Trustee to pay to the United States Department of the Treasury from amounts paid to the Trustee under Section 16.1 hereof (A) not later than 60 days after each Installment Computation Date, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the date of such Installment Computation Date; and (B) not later than 60 days after the Final Computation Date, an amount equal to 100% of the Rebatable Arbitrage calculated as of the Final Computation Date, plus the income attributable thereto. 15.3. Each payment required to be made pursuant to this Certificate shall be filed with the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255, on or before the date such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T. The Trustee shall retain records of the calculations required by this Section 16.3 until 6 years after the Final Computation Date. 15.4. Notwithstanding anything in this Certificate to the contrary, any amount earned during a Bond Year on any bona fide debt service fund for the Bonds and amounts earned on such amounts, if allocated to such bona fide debt service fund, shall not be taken into account in calculating the Rebatable Arbitrage if the gross earnings on such bona fide debt service fund for such Bond Year are less than $100,000. For purposes of the preceding sentence, the term "gross earnings" means the aggregate amount earned on the Nonpurpose Investments in which the Gross Proceeds deposited to the bona fide debt service fund are invested, including amounts earned on such amounts if allocated to the bona fide debt service fund. 16. Filing Requirements. The Company shall file or cause to be filed with the Internal Revenue Service such reports and other documents as may be required from time to time by the Code and the Regulations, in accordance with an opinion of Bond Counsel. M �- 17. Survival of Defeasance. Notwithstanding anything in this Certificate or the Indenture to the contrary, the obligation to remit the Rebatable Arbitrage to the United States Department of the Treasury and to comply with all other requirements contained in this Certificate shall survive the defeasance of the Bonds. Dated: March 17, 1999. MINNESOTA MASONIC HOME NORTH RIDGE i By Its Chairman And ,CeGy rnv G .71 1QA Its President and Chief Execu ive Officer Receipt of the foregoing Company Tax Certificate is hereby acknowledged this 17' day of March, 1999. U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By Its 1 -e de b. MMHNR Asset Allocation of Purchase Price 17 -Mar -99 Assumptions and allocation factors: Purchase price to allocate Assets Purchased: Matt Care Center Building & improvements Equipment Land Apartments Building & improvements Equipment Land Allocated Value $25,061,417 $1,714,270 $908,612 $13,456,797 $804,345 $543,239 $42,488,680 42,488,579.30 EXHIBIT A DORSEY & WHITNEY LLP MINNEAPOLIS PILLSBURY CENTER SOUTH NEW YORK WASHINGTON, D.C. 220 SOUTH SIXTH STREET DENVER LONDON MINNEAPOLIS, MINNESOTA 55402-149$ SEATTLE BRUSSELS TELEPHONE: (612) 340-2600 HONG KONG FAX: (612) 340-2868 FARGO DES MOINES BILLINGS ROCHESTER MISSOULA March 17,1999 COSTA MESA GREAT FALLS Minnesota Masonic Home North Ridge New Hope, Minnesota Ladies and Gentlemen: We are acting as Bond Counsel in connection with the proposed issuance of a series of revenue bonds of the City of New Hope, Minnesota (the "City"), designated as Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999, dated, as originally issued, as of March 1, 1999 (the "Bonds"), the proceeds of which are to be loaned by the City to Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"). In order that we be able to give a legal opinion as to the exclusion of interest on the Bonds from gross income for purposes of federal income taxation it is necessary that the City and the Company make certain representations and covenants. For that purpose we have prepared and submitted to the City for its signature an instrument entitled City Tax Certificate and to the Company for its signature an instrument entitled Company Tax Certificate. We have also provided the Company a copy of the City Tax Certificate, to which the Company Tax Certificate refers and is to be attached. This letter is provided the Company in order to advise it of certain matters necessary to an understanding of the representations and covenants of the Company set forth in Sections 4 and 5 of the Company Tax Certificate. The following paragraphs of this letter should be taken into account by the Company in its review of Sections 4 and 5 of the Company Tax Certificate. Terms used in the following paragraphs without definition have the respective meanings assigned such terms in the City Tax Certificate and incorporated by reference in the Company Tax Certificate. This letter is not intended to incorporate or limit other restrictions or limitations placed on the Company by the Internal Revenue Service in determining that the Company is a tax-exempt organization under Section 501(c)(3) of the Code or otherwise address requirements of the Code that must be observed by the Company in order to maintain such status, or to permit the Bonds to be issued on a tax-exempt basis. Application of Bond Proceeds to Exempt Purposes of Bonds. The Bonds are to be issued as "qualified 501(c)(3) bonds" under the Code. As such it is necessary that all of the property financed with the Net Proceeds of the Bonds be owned by a Section 501(c)(3) DORSEY & WHITNEY LLP Minnesota Masonic Home North Ridge March 17, 1999 Page 2 Organization and that no part of the property financed with Net Proceeds of the Bonds be used, directly or indirectly, in any activity which constitutes (A) an unrelated trade or business of the Section 501(c)(3) Organization, or (B) a trade or business of a Non -Exempt Person. In determining whether all or any portion of the Facilities (as defined in the Company Tax Certificate) is used, directly or indirectly, in the trade or business of a Non -Exempt Person, use of a portion of, or direct or indirect benefit from, the Facilities by a Non -Exempt Person pursuant to a lease, management contract or other arrangement must be examined. A lease, management contract or other arrangement between the Company and a Non -Exempt Person with respect to the Facilities or any portion thereof will not result in the Facilities being used for federal income tax purposes in the trade or business of the Non -Exempt Person (and, accordingly need not be taken into Account for purposes of clause (B) in the previous paragraph) if the guidelines set forth in the Code and the Regulations are met. Currently, those guidelines are set forth in Section 1.141-3(b)(4) of the Regulations and in Revenue Procedure 97-13. In brief, the guidelines are: 1. Compensation and Term. Under the contract (i) the compensation to the Non - Exempt Person must be reasonable and must not be based in whole or in part on net profits, (ii) the service provider must not have any role or relationship that effectively limits, based on the all the facts and circumstances, the Company's rights under the contract, including the right of cancellation, and (iii) the contract must fall within one of the following categories: a. 95% Fixed Fee Contracts. At least 95% of the compensation during each year is based on a periodic fixed fee, and the contract term, including all renewal options, does not exceed the lesser of 15 years or 80% of the reasonably expected useful life of the managed facility. A one-time, fixed incentive payment based on gross revenue or expense targets (both not both) is allowed to be paid to the service provider without affecting the fixed fee payment requirement. b. 80% Fixed Fee Contracts. At least 80% of the compensation during each year is based on a periodic fixed fee, and the contract term, including all renewal options, does not exceed the lesser of 10 years or 80% of the reasonably expected useful life of the managed facility. A one-time, fixed incentive payment based on gross revenue or expense targets (but not both) is allowed to be paid to the service provider without affecting the fixed fee payment requirement. c. Public Utility Property. If the facility is predominantly public utility property, the 15 and 10 year requirements in 1 and 2 above are replaced by 20 years, subject to the 80% useful life constraint. DORSEY & WHITNEY LLP Minnesota Masonic Home North Ridge March 17, 1999 Page 3 d. 50% Fixed Fee or 100% Capitation Fee Contracts. 50% of the compensation during each year is based on a periodic fixed fee, or 100% is based on a capitation (per person) fee, or a combination of the two, and the contract term, including all renewal options, does not exceed 5 years. In addition the contract must be cancellable by the Company on reasonable notice, without penalty or cause, within three years. e. Per -Unit Fee Contracts. 100% of the compensation is based on a per-unit fee (a stated dollar amount payable for each unit of service rendered, such as a stated dollar amount payable for each specified medical procedure performed, or car parked, or mile driven), or a combination of a per-unit fee and a periodic fixed fee, and the contract term, including all renewal options, does not exceed 3 years. In addition, the contract must be cancellable by the Company on reasonable notice, without penalty or cause, within two years. L Percentage of Revenue or Expense Contracts. This category applies only to contracts (i) under which the service provider primarily provides service to third parties (e.g., a radiologist providing services to patients) or (ii) during the start-up phase of a new facility where ongoing annual gross revenues and expenses cannot yet be reasonably estimated. In these limited circumstances, 100% of the compensation may be based on (i) a percentage of fees charged, or a combination of a per-unit fee and a percentage of revenues or expenses, or (ii) a percentage of either gross revenues or expenses. The contract term, including renewal options, cannot exceed 2 years. In addition, the contract must be cancellable by the Company on reasonable notice, without penalty or cause, within one year. 2. No Circumstances Substantially Limiting Exercise of Rights. The Non -Exempt Person must not have any role or relationship with the Company that, in effect, substantially limits the ability of the Company to exercise its rights, including cancellation rights, under the contract, based on all facts and circumstances. This requirement is satisfied if (i) not more than 20 percent of the voting power of the governing body of the Company is vested in the Non - Exempt Person and its directors, officers, shareholders and employees of the Non -Exempt Person; (ii) the overlapping board members do not include the chief executive officers of the Non -Exempt Person or its governing body or the Company or its governing body; and (iii) the Company and the Non -Exempt Person are not related parties (as defined in Section 1.150-1(b) of the Regulations). 3. Certain Types of Contracts Always Result in Private Business Use. The Regulations specifically provide that two types of management or service contracts always result in use in the trade or business of the Non -Exempt Person: (i) a contract that provides for compensation based upon net profits of the Project (but compensation based on a percentage of gross revenues or expenses (but not both), capitalization fees or per unit fees is generally not considered based on DORSEY & WHITNEY LLP Minnesota Masonic Home North Ridge March 17, 1999 Page 4 net profits), and (ii) a contract under which the Non -Exempt Person is considered to be a lessee or owner of the facility for federal income tax purposes. In the event it is anticipated that the Company may be entering into one of the aforementioned types of transactions, it may be advisable to consult Bond Counsel concerning the possible effect that such transaction may have upon the tax-exempt status of interest on the Bonds. $150,000,000 Limitation. Section 145 of the Code provides a general rule that interest on the Bonds will not be excludable from gross income for federal income tax purposes if the aggregate authorized face amount of the Refunding Portion of the Bonds, when increased by all other outstanding nonhospital bonds (the "Outstanding Nonhospital Bonds") of the Company is in excess of $150,000,000 (the "$150,000,000 Limitation"). The Bonds are not subject to this limitation, based on the representation of the Company contained in the Company Tax Certificate to the effect that none of the costs to be financed with proceeds of the Bonds were paid or incurred before August 5, 1997. Very truly yours, Form V U3 V (Rev. March 1995) Department of the Treasury Intemal Revenue Service Information Return for Tax -Exempt Private Activity Bond Issues OMB No. 1545-0720 (Under Internal Revenue Code section 149(e)) ► See separate Instructions. =01 Reporting Authority If Amended Return, check here ► ❑ 1 Issuer's name CITY OF NEW HOPE 2 Issuer's employer identification number 41-6008870 3 Number and street (or P.O. box if mal is not delivered to street address) 4401 XYLON AVENUE NORTH Room/suite 4 Report number PA19 99-1 5 City, town, or post office, state, end ZIP code NEW HOPE MN 55428 6 Date of issue MARCH 17, 1999 7 Name of issue Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 8 CUSIP number 1 645453AN 1 Pate 11 Type of Issue (check applicable box(es) and enter the issue price for each) Issue Price 9 Exempt facility bond: a ❑ Airport (sections 142(a)(1) and 142(c)) ............................................ b ❑ Docks and wharves (sections 142(a)(2) and 142(c)) .................................. c ❑ Mass commuting facilities (sections 142(a)(3) and 142(c)) ............................. d ❑ Water furnishing facilities (sections 142(a)(4) and 142(e)) .............................. e ❑ Sewage facilities (section 142(a)(5)) .............................................. f ❑ Solid waste disposal facilities (section 142(a)(6)) ..................................... g ❑ Qualified residential rental projects (sections 142(a)(7) and 142(d)), as follows: .............. Meeting 20 - 50 test (section 142(d)(1)(A)) ........................ ❑ Meeting 40 - 60 test (section 142(d)(1)(B)) ........................ ❑ Meeting 25 - 60 test (NYC only) (section 142(d)(6)) .................. ❑ Has an election been made for deep rent skewing (section 142(d)(4)(8))? . ❑ Yes ❑ No In ❑ Facilities for the local furnishing of electric energy or gas (sections 142(a)(8) and 142(f))....... 1 ❑ Local district heating or cooling facilities (sections 142(a)(9) and 142(g)) ................... ❑ Qualified hazardous waste facilities (sections 142(a)(10) and 142(h)) ..................... It ❑ High-speed intercity rail facilities (sections 142(a)(11), 142(c), and 142(i)) .................. Check box if the owner elected not to claim depreciation or any tax credit (see instructions) ► ❑ I ❑ Environmental enhancements of hydroelectric generating facilities (sections 142(a)(12) and 1420))..................................................................... m ❑ Facilities allowed under a transitional rule of the Tax Reform Act of 1986 (see instructions) .... Facilitytype................................................................. 1986 Act section............................................................. In ❑ Qualified enterprise zone facility bonds (section 1394) ................................. 10 ❑ Qualified mortgage bond (section 143(a)) .......................................... 11 ❑ Qualified veterans' mortgage bond (section 143(b)) ................................ ► If you elect to rebate arbitrage profits to the United States, check box .................. ❑ 12 ❑ Qualified small issue bond (section 144(a)) (see instructions) ........................ ► For $10 million small issue exemption, check box ................................. ❑ 13 ❑ Qualified student loan bond (section 144(b)) ........................................ 14 ❑ Qualified redevelopment bond (section 144(c)) ...................................... 15 ❑ Qualified hospital bond (section 145(c)) (attach schedule - see instructions) ................55 16 Qualified 501(c)(3) bond other than a qualified hospital bond (attach schedule - see instructions) 17 ❑ Nongovernmental output property bond (treated as private activity bond) (section 141(d)) ...... 18 EJOther. Describe (see instructions) ► 9a 9b 9c 9d 9e 9f 9 9h 9i 9' 9k 91 9m 9n 10 11 12 13 14 16 46 447 55 .55 17 18 Part 111 Description of Bonds (ty I (b) I (c) Maturity date Interest rete 4ssue rice Final maturity . . For Paperwork Reduction Act Notice, see page 1 of the Instructions. ISA STFFED6393F.1 (d) (e) (f) (g) Stated redemption Weighted average VeId Net pace at maturity I maturity interest cost _46,875,000 1 19.46 years I ** %I *** % Form 8038 (Rev. 3-95) **5.880487 ***5.86594 Form 8038 (Rev. 3-95) Page 2 Part IV Uses of Proceeds of Issue (including underwriters' discount) Amount 21 Proceeds used for accrued interest .................................................. 21 118 548.28 22 46 447 555.55 22 Issue price of entire issue (enter amount from line 20, column (c)) .......................... b Buildings and structures.......................................................... 23 Proceeds used for bond issuance costs (including underwriters' discount) .. 23 624, 787.50 24 Proceeds used for credit enhancement ............................ 24 37,957,179.30 c 25 Proceeds allocated to reasonably required reserve or replacement fund ... 25 3,334,088.75 29c 26 Proceeds used to refund prior issues (complete Part VI) ............... 26 d Equipment with recovery period of 5 years or less ....................................... 27 Total (add lines 23 through 26) ..................................................... 27 1 3.958.876.25 28 142,488,679.30 28 Nonrefunding proceeds of the issue (subtract line 27 from line 22 and enter amount here) ........ Part V Description of Property Financed by Nonrefunding Proceeds (Do not complete for qualified student loan bonds, qualified mortqaqe bonds, or qualified veterans' mortaaae bonds.) 29 Type of Property Financed by Nonrefunding Proceeds: I Amount aLand .........................................................................29a 39 Amount of issue subject to the unified state volume cap .................................. 1,657,000.00 b Buildings and structures.......................................................... a Of bonds for governmentally owned solid waste facilities, airports, docks, wharves, environmental 29b 37,957,179.30 c Equipment with recovery period of more than 5 years .................................... 29c 2,874,500.00 d Equipment with recovery period of 5 years or less ....................................... 29d e Other describe................................................................ d Under the exception for current refunding (section 146(1) and section 1313(a) of the Tax Reform 29e 30 Standard industrial classification (SIC) of the projects financed by nonrefundinq proceeds. a I Rns1 1 6 e? Lnn C7'1 'In 1 c 1 1 Part VI Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be refunded .................... ► years 32 Enter the last date on which the refunded bonds will be called ............................... ► 33 Enter the date(s) the refunded bonds were issued ► Part VII Miscellaneous 34 Name of governmental unit(s) approving issue (see instructions) ► City Council of City of New Hope 35 36 37 Enter the amount of the bonds designated by the issuer under section 265(b)(3)(B)(i)(III)........... Check box if you have elected to pay a penalty in lieu of rebate .............................. Check box if you have identified a hedge (see instructions) ................................. ► ❑ ► ❑ Part Vllt Volume Cap Amount 38 Amount of volume cap allocated to the issuer. Attach copy of state certification .............. 38 39 39 Amount of issue subject to the unified state volume cap .................................. 40 Amount of issue not subject to the unified state volume cap or other volume limitations: a Of bonds for governmentally owned solid waste facilities, airports, docks, wharves, environmental enhancements of hydroelectric generating facilities, or high-speed intercity rail facilities .......... 40a 40b b Under a carryforward election. Attach a copy of Form 8328 to this return ..................... 40c c Under transitional rules of the Tax Reform Act of 1986 ................................... Enter the Act section of the applicable transitional rule ............. ► d Under the exception for current refunding (section 146(1) and section 1313(a) of the Tax Reform Act of 1986)................................................................... 40d 41 Amount of issue of qualified 501(c)(3) bonds: a Qualified hospital bonds.......................................................... 41a 14101 46 875 000 b Qualified nonhospital bonds ....................................................... 41 c c Outstanding tax-exempt nonhospital bonds ............................................ 142a 42a Amount of issue of qualified veterans' mortgage bonds ................................... 142b b Enter the state limit on qualified veterans' mortgage bonds ................................ Under penalties of perjury, I declare that I have examined this return, and accompanying schedules and statements, and to the best of my Please g Here knowledge an ell e e tr correct, complete. ' 9 yr—, ' W. Peer Enck signature of officer t Date Mayor March 17 1999 Name of above officer (type or print) Title of officer (type or print) eTF FED6393F.2 DORSEY & WHITNEY LLP r' MINNEAPOLIS PILLSBURY CENTER SOUTH NEW YORK WASHINGTON. D.C. 220 SOUTH SIXTH STREET DENVER LONDON MINNEAPOLIS, MINNESOTA 55402-1493 SEATTLE BRUSSELS TELEPHONE: (612) 340-2600 HONG KONG FAX: (612) 340-2868 FARGO DES MOINES BILLINGS ROCHESTER MISSOULA COSTA MESA JEROME P. GILLIGAN GREAT FALLS (612) 340-2962 FAX (612) 340-2644 gilligan. jerome0dorseylaw. com May 14, 1999 Director Internal Revenue Service Center Ogden, UT 84201 Re: $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 City of New Hope, Minnesota Dear Sir or Madam: Enclosed please find two copies of Form 8038G for the above Bonds filed by the City of New Hope, Minnesota pursuant to Section 149(e) of the Internal Revenue Code of 1986, as amended, referred to above. Please file one (1) copy of the enclosed Form 8038G and acknowledge receipt on the second copy, and return them to the undersigned. Thank you for your cooperation. JPG:cmn Enclosures CERTIFIED MAIL Yours truly, Pom . yGilligain---�— D In O P 154 181 473 US Postal Service Receipt for Certified Mail No Insurance Coverage Provided. Do not use for International Mail /See raversel Sent to it eOW Number C yP, Postage Certified Fee Special Delivery Fee Restricted Delivery Fee 0 Return Receipt Showing to Whom & Date Delivered L Realm Remo SIo Vto Wham, • Date, It Addressee's Address i i TOTAL Postage &Fees Is i Postmark or Date INCUMBENCY CERTIFICATE I, Rita S. Glazebrook, the duly elected, qualified and acting Vice Chairman of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), do hereby certify that: 1. The resolution attached hereto as Exhibit A is a true and complete copy of a resolution duly adopted by the Board of Directors of the Company, at a meeting on March 11, 1999. Such resolution was adopted by the requisite majority vote in accordance with all applicable requirements of law and the Company's organizational documents and By-laws and such resolution is in full force and effect and has not been amended. 2. There has been no amendment, revision or modification to the Articles of Incorporation of the Company attached as Exhibit B hereto since November 4, 1998, the most recent date of certification thereof by the Secretary of State of the State of Minnesota. Also attached hereto as Exhibit C is a true and complete copy of the By-laws of the Company as such By -Laws were in effect on November 4, 1998 and continuously thereafter to and including the date hereof. 3. Attached hereto as Exhibit D is a true and complete copy of the Certificate of Good Standing of the Secretary of State of the State of Minnesota dated March /1, 1999 which is in full force and effect on the date hereof. 4. Attached hereto as Exhibit E is a true and complete copy of a letter from the Internal Revenue Service evidencing the Company's status as an organization described in Section 501(c)(3) of the Internal Revenue Code (the "Code") and as an organization that is not a "private foundation" as defined in Section 509(a) of the Code, and that as of the date hereof, to the best of the Company's knowledge and belief, such letter has not been, and there is no meritorious basis for the letter to be, amended, modified, revoked or repealed; 5. The Company has all necessary federal, state and local licenses and permits except such that are not required as of the date hereof. 6. The following signatures: Thomas Watson Edwin A. Martini, Jr. Chairman President and Chief Executive Officer are those of persons holding the titles opposite their respective signatures and who are duly chosen and acting officers of the Company authorized to execute the Loan Agreement, Mortgage Agreement, Continuing Disclosure Agreement and Bond Purchase Agreement, and such further documents as may be required for the issuance of the City of New Hope, Minnesota Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge), Series 1999 (the "Bonds"). 8. Appendix A to the Official Statement dated March 9, 1999 related to the Bonds, sets forth a true and complete schedule of the officers and directors of the Company on March 9, 1999 and at all times thereafter to and including the date hereof. Witness my hand this 17' day of March, 1999. MINNESOTA MASONIC HOME NORTH RIDGE 4 LI) �d, &44122L Rita S. Glazebrcok, Vice Chairman -2- EXHIBIT A MINNESOTA MASONIC HOME NORTH RIDGE Resolutions enacted at March 11, 1999 meeting Board of Directors WHEREAS, Minnesota Masonic Home ("MMH") entered into an Asset Purchase Agreement dated as of December 2, 1998, as amended on February 15, 1999, and as further amended as of March 17, 1999 (the "Asset Purchase Agreement'), pursuant to which MMH agreed to purchase substantially all of the real property, improvements and operating assets and to assume certain of the liabilities of North Ridge Care Center, Inc. (the "Facilities"); and WHEREAS, MMH has assigned all of its rights and obligations under the Asset Purchase Agreement to this Corporation; and WHEREAS, this Corporation has assumed all of such rights and obligations; and WHEREAS, this Corporation has determined it to be in its best interests to finance the acquisition of the Facilities through the issuance of one or more series of bonds to be issued by the City of New Hope; NOW, THEREFORE, BE IT RESOLVED, that the officers of this Corporation be, and any two of them hereby are, authorized and directed to negotiate the terms and conditions of the following documents in connection with the issuance by the City of New Hope, Minnesota (the "City") of its Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999, in the aggregate principal amount of $46,875,000 (the "Bonds"): (a) Bond Purchase Agreement, to be dated March 4, 1999, from Dougherty Summit Securities LLC, as underwriter thereunder (the "Underwriter") addressed to the City, and accepted, approved and agreed to by the City and this Corporation; (b) Indenture of Trust dated as of March 1, 1999, by and between U.S. Bank Trust National Association (the "Trustee") and the City; (c) Loan Agreement dated as of March 1, 1999, between the City and this Corporation; (d) Mortgage Agreement dated as of March 1, 1999, by this Corporation for the benefit of the City and to be assigned by the City to the Trustee; (e) Regulatory Agreement dated as of March 1, 1999, between this Corporation and the Trustee; (f) Preliminary Official Statement dated February 22, 1999, and the Official Statement to be dated March 1, 1999, relating to the Bonds; and (g) Continuing Disclosure Agreement dated as of March 1, 1999, between this Corporation and the Trustee; (Collectively, all of such documents are referred to herein as the "Bond Documents"); FURTHER RESOLVED, that any two officers of this Corporation be, and such officers hereby are, authorized, empowered and directed to execute, acknowledge, deliver, on behalf of and in the name of this Corporation, all instruments and documents required or appropriate for the consummation of the acquisition transactions contemplated in the Asset Purchase Agreement and any further amendments and supplements thereto in order to accomplish the purchase of the Facilities by this Corporation; and FURTHER RESOLVED, that any two officers of this Corporation be, and such officers hereby are, authorized, empowered and directed to execute, acknowledge, deliver and perform the obligations under, on behalf of and in the name of this Corporation, the Bond Documents and any amendments and supplements thereto and such other loan documents and other agreements, certificates, instruments, amendments and supplements and other documents as are reasonable and necessary in order to accomplish the transactions contemplated in these resolutions and the Bond Documents; and FURTHER RESOLVED, that, when deemed appropriate by legal counsel of this Corporation, one signature of any officer of this Corporation shall be sufficient as an authorized signature, on behalf of and in the name of this Corporation, on such other certificates, instruments, amendments and supplements and other ancillary documents as are reasonable and necessary in order to accomplish the transactions contemplated in these resolutions and the Bond Documents. EXHIBIT B CERTIFICATE OF INCORPORATION I, Joan Anderson Growe, Secretary of Statc of Minnesota, do certify that: Articles of Incorporation, duly signed and acknowledged under oath, have been filed on this date in the Office of the Secretary of State, for the y" incorporation of the following corporation, under and in accordance with the provisions of the chapter of Minnesota Statutes listed below. This corporation is now legally organized under the laws of Minnesota. Laa.. Corporate Name: Minnesota Masonic Home North Ridge Corporate Charter Number: 15-432 Chapter Formed Under:; 317A This certificate has-been issued on 11/04/1998.. i I3t' 15338 1(9o3 ARTICLES OF INCORPORATION OF MINNESOTA MASONIC HOME NORTH RIDGE The undersigned incorporator, being a natural person more than 18 years of age, for the purpose of forming a nonprofit corporation under and pursuant to the provisions of Chapter 317f. of Minnesota Statutes, known as the Minnesota Nonprofit Corporation Act, does hereby adopt the following Articles of Incorporation: ARTICLE I. Name The name of this corporation shall be Minnesota Masonic Home North Ridge. M ARTICLE II. Puruoses and Powers This corporation is organized under the Minnesota Nonprofit Corporation Act' and is organized and shall be operated exclusively for charitable, community welfare, health, educational, and scientific purposes. Within the framework of these purposes, this corporation shall be primarily engaged in the operation, maintenance, improvement, expansion and development of nursing facilities and other, housing, health care and supportive services for the elderly and disabled, and to establish and operate health care and supportive programs and services for the elderly and disabled, serving Freemasons and other elderly and disabled persons in need of such facilities and services. -1- 095"0'5 In furtherance of the foregoing purposes, this corporation shall have all the power and authority to engage in any and all lawful activities that may be reasonably necessary for the accomplishment of any of the; foregoing purposes, and may do and exercise all other powers and authority now or hereafter conferred upon nonprofit corporations under the laws of the State of Minnesota. All such powers of this corporation shall be exercised, all the activities of the corporation shall be conducted, and all funds of this corporation, -whether income or principal and whether acquired by gift or contribution or otherwise, shall be used and 1539 applied, all exclusively in furtherance of one or more of the exempt purposes specified in Section 501(c)(3) of the Internal Revenue Code of 1986, as now enacted or hereafter amended. ARTICLE III. Pecuniary Gain Prohibited This corporation shall in no way, directly or indirectly, incidentally or otherwise, afford pecuniary gain to any of its directors or officers, nor shall any part of the net earnings of this corporation in any way inure to the private benefit of any such director or officer of this corporation or of any other corporation, organization, foundation, fund or institution, or of any other individual within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1986, as now enacted or hereafter amended, except that reasonable compensation may be paid to directors, officers, corporations, organizations, foundations, funds, institutions or other individuals for services rendered to or for this corporation in furtherance of one or more of its purposes and except that individuals may benefit from grants, contributions, or similar payments made for one or more of the exempt purposes specified in Section 501(c)(3) of the Internal Revenue Code of 1986, as now enacted or hereafter amended, in furtherance of the objects and purposes of this corporation. _2_ 1540. ARTICLE IV. Political Activity Prohibited No substantial part of the activities of this corporation shall constitute the carrying on of propaganda or otherwise attempting to influence legislation, and this corporation shall not participate or intervene in any political campaign on behalf of any candidate for public office, nor shall this corporation engage in any transaction or carry on any other activity not permitted to be carried on by a corporation exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code of 1986, as now enacted or hereafter amended. ARTICLE V. Redstered Office The address of the registered office of this corporation is Minnesota Masonic Home, 11500 Masonic Home Drive. Bloomington, Minnesota 55437-3699. / ARTICLE VI. No Members This corporation shall have no members. ARTICLE VII personal Liability There shall be no personal liability whatsoever of any director or officer,past or present, of this corporation for any obligation or liability of this corporation. This limitation of personal liability shall be in accordance with and to the fullest extent provided by Minnesota law as may from time to time be amended.,;, -3- 1541 ARTICLE VIII. Written Actions The Board of Directors may take any action within its authority without holding a meeting if a written action is signed by a majority of all directors then in office. ARTICLE IX Dissolution This corporation may be dissolved in accordance with the laws of the State of Minnesota. Upon dissolution of this corporation, any surplus property remaining after the payment of its debts shall be disposed of by transfer first to Minnesota Masonic Home, if it shall then be exempt from taxation under the provisions of Section 501(c)(3) of the Internal Revenue Code of 1986, as now enacted or hereafter amended, or to one or more corporations, associations, institutions, trusts, community chests, or foundations organized and operated exclusively for one or more purposes most in accord with the purposes of this corporation as may be determined by the majority vote of the Board of Directors of this corporation, and described in Section 501(c)(3) of the Internal Revenue Code of 1986, as now enacted or hereafter amended, or to the State of Minnesota or any political subdivision or agency thereof for exclusively public purposes, in such proportions as the Board of Directors of this corporation shall determine. Notwithstanding any provision herein to the contrary, nothing herein shall be construed to affect the disposition of property and assets held by this corporation upon trust or other condition, or subject to any executory or special limitation, and such property, upon dissolution of this corporation, shall be transferred in accordance with the trust, condition, or limitation imposed with respect to it. 1542_ ARTICLE X i Amendments - These Articles of Incorporation may be amended from time to time by the Board of Directors of this corporation by the two-thirds (2/3) vote of the directors upon twenty (20) days written notice to the directors of this corporation incorporating therein the proposed amendment(s). No such, amendment shall be effective until the same has been approved by the affirmative vote of ten (10) trustees of the Board of Trustees of Minnesota Masonic Home. ARTICLE XI Inc or orator The name and address of the incorporator are: Barbara J. Blumer 4667 parkridge Drive Eagan, MN 55123 IN WITNESS WHEREOF, I have hereunto set my hand this Z n� day of lVyuyn�l�c-�998. MINNESOTA MASONIC HOME NORTH RIDGE STATE OF MINNESOTA DEPARTMENT OF STATE l Jcac G a FILED Barbara J. Blumer/Incorporator NrOV 04 1998 IV rrdv sig. -5- EXHIBIT C 110 MINNESOTA MASONIC HOME NORTH RIDGE I Board of Directors 1.1 Composition. The management and direction of the business of this corporation shall be vested in a Board of Directors consisting of not less than three (3) persons and not more than seven (7) persons, the majority of whom must concurrently serve as members of the Board of Trustees of Minnesota Masonic Home. Such directors shall be elected annually by the Board of Trustees of Minnesota Masonic Home at such time as such Board of Trustees may determine, except that the Grand Master of the Grand Lodge of Ancient Free and Accepted Masons of Minnesota may nominate one person for the consideration of such Board of Trustees. 1.2 Removal and Vacancy. The authority to remove a director and to fill a vacancy on the Board of Directors lies solely with the Board of Trustees of Minnesota Masonic Home. II Meetings of the Board of Directors 2.1 Regular Meetings. Regular meetings of the Board of Directors shall be held at such dates, times and places as the Board may determine. 2.2 Special Meetings. Special meetings of the Board of Directors may be called by the chairman at any time and shall be called by the chairman or vice chairman whenever requested to do so in writing by a majority of the directors. No director may call a special Board meeting unless a majority of the directors so request in writing. 2.3 Notice. At least ten (10) days written notice of the date, time, place, and purpose of all meetings of the Board of Directors shall be given by mail to each director; -1- provided, however, that such notice may be waived by the directors before, at or after a / meeting. Appearance at a meeting shall be deemed a waiver of notice unless it is solely for the purpose of asserting the illegality of the meeting. 2.4 Quorum and Vote. A majority of the directors of this corporation shall constitute a quorum at any meeting. Any action may be taken by the Board of Directors by a majority of those voting, unless otherwise specified in the Articles or Bylaws. There shall be no voting by proxy and there shall be no cumulative voting. III Committees The Board of Directors may act by and through such committees as may be specified in resolutions adopted by the Board of Directors. Each such committee shall have such duties and responsibilities as are granted to it from time to time by the Board of Directors. Each such committee shall at all times be subject to the control and direction of the Board of Directors and shall from time to time present to the Board of Directors such reports as the Board may request. Committee members shall be appointed by the chairman with approval by the Board of Directors. Committee members need not be directors or officers of this corporation. IV Officers 4.1 Composition. The officers of this corporation shall consist of a Chairman, Vice Chairman, President, Secretary, and Treasurer, and such other officers as the Board of Directors may from time to time designate. The officers of this corporation shall have such duties as may from time to time be designated in these Bylaws or by resolution of the Board of Directors, so long as the functions of president and treasurer as provided by law are exercised, however designated by this corporation. Officers shall be elected by the Board of Directors to serve a one (1) year term or until their respective successors are elected and have qualified by acceptance. Officers need not be directors of this corporation and only one or two offices may be held by the same person. IPA 4.2 Removal from Office and Unexpired Term. A officer may be removed from office at any time, with or without cause, by the Board of Directors. A removed director who is also an officer shall also be removed as an officer. If any office becomes vacant by reason of death, resignation, or removal, the Board of Directors may elect a successor who shall hold such office for its unexpired term. 4.3 Required Signatures. The signature of any two officers, if this corporation then has at least two officers, shall be required for execution on behalf of this corporation of all contracts, deeds, conveyances, and other instruments in writing that the Board of Directors may direct or authorize to be so executed for the proper or necessary transaction of the business of this corporation. 4.4 Chairman. The chairman of this corporation, when present, shall preside at all meetings of the Board of Directors. He or she shall see that orders and resolutions of the Board of Directors are carried into effect. He or she shall sign and deliver in the name of this corporation deeds, mortgages, bonds, contracts or other instruments pertaining to the business of this corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated to another officer or agent of this corporation. He or she shall perform such other duties as may be prescribed in these Bylaws or by the Board of Directors. 4.5 Vice Chairman. The vice chairman of this corporation shall perform the duties of the chairman in the case of the chairman's absence or disability. The execution of any instrument by the vice chairman on behalf of this corporation shall have the same force and effect as if it were executed on behalf of the corporation by the chairman. 4.6 President. The president of this corporation shall have general active management of the business of this corporation. He or she shall submit a report as to the conditions and affairs of this corporation at each meeting of the Board of Directors. He or she shall perform such other duties as are prescribed by the Board of Directors or by the chairman. -3- 4.7 Secretary The secretary of this corporation shall maintain the records of and, when necessary, certify proceedings of the Board of Directors. He or she shall give or cause to be given all notices of meetings of the Board of Directors and all other notices required by law or by these Bylaws. He or she shall perform such other duties as are prescribed by the Board of Directors or by the chairman. 4.8 Treasurer. The treasurer shall have custody of all of the funds and securities of this corporation and shall keep accurate financial records for this corporation. When necessary and proper, he or she shall endorse for deposit and deposit notes, checks, and drafts received by this corporation in the name of and to the credit of this corporation in the banks and depositories designated by the Board of Directors as ordered by the Board of Directors, making proper vouchers for the deposit. He or she shall disburse corporate funds and issue checks and drafts in the name of this corporation, as ordered by the Board of Directors. He or she shall, upon request, provide the chairman and the Board of Directors an account of all transactions by the treasurer and this corporation and of the financial condition of this corporation, and the books of this corporation shall at all times be open to inspection by the Board of Directors. He or she shall perform such other duties as are prescribed by the Board of Directors or by the chairman. V Financial Matters 5.1 Compensation. Directors and officers shall serve without compensation, but may be reimbursed for expenses incurred in connection with the conduct of the corporate affairs of this corporation, provided, however, that under special circumstances, with the full knowledge of the Board of Directors of this corporation, payment may be made for services rendered to this corporation by a director or officer. 5.2 Loans. This corporation shall not lend any of its assets to any director, officer, or employee of this corporation or guarantee to any other person the payment of a loan made to a director, officer, or employee of this corporation. El VI Indemnification Each director and officer of this corporation, whether or not then in office, shall be indemnified by this corporation against reasonable expense (including counsel fees) incurred in connection with any action, suit, or proceeding to which the person may be a party by reason of being or having been a director or officer of this corporation. This indemnification shall be in accordance with and to the fullest extent provided by Minnesota law as may from time to time be amended. VII Amendment of Bylaws These Bylaws may be amended from time to time at any regular or special meeting of the Board of Directors by a majority vote of all directors, upon twenty (20) days written notice to the directors of this corporation, which notice shall state the text of the proposed amendments. No such amendments shall be effective until the same has been approved by the affirmative vote of ten (10) trustees of the Board of Trustees of Minnesota Masonic Home. The foregoing Bylaws of Minnesota Masonic Home North Ridge were adopted by the incorporator by written action effective /Vovambw , 1998. Dated: /Voyem baf' `i , 1998. MINNESOTA MASONIC HOME NORTH RIDGE Se etary/Treasurer -5- ate of M i nnesota EXHIBIT D �,� SECRETARY OF STATE Certificate of Good Standing I, Mary Kiffineyer, Secretary of State of Minnesota, do certify that: The corporation listed below is a corporation formed under the laws of Minnesota; that the corporation was formed by the filing of Articles of Incorporation with the Office of the Secretary of State on the date listed below; that the corporation is governed by the chapter of Minnesota Statutes listed below; and that this corporation is authorized to do business as a corporation at the time this certificate is issued. Name: Minnesota Masonic Home North Ridge Date Formed: 11/04/1998 Chapter Governed By: 317A This certificate has been issued on 03/11/99. 3NTL•R11AL REVMM $SRVICE DISTRICT DIRXCTOR P, O, ROX 2506 CINCiVWATI, OR 45201 Date FEB 1 1 10 14IN•NEBOTA KMONIC ROMA C/O DAM A KP -'k" 220 60UTR SIXTi -3- miNNESOTA MASONIC XWE WORTS ASDGF if a return is r%Vi.red, it must be filed by the 16th day month after the cad of yvnr annual aeeounripq period. A penelt 10 charged �h+an a,Yeturn is filed late, unless there is reasons tba aµim,a,, ,p�alty Charged cannot sxeoed ttw delay. )Yowever, S percent of year gross receipts;for 11ie yoar, Whichever s ai organlratioDs with gross urn, =1004 tthhat& ifing reasonable cau oX,000,000 in y! is $100 per day P� zatian with gross receipts ex The maximum prnalty Lor an organi It t,�y also be 91,000,000 shall nlctsxceSdo,$D1 dse,This be surepYYOur stu=n is com return is not roes fila it. i the fifth X $$0 a daY P cause for D,Ood or por r, tri% penalty tho delay. ding arged if a Lte Isidore you You arc nod required alilreturns On',1tcdbusnessinome under section 5'1% of the Code, subject w the tax ou must file an income tax r&4=on•Farm Tf you are eubjeat to this taxi Y ss Y 890-T, :xampt.OrgAPi2ation Businetscome Tax iieturn. Zn tbis� lector we are An dsearminiaa Whether any O! Your present at groPosed activit�iea art unre- lated trade or pusiaesa as defined in Section 513 at the Coda" You are required to +fie your annual return available !orty►�ATO raq jncpeatiou for three Years after tris return 1a due. You are o tWAg doioumonta, make available a copy of your O�Ption application, any ypD and this exemption letter. Failure to maxa those flocymsnts av ilahls;Far public inspection may subject You to a penalty of $20 D6r day Lar each day there is a failure to aomPly Sup to a maximuru of 510.000 in the cries aE an ana"I return). You need an employer identification number even i£ you ha R ieatno tnn�wes. If an employer idantli±icatlan number e u0ofei`Bre9leate us6a�hst nuper on vill assion a nu�ar to you and advise ondsnce watt+ the znteraal aevenue all returns you Fila and in all corras8 Service. If we said in the heading of this letter that an addeadum�APD11ep• the siddendum ancioaoa is an integral, Part of this Uttar. 8acanse this letter could holt us resvlve any questions out YOKr exempt t records. status and Foundation status, you should kOOp it in your D d tae have vont a copy of, this letter to your in your power of attorney. repreaentative�s indicate I 1 . l M%Nn$OTA OU]CC ROPQ "01R" }liAUg will no longer treat You u a publicly supported organisatioAr renter* and contributors may nish tho o rely on lbid dyeotuermi.netion axterldaea ortedlOXgani- r status as a P y xaT awarq of. the notice, To addition, 1f you Sor,croon aation, and a grantor or ooatribdtor was rreessplonsible each state , thah p ace or failure to wet, that reeuxeed in yMe �appotfrely an ant oriordContrilbutornlearned thfrom tj�e pCtweohad given not ce thittyou cc, would be removed from Claagilieation as a yublicly ruthe at or aOr shion, than that parson may not rely on this•datormination as of the data h6 or she acquired such knowledge. if you Change your sources 0i supporc, Your purposes, chur ar :ter, or method ei operation, please let us know so ve can consider the affect StiaQionale on your exempt status and foundation 4a cop. SE you menodaffittula do .t or bylaws, document or bylaws, please send us a copy of the amends Also, let us know all changve In your name or address. Am of Jarkuazy 1, 1994, you are liable. for social security 00 or�t0axes Ondar the Fadaral Sngurto ance eonteibutions Act r nepmounts zYou arenotliaPale re Yorr, th tax each of your emPlayeea during a calends y ?ax ACC t Imposed under the vadaral WeMloymaot fx(nA)• prganizatlons that are not private faundation6 are not sup'iaot to the pri- vats foundation excise taxes undpx Chaptarf42 other federal XUtarA&la�di a t�xog. if However, you are not automatieal y exempt ne ar other fsdar� l taxes, please you have any questions about exeiee, a>rployueg i lee me kner. pOnore DAY deduct Contributions to you as prav svitaa3dtr�eterg ed in Jiox gitte tocn 17D of you. internal Revadue code• gagubgtf legacies, ` os s if they or for your US* are &P-ductlblQ provisions afreect one : 56Aral te2106,and gand 2523atth, cod.. Meat the App 1 rC6946 and Panora may deduct cpxttributions to you only to the extent�tbat heir Contributions are gifts, with no`ioas�ua eip°'ng eevaRtM mwY rip n�assarily similar Paymento in oonjntribut w ndi ob the circumst Hes. gevonua qualify as deductible eontrihutiona, depending los, Wes &uliaq 67^746, published in Cumulative Bulletin 1467-C. �►_ ssion to, or guidelines regarding when WTAYarg may deduct Payments other participation in., fundraising activitiag for Charity. 0 Return of Orvaaiaa ion zxhmpt tram not iced to fila Form 99 , normally 29, 00 or �1esg- SE you are f your gross receipts aaCri year aro y 1 ovided, TnCpma Tive LE y attach the abs Pr you receive a Herat 990 heading in the mail, simply w oee raceipts Ore chaek the box in the heading to indLCwte that Yo�aa u wi11 be treated as normally 525,000 or lege, and alon the return. Be r antisa�advanci> ruling a ublic charity for recuzn filibs Purpoaae during Y°t� advance ruling, period p on should fila perm !90!for each year in you veriod, Y Beed she 826.000 lilifug threshold even if Your aourae of �upP° that you ax uLlic auppo teat apea!£ied in the heaeinP °! tYyla letter. d0 not satisfy the P Ln Ley Ig4S (Do/oa) Sent 4 Krx:araoxA ►sasca�xc xarut.am>xrx uxDSa � 1' if you lave atry guestioM, pleace contact the person rlhoee,{�c qnd teleyhbne number aro chaun in thm heeding of thio! letter. 63ncerely yodrs, i i District Direotor i Bnclosuretsli Por% 871-C i I � I • � I i 1 i ' I u 4/5 15/06 I • i I• II ' i I i Qtr lOg (DO/co) i Sent By: BLUMER; FEB -12-99 FRI 04:31 PM FIB -12-1999 16.36 cgs( uw Co. 72 -Cl Cona•ot Wdnp r Sacrerun! of Limitaflua F•'" Aaseaslment of Talc Undodon 494 Intbrnal Revenue Code 651 454 8225; Feb -14-99 20:18; Page 5(5 LAWCO/MPLS-11th FLOOR FAX N0. 612+376+4734 P. 06/06 FROM IRS MICRO UNIT TO 916123766734 P.06 1'1'13t) ll, 11 9d 1115/81• li!1pu. jloulyll» r i 7- Sq ,bm 10011 .1"tr.wp on M. 1!46-090 T. be we wi* Fom1 I= sO&& b, Awpl� Un6w ..ien 0601(1114) N VA -M"d Ranon� ��. and pgput of a toq" filed Form ton doe the ataedliaden flamed beWw be "'Od 04 a lydblKM wPPoned moaaiuion undw 17(*bK1K4VQ or lwotiery 600(aµ11 durin0 an i,drana rvina P6" Mulk grwuet of MINHtlAOTII >Nt�oNIC (tela,+ NORTH R_ID®8 •_-- -- >w : q.wmla a (Kaci feel iwi: d'wiab•e6� is ice«+ �^�"�'+''d�fA°f'Fj " , wnt adIYr i1SOl 1t>9oNIe NOid l4rx cobba"bpromir P6„, Sh, j ........ 1► ;Gmw*dm r eofwnt and atlas+ lb -1 IM a.ifad fa toosseioo tox fba►e.ed under 66000" &D"0 of thM �odal 0w afy dd,.6 lw In yoon In the adWam mum ealod *0 a *41 a pare. a dendnc ttlld t6 day- boyeUa 0w gild s1 ttw fins pjr.1sdMR to dfo art balsfo'00 peod flowerw, if a notiw of dalldency In wx 10 (Pty t l I)*" Yaaro "pifes, Iho a0 dMsWim m woamoat wrW W be ftgw +ndod by dw hWlw of d *4 atWotnlwn� t< prohibited, ybM Endino date of first to wIM hs I , f Few Ing YP rMtiM �°� lig A ItwOflutt°`, TOTAL P-06 MINNESOTA MASONIC HOME NORTH RIDGE CERTIFICATE OF OFFICERS We, Thomas Watson and Edwin A. Martini, Jr., DO HEREBY CERTIFY AND DECLARE that we are the Chairman and President and Chief Executive Officer, respectively, duly elected or appointed and qualified and acting as such, as of the date hereof, of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), and that: 1. The execution, delivery and due performance of the Loan Agreement, dated as of March 1, 1999 (the "Loan Agreement"), between the Company and the City of New Hope, Minnesota (the "City"), the Mortgage Agreement, dated as of March 1, 1999 (the "Mortgage"), between the Company and the City, the Regulatory Agreement between the Company and U.S. Bank Trust National Association, as trustee (the "Trustee"), the Continuing Disclosure Agreement, dated as of March 1, 1999 (the "Continuing Disclosure Agreement"), between the Company and the Trustee, as dissemination agent, and the Bond Purchase Agreement, dated March 4, 1999 (the `Bond Purchase Agreement"), among the City, Dougherty Summit Securities LLC (the "Underwriter") and the Company, have each been duly authorized by all necessary acts of the Company and have each been signed, acknowledged and delivered on behalf of the Company by its Chairman and/or President and Chief Executive Officer. 2. The representations and warranties of the Company set forth in Section 1.4 of the Loan Agreement and in Section 2 of the Bond Purchase Agreement are true and correct in all material respects as of the date hereof. 3. All obligations of the Company under the Bond Purchase Agreement to be performed at or prior to the delivery of and payment for the City's $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (the "Bonds"), have been performed as of the date hereof. 4. On behalf of the Company, we hereby approve the issuance and delivery of the Bonds and consent to each and every provision of the Indenture of Trust, dated as of March 1, 1999 (the "Indenture"), between the City and the Trustee, under which the Bonds are being issued. 5. There is no litigation pending or, to its knowledge, threatened to restrain or enjoin the transactions contemplated by the Bond Purchase Agreement, the Loan Agreement, the Mortgage, the Continuing Disclosure Agreement or the Official Statement, or questioning the validity thereof, or in any way contesting the corporate existence or powers of the Company. 6. No event has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect as of the date hereof. 7. There has been no change or threatened change in the tax-exempt status of the Company. 8. As of the date hereof, no event has occurred and is continuing which, with the lapse of time or the giving of notice or both, would constitute an Event of Default under the Indenture, or a default or Event of Default under the Loan Agreement or the Mortgage. 9. The undersigned have no knowledge of any defect in the title of the Company to the Land (as defined in the Loan Agreement) of the Company which is not a Permitted Encumbrance (as defined in the Loan Agreement). To the best of the knowledge of the undersigned, the existing easements, encumbrances and restrictions on, and any other defects in title with respect to, the Land do not and shall not materially interfere with, impair the operation of, or materially and adversely affect the value of the Land affected thereby for the purpose for which it was acquired or is held by the Company. IN WITNESS WHEREOF, we have hereunto set our hands this 17th day of March, 1999. MINNESOTA MASONIC HOME NORTH RIDGE Et Its Chairman And fire 6 - Its President and Chief Executiv Officer -2- A � LARSON Rh ALLEN 'I (I' WEISHAIR & CO.,LLP CERTIFIED PU9UC ACCOUNTANTS Minnesota Masonic Home North Ridge New Hope, Minnesota Dougherty Summit Securities, LLC Minneapolis, Minnesota RE: $46,400,000 City of New Hope, Minnesota Housing and Health Care Facilities Revenue Bonds Minnesota Masonic Home North Ridge Project, Series 1999 We hereby consent to the use of our report dated February 12, 1999 on our audit of the financial statements of North Ridge Care Center, Inc. December 31, 1998, 1997 and 1996 appearing in the Preliminary Official Statement pertaining to the above referenced revenue bonds. LARSON, ALLEN, WEISHAIR & CO., LLP Minneapolis, Minnesota February 22, 1999 see CARSON i 0'1 i ALLEN 881081 1111 IS IR & CO.,LLP CERTIFIED PUBLIC ACCOUNTANTS Minnesota Masonic Home North Ridge New Hope, Minnesota Dougherty Summit Securities, LLC Minneapolis, Minnesota RE: $46,8759000 City of New Hope, Minnesota Housing and Health Care Facilities Revenue Bonds Minnesota Masonic Home North Ridge Project, Series 1999 We hereby consent to the use of our report dated February 12, 1999 on our audit of the financial statements of North Ridge Care Center, Inc. December 31, 1998, 1997 and 1996 appearing in the Official Statement pertaining to the above referenced revenue bonds. LARSON, ALLEN, WELSHAIR & CO., LLP Minneapolis, Minnesota March 9, 1999 U.S. BANK TRUST NATIONAL ASSOCIATION INCUMBENCY CERTIFICATE AND RECEIPT OF TRUSTEE w�0I �A ( Q U 1' . t.16 c AcLk (t f , do hereby certify and declare that I am the Y I 41 f /K 3t duly elected, a _ fied and acting as such, as of the date hereof, of U.S. Bank Trust National Association (the "Trustee"), and that: 1. The Trustee is duly organized, validly existing and in good standing as a national banking association under and by virtue of the laws of the United States. 2. The Trustee has duly executed and delivered the Indenture of Trust, dated as of March 1, 1999 (the "Indenture"), between the City of New Hope, Minnesota (the "City"), and the Trustee. The individual signing such document on behalf of the Trustee was on the date of such signing, and is on the date hereof, a duly elected, appointed, qualified and acting officer of the Trustee and is and was authorized to execute and deliver such document in the name and on behalf of the Trustee. 3. Included in Exhibit A is a full, true and complete copy of an extract of the bylaws of the Trustee, currently in full force and effect, setting forth the officers of the Trustee empowered to sign, acknowledge and deliver documents such as the document described in paragraph 2 above. 4. Pursuant to Section 3.05 of the Indenture, the Trustee has authenticated and delivered in the manner provided by the Indenture the City's Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 in the principal amount of $46,875,000, dated, as originally issued, as of March 1, 1999 (the "Bonds"). The Bonds have been authenticated by manual signatures of persons who at the time of affixing their signatures were, and are on the date hereof, representatives of the Trustee duly authorized to authenticate such Bonds in the name and on behalf of the Trustee. 5. The purchase price of the Bonds received upon delivery of the Bonds to Dougherty Summit Securities LLC, as original purchaser thereof, is $45,941,316.33 and the funds received from Minnesota Masonic Home North Ridge is $2,263,148.30. The purchase price of the Bonds and such other funds have been applied as provided in the request of the City delivered to the Trustee pursuant to Section 3.05(d) of the Indenture. 6. The Trustee has all requisite power and authority to enter into the document described in paragraph 2 above, and to carry out its obligations thereunder, and the execution and delivery thereof have been duly authorized by the Trustee. 7. There is no litigation or administrative action pending or threatened to restrain or enjoin the Trustee from acting as Trustee under the Indenture and carrying out all actions required by the terms thereof. IN WITNESS WHEREOF, I have hereunto set my hand in the name and on behalf of the Trustee this 17' day of March, 1999. U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By_ Its -2- U.S. BANK TRUST NATIONAL ASSOCIATION INCUMBENCY CERTIFICATE OF DISSEMINATION AGENT do hereby certify and declare that I am a�Sld� duly elected, qualified and acking as such, as of the date hereof, of U.S. Bank Trust National Association (the "Dissemination Agent'), and that: 1. The Dissemination Agent is duly organized, validly existing and in good standing as a national banking association under and by virtue of the laws of the United States. 2. The Dissemination Agent has duly executed and delivered the Continuing Disclosure Agreement, dated as of March 1, 1999 (the "Continuing Disclosure Agreement'), between Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), and the Dissemination Agent. The individual signing such document on behalf of the Dissemination Agent was on the date of signing, and is on the date hereof, a duly elected, appointed, qualified and acting officer of the Dissemination Agent and is and was authorized to execute and deliver such document in the name and on behalf of the Dissemination Agent. 3. The Dissemination Agent has all requisite power and authority to enter into the document described in paragraph 2 above, and to carry out its obligations thereunder, and the execution and delivery thereof have been duly authorized by the Dissemination Agent. 4. There is no litigation or administrative action pending or threatened to restrain or enjoin the Dissemination Agent from acting as Dissemination Agent under the Continuing Disclosure Agreement and carrying out all actions required by the terms thereof. 5. Attached as Exhibit A is a full, true and complete copy of an extract of the bylaws of the Dissemination Agent, currently in full force and effect, setting forth the officers of the Dissemination Agent empowered to sign, acknowledge and deliver documents such as the document described in paragraph 2 above. IN WITNESS WHEREOF, I have hereunto set my hand in the name and on behalf of the Dissemination Agent this 17th day of March, 1999. U.S. BANK TRUST NATIONAL ASSOCIATION, as Dissemination Agent By Its S l.r.i trr 1\.Alb I am an Assistant Secretary of U.S. Bank Trust National Association and hereby certify that the following is a true and exact extract from the Bylaws of U.S. Bank Trust National Association, formerly known as First Trust National Association, a national banking association organized under the laws of the United States. U.S. BANK TRUST NATIONAL ASSOCIATION BYLAWS, ARTICLE VII Section 7.1 Execution of Instruments. All agreements, checks, drafts, orders, indentures, notes, mortgages, deeds, conveyances, transfers, endorsements, assignments, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, guarantees, proxies and other instruments or documents may be signed, countersigned, executed, acknowledged, endorsed, verified, delivered or accepted on behalf of the Association, whether in a fiduciary capacity or otherwise, by any officer of the Association, or such employee or agent as may be designated from time to time by the board by resolution, or by the Chairman or the President by written instrument, which resolution or instrument shall be certified as in effect by the Secretary or an Assistant Secretary of the Association. The provisions of this section are supplementary to any other provision of the Articles of Association or Bylaws. I further certify that the Corporate Trust Officers listed herein have been duly appointed and have qualified and now hold their respective offices, and are authorized to act under Article VII of the Bylaws of the Association. Alliegro, Jacqueline L., Vice President/Assistant Sec. Allyn, Robert P., Trust Officer Bibeau, Barbara A., Trust Officer Bluhm, David H., Vice PresidentfAssistam Sec. Blume, David S., Assistant Vice President/Assistant Sec. Bye, Yvonne K., Vim President Camp, Mary A., Trust Officer Chalupsky, Diane M., Assistant Vice President/Assistant Sec. Christopherson, Sheryl A., Vice PresideruAssistant Sec. Cramer, Theresa L., Trust Officer/Assistant Sec. Ehrenberg, James A., Senior Vice President/Assistant Sec. Emerson, Jeffrey J, Trust Officer Engcsser, Kathleen P., Via President Fischer, Joanne M., Assistant Via President/Assistant Sec. Fouts, David P., Tmst Officer Fouts, Stephen D., Assistant Via President Fritz, Renee J., Assistant Vice PresidentlAssistant Sec. Fuith, Juhtme A., Assistant Vice President/Assistant Sec. Garsteig, Darlene A., Trust Officer/Assistant Sec. Geist, Joel J, Assistant Vice President/Assistant Sec. Giel, Jason M., Trust Officer/Assistant Sec. Gloppen, Beth A, Vice President Gove, Barbara, Trust Officer Graham, Sharon, Trust Officer Gronlund, Thomas M., Vice President/Assistant Sec. Grotenhuis, Mary M., Trust Officer Hatfield, Christina M, Via President/Assistant Sec. Hill, Daniel M., Assistant Vice President Hinman, Virginia K-, Assistant Via President Howard, Laurie A., Vim President/Assistant Sec. Kandler, Dorie T., Assistant Vice President/Assistant Sec. Kaplan, Eve D., Vice President(Assistant Sec. Kelly, Karen K., Trust Officer/Assistant Sec. Kessler, Gloriann S., Assistant Vice President(Assistant Sec. Much, Barbara L, Assistant Vice President Larsen, Rendena R., Trust Officer Lehmann, Matthew P., Trust Officer Lundberg, LeAnn K., Vim President McGregor, Ivy l., Assistant Vice President McMahon, Sheryl L., Trust Officer/Assistant Sec. Mewaldt, Beth A., Vice President/Assistant Sec. Miller, Kristen K., Trust Officer Mollner, Karen D., Trust Officer Nielsen, James R., Vice President Nordstrom, Donna L., Assistant Vice President Opdahl, Denise L., Trust Officer Pahl, Goldie A., Via President Peron, Donna J., Trust Officer Paulson, Jaymes M., Trust Officer/Assistant Sec. - Pekas, Carolyn A, Trust Officer/Assistant Sec. Perez, Amiando C., Senior Vim President Prokosch, Richard H., Assistant Via President/Assistant Sec. Rentz, Shannon, Trust Officer Raskind, Peter E., Executive Via President Robinette, Christine M., Assistant Via President/Assistant Sec. Rodriguez, Orlando, Tmst Officer Rose, Cynthia, Vice President Rush, Barbara J., Trust Officer Sandell, Timothy J., Via President/Assistant Sec. Schalk, JoAnn M, Vice President/Assistant Sec. Schultz-Fugh, Tamara M, Assistant Vice Presideat/Assistant Sec. Siemers, Jeannette M., Assistant Via President Slaten, Constance J., Trust Officer Spahn, Judy M., Assistant Vim President/Assistant Sec. Sprenger, Mark W, Senior Vim President/Assistant Sec. Steiner, Lynn M, Vice President/Assistant Sec. Stemhagen, Steve D., Trust Officer Strodthof, , Sett, Senior Vice President/Assistant Sec. Thormodsgard, Diane, Senior Via President Thorson, Sandra J, Vice President Waloch, Mary J, Trust Officer/Assistant Sec. Wieder, Pamela J, Vice President ZoOley Donna L, Via President/Assistant Sec. Zuzek, Judith M., Trust Officer/Assistant Sec. Zweifel, Christopher T., Tmst Officer IN WITNESS WHEREOF, I have set my hand this 17th day of January, 1999. (no corporate seal) Diane Chalupsky Assistant Secretary U.S. Bank Trust National Association (rev 11/6/98) CHI/` ';GO TIME INSURANCE C 'lApANY File Number: 2603302 RE: North Ridge Care Center/Your #19252 1. Owner's Policy to be issued: Proposed Insured: SCHEDULE A ""`AMENDED•:. « Effective Date August 4,1998 Amount / cf ? at 7:00 AM 90S,531 RIA-We-SOFO 4ao Nuc �OQI7f Ki/.�E ' (�/N,t1�8c1M Loan Policy to be issued: 1992 LOAN POLICY /i6au'F+% Amount $8 y (,<6 7S 0 oo Proposed Insured: ��`"�� Tamed 2. The estate or interest in the land described or referred to in this Commitment and covered herein is a fee simple and title thereto is at the effective date hereto vested in: .� `a c�z�iiaaaas /UJN 3. The land referred to in the Commitment is described as follows: Lots 1 and 2, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, Hennepin County, Minnesota. Abstract Torrens Certificate Numbers: 629078 and 629077 Vpa .OSS. `ro - i. b, R4 G erFo E2 Note: If there are any questions concerning the content of this commitment, please contact Jack Gibbons at (612) 826-3054. D1W. (5A13 Coe, 'S I— L11✓R�� I Uoi2 L 9\COMA 9/88 .o�a.. CHIS .GO TITLE INSURANCE C ,ApANY File Number. 2603302 SCHEDULE B GENERAL EXCEPTIONS Upon payment of the full consideration to, or for the account of, the grantors or mortgagors, and recording of the deeds and/or mortgages, the form and execution of which is satisfactory to the Company, the policy or policies will be issued containing exceptions in Schedule B thereof to the following matters (unless the same are disposed of to the satisfaction of the Company): 1. If an owner's policy is to be issued, the mortgage encumbrance, if any, created as part of the purchase transaction. 2. Defects, liens, encumbrances, adverse claims or other matters, if any created, first appearing in the public records or attaching subsequent to the effective date hereof but prior to the date the proposed insured acquires for value of record the estate or interest or mortgage thereon covered by this commitment. 3. Rights or claims of parties in possession not shown by the public records. 4. Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises. S. Easements or claims of easements not shown by the public records. 6. Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by public records. 7. Taxes or special assessments which are not shown as existing liens by the public records. 8. General and special taxes and assessments as hereafter listed, if any (all amounts shown being exclusive of interest, penalties, and costs): _ 1 �y9a Baft w $2j2,iJl..r.28. F ..U. /qw;r, -e'/910 Property Identification No. 06-118-21-43-0036. /N ,4:z« Note: There are no delinquent taxes of record. Note: 1st half taxes payable on or before May 15th; 2nd half taxes payable on or before October 15th. rVW . (TAX, 9 � � y�e zoao ,� _ Property Identification No. 06-118-21-43-0037. Note: There are no delinquent taxes of record. (B) vied assessmen on PROJECT -rqtIPRINCIPAL BALANCE DUE 199 tre t $60 $ _ 7 CHIr' AGO TITLE INSURANCE C '"ANY SCHEDULE B - Exceptions Continued File Number: 2603302 1991 Siren , 1998 l —$86,093.39 v vu y // �{yfVJ (A1V WL.rJ,/VV.//• (C) Note: There are no pending assessments of record. C , j �. Rights or claims of tenants in possession under unrecorded leases. /D. We require that standard form of affidavit, or affidavits, be furnished us at closing. �-t Owner's Duplicate Certificate of Title is at the Courthouse as of this date. Note: As of August 1, 1997, Minnesota law requires that all documents being recorded be on paper that measures no larger than 8.5 inches by 14 inches and must be typed in at least 8 -point type. The top of the first page must contain a blank space which is at least three inches wide as measured from the top of the page. Additionally, the title of the document must be prominently displayed at the top of the first page below the blank space. Chicago Title Insurance Company will not be responsible for any loss, damages or costs associated with any delays caused by a party's failure to comply with this legislation. As of Jul 1, 1995 the Social Security or Employers Identification Number of each of the Grantor(s) and Grantee(s) must appear on the Certificate of Real Estate Value. Vr We require Well Disclosure Certificates be completed in typed form prior to closing and `A furnished at time of closing for all deeds which require a Certificate of Real Estate Value OR the deed must contain the following statement: "The seller certifies that the seller does not know of any wells on the described real property." Note: The following is not a part of Schedule B, and is shown for information only. This will not be included on the final policy. Please be advised that the Tax Reform Act of 1986 requires that the following information be provided at closing: A) Seller's Tax Identification Number or Social Security Number. B) Seller's full address after the closing. Mortgage dated November 1, 1995, filed November 28, 1995 as Document No. 6505796 (abstract) and as Document No. 2657105 (torrens) by and between North Ridge Care Center, Inc., a Minnesota corporation, as mortgagor, to Glaser Financial Group, Inc., a Minnesota corporation and/or Secretary of Housing and Urban Development of Washington, D.C., its successors and/or assi , as mortgagees, to secure the original principal sum of $8,363,000.00. (As to Lot 1) CHIS .GO TITLE INSURANCE C MANY File Number: 2603302 SCHEDULE B - Exceptions Continued Regulatory A eement dated November 1, 1995, filed November 28, 1995 as Document No. 6505797bstract) and as Document No. 2657106 (torrensby and between North Ridge Caze Center, Inc., a Minnesota corporation, and Glaser financial Group, Inc., a Minnesota corporation and/or Secretary of Housing and Urban Development of Washington, D.C., its successors and/or assigns. (As to Lot 1) Subject to Notice of Lis Pendens in favor of the City of New Hope now over the East 10 l feet of Boone Ave. No. adjoining above land as set forth in Book 3225 of Mortgages, Page 216, Document No. 3272118 and as shown in recital on the certificate. NOTE: The Company insures that the Notice of Lis Pendens referenced above does not affect the subject property. The Company will not be responsible for any costs associated with any proceedings to remove the recital of the Notice of Lis Pendens from the certificate. 18. Subject to drainage and utility easements as shown on plat and as shown in recital on the certificate. 19. Subject to restrictions, covenants and lien as shown in deed recorded as Document No. 1494994 (torrens) and as Document No. 4762836 (abstract) and as shown in recital on the certificate. Amended by Amendment to Covenants and Restrictions dated December 1, 1986, recorded January 15, 1987 as Document No. 5213116 (abstract), and filed February 9, 1987 as Document No. 1802435. Further amended by Second Amendment to Covenants and Restrictions dated August 1, 1989, recorded December 27, 1989 as Document No. 5610251 (abstract), and filed December 28, 1989 as Document No. 2063367 (torrens). Amended by Third Amendment to Covenants and Restrictions dated November 1, 1995, filed November 28, 1995 as Document No. 6505794 (abstract) and as Document No. 2657104 (torrens). (As to Lot 1) 20. Resolution vacating 55th Avenue North between Boone Avenue and Zealand Avenue North filed and recorded December 21, 1982 as Document No. 1494356 (torrens) and as Document No. 4760992 (abstract). 21. Terms and conditions of Assessment Agreement dated December 1, 1982, filed and recorded January 7, 1983 as Document No. 1496209 (t°�rens) and as Document No. 4763652 (abstract). (flys 'YoAwecIJ t , Atl o pr4e4bFrj gy N'^�--O-F- uRro3-n SSSS Gi J�J-- �ac.Iib -- 22. Terms and conditions of Declaration of Restrictive Covenant for t1re benefit of the City of New Hope dated May 21, 1985, filed and recorded May 21, 1985 as Document No. 1646663 (torrens) and as Document No. 4995815 (abstract). Amended by Amended Declaration of Restrictive Covenants dated December 1, 1986, recorded January 15, 1987 as Document No. 5213117 (abstract), and filed February 9, 1987 as Document No. 1802436(torrens)� rano r=im - - 23. Easement for Construction and Maintenance o Public Improvement in favor of the City of New Hope dated March 13, 1989, filed August 16, 1989 as Document No. 2033116 (torrens). 24. Notice of Completion of Vacation Proceedings dated July 24, 1989, filed and recorded August 17, 1989 as Document No. 2033432 (torrens), and as Document No. 5564411 (abstract). CHIS '.GO TITLE INSURANCE C -"ANY SCHEDULE B - Exceptions Continued File Number: 2603302 25. Terms and conditions of Certificate and Declaration as to Qualified Project Period dated December 31, 1986, recorded January 26, 1987 as Document No. 5217330 (abstract) filed January 24, 1996 as Document No. 2672118 (torrens) and Amended by Amended and Restated Certificate and Declaration as to Qualified Project Period dated November 1, 1995, filed November 28, 1995 as Document No. 6505795 (abstract) and filed January 24, 1996 as Document No. 2672119 (torrens). (As to Lot 1) 26. Subject to the following matters disclosed on the survey dated November 17, 1995 prepared by Sunde Lund Surveying, Inc.: (a) encroachment of concrete steps in the Northeast comer of subject property. (b) encroachment of building into utility and drainage easement filed as Document No. 2033116 (c) encroachment of building into platted drainage and utility easement not vacated by Document No. 2300432 and 5564411. (As to Lot 1) "KI UCC Fixture Financing Statement reciting North Ridge Care Center, Inc., debtor, and Glaser Financial Group, Inc. and/or Secretary of Housing and Urban Development of Washington, D.C., its successors and/or assigns, as secured party, filed as follows: (a) with Hennepin County Recorder's Office on November 28, 1995 as UCC File No. 6505798 (abstract) and Document No. 2658133 (torrens) (As to Lot 1) Regulatory Agreement dated November 29, 1995, filed November 29, 1995 as Document q� No. 6506305 (abstract) and Document No. 2657453 (torrens), between North Ridge Care (J ' Center, Inc. and Glaser Financial Group. (As to Lot 1) Mortgage dated August 28, 1997, filed September 10, 1997 as Document No. 2842156 (torrens), executed by North Ridge Care Center, Inc., a Minnesota corporation, mortgagor to Marquette Bank, National Association, as mortgagee to secure $3,800,000.00. (As to Lot 2) 30. Subject to the following matters shown on a survey by Sunde Land Surveying Inc. dated March 31, 1997: (a) Gazebo encroaches on platted drainage and utility easement on the North side of the property. (b) Building encroaches onto drainage and utility easements created by the plat and by Document No. 2033116 on th North side of the property. (As to Lot 2) �1. Assignment of Leases and Rents dated August 28, 1997, filed September 10, 1997 as // Document No. 2842157 (torrens), executed by North Ridge Care Center, Inc. to Marquette Bank, National Association. (As to Lot 2) END OF SCHEDULE B EXCEPTIONS. NM)Fisa� rz� ylo �s D� 6101yQSs o 07 ASa-rj /G 33.) o � B4672W., 6L1�s�ic ,X)4,-) /*E. CHIC. 30 TITLE INSURANCE C MPANY Attached to and forming a part of Title Insurance Commitment No. 2603302 ENDORSEMENT NUMBER 1 ALTA ENDORSEMENT FORM 3.1- Zoning 1. The Company hereby insures that as of the Date of Policy: (a) According to applicable zoning ordinances and amendments thereto, the land is classified: -] rJe' S (b) The following use or uses are allowed under said classification subject to compliance with any conditions, restrictions or requirements contained in said zoning ordinances and amendments thereto, including but not limited to the secs§ng of necessary consents or authorizations as a prerequisite to such %e or uses: AllGN -6 �N Sifr, K fz5 e 0EvT79L'a 09,4- � �c p j�iSSeLiz a haus /� rixl'm There shall be no liability under this endorsement based on the invalidity of said ordinances and amendments thereto until after a final decree of a court of competent jurisdiction adjudicating such invalidity, the effect of which is to prohibit such use or uses. 2. The Company hereby further ensures against loss or damage arising from a final decree of a court of competent jurisdiction (a) prohibiting the use of the land, with any structure presently located thereon, as specked in paragraph 1(b) above, or, (b) requiring the removal or alteration of said structure on the basis that as of Date of Policy said ordinances and amendments thereto have been violated with respect to any of the following matters: (i) Area, width, or depth of the land as a building site for said structure; (ii) Floor space area of said structure; Endorsement Continued on Next Page This endorsement is made a part of the commitment or policy. It is subject to all the terms of the commitment or policy and prior endorsements. Except as expressly stated on this endorsement, the terms, dates and amount of the commitment or policy and prior endorsements are not changed. 4�- Authorized Signatory NOW This endorsement shall not be valid or binding until countersigned by an authorized signatory. CHICAGO TITLE INSURANCE COMPANY By. ;W nt. ATTEST: Secretary. CONTINUATION File Number: 2603302 ii) Setback of said structure from the property lines of the land; iv) Height of said structure; v) Parking. Loss or damage as the matters insured against by this endorsement shall not include loss or damage sustained or incurred by reason of the refusal of any person to purchase, lease or lend money on the estate or interest covered hereby in the land described in Schedule A. CHIC. 10 TITLE INSURANCE C MPANY Attached to and forming a part of Title Insurance Commitment No. W-03*11W ENDORSEMENT COMMITMENT 3 MORTGAGE REGISTRY TAX ENDORSEMENT The Company insures the Insured against all loss, cost or damage, which the insured shall sustain as a result of a final, nonappealable determination by a court of competent jurisdiction, declaring that the lien of the insured mortgage is unenforceable as a result of failure to pay the appropriate mortgage registration tax in connection with the recording of the insured mortgage. This endorsement is made a part of the commitment or policy. It is subject to all the terms of the commitment or policy and prior endorsements. Except as expressly stated on this endorsement, the terms, dates and amount of the commitment or policy and prior endorsements are not changed. Authorized Signatory Note: This endorsement shall not be valid or binding until vountersigned by an authorized signatory. CHICAGO TITLE INSURANCE COMPANY Hy. President. ATPESi`. CHIC. 370 TITLE INSURANCE C MPANY Attached to and forming a part of Title Insurance Commitment No. E711MDN ENDORSEMENT 2 ENCROACHMENT ENDORSEMENT (ONTO EASEMENTS) The Company hereby insures the Insured against loss or damage which the Insured shall sustain by reason of: the entry of any court order or judgment which constitutes a final determination and denies the right to maintain the existing improvements on the land because of the encroachment or encroachments thereof specifically set forth at exception number (s) 26 and 30 in Schedule B onto the easement or easements located on the land. This endorsement is made a part of the commitment or policy. It is subject to all the terms of the commitment or policy and prior endorsements. Except as expressly stated on this endorsement, the terms, dates and amount of the commitment or policy and prior endorsements are not changed. A Authorized Signatory Note: This endorsement shall not be valid or binding until countersigned by an authorized signatory. CHICAGO TITLE INSURANCE COMPANY P_ res d at. ATI'E * MOM CHIC. 30 MLE INSURANCE C WAVY Attached to and forming a part of Title Insurance Commitment No. ENDORSEMENT COMMITMENT 4 ENCROACHMENT ENDORSEMENT (ONTO ADJOINING LAND) The Company hereby insures the Insured against loss or damage which the Insured shall sustain by reason of: The entry of any court order or judgment which constitutes a final determination and denies the right to maintain the existing improvements on the land because of the encroachment or encroachments thereof specifically set forth at exception number (s) 26 in Schedule B onto adjoining land. This endorsement is made a part of the commitment or policy. It is subject to all the terms of the commitment or policy and prior endorsements. Except as expressly stated on this endorsement, the terms, dates and amount of the commitment or policy and prior endorsements are not changed. Authorized Signatory Note. This endorsement shall not be valid or binding until countersigned by an authorized Signatory. CHICAGO TITLE INSURANCE COMPANY Hy. Q{� President. FN WI W11; Attached to and forming a part of Title Insurance Policy No. 002603302 Issued by CHICAGO TITLE INSURANCE COMPANY The Company insures the owner of the indebtedness secured by the insured mortgage against loss or damage sustained by reason oh 1. Any incorrectness in the assurance that at Date of Policy: (a) There are no covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired. (b) Unless expressly excepted in Schedule B: (1) There are no present violations on the land of any enforceable covenants, conditions or restrictions, nor do any existing impprovements on the land violate any building setback lines shown on a plat of subdivision recorded or filed in the public records. (2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land does not in addition (t) establish an easement on the land; (ii) provide a lien for liquidated damages; (iii) provide for a private charge or assessment; (iv) provide for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant. (3) There is no encroachment of existing improvements located on the land onto adjoining land, nor any encroachment onto the land of existing improvements located on adjoining land. (4) There is no encroachment of existing improvements located on the land onto that portion of the land subject to any easement excepted in Schedule B. (5) There are no notices of violation of covenants, conditions and restrictions relating to environmental protection recorded or filed in the public records. 2• Any future violation on the land of any existing covenants, conditions or restrictions occurring prior to the acquisition of the title to the estate or interest in the land by the insured, provided the violation results in: (a) invalidity, loss of priority, or unenforceability of the lien of the insured mortgage; or (b) loss of title to the estate or interest in the land if the insured shall acquire title in satisfaction of the indebtedness secured by the insured mortgage. 3. Damage to existing improvements, including lawns, shrubbery or trees: (a) which are located in or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved - (b) resultingfrom the future exercise of any right to use the surface of the land for the extraction or development of mineralexcepted from the description of the land or excepted in Schedule B. 4. Any final court order or judgment requiring the removal from any land adjoining the land of any encroachment excepted in Schedule B. 5. Any final court order or judgment denying the right to maintain any existing improvements on the land because of any violation of covenants conditions or restrictions or building setback lines shown on a plat or subdivision recorded or filed in the public records. Wherever in this endorsement the words "covenants, conditions or restrictions" appear, they shall not be deemed to refer to or include the terms, covenants, conditions or limitations contained in an instrument creating a lease. As used in paragraphs 1(b)(1) and (5), the words "covenants, conditions or restrictions" shall not be deemed to refer to or include any covenants, conditions or restrictions relating to environmental protection. This endorsement, when countersigned below by an authorized signatory, is made a part of the policy and is subject to all the terms androvisions thereof and any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any oftheterms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. IN WITNESS WHEREOF CHICAGO TITLE INSURANCE COMPANY has caused this policy to be signed and sealed as of the date of policy shown in Schedule A, the policy to become valid when countersigned by an authorized signatory. Authorized Signatory Note. This endorscmcnt shall not be valid or binding until countcrsigned byan authorized signatory. CHICAGO TITLE INSURANCE COMPANY By. Presi eat. A Secretary. AMENDED ASSESSMENT AGREEMENT THIS AGREEMENT, dated effective as of the % %-At,day of March, 1999, by and between the Housing and Redevelopment Authority in and for the City of New Hope, Minnesota, a public corporation organized under the laws of the State of Minnesota (the "Authority"), and North Ridge Care Center, Inc., a Minnesota corporation (the "Developer"). WITNESSETH THAT: WHEREAS, the Authority and the Developer entered into an Assessment Agreement dated December 1, 1982 (hereinafter the "Assessment Agreement") concerning a redevelopment project designated as New Hope Housing and Redevelopment Authority Project 82-1 (the "Project"), to facilitate the development of land within the Project, legally described as North Ridge Care Center Addition according to the recorded plat thereof, Hennepin County, Minnesota (the "Project Area"); and WHEREAS, a portion of the Project Area pursuant to the Assessment Agreement consisted of existing facilities on the premises described in Exhibit A-3 of the Assessment Agreement namely Lot 2, Block 1, North Ridge Care Center Addition, according to the recorded plat thereof, Hennepin County, Minnesota (hereinafter the 'Existing Facilities"); and WHEREAS, the Assessment Agreement was recorded with the Hennepin County Registrar of Titles Office on January 7, 1983 as Document No. 1496209 on Certificate of Title Nos. 629077 and 629078; and WHEREAS, the Authority and the Developer have fully performed the Assessment Agreement with respect to the Existing Facilities; and WHEREAS, the Developer has requested that the Authority amend the Assessment Agreement to delete that portion of the Project Area consisting of the Existing Facilities from all the covenants, conditions and terms thereof as defined in the Assessment Agreement; and WHEREAS, in accordance with paragraph 5.3 of the Assessment Agreement, the parties hereto may amend the Assessment Agreement or any of its terms by a written amendment authorized and executed by the Authority and the Developer. NOW, THEREFORE, it is hereby agreed between the parties hereto as follows: 1. The Assessment Agreement shall be amended effective the date hereinabove set forth to remove from the definition of the Project Area the Existing Facilities. 2. The Existing Facilities are herewith deleted from all the terms, covenants and conditions of the Assessment Agreement in their entirety and as of the date hereof are no longer subject to the Assessment Agreement. 3. All terms, covenants and conditions of the Assessment Agreement, except as herein amended with respect to the Existing Facilities, shall remain in full force and effect. 4. This Agreement shall inure to the benefit of and shall be binding upon the Authority and the Developer and their respective successors and assigns, and all subsequent owners of the Existing Facilities. 5. The Authority and the Developer will, from time to time, if necessary execute, acknowledge and deliver or cause to be executed, acknowledged or delivered, such supplements hereto and such further instruments as may be reasonably required to correct any inadequate or incorrect description of the property or the Existing Facilities, or for carrying out the expressed intention of this Agreement. 6. This Agreement shall be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 7. This Agreement shall be governed by and constructed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the Authority has caused this Agreement to be executed in its corporate name by its duly authorized officers and sealed with its corporate seal; and the Developer has executed this Agreement as of the date first above written. THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF NEW HOPE, MUJNESQTA. By_ Its Its By X kl�- �-141 Its Executive Director NORTH RIDGE CARE CENTER, INC. By Charles T. Thompson, Its' esident/Chief Executive Officer By 7 M. Melinda Pattee, Its Vice President/Secretary 2 STATE OF MINNESOTA ) ) SS. COUNTY OF HENNEPIN ) An T foregoing if trument was acknowledgedforg me this � day of March, 1999, by Q s�V cJ4 Chairman, it i g -Ir Secretary -Treasurer, and jj ¢ tp, Executive Director of The Housing and Redevelopment Authority in and for the City of New Hope, Minnesota, a Minnesota corporation, on behalf of the corporation. UEN A. SONDRALL STEV! NOTARY PUBLIC -MINNESOTA HENNEPIN COUNTY my commission Enwes Jan. 31.2000 Notary Public m STATE OF MINNESOTA ) ) SS. COUNTY OF HENNEPIN ) The foregoing instrument was acknowledged before me this Ao % y of February, 1999, by Charles T. Thompson and M. Melinda Pattee, the President/Chief Executive Officer and Vice President/Secretary, respectively, of North Ridge Care Center, Inc., a Minnesota corporation, on behalf of the corporation. 4!#'I� Notary Publ} THIS INSTRUMENT WAS DRAFTED BY: JOHN W. GIBBONS • RIL PUBUGSRtNNESOTA Locomen, Nelson, Cole & Stageberg, P.A. WM E*%Jae. 31,2=0 1800 IDS Center (JMG/TFD) ' 80 South 8th Street Minneapolis, MN 55402 (612) 339-8131 S: \S HDATA\ 19252U MG\AMEND-AS.AGT f MINNESOTA MASONIC HOME NORTH RIDGE CERTIFICATE REGARDING INSURANCE I, Edwin A. Martini, Jr., DO HEREBY CERTIFY AND DECLARE that I am the President and Chief Executive Officer, duly qualified and acting as such, as of the date hereof, of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), and, pursuant to that certain Loan Agreement, dated as of March 1, 1999 (the "Loan Agreement"), between the Company and the City of New Hope, Minnesota, DO FURTHER CERTIFY AND DECLARE as follows: 1. I have reviewed Sections 7.9 and 7.10 of the Loan Agreement and the definitions relating thereto. 2. I have reviewed with the Company's insurance agents the insurance coverage presently maintained by the Company and attached hereto are certificates evidencing such coverage. 3. In my opinion, the above-described examination is sufficient to enable us to determine whether or not the Company is in compliance with the requirements of said Sections 7.9 and 7.10. 4. The Company has insurance in force which fully complies with the provisions of said Sections 7.9 and 7.10,as evidenced by the certificates attached hereto. 1999. IN WITNESS WHEREOF, I have hereunto set my hands this 17`s day of March, MINNESOTA MASONIC HOME By Its President and Chief Exec tive Officer ACORD CERTIFICATE OF LIABILITY INSURANCkORTH °03/11/ 9 3 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION PRODUCER ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE Ernest I. Fink Agency, Inc. HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR 1729 Carroll Ave. ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. S' Paul MN 55104 I COMPANIES AFFORDING COVERAGE COMPANY A St. Paul Fire & Marine Ins. Co B,. ce M. Fink Pnone No. 651-646-1881 Fax No.651-643-0527 INSURED COMPANY B State Fund Mutual Minnesota Masonic Home North Ridge COMPANY C Travelers Property & Casualty 5430 Boone Ave. North New Hope MN 55428 COMPANY D COVERAGES THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. CO LTR TYPE OF INSURANCE POLICY NUMBER POLICYEFFECTIVE DATE(MM/DDNY) POLICYEXPIRATION DATE(MM/DD/YY) LIMITS GENERAL LIABILITY GENERALAGGREGATE $3,000,000 A X COMMERCIAL GENERAL UABIUTY NK06600660 01/01/99 01/01/00 PRODUCTS -COMWOP AGG $1,000,000 CLAIMS MADE [X] OCCUR PERSONAL & ADV INJURY $1,000,000 EACH OCCURRENCE $1,000,000 OWNER'S&CONTRACTOR'S PROT A X Prof. Liability FIRE DAMAGE(Any one fire) $100,000 IX Emp Benefits MED EXP (Any one Person) $5,000 A A AUTOMOBILE X LIABILITY ANY AUTO NK06600660 01/01/99 01/01/00 COMBINED SINGLE LIMIT $1,000,000 BODILY INJURY (Per person) $ ALL OWNED AUTOS SCHEDULED AUTOS BOraccid nt) $ (Peraccident) HIRED AUTOS NON-OWNEDAUTOS PROPERTY DAMAGE $ GARAGE LIABILITY AUTO ONLY -EA ACCIDENT $ OTHER THAN AUTO ONLY: ANY AUTO EACH ACCIDENT $ AGGREGATE $ EXCESS LIABILITY EACH OCCURRENCE $ 8 000 000 A IUMBRELLA FORM NK06600660 01/01/99 01/01/00 AGGREGATE $6,000,000 $ OTHER THAN UMBRELLA FORM WORKERS COMPENSATION ANDX EMPLOYERS' LIABILITY TORY WCSTLIMITNkS AOTHER- EL EACH ACCIDENT $ 500 , OOO B THEPROPRIETOR/ X INCL PARTNERS/EXECUTIVE 9564.207 03/17/99 03/17/00 EL DISEASE - POLICY LIMIT $500,000 EL DISEASE - EA EMPLOYEE $5001000 OFFICERS ARE: EXCL OTHER A Emp Dishonesty NK06600660 01/01/99 01/01/00 Limit $500,000 C Res Funds Bond 36S100801969 03/05/99 03/05/00 Limit $100,000 DESCRIPTION OF OPERATIONSA.00ATIONSNEHICLES/SPECIAL ITEMS Covering Premises and Operations at 5430 Boone Ave. No., 8610 54th Ave. No. and 5500 Boone Ave. No., New Hope, MN. CERTIFICATE HOLDER CANCELLATION TOWHOMI SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL U.S. Bank Trust National Assn. Corp Trust Dept. 180 East 5th St. #200 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY St. Paul, MN 55101 OF ANY KIND UPON THE COMP TS AGENTS OR REP S. AUTHORIZED REPRESENTATIV Bruce M. Fink ACORD 25S (1/95) - ACORD CORPORATION 1988 AC- RD EVIDENCE OF PROPERTY INSURANCE OP ID LL DATE(MMIDDIYY) 03/11/99 � THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY. mo xo. en: PRODUCER 651-646-188L651-643-052 COMPANY E ,st I. Fink Agency, Inc. St. Paul Fire & Marine Ins. Co 1719 Carroll Ave. 408 St.Peter Street St. Paul MN 55104 St Paul, MN 55102-1492 Bruce M. Fink CODE: SUB CODE: AGENCY USTOMERID#: NORTH -3 INSURED LOAN NUMBER POLICY NUMBER Minnesota Masonic Home NK06600660 EFFECTIVE DATE EXPIRATION DATE North Rid Ridge 5430 Boone Ave. North 01/01/99 01/Dl/00 CONTINUED UNTIL TERMINATED IF CHECKED New Hope MN 55428 THIS REPLACES PRIOR EVIDENCE DATED: PROPERTY INFORMATION LOCATIONIDESCRIPTION 001 8610 - 54th Ave. No., New Hope, MN 5430 Boone Ave. No. 5500 Boone Ave. No.,, New Hope, MN New Hope, MN 55428 I I I COVERAGE INFORMATION j COVERAGEIPERILS/FORMS AMOUNT OF INSURANCE DEDUCTIBLE Blanket Building & Contents 37,695,373 1,000 Special Cause of Loss - Incl Theft Replacement Cost Agreed Amount T t Enforcement of Bldg Laws 3,500,000 1,000 Blkt Earnings/Extra Expense 19,614,097 Incl. Bldg Laws and 180 Days Ext Per of Indem. Travelers Property Casualty #BMG270X6839 4-25-98 to 4-25-99 Property Damage and BI/EE 37,000,000 1,000 Boiler & Machinery Form REMARKS (Including Special Conditions) CANCELLATION THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE ADDITIONAL INTEREST IDENTIFIED BELOW 30DAYS WRITTEN NOTICE, AND WILL SEND NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW. ADDITIONAL INTEREST NAME AND ADDRESS X MORTGAGEE X ADDITIONAL INSURED X LOSS PAYEE U.S. Bank Trust National Assn LOAN# Corp Trust Dept. 180 East 5th St. #200 AUTHORIZED REPRESENTATIVE St. Paul, MN 55101 I Bruce M. Fink ACUKu " (3/93) .. ACORD CORPORATION 1993 DORSEY & WHITNEY LLP MINNEAPOLIS WASHINGTON, D.C. LONDON BRUSSELS HONG KONG DES MOINES ROCHESTER COSTA MESA City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428 PILLSBURY CENTER SOUTH 220 SOUTH SIXTH STREET MINNEAPOLIS, MINNESOTA $$402-1498 TELEPHONE: (612) 340-2600 FAX: (612) 340-2868 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Re: $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 City of New Hope, Minnesota Ladies and Gentlemen: NEW YORK DENVER SEATTLE FARGO BILLINGS MISSOULA GREAT FALLS We have acted as Bond Counsel in connection with the authorization, issuance and sale by the City of New Hope, Minnesota (the "City"), of its Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999, in the aggregate principal amount of $46,875,000 (the "Bonds"). For the purpose of rendering this opinion, we have examined: (1) a Loan Agreement (the "Loan Agreement'), dated as of March 1, 1999, between the City and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the Company); (2) the Indenture of Trust (the "Indenture"), dated as of March 1, 1999, between the City and U.S. Bank Trust National Association, as trustee (the "Trustee"); (3) the Regulatory Agreement, dated as of March 1, 1999 (the "Regulatory Agreement") between the Company and the Trustee; (4) certified copies of resolutions of the governing body of the City approving and authorizing the execution and delivery of the Loan Agreement, the Indenture, the Bonds and other documents; (5) the form of the Bonds; and (6) such other documents as we consider necessary in order to render this opinion. As to questions of fact material to our opinion, we have assumed the authenticity of and relied upon the certified DORSEY & WHITNEY LLP Page -2- City of New Hope, Minnesota Dougherty Summit Securities LLC proceedings, certificates, affidavits and other documents furnished to us without undertaking to verify the same by independent investigation. From such examination and on the basis of laws, regulations, rulings and decisions in effect on the date hereof, it is our opinion that: (1) The City is a municipal corporation validly existing under the Constitution and laws of the State of Minnesota and is authorized thereby to issue the Bonds and to enter into and carry out the provisions of the Loan Agreement and the Indenture. (2) The Loan Agreement and the Indenture have each been duly and validly authorized, executed and delivered by the City and are valid instruments legally binding on the City and enforceable in accordance with their terms. (3) The Bonds have been duly and validly authorized, executed and delivered by the City and are valid and binding special limited obligations of the City enforceable in accordance with their terms and the terms of the Indenture. (4) The Bonds are not general obligations or an indebtedness of the City within the meaning of any constitutional or statutory limitation, and do not constitute or give rise to a general liability of the City or a charge against its general credit or taxing power, but are payable solely from revenues pledged to the payment thereof and secured by the provisions of the Indenture, under which the payments made by the Company pursuant to the Loan Agreement are to be made to the Trustee for the account of the City and deposited in a special trust account created by the City for that purpose. (5) All interests of the City in the Loan Agreement including amounts payable thereunder to the City by the Company (excepting only the right of the City to payment or reimbursement of legal and administrative costs and to indemnification) have been duly pledged and assigned to the Trustee and a security interest therein granted by the Indenture; provided, however, we express no opinion as to the priority of such pledge, assignment and security interest. (6) The Bonds are "private activity bonds" within the meaning of Section 141 and "qualified 501(c)(3) bonds" within the meaning of Section 145 of the Internal Revenue Code of 1986 (the "Code"). The Bonds bear interest that is not includable in gross income of the owner thereof for federal income tax purposes or in taxable net income of individuals, estates and trusts for Minnesota income tax purposes. Interest on the Bonds is includable in taxable income DORSEY & WHITNEY LLP Page -3- City of New Hope, Minnesota Dougherty Summit Securities LLC of corporations and financial institutions for purposes of the Minnesota franchise tax. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax applicable to all taxpayers or the Minnesota alternative minimum tax applicable to individuals, estates and trusts„ but is includable in "adjusted current earnings" for the purpose of determining the alternative minimum taxable income of corporations for purposes of the federal alternative minimum tax. The Code establishes certain requirements (the "Federal Tax Requirements") that must be met subsequent to the issuance of the Bonds in order that, for federal income tax purposes, interest on the Bonds not be included in gross income. The Federal Tax Requirements include, but are not limited to, requirements relating to the expenditure of Bond proceeds, restrictions on the investment of Bond proceeds prior to expenditure and the requirement that certain earnings on the "gross proceeds" of the Bonds be paid to the federal government. Noncompliance with the Federal Tax Requirements may cause interest on the Bonds to become subject to federal and Minnesota income taxation retroactive to their date of issue, irrespective of the date on which such noncompliance occurs or is ascertained. The Loan Agreement, the Regulatory Agreement and Indenture contain provisions which, if complied with, will satisfy the Federal Tax Requirements. In expressing the opinion in paragraph (6), we have assumed compliance by the Company, the City and the Trustee with the provisions of the Loan Agreement, the Regulatory Agreement and the Indenture. Except as expressly stated in this opinion, we express no opinion as to federal or state tax consequences arising from ownership of the Bonds or receipt of interest thereon. It is to be understood that the rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture and the Loan Agreement may be subject to (i) state and federal laws, rulings, decisions and principles of equity affecting remedies, and (ii) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable. In rendering this opinion we have relied upon the opinion of Orbovich & Gartner Chartered, St. Paul, Minnesota, counsel to the Company, that the Company is an organization described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code, that the Loan Agreement and the Regulatory Agreement have been duly authorized, executed and delivered by the Company, and as to the characterization of the Company's activities in connection with the properties financed from proceeds of the Bonds as activities that do not constitute an unrelated trade or business under Section 513(a) of the Code. DORSEY & WHITNEY LLP Page -4- City of New Hope, Minnesota Dougherty Summit Securities LLC We have also relied upon certifications made by officers of the City and Company, including certifications as to the use of the proceeds of the Bonds, the nature, use, cost and useful life of the facilities financed by the Bonds and other matters material to the tax-exempt status of the interest borne by the Bonds. Dated this 17' day of March, 1999. DORSEY & WHITNEY LLP MINNEAPOLIS PILLSBURY CENTER SOUTH WASHINGTON, D.C. 220 SOUTH SIXTH STREET LONDON MINNEAPOLIS, MINNESOTA 55402-14198 BRUSSELS TELEPHONE: (612) 340-2600 HONG KONG FAX: (612) 340-2868 DES MOINES ROCHESTER COSTA MESA March 17, 1999 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402 Re: $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 City of New Hope, Minnesota Ladies and Gentlemen: NEW YORK DENVER SEATTLE FARGO BILLINGS MISSOULA GREAT FALLS We have heretofore rendered our opinion as Bond Counsel, dated as of March 17, 1999, as to the validity of and certain other matters with respect to the $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999 (hereinafter the "Bonds") of the City of New Hope, Minnesota (hereinafter the "City"). We further advise you, upon the basis of our examination of the documents referred to in the opinion which we have rendered as Bond Counsel as above described (and, as to paragraph 1 below, the Official Statement, dated March 9, 1999, relating to the Bonds), that: 1. The description of the provisions of the Bonds, the Indenture of Trust, dated as of March 1, 1999 (hereinafter the "Indenture"), between the City and U.S. Bank Trust National Association, as trustee (hereinafter the "Trustee"), the Loan Agreement, dated as of March 1, 1999 (hereinafter the "Loan Agreement'), between the City and Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (hereinafter the "Company"), the Mortgage Agreement, dated as of March 1, 1999 (hereinafter the "Mortgage"), between the Company and the City and the Regulatory Agreement, dated as of March 1, 1999 (hereinafter the "Regulatory Agreement'), between the Company and the Trustee, contained in the Official Statement under the headings "Introductory Statement," "The Series 1999 Bonds" and "Security for the Bonds," and in Appendix C to the Official Statement under the headings "Definitions of Certain Terms," "The Loan Agreement," "The Indenture," "The Mortgage" and "The Regulatory Agreement' conform in all material respects to the provisions of the Bonds, the Loan Agreement, the Indenture, the Mortgage and the Regulatory Agreement which are purported to be summarized therein. The statements on the cover page of the Official Statement and in the first paragraph DORSEY & WHITNEY LLP Page -2- Dougherty Summit Securities LLC March 17, 1999 under the heading "Tax Matters" in the Official Statement conform in all material respects to the corresponding portion of our opinion as Bond Counsel which is purported to be summarized. 2. The Bonds are exempt from registration under the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. We hereby consent to the references to us included in the Official Statement. Very truly yours, D/ G� iiz%�Zj / SAMUEL D. ORI3OVICH JUDITH R. GARTNER SUSAN M. SCHAFFER 1! "NOMAS L. SKORCZESKI ORBOVICH & GARTNER CHARTERED Historic Hamm Building - Suite 417 408 St. Peter Street St. Paul, Minnesota 55102-1187 Telephone: (651) 224-5074 Far: (651) 224-4697 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, Minnesota 55402-4115 U.S. Bank Trust National Association Corporate Trust Department 180 East Fifth Street, Suite 200 St. Paul, Minnesota 55101 City of New Hope 4401 Xylon Avenue North New Hope, Minnesota 55428-4898 March 17, 1999 BARBARA J. BLUMER Of Cau I Gray Plant Mooty Mooty & Bennett, PA 3400 City Center 33 South Sixth Street Minneapolis, Minnesota 55402-3796 Dorsey & Whitney LLP 220 South Sixth Street Minneapolis, Minnesota 55402-1498 RE: $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 Ladies and Gentlemen: We have acted as counsel for Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (the "Company"), in connection with the issuance by the City of New Hope, Minnesota (the "Municipality") of its Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999, in the aggregate original principal amount of $46,875,000. This opinion is given pursuant to Section 4(c)(ii) of the Bond Purchase Agreement, dated as of March 4, 1999, between the Company, the Municipality, and Dougherty Summit Securities LLC (the 'Bond Purchase Agreement"). Capitalized terms not otherwise defined in this opinion have the same meanings as in the Bond Purchase Agreement. For the purpose of this opinion, we have examined the original, certified copies or copies otherwise identified to our satisfaction as being true copies of the following: 1. the articles of incorporation and the bylaws of the Company as presently in effect (the "Organizational Documents"); resolutions of the Company with respect to the transactions covered by this opinion; Dougherty Summit Securities LLC U.S. Bank Trust National Association City of New Hope f March 17, 1999 Page 2 Gray Plant Mooty Mooty & Bennett, PA Dorsey & Whitney a letter from the Internal Revenue Service as to the tax-exempt status of the Company; 4. the Loan Agreement dated as of March 1, 1999 (the "Loan Agreement") between the Municipality and the Company, relating to the facilities described therein (the "Facilities "); 5. the Mortgage Agreement, dated as of March 1, 1999, given by the Company to the Municipality and assignment of same to U.S. Bank Trust National Association (the "Trustee"); 6. the Continuing Disclosure Agreement dated as of March 1, 1999, between the Company and the Trustee; the Regulatory Agreement, dated as of March 1, 1999 between the Company and the Trustee; 8. the Preliminary Official Statement dated February 22, 1999, and the final Official Statement dated March 9, 1999, each relating to the Bonds (the "Official Statement"); 9. the Bond Purchase Agreement; 10. The PILOT Agreement dated March 17, 1999 between the Company and the Municipality; and originals or copies of such other documents, records, certificates, opinions and instruments and have made such other investigation as we have deemed relevant and necessary as a basis for the opinion set forth herein (the Loan Agreement, Mortgage Agreement, Bond Purchase Agreement, PILOT Agreement, Continuing Disclosure Agreement and Regulatory Agreement are hereinafter collectively referred to as the "Bond Documents"). As to various matters of fact material to this opinion, we have relied upon factual representations made by the Company in the Bond Documents and upon certificates of officers of the Company or of public officials. We have assumed the genuineness of all signatures and authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies. In examining documents executed by parties other than the Company, we have assumed that such parties have all necessary power to enter into and perform all of their obligations thereunder and have also assumed the due authorization by all requisite action of the execution, delivery and performance of such documents by such parties and that such documents are legal, valid and binding on such parties in accordance with their respective terms. We have also assumed that each natural person executing any Bond Document has the capacity and is legally competent to do so. Dougherty Summit Securities LLC U.S. Bank Trust National Association City of New Hope March 17, 1999 Page 3 Gray Plant Mooty Mooty & Bennett, PA Dorsey & Whitney Our opinions expressed below are limited to the law of the State of Minnesota (excluding its conflict of laws principles) and the substantive law of the United States of America. We express no opinion as to the laws of any other state or jurisdiction. Based on the foregoing, we are of the opinion that as of the date hereof: a. The Company is a duly organized and validly existing nonprofit corporation under the laws of the State of Minnesota. To the best of our knowledge, the Company is conducting its business in material compliance with all applicable and valid laws, rules, regulations and restrictions of the jurisdictions where it owns or leases substantial property or where it transacts material intrastate or interstate business. b. The Company has full power and authority to execute and deliver the Bond Documents and the other documents or certificates executed by the Company and delivered on the Closing Date, as defined in the Bond Purchase Agreement, in connection with the issuance of the Bonds (collectively, the "Company Documents") and to carry out the terms thereof. c. The Company is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), is exempt from federal income tax under Section 501(a) of the Code and the regulations thereunder, and is not a "private foundation" as defined in Section 509(a) of the Code. To the best of our knowledge, after reasonable inquiry, no more than three percent (3%) of the proceeds of the Bonds will be used to pay costs of any portion of the Facilities, as defined in the Bond Purchase Agreement, that will be used (a) in any unrelated trade or business of the Corporation as determined by applying Section 513 of the Code or (b) in any trade or business carried on by any person or entity that is not an "exempt person" within the meaning of Section 103(b)(2) of the Code. d. The Company Documents have been duly and validly authorized, executed and delivered by the Company and, assuming the due execution and delivery by the other parties to such documents, such documents are in full force and effect and are valid and binding instruments of the Company enforceable in accordance with their respective terms. e. The execution, delivery and performance of the Company Documents by the Company will not or conflict with or result in, with the passage of time, with notice or otherwise, a violation of any provision of or in default under the Organizational Documents or, to the best of our knowledge, after appropriate inquiry under the circumstance, any indenture, mortgage, deed of trust, lease, evidence of indebtedness, agreement, instrument, judgment, decree, order, statute, rule, regulation or restriction to which the Company is currently bound or subject, other than any violations and defaults the effect of which would have only an insignificant effect on the financial position or results of operations of the Company and which would have no adverse effect on the transactions contemplated by the Company Documents. Dougherty Summit Securities LLC U.S. Bank Trust National Association City of New Hope March 17, 1999 Page 4 Gray Plant Mooty Mooty & Bennett, PA Dorsey & Whitney f. To the best of our knowledge, no further approval, authorization, consent or other order of any public board or body not heretofore obtained (other than the authorization of the Municipality and the compliance with any applicable securities laws, as to which no opinion is expressed) is legally required for the transactions by the Company contemplated by the Bond Purchase Agreement or the Official Statement. g. To the best of our knowledge, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending or threatened against or affecting the Company, which, if determined adversely to the Company would have a material adverse effect on the transactions contemplated by the Bond Purchase Agreement or performance under the Company Documents. h. To the best of our knowledge, the Company has obtained or is satisfied that immediately upon closing of the Facilities acquisition transaction it will obtain all requisite licenses and approvals of the State and other federal, state, regional and local governmental bodies for the operation of the Facilities as contemplated by the Official Statement, and the Facilities are in compliance with applicable federal state or local zoning, subdivision, environmental, pollution control and building laws, regulations, codes, ordinances and orders. i. To the best of our knowledge, the information contained in the Official Statement regarding the Company and its properties is complete, true and correct. Nothing has come to our attention which leads us to believe that the Official Statement (excluding text under the headings "TAX MATTERS" and "UNDERWRITING" therein, as to which we express no opinion) as of the date thereof or hereof contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that as to financial information and any forecasts contained therein, we have made no investigation and express no opinion. j. To the best of our knowledge, the Company is not in violation of or default under any law, ordinance, regulation, decree, order, agreement or instrument of any nature whatsoever to which it is a party or to which the Company or any of its properties are subject, or to the best of our knowledge, any statute, rule or regulation to which it is subject or by which its property is bound, other than violations or defaults which separately and collectively would have no material adverse effect on the financial condition of the Company, the ability of the Company to perform its obligations under the Company Documents, or the security of the Bonds. The foregoing opinions are subject to the following qualifications: 1. The opinions expressed above are qualified to the extent that the legality, validity or enforceability of any provisions of the Bond Documents or of any rights granted pursuant to any of those agreements or instruments may be subject to and affected by applicable bankruptcy (including Dougherty Summit Securities LLC U.S. Bank Trust National Association City of New Hope March 17, 1999 Page 5 Gray Plant Mooty Mooty & Bennett, PA Dorsey & Whitney but not limited to the avoidance provisions thereof), insolvency, reorganization, fraudulent transfer or conveyance, equitable subordination, moratorium or similar laws affecting the rights of creditors generally. 2. The enforceability of the Company's obligations under the Bond Documents is subject to general principles of equity, including (without limitation) concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether enforceability is considered in a proceeding in equity or at law). 3. Certain remedial and waiver provisions of the Bond Documents may be unenforceable, but the inclusion of such provisions therein does not affect the validity of any such documents as a whole, and such documents contain provisions generally considered adequate for enforcing performance of the Company's obligations thereunder. 4. We express no opinion as to the title to any property or as to the creation, perfection or priority of any security interest or lien. 5. We express no opinion as to the enforceability of any prepayment premium, default rate of interest or late charge provided for under the Bond Documents. We consent to the references to us in the Official Statement. This opinion is furnished only to the addressees and is solely for their benefit in connection with the transactions referred to herein. This opinion may not be relied on by the addressees for any other purpose, or relied on by any other person or entity for any purpose whatsoever, without in each instance our prior written consent; provided that Dorsey & Whitney LLP may rely on this opinion in rendering its opinion as bond counsel with respect to the Bonds. ORBOVICH & GARTNER CHARTERED 1:1y:+Jud�iJth "RGartn 3400 CITY CENTER CONSULTING OFFICE, BEIJING CHINA 33 SOUTH SIXTH STREET MINNEAPOLIS, MN 55402-3796 612 343-2800 FAX: 612 333-0066 WEB SITE: www.gpm1aw.00. March 17, 1999 Dougherty Summit Securities LLC 90 South Seventh Street, Suite 4400 Minneapolis, MN 55402 Re: $46,875,000 City of New Hope, Minnesota Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project) Series 1999 Ladies and Gentlemen: We have acted as your counsel in connection with the issuance of the above -referenced bonds (the "Bonds") and your purchase thereof pursuant to a Bond Purchase Agreement, dated March 4, 1999. Capitalized terms used but not defined herein are used with the same meanings as in the Bond Purchase Agreement. We have reviewed forms of the Indenture, the Agreement, the Mortgage, the Disclosure Agreement and the Regulatory Agreement. We have rendered legal advice and assistance to you concerning the final Official Statement for the Bonds dated March 9, 1999 (including all Appendices thereto, the "Official Statement'). We have generally reviewed and discussed with you, bond counsel and representatives of the Company the information and statements contained in the Official Statement, but we have not independently checked the accuracy or completeness of the same. Based on the foregoing, we advise you that nothing has come to the attention of the lawyers in our firm who have given substantive legal attention to your representation described above which would lead such lawyers to believe that the Official Statement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that we do not express an opinion or belief as to any financial or statistical information contained in the Official Statement. This letter is provided solely for the benefit of and may be relied on only by Dougherty Summit Securities LLC. We hereby consent to the references to us in the Official Statement. GP:567313 vl GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. ATTORNEYS AT CAW r- DOUGHERTY SUMMIT SECURITIES LLC RECEIPT FOR BONDS March 17, 1999 City of New Hope New Hope, Minnesota FTT`1 U.S. Bank Trust National Association, as trustee Ladies and Gentlemen: . The undersigned pursuant to the Bond Purchase Agreement, dated March 4, 1999, between the City of New Hope, Minnesota (the City), Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation and the undersigned, does hereby acknowledge receipt of the City's $46,875,000 Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project), Series 1999, in fully registered form and maturing, bearing interest and otherwise conforming with the provisions of the Indenture of Trust, dated as of March 1, 1999, between the City and U.S. Bank Trust National Association, as Trustee. DOUGHERTY SUMMIT SECURITIES LLC i No. R - INTEREST RATE UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF HENNEPIN CITY OF NEW HOPE Housing and Health Care Facilities Revenue Bond (Minnesota Masonic Home North Ridge Project) Series 1999 MATURITY DATE March 1, REGISTERED HOLDER: CEDE & CO. PRINCIPAL AMOUNT: $ DAE OF r_. ORIGINAL.ISSUE CUSIP Fl: Mar"ch'l, 1999 645453 DOLLARS The City of New Hope, Minnesota, a ality organized and existing under the Constitution and laws of the State of Minnesota (here after called the "City"), for value received, hereby promises to pay to the registered Holder named above, or registered assigns, upon surrender hereof at the principal corporate trusi office of the Trustee named below, from the source and in the manner hereinafter provided, on the Maturity Date specified above, the principal amount specified above and to pay interest thereon from the Date of Original Issue specified above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable on March 1 and September 1 in each year, commencing September 1, 1999, from the source and in the manner hereinafter provided, until such principal amount is paid or duly provided for at the rate per ammm specified above, and at the same rate (to the extent that the payment of such interest shbe legally enforceable) on any overdue installment of interest, all except as the provisions bel with respect to redemption of this Bond may become applicable hereto. Payment of the principal of, premium, if any, and interest on this Bond shall be made in coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts. Interest so payable, and punctually paid or duly provided for, on any Interest Payment Date, will be paid by check or draft to the person in whose name this Bond is registered at the close of business on the fifteenth day (whether or not a business day) of the calendar month immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall be paid by check or draft to the person in whose name this Bond is registered at the close of business on a special record date fixed by the Trustee pursuant to the Indenture hereafter referred to. Notwithstanding any other provisions of this Bond, so long as this Bond is registered in the name of Cede & Co., as nominee of The Depository Trust Company, or in the name of any other nominee of The Depository Trust Company or other securities depository, the Registrar shall pay all principal of and interest on this Bond, and shall give all notices with respect to this Bond, only to Cede & Co. or other nominee in accordance with the operational arrangements of The Depository Trust Company or other securities depository as agreed to by the City. This Bond is one of a duly authorized issue of Bonds of the City designated as "Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home North Ridge Project)" (herein called the "Bonds"), not limited in aggregate principal amount, issued and to be issued in one or more series under, and all secured by, an Indenture of Trust, dated as of March 1, 1999 (herein called the "Indenture"), between the City and U.S. Bank Trust National Association, in St. Paul, Minnesota, as Trustee (herein calledthe "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto, copies of which are on file with the Trustee, reference is hereby made for a description of the nature and extent of the security, the respective rights'thereunder of`the Holders of the Bonds, the Trustee and the City and the terms upon which the Bonds are issued and are to be authenticated and delivered. As provided in the Indenture, the Bonds are issuable in series which may vary as in the Indenture provided or permitted. The Bonds of this series (herein ca' he " s 1999 Bonds" and together with any Additional Bonds issued under the Indenture on arity with the Series 1999 Bonds the "Bonds") are issued by the City in the ag principal sum of $46,875,000 for the purpose of making a loan (herein called the "Loan") f the proceeds thereof to Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (herein called the "Company"), under a Loan Agreement, dated as of March 1, 1999 (herein called the "Loan Agreement"), between the City and the Company, to finance part of the costs i6-be'incurred by the Company in the acquisition within the City of a nursing home facility and an assisted living and multifamily rental facility, designed and intended to be used primarily by elderly persons (the Company's nursing home and assisted living and multifamily rental facility, any improvements thereto and the land upon which they are located, are herein collectively called the "Facilities"). By the Loan Agreement, the Company has agreed to repay the Loan;`tpgether with interest thereon, in amounts and at times sufficient to pay the principal of, premium, if any, and interest on the Bonds as the same shall become due and payable. By a Mortgage Agreement, dated as of March 1, 1999 (herein called the "Mortgage"), the Company has granted to the City, and the City has assigned to the Trustee for the equal and ratable benefit of the Holders of the Bonds, a mortgage lien on substantially all of the real prop comprising tt a Facilities (herein called the "Mortgaged Property"). As provided in th an Agreement and the Mortgage, under certain circumstances, portions of the Mortgaged Prop or undivided interests therein, may be released from the lien of the Mortgage. Reference is hereby made to the Loan Agreement and the Mortgage, copies of which are on file with the Trustee, for a description of the agreements and covenants contained therein and a description of the Mortgaged Property. By the Indenture the City has, for the benefit of the -2- Holders of the Bonds, pledged and granted to the Trustee a security interest in the City's interest in the Loan Agreement (except for certain rights to administrative and legal costs and indemnification). This Bond and the series of which it forms a part are issued pursuant to and in full compliance with the Constitution and laws of the State of Minnesota, particularly Minnesota Statutes, Chapter 462C, as amended, and pursuant to the Indenture. The Bonds are not a general obligation of the City and the taxing power of the City is not pledged to the payment of the Bonds or the interest thereon. The Bonds are limited obligations of the City. Principal of, premium, if any, and interest on the Series 1999 Bonds are payable solely out of the revenues derived from the Loan Agreement (other than to the extent payabout of proceeds of the Bonds, amounts in the Reserve Fund established under the Indenture, the net proceedsof insurance claims or condemnation awards or the disposition of the Mortgaged Pro'perty). The State of Minnesota and the County of Hennepin shall not in any event'be liable for the payment of the principal of, premium, if any, or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoev r,that may be undertaken by the City. Neither the Bonds nor any of the agreements or obligatiof the Cit elating thereto shall be construed to constitute an indebtedness of the State of Minnesota;"the County of Hennepin or the City within the meaning of any constitutional or statutory provisions whatsoever, nor constitute or give rise to a pecuniary liability or be a charge gainst the general credit or taxing powers of the State, County or City. (. All of the Outstanding Bonds are subject to redemption on any interest payment date, in whole but not in part, at the optio e Company, at their principal amount plus accrued interest to the date of redemption if the Fadilities are taken by condemnation, damaged or destroyed to such extent that they cannot be restored within twelve months to a condition permitting conduct of normal operations of the Company and at a cost not exceeding the net proceeds of the condemnation award or insurance.,' In addition, upon a Determination of Taxability (as defined in the Indenture), all Outstanding Bonds are subject to mandatory redemption, in whole but not in part, on the first day for which proper notice of redemption can be given by the Trustee, at their principal amount plus accrued interest to the ddat4f redemption. The SeL 1999 Bonds maturing on and after March 1, 2010, are subject to redemption at the option of the Company, on March 1, 2009, and on any date thereafter, in whole or in part, and if i1�PPart from maturities specified by the Company, and by lot as to Series 1999 Bonds having t �7same rity date at the Redemption Prices, expressed as a percentage of the principal amou oQ,es 9 Bonds to be so redeemed, set forth below, together with interest accrued on the ,nt to be redeemed to the Redemption Date: -3- C Redemption Dates Redemption Prices March 1, 2009 through February 28, 2010 102% March 1, 2010 through February 28, 2011 101% March 1, 2011 and thereafter 100% The Series 1999 Bonds having a stated maturity of March lin the years 2015, 2019 and 2029, shall be redeemed through operation of mandatory sinking fund installments provided in the Indenture on March 1, in the years and in the principal amounts set forth in the Indenture at a Redemption Price equal to their principal amount and accrued interest. Notice of redemption shall be published, if required by applicable law, and mailed at least thirty days before the redemption date to each Holder of Bonds to be redeemed; but no defect in or failure to give such notice of redemption shall affect the validity of proceedings for redemption of any Bond not affected thereby. All Bonds so called for redemption will cease to bear interest on the specified redemption date, provided �unds for their redemption have been duly deposited, and, except for the purpose of payment, shall no longer be protected by the Indenture and shall not be deemed Outstanding under the provisio'ns,of the Indenture. It is provided in the Indenture that Bonds of a denomination larger than $5,000 may be redeemed in part ($5,000 or an integral multiple thereof) and that upon a partial redemption of any such Bond the same shall be surrendered in exchange for one or more new Bonds in authorized form for the unredeemed portion' -of principal. If provision is made for th`� paymenteof principal of, premium, if any, and interest on this Bond in accordance with the Indenture, this Bond shall no longer be deemed Outstanding under the Indenture, shall cease to be entitled to the benefits of the Indenture, the Loan Agreement and the Mortgage, and all thereafter be payable solely from the funds provided for such payment. If an Event of I (ault, as defined in the Indenture, shall occur, the principal of all the Bonds may be declared ue and payable in the manner and with the effect provided in the Indenture. The In enture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the City and the rights of the Holders of theEBonds at anyone with the consent of the Holders of at least twenty-five percent (25%) it aggregate principal amount of the Bonds at the time Outstanding which are affected by such amendment or modification. The Indenture also contains provisions permitting Holders of twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding, on behalf of all the Holders of all the Bonds, to waive compliance by the City with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be conclusive and ra binding upon such Holder and on all future Holders of this Bond and of any Bond issued in lieu hereof whether or not notation of such consent or waiver is made upon this Bond. The Holder of this Bond shall have no right to enforce the provisions of the Indenture, the Loan Agreement or the Mortgage, to institute action to enforce the covenants therein, to take any action with respect to a default under the Indenture or to institute, appear in or defend any suit or other proceeding with respect thereto, except as proven'd in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, this Bond is transferable on the Bond Register upon surrender of this Bond for transfer to the Trustee duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Bonds of the same series, of authorized denominations, for the same aggregate principal amount and of the same Stated Maturity and interest rate will be issued to the designated transferee or transferees. The Bonds are issuable only in registered form without coupons in the denomination of $5,000 or any integral multiple thereof. No service charge shall be made for any transfer or exchange hereinbefore referred to, but the City may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The City, the Trustee andent of the City may treat the person in whose name this Bond is registered as the abso e owner hereof for all purposes whether or not this Bond is overdue, and neither the City, t Trustee no;,any such agent shall be affected by notice to the contrary. It is hereby certified and recited that all conditions, acts and things required to exist, happen and be performed'precedent to or in the issuance of this Bond and the issue of which it is a part, do exist, have happened and have been performed in regular and due form as required by law; and that the opinion attached hereto is a true copy of the legal opinion by Bond Counsel with reference to the Series 1999 Bonds. Unless certificate of authentication hereon has been executed by the Trustee by manual signature, this Bond shall not be entitled to any benefit under the Indenture or be valid or obligatory for urpose. -5- IN WITNESS WHEREOF, the City has caused this Bond to be duly executed by its duly authorized officers. Dated: City Manager CITY OF NEW HOPE, MINNESOTA Mayor 3N This is one of the Bonds of the series design ed therein referred to in the within - mentioned Indenture. U.S. BANK TRUST NATIONAL IM ASSOCIATION, as Trustee Authorized Representative ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to the applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF TRANS MIN ACT....... Custodian ......... (Cust) , (Minor) Under Uniform Transfers to Minors Act........ . (State) Additional abbreviations may also be used although not in the above list. ASSIGNMENT � FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto 'the within Bond and does hereby irrevocably constitute and appoint attorney, to,transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: t e PLEASE INSERT SOCIAL SECA&I OR OTHER IDENTIFYING NUAM OF ASSIGNEE 041% CO NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever. Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements include membership or participation in STAMP or such other "signature guaranty program" as may be determined by the Trustee in addition to or in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. -7- AGREEMENT WITH RESPECT TO LOTS 1 AND 2, BLOCK 1 NORTH RIDGE CARE CENTER ADDITION This Agreement is made effective as of the 17`h day of March, 1999 by and among the City of New Hope, a Minnesota municipal corporation (hereafter "City"), the Housing and Redevelopment Authority in and for the City ("HRA"), Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (hereafter Owner"), and North Ridge Care Center, Inc., a Minnesota corporation (hereinafter "North Ridge"). RECITALS Whereas, Owner is the fee owner of the following described real estate located in the County of Hennepin, State of Minnesota (hereafter the "Property'): Lots 1 and 2, Block 1 North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, Minnesota, and Whereas, North Ridge, Owner's predecessor in title to said Property, executed and delivered to the City a Declaration of Restrictive Covenants dated May 21, 1985 filed for record in the office of the County Recorder as Document No. 4995815 and in the office of the Registrar of Titles as Document No. 1646663. Said Declaration of Restrictive Covenants was amended by North Ridge through the execution and delivery of an Amended Declaration of Restrictive Covenants dated December 1, 1986 which was filed for record in the office of the County Recorder, Hennepin County, Minnesota as Document No. 5213117 and in the office of the Registrar of Titles as Document No. 1802436, ("Amended Declaration"), and Whereas, said Amended Declaration provides that the Property shall be owned, used, sold, conveyed, encumbered, demised and occupied subject to the provisions of said Amended Declaration, which provisions run with the Property and are binding on all parties having any right, title or interest in the Property or any part thereof and their heirs, successors and assigns, and shall inure solely to the benefit of the City, and Whereas, said Amended Declaration requires the Property to remain subject to real estate taxes for a period of 50 years ending on December 1, 2036 regardless of the ownership or use of the Property, and prohibits the Property from being used for certain designated purposes unless such use will not result in the Property being exempt from real estate taxation, and Whereas, the Redevelopment Agreement (Redevelopment Plan, Project and Tax Increment Plan 82-1) dated December 1, 1982 ("Redevelopment Agreement") by and among North Ridge and the HRA and the City and Charles P. Thompson and Mary J. Thompson provides in Section 4.07 for an HRA Lien payable at the HRA Lien Maturity as each term is defined in the Redevelopment Agreement, and Whereas, Charles P. Thompson and James J. Pattee entered into the Consent to Stock Sale or Transfer Restrictions North Ridge Care Center, Inc. dated December 1, 1982 ("Consent") as contemplated in Section 4.099 of the Redevelopment Agreement, and Whereas, North Ridge, the City and the HRA agree that the amount of the HRA Lien is equal to $585,000.00, and Whereas, Owner and North Ridge have requested the City to immediately release Lot 2, Block 1 North Ridge Care Center Addition from all provisions of the Amended Declaration for Lot 2, Block 1, and to release Lot 1, Block 1 North Ridge Care Center Addition from all provisions of the Amended Declaration as of December 31, 2008, permitting Owner to make application for tax-exempt status relating to payment of real estate taxes with respect to the Property at appropriate times, and Whereas, Owner has also requested the City to participate in the issuance of a new series of revenue bonds under Minnesota Statutes, Chapter 462C in the approximate amount of $46,875,000 designated as Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Homes - North Ridge Project), Series 1999, and Whereas, contemporaneously with the execution and delivery of this Agreement, the City and the Owner have executed a PILOT Agreement applicable to Lots 1 and 2, North Ridge Care Center Addition, and Whereas, North Ridge has requested the HRA to resolve the matter of the payment of the HRA Lien in connection with the transactions relating to the Property, and Whereas, the City and the HRA are willing to comply with the requests of Owner and North Ridge in consideration of said execution of the PILOT agreement and in consideration of the other terms and conditions of this Agreement, NOW THEREFORE, in consideration of the mutual terms and conditions stated herein, the parties agree as follows: Contemporaneously with the execution and delivery of this Agreement, Owner and North Ridge, have caused to be made, and the City hereby acknowledges receipt thereof, a cash payment to the City in the amount of $2,955,311. This payment represents (a) the present value of the City's TIF district and base tax revenue stream from real estate taxes through December 31, 2008 resulting from Lot 2, Block 1 North Ridge Care Center Addition and (b) reimbursement to the City for loss of bank qualification on the City's anticipated 1999 General Obligation Bonds resulting from the $46,875,000 bond issue. 2. Contemporaneously with the execution and delivery of this Agreement, Owner and North Ridge have caused to be made, and the HRA hereby acknowledges receipt thereof, a cash payment to the HRA in the amount of $585,000.00. This payment represents satisfaction of the HRA Lien for interest rate reduction payments made to North Ridge. 3. Contemporaneous with the execution and delivery of this Release, the City Attorney will prepare and the "Owner" will execute a PILOT Agreement with the City applicable to Lots 1 and 2 North Ridge Care Center Addition. 4. Effective as of the date hereof, Lot 2, Block 1 North Ridge Care Center Addition is released from the provisions of Amended Declaration and is hereby released from any further requirement with respect to the payment of real estate taxes payable through December 31, 2008. 5. The City shall release, upon request of Owner or its successors, Lot 1, Block 1 North Ridge Care Center Addition from the Amended Declaration as of December 31, 2008 by executing an additional release document in substantially the form attached hereto as Attachment A. This provision is also subject to Owner's performance of the herein terms. 6. Effective as of the date hereof, the Property is released from the HRA Lien. Effective as of the date hereof, the Consent is hereby terminated and the stock of North Ridge is released from the HRA Lien. 7. The City and the HRA agree to execute any and all additional documents to effectuate the releases contemplated hereunder as may be reasonably required by Owner and North Ridge at no additional cost other than the amounts stated herein to Owner or North Ridge. 8. The provisions of this Agreement shall operate as covenants running with the land. 9. This Agreement may be modified by a written agreement executed by the City and the fee owner of the Property or any part thereof to which such modification pertains. CITY OF NEd4� WHOPE By: W. Peter Enck Its ayor By: Daniel J. Donahue Its City Manager STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) h 'I The foregoing instrument was acknowledged before me this � day of March 1999, by W. Peter Enck and Daniel J. Donahue, the Mayor and City Manager in and for the City of New Hope, a Minnesota municipal corporation, on behalf of said corporation. 1VI~'VV%A3 STEVEN A. SONDRALL NOTARY PUBLIC•MINNESOTA IQ HENNEPIN COUNTY My Commission Expires Jan. 31, 2000 n It STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) c�.''- Notary Public HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF NEW HOPES By: W. Peter Enck Its Chairman B oilier Its Secretary -Treasurer By:. Daniel J. Donahue Its Executive Director The foregoing instrument was acknowledged before me this 1! & day of March, 1999, by W. Peter Enck, Don Collier and Daniel J. Donahue, the Chairman, Secretary -Treasurer and Executive Director of the Housing and Redevelopment Authority in and for the City of New Hope, a Minnesota municipal corporation, on behalf of said corporation. ■ 9u STEVEN A.SONDRALL NOTARY PUBLIC• MINNESOTA HENNEPIN COUNTY My Commission Expires Jan. 31, 2000 � tt �G f Notary Public MINNESOTA MASONIC HOME - NORTH RIDGE By: <u Thomas D. Watson Its Chairman } By: .Y�') (6 .. Edwin A. Martini, Jr. Its President STATE OF MINNESOTA) ) ss COUNTY OF HENNEPIN ) The foregoing instrument was acknowledged before me this/6 7ay of March, 1999, by Thomas D. Watson and Edwin A. Martini, Jr., the Chairman and President of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation, on behalf of said corporation. reamsMWANVYVANMON JOHN W. GIBBONS NOTARVPUBLIC-MINNESOTA My Commieam 6�Oes Jan. 91, 2000 e n Notaublic NORTH RIDGE CARE CENTER, INC. By: l Charles T. Thompson Its President By: M. Melinda Pattee Its Vice -President STATE OF MINNESOTA ss. COUNTY OF HENNEPIN The foregoing instrument was acknowledged before me this,K day of March, 1999, by Charles T. Thompson and M. Melinda Pattee, the President and Vice -President of North Ridge Care Center, Inc., a Minnesota corporation, on behalf o • JOHN W. GIBBONS NOTARY PUBLIO•MINNESOTA Drafted BJ '-' ` MY cmMission E" Jan. 31,M JENSEN SWANSON & SONDRALL, P.A. 8525 Edinbrook Crossing, Suite 201 Brooklyn Park, MN 55443-1999 (612) 424-8811 P:\Anoney\$ASDOCunrnu\SOyedrteled¢..,dd. f said co ation. Notar Public PILOT AGREEMENT FOR LOTS 1 AND 2, BLOCK 1 NORTH RIDGE CARE CENTER ADDITION This Agreement is made effective as of the 17`h day of March, 1999 by and between Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation (hereafter "Owner") and the City of New Hope, a Minnesota municipal corporation (hereafter "City"). RECITALS Whereas, Owner is the fee owner of the following described real estate located in the County of Hennepin, State of Minnesota (hereafter the "Property'): Lots 1 and 2, Block 1 North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, Minnesota, and Whereas, North Ridge, Owner's predecessor in title to said Property, executed and delivered to the City a Declaration of Restrictive Covenants dated May 21, 1985 filed for record in the office of the County Recorder as Document No. 4995815 and in the office of the Registrar of Titles as Document No. 1646663. Said Declaration of Restrictive Covenants was amended by North Ridge through the execution and delivery of an Amended Declaration of Restrictive Covenants dated December 1, 1986 which was filed for record in the office of the County Recorder, Hennepin County, Minnesota as Document No. 5213117 and in the office of the Registrar of Titles as Document No. 1802436, ("Amended Declaration"), and Whereas, said Amended Declaration provides that the Property shall be owned, used, sold, conveyed, encumbered, demised and occupied subject to the provisions of said Amended Declaration, which provisions run with the Property and are binding on all parties having any right, title or interest in the Property or any part thereof and their heirs, successors and assigns, and shall inure solely to the benefit of the City, and Whereas, said Amended Declaration requires the Property to remain subject to real estate taxes for a period of 50 years ending on December 1, 2036 regardless of the ownership or use of the Property, and prohibits the Property from being used for certain designated purposes unless such use will not result in the Property from being exempt from real estate taxation, and Whereas, Owner and North Ridge have requested the City to immediately release Lot 2, Block 1 North Ridge Care Center Addition from all provisions of the Amended Declaration for Lot 2, Block 1, and to release Lot 1, Block 1 North Ridge Care Center Addition from all provisions of the Amended Declaration as of December 31, 2008, permitting Owner to make -1- �- application for tax-exempt status relating to payment of real estate taxes with respect to the Property at appropriate times, and Whereas, Owner has also requested the City to participate in the issuance of a new series of revenue bonds under Minnesota Statutes, Chapter 462C in the approximate amount of $46,875,000 designated as Housing and Health Care Facilities Revenue Bonds (Minnesota Masonic Home - North Ridge Project), Series 1999, and Whereas, the City is willing to comply with the requests of Owner and North Ridge in consideration of said execution of the PILOT agreement and in consideration of the other terms and conditions of this Agreement, SECTION ONE In this Agreement, unless a different meaning clearly appears from the context, the terms used herein shall mean as follows: Section 1.1 "Apartments and Personal Care Suites" means the 180 senior housing apartments and 25 assisted living units located at 5520 Boone Avenue North. ,The legal description of the apartments and personal care suites is Lot 1, Block 1 North Ridge Care Center Addition. Section 1.2 "City" means the City of New Hope, Minnesota, a Minnesota municipal corporation. Section 1.3 "Nursing Facility" means the North Ridge Care Center consisting of the 559 bed licensed and certified skilled nursing facility located at 5430 Boone Avenue North. The legal description of the nursing facility is Lot 2, Block 1 North Ridge Care Center Addition. Section 1.4 "Owner" means Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation. Section 1.5 "Payment in Lieu of Taxes" or "PILOT" means an annual payment made by the Owner to the City in an amount equal to the City's proportionate share of real estate taxes which would have been due and payable to the City if the property were taxable. The PILOT for any calendar year shall be calculated on the same basis and in the same manner as taxable property in the City for real estate tax purposes. In calculating the PILOT amount the City shall use the class rate applicable to the distinct uses of the Property as determined under Minnesota law from time to time during the term of this Agreement. Said use is presently for -2- F rental housing of four or more units as defined by Minnesota Statutes § 273.13 Subd. 25 (1999). The applicable class rate shall be multiplied times the market value of the Property times the City's tax rate to determine the PILOT. Section 1.6 "Property" means Lots 1 and 2, Block 1 North Ridge Care Center Addition, according to the recorded plat thereof, and situate in Hennepin County, Minnesota. SECTION TWO OWNERS REPRESENTATIONS AND WARRANTIES Owner represents and warrants that: Section 2.1 Owner is a nonprofit corporation duly organized and validly existing and in good standing under the laws of the State of Minnesota, has power to enter into this Agreement, and by proper corporate action has duly authorized the execution, delivery and performance of this Agreement. Section 2.2 Neither the execution or delivery of this Agreement, the consummation of the transactions contemplated herein, nor the fulfillment of or compliance with the terms and conditions of this Agreement is prevented by, limited by, conflicts with, or results in a breach of, any restriction, agreement or instrument to which Owner is now a party or by which it is bound. Section 2.3 No member of the governing body of the City or any other officer, employee or agent of the City has any direct or indirect financial interest in the Owner or the Property. SECTION THREE OBLIGATION OF OWNER TO PAY PILOT Section 3.1 Commencing in the year 2009, Owner agrees it will pay to the City an annual PILOT as defined in section 1.5 of this Agreement. The requirement to pay the PILOT will be effective during any year commencing in 2009 and any subsequent years the property is exempt from payment of real estate taxes. During any year _ the property is subject to payment of real estate taxes a PILOT payment will not be required. Section 3.2 The City will cause the nursing facility and apartments and personal care suites to be valued annually. The PILOT amount will be determined by multiplying the market value of both the nursing facility and apartments and personal care suites times its class rate times the City's tax rate. Section 3.3 The City will provide the Owner with notice of the amount of the PILOT payment on or before March 1" of each year the payment is due. The Owner shall pay the PILOT in full on or before July I" of each year a PILOT is required under this Agreement. Any portion of the PILOT not paid when due shall bear interest and be subject to late fees or penalties at the same rate and calculated in the same manner, as delinquent property taxes as provided by law. Failure of the City to provide notice to the Owner of the amount of the PILOT shall not relieve the owner of its obligation to pay the PILOT pursuant to the terms of this Agreement. Section 3.4 Owner further agrees the Property shall be subject to all appropriate costs to finance public improvements specially benefitting the Property pursuant to Minnesota Statutes Chap. 429. Owner will be given all rights and remedies to challenge any assessment for public improvement costs as provided every other owner of taxable property in the City provided by law. Any validly levied special assessment against the Property shall be payable on an annual basis in addition to the PILOT as provided in section 3.3. SECTION FOUR EVENTS OF DEFAULT AND CITY'S REMEDY Section 4.1 In the event the City has not received the PILOT payment from Owner within 10 business days from the date payment is due, this occurrence shall constitute an event of default under this Agreement. In this event, the City may bring any appropriate action at law or in equity against the Owner to enforce performance and correction of said default. Section 4.2 In lieu of the remedies set forth in section 4. 1, Owner agrees the City may certify as an assessment against such portion of the Property as may be delinquent pursuant to Minnesota Statutes Chapter 429 any unpaid PILOT with accrued _ interest, late fees and penalties if said PILOT remains unpaid on November 151 of any year. Owner further agrees to waive any notice or appeal rights set out in Minnesota Statutes Chap. 429, however City agrees to give Owner 30 days notice of its intention to certify any non-payment as an assessment and permit Owner to cure the default during said 30 day period. This waiver is not applicable to Owner's obligation to pay and/or challenge special assessments for public improvements as provided in section 3.4. 10 Section 4.3 In addition to Owner's obligation to pay interest, late fees and penalties as required by section 3.3 in the event of a default, Owner shall also pay all of the City's costs and expenses, including reasonable attorneys fees, expended by the City under either section 4.1 or 4.2 to enforce the provisions of this Agreement against the Owner to cure the default. SECTION FIVE TERM The obligations of the Owner to make a PILOT payment cease as of January 1, 2037. However, Owner acknowledges and agrees any unpaid PILOT from prior years, accrued interest, late fees and penalties shall not be forgiven or released and shall be paid by Owner to the City regardless of the PILOT cessation date stated herein. Further, the Owner agrees interest, late fees and penalties shall not cease to accrue against any unpaid PILOT regardless of this cessation date. SECTION SIX NOTICES AND DEMAND Except as otherwise expressly provided in this Agreement, a notice, demand, or other communication under this Agreement by either party to the other shall be sufficiently given or delivered if it is dispatched by registered or certified mail, postage prepaid, return receipt requested, or delivered personally as follows: (a) in the case of Owner, addressed to or delivered personally to Owner at: Minnesota Masonic Home North Ridge 11501 Masonic Home Drive Bloomington, MN 55437-3699 Attention: President (b) in the case of the City, addressed or delivered personally to the City at: City of New Hope c/o City Manager _ 4401 Xylon Avenue North New Hope, Minnesota 55428 or at such other address with respect to any such party as that party may, from time to time, designate in writing and forward to the other parties as provided in this Section. -5- SECTION SEVEN AGREEMENT TO RUN WITH THE LAND It is intended by the parties hereto that Owner's agreement to make the PILOT payment hereunder is both contractual to the Owner but also shall be a covenant that shall run with the land. Owner agrees and hereby declares that the Property shall be owned, used, sold, conveyed, encumbered, demised, and occupied subject to the provisions of this Agreement which shall run with the Property and be binding on all parties having any right, title or interest in the Property or any part thereof including their heirs, successors and assigns. Also, this Agreement shall inure solely to the benefit of the City. SECTION EIGHT GOVERNING LAW This Agreement shall be governed and construed in accordance with the laws of the State of Minnesota. SECTION NINE ADDITIONAL PROVISIONS Section 9.1 All waivers by the City of any breach of this Agreement by Owner shall be in writing. If any provision of this Agreement is breached and thereafter waived by the City, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other concurrent, previous or subsequent breach hereunder. Section 9.2 If any of the provisions contained herein are held to be invalid or unenforceable, the same shall in no way effect any of the other provisions of this Agreement which shall remain in full force and effect. Section 9.3 This Agreement may be executed in any number of counter -parts, each of which will constitute one and the same instrument. CITY OF NEW HOPE By. W. Peter Erick Its Mayor By: Daniel J. Donahue Its City Manager -6- STATE OF MINNESOTA ) ss. COUNTY OF HENNEPIN ) A The foregoing instrument was acknowledged before me this 1 day of 1999, by W. Peter Enck and Daniel J. Donahue, the Mayor and City Manager in and for the City of New Hope, a Minnesota municipal corporation, on behalf of said corporation. r„nSb4l+Mit*a�E' t7 STEVEN A. SONDRALL NOTARY PUBLIC -MINNESOTA HENNEPIN COUNTY MY Commission Expires Jan. 31, 2000 m x STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) Notary Public MINNESOTA MASONIC HOME NORTH RIDGE Thomas D. Watson Its Chairman By. &'a a•b) �' '9'. Edwin A. Martini, Jr. Its President The foregoing instrument was acknowledged before me this ��day of March, 1999, by Thomas D. Watson and Edwin A. Martini, Jr., the Chairman and President of Minnesota Masonic Home North Ridge, a Minnesota nonprofit corporation, on by4raff of said corporation. Drafted By: JENSEN SWANSON & SONDRALL, P.A. 8525 Edinbrook Crossing, Suite 201 Brooklyn Park, MN 55443-1999 (612) 424-8811 dA a JOHN W. GIBBONS NOTARY PUBLIC -MINNESOTA •�. Lip CommissanE�,res Jan. 31, 20J0 r